UNITED
STATES SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



FORM 10-Q



xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934



For the quarterly period ended June 30,
2014



OR



oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934



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



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



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



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



Indicate
 by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to filing requirements
for the past 90 days.

Yes x   
No o



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files)

Yes x   
No o



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





| | Large accelerated filer o | Accelerated filer o        
| | ------------------------- | ---------------------------
| | Non-accelerated filer o   | Smaller reporting company x





Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.)

Yes x   
No o



Indicate the number of shares outstanding of each of
the issuer’s classes of common stock, as of the latest practicable date. 8,176,523 common shares issued and outstanding
as of August 18, 2014.















PART I – FINANCIAL INFORMATION



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



ERF WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2014, AND DECEMBER 31, 2013
($ in thousands except share data)

Unaudited





|                                                                                                                                                                                                                        |  | June 30, |         |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- | - | ------------ | -
|                                                                                                                                                                                                                        |  | 2014     |         |   | 2013         |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|ASSETS                                                                                                                                                                                                                  |  |          |         |   |              |  
|Current assets                                                                                                                                                                                                          |  |          |         |   |              |  
|Cash and cash equivalents                                                                                                                                                                                               |  | $        | 190     |   |              | $
|Accounts receivable, net                                                                                                                                                                                                |  |          | 361     |   |              |  
|Accounts receivable, other                                                                                                                                                                                              |  |          | 409     |   |              |  
|Inventories                                                                                                                                                                                                             |  |          | 262     |   |              |  
|Prepaid expenses and other current assets                                                                                                                                                                               |  |          | 179     |   |              |  
|Total current assets                                                                                                                                                                                                    |  |          | 1,401   |   |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Property and equipment                                                                                                                                                                                                  |  |          |         |   |              |  
|Property and equipment                                                                                                                                                                                                  |  |          | 12,200  |   |              |  
|Less: accumulated depreciation                                                                                                                                                                                          |  |          | (10,225 | ) |              |  
|Net property and equipment                                                                                                                                                                                              |  |          | 1,975   |   |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Goodwill                                                                                                                                                                                                                |  |          | 176     |   |              |  
|Other assets                                                                                                                                                                                                            |  |          | 43      |   |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Total assets                                                                                                                                                                                                            |  | $        | 3,595   |   |              | $
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|LIABILITIES AND SHAREHOLDERS’ DEFICIT                                                                                                                                                                                   |  |          |         |   |              |  
|Current liabilities:                                                                                                                                                                                                    |  |          |         |   |              |  
|Notes payable and current portion of long-term debt                                                                                                                                                                     |  | $        | 3,782   |   |              | $
|Current portion of long-term capital leases                                                                                                                                                                             |  |          | 193     |   |              |  
|Accounts payable                                                                                                                                                                                                        |  |          | 1,058   |   |              |  
|Accrued expenses                                                                                                                                                                                                        |  |          | 1,254   |   |              |  
|Derivative liabilities                                                                                                                                                                                                  |  |          | 315     |   |              |  
|Deferred revenue                                                                                                                                                                                                        |  |          | 1       |   |              |  
|Total current liabilities                                                                                                                                                                                               |  |          | 6,603   |   |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Line of credit (LOC)                                                                                                                                                                                                    |  |          | 4,347   |   |              |  
|Long-term debt, net of current portion                                                                                                                                                                                  |  |          | 639     |   |              |  
|Long-term capital leases, net of current portion                                                                                                                                                                        |  |          | 108     |   |              |  
|Total liabilities                                                                                                                                                                                                       |  |          | 11,697  |   |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Commitments                                                                                                                                                                                                             |  |          |         |   |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Shareholders’ deficit:                                                                                                                                                                                                  |  |          |         |   |              |  
|Preferred stock - $0.001 par value, 25,000,000 authorized
    Series A designated 10,000,000 shares issued and outstanding at June 30, 2014     and December 31, 2013, 9,215,129 and
    9,930,982 shares, respectively |  |          | 9       |   |              |  
|Common stock - $0.001 par value Authorized 975,000,000
    shares Issued and outstanding at June 30, 2014 and December 31, 2013, 4,335,115 and     111,633 shares, respectively                                         |  |          | 4       |   |              |  
|Additional paid in capital                                                                                                                                                                                              |  |          | 57,099  |   |              |  
|Accumulated deficit                                                                                                                                                                                                     |  |          | (65,314 | ) |              |  
|Accumulated other comprehensive loss                                                                                                                                                                                    |  |          | (32     | ) |              |  
|Total ERF Wireless, Inc. shareholders’ deficit                                                                                                                                                                          |  |          | (8,234  | ) |              |  
|Non-controlling interest                                                                                                                                                                                                |  |          | 132     |   |              |  
|Total shareholders’ deficit                                                                                                                                                                                             |  |          | (8,102  | ) |              |  
|                                                                                                                                                                                                                        |  |          |         |   |              |  
|Total liabilities and shareholders' deficit                                                                                                                                                                             |  | $        | 3,595   |   |              | $





See accompanying notes to consolidated financial statements.







2









ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

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







|                                                           |  | For the Three Months |       |   | For the Six Months |  
|---------------------------------------------------------- |  | -------------------- | ----- | - | ------------------ | -
|                                                           |  | Ended June 30,       |       |   | Ended June 30,     |  
|                                                           |  | 2014                 |       |   | 2013               |  
|                                                           |  |                      |       |   |                    |  
|Sales:                                                     |  |                      |       |   |                    |  
|Products                                                   |  | $                    | 22    |   |                    | $
|Services                                                   |  |                      | 1,613 |   |                    |  
|Total sales                                                |  |                      | 1,635 |   |                    |  
|                                                           |  |                      |       |   |                    |  
|Cost of goods sold:                                        |  |                      |       |   |                    |  
|Products and integration services                          |  |                      | 329   |   |                    |  
|Rent, repairs and maintenance                              |  |                      | 206   |   |                    |  
|Depreciation                                               |  |                      | 404   |   |                    |  
|Total cost of goods sold                                   |  |                      | 939   |   |                    |  
|Gross profit                                               |  |                      | 696   |   |                    |  
|Operating expenses:                                        |  |                      |       |   |                    |  
|Selling, general and administrative                        |  |                      | 1,232 |   |                    |  
|Depreciation                                               |  |                      | 23    |   |                    |  
|Total operating expenses                                   |  |                      | 1,255 |   |                    |  
|Loss from operations                                       |  |                      | (559  | ) |                    |  
|Other income (expense):                                    |  |                      |       |   |                    |  
|Interest expense, net                                      |  |                      | (466  | ) |                    |  
|Derivative income                                          |  |                      | 38    |   |                    |  
|Loss on extinguishment of debt                             |  |                      | –     |   |                    |  
|Gain on sale of assets                                     |  |                      | –     |   |                    |  
|Total other (expense) income                               |  |                      | (428  | ) |                    |  
|Consolidated net loss                                      |  |                      | (987  | ) |                    |  
|                                                           |  |                      |       |   |                    |  
|Net income (loss) attributable to non-controlling interest |  |                      | (1    | ) |                    |  
|Net loss attributable to ERF Wireless, Inc.                |  |                      | (988  | ) |                    |  
|Basic and diluted loss per common share:                   |  |                      |       |   |                    |  
|Net loss                                                   |  | $                    | (0.37 | ) |                    | $
|Net loss attributable to ERF Wireless, Inc.                |  | $                    | (0.37 | ) |                    | $



See accompanying notes to consolidated financial statements.





3









ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013

(Unaudited)
($ in thousands)





|                                                                                |  | 2014 |        |   | 2013 |  
|------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|                                                                                |  |      |        |   |      |  
|Cash flows from operating activities                                            |  |      |        |   |      |  
|Net loss                                                                        |  | $    | (2,038 | ) |      | $
|                                                                                |  |      |        |   |      |  
|Adjustments to reconcile net loss to net cash used by operating
    activities: |  |      |        |   |      |  
|Gain on sale of assets                                                          |  |      | –      |   |      |  
|Loss on extinguishment of debt                                                  |  |      | 108    |   |      |  
|Amortization of debt discount                                                   |  |      | 299    |   |      |  
|Depreciation                                                                    |  |      | 860    |   |      |  
|Stock issued for services rendered, interest  and compensation                  |  |      | 188    |   |      |  
|Derivative income                                                               |  |      | (244   | ) |      |  
|Bad debt expense                                                                |  |      | 31     |   |      |  
|Changes in:                                                                     |  |      |        |   |      |  
|Accounts receivable, net                                                        |  |      | 609    |   |      |  
|Accounts receivable, other                                                      |  |      | 80     |   |      |  
|Inventories                                                                     |  |      | 2      |   |      |  
|Prepaid expenses and other current assets                                       |  |      | 107    |   |      |  
|Costs and profits in excess of billings                                         |  |      | –      |   |      |  
|Accounts payable                                                                |  |      | (241   | ) |      |  
|Accrued expenses                                                                |  |      | 191    |   |      |  
|Deferred revenue                                                                |  |      | (12    | ) |      |  
|Total adjustments                                                               |  |      | 1,978  |   |      |  
|Net cash used by operating activities                                           |  |      | (60    | ) |      |  
|                                                                                |  |      |        |   |      |  
|Cash flows from investing activities                                            |  |      |        |   |      |  
|Purchase of property and equipment                                              |  |      | (58    | ) |      |  
|Proceeds from sale of assets                                                    |  |      | –      |   |      |  
|Change in other assets                                                          |  |      | (6     | ) |      |  
|Net cash used by investing activities                                           |  |      | (64    | ) |      |  
|                                                                                |  |      |        |   |      |  
|Cash flows from financing activities                                            |  |      |        |   |      |  
|Net proceeds from line of credit                                                |  |      | 482    |   |      |  
|Proceeds from long-term debt obligations                                        |  |      | 100    |   |      |  
|Payment of long-term debt obligations                                           |  |      | (185   | ) |      |  
|Payment on capital lease obligations                                            |  |      | (125   | ) |      |  
|Net cash provided by financing activities                                       |  |      | 272    |   |      |  
|                                                                                |  |      |        |   |      |  
|Net change in cash and cash equivalents                                         |  |      | 148    |   |      |  
|Cash and cash equivalents at the beginning of the period                        |  |      | 42     |   |      |  
|Cash and cash equivalents at the end of the period                              |  | $    | 190    |   |      | $
|                                                                                |  |      |        |   |      |  
|Supplemental disclosure of cash flow information:                               |  |      |        |   |      |  
|Net cash paid during the period for:                                            |  |      |        |   |      |  
|Interest                                                                        |  | $    | 113    |   |      | $
|Income taxes                                                                    |  | $    | –      |   |      | $
|                                                                                |  |      |        |   |      |  
|Supplemental non-cash investing and financing activities:                       |  |      |        |   |      |  
|Conversion of debt, principal through issuance of common stock                  |  | $    | 128    |   |      | $
|Conversion of LOC, principal through issuance of common stock                   |  | $    | 415    |   |      | $
|Property and equipment financed with debt and capital leases                    |  | $    | –      |   |      | $



See accompanying notes to consolidated financial statements.





