UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




FORM
      10-K






x ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      fiscal year ended August 31, 2005




or






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


For
      the
      transition period from
              
to




Commission
      File Number 1-15649






**EAGLE
      BROADBAND, INC.**


(Exact
      name of registrant as specified in its charter)




TEXAS
              (State
                or other jurisdiction of incorporation or organization)
            76-0494995
              (I.R.S.
                Employer Identification Number)




101
      COURAGEOUS DRIVE


LEAGUE
      CITY, TEXAS 77573


(Address
      of principal executive offices) (Zip Code)




(281)
      538-6000


(Registrant’s
      telephone number, including area code)




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




**Title
                of Each Class**
            
            **Name
                of Each Exchange on Which Registered****Common
                Stock, par value $0.001 per share**
            
            **American Stock Exchange**




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. x Yes o No




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




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




The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant on February 28, 2005, the last business day of the registrant’s most
      recently completed second fiscal quarter, based on the closing price on that
      date of $0.37 per share on the American Stock Exchange, was
      $90,957,612.




As
      of
      November 23, 2005, the registrant had 303,086,275 shares of common stock
      outstanding.




**Documents
      Incorporated by Reference:**




The
registrant
      is incorporatingby reference in Part III of this Form 10-K certain
      information contained in the registrant’s proxy statement for its annual meeting
      of shareholders, which proxy statement will be filed by the registrant on or
      before December 29, 2005.







**EAGLE
      BROADBAND, INC.**


**FORM
      10-K**


**FOR
      THE FISCAL YEAR ENDED AUGUST 31, 2005**




**TABLE
      OF CONTENTS**




**PART
                    I**
                
                
                **4****ITEM
                    1. *BUSINESS***
                
                
                4**ITEM
                    2. *PROPERTIES***
                
                
                9**ITEM
                    3.*LEGAL
                    PROCEEDINGS***
                
                
                9**ITEM
                    4. *SUBMISSION OF MATTERS  TO A VOTE OF
                    SECURITY HOLDERS***
                
                
                9**PART
                    II**
                
                
                **10****ITEM
                    5. *MARKET FOR REGISTRANT'S COMMON EQUITY,
                    RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
                    EQUITY******SECURITIES***
                10**ITEM
                    6**. ***SELECTED FINANCIAL
                    DATA***
                
                
                11**ITEM
                    7. *MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF
                    OPERATIONS***
                
                
                11**ITEM
                    7A. *QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                    MARKET RISK***
                
                
                23**ITEM
                    8. *FINANCIAL STATEMENTS AND SUPPLMENTARY
                    DATA***
                
                
                23**ITEM
                    9. *CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                    ACCOUNTING AND FINANCIAL DISCLOSURE***
                
                
                23**ITEM
                    9A. *CONTROLS AND
                    PROCEDURES***
                
                
                23**ITEM
                    9B. *OTHER
                    INFORMATION***
                
                
                25**PART
                    III**
                
                
                **25****ITEM
                    10. *DIRECTORS AND EXECUTIVE OFFICERS OF THE
                    REGISTRANT***
                
                
                25**ITEM
                    11. *EXECUTIVE
                    COMPENSATION***
                
                
                26**ITEM
                    12. *SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
                    MATTERS***
                
