UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2012~~March 31, 2013

£ 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.

YesS 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)

YesS 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 companyS

~~Large accelerated filer~~£	~~Accelerated filer~~£
~~Non-accelerated filer~~£	~~Smaller reporting company~~S

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

Yes£ NoS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. ~~4,418,165~~9,633,440 common shares issued and outstanding as of ~~November 14, 2012.~~May 17, 2013

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ERF WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
~~SEPTEMBER 30, 2012,~~MARCH 31, 2013, AND DECEMBER 31, ~~2011~~2012
($ in thousands except share data)

September 30, December 31,
2012 2011
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 71 $ 591
Securities held for resale – 7
Accounts receivable, net 891 596
Accounts receivable, other 468 310
Inventories 385 358
Prepaid expenses and other current assets 84 285
Total current assets 1,899 2,147

Property and equipment
Property and equipment 11,388 9,932
Less: accumulated depreciation (7,043 ) (5,868 )
Net property and equipment 4,345 4,064

Goodwill 176 176
Other assets 33 63
Total assets $ 6,453 $ 6,450

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt $ 1,248 $ 259
Current portion of long-term capital leases 164 126
Accounts payable 854 694
Accrued expenses 921 661
Derivative liabilities 686 27
Deferred liability and revenue 233 210
Total current liabilities 4,106 1,977

Line of credit (LOC) 3,527 4,592
Long-term debt, net of current portion 1,507 1,667
Long-term capital leases, net of current portion 261 305
Total liabilities 9,401 8,541

Commitments

Shareholders’ deficit:
Preferred stock - $0.001 par value, 25,000,000 authorized Series A designated 10,000,000 shares Issued and outstanding at September 30, 2012 and December 31, 2011, 8,626,982 and 8,578,887, respectively 9 9
Common stock - $0.001 par value Authorized 975,000,000 shares Issued and outstanding at September 30, 2012 and December 31, 2011, 4,051,181 and 2,160,996, respectively 4 2
Additional paid in capital 51,917 49,121
Accumulated deficit (54,970 ) (51,198 )
Accumulated other comprehensive loss (32 ) (25 )
       Total ERF wireless, Inc. shareholders’ deficit (3,072 ) (2,091 )
       Non-controlling interest 124 –
Total shareholders’ deficit (2,948 ) (2,091 )

Total liabilities and shareholders' deficit $ 6,453 $ 6,450
March 31, December 31,
2013 2012
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 56 $ 118
Accounts receivable, net 845 828
Accounts receivable, other 364 346
Inventories 385 377
Costs and estimated earnings in excess of billings on uncompleted contracts 39 35
Prepaid expenses and other current assets 304 221
Total current assets 1,993 1,925

Property and equipment
Property and equipment 11,729 11,644
Less: accumulated depreciation (7,999 ) (7,511 )
Net property and equipment 3,730 4,133
��
Goodwill 176 176
Other assets 36 37

Total assets $ 5,935 $ 6,271

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt $ 1,079 $ 1,358
Current portion of long-term capital leases 183 169
Accounts payable $ 1,025 $ 1,226
Accrued expenses 740 1,120
Derivative liabilities 610 492
Deferred revenue 14 20
Total current liabilities 3,651 4,385

Line of credit (LOC) 3,379 3,168
Long-term debt, net of current portion 1,418 1,419
Long-term capital leases, net of current portion 167 214
Total liabilities 8,615 9,186

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, 2013 and December 31, 2012, 8,426,982 and 8,426,982 shares, respectively 8 8
Common stock  -  $0.001 par value authorized 975,000,000 shares issued and outstanding at March 31, 2013 and December 31, 2012, 8,281,809 and 5,487,072 shares, respectively 8 6
Additional paid in capital 54,873 52,987
Accumulated deficit (57,668 ) (56,012 )
Accumulated other comprehensive loss (32 ) (32 )
Total ERF Wireless, Inc. shareholders’ deficit (2,811 ) (3,043 )
Non-controlling interest 131 128
Total shareholders’ deficit (2,680 ) (2,915 )

Total liabilities and shareholders' deficit $ 5,935 $ 6,271

See accompanying notes to consolidated financial statements.
ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2013 AND 2012 ~~AND 2011~~
(Unaudited)
($ in thousands except loss per share)

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2012 2011 2012 2011

Sales:
Products $ 6 $ 36 $ 49 $ 162
Services 2,002 1,295 5,294 3,610
Total sales 2,008 1,331 5,343 3,772

Costs of goods sold:
Products and integration services 448 566 1,399 1,223
Rent, repairs and maintenance 194 114 495 314
Depreciation 389 353 1,013 1,030
Total costs of goods sold 1,031 1,033 2,907 2,567
Gross profit 977 298 2,436 1,205
Operating expenses:
Selling, general and administrative 1,917 1,373 5,003 3,897
Depreciation and amortization 54 61 161 193
Total operating expenses 1,971 1,434 5,164 4,090
Operating loss from continuing operations (994 ) (1,136 ) (2,728 ) (2,885 )
Other income (expense):
Interest expense, net (472 ) (194 ) (1,151 ) (560 )
Gain on sale of assets – 2 – 1,192
Derivative income (loss) 23 (11 ) 124 2
Total other (expense) income (449 ) (203 ) (1,027 ) 634
(Loss) from continuing operations (1,443 ) (1,339 ) (3,755 ) (2,251 )
Loss from discontinued operations – – – (78 )
Consolidated net (loss) (1,443 ) (1,339 ) (3,755 ) (2,329 )

Net income attributable to non-controlling interest (9 ) – (17 ) –
Net (loss) attributable to ERF Wireless, Inc. (1,452 ) (1,339 ) (3,772 ) (2,329 )
Other comprehensive (loss):
Unrealized (loss) on securities held for resale (1 ) (9 ) (7 ) (12 )
Total other comprehensive (loss) (1 ) (9 ) (7 ) (12 )
Total comprehensive (loss) $ (1,453 ) $ (1,348 ) $ (3,779 ) $ (2,341 )
Basic (loss) per common share:
(Loss) from continuing operations $ (0.39 ) $ (0.89 ) $ (1.25 ) $ (1.94 )
(Loss) from discontinued operations $ – $ – $ – $ (0.07 )
Net (loss) $ (0.39 ) $ (0.89 ) $ (1.25 ) $ (2.01 )

Diluted (loss) per common share:
(Loss) from continuing operations $ (0.39 ) $ (0.89 ) $ (1.25 ) $ (1.94 )
(Loss) from discontinued operations $ – $ – $ – $ (0.07 )
Net (loss) $ (0.39 ) $ (0.89 ) $ (1.25 ) $ (2.01 )
2013 2012
Sales:
Products $ 11 $ 107
Services 1,902 1,541
Total sales 1,913 1,648

Cost of goods sold:
Products and integration services 394 455
Rent, repairs and maintenance 194 127
Depreciation 436 286
Total cost of goods sold 1,024 868
Gross profit 889 780

Operating expenses:
Selling, general and administrative 1,977 1,411
Depreciation 52 53
Gain on sale of assets (11 ) –
Total operating expenses 2,018 1,464
Loss from operations (1,129 ) (684 )

Other income (expenses):
Interest expense, net (758 ) (359 )
Derivative income 234 83
Total other (expense) income (524 ) (276 )
Consolidated net loss (1,653 ) (960 )
Net increase attributable to non-controlling interest (3 ) (5 )
Net loss attributable to ERF Wireless, Inc. (1,656 ) (965 )

Other comprehensive loss:
Unrealized loss on securities held for resale – (4 )
Total other comprehensive loss – (4 )
Total comprehensive loss $ (1,656 ) $ (969 )

Basic loss per common share:
Net loss $ (0.24 ) $ (0.40 )
Net loss attributable to ERF Wireless, Inc. $ (0.24 ) $ (0.40 )

Diluted loss per common share:
Net loss $ (0.24 ) $ (0.40 )
Net loss attributable to ERF Wireless, Inc. $ (0.24 ) $ (0.40 )

See accompanying notes to consolidated financial statements.
ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2013 AND 2012 ~~AND 2011~~
(Unaudited)
($ in thousands)

2012 2011

Cash flows from operating activities
(Loss) from continuing operations $ (3,755 ) $ (2,251 )
(Loss) from discontinued operations – (78 )
Net (loss) (3,755 ) (2,329 )

Adjustments to reconcile net (loss) to net cash used by operating activities:
Gain on sale of assets – (1,183 )
Amortization of debt discount 193 1
Depreciation and amortization 1,174 1,277
Stock issued for services rendered, interest and compensation 479 1,282
Derivative income (124 ) (2 )
Bad debt expense 7 –
Changes in:
Accounts receivable, net (302 ) (61 )
Accounts receivable, other (158 ) 215
Inventories (27 ) (97 )
Prepaid expenses and other current assets 202 34
Accounts payable 160 (11 )
Accrued expenses 728 (485 )
Deferred liability and revenue 23 (273 )
Total adjustment 2,355 697
Net cash used by operating activities (1,400 ) (1,632 )

Cash flows from investing activities
Purchase of property and equipment (1,196 ) (1,616 )
Proceeds from sale of assets – 2,707
Change in other assets 30 (6 )
Net cash (used by) provided by investing activities (1,166 ) 1,085

Cash flows from financing activities
Net proceeds from line of credit 662 1,224
Proceeds from long-term debt obligations 2,298 350
Payment of long-term debt obligations (801 ) (376 )
Payment on capital lease obligations (113 ) (385 )
Net cash provided by financing activities 2,046 813

Net change in cash and cash equivalents (520 ) 266
Cash and cash equivalents at the beginning of the period 591 43
Cash and cash equivalents at the end of the period $ 71 $ 309

Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest $ 309 $ 88
Income taxes $ – $ –

Supplemental non-cash investing and financing activities:
Conversion of debt through issuance of common stock $ 231 $ 190
Conversion of preferred stock to common stock $ 70 $ –
Conversion of LOC and interest through issuance of preferred stock $ 124 $ 350
Conversion of LOC and interest through issuance of common stock $ 1,964 $ 2,179
Unrealized (loss) on securities held for resale $ (7 ) $ (12 )
Transfer of subsidiary equity to non-controlling interest $ 107 $ –
Property and equipment financed with debt and capital leases $ 260 $ –
2013 2012

Cash flows from operating activities
Net loss $ (1,653 ) $ (960 )
Adjustments to reconcile net loss to net cash used by operating activities:
Gain on sale of assets (11 ) –
Amortization of debt discount 350 93
Depreciation and amortization 488 339
Stock issued for services rendered, interest  and compensation 496 –
Derivative income (234 ) (83 )
Bad debt expense 1 –
Changes in:
Accounts receivable, net (18 ) (147 )
Accounts receivable, other (18 ) (26 )
Inventories (14 ) (80 )
Prepaid expenses and other current assets 9 117
Costs and profits in excess of billings (4 ) –
Accounts payable (201 ) 26
Accrued expenses (294 ) 117
Deferred liability and revenue (6 ) (2 )
Total adjustment 544 354
Net cash used by operating activities (1,109 ) (606 )

Cash flows from investing activities
Purchase of property and equipment (85 ) (526 )
Proceeds from sale of assets 17 –
Change in other assets 1 33
Net cash used by investing activities (67 ) (493 )

Cash flows from financing activities
Net proceeds from line of credit 566 137
Proceeds from long-term debt obligations 1,200 560
Payment of long-term debt obligations (618 ) (3 )
Payment on capital lease obligations (34 ) (37 )
Net cash provided by financing activities 1,114 657

Net change in cash and cash equivalents (62 ) (442 )
Cash and cash equivalents at the beginning of the period 118 591
Cash and cash equivalents at the end of the period $ 56 $ 149

Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest $ 87 $ 173
Income taxes $ – $ –

Supplemental non-cash investing and financing activities:
Conversion of debt through issuance of common stock $ 968 $ 130
Conversion of LOC and interest through issuance of common stock $ 440 $ 500
Unrealized loss on securities held for resale $ – $ 4
Transfer of subsidiary equity to non-controlling interest $ – $ 103
Property and equipment financed with debt and capital leases $ – $ 37

See accompanying notes to consolidated financial statements.

