UNITED
STATES SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



FORM 10-Q



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



For the quarterly period ended March 31,
2014



OR



☐ TRANSITION 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 ☒    No ☐



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

Yes ☒    No ☐



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



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





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



Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date. 2,478,115 common shares issued and outstanding as of May 20, 2014













PART I – FINANCIAL INFORMATION



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



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

Unaudited





|                                                                                                                                                                                                                     |  | March 31, |         |   | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | - | ------------ | -
|                                                                                                                                                                                                                     |  | 2014      |         |   | 2013         |  
|ASSETS                                                                                                                                                                                                               |  |           |         |   |              |  
|Current assets                                                                                                                                                                                                       |  |           |         |   |              |  
|Cash and cash equivalents                                                                                                                                                                                            |  | $         | 216     |   |              | $
|Accounts receivable, net                                                                                                                                                                                             |  |           | 551     |   |              |  
|Accounts receivable, other                                                                                                                                                                                           |  |           | 332     |   |              |  
|Inventories                                                                                                                                                                                                          |  |           | 252     |   |              |  
|Prepaid expenses and other current assets                                                                                                                                                                            |  |           | 230     |   |              |  
|Total current assets                                                                                                                                                                                                 |  |           | 1,581   |   |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Property and equipment                                                                                                                                                                                               |  |           |         |   |              |  
|Property and equipment                                                                                                                                                                                               |  |           | 12,172  |   |              |  
|Less: accumulated depreciation                                                                                                                                                                                       |  |           | (9,799  | ) |              |  
|Net property and equipment                                                                                                                                                                                           |  |           | 2,373   |   |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Goodwill                                                                                                                                                                                                             |  |           | 176     |   |              |  
|Other assets                                                                                                                                                                                                         |  |           | 37      |   |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Total assets                                                                                                                                                                                                         |  | $         | 4,167   |   |              | $
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|LIABILITIES AND SHAREHOLDERS’ DEFICIT                                                                                                                                                                                |  |           |         |   |              |  
|Current liabilities:                                                                                                                                                                                                 |  |           |         |   |              |  
|Notes payable and current portion of long-term debt                                                                                                                                                                  |  | $         | 3,622   |   |              | $
|Current portion of long-term capital leases                                                                                                                                                                          |  |           | 231     |   |              |  
|Accounts payable                                                                                                                                                                                                     |  |           | 964     |   |              |  
|Accrued expenses                                                                                                                                                                                                     |  |           | 1,321   |   |              |  
|Derivative liabilities                                                                                                                                                                                               |  |           | 398     |   |              |  
|Deferred revenue                                                                                                                                                                                                     |  |           | 7       |   |              |  
|Total current liabilities                                                                                                                                                                                            |  |           | 6,543   |   |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Line of credit (LOC)                                                                                                                                                                                                 |  |           | 4,514   |   |              |  
|Long-term debt, net of current portion                                                                                                                                                                               |  |           | 781     |   |              |  
|Long-term capital leases, net of current portion                                                                                                                                                                     |  |           | 134     |   |              |  
|Total liabilities                                                                                                                                                                                                    |  |           | 11,972  |   |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Commitments                                                                                                                                                                                                          |  |           |         |   |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Shareholders’ deficit:                                                                                                                                                                                               |  |           |         |   |              |  
|Preferred stock - $0.001 par value, 25,000,000
    authorized Series A designated 10,000,000 shares Issued and outstanding at March 31, 2014 and December 31, 2013,
    9,380,129 and 9,930,982 shares, respectively |  |           | 9       |   |              |  
|Common stock - $0.001 par value Authorized 975,000,000
    shares Issued and outstanding at March 31, 2014 and December 31, 2013, 1,001,743 and 111,633 shares,
    respectively                                     |  |           | 1       |   |              |  
|Additional paid in capital                                                                                                                                                                                           |  |           | 56,412  |   |              |  
|Accumulated deficit                                                                                                                                                                                                  |  |           | (64,326 | ) |              |  
|Accumulated other comprehensive loss                                                                                                                                                                                 |  |           | (32     | ) |              |  
|Total ERF Wireless, Inc. shareholders’ deficit                                                                                                                                                                       |  |           | (7,936  | ) |              |  
|Non-controlling interest                                                                                                                                                                                             |  |           | 131     |   |              |  
|Total shareholders’ deficit                                                                                                                                                                                          |  |           | (7,805  | ) |              |  
|                                                                                                                                                                                                                     |  |           |         |   |              |  
|Total liabilities and shareholders' deficit                                                                                                                                                                          |  | $         | 4,167   |   |              | $



See accompanying notes to consolidated financial statements.