                
                27**ITEM
                    13. *CERTAIN RELATIONSHIPS AND RELATED
                    TRANSACTIONS***
                
                
                27**ITEM
                    14. *PRINCIPAL ACCOUNTING FEES AND
                    SERVICES***
                
                
                27**PART
                    IV**
                
                
                **27****ITEM
                    15. *EXHIBITS, FINANCIAL STATEMENT
                    SCHEDULES***
                
                
                27**INDEX
                    TO EXHIBITS**
                
                
                **28****Financial
                    Statements**
                
                
                **F-1**





-2-




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




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




-3-




**PART
      I**




**Item
                  1.*****Business.***




Eagle
      Broadband, Inc. (the “company” or “Eagle”) is a provider of broadband, Internet
      Protocol (IP) and communications technology and services that aim to create
      new
      revenue opportunities for broadband providers and enhance communications for
      government agencies, the military and corporations. The company leverages years
      of experience delivering advanced, IP-based broadband services to help service
      providers deliver advanced entertainment and communications services to their
      customers. Eagle’s product offerings include (i) IPTVCompleteTM, a faster,
      lower-cost way for broadband providers to deliver competitive IP video and
      entertainment services to their residential and commercial customers; (ii)
      the
      MediaPro line of standard and high definition IP set-top boxes that enable
      broadband providers and hotel operators to maximize their revenues from the
      delivery of advanced, interactive entertainment services; and (iii) the SatMAXTM
satellite communications system that provides civilian government, military,
      homeland security and corporate customers with reliable, non-line-of-sight,
      satellite-based voice and data communications from any location on
      Earth.




In
      May
      2005, the company implemented a corporate restructuring designed to reduce
      costs, focus company resources to drive revenue growth and position the company
      to better compete in the broadband, IPTV, hospitality and communications
      markets. The restructuring aligned our resources to better capitalize on
      potential revenue opportunities for our core IPTV, IP set-top box, and satellite
      communications product offerings and included the formation of three main
      operating divisions:




·
            IPTV
                Solutions Division - consists of the IPTVComplete and Media Pro IP
                set-top
                box product offerings.


·
            Satellite
                Communications Division - includes the SatMAX non-line-of-sight satellite
                communications technology.


·
            Broadband
                Services Division - includes the broadbandbundled
                digital services (BDS), security and managed services
                businesses.




Key
      components of the restructuring included:




·
            Reducing
                payroll-related expenses, lowering operational overhead and controlling
                expenditures.


·
            Hiring
                of additional experienced sales staff to accelerate revenue
                growth.


·
            Realigning
                staff and resources to maximize efficiencies, better serve our customers
                and partners, and concentrate on sales of our three core offerings
                as we
                shift our emphasis to providing solutions to broadband and service
                provider partners.




**Product
      and Service Categories**




**IPTV
      Solutions**




*IPTVCompleteTM
      Video Solution*




IPTVComplete
      is a turnkey video service that provides new and incumbent broadband providers
      a
      faster, lower cost way to quickly and easily launch and deliver high-quality
      entertainment services to their customers over their fiber or DSL broadband
      networks. IPTVComplete leverages Eagle’s video content rights, expertise in
      delivering video services and IP set-top boxes with the satellite distribution
      capabilities of GlobeCast North America to provide what we believe to be a
      unique, turnkey combination of video content, headend infrastructure, satellite
      distribution and set-top boxes. IPTVComplete provides all of the components
      broadband service providers need to deliver a competitive bundle of video and
      interactive entertainment services.




IPTVComplete
      was launched during the second quarter of fiscal 2005 and the service is
      actively being marketed to broadband providers nationwide.




*MediaPro
      IP Set-Top Boxes*




Eagle
      designs, manufactures and markets a complete line of advanced MediaPro IP
      set-top boxes. Either standalone or in conjunction with our EZ-Magic or
      third-party middleware software, Eagle’s advanced MediaPro IP set-top boxes
      deliver a full range of high quality, standard and high definition entertainment
      and information services that can generate higher margin revenues for telecom
      service providers, hotel and casino owners, hospitals, apartment/condominium
      owners, municipalities, real estate developers and schools. MediaPro IP set-top
      boxes also enable incumbent and competitive telecommunications service providers
      to cost effectively deploy IP-based broadband and video services to their
      customers.




-4-




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




IP
      set-top box and middleware software products revenues are reported under the
      category “Products” on our Consolidated Statements of Operations.




