UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE YEAR ENDED DECEMBER 31, 20122013

COMMISSION FILE NUMBER 000-27467

ERF WIRELESS, INC.

(Exact name of registrant as specified in its charter)

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

Securities registered under Section 12(b) of the Exchange Act:

None.

Securities registered under Section 12(g) of the Exchange Act:

$.001 PAR VALUE COMMON STOCK

Check whether the issuer is not required to file report pursuant to Section 13

or 15(d) of the Exchange Acto

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨ Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes¨ Nox

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. Yesx 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 twelve months (or for such shorter period that the registrant was required to submit and post such files). Yesx No¨

Indicate by check mark that disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a 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.

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

As of June 30, 20122013 the aggregate market value of the shares of common stock held by non-affiliates (based on the closing price of $1.28$200.00 per share for the common stock as quoted on that date) was approximately $3,758,852.$5,122,852.

As of MarchApril 15, 2013,2014, the Company had outstanding 7,688,2621,001,743 shares of its $.001 par value common stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

Except for the historical information and discussions contained herein, statements contained in this Annual Report on Form 10-K, may constitute forward-looking statements. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed elsewhere in the ERF Wireless, Inc. ("Company" or "ERF"), filings with the U.S. Securities and Exchange Commission ("SEC"). The statements contained in this document that are not purely historical are forward-looking statements including without limitation statements regarding our expectations, beliefs, intentions or strategies regarding our business. This Annual Report on Form 10-K includes forward-looking statements about our business including, but not limited to, the level of our expenditures and savings for various expense items and our liquidity in future periods. We may identify these statements by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "will," "would" and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law. Our actual results could differ materially from those anticipated in these forward-looking statements.

ITEM 1. BUSINESS

The Company

We are a leading provider of wireless broadband access solutions for the energy industry. Our primary business strategy is to develop and provide a long-term terrestrial wireless broadband solution for the exploration, drilling, and production sectors of the energy industry in rural and remote locations in North America that lack existing communications infrastructure. We offer our oil and gas customers a comprehensive and integrated package of wellsite information technology (“IT”) communications services, including high-speed low-latency terrestrial broadband connectivity utilizing both licensed and unlicensed spectrum, VOIPvoice over Internet Protocol (VOIP) telephone, facsimile service, wireless intercom systems, computer and other IT equipment rental, IT support services, and video security solutions.

Wireless broadband Internet systems consist of a radio transceiver that sends a signal on a combination of radio channels to other transceivers, categorized based upon the wireless technology utilized, and transmitted through licensed or unlicensed spectrum. We use a combination of WiMAX (“Worldwide interoperability for Microwave Access”) wireless broadband as well as other relevant wireless technology solutions to service our customers.

Our current focus is to expand our network in the middle-United States region, including Texas, Oklahoma, Arkansas, New Mexico, Louisiana, Colorado, Kansas, North Dakota, and Montana.Louisiana.  The delivery of terrestrial broadband wireless directly to the wellsite is the primary benefit of our service - we believe the primary reason why our services are currently in demand throughout the remote oil and gas regions of North America. We have acquired 15 wireless broadband networks over eight years,  built seven additional wireless networks, and contracted with 11 other wireless networks to create, what we believe to be, the largest North American terrestrial wireless network coverage- in excess of 450,000 square miles- in important oil and gas regions. We have combined our terrestrial wireless coverage with a fleet of more than 130 MBT’smobile broadband trailers being referred to as “MBT’s”, that are deployed by our field technicians to a drilling pad that provides a symmetrical 1.5Mb/s wireless circuit back to one of our fixed towers up to twenty five miles away, depending on the local terrain -providing wireless access anywhere within our coverage area.  We are paid a daily rate for delivering this circuit to the wellsite while the well is being drilled. The terrestrial wireless solution offers a distinct advantage, in addition to the increased bandwidth, over the traditional very small aperture terminal, or VSAT, communications solution in that a VSAT adds almost one second of delay to the communications path (“latency”) while terrestrial broadband has no more than sixty thousands of a second of latency.  Many of the current remote software programs utilized by oil and gas companies require less than one tenth of a second of latency to function properly. Once the drilling process has been completed our technicians reverse the deployment process and move our MBT’s along with the drilling rig to our customer’s next drilling site. We are paid on an hourly rate for the move, since distances can vary from only a few miles to hundreds of miles. Once our technician arrives at the new wellsite, the process is repeated. Some of our MBT’s have been following the same drilling rig for years. We believe that this low latency “nomadic” delivery solution, when combined with our provision of a technician at the wellsite within four hours of being notified of any issues anywhere in our North American service territory, affords us a competitive advantage and should allow us to expand our market share going forward.

While our focus is on providing broadband connectivity to the drilling sector of the oil and gas industry, we also provide wireless broadband services to a broad range of other residential and enterprise customers including banking, healthcare, and educational customers utilizing the same wireless network assets and personnel used in our oil and gas services business.

Corporate Information

We were incorporated in the State of Nevada in June 2004. Our principal executive offices are located at 2911 South Shore Blvd., Suite 100, League City, Texas 77573, and our telephone number is (281) 538-2101.We maintain web sites at www.erfwireless.com, www.energybroadband.com and www.erfwireless.net. The information on, or that may be accessed through, our websites are not incorporated by reference into this filing and should not be considered a part of this filing.

On October 1, 2013, shareholders of the Company holding approximately 98.5% of the Company’s voting stock (the “Majority Shareholders”), as of September 24, 2013 (the “Record Date”), consented in writing to, among other things, an amendment to the Company’s Articles of Incorporation to effect one or a series of forward or reverse splits (the “Stock Splits”) of the Company’s common stock only for the express purpose, if required, in connection with obtaining a listing on a national securities exchange. The Stock Splits were required to be at a ratio of not less than 2 and not greater than 400 with the exact ratio to be set within such range at the discretion of the Board of Directors, without further approval or authorization of the Company’s shareholders, provided that such Stock Splits were required to be effected no later than October 1, 2014 (the “Shareholder Approval”). Neither the (i) number of authorized shares or the par value of the shares of the Company’s common stock nor (ii) number of authorized, issued and outstanding, or any associated conversion ratio of the shares of Series A Preferred Stock were to be changed in connection with any such Stock Split.

Effective December 2, 2013, the Board of Directors of the Company, consistent with the Shareholder Approval for the Stock Splits, approved a reverse stock split in a ratio of 1:400 (the “Reverse Stock Split”) and the filing of a Certificate of Amendment (the “Amendment”) to effect such Reverse Stock Split with the secretary of state of Nevada, which amendment was filed on December 12, 2013, provided that such Amendment, pursuant to its terms, did not go effective with the State of Nevada until December 17, 2013. The Board of Directors also approved the rounding of fractional shares remaining after the Reverse Stock Split to the nearest whole share on a per shareholder basis, provided that any shareholders holding over ten (10) shares, but less than ninety-nine (99) shares after the Reverse Stock Split would have their shares automatically rounded up to 100 shares (the “Rounding”). The Reverse Stock Split became effective with FINRA and in the marketplace on December 18, 2013 (the “Effective Date”).

As a result of the Reverse Stock Split, the Company’s issued and outstanding shares of common stock decreased from approximately 34.2 million pre-Reverse Stock Split shares to approximately 85,452 post-Reverse Stock Split shares prior to effecting the Rounding described above.

Unless otherwise stated or the context would require otherwise, the effects of the Reverse Stock Split have been retroactively reflected throughout this report.

The Company owns 100% of the common stock of the following subsidiaries: (i) Wireless Bundled Services, Inc., a Texas corporation (“WBS”); (ii) Enterprise Network Services, Inc., a Texas corporation (“ENS”); and (iii) Wireless Messaging Services, Inc., a Texas corporation (“WMS”). In September 2011, we declared a stock dividend to our shareholders consisting of 5% of the existing common stock in Energy Broadband, Inc. (“EBI”) our then wholly owned subsidiary. The dividend resulted in the issuance to each common and preferred shareholder of record as of September 30, 2011, for each 200 shares of our common stock, including Series A Preferred Stock convertible into 200 common shares, (i) 100 shares of EBI common stock, (ii) one three-year warrant to purchase 100 shares of EBI common stock at a price of $4.00 per share, and (iii) a second three-year warrant to purchase 100 shares of EBI at a price of $6.00 per share. During the year ended 2012, we distributed 725,611 shares of EBI common stock to our shareholders (the “EBI Dividend”). As a result, as of December 31, 2012,2013, we owned 96.37% of EBI common stock and our shareholders owned an aggregate of 3.63% of EBI common stock. The Company intendsexpects to issue the remaining portion ofstock dividends in 2014. No stock dividends were issued during the dividend to its shareholders as soon as practicable.year ended December 31, 2013.

Our Industries

Oil and Gas Industry

As demand for energy produced in North America continues to grow, we believe that exploration and production will continue to move further away from civilization and into more remote environments. In particular, the recent discovery of certain new extraction techniques such as “fracking” has opened up multiple oil and gas shale regions in extremely remote areas of North America. As a result, oil and gas companies have been forced to change the way they communicate. One such approach is to achieve a “digital oilfield.” In a digital oilfield, new technologies such as process digitization, real time data collection, and intelligent controls are combined to improve recovery, accelerate production, reduce downtime, and reduce the number of on-site engineers and geologists required to oversee the operation. At the heart of a digital oilfield is a reliable, low latency, cost-effective means of communication. Oil and gas companies have historically relied on cellular and satellite communication to transmit data from the well site to the home office but these very remote locations are typically not within range of cellular communication and satellite communication suffers from extremely high latency - a delay of almost one second in data transmission. High latency can interrupt the fluency of voice communications and make machine to machine communications complex, ineffective and unreliable. Currently, we believe that the terrestrial wireless broadband network we offer in these remote areas is the only fully viable solution.

In addition to the increased rate of utilization by oil and gas companies of our low latency, terrestrial wireless broadband communications service, our business growth is also driven by the increased level of oil and gas drilling activities in North America, particularly in shale plays in Eagle Ford and Bakken.Cline Shale formations. We believe the following economic factors will positively impact our business strategy in the near future:

As a result of the above factors, we expect that there will continue to be a tight supply of, and high demand for, natural gas and oil in North America in the near future. We believe these trends will continue to support high levels of drilling activity which should equate to increased demand for our services.