2







ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

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





|                                                           |  | 2014 |        |   | 2013 |  
|---------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|                                                           |  |      |        |   |      |  
|Sales:                                                     |  |      |        |   |      |  
|Products                                                   |  | $    | 17     |   |      | $
|Services                                                   |  |      | 1,575  |   |      |  
|Total sales                                                |  |      | 1,592  |   |      |  
|                                                           |  |      |        |   |      |  
|Cost of goods sold:                                        |  |      |        |   |      |  
|Products and integration services                          |  |      | 312    |   |      |  
|Rent, repairs and maintenance                              |  |      | 210    |   |      |  
|Depreciation                                               |  |      | 410    |   |      |  
|Total cost of goods sold                                   |  |      | 932    |   |      |  
|Gross profit                                               |  |      | 660    |   |      |  
|Operating expenses:                                        |  |      |        |   |      |  
|Selling, general and administrative                        |  |      | 1,341  |   |      |  
|Depreciation                                               |  |      | 23     |   |      |  
|Total operating expenses                                   |  |      | 1,364  |   |      |  
|Loss from operations                                       |  |      | (704   | ) |      |  
|Other income (expenses):                                   |  |      |        |   |      |  
|Interest expense, net                                      |  |      | (446   | ) |      |  
|Derivative income                                          |  |      | 207    |   |      |  
|Loss on extinguishment of debt                             |  |      | (108   | ) |      |  
|Total other expense                                        |  |      | (347   | ) |      |  
|Consolidated net loss                                      |  |      | (1,051 | ) |      |  
|                                                           |  |      |        |   |      |  
|Net income (loss) attributable to non-controlling interest |  |      | 1      |   |      |  
|Net loss attributable to ERF Wireless, Inc.                |  | $    | (1,050 | ) |      | $
|Basic and diluted loss per common share:                   |  |      |        |   |      |  
|Net loss                                                   |  | $    | (2.65  | ) |      | $
|Net loss attributable to ERF Wireless, Inc.                |  | $    | (2.64  | ) |      | $







See accompanying notes to consolidated financial statements.





3







ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)
($ in thousands)





|                                                                                          |  | 2014 |        |   | 2013 |  
|----------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|                                                                                          |  |      |        |   |      |  
|Cash flows from operating activities                                                      |  |      |        |   |      |  
|Net loss                                                                                  |  | $    | (1,051 | ) |      | $
|                                                                                          |  |      |        |   |      |  
|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                                                             |  |      | 127    |   |      |  
|Depreciation                                                                              |  |      | 433    |   |      |  
|Stock issued for services rendered, interest  and compensation                            |  |      | 42     |   |      |  
|Derivative income                                                                         |  |      | (207   | ) |      |  
|Bad debt expense                                                                          |  |      | 9      |   |      |  
|Changes in:                                                                               |  |      |        |   |      |  
|Accounts receivable, net                                                                  |  |      | 441    |   |      |  
|Accounts receivable, other                                                                |  |      | 157    |   |      |  
|Inventories                                                                               |  |      | 12     |   |      |  
|Prepaid expenses and other current assets                                                 |  |      | 56     |   |      |  
|Costs and profits in excess of billings                                                   |  |      | –      |   |      |  
|Accounts payable                                                                          |  |      | (334   | ) |      |  
|Accrued expenses                                                                          |  |      | 212    |   |      |  
|Deferred revenue                                                                          |  |      | (6     | ) |      |  
|Total adjustments                                                                         |  |      | 1,050  |   |      |  
|Net cash used by operating activities                                                     |  |      | (1     | ) |      |  
|                                                                                          |  |      |        |   |      |  
|Cash flows from investing activities                                                      |  |      |        |   |      |  
|Purchase of property and equipment                                                        |  |      | (30    | ) |      |  
|Proceeds from sale of assets                                                              |  |      | –      |   |      |  
|Change in other assets                                                                    |  |      | –      |   |      |  
|Net cash used by investing activities                                                     |  |      | (30    | ) |      |  
|                                                                                          |  |      |        |   |      |  
|Cash flows from financing activities                                                      |  |      |        |   |      |  
|Net proceeds from line of credit                                                          |  |      | 292    |   |      |  
|Proceeds from long-term debt obligations                                                  |  |      | –      |   |      |  
|Payment of long-term debt obligations                                                     |  |      | (26    | ) |      |  
|Payment on capital lease obligations                                                      |  |      | (61    | ) |      |  
|Net cash provided by financing activities                                                 |  |      | 205    |   |      |  
|                                                                                          |  |      |        |   |      |  
|Net change in cash and cash equivalents                                                   |  |      | 174    |   |      |  
|Cash and cash equivalents at the beginning of the period                                  |  |      | 42     |   |      |  
|Cash and cash equivalents at the end of the period                                        |  | $    | 216    |   |      | $
|                                                                                          |  |      |        |   |      |  
|Supplemental disclosure of cash flow information:                                         |  |      |        |   |      |  
|Net cash paid during the period for:                                                      |  |      |        |   |      |  
|Interest                                                                                  |  | $    | 70     |   |      | $
|Income taxes                                                                              |  | $    | –      |   |      | $
|                                                                                          |  |      |        |   |      |  
|Supplemental non-cash investing and financing activities:                                 |  |      |        |   |      |  
|Conversion of notes payable and line of credit principal through issuance of common stock |  | $    | 121    |   |      | $





See accompanying notes to consolidated financial statements.





