ERF Wireless, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - CERTIFICATION - ERF Wireless, Inc.	erf_10q-ex3101.htm
EX-32.1 - CERTIFICATION - ERF Wireless, Inc.	erf_10q-ex3201.htm
EX-32.2 - CERTIFICATION - ERF Wireless, Inc.	erf_10q-ex3202.htm
EX-31.2 - CERTIFICATION - ERF Wireless, Inc.	erf_10q-ex3102.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

ERF WIRELESS, INC.

(Exact name of registrant as specified in its charter)

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

2911 SOUTH SHORE BOULEVARD, SUITE 100, LEAGUE CITY, TEXAS 77573

(Address of principal executive offices) (Zip Code)

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

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

Yes [X] No [_]

Indicate by check mark whether the registrant 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 [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 171,645,765 common shares issued and outstanding as of May 10, 2010

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ERF WIRELESS, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2010, AND DECEMBER 31, 2009

($ in thousands except share data)

	March 31,			December 31,
	2010			2009
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	75		$	228
Accounts receivable, net		429			494
Accounts receivable, other		85			78
Inventories		246			222
Costs and profits in excess of billings		18			17
Prepaid expenses and other current assets		191			242
Total current assets		1,044			1,281

Property and equipment
Property and equipment		9,718			9,347
Less: accumulated depreciation		(4,300	)		(3,712	)
Net property and equipment		5,418			5,635

Goodwill		1,255			1,255
Intangible assets, net		533			701
Other assets		227			245

Total assets	$	8,477		$	9,117
LIABILITIES AND SHAREHOLDERS’ (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt	$	1,654		$	1,881
Current portion of long-term capital leases		772			854
Accounts payable	$	777		$	586
Accrued expenses		687			486
Derivative liabilities		322			269
Deferred liability and revenue		545			585
Total current liabilities		4,757			4,661

Long-term debt of line of credit, net of current portion		6,200			5,449
Long-term debt, net of current portion		402			442
Long-term capital leases, net of current portion		645			789
Deferred liability and revenue, net of current portion		112			150
Total liabilities		12,116			11,491

Commitments

Shareholders’ (deficit):
Preferred stock - $.001 par value
Series A authorized 25,000,000 shares
Issued and outstanding at March 31, 2010, and
December 31, 2009, 2,420,390 and 3,043,580, respectively		2			3
Common stock - $.001 par value
Authorized 475,000,000 shares
Issued and outstanding at March 31, 2010, and
December 31, 2009, 162,805,742 and 145,575,735, respectively		163			146
Additional paid in capital		37,579			36,785
Accumulated deficit		(41,383	)		(39,308	)
Total shareholders’ (deficit)		(3,639	)		(2,374	)

Total liabilities and shareholders' (deficit)	$	8,477		$	9,117

See accompanying notes to consolidated financial statements.

ERF WIRELESS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

($ in thousands except loss per share)

	2010			2009

Sales:
Products	$	17		$	138
Services		1,462			1,185
Total sales		1,479			1,323

Costs of goods sold:
Products and integration services		373			443
Rent, repairs and maintenance		121			96
Depreciation		494			265
Total costs of goods sold		988			804

Gross profit		491			519

Operating expenses:
Selling, general and administrative		2,055			2,238
Depreciation and amortization		262			353
Total operating expenses		2,317			2,591

Loss from operations		(1,826	)		(2,072	)

Other income (expenses):
Interest expense, net		(421	)		(252	)
Gain on sale of assets and other income		3			-
Derivative income (expense)		169			(36	)
Total other income (expense)		(249	)		(288	)

Net loss	$	(2,075	)	$	(2,360	)

Net loss per common share:
Basic	$	(0.01	)	$	(0.02	)
Diluted	$	(0.01	)	$	(0.02	)

See accompanying notes to consolidated financial statements.

ERF WIRELESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

($ in thousands)

	2010			2009

Cash flows from operating activities
Net loss	$	(2,075	)	$	(2,360	)

Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of debt discount		82			39
Depreciation and amortization		756			618
Stock based compensation		13			-
Stock issued for services rendered and interest		421			825
Derivative (income) expense		(169	)		36
Bad debt expense		32			-
Changes in:
Accounts receivable, net		33			(97	)
Accounts receivable, other		(7	)		(10	)
Inventories		(24	)		(8	)
Prepaid expenses		51			33
Costs and profits in excess of billings		(1	)		(131	)
Accounts payable		191			(128	)
Accrued expenses		201			537
Deferred liability and revenue		(78	)		212
Total adjustment		1,501			1,926
Net cash used by operating activities		(574	)		(434	)

Cash flows from investing activities
Purchase of property and equipment		(370	)		(153	)
Change in other assets		18			12
Net cash used by investing activities		(352	)		(141	)

Cash flows from financing activities
Net proceeds from line of credit		750			355
Proceeds from notes payable		-			150
Proceeds from long-term debt obligations		605			550
Payment of long-term debt obligations		(608	)		(131	)
Payment on capital lease obligations		(226	)		(210	)
Proceeds from sale of common stock, net		252			169
Net cash provided by financing activities		773			883

Net increase (decrease) in cash		(153	)		308
Cash and cash equivalents at the beginning of the period		228			348
Cash and cash equivalents at the end of the period	$	75		$	656

Supplemental disclosure of cash flow information:
Net cash paid during the year for:
Interest	$	91		$	84
Income taxes	$	-		$	-

Supplemental non-cash investing and financing activities:
Conversion of debt through issuance of common stock	$	124		$	170
Property acquired under capital lease	$	-		$	68

See accompanying notes to consolidated financial statements.