Banking/Healthcare/Education

Many rural areas of the United States that need point-to-point broadband communications do not have any alternative other than to lease these services from the local telephone company. Because of the rural nature of these leased services, there is very little competition and thus higher than average pricing in many locations. We have developed a wireless model for replacing these leased wireline circuits with terrestrial wireless circuits that are typically owned by the customer and monitored and maintained by us. In particular, for the regional banking industry, we utilize our already owned terrestrial wireless networks to build fixed point-to-point spur networks from our towers to the individual bank branch locations up to twenty-five miles away. The banks typically purchase these spur networks and pay us to build the networks. In addition, we provide our patented security device CryptoVue^TMCryptoVue™ to satisfy the regulatory requirements of a bank using a wireless network outside of the bank’s physical location. These new bank networks allow a bank to communicate voice and data among their various branches as well as the parent bank. Following the construction and commissioning of a bank network, we typically enter into a long term monitoring and maintenance contract with the bank. The advantage that the bank receives, in addition to higher transmission speeds, is a reduction of their communication costs as compared to leasing such services from the telephone company. To date we have constructed four such banking networks that serve almost one hundred branch locations across Texas and Louisiana.

The healthcare and educational application of our wireless technology is very similar to the banking model, except that we typically own the spur networks and the security requirements are not as stringent as compared to banks. Over the past five years we have completed such networks for four large school districts in Texas and are serving threefive healthcare facilities, most located in the State of Texas.

Commercial and Residential Wireless Broadband

The rural areas of the United States have not historically enjoyed the advantages of broadband that is now available in most urban areas. Currently many rural areas still receive their Internet service by way of a dial up telephone connection, a local cable company, or if they live near a more urban region, by DSL. Even though they are connected to the Internet they cannot enjoy its advantages because their connection speed is limited in bandwidth. For those who want or need an increased bandwidth offered by broadband, the only viable and economic solution is to purchase wireless broadband. The costs associated with providing connectivity these customers are directly related to the number of customers per square mile, and as a result, the margins for rural commercial and residential broadband can be quite small even when delivered in a wireless fashion. We have, however, been able to utilize our existing networks shared with oil and gas customers, banks, healthcare, and educational entities to also deliver wireless broadband to customers in these rural areas. We currently have approximately 3,2523,000 residential and commercial customers producing approximately $200,000 per month of recurring revenue while sharing our rural networks with our banking/healthcare/educational/ and oil and gas customers.

Our Services

Oil & Gas Industry Wireless Bandwidth and Related Support Services.Through our oil and gas industry division, we provide a wide range of wireless Internet bandwidth connectivity service solutions as well as a number of related products and services, which include the following:

In fiscal 20122013 and 2011,2012, these products and services resulted in revenues of $4,642,000$4,311,000 and $2,713,000$4,642,000 respectively, comprising 64%60% of our revenues in 20122013 and 51%63% of our revenues in 2011.2012.

Enterprise-Level Wireless Bandwidth Product and Services Through our enterprise network services division we provide a wide range of terrestrial wireless Internet bandwidth service solutions and related products to the regional banking, healthcare, and educational sectors primarily in the rural areas of North America within our existing coverage areas, including:

In fiscal 20122013 and 2011,2012, these products and services resulted in revenues of $380,000$404,000 and $407,000$380,000 respectively, comprising 6% of our revenues in 2013 and 5% of our revenues in 2012 and 8% of our revenues in 2011.2012.

Commercial and Residential Wireless Bandwidth, Products and Services Through our commercial and residential wireless bundled services division we provide a full range of terrestrial wireless Internet connectivity service solutions and products to commercial businesses and residential customers using our existing wireless networks. These services include high-speed Internet, VOIP service, network monitoring and maintenance, and video service. The bulk of our current commercial and residential customer base reside in Texas and Louisiana.

In fiscal 20122013 and 2011,2012, these products and services resulted in revenues of $2,283,000$2,441,000 and $2,178,000$2,306,000 respectively, comprising 34% of our revenues in 2013 and 31% of our revenues in 2012 and 41% of our revenues in 2011.2012.

Our Business Strategy

We intend to continue to build upon our market position in the areas in which we operate by offering an integrated and comprehensive package of services that will allow us to provide our oil and gas customers with wellsite IT communications services required throughout their drilling locations. We intend to continue to supplement our wellsite communications business with our enterprise, commercial and residential bandwidth delivery to maximize the return from our investment in network infrastructure throughout the regions in which we operate. We view the incremental steps in achieving this to include the following:

Our Competitive Strengths

We believe our operations benefit from a number of competitive strengths addressed below:

Overview of our Divisions

We operate in the following areas of North America:

We manage our business through three major divisions: oil and gas services division, enterprise network services division, and wireless bundled services division. The following matrix illustrates the various products and services we provide throughout all of our different service regions from the three major divisions of our company:

Our revenues from our operating segments for the fiscal years ended December 31, 20122013 and 20112012 are set forth below.

Sales and Marketing

Our sales and marketing activities are generally performed through local operations in each geographic region. We believe our local field sales personnel understand basic issues and customer operating procedures and, therefore, can effectively target marketing activities. We also have a corporate sales office located in our League City, Texas headquarters that supplements our field sales efforts and focuses on large accounts and selling our complementary services.

Operating Risks and Insurance

Our operations are subject to a limited number of hazards inherent in the land based oil and natural gas industry. Our enterprise, commercial, and residential customers present operating risks similar to those found in many business environments of the communications industry. We maintain industry standard insurance in amounts that we believe to be adequate.

Third Party Suppliers

We procure substantially all of the equipment we use to provide our terrestrial broadband services from third-party suppliers pursuant to multi-year agreements. The equipment we procure consists of commercial off-the-shelf components, which management believes could be obtained from other third-parties on commercially reasonable terms in the event that supply from our current suppliers is interrupted. Our suppliers generally warrant the products distributed by us and allow returns of defective products, including those that have been returned to us by our customers. We do not independently warrant the products that our suppliers distribute, but we do provide warranty services on behalf of the suppliers if and when required.

Competition

We operate in competitive markets with low barriers to entry. To compete successfully in those markets, a company must provide high-quality, reliable services that meet the specific needs of our customers at competitive prices. In the oil and gas industry division, our terrestrial broadband communications competes primarily with the traditional VSAT communications that are provided by a wide range of other providers. With respect to our enterprise network service division and our commercial and residential bundled service division, we compete mainly with the more established telephone and cable companies.

TheThe oil and gas remote communications services industry is highly competitive. We expect competition in the markets that we serve to continue, increase and change, consistent with recent industry consolidation and introductions of new 4G LTE technologies. We face varying degrees of competition from a wide variety of companies, including new potential entrants from providers to adjacent vertical markets and from forward integration by some of our suppliers deeper in the industry value chain, since successful service and system development is not necessarily dependent upon substantial financial resources.

Our primary North American competitors in upstream oil and gas include Harris CapRock Communiations,Communications, RigNet, Inmarsat plc’s Inmarsat Solutions, Stallion Oilfield Services, Datacom, Digital Networks and Sound & Cellular marketed under the brand Drillcom. The VSAT industry sector has experienced consolidation with Harris Corporation’s acquisitions of CapRock Communications, Inc. and Schlumberger Ltd’s Global Connectivity Services division. More recently, 4G LTE start-up companies including Infrastructure Networks and Texas Energy Networks have acquired spectrum assets and begun constructing 4G LTE networks in certain oil and gas territories. In addition, there are a range of regional providers serving smaller customers. Specifically in North America, we also face competition from drilling instrumentation providers, living-quarters companies, and other pure-play providers that have a similar operating strategy.

Our oil and gas customers generally choose their provider(s) based on the quality and reliability of the service and the ability to restore service quickly when there is an outage. Pricing and breadth of service offerings is also a factor. The oil and gas industry depends on maximum reliability, quality and continuity of products and service. Established relationships with customers and proven performance serve as significant barriers to entry. Our competitive advantage over traditional VSAT providers that have dominated the industry historically results from being able to provide a T-1 equivalent 1.5Mb circuit with a service level agreement of less than 70 milliseconds of latency as compared to 600-700 milliseconds latency for VSAT providers. This increased speed and lower latency allows for better dependability of voice transmissions and quality as well as enabling utilization of the oil and gas operators drilling and measurement applications on a real-time basis.

For our non-oil and gas operations, the Internet services industry is extremely competitive. We compete for revenues with multiple companies providing Internet services on a nationwide basis, discount ISPs (Internet service providers) and smaller regional ISPs. We also compete with companies that provide Internet access via narrowband and broadband technologies, such as Internet access providers, cable companies and telephone companies, most of which offer the same Internet connectivity services. While there is still significant competition, we are utilizing a strategy of focusing on marketing to underserved geographic areas –areas with less competition or technically inferior services available that also contain oil and gas exploration and drilling operations. We believe residential Internet competition in these areas is generally from locally owned wireless broadband operators who lack the operating scale and monitoring systems. These operators often have significantly higher prices or inefficient operations.  These local wireless broadband operators offer little competition for our oil and gas customers since they are generally not equipped, financially or otherwise, to offer the required service.

Finally we believe that the principal competitive factors in the market areas that we serve are quality of service, low latency, reputation for safety and technical expertise, availability and price. While we attempt to be price competitive, we believe that many of our customers select our services based primarily on our professional, reliable and comprehensive provision of services in each of our service areas and the experience of our service professionals who deliver those services.

Safety Program

In the wellsite support services industry, an important competitive factor in establishing and maintaining long-term customer relationships is having an experienced and skilled work force. In recent years, many of our larger customers have placed an emphasis not only on pricing, but also on safety records and quality management systems of contractors. We believe that these factors will gain further importance in the future. We plan to apply adequate resources toward employee safety and quality management training programs.

Intellectual Property, Proprietary Rights and Licenses

With respect to our Internet services, we believe that our success is more dependent upon technical, marketing and customer service expertise than upon our proprietary rights. With respect to our enterprise network services division, we have been issued three patents and we have two patent applications pending on our CryptoVue^TMCryptoVue™ technology. The abstract of the patent application filing included the secure, triple-controlled system for data over a network, which protects against data theft or alteration by one or more ("e.g., two") corrupt insiders working together with outsiders. A combination of dual-control tamper-resistant routers, physical hardware keys and encryption keys enforces what we believe to be best practice security protocols with thorough auditing. A remote monitoring center provides a third level of control along with remote auditing and detailed change-control alerts. We can provide no assurance that the remaining two patents will be issued.

All spectrum in the US and generally internationally is controlled by each country's equivalent of the Federal Communications Commission (“FCC”). In some cases and some countries portions of the spectrum are set aside for general use such as license-free networks. Part of the spectrum in most countries is controlled for military use, public safety and commercial services. Only the entities so entitled may use the frequency bands they have rights to. We currently operate in all bands of the unlicensed spectrum, and have licensed spectrum in the 3.65 gigahertz, 6.6 gigahertz, and 11 gigahertz bands.

