U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K
--------------------------------------------------------------------------------


[ X ] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
      1934

                   For the fiscal year ended August 31, 2004

[   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934


                              EAGLE BROADBAND, INC.
             (Exact name of registrant as specified in its charter)

                       Commission file number: 001-154649

        Texas                                                 76-0494995
        -----                                                 ----------
(State or Other Jurisdiction of                            (I.R.S. Employer
Incorporation or Organization)                            Identification No.)



101 Courageous Drive, League City, Texas                               77573
----------------------------------------                               -----
(Address of Principal Executive Office)                            (Zip Code)


                                  281-538-6000
              (Registrant's Telephone Number, Including Area Code)



Securities registered pursuant to Section 12(b) of the Exchange Act: Common
Stock

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will 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. [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]

Issuer's revenues for its fiscal year ended August 31, 2004, were $12,490,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the common stock on the American Stock
Exchange on November 26, 2004, was $188,581,000. As of November 26, 2004,
registrant had 212,017,000 shares of common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The registrant is incorporating by reference in Part III of this Form 10-K
certain information contained in the registrant's proxy statement for its annual
meeting of shareholders, which proxy statement will be filed by the registrant
on or before December 29, 2004.



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<PAGE>

     This annual report contains forward-looking statements. These statements
relate to future events or future financial performance and involve known and
unknown risks, uncertainties and other factors that may cause Eagle's or Eagle's
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by the forward-looking statements.

     In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual results in
future periods may differ materially from the forward-looking statements due to
a number of risks and uncertainties, including but not limited to fluctuations
in the construction, technology, communication and industrial sectors; the
success of the Company's restructuring and cost reduction plans; the success of
the Company's competitive pricing; the Company's relationship with its
suppliers; relations with the Company's employees; the Company's ability to
manage its operating costs; the continued availability of financing and working
capital to fund business operations; governmental regulations; risks associated
with regional, national, and world economies; and ability to enter into
strategic, profitable business relationships relating to our products and
services. Any forward-looking statements should be considered in light of these
factors. Eagle cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither Eagle nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Eagle is under no duty to update any of the forward-looking
statements after the date of this report to conform its prior statements to
actual results.

PART I

Item 1.  Description of Business

Overview

     Eagle Broadband, Inc. (the "Company" or "Eagle"), is a leading provider of
broadband, Internet protocol (IP) and satellite communications technology and
services. The Company is focused on three core businesses: broadband bundled
services, IP set-top boxes and satellite communications technology. The
Company's product offerings include an exclusive "four-play" suite of IP-based
broadband bundled services with high-speed Internet, cable TV, telephone and
security monitoring, and a turnkey suite of financing, network design,
operational and support services that enables municipalities, utilities, real
estate developers, hotels, multi-tenant owners and service providers to deliver
exceptional value, state-of-the-art entertainment and communications choices and
single-bill convenience to their residential and business customers. Eagle
offers the HDTV-ready Media Pro IP set-top box product line that enables hotel
operators and service providers to maximize revenues by offering
state-of-the-art in-room entertainment and video services. The Company also
develops and markets the SatMAX satellite communications system that allows
government, military, homeland security, aviation, maritime and enterprise
customers to deliver reliable, non-line-of-sight, voice and data communications
services via the Iridium satellite network from any location on Earth.

     As of August 31, 2004, the Company's active subsidiaries were: Eagle
Broadband Services, Inc. (EBS), operating as Eagle BDS; DSS Security, Inc.
(DSS), operating as Eagle Security Services; and Eagle Managed Services.
Additionally, Eagle has a number of inactive subsidiaries that had results in
one or more of the periods included in the financial statements covered by this
report. These inactive subsidiaries include: ClearWorks Communications, Inc.
(COMM), formerly operated as BDS; ClearWorks.net, Inc. (.NET); ClearWorks Home
Systems, Inc. (HSI), operated as Eagle Residential Structured Wiring; Eagle
Wireless International, Inc. (EWI); Contact Wireless, Inc. (CWI), operated as
Eagle Paging Services; United Computing Group, Inc. (UCG), operated as Eagle
Technology Services; and Link Two Communications, Inc. (LINK II), operated as
Eagle Messaging Services. Eagle has incorporated certain ongoing operations of
the inactive subsidiaries into the active subsidiaries listed above including
Atlantic Pacific Communications (APC) and Etoolz, Inc. (ETI). The consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant inter-company transactions and balances have been eliminated in
consolidation.

     Eagle designs and manufactures a wide range of broadband products and
provides complete installation services for copper, fiber, and wireless to
commercial and residential markets. Core products offered by Eagle target end
users of broadband services and include Internet, telephone, cable television,
and security monitoring services, which services we refer to as bundled digital
services or BDS. Each subscriber provides the Company with the opportunity to
create a recurring revenue stream as well as the opportunity to sell additional
products, such as Eagle's set-top boxes to existing customers. Management's goal
is to obtain near-term and long-term recurring revenue.

     Eagle designs, markets and services its products under the Eagle name.
Eagle provides service and support for its products, as well as consulting and
research development on a contract basis. In addition, Eagle offers a line of IP
set-top boxes and satellite communication products. In fiscal 2003 and 2002,
Eagle marketed products that included transmitters, receivers, controllers,
software and other equipment used in personal communications systems and radio
and telephone systems. Most of Eagle's broad line of products, covering the
messaging spectrum as well as specific personal communication systems, and
specialized mobile radio products are certified by the Federal Communications
Commission.

     Eagle was incorporated in May 1993 and changed its name in February 2002 to
Eagle Broadband, Inc., its current name. Eagle's principal place of business is
located at 101 Courageous Drive, League City, Texas 77573. Its telephone number
is (281) 538-6000 and its web site address is www.eaglebroadband.com .



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<PAGE>

Product and Service Categories

Eagle BDS Services

     Eagle provides fiber-to-the-user IP-based bundled digital services for
municipalities, utilities, real estate developers and service providers. These
services include high-speed Internet connectivity, home security monitoring,
telephone service, and cable-style TV service over fiber. Eagle's exclusive
"four-play" suite of high-speed Internet, video/cable TV, voice and security
monitoring bundled digital services, HDTV-ready IP set-top boxes, and turnkey
suite of financing, network design, deployment and operational services enable
municipalities, real-estate developers, hotels, multi-tenant owners and service
providers to deliver state-of-the-art entertainment and communication choices
and single-bill convenience to their residential and business customers.

     The fiber optic networks that Eagle deploys into residential communities
and businesses consist of two parts: (a) the headend facility and (b) the fiber
optic cable installed into the home. Eagle also sells structured wiring and
audio/video products to single and multi-family units. These products and
services are being made available to both residential and commercial customers
in select states and communities nationwide.

     Eagle's BDS Services revenues are reported under the category "Broadband
Services" on the Company's Consolidated Statements of Operations included as
page F-4 of this report and also under the category "EBS/DSS" within Note 22 -
Industry Segments.

Eagle Security Services

     Eagle, through its subsidiary DSS Security, Inc., markets
security-monitoring services. DSS Security's principal business activity is
providing monthly security monitoring service to both commercial and residential
customers. As of August 31, 2004, DSS Security provided services to over 7,000
customers.

     Eagle's Security Services revenues are reported under the category
"Broadband Services" on the Company's Consolidated Statements of Operations
included as page F-4 of this report and also under the category "EBS/DSS" within
Note 22 - Industry Segments.

Eagle Satellite-Based Voice and Data Communications Services

The SatMAX

     The SatMAX represents innovative and proprietary non-line-of-sight
communications technology that enables users of the Iridium(R) satellite network
to establish reliable voice and data communications to and from any location
where the user is unable to gain line of sight to an orbiting Iridium Satellite
such as onboard in-flight aircraft, within buildings, under ground or from
obstructed areas. The technology provides global communications that enhance
user productivity, mobility, problem solving, field-to-headquarters
collaboration and emergency backup/response for a wide range of mission-critical
and everyday communications needs. By extending coverage indoors to areas not
traditionally served by satellite networks, the SatMAX extends customers' usage
area, while enhancing the utility and overall value for both new and existing
Iridium aviation, government, military, homeland security and
commercial/enterprise customers. The Company has received certification by both
the Federal Communications Commission (FCC Certification Identifier #
LOKJHJLBT05A00021) and Iridium Satellite LLC for the SatMAX.

IP Set-Top Box Products

     Eagle markets broadband IP-media set-top-box products. These multimedia and
Internet based products provide users the ability to interface their Internet
connection, broadcast video, cable or DSL, or satellite video source directly to
their television receiver. Eagle markets the set-top boxes to Internet service
providers or ISP's, systems integrators and OEM customers who typically bundle
set-top-boxes with their own products and/or services.

     Eagle designs and markets a complete line of advanced Media Pro IP set-top
box products. Either standalone or in conjunction with the company's EZ Media
middleware software, the products enable hotel and casino owners, hospitals,
apartment owners, municipalities, real estate developers and schools to deliver
a full range of higher-quality standard and high definition entertainment and
information services that can generate higher-margin revenues. Media Pro IP
set-top boxes also enable incumbent and competitive telecommunications service
providers to cost effectively deploy, high-demand, IP-based bundled broadband
and video services to their customers.

     The Media Pro line of IP set-top boxes delivers full computing and video
functionality in a compact footprint with a very quiet, fan-less design that
enables a wide range of on-demand IP-based applications including high-speed
Internet access, streaming IP video, digital audio/music, video-on-demand, 3D
gaming, video conferencing and more. In addition, Eagle's customizable EZ-Magic
middleware software platform delivers stunning high definition streaming video,
superior digital audio, easier navigation of hotel and community services (i.e.,
concierge, local restaurants and events, etc.), advanced content and system
security for a wide variety of hardware platforms.


                                        3
<PAGE>

EZMagic Software

     EZMagic is a software-based middleware platform capable of delivering
Eagle's complete "four-play" of voice, video, data, and security services over a
wide variety of standard hardware systems. EZMagic-HD expands Eagle Broadband's
EZMagic middleware software platform to include a range of new multi-media
capabilities. The capabilities made possible by EZMagic-HD enable hotel and
casino owners, municipalities, real estate developers, schools and health care
facilities to deliver enhanced high-demand multimedia services with the goal of
improving the satisfaction of residents and guests, maximizing occupancy rates
and improving brand loyalty.

     EZMagic features include high definition streaming video, improved digital
audio and Internet capabilities, easier navigation of hotel and community
services (e.g., concierge, local restaurants and events, etc.), increased
content and system security, and additional operating system support. EZMagic-HD
is designed for a range of higher margin applications and services including (i)
high-end hospitality systems requiring sophisticated secure video; (ii) data and
gaming services; (iii) educational distance-learning systems to improve both
teacher and student education; (iv) on-demand entertainment including concerts,
movies, music videos, etc. with superior visual clarity; (v) Internet access,
video programming and other patient services for health care facilities; and
(vi) fiber-to-the-user IP-based entertainment terminals/media centers.

     Eagle's Broadband IP set-top box products revenues are reported under the
category "Products" on the Company's Consolidated Statements of Operations
included as page F-4 of this report and also under the category "Eagle" within
Note 22 - Industry Segments.

Eagle Managed Services

     Eagle provides data, telephony and fiber optic installation, project
management and support services from initial concept through engineering to
completion and documentation. Atlantic Pacific installs fiber and cabling to
commercial and industrial clients throughout the United States. Services
include:

     o    Multi-site rollout installation

     o    Statement of work/request for quotation preparation

     o    Installation supervision

     o    Structured wiring design

     o    Comprehensive project management

     o    Copper wiring configuration

     o    Fiber optic acceptance testing

     o    Aerial and underground OSP

     o    Fiber optic and copper cable

     o    Field service and support

     Eagle's Communications Services revenues are reported under the category
"Structured Wiring" on the Company's Consolidated Statements of Operations
included as page F-4 of this report and also under the category "APC/HSI" within
Note 22 - Industry Segments.

Eagle Technology Services

     Eagle, through its United Computing Group subsidiary, sold computer
hardware and IT business integration and enterprise management solutions in
fiscal 2003 and 2002 to companies with complex computing and communication
systems and needs. In fiscal 2004 Eagle did not conduct any United Computing
Group business.

     Eagle's Technology Services product revenues are reported under the
category "Products" while the services components are reported under the
category "Other" on Eagle's Consolidated Statements of Operations included as
page F-4 of this report and also under the category "UCG" within Note 22 -
Industry Segments.

Eagle Consulting Services

     Eagle routinely provides consulting services on a contract basis to support
the sale of its main product lines. Examples of these consulting services
include design and engineering support for fiber-to-the-user headend and optical
network integration. Eagle also performs research and development on a contract
basis.

     Eagle's Consulting Services revenues are reported under the category
"Other" on the Company's Consolidated Statements of Operations included as page
F-4 of this report and also under the category "Other" within Note 22 - Industry
Segments.

Eagle Service and Support

     Eagle provides service and support to customers on an on-going basis
including installation, project management of turnkey systems, training, and
service or extended warranty contracts with Eagle. Eagle believes that it is
essential to provide reliable service to customers in order to solidify customer
relationships and be the vendor of choice when a customer seeks new services or
system expansions.



                                        4
<PAGE>

This relationship is further developed as customers come to depend upon Eagle
for installation, system optimization, warranty and post-warranty services.

     Eagle has a warranty and maintenance program for both its hardware and
software products and maintains customer service facilities. Eagle's standard
warranty provides its customers with repair or replacement of any defective
Eagle manufactured equipment. The warranty is valid on all products for the
period of one year from the later of the date of shipment or the installation by
an Eagle qualified technician.

     Eagle's Service and Support Services revenues are reported under the
category "Other" on the Company's Consolidated Statements of Operations included
as page F-4 of this report and also under the category "Other" within Note 22 -
Industry Segments.

Eagle Paging Services

     Eagle, through its subsidiary Contact Wireless, Inc., marketed paging and
mobile telephone solutions in fiscal 2003 and 2002. Contact Wireless provided
customers with paging and mobile telephone products and related monthly services
in San Antonio and Houston areas. The assets for Contact Wireless, Inc., were
sold effective October 1, 2003, and there was no additional business activity in
fiscal 2004.

     Eagle's Paging Services revenues are reported under the category "Other" on
the Company's Consolidated Statements of Operations included as page F-4 of this
report and also under the category "Other" within Note 22 - Industry Segments.

Eagle Messaging Services

     Eagle, through its subsidiary Link Two Communications, Inc., marketed
messaging network services. At August 31, 2002, management estimated through
recent sales of equipment and industry pricing of FCC licenses that an
impairment charge of $27,100,000 was necessary to reflect the ongoing value of
its assets and licenses. Eagle did not conduct any substantive business in
fiscal 2004, other than sustaining the FCC licenses.

     Eagle's Messaging Services revenues are reported under the category "Other"
on the Company's Consolidated Statements of Operations included as page F-4 of
this report and also under the category "Eagle" within Note 22 - Industry
Segments.

Eagle Wireless International

     Eagle provided messaging services to customers during fiscal 2002. Eagle's
Wireless International Products and Services revenues are reported under the
category "Products" on the Company's Consolidated Statements of Operations
included as page F-4 of this report and also under the category "Eagle" within
Note 22 - Industry Segments. Eagle did not conduct any Eagle Wireless business
in fiscal 2004.

Customers

     Broadband and IP set-top box products are sold to a broad range of
customers. These include residential, commercial, enterprise, military,
government and service provider customers.

     Eagle BDS Services historically sold its products and services primarily in
the Houston, San Antonio, Austin, Las Vegas and Phoenix metropolitan markets.
Today, however, such products and services are marketed nationwide through
direct marketing efforts and via Eagle's sales staff and service centers.
Currently the Company primarily markets the BDS Services to municipalities, real
estate developers, hospitality operators, public utility districts and service
providers, with residential and commercial customers typically subscribing to
one or more bundled digital services such as voice, video, data/Internet and
security monitoring.

     Eagle Managed Services sells its project management services on a
nationwide basis to a wide range of customers including telecommunications,
hospitality, industrial and petrochemical, oil/gas companies and government
sectors.

     Eagle markets the SatMAX global non-line-of-sight communications system to
Fortune 1000 enterprises, commercial aviation, government, the military and
homeland security customers.

     The Company had two customers in fiscal year 2004 that accounted for 30%
and 25% of consolidated revenues. In fiscal years 2003 and 2002 the Company did
not have any customers that aggregated ten percent or more of consolidated
revenues.

Marketing and Sales

     The majority of the Company's products and services are marketed through
its employees using direct sales, channel marketing and various types of direct
marketing techniques.


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<PAGE>

     Eagle Technology Services were previously marketed through direct sales
staff and through various types of direct marketing. For the years ended August
31, 2004, 2003 and 2002, Eagle Technology Services represented 4%, 21% and 54%
of consolidated revenues, respectively.

     Eagle Managed Services were marketed through Eagle's direct sales staff.
For the years ended August 31, 2004, 2003 and 2002, Eagle Managed Services
represented 50%, 34% and 18% of consolidated revenues, respectively.

     Eagle Messaging Services were previously marketed through Eagle's direct
sales staff and publication advertising.

     Eagle also markets the SatMAX global non-line-of-sight communications
system directly to Fortune 1000 enterprises, commercial aviation, government,
the military and homeland security customers.

     Eagle Security Services are marketed through Eagle's direct sales staff.

Research and Development

     Eagle believes that a strong commitment to research and development is
essential to the continued growth of its business. One of the key components of
Eagle's development strategy is the promotion of a close relationship between
its development staff, internally with Eagle manufacturing and marketing
personnel, and externally with Eagle customers. This strategy has allowed Eagle
to develop and bring to market customer-driven products that meet real customer
needs.

     From 1999 to 2004, Eagle has focused a large portion of its new development
resources on the development of the new broadband multimedia and Internet
product line. In addition, Eagle has formed a number of strategic relationships
with other large suppliers and manufacturers that will allow the latest in
technology and techniques to be utilized in the Company's IP set-top-box product
line. Eagle will continue to incur research and development expenses with
respect to the IP set-top-box product line during the current fiscal year.

     Eagle has extensive expertise in the technologies required to develop
wireless communications systems and products including high power, high
frequency RF design digital signal processing, real-time software, high-speed
digital logic, wireless DSL products, radio frequency and data network design.
Eagle believes that by having a research and development staff with expertise in
these key areas, it is well positioned to develop enhancements for its existing
products as well as the next generation of personal communication products.
Investment in advanced computer-aided design tools for simulation and analysis
has allowed Eagle to reduce the time for bringing new products to market.
Research and development expenditures incurred by Eagle for the fiscal years
ended August 31, 2004, 2003 and 2002 were $557,000, $411,000 and $404,000,
respectively.

Manufacturing

     Eagle currently subcontracts and/or provides limited manufacturing of its
satellite-based communications and wireless products at its facilities in League
City, Texas. Some subassemblies are manufactured for Eagle by subcontractors at
various locations throughout the world. Eagle's manufacturing expertise resides
in assembling subassemblies and final systems that are configured to its
customers' specifications. The components and assemblies used in Eagle's
products include electronic components such as resistors, capacitors,
transistors, and semiconductors such as field programmable gate arrays, digital
signal processors and microprocessors, and mechanical materials such as cabinets
in which the systems are built. Substantially all of the components and parts
used in Eagle's products are available from multiple sources. In those instances
where components are purchased from a single source, the supplier is reviewed
frequently for stability and performance. Additionally, as necessary, Eagle
purchases sufficient quantities of components that have long-lead requirements
in the world market. Eagle ensures that all products are tested, tuned and
verified prior to shipment to the customer.

     Eagle has determined that the most cost effective manufacturing method for
its high volume multimedia and Internet product line is to utilize offshore
contract production facilities supplemented with high volume United States based
contract facilities. The high volume requirements of the Company's convergence
set-top-box product line are well beyond the capabilities of the current
facilities and would be cost prohibitive to construct. However, in the selection
of a high volume international manufacturer, Eagle has selected Taiwanese
company with established subsidiaries in the USA, Netherlands, China and
Germany. With a strong research and development team, this company is not only
able to produce a wide range of products, but also has been recognized as a
pioneer in the field and is both ISO-9001 and ISO-9002 certified. The
manufacturing facility for the IP set-top-box is located in Taiwan.

Competition

     Eagle competes with many established companies in the set-top-box business
including Scientific Atlanta, General Instrument, and many smaller companies.
Most of these companies have greater resources available than Eagle. The markets
that are currently developing for set-top box products are extremely large and
rapidly growing. Eagle has studied these markets and is of the belief based on
this research that it can effectively compete in these markets with its new IP
set-top-box product line. However, there can be no assurance that these
conclusions are correct and that the multimedia and Internet markets will
continue to expand at their current rates and that Eagle can gain significant
market share in the future.



                                        6
<PAGE>

     Eagle BDS competes indirectly with many established companies and service
providers that provide fiber and cable, structured wiring, broadband
data/Internet, security monitoring, cable television and telephone services.
Most of these companies have greater resources than Eagle BDS. Eagle has studied
these markets, and is of the belief that the bundled digital services offered to
its customers as a complete package with one source billing is a competitive
advantage for Eagle BDS. Certain of Eagle's residential customers are subject to
developer and homeowner association agreements that allow Eagle BDS to be the
primary single-source provider of these services. However, there can be no
assurance that these conclusions are correct and that the bundled digital
services market will continue to expand at the current rates and that Eagle BDS
can gain significant market share in the future.

     Eagle Managed Services competes with many established companies in the
fiber and cable, structured wiring and project management services areas. Most
of these companies have greater resources available than Eagle Managed Services.
Eagle has studied these markets and is of the belief that the offering of the
collective services on a nationwide scale is a competitive advantage for Eagle
Managed Services. The use of the sub-contractors located across the nation
allows Eagle Managed Services to complete large projects in an efficient manner,
which is a valuable tool. However, there can be no assurance that these
conclusions are correct and that these services will continue to expand at their
current rates and that Eagle Managed Services can gain significant market share
in the future.

Proprietary Information

     Eagle attempts to protect its proprietary technology through a combination
of trade secrets, non-disclosure agreements, patent applications, copyright
filings, technical measures, and common law remedies with respect to its
proprietary technology. Eagle has not yet been issued any patents on its
products, technology or processes against such patent applications. This
protection may not preclude competitors from developing products with features
similar to Eagle's products. The laws of some foreign countries in which Eagle
sells or may sell its products do not protect Eagle's proprietary rights in the
products to the same extent as do the laws of the United States. Although Eagle
believes that its products and technology do not infringe on the proprietary
rights of others, there can be no assurance that third parties will not assert
infringement claims against Eagle in the future. If litigation resulted in
Eagle's inability to use technology, Eagle might be required to expend
substantial resources to develop alternative technology. There can be no
assurance that Eagle could successfully develop alternative technology on
commercially acceptable terms.

Regulation

     Many of Eagle's products operate on radio frequencies. Radio frequency
transmissions and emissions, and certain equipment used in connection therewith,
are regulated in the United States and internationally. Regulatory approvals
generally must be obtained by Eagle in connection with the manufacture and sale
of its products and by customers to operate Eagle's products. There can be no
assurance that appropriate regulatory approvals will continue to be obtained or
that approvals required with respect to products being developed for the
personal communications services market will be obtained. The enactment by
federal, state, local or international governments of new laws or regulations or
a change in the interpretation of existing regulations could affect the market
for Eagle's products. Although recent deregulation of international
telecommunications industries along with recent radio frequency spectrum
allocations made by the FCC have increased the demand for Eagle's products by
providing users of those products with opportunities to establish new messaging
and other wireless personal communications services, there can be no assurance
that the trend toward deregulation and current regulatory developments favorable
to the promotion of new and expanded personal communications services will
continue or that future regulatory changes will have a positive impact on Eagle.

Employees

     As of November 1, 2004, Eagle employed approximately 85 persons and
retained independent contractors as necessary. Eagle believes its employee
relations to be good. Eagle enters into independent contractual relationships
with various individuals, from time to time, as needed.

Risk factors that may affect Eagle's results of operations and financial
condition.

     Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below before making an investment
decision. If any of the following risks actually occur, our business could be
harmed. The value of our stock could decline, and you may lose all or part of
your investment. Further, this Form 10-K contains forward-looking statements and
actual results may differ significantly from the results contemplated by such
forward-looking statements.

We have a history of operating losses and may never achieve profitability.