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

NATURE OF THE COMPANY

ERF Wireless, Inc. (“Company” or “ERF Wireless”) provides secure, high-capacity wireless products and services to a broad spectrum of customers in primarily underserved, rural and suburban parts of the United States. We provide our customers with high quality broadband services and basic communications services to residential, oil and gas, and bank customers in the areas that otherwise would not be able to receive such services. We are also a comprehensive solutions provider to other enterprise customers, providing them with a wide array of 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 internet and 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 networks and other services associated with providing wireless products and services to the regional banking industry.

Our internet revenues are recorded in our subsidiary, “Wireless Bundled Services, Inc. (WBS)”, construction of bank networks in our subsidiary, “Enterprise Network Services, Inc. (ENS)” and other construction in our subsidiary, “Wireless Messaging Services, Inc. (WMS)” and Oil and Gas Division (O&G). Please refer to segment footnote 9 for additional information regarding the Company’s operating divisions.

We have evaluated subsequent events through the date the consolidated financial statements were issued.

BASIS OF ACCOUNTING

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's annual report for the year ended December 31, 2009 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 financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2009 as reported in form 10-K have been omitted.

INVENTORIES

Inventories are valued at the lower of cost or market. The cost is determined by using the average cost method. Inventories consist of the following items as of March 31, 2010 and December 31, 2009, in thousands:

	March 31,		December 31,
	2010		2009
Raw material	$	66	$	63
Finished goods		180		159
	$	246	$	222

The Company has pledged all the finished goods inventory of WBS of $180,000 and $159,000 as collateral against outstanding notes as of March 31, 2010 and December 31, 2009, respectively.

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.

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

NOTE 2 - 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 500,000,000, of which 25,000,000 are shares of preferred stock with a par value of $.001 per share ("Preferred Stock"), and 475,000,000 are shares of common stock with a par value of $.001 per share.

COMMON STOCK

As of March 31, 2010, there were 162,805,742 shares of common stock issued and outstanding.

During the three months ended March 31, 2010, the Company issued 3,145,000 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, 2010	Supplemental Non-Cash Disclosure
Professional fees	$	198
Settlements		7
Salary and compensation		177
Other services rendered		39
Total for services, interest, liabilities and compensation	$	421

Notes payable	$	124

During the three months ended March 31, 2010, we issued to various accredited investors an aggregate of 2,453,000 shares of restricted common stock for net consideration of $252,000. We relied on Section 4(2) of the Securities Act in effecting this transaction.

PREFERRED STOCK

The Company has 25,000,000 shares of Series A Preferred Stock authorized of which 2,420,390 shares were issued and outstanding as of March 31, 2010. With respect to the Series A Preferred Stock outstanding at March 31, 2010, the Company would be required to issue 45,204,043 shares of its common stock. During the first quarter of 2010, 623,190 Series A Preferred Stock was converted into net amount of 11,631,822 shares of common stock.

Each share of Series A Preferred Stock is convertible at holder's option for 18.676347 shares common stock. The holder of Series A Preferred Stock is required to give a 65-day notice of conversion to the Company. The holders of the Series A Preferred Stock are entitled to receive out of funds of the Company legally available therefore, dividends at the same rate as dividends are paid with respect to outstanding shares of common stock.

Holders of shares of the Series A Preferred Stock are entitled to vote, together with the holders of our common stock, on all matters submitted to a vote of the Company’s stockholders. Each share of Series A Preferred Stock entitles the holder thereof to 50 votes on all matters submitted to a vote of the Company’s stockholders.

Holders of the Series A Preferred Stock are also entitled to elect one director at any meeting of the Company’s stockholder at which such directors are to be elected. The right of the holders of the Series A Preferred Stock to elect such additional director shall cease when all outstanding shares of Series A Preferred Stock have been converted or are no longer outstanding. The shares of the Series A Preferred Stock are not redeemable by the Company.

In the event of any liquidation, the holders of shares of the Series A Preferred Stock are entitled to receive out of the assets of the Company available for distribution to the Company’s stockholders, before any distribution of assets is made to holders of any other class of capital stock of the Company, an amount equal to the purchase price per share, plus accumulated and unpaid dividends thereon to the date fixed for distribution.

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

WARRANTS

The Company had warrants outstanding to third parties to purchase 6,837,544 shares of common stock as of March 31, 2010.

Warrants to purchase 389,999 shares of common stock at a purchase price of $3.57 per share were issued by the Company in September 2005 and November 2005. Specifically, the Company issued convertible notes for $1,500,000 to accredited investors and issued warrants to purchase 389,999 shares of common stock at $3.57 per share, subject to adjustment, expiring September 2010, as additional consideration.

During 2009, the Company issued convertible subordinated notes for $1,390,000 to accredited investors and issued warrants to purchase 1,558,297 shares of common stock at $.45 per share, subject to adjustment if future equity financing is below their exercise price, expiring three years from issuance, as additional consideration.

Warrants to purchase 4,889,248 shares of Common stock at a purchase price $5.00 per share were issued by the Company during 2006 through 2009.

