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

OUR MARKETS AND BUSINESS STRATEGY

Historically, our revenues have been generated primarily from Internet and construction services. Our Internet revenues result from our offering of broadband and basic communications services to residential and enterprise customers. Our construction revenues result from the construction of bank networks and other services associated with providing wireless products and services to the regional banking industry. During the three months ended March 31, 2012, approximately 34% of our revenues were generated from internet services, 61% of our revenues were generated from providing broadband services to the energy industry, 4% of our revenues were generated from construction services and 1% was generated from wireless messaging services. We expect that our internet services will continue to decline as a percentage of the total consolidated revenues in 2012 and that the most growth during fiscal 2012 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing wireless services.

During the first quarter of fiscal 2012, the Company continued to make substantial progress with its strategic business plan as evidenced by the completion and announcement of numerous significant activities. These include:

· The Company's financial results reflect the company's continued focus on aggressively expanding our turnkey communications services to the oil and gas industry during a period of continued brisk oil and gas drilling activity in North America. These results include but are not limited to the following attributes:

††† The Company reported overall consolidated revenues of $1,648,000 for the quarter ended March 31, 2012 as compared to $1,129,000 for the same prior year quarter ended March 31, 2011; an increase of $519,000 or 46%. The overall increase was comprised of a $478,000 increase in revenues in our oil and gas operations subsidiary, Energy Broadband, Inc. plus a combined increase of $41,000 from our other business units.

††† The Company's Energy Broadband, Inc. subsidiary reported revenues of $1,013,000 for the quarter ended March 31, 2012 as compared to revenues of $535,000 for the same prior year quarter ended March 31, 2011; an increase of $478,000 or 89%.

††† The Company reported Gross Profit of $819,000 for the quarter ended March 31, 2012 as compared to $406,000 for the same prior year quarter ended March 31, 2011; an increase of $413,000 or 102%. This 102% increase in Gross Profits on our 46% increase in revenues drove our overall gross margins to 50% for the quarter ended March 31, 2012 as compared to 36% for the same prior year quarter ended March 31, 2011. This 14% increase in our overall gross margins demonstrates continued solid performance against our number one business objective of growing high margin revenue while maintaining and strengthening our position as the largest terrestrial wireless provider to the oil and gas industry in North America.

††† The Company reported a Consolidated Net Loss of $960,000 for the quarter ended March 31, 2012 as compared to a Net Income of $159,000 for the same prior quarter ended March 31, 2011. The prior year net income of $159,000 included a $1,176,000 gain associated with the divestiture of certain non-core wireless broadband assets and operations in the first quarter of 2011. Excluding the one-time gain, our overall consolidated net loss improved by $57,000 when compared to the same prior year quarter.

††† The Company reported an increase of $339,000 or 29% increase in Operating Expenses in the quarter ended March 31, 2012 as compared to the same prior year quarter ended March 31, 2011 to support the 46% increase in our consolidated revenues and our continued aggressive strategy to grow our Energy Broadband business unit.

††† Lastly, the Company invested $526,000 in cash during the quarter ended March 31, 2012 for the purchase of assets in its Energy Broadband, Inc. subsidiary for the continued expansion of networks and infrastructure, including increasing its Mobile Broadband Trailer, ("MBT") fleet associated with the increased oil and gas business growth being experienced.

††† The Company recently announced that it has engaged a major construction contractor to build out two additional high-speed wireless broadband networks in two separate areas of the Permian Basin region of West Texas adjacent to existing ERF Wireless networks. In addition, ERF Wireless is using its own construction crews to construct three new networks that are near the extensive terrestrial wireless network system already owned and operated by ERF Wireless in Texas, New Mexico and Oklahoma. These new network segments are part of a larger expansion of the overall ERF Wireless network throughout North America which will meet not only the immediate needs of our existing customers but also the growing demand by the oil and gas industry in general for more terrestrial wireless connectivity to support drilling activities.