     From inception through August 31, 2004, we have incurred an accumulated net
deficit in the amount of $157,106,000. For the fiscal year ended August 31,
2004, we incurred net losses in the amount of $39,005,000. We anticipate that we
will incur losses from operations for the current fiscal year. We will need to
generate significant revenues and control expenses to achieve profitability. Our
future revenues may never exceed operating expenses, thereby making the
continued viability of our company dependent upon raising additional capital.

     As we have not generated positive cash flow from operations for the past
three fiscal years, our ability to continue operations is dependent on our
ability to either begin to generate positive cash flow from operations or our
ability to raise capital from outside sources.



                                        7
<PAGE>

     We have not generated positive cash flow from operations during the last
three fiscal years and we currently rely on external sources of capital to fund
operations. For the fiscal year ended August 31, 2004, we have suffered losses
from operations of approximately $39,005,000. At August 31, 2004, we had
approximately $2,602,000 in cash, cash equivalents and securities available for
sale, and a working capital deficit of approximately $15,272,000. Our net cash
used by operations for the fiscal year ended August 31, 2004, was approximately
$3,493,000.

     We believe our current cash position and expected cash flow from operations
will be sufficient to fund operations during the current fiscal year.
Thereafter, we will need to raise additional funding unless our operations
generate sufficient cash flows to fund operations. Historically, we have relied
upon best efforts third-party funding from individual accredited investors.
Though we have been successful at raising additional capital on a best efforts
basis in the past, we may not be successful in any future best efforts financing
efforts. We do not have any significant credit facilities or firm financial
commitments established as of the date hereof. If we are unable to either obtain
financing from external sources or generate internal liquidity from operations,
we may need to curtail operations or sell assets.

We have been named a defendant in several lawsuits, which if determined
adversely, could harm our ability to fund operations.

     Eagle Broadband and its subsidiaries have been named defendants in several
lawsuits in which plaintiffs are seeking substantial damages, which may include
any of the following lawsuits:

     Enron Corp. vs. United Computing Group, Inc. In September 2003, Enron sued
     United Computing Group seeking to avoid and recover a transfer in the
     amount of approximately $1,500,000 under Section 547 and 550 of the
     Bankruptcy Code.

     Cornell Capital Partners, LP. vs. Eagle Broadband, Inc. In July 2003,
     Cornell Capital sued Eagle Broadband alleging breach of contract, fraud and
     negligent misrepresentation. As of November 30, 2003, the principal balance
     of the debenture of approximately $1.2 million was repaid, although the
     suit remains outstanding. Cornell seeks damages against Eagle in the amount
     of approximately $1,000,000. We have filed a counter-claim against Cornell
     Capital seeking in excess of $2,000,000.

     The Tail  Wind Fund  Ltd.  vs.  Link Two  Communications,  Inc.,  and Eagle
     Broadband,  Inc. In its  complaint,  The Tail Wild Fund  asserts  breach of
     contract claims in the amount of approximately $25 million.

     Palisades  Master Fund L.P. vs. Eagle  Broadband,  Inc., In November  2004,
     Palisades sued Eagle claiming in excess of $3,100,000 in damages.

     We intend to vigorously defend these and other lawsuits and claims against
us. However, we cannot predict the outcome of these lawsuits, as well as other
legal proceedings and claims with certainty. An adverse resolution of any one
pending lawsuit could substantially harm our ability to fund operations.

Our revenues may decrease if recurring-revenue contracts and security monitoring
contracts are cancelled.

     For the fiscal years ended August 31, 2004 and 2003, approximately 44% and
24%, respectively, of our revenue was generated by recurring-revenue contracts
with Eagle Broadband Services and our security monitoring contracts with DSS
Security. Although to date we have not experienced any significant interruptions
or problems in our broadband or security services, any defects or errors in our
services or any failure to meet customers' expectations could result in the
cancellation of services, the refund of customers' money, or the requirement
that we provide additional services to a client at no charge. Any of these
events, could reduce the revenues or the margins associated with this revenue
segment.

We rely heavily on third party suppliers for the material components for our
products, and supply shortages could cause delays in manufacturing and
delivering products which could reduce our revenues.

     We rely upon unaffiliated suppliers for the material components and parts
used to assemble our products. Most parts and components purchased from
suppliers are available from multiple sources. We have not experienced
significant supply shortages in the past and we believe that we will be able to
continue to obtain most required components and parts from a number of different
suppliers. However, the lack of availability of certain components could require
a major redesign of our products and could result in production and delivery
delays, which could reduce our revenues and impair our ability to operate
profitably.

Because our industry is rapidly evolving, if we are unable to adapt or adjust
our products to new technologies, our ability to compete and operate profitably
may be significantly impaired.

     The design, development, and manufacturing of personal communication
systems, specialized mobile radio products, and multimedia entertainment
products are highly competitive and characterized by rapid technology changes.
We compete with other existing products and will compete against other
technologies. Development by others of new or improved products or technologies
may make our products obsolete or less competitive. While we believe that our
products are based on established state-of-the-art technology, our products may
become obsolete in the near future or we may not be able to develop a commercial
market for our products in response to future



                                        8
<PAGE>

technology advances and developments. The inability to develop new products or
adapt our current products to new technologies will impair our ability to
compete and to operate profitably.

Approximately 48% of our total assets are comprised of intangible assets
including goodwill, contract rights, customer relationships and other intangible
assets which are subject to review on a periodic basis to determine whether an
impairment on these assets is required. An impairment would not only greatly
diminish our assets, but would also require us to record a significant charge
against our earnings.

     We are required under generally accepted accounting principles to review
our intangible assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is required to be
tested for impairment at least annually. At August 31, 2004, our intangible
assets, including goodwill, were net $35,238,000 million. If management
determines that impairment exists in future periods, we will be required to
record a significant charge to earnings in our financial statements during the
period in which any impairment of our goodwill is determined.

Our business relies on our use of proprietary technology. Asserting, defending
and maintaining intellectual property rights are difficult and costly and the
failure to do so could harm our ability to compete and to fund our operations.

     We rely, to a significant extent, on trade secrets, confidentiality
agreements and other contractual provisions to protect our proprietary
technology. In the event we become involved in defending or pursuing
intellectual property litigation, such action may increase our costs and divert
management's time and attention from our business. In addition to costly
litigation and diversion of management's time, any potential intellectual
property litigation could force us to take specific actions, including:

     o    cease selling products that use the challenged intellectual property;

     o    obtain from the owner of the infringed intellectual property a license
          to sell or use the relevant technology, which license may not be
          available on reasonable terms or at all; or

     o    redesign those products that use infringing intellectual property.

We compete with many companies that are larger and better financed than us, and
our growth and profitability are dependent on our ability to compete with these
entities.

     We face competition from many entities with significantly greater financial
resources, well-established brand names, and larger customer bases. We may
become subject to severe price competition for our products and 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
including, local, long distance, cable modem, Internet, digital subscriber line,
microwave, mobile and satellite data providers. If we are unable to make or keep
our products competitively priced and attain a larger market share in the
markets in which our products compete, our levels of sales and our ability to
achieve profitability may suffer.

A system failure could delay or interrupt our ability to provide products or
services and could increase our costs and reduce our revenues.

     Our operations are dependant upon our ability to support a highly complex
network infrastructure. Many of our customers are particularly dependent on an
uninterrupted supply of services. Any damage or failure that causes
interruptions in our operations could result in loss of these customers. To
date, we have not experienced any significant interruptions or delays which have
affected our ability to provide products and services to our clients. Because
our headquarters and infrastructure are located in the Texas Gulf Coast area,
there is a likelihood that our operations may be effected by hurricanes or
tropical storms, tornados, or flooding. Although we maintain redundant systems
in north Houston, Texas, which allow us to operate our networks on a temporary
basis, the occurrence of a natural disaster, operational disruption or other
unanticipated problem could cause interruptions in the services we provide and
significantly impair our ability to generate revenue and achieve profitability.

Our stock price has fluctuated intensely in the past, and stockholders face the
possibility of future fluctuations in the price of our common stock.

     The market price of our common stock may experience fluctuations that are
unrelated to our operating performance. From January 30, 2003, through November
1, 2004, the highest sales price of our common stock was $2.08 which occurred on
January 20, 2004, and the lowest sales price was $0.12, which occurred on March
7, 2003. The market price of our common stock has been volatile in the last 12
months and may continue to be volatile.

Our industry is highly regulated, and new government regulation could hurt our
ability to timely introduce new products and technologies.

     Our telecommunication and cable products are regulated by federal, state,
and local governments. We are generally required to obtain regulatory approvals
in connection with providing telephone and television services. For example, the
cable and satellite television industry is regulated by Congress and the Federal
Communications Commission, and various legislative and regulatory proposals



                                        9
<PAGE>

under consideration from time to time may substantially affect the way we design
our products. New laws or regulations may harm our ability to timely introduce
new products and technologies, which could decrease our revenues by shortening
the life-cycle of a product.

Item 2.  Description of Property

     Eagle's headquarters are located in League City, Texas, and include
approximately 25,550 square feet of leased office, production, and storage
space. The lease expires in June 2007. Eagle believes that its rental rents are
at market prices. Eagle has insured its facilities in an amount that it believes
is adequate and customary in the industry.

Item 3.  Legal Proceedings

     In July 2003, Eagle became a defendant in Cornell Capital Partners, L.P.
vs. Eagle Broadband, Inc., et al., Civil Action No. 03-1860 (KSH), In the United
States District Court for the District of New Jersey. The suit presents claims
for breach of contract, state and federal securities fraud and negligent
misrepresentation. Plaintiff has also alleged that Eagle has defaulted on a
convertible debenture for failing to timely register the shares of common stock
underlying the convertible debenture and is seeking to accelerate the maturity
date of the debenture. In November 2003, the principal balance of the debenture
was repaid, although the suit remains outstanding. Cornell claims damages in
excess of $1,000,000. The Company denies the claims and intends to vigorously
defend this lawsuit and the claims against it. Eagle has asserted counterclaims
against Cornell for fraud and breach of contract in the amount of $2,000,000.
The Company has not accrued any expenses against this lawsuit, as the outcome
cannot be predicted at this time.

     In December 2000, ClearWorks became a defendant in State Of Florida
Department Of Environmental Protection vs. Reco Tricote, Inc. And Southeast Tire
Recycling, Inc. A/K/A Clearwork.net, Inc.; In The Circuit Court Of The Tenth
Judicial Circuit In And For Polk County, Florida. The Florida EPA sued
ClearWorks.net presenting claims for recovery costs and penalties for a waste
tire processing facility. The suit seeks recovery of costs and penalties in a
sum in excess of $1,000,000, attorneys' fees and cost of court. ClearWorks
denies the claims and intends to vigorously contest all claims in this case and
to enforce its indemnification rights against the principals of Southeast Tire
Recycling. The Company has not accrued any expenses against this lawsuit, as the
outcome cannot be predicted at this time.

     In September 2003, Enron sued United Computing Group, Inc., in Enron Corp.
(Debtors/Plaintiff) vs. United Computing Group, Inc.; Case No. 01-16034 in the
United States Bankruptcy Court for the Southern District of New York. The suit
presents claims pursuant to sections 547 and 550 of the Bankruptcy Code to avoid
and recover a transfer in the amount of approximately $1,500,000.00. Defendant
has filed an answer, denies the claims and intends to vigorously defend this
lawsuit and claims against it. The Company has not accrued any expenses against
this lawsuit, as the outcome cannot be predicted at this time.

     In fiscal 2004, The Tail Wind Fund Ltd. sued Link Two Communications, Inc.,
and Eagle Broadband, Inc., Civil Action 04-CV-05776, in the United States
District Court for the Southern District of New York. Tail Wind claims breach of
contract seeking $25 million. The Company intends to vigorously defend this
claim. The Company has accrued $500,000 in expenses against this lawsuit,
although the outcome cannot be predicted at this time.

     In November 2004, Palisades Master Fund L.P. sued Eagle Broadband, Ind.,
and David Weisman, Civil Action 04603626, in New York County, New York Supreme
Court. Palisades seeks an injunction setting a conversion price on certain
convertible debt and warrants at $0.4456 per share of Eagle common stock and
seeks damages in excess of $3.1 million. The Company intends to vigorously
defend this claim. The Company has not accrued any expenses against the lawsuit,
as the outcome cannot be predicted at this time.

     Eagle is involved in lawsuits, claims, and proceedings, including those
identified above, which arise in the ordinary course of business. In accordance
with SFAS No. 5, "Accounting for Contingencies," Eagle makes a provision for a
liability when it is both probable that a liability has been incurred and the
amount of the loss can be reasonably estimated. Eagle believes it has adequate
provisions for any such matters. Eagle reviews these provisions at least
quarterly and adjusts these provisions to reflect the impacts of negotiations,
settlements, rulings, advice of legal counsel, and other information and events
pertaining to a particular case. Litigation is inherently unpredictable.
However, Eagle believes that it has valid defenses with respect to legal matters
pending against it. Nevertheless, it is possible that cash flows or results of
operations could be materially affected in any particular period by the
unfavorable resolution of one or more of these contingencies.

     We intend to vigorously defend these and other lawsuits and claims against
us. However, we cannot predict the outcome of these lawsuits, as well as other
legal proceedings and claims with certainty. An adverse resolution of pending
litigation could have a material adverse effect on our business, financial
condition and results of operations. The Company is subject to legal proceedings
and claims that arise in the ordinary course of business. The Company's
management does not expect that the results in any of these legal proceedings
will have adverse affect on the Company's financial condition or results of
operations.

Item 4.  Submission of Matters to a Vote of Security Holders

     At a special shareholders meeting in July 2004, shareholders holding
84,908,456 shares of our common stock adopted the June 2004 Compensatory Stock
Option Plan reserving 10,000,000 shares to be issued under such plan. Holders of
830,792 shares abstained from the vote, and holders of 14,181,648 shares voted
against the adoption of the plan.



                                       10
<PAGE>

                                     PART II

Item 5.   Market for Common Equity and Related Shareholder Matters

     Shares of Eagle common stock are listed on the American Stock Exchange
under the symbol "EAG." On November 18, 2004, Eagle's common stock closed at
$.62 per share. Eagle is authorized to issue 350,000,000 shares of common stock,
205,509,000 of which were issued and outstanding at November 18, 2004. At
November 18, 2004, there were approximately 1,076 holders of record of Eagle
common stock.

     The table set forth below, for the periods indicated, lists the reported
high and low sale prices per share of Eagle common stock on the American Stock
Exchange.

                                            Eagle Common Stock
                                           ---------------------
                                             High         Low
                                           ---------   ---------
Fiscal 2004
 Quarter ended November 30, 2003           $   2.13     $  0.42
 Quarter ended February 28, 2004               2.08        1.10
 Quarter ended May 31, 2004                    1.59        0.77
 Quarter ended August 31, 2004                 1.15        0.71
Fiscal 2003
 Quarter ended November 30, 2002               0.54        0.27
 Quarter ended February 28, 2003               0.53        0.16
 Quarter ended May 31, 2003                    0.37        0.12
 Quarter ended August 31, 2003                 0.63        0.33


     Eagle has never paid any cash dividends on its common stock and does not
anticipate paying cash dividends within the next two years.

Recent Sales of Unregistered Securities

     In June 2004, the Company issued approximately 10,475,766 shares of common
stock to 44 accredited investors in connection with these investors converting
convertible debt into shares of common stock. This convertible debt was
originally issued in October and November of 2003.

     In October 2004, the Company issued 25,000 shares of its common stock as a
partial settlement of a debt obligation.

     These transactions were completed pursuant to Regulation D of the
Securities Act. With respect to the issuances, the Company determined that each
purchaser was an "accredited investor" as defined in Rule 501(a) under the
Securities Act.

     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.



                                       11
<PAGE>

Item 6. Selected Financial Data

     The data that follows should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included in Item 8 and
"Management's Discussion and Analysis."

<TABLE>
<CAPTION>

                                                                                 Year Ended August 31,
                                          ----------------------------------------------------------------------------------------
                                             2004               2003                2002               2001                2000
                                          ----------         ----------          -------------------------------------------------
<S>                                       <C>                <C>                 <C>                <C>                  <C>
Operating Data:
Net Sales                                 $  12,490          $  11,593           $  29,817          $  28,110            $  5,240
Operating Expenses                           31,055             31,884              83,821             16,582               3,973
Operating Income (Loss)                     (30,952)           (31,075)            (76,708)            (8,880)             (1,215)
Other Income (Expense), Net                  (8,053)            (5,426)               (265)             2,348               1,516
Income Tax Provision                              -                  -                   -                  -                  96
                                          ----------         ----------          ----------         ----------           ---------
Net Income (Loss)                         $ (39,005)         $ (36,501)          $ (76,973)         $  (6,532)           $    187
                                          ==========         ==========          ==========         ==========           =========

Earnings Per Share  (Basic)                   (0.21)             (0.38)              (1.20)             (0.13)               0.01

Statement of Cash Flows Data:
Cash Used by Operating Activities         $  (3,493)         $  (6,085)          $    (797)         $    (699)           $ (5,299)
Cash used by Investing Activities         $  (1,216)         $  (1,276)          $ (13,668)         $  (9,721)           $ (2,224)
Cash Provided (Used) by
 Financing Activities                     $   5,936          $   6,912           $  (2,406)         $  (3,846)           $ 39,681

Balance Sheet Data:
Total Assets                              $  70,211          $  77,366           $  89,151          $ 170,021            $ 57,653
Long-Term Debt                                    -                  -           $  1,272           $   2,136            $     73
Total Stockholders' Equity                $  50,103          $  58,336           $  76,548          $ 148,482            $ 54,073

</TABLE>


Item 7. Management's Discussion and Analysis

Overview

     Eagle Broadband, Inc. (the "Company" or "Eagle"), is a leading provider of
broadband, Internet protocol (IP) and satellite communications technology and
services. The Company is focused on three core businesses: broadband bundled
services, IP set-top boxes and satellite communications technology. The
Company's product offerings include an exclusive "four-play" suite of IP-based
broadband bundled services with high-speed Internet, cable TV, telephone and
security monitoring, and a turnkey suite of financing, network design,
operational and support services that enables municipalities, utilities, real
estate developers, hotels, multi-tenant owners and service providers to deliver
exceptional value, state-of-the-art entertainment and communications choices and
single-bill convenience to their residential and business customers." Eagle
offers the HDTV-ready Media Pro IP set-top box product line that enables hotel
operators and service providers to maximize revenues by offering
state-of-the-art in-room entertainment and video services. The Company also
develops and markets the SatMAX satellite communications system that allows
government, military, homeland security, aviation, maritime and enterprise
customers to deliver reliable, non-line-of-sight, voice and data communications
services via the Iridium satellite network from any location on Earth.

     During the fiscal year ended August 31, 2004, Eagle's business strategy has
focused on pursuing higher-margin business opportunities in its core business
segments, specifically in the bundled digital services and related products. We
expect this trend to continue in fiscal 2005 with our goal of growing sales of
the SatMAX satellite voice and data communications products for military,
government and commercial customers. Set forth below is a table presenting the
revenue derived from our business segments in the last three years:

<TABLE>
<CAPTION>

      ($ in thousands)          2004         % of Total           2003          % of Total          2002           % of Total
                             ------------    ------------     -------------    -------------     ------------      ------------
<S>                                <C>                <C>          <C>                  <C>          <C>                   <C>
Structured Wiring                  $ 678              5%           $ 3,692              32%          $ 8,036               27%
Broadband Services                 5,525             44%             2,809              24%            2,657                9%
Products                           6,190             50%             3,342              29%           16,108               54%
Other                                 97              1%             1,750              15%            3,016               10%
                             ------------    ------------     -------------    -------------     ------------      ------------
Total                           $ 12,490            100%          $ 11,593             100%         $ 29,817              100%
                             ============    ============     =============    =============     ============      ============

</TABLE>


     During the fiscal year ended August 31, 2004, Eagle recognized 44% of its
revenues from sales of bundle digital services and 21% from sales of set-top
boxes (part of product sales) as compared to 2003 sales of bundled digital
services and set-top boxes representing 24% and 11% of revenues, respectively.



                                       12
<PAGE>

Results of Operations

Fiscal Year Ended August 31, 2004, Compared to Fiscal Year Ended August 31, 2003

     The following table sets forth summarized consolidated financial
     information for the fiscal years ended August 31, 2004 and 2003:

     Condensed Financial Information

<TABLE>
<CAPTION>

                                    Fiscal Year Ended August 31,
                                    ------------------------------
        ($ in thousands)                2004            2003                $ Change        % Change
                                    -------------   --------------        ------------    -------------
<S>                                     <C>              <C>                    <C>                 <C>
Total Sales                             $ 12,490         $ 11,593               $ 897               8%
Cost of Goods Sold                        12,387           10,784             $ 1,603              15%
                                    -------------   --------------        ------------    -------------
Gross Profit                                 103              809              $ (706)            -87%
                                    -------------   --------------        ------------    -------------
Percent of Total Sales                        1%               7%
Operating Expenses                        31,055           31,884              $ (829)             -3%
                                    -------------   --------------        ------------    -------------
Loss from Operations                     (30,952)         (31,075)              $ 123               0%
                                    -------------   --------------        ------------    -------------
Other Income (Expense)                    (8,053)          (5,426)           $ (2,627)             48%
                                    -------------   --------------        ------------
Net Loss                                 (39,005)         (36,501)           $ (2,504)              7%
Unrealized Holding Loss                     (321)             (71)             $ (250)            352%
                                    -------------   --------------        ------------    -------------
Comprehensive Loss                     $ (39,326)       $ (36,572)           $ (2,754)              8%
                                    =============   ==============        ============    =============

</TABLE>


     For the fiscal year ended August 31, 2004, Eagle's business operations
reflected emphasis and further expansion of its IP set-top box and BDS business
segments including Eagle's broadband bundled digital services (Internet, video,
voice and security) for residential and business customers. The Company's
consolidated operations generated revenues of $12,490,000 with a corresponding
gross profit of $103,000 for the fiscal year ended August 31, 2004. The overall
increase of 8% in revenues for the fiscal year ended August 31, 2004, as
compared to the fiscal year ended August 31, 2003, was primarily attributable to
a $5,564,000 increase in the Company's sales of bundled digital services, IP
set-top boxes and ancillary equipment product shipments; offset by decreases of
$4,667,000 in structured wiring and other operations.

     The Company incurred a net loss of $(39,005,000) for the fiscal year ended
August 31, 2004. The loss was attributable primarily to $26,212,000 of non-cash
charges and increased operating expenses.

     The Company's net loss for the fiscal year ended August 31, 2004, included
approximately $5,097,000 in depreciation and amortization expenses and
$1,984,000 in expenses associated with a net increase in the Company's accounts
receivable allowances. Additionally, the Company's expenses included $18,472,000
of non-cash charges and stock issued to pay for interest expense and for
services rendered.

     The Company is continuing the development and expansion of the Company's
bundled digital services model for distribution on a nationwide basis of voice,
video and data content; increased sales efforts in the telephone, cable,
Internet, security services and wireless segments; securing of long-term
relationships for content for the bundled digital services activities; and
marketing/sales agreements with other companies for the sale of broadband
products and services. On a nationwide basis, we are entering into business
relationships with financial and technology companies to provide bundled digital
services (digital content) to real estate developments, cities and
municipalities that currently have or are in the process of completing
construction of their own fiber infrastructure to the home.