4







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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

March 31, 2014
(Unaudited)



NOTE 2 - DEBT CONVERSION



(a) LINE OF CREDIT



During the three months ended March 31, 2014, the Company issued
105,000 shares of its common stock for the settlement of $52,482 of principal owed to Angus Capital Partners. The Company issued
common stock at an average price of $.50 per share calculated based on the closing price the day the debt was settled.



(b) Other Debt



During the three months ended March 31, 2014, the Company issued
155,937 and 48,743 shares of its Common Stock for the settlement of principal amount of $68,667 and $39,315 of interest,
respectively, for a total of $107,982. The Company issued Common Stock at an average price of $.53 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 March 31, 2014 and December 31, 2013, there were 1,001,743
and 111,633 shares of its Common Stock issued and outstanding, respectively.



During the three months ended March 31, 2014, the Company issued
376,042 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):





|March 31, 2014                                |  | Supplemental Non-Cash Disclosure |   
|--------------------------------------------- |  | -------------------------------- | --
|Professional fees                             |  | $                                | 23
|Other services rendered                       |  |                                  | 19
|Total for services, compensation and interest |  | $                                | 42
|                                              |  |                                  |   
|Notes payable, principal                      |  | $                                | 69
|Line of credit, principal                     |  | $                                | 52





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 9,380,129 of Series A Preferred Shares issued and outstanding at March 31, 2014 and
9,930,982 at December 31, 2013. With respect to the Series A referred Stock outstanding at March 31, 2014, the Company would
be required to issue 9,380,129 shares of its Common Stock upon conversion. During the
period ended March 31, 2014, 550,853 Series A Preferred Stock were converted into 514,068 shares of common stock.



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



As of March 31, 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 three months ended March 31, 2014.



6





ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 March 31, 2014 |       
|------------------------------------------- |  | ----------------------------------------- | ------
|                                            |  | Net loss                                  |       
|                                            |  | (Numerator)                               |       
|Basic and diluted EPS:                      |  |                                           |       
|Net loss                                    |  | $                                         | (1,051
|Net loss attributable to ERF Wireless, Inc. |  | $                                         | (1,050



|                                            |  |   | For the three months ended March 31, 2013 |  
|------------------------------------------- |  | - | ----------------------------------------- | -
|                                            |  |   | Net loss                                  |  
|                                            |  |   | (Numerator)                               |  
|Basic and diluted EPS:                      |  |   |                                           |  
|Net loss                                    |  | $ | (1,653                                    | )
|Net loss attributable to ERF Wireless, Inc. |  | $ | (1,656                                    | )





For the three months ended March 31, 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 three
months ended March 31, 2014 does not include 598,077 shares of Common Stock underlying the Bonds (as define below); 529 of warrants
underlying promissory convertible debt, 2,677,382 shares of Common stock underlying promissory convertible debt and 9,380,129 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 $1,592,000 and $1,913,000 for
the three months ended March 31, 2014 and 2013, respectively. The Company had two customers that met the required disclosure of
10% that represented 38% and 11% of the gross sales during the three months ended March 31, 2014. Additionally, the Company had
two customers that met the required disclosure of 10% that represented 36% and 13% of the gross sales during the three months ended
March 31, 2013.







7







ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 March 31, 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%        |  | $             | 101   |  |               | $ | –   |         | 
|Advantage leasing associates       |  | $8,269 / Month including interest              |  | Various                     |  | Various       |  |               | 93    |  |               |   | –   |         | 
|Legacy laser services Dallas, LLC  |  | $9,947 / Month including interest              |  | May-16                      |  | 42.00%        |  |               | 170   |  |               |   | –   |         | 
|MP Nexlevel LLC                    |  | $7,043 / Month including interest              |  | May-14                      |  | 10.00%        |  |               | 14    |  |               |   | –   |         | 
|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%        |  |               | 204   |  |               |   | 92  |         | 
|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%        |  |               | 202   |  |               |   | –   |         | 
|TCA global line of credit          |  | $139,523 / Month including interest            |  | July-14                     |  | 12.00%        |  |               | 1,136 |  |               |   | 102 |         | 
|Group 10                           |  | $157,500 / Month including interest            |  | July-14                     |  | 12.00%        |  |               | 157   |  |               |   | 128 |         | 
|Investor financing                 |  | $495,000 / Lump sum payment including interest |  | April-14                    |  | 12.00%        |  |               | 523   |  |               |   | –   |         | 
|Premium assignment                 |  | $2,063 / Month including interest              |  | September-14                |  | 5.68%         |  |               | 12    |  |               |   | –   |         | 
|Dakota capital equipment financing |  | $178,031 / Quarterly including interest        |  | March-16                    |  | 12.00%        |  |               | 1,519 |  |               |   | 16  |         | 
|E-bond investor notes              |  | 3 years/ Semiannual interest (See below)       |  | Various                     |  | 7.50%         |  |               | 311   |  |               |   | 164 |         | 
|Line of credit                     |  | 2 years/ Quarterly interest (See below)        |  | December-16                 |  | 3.00%         |  |               | 4,514 |  |               |   | –   |         | 
|Total debt                         |  |                                                |  |                             |  |               |  | $             | 9,784 |  |               | $ | 502 |         | 
|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