††† The Company further discussed that it has a number of our existing oil and gas customers who are already drilling in remote areas of the Permian Basin and other areas of Texas, Oklahoma, and New Mexico that currently don't have any terrestrial wireless broadband service coverage. Moreover, these customers plan to be very active in these same areas over the next ten years or more. When our contractor completes our newest network additions to the Permian Basin and our own crews complete their new construction activity within the next sixty days, ERF Wireless will have added approximately 10,000 square miles of new terrestrial wireless broadband coverage in these highly active oil and gas drilling areas.

††† Additionally, the Company went on to note that with the simultaneous expansion of the ERF Wireless network footprint and the corresponding increasing number of drilling rigs that are being serviced, Energy Broadband, the company's oil and gas subsidiary, is already utilizing some of the funding received late last year to expand its workforce of technicians, trucks, Mobil Broadband Trailers (MBTs) and other equipment required for service to its oil and gas customers.

††† The Company expects all of this new activity to translate into increasing revenue and profitability for Energy Broadband as it continues its substantial growth rates in the oil and gas service industry.

Lastly, the Company reported that the formal arbitration process begun in 2011 versus Schlumberger Technology Corporation is continuing to progress and is expected to be completed in 2012.

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

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

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

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2012, COMPARED TO THREE MONTHS ENDED MARCH 31, 2011

The following table sets forth summarized consolidated financial information for
the three months ended March 31, 2012 and 2011:

                                                    Three Months Ended March 31,
         ($ in thousands)                2012           2011         $ Change        % Change
Total sales                           $    1,648     $    1,129     $       519              46 %
Cost of goods sold                           829            723             106              15 %
Gross profit                                 819            406             413             102 %
Percent of total sales                        50 %           36 %
Operating expenses                         1,503          1,164             339              29 %
Loss from operations                        (684 )         (758 )            74              10 %
Other (expense)/income                      (276 )          995          (1,271 )           128 %
(Loss) income from continuing
operations                                  (960 )          237          (1,197 )           505 %
Loss from discontinued operations              -            (78 )            78             100 %
Net income attributable to
noncontrolling interest                       (5 )            -              (5 )           100 %
Other comprehensive (loss) income             (4 )            8             (12 )           150 %
Total comprehensive (loss) income     $     (969 )   $      167     $    (1,136 )           680 %

For the three months ended March 31, 2012, the Company's business operations reflected an increase in sales for Energy Broadband, Inc. ("EBI"), Wireless Bundled Services ("WBS"), Enterprise Network Services ("ENS") and Wireless Messaging Services ("WMS"). For the three months ended March 31, 2012, the Company's consolidated operations generated net sales of $1,648,000 compared to prior-year net sales of $1,129,000 for the quarter ended March 31, 2011. The $519,000 increase in net sales is primarily attributable to $478,000 increased sales in EBI from deployment of our Mobile Broadband Trailers (MBT's) in the oil and gas regions, $15,000 increased sales in WBS, $19,000 increased sales in ENS and $7,000 increased sales in WMS. Service sales increased 440,000 and product sales increased $79,000. For the three months ended March 31, 2012, the Company had a gross profit margin of 50%, compared to a gross profit margin 36% for the prior year. The $413,000 increase in gross profit margin is primarily attributed to the following factors; (i) approximately $253,000 increase in gross margin in EBI attributable to increased sales associated with deployment of (MBT's) in oil and gas regions, (ii) $162,000 increase in gross margins in WBS primarily related to decrease third party service cost, and (iii) offset with a $2,000 decrease in gross margins in ENS.

The Company incurred a total comprehensive net loss of $969,000 for the three months ended March 31, 2012, compared to a net comprehensive income of $167,000 from the quarter ended March 31, 2011. The Company's principal components of the total comprehensive loss for the quarter ended March 31, 2012 included approximately $339,000 in depreciation expenses, $359,000 of interest expense, $280,000 of other general and administrative expense, $841,000 in employment expenses and $225,000 in professional services expense.

