<PAGE>


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

                                  FORM 10-KSB
      --------------------------------------------------------------------

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                    For the fiscal year ended August 31, 2001

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934


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


                       Commission file number: 000-20011


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


     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:Common Stock

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-B 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-KSB
or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for its fiscal year ended August 31, 2001 were $28,110,000

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 13, 2001 was $ 42,186,000. As of November 13, 2001
registrant had 60,265,000 shares of common stock outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE

The registrant is incorporating by reference in Part III of this Form 10-KSB
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, 2001.

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      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 events or
results may differ materially.

      Although Eagle believes that the expectations reflected in the
forward-looking statements are reasonable, 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 is an integrated focused company that designs and manufactures a
wide range of broadband products and provides complete installation services for
copper, fiber, and wireless to the commercial and residential markets. The
combination of Eagle Wireless and ClearWorks gives Eagle an expanded market,
product and service synergies, the opportunity for rapid growth and recurring
revenues. 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(SM)).
Eagle participates as a leader in the broadband products and services market.

      Eagle designs, manufactures, markets, and services its products under the
Eagle name. These products include 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, have been tested and approved by the Federal
Communications Commission. Eagle provides service and support for its products,
as well as consulting and research development on a contract basis. In addition,
Eagle has introduced a completely new line of multi-media and Internet products
to the telecommunications industry, including a family of digital set-top-box
products and markets these products under the name of BroadbandMagic.com.
BroadbandMagic.com is a wholly owned subsidiary of Eagle.

      During 2001, Eagle entered into a merger agreement with ClearWorks.net,
Inc. Eagle issued approximately 29.4 million shares of Eagle common stock in the
merger. The business purpose of the merger between Eagle and ClearWorks was to
create a company with unique product and service offerings. The merger
integrated wireless and broadband products and services to a wide range of
customers and applications, which Eagle believes will result in recurring
revenues. The core products offered by Eagle target end users of broadband
services and include Internet, telephone, cable style television over fiber, and
security monitoring services which services we refer to as bundled digital
services (or BDS(SM)). Each subscriber gives the company an opportunity to
create a long-term recurring revenue stream and to generate up-front product
revenue by adding a number of current and future hardware and software and
service products, such as the set-top-box to the existing ClearWorks contracts.
This balance of near-term and long-term recurring revenue is a combination that
in the opinion of management is highly desirable. Eagle believes hardware,
installation and home wiring for the current BDS(SM) contracts alone have the
potential to generate near-term revenue for the company. The combination of
Eagle's convergent hardware products, network services, wireless products,
wireless network and spectrum services, and strong manufacturing and R&D
capabilities and ClearWorks' BDS(SM) "last mile" cable and fiber installation
should provide a well-balanced revenue mix as the combined company provides a
full complement of broadband products and services to its customers.



                                       1
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      Effective January 1, 2000, Eagle acquired all of the assets and assumed
some liabilities of Atlanticpacific Communications, Inc. Atlanticpacific is
primarily in the business of nationwide sales and installation of fiber optic
and Internet wiring to commercial customers. Eagle financed this acquisition
through the issuance of 518,919 shares in restricted common stock and the
assumption of notes and accounts payable of approximately $1.3 million.

Concurrently with the closing of this acquisition the Company entered into a
two-year agreement with the former principals of APC. These principals may earn
up to 3,000,000 shares of common stock based on APC accumulated sales goals.
Under the terms of the agreement, the Company will issue an additional 500,000
shares for $10,000,000 in accumulated sales, 1,000,000 shares for $30,000,000 in
accumulated sales and 1,500,000 shares for $60,000,000 in accumulated sales.
These sales have to be achieved within a two-year period commencing January 1,
2000. In addition, the principals must maintain a "Gross Profit Margin" of 25%
and an "EBITDA Profit" of 10%. These contingencies and attainment thereof are
considered remote and, accordingly, have been excluded from the determination of
the acquisition price.

      Effective January 1, 2000, Eagle acquired Comtel Communications, Inc.
Comtel is primarily in the business of nationwide sales and installation of
fiber optic and Internet wiring to commercial customers. Eagle issued 300,000
shares in restricted stock for the net assets of Comtel.

      Eagle was incorporated in May 1993, but did not conduct any substantive
business operations until April 1996. During April 1996, Eagle commenced
operations by the issuance of stock for cash, inventories, test equipment, and
other assets of its principal shareholder. Concurrent with this transaction,
Eagle entered into an asset purchase agreement with a company to acquire other
production equipment, inventories and furniture and equipment. In August 1997,
Eagle amended its articles of incorporation and changed its name to its current
name. Eagle's principal place of business is located at 101 Courageous Drive,
League City, Texas 77573 and its telephone number is (281) 538-6000.

PRODUCT CATEGORIES

WIRELESS MESSAGING PRODUCTS

      Messaging is a method of wireless telecommunication, which uses an
assigned radio frequency to contact a messaging subscriber anywhere within a
service area. A messaging system is generally operated by a service provider
that incurs the cost of building and operating the system. Each service provider
in the United States licenses spectrum from the FCC and elsewhere from the
authorized government body to operate a messaging frequency within either a
local, regional, or national geographical area. Each messaging subscriber is
assigned a distinct telephone number that a caller dials to activate the
subscriber's pager, a pocket-sized radio receiver carried by the subscriber. A
messaging switch receives telephone calls by the subscriber. A network of
transmitters, that broadcast a signal over a specific geographical area, then
receives the information from the messaging switch through the controller, and a
radio signal is sent by the transmitters via antennae to the subscriber's pager.
The transmitters manufactured by Eagle are specifically designed to simulcast,
which is the transmission of the same signal over two or more transmitters on
the same channel at the same time in an overlap area, resulting in superior
voice and data quality and coverage area. The radio signal causes the messaging
device to emit a beep or to vibrate, and to provide the subscriber with
information from the caller in the form of a voice, tone, numeric, or
alphanumeric message.

      A messaging device has an advantage over a landline telephone in that the
messaging device's reception is not restricted to a single location, and has an
advantage over a cellular portable telephone in that a messaging device is
smaller, has a much longer battery life, has excellent coverage, and is less
expensive to use. Historically, the principal disadvantage of traditional
messaging service in comparison to landline telephones or cellular portable
telephones has been that messaging provided only one-way communication
capabilities.


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      However, this limitation may have been overcome in the United States as a
result of the auction in 1994 by the FCC of nationwide and regional licenses for
designated narrowband personal communication services, radio frequencies or
spectrum to service providers. Many of the nationwide license holders and many
of the regional license holders are current Eagle customers, directly or
indirectly. The cost of the licenses to the narrowband personal communication
services auction winners in 1994 was approximately $1 billion. The FCC
anticipates that these narrowband personal communication services licenses will
be used to provide such new services as pager location, two-way acknowledgment
messaging, advanced voice messaging and data services.

      The narrowband personal communication services radio frequencies or
spectrum are located at three separate points within the total radio spectrum,
at 902-928 MHz, 930-931 MHz and 940-941 MHz. Initially, the radio frequencies
located at 930-931 MHz and 940-941 MHz have been designated for outbound message
transmission, to the pager, and the 902-928 MHz have been designated response
channels, from the pager. This application is similar to traditional messaging
except that these license holders have been granted wider frequency bandwidth
permitting the user to transmit substantially more information. In addition,
Eagle manufactures other messaging infrastructure products that cater to the VHF
and UHF messaging frequencies in the United States and other areas of the world
as well as supporting most international messaging brands.

      The narrowband personal communication services nationwide licenses cover
all fifty states, the District of Columbia, American Samoa, Guam, the Northern
Marianas Islands, Puerto Rico and the United States Virgin Islands. These
licenses are divided into 50 kHz paired and unpaired channel categories. Paired
channels permit both outbound and inbound signals while unpaired channels are
limited to only outbound signals. The FCC has imposed infrastructure
construction or build-out requirements on all narrowband personal communication
services license holders. Each narrowband personal communication services
license holder must establish minimum service availability for at least 37.5% of
the population in its geographic region within five years after receiving the
license. After ten years, each narrowband personal communication services
license holder must make the service available to at least 75% of the area's
population. If a narrowband personal communication services license holder fails
to achieve these build-out requirements, it risks cancellation by the FCC of its
narrowband personal communication services license and a forfeiture of any
auction monies paid.

      Eagle manufactures products that will enable messaging license holders to
legally put their systems into operation at a low cost, a strategy adopted by
Eagle to create a "captive" customer in terms of future build-out.

      Eagle offers its customers an end-to-end solution for narrowband personal
communication services applications. Eagle has developed new technology based
products with enhanced architecture and technology from its existing messaging
systems to accommodate the advanced services available through messaging and
PCS. This system approach includes full product lines of radio frequency network
controllers, transmitters, receivers, and a special satellite receiver system,
to receive the response message from the end-user. Eagle is currently shipping
its narrowband personal communication services products to various beta test
sites, based on product development schedules and the build-out requirements of
the narrowband personal communication services license holders.

      The design of a messaging system is customer specific and depends on:

      o     The number of messaging subscribers the service provider desires to
            accommodate,
      o     The operating radio frequency,
      o     The geography of the service area,
      o     The expected system growth, and
      o     Specific features desired by the customer.

Messaging equipment hardware and software developed by Eagle may be used with
all types of messaging service, including voice, tone numeric (telephone number
display) or alphanumeric messaging (words and numbers display).


                                       3
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SWITCHES

      Eagle is involved at an early stage in the development of industry wide
technology standards and is familiar with developments in messaging protocol
standards throughout the world. Eagle works closely with its customers in the
design of large, complex messaging networks. Eagle believes that its customers'
purchasing decisions are based, in large part, on the quality and technological
capabilities of such networks. Eagle believes that the advanced hardware and
software features of its switches ensure high reliability and high volume call
processing.

RADIO FREQUENCY EQUIPMENT, TRANSMITTERS AND RECEIVERS

      Transmitters are available in frequency ranges of 70 MHz to 960 MHz and in
power levels of 2 watts to 500 watts. Radio link receivers are available in
frequency ranges of 70 MHz to 960 MHz. Satellite link receivers are available
for integration directly with the transmitters at both Ku- and C- band
frequencies.

      Eagle's range of receivers detects the responses back from the two-way
narrowband personal communication services subscriber devices. The receivers
take advantage of Digital Sound Processing demodulation techniques that maximize
receiver performance. Depending upon frequency, antenna height, topography and
power, Eagle transmitter systems are designed to cover broadcast cells with a
diameter from 3 to 100 miles. Typical simulcast systems have broadcast cells
that vary from 3 to 15 miles in diameter. Eagle transmitters are designed
specifically for the high performance and reliability required for high speed
simulcast networks.

MULTIMEDIA DEVICES

      Eagle recently developed WebFlyer, a family of Internet Set-Top-Boxes
designed to access the Internet and e-mail through a television set for
individual or commercial use. The WebFlyer is the latest product family to be
introduced into the multimedia home entertainment arena. It uses a standard TV
set as a monitor, allowing the user to connect to their chosen ISP on the
Internet. The multimedia entertainment device can at a minimum:

     o     Receive, write and send e-mail;
     o     Write a letter or work on a spreadsheet;
     o     Play games or use learning tools;
     o     Watch movies from CDs or DVDs; and
     o     Record on the hard drive direct from the TV, providing better quality
           picture than through a VCR.

CONTROLLERS

      Eagle currently offers products for transmitter control known as Eagle's
L20X transmitter control system, which is a medium-feature transmitter control
system used in domestic and international markets.

The principal products and enhancements currently being manufactured and sold by
Eagle relate to its wireless messaging products and include the following:

BASE STATIONS AND TRANSMITTERS

      Transmitters and full-featured transmitters called Base Stations are used
by messaging carriers to broadcast radio-frequency messages to subscribers
carrying pagers. Eagle offers a slimline Stealth and a larger Quantum
transmitter that is available in the 72MHz, VHF, UHF, and 900MHz broadcast
frequency ranges. Each unit can be equipped to provide an output power ranging
from 15 Watts up to 500 Watts on almost any domestic or international messaging
frequency.

RADIO FREQUENCY POWER AMPLIFIERS

      Radio-frequency power amplifiers are a sub-component of both messaging and
SMR transmitters and base stations. The high, medium and low power base station
and link transmitter power amplifiers are designed to operate with any FCC type
accepted exciter or may be combined with an Eagle optional plug-in base station
in the


                                       4
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same space as the power amplifier. All Eagle power amplifiers above 100 watts
are equipped with Eagle "Heat Trap"(TM) design to provide the user with long
life and high reliability performance.

EXTEND-A-PAGE

      Extend-a-Page is a compact lower-power transmitter and receiver set
designed to provide fill-in coverage in fringe locations where normal messaging
service from a wide-area messaging system is not adequate. The Extend-a-Page
receives the messaging data on either a radio frequency control link or wireline
link and converts this information into low power simulcast compatible messaging
transmissions on any of the common messaging frequencies. The Extend-a-Page
transmits the messaging information at a one to two Watt level directly into
hard to reach locations such as hospitals, underground structures, large
industrial plants, and many locations near the outer coverage contour of
messaging systems.

LINK PRODUCTS

      Radio frequency and wireline communication links are needed to connect
multiple transmitters within a messaging network. Eagle provides both Link
equipment (the Link 20TX, 20RX, 20GX and 20PX) and the Link 20 software to
facilitate this interconnection. Major competitors have licensed the Eagle Link
20 software and have incorporated it as an industry standard into their
radio-messaging terminals. Customers may also purchase the same software
directly from Eagle as part of an Eagle system at a lesser cost. Management
believes that its software allows the user to mix and match the products of
different vendors on a common radio-messaging system.

TWO-WAY MESSAGING DEVICES

      Eagle is a licensed distributor and value added reseller of
spread-spectrum wireless messaging receivers that, when used in conjunction with
Eagle's one-way messaging transmitters, provide a two-way messaging system for
both consumer and industrial applications. In addition to the receivers, Eagle
currently sells and distributes a wireless water meter, a wireless power meter,
a wireless home security alarm, a wireless vehicle tracking system and a
multi-purpose wireless module that can be combined with a wide variety of
switch-type applications.

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 the design and installation of radio messaging systems. Eagle
also performs research and development on a contract basis.

SERVICE AND SUPPORT

      Eagle provides service to customers on a regular basis including
installation, project management of turnkey systems, training, 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 to be the vendor of choice when a customer seeks new services
or system expansions. 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 a customer service network in its operating
locations. 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.


BROADBAND MULTIMEDIA AND INTERNET PRODUCTS

      BroadbandMagic markets broadband convergence set-top-box products.
These multimedia and Internet based products provide a user with the ability
to interface their Internet connection, broadcast video source, cable or DSL
source, or satellite video source directly to their television receiver. The
marketing plan of Eagle through BroadbandMagic.com has been to initially
focus on the large Internet service providers or ISP's and OEM customers who
typically bundle set-top-boxes with their service as their own marketing
strategy. Eagle is currently negotiating to obtain the necessary additional
large scale financing to continue to mass produce and market these devices.

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<PAGE>

HOST PRO WEB FLYER

      Service providers, such as hotels, broadcasters, DSL providers, and
healthcare facilities can take advantage of Host Pro Web Flyer's unique ability
to bring into convergence a full complement of TV and Internet entertainment on
demand services. The Host Pro is specifically configured to allow service
providers to generate additional revenues by supplying their customers with a
variety of entertainment, education, and business applications.

IP EXPRESS WEB FLYER

      The IP Express Web Flyer has the ability to provide high-speed access to
the Internet and can be bundled with productivity services as an incentive to
attract new customers.

COMPUTER PLUS WEB FLYER

      The Computer Plus Web Flyer is a complete home entertainment system and
full function computer. Using a television set as a monitor, the Computer Plus
Web Flyer allows users to connect to the ISP of their choice and bring their
multimedia center into the comfort of their living room. Users can access the
Internet, play the latest video games, watch TV, listen to CDs, send and receive
email, watch DVD movies.

ENTERTAINMENT PLATFORM SERIES

      The EP 2000 is a complete all digital entertainment system and full
function computer which, supports a wide range of TV broadcast services,
entertainment on demand services, high-speed access to the internet, video on
demand, 10/100 Ethernet port, USB ports and 16 bit quality stereo audio output.

CLEARWORKS SERVICES

      ClearWorks provides fiber-to-the-home ("FTTH") for neighborhoods and
businesses utilizing its Bundled Digital Services. These services include
high-speed Internet connectivity, home security, telephone service, and cable
like service over fiber.

      ClearWorks provides up to 100 Mbps switched service per home with up to
six drops per home wired by the ClearWorks wiring standards. Connections of up
to 100 Mbps are approximately 2,000 times faster than the 56K modem. The fiber
optic network that ClearWorks deploys into a residential community consists of
two parts (a) the head-end facility and, (b) the fiber optic cable installed
into the home.

      ClearWorks 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 on a national basis.

UNITED COMPUTING GROUP SERVICES

      United Computing Group (or UCG) provides IT Business Integration and
Enterprise Management solutions to companies with complex computing and
communication systems. UCG helps its clients implement the latest technology
enhancements so that they can stay competitive within their industry, while
making sure that the cost of integrating these solutions is significantly
reduced so they will be able to maximize their technology investments.