4







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





NOTE 1 – BASIS OF
PRESENTATION



Nature of the Company



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



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



Our internet revenues are recorded in “ERF Wireless
Bundled Services, Inc. (WBS)”, revenues from construction of bank, healthcare and educational networks in our “ERF
Enterprise Network Services, Inc. (ENS)” and wireless broadband products and services to rural oil and gas locations are
recorded in “Energy Broadband, Inc. (EBI)”. Please refer to segment footnote 9 for additional information regarding
segment operations.



Basis of Accounting



The accompanying unaudited interim consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of
America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the Company's annual report for the year ended December 31, 2013
filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full
year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited
consolidated financial statements for the most recent fiscal year ended December 31, 2013 as reported in form 10-K have been omitted.



Non-controlling Interest



Non-controlling interest in our majority owned subsidiary
EBI, is included in the equity section of the consolidated balance sheets. Non-controlling interest represents 3.63% of the equity
of EBI and any transfer of value from ERF to non-controlling interest holders. Non-controlling interest is adjusted for the non-controlling
interest holders’ proportionate share of the earnings or losses of EBI. Any excess losses applicable to the non-controlling
interests have been and are borne by the Company as there is no obligation of the non-controlling interests to fund any losses
in excess of their original investment. There is also no obligation or commitment on the part of the Company to fund operating
losses of any subsidiary whether wholly-owned or majority-owned.



Reclassification



Certain amounts in the 2013 financial statements have been
reclassified to conform to the 2014 financial presentation. These reclassifications have no impact on net loss.



Recent Accounting Pronouncements



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





5







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)



NOTE 2 – DEBT
CONVERSION



(a) LINE OF CREDIT



During the six months ended June 30, 2014, the Company issued 2,017,000
shares of its common stock for the settlement of $415,938 of principal owed to Angus Capital Partners. The Company issued common
stock at an average price of $.21 per share calculated based on the closing price the day the debt was settled. Of the
2,017,000 shares of common stock issued a total of 662,000 were issued to third parties that had acquired a portion of the Angus
Capital Partners debt in a private transaction.



(b) Other Debt



During the six months ended June 30, 2014, the Company issued 624,845
and 346,207 shares of its Common Stock for the settlement of principal amount of $127,512 and $86,951 of accrued interest, respectively,
for a total of $214,463. The Company issued Common Stock at an average price of $.22 per share calculated based on the closing
price the day the debt was settled.



NOTE 3 – 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 1,000,000,000, of which 25,000,000 shall be shares of preferred stock with a par
value of $0.001 per share ("Preferred Stock"), and 975,000,000 shall be shares of common stock with a par value of $0.001
per share ("Common Stock").



Common Stock



As of June 30, 2014 and December 31, 2013, there were
4,335,115 and 111,633 shares of its Common Stock issued and outstanding, respectively.



During the six months ended June 30, 2014, the Company
issued 3,544,415 shares of Common Stock, which was valued at the closing market price on the date of issuance of such shares, which
were issued in lieu of cash as payment for the following (in thousands):





|June 30, 2014                                 |  | Supplemental Non-Cash Disclosure |    
|--------------------------------------------- |  | -------------------------------- | ---
|Professional fees                             |  | $                                | 121
|Other services rendered                       |  |                                  | 67 
|Total for services, compensation and interest |  | $                                | 188
|                                              |  |                                  |    
|Notes payable, principal                      |  | $                                | 128
|Line of credit, principal                     |  | $                                | 415



Preferred Stock



The Company has 25,000,000 shares of Preferred Stock authorized
of which 10,000,000 shares had been designated as Series A Preferred Stock (“Series A Preferred Stock”). There were
9,215,129 shares of Series A Preferred Shares issued and outstanding at June 30, 2014 and 9,930,982 at December 31, 2013. With
respect to the Series A Preferred Stock outstanding at June 30, 2014, the Company would be required to issue 9,215,129 shares of
its Common Stock upon conversion.



During the period ended June 30, 2014,
715,583 Series A Preferred Stock were converted into 679,068 shares of common stock.



ERF Wireless, Inc Distribution of EBI Equities
to Non-controlling Interest

As of June 30, 2014, the Company had issued 725,611 shares
of EBI as a stock dividend and three year warrant expiring December 31, 2014, to purchase 725,611 shares of EBI Common Stock at
an exercise price of $4.00 per share and three year warrant expiring December 31, 2014, to purchase 725,611 shares of EBI Common
Stock at an exercise price of $6.00; such issuances are valued at $107,000. The Company expects to issue the remaining stock dividends
during calendar year 2014. No stock dividends were issued during the six months ended June 30, 2014.









6







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)



NOTE 4 – EARNINGS PER SHARE:



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





|                                            |  | For the three months ended June 30, 2014 |     
|------------------------------------------- |  | ---------------------------------------- | ----
|                                            |  | Net loss                                 |     
|                                            |  | (Numerator)                              |     
|Basic EPS:                                  |  |                                          |     
|Net loss                                    |  | $                                        | (987
|Net loss attributable to ERF Wireless, Inc. |  | $                                        | (988



|                                            |  | For the three months ended June 30, 2013 |       
|------------------------------------------- |  | ---------------------------------------- | ------
|                                            |  | Net loss                                 |       
|                                            |  | (Numerator)                              |       
|Basic EPS:                                  |  |                                          |       
|Net loss                                    |  | $                                        | (2,260
|Net loss attributable to ERF Wireless, Inc. |  | $                                        | (2,256





|                                            |  | For the six months ended June 30, 2014 |       
|------------------------------------------- |  | -------------------------------------- | ------
|                                            |  | Net loss                               |       
|                                            |  | (Numerator)                            |       
|Basic and diluted EPS:                      |  |                                        |       
|Net loss                                    |  | $                                      | (2,038
|Net loss attributable to ERF Wireless, Inc. |  | $                                      | (2,038



|                                            |  | For the six months ended June 30, 2013 |       
|------------------------------------------- |  | -------------------------------------- | ------
|                                            |  | Net loss                               |       
|                                            |  | (Numerator)                            |       
|Basic and diluted EPS:                      |  |                                        |       
|Net loss                                    |  | $                                      | (3,913
|Net loss attributable to ERF Wireless, Inc. |  | $                                      | (3,912





For the six months ended June 30, 2014, dilutive
securities existed, but due to the Company’s net loss there is an anti-dilutive effect. Diluted earnings per share reflect
the potential dilution of security that could share in the earnings of an entity, such as convertible preferred stock, stock options,
warrants or convertible securities.



The calculation of diluted earnings per share for the
six months ended June 30, 2014 does not include 2,392,308 shares of Common Stock underlying the Bonds (as define below); 529 of
warrants underlying promissory convertible debt, 18,796,124 shares of Common stock underlying promissory convertible debt and 9,215,129
shares of Common Stock underlying the Series A Preferred Stock, due to their anti-dilutive effect.



NOTE 5 – MAJOR CUSTOMERS



The Company had gross sales of $3,226,000 and $3,477,000
for the six months ended June 30, 2014 and 2013, respectively. The Company had two customers that met the required disclosure of
10% that represented 30% and 11% of the gross sales during the six months ended June 30, 2014. Additionally, the Company had two
customers that met the required disclosure of 10% that represented 33% and 12% of the gross sales during the six months ended June
30, 2013.





7









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





NOTE 6 – NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL
LEASES



Notes payable, long-term debts and capital leases consist
of the following as of June 30, 2014 (in thousands):





|                                   |  | Terms                                          |  | Maturity Date               |  | Interest Rate |         |  | Gross Balance |   |       | Debt Discount |  |   | Balance | 
|---------------------------------- |  | ---------------------------------------------- |  | --------------------------- |  | ------------- | ------- |  | ------------- | - | ----- | ------------- |  | - | ------- | 
|Banc leasing, Inc.                 |  | $10,660 / Month including interest             |  | January-15                  |  |               | 11.62%  |  |               | $ | 72    |               |  | $ | –       | 
|Advantage leasing associates       |  | $8,269 / Month including interest              |  | Various                     |  |               | Various |  |               |   | 71    |               |  |   | –       | 
|Legacy laser services Dallas, LLC  |  | $9,947 / Month including interest              |  | May-16                      |  |               | 42.00%  |  |               |   | 158   |               |  |   | –       | 
|KBM World Wide, Inc.               |  | $103,500 / Month including interest            |  | March-15                    |  |               | 8.00%   |  |               |   | 104   |               |  |   | 91      | 
|Tonaquint                          |  | $950,400 / Lump sum payment including interest |  | Immediately due and payable |  |               | 12.00%  |  |               |   | 764   |               |  |   | –       | 
|JMJ Financial                      |  | $330,000 / Lump sum payment including interest |  | March-14                    |  |               | 12.00%  |  |               |   | 187   |               |  |   | 25      | 
|Vista capital                      |  | $72,600 / Lump sum payment including interest  |  | Immediately due and payable |  |               | 12.00%  |  |               |   | 64    |               |  |   | –       | 
|Willow creek capital               |  | $293,040 / Lump sum payment including interest |  | Immediately due and payable |  |               | 12.00%  |  |               |   | 182   |               |  |   | –       | 
|TCA global line of credit          |  | $149,609 / Month including interest            |  | July-14                     |  |               | 12.00%  |  |               |   | 1,007 |               |  |   | 56      | 
|Group 10                           |  | $157,500 / Month including interest            |  | July-14                     |  |               | 12.00%  |  |               |   | 136   |               |  |   | 85      | 
|Investor financing                 |  | $495,000 / Lump sum payment including interest |  | April-14                    |  |               | 12.00%  |  |               |   | 548   |               |  |   | –       | 
|Premium assignment                 |  | $2,063 / Month including interest              |  | September-14                |  |               | 5.68%   |  |               |   | 6     |               |  |   | –       | 
|Dakota capital equipment financing |  | $178,031 / Quarterly including interest        |  | March-16                    |  |               | 12.00%  |  |               |   | 1,518 |               |  |   | 6       | 
|E-bond investor notes              |  | 3 years/ Semiannual interest (See below)       |  | Various                     |  |               | 7.50%   |  |               |   | 311   |               |  |   | 143     | 
|Line of credit                     |  | 2 years/ Quarterly interest (See below)        |  | December-16                 |  |               | 3.00%   |  |               |   | 4,347 |               |  |   | –       | 
|Total debt                         |  |                                                |  |                             |  |               |         |  |               | $ | 9,475 |               |  | $ | 406     | 
|Less current maturities            |  |                                                |  |                             |  |               |         |  |               |   |       |               |  |   |         | 
|Long-term debt                     |  |                                                |  |                             |  |               |         |  |               |   |       |               |  |   |         | 