March 31, 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 March 31, 2014, the outstanding balance on the line of credit totaled $4,514,000
leaving a remaining line of credit available of $7,486,000.



During the three months ended March 31, 2014, the Company issued
105,000 shares of its common stock for the settlement of $52,482 of principal owed to Angus Capital Partners. The Company issued
common stock at an average price of $.50 per share calculated based on the closing price the day the debt was settled.



E-Series Bond Investor Note



During the three months ended March 31, 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 $18,000 for the three months ended March 31, 2014. The estimated debt accretion for subsequent years
is $75,000 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 March 31, 2014:





|Description                     |  | Bonds |         |  | Compound Derivative Liability |   |        | Total | 
|------------------------------- |  | ----- | ------- |  | ----------------------------- | - | ------ | ----- | 
|Fair value at December 31, 2013 |  | $     | 128,762 |  |                               | $ | 39,730 |       | 
|Change in fair value            |  |       | 17,995  |  |                               |   | (6,339 | )     | 
|Fair value at March 31, 2014    |  | $     | 146,757 |  |                               | $ | 33,391 |       | 





The Company recorded derivative income of $6,339 for the three
months ended March 31, 2014.





9





ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 March 31, 2014, the outstanding balance on the debt financing
agreement totaled $1,519,000 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 $9,000 for the three months ended March 31, 2014. The estimated debt accretion for subsequent
years is $8,653 and $16,000 for years ending December 31, 2014.



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 2014. 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 March 31, 2014, the outstanding principal balance totaled $523,000.



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 maturing September 5, 2013. At March 31, 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 the 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

March 31, 2014
(Unaudited)





The following table summarizes the convertible debt activity
for the period from January 1, 2014 through March 31, 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            |  |           | –       |   |                                       |   | (84 | )                             |  |   | (80,569 | )
|Conversions                     |  |           | (28,841 | ) |                                       |   | –   |                               |  |   | –       |  
|Fair value at March 31, 2014    |  | $         | 764,527 |   |                                       | $ | 12  |                               |  | $ | –       |  





The Company recorded derivative income of $54,635 for the three
months ended March 31, 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 March 31, 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 March 31, 2014, the outstanding
principal balance of the JMJ Financial convertible promissory note totaled $204,000 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 $81,248 for the three months ended March 31, 2014.
The estimated debt accretion for the remainder of 2014 is $92,069.



The following table summarizes the convertible debt activity
for the period from January 1, 2014 through March 31, 2014:





|Description                     |  | JMJ |         |   | Compound Derivative Liability |   |          | Total | 
|------------------------------- |  | --- | ------- | - | ----------------------------- | - | -------- | ----- | 
|Fair value at December 31, 2013 |  | $   | 58,363  |   |                               | $ | 134,113  |       | 
|Change in fair value            |  |     | 81,248  |   |                               |   | (115,607 | )     | 
|Conversions                     |  |     | (27,530 | ) |                               |   | –        |       | 
|Fair value at March 31, 2014    |  | $   | 112,081 |   |                               | $ | 18,506   |       | 





The Company recorded derivative income of $100,716 for the three
months ended March 31, 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 maturing October 1, 2013. At March 31, 2014, the outstanding principal balance of the Willow
Creek convertible promissory note totaled $228,000. 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

March 31, 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 the 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 March 31, 2014:





|Description                     |  | Willowcreek |         |   | Compound Derivative Liability |   |         | Total | 
|------------------------------- |  | ----------- | ------- | - | ----------------------------- | - | ------- | ----- | 
|Fair value at December 31, 2013 |  | $           | 227,800 |   |                               | $ | 51,276  |       | 
|Change in fair value            |  |             | –       |   |                               |   | (50,204 | )     | 
|Conversions                     |  |             | (26,183 | ) |                               |   | –       |       | 
|Fair value at March 31, 2014    |  | $           | 201,617 |   |                               | $ | 1,072   |       | 





The Company recorded derivative income
of $20,422 for the three months ended March 31, 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 maturing 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 the April 3, 2014 and thereafter at a rate
of 18% per annum. At March 31, 2014, the outstanding principal balance of the Vista Capital convertible promissory note totaled
$64,000.