      UCG has targeted the middle market organizations as its primary client
base. These organizations tend to rely on multiple specialized IT service
providers to help implement and manage their IT systems and complex computing
environments. UCG believes these specializations will allow its clients to
address all or selected parts of the full life cycle management, including
network management and monitoring, network design, product fulfillment,
configuration, implementation, fault diagnosis, fault resolution, reporting,
upgrading and documentation. UCG accomplishes this through its different service
offerings that are managed by its Client Care Center that is operated 24 hours
per day, seven days per week in Houston, Texas. Management believes that its
success is principally attributable to its reputation of high customer service,
business partner alliances and retention of highly trained personnel.


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      UCG focuses on the following three lines of business:

      ENTERPRISE SOLUTIONS

      UCG's Enterprise Solutions are designed to scale and support small,
medium, and large corporate, education, and government users in the client's
environment. These high-performance cost-saving solutions provide reliable and
flexible service sourcing solutions for networking services, applications
development services, managed outsourcing services and telecommunications
services.

      NETMANAGE247 SOLUTIONS

      These services are designed to remotely monitor or manage the small,
medium, and large corporate, education, or government client's networks and
network resources 24 hours a day, seven days a week, 365 days a year. UCG has
established its own fully redundant and controlled Client Care Center, which
houses its product suite systems and support personnel.

      PRODUCT FULFILLMENT

      UCG's Product Fulfillment Solutions are designed to scale and support
users in any client environment. These high-performance, cost-saving solutions
provide reliable and flexible product sourcing, distribution, and configuration.

      UCG provides its clients with the ability to place orders for IT products
and services through its Product Support Center. Each client is assigned an
account executive who is the single point of contact and a client support
representative to assist them in the sourcing of IT products and services.

      Product fulfillment is also offered to clients via the web with the
e-Product Manager solution. This solution is integrated into client's Intranet
or Extranet and gives clients the ability to place IT product orders, check
order status, shipping dates, verify pricing, view a list of available products
and to manage their accounts payables through secure web-based connections.

      UCG has developed and expanded its web-site and e-commerce
business-to-business application, to enable clients and other third parties to
purchase personal computers, printers, communication hardware and other
peripheral devices directly from UCG using the Internet. UCG believes providing
its clients access to direct hardware purchases will be a valuable feature in
providing its existing client base the convenience of buying on-line with the
personalized customer service provided by UCG. UCG believes it can use its
web-site as a means of attracting a broader base of clients who initially may be
interested in purchasing hardware but will also become aware of UCG's ability to
provide specialized IT services.

ATLANTIC PACIFIC COMMUNICATIONS SERVICES

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

      o     Multi-site rollout installation
      o     SOW/RFQ preparation
      o     Installation supervision
      o     Structured wiring design
      o     Comprehensive project management
      o     Copper wiring configuration
      o     Fiber optic acceptance testing
      o     Arial and underground OSP
      o     Fiber optic and copper cable



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LINK-TWO COMMUNICATIONS SERVICES

      Link-Two Communications is a common carrier of exclusively wholesale
one-way messaging and two-way messaging network services. Its customers purchase
messaging network services as an aggregator and resell Link-Two Communication's
network services to individual subscribers and other communications providers.
Link-Two Communications has been classified as an incumbent carrier by the FCC
and has secured the rights to use or options to purchase spectrum in all of the
major metropolitan U.S. cities on five PCP frequencies. Link-Two Communications
has also secured several exclusive RCC frequencies providing regional coverage
in two of the top ten markets. Link-Two Communications has secured an exclusive
block of FCC spectrum covering a majority of the population centers in the
southern and western United States in a successful bidding at the FCC auction.
In addition, Link-Two Communications has also recently purchased a large block
of exclusive spectrum from another carrier. Link-Two Communications is currently
operational in Houston and Dallas, Texas as well as over much of the remaining
population base of Texas.

CUSTOMERS

      Eagle sells to a broad range of customers worldwide. In the United States,
customers include the regional Bell operating companies, telecommunications
companies, medical messaging operators, and public and private radio common
carriers. Internationally, customers include public telephone and telegraph
companies, as well as private telecommunication service providers.

      BroadbandMagic sells to customers nationwide. These customers are
primarily of the hospitality industry, business-to-business and the government
sectors.

      ClearWorks sells its products and services primarily in the Houston, San
Antonio, Austin and Phoenix markets. ClearWorks markets these products and
services through direct marketing efforts of its sales employees and service
centers. The majority of the customers are builders, which require the
structured wiring component of ClearWorks. Residential customers take the
bundled digital services while, commercial customers take phone and security
services.

      United Computing Group sells its products and services nationwide to
medium sized companies. The primary industries are oil / gas, medical, hardware
/ software, real estate, staff leasing and government.

      Atlantic Pacific Communications sells its project management services on a
nationwide basis to telecommunications, oil / gas companies and government
sectors.

      Link-Two Communications sells its messaging products and services to
individual consumers and businesses on a nationwide basis.

MARKETING AND SALES

      The majority of Eagle and Broadband Magic products and services are
marketed through its employees using direct sales and various types of mail and
e-commerce techniques. Eagle also utilizes distributors and agents to sell its
products in certain countries and geographic regions to market outside of
Eagle's core markets.

      Eagle currently has non-exclusive arrangements with multiple distributors
and agents to service selected regions within the United States. A non-exclusive
arrangement is also in effect with one distributor on a worldwide basis. Terms
of these arrangements provide for payments to the distributors on either a fixed
percentage commission or discount from list price basis. In addition, Eagle has
been granted the status of a Value Added Reseller or VAR by Lucent Technologies,
Inc. for all of Lucent's wireless networking or Internet product lines. Eagle
has recently developed a manufacturer's representative for the new multimedia
and Internet product lines. Currently this program consists of fourteen
manufacturers representatives on a worldwide basis.



                                       8
<PAGE>

      ClearWorks sells its products and services primarily in the Houston, San
Antonio, Austin and Phoenix markets. ClearWorks markets these products and
services through direct marketing efforts of its sales employees and service
centers. The majority of the customers are builders, which require the
structured wiring component of ClearWorks. Residential customers take the
bundled digital services while, commercial customers take phone and security
services.

      United Computing Group sells its products and services nationwide to
medium sized companies. These services are marketed through sales employees and
through e-commerce mailings.

      Atlantic Pacific Communications sells its project management services on a
nationwide basis to telecommunications, oil / gas companies and government
sectors. These products and services are marketed through sales employees.

      Link-Two Communications sells its messaging products and services to
individual consumers and businesses on a nationwide basis. These products and
services are marketed through sales employees and publication advertising.

      Eagle maintains Internet web sites at www.eglw.com,
www.broadbandmagic.com, www.atlanticpacific.com, www.eaglebroadband.com,
www.etoolz.com, www.linktwo.com, www.ucgi.com and www.clearworks.com, where
information can be found on Eagle and its subsidiaries products and services.
The web sites provide customers with a mechanism to request additional
information on products and allows the customer to quickly identify and obtain
contact information for their regional sales representative. Information on the
web site of Eagle or any of its subsidiaries is not part of this annual report.

INTERNATIONAL BUSINESS RISK

      Eagle generated net sales in markets outside the United States, which
amount to less than 5% of total Eagle net sales in the last two years. Sales are
subject to the customary risks associated with international transactions,
including political risks, local laws and taxes, the potential imposition of
trade or currency exchange restrictions, tariff increases, transportation
delays, difficulties or delays in collecting accounts receivable, and exchange
rate fluctuations. Pre-payments and letters of credit drawn on American or
limited foreign corresponding banks are required from international customers to
reduce the risk of non-payment.

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.

      From 1999 to 2001, 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 convergence
set-top-box product line. Eagle will continue to incur research and development
expenses with respect to the convergence 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, 2001, and August 31, 2000 were $1,276,000, and $371,000
respectively.


                                       9
<PAGE>

MANUFACTURING

      Eagle currently manufactures its 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 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 SCI, a United States owned
company with manufacturing facilities in over twenty countries around the world.
The initial manufacturing location for the convergence set-top-box is the SCI
facility in Singapore.

COMPETITION

      Eagle supplies transmitters, receivers, controllers and software used in
messaging, voice messaging and message management systems. While the services
from the foregoing products represent a significant portion of the wireless
personal communications industry today, the industry is expanding to include new
services and new markets. The wireless personal communications industry includes
equipment manufacturers that serve many of the same PCS markets served by Eagle.
Many Eagle competitors, and all competitors that have publicly tradable
securities, have significantly greater resources than Eagle, and there can be no
assurance that Eagle will be able to compete successfully in the future. In
addition, manufacturers of wireless telecommunications equipment, including
those in the cellular telephone industry, some of which are larger and have
significantly greater resources than Eagle, could elect to enter into Eagle's
markets and compete with Eagle's products. There can be no assurance that Eagle
will be able to increase its market share in the future.

      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 does. The
markets that are currently developing for multimedia and other Internet related
products are extremely large and growing daily. 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 convergence 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.

      ClearWorks competes indirectly with many established companies in the
fiber and cable, structured wiring, broadband services, security monitoring,
cable television and telephone services. However, ClearWorks does not know of
any other direct competitor. Most of these companies have greater resources
available than ClearWorks. Eagle has studied these markets and is of the belief
that the bundle digital services offered to the residential users as a complete
package with one source billing is a competitive edge for ClearWorks. These
residential users are subject to developer and homeowner association agreements
that allows ClearWorks to be the primary single source provider of these
services. However, there can be no assurance that these conclusions are correct
and that the bundle digital services market will continue to expand at their
current rates and that ClearWorks can gain significant market share in the
future.

      United Computing Group competes with many established companies in the
enterprise solutions, network management solutions and product fulfillment
(hardware and software) services area. Most of these companies have greater
resources available than United Computing Group. Eagle has studied these markets
and is of the belief that the offering of the enterprise and network management
and product fulfillment, as a turnkey solution, to



                                       10
<PAGE>

medium sized companies at cost effective pricing is a competitive edge for
United Computing Group. The use of the e-Product Manager solution, which allows
customers to order products, check order status, shipping dates and verify
pricing online is a valuable tool. However, there can be no assurance that these
conclusions are correct and that the turnkey solution of these services will
continue to expand at their current rates and that United Computing Group can
gain significant market share in the future.

      Atlantic Pacific Communications competes with many established companies
in the fiber and cable, structured wiring and project management services area.
Most of these companies have greater resources available than Atlantic Pacific
Communications. Eagle has studied these markets and is of the belief that the
offering of the collective services on a nationwide scale is a competitive edge
for Atlantic Pacific Communications. The use of the sub-contractors located
across the nation allows Atlantic Pacific Communications 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 the these services will
continue to expand at their current rates and that Atlantic Pacific
Communications can gain significant market share in the future.

      Link Two Communications competes with many established companies in the
nationwide one and two-way messaging services area. Most of these companies have
greater resources available than Link Two Communications. Eagle has studied
these markets and is of the belief that the FCC licenses that are owned by Link
Two Communications are a competitive edge, because the bandwidth maybe sold to
other messaging companies and the services maybe provided to the customer at a
lower competitive price. However, there can be no assurance that these
conclusions are correct and that the these services will continue to expand at
their current rates and that Link Two Communications 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. 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 reasonable terms. More recently, Eagle has registered
and trademarked the name of BroadbandMagic.com for its new wholly owned
subsidiary. This name is thought by Eagle to be a valuable addition to the
intellectual property rights of Eagle.

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

      At October 31, 2001, Eagle employed approximately 251 persons and retained
5 independent contractors. Eagle believes its employee relations to be good.
Eagle enters into independent contractual relationships with


                                       11

<PAGE>

various individuals, from time to time, as needed.

      Eagle intends to hire new personnel to support the growth of Eagle. The
key positions that will emerge from this growth include all areas of management
from administration through marketing, sales, and personnel director.

RISK FACTORS THAT MAY AFFECT EAGLE'S RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.

      You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing the company. Additional risks and uncertainties not presently
known to or that are currently deem immaterial also may impair Eagle's business
operations. If any of the following risks actually occur, Eagle's business could
be harmed.

IF EAGLE CANNOT SUCCESSFULLY INTEGRATE CLEARWORKS AND ITSELF, THE ANTICIPATED
ADVANTAGES OF THE BUSINESS COMBINATION BETWEEN EAGLE AND CLEARWORKS MAY NOT BE
REALIZED, IN FULL, IF AT ALL.

      The integration of ClearWorks and its subsidiaries into Eagle has and will
require the dedication of Eagle management resources. This may distract
management's attention from management of the day-to-day business of Eagle.
Retention of key employees by Eagle and the combined company of ClearWorks and
its subsidiaries and Eagle have been, and will remain critical to ensure
continued advancement, development and support of the companies' technologies,
and ongoing sales and market efforts. The inability to retain key technical,
sales, or marketing personnel would adversely affect the combined company's
business.

EAGLE HAS A LIMITED OPERATING HISTORY AND EXPECTS TO ENCOUNTER RISKS FREQUENTLY
FACED BY SUCH COMPANIES.

      Eagle has a limited operating history and, accordingly, is subject to all
of the substantial risks inherent in the commencement of an early-stage business
enterprise. Additionally, Eagle has a limited business history that investors
can analyze to aid them in making an informed judgment as to the merits of an
investment in Eagle. Any investment in Eagle should be considered a high-risk
investment because it is an early-stage company with unforeseen costs, expenses,
competition and other problems to which such ventures are often subject.

EAGLE'S PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND AN INABILITY ON
ITS PART TO ADAPT OR ADJUST ITS TECHNOLOGY TO THESE DEVELOPMENTS MAY HAVE A
MATERIAL ADVERSE EFFECT ON ITS BUSINESS.

      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.
Eagle will compete with other existing products and may compete against other
development technology. Development by others of new or improved products or
technologies may make Eagle's products obsolete or less competitive. While
management believes that Eagle's products are based on established
state-of-the-art technology, there can be no assurance that they will not be
obsolete in the near future or that Eagle will be able to develop a commercial
market for its products in response to future technology advances and
developments.

EAGLE'S SET-TOP BOXES ARE IN THE INITIAL STAGES OF DEVELOPMENT, AND EAGLE MAY
NOT BE ABLE TO EFFECTIVELY MASS-PRODUCE OR MASS MARKET THESE PRODUCTS.

      Eagle has developed several models of its set-top box product line, and is
currently in negotiations to obtain the necessary additional financing to
mass-produce and market these devices. Eagle may not be able to obtain such
financing, and even if it does may not be able to continue to effectively
mass-produce or mass market these products.

EAGLE'S SUCCESS DEPENDS UPON ITS ABILITY TO PROTECT ITS PROPRIETARY
TECHNOLOGIES.

      Eagle relies on non-disclosure agreements with employees, and common law
remedies with respect to its proprietary technology and the filing of patents on
its key technology. There can be no assurance that others will not
misappropriate Eagle's proprietary technologies or develop competitive
technologies or products that could adversely affect Eagle. In addition,
although Eagle is not aware of any infringement claims against it or any
circumstances that could lead to such claims, there can be no assurance that
these claims could not be made which could adversely affect its business.



                                       12
<PAGE>

      Eagle's efforts to protect its intellectual property may cause it to
become involved in costly and lengthy litigation, which could seriously harm its
business. In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. Although it has
not become involved in intellectual property litigation, it may become involved
in litigation in the future to protect its intellectual property or defend
allegations of infringement asserted by others. Legal proceedings could subject
it to significant liability for damages or invalidate Eagle's proprietary
rights. Any litigation, regardless of its outcome, would likely be time
consuming and expensive to resolve and would divert management's time and
attention. Any potential intellectual property litigation also could force Eagle
to take specific actions, including:

o     Cease selling its 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.

EAGLE FACES SUBSTANTIAL COMPETITION FROM COMPETITORS WITH SIGNIFICANTLY GREATER
RESOURCES.

      The wireless personal communications industry includes equipment
manufacturers that serve many of the same customers served by Eagle.
Substantially all of Eagle's competitors have significantly greater resources,
including financial, technical and marketing, than Eagle, and there can be no
assurance that Eagle will be able to compete successfully in the future.

      Eagle faces competition from many entities with significantly greater
financial resources, well-established brand names, and larger customer bases.
The numerous companies that may seek to enter its industry may expose Eagle to
severe price competition for its products and services. Eagle expects
competition to intensify in the future and expects significant competition from
traditional and new telecommunications companies including, local, long
distance, cable modem, Internet, digital subscriber line, microwave, mobile and
satellite data providers.

A SYSTEM FAILURE COULD DELAY OR INTERRUPT EAGLE'S ABILITY TO PROVIDE PRODUCTS OR
SERVICES AND HAVE A MATERIALLY ADVERSE EFFECT ON EAGLE'S BUSINESS.

      Eagle's operations are dependant upon its ability to support its highly
complex network infrastructure. Many of its customers are particularly dependent
on an uninterrupted supply of services. Any damage or failure that causes
interruptions in its operations could result in loss of these customers. Because
of the nature of the services Eagle supplies and the complexity of Eagle's
network, it is not feasible to maintain backup systems, and the occurrence of a
natural disaster, operational disruption or other unanticipated problem could
cause interruptions in the services it provides.