**Satellite
      Communications Solutions**




*SatMAXTM
      Satellite-Based Voice and Data Communications*




Eagle’s
      SatMAX non-line-of-sight repeater system is an innovative, proprietary
      non-line-of-sight communications technology that enables users of the Iridium
      satellite network to establish reliable voice and data communications to and
      from any location where the user is unable to gain line of sight to an orbiting
      Iridium satellite such as onboard aircraft, below deck on ships, within
      buildings, underground or from obstructed areas. The technology provides global
      communications that enhance user productivity, mobility, problem solving,
      field-to-headquarters collaboration and emergency backup/response for a wide
      range of mission-critical and everyday communications needs. By extending
      coverage indoors to areas not traditionally served by satellite networks, the
      SatMAX extends the customer’s usage area, while enhancing the utility and
      overall value for both new and existing Iridium aviation, government, military,
      homeland security and commercial/enterprise customers. The company has received
      certification from both the Federal Communications Commission and Iridium
      Satellite LLC for the SatMAX.




SatMAX
      revenues are reported under the category “Products” on our Consolidated
      Statements of Operations.




**Broadband
      Services Solutions**




*Bundled
      Digital Services (BDS)*




Historically,
      Eagle has marketed bundled digital services to municipalities, utilities, real
      estate developers and service providers to assist these customers in providing
      IP-based broadband services to their customers, including high-speed Internet,
      home security monitoring, telephone service, and video services over fiber
      and
      IP networks. In August 2005, we announced that we are shifting our focus to
      further concentrate our efforts on delivering IP-based video (IPTVComplete)
      and
      set-top box solutions (MediaPro IP set-top boxes) to broadband and hospitality
      providers, and satellite communications solutions (SatMAX) to government,
      military and commercial customers. While we continue to provide bundled
      broadband services to a select number of communities in Texas, we believe that
      the IPTV, set-top box and satellite communications markets offer greater
      opportunities in the future.




Bundled
      broadband services revenues are reported under the category “Broadband Services”
on our Consolidated Statements of Operations.




*Security
      Services*




Through
      a
      subsidiary, Eagle markets security-monitoring services as Eagle Broadband
      Security. The principal business activity of this subsidiary is providing
      monthly security monitoring service to both commercial and residential
      customers. Security services revenues are reported under the category “Broadband
      Services” on our Consolidated Statements of Operations.




*Managed
      Services*




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




·
            Multi-site
                rollout installation


·
            Statement
                of work/request for quotation
                preparation


·
            Installation
                supervision


·
            Structured
                wiring design


·
            Comprehensive
                project management


·
            Copper
                wiring configuration




-5-




·
            Fiber
                optic acceptance testing


·
            Aerial
                and underground OSP


·
            Fiber
                optic and copper cable


·
            Field
                service and support




Managed
      services revenues are reported under the category “Structured Wiring” on our
      Consolidated Statements of Operations.




**Consulting
      Services**




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




Consulting
      services revenues are reported under the category “Other” on our Consolidated
      Statements of Operations.




**Service
      and Support**




The
      company provides service and support to customers on an ongoing basis including
      installation, project management of turnkey systems, training, and service
      or
      extended warranty contracts. The company believes that providing reliable
      service is critical to meeting its customers’ needs, and helps the company win
      business with new customers and retain and expand business with existing
      customers. The company is able to generate additional revenues from these
      installation, system optimization, warranty and post-warranty services while
      enhancing relationships with customers.




Eagle
      offers warranty and maintenance program for all of its hardware, software and
      service products and maintains 24/7 customer service and support facilities.
      In
      addition to providing repair or replacement of Eagle-manufactured equipment
      under the company’s standard warranty, Eagle provides support for select
      third-party products. The standard 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.




Service
      and support services revenues are reported under the category “Other” on our
      Consolidated Statements of Operations.




**Customers**




IPTV,
      IP
      set-top box, satellite communications and broadband products and services are
      sold to a broad range of customers, including residential, commercial,
      enterprise, military, government and service provider customers.