12





ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014
(Unaudited)





The following table summarizes the convertible debt activity
for the period from January 1, 2014 through March 31, 2014:





|Description                     |  | Vista |        |  | Compound Derivative Liability |   |         | Total | 
|------------------------------- |  | ----- | ------ |  | ----------------------------- | - | ------- | ----- | 
|Fair value at December 31, 2013 |  | $     | 50,558 |  |                               | $ | 37,516  |       | 
|Change in fair value            |  |       | –      |  |                               |   | (35,496 | )     | 
|Conversions                     |  |       | 13,887 |  |                               |   | –       |       | 
|Fair value at March 31, 2014    |  | $     | 64,445 |  |                               | $ | 2,020   |       | 





The Company recorded derivative income
of $35,496 for the three months ended March 31, 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 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 restructuring 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 March 31, 2014, the outstanding
principal balance of the TCA Global convertible promissory note totaled $1,136,000. 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 realized a $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 which totaled $2,506 for the three months ended March 31, 2014. The estimated
debt accretion for the remainder of the 2014 will be $101,837.



The following table summarizes the convertible
debt activity for the period from January 1, 2014 through March 31, 2014:





|Description                       |  | TCA Global |           |  | Compound Derivative Liability |   |        | Total | 
|--------------------------------- |  | ---------- | --------- |  | ----------------------------- | - | ------ | ----- | 
|Fair value at December 31, 2013   |  | $          | 915,440   |  |                               | $ | 28,716 |       | 
|Fair value issuances at inception |  |            | 115,791   |  |                               |   | 65,818 |       | 
|Change in fair value              |  |            | 2,506     |  |                               |   | –      |       | 
|Fair value at March 31, 2014      |  | $          | 1,033,737 |  |                               | $ | 94,534 |       | 





The Company recorded derivative expense of $65,818 for the
three months ended March 31, 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%.
As of March 31, 2014, the balance outstanding on this note was $157,500.





13





ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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
which totaled $14,905 for the three months ended March 31, 2014. The note will accrue interest at a rate of 12% from October 3,
2013 until the October 2, 2014 and thereafter at a rate of 18% per annum.



The following table summarizes the convertible
debt activity for the period from January 1, 2014 through March 31, 2014:





|Description                     |  | Group 10 |        |  | Compound Derivative Liability |   |         | Total | 
|------------------------------- |  | -------- | ------ |  | ----------------------------- | - | ------- | ----- | 
|Fair value at December 31, 2013 |  | $        | 14,155 |  |                               | $ | 304,519 |       | 
|Change in fair value            |  |          | 14,905 |  |                               |   | (55,005 | )     | 
|Fair value at March 31, 2014    |  | $        | 29,060 |  |                               | $ | 249,514 |       | 



The Company recorded derivative income
of $55,005 for the three months ended March 31, 2014.



Capital Leases



Banc Leasing Inc.Included in property and equipment
at March 31, 2014, the cost of the equipment was $610,900 and the accumulated amortization was $524,356. 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 March
31, 2014, the cost of the vehicles was $273,443 and the accumulated amortization was $177,618. 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 March 31, 2014, the cost of the equipment was $155,349 and the accumulated amortization was $45,310. 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 March 31, 2014 (in thousands):





|Year Ending December 31,                        |  |   |     
|----------------------------------------------- |  | - | ----
|2014                                            |  | $ | 249 
|2015                                            |  |   | 159 
|2016                                            |  |   | 63  
|Thereafter                                      |  |   | –   
|Total minimum lease payments                    |  |   | 471 
|Less amount representing interest               |  |   | (106
|Present value of net minimum lease payments     |  |   | 365 
|Current maturities of capital lease obligations |  |   | (231
|Long-term portion of capital lease obligations  |  | $ | 134 







14





ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014
(Unaudited)





NOTE 7 - COMMITMENTS



Leases and License Agreements



For the three months ended March 31, 2014 and 2013, rental expenses
of approximately $302,000 and $299,000, 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                     |  | $      | 565  
|2015                     |  |        | 707  
|2016                     |  |        | 610  
|2017                     |  |        | 116  
|Thereafter               |  |        | 9    
|Total                    |  | $      | 2,007





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.



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 March 31, 2014, the outstanding balance on the capital leases totaled $170,000. 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.