     The following table sets forth summarized sales information for the fiscal
     years ended August 31, 2004 and 2003:

<TABLE>
<CAPTION>

                                                         Fiscal Year Ended August 31,
                              ---------------------------------------------------------
   ($ in thousands)              2004        % of Total         2003       % of Total          $ Change         % Change
                              ------------  -------------    ------------  ------------      -------------     ------------
<S>                                 <C>               <C>        <C>               <C>           <C>                 <C>
Structured Wiring                   $ 678             5%         $ 3,692           32%           $ (3,014)          -81.6%
Broadband Services                  5,525            44%           2,809           24%            $ 2,716            96.7%
Products                            6,190            50%           3,342           29%            $ 2,848            85.2%
Other                                  97             1%           1,750           15%           $ (1,653)          -94.5%
                              ------------  -------------    ------------  ------------      -------------     ------------
Total Sales                      $ 12,490           100%        $ 11,593          100%              $ 897             7.7%
                              ============  =============    ============  ============      =============     ============

</TABLE>


Sales Information
-----------------

     Net Sales. For the fiscal year ended August 31, 2004, net sales increased
to $12,490,000 from $11,593,000 during the fiscal year ended August 31, 2003.
The overall increase of 7.7% was attributable to a $1,389,000 increase in the
Company's product sales of IP set-top boxes and an increase of $2,716,000 in the
Company's BDS sales; offset by decreases of $3,014,000 in structured wiring
operations and a $1,653,000 decrease in other sales. The $2,848,000 increase in
the Company's product sales was primarily attributable to shipment of IP set-top
boxes and related equipment to a major customer. The $2,716,000 increase in
sales of the Company's broadband services was primarily attributable to
contracts valued at $3,111,000 executed by the Company's security-monitoring
subsidiary, DSS Security, Inc., against which the Company realized sales of
$2,874,000 during the fiscal year ended August 31, 2004. Without giving effect
to the security monitoring



                                       13
<PAGE>

contract transactions of $2,874,000, the Company's base broadband services sales
decreased by approximately $158,000 in the fiscal year ended August 31, 2004,
primarily attributable to the exit from the unprofitable Austin area BDS market
discussed in prior periods and the decline in recurring security monitoring
sales resulting from the sale of certain security monitoring contracts in the
Company's portfolio to Sweetwater Capital, LLC. The $3,014,000 decrease in
structured wiring sales corresponded to the Company's previously announced
strategy to no longer pursue structured wiring and commercial cabling
opportunities on a direct basis outside of the its BDS model. The $1,653,000
decrease in other sales was primarily attributable to the other sales components
from various operating segments that were divested or phased out during fiscal
2004 including Contact Wireless, UCG, and Eagle Wireless.

     The following table sets forth summarized cost of goods sold information
     for the fiscal years ended August 31, 2004 and 2003:

     Cost of Goods Sold
     ------------------
<TABLE>
<CAPTION>
<S>                                           <C>             <C>              <C>              <C>
                                             Fiscal Year Ended August 31,
                                             ----------------------------
       ($ in thousands)                         2004            2003           $ Change         % Change
                                              ---------       ---------        ---------        --------
Direct Labor and Related Costs                $  1,244        $  2,195         $   (951)          -43.3%
Products and Integration Service                 5,372           2,773         $  2,599            93.7%
Impairment Slow Moving & Obsolete Inventory      1,300           2,627           (1,327)          -50.5%
Structured Wiring Labor and Material               448           1,774         $ (1,326)          -74.7%
Broadband Services Costs                         2,856             903         $  1,953           216.3%
Depreciation and Amortization                    1,141             456         $    685           150.2%
Other Manufacturing Costs                           26              56         $    (30)          -53.6%
                                              ---------       ---------        ---------        --------
Total Operating Expenses                      $ 12,387        $ 10,784         $  1,603            14.9%
                                              =========       =========        =========        ========
</TABLE>


     Cost of Goods Sold. For the fiscal year ended August 31, 2004, cost of
goods sold increased by 14.9% to $12,387,000 from $10,784,000 as compared to
fiscal year ended August 31, 2003. The overall increase of $1,603,000 was
primarily attributable to the shipment of IP set-top boxes and the purchase and
resale of certain related equipment. The Company's overall gross profit
percentage was 1% and 7% for the fiscal years ended August 31, 2004 and 2003,
respectively. This substantial decrease in gross profit percentage is primarily
attributable to a heavy sales mix of product shipments of IP set-top boxes and
the dilutive effect of the purchase and resale of certain related equipment
versus the prior fiscal year; the dilutive effect of the security monitoring
transactions recorded in the fiscal year ended August 31, 2004, i.e., sales
recorded of $2,873,000 with corresponding cost of sales of $1,901,000, the
decision to no longer pursue structured wiring outside of its BDS model and an
increase in depreciation expenses associated with the build-out of the Company's
BDS infrastructure.

     The following table sets forth summarized operating expense information for
     the fiscal years ended August 31, 2004 and 2003.

     Operating Expenses
     ------------------
<TABLE>
<CAPTION>

                                                                  Fiscal Year Ended August 31,
                                                    ---------------------------------------------
               ($ in thousands)                         2004            2003          $ Change          % Change
                                                    -------------    ------------    ------------     -------------
<S>                                                     <C>              <C>             <C>                  <C>
Salaries and Related Costs                              $ 13,146         $ 6,102         $ 7,044              115%
Advertising and Promotion                                     29             247            (218)             -88%
Depreciation and Amortization                              3,943           4,776            (833)             -17%
Research and Development                                     570             411             159               39%
Other Support Costs                                       13,367          12,737             630                5%
Impairment, Write-Downs & Restructuring Costs                              7,611          (7,611)            -100%
                                                    -------------    ------------    ------------     -------------
Total Operating Expenses                                $ 31,055        $ 31,884          $ (829)              -3%
                                                    =============    ============    ============     =============
</TABLE>



                                       14
<PAGE>

     The following table breaks out other support costs information for the
     fiscal years ended August 31, 2004 and 2003:

     Other Support Costs
     -------------------
<TABLE>
<CAPTION>

                                    Fiscal Year Ended August 31,
                                    -----------------------------
         ($ in thousands)               2004            2003           $ Change         % Change
                                    -------------    ------------    -------------    -------------
<S>                                         <C>             <C>               <C>              <C>
Auto Related                                $ 22            $ 19              $ 3              16%
Bad Debt                                   2,643           2,177              466              21%
Delivery and Postage                          47              95              (48)            -51%
Fees                                         288             418             (130)            -31%
Insurance and Office                         425             437              (12)             -3%
Professional and Contract Labor            6,818           6,129              689              11%
Rent                                         507           1,183             (676)            -57%
Repairs and Maintenance                       43              47               (4)             -9%
Travel                                       237             377             (140)            -37%
Taxes                                      1,474             170            1,304             767%
Telephone and Utilities                      794           1,394             (600)            -43%
Other                                         69             291             (222)            -76%
                                    -------------    ------------    -------------    -------------
Total Operating Expenses                $ 13,367        $ 12,737            $ 630               5%
                                    =============    ============    =============    =============
</TABLE>

     Operating Expenses. For the fiscal year ended August 31, 2004, operating
expenses decreased by 3% to $31,055,000 as compared to $31,884,000 for the
fiscal year ended August 31, 2003. The primary fluctuations that occurred as
evidenced by the two preceding tables immediately above are discussed below:

     o    A $7,044,000  increase in salaries and related costs. The increase was
          attributable  to an  expansion  of  executive  and general  management
          compensation  expenses,   increased  Board  of  Director  compensation
          expense,   and  compensation  expense  associated  with  stock  option
          exercises  and  severance.  In  addition,   compensation  for  certain
          officers and key employees under incentive clauses of their employment
          contracts (i) includes a non-cash expense of $4,493,000  incurred upon
          the  modification  of warrants for  4,200,000  common  shares and (ii)
          reflects a guaranteed compensation of the modified warrants equivalent
          to $1.75 less the warrant strike price.

     o    An $833,000 decrease in depreciation and amortization, due principally
          to the prior year disposition of assets in subsidiaries that are no
          longer active.

     o    A $630,000 increase in other support costs, the components of which
          are set forth on the table included immediately above. Included in
          this increase was a $1,304,000 increase in property taxes recorded
          against the Company's BDS infrastructure, a $687,000 increase in
          professional and contract labor and a $466,000 increase in bad debt,
          offset by a $676,000 decrease in rent expense and a $597,000 decrease
          in telephone and utilities.

     o    A $159,000 increase in research and development expenses, primarily
          consisting of the Company's continued investment in HDTV-ready IP
          set-top boxes for hospitality and broadband customers and the SatMAX
          satellite voice and data communications products for military,
          government and commercial customers.

     Net Loss For the fiscal year ended August 31, 2004, Eagle's net loss was
$(39,005,000), compared to a net loss of $(36,501,000) during the fiscal year
ended August 31, 2003.

     Changes in Cash Flow. Eagle's operating activities used net cash of
$(3,784,000) in the fiscal year ended August 31, 2004, compared to use of net
cash of $(6,085,000) in the fiscal year ended August 31, 2003. The decrease in
net cash used by operating activities was primarily attributable to fund an
increase in the Company's net loss, net of non-cash charges, totaling
$27,512,000 combined with $8,000,000 of cash provided by fluctuations in working
capital requirements consisting of the combination of accounts receivable,
inventory, prepaid expenses, accounts payable and accrued expenses. Eagle's
investing activities used net cash of $1,216,000 in the fiscal year ended August
31, 2004, compared to $1,276,000 in the fiscal year ended August 31, 2003. The
decrease was due primarily to a significant decline in investment activities and
purchase of equipment associated with the prior years build out of Eagle's
network and infrastructure for the delivery of broadband services. Eagle's
financing activities provided cash of $5,936,000 in the fiscal year ended August
31, 2004, compared to $6,912,000 of cash provided in the fiscal year ended
August 31, 2003. The decrease resulted from less borrowing activities during the
fiscal year ended August 31, 2004.

Year Ended August 31, 2003, Compared to Year Ended August 31, 2002

     Net Sales. For the year ended August 31, 2003, net sales declined to
$11,593,000 from $29,817,000 during the year ended August 31, 2002. The overall
decrease of 61% was primarily attributable to the Company's decision to no
longer pursue direct sales of low-margin commodity computer products in the
Company's subsidiary United Computing Group, Inc. Additionally, a decline in the
sale of commercial and residential home cabling occurred as a result of a
deferral of implementation of national contracts and the Company's decision to
no longer pursue Atlantic Pacific/Home Systems structured wiring opportunities
on a direct standalone model basis outside of its BDS model,



                                       15
<PAGE>

including home cabling projects in the Arizona, Houston, San Antonio and Austin,
Texas, markets, partially offset by increased sales of broadband products and
services.

     Cost of Goods Sold. For the year ended August 31, 2003, cost of goods sold
declined to $10,784,000 from $22,704,000 during the year ended August 31, 2002.
The decrease was primarily attributable to the Company's decision to no longer
pursue the direct sales of low-margin commodity computer products and commercial
structured wiring in the markets referenced above. Eagle's overall gross profit
percentage was 7% and 24% for the years ended August 31, 2003 and August 31,
2002. This decrease is primarily attributable to write-downs of inventory of
$2.6 million in connection with impaired, slow moving and obsolete inventory.

     Eagle's Structured Wiring cost of goods sold decreased to $1,774,000 from
$2,121,000 for the period ending August 31, 2003 and 2002, respectively, on
corresponding revenues for these same periods of $3,692,000 and $8,036,000;
thereby resulting in a gross margin decline to $1,918,000 from $5,915,000 for
the same periods. This gross margin decline is primarily attributable to the
Company's decision to no longer pursue the direct sales of commercial structured
wiring and inventory write-downs totaling $0.5 million.

     Eagle's Broadband Services cost of goods sold increased to $903,000 from
$763,000 for the period ending August 31, 2003 and 2002, respectively, on
corresponding revenues for these same periods of $2,809,000 and $2,657,000;
thereby resulting in a gross margin increase to $1,906,000 from $1,894,000 for
the same periods. This gross margin increase is primarily attributable to the
increase in revenues for this sector.

     Eagle's Products cost of goods sold decreased to $5,400,000 from
$15,250,000 for the period ending August 31, 2003 and 2002, respectively, on
corresponding revenues for these same periods of $3,342,000 and $16,108,000;
thereby resulting in a gross margin decline to a deficit $2,058,000 from
$858,000 for the same periods. This gross margin decline is primarily
attributable to the decline in revenues for this sector, resulting from Eagle's
decision to no longer pursue direct sales of low-margin commodity computer
products and inventory write-downs totaling $2.1 million .

     Operating Expenses. For the year ended August 31, 2003, operating expenses
decreased to $31,884,000 from $83,821,000 for the year ended August 31, 2002.
The primary portions of the decrease are discussed below:

     o    A $57,054,000 decrease in non-cash impairment charges resulting from a
          $7,611,000  non-cash  impairment  charge for the year ended August 31,
          2003,  associated with the Company's  decision to no longer pursue the
          direct sales of low-margin commodity products discussed above compared
          to a $64,665,000 non-cash impairment charges for the year ended August
          31, 2002, for the impairment of licenses and equipment in Eagle's Link
          Two subsidiary and goodwill related to the Clearworks.net acquisition.
          At August 31, 2003,  management  determined that a $7,611,000 non-cash
          impairment charge was necessary for realigned,  impaired and abandoned
          operations  including direct sales of low-margin  commodity  products,
          residential  and  commercial  structured  wiring  operations  and  the
          withdrawal from its Austin,  Texas,  area BDS development based on the
          lack of demand for BDS services  resulting  from a slower build out of
          the development  than originally  projected in conjunction  with local
          market  competition.  Included in the impairment was the write down of
          goodwill  associated with the Atlantic  Pacific Comtel  acquisition of
          $1,878,000.

     o    A $1,693,000 decrease in salaries and related costs as a result of
          overall staffing reductions across all business units, the majority of
          which occurred in Atlantic Pacific/Home Systems and United Computing
          Group operations.

     o    A $716,000 decrease in advertising and promotion, due primarily to
          extensive cost reductions measures implemented in fiscal 2003 as the
          Company placed more emphasis on directly marketing its products and
          services to its customers as well as entering into business
          relationships with financial and technology companies to provide BDS
          services to cities and municipalities and decreased attendance at
          conventions and tradeshows.

     o    A $1,244,000 decrease in depreciation and amortization, due
          principally to the disposal of certain assets from the Company's
          Austin area BDS operations.

     o    An $8,763,000  increase in other support costs,  due to an increase in
          litigation  settlement  costs  of  $3,650,000,  bad  debt  expense  of
          $2,177,000 and various charges included in accrued expenses related to
          costs  associated  with  reserves  for early  terminations  of certain
          property  leases   totaling   $171,000  and  reserves  for  sales  tax
          liabilities  that  resulted  from a sales tax  audit of the  Company's
          United  Computing  Group  operation for time periods that preceded the
          acquisition date of this operation totaling $553,000.

     Net Loss. For the year ended August 31, 2003, Eagle's net loss was
$36,501,000, compared to a net loss of $76,973,000 during the year ended August
31, 2002.

Liquidity and Capital Resources.

     Current assets for the fiscal year ended August 31, 2004, totaled
$5,093,000 (includes cash and cash equivalents of $2,051,000 and securities
available for sale of $551,000) as compared to $8,109,000 reported for the year
ended August 31, 2003. During the fiscal year



                                       16
<PAGE>

ended August 31, 2004, Eagle received net proceeds of $6,778,000 through the
issuance of debt and through the sale of marketable securities held as
short-term investments and has retired or reduced certain of its notes payable
and accrued expenses.

     The Company anticipates that it will incur significantly less capital
expenditures for broadband fiber infrastructure as a result of an emphasis of
the sale of its BDS services to municipalities, real estate developers, hotels,
multi-tenant units and service providers that own or will build a their own
fiber networks. Historically, the Company built out these networks, thereby
incurring significant capital expenditures. The Company incurred approximately
$729,000 in capital expenditures in fiscal 2004. The Company currently intends
to continue its nationwide expansion into the delivery of bundled digital
services using partnerships and joint marketing agreements funded through cash
in amounts equal to or exceeding expenditures in fiscal 2004 as well as through
equity securities.

     The Company expects that certain of its liabilities listed on the balance
sheet under the headings Accounts Payable, Accrued Liabilities and Notes Payable
will be retired by issuing stock versus cash during the next 12 months. The
Company has historically used stock for retirement of certain liabilities on a
negotiated basis. The Company issued stock for retirement of certain liabilities
aggregating $3,586,000, $13,878,000 and $13,341,000 for fiscal years 2002, 2003
and 2004, respectively. Eagle Broadband expects to continue its practice of
retiring certain liabilities as may be negotiated through a combination of cash
and the issuance of shares of Eagle common stock. The Company cannot quantify
the amount of common stock expected to be issued to retire such debts at this
time and as such will report these results on a quarterly basis. In fiscal 2004,
the Company completed $5,936,000 in net financing activities. The Company's
management believes it has sufficient capital to fund operations for the next
twelve months based on: (i) the Company's reduced capital expenditure
requirements for fiscal 2005, and (ii) the Company's current cash, cash
equivalents and securities held for resale, including recent net financing
proceeds and sale of marketable securities received during fiscal 2005.

     Historically, we have financed operations through the sale of debt and
equity securities. We do not have any significant credit facilities available
with financial institutions or other third parties and historically, we have
relied upon best efforts third-party funding from individual accredited
investors. Though we have been successful at raising additional capital on a
best efforts basis in the past, we can provide no assurance that we will be
successful in any future best efforts financing efforts. If we are unable to
either obtain financing from external sources or generate internal liquidity
from operations in the future, we may need to curtail operations or sell assets.

Contractual Obligations

<TABLE>
<CAPTION>

                                                          Payments Due by Period
                               ----------------------------------------------------------------------------------------------
   Contractual Obligations          Total          Less than 1 Year      1-3 Years           3-5 Years      More than 5 Years
----------------------------   ---------------    ----------------   -----------------   ----------------   -----------------
<S>                                   <C>                 <C>                     <C>                <C>                 <C>
Long-Term Debt Obligations            $ 5,920             $ 5,920                 $ -                $ -                 $ -
Operating Lease Obligations             1,475                 300                 931                244
                               ---------------    ----------------   -----------------   ----------------   -----------------
              Total                   $ 7,395             $ 6,220               $ 931              $ 244                 $ -
                               ===============    ================   =================   ================   =================

</TABLE>

     The Company's contractual obligations consist of long-term debt as set
forth in Note 6 (Notes Payable) to the Company's financial statements and
certain off-balance-sheet obligations for office space operating leases
requiring future minimal commitments under non-cancelable leases. See Item 2 -
Management's Discussion and Analysis under non-cancelable leases as described in
Note 17 to the Company's financial statements under the heading Commitments and
Contingent Liabilities.

CRITICAL ACCOUNTING POLICIES

     The Company has identified the following policies as critical to its
business and the understanding of its results of operations. The Company
believes it is improbable that materially different amounts would be reported
relating to the accounting policies described below if other acceptable
approaches were adopted. However, the application of these accounting policies,
as described below, involve the exercise of judgment and use of assumptions as
to future uncertainties; therefore, actual results could differ from estimates
generated from their use.

Impairment of Long-Lived Assets and Goodwill

Background

     Goodwill and other  intangibles of $35,238,000 net of prior impairments and
amortization  were  recorded  under the  purchase  method for the  purchases  of
ClearWorks.net,  Inc.;  Atlantic  Pacific,  Inc.;  DSS Security,  Inc.;  Contact
Wireless,  Inc.; and Comtel,  Inc. The majority of the intangibles were from the
ClearWorks   acquisition.   ClearWorks   was  in   the   business   of   selling
telecommunications services to residential neighborhoods.

Impairment Assessment

     Our long-lived assets predominantly include goodwill. Statement of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets" ("SFAS 142") requires that goodwill and intangible assets be
tested for impairment at the reporting unit level (operating segment or one
level below an operating segment) on an annual basis and between annual tests in
certain circumstances. Application of the goodwill impairment test requires
judgment, including the identification of reporting units, assigning assets and



                                       17
<PAGE>

liabilities to reporting units, assigning goodwill and intangible assets to
reporting units, and determining the fair value of each reporting unit.
Significant judgments required to estimate the fair value of reporting units
include estimating future cash flows, determining appropriate discount rates and
other assumptions. Changes in these estimates and assumptions could materially
affect the determination of fair value for each reporting unit.

     Goodwill is primarily the Company rights to deliver bundled digital
services such as Internet, telephone, cable television and security monitoring
services to residential and business users. The Company obtained an independent
appraisal as of August 31, 2004, to assess the fair value of the intangible
assets. There were a number of significant and complex assumptions used in the
calculation of the fair value of the intangible assets. If any of these
assumptions prove to be incorrect, the Company could be required to record a
material impairment to its intangible assets. The assumptions included
significant market penetration in its current markets under contract and
significant market penetration in markets where they are currently negotiating
contracts.

     The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing basis. An
impairment loss would be deemed necessary when the estimated non-discounted
future cash flows are less than the carrying net amount of the asset. If an
asset were deemed to be impaired, the asset's recorded value would be reduced to
fair market value. In determining the amount of the charge to be recorded, the
following methods would be utilized to determine fair market value (i) quoted
market prices in active markets, (ii) estimate based on prices of similar assets
and (iii) estimate based on valuation techniques. The Company tested the fair
value of its goodwill and intangibles as of August 31, 2004, and determined that
these net assets totaling $35,238,000 were not impaired.

Revenue Recognition

     The Company  designs,  manufactures,  markets and services its products and
services  under  its  principal   subsidiaries  and  operating   business  units
including;  Eagle  Wireless  International,  Inc.;  BroadbandMagic;   ClearWorks
Communications,   Inc.;   ClearWorks  Home  Systems,   Inc.;   Atlantic  Pacific
Communications,  Inc.;  Contact  Wireless,  Inc.; DSS Security,  Inc.;  Link Two
Communications, Inc.; and United Computing Group, Inc., names.

     Eagle adopted EITF 00-21, "Revenue Arrangements with Multiple
Deliverables," in the fourth quarter of fiscal 2003. The impact of adopting EITF
00-21 did not have a material effect to Eagle's results of operations. Eagle's
contracts that contain multiple elements as of August 31, 2004, or prior were
immaterial. When elements such as hardware, software and consulting services are
contained in a single arrangement, or in related arrangements with the same
customer, Eagle allocates revenue to each element based on its relative fair
value, provided that such element meets the criteria for treatment as a separate
unit of accounting. The price charged when the element is sold separately
generally determines fair value. In the absence of fair value for a delivered
element, Eagle allocates revenue first to the fair value of the undelivered
elements and allocates the residual revenue to the delivered elements. In the
absence of fair value for an undelivered element, the arrangement is accounted
for as a single unit of accounting, resulting in a delay of revenue recognition
for the delivered elements until the undelivered elements are fulfilled. Eagle
limits the amount of revenue recognition for delivered elements to the amount
that is not contingent on the future delivery of products or services or subject
to customer-specified return or refund privileges.

Deferred Revenues

     Revenues that are billed in advance of services being completed are
deferred until the conclusion of the period of the service for which the advance
billing relates. Deferred revenues are included on the balance sheet as a
current liability until the service is performed and then recognized in the
period in which the service is completed. Eagle's deferred revenues primarily
consist of billings in advance for cable, Internet, security and telephone
services, which generally are for between one and three months of services.
Eagle had deferred revenues of $96,000 and $230,000 as of August 31, 2004, and
August 31, 2003, respectively.

Eagle Wireless International, Inc.

     Eagle designs, manufactures and markets transmitters, receivers,
controllers and software, along with other equipment used in commercial and
personal communication systems, radio and telephone systems. Revenues from these
products are recognized when the product is shipped. Eagle's Wireless
International Product revenues are reported under the category "Products" on
Eagle's Consolidated Statements of Operations included as page F-4 of this
report and also under the category "Eagle" within Note 22 - Industry Segments.

BroadbandMagic

     BroadbandMagic designs, manufactures and markets the IP set-top boxes.
Products are sent principally to commercial customers for a pre-sale test period
of ninety days. Upon the end of the pre-sale test period, the customer either
returns the product or accepts the product, at which time Eagle recognizes the
revenue. Eagle's Broadband Multimedia and Internet Products revenues are
reported under the category "Products" on Eagle's Consolidated Statements of
Operations included as page F-4 of this report and also under the category
"Eagle" within Note 22 - Industry Segments. Revenue from software consists of
software licensing. There is no post-contract customer support. Software revenue
is allocated to the license using vendor specific objective evidence of fair
value ("VSOE") or, in the absence of VSOE, the residual method. The price
charged when the element is sold separately generally determines VSOE. In the
absence of VSOE of a delivered element, Eagle allocates revenue to the fair
value of the undelivered elements and the residual revenue to the delivered
elements. Eagle recognizes revenue allocated to software licenses at the
inception of the license.



                                       18
<PAGE>

Eagle Broadband, Inc.

     Eagle Broadband, Inc., engages independent agents for sales principally in
foreign countries and certain geographic regions in the United States. Under the
terms of these one-year agreements the distributor or sales agents provide the
companies with manufacturing business sales leads. The transactions from these
distributors and agents are subject to Eagle's approval prior to sale. The
distributorship or sales agent receives commissions based on the amount of the
sales invoice from the companies to the customer. The sale is recognized at the
time of shipment to the customer. These sales agents and distributors are not a
significant portion of total sales in any of the periods presented. Eagle's
Broadband, Inc., revenues are reported under the category "Products" on Eagle's
Consolidated Statements of Operations included as page F-4 of this report and
also under the category "Eagle" within Note 22 - Industry Segments.

Eagle BDS Services - dba ClearWorks Communications, Inc.