      Additionally, the failure of a major supplier to provide the components
and parts necessary for its products and services, or of a major customer to
continue buying its goods and services, as a result of a natural disaster,
operational disruption or any other reason, could cause interruptions in the
service Eagle provides and adversely affect its business prospects, financial
condition and results of operations.

STOCKHOLDERS FACE POSSIBLE VOLATILITY OF STOCK PRICE FOR EAGLE STOCK.

      The market price of the common stock may experience fluctuations that are
unrelated to the operating performance of Eagle. Eagle recently experienced a
decrease in the market price of its common stock and the market price of its
common stock has been quite volatile in the last 12 months. Eagle can provide no
assurance that the current price will be maintained.

ITEM 2.   DESCRIPTION OF PROPERTY

      Eagle's headquarters are located in League City, Texas and include
approximately 30,000 square feet of leased office, production, and storage
space. The lease expires in May 2004. Eagle also maintains subsidiary offices in
four other Houston area locations, with leases expiring in September 2002 and
April 2003; in Chicago, Illinois, with a lease expiring in April 2003; and in
Oxnard, California, with a lease expiring in July 2003.



                                       13
<PAGE>

      Eagle believes that all rental rents are at market prices. Eagle has
insured its facilities in an amount that it believes is adequate and customary
in the industry. Eagle believes that its existing facilities are adequate to
meet its current requirements but anticipates the need to acquire additional
space within the next two years. Eagle believes that suitable additional space
in close proximity to its existing headquarters will be available as needed to
accommodate the growth of its operations through the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

      ClearWorks is a defendant in Martin R. Nathan v. Clear Works Technologies,
Inc., et. al. in the 216th Judicial District Court, Harris County, Texas, which
case was referred to arbitration. This suit was filed by Martin R. Nathan,
alleged escrow agent, against ClearWorks and others. This suit was filed as an
interpleader action and arose out of a stock transaction, commonly referred to
by the parties as "the reverse merger." The transaction was completed pursuant
to an agreement dated April 1, 1998, which created the public form of
ClearWorks. Pursuant to the terms of escrow agreements or arrangements between
the original stockholders of Millennium Integration Technologies, a predecessor
to ClearWorks, and Southeast Tire Recycling, Inc., the original owners of
Southeast Tire escrowed shares of stock in ClearWorks that they received in the
transaction in order to satisfy any disclosed or undisclosed outstanding
obligations of Southeast Tire as of the date of the merger. The claimants in the
proceeding are ClearWorks and the former stockholders of Millennium Integration
Technologies. The principal respondents are those former stockholders of
Southeast Tire who are alleged to have indemnity obligations to the claimants
and who have escrowed approximately 86,000 shares of ClearWorks stock to secure
any outstanding obligations claimed by any party and arising prior to the date
of the merger. An order compelling arbitration was entered in December 1999 and
arbitration commenced January 2000. The parties to the arbitration agreed to
dismiss the arbitration proceeding pending resolution of the claims of a former
employee of Southeast Tire Recycling, Tim Pennington. The arbitration was
dismissed, but in view of the recent settlement of Pennington's claims, the
arbitration will be reinstated with additional claims against the respondent
parties for the Pennnington settlement payment and litigation costs, including
attorney's fees.

      ClearWorks is 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 Polk
County, Florida. On December 13, 2000, the Florida EPA sued ClearWorks
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 immediately filed a
motion to strike portions of the complaint or for a more definite statement and
a motion to dismiss. The Florida EPA is amending the petition. 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.

      ClearWorks is a defendant in Candlelight Investors LLC v. Clearworks.net,
Inc. et al which is pending in the Supreme Court of the State of New York,
County of New York. Plaintiff seeks a judgment against ClearWorks arising out of
the alleged failure of ClearWorks to convert debentures of ClearWorks into
common stock of ClearWorks, to register stock to permit such conversion, and for
other alleged breaches and conveyances relating to agreements between plaintiff
and ClearWorks. Plaintiff seeks compensatory damages exceeding $2,763,998,
injunctive relief, specific performance, punitive damages, and other relief.
Plaintiff has obtained a judgment in the amount of $3,200,000 against
ClearWorks. Plaintiffs are currently conducting jurisdictional discovery on
Eagle and Dr. H. Dean Cubley. The defendants deny the allegations of the
complaint.

      In connection to the above, described judgment against ClearWorks,
Candlelight filed a suit against ClearWorks in Texas on July 20, 2001 for the
purposes of collecting its judgment. Candlelight filed a lawsuit styled
Candlelight Investors LLC v. Clearworks.net, Inc. et al in the 334th Judicial
District Court of Harris County, Texas. The defendants deny the allegations of
the complaint.


                                       14
<PAGE>

      ClearWorks is defendant in Kaufman Bros., LLP v. ClearWorks.net, Inc., et
al, which is pending in the Supreme Court of the State of New York, County of
New York. In this action, plaintiff alleges that defendants have breached an
agreement with ClearWorks to pay plaintiff a fee for financial advice and
services allegedly rendered by plaintiff. The complaint seeks compensatory
damages of $4,000,000, plus attorneys' fees and costs. The defendants have moved
to dismiss the action on the grounds that the court has no personal jurisdiction
over them. The defendants deny the allegations of the complaint.

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

      None.
                                    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 14, 2001, Eagle's common stock closed at
$.70 per share. Eagle is authorized to issue 100,000,000 shares of common stock,
60,265,000 of which were issued and outstanding at November 14, 2001. At
November 14, 2001, there were approximately 814 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 2001
             Quarter ended November 30, 2000       $6.75    $2.50
             Quarter ended February 28, 2001       $3.40    $1.35
             Quarter ended May 31, 2001            $2.49    $0.99
             Quarter ended August 31, 2001         $1.89    $0.80

      FISCAL 2000
              Quarter ended November 30, 1999      $2.00    $1.00
              Quarter ended February 29, 2000      $19.00   $1.13
              Quarter ended May 31, 2000           $19.50   $5.62
              Quarter ended August 31, 2000        $8.75    $5.62


      Eagle has never paid any cash dividends on its common stock and does not
anticipate paying cash dividends within the next two years. Eagle anticipates
that all earnings, if any, will be retained for development of its business. Any
future dividends will be subject to the discretion of the board of directors and
will depend on, among other things, future earnings, Eagle's operating and
financial condition, Eagle's capital requirements and general business
conditions.

RECENT SALES OF UNREGISTERED SECURITIES

      During the fourth quarter of fiscal 2001 Eagle did not issue any
securities without registration under the Securities Act.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

      The following discussion should be read in conjunction with Eagle's
financial statements and accompanying notes to the financial statements.

OVERVIEW

      For the year ended August 31, 2001, Eagle's business operations were
significantly expanded into the broadband products and services through the
merger with Clearworks.net and subsidiaries on January 31, 2001. This business
merger accounted for the majority of increases in consolidated revenues,
expenses, capital assets and personnel. The merged operations include research
and development services, sale of computer and manufactured


                                       15
<PAGE>

broadband products and services, management services for third party network
operations and sale of one and two way messaging products and services. The
Company's concentration of management and economic resources in integrating the
merged operations resulted in revenues of $28,109,000 with a corresponding gross
profit of $7,702,000. The Company incurred a net loss of $5,873,000 which was
attributable to increases in lawsuit settlements costs, merger costs and related
amortization, system costs for a uniform system wide accounting and reporting
system and increases research and development costs for existing and future
enhancements of digital set-top boxes, high definition televisions and remote
digital facilities and advertising for bundle digital services and set-top
boxes. The Company is continuing to consolidate management positions and
centralize purchasing, research and development activities and marketing of all
products and services in an effort to minimize unnecessary expenditures and
provide management with timely information to react to changing market
conditions in the broadband industry.

REVENUE RECOGNITION

      The Company designs, manufactures, markets and services its products and
services under the Eagle Wireless International, Inc., BroadbandMagic.com, Inc.,
ClearWorks Communications, Inc., ClearWorks Home Systems, Inc., AtlanticPacific
Communications, Inc., Link Two Communications, Inc. and United Computing Group,
Inc. names.

EAGLE WIRELESS INTERNATIONAL

      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.

BROADBANDMAGIC.COM

      BroadbandMagic.com, Inc. designs, manufactures and markets the convergent
set-top boxes. Products are sent principally to commercial customers for a
pre-sale test period of 90-days. Upon the end of the pre-sale test period, the
customer either returns the product or accepts the product, at which time the
Company recognizes the revenue.

      Eagle Wireless International and BroadbandMagic.com engage 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
the companies' 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.

CLEARWORKS COMMUNICATIONS

      ClearWorks Communications provides Bundle 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.

CLEARWORKS HOME SYSTEMS

      ClearWorks Home Systems 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.


                                       16
<PAGE>

ATLANTIC PACIFIC COMMUNICATIONS

      AtlanticPacific 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 earned.

ETOOLZ

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

LINK TWO COMMUNICATIONS

      Link Two provides customers with one and two way messaging systems over a
national high-speed wireless broadband network. The revenue from these services
is recognized as it is earned from the customer.

UNITED COMPUTING GROUP

      United Computing Group provides business-to-business hardware and software
network solutions and a 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 as earned.

RECEIVABLES

      For the year ended August 31, 2001, Eagle accounts receivables increased
to $7,144,000 from $1,247,000 at August 31, 2000. The majority of this increase
is due to additional revenues and related receivables from the merged companies.

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

RECENT ACQUISITIONS; GOODWILL

      In September 2000, Eagle entered into a merger agreement with
ClearWorks.net, whereby it agreed to acquire 100% of the outstanding common
stock of ClearWorks.net in exchange for 0.8 shares of Eagle common stock for
each share of ClearWorks.net common stock at the closing. In addition to the
share issuance, Eagle will assume all outstanding ClearWorks.net stock options
and warrants based upon the same 0.8 exchange ratio. On January 31, 2001, Eagle
and Clearworks.Net voted to conduct the merger of the two companies.

MARKETABLE SECURITIES

      Eagle has adopted the provisions of SFAS No. 115, as amended by SFAS No.
130, which provides that all marketable equity securities be classified as
available-for-sale or trading securities, and be carried on the balance sheet at
fair market value. Any unrealized holding gains or losses affiliated to these
securities are carried below net income under the caption "Other Comprehensive
Income," net of tax.

      During the year ended August 31, 2001, the Company acquired 3,000,000
common stock shares of Burst.com and 3,700,000 common stock shares of Urbana,
Inc. with a cost of $575,000 and $108,000, respectively.

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, 2001, Eagle's
inventory total of $10,637,000 as compared to $5,756,000 at August 31, 2000. The
additional inventory is primarily attributable to the purchase of fiber, cabling
and computer products.


                                       17

<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED AUGUST 31, 2001 COMPARED TO YEAR ENDED AUGUST 31, 2000

      NET SALES. For the year ended August 31, 2001, net sales increased to
$28,110,000 from $5,240,000 during the year ended August 31, 2000. The increase
was primarily attributable to added sales from Atlanticpacific and the
ClearWorks companies (Home Systems, Communications and United Computing Group).
Atlantic Pacific provides project planning, installation, project management,
testing and documentation of fiber and cable to commercial and industrial
clients throughout the United States. ClearWorks Home Systems provides
structured wiring solutions and audio / visual equipment to single and
multi-family dwellings. ClearWorks Communications 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. United Computing
Group provides business-to-business hardware and software network solutions and
network monitoring services.

      COST OF GOODS SOLD. For the year ended August 31, 2001, cost of goods sold
increased to $20,408,000 from $2,482,000 during the year ended August 31, 2000.
The increase was primarily attributable to added cost of sales from
Atlanticpacific and the ClearWorks companies (Home Systems, Communications and
United Computing Group). Atlantic Pacific provides project planning,
installation, project management, testing and documentation of fiber and cable
to commercial and industrial clients throughout the United States. The Company's
gross profit percentage for products sold was 27% and 53% for the years ended
August 31, 2001 and August 31, 2000. This decrease is primarily attributable to
lower profit margins on volume sales of computers and related equipment and
increases in salaries and depreciation of equipment utilized in head-end
facilities.

      OPERATING EXPENSES. For the year ended August 31, 2001, operating expenses
increased to $15,925,000 from $3,985,000 for the year ended August 31, 2000. The
primary portions of the increase are discussed below:

      A $4,746,000 increase in salaries, as a result of its acquisitions and
      expanded business.

      A $261,000 increase in advertising and promotion, due primarily to
      increased attendance at conventions and trade shows on a worldwide basis.

      A $3,111,000 increase in depreciation and amortization, due to an increase
      in amortization of goodwill and purchase of additional assets.

      A $2,918,0000 increase in other support costs, due to an increase in
      rents, travel, utilities and communication costs.


      NET EARNINGS. For the year ended August 31, 2001, Eagle's net loss was
$5,874,000, compared to net earnings of $193,000 during the year ended August
31, 2000.

      CHANGES IN CASH FLOW. Eagle's operating activities used net cash of
$1,609,000 in the year ended August 31, 2001, compared to use of net cash of
$5,299,000 in the year ended August 31, 2000. The decrease in net cash used by
operating activities was primarily attributable to minimization of inventory
purchases, increases in accrued expenses, utilization of stock compensation in
lieu of cash and increase in depreciation and amortization. Eagle's investing
activities used net cash of $6,512,000 in the year ended August 31, 2001,
compared to $2,224,000 in the year ended August 31, 2000. The increase was due
primarily to investment activities and purchase of equipment. Eagle's financing
activities used cash of $3,846,000, in the year ended August 31, 2001, compared
to $39,681,000 provided in the year ended August 31, 2000. The decrease is
attributable to the repurchase of common stock and no significant fund raising
activities for the year ending August 31, 2001 compared to August 31, 2000.

      LIQUIDITY AND CAPITAL RESOURCES. Current assets for the year ended August
31, 2001 totaled $42,649,000 (includes cash and cash equivalents of $20,379,000)
as compared to $49,306,000 reported for the year ended August 31, 2000. Of this
amount, $20,379,000 consisted of cash. Eagle believes that its working capital
of $23,246,000 as of August 31, 2001 should be sufficient to fund operations
through the end of the fiscal year 2002. Historically, Eagle has financed its
operations through the sale of debt and equity securities. As such, if its
current cash is insufficient to fund its long-term capital needs, Eagle will
rely on future best-efforts financing for capital. Refer to Note 7 and Note 8
for descriptions of lines of credit and other immediate forms of funding the
Company has available. As of August 31, 2001, Eagle had no material capital
commitments other than its federal income and state franchise tax liabilities.



                                       18
<PAGE>


ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

      The financial statements commencing on page F-1 have been audited by
McManus & Co., P.C., independent certified public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and are
included in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      None.

                                    PART III

ITEMS 9 TO 12 INCLUSIVE.

      These items have been omitted in accordance with the general instructions
to Form 10-KSB. Prior to December 29, 2001, Eagle will file a definitive proxy
statement that will involve the election of directors. The information required
by these items will be included in such proxy statement and are incorporated by
reference in this annual report. Eagle has set a date of February 13, 2002 for
its annual meeting of stockholders.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   The following exhibits are to be filed as part of the annual report:

      EXHIBIT NO.       IDENTIFICATION OF EXHIBIT

      Exhibit 3.1       Eagle Wireless International, Inc. Articles of
                        Incorporation, as Amended (incorporated by
                        reference to Exhibit 3.1 of Form SB-2 file no.
                        333-20011)
      Exhibit 3.2       Amended and Restated Eagle Wireless International,
                        Inc. Bylaws
      Exhibit 4.1       Form of Common Stock Certificate (incorporated by
                        reference to Exhibit 4.1 of Form SB-2 file no.
                        333-20011)
      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      Stock Option Plan (incorporated by reference to
                        Exhibit 10.2 of Form SB-2 file no. 333-20011)
      Exhibit 10.3      Agreement and Plan of Reorganization dated
                        September 15, 2000 (incorporated by reference to Exhibit
                        10.1 of Form S-4 file no. 333-49688)
      Exhibit 10.4      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 10.5      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 10.6      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.

      (b)   The following reports were filed on Form 8-K during the last quarter
            of the period covered by this report. On June 20, 2001, Eagle filed
            a report on Form 8-K,


                                       19
<PAGE>

            pursuant to Item 9 of the report, announcing the timing of a web
            cast. On August 2, 2001, Eagle filed a report on Form 8-K, pursuant
            to Item 2 of the report, announcing the acquisition of
            Atlanticpacific Communications, Inc. and Comtel Communications,
            Inc., in which financial statements were included pursuant to Item 7
            of the report.


                                   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 Wireless International, Inc.



                                    By: ____________________________
                                    Dr. H. Dean Cubley,
                                    Chief Executive Officer and Chariman




      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>

___________________________         Chairman of the Board and                 November 13, 2001
H. Dean Cubley                      Chief Executive Officer

___________________________         Chief Financial Officer                   November 13, 2001
Richard R. Royall

___________________________         Director and Executive Vice-President     November 13, 2001
Christopher W. Futer

___________________________         Director                                  November 13, 2001
A.L. Clifford

___________________________         Director                                  November 13, 2001
Glenn A. Goerke

___________________________         Director                                  November 13, 2001
Shannon McLeroy

___________________________         Director                                  November 13, 2001
Raymond G. Harrell III

___________________________         Director, President and                   November 13, 2001
Manny M. Carter                     Chief Operating Officer

</TABLE>


                                       20
<PAGE>

                          INDEPENDENT ACCOUNTANT'S REPORT


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

      We have audited the accompanying consolidated balance sheets of Eagle
      Wireless International, Inc. and subsidiaries as of August 31, 2001 and
      2000 and the related consolidated statements of earnings, shareholders'
      equity, and cash flows for the years then ended. These financial
      statements are the responsibility of Eagle Wireless International, 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 audit
      provides 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 Wireless International, Inc. and subsidiaries as of
      August 31, 2001 and 2000 and the results of their earnings, shareholders'
      equity, and their cash flows for the years then ended are in conformity
      with generally accepted accounting principles.