Notes payable, long-term debts and capital
leases consist of the following as of December 31, 2013 (in thousands):



|                                   |  | Terms                                          |  | Maturity Date               |  | Interest Rate |         |  | Gross Balance |   |       | Debt Discount |  |   | Balance | 
|---------------------------------- |  | ---------------------------------------------- |  | --------------------------- |  | ------------- | ------- |  | ------------- | - | ----- | ------------- |  | - | ------- | 
|Banc leasing, Inc.                 |  | $10,660 / Month including interest             |  | January-15                  |  |               | 11.62%  |  |               | $ | 130   |               |  | $ | –       | 
|Advantage leasing associates       |  | $8,269 / Month including interest              |  | Various                     |  |               | Various |  |               |   | 115   |               |  |   | –       | 
|Legacy laser services Dallas, LLC  |  | $9,947 / Month including interest              |  | May-16                      |  |               | 42.00%  |  |               |   | 181   |               |  |   | –       | 
|MP Nexlevel LLC                    |  | $7,043 / Month including interest              |  | May-14                      |  |               | 10.00%  |  |               |   | 34    |               |  |   | –       | 
|Tonaquint                          |  | $950,400 / Lump sum payment including interest |  | Immediately due and payable |  |               | 12.00%  |  |               |   | 793   |               |  |   | –       | 
|JMJ Financial                      |  | $330,000 / Lump sum payment including interest |  | March-14                    |  |               | 12.00%  |  |               |   | 232   |               |  |   | 174     | 
|Vista capital                      |  | $72,600 / Lump sum payment including interest  |  | Immediately due and payable |  |               | 12.00%  |  |               |   | 51    |               |  |   | –       | 
|Willow creek capital               |  | $293,040 / Lump sum payment including interest |  | Immediately due and payable |  |               | 12.00%  |  |               |   | 228   |               |  |   | –       | 
|TCA global line of credit          |  | $139,523 / Month including interest            |  | July-14                     |  |               | 12.00%  |  |               |   | 1,019 |               |  |   | 104     | 
|Group 10                           |  | $157,500 / Month including interest            |  | July-14                     |  |               | 12.00%  |  |               |   | 157   |               |  |   | 143     | 
|Investor financing                 |  | $495,000 / Lump sum payment including interest |  | April-14                    |  |               | 12.00%  |  |               |   | 473   |               |  |   | –       | 
|Premium assignment                 |  | $2,063 / Month including interest              |  | September-14                |  |               | 5.68%   |  |               |   | 18    |               |  |   | –       | 
|Dakota capital equipment financing |  | $178,031 / Quarterly including interest        |  | March-16                    |  |               | 12.00%  |  |               |   | 1,519 |               |  |   | 25      | 
|E-bond investor notes              |  | 3 years/ Semiannual interest (See below)       |  | Various                     |  |               | 7.50%   |  |               |   | 311   |               |  |   | 182     | 
|Line of credit                     |  | 2 years/ Quarterly interest (See below)        |  | December-16                 |  |               | 3.00%   |  |               |   | 4,281 |               |  |   | –       | 
|Total debt                         |  |                                                |  |                             |  |               |         |  |               | $ | 9,542 |               |  | $ | 628     | 
|Less current maturities            |  |                                                |  |                             |  |               |         |  |               |   |       |               |  |   |         | 
|Long-term debt                     |  |                                                |  |                             |  |               |         |  |               |   |       |               |  |   |         | 



8







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





Line of Credit



In December 2013, the maturity date of the $12.0 million
unsecured revolving credit facility with Angus Capital Partners, a related party, was extended from December 31, 2015 to December
31, 2017. The Company also renegotiated the interest rate from 12% per annum to 3% per annum retroactive to January 1, 2013. The
Company in consideration has accepted the return and cancellation of 36,784 common shares (post-split) of Company common stock
issued for the Line of Credit conversions during 2013. The Company has accordingly reversed the payment of principal and interest
of $2,158,000 in December 2013 and subsequently received the canceled shares in February 2014. The terms of the unsecured revolving
credit facility allow the Company to draw upon the facility as financing requirements dictate and provide for quarterly interest
payments at a 3% rate per annum. The payment of principal may be paid in cash, common shares or preferred shares at the Lender’s
election. The payment of interest may only be paid in cash. At June 30, 2014, the outstanding balance on the line of credit totaled
$4,347,000 leaving a remaining line of credit available of $7,653,000.



During the six months ended June 30, 2014, the Company issued 2,017,000
shares of its common stock for the settlement of $415,938 of principal owed to Angus Capital Partners. The Company issued common
stock at an average price of $.21 per share calculated based on the closing price the day the debt was settled. Of the 2,017,000
shares of common stock issued a total of 662,000 were issued to third parties that had acquired a portion of the Angus Capital
Partners debt in a private transaction.



E-Series Bond Investor Note



During the six months ended June 30, 2014, the outstanding
principal balance of the Bonds totaled $311,000. The Bonds are due and payable upon maturity, a three-year period from the issuance
date. Interest on the Bonds is payable at the rate of 7.5% per annum, and is payable semiannually. The Bondholder may require the
Company to convert the Bond (including any unpaid interest) into shares of Common Stock at any time only during the first year.
If the Bonds are converted under this option, the Company will issue shares representing 100% of the Bond principal and unpaid
interest calculated through maturity. The Common Stock issued under this option will be valued at the average closing price of
the common shares for the five days prior to the notification. If the Bond is converted within the first year the Company will
issue a three-year warrant to purchase one share of EBI Common Stock at a price of $4.00 for every $2.00 of Bond principal.



At the Company's discretion at any time after the first
year, the Bonds, including the interest payments calculated through the date of conversion may be redeemed in cash or in shares
of our Common Stock, valued at the average last sales price over the 20-trading-day period preceding any payment date. If the Company
chooses to issue Common Stock as redemption of the Bond principal, we will issue shares representing a value equal to 125% of the
Bond principal and shares representing a value equal to 100% of the Bond interest through redemption date.



The Bonds were determined to include various embedded
derivative liabilities. The derivative liabilities are the conversion feature and the redemption option (compound embedded derivative
liability). At the date of issuance of the Bond, compound embedded derivative liabilities were measured at fair value using either
quoted market prices of financial instruments with similar characteristics or other valuation techniques. These derivative liabilities
will be marked-to-market each quarter with the change in fair value recorded in the statement of operations. The Company uses the
effective interest method to record interest expense from the accretion of the debt discount and from the accretion of unamortized
discount upon conversion, which totaled $39,000 for the six months ended June 30, 2014. The estimated debt accretion for subsequent
years is $54,000 and $89,000 for years ending December 31, 2014, and 2015, respectively.



The following table summarizes the convertible debt activity
for the period from January 1, 2014 through June 30, 2014:







|Description                     |  | Bonds |         |  | Compound Derivative Liability |   |         | Total | 
|------------------------------- |  | ----- | ------- |  | ----------------------------- | - | ------- | ----- | 
|Fair value at December 31, 2013 |  | $     | 128,762 |  |                               | $ | 39,730  |       | 
|Change in fair value            |  |       | 39,064  |  |                               |   | (32,250 | )     | 
|Fair value at June 30, 2014     |  | $     | 167,826 |  |                               | $ | 7,480   |       | 





The Company recorded derivative income of $32,250 for the six
months ended June 30, 2014.





9









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)



Dakota Capital Fund LLC Equipment Financing



In November 2011, the Company entered into debt financing
agreement with Dakota Capital Fund LLC, for financing of up to $3,000,000. During the fourth quarter of 2011, the Company received
proceeds of $2,000,000 and had the option of additional funding of $1,000,000 for equipment purchases. This debt facility is secured
by certain ERF Wireless assets and there is no prepayment penalty. At June 30, 2014, the outstanding balance on the debt financing
agreement totaled $1,518,000 and the Company has elected not to request any additional funds under this credit facility. The payment
terms are $178,031 per quarter including interest, at an annual rate of 18% per annum plus 10% of positive operational cash flow
as determined on a quarterly basis for repayment of additional principal beginning July 1, 2012. The funding was utilized to purchase
equipment to build out networks in oil and gas exploration regions of North America.



The Company issued 30,000 shares of Common Stock for the
consummation of the initial $2,000,000 debt financing agreement from Dakota Capital Fund LLC resulting in a debt discount of $93,600.
The Company uses the effective interest method to record interest expense from the accretion of the debt discount and accretes
the unamortized discount upon conversion which totaled $18,156 for the six months ended June 30, 2014. The estimated debt accretion
for the remainder of 2014 is $6,455.



Investor Financing Loan



On July 13, 2012, the Company entered into a three-month secured
debt financing agreement with certain individuals for $1,000,000 with an interest rate of 12% per annum. Under a subsequent modified
agreement dated April 2014, as amended, the maturity date has been extended from April 15, 2014 to October 15, 2014. Both parties
under the amendment agreed to apply the Dakota Capital Fund payment of $181,235 including interest as a subset to the bridge note.
The Company has also renegotiated the subset interest rate from .5% interest per day on a 360 day calendar year to 12% rate per
annum retroactive to March 23, 2013. The Company in consideration has accepted the return and cancellation of 796 common shares
(post-split) of Company common stock issued during the third quarter of 2013 for interest. The Company also agreed to additional
consideration of 5,000 of preferred A shares to be issued as long as the note remains unpaid and to be remitted once the note is
paid in full. The Company has agreed to add a $50,000 penalty to principal in January 2014 for the consideration of the extension
of the note. The Company has accordingly reversed the payment of interest of $159,259 in December 2013. The Company has agreed
to add an additional $25,000 penalty to principal in April 2014 for the extension of the note to October 2015. In addition, the
Company will pay $1,500 toward the bridge loan interest on the 1st and 15th of each month beginning May 15,2014 until
loan is fully paid. At June 30, 2014, the outstanding principal balance totaled $548,000.



Tonaquint Convertible Promissory Note



On March 5, 2013, the Company entered into a six-month
secured convertible promissory note secured debt financing agreement with Tonaquint, Inc. (“holder”), for $791,500,
bearing interest at a rate of 12% per annum and matured on September 5, 2013. At June 30, 2014, the outstanding principal balance
of the Tonaquint convertible promissory note totaled $764,000. The note includes an original issue discount (“OID”)
of $65,000 based on the consideration funded, prepaid interest of $71,500 and $5,000 in legal and other expense. The Company also
paid holder an origination fee in the amount of $227,500 in 144 Stock (711 post-split shares) at the closing bid price on March
5, 2013, plus 125 post-split shares (valued at $40,000) of the Company’s common stock. The holder may require the Company
to convert the outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time
after the six-month term of the note. The common stock issued will be valued using a conversion factor of 80% of the average of
the lowest two (2) trading prices for common shares during the twenty (20) trading day period ending on the latest complete trading
day prior to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion factor will
be reduced to 70%. The holder received the option to purchase five-year warrants expiring March 5, 2018 to purchase 371 shares
of ERF common stock at an exercise price of $320.00 or the per-share price at which the common stock is sold in an underwritten
public offering that closes on or before the date that is six (6) months from the issue date, as may be adjusted from time to time
pursuant to the terms and conditions of this warrant. The Company is not in compliance with all the provisions of the note causing
an automatic acceleration of the outstanding balance of $791,500 to $949,800. The note will accrue interest at a rate of 12% from
September 5, 2013 until March 4, 2014 and thereafter at a rate of 18% per annum. The note is recorded as a current liability.



The Tonaquint promissory note was determined to include
various embedded derivative liabilities. The derivative liabilities are the conversion feature, conversion price reset feature
and the redemption option (compound embedded derivative liability). At the date of issuance of the Tonaquint note, 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 statement of operations. The Company used the effective interest method to record interest expense from the accretion
of the debt discount.