     ClearWorks Communications, Inc., provides bundled digital services to
business and residential customers, primarily in the Texas market. Revenue is
derived from fees charged for the delivery of bundled digital services, which
includes telephone, long distance, Internet, security monitoring and cable
services. This subsidiary recognizes revenue and the related costs at the time
the services are rendered. Installation fees are recognized upon completion and
acceptance. Eagle's BDS Services revenues are reported under the category
"Broadband Services" on Eagle's Consolidated Statements of Operations included
as page F-4 of this report and also under the category "EBS/DSS" within Note 22
- Industry Segments.

Eagle Residential Structured Wiring - dba ClearWorks Home Systems, Inc.

     ClearWorks Home Systems, Inc., sells and installs structured wiring, audio
and visual components to homes. This subsidiary recognizes revenue and the
related costs at the time the services are performed. Revenue is derived from
the billing of structured wiring to homes and the sale of audio and visual
components to the homebuyers. Eagle's Residential Structured Wiring revenues are
reported under the category "Structured Wiring" on Eagle's Consolidated
Statements of Operations included as page F-4 of this report and also under the
category "APC/HSI" within Note 22 - Industry Segments.

Eagle Communication Services - dba Atlantic Pacific Communications, Inc.

     Atlantic Pacific Communications, Inc., provides project planning,
installation, project management, testing and documentation of fiber and cable
to commercial and industrial clients throughout the United States. The revenue
from the fiber and cable installation and services is recognized upon percentage
of completion of the project. Most projects are completed in less than one
month, therefore, matching revenue and expense in the period incurred. Service,
training and extended warranty contract revenues are recognized as services are
completed. Eagle's Communications Services revenues are reported under the
category "Structured Wiring" on Eagle's Consolidated Statements of Operations
included as page F-4 of this report and also under the category "APC/HSI" within
Note 22 - Industry Segments.

Etoolz, Inc.

     Etoolz,  Inc.,  provides  research  and  development  support for all Eagle
companies and does not currently  provide billable services to independent third
parties.

Eagle Messaging Services - dba Link Two Communications, Inc.

     Link Two Communications, Inc., provides customers with one- and two-way
messaging systems. The revenue from the sale of these products is recognized at
the time the services are provided. Eagle's Messaging Services revenues are
reported under the category "Other" on Eagle's Consolidated Statements of
Operations included as page F-4 of this report and also under the category
"Eagle" within Note 22 - Industry Segments.

Eagle Paging Services - dba Contact Wireless, Inc.

     Contact Wireless, Inc., provides customers with paging and mobile telephone
products and related monthly services. Revenue from product sales is recorded at
the time of shipment. Revenue for the mobile phone and paging service is billed
monthly as the service is provided. Eagle's Paging Services revenues are
reported under the category "Other" on Eagle's Consolidated Statements of
Operations included as page F-4 of this report and also under the category
"Other" within Note 22 - Industry Segments.

Eagle Security Services - dba DSS Security, Inc.

     DSS Security, Inc., provides security monitoring services to residential
and commercial customers, purchases and resells and bundles and sells contracts
from its own portfolio to independent third-party companies. Security monitoring
customers are billed three months in advance of service usage. The revenues are
deferred at the time of billing and ratably recognized over the prepayment
period as service is provided. Installation fees are recognized upon completion
and acceptance. Revenues from the sale of security monitoring contracts, both
purchased and owned, are recognized upon contract execution except for reserves,
hold backs or retentions, which are deferred until the contract provisions are
fulfilled. Eagle's Security Services revenues are reported under the category
"Broadband Services" on Eagle's Consolidated Statements of Operations included
as page F-4 of this report and also under the category "EBS/DSS" within Note 22
- Industry Segments.

Eagle Technology Services - dba United Computing Group, Inc.

     United Computing Group, Inc., provides business-to-business hardware and
software network solutions and network monitoring services. The revenue from the
hardware and software sales is recognized at the time of shipment. The
monitoring services recognition policy is to record revenue on completion.
Eagle's Technology Services product revenues are reported under the category
"Products" while the services components are reported under the category "Other"
on Eagle's Consolidated Statements of Operations included as page F-4 of this
report and also under the category "UCG" within Note 22 - Industry Segments.



                                       19
<PAGE>

Receivables

     For the fiscal year ended August 31, 2004, Eagle accounts receivable
decreased to $1,470,000 from $1,704,000 at August 31, 2003. The majority of this
decrease was due to the increase on an allowance for doubtful accounts of
$2,000,000 from the sale of IP set-top boxes and ancillary equipment to a major
customer in the third quarter of fiscal 2004, totaling $3,806,806, as discussed
earlier herein.

     The Company's accounts receivable aging as measured by days sales
outstanding (DSO) totaled 29 days at August 31, 2004, and 75 days at August 31,
2003, on an adjusted basis after recording the write-off's and reserves. The
primary decrease in DSO from 75 days at August 31, 2003, to 29 days at August
31, 2004, was attributable to an allowance on a major customer that the Company
determined could be potentially impaired based on several factors: (i) current
economic condition of the customer, (ii) management believes that the ultimate
collectibility of this customer receivable cannot be determined at this time
and, accordingly, has increased its allowance for doubtful accounts to reflect
the collectibility issue of slow paying.

     The Company's allowance for doubtful accounts totaled $2,396,000 and
$412,000 for the years ended August 31, 2004 and 2003, respectively. These
allowance for doubtful accounts amounts represented 61% and 20% of the gross
accounts receivable balances for the years ended August 31, 2004 and 2003,
respectively; while they likewise represented7% and 39% of the Company's greater
than 90-day accounts for these same respective time periods.

     The Company reviews its accounts receivable balances by customer for
accounts greater than 90 days old and makes a determination regarding the
collectibility of the accounts based on specific circumstances and the payment
history that exists with such customers. The Company also takes into account its
prior experience, the customer's ability to pay and an assessment of the current
economic conditions in determining the net realizable value of its receivables.
The Company also reviews its allowances for doubtful accounts in aggregate for
adequacy following this assessment. Accordingly, the Company believes that its
allowances for doubtful accounts fairly represent the underlying collectibility
risks associated with its accounts receivable.

     Earnings are charged with a provision for doubtful accounts based on
collection experience and current review of the collectibility of accounts
receivable. Accounts receivables deemed uncollectible are charged against the
allowance for doubtful accounts.

Inventory

     Inventories are valued at the lower of cost or market. The cost is
determined by using the first-in first-out method. At August 31, 2004, Eagle's
inventory totaled $403,000 as compared to $3,199,000 at August 31, 2003. The
majority of this decrease was due to an impairment of slow moving, obsolete
inventory. The significant impairment of $1,300,000 consisted of less
marketable, obsolete set-top boxes which were replaced with a new design set-top
box in the fiscal 2004. Management has incorporated "just in time" inventory
practices to avoid future inventory obsolesce. Eagle is outsourcing most, if not
all, production based on contract orders from customers.

Recent Accounting Pronouncements

     In March 2004, the FASB issued a proposed Statement, "Share-Based Payment,
an amendment of FASB Statements Nos. 123 and 95," that addresses the accounting
for share-based payment transactions in which a Company receives employee
services in exchange for either equity instruments of the Company or liabilities
that are based on the fair value of the Company's equity instruments or that may
be settled by the issuance of such equity instruments. The proposed statement
would eliminate the ability to account for share-based compensation transactions
using the intrinsic method that the Company currently uses and generally would
require that such transactions be accounted for using a fair-value-based method
and recognized as expense in the consolidated statement of operations. The
effective date of the proposed standard is for periods beginning after June 15,
2005. It is expected that the final standard will be issued before December 31,
2004 and should it be finalized in its current form, it will have a significant
impact on the consolidated statement of operations as the Company will be
required to expense the fair value of stock option grants and stock purchases
under employee stock purchase plan.

     In April 2004, the Emerging Issues Task Force ("EITF") issued Statement No.
03-06 "Participating Securities and the Two-Class Method Under FASB Statement
No. 128, Earnings Per Share" ("EITF 03-06"). EITF 03-06 addresses a number of
questions regarding the computation of earnings per share by companies that have
issued securities other than common stock that contractually entitle the holder
to participate in dividends and earnings of the Company when, and if, it
declares dividends on its common stock. The issue also provides further guidance
in applying the two-class method of calculating earnings per share, clarifying
what constitutes a participating security and how to apply the two-class method
of computing earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings to such a
security. EITF 03-06 became effective during the quarter ended June 30, 2004,
the adoption of which did not have an impact on the calculation of earnings per
share of the Company.

     In July 2004, the EITF issued a draft abstract for EITF Issue No. 04-08,
"The Effect of Contingently Convertible Debt on Diluted Earnings per Share"
("EITF 04-08"). EITF 04-08 reflects the Task Force's tentative conclusion that
contingently convertible debt should be included in diluted earnings per share
computations regardless of whether the market price trigger has been met. If
adopted, the consensus reached by the Task Force in this Issue will be effective
for reporting periods ending after December 15, 2004. Prior period earnings per



                                       20
<PAGE>

share amounts presented for comparative purposes would be required to be
restated to conform to this consensus and the Company would be required to
include the shares issuable upon the conversion of the Notes in the diluted
earnings per share computation for all periods during which the Notes are
outstanding. Currently, there would be no effect of this proposed statement on
our financial position and results of operations

     In September 2004, the EITF delayed the effective date for the recognition
and measurement guidance previously discussed under EITF Issue No. 03-01, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-01") as included in paragraphs 10-20 of the proposed
statement. The proposed statement will clarify the meaning of
other-than-temporary impairment and its application to investments in debt and
equity securities, in particular investments within the scope of FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and
investments accounted for under the cost method. Currently, there would be no
effect of this proposed statement on its financial position and results of
operations.

Item 8. Consolidated Financial Statements

     The financial statements have been audited by Lopez, Blevins, Bork &
Associates, LLP, for the fiscal years ended August 31, 2004 and 2003, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended, and the financial statements for the fiscal year ended August
31, 2002, and the related statements of operations, stockholders' equity, and
cash flows for the year then ended have been audited by McManus & Co., P.C.,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing herein and are included in reliance upon such
reports given upon the authority of said firms as experts in auditing and
accounting.

Item 9. Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

     On August 23, 2004, the Board of Directors and the Audit Committee of the
Board of Directors of Eagle Broadband (the "Company") dismissed its independent
auditors, Malone & Bailey, PLLC, and engaged Lopez, Blevins, Bork & Associates,
LLP, as the Company's registered public accounting firm for the fiscal year
ending August 31, 2004. The Company filed a Current Report, dated August 30,
2004, on Form 8-K regarding this change in accountants.

     There were no changes in or disagreements with accountants on accounting or
financial disclosure during fiscal year 2004.

 Item 9A. Controls and Procedures

 Evaluation of Disclosure Controls and Procedures

     The Company's Chief Executive Officer and Principal Accounting Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-15(be) or Rule 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
our fourth fiscal quarter of 2003. Based on such evaluation, such officers have
concluded that the Company's disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act. Our Chief Accounting Officer,
instead of our Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of August 31, 2004, and certifies to such
effect pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002. Our
prior Chief Financial Officer resigned in November 2004 and our current Chief
Financial Officer was hired in November 2004. From August 31, 2004 to the date
hereof, our Principal Accounting Officer has performed the function of our Chief
Financial Officer.



                                       21
<PAGE>

Changes in Internal Controls

     There has been no change in the Company's internal control over financial
reporting identified in connection with our evaluation as of the end our fourth
fiscal quarter ended August 31, 2004, that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.

Item 9B.  Other Information

         None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     The information required by this item is incorporated herein by reference
from the information provided in the Company's Proxy Statement.

Item 11. Executive Compensation

     The information required by this item is incorporated herein by reference
from the information provided in the Company's Proxy Statement.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

Equity Compensation Plan Information

     The following table sets forth information, as of August 31, 2004, with
respect to the Company's compensation plans under which common stock is
authorized for issuance

<TABLE>
<CAPTION>

                                                                                               Number of Securities Remaining
                                      Number of Securities to be        Weighted Average        Available for Future Issuance
                                       Issued upon Exercise of          Exercise Price of      Under Equity Compensation Plans
                                        Outstanding Options,           Outstanding Options,    (Excluding Securities Reflected in
                                         Warrants and Rights            Warrants and Rights              Column A)
          Plan Category                         (A)                           (B)                         (C)
-------------------------------    -------------------------------   ------------------------  -------------------------------------
<S>                                             <C>                           <C>                             <C>
Equity Compensation Plans Approved
 by Security Holders                            346,002                       $1.27                           9,653,998

Equity Compensation Plans Not
 Approved by Security(1)                      6,051,798                       $1.47                                   -
-------------------------------    -------------------------------   ------------------------  -------------------------------------
              Total                           6,397,800                                                       9,653,998

(1) A description of the equity compensation not approved by the security
holders is set forth in Note 13 to the financial statements contained in this
Form 10-K.

</TABLE>



                                       22
<PAGE>

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  Financial Statements and Schedules:

     The financial  statements  are set forth under Item 8 of this Annual Report
     on Form 10-K.  Financial  statement  schedules have been omitted since they
     are either not required,  not  applicable,  or the information is otherwise
     included.

(b)  Reports on Form 8-K

     The  following  reports were  furnished on Form 8-K during the three months
     ended August 31, 2004:

     A report on Form 8-K,  announcing  information  under  Items 5 and 7 of the
     report,  was  filed on June 17,  2004,  with the  Securities  and  Exchange
     Commission.

     A report on Form 8-K,  announcing  information  under Item 5 of the report,
     was filed on July 21, 2004, with the Securities and Exchange Commission.

     A report on Form 8-K,  announcing  information under Items 4.01 and 9.01 of
     the report,  was filed on August 24, 2004, with the Securities and Exchange
     Commission.

     A report on Form 8-K/A, announcing information under Items 4.01 and 9.01 of
     the report,  was filed on August 30, 2004, with the Securities and Exchange
     Commission.

(c)  Exhibit Listing
<TABLE>
<CAPTION>

EXHIBIT NO.        IDENTIFICATION OF EXHIBIT
<S>     <C>                                                                                                 <C> <C>
Exhibit 3.1(a)     Eagle Broadband, Inc. Articles of Incorporation, as Amended and Restated, dated February 13, 2002.

Exhibit 3.1(b)     Eagle Broadband, Inc. Articles of Incorporation, as Amended, dated February 17, 2004.

Exhibit 3.2        Amended and Restated Eagle  Broadband,  Inc.  Bylaws  (Incorporated  by reference to Exhibit 3.2 of
                   Form 10-KSB for the fiscal year ended August 31, 2001, filed November 16, 2001)

Exhibit 4.1        Form of Common Stock  Certificate  (incorporated  by  reference to Exhibit 4 of Form S-3,  file no.
                   333-111160).

Exhibit 4.2        Purchase  Agreement by and between Eagle Broadband and Investors  dated August 23, 2003,  including
                   registration  rights and  security  agreement  attached  as an  exhibit  thereto  (incorporated  by
                   reference to Exhibit 10.1 of Form S-3 file no. 333-109481)

Exhibit 4.3        Q-Series  Bond  Agreement  (incorporated  by  reference  to  Exhibit  10.3 of Form  S-3,  file  no.
                   333-106074)

Exhibit 4.4        Addendum to Q-Series Bond  Agreement  (incorporated  by reference to Exhibit 10.4 of Form S-3, file
                   no. 333-106074)

Exhibit 4.5        Form of Subscription  Agreement for Q Series Bond,  between Eagle  Broadband and certain  investors
                   (incorporated by reference to Exhibit 10.5 of Form S-3, file no. 333-106074)

Exhibit 10.1       Asset Purchase  Agreement  between Eagle Telecom  International,  Inc., a Delaware  corporation and
                   Eagle Telecom International,  Inc., a Texas corporation  (incorporated by reference to Exhibit 10.1
                   of Form SB-2 file no. 333-20011)

Exhibit 10.2       1996 Incentive  Stock Option Plan  (incorporated  by reference to Exhibit 10.1 of Form S-8 file no.
                   333-72645)

Exhibit 10.3       2002  Stock  Incentive  Plan  (incorporated  by  reference  to  Exhibit  10.1 of Form  S-8 file no.
                   333-97901)

Exhibit 10.4       2002 Stock Incentive Plan, as Amended  (incorporated  by reference to Exhibit 10.1 of Form S-8 file
                   no. 333-102506)

Exhibit 10.5       2003 Stock Incentive and Compensation  Plan  (incorporated by reference to Exhibit 10.1 of Form S-8
                   file no. 333-103829)

Exhibit 10.6       2003 Stock Incentive and Compensation  Plan, as Amended  (incorporated by reference to Exhibit 10.1
                   of Form S-8 file no. 333-105074)

Exhibit 10.7       2003 Stock Incentive and Compensation  Plan, as Amended  (incorporated by reference to Exhibit 10.1
                   of Form S-8 file no. 333-109339)

Exhibit 10.8       2004  Stock  Incentive  Plan  (incorporated  by  reference  to  Exhibit  10.1 of Form  S-8 file no.
                   333-110309)

Exhibit 10.9       Agreement  and  Plan  of  Reorganization  by  and  between  Eagle  Wireless   International,   Inc.
                   Clearworks.net,  Inc., and Eagle Acquisition  Corporation dated September 15, 2000 (incorporated by
                   reference to Exhibit 10.1 of Form S-4 file no. 333-49688)

</TABLE>



                                       23
<PAGE>

<TABLE>
<CAPTION>

<S>     <C>
Exhibit 10.10      Stock Purchase Agreement between Eagle Wireless International,  Inc. and the shareholders of Comtel
                   Communications,  Inc. (incorporated by reference to Exhibit 10.4 of Form 10-KSB for the fiscal year
                   ended August 31, 2000, filed December 13, 2000)

Exhibit 10.11      Stock  Purchase  Agreement  between Eagle  Wireless  International,  Inc. and the  shareholders  of
                   Atlantic  Pacific  Communications,  Inc.  (incorporated by reference to Exhibit 10.5 of Form 10-KSB
                   for the fiscal year ended August 31, 2000, filed December 13, 2000)

Exhibit 10.12      Stock  Purchase  Agreement  between Eagle  Wireless  International,  Inc. and the  shareholders  of
                   Etoolz,  Inc.  (incorporated  by reference to Exhibit 10.6 of Form 10-KSB for the fiscal year ended
                   August 31, 2000, filed December 13, 2000)

Exhibit 21.1       List of Subsidiaries (incorporated by reference to Exhibit 21.1 of Form S-4 file no. 333-49688)

Exhibit 23.1       Consent of McManus & Co., P.C

Exhibit 23.2       Consent of Malone & Bailey, PLLC

Exhibit 31.1       Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2       Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1       Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2       Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

</TABLE>

                                   SIGNATURES

     In  accordance  with  the  Section  13 or 15(d) of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                        Eagle Broadband, Inc.


                                        By:/s/ DAVID A. WEISMAN
                                        -----------------------------
                                        David A. Weisman
                                        Chairman of the Board and
                                        Chief Executive Officer


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>

Signature                               Title                                                           Date
---------                               -----                                                           ----
<S>                                    <C>                                                           <C>
/S/David A. Weisman                     Chairman of the Board and                                     November 30, 2004
-------------------
David A. Weisman                        Chief Executive Officer
                                        (Principal Executive Officer)

/S/Tom Matura                           Corporate Controller                                          November 30, 2004
-------------
Tom Matura                              (Principal Financial and Accounting Officer)

/S/A. L. Clifford                       Director                                                      November 30, 2004
-----------------
A. L. Clifford

/S/H. Dean Cubley                       Director                                                      November 30, 2004
-----------------
H. Dean Cubley

/S/Christopher W. Futer                 Director                                                      November 30, 2004
-----------------------
Christopher W. Futer

/S/Glenn A. Goerke                      Director                                                      November 30, 2004
------------------
Glenn A. Goerke

</TABLE>


                                       24
<PAGE>

<TABLE>
<CAPTION>

<S>                                                                                                           <C> <C>
/S/Lorne E. Persons                     Director                                                     November 30, 2004
-------------------
Lorne E. Persons

/S/Jim Reinhartsen                      Director                                                     November 30, 2004
------------------
Jim Reinhartsen

/S/ James R. Yarbrough                  Director                                                     November 30, 2004
----------------------
James R. Yarbrough
</TABLE>



                                       25
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Eagle Broadband, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheet of Eagle Broadband,
Inc. as of August 31, 2004 and 2003, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of Eagle Broadband, Inc.'s
management. Our responsibility is to express an opinion on these 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 financial position of Eagle Broadband,
Inc. as of August 31, 2004 and 2003, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.


/S/ Lopez, Blevins, Bork and Associates, LLP
--------------------------------------------
Lopez, Blevins, Bork and Associates, LLP
Houston, Texas

November 15, 2004



                                      F-1
<PAGE>

                         INDEPENDENT ACCOUNTANT'S REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF EAGLE BROADBAND, INC.:

We have audited the accompanying consolidated balance sheets of Eagle Broadband,
Inc. and subsidiaries as of August 31, 2002, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of Eagle Broadband,
Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Eagle Broadband, Inc. and subsidiaries as of August 31, 2002, and
the results of their earnings, shareholders' equity, and their cash flows for
each of the year then ended are in conformity with generally accepted accounting
principles.


/S/ McManus & Co., P.C.
McManus & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
ROCKAWAY, NEW JERSEY

December 13, 2002



                                      F-2
<PAGE>

--------------------------------------------------------------------------------
                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share amounts)
--------------------------------------------------------------------------------

                          ASSETS
                                                            August 31,
                                                        2004            2003
                                                   ----------      ----------
Current Assets
Cash and Cash Equivalents                             $2,051            $824
Securities Available for Sale                            551           1,714
Accounts Receivable, net                               1,470           1,704
Inventories                                              403           3,199
Net investment in direct financing leases                291               -
Prepaid Expenses                                         327             668
                                                   ----------      ----------
Total Current Assets                                   5,093           8,109
                                                   ----------      ----------

Property and Equipment
Operating Equipment                                   36,415          36,422
Less:  Accumulated Depreciation                       (7,837)         (5,689)
                                                   ----------      ----------
Total Property and Equipment                          28,578          30,733
                                                   ----------      ----------

Other Assets:
Deferred Costs                                           ---             334
Net investment in direct financing leases                623             ---
Goodwill, net                                          4,095           4,095
Contract rights, net                                  21,678          23,590
Customer relationships, net                            5,431           5,912
Other Intangible assets, net                           4,034           4,366
Other Assets                                             679             227
                                                   ----------      ----------
Total Other Assets                                    36,540          38,524
                                                   ----------      ----------

Total Assets                                         $70,211      $  $77,366
                                                   ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts Payable                                  $   $4,445      $   $5,461
Accrued Expenses                                       9,647           7,560
Notes Payable                                          5,920           5,779
Deferred revenue                                          96             230
                                                   ----------      ----------
Total Current Liabilities                             20,108          19,030
                                                   ----------      ----------

Commitments and Contingent Liabilities

Shareholders' Equity:
 Preferred Stock  -  $.001 par value
 Authorized  5,000,000 shares
 Issued  -0- shares                                      ---             ---
 Common Stock  -  $.001 par value
 Authorized 350,000,000 shares
 Issued and Outstanding at August 31, 2004
  and 2003, 205,509,000 and 147,447,000,
  respectively                                           206             147
Additional Paid in Capital                           208,051         177,017
Accumulated Deficit                                 (157,106)       (118,101)
Accumulated Comprehensive Income (Loss)               (1,048)           (727)
                                                   ----------      ----------
Total Shareholders' Equity                            50,103          58,336
                                                   ----------      ----------

Total Liabilities and Shareholders' Equity           $70,211         $77,366
                                                   ==========      ==========

See accompanying notes to consolidated financial statements.