Although we believe our products and services are unique and do not infringe upon the proprietary rights of others, there is no assurance that infringement claims will not be brought against us in the future. Any such claim could result in costly litigation or have a material adverse effect on our business, operating results and financial condition.

Governmental Regulation

Our wireless Internet access products currently operate in a combination of licensed and unlicensed spectrums. We provide Internet access, in part, using telecommunications services provided by third-party carriers. Terms, conditions and prices for telecommunications services are subject to economic regulation by state and federal agencies. As an Internet access provider, we are not currently subject to direct economic regulation by the FCC Federal Communications Commission (FCC) or any state regulatory body, other than the type and scope of regulation that is applicable to businesses generally. In April 1998, the FCC reaffirmed that Internet access providers should be classified as unregulated "information service providers" rather than regulated "telecommunications providers" under the terms of the 1996 Telecommunications Act (the "1996 Act"). As a result, we are not subject to federal regulations applicable to telephone companies and similar carriers merely because we provide our services using telecommunications services provided by third-party carriers. To date, no state has attempted to exercise economic regulation over Internet access providers.

Governmental regulatory approaches and policies to Internet access providers and others that use the Internet to facilitate data and communication transmissions are continuing to develop and, in the future, we could be exposed to regulation by the FCC or other federal agencies or by state regulatory agencies or bodies. In this regard, the FCC has expressed an intention to consider whether to regulate providers of voice and fax services that employ the Internet, or IP, switching as "telecommunications providers," even though Internet access itself would not be regulated. The FCC is also considering whether providers of Internet-based telephone services should be required to contribute to the universal service fund, which subsidizes telephone service for rural and low-income consumers, or should pay carrier access charges on the same basis as applicable to regulated telecommunications providers. To the extent that we engage in the provision of Internet or Internet protocol-based telephony or fax services, we may become subject to regulations promulgated by the FCC or states with respect to such activities. We cannot assure you that these regulations, if adopted, would not adversely affect our ability to offer certain enhanced business services in the future. Due to the increasing popularity and use of the Internet by broad segments of the population, it is possible that laws and regulations may be adopted with respect to the Internet pertaining to content of Web sites, privacy, pricing, encryption standards, consumer protection, electronic commerce, taxation, and copyright infringement and other intellectual property issues. No one is able to predict the effect, if any, that any future regulatory changes or developments may have on the demand for our Internet access or other Internet-related services. Changes in the regulatory environment relating to the Internet access industry, including the enactment of laws or promulgation of regulations that directly or indirectly affect the costs of telecommunications access or that increase the likelihood or scope of competition from national or regional telephone companies, could materially and adversely affect our business, operating results and financial condition.

The FCC has granted direct broadcast satellite (“DBS”) and multi-channel, multi-point distribution service (“MMDS”) operator rights on a national basis similar to the mandatory access provided to franchise cable operators in some state and local jurisdictions. The FCC has adopted rules prohibiting homeowners associations, manufactured housing parks and state and local governments from imposing any restriction on a property owner that impairs the owner's installation, maintenance or use of DBS and MMDS antennas one meter or less in diameter or diagonal measurement. We do not believe our business will be significantly impacted by these rights.

Certain wireless broadband services are subject to regulation by the FCC. At the federal level, the FCC has jurisdiction over wireless transmissions over the electromagnetic spectrum, all interstate and foreign telecommunications services, and many aspects of intrastate telecommunications. State and municipalities also may regulate many aspects of intrastate telecommunications. Broadband Internet-related regulatory policies are continuing to develop and it is possible that our services could be subject to additional regulations in the future. The extent of regulations and their impact on its business and its ability to compete are currently unknown.

Due to the increasing popularity and use of the Internet, it is possible that additional laws, regulations or legal precedent may be adopted with respect to the Internet, covering issues such as content, privacy, pricing, unsolicited email, encryption standards, consumer protection, electronic commerce, taxation, copyright infringement and other intellectual property issues. We cannot predict the impact, if any, that any future legal or regulatory changes or developments may have on our business, prospects, financial condition and results of operations. Changes in the legal or regulatory environment relating to the Internet access industry, including changes that directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition from regional telephone companies, cable operators or others, could have a material adverse effect on its business, financial condition and results of operations.

We are also subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. We believe that our operations are in substantial compliance with the OSHA requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.

Employees

As of December 31, 2012,2013, we employed 7059 people, 4433 of which were sales, general and administrative employees located in our Houston headquarters, and 26 of which were field workers and others employed in regional operations. Approximately 44%51% of our employees are on salary and 56%49% of our employees are employed on an hourly basis. Our future success will depend in part on our ability to attract, retain and motivate qualified personnel. We are not a party to any collective bargaining agreements, and we consider our relations with our employees to be satisfactory.

Customers

In our oil and gas division, we serve numerous major and independent oil and natural gas companies, operators and drilling contractors that are active in our core areas of operations. None of our oil and gas industry customers have long-term contracts, as all arrangements are terminable upon 30 daysdays’ notice or less. As of December 31, 2012,2013, we have in excess of 2567 customers and during the year ended December 31, 20122013 and 2011,2012, we had two customers that accounted for 10% or more of our revenues, and one customer that accounted for 10% or more of our revenues, respectively.

In our enterprise network services division,we service four major regional banking organizations with banking locations covering much of western and central Louisiana and western Texas. In addition, we service four major school districts in Texas as well as five hospitals and numerous clinics mainly located in Texas. Most of these contracts are one-year or more in duration. For the years ended December 31, 2013 and 2012, and 2011, we had nodid not have any customers in the division that accounted for 10% or more of our revenues.

In our wireless bundles servicesdivision we service approximately 3,2523,000 individual commercial and residential customers with most of these customers currently being located in Texas. None accounted for 10% or more of our revenues during the fiscal years ended December 31, 20122013 and 2011.2012. All of these customers are subject to contractual arrangements terminable upon 30-days30-days’ notice.

Research and Development

During the two previous fiscal years we have not incurred research and development cost and do not anticipate incurring any such costs in the current fiscal year.

Patents, trademarks, licenses

The company has three issued patents on its CryptoVue bank network routing device and operates this product in customer networks both in Texas and Louisiana. The company also maintains a number of registered trademarks and utilizes these trademarks in product literature and markings. The company also utilized numerous FCC licensed frequencies throughout its networks in multiple states.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

We have a history of significant losses, expect future losses and cannot assure you that we will achieve profitability.

We have experienced net losses and negative cash flows from operating activities since inception and we expect such losses and negative cash flows to continue in the foreseeable future. As of December 31, 20122013 and 2011,2012, we had a working capital deficit of $2,460,000,$4,500,000 and working capital of $170,000,$2,460,000, respectively, and stockholders’ deficit of $2,915,000$6,989,000 and $2,091,000,$2,915,000, respectively. For the years ended December 31, 20122013 and 2011,2012, we incurred net losses attributable to ERF Wireless, Inc. of $7,264,000, and $4,814,000, and $3,379,000.respectively. As of December 31, 2012,2013, we had an aggregate accumulated deficit of $56,012,000.$63,276,000. We cannot guarantee that we will achieve sufficient revenues for profitability. Even if we achieve profitability, we cannot guarantee that we can sustain or increase profitability on a quarterly or annual basis in the future.

We have a limited cash and liquidity position and may need to raise additional funds to fund operations.

As of December 31, 2012,2013, we had cash and cash equivalent balances of $118,000,$42,000, a working capital deficit of $2,460,000,$4,500,000, total liabilities of $9,186,000$12,061,000 including notes payable, debt and capital leases in the aggregate amount of $6,328,000,$8,914,000, of which $1,527,000$3,435,000 matures on or prior to December 31, 2013.2014. Revenues generated from our operations are not presently sufficient to sustain our operations. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on favorable terms, or terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

We have incurred significant indebtedness and a default of the terms of our significant debt obligations may subject us to the risk of foreclosure on certain of our assets.

As of December 31, 2012,2013, we had current liabilities of $4,385,000$6,582,000 that included $1,527,000$3,435,000 of notes payable and current portion of long-term debt, $1,226,000$1,299,000 of accounts payable, $1,120,000$1,158,000 of accrued expenses, $20,000$13,000 deferred revenue and $492,000$677,000 of non-cash derivative liabilities. As of December 31, 2012,2013, we had long-term debt outstanding in the amount of $3,168,000$4,281,000 on our unsecured Angus Capital Partners, a related party line of credit, bearing interest at a rate of 12%3% per annum and maturing December 30, 2015, and $1,384,00031, 2017, $1,024,000 owed on our debt agreement with Dakota Capital Fund, LLC, a $2.0 million, with an option for an additional $1,000,000 of funding, secured equipment credit facility, bearing interest at a rate of 18% per annum and maturing March 31, 2016, and long-term capital leases of $174,000 payable to various capital lease agreements, bearing interest rates ranging from 6.75% to 42% per annum and maturing from September 30, 2014 to July 31, 2016.

Subsequent to December 31, 2012,2013, the investor financing agreement was modified in January 2014, extending the maturity date to April 15, 2014. Both parties have renegotiated the subset interest rate from .5% interest per day on a 360 day calendar year to 12% rate per annum retroactive to March 23, 2013. The Company entered intoalso agreed to additional consideration of 5,000 shares of Series A Preferred Stock to be issued as long as the note remains unpaid and a three-month unsecured credit facility with$50,000 penalty to be added to principal in January 2014.

Subsequent to December 31, 2013, TCA Global Credit Master Fund, effective March 25, 2014, has agreed to restructure the loan agreement and extend the maturity date to November 15^th, 2014. The Company in consideration has agreed to a financial institution, under which the lender, at its option, may advance up$75,000 restructuring fee to $500,000be added to the Company. The Company borrowed $100,000 undersum of the facility, which was repaid onprincipal balance including a $40,791 interest charge to be paid in March 12, 2013. Additionally, on March 5, 2013, the Company issued a six month convertible secured promissory note in the original principal amount of $650,000 and original issue discount and prepaid interest of $141,500.2014 nd nominal legal fees.

Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of the indebtedness. Our indebtedness, combined with other financial obligations and contractual commitments, could:

Some of our existing debt involves variable rate debt, thus exposing us to risk of fluctuations in interest rates. In addition, as of December 31, 2012,2013, certain operating assets, and furniture are pledged as collateral on outstanding notes andcapital leases. The occurrence of an event of default under any of our obligations might subject us to foreclosure by the lenders to the extent necessary to repay any amounts due. If a foreclosure were to occur on our assets, it would likely have a material adverse effect on our business, prospects, financial condition and results of operation.