10









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)



The following table summarizes the convertible debt activity for the period from January 1, 2014 through June
30, 2014:





|Description                     |  | Tonaquint |         |   | Warrant Compound Derivative Liability |   |     | Compound Derivative Liability |  |   | Total    |  
|------------------------------- |  | --------- | ------- | - | ------------------------------------- | - | --- | ----------------------------- |  | - | -------- | -
|Fair value at December 31, 2013 |  | $         | 793,368 |   |                                       | $ | 96  |                               |  | $ | 80,569   |  
|Change in fair value            |  |           | –       |   |                                       |   | (93 | )                             |  |   | (164,693 | )
|Conversions                     |  |           | (28,841 | ) |                                       |   | –   |                               |  |   | –        |  
|Fair value at June 30, 2014     |  | $         | 764,527 |   |                                       | $ | 3   |                               |  | $ | (84,124  | )



The Company recorded derivative expense of $29,489 for
the six months ended June 30, 2014.



JMJ Financial Convertible Promissory Note



On March 20, 2013, the Company entered into a one year
unsecured promissory note debt financing agreement with JMJ Financial for (“JMJ”) up to $500,000 at the sole discretion
of additional consideration with the Lender. The note includes a 10% original issue discount that is prorated based on the consideration
funded. The Company also paid holder an origination fee in the amount of $40,500 in 144 Stock (125 post-split shares) at the closing
bid price of the Company’s common stock. As of June 30, 2014 the Company has received funding of $300,000, bearing interest
at a rate of 12% per annum and maturing in one year from the effective date of each payment. At June 30, 2014, the outstanding
principal balance of the JMJ Financial convertible promissory note totaled $187,000 including OID. The conversion price is the
lesser of $0.59 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note is recorded as a current
liability.



The JMJ promissory note was determined to include various
embedded derivative liabilities. The derivative liabilities are the conversion feature, conversion price reset feature and the
redemption option (compound embedded derivative liability). At the date of issuance of the JMJ note, 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 statement of operations. The Company uses the effective interest method to record interest expense from the accretion
of the debt discount and from the accretion of unamortized discount upon conversion, which totaled $154,148 for the six months
ended June 30, 2014. The estimated debt accretion for the remainder of 2014 is $24,611.



The following table summarizes the convertible debt activity
for the period from January 1, 2014 through June 30, 2014:



|Description                     |  | JMJ |         |   | Compound Derivative Liability |   |          | Total | 
|------------------------------- |  | --- | ------- | - | ----------------------------- | - | -------- | ----- | 
|Fair value at December 31, 2013 |  | $   | 58,363  |   |                               | $ | 134,113  |       | 
|Change in fair value            |  |     | 148,706 |   |                               |   | (125,422 | )     | 
|Conversions                     |  |     | (45,372 | ) |                               |   | –        |       | 
|Fair value at June 30, 2014     |  | $   | 161,697 |   |                               | $ | 8,691    |       | 



The Company recorded derivative income of $95,942 for
the six months ended June 30, 2014.



Willow Creek Capital Convertible Promissory Note



On April 2, 2013, the Company entered
into a nine-month secured convertible promissory note debt financing agreement with Willow Creek Capital, LLC, for $244,200, bearing
interest at a rate of 12% per annum and matured on October 1, 2013. At June 30, 2014, the outstanding principal balance of the
Willow Creek convertible promissory note totaled $182,000. The note also includes a 10% OID of $20,000 based on the consideration
funded, prepaid interest of $22,200 and $2,000 in legal and other expense. The Company also paid holder an origination fee in the
amount of $109,890 in 144 Stock (366 post-split shares) at the closing bid price of the Company’s common stock. The holder
may require the Company to convert the outstanding principal balance (including any unpaid interest) into shares of restricted
common stock at any time after the six months term of the note. The common stock issued will be valued using a conversion factor
of 80% the average of the lowest two (2) trading prices common shares during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion
factor will be reduced to 70%. The holder will be entitled to purchase from the Company five year warrants expiring April 2, 2018
to purchase 122 post-split shares of ERF common stock at an exercise price of $300.00 or the per-share price at which the common
stock is sold in an underwritten public offering that closes on or before the date that is six (6) months from the issue date,
as may be adjusted from time to time pursuant to the terms and conditions of this Warrant.





11









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





The Willow Creek promissory note was determined to include
various embedded derivative liabilities. The derivative liabilities are the conversion feature; conversion price full ratchet reset
feature and the redemption option (compound embedded derivative liability). At the date of issuance of the Willow Creek note, 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 statement of operations. The Company used the effective interest method to record interest expense
from the accretion of the debt discount and from the accretion of unamortized discount upon conversion. The Company is not in compliance
with all the provisions of the note causing an automatic acceleration of the outstanding balance of $244,200 to $293,040. The note
will accrue interest at a rate of 12% from October 1, 2013 until April 1, 2014 and thereafter at a rate of 18% per annum. The
note is recorded as a current liability.



The following table summarizes the
convertible debt activity for the period from January 1, 2014 through June 30, 2014:







|Description                     |  | Willowcreek |         |   | Compound Derivative Liability |   |         | Total | 
|------------------------------- |  | ----------- | ------- | - | ----------------------------- | - | ------- | ----- | 
|Fair value at December 31, 2013 |  | $           | 227,800 |   |                               | $ | 51,276  |       | 
|Change in fair value            |  |             | –       |   |                               |   | (27,462 | )     | 
|Conversions                     |  |             | (26,183 | ) |                               |   | –       |       | 
|Fair value at June 30, 2014     |  | $           | 201,617 |   |                               | $ | 23,814  |       | 





The Company recorded derivative expense
of $27,305 for the six months ended June 30, 2014.



Vista Capital Convertible Promissory Note



On April 4, 2013, the Company entered
into a six-month secured convertible promissory note debt financing agreement with Vista Capital Investments, LLC, for $60,500,
bearing interest at a rate of 12% per annum and matured on October 4, 2013. The note also includes a 10% OID of $5,000 based on
the consideration funded and prepaid interest of $5,500. The Company also paid holder an origination fee in the amount of $21,175
in 144 Stock (84 post-split shares) at the closing bid price of the Company’s common stock. The holder may require the Company
to convert the outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time
after the six months term of the note. The common stock issued will be valued using a conversion factor of 80% the average of the
lowest two (2) trading prices common shares during the twenty (20) trading day period ending on the latest complete trading day
prior to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion factor will
be reduced to 70%. The holder will be entitled to purchase from the Company five year warrants expiring April 4, 2018 to purchase
36 post-split shares of ERF common stock at an exercise price of $320.00 or the per-share price at which the common stock is sold
in an underwritten public offering that closes on or before the date that is six (6) months from the issue date, as may be adjusted
from time to time pursuant to the terms and conditions of this Warrant.



The Vista promissory note was determined
to include various embedded derivative liabilities. The derivative liabilities are the conversion feature; conversion price full
ratchet reset feature and the redemption option (compound embedded derivative liability). At the date of issuance of the Vista
note, 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 statement of operations. The Company used the effective interest method to record
interest expense from the accretion of the debt discount and from the accretion of unamortized discount upon conversion. The Company
is not in compliance with all the provisions of the note causing an automatic acceleration of the outstanding balance of $60,500
to $72,600. The note will accrue interest at a rate of 12% from October 4, 2013 until April 3, 2014 and thereafter at a rate
of 18% per annum. At June 30, 2014, the outstanding principal balance of the Vista Capital convertible promissory note totaled
$64,000.





12







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)



The following table summarizes the convertible debt activity for the period from January 1, 2014 through June
30, 2014:





|Description                     |  | Vista |        |  | Compound Derivative Liability |   |         | Total | 
|------------------------------- |  | ----- | ------ |  | ----------------------------- | - | ------- | ----- | 
|Fair value at December 31, 2013 |  | $     | 50,558 |  |                               | $ | 37,516  |       | 
|Change in fair value            |  |       | –      |  |                               |   | (26,508 | )     | 
|Conversions                     |  |       | 13,887 |  |                               |   | –       |       | 
|Fair value at June 30, 2014     |  | $     | 64,445 |  |                               | $ | 11,008  |       | 







The Company recorded derivative income
of $26,508 for the six months ended June 30, 2014.



TCA Global Convertible Promissory Note



On June 28, 2013, the Company entered
into a twelve-month secured convertible promissory note debt financing agreement with TCA Global Credit Master Fund (TCA) for $1,500,000,
bearing interest at a rate of 12% per annum and maturing July 28, 2014. Under a subsequent modified agreement dated March 25, 2014,
TCA has agreed to restructure the agreement and extend the maturity date to November 15, 2014. The Company in consideration has
agreed to a $75,000 and a $50,000 restructuring and advisory fee to be added to the sum of the principal balance including a $40,791
interest charge to be paid and nominal legal fees. The monthly principal and interest payments will be $149,609 per month. At June
30, 2014, the outstanding principal balance of the TCA Global convertible promissory note totaled $1,007,000. The note also includes
$153,300 in commitment fees; due diligence fees; document review fees; service fees; legal; and other expense. The holder may require
the Company to convert the outstanding principal balance (including any unpaid interest) into shares of restricted common stock
at any time during the twelve months term of the note or thereafter. The common stock issued will be valued using a conversion
factor of 85% the average VWAP trading price during the five (5) trading day period ending on the latest complete trading day prior
to the conversion date. Due to the restructuring of the note the Company incurred $108,000 loss on extinguishment of debt.



The TCA Global promissory note was 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 of the TCA Global note, 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 statement of operations.
The Company uses the effective interest method to record interest expense from the accretion of the debt discount and from the
accretion of unamortized discount upon conversion that totaled $43,416 for the six months ended June 30, 2014. The estimated debt
accretion for the remainder of the 2014 will be $55,895.



The following table summarizes the
convertible debt activity for the period from January 1, 2014 through June 30, 2014:





|Description                       |  | TCA Global |          |   | Compound Derivative Liability |   |        | Total | 
|--------------------------------- |  | ---------- | -------- | - | ----------------------------- | - | ------ | ----- | 
|Fair value at December 31, 2013   |  | $          | 915,440  |   |                               | $ | 28,716 |       | 
|Fair value issuances at inception |  |            | 161,713  |   |                               |   | 12,584 |       | 
|Change in fair value              |  |            | (126,446 | ) |                               |   | –      |       | 
|Fair value at June 30, 2014       |  | $          | 950,707  |   |                               | $ | 41,300 |       | 











The Company recorded derivative expense
of $64,032 for the six months ended June 30, 2014.



Group 10 Holdings Convertible Promissory Note



On October 3, 2013, the Company entered
into a twelve-month unsecured convertible promissory note debt financing agreement with Group 10 Holdings, LLC, for $157,500, bearing
interest at a rate of 12% per annum and maturing October 2, 2014. The note also includes a 5% OID of $7,500 based on the consideration
funded. The Company also paid holder a commitment fee in the amount of $45,000 in 144 Stock (1,125 post-split shares) at the closing
bid price of the Company’s common stock. The holder may require the Company to convert the outstanding principal balance
(including any unpaid interest) into shares of restricted common stock at any time after the twelve months term of the note. The
common stock issued will be valued using a conversion factor of 55% multiplied by the lowest closing bid price of the (20) trading
days prior to the conversions, which represents a discount rate of 45%.