SALES INFORMATION

Set forth below is a table presenting summarized sales information for our
business segments for the three months ended March 31, 2012 and 2011.

     ($ in thousands)                              Three Months Ended March 31,
     Business Segment           2012      % of Total     2011      % of Total    $ Change    % Change
Wireless Messaging Services   $      10           1%   $       3           0%   $        7       233%
Wireless Bundled Services           559          34%         544          48%           15         3%
Enterprise Network Services          66           4%          47           4%           19        40%
Energy Broadband, Inc.            1,013          61%         535          48%          478        89%
Total Sales                   $   1,648         100%   $   1,129         100%   $      519        46%

For the three months ended March 31, 2012, net sales increased to $1,648,000 from $1,129,000 for the three months ended March 31, 2011. The overall increase of 46% was attributable to increased sales of $478,000 of Energy Broadband, Inc., increased sales of $15,000 of Wireless Bundled Services, increased sales of $19,000 in Enterprise Network Services and increased sales in Wireless Messaging Services of $7,000. The $519,000 increase in net sales is primarily attributable to $478,000 increased sales in EBI are from deployment of our Mobile Broadband Trailers (MBT's) in the oil and gas regions.

COST OF GOODS SOLD

The following tables set forth summarized cost of goods sold information for the
three months ended March 31, 2012 and 2011.

     ($ in thousands)                          Three Months Ended March 31,
     Business Segment         2012    % of Total   2011    % of Total    $ Change    % Change
Wireless Messaging Services   $   7           1%   $   -           0%   $        7       700%
Wireless Bundled Services       180          22%     327          45%        (147)       -45%
Enterprise Network Services      96          11%      75          10%           21        28%
Energy Broadband, Inc.          546          66%     321          45%          225        70%
Total cost of sales           $ 829         100%   $ 723         100%   $      106        15%

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

    Products and
    integration
    service           $         416         $         306     $       110             36%
    Rent and
    maintenance                 127                    75              52             69%
    Depreciation                286                   342             (56 )          -16%
    Total cost of
    sales             $         829         $         723     $       106             15%

For the three months ended March 31, 2012, cost of goods sold increased by $106,000, or 15%, to $829,000 from $723,000 as compared to the three months ended March 31, 2011. The increase of $106,000 in cost of goods sold is primarily attributable to an increased cost of $225,000 in EBI due to increased depreciation and tower rents for deployment of our Mobile Broadband Trailers (MBT's) in oil and gas regions, increased cost in ENS of $21,000, increased cost in WMS of $7,000 and offset with a $147,000 decreased cost in WBS due to a decreasing third party services and depreciation.

OPERATING EXPENSES

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

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

     Employment expenses                $    841     $   586     $     255            44%
     Professional services                   225         209            16             8%
     Rent and maintenance                    104          74            30            41%
     Depreciation                             53          69           (16 )         -23%
     Other general and administrative        280         226            54            24%
     Total operating expenses           $  1,503     $ 1,164     $     339            29%

For the three months ended March 31, 2012, operating expenses increased by 29% to $1,503,000, as compared to $1,164,000 for the three months ended March 31, 2011. The increases that occurred, as evidenced by the immediately preceding table, are discussed below:

· A $255,000 increase in employment expense. The increase is attributable to increased employee headcount to 66 at March 31, 2012 from 52 at March 31, 2011;

· A $16,000 increase in professional services;

· A $30,000 increase in rent and maintenance;

· A $16,000 decrease in depreciation ; and

· A $54,000 increase in other general and administrative expense.