We may incur significant additional indebtedness in the future. If we incur a substantial amount of additional indebtedness, the related risks that we face could become more significant. Additionally, the terms of any future debt that we may incur may impose requirements or restrictions that further affect our financial and operating flexibility or subject us to other events of default.

During 20122013 and 2011,2012, a majority of our revenue was generated from short-term agreements and we expect that these arrangements will continue for the foreseeable future.

For the year ended December 31, 20122013 and 2011,2012, the majority of our revenues resulted from short-term, terminable-at-will, arrangements. We had two customers that provided revenue in excess of 10% (32% and 12% of the gross sales during 2012the year ended December 31, 2013) and one customertwo customers that accounted for revenues in excess of 10% (42% and 13% of the gross sales during 2011.the year ended December 31, 2012). We expect that for the foreseeable future a majority of our revenue will continue to be earned pursuant to short-term terminable-at-will, arrangements with our customers. There is no assurance that our customers will continue to conduct business with us in the future, the failure of which could have a material adverse effect on our business, prospects, financial condition and results of operation.

We may be adversely affected by our dependence on network infrastructure, telecommunications providers and other vendors.

We may experience problems with the installation, maintenance and pricing of our communications network, and delays in equipment delivery orloss of our equipment suppliers could impair the quality of our services and any growth. If our network infrastructure is disrupted, we may lose customers or incur additional liabilities. We may experience interruptions in service as a result of fire, natural disasters, power loss, or the accidental or intentional actions of service users, and others. Although we have implemented disaster recovery, security and service continuity protection measures, including the physical protection of our offices and equipment, we cannot guarantee that such measures are sufficient to avoid future interruptions of service or losses of data.

We may not be able to increase our customer base at the expected rate, which is dependent upon our growth strategies.

In order to become profitableand obtain consistent positive operating cash flow, we need to both retain existing customers and continue to add new customers. We may encounter difficulties, including but not limited to

While our current business plan is to expand primarily through organic growth, we plan to effect acquisitions of broadband coverage if and when necessary. Consummating acquisitions could also result in the incurrence of additional debt and related interest expense, aswell as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, prospects, financial condition and results of operations.

If our security measures are breached, or if our services are subject to attacks that degrade or deny the ability of customers to access our network, our products and services may be perceived as not being secure and customers may curtail or stop using our services, and we may incur significant legal and financial exposure.

Concerns about the security of information transmitted through the use of our services and the privacy of users may inhibit our growth. With respect to our enterprise customers, we rely upon our CryptoVue^TMCryptoVue™ technology as well as an Internet protocol layer “2” device to provide secure transmissions of certain customer information and various firewall systems to protect our databases and computer systems. Security breaches at our enterprise customer installations could expose us to litigation and potential liability. Our security measures may be breached due to the actions of outside parties, employee error, malfeasance, security flaws in the third party products or services that we rely upon or otherwise, and, as a result, an unauthorized party may obtain access to our data or data transferred over our network. Additionally, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our enterprise customers’ data or data transferred over our network. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures, such as the CryptoVue^TMCryptoVue™ technology, could be harmed and we could lose customers.

We may be subject to significant liability for our technology.

If our technology contains defects, we may be subject to significant liability claims from subscribers and other users of our technology and incur significant unexpected expenses or lost revenues. Our technology is complex and may contain undetected errors or failures. We also have exposure to significant liability claims from our customers because our technology is designed to provide critical communications services. Our product liability insurance and contractual limitations in our customer agreements may not cover all potential claims resulting from a defect in our technology. Failure of our technology to perform satisfactorily could cause us to lose revenue, as well as to experience delay in or loss of market acceptance and sales, product returns, diversion of research and development resources, injury to our reputation or increased service and warranty costs.

Our current services may become obsolete due to the highly competitive and continued advancement of the communications industry. Larger service providers may provide services at lower costs.

Intense competition in the Internet services market and inherent limitations in existing technology may negatively affect the number of our subscribers. Competition in the market for Internet technology services is intense, and we expect the level of competition to intensify in the future. The market for Internet services and technology is characterized by rapid change, evolving industry standards and frequent introductions of new technological developments. These new standards and developments could make our existing or future services obsolete. Many of our current and potential competitors have longer operating histories, greater brand name recognition, larger subscriber bases and substantially greater financial, technical, marketing and other resources than we have. Therefore, they may be able to respond more quickly than we can respond to new or changing opportunities, technologies, standards or subscriber requirements. Our effort to keep pace with the introduction of new standards and technological developments and effectively compete with larger service providers could result in additional costs or the effort could prove difficult or impossible. The failure to keep pace with these changes and to continue to enhance and improve the responsiveness, functionality and features of our services could harm our ability to attract and retain users, which could lead to a loss of revenues.

Interruption or failure of our networks, which in certain rural markets are often subject to severe weather such as hurricanes,lightning storms or tornados, could impair our ability to provide our services, which could damage our reputation and harm operating results.

We provide our services in remote areas of North America, including the Gulf coast, which are more prone to severe weather such as hurricanes, lightning storms and tornados. Any disruption in our services arising from these or other natural disasters or catastrophic events including wildfires and other fires, excessive rain, terrorist attacks and wars, could disrupt the continued operation of our networks and have a material adverse effect on our business, prospects, results of operation and financial condition.

Although we believe our insurance coverage is adequate to address the variety of potential liabilities we face, our insurance coverage is subject to deductibles and coverage limits. Upon an occurrence of a significant natural disaster, or manmade problems such as computer viruses, civil war, terrorism, blackout or disruptions to the economies of the United States and other countries, such coverage may not be adequate or continue to be available at commercially reasonable rates and terms. In the event of a major disaster affecting one or more of our sites, our operations could be significantly disrupted, delayed or prevented for the time required to transfer production, repair, rebuild or replace the affected site. This time frame could be lengthy, and result in significant expenses for repair and related costs.

We may not be able to successfully upgrade our existing network infrastructure.

If the number of customers using our network and the complexity of our services increase, we will require more infrastructure, network and customer service resources tomaintain the quality of our services. We may experience quality deficiencies, cost overruns and delays in implementing network improvements and expansion, in maintenance and upgrade projects, including slower than anticipated technology migrations. If we do not implement necessary developments and network upgrades successfully, or if it experiences inefficiencies, operational failures, or unforeseen costs during implementation, we may lose customers or incur additional liabilities.

We compete with many companies that are larger and better capitalized than us, and we expect such competition to continue. An inability to overcome competition from alternative communication systems could adversely affect our results of operations.

We face competition from many entities with significantly greater financial resources, well-established brand names and larger customer bases. The internetInternet services market is extremely competitive in every segment including competing technologies such as VSAT and long-term evolution (marketed as 4G LTE). We may become subject to price competition for our services as companies seek to enter our industry or current competitors attempt to gain market share.We expect competition to intensify in the future and expect significant competition from traditional and new telecommunications companies primarily consisting of cable modem, Internet, DSL, microwave, mobile and satellite data providers. For example, the performance and coverage area of our wireless systems are dependent on certain factors that are outside of our control, including features of the environment inwhich the systems are deployed, such as the amount of clutter (natural terrain features and man-made obstructions) and the radio frequency available. Depending on specific customer needs, these obstacles may make our technology less competitive in comparison with other technologies and make other technologies less expensive or more suitable. Our business may also compete in the future with products and services based on other wireless technologies and other technologies that have yet to be developed. If we are unable to make or keep our services competitively priced and attain a larger market share in the markets in which we compete, our levels of sales and our ability to achieve profitability may suffer.

To the extent we elect to enter into marketing or reseller agreements with third parties to expand our network, and our dependence on such relationships may adversely affect our business.

Our business strategy for increasing the size of our networks may depend on our ability to enter into marketing or reseller agreements with other companies, similar to our exclusive reseller agreements withSchlumberger Technology Corporation and Schlumberger Canada Limited entered into in 2009.companies. Supporting diligence activities conducted by potential partners and negotiating the financial and other terms of these agreements are long and complex processes with uncertain results. Even if we are successful entering into one or more marketing or reseller agreements, such arrangements can involve greater uncertainty for us, as we may have limited or no control over certain aspects of the programs. We may determine that continuing the relationships under the terms provided is not in our best interest, and we may terminate the agreements. Similarly, these third parties could delay or terminate their agreements with us, further delaying the execution of our business plan.

In addition, we could have disputes with our marketing and reselling partners, such as the interpretation of terms in our agreements. For example, we are currently involved in arbitration proceedings withSchlumberger Technology Corporation and Schlumberger Canada Limited, where we are pursuing a breach of contract claim relating to the minimum purchase requirements under the 2009 reseller agreements. This pending action, and any such future disagreements with our partners, could lead to delays in the execution of our business plan or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

The ongoing weakness in the global economic environment may have significant effects on our customers and suppliers that could result in material adverse effects on our business, prospects, financial condition and results of operations.

Notwithstanding the increased potential for economic recovery, the ongoing weakness in the global economic environment – which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, significant decreases in consumer confidence and consumer and business spending, high rates of unemployment and concerns that the worldwide economy may continue to experience significant challenges – may materially adversely affect our customers’ access to capital or willingness to spend capital on our products, and/or their levels of cash liquidity with which to pay for our products. In addition, our suppliers’ access to capital and liquidity may continue to be affected, which may in turn adversely impact their ability to maintain inventories, production levels, and/or product quality, or cause them to raise prices or lower production levels, or result in their ceasing operation.

Future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources.

We have completed 15 acquisitions since 2004, and we plan to continue to engage in strategic acquisitions that further expand our wireless broadband footprint and coverage areas in key oil and gas markets.The structure of our acquisitions and investments involve numerous risks, including:

Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could harm ouroperating results. It is also possible that at some point in the future we may decide to enter new markets, thus subjecting ourselves to new risks associated with those markets. If we fail to achieve the anticipated benefits of any acquisitions we may complete, our business, prospects, financial condition and results of operationmayoperation may be impaired.

We may notbe able to effectively manage our growth, which may harm our financial condition.

Our strategy envisions building and expanding our business in the oil and gas industry through organic growth and acquisition of broadband. While we anticipate that most of our growth will be through the deployment of the MBT’s in rural areas to transmit wireless data for oil and gas companies, we may determine that the acquisition of broadband coverage in existing and rural areas may be an attractive and strategic solution. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure you that we will be able to:

If we are unable to manage our growth and our operations, ourbusiness, prospects, financial condition and results of operation could be adversely affected.

Our business may suffer if wedo not attract and retain talented personnel.

Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management and other personnel in conducting our business. The loss of any of our executive officers or our inability to attract qualified board members could adversely impact our business. We may also experience difficulties in certain jurisdictions in our efforts to obtain suitably qualified staff and to retain staffs that are willing to work in that jurisdiction. We do not currently carry “key man” life insurance on, nor do we have employment agreements with, certain of our executive officers.