15





ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014
(Unaudited)





For the three months ended March 31, 2014 and 2013 (in thousands):





|Three Months Ended
March 31, 2014     |  | EBI |       |  | WBS |   |       | ENS |  |   | Total Segment |   |  | ERF Corporate |       |   | Total Consolidated |  
|------------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ------------- | - |  | ------------- | ----- | - | ------------------ | -
|Revenue                               |  | $   | 889   |  |     | $ | 633   |     |  | $ | 70            |   |  | $             | 1,592 |   |                    | $
|Segment income (loss) from operations |  |     | 4     |  |     |   | (144  | )   |  |   | (24           | ) |  |               | (164  | ) |                    |  
|Total assets                          |  |     | 2,485 |  |     |   | 1,191 |     |  |   | 285           |   |  |               | 3,961 |   |                    |  
|Capital expenditures                  |  |     | 2     |  |     |   | 28    |     |  |   | –             |   |  |               | 30    |   |                    |  
|Depreciation                          |  |     | 195   |  |     |   | 173   |     |  |   | 58            |   |  |               | 426   |   |                    |  



|Three Months Ended
 March 31, 2013    |  | EBI |       |  | WBS |   |       | ENS |  |   | Total Segment |   |  | ERF Corporate |       |   | Total Consolidated |  
|------------------------------------- |  | --- | ----- |  | --- | - | ----- | --- |  | - | ------------- | - |  | ------------- | ----- | - | ------------------ | -
|Revenue                               |  | $   | 1,205 |  |     | $ | 610   |     |  | $ | 98            |   |  | $             | 1,913 |   |                    | $
|Segment income (loss) from operations |  |     | 109   |  |     |   | (322  | )   |  |   | (20           | ) |  |               | (233  | ) |                    |  
|Total assets                          |  |     | 3,065 |  |     |   | 1,873 |     |  |   | 606           |   |  |               | 5,544 |   |                    |  
|Capital expenditures                  |  |     | 10    |  |     |   | 61    |     |  |   | –             |   |  |               | 71    |   |                    |  
|Depreciation                          |  |     | 215   |  |     |   | 207   |     |  |   | 59            |   |  |               | 481   |   |                    |  







|Reconciliation of Segment Assets to 
Total Assets |  | March 31, 
2014 |       |  | December 31,
 2013 |  
|------------------------------------------------- |  | --------------- | ----- |  | ------------------ | -
|Total segment assets                              |  | $               | 3,961 |  |                    | $
|Total corporate assets                            |  |                 | 206   |  |                    |  
|Total assets                                      |  | $               | 4,167 |  |                    | $



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 three months ended March 31, 2014, two customers accounted
for $601,000 and $175,000 of EBI revenues each.



NOTE 10 - SUBSEQUENT EVENTS



Subsequent to March 31, 2014, the Company issued 1,476,372 shares
of common stock valued at approximately $241,000 for preferred stock, services rendered, and conversion of debt.



Subsequent to March 31, 2014, the investor financing agreement
dated May 2014, modified April 2014 as amended, allowing the maturity date to be extended from April 15, 2014 to October 15, 2014.
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.





16







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



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



OUR MARKETS AND BUSINESS STRATEGY



Our Company provides 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. The Company’s 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:





| | — | The Company reported revenues of $1,592,000 for the quarter ended March 31, 2014 as compared to $1,913,000 for the same prior year quarter ended March 31, 2013; a decrease of $321,000 or 17%.                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | — | The Company reported gross profit of $660,000 for the quarter ended March 31, 2014 as compared to $889,000 for the same prior year quarter ended March 31, 2013; a decrease of $229,000 or 26%. This decrease reflects lower rig count deployments for the Company’s communication solutions in our oil and gas internet service operations.                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | — | The Company reported a total comprehensive loss of $1,050,000 for the quarter ended March 31, 2014 as compared to a comprehensive loss of $1,656,000 for the same prior year quarter ended March 31, 2013; a decrease of $606,000 or 37%.                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | — | The Company’s Energy Broadband, Inc. subsidiary reported revenues of $889,000 for the quarter ended March 31, 2014 as compared to revenues of $1,205,000 for the same prior year quarter ended March 31, 2013; a decrease of $316,000 or 26%.                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | — | The Company reported a decrease of $654,000 or 32% in operating expenses for the three months ended March 31, 2014 as compared to the same prior year quarter ended March 31, 2013. The decrease is primarily related to lower employment expenses of $390,000 associated with a headcount decrease of 17 employees and approximately $235,000 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.





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



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



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



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





17







RESULTS OF OPERATIONS



THREE MONTHS ENDED MARCH 31, 2014, COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2013



The following table sets forth summarized consolidated financial
information for the three months ended March 31, 2014 and 2013:





|                                                           |  | Three Months Ended March 31, |       
|---------------------------------------------------------- |  | ---------------------------- | ------
|($ in thousands)                                           |  | 2014                         |       
|Total sales                                                |  | $                            | 1,592 
|Total Cost of goods sold                                   |  |                              | 932   
|Gross profit                                               |  |                              | 660   
|Percent of total sales                                     |  |                              | 41%   
|Total operating expenses                                   |  |                              | 1,364 
|Loss from operations                                       |  |                              | (704  
|Total other income/(expense)                               |  |                              | (347  
|Consolidated net loss                                      |  |                              | (1,051
|Net income (loss) attributable to non-controlling interest |  |                              | 1     
|Total comprehensive loss                                   |  | $                            | (1,050