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

Warrants Outstanding
Exercise Price		Expiration Date	December 31, 2009		Issued		Exercised		March 31, 2010
	3.57	Sep-10		389,999		-		-		389,999
	0.45	Mar-12		1,558,297		-		-		1,558,297
	5.00	August-11 thru May-14		4,889,248		-		-		4,889,248
				6,837,544		-		-		6,837,544

NOTE 3 – STOCK PLAN AND EMPLOYEE STOCK OPTIONS

In April 2008, the Board of directors adopted a Non-Qualified Stock Option Plan whereby 15,000,000 shares were reserved for issuance. As of March 31, 2010, under the 2008 Non-Qualified Stock Option Plans, 10,632,015 shares were issued and outstanding by certain employees and consultants for services rendered.

Stock Plan activity was as follows for the three months ended March 31, 2010:

	2008
	Plan
Shares initially reserved		15,000,000

Remaining shares January 1, 2010		5,995,378

Shares issued during 2010		1,627,393

Remaining shares available to be issued at March 31, 2010		4,367,985

Shares issued and outstanding as of March 31, 2010		10,632,015

The Company has granted to certain officers and employees 325,000 stock options which are currently exercisable. Option activity was as follows for the three months ended March 31, 2010:

	Shares		Weighted-Average Exercise Price
Outstanding at beginning of year		125,000	$	0.43
Granted		200,000		0.17
Exercised		-		-
Forfeited/cancelled		-		-

Outstanding at the end of period		325,000	$	0.27

Exercisable at March 31, 2010		325,000	$	0.27

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

The weighted average fair value of the individual options granted during the three months ended March 31, 2010, is estimated at $.06 on the date of grant. The fair values were determined using a Black-Scholes option-pricing model with the following assumptions:

	3/31/2010
Assumptions	Options
Dividend yield		0.00%
Risk-free rate for term		0.20%
Volatility		84.00%
Expected life		5.0

Information about options outstanding was as follows at March 31, 2010:

				Remaining Weighted				Remaining Weighted
Class		Number		Average Contractual		Number		Average Exercise
Exercise Price		Outstanding		Life in Years		Exercisable		Price

	$0.17		200,000		5.00		200,000		$0.17
	$0.43		125,000		3.33		125,000		$0.43

			325,000		4.17		325,000		$0.27

NOTE 4 - EARNINGS PER SHARE:

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

	For the three months ended March 31, 2010
	Net loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic EPS:
Loss available to common stockholders	$	(2,075	)		152,709	$	(0.01	)
Effect of dilutive securities		-			-		-
Diluted EPS:
Loss available to common stockholders and assumed conversions	$	(2,075	)		152,709	$	(0.01	)

	For the three months ended March 31, 2009
	Net loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic EPS:
Loss available to common stockholders	$	(2,360	)		105,980	$	(0.02	)
Effect of dilutive securities		-			-		-
Diluted EPS:
Loss available to common stockholders and assumed conversions	$	(2,360	)		105,980	$	(0.02	)

For the three months ended March 31, 2010, dilutive securities existed. 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, 2010 does not include 325,000 shares of common stock assuming all employee stock options were exercised; 6,837,544 shares of common stock assuming all warrants were exercised; 4,761,905 shares of common stock assuming all convertible debt were exercised; 45,204,043 shares of common stock assuming all Series A Preferred Stock were converted due to their anti-dilutive effect.

NOTE 5 - MAJOR CUSTOMERS

The Company had gross sales of approximately $1,479,000 and $1,323,000 for the three months ended March 31, 2010 and 2009, respectively. The Company had one customer that represented 10% of the gross sales in the three months ended March 31, 2010. The Company had one customer that represented approximately 10% of gross sales for the three months ended March 31, 2009.

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(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, 2010 (in thousands):

	Terms	Maturity Date	Interest Rate	Gross Balance	Debt Discount	Net Balance
Bancleasing, Inc.	$10,660 / Month including interest	October-14	11.62%	$ 471	$ -	$ 471
Agility Capital Lease	$83,708 / Month including interest	Various	18.82%	936	-	936
Balboa Lease	$225 / Month including interest	August-10	27.74%	1	-	1
De Lage Landen Lease	$691 / Month including interest	April-11	19.12%	8	-	8
Toyota	$517 / Month including interest	December-10	8.01%	3	-	3
Blanco National Bank	$3,913 / Month including interest	August-10	9.50%	12	-	12
Robert McClung, Momentum	$23,476 / Quarterly including interest	October-10	7.50%	68	-	68
George Kemper, TSTAR	$38,254 / Quarterly including interest	April-10	7.50%	42	-	42
Shane Griffths, Crosswind	$13,911 / Quarterly including interest	December-10	7.50%	55	-	55
Centramedia	$56,342 / Quarterly including interest	December-11	7.50%	414	-	414
Frontier Internet LLC	$33,846 / Quarterly including interest	May-12	6.00%	283	-	283
Ronnie D Franklin	$6,054 / Quarterly including interest	May-12	6.00%	51	-	51
Premium Assignment, Insurance notes	$2,434 / Month including interest	September-10	7.54%	6	-	6
Convertible Note	1 year	Demand	10.00%	540	217	323
Convertible Subordinated Financing	1 year	Demand	10.00%	841	41	800
Line of credit	2 years/ Quarterly interest (See below)	December-11	12.00%	6,200	-	6,200
Total debt				$ 9,931	$ 258	9,673
Less current maturities						(2,426)
Add back debt discount current maturities						258
Long-term debt						$ 7,505

LINE OF CREDIT

December 2009, the Company increased its unsecured revolving credit facility with Angus Capital Partners a related party from $6.5 million to $10.5 million maturing December 30, 2011. 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 12% rate per annum. The payment of principal and interest may be paid in cash, common shares or preferred shares. At March 31, 2010, the outstanding balance on the line of credit of totaled $6,200,000 with a remaining line of credit of $4,300,000.