Our success depends on the ability of our management and employees to successfully implement our business strategy. As we grow, we intend to hire additional personnel. Our future personnel may not continue their association or employment with us, and we may not be able to findreplacement personnel with comparable skills. If we are unable to attract and retain key personnel, ourbusiness, prospects, financial condition and results of operation may be adversely affected.

Risks relating to our intellectual property

We depend upon our intellectual property and our failure to protect existing intellectual property or secure and enforce such rights for new proprietary technology could adversely affect our future growth and success.

We seek to protect our intellectual property rights by relying on a combination of patent, trade secret, copyright and trademark laws. We also use confidentiality and other provisions in our agreements that restrict access to and disclosure of our confidential know-how and trade secrets.

We have been issued three patents and have two patent applications pending with the United States Patent and Trademark Office relating to our CryptoVue^TMCryptoVue™ hardware and software utilized by our enterprise banking and healthcare customers. However, we cannot provide any assurances that these applications will ultimately result in issued patents or, if patents are issued or in the case of our issued patents, that they will provide sufficient protections for our technology against competitors. Outside of these issued patents and patent applications, we seek to protect our technology as trade secrets and technical know-how. However, trade secrets and technical know-how are difficult to maintain and do not provide the same legal protections provided by patents. In particular, only patents will allow us to prohibit others from using independently developed technology that is similar. If competitors develop knowledge substantially equivalent or superior to our trade secrets and technical know-how, or gain access to our knowledge through other means such as observation of our technology that embodies trade secrets at customer sites which we do not control, the value of our trade secrets and technical know-how would be diminished.

While we strive to maintain systems and procedures to protect the confidentiality and security of our trade secrets and technical know-how, these systems and procedures may fail to provide an adequate degree of protection. For example, although we generally enter into agreements with our employees, consultants, advisors, and strategic partners restricting the disclosure and use of trade secrets, technical know-how and confidential information, we cannot provide any assurance that these agreements will be sufficient to prevent unauthorized use or disclosure. In addition, some of the technology deployed at customer sites in the future, which we do not control, may be readily observable by third parties who are not under contractual obligations of non-disclosure, which may limit or compromise our ability to continue to protect such technology as a trade secret.

While we are not currently aware of any infringement or other violation of our intellectual property rights, monitoring and policing unauthorized use and disclosure of intellectual property is difficult. If we learned that a third party was in fact infringing or otherwise violating our intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.

We may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit their ability to use certain technologies in the future.

We may face claims asserting that our technology or the commercial use of such technology infringes or otherwise violates the intellectual property rights of others. We have not conducted infringement, freedom to operate or landscape analyses, and as a result we cannot be certain that our technologies and processes do not violate the intellectual property rights of others. We may also face infringement claims from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, we cannot provide any assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged to develop.

If we were found to be infringing or otherwise violating the intellectual property rights of others, we could face significant costs to implement work-around methods, and we cannot provide any assurance that any such work-around would be available or technically equivalent to our current technology. In such cases, we might need to license a third party’s intellectual property, although any required license might not be available on acceptable terms, or at all. If we are unable to work around such infringement or obtain a license on acceptable terms, we might face substantial monetary judgments against us or an injunction against continuing to license our technology, which might cause us to cease operations.

In addition, even if we are not infringing or otherwise violating the intellectual property rights of others, we could nonetheless incur substantial costs in defending ourselves in suits brought against us for alleged infringement. Also, if any agreements provide that we will defend and indemnify our customer for claims against them relating to any alleged infringement of the intellectual property rights of third parties in connection with such customer’s use of our technologies, we may incur substantial costs defending and indemnifying any customer to the extent they are subject to these types of claims. Such suits, even if without merit, would likely require our management team to dedicate substantial time to addressing the issues presented. Any party bringing claims might have greater resources than we do, which could potentially lead to us settling claims against which we might otherwise prevail on the merits.

Any claims brought against us or any customers alleging that we have violated the intellectual property of others could have negative consequences for our business, prospects, financial condition and results of operation.

Risks Relating to Our Industry

We are subject to the volatility of the global oil and gas industry and our business is likely to fluctuate with the level of global activity for oil and natural gas exploration, development and production.

A substantial amount of our revenues are derived from services rendered to companies engaged in the oil and gas industry.Demand for our remote communication services and collaborative applications depends on our customers’ willingness to make operating and capital expenditures to explore, develop and produce oil and natural gas in the regions in which we operate or may operate. Our business will suffer if these expenditures decline. Our customers’ willingness to explore, develop and produce oil and natural gas depends largely upon prevailing market conditions that are influenced by numerous factors over which we have no control, including:

The level of activity in the oil and natural gas exploration and production industry has historically been volatile and cyclical. Although we believe our customers will be dependent upon real-time voice and data communication services to optimize their oil and gas production and development in an environment with lower energy prices, a prolonged significant reduction in the price of oil and natural gas will likely affect oil and natural gas production levels and therefore affect demand for the communication services we provide. In addition, a prolonged significant reduction in the price of oil and natural gas could make it more difficult for us to collect outstanding account receivables from our customers. A material decline in oil and natural gas prices or oil and natural gas exploration, development or production activity levels could have an adverse effect on our business, prospects, results of operation and financial condition.

Oil and gas operations are subject to comprehensive regulation which may impact drilling operations, causing an adverse effect on us.

Oil and gas operations are subject to national and local laws and regulations relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to national and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national or local authorities may be changed and any such changes may have material adverse effects on our oil and gas industry customers. Accordingly, if changes in regulations cause current or potential oil and gas industry customers to curtail drilling operations, ourbusiness, prospects, financial condition and results of operation will be negatively impacted as a majority of our sales result from oil and gas industry customers.

Privacy concerns may prevent customers from using our services.

We and our customers are subject to laws and regulations protecting personal and other confidential information in connection with the exchange of such information by these customers using our services. At present, in the United States, interactive Internet-based service providers have substantial legal protection for the transmission of third-party content that is infringing, defamatory, pornographic or otherwise illegal. We cannot guarantee that a U.S. court would not conclude that we do not qualify for these protections as an interactive service provider. We do not and cannot screen all of the content generated, sent and received by users of our services or the recipients of messages delivered through our services. Additionally, a small portion of our customers use our services in Canada, in which case we would be subject to its laws and regulations relating to internetInternet privacy. While Canadian Internet law continues to evolve, our services are currently largely unregulated. We cannot guarantee, however, that this regulatory environment will continue, and future legislation in Canada affecting Internet service providers could adversely impact our operations.

We utilize a combination of licensed and unlicensed spectrum, which is subject to intense competition, low barriers of entry and potential interference from multiple competing users.

We presently utilize unlicensed spectrum in connection with our broadband service offerings. While unlicensed spectrum is regulated by the FCC, it is available tomultiple simultaneous users and may be subject to interference, which may reduce the quality of the service provided to subscribers. The availability of unlicensed spectrum is limited, and others do not need to obtain permits or licenses to utilize the same unlicensed spectrum used by us currently or which we may in the future utilize. Accordingly, utilization of unlicensed spectrum could threaten our ability to reliably deliver services.

We are subject to extensive regulation that could limit or restrict our activities. If we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, and past due fees and interest, which may adversely affect our financial condition and results of operations.

Our business, including the acquisition, lease, maintenance, and use of spectrum licenses, is extensively regulated by federal, state and local governmental authorities. A number of federal, state and local privacy, security and consumer laws also apply to our business. These regulations andtheir application are subject to continual change as new legislation, regulations or amendments to existing regulations are adopted from time to time by governmental or regulatory authorities, including as a result of judicial interpretations of such laws and regulations. Current regulations directly affect the breadth of services we are able to offer and may impact the rates, terms and conditions of our services. Regulation of companies that offer competing services, such as cable and DSL providers and telecommunications carriers, also affects our business.

Certain wireless broadband services are subject to regulation by the FCC. At the federal level, the FCC has jurisdiction over wireless transmissions over the electromagnetic spectrum, all interstate and foreign telecommunications services, and many aspects of intrastate telecommunications. Wirelessbroadband services may become subject to greater state or federal regulation in the future. We cannot predict the impact, if any, that any future legal or regulatory changes or developments may have on our business, prospects, financial condition and results of operation. Changes in the legal or regulatory environment relating to the Internet access industry, including changes that directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition from regional telephone companies, cable operators or others, could have a material adverse effect on its business, financial condition and results of operations.

Much of the law related to the liability of Internet service providers remains unsettled. For example, many jurisdictions have adopted laws related to unsolicited commercial email or “spam” in the last several years. Other legal issues, such as the sharing of copyrighted information, transborder data flow,universal service, and liability for software viruses could become subjects of additional legislation and legal development. We cannot predict the impact of these changes on them. Regulatory changes could have a material adverse effect on our business, financial condition or results of operations.

The industry in which we operate is continually evolving. Our services may become obsolete, and may not be able to offer or develop competitive services on a timely basis or at all.

The broadband Internet and wireless services industries are characterized by rapid technological change, competitive pricing,frequent new service introductions, evolving industry standards and regulatory requirements. We believe that our success depends on our ability to anticipate and adapt to these challenges and to offer competitive services on a timely basis. We face a number of difficulties and uncertainties associated with our reliance on technological development, such as:

As the services offered by the companies and their competitors develop, our customers may not accept our services as a commercially viable alternative to other means of delivering broadband or wireless broadband services. As a result, our services may become obsolete, and we may be unable to develop competitive services on a timely basis, or at all.

If the wireless broadband market does not evolve as we anticipate, our business may be adversely affected.

If we fail to properly assess and address the broadband wireless market or if our services fail to achieve market acceptance for any reason, our business, prospects, financial condition and results of operation would be materially adversely affected. Since the market for our products is still evolving, it is difficult to assessthe competitive environment or the size of the market that may develop. In addition, technologies, customer requirements and industry standards may change rapidly. If we cannot improve or augment our services and products as rapidly as existing technologies, customer requirements and industry standards evolve, our products or services could become obsolete. The introduction of new or technologically superior products by competitors could also make our services less competitive or obsolete. As a result of any of these factors, our position in existing markets or potential markets could be eroded.

Risks Related to Our Securities

There is currently a limited market for our shares of common stock, and any trading market that exists in our shares may be highly illiquid and may not reflect the underlying value of our net assets or business prospects.

Trading in our common stock continues to be conducted on the electronic bulletin board in the over-the-counter market. As a result, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of our common stock, and our common stock may be less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes.

The terms of our Series APreferred Stock include super-majority voting provision.