      McMANUS & CO., P.C.
      CERTIFIED PUBLIC ACCOUNTANTS
      ROCKAWAY, NEW JERSEY

      November 9, 2001



                                      F-1
<PAGE>

--------------------------------------------------------------------------------
              EAGLE WIRELESS INTERNATIONAL, INC., AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                              ASSETS
                                                                                      AUGUST 31,
                                                                                2001             2000
                                                                             ---------        ---------
<S>                                                                          <C>              <C>
CURRENT ASSETS
      Cash and Cash Equivalents                                              $  20,379        $  32,346
      Accounts Receivable                                                        7,144            1,247
      Other Receivables                                                             --            8,655
      Marketable Securities                                                      3,464              971
      Inventories                                                               10,637            5,756
      Prepaid Expenses                                                           1,025              331
                                                                             ---------        ---------
           TOTAL CURRENT ASSETS                                                 42,649           49,306

PROPERTY AND EQUIPMENT
      Operating Equipment                                                       28,469            2,703
      Less: Accumulated Depreciation                                            (2,005)          (1,023)
                                                                             ---------        ---------
           TOTAL PROPERTY AND EQUIPMENT                                         26,464            1,680

OTHER ASSETS:
      Security Deposits                                                            134               33
      Deferred Advertising Costs                                                   363              384
      Deferred Syndication Costs                                                    --              270
      Goodwill                                                                   5,966            5,966
      Other Intangible Assets                                                   98,954              171
      Less:  Accumulated Amortization                                           (3,879)            (194)
      Other Assets                                                                  16               25
                                                                             ---------        ---------

           TOTAL OTHER ASSETS                                                  101,554            6,655
                                                                             ---------        ---------

TOTAL ASSETS                                                                 $ 170,667        $  57,641
                                                                             =========        =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
      Accounts Payable                                                       $   4,525        $   2,007
      Accrued Expenses                                                           6,406              308
      Notes Payable                                                              5,933               42
      Line of Credit                                                             1,846              266
      Capital Lease Obligations                                                     48               59
      Federal Income Taxes Payable                                                  --              736
      Franchise Taxes Payables                                                      --               17
      Sales Taxes Payable                                                          598               17
      Deferred Taxes                                                                15               15
                                                                             ---------        ---------

           TOTAL CURRENT LIABILITIES                                            19,403            3,507

LONG-TERM LIABILITIES:
      Capital Lease Obligations
        (net of current maturities)                                                115               41
      Deferred Taxes                                                                32               32
      Long-Term Debt                                                             2,021               --
                                                                             ---------        ---------

           TOTAL LONG-TERM LIABILITIES                                           2,136               73

                      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 100,000,000 shares
           Issued and Outstanding at August 31, 2001,
           and 2000, 60,264,000 and 25,609,263, respectively                        60               26
      Paid in Capital                                                          153,426           52,160
      Retained Earnings                                                         (4,358)           1,875
                                                                             ---------        ---------

           TOTAL SHAREHOLDERS' EQUITY                                          149,128           54,061
                                                                             ---------        ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $ 170,667        $  57,641
                                                                             =========        =========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-2
<PAGE>

--------------------------------------------------------------------------------
              EAGLE WIRELESS INTERNATIONAL, INC., AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                 (In thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    For the years ended August 31,

                                                                       2001               2000
                                                                     --------           --------
<S>                                                                     <C>
NET SALES:
    Structured wiring                                                   7,643                 --
    Broadband services                                                    523                 --
    Products                                                           19,342              5,240
    Other                                                                 602                 --
                                                                     --------           --------
TOTAL SALES                                                            28,110              5,240
                                                                     --------           --------
COSTS OF GOODS SOLD:
    Direct Labor and Related Costs                                      1,638              1,119
    Products and Integration Service                                   14,931              1,064
    Structured Wiring Labor and Materials                               2,345                 --
    Broadband Services Costs                                              260                 --
    Depreciation and Amortization                                       1,053                 73
    Other Manufacturing Costs                                             181                226
                                                                     --------           --------
TOTAL COSTS OF GOODS SOLD                                              20,408              2,482
                                                                     --------           --------
GROSS PROFIT                                                            7,702              2,758
                                                                     --------           --------
OPERATING EXPENSES:
    Selling, General and Administrative:
        Salaries and Related Costs                                      6,170              1,424
        Advertising and Promotion                                         600                340
        Depreciation and Amortization                                   3,615                504
        Other Support Costs                                             4,264              1,346
        Research and Development                                        1,276                371
                                                                     --------           --------
TOTAL OPERATING EXPENSES                                               15,925              3,985
                                                                     --------           --------

EARNINGS/(LOSS) FROM OPERATIONS BEFORE OTHER
REVENUES/(EXPENSES), INCOME TAXES AND OTHER
COMPREHENSIVE INCOME                                                   (8,222)            (1,227)

OTHER REVENUES/ (EXPENSES)
    Interest Income - net                                               2,348              1,506
    Other Income                                                                               9
                                                                     --------           --------
                 TOTAL OTHER REVENUES                                   2,348              1,516

EARNINGS/(LOSS) BEFORE MINORITY INTEREST IN
AFFILIATE, INCOME TAXES & OTHER COMPREHENSIVE INCOME                   (5,874)               289
                                                                     --------           --------

Provisions For Income Taxes                                                --                 96
                                                                     --------           --------
NET EARNINGS / (LOSS)                                                  (5,874)               193
                                                                     --------           --------
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized Holding Gain / (Loss)                                         (359)               (18)
                                                                     --------           --------
OTHER COMPREHENSIVE INCOME / (LOSS)                                  $ (6,233)          $    175
                                                                     ========           ========
NET EARNINGS / (LOSS) PER COMMON SHARE:
Basic                                                                $  (0.12)          $   0.01
Diluted                                                              $  (0.12)          $   0.01
Comprehensive Income / (Loss)                                        $  (0.13)          $   0.01

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-3

<PAGE>

--------------------------------------------------------------------------------
              EAGLE WIRELESS INTERNATIONAL, INC., AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (In thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                                        ADDITIONAL                     TOTAL
                                                        COMMON STOCK         PREFERRED   PAID IN      RETAINED     SHAREHOLDERS'
                                                     SHARES       VALUE        STOCK     CAPITAL      EARNINGS        EQUITY
<S>                                                  <C>        <C>           <C>      <C>           <C>           <C>
TOTAL SHAREHOLDERS' EQUITY
   AS OF AUGUST 31, 1999                             13,480     $      13     $  --    $   7,181     $   1,700     $   8,894

Net Earnings                                             --            --        --           --           193           193

New Stock Issued to Shareholders
   Issuance of Common Stock
   For Acquisitions                                     869             1        --        3,661            --         3,662
   For Services and Compensation                        981             1        --        1,642            --         1,643
   For Warrant Conversion                             9,411            10        --       38,559            --        38,569
   For Debt Conversion                                  828             1        --        1,612            --         1,613
   For Employee Stock Option Plan                        41            --        --          158            --           158

Syndication Costs                                        --            --        --         (653)           --          (653)

Unrealized Holding Loss                                  --            --        --           --           (18)          (18)
                                                  ---------     ---------     -----    ---------     ---------     ---------

TOTAL SHAREHOLDERS' EQUITY
   AS OF AUGUST 31, 2000                             25,609            26        --       52,160         1,875        54,061
                                                  ---------     ---------     -----    ---------     ---------     ---------

Net Loss                                                 --            --        --           --        (5,874)       (5,874)
New Stock Issued to Shareholders
    For Services and Compensation                     1,370             1        --          973            --           974
    For Property and Other Assets                       127            --        --        2,837            --         2,837
    For Retirement of Debt and Liabilities            3,004             3        --        5,693            --         5,696
    For Warrants Conversion                             645             1        --        1,078            --         1,079
    For Employee Stock Option Plan                       96            --        --          192            --           192
    For acquisition of ClearWorks, Inc.              35,287            35        --       99,762            --        99,797
    For Licenses and Investments                      1,204             1        --        2,965            --         2,966

Syndication Costs                                        --            --        --         (876)           --          (876)

Treasury Stock                                       (7,078)           (7)       --      (11,358)           --       (11,365)

Unrealized Holding Gain                                  --            --        --           --          (359)         (359)
                                                  ---------     ---------     -----    ---------     ---------     ---------

TOTAL SHAREHOLDERS' EQUITY
   AS OF AUGUST 31, 2001                             60,264     $      60     $  --    $ 153,426     $  (4,358)    $ 149,128
                                                  =========     =========     =====    =========     =========     =========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-4
<PAGE>

--------------------------------------------------------------------------------
              EAGLE WIRELESS INTERNATIONAL, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        August 31,
                                                                                 2001              2000
                                                                               ---------         ---------
<S>                                                                            <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earning/(Loss)                                                             $ (5,874)         $    193

Adjustments To Reconcile Net Earnings to Net Cash
Used By Operating Activities:
   Depreciation and Amortization                                                  4,667               577
   Stock Issued for Services Rendered                                               974                --
   CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT FROM PURCHASE
   OF CLEARWORKS.NET
   (Increase)/Decrease in Marketable Securities                                    (910)             (989)
   (Increase)/Decrease in Accounts Receivable                                      (462)              (87)
   (Increase)/Decrease in Other Receivables                                          --            (2,013)
   (Increase)/Decrease in Inventories                                               515            (3,083)
   (Increase)/Decrease in Prepaid Expenses                                          516               (75)
   Increase/(Decrease) in Accounts Payable                                       (1,793)              540
   Increase/(Decrease) in Accrued Expenses                                        1,494              (125)
   Increase/(Decrease) in Deferred Taxes                                             --                34
   Increase/(Decrease) in Deferred Revenues                                          --              (533)
   Increase/(Decrease) in Sales Tax Payable                                          --               (10)
   Increase/(Decrease) in Federal Income Taxes Payables                            (736)              268
   Increase/(Decrease) in Franchise Taxes Payables                                   --                 4
                                                                               --------------------------
   Total Adjustment                                                               4,265            (5,492)
Net Cash Used by Operating Activities                                            (1,609)           (5,299)

CASH FLOWS FROM INVESTING ACTIVITIES
   (Purchase)/Disposal of Property and Equipment                                (16,394)           (1,358)
   (Increase)/Decrease in Security Deposits                                        (102)              (14)
   (Increase)/Decrease in Investments                                                20                --
   (Increase)/Decrease in Notes Receivable                                        8,655                --
   (Increase)/Decrease in Deferred Advertising Costs                                 21              (384)
   (Increase)/Decrease in Deferred Syndication Costs                                270              (270)
   (Increase)/Decrease in Other Intangible Assets                                 1,009              (171)
   (Increase)/Decrease in Other Assets                                                9               (25)
                                                                               --------------------------
Net Cash Used by Investing Activities                                            (6,512)           (2,224)

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase/(Decrease) in Notes Payable (Short-Term)                              6,148             1,287
   Increase/(Decrease) in Capital Leases                                             63                51
   Increase/(Decrease) in Line of Credit                                            230                (7)
   Proceeds From Sale of Common Stock, Net                                        1,078            38,350
   Retirement of ESOP Shares                                                     (2,740)               --
   Treasury Stock                                                                (8,625)               --
                                                                               --------------------------
Net Cash Provided By Financing Activities                                        (3,846)           39,681
                                                                               --------------------------

Net Increase/(Decrease) in Cash                                                 (11,967)           32,158
CASH AT THE BEGINNING OF THE YEAR                                                32,346               188
                                                                               --------------------------
CASH AT THE END OF THE YEAR                                                    $ 20,379          $ 32,346

Supplemental Disclosure of Cash Flow Information:
Net Cash Paid During the Year for:
    Interest                                                                   $    112          $     94
    Income Taxes                                                                     --                24

Supplemental non-cash investing activities (See Note 4):
Licenses and Investments                                                       $  2,428          $     --
Property, Plant & Equipment                                                       2,919                --

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-5
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001



NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:

      Eagle Wireless International, Inc., (the Company), incorporated as a Texas
      corporation on May 24, 1993 and commenced business in April of 1996. The
      Company is a worldwide supplier of broadband products and services,
      providing telecommunications equipment with related software, broadband
      products, and fiber and cable as used by service providers in the paging
      and other wireless personal communications markets. The Company designs,
      manufactures, markets and services its products under the Eagle and
      BroadbandMagic.com, Inc. names. These products include transmitters,
      receivers, controllers, software, convergent set-top boxes, fiber, cable,
      and other equipment used in commercial and personal communications systems
      and radio and telephone systems. Additionally the Company provides cable
      television, telephone, security, internet connectivity and related
      services under a bundled digital services package, commonly known as
      "BDS", through single source billing.

A)    Consolidation

      At August 31, 2001 the Company has four wholly owned subsidiaries:
      AtlanticPacific Communications, Inc. (APC), eToolz, Inc.(ETI),
      BroadbandMagic.com, Inc.(BBM), ClearWorks.Net, Inc. (.NET) and its
      subsidiaries, ClearWorks Communication, Inc.(COMM), ClearWorks Home
      Systems, Inc.(HSI), United Computing Group (UCG) and Link-Two
      Communications, Inc.(LINK II)). 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 has $21,973,000 and $26,319,000 invested in interest bearing
      accounts and marketable securities (Note 9) at August 31, 2001 and August
      31, 2000, 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
                                                              --------
             Head-End 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.

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
                                              2001               2000
                                            -------             -------
            Raw Materials                   $ 3,537             $ 2,823
            Work in Process                   6,555               2,933
            Finished Goods                      545                  --
                                            -------             -------
                                            $10,637             $ 5,756
                                            =======             =======



                                      F-6
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


E)    Revenue Recognition

      The Company designs, manufactures, markets and services its products and
      services under the Eagle Wireless International, Inc., Broadband
      Magic.com, Inc., ClearWorks Communications, Inc., ClearWorks Home Systems,
      Inc., AtlanticPacific Communications, Inc., Link Two Communications, Inc.
      and United Computing Group, Inc. names.

      EAGLE WIRELESS INTERNATIONAL

      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.

      BROADBANDMAGIC.COM

      BroadbandMagic.com, Inc. designs, manufactures and markets the convergent
      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 the Company recognizes the revenue.

      Eagle Wireless International and BroadbandMagic.com engage 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 the companies' 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.

      CLEARWORKS COMMUNICATIONS

      ClearWorks Communications provides Bundle 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.

      CLEARWORKS HOME SYSTEMS

      ClearWorks Home Systems 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.

      ATLANTIC PACIFIC COMMUNICATIONS

      AtlanticPacific 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 earned.

      ETOOLZ

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

      LINK TWO COMMUNICATIONS

      Link Two provides customers with one and two way messaging systems over a
      national high-speed wireless broadband network. The revenue from these
      services is recognized as it is earned from the customer.

      UNITED COMPUTING GROUP

      United Computing Group provides business-to-business hardware and software
      network solutions and a 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 as earned.



                                      F-7
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


F)    Research and Development Costs

      For the years ended August 31, 2001, and 2000, the Company performed
      research and development activities for internal projects related to its
      convergent set-top boxes as well as its multi-media entertainment centers.
      Research and development costs of $ 1,276,000 and $371,000 were expensed
      for the years ended August 31, 2001, and 2000, respectively.

      No research and development services were performed for outside parties
      for the year ended August 31, 2001 and 2000.

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:


                                                            August 31,
                                                         2001        2000
                                                       --------   --------
       Weighted Average Number of Common
         Shares Outstanding Including

       Primary Common Stock Equivalents                 49,726     19,073
       Fully Dilutive Common Stock Equivalents          49,880     22,379


I)    Impairment of Long Lived and Identifiable Intangible Assets

      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:

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

      As of August 31, 2001 and 2000, no impairment existed.

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 is being
      amortized using the straight-line method over twenty (20) years for
      Atlantic Pacific and Comtel and twenty-five (25) years for ClearWorks.Net.
      contract rights. Other intangible assets consist of patents and licenses,
      which are being amortized using the straight-line method over ten (10)
      years and twenty (20) years, respectively.



                                      F-8
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


K)    Advertising Costs

      In fiscal 2001 and 2000, advertising costs have been capitalized and
      amortized on the basis of contractual agreements entered into by the
      Company. These contracts are amortized over the life of the individual
      contracts or expensed in the period incurred. For the year ended August
      31, 2001, the Company has expensed $593,000 where $458,000 in costs has
      been deferred.

      For the year ended August 31, 2000, the Company has expensed $298,000
      whereas $384,000 in costs has been deferred.