CONVERTIBLE SUBORDINATED FINANCING

During 2009, the Company entered into an agreement with an investment banking firm to raise up to $3,000,000 in convertible subordinated promissory notes. These notes are unsecured, bear interest at 10% and are due upon the earlier of one year or completion of second private placement. The note holder has the option of exchanging their notes for an equivalent amount of the subsequent funding transaction or being repaid the principal and interest at this second funding date. In connection with the issuance of the convertible subordinated promissory notes the investors will be issued common stock purchase warrants to purchase up to 1,558,297 shares of common stock that are exercisable at $.45 per share subject to adjustment from future equity financing if below their exercise price, and expire three years from issuance.

Based on the guidance in ASC 815-10 and ASC 815-40-15, the Company concluded the warrants are required to be accounted for as derivatives as of the issue date due to a reset feature on the exercise price. At the date of issuance of the convertible subordinated financing, warrant derivative liabilities were measured at fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the consolidated statements of operations as “Gain (loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815-10 and are disclosed on the balance sheet under Derivative Liabilities.

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

The Company uses the effective interest method to record interest expense and related debt accretion which was $76,000 for the three months ended March 31, 2010, and the estimated debt accretion for 2010 is $41,000.

The following table summarizes the convertible debt activity for the period December 31, 2009, to March 31, 2010 (in thousands):

Description	Bridge Note			Warrant Liabilities			Total

Fair value at December 31, 2009	$	1,273		$	268		$	1,541
01-01-10 to 03-31-10 change in fair value		77			(134	)		(57	)
Conversions during period		(550	)		-			(550	)
Fair value at March 31, 2010	$	800		$	134		$	934

For the year to date ended March 31, 2010 and 2009, net derivative income was $134,000 and $4,000 respectively.

CONVERTIBLE NOTE

During the period ended March 31, 2010, the Company entered into a convertible note agreement in exchange for certain convertible subordinated note holders for a total amount of $605,000 of principal and interest. These notes are unsecured, bear interest at 10% and are due within one year of the signed note. The note will be guaranteed for any remaining outstanding amount by Angus Capital Partners, a related party.

At the Company's discretion principal and interest can be repaid in cash or in shares of our common stock, which shares will be valued at the 75% of the average of the three (3) lowest daily VWAPs during the twenty (20) trading days immediately preceding the applicable conversion date on which the holder elects to convert all or part of the note.

The convertible note was determined to include various embedded derivative liabilities. The derivative liabilities are the conversion feature, the redemption option, forced conversion and full reset feature (compound embedded derivative liability). At the date of issuance the convertible 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 income statement.

The Company uses the effective interest method to record interest expense and related debt accretion which was $6,000 for the three months ended March 31, 2010, and the estimated debt accretion for 2010 and 2011 are $159,000 and $58,000, respectively.

The following table summarizes the convertible debt activity for the period March 19, 2010, to March 31, 2010 (in thousands):

Description	Convertible Note			Compound Derivative Liability			Total

Fair value issuance at inception	$	355		$	250		$	605
03-19-10 to 03-31-10 change in fair value		33			(62	)		(29	)
Conversions during period		(65	)		-			(65	)
Fair value at March 31, 2010	$	323		$	188		$	511

For the year to date ended March 31, 2010, net derivative income was $35,000.

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

CAPITAL LEASES

Agility Lease Fund, LLC Included in property and equipment at March 31, 2010, is $929,000 capitalized equipment, net of amortization. The equipment and one of the Company's bank accounts are the primary collateral securing the financing with a guarantee of repayment by ERF Wireless, Inc.

BancLeasing Inc., Included in property and equipment at March 31, 2010, is $550,000 capitalized equipment, net of amortization. The equipment is the primary collateral securing the financing.

The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2010 (in thousands):

Year Ending December 31,
2010	$	761
2011		524
2012		141
2013		128
2014		128
Thereafter		11
Total minimum lease payments		1,693
Less amount representing interest		(276	)
Present value of net minimum lease payments		1,417
Current maturities of capital lease obligations		(772	)
Long-term portion of capital lease obligations	$	645

NOTE 7 – UNCOMPLETED CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts as of March 31, 2010 and December 31, 2009 are summarized as follows (in thousands):

	March 31,		December 31,
	2010		2009
Costs incurred on uncompleted contracts	$	9	$	9
Estimated profit		9		8
Gross revenue		18		17
Less: billings to date		-		-
Costs and profit in excess of billings	$	18	$	17

Such amounts are included in the accompanying balance sheets at March 31, 2010 and December 31, 2009 are summarized as follows (in thousands):

	March 31,		December 31,
	2010		2009
Cost and estimated earnings in excess of billings on uncompleted contracts	$	18	$	17

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

	$	18	$	17

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

NOTE 8 - COMMITMENTS

LEASES AND LICENSE AGREEMENTS

For the three months ended March 31, 2010 and 2009, rental expenses of approximately $214,000 and $185,000, respectively, were incurred. The Company accounts for rent expense under leases that provide for escalating rentals over the related lease term on a straight-line method. The Company occupies office and tower facilities under several non-cancelable operating lease agreements expiring at various dates through September 2018, and requiring payment of property taxes, insurance, maintenance and utilities.