For the three months ended March 31, 2014, the Company's business
operations reflected a decrease in sales for EBI and ENS, offset with increase sales in WBS subsidiary. For the three months ended
March 31, 2014, the Company's consolidated operations generated net sales of $1,592,000 compared to prior-year period net sales
of $1,913,000. The $321,000 decrease in total sales is primarily attributable to $316,000 decrease sales in EBI from declining
deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions. Service sales decreased $327,000 and product
sales increased $6,000. For the three months ended March 31, 2014, the Company had a gross profit margin of 41%, compared to a
gross profit margin 46% for the prior year period. The $229,000 decrease in gross profit margin is primarily attributed to; (i)
approximately $238,000 decrease in gross margin in EBI attributable to decreased sales associated with declining deployment of
MBT’s in oil and gas regions and increased depreciation and (ii) offset with a $13,000 increase in gross margin in WBS primarily
related to decreased depreciation.



SALES INFORMATION



Set forth below are tables presenting summarized sales information
for our business segments for the three months ended March 31, 2014 and 2013:





|($ in thousands)            |  | Three Months Ended March 31, |      
|--------------------------- |  | ---------------------------- | -----
|Business Segment            |  | 2014                         |      
|Energy Broadband, Inc.      |  | $                            | 889  
|Wireless Bundled Services   |  |                              | 633  
|Enterprise Network Services |  |                              | 70   
|Total Sales                 |  | $                            | 1,592



For the three months ended March 31, 2014, net sales decreased
to $1,592,000 from $1,913,000 for the three months ended March 31, 2013. The overall decrease of 17% was attributable to decreased
sales of $316,000 in EBI and decreased sales of $28,000 in ENS offset with increased sales of $23,000 in WBS. The $321,000 decrease
in net sales is primarily attributable to $316,000 decreased sales in EBI from declining deployment of our MBT’s in the oil
and gas regions.





18







COST OF GOODS SOLD



The following tables set forth summarized cost of goods sold
information for the three months ended March 31, 2014 and 2013:





|($ in thousands)            |  | Three Months Ended March  31, |    
|--------------------------- |  | ----------------------------- | ---
|Business Segment            |  | 2014                          |    
|Energy Broadband, Inc.      |  | $                             | 509
|Wireless Bundled Services   |  |                               | 329
|Enterprise Network Services |  |                               | 94 
|Total cost of sales         |  | $                             | 932







|                                 |  | Three Months Ended March 31, |     |  |      |  
|-------------------------------- |  | ---------------------------- | --- |  | ---- | -
|($ in thousands)                 |  | 2014                         |     |  | 2013 |  
|                                 |  |                              |     |  |      |  
|Products and integration service |  | $                            | 312 |  |      | $
|Rent and maintenance             |  |                              | 210 |  |      |  
|Depreciation                     |  |                              | 410 |  |      |  
|Total cost of sales              |  | $                            | 932 |  |      | $





For the three months ended March 31, 2014, cost of goods sold
decreased by $92,000, to $932,000 from $1,024,000 as compared to the three months ended March 31, 2013. The decrease of $92,000
in cost of goods sold is primarily attributable to a decreased cost of $79,000 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 $23,000 in ENS due to sales decrease
in banking construction projects offset with increased cost in WBS of $10,000 associated with increased WBS sales.



OPERATING EXPENSES



The following table sets forth summarized operating expense
information for the three months ended March 31, 2014 and 2013:





|                                 |  | Three Months Ended March 31, |      
|-------------------------------- |  | ---------------------------- | -----
|($ in thousands)                 |  | 2014                         |      
|                                 |  |                              |      
|Employment expenses              |  | $                            | 786  
|Professional services            |  |                              | 223  
|Rent and maintenance             |  |                              | 102  
|Depreciation                     |  |                              | 23   
|Other general and administrative |  |                              | 230  
|Total operating expenses         |  | $                            | 1,364





For the three months ended March 31, 2014, operating expenses
decreased by 32% to $1,364,000, as compared to $2,018,000 for the three months ended March 31, 2013, resulting from:



| | · | A $390,000 decrease in employment expense ; primarily attributable to decreased in employee headcount to 47 at March 31, 2014 from 64 at March 31, 2013;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | A $235,000 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 $21,000 decrease in rent and maintenance;
| | - | -------------------------------------------



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



| | · | A $21,000 increase in other general and administrative.
| | - | -------------------------------------------------------



19







OTHER INCOME (EXPENSE), NET



For the three months ended March 31, 2014, other expense,
net decreased to $347,000 from $524,000 as compared to the three months ended March 31, 2013. The decrease in other expense of
$177,000 from the prior year period is primarily attributable to a decrease in our interest expense, net on debt obligations
totaling $312,000, a decrease in our net derivative income of $27,000, offset with an increase of $108,000 from loss on
extinguishment of debt as compared to interest expense, net of $758,000 and offset with a derivative income of $234,000 for
the three months ended March 31, 2013. The derivative expense/income represents the net unrealized (non-cash) charge during
the three months ended March 31, 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 three months ended March 31, 2014, our total comprehensive
loss was $1,050,000 compared to comprehensive loss of $1,656,000 for the three months ended March 31, 2013. The decreased comprehensive
loss for the three months ended March 31, 2014, as compared to the comprehensive loss for three months ended March 31, 2013 is
primarily attributable to the factors described above.