Each share of our Series A Preferred Stock votes on the basis of 100 votes for each share of common stock into which the Series A Preferred Stock is convertible. This provision may limit us in raising additional capital, competing effectively, or taking advantage of new business opportunities.

Because certain of our stockholders control a significant number of shares of our voting capital stock, they have effective control over actionsrequiring stockholder approval.

As of December 31, 2012,2013, Dr. H. Dean Cubley, our Chief Executive Officer and Chairman, had voting control over 96.4%95.5% of our outstanding shares of Series A Preferred Stock, or 97.3%95.4% of the total voting power.power of the Company. As a result, Dr. Cubley has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, Mr.Dr. Cubley has the ability to control the management and affairs of our company. Accordingly,any investors who purchase shares will be minority shareholders and as such will have little to no say in the direction of us and the election of directors. Additionally,this concentration of ownership might harm the market price of our common stock by:

The market price of our common stock is very volatile and the value of your investment may be subject to sudden decreases.

The trading price for our common stock has been, and we expect it to continue to be, volatile. For example, the closing price of our stock fluctuated between $.57$3.10 per share and $2.95$456.00 (Post-Split) per share during the year ended December 31, 2012.2013. The price at which our common stock trades depends upon a number offactors,, including our historical and anticipated operating results and general market and economic conditions, which are beyond our control, including:

In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock. Moreover, during periods of stock market price volatility, share prices of many companies have often fluctuated in a manner not necessarily related to their operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole.

Our stock is traded over the counter on the OTCBB, and is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with a company's operations or business prospects. This volatility could depress themarket price of our common stock for reasons unrelated to our business or operating performance. Moreover, trading is often more sporadic than the trading of securities listed on a quotation system like the NASDAQ or a stock exchange like the NYSE Euronext. There is no guarantee that we will obtain a listing on a national stock exchange, and accordingly, shareholders may have difficulty reselling any of their shares of common stock.

A significant number of shares of common stock may be issued during the next 12 months. The issuance of these shares will have a dilutive effect on our common stock and may lower our stock price.

We have reserved for issuance the following shares of common stock as of December 31, 2012:2013:

Further, we may issue shares to reduce our debt obligations. Accordingly, the issuance of these shares will have a dilutive effect from both a net tangible book value per share basis and from a number of shares of common stock outstanding basis. This overhang could have a depressiveeffect on our common stock price.

Our revenue and operating results may fluctuate significantly from quarter to quarter, and fluctuations in operating results could cause our stock price to decline.

Our revenue andoperating results may vary significantly from quarter to quarter due to a number of factors. In future quarters, operating results may be below the expectations of investors, and the price of our common stock may decline. Factors that could cause quarterly fluctuations include:

Accordingly, the failure to obtain significant future revenue, lower than expected revenue in the future, increased losses in the future, and decreased working capital couldadversely affect our stock price and liquidity.

If our common stock remains subject to the SEC's penny stock rules, broker-dealers may experience difficulty in completingcustomer transactions and trading activity in our securities may be adversely affected.

Unless our securities are listed on a national securities exchange, or we have net tangible assets of $5,000,000 or more and our common stock has a market price per share of $5.00 or more, transactions in our common stock will be subject to the SEC's "penny stock"rules. rules. If our common stock remains subject to the "penny stock" rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

Underthese rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

As a result, if our common stock becomes or remains subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

We do not expect to pay dividends on our common stock for the foreseeablefuture. Any return on investment may be limited to the value of our common stock.

No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. In addition, our Series A Preferred Stock limits our ability to pay dividends upon any shares of common stock unless we declare and pay a dividend upon the then outstanding shares of Series A Preferred Stock in the same amount per share of Series A Preferred Stock as would be declared payable upon the number of shares of common stock into which each share of Series A Preferred Stock could then be converted to holders of our Series A Preferred Stock. If we do not pay dividends, our common stock may be less valuable because a return on an investor's investment will only occur if our stock price appreciates. Investors in our common stock should not rely on an investment in us if they require dividend income.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regardingour stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Nevada law and our corporate charter contain anti-takeover provisions that could delay or discourage takeover attemptsthat stockholders may consider favorable.

Provisions in our Articles of Incorporation, as amended, may have the effect of delaying or preventing a change of control or changes in our management. For example, our Board of Directors have the authority to issue up to 25,000,000 shares of preferred stock in one or more series (of which 8,426,9829,930,982 shares of Series A Preferred Stock have been issued as of December 31, 2012)2013) and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our company, or otherwise could adversely affect the market price of our common stock.

Additionally, our Articles of Incorporation, as amended, and Bylaws, as applicable, provide, subject to applicable Nevada law, that (i) our board of directors with the ability to alter our Bylaws without stockholder approval, (ii) a director may be removed only for cause and by the affirmative vote of the holders of 60%67% of the combined voting power; (iii) that vacancies on our board of directors resulting from death, resignation (except where such resignation is to take place at a future time), disqualification, or removal may be filled by a majority of directors in office, although less than a quorum, and (iv) provide for a staggered board, in which the board members are divided into three classes to serve for a period of three years from the date of their respective appointment or election. Our Series A Preferred Stock Designation also provides that each share Series A Preferred Stock entitles the holder to 100 votes on all matters submitted to a vote of the shareholders of the Company. The Designation further provides that the Series A Preferred Stock will have a preference as to dividends and liquidation. Such provisions may have the effect of discouraging a third-party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to finance futureacquisitions to decline and may impair our ability to raise capital in the future.

Our common stock is traded on the OTCBB and, despite certain increases of trading volume from time to time, there have been periods when it could be considered "thinly-traded," meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Finance transactions, as well as shares that may be issued to finance future acquisitions resulting in a large amount of newly issued shares that become readily tradable, or other events that causecurrent stockholders to sell shares, could place downward pressure on the trading price of our stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock.

If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, including the ending of restriction on resale, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstandingoptions or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management's attention and harm our business.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. In addition, we cannot be certain that material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable to smaller reporting companies.

ITEM 2. PROPERTIES

Our principal executive offices are located at 2911 South Shore Blvd., League City, Texas 77573. As of December 31, 2012,2013, we conducted our business from ninesix field offices, two of which we own and sevenfour of which we lease. The two properties that we own are a warehouse facility and an office facility in Pampa, Texas. Our leased facilities range from approximately 2,000 square feet to 24,700 square feet underlying leases that range from 30-day to 43 years and have rental rates that we believe to reflect market prices. Each field office typically includes a yard, administrative office and maintenance facility. Our ninesix field offices are located in Texas, Colorado, and North Dakota.Texas. We believe that our leased and owned properties are adequate for our current needs.

Our interests in our communications sites are comprised of operating leases created by long-term lease agreements at market rates. A typical tower site consists of a compound enclosing the tower site, a tower structure, and an equipment shelter that houses a variety of transmitting, receiving and switching equipment.

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.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are a party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that could reasonably be expected to have a material adverse affect on our financial condition or results of operations.

On January 13, 2009, weERF Wireless entered into exclusive reseller agreements with Schlumberger Technology Corporation and Schlumberger Canada Limited (“Schlumberger”). for all of North America. The contracts completed their three year initial terms in January 2012. During the fourth quarter of 2010, we entered intoERF Wireless initiated a contractual mediation with Schlumberger to attempt to resolve various financial issues in the reseller agreements. Mediation was unsuccessful, and in 2011 weERF Wireless availed ourselvesitself of the right to submit a claim against Schlumberger Technology Corporation in binding arbitration as mandated in the parties’ reseller agreement. The hearings and other associated formal submittals of this arbitration were completed in June 2013 and a ruling by the three members of the arbitration panel which is the final phase of the arbitration process was announced on September 11, 2013. The ruling of the arbitrators is still pendingthat no award will be made to ERF Wireless and is scheduledthat each party will be responsible for hearing by summer 2013. A separate mediation proceeding hastheir own legal expenses and one-half of the arbitrator fees. In the case of ERF Wireless, all expenses associated with the arbitration have already been commenced recently against Schlumberger Canada Limited.reported and no additional expenses will be incurred.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price Information

Our common stock currently trades over the counter on the OTCBB under the symbol ERFB. The following table shows the reported high and low bid quotations per share for our common stock for the last threetwo fiscal years based on information provided by the OTCBB. Such over-the-counter market quotations reflect inter-dealer prices, without markup, markdown or commissions and may not necessarily represent actual transactions or a liquid trading market, as the market for our common stock is limited, sporadic and highly volatile. The information below gives effect to all reverse splits affecting our common stock asduring the periods presented.

Stockholders

The closing price of our common stock on the OTCBB on December 31, 20122013 was $1.01$3.10 per share. As of December 31, 2012,2013, we had 523552 stockholders of record of our common stock.

Dividends

We have never declared cash dividends on our common stock. We currently do not plan to declare cash dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. In addition, our Series A Preferred Stock limits our ability to pay dividends upon any shares of common stock unless we declare and pay a dividend upon the then outstanding shares of Series A Preferred Stock in the same amount per share of Series A Preferred Stock as would be declared payable upon the number of shares of common stock into which each share of Series A Preferred Stock could then be converted to holders of our Series A Preferred Stock. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our board of directors.

Equity Compensation Plan Information

The following table sets forth certain information, as of December 31, 2012,2013, concerning securities authorized for issuance under our plans;

The Company’s Board of Directors in May 2013 has adopted the following equity incentive plans, the 2011 Stock Option Plan (the “2011 Plan”), 2012plan, 2013-A Employee Stock Option Plan (the “2012 Plan”) and the 2013 Stock Option Plan (the “2013“2013-A Plan”). The Plans each providePlan provides for equity awards to be issued to certain employees and consultants for services rendered. The Plans are eachPlan is administered by the Compensation Committee of the Company and if there is no Compensation Committee, by the entire board of directors. The Plans allowPlan allows for the issuance stock option grants, performance stock awards, restricted stock awards, and stock appreciation rights ("SAR") as determined by the Committee.

The 2011 Plan was adopted by the Board of Directors in May 2011, wherebyDuring 2013, the Company could issue upentered into a convertible promissory note with Tonaquint, Inc. for $791,500 and issued five-year warrants to 100,000purchase 371 shares of common stock at $320.00 per share, expiring March 2018, in connection with awards made under the 2011 Plan. such convertible promissory note.

During 2011,2013, the Company entered into a convertible promissory note with Willow Creek Capital for $244,200 and issued 99,866 shares of restricted common stock under the 2011 Plan. The 2012 Plan was adopted by the Board of Directors in April 2012, whereby the Company could issue upfive-year warrants to 250,000purchase 122 shares of common stock at $300.00 per share, expiring April 2018, in connection with awards made under the 2012 Plan. such convertible promissory note.