13







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





The Group 10 Holdings promissory
note was determined to include various embedded derivative liabilities. The derivative liabilities are the conversion feature;
conversion price full ratchet reset feature and the redemption option (compound embedded derivative liability). At the date of
issuance of the Group 10 note, 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 statement of operations. The Company uses the effective
interest method to record interest expense from the accretion of the debt discount and from the accretion of unamortized discount
upon conversion that totaled $58,459 for the six months ended June 30, 2014. The estimated debt accretion for the remainder of
2014 is $84,886. The note will accrue interest at a rate of 12% from October 3, 2013 until October 2, 2014 and thereafter at
a rate of 18% per annum. At June 30, 2014, the outstanding principal balance of the Group 10 convertible promissory note totaled
$136,000.



The following table summarizes the
convertible debt activity for the period from January 1, 2014 through June 30, 2014:







|Description                     |  | Group 10 |         |   | Compound Derivative Liability |   |          | Total | 
|------------------------------- |  | -------- | ------- | - | ----------------------------- | - | -------- | ----- | 
|Fair value at December 31, 2013 |  | $        | 14,155  |   |                               | $ | 304,519  |       | 
|Change in fair value            |  |          | 58,459  |   |                               |   | (258,116 | )     | 
|Conversions                     |  |          | (21,652 | ) |                               |   | –        |       | 
|Fair value at June 30, 2014     |  | $        | 50,962  |   |                               | $ | 46,403   |       | 





The Company recorded derivative income
of $211,213 for the six months ended June 30, 2014.



KBM World Wide Inc. Convertible Promissory Note



On June 26, 2014, the Company entered
into a nine-month unsecured convertible promissory note debt financing agreement with KBM World Wide Inc. for $103,500, bearing
interest at a rate of 8% per annum and maturing March 27, 2015. The holder may require the Company to convert the outstanding principal
balance (including any unpaid interest) into shares of restricted common stock at any time after 180 days following the date of
this note and ending on final payment of the convertible note. The common stock issued will be valued using a conversion factor
of 61% multiplied by the lowest three trading prices of the (10) trading days prior to the conversion date, which represents a
discount rate of 39%.



The KBM World Wide Inc. promissory
note was determined to include various embedded derivative liabilities. The derivative liabilities are the conversion feature;
conversion price full ratchet reset feature and the redemption option (compound embedded derivative liability). At the date of
issuance of the KBM World Wide Inc. note, 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 statement of operations. The Company uses the
effective interest method to record interest expense from the accretion of the debt discount and from the accretion of unamortized
discount upon conversion that totaled $430 for the six months ended June 30, 2014. The estimated debt accretion for subsequent
years is $61,296 and $28,649 for years ending December 31, 2014, and 2015, respectively. The note will accrue interest at a rate
of 8% from June 26, 2014 until March 27, 2015 and thereafter at a rate of 22% per annum. At June 30, 2014, the outstanding
principal balance of the KBM World Wide Inc. convertible promissory note totaled $103,500.



The following table summarizes the
convertible debt activity for the period from January 1, 2014 through June 30, 2014:





|Description                                      |  | KBM World Wide |         |   | Compound Derivative Liability |   |        | Total | 
|------------------------------------------------ |  | -------------- | ------- | - | ----------------------------- | - | ------ | ----- | 
|Fair value issuances at inception                |  | $              | 103,500 |   |                               | $ | 91,277 |       | 
|Fair value issuances during 2014 (debt discount) |  |                | (91,277 | ) |                               |   | –      |       | 
|Change in fair value                             |  |                | 430     |   |                               |   | 865    |       | 
|Fair value at June 30, 2014                      |  | $              | 12,653  |   |                               | $ | 92,142 |       | 





14







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





The Company recorded derivative expense
of $865 for the six months ended June 30, 2014.



Capital Leases



Banc Leasing Inc.Included in property and equipment
at June 30, 2014, the cost of the equipment was $610,900 and the accumulated amortization was $554,901. Amortization of assets
under capital leases is included in depreciation expense. The equipment is the primary collateral securing the financing.



Advantage Leasing Inc. Included in vehicles at
June 30, 2014, the cost of the vehicles was $273,443 and the accumulated amortization was $201,640. Amortization of assets under
capital leases is included in depreciation expense. The vehicles are the primary collateral securing the financing.



Legacy Laser Services Dallas, LLC Included in property
and equipment at June 30, 2014, the cost of the equipment was $155,349 and the accumulated amortization was $58,856. Amortization
of assets under capital leases is included in depreciation expense. The equipment is the primary collateral securing the financing.



The following is a schedule by years of future minimum lease payments
under capital leases together with the present value of the net minimum lease payments as of June 30, 2014 (in thousands):







|Year Ending December 31,                        |  |   |     
|----------------------------------------------- |  | - | ----
|2014                                            |  | $ | 162 
|2015                                            |  |   | 159 
|2016                                            |  |   | 63  
|2017                                            |  |   | –   
|Thereafter                                      |  |   | –   
|Total minimum lease payments                    |  |   | 384 
|Less amount representing interest               |  |   | (83 
|Present value of net minimum lease payments     |  |   | 301 
|Current maturities of capital lease obligations |  |   | (193
|Long-term portion of capital lease obligations  |  | $ | 108 





NOTE 7 – COMMITMENTS



Leases and License Agreements



For the six months ended June 30, 2014 and 2013, rental
expenses of approximately $586,000 and $596,000, respectively, were incurred. The Company accounts for rent expense under leases
that provide for escalating rentals over the related lease term on a straight-line method. The Company occupies office and tower
facilities under several non-cancelable operating lease agreements expiring at various dates through December 2018, and requiring
payment of property taxes, insurance, maintenance and utilities.

Future minimum lease payments under non-cancelable operating
leases as of December 31, 2014 were as follows (in thousands):











|Year Ending December 31, |  | Amount |      
|------------------------ |  | ------ | -----
|2014                     |  | $      | 372  
|2015                     |  |        | 707  
|2016                     |  |        | 610  
|2017                     |  |        | 116  
|Thereafter               |  |        | 9    
|Total                    |  | $      | 1,814







Banc Leasing Inc.



During August 2007, the Company entered into a contract with Banc
Leasing Inc. to fund the Company’s US-Banknet System. Each funding is collateralize by the equipment and normally is repaid
over a seven year period with interest established at the date of the inception of the lease. Each lease has a $1 buyout provision.
The details of the capital lease are included in Note 6.





15









ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





NOTE 8 – RELATED PARTY
TRANSACTIONS



In May 2013, the Company entered into a capital lease
agreement with Legacy Laser Services Dallas, LLC and (Affiliate). Manny M. Carter is a Managing Member of Legacy Laser Services
and a current Board Member of ERF Wireless Inc. At June 30, 2014, the outstanding balance on the capital leases totaled $158,000.
The payment terms are $9,947 per month including interest, at an annual rate of 42% per annum. The capital leased equipment is
to be utilized in our networks in oil and gas exploration regions. The equipment is the primary collateral securing the financing.



NOTE 9 – INDUSTRY
SEGMENTS



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



Energy Broadband, Inc. (EBI)



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



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 in certain regions of North America to serve private entities, cities, municipalities and
the general public. All sales from external customers are located within the United States.



Enterprise Network Services (ENS)



ENS provides product and service to operate an enterprise-class
encrypted wireless banking network business. Also, ENS provides the CryptoVue System consisting of software, site-based hardware
devices and servers to perform network encryption; contracts for the construction, operation, monitoring and maintenance of fixed
wireless networks for banking, healthcare and educational customers; trade names, equipment and software, including the software
architecture and design. All sales from external customers are located within the United States.



For the three and six months ended June 30, 2014 and 2013
(in thousands):





|Three Months  Ended June 30, 2014     |  | EBI |       |  | WBS |   |       | ENS |  |   | Total Segment |  |  | ERF Corporate |       |  | Total Consolidated |  
|------------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ------------- |  |  | ------------- | ----- |  | ------------------ | -
|Revenue                               |  | $   | 866   |  |     | $ | 625   |     |  | $ | 144           |  |  | $             | 1,635 |  |                    | $
|Segment income (loss) from operations |  |     | 60    |  |     |   | (82   | )   |  |   | 41            |  |  |               | 19    |  |                    |  
|Total assets                          |  |     | 1,950 |  |     |   | 1,045 |     |  |   | 259           |  |  |               | 3,254 |  |                    |  
|Capital expenditures                  |  |     | 24    |  |     |   | 5     |     |  |   | –             |  |  |               | 29    |  |                    |  
|Depreciation                          |  |     | 192   |  |     |   | 170   |     |  |   | 59            |  |  |               | 421   |  |                    |  



|Three Months Ended June 30, 2013      |  | EBI |       |   | WBS |   |       | ENS |  |   | Total Segment |  |  | ERF Corporate |       |   | Total Consolidated |  
|------------------------------------- |  | --- | ----- | - | --- | - | ----- | --- |  | - | ------------- |  |  | ------------- | ----- | - | ------------------ | -
|Revenue                               |  | $   | 809   |   |     | $ | 597   |     |  | $ | 157           |  |  | $             | 1,563 |   |                    | $
|Segment income (loss) from operations |  |     | (128  | ) |     |   | (350  | )   |  |   | 25            |  |  |               | (453  | ) |                    |  
|Total assets                          |  |     | 2,857 |   |     |   | 1,690 |     |  |   | 521           |  |  |               | 5,068 |   |                    |  
|Capital expenditures                  |  |     | 186   |   |     |   | 45    |     |  |   | –             |  |  |               | 231   |   |                    |  
|Depreciation                          |  |     | 215   |   |     |   | 205   |     |  |   | 59            |  |  |               | 479   |   |                    |  





16











ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014
(Unaudited)





|Six Months Ended June 30, 2014        |  | EBI |       |  | WBS |   |       | ENS |  |   | Total Segment |  |  | ERF Corporate |       |   | Total Consolidated |  
|------------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ------------- |  |  | ------------- | ----- | - | ------------------ | -
|Revenue                               |  | $   | 1,754 |  |     | $ | 1,259 |     |  | $ | 213           |  |  | $             | 3,226 |   |                    | $
|Segment income (loss) from operations |  |     | 65    |  |     |   | (226  | )   |  |   | 16            |  |  |               | (145  | ) |                    |  
|Total assets                          |  |     | 1,950 |  |     |   | 1,045 |     |  |   | 259           |  |  |               | 3,254 |   |                    |  
|Capital expenditures                  |  |     | 26    |  |     |   | 32    |     |  |   | –             |  |  |               | 58    |   |                    |  
|Depreciation                          |  |     | 387   |  |     |   | 343   |     |  |   | 117           |  |  |               | 847   |   |                    |  



|Six Months Ended June 30, 2013        |  | EBI |       |   | WBS |   |       | ENS |  |   | Total Segment |  |  | ERF Corporate |       |   | Total Consolidated |  
|------------------------------------- |  | --- | ----- | - | --- | - | ----- | --- |  | - | ------------- |  |  | ------------- | ----- | - | ------------------ | -
|Revenue                               |  | $   | 2,014 |   |     | $ | 1,208 |     |  | $ | 255           |  |  | $             | 3,477 |   |                    | $
|Segment income (loss) from operations |  |     | (19   | ) |     |   | (672  | )   |  |   | 5             |  |  |               | (686  | ) |                    |  
|Total assets                          |  |     | 2,857 |   |     |   | 1,690 |     |  |   | 521           |  |  |               | 5,068 |   |                    |  
|Capital expenditures                  |  |     | 196   |   |     |   | 105   |     |  |   | –             |  |  |               | 301   |   |                    |  
|Depreciation                          |  |     | 430   |   |     |   | 412   |     |  |   | 117           |  |  |               | 959   |   |                    |  







|Reconciliation of Segment Assets to Total Assets |  | June 30, 2014 |       |  | December 31, 2013 |  
|------------------------------------------------ |  | ------------- | ----- |  | ----------------- | -
|Total segment assets                             |  | $             | 3,254 |  |                   | $
|Total corporate assets                           |  |               | 341   |  |                   |  
|Total assets                                     |  | $             | 3,595 |  |                   | $







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



For the six months ended June 30, 2014, two customers
accounted for $976,000 and $345,000 of EBI revenues each.