Future minimum lease payments under non-cancelable operating leases at March 31, 2010, were as follows (in thousands):

Period Ending December 31,	Amount
2010	$	459
2011		416
2012		62
2013		20
2014		10
Thereafter		24
Total	$	991

Banc Leasing Inc.,

During August 2007, the Company entered into a contract with Banc Leasing Inc., to fund the Company’s US-Banknet System to provide up to $10 Million into equipment financing. The funding is provided only after contract is sign with financial institution. 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 footnote 6.

Purchase Commitment – Mobile Broadband Trailers

The Company entered into a contract in the amount $4.7 million for the production of 321 Mobile Broadband Trailers (MBTs). The production of the MBTs will take an extended period of time to complete with the Company currently taking initial delivery of MBTs. The Company will utilize the MBTs for deployment of the high-speed wireless broadband digital oilfield solutions for oil and gas drilling operations throughout North America.

NOTE 9 - INDUSTRY SEGMENTS

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

Wireless Bundled Services Division (WBS)

WBS provides wireless broadband products and services to commercial and individual customers throughout the wireless industry. The company is in the early stages of building and acquiring a seamless wireless broadband network throughout North America to serve private entities, cities, municipalities and the general public. All sales from external customers are located within the United States.

Wireless Messaging Services Division (WMS)

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

ERF WIRELESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

Enterprise Network Services (ENS)

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

Oil & Gas Division (O&G)

O&G provides wireless connectivity to rural oil and gas locations primarily via Mobile Broadband Trailers (MBT’s). O&G 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. The O&G division is a division of WBS.

For the three months ended March 31, 2010 (in thousands)

	WMS			WBS			O&G			ENS			Total
Revenue	$	22		$	1,233		$	172		$	52		$	1,479
Segment (loss) income		(46	)		(481	)		(96	)		(150	)		(773	)
Segment assets		33			6,082			644			1,505			8,264
Capital expenditures		-			93			275			-			368
Depreciation and amortization		4			644			29			55			732

	Three Months Ended
Reconciliation of Segment Loss from Operations to Net Loss	March 31, 2010
Total segment loss from operations	$	(773	)
Total corporate overhead including other, net		(1,302	)
Net loss	$	(2,075	)

Reconciliation of Segment Assets to Total Assets	March 31, 2010
Total segment assets	$	8,264
Total corporate assets		213
Consolidated assets	$	8,477

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

For the quarter ended March 31, 2010, one customer accounts for $152,000 of the Oil & Gas Division revenues.

NOTE 10 - SUBSEQUENT EVENTS

Subsequent to March 31, 2010, the Company issued 8,840,023 shares of common stock for services rendered, debt, exchange of liabilities, and conversion of preferred stock.

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

Historically, our revenues have been generated primarily from Internet and construction services. Our Internet revenues result from our offering of broadband and basic communications services to residential and enterprise customers. Our construction revenues result from the construction of bank networks and other services associated with providing wireless products and services to the regional banking industry. During the three months ended March 31, 2010, approximately 95% of our revenues were generated from internet services or WBS and 4% of our revenues were generated from banking construction services or ENS. We expect that our internet services will experience the most growth during fiscal 2010, as we expect to continue to devote significant capital resources to developing the oil and gas market utilizing wireless services of our WBS division.

During the first quarter of fiscal 2010, the Company continued to make progress with its strategic business plan as evidenced by the completion and announcement of numerous significant agreements and activities. These include:

The Company’s Wireless Bundled Services division WBS experienced a $299,000 or 27% increase in revenues in the first quarter ended March 31, 2010 as compared to the same quarter a year ago Oil and Gas wireless broadband services contributed $172,000 during the first quarter ended March 31, 2010 as compared to $10,000 for the first quarter of 2009. For additional comparison purposes, Oil and Gas wireless broadband services contributed a total of $72,000 in calendar year 2008 and $308,000 in calendar year 2009. We expect that the growth trend will continue for WBS and especially that revenue associated with Oil and Gas industry.

Following the completion of a BranchNet encrypted enterprise-class wireless banking network for West Texas State Bank located in the oil and gas rich Permian Basin including the Midland and Odessa, Texas markets, the Company initiated a WiNet marketing campaign and begun reselling digital wireless oilfield solutions off of this network to its oil and gas customers in this region. The network is comprised of FCC-licensed frequencies creating a 165Mbps backbone, delivering speeds in excess of 40Mbps to each branch bank location. The WiNet contract alone is expected to generate more than $6 million in recurring revenues over the next ten years after a two-year ramp-up period. The bank will receive a percentage of the gross subscriber revenues as part of the agreement.

The announcement of the immediate start of design, development and construction of a new wireless network in the oil and gas rich Haynesville Shale in northwestern Louisiana and northeastern Texas; covering hundreds of natural gas drilling rigs in one of the fastest growing gas shale developments in North America.

·	The submittal of second round applications for approximately $31 million of broadband stimulus funding in a two-state region under the Broadband Initiatives Program (“BIP”) for Louisiana and parts of East, Central and South Texas.