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

      In May 1993, the Financial Accounting Standards Board issued Statements of
      Financial Accounting Standards No. 115, "Accounting for Certain
      Investments in Debt and Equity Securities", effective for fiscal years
      beginning after December 15, 1993. This statement considers debt
      securities that the Company has both the positive intent and ability to
      hold to maturity are carried at amortized cost. Debt securities that the
      company does not have the positive intent and ability to hold to maturity
      and all marketable equity securities are classified as available-for-sale
      or trading securities and are carried at fair market value. Unrealized
      holding gains and losses on securities classified as trading are reported
      in earnings. Unrealized holding gains and losses on securities classified
      as available-for-sale were previously carried as a separate component of
      stockholders' equity. SFAS No. 115 as amended by Financial Accounting
      Standards Board issued Statement of Financial Accounting Standards No.
      130, "Other Comprehensive Income". Management determines the appropriate
      classification of marketable equity and debt securities at the time of
      purchase and re-evaluates such designation as of each balance sheet date.

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 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,
      2001, 2000, comprehensive loss was ($359,000) and ($18,000), respectively.

P)    Reclassification

      The Company has reclassified certain assets costs and expenses for the
      year ended August 31, 2000 to facilitate comparison to the year ended
      August 31, 2001.


                                      F-9

<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001



Q)    Supporting Costs in Selling, General and Administrative Expenses

      Other support cost consists of the following:


                                             2001          2000
                                          ---------     ---------
               Rent                       $   791       $   386
               Travel                         437           326
               Utilities                      438           158
               Professional                   831           190
               Office Supplies                482            97
               Insurance                      263            68
               Advertising/
               Conventions                    737            64
               Postage/ Delivery              178            30
               Taxes                           90            22
               Other                           17             6
                                          -------       -------
               Total                      $ 4,264       $ 1,346
                                          =======       =======

R)    Recent Pronouncements

      In July 2001, the FASB issued Statement No. 141, Business Combinations,
      ("SFAS 141") and Statement No. 142, Goodwill and Other Intangible Assets
      ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be
      used for all business combinations completed after June 30, 2001. SFAS 141
      also specifies that intangible assets acquired in a purchase method
      business combination must meet certain criteria to be recognized and
      reported apart from goodwill. SFAS 142 will require that goodwill and
      intangible assets with indefinite useful lives no longer be amortized, but
      instead they will be tested for impairment at least annually in accordance
      with the provisions of SFAS 142. SFAS 142 will also require that
      intangible assets with definite useful lives be amortized over their
      respective estimated useful lives to their estimated residual values and
      reviewed for impairment in accordance with SFAS No. 121, Accounting for
      the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
      Disposed Of. The Company is required to adopt the provisions of SFAS 141,
      for acquisitions initiated after June 30, 2001, and SFAS 142 effective
      September 1, 2002. Goodwill and intangible assets acquired in business
      combinations completed before July 1, 2001 will continue to be amortized
      until the Company's adoption of SFAS No. 142 on September 1, 2002. In
      connection with the transitional goodwill impairment evaluation, SFAS 142
      will require the Company to perform an assessment of whether there is an
      indication that goodwill is impaired as of the date of adoption. To the
      extent an indication exists that the goodwill and intangible assets may be
      impaired, the Company must measure the impairment loss, if any. Any
      transitional impairment loss will be recognized as the cumulative effect
      of a change in accounting principle in the Company's statement of
      earnings. Based on current goodwill and intangible asset balances, the
      Company will have approximately $99,652,000 of non-amortized goodwill and
      intangibles as of September 1, 2002, which will be subject to the
      transition provisions of SFAS 141 and SFAS 142.

      Amortization expense related to goodwill and intangibles was approximately
      $3,685,000 and $194,000 for the fiscal year ended August 31, 2001.

      The impact of the adoption of SFAS 141 and 142 is not currently known, the
      company will assess the impairment of its goodwill and intangible assets
      no later than May 31, 2002.

      The impact of other significant matters that might result from the
      adoption of SFAS 141 and 142 is not currently known, but will be assessed
      prior to the issuance of the Company's May 31, 2002, 10-Q filing.

      On October 3, 2001, the FASB issued the Statement of Financial Accounting
      Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
      Assets" ("FAS 144"). FAS 144 addresses financial accounting and reporting
      for the disposal of long-lived assets. FAS 144 becomes effective for
      financial statements issued for fiscal years beginning after December 15,
      2001 and interim periods within those fiscal years. The Company does not
      expect the pronouncement to have a material impact on its consolidated
      financial position, consolidated results of operations or consolidated
      cash flows.


                                      F-10
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


NOTE 2 - ACCOUNTS RECEIVABLE:

            Accounts receivable consist of the following, in thousands:



                                                          August 31,
                                                     2001             2000
                                                   -------         -------
            Accounts Receivable                    $ 7,624         $ 1,336
            Allowance for Doubtful Accounts           (480)            (89)
                                                   -------         -------
            Net Accounts Receivable                $ 7,144         $ 1,247
                                                   =======         =======


NOTE 3 - PROPERTY, PLANT & EQUIPMENT AND INTANGIBLE ASSETS:

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

<TABLE>
<CAPTION>
                                                                          August 31,
                                                                     2001            2000
                                                                  ---------       ---------
<S>                                                               <C>             <C>
            Automobile                                            $     548       $      58
            Head-End Facility and Fiber Infrastructure               15,045              --
            Furniture & Fixtures                                        481             140
            Leasehold Improvements                                       84              24
            Office Equipment                                            654             721
            Property, Manufacturing & Equipment                      11,657           1,759
                                                                  ---------       ---------
                Total Property, Plant & Equipment                 $  28,469       $   2,703
                    Less: Accumulated Depreciation                   (2,005)         (1,023)
                                                                  ---------       ---------
                Net Property, Plant & Equipment                   $  26,464       $   1,680
                                                                  =========       =========
</TABLE>

      Components of intangible assets are as follows, in thousands:

<TABLE>
<CAPTION>
                                                                          August 31,
                                                                    2001             2000
                                                                  ---------       ---------
<S>                                                               <C>             <C>
            Goodwill                                              $   5,966       $   5,966
            Contract Rights                                          74,513              --
            Licenses & Permits                                       24,441             171
                                                                  ---------       ---------
                Total Intangible Assets                           $ 104,920       $   6,137
                    Less: Accumulated Amortization                   (3,879)           (194)
                                                                  ---------       ---------
                Net Intangible Assets                             $ 101,041       $   5,943
                                                                  =========       =========

</TABLE>

NOTE 4 - BUSINESS COMBINATIONS:

      On February 1, 2001, the Company completed the purchase of ClearWorks.Net,
      Inc. and its subsidiaries, ClearWorks Communication, Inc., ClearWorks
      Structured Wiring Services, Inc., ClearWorks Integration Services, Inc.,
      United Computing Group, Link-Two Communications, Inc. and LD Connect, Inc.
      (collectively, ClearWorks) by acquiring all the outstanding common stock
      for a total purchase price of approximately $99.8 million. The acquisition
      was accounted for using the purchase method of accounting. ClearWorks is a
      communications carrier providing broadband data, video and voice
      communication services to residential and commercial customers, currently
      within Houston, Texas. These services are provided over fiber-optic
      networks ("Fiber-To-The-Home" or "FTTH"), which the Company designs,
      constructs, owns and operated inside large residential master-planned
      communities and office complexes. ClearWorks also provides information
      technology staffing personnel, network engineering, vendor evaluation of
      network hardware, implementation of network hardware and support of
      private and enterprise networks, as well as, developing residential,
      commercial and education accounts for deployment of structured wiring
      solutions. The results of operation for ClearWorks are included in the
      accompanying financial statements since the date of acquisition. The
      Company acquired the net assets of ClearWorks for $99,797,000 through the
      issuance of 29,410,000 shares of its common stock valued at $91,172,000
      and a cash total of $8,625,000. Prior to the merger, the Company provided
      to ClearWorks, working capital and materials totaling $8,625,000. During
      February 2001, ClearWorks repaid these advances through the issuance of
      7,346,000 shares of its common stock, which converted into 5,877,000 Eagle
      Wireless International, Inc. common stock shares. These



                                      F-11
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      shares were converted to Treasury shares at this date. The Company
      allocated (in thousands) the acquisition costs to current assets of
      $11,708, property, plant and equipment of $6,570, intangible assets of
      $96,920 (which consist of $74,513 in contract rights and $22,407 in
      licenses), other assets of $79 and assumed liabilities of accounts payable
      and accrued expenses of $10,784, banks lines of credit and notes of $4,696
      for a total acquisition of $99,797. The allocation of the purchase price
      is based on the fair value of assets and liabilities assumed as determined
      either by independent third parties or management's estimates, based on
      existing contracts, recent purchases of assets and underlying loan
      documents.

      On January 1, 2000, the Company acquired APC in a business combination
      accounted for as a purchase. APC is primarily engaged in the nationwide
      sales and installation of fiber and cable to commercial enterprises. The
      Company issued 518,919 shares of common stock valued at $2,044,541 to
      acquire the net assets of APC. The Company allocated (in thousands) the
      acquisition costs to current assets of $395, property, plant and equipment
      of $125, intangible assets of $3,663, other assets of $1 and assumed
      liabilities of accounts payable and accrued expenses of $1,760, bank lines
      of credit and notes of $380 for a total acquisition of $2,044. The
      allocation of the purchase price is based on the fair value of assets and
      liabilities assumed as determined by independent third parties or
      management's estimates, based on existing contracts, recent purchases of
      assets and underlying loan documents.

      Concurrently with the closing of this acquisition the Company entered into
      a two-year agreement with the former principals of APC. These principals
      may earn up to 3,000,000 shares of common stock based on APC accumulated
      sales goals. Under the terms of the agreement, the Company will issue an
      additional 500,000 shares for $10,000,000 in accumulated sales, 1,000,000
      shares for $30,000,000 in accumulated sales and 1,500,000 shares for
      $60,000,000 in accumulated sales. These sales have to be achieved within a
      two-year period commencing January 1, 2000. In addition, the principals
      must maintain a "Gross Profit Margin" of 25% and an "EBITDA Profit" of
      10%. These contingencies and attainment thereof are considered remote and,
      accordingly, have been excluded from the determination of the acquisition
      price.

      On January 1, 2000, the Company acquired Comtel in a business combination
      accounted for as a purchase. Comtel is primarily engaged in the sales and
      installation of fiber and cable to commercial enterprises in Texas and
      Louisiana. The Company issued 300,000 shares of common stock valued at
      $1,182,000 to acquire the net assets of Comtel. The Company allocated (in
      thousands) the acquisition costs to current assets of $968, property,
      plant and equipment of $67, intangible assets of $1,879, and assumed
      liabilities of accounts payable and accrued expenses of $1,459, bank lines
      of credit and notes of $273 for a total acquisition of $1,182. The
      allocation of the purchase price is based on the fair value of assets and
      liabilities assumed as determined by independent third parties or
      management's estimates, based on existing contracts, recent purchases of
      assets and underlying loan documents.

      On March 17, 2000, the Company acquired ETI in a business combination
      accounted for as a purchase. ETI specializes in the development of leading
      edge, innovative, commercial, industrial and military technologies. The
      Company issued 50,000 shares of common stock valued at $437,500 to acquire
      the net assets of ETI. The Company allocated (in thousands) the
      acquisition costs to property, plant and equipment of $13, intangible
      assets of $424, for a total acquisition of $437. The allocation of the
      purchase price is based on the fair value of assets and liabilities
      assumed as determined by independent third parties or management's
      estimates, based on existing contracts, recent purchases of assets and
      underlying loan documents.

      The following unaudited pro forma combined condensed financial statement
      has been prepared to give effect to the acquisition of ClearWorks. The
      acquisition of ClearWorks has been accounted for using the purchase method
      of accounting pursuant to APB 16, the effects of which are reflected in
      the accompanying pro forma financial statement.

      Unaudited pro forma combined condensed financial information is presented
      for illustrative purposes only and is not necessarily indicative of the
      financial position or result of operations that would have actually been
      reported had the merger occurred at the beginning of the period presented,
      nor is it necessarily indicative of future financial position or results
      of operations.

      The unaudited pro forma combined condensed financial statement is based
      upon the respective historical consolidated financial statements of Eagle
      and ClearWorks and notes thereto. The unaudited pro forma combined
      condensed financial statement does not incorporate, nor does it assume any
      benefits from cost savings or synergies of operations of the combined
      company. This transaction is reflected in the Eagle Wireless
      International, Inc. balance sheet at August 31, 2001, and accordingly any
      reference to balance sheet information is included in the accompanying
      financial information.



                                      F-12
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


A)    Pro Forma Results

      The following summarized pro forma (unaudited) information assumes the
      transactions related to ClearWorks.net, Inc. and subsidiaries had occurred
      September 1, 2000 and September 1, 1999.


                  For the years ended August 31, 2001 and 2000
                           Income Statement Pro Forma
                                 (IN THOUSANDS)


                                           Year Ended           Year Ended
                                         August 31, 2001     August 31, 2000
                                        -----------------   -----------------

            Revenue                         $ 45,121           $ 21,573
            Net Income / (Loss)1            $(23,861)          $(13,845)

            Basic EPS                       $  (0.42)          $  (0.30)
            Diluted EPS                     $  (0.42)          $  (0.30)

            Basic Shares                      57,079             45,405
            Diluted Shares                    57,233             48,711



      (1) Includes pro forma adjustment to record respective amortization of the
      intangible assets as if the acquisition consummated at the beginning
      fiscal year 2001 and 2000.

NOTE 5 - NOTES PAYABLE:

      The following table lists the Company's note obligations as of August 31,
      2001 and 2000, in thousands:

<TABLE>
<CAPTION>
                                                    Annual
                                                   Interest                                        Amount
                                                     Rate               Due Date            2001           2000
                                               -----------------------------------------------------------------
<S>                                                                                      <C>             <C>
           Vehicles                                 Various             Various          $     100       $    25
           6% Convertible Debenture (Note8)         6.0%                Demand               2,000           ---
           Tail Wind Convertible Debenture          2.0%                May 2003             5,000           ---
           Other                                    Various             Various                854            17
                                                                                         ---------       -------

           Total notes payable                                                           $   7,954       $    42
           Less current portion                                                              5,933           ---
                                                                                         ---------       -------
           Total long-term debt                                                          $   2,021       $    42
                                                                                         =========       =======
</TABLE>

NOTE 6 - CAPITAL LEASE OBLIGATIONS:

      The Company leases equipment from various companies under capital leases
      with varying expiration dates. 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.

      Minimum future lease payment under capital lease as of August 31, 2001 and
      August 31, 2000 for each of the next five years and in the aggregate are,
      in thousands:

<TABLE>
<CAPTION>
                                                                   August 31, 2001      August 31, 2000
                                                                  -----------------    -----------------
<S>                                                                    <C>                 <C>
            Total minimum lease payments                               $    177            $    111
            Less : Amount representing interest                              14                  11
                                                                       --------            --------
            Present value of net minimum lease payments                     163                 100
            Less: Current maturity capital lease obligation                  48                  59
                                                                       --------            --------
              Long-term capital lease obligation                            115                  41
                                                                       ========            ========
</TABLE>


                                      F-13

<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      Future obligations under the lease terms are as follows:


               Period Ended                  Amount
                                           ---------
                   2003                           95
                   2004                           20
                                           ---------
                Total                      $     115
                                           =========

NOTE 7 - LINE OF CREDIT:

      In fiscal 2000, the Company maintained $250,000 line of credit with Wells
      Fargo Bank bearing a variable rate of interest. At August 31, 2001 and
      2000, balances of $0 and $22,140 existed respectively. Interest is due
      monthly where as principal is due upon demand. Subsequent to August 31,
      2000, this amount was repaid. The Company then terminated the line.

      In fiscal 2000, the Company maintained $50,000 line of credit with Compass
      Bank bearing a variable rate of interest. At August 31, 2001 and 2000,
      balances of $0 and $40,690 existed respectively. Interest is due monthly
      where as principal is due upon demand. Subsequent to August 31, 2000, this
      amount was repaid. The Company then terminated the line.

      On September 29, 2000, AtlanticPacific Communications, Inc. (a wholly
      owned subsidiary of the Company) entered into a one year $900,000 line of
      credit agreement with Southwest Bank of Texas (SWBT). At August 31, 2001,
      a balance of $642,077 existed. This note bears interest at SWBT's prime
      rate plus .25%, which is payable monthly with principal due September 28,
      2001. AtlanticPacific's account receivable is pledged as collateral with
      Eagle Wireless the guarantor.

      The Company, through its subsidiary United Computing Group (UCG),
      maintains a $3,000,000 line of credit with IBM Credit Corporation (IBM)
      bearing a variable rate of interest. At August 31, 2001, a balance of
      $1,203,706 existed. Payments are due every ten (10) days. Prior to August
      31, 2001, the credit line was increased to $5,000,000, concurrently, the
      Company is negotiating an additional amount of $1,000,000 to a total line
      of credit of $6,000,000. As part of the agreement, UCG must maintain
      annual revenues of greater than zero and equal to or less than 40.0 : 1.0;
      a ratio of net profit after tax to revenues equal to or greater than 1.25
      percent; and a ratio of total liabilities to tangible net worth greater
      than zero and equal to or less than 10.0 : 1.0. Additionally, UCG must
      maintain a standard all-risk insurance policy in the amount of at least
      $300,000 with IBM being named lender loss payee.