ERF WIRELESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE PERIODS ENDED ~~SEPTEMBER 30, 2012~~MARCH 31, 2013 AND DECEMBER 31, ~~2011~~2012
($ in thousands)
Additional Accumulated Non- Total Common Stock Preferred Stock Additional Paid in Accumulated Accumulated Comprehensive Non-controlling Total Shareholders’
Common Stock      Preferred Stock      Paid in   Accumulated   Comprehensive controlling Shareholders’ Shares Value Shares Value Capital Deficit Income Interest Deficit
Shares   Value Shares Value   Capital   Deficit Income   Interest   Deficit
Total shareholders’ deficit as of December 31, 2010 785 $ 1 4,613 $ 5 $ 45,091 $ (47,819 ) $ – $ – $ (2,722 )
Total shareholders’ deficit as of December 31, 2011 2,161 $ 2 8,579 $ 9 $ 49,121 $ (51,198 ) $ (25 ) $ – $ (2,091 )

Net loss – – – – – (3,379 ) – – (3,379 ) – – – – – (4,814 ) – 21 (4,793 )

New stock issued to shareholders:
Conversion of preferred stock to common stock 441 – (1,404 ) (1 ) 1 – – – – 270 – (270 ) (1 ) 1 – – – –
For services, compensation and interest 203 – – – 1,023 – – – 1,023 440 1 – – 620 – – – 621
For retirement of debt 88 – – – 369 – – – 369 393 1 – – 534 – – – 535
Conversion of LOC and interest to preferred stock – – 5,370 5 392 – – – 397 – – 118 – 124 – – – 124
Stock based compensation – – – – – – – – –
Conversion of LOC and interest to common stock 644 1 – – 2,378 – – – 2,379 2,223 2 – – 2,587 – – – 2,589
Dividend declared – – – – (133 ) – – – (133 )
Unrealized loss on Securities held for resale – – – – – – (25 ) – (25 )
Total shareholders’ deficit as of December 31, 2011 2,161 2 8,579 9 49,121 (51,198 ) (25 ) – (2,091 )
Transfer of subsidiary equity to non-controlling interest – – – – – – 107 107
Unrealized loss on securities held for resale – – – – – – (7 ) – (7 )

Total shareholders’ deficit as of December 31, 2012 5,487 6 8,427 8 52,987 (56,012 ) (32 ) 128 (2,915 )

Net loss – – – – – (3,772 ) – 17 (3,755 ) – – – – – (1,656 ) – 3 (1,653 )

New stock issued to shareholders:
Conversion of preferred stock to common stock 70 – (70 ) – – – – – –
For services, compensation, interest and prepaids 305 – – – 479 – – – 479 753 – – – 496 – – – 496
For retirement of debt 126 – – – 231 – – – 231 1,265 1 – – 967 – – – 968
Conversion of LOC and interest to preferred stock – – 118 – 124 – – – 124
Conversion of LOC and interest to common stock 1,389 2 – – 1,962 – – – 1,964 777 1 – – 439 – – – 440
Transfer of Subsidiary equity to non-controlling interest – – – – – – – 107 107
Unrealized loss on Securities held for resale – – – – – – (7 ) – (7 )
Total shareholders’ deficit as of September 30, 2012 (unaudited) 4,051 $ 4 8,627 $ 9 $ 51,917 $ (54,970 ) $ (32 ) $ 124 $ (2,948 )
Derivative liability – – – – (16 ) – – – (16 )

Total shareholders’ deficit as of March 31, 2013 (unaudited) 8,282 $ 8 8,427 $ 8 $ 54,873 $ (57,668 ) $ (32 ) $ 131 $ (2,680 )

~~See accompanying notes to consolidated financial statements.~~
5
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~September 30, 2012~~March 31, 2013
(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)” ~~revenues from other construction are recorded in “ERF Wireless Messaging Services, Inc. (WMS)”~~ and wireless broadband products and services to rural oil and gas locations are recorded in “Energy Broadband, Inc. (EBI)”. Please refer to segment footnote 1012 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, ~~2011~~2012 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, ~~2011~~2012 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 ~~2011~~2012 financial statements have been reclassified to conform to the ~~2012~~2013 financial presentation. These reclassifications have no impact on the total comprehensive loss.
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~September 30, 2012~~March 31, 2013
(Unaudited)

~~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 September 30, 2012 and December 31, 2011, in thousands:~~
September 30, December 31,
2012 2011
Raw material $ 46 $ 44
Work in process 107 116
Finished goods 232 198
$ 385 $ 358
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.

NOTE 2 - ACCOUNTS RECEIVABLE

Accounts receivable consists of the following (in thousands):

September 30, December 31, March 31, December 31,
2012 2011 2013 2012
Accounts receivable $ 928 $ 628 $ 856 $ 838
Allowance for doubtful accounts (37 ) (32 ) (11 ) (10 )
Accounts receivable, net $ 891 $ 596 $ 845 $ 828

NOTE 3 - 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, 2013 and December 31, 2012, in thousands:
March 31, December 31,
2013 2012
Raw material $ 45 $ 46
Work in process 90 115
Finished goods 250 216
Total inventory $ 385 $ 377
NOTE 4 - DEBT CONVERSION

(a) Line of Credit

During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued ~~1,388,166~~777,825 shares of its Common Stock (as defined below) for the settlement of ~~$1,602,813~~$338,208 of principal and ~~$361,187~~$101,792 of accrued interest for a total ~~principal and interest~~ amount of ~~$1,964,000~~$440,000 owed to Angus Capital Partners. The Company issued Common Stock at an average price of ~~$1.41~~$0.56 per share calculated based on the closing price the day the debt was settled. See Note 89 for additional information on this facility.
Additionally during nine months ended September 30, 2012, the Company issued 118,095 shares of its Series A Preferred Stock (as define below) to Angus Capital for the settlement of principal amount of $124,000 of debt. The Company issued Series Preferred A Stock at an average price of $1.05 per share calculated based on the closing price of the Common Stock the day the debt was settled.
Under current accounting standards ASC 470-50-40-2 the extinguishment of related party debt for equity securities is considered a capital transaction and, accordingly, no gain or loss on the extinguishment is recognized in the statement of operations. If this was not a related party transaction a gain of $10,850 would have been recognized for the nine months ended September 30, 2012.

(b) Other Debt

During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued ~~126,433~~1,263,974 and 408,287 shares of its Common Stock for the settlement of principal amount of ~~$231,000~~$968,500 and $196,941 of ~~debt.~~accrued interest, respectively, for a total of $1,165,441. The Company issued Common Stock at an average price of ~~$1.83~~$.70 per share calculated based on the closing price the day the debt was settled.
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~September 30, 2012~~March 31, 2013
(Unaudited)

NOTE 45 - COMMON STOCK ~~AND~~, 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 ~~September 30,~~March 31, 2013 and December 31, 2012, there were ~~4,051,181~~8,281,809 and 5,487,072 shares of its Common Stock issued and ~~outstanding.~~outstanding, respectively.

During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued ~~1,820,185~~2,794,737 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):

September 30, 2012 Supplemental Non-Cash Disclosure
March 31, 2013 Supplemental Non-Cash Disclosure
Professional fees $ 114 $ 138
Services and compensation 270 160
Other services rendered 95 198
Total for services, and compensation $ 479
Total for services, compensation and interest $ 496

Notes payable $ 231 $ 968
Line of credit and interest $ 1,964 $ 440

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 ~~8,626,982 and 8,578,887~~8,426,982 shares of Series A Preferred Shares issued and outstanding at ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011, respectively.~~2012. With respect to the Series A Preferred Stock outstanding at ~~September 30, 2012,~~March 31, 2013, the Company would be required to issue ~~8,626,982~~8,426,982 shares of its Common Stock upon conversion.~~During the nine months ended September 30, 2012, 70,000 Series A Preferred Stock was converted into 70,000 shares of Common Stock.~~

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

As of ~~September 30, 2012,~~March 31, 2013, 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 on 2013. No stock dividends were issued during the three months ended March 31, 2013.
Warrants
During 2013, the Company entered into a convertible promissory note with Tonaquint, Inc for $791,500 and issued five year warrants to purchase 148,406 shares of common stock at $.80 per share, expiring March 2018.
The following tables set forth summarized warrants that are issued, outstanding and exercisable for the three months ended March 31, 2013:
Warrants Outstanding
Weighted Average Exercise Price Expiration
Date December 31,
2012 Issued Exercised Expired March 31,
2013
$ 0.80 Mar-18 – 148,406 – – 148,406
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

NOTE ~~5 -~~6 – STOCK PLAN

In ~~April~~December 2012, the ~~Board~~board of directors adopted a non-qualified stock option plan whereby ~~250,000~~450,000 shares were reserved for issuance. As of ~~September 30, 2012 under the plan, 185,796~~March 31, 2013, 288,420 shares of Common Stock were issued and outstanding to certain employees and consultants for services ~~rendered.~~rendered under the plan. This plan is for key employees, officers, directors, and consultants of ERF Wireless, Inc.

Non-Qualified Stock Option Plan, ~~April~~December 2012 ~~2012~~2013
Plan
Shares initially reserved ~~250,000~~450,000

Shares issued during 2012 and 2013 ~~185,796~~288,420

Remaining shares available to be issued at ~~September 30, 2012~~March 31, 2013 ~~64,204~~161,580

Shares issued and outstanding as of ~~September 30, 2012~~March 31, 2013 ~~185,796~~288,420
8
~~ERF WIRELESS, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~September 30, 2012~~
~~(Unaudited)~~

NOTE 67 - 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 September 30, 2012
Net loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Loss from continuing operations $ (1,443 ) 3,718 $ (0.39 )
Loss attributable to non-controlling interest $ (9 ) 3,718 $ –
Net loss attributable to ERF Wireless, Inc. $ (1,452 ) 3,718 $ (0.39 )
Diluted EPS:
Effect of dilutive securities – – –
Loss from continuing operations $ (1,443 ) 3,718 $ (0.39 )
Loss attributable to non-controlling interest $ (9 ) 3,718 $ –
Net loss attributable to ERF Wireless, Inc. $ (1,452 ) 3,718 $ (0.39 )
For the three months ended September 30, 2011
Net loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Loss from continuing operations $ (1,339 ) 1,504 $ (0.89 )
Loss from discontinued operations $ – 1,504 $ –
Net loss attributable to ERF Wireless, Inc. $ (1,339 ) 1,504 $ (0.89 )
Diluted EPS:
Effect of dilutive securities – – –
Loss from continuing operations $ (1,339 ) 1,504 $ (0.89 )
Loss from discontinued operations $ – 1,504 $ –
Net loss attributable to ERF Wireless, Inc. $ (1,339 ) 1,504 $ (0.89 )
For the nine months ended September 30, 2012
Net loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Loss from continuing operations $ (3,755 ) 3,008 $ (1.25 )
Loss attributable to non-controlling interest $ (17 ) 3,008 $ (0.01 )
Net loss attributable to ERF Wireless, Inc. $ (3,772 ) 3,008 $ (1.25 )
Diluted EPS:
Effect of dilutive securities – – –
Loss from continuing operations $ (3,755 ) 3,008 $ (1.25 )
Loss attributable to non-controlling interest $ (17 ) 3,008 $ (0.01 )
Net loss attributable to ERF Wireless, Inc. $ (3,772 ) 3,008 $ (1.25 )

For the nine months ended September 30, 2011
Net loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Loss from continuing operations $ (2,251 ) 1,161 $ (1.94 )
Loss from discontinued operations $ (78 ) 1,161 $ (0.07 )
Net loss attributable to ERF Wireless, Inc. $ (2,329 ) 1,161 $ (2.01 )
Diluted EPS:
Effect of dilutive securities – – –
Loss from continuing operations $ (2,251 ) 1,161 $ (1.94 )
Loss from discontinued operations $ (78 ) 1,161 $ (0.07 )
Net loss attributable to ERF Wireless, Inc. $ (2,329 ) 1,161 $ (2.01 )
9
~~ERF WIRELESS, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~September 30, 2012~~
~~(Unaudited)~~
For the three months ended March 31, 2013
Net loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net loss $ (1,653 ) 6,837 $ (0.24 )
Loss attributable to non-controlling interest $ (3 ) 6,837 $ (0.00 )
Net loss attributable to ERF Wireless, Inc. $ (1,656 ) 6,837 $ (0.24 )
Diluted EPS:
Effect of dilutive securities – – –
Net loss $ (1,653 ) 6,837 $ (0.24 )
Loss attributable to non-controlling interest $ (3 ) 6,837 $ (0.00 )
Net loss attributable to ERF Wireless, Inc. $ (1,656 ) 6,837 $ (0.24 )

For the three months ended March 31, 2012
Net loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net loss $ (960 ) 2,388 $ (0.40 )
Loss attributable to non-controlling interest $ (5 ) 2,388 $ (0.00 )
Net loss attributable to ERF Wireless, Inc. $ (965 ) 2,388 $ (0.40 )
Diluted EPS:
Effect of dilutive securities – – –
Net loss $ (960 ) 2,388 $ (0.40 )
Loss attributable to non-controlling interest $ (5 ) 2,388 $ (0.00 )
Net loss attributable to ERF Wireless, Inc. $ (965 ) 2,388 $ (0.40 )

For the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, 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 ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 does not include ~~653,279~~353,086 shares of Common Stock underlying the Bonds (as define below); 148,406 of warrants underlying Tonaquint promissory note and ~~8,626,982~~8,426,982 shares of Common Stock underlying the Series A Preferred Stock, due to their anti-dilutive effect.

ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)
NOTE 78 - MAJOR CUSTOMERS

The Company had gross sales of approximately ~~$5,343,000~~$1,913,000 and ~~$3,772,000~~$1,648,000 for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ respectively. The Company had two customers that met the required disclosure of 10% that represented ~~41%~~36% and ~~15%~~13% of the gross sales and 42% and 25% of total accounts receivable during the ~~nine~~three months ended ~~September 30, 2012.~~March 31, 2013. Additionally, the Company had ~~one customer~~two customers that met the required disclosure of 10% that represented ~~37%~~43% and 14% of the gross sales and 55% and 20% of total accounts receivable during the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012.

NOTE ~~8 -~~9 – NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES

Notes payable, long-term debts and capital leases consist of the following as of ~~September 30, 2012~~March 31, 2013 (in ~~thousands)~~thousands):

Terms Maturity Date Interest Rate Gross Balance Debt Discount Balance
Banc leasing, Inc. $10,660 / Month including interest January-15 11.62% $ 252 $ – $ 252
Advantage leasing associates $7,186 / Month including interest Various Various 173 – 173
MP Nexlevel LLC $7,043 / Month including interest May-14 10.00% 129 – 129
Investor financing $620,000 / Lump sum payment including interest November-12 12.00% 620 – 620
Dakota capital equipment financing $178,031 / Quarterly including interest March-16 18.00% 1,912 65 1,847
E-bond investor notes 3 years/ Semiannual interest (See below) Various 7.50% 797 638 159
Line of credit 2 years/ Quarterly interest (See below) December-13 12.00% 3,527 – 3,527
Total debt $ 7,410 $ 703 6,707
Less current maturities (1,412 )
Long-term debt $ 5,295
Terms Maturity Date Interest Rate Gross Balance Debt Discount Balance
Banc leasing, Inc. $10,660 / Month including interest January-15 11.62% $ 210 $ – $ 210
Advantage leasing associates $7,186 / Month including interest Various Various 139 – 139
MP Nexlevel LLC $7,043 / Month including interest May-14 10.00% 93 – 93
Tonaquint $791,500 / Lump sum payment including interest September-13 12.00% 792 545 247
JMJ Financial $165,000 / Lump sum payment including interest March-14 12.00% 165 160 5
Investor financing $495,000 / Lump sum payment including interest May-13 12.00% 495 – 495
Premium assignment $1,495 / Month including interest July-13 6.00% 11 – 11
Dakota capital equipment financing $178,031 / Quarterly including interest March-16 18.00% 1,623 50 1,573
E-bond investor notes 3 years/ Semiannual interest (See below) Various 7.50% 286 212 74
Line of credit 2 years/ Quarterly interest (See below) December-15 12.00% 3,379 – 3,379
Total debt $ 7,193 $ 967 6,226
Less current maturities (1,262 )
Long-term debt $ 4,964

Terms Maturity Date Interest Rate Gross Balance Debt Discount Balance
Banc leasing, Inc. $10,660 / Month including interest January-15 11.62% $ 227 $ – $ 227
Advantage leasing associates $7,186 / Month including interest Various Various 156 – 156
MP Nexlevel LLC $7,043 / Month including interest May-14 10.00% 111 – 111
Investor financing $765,000 / Lump sum payment including interest January-13 12.00% 765 – 765
Premium assignment $1,495 / Month including interest July-13 6.00% 17 – 17
Dakota capital equipment financing $178,031 / Quarterly including interest March-16 18.00% 1,820 57 1,763
E-bond investor notes 3 years/ Semiannual interest (See below) Various 7.50% 687 566 121
Line of credit 2 years/ Quarterly interest (See below) December-15 12.00% 3,168 – 3,168
Total debt $ 6,951 $ 623 6,328
Less current maturities (1,527 )
Long-term debt $ 4,801

Line of Credit

~~The~~During December 2012, the Company ~~entered into~~extended its maturity date of its $12.0 million unsecured revolving credit facility with Angus Capital Partners, a related party, ~~maturing~~from December 31, ~~2013.~~2013 to December 30, 2015. The terms of the unsecured revolving credit facility allow the Company to draw upon the facility as ~~capital~~financing requirements dictate and provide for quarterly interest payments ~~on outstanding principal~~ at a 12% rate per annum. The payment of principal and interest may be paid in cash, ~~Common Stock~~common shares or ~~Series A Preferred Stock~~preferred shares at the Company’s election. At ~~September 30, 2012,~~March 31, 2013, the outstanding balance on the line of credit totaled ~~$3,527,000~~$3,379,000 with a remaining line of credit ~~availability~~available of ~~$8,473,000.~~$8,621,000.

During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued ~~1,388,166~~777,825 shares of its Common Stock for the settlement of ~~$1,602,813~~$338,208 of principal and ~~$361,187~~$101,792 of accrued interest for a total ~~principal and interest amount~~ of ~~$1,964,000 and 118,095 shares~~$440,000 owed to Angus Capital Partners. The Company issued Common Stock at an average price of ~~Series A Preferred Stock for a total settlement of principal of $124,000 of debt.~~$0.56 per share calculated based on the closing price the day the debt was settled.
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

E-Series Bond Investor Note

During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued to certain accredited investors a principal amount of ~~$998,000~~$300,000 of E-Series bonds (the "Bonds") in addition to the ~~$30,000~~$687,000 which was outstanding at December 31, ~~2011.~~2012. At ~~September 30, 2012,~~March 31, 2013, the outstanding principal balance of the Bonds totaled ~~$797,000.~~$286,000. 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 ~~average~~ 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~~three-year warrant ~~expiring December 31, 2014~~ 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.
~~ERF WIRELESS, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~September 30, 2012~~
~~(Unaudited)~~
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 ~~income statement.~~statement of operations. 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 ~~$171,843~~$481,333 for the ~~nine~~three months ended ~~September 30, 2012.~~March 31, 2013. The estimated debt accretion for subsequent years is ~~$23,327, $140,822, $258,953~~$39,278, $89,304, and ~~$214,755~~$83,929 for years ending December 31, ~~2012,~~ 2013, 2014, and 2015, respectively.

The following table summarizes the convertible debt activity for the period January 1, ~~2012,~~2013, thru ~~September 30, 2012:~~March 31, 2013:

Description Bonds Compound
Derivative Total

Fair value at December 31, 2011 $ 2,682 $ 27,346 $ 30,028
Fair value issuances during 2012 (principal amount) 998,000 – 998,000
Fair value issuances during 2012 (debt discount) (824,481 ) 824,481 –
01-01-12 to 03-31-12 change in fair value 107,270 3,786 111,056
03-01-12 to 06-30-12 change in fair value 31,691 5,083 36,774
07-01-12 to 09-30-12 change in fair value 74,981 22,848 97,829
Conversions during 2012 (231,000 ) (197,186 ) (428,186 )
Fair value at September 30, 2012 $ 159,143 $ 686,358 $ 845,501
Description Bonds Compound Derivative Liability Total
Fair value at December 31, 2012 $ 121,446 $ 492,043 $ 613,489
Fair value issuances during 2013 (principal amount) 300,000 – 300,000
Fair value issuances during 2013 (debt discount) (128,284 ) 128,284 –
Change in fair value 481,333 (63,976 ) 417,357
Conversions (701,000 ) (443,611 ) (1,144,611 )
Fair value at March 31, 2013 $ 73,495 $ 112,740 $ 186,235

The Company recorded a net change in fair value of derivatives of ~~$31,717~~$63,976 and a gain on debt redemption of ~~$155,825~~$156,791 for a total net derivative income of ~~$124,108~~$220,767 for the ~~nine~~three months ended ~~September 30, 2012.~~March 31, 2013.

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 ~~September 30, 2012,~~March 31, 2013, the outstanding balance on the debt financing agreement totaled ~~$1,912,000~~$1,623,000 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 ~~$21,507~~$7,775 for the ~~nine~~three months ended ~~September 30, 2012.~~March 31, 2013. The estimated debt accretion for subsequent years is ~~$7,697, $33,014~~$25,238 and $24,611 for years ending December 31, ~~2012,~~ 2013, and 2014, respectively.

~~Investor Bridge Loan~~
On March 20, 2011, the Company entered into a three-month secured bridge financing agreement with individuals for $300,000 with and interest rate of 12% per annum. During the second quarter of 2012, the Company was loaned an additional $100,000 increasing the note to $400,000 due July 1, 2012. The note was repaid from a new secured $1,000,000 Investor Financing agreement from these same individuals.
11
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~September 30, 2012~~March 31, 2013
(Unaudited)

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. The note also 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 (284,375 shares) at the closing bid price on March 5, 2013, plus 50,000 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 144 Common Stock at any time during the six-month term of the note or thereafter. 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 148,406 shares of ERF Common Stock at an exercise price of $0.80 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 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 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 $43,762 for the three months ended March 31, 2013. The estimated debt accretion for the remainder of 2013 is $544,962.
The following table summarizes the convertible debt activity for the period March 5, 2013, through March 31, 2013:
Description Tonaquint Warrant Compound Derivative Liability Compound Derivative Liability Total
Fair value issuances at inception $ 791,500 $ – $ – $ 791,500
Fair value issuances during 2013 (debt discount) (588,724 ) 16,400 256,224 (316,100 )
Change in fair value 43,762 1,974 1,294 47,030
Conversions during – – –
Fair value at March 31, 2013 $ 246,538 $ 18,374 $ 257,518 $ 522,430
The Company recorded a net change in fair value of derivatives expense of $3,268 for the three months ended March 31, 2013.
The compound derivative liability associated with the warrants issued was $18,374 as of March 31, 2013.
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. As of March 20, 2013 the Company received funding of $150,000, bearing interest at a rate of 12% per annum and maturing in one year from the effective date of each payment. 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 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 accretes the unamortized discount upon conversion which totaled $4,973 for the three months ended March 31, 2013. The estimated debt accretion for subsequent years is $55,869 and $55,691 for years ending December 31, 2013 and 2014, respectively.
ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)
The following table summarizes the convertible debt activity for the period March 20, 2013, through March 31, 2013:
Description JMJ Compound Derivative Liability Total
Fair value issuances at inception $ 165,000 $ – $ 165,000
Fair value issuances during 2013 (debt discount) (165,000 ) 203,420 38,420
Change in fair value 4,973 18,209 23,182
Conversions during – – –
Fair value at March 31, 2013 $ 4,973 $ 221,629 $ 226,602
The Company recorded a net change in fair value of derivatives expense of $18,209 for the three months ended March 31, 2013.
Investor Financing

On July 13, 2012, the Company entered into a three-month secured debt financing agreement with individuals for $1,000,000 with an interest rate of 12% per annum. Under the agreement, as amended, the maturity date was extended to ~~December~~May1, 2013. 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 incurring an interest rate at .5% interest per day on a 360 day calendar year. At March 31, ~~2012. At September 30, 2012,~~2013, the outstanding principal balance totaled ~~$620,000.~~
~~MP Nexlevel~~
~~On July 1, 2012, the Company issued a note to MP Nexlevel LLC., totaling $152,613 bearing interest at 10% per annum and is payable in twenty-four monthly payments of $7,043, including interest.~~$495,000.