The Company announced that they have begun taking delivery of the initial shipments from the recently announced $4.7 million order of Mobile Broadband Trailers (MBTs) that will expedite the deployment of the company's high-speed wireless broadband digital oilfield solutions for oil and gas drilling operations throughout North America.

The Company has recently completed the initial deployments of part of its MBT fleet in support of oil and gas customer requirements for well workovers on certain existing oil and gas wells and for new well completions. Referred sometimes as "fracture stimulation" or "FRAC" jobs for existing mature wells, they require the same level of communications as existing new drilling operations. There are hundreds of thousands of existing wells throughout North America and ERF Wireless has already received substantial commitments for 2010 from its oil and gas customers for this new area of wireless business.

The Company announced that its Oil & Gas Services Division has recently completed the initial installations of its wireless broadband services to its first customer in the Horn River Basin of the Canadian Province of British Columbia. While ERF Wireless has previously reported that it has wireless broadband capabilities throughout much of the Canadian Province of Alberta through a Master Service Agreement with a Canadian public company, this is the first reported service entry into British Columbia and the first report of the deployment of its wireless broadband services in Canada.

The Company announced that, because of the broad scope of oil and gas wireless communications products and services it is now providing, it has agreed with its exclusive resale marketing partner that it will also be allowed to market directly to the end customer as well as jointly under the existing resale contract to increase the overall combined scope of the marketing effort to the oil and gas industry. The details of this additional marketing thrust, as well as other modifications and clarifications, are intended to be defined in the near future in an addendum to the existing exclusive resale contract.

The Company announced that, as part of its initial independent marketing thrust under its modified exclusive contract with the world's largest oil and gas services company, its Oil & Gas Services Division exhibited and demonstrated the company's reliable, high-speed, wireless broadband communications system at a number of industry trade shows, including at the 2010 Offshore Technology Conference (OTC) recently held in Houston May 3rd through the May 6th. The ERF Wireless system dramatically reduces operating expenses for its oil and gas customers by streaming critical data from remote drilling, completion and production oil and gas sites to corporate offices for rapid analysis and decision making.

The Company announced that its Oil & Gas Services Division has recently taken delivery of the first unit in a family of new mobile broadband trailers that are proprietary to ERF Wireless and that are equipped with 100-foot deployable towers. These giant mobile broadband towers (MBTs) are unique to the industry as compared to the more common 50-foot MBTs currently being used across most ERF Wireless networks. These new 100-foot MBTs were specifically designed and developed for the tall forested regions of certain of the oil and gas drilling regions where even VSAT communications with much lower bandwidth have trouble transmitting beyond the 80- to 90-foot tree canopy surrounding the drilling rigs. In particular, new ERF Wireless network coverage initiatives into areas such as recently announced in the Haynesville Shale region would not be possible without this new 100-foot MBT.

The Company announced that its ERF Enterprise Network Services subsidiary (ENS) has finished deploying a BranchNet(TM) and BankNet(TM) encrypted enterprise-class wireless banking network for First Federal Bank of Louisiana that spans almost the entire western region of Louisiana from Lake Charles in the south to Natchitoches in the north. This network provides more than 280 miles of continuous network coverage with the most disparate branch locations being approximately 140 miles apart encompassing some of the most difficult rain and foliage regions in the United States.

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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2010, COMPARED TO THREE MONTHS ENDED MARCH 31, 2009

The following table sets forth summarized consolidated financial information for the three months ended March 31, 2010 and 2009:

	Three Months Ended March 31,

($ in thousands)	2010			2009			$ Change			% Change
Total sales	$	1,479		$	1,323		$	156			12	%
Cost of goods sold		988			804			184			23	%
Gross profit		491			519			(28	)		-5	%
Gross margin %		33%			39%
Operating expenses		2,317			2,591			(274	)		-11	%
Loss from operations		(1,826	)		(2,072	)		246			-12	%
Other income/(expense)		(249	)		(288	)		39			-14	%
Net loss		(2,075	)		(2,360	)		285			-12	%

For the three months ended March 31, 2010, the Company's business operations reflected an increase in sales for Wireless Bundled Services with an offset of decreased sales of Enterprise Network Services and for Wireless Messaging Services. For the three months ended March 31, 2010, the Company's consolidated operations generated net sales of $1,479,000 compared to prior year net sales of $1,323,000. The $156,000 increase in net sales is primarily attributable to $299,000 increase in recurring wireless broadband services with the increased growth attributed to recent asset acquisitions and oil and gas revenue from deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions, offset with decrease sales in banking network installation and services of $105,000 primarily attributable to a downturn in the banking industry which has cause a slowdown on capital spending and a decrease in Wireless Messaging Services of $38,000. Service sales increase $277,000 offset with a decrease of $121,000 in product sales. The $156,000 increase is primarily attributable to recurring wireless broadband services with the increase growth attributed to recent asset acquisitions and oil and gas revenue from deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions. For the three months ended March 31, 2010, the Company had a gross profit margin of 33%, compared to a gross profit margin 39% for the prior year. The $28,000 decrease in gross profit margin is primarily attributed to the following factors; (i) approximately $51,000 increase in gross margin attributable to increased recurring customers as result of recent wireless broadband acquisitions (ii) $69,000 decrease in gross margins primarily related to depreciation of our BankNet infrastructure with minimal customer base offsetting the expense at this time, and (iii) $10,000 decrease in gross margins for wireless paging primarily related to a decrease in customer base.