      The subsidiaries are in compliance with all debt covenants at the date of
      the balance sheet, the Company does not foresee any changes from this
      status in the future.

NOTE 8 - CONVERTIBLE DEBENTURES:

      On December 13, 1999, ClearWorks.Net, Inc. (ClearWorks), closed a private
      placement transaction with Candlelight Investors, LLC, and ("Candlelight")
      a Delaware limited liability company. In the private placement, ClearWorks
      received from Candlelight a total of $3,000,000 in exchange for $3,000,000
      total face value 6% convertible debentures due December 13, 2001, together
      with warrants to purchase up to 210,000 shares of common stock. ClearWorks
      determined the warrants to have a total value of $215,000 on the date of
      issuance and recorded this amount as a discount against the convertible
      debentures.

      The warrants are exercisable at $3.16 per share. The debentures are
      convertible at the lower of $3.30 per share or ninety-two percent (92%) of
      the average of the three lowest closing bid prices for ClearWorks' common
      stock during the 30 days immediately preceding conversion. However, if the
      average lowest closing price is less than $1.50 per share, then the
      conversion price of the debentures shall be equal to the average lowest
      closing price without modification. Because the conversion price of these
      debentures was less than the fair value of ClearWorks' common stock on the
      date of issuance, ClearWorks has recorded as interest expense the
      intrinsic value of the beneficial conversion feature. The intrinsic value
      of the beneficial conversion feature was determined to be $650,000.



                                      F-14
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      In connection with the private placement, ClearWorks agreed not to sell
      any of its securities until July 4, 2000, unless the securities are (1)
      issued in connection with a public offering of at least $15 million, (2)
      in connection with an acquisition of additional businesses or assets or
      (3) as compensation to employees, consultants, officers or directors.

      On April 19, 2000, ClearWorks issued an additional $2,000,000 of 6%
      convertible debentures to Candlelight with conversion features similar to
      those noted above. Because the conversion price of these debentures was
      less than the fair value of ClearWorks' common stock on the date of
      issuance, ClearWorks has recorded as interest expense the value of the
      beneficial conversion feature. The value of the beneficial conversion
      feature exceeded the carrying value of the debentures (net of discount
      allocable to detachable warrants discussed below), therefore, the charge
      to interest expense was limited to $1,716,000.

      The 6% convertible debentures issued on April 19, 2000 were also issued
      with detachable warrants, exercisable at $3.16 per share. The warrants can
      be converted into 140,000 shares of common stock. ClearWorks determined
      the warrants have a total value of $284,000 on the date of issuance and
      recorded this amount as a discount against the convertible debentures.
      This discount will be amortized to interest expense over the term on the
      convertible debenture.

      This debenture contained a stipulation that required ClearWorks to
      register all underlying shares of common stock by May 19, 2000. This
      registration did not occur resulting in a situation of default. As a
      result of said default. On December 13, 2000, Candlelight served notice
      that the principal and accrued interest of the 6% convertible debenture
      dated April 19, 2000 to be repaid in accordance with the terms of the
      debenture. As a result of this call and the subsequent lawsuit served by
      Candlelight against ClearWorks, all deferred costs and penalties
      associated with this debenture have been expensed.

      During 2001, the Company merged with ClearWorks.net, Inc., and as a
      result, ClearWorks is a wholly owned subsidiary of Eagle. Link Two
      Communications, Inc. is a subsidiary of ClearWorks, and as a result of the
      merger, is now a secondary subsidiary of Eagle. 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
      (the "First Note"), and Link Two has the ability to require Tail Wind to
      purchase additional convertible notes in the amount of $4,000,000 (the
      "Second Note") and $3,000,000 (the "Third Note"). The conversion terms of
      the convertible debentures become effective after ninety days of the
      initial closing date. The maturity of the convertible note is August 15,
      2002. Link Two may require Tail Wind to purchase the Second Note if: (a)
      the price of Eagle's common stock is above $5.00 per share for 20
      consecutive trading days during calendar 2001, (b) Eagle has more than
      $10,000,000 in cash less payments for capital leases that will become due
      within the next two years, (c) the registration statement, registers the
      conversion shares are current and effective, (d) Eagle does reflect a net
      loss of more than $4,000,000 during any quarter, and (e) no material
      adverse event has occurred. Link Two may require Tail Wind to purchase the
      Third Note if the price of Eagle's common stock is above $8.00 per share
      for 20 consecutive trading days during calendar 2001, and the conditions
      set forth in (b) through (e) of the preceding sentence are satisfied. In
      conjunction with the issuance of the First Note, Link Two issued Tail Wind
      a warrant, and if Link Two chooses to issue the Second and Third Notes, it
      will issue Tail Wind additional warrants.

      As a result of the merger, 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 at a rate of $1.79 per
      share. The agreement also permits Tail Wind to convert the Link Two
      warrant into Eagle warrants to purchase shares of our common stock. Tail
      Wind would have a warrant to purchase 1,396,648 shares of our common stock
      at an exercise price of $1.83 per share, exercisable between August 2002
      and September 2006. If Link Two requires Tail Wind to purchase the Second
      and Third Note, the additional warrants it issues will also be convertible
      into shares of our common stock. The number of shares that the additional
      warrants may be converted into will depend on the price of our common
      stock, and cannot be determined at this time. However, the exercise price
      of the additional warrants may not be less than $1.83 per share.

      The Company has agreed to pre-pay the notes at the rate of a minimum of
      $250,000 per month and a maximum of $500,000 per month. The pre-payment
      may be in cash or in shares of our common stock at the rate of 90% of the
      average of the two lowest market prices of our common stock for the
      applicable month. However, the Company may not issue shares of our common
      stock for pre-payment purposes if the total number of shares exceeds the
      aggregate trading volume of our common stock for the twelve trading days
      preceding the date of payment, in which case we must pay the difference in
      cash. As the number of shares to be issued for pre-payment purposes is
      dependent on the price and trading volume of our common stock, there is no
      way to determine the number of shares



                                      F-15
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001



      that may be issued at this time. Eagle has filed a registration statement
      for the potential conversion shares for the note and warrants exercise,
      this registration statement is not effective as of this date. Subsequent
      to August 31, 2001, the Company has paid to Tail Wind $500,000 towards the
      reduction of debt. Until the registration statement is effective, the
      Company will continue to pay each month $250,000 towards this debt
      reduction. The current financial statements have recorded as current and
      long-term maturities for this debt, $3,000,000 and $2,000,000,
      respectively.

      As part of the above agreements, the Company entered into a registration
      rights agreement with Tail Wind, and the Company filed a registration
      statement, in order to permit Tail Wind to resell to the public the shares
      of common stock that it may acquire upon any conversion of the First Note
      and exercise of the warrant associated with the First Note. The Company
      have registered for resale 5,000,000 shares of common stock, which
      represents 122% of the shares to be issued upon conversion of the First
      Note at $1.79 per share and 100% of the exercise of the warrant associated
      with the First Note at $1.83 per share. The additional shares registered
      is to account for the shares that may be issued for pre-payment as
      described in the above paragraph, or upon the exercise of the
      anti-dilution rights provided for in the following paragraph. If Link Two
      chooses to require Tail Wind to purchase the Second and Third Notes, we
      will file another registration statement covering the resale of the shares
      that may be issued on conversion of the Second and Third Notes and upon
      the exercise of the warrants associated with the Second and Third Notes.

      In our agreement with Tail Wind, the Company granted Tail Wind
      anti-dilution rights. If the Company sell common stock or securities
      exercisable for or convertible into shares of our common stock for less
      than $1.79 per share, the Company must reduce the conversion price of the
      notes and the exercise price of the warrants to the price the Company sold
      the common stock or the exercise or conversion price the Company issued
      the convertible securities. The Company has agreed to register for resale
      any additional shares that will be issued pursuant to these anti-dilution
      rights on a future registration statement, unless such additional shares
      are available in the current registration statement. In addition, under
      the terms of the agreement, without Tail Wind's approval, the Company may
      not issue Tail Wind shares of common stock such that Tail Wind would ever
      be considered to beneficially own greater than 4.99% of the outstanding
      common stock. In connection with this transaction, Link Two has paid
      Ladenburg Thalman & Co. a fee of 5% of the purchase price of the notes.
      Additionally the Company has valued the conversion feature of the
      convertible debenture and warrants at $1,648,045 and $1,270,995,
      respectively; the amounts were determined by using the Black-Scholes
      calculation. These amounts have been capitalized as part of the cost of
      developing the wireless infrastructure.

NOTE 9 - MARKETABLE SECURITIES:

      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, 2001 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, 2001 the securities had an original basis of $1,867,000
      determined by multiplying the number of shares acquired by the fair market
      value of those shares. At the August 31, 2001 balance sheet date, the fair
      market value of these securities was $1,881,000; determined by multiplying
      the number of shares held by the fair market value of those shares at the
      balance sheet date. The difference between the cost and fair market value
      represents an unrealized holding gain (loss) and is included below current
      earnings in "Other Comprehensive Income".



                                      F-16
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001

<TABLE>
<CAPTION>

                       Security Name                     Shares            Cost Basis         Current FMV
                                                                           -----------        ------------
<S>                                                        <C>             <C>                 <C>
            Bank of America                                50,000          $   49,688          $   50,000
            Bear Stearns                                   55,000              54,948              54,244
            Citicorp                                      110,000             109,500             107,400
            CMC Security                                   17,000              16,660              16,915
            Credit Suisse                                  50,000              49,925              50,187
            CWMBS                                           5,000               4,814               4,950
            FHLMC                                         383,000             132,628             137,724
            FNMA                                          753,000             138,809             141,427
            GE Capital                                     32,000              30,176              30,514
            GNMA                                          294,610             251,884             251,193
            Prudential                                     15,000              12,227              12,704
            Res. Accredit                                  25,102               3,927               3,938
            SB Government Securities Fund                 106,202           1,011,905           1,019,541
                                                                           ----------          ----------
            Totals                                                         $1,867,141          $1,880,737
                                                                           ==========          ==========
</TABLE>

      Other marketable securities, Urbana and Busrt.com, with a cost basis of
      $783,000 and fair market value of $418,000 are included in cash and cash
      equivalents category and are held for resale.

NOTE 10 - 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.


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

                                                            August 31,
                                                          2001      2000
                                                          ----      ----
                                                           %          %
            U.S. Federal Statutory Tax Rate                34        34
            U.S. Valuation Difference                     (34)       (1)
                                                         ----       ---
            Effective U.S. Tax Rate                         0        33
            Foreign Tax Valuation                           0         0
                                                         ----       ---
            Effective Tax Rate                              0        33
                                                         ====       ===


            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)



                                      F-17
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


                                                             August 31,
                                                        2001            2000
                                                      -------         -------
            Computed expected tax benefit             $(1,997)        $    96
            Increase in valuation allowance             1,997              --
                                                      -------         -------
                                                      $    --         $    96
                                                      =======         =======


      The tax effects of temporary differences that give rise to significant
      portions of the deferred tax assets and deferred tax liabilities at August
      31, 2001 and 2000 are presented below, in thousands and include the
      balances of the merged company ClearWorks.Net.

<TABLE>
<CAPTION>
                                                                     August 31,
                                                              2001               2000
                                                            --------           --------
<S>                                                         <C>                <C>
            DEFERRED TAX ASSETS:
            Accounts receivable, principally due to
            allowance for doubtful accounts                 $    102           $     --

            Net operating loss carry-forwards                 10,956
            Less valuation allowance                         (10,956)
                                                            --------           --------
            Net deferred tax assets                               --                 --

            DEFERRED TAX LIABILITIES:
            Differences in depreciation                           47                 47
                                                            --------           --------
            Net deferred tax liabilities                    $     47           $     47
                                                            ========           ========
</TABLE>

      The valuation allowance for deferred tax assets of August 31, 2001 and
      2000 was $10,959,000 and $47,000, respectively. The net change in the
      total valuation allowance for the years ended August 31, 2001 and 2000 was
      an increase of $1,997,000 and $0, respectively. At August 31, 2001 and
      2000, the Company has net operating loss carryforwards of $31,869,000 and
      $0, respectively, which are available to offset future federal taxable
      income, if any, with expirations from 2020 to 2021.

NOTE 11 - ISSUANCE OF COMMON STOCK:

      During the fiscal year ended August 31, 2001, the Company issued shares of
      common stock. The following table summarizes the shares of common stock
      issued, in thousands.


        Shares Outstanding August 31, 2000                           25,609
                                                                -----------
        Shares issued for Services and Compensation                   1,370
        Shares issued for Property and Other Assets                     127
        Shares issued for Retirement of Debt and Liabilities          3,004
        Shares issued for Warrant Conversions                           645
        Shares issued for ESOP                                           96
        Share issued for Acquisition of ClearWorks                   35,287
        Shares issued for Licenses and Investments                    1,204
        Treasury Stock                                               (7,078)
                                                                -----------
        Shares Outstanding August 31, 2001                           60,264
                                                                ===========

NOTE 12 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS:

      In July 1996, the Board of Directors and majority shareholders adopted an
      employee stock option plan under which 400,000 shares of 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. The options
      granted for under this plan are to purchase fully paid and non-assessable
      shares of the Common Stock, par value $.001 per share at a price equal to
      the underlying common stock's market price at the date of issuance. These
      options may be redeemed six months after issuance, expire five years from
      the date of issuance and contain a cash-less exercise feature. The
      underlying shares of common stock were registered for resale


                                      F-18

<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      under the Securities Act of 1933 on February 19, 1999. As of August 31,
      2001, 404,974 options have been granted pursuant to such plan with 72,499
      being exercised and 10,350 being cancelled.

      The Company has issued or has acquired through its acquisitions and
      outstanding the following warrants which have not yet been exercised at
      August 31, 2001:

            39,998 stock purchase warrants issued to Carl A. Chase. Expiration
            of warrants is 6,666 on the ending date of each month commencing on
            November 30, 2001 and ending on July 31, 2002. The warrants are to
            purchase fully paid and non-assessable shares of the common stock,
            par value $.001 per share at a purchase price of $0.31 per share.
            The shares of common stock underlying these warrants have not been
            registered or issued, under the Securities Act of 1933. As of August
            31, 2001, all of these warrants have been exercised.

            50,000 stock purchase options issued to L.A. Delmonico Consulting,
            Inc. The warrants are to purchase fully paid and non-assessable
            shares of the common stock, par value $.001 per share at a purchase
            price of $1.04 per share. The shares of common stock underlying
            these warrants have not been registered or issued, under the
            Securities Act of 1933. As of August 31, 2001, none of these options
            have been registered, issued or exercised

            600,000 stock purchase warrants issued to Paladin Associates
            expiring September 1, 2001. The warrants are to purchase fully paid
            and non-assessable shares of the common stock, par value $.001 per
            share at a purchase price of $1.50 per share. 166,667 warrants are
            not exercisable until and unless the shares of Common Stock trade at
            a minimum of $4.00 per share for twenty-one consecutive trading
            days. 166,667 warrants are not exercisable until and unless the
            shares of Common Stock trade at a minimum of $6.00 per share for
            twenty-one consecutive trading days. 166,666 warrants are not
            exercisable until and unless the shares of Common Stock trade at a
            minimum of $8.00 per share for twenty-one consecutive trading days.
            The shares of common stock underlying 350,000 warrants were
            registered for resale on August 3, 2000, under the Securities Act of
            1933. 100,000 incentive warrants will be made available and will
            vest at the end of October 2000 if the first objective of $4.00 is
            achieved before the end of October. As of August 31, 2001, 250,000
            of the underlying shares of common stock have not yet been
            registered for resale under the Securities Act of 1933.

            50,000 stock purchase warrants issued to Weed & Co. L.P. expiring
            December 10, 2002. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $1.55 per share. The shares of common stock
            underlying the warrants were registered for resale on August 3,
            2000, under the Securities Act of 1933. As of August 31, 2001,
            25,000 warrants have been exercised resulting in cash proceeds of
            $38,750.

            20,000 stock purchase warrants issued to Kason, Inc. expiring
            October 7, 2002. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $1.75 per share. The shares of common stock
            underlying these warrants were registered for resale on November 30,
            2000, under the Securities Act of 1933. August 31, 2001, 6,234
            warrants have been exercised resulting cash proceeds of $10,910.

            25,000 stock purchase warrants issued to Synchton, Inc. expiring
            January 1, 2004. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $2.00 per share. The shares of common stock
            underlying these have not been registered as of August 31, 2001,
            under the Securities Act of 1933. As of August 31, 2001, none of
            these warrants have been exercised.

            41,667 stock purchase warrants issued to Peter Miles expiring July
            20, 2004. The warrants are to purchase fully paid and non-assessable
            shares of the common stock, par value $.001 per share at a purchase
            price of $2.00 per share. The shares of common stock underlying
            these have not been registered as of August 31, 2001, under the
            Securities Act of 1933. As of August 31, 2001, none of these
            warrants have been exercised.



                                      F-19
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


            41,667 stock purchase warrants issued to Peter Miles expiring July
            20, 2004. The warrants are to purchase fully paid and non-assessable
            shares of the common stock, par value $.001 per share at a purchase
            price of $2.25 per share. The shares of common stock underlying
            these warrants have not been registered or issued, under the
            Securities Act of 1933. As of August 31, 2001, none of these
            warrants have been exercised.