                                       F-3
<PAGE>

--------------------------------------------------------------------------------
                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                            For the years ended August 31,
                                         --------------------------------------
                                              2004              2003               2002
                                         ------------         ---------         ----------
<S>                                             <C>             <C>                <C>
Net Sales:
Structured wiring                               $678            $3,692             $8,036
Broadband services                             5,525             2,809              2,657
Products                                       6,190             3,342             16,108
Other                                             97             1,750              3,016
                                         ------------         ---------         ----------
Total Sales                                   12,490            11,593             29,817
                                         ------------         ---------         ----------

Costs of Goods Sold:
Direct Labor and Related Costs                 1,244             2,195              3,160
Products and Integration Service               5,372             2,773             15,250
Impairment Slow Moving &
 Obsolete Inventory                            1,300             2,627                  -
Structured Wiring Labor and
 Materials                                       448             1,774              2,121
Broadband Services Costs                       2,856               903                763
Depreciation and Amortization                  1,141               456                377
Other Manufacturing Costs                         26                56              1,033
                                         ------------         ---------         ----------
Total Costs of Goods Sold                     12,387            10,784             22,704
                                         ------------         ---------         ----------
Gross Profit                                     103               809              7,113
                                         ------------         ---------         ----------

Operating Expenses:
Selling, General and
 Administrative:
Salaries and Related Costs                    13,146             6,102              7,795
Advertising and Promotion                         29               247                963
Depreciation and Amortization                  3,956             4,776              6,020
Other Support Costs                           13,367            12,737              3,974
Research and Development                         557               411                404
Impairment, Write-Downs &
 Restructuring Costs                               -             7,611             64,665
                                         ------------         ---------         ----------
Total Operating Expenses                      31,055            31,884             83,821
                                         ------------         ---------         ----------

Loss from Operations                         (30,952)          (31,075)           (76,708)
                                         -------------------------------------------------

Other Income/(Expenses):
Interest Income,                                  32                68                360
Interest Expense                              (8,325)           (5,494)              (625)
Gain (Loss) on Sale of Assets                    240                 -                  -
                                         ------------         ---------         ----------
Total Other Income (Expense)                  (8,053)           (5,426)              (265)
                                         ------------         ---------         ----------

Net Loss                                     (39,005)          (36,501)           (76,973)
                                         -------------------------------------------------
Other Comprehensive Loss:
Unrealized Holding Loss                         (321)              (71)              (279)
                                         ------------         ---------         ----------
Total Other Comprehensive Loss                 $(321)              (71)              (279)
                                         ============         =========         ==========
Comprehensive Losses                        $(39,326)         $(36,572)          $(77,252)
                                         ============         =========         ==========

Net Loss per Common Share:
Basic                                          (0.21)            (0.38)             (1.20)
Diluted                                        (0.21)            (0.38)             (1.20)
Comprehensive Loss                             (0.21)            (0.38)             (1.20)


See accompanying notes to consolidated financial statements.

</TABLE>



                                      F-4
<PAGE>

--------------------------------------------------------------------------------
                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    (in thousands, except per share amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        Additional            Accumulated      Total
                                                Common Stock  Preferred  Paid in   Retained  Comprehensive Shareholders'
                                              --------------  --------- ---------- --------- ------------- -------------
                                               Shares  Value    Stock    Capital   Earnings     Income        Equity
                                              -------  -----  --------- ---------- --------- ------------- -------------
<S>                                            <C>        <C>             <C>        <C>             <C>        <C>
 Total Shareholders' Equity                    60,264     60       ---    153,426    (4,627)         (377)      148,482
    As of August 31, 2001

 Net Loss                                           -      -         -          -   (76,973)            -       (76,973)

 New Stock Issued to Shareholders
 For Services and Compensation                  1,648      2         -        880         -             -           882
 For Property and Other Assets                  2,867      2         -        591         -             -           593
 For Retirement of Debt and Liabilities         7,846      9         -      3,577         -             -         3,586
 For Acquisitions                               2,002      2         -      1,079         -             -         1,081
 For Licenses and Investments                     ---    ---         -        100         -             -           100

 Treasury Stock                                (1,576)    (2)        -       (922)        -             -          (924)

 Unrealized Holding Loss                            -      -         -        ---         -          (279)         (279)

                                              --------------------------------------------------------------------------
 Total Shareholders' Equity                    73,051     73              158,731   (81,600)         (656)       76,548
                                              --------------------------------------------------------------------------
    As of August 31, 2002

 Net Loss                                           -      -         -          -   (36,501)            -       (36,501)

 New Stock Issued to Shareholders
 For Services and Compensation                  7,437      7         -      1,813         -             -         1,820
 For Property and Other Assets                 14,938     15         -      3,032         -             -         3,047
 For Retirement of Debt and Liabilities        50,816     51         -     13,827         -             -        13,878
 For Employee Stock Option Plan                 1,647      2         -        180         -             -           182

 Syndication Costs                                  -      -         -       (368)        -             -          (368)

 Treasury Stock and  Cost                        (442)    (1)        -       (198)        -             -          (199)

 Unrealized Holding Loss                            -      -         -        ---                     (71)          (71)

                                              --------------------------------------------------------------------------
 Total Shareholders' Equity                   147,447    147              177,017  (118,101)         (727)       58,336
                                              --------------------------------------------------------------------------
    As of August 31, 2003

 Net Loss                                           -      -         -          -   (39,005)            -       (39,005)

 New Stock Issued to Shareholders:                                                                                    -
 For Services and Compensation                 11,016     12         -      6,335         -             -         6,347
 For Retirement of Debt and Liabilities        47,046     47         -     13,294         -             -        13,341
 Stock-Based Compensation                           -      -         -      4,493         -             -         4,493
 Beneficial Conversion Features on
  Convertible Debentures                            -      -         -      6,912         -             -         6,912

 Unrealized Holding Loss                            -      -         -                    -          (321)         (321)

                                              --------------------------------------------------------------------------
 Total Shareholders' Equity                   205,509   $206        $-   $208,051 $(157,106)      $(1,048)      $50,103
                                              ==========================================================================
    As of August 31, 2004

 See accompanying notes to consolidated financial statements.

</TABLE>



                                      F-5
<PAGE>

--------------------------------------------------------------------------------
                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (in thousands, except per share amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                For the years ended August 31,
                                              -----------------------------------
                                                   2004         2003        2002
                                              ----------    ---------  ----------
<S>                                            <C>          <C>         <C>
Cash Flows from Operating Activities
Net Loss                                       $(39,005)    $(36,501)   $(76,973)
                                              ----------    ---------  ----------

Adjustments to Reconcile Net Loss to Net
 Cash
Used by Operating Activities:
Impairment, write-downs & restructuring
 costs                                            1,300       10,238      64,665
Gain (Loss) on sale of Assets                       611            -           -
Interest for beneficial conversion value          6,912           91
Depreciation and Amortization                     5,097        5,232       6,397
Stock Issued for Interest Expense                   108        2,477         100
Stock Issued for Services Rendered               10,841        1,820         882
Provision for bad debt                            2,643        2,177        (363)
(Increase)/Decrease in Accounts Receivable       (1,750)         124       2,479
(Increase)/Decrease in Inventories                1,496         (910)      4,578
(Increase)/Decrease in Prepaid Expenses             341         (311)        386
Increase/(Decrease) in Accounts Payable          (1,016)         921         232
Increase/(Decrease) in Accrued Expenses           8,929        8,557      (3,180)
                                              ----------    ---------  ----------
Total Adjustment                                 35,512       30,416      76,176
                                              ----------    ---------  ----------
Net Cash Used by Operating Activities            (3,493)      (6,085)       (797)
                                              ----------    ---------  ----------

Cash Flows from Investing Activities
(Purchase)/Disposal of Property and
 Equipment                                         (729)      (2,121)    (12,886)
Increase/(Decrease) Deferred Costs                  334            -           -
Increase/(Decrease) in Intangible Costs             (40)           -           -
Increase/(Decrease) in Marketable
 Securities                                         842          434          87
(Increase)/Decrease in Other Assets                (452)         411           -
(Purchase)/Disposal of Contact Wireless &
 DSS Security,                                        -            -        (869)
Net of Cash Acquired
Gross Equipment Purchase for Direct
 Financing Leases                                (1,212)           -           -
Principal Collections on Direct Financing
 Leases                                              41            -           -
                                              ----------    ---------  ----------
Net Cash Used by Investing Activities            (1,216)      (1,276)    (13,668)
                                              ----------    ---------  ----------

Cash Flows from Financing Activities
Increase/(Decrease) in Notes Payable &
 Long-Term Debt                                   5,936        7,297         387
Increase/(Decrease) in Capital Leases                 -            -           3
Increase/(Decrease) in Line of Credit                 -            -      (1,846)
Increase/(Decrease) in Deferred Taxes                 -            -          32
Proceeds from Sale of Common Stock, Net               -          182           -
Syndication costs                                     -         (368)          -
Treasury Stock                                        -         (199)       (918)
                                              ----------    ---------  ----------
Net Cash Provided (Used) by Financing
 Activities                                       5,936        6,912      (2,342)
                                              ----------    ---------  ----------

Net Increase/(Decrease) in Cash                   1,227         (449)    (16,807)
Cash at the Beginning of the Year                   824        1,273      18,080
                                              ----------    ---------  ----------
Cash at the End of the Year                      $2,051         $824      $1,273
                                              ==========    =========  ==========

Supplemental Disclosure of Cash Flow
 Information:
Net Cash Paid During the Year for:
Interest                                         $1,305       $3,288        $165


See accompanying notes to consolidated financial statements.

</TABLE>



                                      F-6
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

NOTE 1 - Basis of Presentation and Significant Accounting Policies:

     Eagle Broadband,  Inc. (the "Company" or "Eagle"),  incorporated as a Texas
     corporation on May 24, 2993,  and commenced  business in April of 1996. The
     Company is a leading  provider of  broadband,  Internet  protocol  (IP) and
     satellite communications technology and services. The Company is focused on
     three core businesses:  broadband  bundled  services,  IP set-top boxes and
     satellite  communications   technology.  The  Company's  product  offerings
     include  an  exclusive  "four-play"  suite of  IP-based  broadband  bundled
     services  with  high-speed  Internet,  cable  TV,  telephone  and  security
     monitoring,  and a turnkey suite of financing,  network design, operational
     and support services that enables  municipalities,  utilities,  real estate
     developers,  hotels,  multi-tenant  owners and service providers to deliver
     exceptional  value,   state-of-the-art   entertainment  and  communications
     choices and  single-bill  convenience  to their  residential  and  business
     customers.  Eagle  offers the  HDTV-ready  Media Pro IP set-top box product
     line that  enables  hotel  operators  and  service  providers  to  maximize
     revenues  by  offering  state-of-the-art  in-room  entertainment  and video
     services.  The Company  also  develops  and  markets  the SatMAX  satellite
     communications system that allows government,  military, homeland security,
     aviation,   maritime  and   enterprise   customers  to  deliver   reliable,
     non-line-of-sight,  voice and data communications  services via the Iridium
     satellite network from any location on Earth.

A)   Consolidation

     At  August  31,  2004,  2003 and 2002,  the  Company's  subsidiaries  were:
     Atlantic   Pacific   Communications,   Inc.   (APC)  -  operated  as  Eagle
     Communication  Services;  Etoolz, Inc. (ETI); Eagle Wireless International,
     Inc. (EWI);  ClearWorks.net,  Inc. (.NET); ClearWorks Communications,  Inc.
     (COMM) - operated as Eagle BDS  Services;  ClearWorks  Home  Systems,  Inc.
     (HSI) - operated as Eagle Residential  Structured Wiring; Contact Wireless,
     Inc. (CWI) - operating as Eagle Paging Services; DSS Security,  Inc., (DSS)
     - operated as Eagle Security Services; United Computing Group, Inc. (UCG) -
     operated as Eagle Technology  Services;  and Link Two Communications,  Inc.
     (LINK  II)  -  operated  as  Eagle  Messaging  Services.  The  consolidated
     financial   statements   include  the  accounts  of  the  Company  and  its
     subsidiaries.  All significant inter-company transactions and balances have
     been eliminated in consolidation.

B)   Cash and Cash Equivalents

     The Company considers all highly liquid financial instruments with original
     maturities  of three  months or less to be cash  equivalents.  The  Company
     maintains  cash deposits in banks which from time to time exceed the amount
     of  deposit  insurance  available.  Management  periodically  assesses  the
     financial  condition of the  institutions  and believes  that any potential
     credit loss is minimal.

     The  Company  has  $2,051,000  and  $824,000  of cash and cash  equivalents
     invested in interest  bearing  accounts at August 31, 2004,  and August 31,
     2003, respectively.

C)   Property and Equipment

     Property and equipment are carried at cost less  accumulated  depreciation.
     Depreciation is calculated by using the straight-line  method for financial
     reporting and  accelerated  methods for income tax  purposes.  The recovery
     classifications for these assets are listed as follows:


                                                              Years
                                                    --------------------------
Headend Facility and Fiber Infrastructure                      20
Manufacturing Equipment                                        3-7
Furniture and Fixtures                                         2-7
Office Equipment                                                5
Leasehold Improvements                                    Life of Lease
Property and Equipment                                          5
Vehicles                                                        5


     Expenditures  for  maintenance  and repairs are charged  against  income as
     incurred whereas major improvements are capitalized. Eagle has acquired all
     of its  property  and  equipment  with  either  cash or  stock  and has not
     capitalized any interest expenses in its capital assets.



                                      F-7
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

D)   Inventories

     Inventories  are  valued  at the  lower  of cost  or  market.  The  cost is
     determined by using the FIFO method.  Inventories  consist of the following
     items, in thousands:

                              August 31,
                         2004           2003
                       ----------     ----------
Raw Materials              $ 294        $ 1,826
Work in Process              108          1,237
Finished Goods                 1            136
                       ----------     ----------
                           $ 403        $ 3,199
                       ==========     ==========



E)   Revenue Recognition

     The Company  designs,  manufactures,  markets and services its products and
     services  under  the  Eagle  Broadband,  Inc.;  BroadbandMagic;  ClearWorks
     Communications,   Inc.;  ClearWorks  Home  Systems,  Inc.;  Eagle  Wireless
     International,  Inc.,  Atlantic  Pacific  Communications,  Inc.;  Link  Two
     Communications, Inc.; United Computing Group, Inc.; Contact Wireless, Inc.;
     and DSS Security, Inc., names.

     Eagle   adopted   EITF   00-21,   "Revenue   Arrangements   with   Multiple
     Deliverables," in the fourth quarter of fiscal 2003. The impact of adopting
     EITF 00-21 did not have a material effect to Eagle's results of operations.
     Eagle's  contracts that contain multiple elements as of August 31, 2004, or
     prior  were  immaterial.  When  elements  such as  hardware,  software  and
     consulting  services are contained in a single  arrangement,  or in related
     arrangements  with the  same  customer,  Eagle  allocates  revenue  to each
     element based on its relative fair value,  provided that such element meets
     the criteria  for  treatment as a separate  unit of  accounting.  The price
     charged  when the  element is sold  separately  generally  determines  fair
     value.  In the  absence  of  fair  value  for a  delivered  element,  Eagle
     allocates  revenue first to the fair value of the undelivered  elements and
     allocates the residual revenue to the delivered elements. In the absence of
     fair value for an undelivered  element, the arrangement is accounted for as
     a single unit of  accounting,  resulting in a delay of revenue  recognition
     for the delivered  elements until the  undelivered  elements are fulfilled.
     Eagle limits the amount of revenue  recognition  for delivered  elements to
     the amount  that is not  contingent  on the future  delivery of products or
     services or subject to customer-specified return or refund privileges.

     Deferred Revenues

     Revenues  that are  billed in  advance  of  services  being  completed  are
     deferred  until the  conclusion  of the period of the service for which the
     advance  billing  relates.  Deferred  revenues  are included on the balance
     sheet as a  current  liability  until the  service  is  performed  and then
     recognized  in the  period  in which  the  service  is  completed.  Eagle's
     deferred  revenues  primarily  consist of  billings  in advance  for cable,
     Internet,  security and telephone services, which generally are between one
     and three months of services.  Eagle had deferred  revenues of $353,000 and
     $230,000 as of August 31, 2004 and 2003, respectively.

     Eagle Wireless International, Inc.

     Eagle   designs,   manufactures   and  markets   transmitters,   receivers,
     controllers and software, along with other equipment used in commercial and
     personal communication systems, radio and telephone systems.  Revenues from
     these products are recognized when the product is shipped. Eagle's Wireless
     International  Product revenues are reported under the category  "Products"
     on Eagle's  Consolidated  Statements of Operations  included as page F-4 of
     this report and also under the category  "Eagle"  within Note 22 - Industry
     Segments.

     BroadbandMagic

     BroadbandMagic  designs,  manufactures  and markets  the IP set-top  boxes.
     Products are sent  principally to commercial  customers for a pre-sale test
     period  of ninety  days.  Upon the end of the  pre-sale  test  period,  the
     customer  either returns the product or accepts the product,  at which time
     Eagle  recognizes the revenue.  Eagle's  Broadband  Multimedia and Internet
     Products  revenues are reported  under the category  "Products"  on Eagle's
     Consolidated  Statements of Operations  included as page F-4 of this report
     and also under the  category  "Eagle"  within Note 22 - Industry  Segments.
     Revenue  from  software  consists  of  software  licensing.   There  is  no
     post-contract  customer  support.  Software  revenue  is  allocated  to the
     license using vendor specific objective evidence of fair value ("VSOE") or,
     in the absence of VSOE,  the residual  method.  The price  charged when the
     element is sold  separately  generally  determines  VSOE. In the absence of
     VSOE of a delivered  element,  Eagle allocates revenue to the fair value of
     the  undelivered  elements  and  the  residual  revenue  to  the  delivered
     elements.  Eagle recognizes  revenue  allocated to software licenses at the
     inception of the license.



                                      F-8
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     Eagle Broadband, Inc.

     Eagle Broadband,  Inc., engages independent agents for sales principally in
     foreign  countries  and certain  geographic  regions in the United  States.
     Under the  terms of these  one-year  agreements  the  distributor  or sales
     agents provide the companies with  manufacturing  business sales leads. The
     transactions  from these  distributors  and  agents are  subject to Eagle's
     approval  prior to  sale.  The  distributorship  or  sales  agent  receives
     commissions  based on the amount of the sales invoice from the companies to
     the  customer.  The  sale is  recognized  at the  time of  shipment  to the
     customer. These sales agents and distributors are not a significant portion
     of total sales in any of the periods  presented.  Eagle's  Broadband,  Inc.
     revenues are reported under the category "Products" on Eagle's Consolidated
     Statements of Operations included as page F-4 of this report and also under
     the category "Eagle" within Note 22 - Industry Segments.

     Eagle BDS Services - dba ClearWorks Communications, Inc.

     ClearWorks  Communications,  Inc.,  provides  Bundled  Digital  Services to
     business and residential customers,  primarily in the Texas market. Revenue
     is derived from fees charged for the delivery of Bundled Digital  Services,
     which includes telephone, long distance,  Internet, security monitoring and
     cable services. This subsidiary recognizes revenue and the related costs at
     the time the services are rendered,  Installation  fees are recognized upon
     completion and acceptance. Eagle's BDS Services revenues are reported under
     the category  "Broadband  Services" on Eagle's  Consolidated  Statements of
     Operations  included as page F-4 of this report and also under the category
     "EBS/DSS" within Note 22 - Industry Segments.

     Eagle Residential Structured Wiring - dba ClearWorks Home Systems, Inc.

     ClearWorks Home Systems,  Inc., sells and installs structured wiring, audio
     and visual components to homes. This subsidiary  recognizes revenue and the
     related  costs at the time the services are  performed.  Revenue is derived
     from the  billing of  structured  wiring to homes and the sale of audio and
     visual components to the homebuyers.  Eagle's Residential Structured Wiring
     revenues are reported  under the  category  "Structured  Wiring" on Eagle's
     Consolidated  Statements of Operations  included as page F-4 of this report
     and also under the category "APC/HSI" within Note 22 - Industry Segments.

     Eagle Communication Services - dba Atlantic Pacific Communications, Inc.

     Atlantic  Pacific   Communications,   Inc.,   provides  project   planning,
     installation,  project  management,  testing and documentation of fiber and
     cable to commercial  and industrial  clients  throughout the United States.
     The  revenue  from  the  fiber  and  cable  installation  and  services  is
     recognized upon percentage of completion of the project.  Most projects are
     completed in less than one month,  therefore,  matching revenue and expense
     in the period incurred.  Service,  training and extended  warranty contract
     revenues are recognized as services are completed.  Eagle's  Communications
     Services  revenues are reported under the category  "Structured  Wiring" on
     Eagle's Consolidated  Statements of Operations included as page F-4 of this
     report  and also under the  category  "APC/HSI"  within  Note 22 - Industry
     Segments.

     Etoolz, Inc.

     Etoolz,  Inc.,  provides  research  and  development  support for all Eagle
     companies and does not currently  provide billable  services to independent
     third parties.

     Eagle Messaging Services - dba Link Two Communications, Inc.

     Link Two  Communications,  Inc.,  provides  customers with one- and two-way
     messaging  systems.  The  revenue  from  the  sale  of  these  products  is
     recognized  at the  time  the  services  are  provided.  Eagle's  Messaging
     Services  revenues  are  reported  under the  category  "Other"  on Eagle's
     Consolidated  Statements of Operations  included as page F-4 of this report
     and also under the category "Eagle" within Note 22 - Industry Segments.

     Eagle Paging Services - dba Contact Wireless, Inc.

     Contact Wireless, Inc., provides customers with paging and mobile telephone
     products  and related  monthly  services.  Revenue  from  product  sales is
     recorded at the time of  shipment.  Revenue for the mobile phone and paging
     service  is billed  monthly  as the  service is  provided.  Eagle's  Paging
     Services  revenues  are  reported  under the  category  "Other"  on Eagle's
     Consolidated  Statements of Operations  included as page F-4 of this report
     and also under the category "Other" within Note 22 - Industry Segments.

     Eagle Security Services - dba DSS Security, Inc.

     DSS  Security,  Inc.,  provides  monthly  security  monitoring  services to
     residential customers.  The customers are billed three months in advance of
     service usage. The revenues are deferred at the time of billing and ratably
     recognized over the prepayment period as service is provided.  Installation
     fees are  recognized  upon  completion  and  acceptance.  Eagle's  Security
     Services revenues are reported under the category  "Broadband  Services" on
     Eagle's Consolidated  Statements of Operations included as page F-4 of this
     report  and also under the  category  "EBS/DSS"  within  Note 22 - Industry
     Segments.

     Eagle Technology Services - dba United Computing Group, Inc.

     United Computing Group, Inc.,  provides  business-to-business  hardware and
     software network  solutions and network  monitoring  services.  The revenue
     from the hardware and software sales is recognized at the time of shipment.
     The  monitoring  services



                                      F-9
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     recognition  policy is to record revenue on completion.  Eagle's Technology
     Services product revenues are reported under the category  "Products" while
     the services  components are reported under the category "Other" on Eagle's
     Consolidated  Statements of Operations  included as page F-4 of this report
     and also under the category "UCG" within Note 22 - Industry Segments.

F)   Research and Development Costs

     Research and development  expenditures are generally  charged to operations
     as  incurred.  For the years  ended  August 31,  2004,  2003 and 2002,  the
     Company performed research and development activities for internal projects
     related to its SatMAX global  non-line-of-sight  communications  system, IP
     set-top boxes as well as its multi-media  entertainment  centers.  Research
     and development costs of $557,000,  $411,000,  and $404,000,  were expensed
     for the years ended August 31, 2004, 2003, and 2002, respectively.

     No research and development services were performed for outside parties for
     the year ended August 31, 2004, 2003 and 2002.

G)   Income Taxes

     The Company  adopted the  provisions  of Statement of Financial  Accounting
     Standards (SFAS) No. 109,  "Accounting for Income Taxes",  which requires a
     change  from  the  deferral  method  to  assets  and  liability  method  of
     accounting for income taxes.  Timing  differences exist between book income
     and tax income, which relate primarily to depreciation methods.

H)   Net Earnings Per Common Share

     Net earnings  per common  share are shown as both basic and diluted.  Basic
     earnings  per common  share are  computed by  dividing  net income less any
     preferred stock dividends (if applicable) by the weighted average number of
     shares of common stock  outstanding.  Diluted earnings per common share are
     computed by dividing  net income less any  preferred  stock  dividends  (if
     applicable)  by the  weighted  average  number of  shares  of common  stock
     outstanding plus any dilutive common stock equivalents. The components used
     for the computations are shown as follows, in thousands:


                                            2004          2003        2002
                                          ----------   -----------  ----------
Weighted Average Number of Common
Shares Outstanding Including:
 Basic Common Stock Equivalents             185,046        95,465      64,004
 Fully Diluted Common Stock Equivalents     185,046        95,465      64,158


I)   Impairment of Long-Lived Assets and Goodwill

     Our long-lived  assets  primarily  include  goodwill,  contract  rights and
     customer relationships. Statement of Financial Accounting Standards No. 142
     "Goodwill and Other Intangible  Assets" ("SFAS 142") requires that goodwill
     and intangible  assets be tested for impairment at the reporting unit level
     (operating  segment or one level below an  operating  segment) on an annual
     basis and between annual tests in certain circumstances. Application of the
     goodwill impairment test requires judgment, including the identification of
     reporting  units,  assigning  assets and  liabilities  to reporting  units,
     assigning   goodwill  and  intangible   assets  to  reporting   units,  and
     determining  the fair value of each reporting unit.  Significant  judgments
     required to estimate the fair value of reporting  units include  estimating
     future  cash  flows,  determining  appropriate  discount  rates  and  other
     assumptions.  Changes in these estimates and assumptions  could  materially
     affect the determination of fair value for each reporting unit.