The Company incurred a net loss of $2,075,000 for the three months ended March 31, 2010. The Company's principal components contributing to the net loss for the three months ended March 31, 2010, included approximately $756,000 in depreciation and amortization expenses, $420,000 of interest expense, and $353,000 of other general and administrative expense, $1,188,000 in employment expenses and $407,000 in professional services expense.

SALES INFORMATION

Set forth below is a table presenting summarized sales information for our business segments for the three months ended March 31, 2010 and 2009. The Oil & Gas division is a division of WBS and the sales have been presented within WBS in the table below.

Three Months Ended March 31,

($ in thousands)
Business Segment		2010	% of Total		2009	% of Total	$ Change			% Change
Wireless Messaging Services	$	22	1%	$	60	4%	$	(38	)	-63%
Wireless Bundled Services		1,405	95%		1,106	84%		299		27%
Enterprise Network Services		52	4%		157	12%		(105	)	-67%
Total Sales	$	1,479	100%	$	1,323	100%	$	156		12%

For the three months ended March 31, 2010, net sales increased to $1,479,000 from $1,323,000 for the three months ended March 31, 2009. The overall increase of 12% was attributable to an increase of $299,000 of Wireless Bundled Services and offset with a decrease $105,000 in Enterprise Network Services and a decrease in Wireless Messaging Services of $38,000. The $38,000 decrease in Wireless Messaging Services was primarily attributable to decreasing customer base and the $105,000 decrease in banking network installation and services is due to a downturn in the banking industry which has cause a slowdown on capital spending. The $299,000 increase was primarily attributable to recurring wireless broadband services with recent asset acquisitions and oil and gas revenue from deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions.

COST OF GOODS SOLD

The following tables set forth summarized cost of goods sold information for the three months ended March 31, 2010 and 2009 The Oil & Gas division is a division of WBS and the cost of goods sold have been presented within WBS in the table below:

Three Months Ended March 31,

($ in thousands)
Business Segment		2010	% of Total		2009	% of Total	$ Change			% Change
Wireless Messaging Services	$	17	2%	$	45	5%	$	(28	)	-62%
Wireless Bundled Services		873	88%		625	78%		248		40%
Enterprise Network Services		98	10%		134	17%		(36	)	-27%
Total cost of sales	$	988	100%	$	804	100%	$	184		23%

For the three months ended March 31, 2010, cost of goods sold increase by $184,000, or 23%, to $988,000 from $804,000 as compared to the three months ended March 31, 2009. The increase of $184,000 in cost of goods sold is primarily attributable to an increase of $248,000 in WBS due to increase depreciation and rent as a result of recent acquisitions and deployment of our Mobile Broadband Trailers (MBT’s) in oil and gas regions, and offset with a decrease of $36,000 in ENS and a decrease of $28,000 in WMS.

OPERATING EXPENSES

The following table sets forth summarized operating expense information for the three months ended March 31, 2010 and 2009:

	Three Months Ended March 31,
($ in thousands)	2010		2009		$ Change			% Change

Employment expenses	$	1,188	$	1,164	$	24			2%
Professional services		407		586		(179	)		-31%
Rent and maintenance		107		108		(1	)		-1%
Depreciation and amortization		262		352		(90	)		-26%
Other general and administrative		353		381		(28	)		-7%
Total operating expenses	$	2,317	$	2,591	$	(274	)		-11%

For the three months ended March 31, 2010, operating expenses decreased by 11% to $2,317,000, as compared to $2,591,000 for the three months ended March 31, 2009. The decreases that occurred, as evidenced by the immediately preceding table, are discussed below:

·	A $24,000 increase in employment expense. The increase is primarily attributable to growth of the company through recent acquisitions;

·	A $179,000 decreased in professional services. The decrease is primarily related to a reduction of outside consultants for investor relations and accounting expenses;

·	A $90,000 decreased in depreciation and amortization; and

·	A $28,000decrease in other general and administrative expense.

OTHER (INCOME) EXPENSE, NET

For the three months ended March 31, 2010, the increase in other expense is primarily attributable to interest expense, net on debt obligations totaling $421,000 and a net derivative income of $169,000 as compared to interest expense, net of $252,000 and derivative expense of $36,000 for the three months ended March 31, 2009. The derivative expense/income represents the net unrealized (non-cash) charge during the three months ended March 31, 2010 and 2009, in the fair value of our derivative instrument liabilities related to warrants and embedded derivatives in our debt instruments that have been bifurcated and accounted for separately.

NET LOSS

For the three months ended March 31, 2010, our net loss was $2,075,000 compared to a loss of $2,360,000 for the three months ended March 31, 2009. The decreased in the loss for the three months ended March 31, 2010, as compared to the three months ended March 31, 2009 is primarily attributable as evidenced by the immediately preceding table, are discussed above.

CASH FLOWS

The Company's operating activities increased net cash used by operating activities to $574,000 in the three months ended March 31, 2010, compared to net cash used of $434,000 in the three months ended March 31, 2009. The increase in net cash used by operating activities was primarily attributable to an improvement in the company's net operating loss of $2,075,000, net of $1,304,000 non-cash charges and combine with derivative income of $169,000 to equal net non-cash charge of $1,135,000, combined together with $366,000 of cash provided by fluctuations in working capital requirements consisting of the combination of accounts receivable, inventory, prepaid expenses, accounts payable, accrued expenses, cost and profit in excess of billings, deferred liability lease and deferred revenue.