Capital Leases

Banc Leasing Inc.Included in property and equipment at ~~September 30, 2012,~~March 31, 2013, the cost of the equipment was $611,000 and the accumulated amortization was ~~$341,000.~~$208,724. 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 ~~September 30 2012,~~March 31 2013, the cost of the vehicles was ~~$235,000~~$141,039 and the accumulated amortization was $56,000. Amortization of assets under capital leases is included in depreciation expense. The vehicles are 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 ~~December~~March 31, ~~2012~~2013 (in thousands):

Year Ending December 31, Year Ending December 31, Year Ending December 31,
2012 $ 42
2013 214 $ 161
2014 203 203
2015 27 26
Thereafter – –
Total minimum lease payments 486 390
Less amount representing interest (61 ) (40 )
Present value of net minimum lease payments 425 350
Current maturities of capital lease obligations (164 ) (183 )
Long-term portion of capital lease obligations $ 261 $ 167

NOTE 910 - COMMITMENTS

Leases and License Agreements

For the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ rental expenses of approximately ~~$750,000~~$299,000 and ~~$552,000,~~$216,000, 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.

ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)
Future minimum lease payments under non-cancelable operating leases as of December 31, ~~2012~~2013 were as follows (in
thousands):

Year Ending December 31, Amount
2012 $ 144
2013 478
2014 414
2015 401
2016 385
Thereafter 8
Total $ 1,830
~~ERF WIRELESS, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~September 30, 2012~~
~~(Unaudited)~~
Year Ending December 31, Amount
2013 352
2014 407
2015 401
2016 385
Thereafter 8
Total $ 1,553

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 8.9.

~~Purchase Commitment~~NOTE 11 – ~~Mobile Broadband Trailers~~COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS

OnCosts and estimated earnings in excess of billings on uncompleted contracts for the three months ended March ~~15, 2011,~~31, 2013, are summarized as follows (in thousands):
March 31,
2013
Costs incurred on uncompleted contracts $ 23
Estimated profit 16
Gross revenue 39
Less: billings to date –
Costs and profit in excess of billings $ 39
Such amounts are included in the Company entered into a settlement agreement with the current manufacturer of mobile broadband trailers (MBT’s). Under the terms of this settlement the Company agreed to purchase an additional 158 MBT’s and replacement inventory on a delivery schedule which terminates October 1, 2013. At September 30, 2012, the Company has 77 MBT’s to be purchased through October 1^st~~, 2013.~~accompanying balance sheet at March 31, 2013, are summarized as follows (in thousands):
March 31,
2013
Cost and estimated earnings in excess of billings on uncompleted contracts $ 39

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

$ 39

NOTE 1012 - 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 ~~MBT’s.~~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 and Canada.~~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.

ERF WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)
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.
~~Wireless Messaging Services Division (WMS)~~
~~WMS principally manufactures paging transmitter equipment, repairs and maintains paging infrastructure equipment and supplies high-power paging transmitters to the wireless messaging industry.~~ 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~~
~~September 30, 2012~~
~~(Unaudited)~~
States.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~ (in thousands):

Three Months Ended September 30, 2012 EBI WBS ENS WMS Total Segment ERF Corporate Total Consolidated
Revenue $ 1,363 $ 576 $ 69 $ – $ 2,008 $ – $ 2,008
Operating income (loss) from continuing operations 245 (147 ) (78 ) (11 ) 9 (1,003 ) (994 )
Total assets 3,388 2,226 656 12 6,282 171 6,453
Capital expenditures 147 321 5 – 473 3 476
Depreciation and amortization 191 182 59 – 432 11 443
Three Months Ended September 30, 2011 EBI WBS ENS WMS Total Segment ERF Corporate Total Consolidated
Revenue $ 709 $ 543 $ 65 $ 14 $ 1,331 $ – $ 1,331
Operating income (loss) from continuing operations 7 (217 ) (60 ) 2 (268 ) (868 ) (1,136 )
Total assets 2,203 1,526 1,301 9 5,039 420 5,459
Capital expenditures 220 83 9 – 312 4 316
Depreciation and amortization 114 228 55 – 397 17 414
Nine Months Ended September 30, 2012 EBI WBS ENS WMS Total Segment ERF Corporate Total Consolidated
Revenue $ 3,398 $ 1,702 $ 220 $ 23 $ 5,343 $ – $ 5,343
Operating income (loss) from continuing operations 479 (333 ) (245 ) (17 ) (116 ) (2,612 ) (2,728 )
Total assets 3,388 2,226 656 12 6,282 171 6,453
Capital expenditures 677 761 5 – 1,443 13 1,456
Depreciation and amortization 510 451 175 – 1,136 38 1,174
Nine Months Ended September 30, 2011 EBI WBS ENS WMS Total Segment ERF Corporate Total Consolidated
Revenue $ 1,887 $ 1,640 $ 227 $ 18 $ 3,772 $ – $ 3,772
Operating income (loss) from continuing operations 94 (480 ) (94 ) (16 ) (496 ) (2,389 ) (2,885 )
Total assets 2,203 1,526 1,301 9 5,039 420 5,459
Capital expenditures 1,129 350 115 – 1,594 22 1,616
Depreciation and amortization 285 722 161 – 1,168 55 1,223
~~ERF WIRELESS, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~September 30, 2012~~
~~(Unaudited)~~
Three Months Ended March 31, 2013 EBI WBS ENS Total Segment ERF Corporate Total Consolidated
Revenue $ 1,205 $ 610 $ 98 $ 1,913 $ – $ 1,913
Segment income (loss) from operations 109 (322 ) (20 ) (233 ) (896 ) (1,129 )
Total assets 3,065 1,873 606 5,544 391 5,935
Capital expenditures 10 61 – 71 14 85
Depreciation 215 207 59 481 7 488

Three Months Ended March 31, 2012 EBI WBS ENS Total Segment ERF Corporate Total Consolidated
Revenue $ 1,013 $ 569 $ 66 $ 1,648 $ – $ 1,648
Segment income (loss) from operations 160 (49 ) (91 ) 20 (704 ) (684 )
Total assets 3,160 2,056 769 5,985 346 6,331
Capital expenditures 331 225 – 556 7 563
Depreciation 154 113 58 325 14 339

Reconciliation of Segment Assets to September 30, December 31,
Total Assets 2012 2011
Reconciliation of Segment Assets to Total Assets March 31,
2013 December 31,
2012
Total segment assets $ 6,282 $ 5,161 $ 5,544 $ 5,989
Total corporate assets 171 1,289 391 282
Total assets $ 6,453 $ 6,450 $ 5,935 $ 6,271

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 ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, two customers accounted for ~~$2,177,000~~$695,000 and ~~$776,000~~$257,000 of EBI revenues each.

NOTE 1113 - SUBSEQUENT EVENTS

Subsequent to ~~September 30, 2012,~~March 31, 2013, the Company issued ~~366,984~~1,351,631 shares of common stock valued at approximately $780,000 for services rendered, and conversion of ~~debt and of preferred stock.~~debt.

~~Subsequent to September 30, 2012,~~The Company is in negotiations of extending the ~~Company and the investors renegotiated the secured $1,000,000~~investor financing ~~agreement to extend the maturity date to December 31, 2012.~~note through third quarter 2013.
15

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 ~~overall consolidated~~ revenues of ~~$2,008,000~~$1,913,000 for the quarter ended ~~September 30, 2012,~~March 31, 2013, as compared to ~~$1,331,000~~revenues of $1,648,000 for the same prior ~~year~~period quarter ended March 31, 2012; an increase of ~~$677,000~~$265,000 or ~~51%~~16%.
• § ~~The Company’s EBI oil and gas subsidiary~~
We reported ~~revenues~~gross profit of ~~$1,363,000~~$889,000 for the quarter ended ~~September 30, 2012,~~March 31, 2013, compared to ~~revenues of $709,000~~$780,000 for the same prior ~~year~~period quarter ended March 31, 2012, an increase of ~~$654,000~~$109,000 or ~~92%.~~
§ ~~The Company reported gross profit of $977,000 for the quarter ended September 30, 2012, compared to $298,000 for the same prior year quarter ended September 30, 2011, an increase of $679,000 or 228%~~14%. This increase reflects the strong operating margins recognized in our oil and gas internet service operations.
• §
The Company ~~continued its recently initiated expansion~~reported total comprehensive loss of ~~its existing terrestrial broadband networks through~~$1,656,000 for the quarter ended March 31, 2013, as compared to a ~~combination~~total comprehensive loss of ~~construction and contractual agreements into oil and gas drilling areas~~$969,000 for the same prior period quarter ended March 31, 2012; an increase of $687,000 or 71%.
•
The Company's Energy Broadband, Inc. subsidiary reported revenues of $1,205,000 for the quarter ended March 31, 2013, as compared to revenues of $1,013,000 for the same prior period quarter ended March 31, 2012; an increase of $192,000 or 19%.
.
•
The Company reported an increase of $554,000 or 38% increase in operating expenses in the ~~states~~quarter ended March 31, 2013, as compared to the same prior period quarter ended March 31, 2012. The increase is primarily related to employment and professional expense associated with a headcount increase of ~~Kansas~~5 employees and ~~Montana; allowing us~~approximately $127,455 in legal and professional fees associated with the ongoing arbitration proceedings with Schlumberger pertaining to ~~meet the communications needs of existing customers in these markets. The Company recently opened warehouse and operating facilities and is~~disputes to resolve certain financial issues contained in the ~~process of designing~~2009 exclusive reseller agreement and ~~building a new terrestrial broadband network~~financing transactions in the ~~Bakken Shale area of North Dakota. Additionally, the Company continues to expand its existing networks in Texas, New Mexico and Oklahoma.~~quarter ended March 31, 2013.