     The intangible  assets  primarily are the Company rights to deliver bundled
     digital  services  such  as,  Internet,  telephone,  cable  television  and
     security monitoring services to residential and business users. The Company
     assessed the fair value of the  intangible  assets.  There were a number of
     significant  and complex  assumptions  used in the  calculation of the fair
     value of the intangible  assets.  If any of these  assumptions  prove to be
     incorrect, the Company could be required to record a material impairment to
     its  intangible   assets.  The  assumptions   include   significant  market
     penetration in its current  markets under contract and  significant  market
     penetration in markets where they are currently negotiating contracts.

     The  Company   evaluates  the  carrying  value  of  long-lived  assets  and
     identifiable  intangible  assets  for  potential  impairment  on an ongoing
     basis.  An  impairment  loss would be deemed  necessary  when the estimated
     non-discounted  future cash flows are less than the  carrying net amount of
     the asset.  If an asset were deemed to be  impaired,  the asset's  recorded
     value would be reduced to fair market value.  In determining  the amount of
     the charge to be  recorded,  the  following  methods  would be  utilized to
     determine fair market value:



                                      F-10
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     1)   Quoted market prices in active markets.
     2)   Estimate based on prices of similar assets
     3)   Estimate based on valuation techniques


     At August 31, 2002,  Eagle determined that an impairment of Link Two paging
     network equipment and nationwide licenses existed.  Link Two Communications
     competes with many established  companies in the nationwide one and two-way
     messaging  services  area.  The paging  industry has declined over the past
     year and the major paging companies have undergone  significant  beneficial
     financial  restructurings.  These  companies are able to offer products and
     related  services at more favorable rates than Link Two. Because the paging
     industry and related financial credit availability from banks for financing
     emerging  nationwide  networks has been declining over the last year,  Link
     Two has been  unable to obtain  significant  funding to expand and  provide
     cost effective service to its customers.  Accordingly,  Link Two has had to
     curtail its development on a nationwide basis and restricted its operations
     to serve the Houston and Dallas,  Texas,  markets.  The equipment servicing
     the  nationwide  network has been  inactive  and is being  dismantled.  The
     equipment  servicing  the  nationwide  network  is  inactive  and has  been
     impaired as well as the value of the related  FCC  licenses.  At August 31,
     2002,  management  estimated through recent sales of equipment and industry
     pricing  of FCC  licenses  that an  impairment  charge of  $27,100,000  was
     necessary to reflect the ongoing value of its assets and licenses.

     At August  31,  2003,  management  determined  that a  $7,611,000  non-cash
     impairment  charge  was  necessary  against  realigned  operations  and the
     discontinued  sale  of  low  margin  commodity  products,  residential  and
     commercial  structured wiring operations and the withdrawal from its Austin
     area BDS development based on the lack of demand for BDS services resulting
     from a slower build out of the  development  than  originally  projected in
     conjunction with local market  competition.  Included in the impairment was
     the write  down of  goodwill  associated  with the  Comtel  acquisition  of
     $1,878,000.

J)   Intangible Assets

     Goodwill  represents the excess of the cost of companies  acquired over the
     fair value of their net assets at the dates of  acquisition  and were being
     amortized  using  the  straight-line  method  over  twenty  (20)  years for
     Atlantic  Pacific  Communications,  Inc.,  and  twenty-five  (25) years for
     Bundled Digital Services through June 30, 2001.

     Contract rights and customer  relationships relate to the Company rights to
     deliver  bundled  digital  services  such  as  Internet,  telephone,  cable
     television  and security  monitoring  services to certain  residential  and
     business users that were acquired in the  Clearworks.net,  Inc.  merger and
     are being  amortized over the lives of the contracts  which is fifteen (15)
     years.

     Other intangible  assets consist of licenses and permits and other acquired
     contracts,  which are being amortized using the  straight-line  method over
     their estimated  useful lives of 1 to twenty (20) years.  Eagle's  licenses
     include FCC  licenses for  designated  narrowband  personal  communications
     services, radio frequencies or spectrum to service providers.  Prior to the
     adoption of FAS 142, Eagle amortized these licenses using the straight line
     method over twenty years. At August 31, 2002,  management estimated through
     recent sales of  equipment  and  industry  pricing of FCC licenses  that an
     impairment charge of $27,100,000 was necessary to reflect the ongoing value
     of its assets and  licenses;  thereby  leaving  an  unamortized  balance of
     licenses on its books of  $1,562,000.  Eagle does not  maintain  that these
     licenses  have an indefinite  life,  but rather has ceased  amortizing  the
     remaining  balance of $1,562,000  as management  believes that this balance
     represents the salvage value of such assets. Eagle, to date, has maintained
     all operational requirements to keep its licenses current, and periodically
     assesses both future operating  requirements as well as the salvage of such
     assets.

     During  the fiscal  year  ended  August 31,  2004,  and  subsequent  to the
     issuance of the  Company's  financial  statements as of August 31, 2003, it
     was  determined  that the  allocation  of the purchase  price to net assets
     acquired in connection  with its acquisition of  ClearWorks.net,  Inc., and
     certain  other   classifications   of   intangible   assets  had  not  been
     appropriately classified.  Eagle also determined that goodwill was impaired
     at August 31, 2002, and recorded an impairment charge of $37,565,000,

     Goodwill  is  carried  at cost less  accumulated  amortization.  Intangible
     assets were amortized on a  straight-line  basis over the economic lives of
     the respective assets, generally ten to twenty-five years. Prior to July 1,
     2001, goodwill was amortized over 20 to 25 years. The Company's adoption of
     SFAS 142 eliminated the requirement to amortize goodwill  subsequent to the
     fiscal year ending August 31, 2001.  Under the  provisions of SFAS 142, the
     Company is required to  periodically  assess the carrying value of goodwill
     associated  with each of its  distinct  business  units that  comprise  its
     business  segments of the Company to determine if  impairment  in value has
     occurred.  Impairment  tests completed as of August 31, 2002 and August 31,
     2001  concluded  that the  carrying  amount of goodwill  for each  acquired
     business  unit  did  not  exceed  its net  realizable  value  based  on the
     Company's  estimate of expected  future cash flows to be  generated  by its
     business  units,  except as described  above in Note I. The Company updated
     its  assessment  as of  August  31,  2003  and  concluded  that  based on a
     valuation model  incorporating  expected future cash flows in consideration
     of  historical  cash flows and results to date,  no  impairment  charge was
     necessary.



                                      F-11
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     Goodwill and other  intangibles of $35,238,000 net of prior impairments and
     amortization  were recorded under the purchase  method for the purchases of
     ClearWorks.net,  Inc., Atlantic Pacific, Inc., DSS Security,  Inc., Contact
     Wireless,  Inc., and Comtel, Inc. The majority of the intangibles were from
     the  ClearWorks  acquisition.  ClearWorks  was in the  business  of selling
     telecommunications  services to residential neighborhoods.  In fiscal 2003,
     Eagle  realized it had failed to  successfully  achieve  profits  using the
     ClearWorks model of installing fiber optic cable to neighborhoods under the
     speculative  attempt  to  capture  enough  individual  homeowners  in  each
     neighborhood   via  individual   selling  methods  to  pay  for  the  cable
     infrastructure.  In early 2003,  Eagle modified its strategy to deliver the
     ClearWorks  developed bundled digital services approach including Internet,
     telephone, cable television and security monitoring services to residential
     and  business   users  by  targeting   municipalities,   homebuilders   and
     residential real estate developers that finance and install the fiber optic
     cable  backbone  in every lot and offer Eagle  exclusive  rights to deliver
     digital bundled services to homeowners,  using  pre-selling  promotions and
     other low cost mass marketing techniques.

     Eagle  assessed  the fair value of the  intangible  assets as of August 31,
     2004,  and  concluded  that  the  goodwill  and  other  intangible   assets
     valuations  remain at an amount greater than the current carrying and other
     intangible assets value.

     There were a number of  significant  and  complex  assumptions  used in the
     calculation of the fair value of the goodwill.  If any of these assumptions
     prove  to be  incorrect,  Eagle  could be  required  to  record a  material
     impairment to its goodwill.  The  assumptions  include  significant  market
     penetration in its current  markets under contract and  significant  market
     penetration in markets where they are currently negotiating contracts.

K)   Advertising Costs

     Advertising costs are expensed when incurred. For the year ended August 31,
     2004, 2003, and 2002, the Company expensed $29,000,  $247,000 and $963,000,
     respectively.

L)   Deferred Syndication Costs

     Deferred syndication costs consist of those expenditures  incurred that are
     directly  attributable  to  fundraising  and the collection  thereto.  Upon
     successful   collection  of  the  funds,  all  expenses  incurred  will  be
     reclassified  to  additional  paid in capital  and  treated as  syndication
     costs; netted against the funds raised.

M)   Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure of contingent asset and liabilities at the date of the financial
     statements  and the reported  amounts of revenues  and expenses  during the
     reporting period. Actual results could differ from those estimates.

N)   Marketable Securities

     Eagle holds minority equity  investments in companies having  operations or
     technology  in areas within  Eagle's  strategic  focus.  Eagle  applies the
     equity method of  accounting  for minority  investments  when Eagle has the
     ability to exert  significant  influence  over the  operating and financial
     policies of an investment.  In the absence of such ability,  Eagle accounts
     for these minority  investments under the cost method.  Certain investments
     carry  restrictions  on  immediate   disposition.   Investments  in  public
     companies  (excluding  those  accounted  for under the equity  method) with
     restrictions of less than one year are classified as available-for-sale and
     are adjusted to their fair market value with  unrealized  gains and losses,
     net of tax,  recorded as a component  of  accumulated  other  comprehensive
     income. Upon disposition of these investments,  the specific identification
     method is used to determine the cost basis in computing  realized  gains or
     losses,  which are reported in other income and expense.  Declines in value
     that are judged to be other than temporary are reported in other income and
     expense.

     The Company has Securities Available for Sale that include shares of common
     stock and bonds. These investments have a fair market value of $551,000 and
     of $1,714,006  and are included in the Balance Sheet  category  "Securities
     Available for Sale" as of August 31, 2004 and 2003. (See Note 10.)


O)   Other Comprehensive Income

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
     Financial  Accounting  Standards  No. 130,  "Other  Comprehensive  Income,"
     effective  for  fiscal  years  beginning  after  December  15,  1997.  This
     statement considers the presentation of unrealized holding gains and losses
     attributable    to   debt   and    equity    securities    classified    as
     available-for-sale. As stated, any



                                      F-12
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     unrealized  holding  gains or losses  affiliated  to these  securities  are
     carried below net income under the caption  "Other  Comprehensive  Income."
     For  the  fiscal  year  ended  August  31,  2004,   2003,  and  2002  other
     comprehensive loss was ($321, 000), ($71,000) and ($279,000), respectively.

P)   Reclassification

     The Company has  reclassified  certain  assets  costs and  expenses for the
     years ended August 31, 2004, 2003 and 2002, to facilitate comparisons.

Q)   Supporting Costs in Selling, General and Administrative Expenses

     Other support costs for the twelve months ended August 31, 2004,  2003, and
     2002 are as follows, in thousands: -

<TABLE>
<CAPTION>

                                                2004                  2003                  2002
                                            --------------        --------------         ------------
<S>                                                   <C>                   <C>                  <C>
Advertising/Conventions                               $ -                   $ -                  $ 8
Auto Related                                           22                    19                  111
Bad Debt                                            2,643                 2,177                    -
Delivery/Postage                                       47                    95                  162
Fees                                                  288                   418                    -
Insurance and Office                                  425                   437                  191
Professional and Contract Labor                     6,818                 6,129                  514
Rent                                                  507                 1,183                1,052
Repairs and Maintenance                                43                    47                   63
Travel                                                237                   377                  459
Taxes                                               1,474                   170                   53
Telephone and Utilities                               794                 1,394                1,340
Other                                                  69                   291                   21
                                            --------------        --------------         ------------
Total                                            $ 13,367              $ 12,737              $ 3,974
                                            ==============        ==============         ============

</TABLE>

R)   Recent Pronouncements

     In July 2002, the FASB issued Statement of Financial  Accounting  Standards
     No.  146  ("SFAS  146"),  "Accounting  for  Costs  Associated  with Exit or
     Disposal  Activities,"  which  nullifies  EITF Issue No.  94-3,  "Liability
     Recognition for Certain  Employee  Termination  Benefits and Other Costs to
     Exit an Activity  (including  Certain Costs Incurred in a  Restructuring)."
     SFAS 146 requires that costs  associated with an exit or disposal  activity
     be recognized  only when the liability is incurred  (that is, when it meets
     the definition of a liability in the FASB's conceptual framework). SFAS 146
     also  establishes  fair value as the objective for initial  measurement  of
     liabilities related to exit or disposal  activities.  SFAS 146 is effective
     for exit or disposal activities that are initiated after December 31, 2002.
     The Company adopted SFAS in the first quarter of fiscal 2003.

     In  January  2003,  FASB  issued   Interpretation   No.  46  (FIN  46),  an
     interpretation  of Accounting  Research Bulletin No. 51, which requires the
     Company to consolidate variable interest entities for which it is deemed to
     be the primary beneficiary and disclose information about variable interest
     entities in which it has a  significant  variable  interest.  FIN 46 became
     effective  immediately for variable  interest entities formed after January
     31, 2003 and effective for periods  ending after December 15, 2003, for any
     variable  interest  entities  formed prior to February 1, 2003. The Company
     does not believe that this  Interpretation  will have a material  impact on
     its consolidated financial statements.

     In April 2002, the FASB issued Statement of Financial  Accounting Standards
     No. 145 ("SFAS  145"),  "Rescission  of FASB  Statements  No. 4, 44 and 64,
     Amendment  of FASB  Statement  No. 13, and  Technical  Corrections,"  which
     requires that the extinguishment of debt not be considered an extraordinary
     item  under APB  Opinion  No. 30 ("APB  30"),  "Reporting  the  Results  of
     Operations-Reporting  the Effects of Disposal of a Segment of Business, and
     Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
     unless the debt extinguishment  meets the "unusual in nature and infrequent
     of  occurrence"  criteria in APB 30. SFAS 145 is effective for fiscal years
     beginning after May 15, 2002, and, upon adoption, companies must



                                      F-13
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     reclassify  prior  period  items  that do not meet the  extraordinary  item
     classification criteria in APB 30. The Company adopted SFAS 145 and related
     rules as of August 31, 2002.  The adoption of SFAS 145 had no effect on the
     Company's financial position or results of operations.

     In March 2004, the FASB issued a proposed Statement,  "Share-Based Payment,
     an  amendment  of FASB  Statements  Nos.  123 and 95," that  addresses  the
     accounting for share-based payment transactions in which a Company receives
     employee services in exchange for either equity  instruments of the Company
     or  liabilities  that are based on the fair value of the  Company's  equity
     instruments  or  that  may  be  settled  by the  issuance  of  such  equity
     instruments.  The proposed statement would eliminate the ability to account
     for share-based  compensation  transactions using the intrinsic method that
     the  Company   currently  uses  and  generally   would  require  that  such
     transactions  be  accounted  for  using  a   fair-value-based   method  and
     recognized  as expense in the  consolidated  statement of  operations.  The
     effective date of the proposed standard is for periods beginning after June
     15, 2005.  It is expected  that the final  standard  will be issued  before
     December 31, 2004 and should it be finalized in its current  form,  it will
     have a significant  impact on the  consolidated  statement of operations as
     the Company  will be  required  to expense  the fair value of stock  option
     grants and stock purchases under employee stock purchase plan.

     In April 2004, the Emerging Issues Task Force ("EITF") issued Statement No.
     03-06  "Participating  Securities  and  the  Two-Class  Method  Under  FASB
     Statement No. 128, Earnings Per Share" ("EITF 03-06"). EITF 03-06 addresses
     a number of questions  regarding the  computation  of earnings per share by
     companies  that  have  issued  securities  other  than  common  stock  that
     contractually  entitle the holder to  participate in dividends and earnings
     of the Company when, and if, it declares dividends on its common stock. The
     issue also provides  further  guidance in applying the two-class  method of
     calculating earnings per share, clarifying what constitutes a participating
     security and how to apply the  two-class  method of computing  earnings per
     share once it is determined that a security is participating, including how
     to allocate  undistributed  earnings to such a security.  EITF 03-06 became
     effective during the quarter ended June 30, 2004, the adoption of which did
     not have an impact on the calculation of earnings per share of the Company.

     In July 2004,  the EITF issued a draft  abstract for EITF Issue No.  04-08,
     "The Effect of Contingently Convertible Debt on Diluted Earnings per Share"
     ("EITF 04-08").  EITF 04-08 reflects the Task Force's tentative  conclusion
     that  contingently  convertible debt should be included in diluted earnings
     per share  computations  regardless of whether the market price trigger has
     been met. If adopted, the consensus reached by the Task Force in this Issue
     will be effective for  reporting  periods  ending after  December 15, 2004.
     Prior period earnings per share amounts presented for comparative  purposes
     would be  required  to be  restated  to conform to this  consensus  and the
     Company  would  be  required  to  include  the  shares  issuable  upon  the
     conversion of the Notes in the diluted  earnings per share  computation for
     all periods  during which the Notes are  outstanding.  .  Currently,  there
     would be no effect of this proposed statement on our financial position and
     results of operations

     In September  2004, the EITF delayed the effective date for the recognition
     and measurement  guidance previously  discussed under EITF Issue No. 03-01,
     "The Meaning of  Other-Than-Temporary  Impairment  and Its  Application  to
     Certain  Investments" ("EITF 03-01") as included in paragraphs 10-20 of the
     proposed  statement.  The  proposed  statement  will clarify the meaning of
     other-than-temporary  impairment and its application to investments in debt
     and equity securities,  in particular  investments within the scope of FASB
     Statement No. 115,  "Accounting for Certain  Investments in Debt and Equity
     Securities,"   and  investments   accounted  for  under  the  cost  method.
     Currently,  there  would be no effect  of this  proposed  statement  on its
     financial position and results of operations.

S)   Product Warranties

     The Company warrants its products against defects in design,  materials and
     workmanship  generally for six months to a year.  Other warranties from our
     vendors  which  are  incorporated  in our  products  are  passed  on to the
     customer at the  completion of the sale.  Provision for estimated  warranty
     costs  is  made  in  the  period  in  which  such  costs  become  probable.
     Historically,  Eagle has not  incurred  any  material  warranty  costs and,
     accordingly,  Eagle has not  accrued for these costs at August 31, 2004 and
     2003.  Eagle provides for the estimated  cost of product  warranties at the
     time it recognizes  revenue.  Eagle engages in product quality programs and
     processes,  including actively monitoring and evaluating the quality of its
     component suppliers; however, ongoing product failure rates, material usage
     and service  delivery  costs incurred in correcting a product  failure,  as
     well as  specific  product  class  failures  outside  of  Eagle's  baseline
     experience,  affect the estimated  warranty  obligation.  If actual product
     failure  rates,  material  usage or  service  delivery  costs  differ  from
     estimates, revisions to the estimated warranty liability would be required.

T)   Beneficial Conversion Values:

     Beneficial  conversion values are calculated at the difference  between the
     conversion price and the fair value of the common stock into which the debt
     is  convertible,  multiplied by the number of shares into which the debt is
     convertible. The beneficial conversion value is charged to interest expense
     because  the debt is  convertible  at the date of  issuance.  The  value is
     limited to the total proceeds received.



                                      F-14
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

NOTE 2 - Related Party Transactions:

     Sale of Assets:

     During the fiscal  year ended  August 31,  2004,  the  Company  completed a
     transaction  with an  effective  date of  October  1,  2003,  with Eagle RF
     International,  Inc.  (dba ERF), to sell certain  assets of its  subsidiary
     Contact Wireless,  Inc. Eagle RF International,  Inc., is a private company
     engaged in providing  products and services to the wireless  industry.  ERF
     has a  board  member  who  is  also a  member  of the  Company's  board  of
     directors,  namely H. Dean Cubley.  The assets sold related to the Contract
     Wireless  paging  network  business and included a switch  center lease and
     tower  lease,  network  equipment,   network  contracts,  paging  licenses,
     accounts  receivable,  inventory,  furniture and fixtures.  The Company had
     downsized this  subsidiary  during the course of fiscal 2003 and during the
     three  months  ended  February  29,  2004,  elected  to exit this  business
     segment. The Company has recorded approximately $329,000 in revenues with a
     corresponding  segment loss of  approximately  $387,000  from this business
     segment in fiscal 2003 and recorded  approximately $80,000 in revenues with
     a  corresponding  loss of $25,000 in the first quarter of fiscal 2004.  The
     Company had no competing  offers with respect to the sale of assets  and/or
     sale of the business and the Company's  board of directors  determined that
     the offer from ERF  represented  fair  value.  The Company  terminated  its
     remaining  employees  associated  with this subsidiary and ERF entered into
     new employment arrangements with certain of these employees.  Additionally,
     ERF assumed  certain  liabilities and subleased  certain  property from the
     Company in Houston and San Antonio.  In conjunction with this  transaction,
     the  Company  recorded a loss of $642,000 on the sale of assets and certain
     other costs incurred in the exit from this line of business.

     Compensation

     Eagle renewed a professional  service  agreement  effective  April 1, 2004,
     with the son of a director.  The agreement states that consulting  services
     provided  will  include  support  in the  areas of  management  information
     systems,   investor  relations,   and  corporate  finance  and  accounting.
     Compensation  includes monthly salary of $10,000 and quarterly  issuance of
     stock options to purchase common stock of Eagle Broadband.

     In addition,  compensation  for certain  officers and key  employees  under
     incentive  clauses of their  employment  contracts  (i) includes a non-cash
     expense of  $4,493,000  incurred  upon the  modification  of  warrants  for
     4,200,000 common shares and (ii) reflects a guaranteed  compensation of the
     modified warrants equivalent to $1.75 less the warrant strike price.


NOTE 3 - Accounts Receivable:

     Accounts receivable consist of the following, in thousands:


                                              August 31,
                                  ---------------------------------
                                      2004                 2003
                                  ------------         ------------
Accounts Receivable               $     3,866          $     2,116
Allowance for Doubtful Accounts        (2,396)                (412)
                                  ------------         ------------
Accounts Receivable, Net          $     1,470          $     1,704
                                  ============         ============



                                      F-15
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

NOTE 4 - Property, Plant & Equipment and Intangible Assets:

     Components of property, plant & equipment are as follows, in thousands:


                                                           August 31,
                                               --------------------------------
                                                   2004                2003
                                               ------------       -------------
Automobile                                     $       143         $       143
Headend facility and fiber infrastructure           27,146              26,688
Furniture and fixtures                                 516                 565
Leasehold improvements                                 133                 122
Office equipment                                     7,454                 979
Property, manufacturing and equipment          $     1,023         $     7,925
                                               ------------       -------------
Total Property, Plant and Equipment                 36,415              36,422
Less accumulated depreciation                  $    (7,837)        $    (5,689)
                                               ------------       -------------
Net property, plant and equipment              $    28,578         $    30,733
                                               ============       =============


     Eagle expenses  repairs and maintenance  against income as incurred whereas
     major  improvements  are capitalized.  Eagle defines major  improvements as
     those assets  acquired  that extend the life of the  underlying  base asset
     while  defining other  improvements  that do not extend the life as repairs
     and maintenance. Eagle expensed repairs and maintenance of $43,000, $47,000
     and  $63,000  for the three years  ended  August 31,  2004,  2003 and 2002,
     respectively,  whereas it did not have any capitalized  major  improvements
     for the same time periods.