            58,333 stock purchase warrants issued to Peter Miles expiring July
            20, 2004. The warrants are to purchase fully paid and non-assessable
            shares of the common stock, par value $.001 per share at a purchase
            price of $3.00 per share. The shares of common stock underlying
            these warrants have not been registered or issued, under the
            Securities Act of 1933. As of August 31, 2001, none of these
            warrants have been exercised.

            50,000 stock purchase warrants issued to Weed & Co. L.P. expiring
            June 10, 2002. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $3.00 per share. The shares of common stock
            underlying these warrants were registered for resale on August 3,
            2000, under the Securities Act of 1933. As August 31, 2001, none of
            these warrants have been exercised.

            40,000 stock purchase warrants issued to Rachel McClere 1998 Trust
            expiring April 24, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $3.75 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As of August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            160,000 stock purchase warrants issued to McClere Family Trust
            expiring April 24, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $3.75 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            232,000 stock purchase warrants issued to Shannon D. McLeroy
            expiring April 24, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $3.75 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            176,000 stock purchase warrants issued to Tech Technologies
            Services, LLC expiring April 24, 2003. The warrants are to purchase
            fully paid and non-assessable shares of the common stock, par value
            $.001 per share at a purchase price of $3.75 per share. The shares
            of common stock underlying these warrants have not been registered
            or issued, under the Securities Act of 1933. As of August 31, 2001,
            none of these warrants have been registered, issued or exercised.

            328,000 stock purchase warrants issued to Candlelight Investors,
            LLC. Expiration of warrants is as follows: 104,000 on December 31,
            2002, 112,000 on February 15, 2003 and the remaining 112,000 on
            April 19, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $3.95 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As of August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            25,000 stock purchase warrants issued to Synchton, Inc. expiring
            October 1, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $4.50 per share. The shares of common stock
            underlying these warrants were registered for resale on August 3,
            2000, under the Securities Act of 1933. As of August 31, 2001, none
            of these warrants have been exercised.



                                      F-20
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001



            100,000 stock purchase warrants issued to National Financial
            Communications Corp. expiring June 2003. The warrants are to
            purchase fully paid and non-assessable shares of the common stock,
            par value $.001 per share at a purchase price of $7.00 per share. As
            of August 31, 2001, the underlying shares of common stock have not
            yet been registered for resale under the Securities Act of 1933.

            250,000 stock purchase warrants issued to Sands Brothers & Co., LTD.
            expiring July 13, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $7.49 per share. As of August 31, 2001, the
            underlying shares of common stock have not yet been registered for
            resale under the Securities Act of 1933.

            25,000 stock purchase warrants issued to Synchton, Inc. expiring
            July 1, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $7.50 per share. The shares of common stock
            underlying these warrants were registered for resale on August 3,
            2000, under the Securities Act of 1933. As August 31, 2001, none of
            these warrants have been exercised.

            192,000 stock purchase warrants issued to Tech Technologies
            Services, LLC. expiring April 24, 2008. The warrants are to purchase
            fully paid and non-assessable shares of the common stock, par value
            $.001 per share at a purchase price of $7.50 per share. The shares
            of common stock underlying these warrants have not been registered
            or issued, under the Securities Act of 1933. As of August 31, 2001,
            none of these warrants have been registered, issued or exercised.

            240,000 stock purchase warrants issued to Shannon D. McLeroy
            expiring April 24, 2008. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $7.50 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            168,000 stock purchase warrants issued to Michael T. McClere
            expiring April, 24, 2008. The warrants are to purchase fully paid
            and non-assessable shares of the common stock, par value $.001 per
            share at a purchase price of $7.50 per share. The shares of common
            stock underlying these warrants have not been registered or issued,
            under the Securities Act of 1933. As August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            40,000 stock purchase warrants issued to Rachel McClere 1998 Trust
            expiring April 24, 2008. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $7.50 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As of August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            160,000 stock purchase warrants issued to McClere Family Trust
            expiring April 24, 2008. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $7.50 per share. The shares of common stock
            underlying these warrants have not been registered or issued, under
            the Securities Act of 1933. As August 31, 2001, none of these
            warrants have been registered, issued or exercised.

            50,000 stock purchase warrants issued to Weed & Co. L.P. expiring
            June 10, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $9.68 per share. The shares of common stock
            underlying these warrants were registered for resale on August 3,
            2000, under the Securities Act of 1933. As of August 31, 2001, none
            of these warrants have been exercised.



                                      F-21
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


            25,000 stock purchase warrants issued to Synchton, Inc. expiring
            April 1, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $10.00 per share. The shares of common stock
            underlying these warrants were registered for resale on August 3,
            2000, under the Securities Act of 1933. As August 31, 2001, none of
            these warrants have been exercised.

            250,000 stock purchase warrants issued to Sands Brothers & Co., LTD.
            expiring July 13, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $10.00 per share. These warrants, however are
            not exercisable until and unless the closing price of Common Stock
            at any time during the exercise period reaches $10.00 per share. As
            of August 31, 2001, the underlying shares of common stock have not
            yet been registered for resale under the Securities Act of 1933.

            250,000 stock purchase warrants issued to Hampton-Porter Investment
            Bankers LLC expiring June 27, 2003. The warrants are to purchase
            fully paid and non-assessable shares of the common stock, par value
            $.001 per share at a purchase price of $12.00 per share. The shares
            of common stock underlying these warrants were registered for resale
            on August 3, 2000, under the Securities Act of 1933. As of August
            31, 2001, none of these warrants have been exercised.

            350,000 stock purchase warrants issued to Sands Brothers & Co., LTD.
            expiring July 13, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $14.00 per share. These warrants, however,
            are not exercisable until and unless the closing price of the Common
            Stock at any time during the exercise period reaches $14.00 per
            share. As of August 31, 2001, the underlying shares of common stock
            have not yet been registered for resale under the Securities Act of
            1933.

            250,000 stock purchase warrants issued to Hampton-Porter Investment
            Bankers LLC expiring June 27, 2003. The warrants are to purchase
            fully paid and non-assessable shares of the common stock, par value
            $.001 per share at a purchase price of $18.00 per share. The shares
            of common stock underlying these warrants were registered for resale
            on August 3, 2000, under the Securities Act of 1933. As of August
            31, 2001, none of these warrants have been exercised.

            150,000 stock purchase warrants issued to Sands Brothers & Co., LTD.
            expiring July 13, 2003. The warrants are to purchase fully paid and
            non-assessable shares of the common stock, par value $.001 per share
            at a purchase price of $25.00 per share. These warrants, however,
            are not exercisable until and unless the closing price of the Common
            Stock at any time during the exercise period reaches $25.00 per
            share. As of August 31, 2001, the underlying shares of common stock
            have not yet been registered for resale under the Securities Act of
            1933.

      The warrants outstanding are segregated into four categories (exercisable,
      non-exercisable, non-registered, and expired).


                                      F-22
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001

<TABLE>
<CAPTION>

                Warrants Issued            Warrants Exercisable                Warrants                        Warrants Expired
Class of          August 31,                    August 31,                Non-             Non-                   August 31,
Warrants      2001         2000             2001         2000         Exercisable       Registered          2001            2000
--------   -----------------------      --------------------------   -------------------------------      -------------------------
<S>          <C>                                                        <C>                <C>
1.04         50,000            -                -            -          50,000             50,000                -              -
1.50        600,000            -                -            -         350,000            250,000                -              -
1.55         50,000            -           25,000            -               -                  -                -              -
1.75         20,000            -           13,766            -               -                  -                -              -
2.00         25,000            -           25,000            -               -                  -                -              -
2.00         41,667            -           41,667            -               -                  -                -              -
2.25         41,667            -           41,667            -                                  -                -              -
3.00         50,000            -           50,000            -               -                  -                -              -
3.00         58,333            -           58,333            -               -                  -                -              -
3.75         40,000            -           40,000            -               -             40,000                -              -
3.75        160,000            -          160,000            -               -            160,000                -              -
3.75        232,000            -          232,000            -               -            232,000                -              -
3.75        176,000            -          176,000            -               -            176,000                -              -
3.95        328,000            -          328,000            -               -            328,000
4.50         25,000            -                -            -               -                  -                -              -
7.00        100,000            -                -            -               -            100,000                -              -
7.49        250,000            -                -            -               -            250,000                -              -
7.50         25,000            -           25,000            -               -                  -                -              -
7.50        192,000            -          192,000            -               -            192,000                -              -
7.50        240,000            -          240,000            -               -            240,000                -              -
7.50        168,000            -          168,000            -               -            168,000                -              -
7.50         40,000            -           40,000            -               -             40,000                -              -
7.50        160,000            -          160,000            -               -            160,000                -              -
9.68         50,000            -           50,000            -               -                  -                -              -
10.00        25,000            -           25,000            -               -                  -                -              -
10.00       250,000            -                -            -               -            250,000                -              -
12.00       250,000            -          250,000            -               -                  -                -              -
14.00       350,000            -                -            -               -            350,000                -              -
18.00       250,000            -          250,000            -               -                  -                -              -
25.00       150,000            -          250,000            -               -            150,000                -              -

2.00        Expired            -  *             -            -               -                  -           50,000              -
ESOP        416,474  *    40,200  *       392,474            -          24,000                  -           10,350         10,250
ESOP              -      202,407                -      110,158         107,058                  -
        -----------    ---------       -----------------------       ----------------------------        ------------------------
          4,814,141      242,607        3,233,907      110,158         531,058          3,136,000           60,350         10,250
        ===========    =========       =======================       ============================        ========================

</TABLE>

AN ASTERISK (*) DENOTES WARRANTS WHICH WOULD HAVE AN ANTI-DILUTIVE EFFECT IF
CURRENTLY USED TO CALCULATE EARNINGS PER SHARE FOR THE MONTHS ENDED AUGUST 31,
2001 AND 2000, RESPECTIVELY.


NOTE 13 - CAPITALIZATION ACTIVITIES:

      On July 10, 2000, AtlanticPacific Communications, Inc. (a wholly owned
      subsidiary) initiated a stock offering in accordance with Regulation D
      promulgated under the Securities Act of 1933. AtlanticPacific is offering
      units at $25,000 per unit. Each unit consists of 10,000 shares of common
      stock and 10,000 Class A warrants to purchase AtlanticPacific common stock
      at a price of $6.00 per share with one warrant being issued as a unit with
      each common share sold. AtlanticPacific will sell up to 4,000,000 shares
      of common stock and up to 4,000,000 Class A warrants; 400 units. As of
      August 31, 2001, 1,325 units have been sold totaling 132,500 shares and
      resulting in proceeds of $331,250.

NOTE 14 - RISK FACTORS:

      For the year ended August 31, 2001 and 2000, substantially all of the
      Company's business activities have remained within the United States and
      have been extended to the wireless infrastructure, fiber, cabling and
      broadband industry. Approximately, eighty seven percent of the Company's
      revenues and receivables have been created solely in the state of Texas,
      two percent have been created in the international market, and the
      approximate eleven percent remainder have been created relatively evenly
      over the rest of the nation during the year ended August 31, 2001. Whereas
      approximately forty six percent of the Company's revenues and receivables
      have been created solely in the state of Texas, five percent have been
      created in the international market, and the approximate forty nine
      percent remainder has been created relatively evenly over the rest of the
      nation for the year ended August 31, 2000.



                                      F-23

<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      Through the normal course of business, the Company generally does not
      require its customers to post any collateral.

      Although the Company had previously concentrated its efforts in the
      wireless infrastructure industry and has since expanded into the fiber,
      cable and broadband markets for the year ended August 31, 2001 and 2000,
      it is management's belief that the Company's diversification into other
      products and services reduces its credit and economic risk exposures in
      the technology and manufacturing sectors.

NOTE 15 - FOREIGN OPERATIONS:

      Although the Company is based in the United States, its product is sold on
      the international market. Presently, international sales total
      approximately 2% and 4.8% at August 31, 2001 and 2000, respectively.

NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES:

      LEASES

      The Company leases its primary office space in League City, Texas for
      $30,824 per month with Gateway Park Joint Venture. This non-cancelable
      lease commenced on June 1, 2001 and expires on May 31, 2004.

      For the years ending August 31, 2001 and 2000, rental expenses of
      approximately $232,195 and $258,196 respectively, were incurred. The two
      payments of $19,032 were agreed payments by both parties during the
      negotiation period of the new lease.

      A new three-year non-cancelable lease commenced June 1, 2001 and expires
      May 31, 2004. Under the terms of the lease, monthly payments will be
      $30,824 over the course of the lease. The monthly payment amount includes
      tax escrow payments, insurance escrow payments and common area
      maintenance. The Company has retained the original 23,195 square feet of
      space, plus an additional 7,000 square feet for office space and storage
      of materials used in subdivision infrastructure development for the
      southern region of Houston.

      The Company also leases office space in Oxnard, California with Tiger
      Ventura County, L.P. This three-year non-cancelable lease commenced August
      1, 2000 and expires July 31, 2003. Under the terms of the lease, monthly
      payments will be $2,130 for the first twelve months whereat the monthly
      payments will increase by 3.5% at the beginning of both the second and
      third years. For the periods ended August 31, 2001 and 2000, rental
      expense of $25,634 and $2,130, respectively were incurred.

      The Company's wholly owned subsidiary, AtlanticPacific, leases office
      space in Houston, Texas with Houston Industrial Partners, Ltd. This
      non-cancelable lease expires October 2001. The monthly payments through
      October 2000 are $1,420 whereat they will increase to $1,498 for the
      remaining twelve months. Additionally, AtlanticPacific is responsible for
      monthly common area maintenance fees of approximately $450. For the
      periods ended August 31, 2001 and 2000, rental expense of $25,272 and
      $22,240, respectively were incurred.

      AtlanticPacific also leases office space in Chicago, Illinois with Lasalle
      Bank National Association. This twenty-nine month lease commenced on
      October 1, 2000 and expires February 28, 2003. Under the terms of the
      lease, monthly payments will be $2,220 for the first twelve months whereat
      they will increase by 3.2% at the thirteenth and twenty-fifth months. For
      the periods ended August 31, 2001 and 2000, rental expense of $26,640 and
      $0, respectively were incurred.

      AtlanticPacific also leases office space in Houston, Texas with WL and
      Deborah Miller in the amount of $4,500 per month. This non-cancelable
      lease expiring September 2002 maintains a five-year renewal option. Rental
      expense for the period ended August 31, 2001 and 2000 of $54,000 and
      $54,000 were incurred.

      The Company's subsidiary, ClearWorks.Net, Inc., leases office space in
      Houston, Texas with 2000 North Loop. This non-cancelable lease expires on
      April 30, 2003. The monthly payments will increase from $7,306 to $11,091
      on April 30, 2000 and again on May 1, 2002 to $11,217 for the remaining
      twelve months. For the period ended August 31, 2001, rental expense of
      $133,092 was incurred.

      Also, ClearWorks.Net, Inc., leases office space in Phoenix, Arizona with
      Airpark Holdings. This non-cancelable lease expires on July 31, 2003. The
      monthly payments are variable. For the period ended August 31, 2001,
      rental expense of $54,614 was incurred.



                                      F-24
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      Also, ClearWorks.Net, Inc., leases office space in San Antonio, Texas with
      Wade Holdings. This is a month-to-month lease. The monthly payments are
      $2,000. For the period ended August 31, 2001, rental expense of $26,600
      was incurred.

      The Company's subsidiary, United Computing Group, leases office space in
      Houston, Texas with Techdyne, Inc. This non-cancelable lease expires on
      August 31, 2002. The monthly payments will increase from $6,000 to $6,100
      on September 1, 2000 and again on September 1, 2001 to $6,300 for the
      remaining twelve months. For the period ended August 31, 2001, rental
      expense of $73,200 was incurred.

      The Company's subsidiary, ClearWorks Home Systems, leases office space in
      Austin, Texas with Ditto Communications Technologies, Inc. This
      non-cancelable lease commenced on August 1, 2001 and expires August 30,
      2002. The monthly payments are $4,732. For the period ended August 31,
      2001, rental expense of $4,732 was incurred.

      The Company's subsidiary, United Computing Group, leases office space in
      Dallas, Texas with AMB Property II, LP. This non-cancelable lease
      commenced on June 19, 2000 and expires June 30, 2002. The monthly payments
      are $2,179. For the period ended August 31, 2001, rental expense of
      $26,148 was incurred.


            Future obligations under the non-cancelable lease terms are:

                           Period Ending

                           AUGUST 31,           AMOUNT
                           ---------         ------------
                              2002           $    678,501
                              2003                442,015
                              2004                149,306
                                             ------------
                             Total           $  1,269,822
                                             ============

      LEGAL PROCEEDINGS

      ClearWorks is subject to legal proceedings and claims that arise in the
      ordinary course of business. Management does not expect that the results
      in any of these legal proceedings will have a material adverse effect on
      the Company's financial condition or results of operations. Coinciding
      with the reverse merger with Southeast, the former management of Southeast
      established a trust to provide for the orderly liquidation of any alleged
      claims existing as of the date of acquisition. Certain stockholders of
      Southeast have contributed 86,000 shares of the ClearWorks common stock to
      the trust to satisfy approximately $150,000 of alleged claims. Due to the
      resignation of the trustee, the trust shares have been deposited in the
      registry of the Harris County Texas District Court, and the Company has
      been named a nominal defendant in an Interpleader action. ClearWorks
      intends to vigorously defend its position by requesting the court release
      the stock for payment of all alleged claims as was originally intended.
      Management does not expect that the results of this legal proceeding will
      have a material adverse effect on the ClearWorks financial condition or
      results of operations.