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 ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2012,~~MARCH 31, 2013, COMPARED TO THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2011~~MARCH 31, 2012
The following table sets forth summarized consolidated financial information for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013 and ~~2011:~~2012:

Three Months Ended September 30, Nine Months Ended September 30,

($ in thousands) 2012 2011 $ Change % Change 2012 2011 $ Change % Change
Total sales $ 2,008 $ 1,331 $ 677 51% $ 5,343 $ 3,772 $ 1,571 42%
Cost of goods sold 1,031 1,033 (2 ) 0% 2,907 2,567 340 13%
Gross profit 977 298 679 228% 2,436 1,205 1,231 102%
Percent of total sales 49% 22% 46% 32%
Operating expenses 1,971 1,434 537 37% 5,164 4,090 1,074 26%
Loss from operations (994 ) (1,136 ) 142 -13% (2,728 ) (2,885 ) 157 -5%
Other income/(expense) (449 ) (203 ) (246 ) 121% (1,027 ) 634 (1,661 ) -262%
Loss from continuing operations (1,443 ) (1,339 ) (104 ) -8% (3,755 ) (2,251 ) (1,504 ) -67%
Loss from discontinued operations – – – 0% – (78 ) 78 100%
Net income attributable to non-controlling interest (9 ) – (9 ) 100% (17 ) – (17 ) 100%
Other comprehensive loss (1 ) (9 ) 8 -89% (7 ) (12 ) 5 -42%
Total comprehensive (loss) $ (1,453 ) $ (1,348 ) $ (105 ) 8% $ (3,779 ) $ (2,341 ) $ (1,438 ) 61%
Three Months Ended March 31,
($ in thousands) 2013 2012 $ Change % Change
Total sales $ 1,913 $ 1,648 $ 265 16 %
Cost of goods sold 1,024 868 156 18 %
Gross profit 889 780 109 14 %
Percent of total sales 46 % 47 %
Total operating expenses 2,018 1,464 554 38 %
Loss from operations (1,129 ) (684 ) (445 ) 65 %
Total other income/(expense) (524 ) (276 ) (248 ) 90 %
Consolidated net loss (1,653 ) (960 ) (693 ) 72 %
Net income attributable to non-controlling interest (3 ) (5 ) 2 -40 %
Other comprehensive loss – (4 ) 4 -100 %
Total comprehensive loss $ (1,656 ) $ (969 ) $ (687 ) 71 %

For the three months ended ~~September 30, 2012,~~March 31, 2013, the Company's business operations reflected an increase in sales for its EBI, WBS and ENS ~~subsidiaries that were offset by a decrease in the WMS subsidiary.~~subsidiaries. For the three months ended ~~September 30, 2012,~~March 31, 2013, the Company's consolidated operations generated net sales of ~~$2,008,000~~$1,913,000 compared to prior-year period net sales of ~~$1,331,000~~$1,648,000. The ~~$677,000~~$265,000 increase in ~~net~~total sales is primarily attributable to ~~$654,000~~$192,000 increased sales in EBI from deployment of our Mobile Broadband Trailers (MBT’s) in the oil and gas regions. Service sales increased ~~$707,000~~$361,000 and product sales decreased ~~$30,000.~~$96,000. For the three months ended ~~September 30, 2012,~~March 31, 2013, the Company had a gross profit margin of ~~49%~~46%, compared to a gross profit margin ~~22%~~47% for the prior year period. The ~~$679,000~~$109,000 increase in gross profit margin is primarily attributed to; (i) approximately ~~$558,000~~$185,000 increase in gross margin in EBI attributable to increased sales associated with deployment of MBT’s in oil and gas regions, (ii) ~~$139,000~~$11,000 increase in gross margins in ~~WBS primarily related to decrease third party service cost,~~ENS, and (iii) offset with a ~~$13,000~~$86,000 decrease in gross margin in ~~WMS and a $5,000 decrease in gross margins in ENS.~~
For the nine months ended September 30, 2012, the Company's business operations reflected an increase in sales for its EBI, WBS and WMS subsidiaries that were offset by a decrease in the ENS subsidiary. For the nine months ended September 30, 2012, the Company's consolidated operations generated net sales of $5,343,000 compared to prior-year period net sales of $3,772,000. The $1,571,000 increase in net sales is primarily attributable to $1,511,000 increased sales in EBI from deployment of our MBT’s in the oil and gas regions. Service sales increased $1,684,000 and product sales decreased $113,000. For the nine months ended September 30, 2012, the Company had a gross profit margin of 46%, compared to a gross profit margin 32% for the prior year period. The $1,231,000 increase in gross profit margin is primarily attributed to; (i) approximately $919,000 increase in gross margin in EBI attributable to increased sales associated with deployment of MBT’s in oil and gas regions, (ii) $336,000 increase in gross margins in WBS primarily related to ~~decrease third party service cost,~~increased depreciation and ~~(iii) offset with a $11,000 decrease in gross margin in WMS and a $13,000 decrease in gross margins in ENS.~~tower rent cost.
SALES INFORMATION

Set forth below are tables presenting summarized sales information for our business segments for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013 and ~~2011:~~2012:

($ in thousands) Three Months Ended September 30, Three Months Ended March 31,
Business Segment 2012 % of Total 2011 % of Total $ Change % Change 2013 % of Total 2012 % of Total $ Change % Change
Energy Broadband, Inc. $ 1,363 68% $ 709 53% $ 654 92% $ 1,205 63 % $ 1,013 61 % $ 192 19 %
Wireless Bundled Services 576 29% 543 41% 33 6% 610 32 % 569 35 % 41 7 %
Enterprise Network Services 69 3% 65 5% 4 6% 98 5 % 66 4 % 32 48 %
Wireless Messaging Services – 0% 14 1% (14 ) -100%
Total Sales $ 2,008 100% $ 1,331 100% $ 677 51% $ 1,913 100 % $ 1,648 100 % $ 265 16 %

($ in thousands) Nine Months Ended September 30,
Business Segment 2012 % of Total 2011 % of Total $ Change % Change
Energy Broadband, Inc. $ 3,398 64% 1,887 50% $ 1,511 80%
Wireless Bundled Services 1,702 32% 1,640 44% 62 4%
Enterprise Network Services 220 4% 227 6% (7 ) -3%
Wireless Messaging Services 23 0% 18 0% 5 28%
Total Sales $ 5,343 100% $ 3,772 100% $ 1,571 42%

For the three months ended ~~September 30, 2012,~~March 31, 2013, net sales increased to ~~$2,008,000~~$1,913,000 from ~~$1,331,000~~$1,648,000 for the three months ended ~~September 30, 2011.~~March 31, 2012. The overall increase of ~~51%~~16% was attributable to increased sales of ~~$654,000~~$192,000 in EBI, increased sales of ~~$33,000~~$41,000 in WBS, increased sales in ENS of ~~$4,000, offset with decreased sales in WMS of $14,000.~~$32,000. The ~~$677,000~~$265,000 increase in net sales is primarily attributable to ~~$654,000~~$192,000 increased sales in EBI are from deployment of our MBT’s in the oil and gas regions.
For the nine months ended September 30, 2012, net sales increased to $5,343,000 from $3,772,000 for the nine months ended September 30, 2011. The overall increase of 42% was attributable to increased sales of $1,511,000 in EBI, increased sales of $62,000 in WBS, increased sales in WMS of $5,000, offset with decreased sales in ENS of $7,000. The $1,571,000 increase in net sales is primarily attributable to $1,511,000 increased sales in EBI are from 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 ~~September 30, 2012~~March 31, 2013 and ~~2011:~~2012:

($ in thousands) Three Months Ended September 30, Three Months Ended March 31,
Business Segment 2012 % of Total 2011 % of Total $ Change % Change 2013 % of Total 2012 % of Total $ Change % Change
Energy Broadband, Inc. $ 631 61% $ 537 52% $ 94 18% $ 588 57 % $ 580 67 % $ 8 1 %
Wireless Bundled Services 301 29% 407 39% (106 ) -26% 319 31 % 192 22 % 127 66 %
Enterprise Network Services 95 10% 85 8% 10 12% 117 11 % 96 11 % 21 22 %
Wireless Messaging Services 4 0% 4 0% – 0%
Total cost of sales $ 1,031 100% $ 1,033 100% $ (2 ) 0% $ 1,024 100 % $ 868 100 % $ 156 18 %

Three Months Ended
September 30, Three Months Ended March 31,
($ in thousands) 2012 2011 $ Change % Change 2013 2012 $ Change % Change

Products and integration service $ 448 $ 566 $ (118 ) -21% $ 394 $ 455 $ (61 ) -13 %
Rent and maintenance 194 114 80 70% 194 127 67 53 %
Depreciation 389 353 36 10% 436 286 150 52 %
Total cost of sales $ 1,031 $ 1,033 $ (2 ) 0% $ 1,024 $ 868 $ 156 18 %

For the three months ended ~~September 30, 2012,~~March 31, 2013, cost of goods sold ~~decreased~~increased by ~~$2,000,~~$156,000, to ~~$1,031,000~~$1,024,000 from ~~$1,033,000~~$868,000 as compared to the three months ended ~~September 30, 2011.~~March 31, 2012. The ~~decrease~~increase of ~~$2,000~~$156,000 in cost of goods sold is primarily attributable to an increased cost of ~~$94,000~~$8,000 in EBI due to increased depreciation and tower rents for expansion and upgrade of networks for deployment of our MBT’s in oil and gas regions, increased cost in ~~ENS of $10,000, offset with decreased costs in~~ WBS of ~~$106,000 due to a decreasing third party services and depreciation.~~
~~The following tables set forth summarized cost of goods sold information for the nine months ended September 30, 2012 and 2011:~~
($ in thousands) Nine Months Ended September 30,
Business Segment 2012 % of Total 2011 % of Total $ Change % Change
Energy Broadband, Inc. $ 1,815 62% $ 1,223 48% $ 592 48%
Wireless Bundled Services 793 26% 1,067 42% (274 ) -26%
Enterprise Network Services 280 11% 273 11% 7 3%
Wireless Messaging Services 19 1% 4 0% 15 375%
Total cost of sales $ 2,907 100% $ 2,567 100% $ 340 13%
Nine Months
Ended September 30,
($ in thousands) 2012 2011 $ Change % Change

Products and integration service $ 1,399 $ 1,223 $ 176 14%
Rent and maintenance 495 314 181 58%
Depreciation 1,013 1,030 (17 ) -2%
Total cost of sales $ 2,907 $ 2,567 $ 340 13%
For the nine months ended September 30, 2012, cost of goods sold increased by $340,000, or 13%, to $2,907,000 from $2,567,000 as compared to the nine months ended September 30, 2011. The increase of $340,000 in cost of goods sold is primarily attributable to an increased cost of $592,000 in EBI$127,000 due to increased depreciation and tower rents for ~~deployment~~expansion and upgrade of ~~our MBT’s in oil~~networks and ~~gas regions, increased cost in WMS of $15,000,~~ increased cost in ENS of ~~$7,000 offset with decreased costs in WBS of $274,000 due to a decreasing third party services and depreciation.~~$21,000.
19

OPERATING EXPENSES

The following table sets forth summarized operating expense information for the three months ended March 31, 2013 and ~~nine months ended September 30, 2012 and 2011:~~2012:

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2012 2011 $ Change % Change 2012 2011 $ Change % Change

Employment expenses $ 1,066 $ 808 $ 258 32% $ 2,921 $ 2,139 $ 782 37%
Professional services 475 314 161 51% 1,036 841 195 23%
Rent and maintenance 105 95 10 11% 304 286 18 6%
Depreciation 54 61 (7 ) -11% 161 193 (32 ) -17%
Other general and administrative 271 156 115 74% 742 631 111 18%
Total operating expenses $ 1,971 $ 1,434 $ 537 37% $ 5,164 $ 4,090 $ 1,074 26%
Three Months Ended March 31,
($ in thousands) 2013 2012 $ Change % Change

Employment expenses $ 1,176 $ 841 $ 335 40 %
Professional services 458 225 233 104 %
Rent and maintenance 123 104 19 18 %
Depreciation 52 53 (1 ) -2 %
Gain on sale of assets (11 ) – (11 ) 100 %
Other general and administrative 220 241 (21 ) -9 %
Total operating expenses $ 2,018 $ 1,464 $ 554 38 %

For the three months ended ~~September 30, 2012,~~March 31, 2013, operating expenses increased by ~~37%~~38% to ~~$1,971,000,~~$2,018,000, as compared to ~~$1,434,000~~$1,464,000 for the three months ended ~~September 30, 2011,~~March 31, 2012, resulting from:
~~A $258,000 increase in employment expense - primarily attributable to increased employee headcount to 68 at September 30, 2012 from 55 at September 30, 2011;~~
~~A $161,000 increase in professional services - primarily attributable to consulting services;~~
~~A $10,000 increase in rent and maintenance;~~
~~A $7,000 decrease in depreciation; and~~
~~A $115,000 increase in other general and administrative - expense primarily attributable to travel, utility and transportation cost.~~

· A $335,000 increase in employment expense - primarily attributable to increased employee headcount to 64 at March 31, 2013 from 59 at March 31, 2012;
· A $233,000 increase in professional services - primarily attributable to consulting, accounting and legal services;
· A $19,000 increase in rent and maintenance;
· A $1,000 decrease in depreciation;
· A $11,000 gain on sale of assets; and
· A $21,000 decrease in other general and administrative.
~~For the nine months ended September 30, 2012, operating expenses increased by 26% to $5,164,000, as compared to $4,090,000 for the nine months ended September 30, 2011 resulting from:~~
~~A $782,000 increase in employment expense - primarily attributable to increased employee headcount to 68 at September 30, 2012 from 55 at September 30, 2011;~~
~~A $195,000 increase in professional services - primarily attributable to consulting services;~~
~~A $18,000 increase in rent and maintenance;~~
~~A $32,000 decrease in depreciation - is primarily due to fully depreciated assets; and~~
~~A $111,000 increase in other general and administrative expense - primarily attributable to travel, utility and transportation cost.~~
OTHER (INCOME) EXPENSE, NET

For the three months ended ~~September 30, 2012,~~March 31, 2013, the increase in other expense of ~~$246,000~~$248,000 from the prior year period is primarily attributable to an increase in our interest expense, net on debt obligations totaling ~~$472,000,~~$399,000 and offset with a increase in our net derivative income of ~~$23,000~~$151,000 as compared to interest expense, net of ~~$194,000,~~$359,000 and derivative ~~loss~~income of ~~$11,000 and gain on sale of assets of $2,000~~$83,000 for the three months ended ~~September 30, 2011.~~March 31, 2012. The derivative expense/income represents the net unrealized (non-cash) charge during the three months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ in the fair value of our derivative instrument liabilities related to warrants and embedded derivatives in our debt instruments that have been bifurcated and accounted for separately.