     Eagle's  headend  facility and fiber  infrastructure  consist  primarily of
     digital  computing and  telecommunications  equipment that comprise Eagle's
     main headend facility at it headquarters,  wireless  headend  equipment,  a
     digital  headend  facility  and a  fiber  backbone  in the  master  planned
     communities  in which it operates and a fiber ring  connecting  the various
     master  planned  communities  in the Houston area.  These fiber and headend
     infrastructures   are  similar  to  those  that  would  exist  in  a  major
     telecommunications   or  cable  television  provider  that  offers  digital
     services  for  Internet,   cable  TV,  telephone  and  security  monitoring
     services.  Eagle determined that a twenty-year  straight line  depreciation
     method is  appropriate  for its Headend  Facility and Fiber  Infrastructure
     based on industry standards for these asset types.

     Components of intangible assets are as follows, in thousands:

                                                       August 31,
                                               ----------------------------
                                                 2004              2003
                                               ----------       -----------
Goodwill                                         $ 5,596           $ 5,596
Accumulated Amortization                          (1,501)           (1,501)
                                               ----------       -----------
                                                 $ 4,095           $ 4,095
                                               ----------       -----------
Contract Rights                                  $28,691           $28,691
Accumulated Amortization                          (7,013)           (5,101)
                                               ----------       -----------
                                                 $21,678          $ 23,590
                                               ----------       -----------
Customer Relationships                           $ 7,189           $ 7,189
Accumulated Amortization                          (1,758)           (1,277)
                                               ----------       -----------
                                                 $ 5,431           $ 5,912
                                               ----------       -----------
Other Intangible Assets                          $ 6,839           $ 6,839
Accumulated Amortization                          (2,805)           (2,473)
                                               ----------       -----------
                                                 $ 4,034           $ 4,366
                                               ----------       -----------

NOTE 5 - Business Combinations:

     Effective  January 1, 2002,  the Company  acquired DSS Security,  Inc., and
     Contact Wireless in a business combination accounted for as a purchase. DSS
     Security,  Inc.,  provides security  monitoring to business and residential
     customers.  Contact  Wireless sells and services mobile phones and one- and
     two-way messaging  devices.  The Company paid cash of $450,000 and issued a
     short-term note payable of $130,000 for the assets of Contact  Wireless for
     a total purchase price of $580,000.  Additionally, the Company acquired DSS
     Security,  Inc., for $2,002,147.  In this  transaction,  the Company issued
     2,002,147  shares of its  common  stock with a  guaranteed  value of $1 per
     share. The Company  allocated $51,595 to the fair value of the property and
     equipment and



                                      F-16
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     $1,950,552 in goodwill.  The  allocation of the purchase  price is based on
     the fair value of the assets acquired based on  management's  estimates and
     existing  contracts.  At August 31, 2003 and 2002, the Company has accruals
     for $573,000  and  $921,000;  respectively  for the portion of the purchase
     that represents the difference  between  purchase price and market value of
     the Company's common stock on the date of purchase.

NOTE 6 - Notes Payable:

     The following  table lists the Company's note  obligations as of August 31,
     2004 and 2003, in thousands:

<TABLE>
<CAPTION>

                                                Annual                                    Amount
                                               Interest                     --------------------------
                                                Rate          Due Date        2004            2003
                                               ----------  --------------   ----------      ----------
<S>                                                                               <C>             <C>
Vehicles                                        Various       Various             $ -             $ 4
5% Convertible Debenture (Note 9) Tail Wind      5.0%          Demand               -           1,200
Convertible Debenture                            2.0%          Demand               -           1,595
Notes Payable: Investor Group                    10.0%       Oct. 2003              -             900
Notes Payable: Investor Group                    8.0%          Demand           4,888               -
Notes Payable: Q Series Bonds                    12.0%        Various             744           1,363
Other                                           Various       Various             288             717
                                                                            ----------      ----------

Total Notes Payable                                                           $ 5,920          $5,779
                                                                            ----------      ----------
Less Current Portion                                                            5,920           5,779
                                                                            ----------      ----------
Total Long-Term Debt                                                              $ -             $ -
                                                                            ==========      ==========

</TABLE>


NOTE 7 -  Capital Lease Obligations:

     The Company  historically has leased equipment from various companies under
     capital  leases.  The assets and  liabilities  under the capital  lease are
     recorded at the lower of the present value of the minimum lease payments or
     the fair value of the asset.  The assets are depreciated over the estimated
     useful life with the value and  depreciation  being included as a component
     of Property and Equipment under operating equipment. As of August 31, 2004,
     there was no equipment under capital lease.

NOTE 8 - Lines of Credit:

     On July 16, 2002,  the Company  entered into a  $20,000,000  line of credit
     with Cornell Capital  Partners,  LP (CCP). The Company has not drawn on the
     line of credit  and  currently  has no plans to do so. One of the issues in
     the litigation between CCP and the Company (see Legal Proceedings below) is
     whether  the  Company  owes CCP a  commitment  fee for this line of credit.
     Cornell  contends  that the Company  owes  $395,000  of stock;  the Company
     denies the liability.

NOTE 9 - Convertible Debentures:

     During  October  2002,  the Company  entered into a $3,000,000  convertible
     debenture  agreement with Cornell Capital  Partners,  LP (CCP).  During the
     three month period ended  November 30, 2003,  the principal  balance of the
     debenture was repaid,  although a lawsuit  remains  outstanding - see Legal
     Proceedings.  On July 16, 2002, the Company entered into a $20,000,000 line
     of credit with  Cornell  Capital  Partners,  LP (CCP).  The Company has not
     drawn on the line of credit and currently has no plans to do so. One of the
     issues in the litigation between CCP and the Company (see Legal Proceedings
     below) is whether the Company  owes CCP a  commitment  fee for this line of
     credit.  Cornell  contends  that the Company  owes  $395,000 of stock;  the
     Company  denies the  liability.  The Company is  currently  negotiating  to
     settle this contested liability and the cancellation of the line of credit.

     During 2001, the Company  acquired  ClearWorks.net,  Inc., and as a result,
     ClearWorks is a wholly owned subsidiary of Eagle. Link Two  Communications,
     Inc., is a subsidiary of ClearWorks. Link Two entered an agreement with The
     Tail Wind Fund Ltd.,  under  which Tail Wind  purchased  from Link Two a 2%
     convertible  note in the initial amount of  $5,000,000.  As a result of the
     acquisition,  Eagle the  parent of Link Two,  has  guaranteed  the Link Two
     notes  issued  to Tail Wind and  allowed  Tail  Wind to  convert  the above
     mentioned  debt into Eagle  common  stock and  warrants  at various  rates.
     During  fiscal 2002 Eagle made  payments of $500,000 in cash and  converted
     $2,500,000  into common  stock.  During  fiscal 2003,  Tail Wind  converted
     $405,169  into  common  stock and during  fiscal  2004 Eagle made the final
     payment of $1,594,831 in cash.

     Between November 25, 2002, and June 9, 2003, the Company sold approximately
     $6.5 million of convertible debt securities to 45 accredited investors. The
     securities consisted of $25,000, 12% five-year bonds. The bonds are due and
     payable upon maturity at the end of the five-year  period.  Interest on the
     bonds is payable at the rate of 12% per annum, and is payable semiannually.
     The bondholder  may require the Company to convert the bond  (including any
     unpaid interest) into shares of the Company's common stock at any time



                                      F-17
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004


     during the first year but not  thereafter.  The conversion  rates vary from
     $0.16 to $0.34 per  share.  The  Company  may  redeem the bonds at any time
     after the first year.

     Between   October  30,  2003,  and  November  5,  2003,  the  Company  sold
     approximately  $4.1 million of convertible debt securities to 36 accredited
     investors.  The securities  consisted of $25,000,  12% five-year bonds. The
     bonds are due and payable upon maturity at the end of the five-year period.
     Interest  on the  bonds is  payable  at the rate of 12% per  annum,  and is
     payable semiannually. The bondholder may require the Company to convert the
     bond  (including any unpaid  interest) into shares of the Company's  common
     stock at any time during the first year but not thereafter.  The conversion
     rates vary from $0.50 to $0.75 per share.  The Company may redeem the bonds
     at any time after the first year.

     Eagle  Broadband,  Inc.  ("Eagle" or  "Company")  entered into a Securities
     Purchase  Agreement  dated  June  2,  2004,  (the  "Agreement")  with  four
     accredited  investors  (collectively,  the "Investors"),  pursuant to which
     Eagle agreed to sell, and the Investors  agreed to purchase,  debentures in
     the principle  amount of $4,888,400  bearing interest at the rate of 8% per
     annum, maturing in June 2007 ("Debentures"),  convertible into an aggregate
     of 5,360,088  shares of Eagle common stock,  par value $.001 per share (the
     "Common Stock"),  together with five-year warrants to purchase an aggregate
     of  1,340,022  shares of Common  Stock at an  exercise  price of $1.265 per
     share (the " Warrants") ( the funding of the Debentures and issuance of the
     Warrants referred to as the "Financing").

     The Debentures are convertible immediately.  Subject to certain exceptions,
     in the  event  that on or  before  the date on  which  the  Debentures  are
     converted,  Eagle  issues or sells,  or is deemed to have issued or sold in
     accordance with the terms of the Debentures, any shares of Common Stock for
     consideration per share less than the conversion price of the Debentures as
     then in effect (a "Dilutive  Issuance"),  then the conversion  price of the
     Debentures will be adjusted to equal the  consideration per share of Common
     Stock  issued  or sold or  deemed  to have  been  issued  and  sold in such
     Dilutive Issuance.

     All of  the  Warrants  are  exercisable  immediately.  Subject  to  certain
     exceptions,  in the event that on or before the date on which the  Warrants
     are exercised,  Eagle issues or sells,  or is deemed to have issued or sold
     in accordance with the terms of the Warrants, a Dilutive Issuance, then the
     exercise price of the Warrants will be adjusted to equal the  consideration
     per share of Common  Stock issued or sold or deemed to have been issued and
     sold in such Dilutive Issuance.

     Eagle also  granted the  Investors  a right to  participate  in  subsequent
     private offerings of its equity or equity equivalent  securities undertaken
     by  Eagle  for  the  purpose  of  raising   capital  (each,  a  "Subsequent
     Placement").  The Investors'  right of  participation is subject to certain
     additional  limitations and expires 6 months from the effective date of the
     registration statement filed to register the resale of the shares of Common
     Stock underlying the Debentures and Warrants ("Shares").

     Eagle has agreed to file a  registration  statement with the Securities and
     Exchange  Commission  within 40 days after the closing of the  Financing in
     order to  register  the resale of the  Shares.  If Eagle fails to meet this
     deadline, if the registration  statement is not declared effective prior to
     the 90th day after the closing  date, if Eagle fails to respond to comments
     made by the SEC within 10 days,  if the  registration  statement  ceases to
     remain  effective,  or certain other events occur,  Eagle has agreed to pay
     the Investors  2.0% of the aggregate  purchase price for each month of such
     event.

NOTE 10 - Securities Held for Resale:

     As discussed in Note 1, the Company adopted the provisions of SFAS No. 115,
     "Accounting for Certain Investments in Debt and Equity Securities" and SFAS
     No. 130,  "Accounting for Other  Comprehensive  Income." At August 31, 2004
     and 2003, all of the Company's  marketable equity securities are classified
     as  available-for-sale;  they were  acquired  with the intent to dispose of
     them within the next year.

     At August 31, 2004, securities available for sale include 580,000 shares of
     Burst.com  with  a cost  basis  of  $127,832  and a fair  market  value  of
     $551,000.

     At August 31, 2003,  securities available for sale include 1,480,000 shares
     of common stock of Burst.com, 146,085,264 shares of Celerity Systems common
     stock and  $350,000  Celerity  Systems  Bonds.  These common stock and bond
     investments  have an aggregate  cost basis of  $1,075,000  and an aggregate
     fair market value of $1,714,006.

NOTE 11 - Income Taxes:

     As discussed in note 1, the Company  adopted the provisions of Statement of
     Financial  Accounting  Standards  (SFAS) No.  109,  "Accounting  for Income
     Taxes".  Implementation  of SFAS  109 did not  have a  material  cumulative
     effect on prior periods nor did it result in a change to the current year's
     provision.



                                      F-18
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004


     The  effective  tax rate for the Company is  reconcilable  to statutory tax
     rates as follows:


                                                        August 31,
                                          -----------------------------------
                                           2004          2003         2002
                                            (%)          (%)           (%)
                                          --------      -------      --------
U. S. Federal Statutory Tax Rate               34           34            34
U.S. Valuation Difference                     (34)         (34)          (34)
Effective U. S. Tax Rate                        0            0             0
Foreign Tax Valuation                           0            0             0
Effective Tax Rate                              0            0             0


Income tax expense (benefit)  attributable to income from continuing  operations
differed from the amounts  computed by apply the U.S. Federal income tax rate of
34% to pretax income from continuing operations as a result of the following (in
thousands):

<TABLE>
<CAPTION>

                                                        August 31,
                                       -----------------------------------------------
                                          2004             2003              2002
                                       ------------     ------------     -------------
<S>                                      <C>              <C>               <C>
Computed Expected Tax Benefit            $ (13,262)       $ (12,410)        $ (26,171)
Increase in Valuation Allowance             13,262           12,410            26,171
                                       -----------------------------------------------
Income Tax Expense                             $ -              $ -               $ -
                                       ===============================================

</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at August 31, 2004 and
2003, are presented  below (in thousands) and include the balances of the merged
company ClearWorks.net.

                                                           August 31,
                                           --------------------------------
                                              2004                2003
                                           ------------        ------------
Deferred Tax Assets:
Net Operating Loss Carry Forwards             $ 63,606            $ 50,344
Less Valuation Allowance                       (63,606)            (50,344)
                                           ------------        ------------
Net Deferred Tax Assets                            $ -                 $ -
                                           ============        ============


The valuation allowance for deferred tax assets of August 31, 2004, 2003 and
2002, was $63,606,000, $50,344,000 and $25,162,000, respectively. At August 31,
2003 and 2002, the Company has net operating loss carry-forwards of $110,507,000
and $74,006,000, respectively, which are available to offset future federal
taxable income, if any, with expirations from 2020 to 2022.

NOTE 12 - Issuance of Common Stock:

     During the fiscal year ended August 31, 2004,  the Company issued shares of
     common stock.  The following  table  summarizes  the shares of common stock
     issued, in thousands.

<TABLE>
<CAPTION>

<S>                               <C> <C>                                    <C>
        Shares Outstanding August 31, 2003                                   147,447
        Shares Issued for Retirement of Debt and Liabilities                  47,046
        Shares Issued for Service, Compensation Property and Other Assets     11,016
                                                                           ----------
        Shares Outstanding August 31, 2004                                   205,509
                                                                           ==========

</TABLE>



                                      F-19
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

NOTE 13 - Preferred Stock, Stock Options and Warrants:

     The warrants  outstanding  are segregated  into two categories  (issued and
     outstanding and exercisable):

                    Warrants Issued & Outstanding       Warrants Exercisable
Class of   Expiration             August 31,                    August 31,
Warrants      Date            2004         2003             2004         2003
--------   ----------    -----------------------       -----------------------
   0.41      Sep-08      3,800,000    3,800,000        1,550,000    1,550,000
   0.48      Oct-06         25,000       25,000           25,000       25,000
   0.60      Sep-06        400,000      400,000                -            -
   0.61      Jan-05         25,000       25,000           25,000       25,000
   0.69      Oct-04         25,000       25,000           25,000       25,000
   0.75      Sep-08        500,000      500,000                -            -
   0.97      Jul-07         25,000            -                -            -
   1.04      Apr-05         50,000       50,000           50,000       50,000
   1.23      Apr-07         25,000            -                -            -
   1.31      Jan-07         25,000            -           25,000            -
   7.50      Apr-08        800,000      800,000          800,000      800,000
   ESOP      Various       346,002   *  406,131          346,002      406,131
                         -----------------------       -----------------------
                         6,046,002  **6,031,131        2,846,002    2,881,131
                         =======================       =======================

     *Denotes  warrants  which would have an  anti-dilutive  effect if currently
     used to  calculate  earnings  per share for the years ended August 31, 2004
     and 2003.
     **Denotes  12,700,000 warrants for shares that have been excluded from this
     table that are  subject to issuance to certain  employees  under  incentive
     clauses of employment contracts expiring 5 years from the date of issuance.
     The warrants vest based on  accumulated  revenue  targets  ranging from $50
     million to $500 million and on market  performance  of Eagle's common stock
     at market capitalization  between $450 million and $1 billion. The warrants
     are to purchase fully paid and  non-assessable  shares of the common stock,
     par value $0.001 per share at purchase  prices  ranging from $0.41 to $1.50
     per  share.  The  Company  has  determined  that  the  probability  of  the
     achievement of such targets is remote as of the date of the issuance of the
     Company's  financial  statements  and  thus  has not  included  them in the
     outstanding  warrant  table above.  The shares of common  stock  underlying
     these  warrants were not  registered for resale under the Securities Act of
     1933. As of August 31, 2004, none of these warrants have been exercised.

NOTE 14 - Capitalization Activities:

     Between November 25, 2002 and June 9, 2003, the Company sold  approximately
     $6.5 million of convertible debt securities to 45 accredited investors. The
     securities consisted of $25,000, 12% five-year bonds. The bonds are due and
     payable upon maturity at the end of the five-year  period.  Interest on the
     bonds is payable at the rate of 12% per annum, and is payable semiannually.
     The bondholder  may require the Company to convert the bond  (including any
     unpaid  interest)  into shares of the  Company's  common  stock at any time
     during the first year but not  thereafter.  The conversion  rates vary from
     $0.16 to $0.34 per  share.  The  Company  may  redeem the bonds at any time
     after the first year.

     Between   October  30,  2003  and  November  5,  2003,   the  Company  sold
     approximately  $4.1 million of convertible debt securities to 36 accredited
     investors.  The securities  consisted of $25,000,  12% five-year bonds. The
     bonds are due and payable upon maturity at the end of the five-year period.
     Interest  on the  bonds is  payable  at the rate of 12% per  annum,  and is
     payable semiannually. The bondholder may require the Company to convert the
     bond  (including any unpaid  interest) into shares of the Company's  common
     stock at any time during the first year but not thereafter.  The conversion
     rates vary from $0.50 to $0.75 per share.  The Company may redeem the bonds
     at any time after the first year.

     Eagle  Broadband,  Inc.  ("Eagle" or  "Company")  entered into a Securities
     Purchase  Agreement  dated  June  2,  2004,  (the  "Agreement")  with  four
     accredited  investors  (collectively,  the "Investors"),  pursuant to which
     Eagle agreed to sell, and the Investors  agreed to purchase,  debentures in
     the principle  amount of $4,888,400  bearing interest at the rate of 8% per
     annum, maturing in June 2007 ("Debentures"),  convertible into an aggregate
     of 5,360,088  shares of Eagle common stock,  par value $.001 per share (the
     "Common Stock"),  together with five-year warrants to purchase an aggregate
     of  1,340,022  shares of Common  Stock at an  exercise  price of $1.265 per
     share (the " Warrants") ( the funding of the Debentures and issuance of the
     Warrants referred to as the "Financing").



                                      F-20
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

NOTE 15 - Risk Factors:

     For the years ended August 31, 2004, 2003, and 2002,  substantially  all of
     the Company's  business  activities  have remained within the United States
     and have been  extended to the  wireless  infrastructure,  fiber,  cabling,
     computer  services  and  broadband  industries.  Approximately,  83% of the
     Company's revenues and receivables have been created solely in the state of
     Texas,  0%  have  been  created  in  the  international   market,  and  the
     approximate 17% remainder have been created relatively evenly over the rest
     of the nation during the year ended August 31, 2004. Approximately,  74% of
     the  Company's  revenues and  receivables  have been created  solely in the
     state of Texas, 0% have been created in the international  market,  and the
     approximate 26% remainder have been created relatively evenly over the rest
     of the nation during the year ended August 31, 2003. Whereas, approximately
     84% of the Company's  revenues and receivables  have been created solely in
     the state of Texas, 0% has been created in the  international  market,  and
     the approximate 16% remainder has been created  relatively  evenly over the
     rest of the nation for the year ended August 31,  2002.  Through the normal
     course of business, the Company generally does not require its customers to
     post any collateral.

NOTE 16 - Foreign Operations:

     Although the Company is based in the United States,  its product is sold on
     the   international   market.   Presently,    international   sales   total
     approximately   0%,  0%  and  0%  at  August  31,  2004,  2003,  and  2002,
     respectively.

NOTE 17 - Commitments and Contingent Liabilities:

     Leases

     For the  years  ending  August  31,  2004  and  2003,  rental  expenses  of
     approximately $507,000 and $1,183,000, respectively, were incurred.

     The Company  renewed its primary office lease space in League City,  Texas,
     for $24,983 per month with South Shore Harbor Development, Ltd. The renewal
     lease  commenced on June 1, 2004,  and expires on May 31, 2009.  The Lessor
     agreed to grant the Company a one-time  option to terminate the lease at 36
     months by paying an unamortized leasing commission of $35,000 and a penalty
     of 1.5 months rent of $37,000 for a combined total of $72,000.

                        Period Ending
                          August 31,                Amount
                        ----------------     ----------------
                             2005            $       299,801
                             2006                    299,801
                             2007                    306,180
                             2008                    325,316
                             2009                    243,987
                                             ----------------
                             Total           $     1,475,085
                                             ================


     Legal Proceedings

     In July 2003,  Eagle became a defendant in Cornell Capital  Partners,  L.P.
vs. Eagle Broadband, Inc., et al., Civil Action No. 03-1860 (KSH), In the United
States  District Court for the District of New Jersey.  The suit presents claims
for  breach  of  contract,  state and  federal  securities  fraud and  negligent
misrepresentation.  Plaintiff  has also  alleged  that Eagle has  defaulted on a
convertible  debenture for failing to timely register the shares of common stock
underlying the  convertible  debenture and is seeking to accelerate the maturity
date of the debenture.  In November 2003, the principal balance of the debenture
was repaid,  although the suit remains  outstanding.  Cornell  claims damages in
excess of  $1,000,000.  The Company  denies the claims and intends to vigorously
defend this lawsuit and the claims against it. Eagle has asserted  counterclaims
against  Cornell for fraud and breach of  contract in the amount of  $2,000,000.
The Company has not accrued any expenses  against this  lawsuit,  as the outcome
cannot be predicted at this time.

     In  December  2000,  ClearWorks  became a  defendant  in  State Of  Florida
Department Of Environmental Protection vs. Reco Tricote, Inc. And Southeast Tire
Recycling,  Inc.  A/K/A  Clearwork.net,  Inc.; In the Circuit Court of The Tenth
Judicial  Circuit  In And  For  Polk  County,  Florida.  The  Florida  EPA  sued
ClearWorks.net  presenting  claims for recovery  costs and penalties for a waste
tire  processing  facility.  The suit seeks recovery of costs and penalties in a
sum in  excess of  $1,000,000,  attorneys'  fees and cost of  court.  ClearWorks
denies the claims and intends to vigorously  contest all claims in this case and
to enforce its  indemnification  rights against the principals of Southeast Tire
Recycling. The Company has not accrued any expenses against this lawsuit, as the
outcome cannot be predicted at this time.



                                      F-21
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     In September 2003, Enron sued United  Computing Group,  Inc. in Enron Corp.
(Debtors/Plaintiff)  vs. United Computing Group,  Inc.; Case No. 01-16034 in the
United States  Bankruptcy Court for the Southern  District of New York. The suit
presents claims pursuant to sections 547 and 550 of the Bankruptcy Code to avoid
and recover a transfer in the amount of approximately $1,500,000.  Defendant has
filed an answer, denies the claims and intends to vigorously defend this lawsuit
and claims  against it. The Company has not accrued any  expenses  against  this
lawsuit, as the outcome cannot be predicted at this time.

     In fiscal 2004,  The Tail Wind Fund Ltd. sued Link Two  Communications  and
Eagle,  Civil Action  04-CV-05776,  in the United States  District Court for the
Southern  District of New York. Tail Wind claims breach of contract  seeking $25
million.  The Company intends to vigorously  defend this claim.  The Company has
accrued $500,000 in expenses  against this lawsuit,  although the outcome cannot
be predicted at this time.

     In November 2004,  Palisades Master Fund L.P. sued Eagle  Broadband,  Ind.,
and David Weisman,  Civil Action 04603626,  in New York County, New York Supreme
Court.  Palisades  seeks an  injunction  setting a  conversion  price on certain
convertible  debt and  warrants at $0.4456 per share of Eagle  common  stock and
seeks  damages in excess of $3.1  million.  The  Company  intends to  vigorously
defend this claim. The Company has not accrued any expenses against the lawsuit,
as the outcome cannot be predicted at this time.