NOTE 10 – SUBSEQUENT
EVENTS



Subsequent to June 30, 2014, the Company issued 3,841,408
shares of common stock valued at approximately $289,000 for preferred stock, services rendered, and conversion of debt.



Subsequent to June 30, 2014, Union Capital LLC, issued a convertible promissory note to ERF Wireless Inc. on August 4, 2014, the Company entered into
a twelve-month unsecured convertible promissory note debt financing agreement for $50,000, bearing interest at a rate of 10% per
annum and maturing August 15, 2015. The Company will pay principal and interest due on the note before or on the maturity date.
The holder may require the Company to convert the outstanding principal balance (including any unpaid interest) into shares of
common stock without a legend at any time after 180 days following the date of this note. The common stock issued will be valued
using a conversion factor of 55% multiplied by the lowest daily closing bid price for the (15) trading days prior to the conversion
date.



Subsequent to June 30, 2014,
Adar Bays LLC, issued a convertible promissory note to ERF Wireless Inc. on August 04, 2014, the Company entered into a twelve-month
unsecured convertible promissory note debt financing agreement for $50,000, bearing interest at a rate of 10% per annum and maturing
August 04, 2015. The Company will pay principal and interest due on the note before or on the maturity date. The holder may require
the Company to convert the outstanding principal balance (including any unpaid interest) into shares of common stock without a
legend at any time after 180 days following the date of this note. The common stock issued will be valued using a conversion factor
of 55% multiplied by the lowest daily closing bid price for the (15) trading days prior to the conversion date.



Subsequent to June 30, 2014,
 KBM World Wide Inc. issued a convertible promissory note to ERF Wireless Inc. on August 13, 2014, the Company entered into
a nine-month unsecured convertible promissory note debt financing agreement for $53,000, bearing interest at a rate of 8% per annum
and maturing May 15, 2015. The holder may require the Company to convert the outstanding principal balance (including any unpaid
interest) into shares of restricted common stock at any time after 180 days following the date of this note and ending on final
payment of the convertible note. The common stock issued will be valued using a conversion factor of 61% multiplied by the lowest
three trading prices of the (10) trading days prior to the conversion date, which represents a discount rate of 39%.





17









ERF Wireless, Inc. is referred to hereafter as “we”,
“our” or “us”.



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



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



OUR MARKETS AND BUSINESS STRATEGY



We provide critical infrastructure wireless broadband
communication products and services to a broad spectrum of customers in primarily rural oil and gas exploration areas of North
America. We plan to devote a majority of our financial and personnel resources to develop a long-term, internet solution for the
energy industry in North America and Canada. Our recent financial results reflect our focus on providing turnkey communications
services to the oil and gas industry. These results include but are not limited to the following attributes:





| | · | We reported revenues of $1,635,000 for the quarter ended June 30, 2014 as compared to $1,563,000
for the same prior year quarter ended June 30, 2013; an increase of $72,000 or 5%.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We reported gross profit of $696,000 for the quarter ended June 30, 2014 as compared to $564,000
for the same prior year quarter ended June 30, 2013; an increase of $132,000 or 23%. This increase reflects higher rig count deployments
for the Company’s communication solutions in our oil and gas internet service operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We reported a total comprehensive loss of $988,000 for the quarter ended June 30, 2014 as compared
to a comprehensive loss of $2,256,000 for the same prior year quarter ended June 30, 2013; a decrease of $1,268,000 or 56%.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our subsidiary, Energy Broadband, Inc., reported revenues of $866,000 for the quarter ended June
30, 2014 as compared to revenues of $809,000 for the same prior year quarter ended June 30, 2013, representing an increase of $57,000
or 7%.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We reported a decrease of $656,000 or 34% in operating expenses for the three months ended June
30, 2014 as compared to the same prior year quarter ended June 30, 2013. The decrease is primarily related to lower employment
expenses of $319,000 associated with a headcount decrease of employees and approximately $241,000 in lower legal and professional
fees associated with the concluded arbitration proceedings with Schlumberger pertaining to disputes to resolve certain financial
issues contained in the 2009 exclusive reseller agreement.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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



We record 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.



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



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





18







RESULTS OF OPERATIONS



THREE AND SIX MONTHS ENDED JUNE 30, 2014, COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2013



The following table sets forth summarized consolidated
financial information for the three and six months ended June 30, 2014 and 2013:









|                                                           |  | Three Months Ended June 30, |       |   | Six Months Ended June 30, |  
|---------------------------------------------------------- |  | --------------------------- | ----- | - | ------------------------- | -
|($ in thousands)                                           |  | 2014                        |       |   | 2013                      |  
|Total sales                                                |  | $                           | 1,635 |   |                           | $
|Total Cost of goods sold                                   |  |                             | 939   |   |                           |  
|Gross profit                                               |  |                             | 696   |   |                           |  
|Percent of total sales                                     |  |                             | 43%   |   |                           |  
|Total operating expenses                                   |  |                             | 1,255 |   |                           |  
|Loss from operations                                       |  |                             | (559  | ) |                           |  
|Total other income/(expense)                               |  |                             | (428  | ) |                           |  
|Consolidated net loss                                      |  |                             | (987  | ) |                           |  
|Net income (loss) attributable to non-controlling interest |  |                             | (1    | ) |                           |  
|Total comprehensive loss                                   |  | $                           | (988  | ) |                           | $





For the three months ended June 30, 2014, our business operations
reflected an increase in sales for EBI and WBS, offset with a decrease in sales in its ENS subsidiary. For the three months ended
June 30, 2014, our consolidated operations generated total sales of $1,635,000 compared to prior-year period total sales of $1,563,000.
The $72,000 increase in total sales is primarily attributable to $57,000 increased sales in EBI from increased deployment of our
Mobile Broadband Trailers (MBT’s) in the oil and gas regions. For the three months ended June 30, 2014, we had a gross profit
margin of 43%, compared to a gross profit margin 36% for the prior year comparable period. The $132,000 increase in gross profit
margin is primarily attributed to; (i) approximately $59,000 increase in gross margin in EBI attributable to increased sales associated
with deployment of MBT’s in oil and gas regions, (ii) increased of $56,000 in gross margin in WBS primarily related to decreased
depreciation and (iii) $17,000 increase in ENS due to bank network construction projects.



For the six months ended June 30, 2014,
our business operations reflected an increase in sales for its WBS subsidiary  offset with decreased sales in EBI
subsidiary and ENS subsidiary. For the six months ended June 30, 2014, our consolidated operations generated total sales of
$3,226,000 compared to prior-year period total sales of $3,477,000. The $251,000 decrease in total sales is primarily
attributable to $260,000 decreased sales in EBI from overall 6-month average declining deployment of our Mobile Broadband
Trailers (MBT’s) in the oil and gas regions. For the six months ended June 30, 2014, we had a gross profit margin of
42%, compared to a gross profit margin 42% for the prior year comparable period. The $97,000 decrease in gross profit margin
is primarily attributed to: (i) approximately $179,000 decrease in gross margin in EBI attributable to decreased sales
associated with lower average count of MBT deployments in oil and gas regions and increased depreciation and (ii) offset with
a $70,000 increase in gross margin in WBS primarily related to decreased depreciation; and (iii) $12,000 increase in ENS due
to bank network construction projects.





19







SALES INFORMATION



Set forth below are tables presenting summarized sales information
for our business segments for the three and six months ended June 30, 2014 and 2013:





|($ in thousands)            |  | Three Months Ended June 30, |      
|--------------------------- |  | --------------------------- | -----
|Business Segment            |  | 2014                        |      
|Energy Broadband, Inc.      |  | $                           | 866  
|Wireless Bundled Services   |  |                             | 625  
|Enterprise Network Services |  |                             | 144  
|Total Sales                 |  | $                           | 1,635



|($ in thousands)            |  | Six Months Ended June 30, |      
|--------------------------- |  | ------------------------- | -----
|Business Segment            |  | 2014                      |      
|Energy Broadband, Inc.      |  | $                         | 1,754
|Wireless Bundled Services   |  |                           | 1,259
|Enterprise Network Services |  |                           | 213  
|Total Sales                 |  | $                         | 3,226





For the three months ended June 30, 2014, total sales
increased to $1,635,000 from $1,563,000 for the three months ended June 30, 2013. The overall increase of 5% was attributable to
increased sales of $57,000 in EBI and increased sales of $28,000 in WBS offset with decreased sales of $13,000 in ENS. The $72,000
increase in total sales is primarily attributable to $57,000 increased sales in EBI from increasing deployment of our MBT’s
in the oil and gas regions.



For the six months ended June 30, 2014, total sales decreased
to $3,226,000 from $3,447,000 for the six months ended June 30, 2013. The overall decrease of 7% was attributable to decreased
sales of $260,000 in EBI offset with increased sales of $51,000 in WBS and decreased sales in ENS of $42,000. The $251,000 decrease
in total sales is primarily attributable to $260,000 decreased sales in EBI from lower average count of MBT deployments.



COST OF GOODS SOLD



The following tables set forth summarized cost of goods
sold information for the three and six months ended June 30, 2014 and 2013:







|($ in thousands)            |  | Three Months Ended June 30, |    
|--------------------------- |  | --------------------------- | ---
|Business Segment            |  | 2014                        |    
|Energy Broadband, Inc.      |  | $                           | 511
|Wireless Bundled Services   |  |                             | 328
|Enterprise Network Services |  |                             | 100
|Total cost of sales         |  | $                           | 939





|                                 |  | Three Months Ended June 30, |    
|-------------------------------- |  | --------------------------- | ---
|($ in thousands)                 |  | 2014                        |    
|Products and integration service |  | $                           | 329
|Rent and maintenance             |  |                             | 206
|Depreciation                     |  |                             | 404
|Total cost of sales              |  | $                           | 939







For the three months ended June 30, 2014, cost of goods sold decreased
by $60,000 to $939,000 from $999,000 as compared to the three months ended June 30, 2013. The decrease of $60,000 in cost of goods
sold is primarily attributable to a decreased cost of $2,000 in EBI due to decreased sales effecting a reduction in our third-party
services during the quarter in the oil and gas regions and decreased cost of $30,000 in ENS due to sales decrease in banking construction
projects and a decreased cost in WBS of $28,000.