For the nine months ended September 30, 2012, the increase in other expense of $1,661,000 from the prior period is primarily attributable to an increase in our interest expense, net on debt obligations totaling $1,151,000 and offset with a increase in our net derivative income of $124,000 as compared to interest expense, net of $560,000 offset with derivative income of $2,000 and a gain on sale of assets of $1,192,000 for the nine months ended September 30, 2011. The derivative expense/income represents the net unrealized (non-cash) charge during the nine months ended September 30, 2012 and 2011, 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 ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, our total comprehensive loss was ~~$3,779,000~~$1,656,000 compared to comprehensive loss of ~~$2,341,000~~$969,000 for the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012. The increased comprehensive loss for the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, as compared to the comprehensive loss for ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 is primarily attributable to the factors described above.

CASH FLOWS

The Company's operating activities ~~decreased~~increased net cash used by operating activities to ~~$1,400,000~~$1,109,000 in the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, compared to net cash used of ~~$1,632,000~~$606,000 in the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012. The ~~decrease~~increase in net cash used by operating activities was primarily attributable to accounts payable and accrued liabilities compared to the prior year.

The Company's investing activities used net cash of ~~$1,166,000~~$67,000 in the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, compared to net cash ~~provided~~used of ~~$1,085,000~~$493,000 in the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012. The decrease in cash provided by investing activities is primarily attributable to ~~the expansion of~~specific targeted oil and gas ~~networks~~network upgrades to utilize our MBTs to provide service to our ~~customers and the cash received from the sale of non-core assets of our North and Central Texas network during February 2011 in the amount of $2,700,000.~~customers.

The Company's financing activities provided net cash of ~~$2,046,000~~$1,114,000 in the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, compared to ~~$813,000~~$657,000 of cash used in the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012. The cash provided in the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, was primarily associated with proceeds from debt financings.

LIQUIDITY AND CAPITAL RESOURCES

At ~~September 30, 2012,~~March 31, 2013, the Company's current assets totaled ~~$1,899,000~~$1,993,000 (including cash and cash equivalents of ~~$71,000)~~$56,000) and; total current liabilities were ~~$4,106,000,~~$3,651,000, resulting in negative working capital of ~~$2,207,000.~~$1,658,000. The Company has funded operations during the last ~~nine~~three months primarily through borrowings. These borrowings during the ~~period~~three months ended March 31, 2013 were incurred from the Company's line of credit, net totaling ~~$662,000, debt of $1,300,000~~$566,000, and convertible debt financing of ~~$998,000.~~$1,200,000.

DEBT FACILITIES AND INSTRUMENTS

~~The~~During December 2012, the Company ~~entered into~~extended its maturity date of its $12.0 million unsecured ~~$12 million~~ revolving credit facility with Angus Capital Partners, a related party, ~~maturing on~~from December 31, ~~2013. At September~~2013 to December 30, ~~2012, the Company had an outstanding principal balance of $3,527,000 on this line of credit.~~2015. The terms of the unsecured revolving credit facility ~~will~~ allow usthe Company to draw upon the facility as financing requirements dictate and ~~provides~~provide for quarterly interest payments ~~on outstanding principal~~ at ~~an annual~~a 12% rate ~~of 12%~~ per annum. The ~~loan~~payment of principal and interest may be ~~prepaid without penalty~~paid in cash, common shares or ~~repaid~~preferred shares at ~~maturity.~~the Company’s election. At March 31, 2013, the outstanding balance on the line of credit totaled $3,379,000 with a remaining line of credit available of $8,621,000. During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued ~~1,388,166~~777,825 shares of its Common Stock for the settlement of ~~total~~$338,208 of principal and $101,792 of accrued interest for a total of ~~$1,964,000~~$440,000 owed to Angus Capital Partners. The Company issued ~~the~~ Common Stock at an average price of ~~$1.41~~$0.56 per share calculated based on the closing price the day the debt was settled. Additionally, during the nine months ended September 30, 2012, the Company issued 118,095 shares of its Series A Preferred Stock for the settlement of total principal debt of $124,000. The Company issued Series Preferred A Stock at an average price of $1.05 per share of Common Stock the day the debt was settled.

In November 2011, the Company entered into a 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 ~~September 30, 2012,~~March 31, 2013, the outstanding ~~principal~~ balance on the ~~facility~~debt financing agreement totaled ~~$1,912,000~~$1,623,000 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 ~~major~~ oil and gas exploration regions of North America.

During the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, the Company issued to certain accredited investors a principal amount of ~~$998,000~~$300,000 of E-Series bonds (the "Bonds") in addition to ~~$30,000~~the $687,000 which was outstanding at December 31, 2012. At ~~September 30, 2012,~~March 31, 2013, the outstanding principal balance of the Bonds totaled ~~$797,000.~~$286,000. 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 ~~average~~ of the ~~Common Stock~~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 ~~expiring December 31, 2014,~~ to purchase one share of EBI ~~common stock~~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~~conversions 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.

On July 13, 2012, the Company entered into a ~~$1,000,000~~three-month secured debt financing agreement ~~that matures on December 31, 2012, bearing~~with individuals for $1,000,000 with an interest ~~at the annual~~ rate of 12% per annum. Under the agreement, as amended, the maturity date was extended to May1, 2013. Both parties under the amendment agreed to apply the Dakota Capital Fund payment of $181,235.29 including interest as a subset to the bridge note incurring an interest rate at .5% interest per day on a 360 day calendar year. At ~~September 30, 2012,~~March 31, 2013, the outstanding principal balance totaled $495,000.
On March 20, 2013, the Company entered into a one year unsecured promissory note debt financing agreement with JMJ Financials for up to $500,000. The note includes a 10% original issue discount that is prorated based on the ~~line~~consideration funded. As of ~~credit totaled $620,000.~~March 20, 2013, the Company received funding of $150,000, bearing interest at a rate of 12% per annum and maturing in one year from the effective date of each payment. 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.

ISSUANCE OF COMMON STOCK

During the three months ended ~~September 30, 2012,~~March 31, 2013, we issued to various accredited investors ~~711,790~~2,524,437 shares for services rendered and debt conversions. We relied on Section 4(2) of the Securities Act in effecting these transactions. During the three months ended ~~September 30, 2012,~~March 31, 2013, we issued ~~104,295~~270,300 shares of common stock to employees and business consultants, for aggregate consideration of ~~$144,404 of services rendered, pursuant to a registration statement on form S-8.~~
During the nine months ended September 30, 2012, we issued to various accredited investors (i) 1,634,389 shares for services rendered and debt conversions, and (ii) 70,000 shares upon conversion of Series A Preferred Stock. We relied on Section 4(2) of the Securities Act in effecting these transactions. During the nine months ended September 30, 2012, we issued 185,796 shares of common stock to employees and business consultants, for aggregate consideration of $284,862$220,493 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~~ through ~~September 30, 2013.~~March 31, 2014. 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 ~~September 30, 2012,~~March 31, 2013, 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.

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.~~
· 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 ofthe 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 ~~the reports that we file or submit under the Securities~~our Exchange Act ~~of 1934~~reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms ofand 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 ~~Securities and Exchange Commission. Based upon their evaluation of those~~disclosure controls and procedures, ~~performed~~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,~~report. Based on the foregoing, our ~~chief executive officer~~Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer concluded that as of ~~September 30, 2012,~~March 31, 2013, our disclosure controls and procedures were effective at athe reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.level.

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company's financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
In connection with the evaluation of the Company's internal controls during the Company's last fiscal quarter covered by this report required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, the Company's principal executive officer and principal financial officer have determined that as of September 30, 2012, there were no changes to the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially effect, the Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

During 2011, the Company and Schlumberger were unable to resolve certain financial issues contained in the 2009 exclusive reseller agreement through mediation and the Company has availed itself of binding arbitration as mandated in the contract. The binding arbitration process has been initiated in 2011 and has continued in ~~2012.~~2013.

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, ~~2011~~2012 filed with the SEC on March ~~23, 2012.~~29, 2013.

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.

In ~~July 2012, 267,134~~January 2013, 1,067,099 shares of Common Stock at average price of ~~$1.25~~$0.75 were issued for services and debt conversions.

In ~~August 2012, 265,417~~February 2013, 316,432 shares of Common Stock at average price of ~~$1.07~~$0.73 were issued for services and debt conversions.

In ~~September 2012, 179,239~~March 2013, 1,140,906 shares of common stock at average price of ~~$1.37~~$0.57 were issued for debt conversions.

ITEM 3. DEFAULT IN SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.
24

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

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

* Filed herewith. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

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: ~~November 14, 2012~~May 17, 2013

By: /s/ Richard R. Royall
Richard R. Royall
Chief Financial Officer
Date: ~~November 14, 2012~~May 17, 2013

25
23

	September 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	71		$	591
Securities held for resale		–			7
Accounts receivable, net		891			596
Accounts receivable, other		468			310
Inventories		385			358
Prepaid expenses and other current assets		84			285
Total current assets		1,899			2,147

Property and equipment
Property and equipment		11,388			9,932
Less: accumulated depreciation		(7,043	)		(5,868	)
Net property and equipment		4,345			4,064

Goodwill		176			176
Other assets		33			63
Total assets	$	6,453		$	6,450

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt	$	1,248		$	259
Current portion of long-term capital leases		164			126
Accounts payable		854			694
Accrued expenses		921			661
Derivative liabilities		686			27
Deferred liability and revenue		233			210
Total current liabilities		4,106			1,977

Line of credit (LOC)		3,527			4,592
Long-term debt, net of current portion		1,507			1,667
Long-term capital leases, net of current portion		261			305
Total liabilities		9,401			8,541

Commitments

Shareholders’ deficit:
Preferred stock - $0.001 par value, 25,000,000 authorized Series A designated 10,000,000 shares Issued and outstanding at September 30, 2012 and December 31, 2011, 8,626,982 and 8,578,887, respectively		9			9
Common stock - $0.001 par value Authorized 975,000,000 shares Issued and outstanding at September 30, 2012 and December 31, 2011, 4,051,181 and 2,160,996, respectively		4			2
Additional paid in capital		51,917			49,121
Accumulated deficit		(54,970	)		(51,198	)
Accumulated other comprehensive loss		(32	)		(25	)
Total ERF wireless, Inc. shareholders’ deficit		(3,072	)		(2,091	)
Non-controlling interest		124			–
Total shareholders’ deficit		(2,948	)		(2,091	)