     Eagle is involved in lawsuits,  claims,  and  proceedings,  including those
identified above, which arise in the ordinary course of business.  In accordance
with SFAS No. 5, "Accounting for  Contingencies,"  Eagle makes a provision for a
liability  when it is both  probable  that a liability has been incurred and the
amount of the loss can be reasonably  estimated.  Eagle believes it has adequate
provisions  for any  such  matters.  Eagle  reviews  these  provisions  at least
quarterly and adjusts these  provisions to reflect the impacts of  negotiations,
settlements,  rulings, advice of legal counsel, and other information and events
pertaining  to  a  particular  case.  Litigation  is  inherently  unpredictable.
However, Eagle believes that it has valid defenses with respect to legal matters
pending against it.  Nevertheless,  it is possible that cash flows or results of
operations  could  be  materially  affected  in  any  particular  period  by the
unfavorable resolution of one or more of these contingencies.

     We intend to vigorously  defend these and other lawsuits and claims against
us. However,  we cannot predict the outcome of these lawsuits,  as well as other
legal  proceedings and claims with certainty.  An adverse  resolution of pending
litigation  could  have a material  adverse  effect on our  business,  financial
condition and results of operations. The Company is subject to legal proceedings
and  claims  that  arise in the  ordinary  course  of  business.  The  Company's
management  does not expect that the  results in any of these legal  proceedings
will have  adverse  affect on the  Company's  financial  condition or results of
operations.

     NOTE 18 - Earnings Per Share:

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

<TABLE>
<CAPTION>

                                                                   For the year ended August 31, 2004
                                                          --------------------------------------------------
                                                            Income               Shares            Per-Share
                                                          (Numerator)        (Denominator)          Amount
                                                          ------------       ---------------       ---------
<S>                                                        <C>                 <C>                  <C>
Net Loss                                                   $ (39,005)          $         -          $    -
Basic EPS:
Income Available to Common Stockholders                      (39,005)               185,046           (0.21)
Effect of Dilutive Securities Warrants                            -                      -               -
Diluted EPS:
                                                          ------------       ---------------       ---------
Income Available to Common Stockholders                       (39,005)              185,046         $ (0.21)
 and Assumed Conversions                                  ============       ===============       =========

                                                                    For the year ended August 31, 2003
                                                          --------------------------------------------------
                                                            Income               Shares            Per-Share
                                                          (Numerator)        (Denominator)          Amount
                                                          ------------       ---------------       ---------
Net Loss                                                    $ (36,501)             $      -         $     -
Basic EPS:
Income Available to Common Stockholders                       (36,501)               95,465           (0.38)
Effect of Dilutive Securities Warrants                              -                     -               -
Diluted EPS:
                                                          ------------       ---------------       ---------
Income Available to Common Stockholders                     $ (36,501)             $ 95,465         $ (0.38)
 and Assumed Conversions                                  ============       ===============       =========

</TABLE>

For the year ended August 31, 2004,  anti-dilutive securities existed. (see Note
13)



                                      F-22
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

NOTE 19 - Employee Stock Option Plan:

     In July 1996,  the Board of Directors and majority  stockholders  adopted a
     stock option plan under which 400,000 shares of the Company's  common stock
     have been  reserved for issuance.  Since that time,  the Board of Directors
     have  amended  the July  1996,  employee  stock  option  plan  under  which
     1,000,000  shares of Common Stock have been  reserved for  issuance.  Under
     this plan,  as of August 31,  2004,  a total of 346,002  options  have been
     issued to various employees.

     The Company has elected to follow APB 25,  "Accounting  for Stock Issued to
     Employees." Accordingly, since employee stock options are granted at market
     price on the date of grant, no compensation expense is recognized. However,
     SFAS 123  requires  presentation  of pro forma net income and  earnings per
     share as if the  Company  had  accounted  for its  employee  stock  options
     granted under the fair value method of that statement. The weighted average
     fair value of the  individual  options  issued and  granted  during 2003 is
     estimated as $0.58 on the date of grant.  Management  estimates the average
     fair value for options  granted  during  2003,  to be  comparable  to those
     granted in 2002.  The  impact on net loss is  minimal;  therefore,  the pro
     forma disclosure requirements prescribed by SFAS 123 are not significant to
     the  Company.  The  fair  values  were  determined  using  a  Black-Scholes
     option-pricing model with the following assumptions:


                                                  August 31,
                                        ----------------------
                                          2004         2003
                                        ---------     --------
U. S. Federal Statutory Tax Rate         0.00%         0.00%
U.S. Valuation Difference                0.91%         0.91%
Effective U. S. Tax Rate                 4.00%         4.00%
Foreign Tax Valuation                    4.00%         7.00%
Effective Tax Rate                      5 years       5 years


     The pro  forma  effect  on net  loss as if the fair  value  of  stock-based
     compensation had been recognized as compensation expense on a straight-line
     basis over the vesting  period of the stock option or purchase right was as
     follows for the years ended August 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>

(thousands, except share amounts)           2004      2003      2002
                                          --------  --------  --------
<S>                                      <C>       <C>       <C>
Net loss, as reported                    $(39,005) $(36,501) $(76,973)
Add: Stock-based employee compensation
 included in reported net earnings
 (loss), net of related tax effects                   ---       ---

Less: Stock-based employee compensation
 expense determined under fair-value based
 method for all awards, net of related tax
 effects                                       (9)      (20)      (50)
                                          --------  --------  --------
Pro forma net earnings (loss)            $(39,014) $(36,521) $(77,023)
                                          ========  ========  ========

Net loss per share:
As reported                              $  (0.21) $  (0.38) $  (1.20)
Pro forna                                $  (0.21) $  (0.38) $  (1.20)

Diluted net loss per share:
As reported                              $  (0.21) $  (0.38) $  (1.20)
Pro forna                                $  (0.21) $  (0.38) $  (1.20)

</TABLE>

Option  activity was as follows for the years ended  August 31,  2004,  2003 and
2002:

<TABLE>
<CAPTION>

                                    2004                     2003                     2002
                            --------------------    ---------------------    ----------------------
                                       Weighted-                Weighted-                 Weighted-
                                       Average                   Average                  Average
                                       Exercise                  Exercise                 Exercise
                             Shares     Price         Shares     Price         Shares     Price
                            ---------   --------    ----------   --------    ----------   ---------
<S>                          <C>        <C>           <C>        <C>           <C>        <C>
Outstanding at Beginning of
 Year                        406,131    $  1.27       355,170    $  2.32       355,170    $   2.32
Granted                       20,907       0.60        50,961       0.45             -           -
Assumed through Acquisitions                                -          -             -           -
Exercised                     81,036       0.61             -          -             -           -
Forfeited/Cancelled                                         -          -             -           -
                            ---------   --------    ----------   --------    ----------   ---------

Outstanding at End of Year   346,002    $  1.27       406,131    $  1.27       355,170    $   2.32
                            =========   ========    ==========   ========    ==========   =========

Exercisable at Year-End      346,002    $  1.27       406,131    $  1.27       355,170    $   2.32
                            =========   ========    ==========   ========    ==========   =========

</TABLE>



                                      F-23
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     Information about options outstanding was as follows at August 31, 2004:

<TABLE>
<CAPTION>

                                      Remaining         Average                            Average
   Range of             Number       Contractual       Exercise             Number        Exercise
Exercise Prices       Outstanding    Life in Years       Price           Exercisable        Price
----------------      ------------   -------------    ------------       -------------   ------------
<C>  <C>                  <C>                <C>             <C>              <C>               <C>
$0 - $1.00                209,160            4.00            0.55             209,160           0.55
$1.01 - $2.00             111,342            4.00            1.73             111,342           1.73
$2.01 - $7.50              25,500            4.50            6.55              25,500           6.55
                      ------------                                       -------------
                          346,002                            1.27             346,002           1.27
                      ============                                       =============

</TABLE>

NOTE 20 - Retirement Plans:

     During October 1997, the Company  initiated a 401(k) plan for its employees
     which is funded through the  contributions  of its  participants.  Prior to
     March 2003, the Company matched the participant's  contribution up to 3%
     of their salary.  Subsequent to March 2003, the plan was amended and the
     Company match became elective. For the year ended August 31, 2004 and 2003,
     employee   contributions   were   approximately   $109,000  and   $279,000,
     respectively.   The  Company   matched   approximately   $0  and   $67,850,
     respectively, for those same periods.

NOTE 21 - Major Customer:

     The Company had gross revenues of $12,490,000  and $11,593,000 for the year
     ended August 31, 2004 and 2003, respectively.

     The fiscal year ended August 31, 2004,  included  $3,103,937  or 25% of the
     fiscal year total sales from Sweetwater  Security  Capital,  LLC, that were
     executed with the Company's  security-monitoring  service  subsidiary,  DSS
     Security,  Inc. Also during this period,  Eagle Broadband Inc, had sales of
     $3,806,806  or 30% sales to a major  customer  for  shipment  of IP set-top
     boxes and related  equipment.  There were no other  customers  individually
     that represented  greater than 10% of the revenues in the fiscal year ended
     August 31, 2003.

NOTE 22 - Industry Segments:

     The Company has seven  business  units have separate  management  teams and
     infrastructures  that offer different  products and services.  The business
     units have been  aggregated  into five  reportable  segments (as  described
     below)  since  the  long-term  financial  performance  of these  reportable
     segments is affected by similar economic conditions.

     Eagle   Broadband,   Inc.,   (Eagle)  is  a  supplier  of   broadband   and
     telecommunications  equipment with related software and broadband products.
     (Including Eagle Wireless International,  Inc.; BroadbandMagic; and Etoolz,
     Inc., for this summary).

     Atlantic  Pacific  Communications,  Inc.,  (APC)  specializes  in providing
     professional  data and voice  cable and fiber optic  installations  through
     project management services on a nationwide basis for multiple site-cabling
     installations for end users and re-sellers.

     ClearWorks  Communications,  Inc., (EBS) provides solutions to consumers by
     implementing  technology  both within the  residential  community and home.
     This is accomplished  through the  installation of fiber optic backbones to
     deliver voice, video and data solutions directly to consumers.

     ClearWorks Home Systems,  Inc., (HSI)  specializes in providing fiber optic
     and copper based structured wiring solutions and audio and visual equipment
     to single-family and multi-family dwelling units.

     United Computing Group, Inc., (UCG) is an accelerator  company and computer
     hardware  and  software  reseller.  UCG / INT  maintain a  national  market
     presence.

     Link Two Communications, Inc., (Link II) is in the development and delivery
     of one- and two-way messaging systems.

     DSS Security, Inc., (DSS) is a security monitoring company.

     ClearWorks.net,  Inc.,  (.NET) is inactive  with  exception of debt related
     expenses.

     Contact Wireless, Inc., is a paging, cellular, and mobile services provider
     and reseller.



                                      F-24
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

<TABLE>
<CAPTION>

For the year ending August 31, 2004

        (in thousands)           APC/HSI      EBS/DSS        UCG        Eagle        Other        Elim.       Consol.
                               ------------------------------------------------------------------------------------------
<S>                                     <C>        <C>           <C>        <C>             <C>                   <C>
Revenue                                 678        5,525         445        5,761           81                    12,490
Segment Loss                           (827)      (2,483)        (58)     (27,534)         (50)                  (30,952)
Total Assets                            148       28,204          32      127,896       56,956     (142,768)      70,468
Capital Expenditures                      0          729           0            0            0                       729
Depreciation                            176        1,565          62        3,196           98                     5,097

For the year ending August 31, 2003

        (in thousands)           APC/HSI      EBS/DSS        UCG        Eagle        Other        Elim.       Consol.
                               ------------------------------------------------------------------------------------------
Revenue                               4,220        2,809       2,433        1,803          328          ---       11,593
Segment Loss                         (4,500)      (6,083)     (2,279)     (17,849)        (364)         ---      (31,075)
Total Assets                          8,929       31,316         114       97,948       83,852     (144,793)      77,366
Capital Expenditures                     11        6,254           1          ---          158          ---        6,424
Depreciation                            372        1,351          72        3,184          253          ---        5,232

For the year ending August 31, 2002

        (in thousands)           APC/HSI      EBS/DSS        UCG        Eagle        Other        Elim.       Consol.
                               ------------------------------------------------------------------------------------------
Revenue                               8,767        2,657      16,143        1,699          551          ---       29,817
Segment Loss                           (279)        (193)     (1,304)     (45,740)     (29,192)         ---      (76,708)
Total Assets                          5,114       30,980         853      121,458       68,528     (137,782)      89,151
Capital Expenditures                    125       12,034         ---          562          156          (11)      12,866
Depreciation                            208          715         166        4,039        1,269          ---        6,397

</TABLE>

<TABLE>
<CAPTION>

Reconciliation of Segment Loss from
        Operations to Net Loss                 August 31, 2004    August 31, 2003   August 31, 2002
--------------------------------------         ---------------    ---------------   ---------------
<S>                                            <C>                 <C>               <C>
Total segment loss from operations             $      (30,952)     $     (31,075)    $   (76,708)
Total Other Income (Expense)                           (8,053)            (5,426)           (265)
                                               ---------------     --------------    ------------
Net Loss                                       $      (39,005)     $     (36,501)    $   (76,973)
                                               ===============     ==============    ============

</TABLE>


     The accounting  policies of the  reportable  segments are the same as those
     described in Note 1. The Company evaluates the performance of its operating
     segments  based on  income  before  net  interest  expense,  income  taxes,
     depreciation and amortization expense, accounting changes and non-recurring
     items.

NOTE 23 - Quarterly Financial Data.

<TABLE>
<CAPTION>

                                                  Nov. 30           Feb. 28           May 31             Aug. 31
                                              --------------   ---------------    --------------    ---------------
<S>                                           <C>              <C>                <C>               <C>
Year Ended August 31,
2004
 Revenues                                     $       2,397    $        3,744     $       5,091     $        1,258
 Net Earnings (Loss)                                 (8,461)           (9,398)           (4,373)           (16,773)
 Basic Loss per Share                                 (0.05)            (0.05)            (0.02)             (0.08)
 Diluted Loss per Share                               (0.05)            (0.05)            (0.02)             (0.08)
2003
 Revenues                                             4,618             3,063             1,947              1,965
 Net Earnings (Loss)                                 (1,533)           (2,012)           (3,833)           (29,123)
 Basic Loss per Share                                 (0.02)            (0.03)            (0.05)             (0.28)
 Diluted Loss per Share                               (0.02)            (0.03)            (0.05)             (0.28)

</TABLE>


NOTE 24 - Supplemental Non-Cash Disclosures:

     During the fiscal year ended August 31, 2004, the Company issued $3,000,000
     of  convertible  debt which was retired  through the  issuance of 2,000,000
     shares of Series A Preferred  Stock  which was  concurrently  converted  to
     29,500,000 shares of the Company's common stock. Additionally,  the Company
     received proceeds of $3,912,000 from the sale of convertible bonds.



                                      F-25
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     The  beneficial   conversion   values   associated  with  these  financings
     aggregating  $6,912,000  are  calculated  at  the  difference  between  the
     conversion price and the fair value of the common stock into which the debt
     is  convertible,  multiplied by the number of shares into which the debt is
     convertible.  Since the beneficial conversion value exceeded the $6,912,000
     raised on these  convertible  instruments,  the value  charged to  interest
     expense  during  the  quarter  was  limited to  $6,912,000  raised on these
     convertible  instruments,  the value charged to interest expense during the
     fiscal year ended August 31, 2004, was limited to $6,912,000. This non-cash
     charge  comprises  $6,912,000  of the  $8,325,000  interest  expense on the
     Company's Statement of Operations as is shown as an adjustment to reconcile
     net loss to net cash on the Company's Statement of Cash Flows.

     In addition,  compensation  for certain  officers and key  employees  under
     incentive  clauses of their  employment  contracts  (i) includes a non-cash
     expense of  $4,493,000  incurred  upon the  modification  of  warrants  for
     4,200,000 common shares and (ii) reflects a guaranteed  compensation of the
     modified warrants equivalent to $1.75 less the warrant strike price.


NOTE 25 - Exit Activities:

     During  the  fiscal  year  ended  August  31,  2003,  we  implemented  cost
     reductions in various  operating  segments.  In the aggregate,  the Company
     reduced its overall  personnel by 114  headcount or a 50% reduction for the
     fiscal  year ended  August 31,  2003 as  compared  to the fiscal year ended
     August 31, 2002.  The  predominate  reduction  in headcount  related to the
     Company's Atlantic Pacific / Homes Systems structured wiring and commercial
     cabling segment with headcount  reductions of nine, six and 57 personnel in
     the first three quarters of fiscal 2003;  aggregating an overall  headcount
     reduction  of 72 or 71%  of  this  segments  workforce.  Additionally,  the
     Company reduced its United Computing Group computer  hardware sales segment
     by 18, nine,  and two personnel in the first three quarters of fiscal 2003;
     aggregating an overall  reduction of 29 or 59% of this segments  workforce.
     These  two  operating  segments  accounted  for  101 of the  114  headcount
     reductions  affected in fiscal 2003.  Specifically,  certain  components of
     these operating segments, i.e., home systems structured wiring,  commercial
     cabling  and  computer   hardware  sales,  were  not  expected  to  provide
     significant  long-term  revenues  and  profitability,  and  therefore  were
     reduced.  Following  the series of cost  reduction  activities  implemented
     during the first three quarters of fiscal 2003, Eagle's management assessed
     the  viability  of continued  financial  investment  in these  unprofitable
     segments in the fourth  quarter of fiscal 2003 and into early first quarter
     of  fiscal  2004 and  made  further  reductions.  In  conjunction  with the
     appointment of , Mr. Weisman as our new Chief Executive  Officer,  in early
     October 2003, the Company  completed the final  consolidation of the United
     Computing Group segment into other Eagle  operations while further reducing
     the Atlantic Pacific / Home Systems  operations to an outsource  commercial
     cabling and  structured  wiring  operation that project  manages  affiliate
     contractors.

     Additionally,  in conjunction  with the appointment of Mr. Weisman as Chief
     Executive   Officer,,   the  Company  made  certain  decisions  during  the
     preparation  of its Form 10-K in our  first  quarter  of  fiscal  2004 that
     affected the value of certain assets as of August 31, 2003. These decisions
     included:

     o    A revised collection  assessment of certain accounts  receivables from
          these and other down-sized Eagle business segments.

     o    The decision to no longer  pursue new  commercial  structured  cabling
          opportunities  on a direct basis versus the outsource  model;  thereby
          resulting in the  impairment  of goodwill  from its  Atlantic  Pacific
          operations.

     o    The  decision  to no longer  pursue  Home  Systems  structured  wiring
          opportunities  on a direct  standalone  model  basis  outside  its BDS
          model;  thereby  resulting  in  the  impairment  of its  Home  Systems
          inventory.

     o    The  decision to withdraw  from  certain  unprofitable  BDS  projects,
          namely its Austin area BDS  developments;  thereby  impairing  certain
          assets including property, plant and equipment.

     o    The  decision  to  settle  numerous   existing  and  threatened  legal
          proceedings  versus continuing the timing consuming and costly process
          of defending  such  proceedings;  thereby  resulting in the accrual of
          numerous reserves for such settlements.

     o    The decisions to consolidate its operating segments into its corporate
          lease  space;   thereby  resulting  in  reserves  for  property  lease
          settlements.

     o    The  decision  to  negotiate  the  settlement  of  certain  sales  tax
          liabilities  that resulted from a sales tax audit of United  Computing
          Group  operations  for periods that preceded the  acquisition  date of
          this subsidiary.

     Accordingly, Eagle incurred certain asset impairments and operating charges
     in  the  fourth  quarter  associated  with  these  decisions.  These  asset
     impairment  charges,  allowances,  write-off's  and  reserves  included the
     following:

     o    Accounts receivable  write-off's and reserves aggregating  $2,177,000;
          of which  $1,348,000 was  attributable to the decisions  affecting the
          Company's  Atlantic  Pacific  /  Home  Systems   operations,   $15,000
          attributable  to the decisions  affecting its United  Computing  Group
          operations and $814,000  attributable to the Company's  Eagle, EBS and
          Other segment operations.



                                     F-26
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004

     o    Inventory  impairment  charges of  $2,627,000;  of which  $501,000 was
          attributable to the decisions affecting the Company's Atlantic Pacific
          / Home Systems  operations and $74,000  attributable  to the decisions
          affecting its United  Computing Group  operations.  Additionally,  the
          Company  recorded an impairment  charge of $1,125,000 for  slow-moving
          and obsolete inventory in its Eagle operations.  This charge primarily
          resulted from a major client's decision to upgrade from a 400 MHz chip
          to a 500 MHz chip for the Company's IP set top box.

     o    Litigation settlement costs and reserves of $3,650,000 against certain
          of the  legal  proceedings  previously  discussed  in  Item  3.  Legal
          Proceedings.  Additionally,  the Company recorded charges  aggregating
          $2,274,000  to  settle   threatened  and  existing  legal   proceeding
          associated  with prior financing  transactions,  including the Kaufman
          litigation.

     o    Lease settlement  costs and reserves of $171,000 were  attributable to
          the  decision  to  consolidate  various  operating  segments  into its
          corporate lease space; thereby resulting in reserves for early exit of
          such leases.

     o    Impairment,   write-down's   and   restructuring   costs   aggregating
          $7,611,000;  of which  $1,878,000 was attributable to an impairment of
          goodwill in the Company's  Atlantic Pacific  operations  following the
          Company's   decision   to  no   longer   pursue   commercial   cabling
          opportunities on a direct basis versus an outsource model. These costs
          were also  comprised  of  $3,412,000  in  impairment  of property  and
          equipment  following the  Company's  decision to withdraw from certain
          unprofitable BDS projects,  namely in the Austin area, and $323,000 of
          impairment  of property  and  equipment  from the  Company's  Atlantic
          Pacific / Home Systems operations  following the decision to no longer
          pursue  structured  wiring  opportunities on a direct standalone basis
          outside of its BDS model. Additionally, the aggregate total included a
          $553,000 charge for certain sales tax  liabilities  that resulted from
          an audit of the Company's  United  Computing Group operations for time
          periods that preceded the acquisition date of this operation.

     Eagle  incurred  approximately  $96,000 for severance and accrued  vacation
     related to employees  terminated  in fiscal 2003.  Eagle does not expect to
     incur any additional future period costs associated with such restructuring
     activities  other than those accrued for and recorded in the fourth quarter
     of fiscal 2003.

     An analysis of accrued costs and amounts  charged against the provision are
     as follows:


                             Beginning                                 Ending
                              Balance   Period Costs                   Balance
                             8/31/2003  (Additional)    Payments      8/31/2004
                           ----------   --------       -----------    ---------
Accrued Exit Expenses:
Severance                         $-         $-                $-           $-
Terminated Lease Costs       171,000          -                 -     $171,000
                            ---------   --------        ----------    ---------
                            $171,000         $-                $-     $171,000
                            =========   ========        ==========    =========

     For the year ended  August 31,  2003,  the Company  incurred  exit costs of
     $267,000 which are principally  severance and lease termination  costs. The
     total expected exit costs for severance and  terminated  leases are $96,000
     and $171,000,  respectively.  These costs are included in the  consolidated
     statement of income under the  categories of salaries and related costs and
     other support costs.

     These period and accumulated costs are included in the segment reporting as
     follows:

<TABLE>
<CAPTION>

         Costs                APC/HIS       KBS/DSS         UCG          Eagle         Other          Total
-------------------------    ----------    ----------    ----------    ----------    ----------    ------------
<S>                            <C>           <C>          <C>           <C>                <C>        <C>
Severance                      $37,000       $24,000      $ 14,000      $ 21,000           $ -        $ 96,000
Terminated Lease Costs          50,000             -        44,000             -         7,700         101,700
                             ----------    ----------    ----------    ----------    ----------    ------------
Total                          $87,000       $24,000       $58,000      $ 21,000       $ 7,700       $ 197,700
                             ==========    ==========    ==========    ==========    ==========    ============

</TABLE>



                                      F-27
<PAGE>

                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2004


                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                  Years ended August 31, 2004, 2003, and 2002
                             (amounts in thousands)

                                           Additions
                             Balance at    Charged to              Balance at
                            Beginning of    Expenses/                 End of
       Description            Period        Revenues    Deductions    Period
--------------------------   ---------    ---------    ----------   ----------
Allowance for Doubtful
 Accounts:
                     2004    $    412     $  2,643     $    (659)   $   2,396
                     2003         242        2,177        (2,007)         412
                     2002         480          125          (363)         242



                                      F-28