20









The following tables set forth summarized cost of goods sold information for the six months ended June 30,
2014 and 2013:



|($ in thousands)            |  | Six Months Ended June 30, |      
|--------------------------- |  | ------------------------- | -----
|Business Segment            |  | 2014                      |      
|Energy Broadband, Inc.      |  | $                         | 1,020
|Wireless Bundled Services   |  |                           | 656  
|Enterprise Network Services |  |                           | 194  
|Total cost of sales         |  | $                         | 1,870







|                                 |  | Six Months Ended June 30, |      
|-------------------------------- |  | ------------------------- | -----
|($ in thousands)                 |  | 2014                      |      
|Products and integration service |  | $                         | 640  
|Rent and maintenance             |  |                           | 416  
|Depreciation                     |  |                           | 814  
|Total cost of sales              |  | $                         | 1,870







For the six months ended June 30, 2014, cost of goods sold decreased
by $154,000, to $1,870,000 from $2,024,000 as compared to the six months ended June 30, 2013. The decrease of $154,000 in cost
of goods sold is primarily attributable to a decreased cost of $81,000 in EBI due to decreased sales affecting a reduction in our
third party services in the oil and gas regions, decreased cost in WBS of $19,000 due to decreased depreciation and decreased cost
in ENS of $54,000 due to decline in banking network construction project.



OPERATING EXPENSES



The following table sets forth summarized operating expense
information for the three and six months ended June 30, 2014 and 2013:





|                                 |  | Three Months Ended June 30, |       |  | Six Months Ended June 30, |  
|-------------------------------- |  | --------------------------- | ----- |  | ------------------------- | -
|($ in thousands)                 |  | 2014                        |       |  | 2013                      |  
|                                 |  |                             |       |  |                           |  
|Employment expenses              |  | $                           | 671   |  |                           | $
|Professional services            |  |                             | 260   |  |                           |  
|Rent and maintenance             |  |                             | 86    |  |                           |  
|Depreciation                     |  |                             | 23    |  |                           |  
|Other general and administrative |  |                             | 215   |  |                           |  
|Total operating expenses         |  | $                           | 1,255 |  |                           | $





For the three months ended June 30, 2014,
operating expenses decreased by $656,000 or 34% to $1,255,000, as compared to $1,911,000 for the three months ended June 30, 2013,
resulting from:



| | · | A $319,000 decrease in employment expense ; primarily attributable to decreased in employee headcount to 41 at June 30, 2014
from 64 at June 30, 2013;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | A $241,000 decrease in professional services - primarily attributable to a decrease in legal, accounting and consulting services
compared to last year associated with our arbitration proceedings with Schlumberger pertaining to disputes to resolve certain financial
issues contained in the 2009 exclusive reseller agreement;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | A $25,000 decrease in rent and maintenance;
| | - | -------------------------------------------



| | · | A $29,000 decrease in depreciation; and
| | - | ---------------------------------------



| | · | A $42,000 decrease in other general and administrative.
| | - | -------------------------------------------------------



For the six months ended June 30, 2014, operating
expenses decreased by $1,321,000 or 34% to $2,619,000, as compared to $3,940,000 for the six months ended June 30, 2013, resulting
from:





| | · | A $710,000 decrease in employment expense - primarily attributable to decreased employee headcount
to 41 at June 30, 2014 from 64 at June 30, 2013;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------





| | · | A $476,000 decrease in professional services - primarily attributable to decrease in legal, accounting and consulting services
compared to last year associated with our arbitration proceedings with Schlumberger pertaining to disputes to resolve certain financial
issues contained in the 2009 exclusive reseller agreement;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





21







| | · | A $46,000 decrease in rent and maintenance;
| | - | -------------------------------------------



| | · | A $58,000 decrease in depreciation; and
| | - | ---------------------------------------



| | · | A $31,000 decrease in other general and administrative.
| | - | -------------------------------------------------------







OTHER INCOME (EXPENSE), NET



For the three months ended June 30, 2014, other expense,
net decreased to $428,000 from $913,000 as compared to three months ended June 30, 2013. The decrease in other expense, net of
$485,000 from the prior year period is primarily attributable to a decrease in our interest expense, net on debt obligations totaling
$564,000, and offset with a decrease in our net derivative income of $66,000 and a decrease of $13,000 of gain on sale of assets.
The derivative expense/income represents the net unrealized (non-cash) charge during the three months ended June 30, 2014 and 2013,
in the fair value of our derivative instrument liabilities related to warrants and embedded derivatives in our debt instruments
that have been bifurcated and accounted for separately.



For the six months ended June 30, 2014, other expense,
net decreased to $775,000 from $1,426,000 as compared to six months ended June 30, 2013. The decrease in other expense, net of
$651,000 from the prior year period is primarily attributable to a decrease in our interest expense, net on debt obligations totaling
$878,000, offset with a decrease in our net derivative income of $95,000, a decrease gain on sale of assets of $24,000 and a $108,000
loss on extinguishment of debt. The derivative expense/income represents the net unrealized (non-cash) charge during the six months
ended June 30, 2014 and 2013, 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.



COMPREHENSIVE LOSS



For the six months ended June 30, 2014, our total comprehensive
loss was $2,038,000 compared to comprehensive loss of $3,912,000 for the six months ended June 30, 2013. The decreased comprehensive
loss for the six months ended June 30, 2014, as compared to the comprehensive loss for three months ended June 30, 2013 is primarily
attributable to the factors described above.



CASH FLOWS



Our operating activities decreased net cash used by operating
activities to $60,000 in the six months ended June 30, 2014, compared to net cash used of $1,675,000 in the six months ended June
30, 2013. The decreased net cash used by operating activities was primarily attributable to accounts payable, accounts receivables
and reduction of employee headcount and professional services as compared to June 30, 2013.



Our investing activities used net cash of $64,000 in the
six months ended June 30, 2014, compared to net cash used of $133,000 in the six months ended June 30, 2013. The decrease in cash
from investing activities is primarily attributable to a slower rollout of targeted oil and gas network upgrades.



Our financing activities provided net cash of $272,000
in the six months ended June 30, 2014, compared to $2,977,000 of cash used in the six months ended June 30, 2013. The cash provided
in the six months ended June 30, 2014, was primarily associated with proceeds from debt financings.



LIQUIDITY AND CAPITAL RESOURCES



At June 30, 2014, ours current assets totaled $1,401,000
(including cash and cash equivalents of $190,000); and total current liabilities were $6,603,000, resulting in negative working
capital of $5,202,000. We funded our operations during the last six months primarily through borrowings. These borrowings during
the six months ended June 30, 2014 were from our line of credit, net totaling $482,000 and convertible debt financing of $100,000.



DEBT FACILITIES AND INSTRUMENTS



In December 2013, the maturity date of the $12.0 million unsecured revolving credit facility with Angus Capital
Partners, a related party, was extended from December 31, 2015 to December 31, 2017. The Company also renegotiated the interest
rate from 12% per annum to 3% per annum retroactive to January 1, 2013. In consideration of the renegotiated interest rate, we
have accepted the return and cancellation of 36,784 common shares (post-split) of our common stock issued for the Line of Credit
conversions during 2013. Accordingly, we have reversed the payment of principal and interest of $2,158,000 in December 2013 and
subsequently received the canceled shares in February 2014. The terms of the unsecured revolving credit facility allow us to draw
upon the facility as financing requirements dictate and provide for quarterly interest payments at a 3% rate per annum. The payment
of principal may be paid in cash, common shares or preferred shares at the Lender’s election. The payment of interest may
only be paid in cash. At June 30, 2014, the outstanding balance on the line of credit totaled $4,347,000 leaving a remaining line
of credit available of $7,653,000.





22









During the six months ended June 30, 2014, the outstanding
principal balance of the Bonds totaled $311,000. The Bonds are due and payable upon maturity, a three-year period from the issuance
date. Interest on the Bonds is payable at the rate of 7.5% per annum, and is payable semiannually. The Bondholder may require us
to permit the Holder to convert the Bond (including any unpaid interest) into shares of 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 calculated through maturity. The Common Stock issued under this option will be valued at the average closing
price of the common shares for the five days prior to the notification. If the Bond is converted within the first year we will
issue a three-year warrant to purchase one share of EBI Common Stock at a price of $4.00 for every $2.00 of Bond principal.



At our discretion at any time after the first year, the
Bonds, including the interest payments calculated through the date of conversion may be redeemed in cash or in shares of our Common
Stock, valued at the average last sales price over the 20-trading-day period preceding any payment date. If the Company chooses
to issue Common Stock as redemption of the Bond principal, we will issue shares representing a value equal to 125% of the Bond
principal and shares representing a value equal to 100% of the Bond interest through redemption date.



In November 2011, we entered into debt financing agreement
with Dakota Capital Fund LLC, for financing of up to $3,000,000. During the fourth quarter of 2011, we received proceeds of $2,000,000
and had the option of additional funding of $1,000,000 for equipment purchases. This debt facility is secured by certain ERF Wireless
assets and there is no prepayment penalty. At June 30, 2014, the outstanding balance on the debt financing agreement totaled $1,518,000
and we elected not to request any additional funds under this credit facility. The payment terms are $178,031 per quarter including
interest, at an annual rate of 18% per annum plus 10% of positive operational cash flow as determined on a quarterly basis for
repayment of additional principal beginning July 1, 2012. The funding was utilized to purchase equipment to build out networks
in oil and gas exploration regions of North America.



On March 5, 2013, we entered into a six-month secured
convertible promissory note secured debt financing agreement with Tonaquint, Inc. (“holder”), for $791,500, bearing
interest at a rate of 12% per annum and matured on September 5, 2013. At June 30, 2014, the outstanding principal balance of the
Tonaquint convertible promissory note totaled $764,000. The note includes an original issue discount (“OID”) of $65,000
based on the consideration funded, prepaid interest of $71,500 and $5,000 in legal and other expense. We also paid the holder an
origination fee in the amount of $227,500 in 144 Stock (711 post-split shares) at the closing bid price on March 5, 2013, plus
125 post-split shares (valued at $40,000) of our common stock. The holder may require us to convert the outstanding principal balance
(including any unpaid interest) into shares of restricted common stock at any time after the six-month term of the note. The common
stock issued will be valued using a conversion factor of 80% of the average of the lowest two (2) trading prices for common shares
during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. If the average
two (2) lowest trading prices is less than $0.33, then the conversion factor will be reduced to 70%. The holder received the option
to purchase five-year warrants expiring March 5, 2018 to purchase 371 shares of ERF common stock at an exercise price of $320.00
or the per-share price at which the common stock is sold in an underwritten public offering that closes on or before the date that
is six (6) months from the issue date, as may be adjusted from time to time pursuant to the terms and conditions of this warrant.
We are not in compliance with all the provisions of the note causing an automatic acceleration of the outstanding balance of $791,500
to $949,800. The note will accrue interest at a rate of 12% from September 5, 2013 until March 4, 2014 and thereafter at a
rate of 18% per annum. The note is recorded as a current liability.