Total liabilities and shareholders' deficit	$	6,453		$	6,450

	March 31,			December 31,
	2013			2012
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	56		$	118
Accounts receivable, net		845			828
Accounts receivable, other		364			346
Inventories		385			377
Costs and estimated earnings in excess of billings on uncompleted contracts		39			35
Prepaid expenses and other current assets		304			221
Total current assets		1,993			1,925

Property and equipment
Property and equipment		11,729			11,644
Less: accumulated depreciation		(7,999	)		(7,511	)
Net property and equipment		3,730			4,133
		��
Goodwill		176			176
Other assets		36			37

Total assets	$	5,935		$	6,271

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt	$	1,079		$	1,358
Current portion of long-term capital leases		183			169
Accounts payable	$	1,025		$	1,226
Accrued expenses		740			1,120
Derivative liabilities		610			492
Deferred revenue		14			20
Total current liabilities		3,651			4,385

Line of credit (LOC)		3,379			3,168
Long-term debt, net of current portion		1,418			1,419
Long-term capital leases, net of current portion		167			214
Total liabilities		8,615			9,186

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, 2013 and December 31, 2012, 8,426,982 and 8,426,982 shares, respectively		8			8
Common stock - $0.001 par value authorized 975,000,000 shares issued and outstanding at March 31, 2013 and December 31, 2012, 8,281,809 and 5,487,072 shares, respectively		8			6
Additional paid in capital		54,873			52,987
Accumulated deficit		(57,668	)		(56,012	)
Accumulated other comprehensive loss		(32	)		(32	)
Total ERF Wireless, Inc. shareholders’ deficit		(2,811	)		(3,043	)
Non-controlling interest		131			128
Total shareholders’ deficit		(2,680	)		(2,915	)

Total liabilities and shareholders' deficit	$	5,935		$	6,271

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2012			2011			2012			2011

Sales:
Products	$	6		$	36		$	49		$	162
Services		2,002			1,295			5,294			3,610
Total sales		2,008			1,331			5,343			3,772

Costs of goods sold:
Products and integration services		448			566			1,399			1,223
Rent, repairs and maintenance		194			114			495			314
Depreciation		389			353			1,013			1,030
Total costs of goods sold		1,031			1,033			2,907			2,567
Gross profit		977			298			2,436			1,205
Operating expenses:
Selling, general and administrative		1,917			1,373			5,003			3,897
Depreciation and amortization		54			61			161			193
Total operating expenses		1,971			1,434			5,164			4,090
Operating loss from continuing operations		(994	)		(1,136	)		(2,728	)		(2,885	)
Other income (expense):
Interest expense, net		(472	)		(194	)		(1,151	)		(560	)
Gain on sale of assets		–			2			–			1,192
Derivative income (loss)		23			(11	)		124			2
Total other (expense) income		(449	)		(203	)		(1,027	)		634
(Loss) from continuing operations		(1,443	)		(1,339	)		(3,755	)		(2,251	)
Loss from discontinued operations		–			–			–			(78	)
Consolidated net (loss)		(1,443	)		(1,339	)		(3,755	)		(2,329	)

Net income attributable to non-controlling interest		(9	)		–			(17	)		–
Net (loss) attributable to ERF Wireless, Inc.		(1,452	)		(1,339	)		(3,772	)		(2,329	)
Other comprehensive (loss):
Unrealized (loss) on securities held for resale		(1	)		(9	)		(7	)		(12	)
Total other comprehensive (loss)		(1	)		(9	)		(7	)		(12	)
Total comprehensive (loss)	$	(1,453	)	$	(1,348	)	$	(3,779	)	$	(2,341	)
Basic (loss) per common share:
(Loss) from continuing operations	$	(0.39	)	$	(0.89	)	$	(1.25	)	$	(1.94	)
(Loss) from discontinued operations	$	–		$	–		$	–		$	(0.07	)
Net (loss)	$	(0.39	)	$	(0.89	)	$	(1.25	)	$	(2.01	)

Diluted (loss) per common share:
(Loss) from continuing operations	$	(0.39	)	$	(0.89	)	$	(1.25	)	$	(1.94	)
(Loss) from discontinued operations	$	–		$	–		$	–		$	(0.07	)
Net (loss)	$	(0.39	)	$	(0.89	)	$	(1.25	)	$	(2.01	)

	2012			2011

Cash flows from operating activities
(Loss) from continuing operations	$	(3,755	)	$	(2,251	)
(Loss) from discontinued operations		–			(78	)
Net (loss)		(3,755	)		(2,329	)

Adjustments to reconcile net (loss) to net cash used by operating activities:
Gain on sale of assets		–			(1,183	)
Amortization of debt discount		193			1
Depreciation and amortization		1,174			1,277
Stock issued for services rendered, interest and compensation		479			1,282
Derivative income		(124	)		(2	)
Bad debt expense		7			–
Changes in:
Accounts receivable, net		(302	)		(61	)
Accounts receivable, other		(158	)		215
Inventories		(27	)		(97	)
Prepaid expenses and other current assets		202			34
Accounts payable		160			(11	)
Accrued expenses		728			(485	)
Deferred liability and revenue		23			(273	)
Total adjustment		2,355			697
Net cash used by operating activities		(1,400	)		(1,632	)

Cash flows from investing activities
Purchase of property and equipment		(1,196	)		(1,616	)
Proceeds from sale of assets		–			2,707
Change in other assets		30			(6	)
Net cash (used by) provided by investing activities		(1,166	)		1,085

Cash flows from financing activities
Net proceeds from line of credit		662			1,224
Proceeds from long-term debt obligations		2,298			350
Payment of long-term debt obligations		(801	)		(376	)
Payment on capital lease obligations		(113	)		(385	)
Net cash provided by financing activities		2,046			813

Net change in cash and cash equivalents		(520	)		266
Cash and cash equivalents at the beginning of the period		591			43
Cash and cash equivalents at the end of the period	$	71		$	309

Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest	$	309		$	88
Income taxes	$	–		$	–

Supplemental non-cash investing and financing activities:
Conversion of debt through issuance of common stock	$	231		$	190
Conversion of preferred stock to common stock	$	70		$	–
Conversion of LOC and interest through issuance of preferred stock	$	124		$	350
Conversion of LOC and interest through issuance of common stock	$	1,964		$	2,179
Unrealized (loss) on securities held for resale	$	(7	)	$	(12	)
Transfer of subsidiary equity to non-controlling interest	$	107		$	–
Property and equipment financed with debt and capital leases	$	260		$	–

											Additional						Accumulated			Non-		Total			Common Stock				Preferred Stock						Additional Paid in			Accumulated			Accumulated Comprehensive			Non-controlling		Total Shareholders’
	Common Stock				Preferred Stock						Paid in			Accumulated			Comprehensive			controlling		Shareholders’			Shares		Value		Shares			Value			Capital			Deficit			Income			Interest		Deficit
	Shares		Value		Shares			Value			Capital			Deficit			Income			Interest		Deficit
Total shareholders’ deficit as of December 31, 2010		785	$	1		4,613		$	5		$	45,091		$	(47,819	)	$	–		$	–	$	(2,722	)
Total shareholders’ deficit as of December 31, 2011																										2,161	$	2		8,579		$	9		$	49,121		$	(51,198	)	$	(25	)	$	–	$	(2,091	)

Net loss		–		–		–			–			–			(3,379	)		–			–		(3,379	)		–		–		–			–			–			(4,814	)		–			21		(4,793	)

New stock issued to shareholders:
Conversion of preferred stock to common stock		441		–		(1,404	)		(1	)		1			–			–			–		–			270		–		(270	)		(1	)		1			–			–			–		–
For services, compensation and interest		203		–		–			–			1,023			–			–			–		1,023			440		1		–			–			620			–			–			–		621
For retirement of debt		88		–		–			–			369			–			–			–		369			393		1		–			–			534			–			–			–		535
Conversion of LOC and interest to preferred stock		–		–		5,370			5			392			–			–			–		397			–		–		118			–			124			–			–			–		124
Stock based compensation																										–		–		–			–			–			–			–			–		–
Conversion of LOC and interest to common stock		644		1		–			–			2,378			–			–			–		2,379			2,223		2		–			–			2,587			–			–			–		2,589
Dividend declared		–		–		–			–			(133	)		–			–			–		(133	)
Unrealized loss on Securities held for resale		–		–		–			–			–			–			(25	)		–		(25	)
Total shareholders’ deficit as of December 31, 2011		2,161		2		8,579			9			49,121			(51,198	)		(25	)		–		(2,091	)
Transfer of subsidiary equity to non-controlling interest																										–		–		–			–						–			–			107		107
Unrealized loss on securities held for resale																										–		–		–			–			–			–			(7	)		–		(7	)

Total shareholders’ deficit as of December 31, 2012																										5,487		6		8,427			8			52,987			(56,012	)		(32	)		128		(2,915	)


Net loss		–		–		–			–			–			(3,772	)		–			17		(3,755	)		–		–		–			–			–			(1,656	)		–			3		(1,653	)

New stock issued to shareholders:
Conversion of preferred stock to common stock		70		–		(70	)		–			–			–			–			–		–
For services, compensation, interest and prepaids		305		–		–			–			479			–			–			–		479			753		–		–			–			496			–			–			–		496
For retirement of debt		126		–		–			–			231			–			–			–		231			1,265		1		–			–			967			–			–			–		968
Conversion of LOC and interest to preferred stock		–		–		118			–			124			–			–			–		124
Conversion of LOC and interest to common stock		1,389		2		–			–			1,962			–			–			–		1,964			777		1		–			–			439			–			–			–		440
Transfer of Subsidiary equity to non-controlling interest		–		–		–			–			–			–			–			107		107
Unrealized loss on Securities held for resale		–		–		–			–			–			–			(7	)		–		(7	)
Total shareholders’ deficit as of September 30, 2012 (unaudited)		4,051	$	4		8,627		$	9		$	51,917		$	(54,970	)	$	(32	)	$	124	$	(2,948	)
Derivative liability																										–		–		–			–			(16	)		–			–			–		(16	)

Total shareholders’ deficit as of March 31, 2013 (unaudited)																										8,282	$	8		8,427		$	8		$	54,873		$	(57,668	)	$	(32	)	$	131	$	(2,680	)

September 30, 2012	Supplemental Non-Cash Disclosure
March 31, 2013			Supplemental Non-Cash Disclosure
Professional fees	$	114	$	138
Services and compensation		270		160
Other services rendered		95		198
Total for services, and compensation	$	479
Total for services, compensation and interest			$	496

Notes payable	$	231	$	968
Line of credit and interest	$	1,964	$	440

Non-Qualified Stock Option Plan, ~~April~~December 2012	~~2012~~2013
	Plan
Shares initially reserved		~~250,000~~450,000

Shares issued during 2012 and 2013		~~185,796~~288,420

Remaining shares available to be issued at ~~September 30, 2012~~March 31, 2013		~~64,204~~161,580

Shares issued and outstanding as of ~~September 30, 2012~~March 31, 2013		~~185,796~~288,420

	For the three months ended September 30, 2012
	Net loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic EPS:
Loss from continuing operations	$	(1,443	)		3,718	$	(0.39	)
Loss attributable to non-controlling interest	$	(9	)		3,718	$	–
Net loss attributable to ERF Wireless, Inc.	$	(1,452	)		3,718	$	(0.39	)
Diluted EPS:
Effect of dilutive securities		–			–		–
Loss from continuing operations	$	(1,443	)		3,718	$	(0.39	)
Loss attributable to non-controlling interest	$	(9	)		3,718	$	–
Net loss attributable to ERF Wireless, Inc.	$	(1,452	)		3,718	$	(0.39	)

	For the nine months ended September 30, 2012
	Net loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic EPS:
Loss from continuing operations	$	(3,755	)		3,008	$	(1.25	)
Loss attributable to non-controlling interest	$	(17	)		3,008	$	(0.01	)
Net loss attributable to ERF Wireless, Inc.	$	(3,772	)		3,008	$	(1.25	)
Diluted EPS:
Effect of dilutive securities		–			–		–
Loss from continuing operations	$	(3,755	)		3,008	$	(1.25	)
Loss attributable to non-controlling interest	$	(17	)		3,008	$	(0.01	)
Net loss attributable to ERF Wireless, Inc.	$	(3,772	)		3,008	$	(1.25	)