OTHER (INCOME) EXPENSE, NET

For the three months ended March 31, 2012, the increase in other expense is primarily attributable to an increase in our interest expense, net on debt obligations totaling $359,000 and offset with a increase in our net derivative income of $83,000 as compared to interest expense, net of $194,000 offset with derivative income of $13,000 and a gain on sale of assets of $1,176,000 for the three months ended March 31, 2011. The derivative expense/income represents the net unrealized (non-cash) charge during the three months ended March 31, 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 NET INCOME (LOSS)

For the three months ended March 31, 2012, our total comprehensive loss was $969,000 compared to comprehensive income of $167,000 for the three months ended March 31, 2011. The increased comprehensive loss for the three months ended March 31, 2012, as compared to the comprehensive income for three months ended March 31, 2011 is primarily attributable to the factors describe in the preceding tables.

CASH FLOWS

The Company's operating activities decreased net cash used by operating activities to $606,000 in the three months ended March 31, 2012, compared to net cash used of $949,000 in the three months ended March 31, 2011. The decrease in net cash used by operating activities was primarily attributable to decrease in prepaids, amortization of debt discount and stock payments of accrued liabilities compared to prior year.

The Company's investing activities used net cash of $493,000 in the three months ended March 31, 2012, compared to net cash provided of $1,960,000 in the three months ended March 31, 2011. The decrease in investing activities is primarily attributable to the expansion of oil and gas networks 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 the February 2011.

The Company's financing activities provided net cash of $657,000 in the three months ended March 31, 2012, compared to $296,000 of cash used in the three months ended March 31, 2011. The cash provided in the three months ended March 31, 2012, was primarily associated with proceeds from debt financing and the line of credit, net.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2012, the Company's current assets totaled $1,837,000 (including cash and cash equivalents of $149,000); total current liabilities were $2,403,000, resulting in negative working capital of $566,000. The Company has funded operations to date primarily through a combination of utilizing cash on hand, borrowings and raising additional capital through the sale of its securities. The Company's operation for the three months ended March 31, 2012, was primarily funded by proceeds from the Company's line of credit, net totaling $137,000, debt of $300,000 and convertible debt financing of $260,000.

CURRENT DEBT FACILITY

In June 2010, the Company increased its unsecured revolving credit facility with Angus Capital Partners a related party from $10.5 million to $12.0 million maturing December 31, 2013. At March 31, 2012, the Company had approximately $7,690,000 available on a $12.0 million unsecured revolving credit facility with Angus Capital Partners, with an outstanding balance of $4,310,000. The terms of the unsecured revolving credit facility will allow us to draw upon the facility as financing requirements dictate and provides for quarterly interest payments at an annual 12% rate. The loan may be prepaid without penalty or repaid at maturity.

In November 2011, the Company signed a debt financing agreement with Dakota Capital Fund LLC of Sioux Falls, South Dakota, for financing of up to $3,000,000. At March 31, 2012, the Company had approximately $1,000,000 available on a $3.0 million secured equipment credit facility with Dakota Capital Fund LLC, with an outstanding balance of $2,000,000. The terms of the secured credit facility will allow ERF to draw upon the facility for equipment purchases provided that the Company has submitted an advance request with acceptable and sufficient information of assets to be purchased. The payment terms are $178,031 per quarter including interest, at an annual rate of 18% plus 10% of positive operational cash flow as determined from the Company's publically filed 10Q's and 10K's for repayment of additional principal beginning July 1, 2012.

ISSUANCE OF COMMON STOCK

During the three months ended March 31, 2012, we issued to various accredited investors (i) 274,545 shares for 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.

USE OF WORKING CAPITAL

We believe our cash and available credit facilities afford us adequate liquidity for the balance through March 31, 2013. We anticipate that we will need additional capital in the future to continue to expand our business operations, which expenditures may include acquisitions and capital expenditures. We have historically financed our operations through private equity and debt financings. We do not have any commitments for significant equity funding at this time, and additional funding may not be available to us on favorable terms, if at all. As such there is no assurance that we can raise additional capital from external sources, the failure of which could cause us to curtail operations.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2012, 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 10K.

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;

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

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

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

Derivative Instruments

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

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

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