      ClearWorks also currently is a defendant in Robert Horn vs. ClearWorks
      Technologies, Inc. The suit was filed March 25, 1999, alleging causes of
      action based on breach of contract in the amount of approximately
      $250,000; 100,000 shares of ClearWorks common stock; alleged lost
      commissions and attorney fees. The facts underlying this lawsuit are as
      follows: Robert Horn entered into an employment agreement with the
      ClearWorks effective April 1, 1998. The employment agreement contained a
      condition precedent which stated: "The completion and subsequent release
      of escrow money associated with the initial 504 offering of the ClearWorks
      securities on or before May 1, 1998, is a condition precedent to the
      obligation of any party hereunder". The condition precedent was not met
      because ClearWorks did not have a 504 offering prior to May 1, 1998. On
      July 1, 1998, Mr. Horn tendered his notice of resignation effective July
      31, 1998. On March 25, 1999, Mr. Horn filed a lawsuit claiming that the
      ClearWorks had terminated Mr. Horn's employment without cause. ClearWorks
      filed an answer on April 16, 1999, denying the claim and asserting its
      affirmative defenses. ClearWorks attempted to mediate this case but was
      unsuccessful. The suit is currently in the discovery phase, a continuance
      has been granted. ClearWorks continues to vigorously contest these claims
      by Robert Horn on the basis that they are without merit.

      ClearWorks is a defendant in Valley First Community Bank vs.
      ClearWorks.net, Inc. and ClearWorks Home Systems, Inc. On August 16, 2000,
      Valley First Community Bank (Valley) filed suit alleging a breach of
      contract, breach of implied duty of good faith and fair dealing,
      conversion, intentional interference with contract, and promissory
      estoppel/detrimental reliance. This suit arose when ClearWorks Home
      Systems, Inc. (CHS) executed a



                                      F-25
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      binding letter of intent to purchase from Valley certain assets, which
      Valley represented to CHS that it held first lien for a purchase price of
      $150,000. Subsequently, CHS learned Valley did not in fact hold a first
      lien on such assets, rather such assets were sold in a landlord's auction.
      As a result, CHS did not remit $150,000 to Valley for payment. (see Note
      2) This suit is currently in the discovery phase. The Company intends to
      vigorously contest all claims in this case.

      ClearWorks is 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. On December 13, 2000, Florida EPA sued the
      Company 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. The
      Company immediately filed a Motion to Strike Portions of the Complaint/or
      for a More Definite Statement and a Motion to Dismiss. The Florida EPA is
      amending the petition. 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.

      ClearWorks Structured Wiring Services is a defendant in CHARTERWOOD
      ASSOCIATES, LTD. V. CLEARWORKS STRUCTURED WIRING SERVICES, INC.; IN THE
      COUNTY CIVIL COURT AT LAW NUMBER THREE (3), HARRIS COUNTY, TEXAS. On
      January 21, 2000, Charterwood Associates, a Texas Limited Partnership,
      sued ClearWorks Structured Wiring Services, Inc., a subsidiary of
      ClearWorks. The suit presents claims for breach of a contract to design,
      operate and maintain "bundled digital services" to Plaintiff's apartment
      complex. The suit seeks recovery of damages in the sum of $78,746.69 plus
      interest, attorneys' fees and court costs. ClearWorks denies the claims.
      ClearWorks maintains its own claims for breach of contract in connection
      with the same project. ClearWorks has filed an affidavit claiming a lien
      against the apartment project owned by the Plaintiffs, claiming that
      $52,800 is unpaid for services and materials provided. ClearWorks will
      seek attorneys' fees, interest and cost of court in connection with its
      counter-claim, when filed. No discovery has been taken. The courts have
      granted a motion for continuance. ClearWorks intends to vigorously contest
      all claims in this case. ClearWorks also expects to vigorously pursue
      collection of its claims for services rendered and materials provided.

      ClearWorks is a defendant in BUCKALEW EMPLOYMENT SERVICES, INC. VS.
      CLEARWORK.NET, INC. D.B.A. CLEARWORKS TECHNOLOGIES, INC.; IN THE DISTRICT
      COURT OF KLEBERG COUNTY, TEXAS. On July 14, 2000, Buckalew sued the
      Company presenting claims for payment of an account. The suit seeks
      recovery of damages in the sum of $13,833, attorneys' fees and cost of
      court. Buckalew filed a motion for substitute service and the company was
      served on September 27, 2000 by posting the petition to the door at 2450
      Fondren, Suite 200, Houston, Texas 77063. ClearWorks, however, never
      became aware of such lawsuit, and Buckalew made no attempt to contact the
      ClearWorks' general counsel. In the interim, ClearWorks made a substantial
      payment directly to Buckalew and, at the time the lawsuit was filed, owed
      not more than $1,000 to Buckalew. ClearWorks became aware of such lawsuit
      on October 25, 2000 and immediately contacted Buckalew's counsel. Upon
      receiving a copy of the lawsuit via fax, ClearWorks immediately filed an
      answer denying all claims. At this time, Buckalew is demanding over $6,000
      in attorney fees.

      ClearWorks is a defendant in Candlelight Investors LLC v. Clearworks.net,
      Inc. et al which is pending in the Supreme Court of the State of New York,
      County of New York. Plaintiff seeks a judgment against ClearWorks arising
      out of the alleged failure of Clearworks.net, Inc. to convert certain
      debentures of the Company into common stock of ClearWorks, to register
      stock to permit such conversion, and for other alleged breaches relating
      to agreements between plaintiff and ClearWorks. Plaintiff seeks
      compensatory damages exceeding $2,763,998, injunctive relief, specific
      performance, punitive damages and other relief. The Plaintiff has obtained
      a judgement in the amount of $3,200,000, against ClearWorks. Plaintiffs
      will be conducting jurisdictional discovery on Eagle and Dr. H. Dean
      Cubley. The defendants deny the allegations of the complaint.

      ClearWorks is defendant in Kaufman Bros., LLP v. Clearworks.Net, Inc., et
      al, (Index No. 600939/01), which is pending in the Supreme Court of the
      State of New York, County of New York. In this action, plaintiff alleges
      that defendants have breached an agreement with ClearWorks to pay
      plaintiff a fee for financial advice and services allegedly rendered by
      plaintiff. The complaint seeks compensatory damages of $4,000,000, plus
      attorneys' fees and costs. The defendants, including ClearWorks, have
      moved to dismiss the action on the grounds that the court has no personal
      jurisdiction over them. Briefing on those motions has not been completed.
      The defendants deny the allegations of the complaint.



                                      F-26
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      ClearWorks is a defendant in Merger Communications Inc. vs.
      Clearworks.Net, Inc; in the 281st Judicial District Court of Harris
      County, Texas. On June 16, 2000, Merger Communications sued Clearworks.
      The suit presents claims for breach of contract to provide Clearworks
      public relation services. The suit seeks recovery of damages in the sum of
      $7,798, the value of 106,667 restricted shares of Clearworks common stock
      as of the date of the alleged breach plus interest, attorney fees, and
      court costs. Clearworks denies the claims and has filed an answer. No
      discover has been taken. Clearworks intends to vigorously contest all
      claims in this case.

      OTHER COMMITMENTS

      On July 13, 2000, the Company entered into an agreement with Sands
      Brothers & Co., LTD. (Sands) whereby Sands will perform financial advisory
      services and assist the Company with mergers and acquisitions, corporate
      finances and other related matters for a period of two years. As
      compensation for these services, the Company will immediately pay Sands
      $50,000 and issue them 10,000 shares of the Company's common stock. As an
      additional inducement, the Company has issued Sands 1,000,000 stock
      purchase warrants to be exercisable for a three year period expiring July
      13, 2003. These warrants shall vest and be exercisable as follows: 25% of
      such warrants shall vest upon execution of this agreement and shall have
      an exercise price per share of $7.49; an additional 25% shall vest when
      and if the closing price of the common stock at any time during the
      exercise period reaches $10.00 per share and shall be exercisable at
      $10.00 per share; an additional 35% shall vest when and if the closing
      price of the common stock at any time during the exercise period reaches
      $14.00 per share and shall be exercisable at $14.00 per share; an
      additional 15% shall vest at any time during the exercise period when the
      closing price of the common stock at any time reaches $25.00 per share and
      shall be exercisable at $25.00 per share. Additionally, Sands shall
      receive further compensation for other activities such as fund raising
      based upon a percent of all monies raised.

      On April 1, 2000, the Company entered a one-year agreement with Synchton,
      Inc. whereby Synchton, Inc. will provide professional business services.
      As compensation for these services, the Company will pay $10,000 per month
      as well as issue 100,000 stock purchase warrants. These warrants shall be
      issued in 25,000 increments on the first day of each quarter of the
      agreement with an exercise price equal to the closing price of the
      Company's common stock of the prior day to issuance. Additionally, these
      warrants are not exercisable until six months after issuance and expire
      three years after said issuance. Although this agreement shall
      automatically renew on an annual basis, it is terminable by the Company
      prior to the annual renewal by providing Synchton, Inc. with ninety days
      advance written notice.

      On September 1, 1999, the Company entered into an agreement with Paladin
      Associates (Paladin) whereby Paladin will assist the Company with general
      financial related services. These services shall include, but not be
      limited to, assistance in writing news releases, stockholder
      communications, communications with retail brokers and brokerage firms,
      consulting to large shareholders and general image and public relations
      issues. As compensation for the services to be rendered under this
      twelve-month contract, the Company will pay $3,500 and issue 2,000 free
      trading shares of the Company's common stock per month. This agreement
      also contains incentive based bonuses tied to the consecutive twenty-one
      day average closing bid price of the Company's common stock. This
      incentive will consist of 500,000 two-year options for the purchase of the
      Company's common stock at $1.50. These options will be vested in three
      equal portions based upon the Company's performance in the stock market.
      One-third will vest when the closing bid price reaches $4.00 and remains
      above this level for a minimum of twenty-one consecutive trading days. The
      second one-third will vest when the closing bid price reaches $6.00 and
      remains above this level for a minimum of twenty-one consecutive trading
      days. The remaining one-third shall vest when the closing bid price
      reaches $8.00 and remains above this level for a minimum of twenty-one
      consecutive trading days. This agreement is cancelable by either party
      without cause given ten days written notice.



                                      F-27
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


NOTE 17 - 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, 2001
                                                          ---------------------------------------------------
                                                             INCOME             SHARES            PER-SHARE
                                                           (NUMERATOR)       (DENOMINATOR)          AMOUNT
                                                          -------------     ---------------      ------------
<S>                                                         <C>                  <C>               <C>
            Net Loss                                        $(5,874)

            Basic EPS:
             Income available to
             common stockholders                            $(5,874)             49,726            $  (0.12)

            Effect of Dilutive Securities
              Warrants                                                              154
                                                            -------             -------            --------

            Diluted EPS:
              Income available to
              common stockholders
                and assumed conversions                     $(5,874)             49,880            $  (0.12)
                                                            =======             =======            ========

                                                                    FOR THE YEAR ENDED AUGUST 31, 2000
                                                          ---------------------------------------------------
                                                             INCOME             SHARES            PER-SHARE
                                                           (NUMERATOR)       (DENOMINATOR)          AMOUNT
                                                          -------------     ---------------      ------------
            Net Income                                      $   193

            Basic EPS:
             Income available to
             common stockholders                                193              19,073            $   0.01

            Effect of Dilutive Securities
            Warrants                                                              3,306
                                                            -------             -------            --------

            Diluted EPS:
              Income available to
              common stockholders
              and assumed conversions                       $   193              22,379            $   0.01
                                                            =======             =======            ========
</TABLE>

      For the year ended August 31, 2001 and August 31, 2000, anti-dilutive
      securities existed. (see Note 12)

NOTE 18 - 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, 2001 and 2000, 416,474 and 242,607 warrants
      have been issued to various employees. Of these outstanding warrants, 0
      and 42,999 were exercised for the year ended August 31, 2001 and 2000,
      respectively. Additionally, 10,350 warrants have expired as of August 31,
      2001.

      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 granted during 2000 is estimated as $0.58
      on the date of grant. A meaningful weighted average fair value of the
      individual options granted during 2000 using


                                      F-28

<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      the method prescribed by SFAS 123 could not be determined due to the
      volatility of the share price during the measurement period. Management
      estimates the average fair value for options granted during 2001 to be
      comparable to those granted in 2000. The impact on net income 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:

                                                2001             2000
                                              --------         --------
           Dividend Yield                       0.00%            0.00%
           Volatility                           0.91            15.14
           Risk-free Interest Rate              7.00%            7.00%
           Expected Life                          5                5


NOTE 19 - RETIREMENT PLANS:

      During October 1997, the Company initiated a 401(k) plan for its
      employees, which is funded through the contributions of its participants.
      This plan maintains that the Company will match up to 3% of each
      participant's contribution. For the year ended August 31, 2001 and 2000,
      employee contributions were approximately $148,000 and $293,000,
      respectively. The Company matched approximately $49,000 and $75,300,
      respectively for those same periods.

NOTE 20 - MAJOR CUSTOMER:

      The Company had gross revenues of $28,110,000 and $5,240,000 for the year
      ended August 31, 2001 and 2000, respectively. The following parties
      individually represent a greater than ten percent of these revenues.

<TABLE>
<CAPTION>
                                   AUGUST 31, 2001                 AUGUST 31, 2000
           CUSTOMER             AMOUNT     PERCENTAGE          AMOUNT      PERCENTAGE
           --------             ------     ----------          ------      ----------
<S>                             <C>                            <C>
           Customer A           $ 7,857,000   30.00%           $    ---        0.00%
           Customer B           $ 3,845,000   13.68%           $    ---        0.00%
           Customer C           $     ---      0.00%           $  638,011     12.18%

</TABLE>

NOTE 21 - INDUSTRY SEGMENTS:

      The Company has adopted the provisions of SFAS No. 131, "Disclosures about
      Segments of an Enterprise and Related Information". At August 31, 2001,
      the Company's seven business units have separate management teams and
      infrastructures that offer different products and services. The business
      units have been aggregated into two reportable segments (as described
      below) since the long-term financial performance of these reportable
      segments is affected by similar economic conditions.

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

      AtlanticPacific 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. (COMM) 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 maintains a national market
      presence.


                                      F-29
<PAGE>

              EAGLE WIRELESS INTERNATIONAL, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                AUGUST 31, 2001


      Link Two Communications, Inc. (Link II) is in the development and delivery
      of one and two way messaging systems over a national high-speed wireless
      broadband network. Link II continues to add to the paging customer base.

      ClearWorks.Net, Inc. (.NET) provided administration and engineering to
      other companies and managed the advertising and promotion of its
      subsidiary companies.

<TABLE>
<CAPTION>
                                              FOR THE YEAR ENDING AUGUST 31, 2001

(in thousands)               Eagle        APC        COMM         HSI         UCG      Link II        .Net       Elim.     Consol.
                          ----------------------------------------------------------------------------------------------------------
<S>                          <C>         <C>           <C>       <C>        <C>             <C>                             <C>
Revenue                      1,205       5,649         571       2,524      18,137          24          --          --      28,110
Segment Profit / (Loss)     (2,211)       (308)       (299)       (682)       (211)     (1,329)       (834)         --      (5,874)
Total Assets               156,760       1,707      13,149       3,644       4,394      32,981       1,147     (43,114)    170,668
Capital Expenditures           198           6       3,073         145          24       6,657          14          --      10,117
Dep. And Amort               2,591         100       1,053          49          19         752         105          --       4,669

</TABLE>

<TABLE>
<CAPTION>
                                            FOR THE YEAR ENDING AUGUST 31, 2000

            (in thousands)                      Eagle             APC             Elim.        Consol.
                                          ----------------------------------------------------------------
<S>                                             <C>              <C>                             <C>
            Revenue                             1,826            3,413              --           5,239
            Segment Profit / (Loss)              (413)             606              --             193
            Total Assets                       53,471            1,820             697          55,988
            Capital Expenditures                  771            1,010              --           1,781
            Dep. And Amort                        407              170              --             579

</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 22 - SUBSEQUENT EVENTS.

      Subsequent to fiscal 2001, the Company settled two lawsuits for a total of
      $825,000. These lawsuit settlements require cash payments or shares of
      common stock. These settlements have been provided for in the accompanying
      financial statements of August 31, 2001.

      On October 2, 2001, Metro Networks sued ClearWorks. The suit presents
      claims for breach of contract to provide ClearWorks radio advertisement.
      The suit seeks recovery of damages in the sum of $146,750 plus interest,
      attorney's fees and court costs. ClearWorks denies the claims and will
      file an answer. No discovery has been taken. The case is been set for
      trial for January 2, 2002. ClearWorks intends to vigorously contest all
      claims in this case.



                                      F-30