On March 20, 2013, we entered into a one-year unsecured
promissory note debt financing agreement with JMJ Financial for (“JMJ”) up to $500,000 at the sole discretion of additional
consideration with the Lender. The note includes a 10% original issue discount that is prorated based on the consideration funded.
We also paid the holder an origination fee in the amount of $40,500 in 144 Stock (125 post-split shares) at the closing bid price
of our common stock. As of June 30, 2014, we received funding of $300,000, bearing interest at a rate of 12% per annum and maturing
in one year from the effective date of each payment. At June 30, 2014, the outstanding principal balance of the JMJ Financial convertible
promissory note totaled $187,000 including OID. The conversion price is the lesser of $0.59 or 60% of the lowest trade price in
the 25 trading days previous to the conversion. The note is recorded as a current liability.



On April 2, 2013, we entered into
a nine-month secured convertible promissory note debt financing agreement with Willow Creek Capital, LLC, for $244,200, bearing
interest at a rate of 12% per annum and matured on October 1, 2013. At June 30, 2014, the outstanding principal balance of the
Willow Creek convertible promissory note totaled $182,000. The note also includes a 10% OID of $20,000 based on the consideration
funded, prepaid interest of $22,200 and $2,000 in legal and other expense. We also paid holder an origination fee in the amount
of $109,890 in 144 Stock (366 post-split shares) at the closing bid price of our common stock. The holder may require us to convert
the outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time after the
six-month term of the note. The common stock issued will be valued using a conversion factor of 80% the average of the lowest
two (2) trading prices common shares during the twenty (20) trading day period ending on the latest complete trading day prior
to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion factor will be reduced
to 70%. The holder will be entitled to purchase from the us five-year warrants expiring April 2, 2018, to purchase 122 post-split
shares of ERF common stock at an exercise price of $300.00 or the per-share price at which the common stock is sold in an underwritten
public offering that closes on or before the date that is six (6) months from the issue date, as may be adjusted from time to time
pursuant to the terms and conditions of this Warrant.





23









On April 4, 2013, we entered into a
six-month secured convertible promissory note debt financing agreement with Vista Capital Investments, LLC, for $60,500,
bearing interest at a rate of 12% per annum and matured on October 4, 2013. The note also includes a 10% OID of $5,000 based
on the consideration funded and prepaid interest of $5,500. We also paid holder an origination fee in the amount of $21,175
in 144 Stock (84 post-split shares) at the closing bid price of our common stock. The holder may require us to convert the
outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time after the
six-month term of the note. The common stock issued will be valued using a conversion factor of 80% the average of the lowest
two (2) trading prices of common shares during the twenty (20) trading day period ending on the latest complete trading day
prior to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion factor
will be reduced to 70%. The holder will be entitled to purchase from us five-year warrants expiring April 4, 2018, to purchase
36 post-split shares of ERF common stock at an exercise price of $320.00 or the per-share price at which the common stock is
sold in an underwritten public offering that closes on or before the date that is six (6) months from the issue date, as may
be adjusted from time to time pursuant to the terms and conditions of this Warrant. We are not in compliance with all the
provisions of the note causing an automatic acceleration of the outstanding balance of $60,500 to $72,600. The note will
accrue interest at a rate of 12% from October 4, 2013, until April 3, 2014 and thereafter at a rate of 18% per annum. At June
30, 2014, the outstanding principal balance of the Vista Capital convertible promissory note totaled $64,000.



On June 28, 2013, we entered into a
twelve-month secured convertible promissory note debt financing agreement with TCA Global Credit Master Fund (TCA) for
$1,500,000, bearing interest at a rate of 12% per annum and maturing July 28, 2014. Under a subsequent modified agreement
dated March 25, 2014, TCA has agreed to restructure the agreement and extend the maturity date to November 15, 2014. In
consideration of the restructured agreement, we agreed to a $75,000 and a $50,000 restructuring and advisory fee to be added
to the sum of the principal balance including a $40,791 interest charge to be paid and nominal legal fees. The monthly
principal and interest payments will be $149,609 per month. At June 30, 2014, the outstanding principal balance of the TCA
Global convertible promissory note totaled $1,007,000. The note also includes $153,300 in commitment fees; due diligence
fees; document review fees; service fees; legal; and other expense. The holder may require us to convert the outstanding
principal balance (including any unpaid interest) into shares of restricted common stock at any time during the twelve months
term of the note or thereafter. The common stock issued will be valued using a conversion factor of 85% of the average VWAP
trading price during the five (5) trading day period ending on the latest complete trading day prior to the conversion date.
Due to the restructuring of the note we incurred $108,000 loss on extinguishment of debt. The estimated debt accretion for
the remainder of the 2014 will be $55,895.



On October 3, 2013, we entered into
a twelve-month unsecured convertible promissory note debt financing agreement with Group 10 Holdings, LLC, for $157,500, bearing
interest at a rate of 12% per annum and maturing October 2, 2014. The note also includes a 5% OID of $7,500 based on the consideration
funded. We also paid holder a commitment fee in the amount of $45,000 in 144 Stock (1,125 post-split shares) at the closing bid
price of our common stock. The holder may require us to convert the outstanding principal balance (including any unpaid interest)
into shares of restricted common stock at any time after the twelve-month term of the note. The common stock issued will be valued
using a conversion factor of 55% multiplied by the lowest closing bid price of the (20) trading days prior to the conversions,
which represents a discount rate of 45%. The estimated debt accretion for the remainder of 2014 is $84,886. The note will accrue
interest at a rate of 12% from October 3, 2013, until October 2, 2014, and thereafter at a rate of 18% per annum. At June 30,
2014, the outstanding principal balance of the Group 10 convertible promissory note totaled $136,000.



On June 26, 2014, we entered into a
nine-month unsecured convertible promissory note debt financing agreement with KBM World Wide Inc. for $103,500, bearing
interest at a rate of 8% per annum and maturing March 27, 2015. The holder may require us to convert the outstanding
principal balance (including any unpaid interest) into shares of restricted common stock at any time after 180 days following
the date of this note and ending on final payment of the convertible note. The common stock issued will be valued using a
conversion factor of 61% multiplied by the lowest three trading prices of the ten (10) trading days prior to the conversion
date, which represents a discount rate of 39%. The estimated debt accretion for subsequent years is $61,296 and $28,649 for
years ending December 31, 2014 and 2015, respectively. The note will accrue interest at a rate of 8% from June 26, 2014,
until March 27, 2015, and thereafter at a rate of 22% per annum. At June 30, 2014, the outstanding principal balance of the
KBM World Wide Inc. convertible promissory note totaled $103,500.





24









ISSUANCE OF COMMON STOCK



During the three months ended June 30, 2014, we issued
to various accredited investors 3,168,373 shares for interest, services rendered and debt conversions. We relied on Section 4(2)
of the Securities Act in effecting these transactions. There was not a registration statement for Form S-8.



During the six months ended June 30, 2014, we issued to
various accredited investors 3,544,415 shares for interest, services rendered and debt conversions. We relied on Section 4(2) of
the Securities Act in effecting these transactions. During the six months ended June 30, 2014, we issued 26,362 shares of common
stock for fractional share roundup due to 400 to 1 reverse affected in December 2013. There was not a registration statement
on Form S-8.



USE OF WORKING CAPITAL



We believe our cash and available credit facilities afford
us adequate liquidity through June 30, 2015. We anticipate that we will need additional capital in the future to continue to expand
our business operations. We have historically financed our operations through private equity and debt financings. We do not have
any commitments for equity or debt funding at this time, and additional funding may not be available to us on favorable terms,
if at all. As such, there is no assurance that we can raise additional capital from external sources, the failure of which could
cause us to curtail operations.



OFF-BALANCE SHEET ARRANGEMENTS



As of June 30, 2014, 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 Form 10-K.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



Property and Equipment



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



Long-Lived Assets



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



| | · | a significant decrease in the market price of the asset;
| | - | --------------------------------------------------------



| | · | a significant change in the extent or manner in which the asset is being used;
| | - | ------------------------------------------------------------------------------



| | · | a significant change in the business climate that could affect the value of the asset; and
| | - | ------------------------------------------------------------------------------------------



| | · | a current period loss combined with projection of continuing loss associated with use of the asset;
| | - | ---------------------------------------------------------------------------------------------------



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



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





25









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.

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, the Company estimates fair value using either quoted market prices of financial instruments
with similar characteristics or other valuation techniques. The valuation techniques require assumptions related to the remaining
term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected
volatility of our common stock price over the life of the option. Because of the limited trading history for our common stock,
the Company estimates the future volatility of its common stock price based on not only the history of its stock price but also
the experience of other entities considered comparable to the Company.



Recent Accounting Pronouncements



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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that
the controls and procedures would meet their objectives.



As required by SEC Rule 13a-15(b), we carried out an evaluation,
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered
by this report. Following the review, the Chief Executive Officer and Chief Financial Officer added upgrades to the disclosure
controls and procedures. Based on the foregoing, and after the upgrades, our Chief Executive Officer and Chief Financial Officer
concluded that as of June 30, 2014, our disclosure controls and procedures were effective at the reasonable assurance level.





26







PART II
– OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



We are not a party to any material legal proceedings.



ITEM 1A. RISK FACTORS



There have been no material changes to the risk factors
previously disclosed under Item 1 of the Company’s Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC
on April 15, 2014. Additionally, as a Smaller Reporting Company, we are not required to provide risk factors in our periodic reports.



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, we 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.



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



Common Stock Issued for Interest, Services
and Debt Conversions



In April 2014, we issued 941,373 shares of our Common
Stock at an average price of $0.16 for interest and debt conversions.



In May 2014, we issued 700,000 shares of our Common Stock
at an average price of $0.22 for interest and debt conversions.



In June 2014, we issued 1,527,000 shares of common stock
at an average price of $0.47 for interest, services and debt conversions.



Common Stock Issued Upon Conversion of Series A Preferred
Stock



On April, 2014, an accredited investor acquired 165,000
shares of common stock pursuant to Preferred A Conversions.



ITEM 3. DEFAULT IN SENIOR SECURITIES



None.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



ITEM 5. OTHER INFORMATION



None.





27







ITEM 6. EXHIBITS



|Exhibit 31 | Certification of Chief Executive officer and Chief Financial officer pursuant to Rules 13a-14 (a) and 15d-14 (a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|---------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002         
|99.1       | Temporary Hardship Exemption                                                                                                                                                          
|101.INS*   | XBRL Instance Document                                                                                                                                                                
|101.SCH*   | XBRL Taxonomy Extension Schema Document                                                                                                                                               
|101.CAL*   | XBRL Taxonomy Extension Calculation Linkbase Document                                                                                                                                 
|101.LAB*   | XBRL Taxonomy Extension Label Linkbase Document                                                                                                                                       
|101.PRE*   | XBRL Taxonomy Extension Presentation Linkbase Document                                                                                                                                
|101.DEF*   | XBRL Taxonomy Extension Definition Linkbase Document                                                                                                                                  





|* | To be furnished by amendment per Temporary Hardship Exemption under Regulation S-T.
|- | -----------------------------------------------------------------------------------





28







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              H. Dean Cubley              Chief Executive
Officer Date:    August 19, 2014



By:     
/s/, R. Greg Smith              R. Greg Smith
            Chief Financial Officer
Date:    August 19, 2014

































29