The Company's investing activities used net cash of $352,000 in the three months ended March 31, 2010, compared to use of net cash of $141,000 in the three months ended March 31, 2009. The increase in investing activities is primarily growing WISP and Oil and Gas capabilities through expansion of our infrastructure in Texas, New Mexico and Louisiana.

The Company's financing activities provided net cash of $773,000 in the three months ended March 31, 2010, compared to $883,000 of cash provided in the three months ended March 31, 2009. The cash provided in the three months ended March 31, 2010, was primarily associated with the proceeds from equity financings, equity and debt financing and the line of credit, net.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2010, the Company's current assets totaled $1,044,000 (including cash and cash equivalents of $75,000); total current liabilities were $4,757,000, resulting in negative working capital of $3,713,000. The Company has funded operations to date primarily through a combination of utilizing cash on hand, borrowings and raising additional capital through the sale of its securities. The Company operation for the three months ended March 31, 2010, was primarily funded by proceeds from the Company's line of credit totaling $750,000, sale of restricted common stock, net to accredited investors of $252,000 and convertible debt financing of $605,000.

CURRENT DEBT FACILITY

At March 31, 2010, the Company had approximately $4,300,000 available on a $10.5 million unsecured revolving credit facility with Angus Capital Partners, which matures in December 2011. The terms of the two-year unsecured revolving credit facility will allow us to draw upon the facility as financing requirements dictate and provides for quarterly interest payments at an annual 12% rate. The loan may be prepaid without penalty or repaid at maturity.

ISSUANCE OF COMMON STOCK

During the three months ended March 31, 2010, we issued to various accredited investors and third parties (i) 2,453,000 shares of restricted common stock for net consideration of $252,000, (ii) 1,518,000 shares for services rendered and debt conversions, and (iii) 11,632,000 shares upon conversion of Series A Preferred Stock. We relied on Section 4(2) of the Securities Act in effecting these transactions. During the three months ended March 31, 2010, we issued 1,627,000 shares of common stock to employees and business consultants, for aggregate consideration of $313,000 of services rendered, pursuant to a registration statement on form S-8.

USE OF WORKING CAPITAL

We believe our cash and available credit facilities afford us adequate liquidity for the balance of fiscal 2010. We anticipate that we will need additional capital in the future to continue to expand our business operations, which expenditures may include acquisitions and capital expenditures. We have historically financed our operations through private equity and debt financings. We do not have any commitments for significant equity funding at this time, and additional funding may not be available to us on favorable terms, if at all. As such there is no assurance that we can raise additional capital from external sources, the failure of which could cause us to curtail operations.

CONTRACTUAL OBLIGATIONS

The following table sets forth contractual obligations as of March 31, 2010:

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual obligations:
Long-term debt obligations	$	9,716	$	2,866	$	6,850	$	-	$	-
Capital lease obligations		1,692		761		793		138		-
Operating lease obligations		991		459		478		30		24
Total contractual obligations	$	12,399	$	4,086	$	8,121	$	168	$	24

The Company's contractual obligations consist of long-term debt of $8,256,000, derivative liabilities of $322,000, unamortized debt discount of $258,000 and interest expense of $880,000 as set forth in Note 6 to the company's financial statements, Notes Payable, Long-Term Debt. The capital lease obligations include interest as set forth in Note 6 in the future minimum lease payments schedule and certain obligations for operating leases requiring future minimal commitments under non-cancelable leases set forth in Note 8 -Commitments.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2010, the Company did not have any significant off-balance-sheet arrangements other than certain office and tower facility operating leases requiring minimal commitments under non-cancelable leases disclosed in the table above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Property and Equipment

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

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

Long-Lived Assets

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

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

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

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

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

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

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

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

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

See Risk Factors in item 1A of the Company form 10-K of Fiscal year ended December 31, 2009.

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

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

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

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

Common Stock Issued for Cash Consideration

On March 10, 2010, accredited investors acquired 2,453,006 shares of common stock at $0.11 per share.

Common Stock Issued for Debt Conversions and Services Rendered

In January, 2010, 93,904 shares of common stock at average price of $.25 were issued for debt conversions and services rendered.

In February, 2010, 312,523 shares of common stock at average price of $.18 were issued for debt conversions and services rendered.

In March, 2010, 1,111,359 shares of common stock at average price of $.13 were issued for debt conversions and services rendered.

Common Stock Issued Upon Conversion of Series A Preferred Stock

On January 5, 2010, an accredited investor acquired 26,795 shares of common stock pursuant to Preferred A Conversions.

On February 22, 2010, an accredited investor acquired 7,844,066 shares of common stock pursuant to Preferred A Conversions.

On February 24, 2010, an accredited investor acquired 25,691 shares of common stock pursuant to Preferred A Conversions.

On March 11, 2010, an accredited investor acquired 3,735,270 shares of common stock pursuant to Preferred A Conversions.

ITEM 3. DEFAULT IN SENIOR SECURITIES

None.

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

None.

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

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 17, 2010

ERF Wireless, Inc. - FORM 10-Q - May 19, 2010

Attached files

ERF Wireless, Inc. Reports