During 2012,2013, the Company entered into a convertible promissory note with Vista Capital for $60,500 and issued 249,721 shares of restricted common stock under the 2012 Plan. The 2013 Plan was adopted by the Board of Directors in December 2013, whereby the Company could issue upfive year warrants to 450,000purchase 36 shares of common stock at $320.00 per share, expiring April 2018, in connection with awards made under the 2013 Plan. During 2012, the Company issued 18,120 shares of restricted common stock under the 2013 Plan.such convertible promissory note.

Recent Sales of Unregistered Securities

Set forth below is certain information concerning issuances of common stock that were not registered under the Securities Act that occurred in the fourth quarter of fiscal 2012.2013.

Common Stock Issued for Cash Consideration

Common Stock Issued for Debt Conversions and Services Rendered

Common Stock Issued Upon Conversion of Series A Preferred Stock

The issuances referenced above were completedexempt from registration pursuant to either Section 4(2) of the Securities Act or Regulation D of the Securities Act Rules.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 or issued to a limited group of persons. Each recipient either received adequate information about ERF Wireless or had access, through employment or other relationships, to such information, and ERF Wireless determined that each recipient had such knowledge and experience in financial and business matters that they were able to evaluate the merits and risks of an investment in the Company.

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

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

Equity Repurchases by Issuer

The Company did not affect any common stock repurchases during fiscal 20122013 and 2011.2012.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable to smaller reporting companies.companies

.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 annual report on Form 10-K, including the financial statements.

Overview

We are a leading provider of wireless broadband access solutions for the energy industry. Our primary business strategy is to develop and provide a long-term terrestrial wireless broadband solution for the exploration, drilling, and production sectors of the energy industry in rural and remote locations in North America that lack existing communications infrastructure. We intend to continue to build upon our market position in the areas in which we operate by offering an integrated and comprehensive package of services that will allow us to provide our oil and gas customers with wellsite IT communications services required throughout their drilling locations. We intend to continue to supplement our wellsite communications business with our enterprise, commercial and residential bandwidth delivery to maximize the return from our investment in network infrastructure throughout the regions in which we operate.

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 fiscal 2012,2013, approximately 31%34% of our revenues were generated from internet services, 64%60% of our revenues were generated from providing broadband services to the energy industry and 5%6% of our revenues were generated from construction services. We expect that the most growth during fiscal 20132014 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing wireless services.

The Company's financial condition improved dramaticallydeclined in 20122013 as compared to the prior fiscal year ended December 31, 2011. Such improvements are highlighted2012, as follows:

Critical Accounting Policies

Revenue Recognition

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

We record revenues from itsour 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. If the current projected costs on a fixed fee contract exceed projected revenue, the entire amount of the loss is recognized in the period such loss is identified.

We recognize product sales generally at the time the product is shipped. Concurrent with the recognition of revenue, we provide for the estimated cost of product warranties and reduce 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,Internet, voice, and data and monitoring service. Subscriber fees are recorded as revenues in the period during which the service is provided.

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:

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

Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income in the period in which the changes occur. For options, warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, we estimate 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, we estimate the future volatility of our common stock price based on not only the history of our stock price but also the experience of other entities considered comparable to us.

Recent Accounting Pronouncements

Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact our financial condition. Additionally, the Company made significant progress with its strategic business plan in 2012 as evidenced by the completion and announcement of numerous agreements and business developments. These include:

Results of Operations

Year Ended December 31, 2012,2013, Compared to Year Ended December 31, 20112012

The following table sets forth summarized consolidated financial information for the years ended December 31, 20122013 and 2011:2012:

For the year ended December 31, 2012,2013, the Company's business operations reflected an increase in sales for its EBI, WBS and WMSENS subsidiaries that wereand offset by a decrease sales in sales by the ENSEBI subsidiary. For the year ended December 31, 2012,2013, the Company's consolidated operations generated net sales of $7,328,000$7,156,000 compared to prior-year period net sales of $5,320,000 for the year ended December 31, 2011.$7,328,000. The $2,008,000 increase$172,000 decrease in nettotal sales is primarily attributable to $1,929,000 increased$331,000 decreased sales in EBI from declining deployment of our MBT’sMobile Broadband Trailers (MBT’s) in the oil and gas regions. ServicesService sales increased $2,151,000decreased $160,000 and product sales decreased $143,000$12,000 for a total increasenet decrease of $2,008,000, the sales increase is primarily attributable to EBI’s deployment of MBT’s in the oil and gas regions.$172,000. For the year ended December 31, 2012,2013, the Company had a gross profit margin of 46%42%, compared to a gross profit margin of 34%46% for the prior year.year period. The $1,535,000 increase$356,000 decrease in gross profit margin is primarily attributed to; (i) approximately $1,138,000 increase$171,000 decrease in gross margin in EBI attributable to increaseddecreased sales associated with deployment of MBT’s in the oil and gas regions, (ii) $391,000 increase$150,000 decrease in gross margins in WBS primarily relateddue to decrease third party serviceincreased depreciation and depreciationtower rent cost, and (iii) $18,000 increase$35,000 decrease in gross margin in ENS primarily related to decrease in material and supplies cost and (iv) offset with $12,000 decrease in gross margins in WMS due to increase third party cost.tower rent.

Sales Information

Set forth below is a table presenting summarized sales information for our business segments for the years ended December 31, 20122013 and 2011:2012:

For the year ended December 31, 2012,2013, net sales increaseddecreased to $7,328,000$7,156,000 from $5,320,000$7,328,000 for the year ended December 31, 2011.2012. The overall increasedecrease of 38%2% was attributable to an increasedecreased sales of $1,929,000$331,000 in EBI offset by increased sales of $105,000$135,000 in WBS and increased sales in WMS of $1,000, offset with decreased sales in ENS of $27,000.$24,000. The $2,008,000 increase$172,000 decrease in net sales is primarily attributable to $1,929,000 increased$331,000 decreased sales in EBI from declining deployment of our MBT’s in the oil and gas regions.regions, offset by $135,000 increased sales in recurring retail wireless services.

Cost of Goods Sold

The following tables set forth summarized cost of goods sold information for the years ended December 31, 20122013 and 2011: 2012:

For the year ended December 31, 2012,2013, cost of goods sold increased by $473,000,$184,000, or 14%,5% to $3,975,000$4,159,000 from $3,502,000$3,975,000 as compared to the year ended December 31, 2011.2012. The increase of $473,000$184,000 in cost of goods sold is primarily attributable to an increase ofa decreased cost of $791,000$161,000 in EBI due to increased depreciation,decreased sales affecting a reduction in our third party services and tower rents for deployment of MBT’s in the oil and gas regions, offset by increased cost in WMS of $13,000 offset with decreased costs in WBS of $286,000 due to decreasing third party cost andincreased depreciation and decreased coststower rents for expansion and upgrade of networks and increased cost in ENS of $45,000.$59,000 due to banking network construction project.

OperationsOperating Expenses

The following table sets forth summarized operating expense information for the years ended December 31, 20122013 and 2011:2012:

For the year ended December 31, 2012,2013, operating expenses increased by 26%8% to $6,957,000,$7,515,000, as compared to $5,518,000$6,957,000 for the year ended December 31, 2011. The2012, resulting from the changes that occurred, as evidenced by the immediately preceding table, are discussed below:

Other (Income) Expense, Net

For the year ended December 31, 2012, the2013, total other expense, net increased to $2,742,000 from $1,189,000 as compared to year ended December 31, 2012. The increase in total other expense of $1,588,000$1,553,000 from the prior year period is primarily attributable to an increase in our interest expense, net on debt obligations totaling $1,524,000$2,000,000 and offset withby an increase in our net derivative income of $335,000$380,000 and gain on sale of assets of $67,000 as compared to interest expense, net of 817,000$1,524,000 and offset withby derivative income of $33,000 and a gain on sale of assets of $1,183,000$335,000 for the year ended December 31, 2011.2012. The derivative expenseexpense/income represents the net unrealized (non-cash) charge during the yearsyear ended December 31, 20122013 and 2011,2012, 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 year ended December 31, 2012,2013, our total comprehensive loss was $4,821,000$7,264,000 compared to comprehensive loss of $3,404,000$4,821,000 for the year ended December 31, 2011.2012. The increased comprehensive loss for the year ended December 31, 20122013 as compared to the comprehensive loss for the year ended December 31, 20112012 is primarily attributable to the factors described above.

Cash Flows

The Company's operating activities decreasedincreased net cash used by operating activities to $2,550,000 in the year ended December 31, 2013, compared to net cash used of $1,439,000 in the year ended December 31, 2012, compared to net cash used of $2,822,000 in the year ended December 31, 2011.2012. The decreaseincrease in net cash used by operating activities was primarily attributable to increases in the Company’s net loss, accounts payable, accrued and derivative liabilities compared to the prior year.

The Company's investing activities used net cash of $312,000 in the year ended December 31, 2013, compared to net cash used of $1,427,000 in the year ended December 31, 2012, compared to net cash provided of $566,000 in the year ended December 31, 2011.2012. The decrease in cash providedused by investing activities is primarily attributable to the expansiona slower rollout of targeted 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 February 2011 in the amount of $2,700,000 and of gain on sale assets of $7,000 during 2011.upgrades.

The Company's financing activities provided net cash of $2,393,000$2,786,000 in the year ended December 31, 2012,2013, compared to $2,804,000$2,393,000 of cash provided in year ended December 31, 2011.2012. The cash provided in the year ended December 31, 2012,2013, was primarily associated with proceeds from debt financing of $3,116,000 and the line of credit, net.net of 1,148,000.

Liquidity and Capital Resources

General

At December 31, 2012,2013, the Company's current assets totaled $1,925,000$2,082,000 (including cash and cash equivalents of $118,000)$42,000) total current liabilities were $4,385,000,$6,582,000, resulting in negative working capital of $2,460,000.$4,500,000. The Company has funded operations to date primarily through a combination of utilizing cash on hand and borrowings. The Company’s operations for the year ended December 31, 2012,2013, were primarily funded by the Company's line of credit, net totaling $823,000, debt of $1,481,000$1,148,000 and convertible debt financing of $1,193,000.$3,116,000.