	For the three months ended March 31, 2013
	Net loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
Basic EPS:
Net loss	$	(1,653	)		6,837	$	(0.24	)
Loss attributable to non-controlling interest	$	(3	)		6,837	$	(0.00	)
Net loss attributable to ERF Wireless, Inc.	$	(1,656	)		6,837	$	(0.24	)
Diluted EPS:
Effect of dilutive securities		–			–		–
Net loss	$	(1,653	)		6,837	$	(0.24	)
Loss attributable to non-controlling interest	$	(3	)		6,837	$	(0.00	)
Net loss attributable to ERF Wireless, Inc.	$	(1,656	)		6,837	$	(0.24	)


		For the three months ended March 31, 2012
		Net loss			Shares		Per-Share
		(Numerator)			(Denominator)		Amount
Basic EPS:
Net loss	$	(960	)		2,388	$	(0.40	)
Loss attributable to non-controlling interest	$	(5	)		2,388	$	(0.00	)
Net loss attributable to ERF Wireless, Inc.	$	(965	)		2,388	$	(0.40	)
Diluted EPS:
Effect of dilutive securities		–			–		–
Net loss	$	(960	)		2,388	$	(0.40	)
Loss attributable to non-controlling interest	$	(5	)		2,388	$	(0.00	)
Net loss attributable to ERF Wireless, Inc.	$	(965	)		2,388	$	(0.40	)

	Terms	Maturity Date	Interest Rate		Gross Balance		Debt Discount		Balance
Banc leasing, Inc.	$10,660 / Month including interest	January-15		11.62%	$	252	$	–	$	252
Advantage leasing associates	$7,186 / Month including interest	Various		Various		173		–		173
MP Nexlevel LLC	$7,043 / Month including interest	May-14		10.00%		129		–		129
Investor financing	$620,000 / Lump sum payment including interest	November-12		12.00%		620		–		620
Dakota capital equipment financing	$178,031 / Quarterly including interest	March-16		18.00%		1,912		65		1,847
E-bond investor notes	3 years/ Semiannual interest (See below)	Various		7.50%		797		638		159
Line of credit	2 years/ Quarterly interest (See below)	December-13		12.00%		3,527		–		3,527
Total debt					$	7,410	$	703		6,707
Less current maturities										(1,412	)
Long-term debt									$	5,295

Description	Bonds			Compound Derivative			Total

Fair value at December 31, 2011	$	2,682		$	27,346		$	30,028
Fair value issuances during 2012 (principal amount)		998,000			–			998,000
Fair value issuances during 2012 (debt discount)		(824,481	)		824,481			–
01-01-12 to 03-31-12 change in fair value		107,270			3,786			111,056
03-01-12 to 06-30-12 change in fair value		31,691			5,083			36,774
07-01-12 to 09-30-12 change in fair value		74,981			22,848			97,829
Conversions during 2012		(231,000	)		(197,186	)		(428,186	)
Fair value at September 30, 2012	$	159,143		$	686,358		$	845,501

Description	Bonds			Compound Derivative Liability			Total
Fair value at December 31, 2012	$	121,446		$	492,043		$	613,489
Fair value issuances during 2013 (principal amount)		300,000			–			300,000
Fair value issuances during 2013 (debt discount)		(128,284	)		128,284			–
Change in fair value		481,333			(63,976	)		417,357
Conversions		(701,000	)		(443,611	)		(1,144,611	)
Fair value at March 31, 2013	$	73,495		$	112,740		$	186,235

Description	Tonaquint			Warrant Compound Derivative Liability		Compound Derivative Liability		Total
Fair value issuances at inception	$	791,500		$	–	$	–	$	791,500
Fair value issuances during 2013 (debt discount)		(588,724	)		16,400		256,224		(316,100	)
Change in fair value		43,762			1,974		1,294		47,030
Conversions during		–					–		–
Fair value at March 31, 2013	$	246,538		$	18,374	$	257,518	$	522,430

Year Ending December 31,	Year Ending December 31,				Year Ending December 31,
2012		$	42
2013			214			$	161
2014			203				203
2015			27				26
Thereafter			–				–
Total minimum lease payments			486				390
Less amount representing interest			(61	)			(40	)
Present value of net minimum lease payments			425				350
Current maturities of capital lease obligations			(164	)			(183	)
Long-term portion of capital lease obligations		$	261			$	167

	March 31,
	2013
Costs incurred on uncompleted contracts	$	23
Estimated profit		16
Gross revenue		39
Less: billings to date		–
Costs and profit in excess of billings	$	39

	March 31,
	2013
Cost and estimated earnings in excess of billings on uncompleted contracts	$	39

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

	$	39

Three Months Ended September 30, 2012	EBI		WBS			ENS			WMS			Total Segment		ERF Corporate			Total Consolidated
Revenue	$	1,363	$	576		$	69		$	–		$	2,008	$	–		$	2,008
Operating income (loss) from continuing operations		245		(147	)		(78	)		(11	)		9		(1,003	)		(994	)
Total assets		3,388		2,226			656			12			6,282		171			6,453
Capital expenditures		147		321			5			–			473		3			476
Depreciation and amortization		191		182			59			–			432		11			443

Three Months Ended September 30, 2011	EBI		WBS			ENS			WMS		Total Segment			ERF Corporate			Total Consolidated
Revenue	$	709	$	543		$	65		$	14	$	1,331		$	–		$	1,331
Operating income (loss) from continuing operations		7		(217	)		(60	)		2		(268	)		(868	)		(1,136	)
Total assets		2,203		1,526			1,301			9		5,039			420			5,459
Capital expenditures		220		83			9			–		312			4			316
Depreciation and amortization		114		228			55			–		397			17			414

Nine Months Ended September 30, 2012	EBI		WBS			ENS			WMS			Total Segment			ERF Corporate			Total Consolidated
Revenue	$	3,398	$	1,702		$	220		$	23		$	5,343		$	–		$	5,343
Operating income (loss) from continuing operations		479		(333	)		(245	)		(17	)		(116	)		(2,612	)		(2,728	)
Total assets		3,388		2,226			656			12			6,282			171			6,453
Capital expenditures		677		761			5			–			1,443			13			1,456
Depreciation and amortization		510		451			175			–			1,136			38			1,174

Nine Months Ended September 30, 2011	EBI		WBS			ENS			WMS			Total Segment			ERF Corporate			Total Consolidated
Revenue	$	1,887	$	1,640		$	227		$	18		$	3,772		$	–		$	3,772
Operating income (loss) from continuing operations		94		(480	)		(94	)		(16	)		(496	)		(2,389	)		(2,885	)
Total assets		2,203		1,526			1,301			9			5,039			420			5,459
Capital expenditures		1,129		350			115			–			1,594			22			1,616
Depreciation and amortization		285		722			161			–			1,168			55			1,223

Three Months Ended March 31, 2013	EBI		WBS			ENS			Total Segment			ERF Corporate			Total Consolidated
Revenue	$	1,205	$	610		$	98		$	1,913		$	–		$	1,913
Segment income (loss) from operations		109		(322	)		(20	)		(233	)		(896	)		(1,129	)
Total assets		3,065		1,873			606			5,544			391			5,935
Capital expenditures		10		61			–			71			14			85
Depreciation		215		207			59			481			7			488




Three Months Ended March 31, 2012		EBI		WBS			ENS			Total Segment			ERF Corporate			Total Consolidated
Revenue	$	1,013	$	569		$	66		$	1,648		$	–		$	1,648
Segment income (loss) from operations		160		(49	)		(91	)		20			(704	)		(684	)
Total assets		3,160		2,056			769			5,985			346			6,331
Capital expenditures		331		225			–			556			7			563
Depreciation		154		113			58			325			14			339

Reconciliation of Segment Assets to	September 30,		December 31,
Total Assets	2012		2011
Reconciliation of Segment Assets to Total Assets					March 31, 2013		December 31, 2012
Total segment assets	$	6,282	$	5,161	$	5,544	$	5,989
Total corporate assets		171		1,289		391		282
Total assets	$	6,453	$	6,450	$	5,935	$	6,271

	Three Months Ended September 30,											Nine Months Ended September 30,

($ in thousands)	2012			2011			$ Change			% Change		2012			2011			$ Change			% Change
Total sales	$	2,008		$	1,331		$	677			51%	$	5,343		$	3,772		$	1,571			42%
Cost of goods sold		1,031			1,033			(2	)		0%		2,907			2,567			340			13%
Gross profit		977			298			679			228%		2,436			1,205			1,231			102%
Percent of total sales		49%			22%								46%			32%
Operating expenses		1,971			1,434			537			37%		5,164			4,090			1,074			26%
Loss from operations		(994	)		(1,136	)		142			-13%		(2,728	)		(2,885	)		157			-5%
Other income/(expense)		(449	)		(203	)		(246	)		121%		(1,027	)		634			(1,661	)		-262%
Loss from continuing operations		(1,443	)		(1,339	)		(104	)		-8%		(3,755	)		(2,251	)		(1,504	)		-67%
Loss from discontinued operations		–			–			–			0%		–			(78	)		78			100%
Net income attributable to non-controlling interest		(9	)		–			(9	)		100%		(17	)		–			(17	)		100%
Other comprehensive loss		(1	)		(9	)		8			-89%		(7	)		(12	)		5			-42%
Total comprehensive (loss)	$	(1,453	)	$	(1,348	)	$	(105	)		8%	$	(3,779	)	$	(2,341	)	$	(1,438	)		61%

	Three Months Ended March 31,
($ in thousands)	2013			2012			$ Change			% Change
Total sales	$	1,913		$	1,648		$	265			16	%
Cost of goods sold		1,024			868			156			18	%
Gross profit		889			780			109			14	%
Percent of total sales		46	%		47	%
Total operating expenses		2,018			1,464			554			38	%
Loss from operations		(1,129	)		(684	)		(445	)		65	%
Total other income/(expense)		(524	)		(276	)		(248	)		90	%
Consolidated net loss		(1,653	)		(960	)		(693	)		72	%
Net income attributable to non-controlling interest		(3	)		(5	)		2			-40	%
Other comprehensive loss		–			(4	)		4			-100	%
Total comprehensive loss	$	(1,656	)	$	(969	)	$	(687	)		71	%

($ in thousands)	Nine Months Ended September 30,
Business Segment	2012		% of Total		2011		% of Total		$ Change			% Change
Energy Broadband, Inc.	$	3,398		64%		1,887		50%	$	1,511			80%
Wireless Bundled Services		1,702		32%		1,640		44%		62			4%
Enterprise Network Services		220		4%		227		6%		(7	)		-3%
Wireless Messaging Services		23		0%		18		0%		5			28%
Total Sales	$	5,343		100%	$	3,772		100%	$	1,571			42%

	Three Months Ended September 30,									Three Months Ended March 31,
($ in thousands)	2012		2011		$ Change			% Change		2013		2012		$ Change			% Change

Products and integration service	$	448	$	566	$	(118	)		-21%	$	394	$	455	$	(61	)		-13	%
Rent and maintenance		194		114		80			70%		194		127		67			53	%
Depreciation		389		353		36			10%		436		286		150			52	%
Total cost of sales	$	1,031	$	1,033	$	(2	)		0%	$	1,024	$	868	$	156			18	%

	Nine Months Ended September 30,
($ in thousands)	2012		2011		$ Change			% Change

Products and integration service	$	1,399	$	1,223	$	176			14%
Rent and maintenance		495		314		181			58%
Depreciation		1,013		1,030		(17	)		-2%
Total cost of sales	$	2,907	$	2,567	$	340			13%

	·	A $335,000 increase in employment expense - primarily attributable to increased employee headcount to 64 at March 31, 2013 from 59 at March 31, 2012;

	·	A $233,000 increase in professional services - primarily attributable to consulting, accounting and legal services;