CASH FLOWS



The Company's operating activities decreased net cash used by
operating activities to $1,000 in the three months ended March 31, 2014, compared to net cash used of $1,109,000 in the three months
ended March 31, 2013. The decrease in 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 March 31, 2013.



The Company's investing activities used net cash of $30,000
in the three months ended March 31, 2014, compared to net cash used of $67,000 in the three months ended March 31, 2013. The decrease
in cash from investing activities is primarily attributable to a slower rollout of targeted oil and gas network upgrades.



The Company's financing activities provided net cash of
$205,000 in the three months ended March 31, 2014, compared to $1,114,000 of cash provided in the three months ended March
31, 2013. The cash provided in the three months ended March 31, 2014, was primarily associated with proceeds from debt
financings.



LIQUIDITY AND CAPITAL RESOURCES



At March 31, 2014, the Company's current assets
totaled $1,581,000 (including cash and cash equivalents of $216,000); and total current liabilities were $6,543,000,
resulting in negative working capital of $4,962,000. The Company has funded operations during the last three months primarily
through borrowings. These borrowings during the three months ended March 31, 2014 were incurred from the Company's line of
credit, net totaling $292,000. The Company’s short-term liquidity will be financed with the remaining line of credit
available of $7,486,000 as of March 31, 2014.



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. 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 March 31, 2014, the outstanding balance on the line of credit totaled $4,514,000
leaving a remaining line of credit available of $7,486,000.



During the three months ended March 31, 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.



20







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.



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 March 31, 2014, the outstanding balance on the debt financing
agreement totaled $1,519,000 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.



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 maturing September 5, 2013. At March 31, 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 the March 4, 2014 and thereafter at a rate of 18% per annum. The note is recorded as a current liability.



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 March 31, 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 March 31, 2014, the outstanding
principal balance of the JMJ Financial convertible promissory note totaled $204,000 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, 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 maturing October 1, 2013. At March 31, 2014, the outstanding principal balance of the Willow
Creek convertible promissory note totaled $228,000. 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.



21







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 maturing 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.



On June 28, 2013, the Company entered into a twelve-month secured
convertible promissory note debt financing agreement with TCA Global Credit Master Fund 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 restructuring
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 March 31, 2014, the outstanding principal balance of the
TCA Global convertible promissory note totaled $1,136,000. 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.



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%.



ISSUANCE OF COMMON STOCK



During the three months ended March 31, 2014, we issued to various
accredited investors 349,680 shares for interest, services rendered and debt conversions. We relied on Section 4(2) of the Securities
Act in effecting these transactions. During the three months ended March 31, 2014, we issued 26,362 shares of common stock for
fractional share roundup due to 400 to 1 reverse affected in December 2013.



USE OF WORKING CAPITAL



We believe our cash and available credit facilities afford us
adequate liquidity through March 31, 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 March 31, 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 which are generally three to seven
years.



22







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.



Derivative Instruments



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



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



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. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31,
2014, our disclosure controls and procedures were effective at the reasonable assurance level.



23







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.



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



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



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



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



Common Stock Issued for Interest, Services and Debt Conversions



In January 2014, 9,906 shares of Common Stock at average price
of $0.77 were issued for interest and debt conversions.



In February 2014, 101,309 shares of Common Stock at average
price of $0.63 were issued for interest debt conversions.



In March 2014, 238,465 shares of common stock at average price
of $0.47 were issued for interest, services and debt conversions.



Common Stock Issued Upon Conversion of Series A Preferred
Stock



On January, 2014, an accredited investor acquired 68,740 shares
of common stock pursuant to Preferred A Conversions.



On February, 2014, an accredited investor acquired 89,828 shares
of common stock pursuant to Preferred A Conversions.



On March, 2014, an accredited investor acquired 355,500 shares
of common stock pursuant to Preferred A Conversions.



ITEM 3. DEFAULT IN SENIOR SECURITIES



None.



24







ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS





|Exhibit 31 | Certification of Chief Executive officer and Chief Financial officer pursuant to Rules 13a-14 (a) and 15d-14 (a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 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.



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: | May 20, 2014           
| |       |                        
| | By:   | /s/ R. Greg Smith      
| |       | R. Greg Smith          
| |       | Chief Financial Officer
| | Date: | May 20, 2014           









25