Current Debt Facilities and Instruments

DuringIn December 2012,2013, the Company extended itsthe maturity date of its $12.0 million unsecured revolving credit facility with Angus Capital Partners, a related party, maturing from December 31, 20132015 to December 30, 2015. At December 31, 2012, the Company had an outstanding principal balance of $3,168,000 on this line of credit. The remaining balance available on the revolving credit facility was approximately $8,832,000 at December 31, 2012.2017. The terms of the unsecured revolving credit facility will allow usthe Company to draw upon the facility as financing requirements dictate and providesprovide for quarterly interest payments on outstandingat a 3% rate per annum. The payment of principal may be paid in cash, common shares or preferred shares at an annual ratethe lender’s election. The payment of 12% per annum.interest may only be paid in cash. The loan may be prepaid without penalty or repaid at maturity. DuringAt December 31, 2013 the outstanding balance on the line of credit totaled $4,281,000. The remaining line of credit available at December 31, 2013 was $7,719,000.

For the year ended December 31, 2012,2013, the Company issued 2,222,19836,784 shares of its Common Stockcommon stock for the settlement of $2,589,000$1,808,739 of principal and $349,261 of accrued interest for a total principal and interest amount of $2,158,000 owed to Angus Capital Partners. The Company issued Common Stockcommon stock at an average price of $1.17$58.67 per share calculated based on the closing price the day the debt was settled. At December 31, 2013, Angus Capital Partners and ERF Wireless, Inc. both agreed to reduce the interest rate from the current 12% per annum to 3% per annum retroactive to January 1, 2013 and extend the maturity date of the revolving note to December 31, 2017, while maintaining the maximum Line of Credit of $12 million. The Company in consideration has accepted the return and cancellation of 36,784 common shares (post-split) of Company common stock issued for the Line of Credit conversions during 2013. The Company has accordingly reversed the payment of principal and interest of $2,158,000 in December 2013 and subsequently received the canceled shares in February 2014. Additionally duringfor the year ended December 31, 2012,2013, the Company issued 118,0951,763,000 shares of its Series A Preferred Stock to Angus Capital for the settlement of principal amount of $124,000 owed to Angus Capital Partners$35,260 of debt. The Company issued Series Preferred A Stock at an average price of $1.05$.02 per share or $8.00 (post-split) per share calculated based on the closing price of the Common Stockcommon stock the day the debt was settled.

In November 2011, we 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 December 31, 2012,2013, the outstanding principal balance on the facility totaled $1,763,000$1,494,000 and we have 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.

Between July 2011 andDuring the year ended December 2012,31, 2013, we issued to certain accredited investors a principal amount of $1,193,000$325,000 of E-Series bonds (the "Bonds") in addition to the $30,000 which. A balance of $687,000 was outstanding at December 31, 2011.2012. At December 31, 2012,2013, the outstanding principal balance of the Bonds totaled $687,000.$311,000. The Bonds are due and payable upon maturity, a three-year period from the issuance date. Interest on the Bonds is payable at the rate of 7.5% per annum, and is payable semiannually. The Bondholder may require the Company to convert the Bond (including any unpaid interest) into shares of Common Stockcommon 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 Stockcommon stock issued under this option will be valued at the average closing price average of the Common Stockcommon shares for the five days prior to the notification. If the Bond is converted within the first year the Company will issue a three yearthree-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 our 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,common stock, valued at the average last sales price over the 20-trading-day period preceding any payment date. If we choose to issue Common Stockcommon 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. During the fiscal year ended December 31, 2012,2013, we did not redeem any Bonds.

On July 13, 2012, the Company entered into a $1,000,000three-month secured debt financing agreement that matures on January 1, 2013, bearingwith individuals for $1,000,000 with an interest at the annual rate of 12% per annum. Under a subsequent modified agreement dated January 2014, as amended, the maturity date has been extended to April 15, 2014. Both parties under the amendment agreed to apply the Dakota Capital Fund payment of $181,235 including interest as a subset to the bridge note. The Company has also renegotiated the subset interest rate from .5% interest per day on a 360 day calendar year to 12% rate per annum retroactive to March 23, 2013. The Company in consideration has accepted the return and cancellation of 796 common shares (post-split) of Company common stock issued during the third quarter of 2013 for interest. The Company also agreed to additional consideration of 5,000 of preferred A shares to be issued as long as the note remains unpaid and a $50,000 penalty to be added to principal in January 2014 for the consideration of the extension of the note. The Company has accordingly reversed the payment of interest of $159,259 in December 2013. At December 31, 2012,2013, the outstanding principal balance totaled $473,000.

On March 5, 2013, the Company entered into a six-month secured convertible promissory note debt financing agreement with Tonaquint, Inc. (“holder”), for $791,500, bearing interest at a rate of 12% per annum and maturing September 5, 2013. At December 31, 2013, the outstanding principal balance of the Tonaquint convertible promissory note totaled $793,000. The note includes an original issue discount (“OID”) of $65,000 based on the lineconsideration funded, prepaid interest of credit$71,500 and $5,000 in legal and other expense. The Company also paid holder an origination fee in the amount of $227,500 in 144 Stock (711 post-split shares) at the closing bid price on March 5, 2013, plus 125 post-split shares (valued at $40,000) of the Company’s common stock. The holder may require the Company to convert the outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time after the six-month term of the note. The common stock issued will be valued using a conversion factor of 80% of the average of the lowest two (2) trading prices for common shares during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion factor will be reduced to 70%. The holder received the option to purchase five-year warrants expiring March 5, 2018 to purchase 371 shares of ERF common stock at an exercise price of $320.00 or the per-share price at which the common stock is sold in an underwritten public offering that closes on or before the date that is six (6) months from the issue date, as may be adjusted from time to time pursuant to the terms and conditions of this warrant. The Company is not in compliance with all the provisions of the note causing an automatic acceleration of the outstanding balance of $791,500 to $949,800. The note will accrue interest at a rate of 12% from September 5, 2013 until the March 4, 2014 and thereafter at a rate of 18% per annum. The note is recorded as a current liability and has been reduced subsequently by a payment of $49,000.

On March 20, 2013, the Company entered into a one year unsecured promissory note debt financing agreement with JMJ Financial for (“JMJ”) up to $500,000 at the sole discretion of additional consideration with the Lender. The note includes a 10% original issue discount that is prorated based on the consideration funded. The Company also paid holder an origination fee in the amount of $40,500 in restricted Stock (125 post-split shares) at the closing bid price of the Company’s common stock. As of December 31, 2013 the Company has received funding of $300,000, bearing interest at a rate of 12% per annum and maturing in one year from the effective date of each payment. At December 31, 2013, the outstanding principal balance of the JMJ Financial convertible promissory note totaled $765,000.$232,000 including OID. The conversion price is the lesser of $0.59 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note is recorded as a current liability and has been reduced subsequently by a payment of $51,000.

On April 2, 2013, the Company entered into a nine month secured convertible promissory note debt financing agreement with Willow Creek Capital, LLC, for $244,200, bearing interest at a rate of 12% per annum and maturing October 1, 2013. The note also includes a 10% OID of $20,000 based on the consideration funded, prepaid interest of $22,200 and $2,000 in legal and other expense. The Company also paid holder an origination fee in the amount of $109,890 in 144 Stock (366 post-split shares) at the closing bid price of the Company’s common stock. The holder may require the Company to convert the outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time after the six months term of the note. The common stock issued will be valued using a conversion factor of 80% the average of the lowest two (2) trading prices common shares during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. If the average two (2) lowest trading prices is less than $0.33, then the conversion factor will be reduced to 70%. The holder will be entitled to purchase from the Company five year warrants expiring April 2, 2018 to purchase 122 post-split shares of ERF common stock at an exercise price of $300.00 or the per-share price at which the common stock is sold in an underwritten public offering that closes on or before the date that is six (6) months from the issue date, as may be adjusted from time to time pursuant to the terms and conditions of this Warrant. The note is recorded as a current liability and has been reduced subsequently by a payment of $31,000.

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

On June 28, 2013, the Company entered into a twelve month convertible promissory note secured debt financing agreement with TCA Global Credit Master Fund for $1,500,000, bearing interest at a rate of 12% per annum and maturing July 28, 2014. At December 31, 2013, the outstanding principal balance of the TCA Global convertible promissory note totaled $1,019,000. The note also includes $153,300 in commitment fees; due diligence fees; document review fees; service fees; legal; and other expense. The holder may require the Company to convert the outstanding principal balance (including any unpaid interest) into shares of restricted common stock at any time during the twelve months term of the note or thereafter. The common stock issued will be valued using a conversion factor of 85% the average VWAP trading price during the five (5) trading day period ending on the latest complete trading day prior to the conversion date.

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

Issuance of Common Stock and Preferred Stock

During the year ended December 31, 2012,2013, we issued to various accredited investors (i) 2,788,23598,000 shares for services rendered and debt conversions, and (ii) 270,00010,000 shares upon conversion of Series A Preferred Stock. We relied on Section 4(2) of the Securities Act in effecting these transactions.During the year ended December 31, 2012, we issued 267,841 shares of common stock to employees and business consultants, for aggregate consideration of $365,617 of services rendered, pursuant to a registration statement on Form S-8.

Use of Working Capital

We believe our cash and available credit facilities afford us adequate liquidity for the balance of fiscal 2013.2014. 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.

Contractual Obligations

The following table sets forth contractual obligations as of December 31, 2012:2013:

The Company's contractual obligations consist of long-term debt of $5,977,000$8,914,000 net of unamortized discount of $623,000,$628,000, and interest expense of $1,492,000$1,046,000 as set forth in Note 1211 to the Company's financial statements, Notes Payable and Long-Term Debt. The capital lease obligations consist of $383,000$426,000 and interest expense of $52,000$131,000 as set forth in Note 1211 in the future minimum lease payments schedule and certain obligations for operating leases requiring future minimal commitments under non-cancelable leases set forth in Note 1312 - Commitments.

Off-Balance Sheet Arrangements

As of December 31, 2012,2013, 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 table above.

Critical Accounting Policies and Estimates

Property and Equipment

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

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:

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

Derivative Instruments

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

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

Recent Accounting Pronouncements

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS

LBB & ASSOCIATES LTD., LLP

10260 Westheimer Road, Suite 310

Houston, TX 77042

Phone: (713) 800-4343 Fax: (713) 456-2408

Report of Independent Registered Public Accounting Firm

To the Board of Directors of

ERF Wireless, Inc.

League City, Texas

We have audited the accompanying consolidated balance sheets of ERF Wireless, Inc. (the “Company”) as of December 31, 20122013 and 2011,2012, and the related consolidated statements of operations, shareholders' deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ERF Wireless, Inc. as of December 31, 20122013 and 2011,2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP

Houston, Texas

March 21, 2013April 14, 2014

ERF WIRELESS, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 20122013 and 20112012

($ in thousands except share data)

See accompanying notes to consolidated financial statements.

ERF WIRELESS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 20122013 AND 20112012

($ in thousands except share data and loss per share)