The
      IPTVComplete video solution is sold to new and incumbent broadband providers
      including telephone companies, fiber broadband providers, multiple dwelling
      unit
      (MDU) providers, municipalities and real estate developers. MediaPro IP set-top
      boxes are sold to a range of customers nationwide, including hotel and casino
      owners, telephone companies and other broadband providers, hospitals, apartment
      and condominium owners, municipalities, real estate developers, corporations
      and
      schools.




SatMAX
      systems are sold to a variety of federal, state and local government agencies,
      the U.S. military, and corporations. Broadband and security services have
      primarily been sold in select Texas and Nevada communities. Managed Services
      sells its structured wiring and project management services to a wide range
      of
      customers including telecommunications, hospitality, industrial and
      petrochemical, oil and gas companies and government sectors.




**Marketing
      and Sales**




Eagle’s
      products and services are marketed through direct sales and reseller/channel
      partners.




IPTVComplete
      and IP set-top boxes are marketed directly by Eagle’s sales staff and select
      reseller and channel partners. SatMAX systems are marketed through Eagle’s sales
      staff and select resellers and channel partners to corporate, commercial
      aviation, government, and military customers. Broadband services, security
      services and managed services are marketed through Eagle’s sales and customer
      service staff.




**Research
      and Development**




Because
      the company markets products and services in highly competitive markets
      characterized by rapid product obsolescence and change, we believe that a strong
      commitment to, and ongoing investment in, research and development is essential
      to the continued growth and future success of our products. One of the key
      components of our development strategy is maintaining close working
      relationships between our sales, marketing, product development, and internal
      manufacturing staffs and our customers, which helps ensure that the products
      we
      develop and bring to market meet real customer needs.




-6-




Eagle’s
      new product development resources are focused on the development of new
      broadband, video, entertainment and communications products and services. In
      addition, we have formed strategic relationships with third-party suppliers
      and
      manufacturers, allowing the company to utilize the most advanced technology
      in
      the IPTVComplete, IP set-top-box and SatMAX product lines. We will continue
      to
      incur research and development expenses with respect to our IPTVComplete, IP
      set-top-box and satellite communications product lines during the current fiscal
      year.




Eagle
      has
      extensive expertise in the technologies required to develop advanced broadband,
      video, entertainment, communications and satellite communications products
      and
      services, enabling the company to develop enhancements to our existing products
      as well as develop competitive broadband, entertainment and communications
      products in the future. Investment in advanced computer-aided design tools
      for
      simulation and analysis allows us to bring new products to market faster.
      Research and development expenditures incurred by us for the fiscal years ended
      August 31, 2005, 2004 and 2003 were $776,000, $557,000 and $411,000,
      respectively.




**Manufacturing**




The
      company currently subcontracts and/or provides limited manufacturing of its
      satellite communications products at its facilities in League City, Texas.
      Some
      subassemblies are manufactured for us by subcontractors at various locations
      throughout the world. Our manufacturing expertise resides in assembling
      subassemblies and final systems that are configured to customer specifications.
      The components and assemblies used in our 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 our products are available from multiple
      sources. In those instances where components are purchased from a single source,
      the supplier is reviewed for stability and performance. We also strive to have
      secondary suppliers, as well. Additionally, as necessary, we purchase sufficient
      quantities of components that have long-lead requirements in the world market.
      We ensure that all products are tested for quality and reliability prior to
      shipment to the customer.




We
      have
      determined that the most cost effective manufacturing method for our IP set-top
      box product line is to contract with offshore production facilities;
      supplemented by high-volume U.S.-based facilities. We have established
      relationships with manufacturers in Asia capable of producing a wide range
      of
      products that are recognized as pioneers in the field and are both ISO-9001
      and
      ISO-9002 certified.




**Competition**




Industry
      experts project the IPTV market to grow rapidly over the next three to five
      years as telephone companies and other broadband providers face increasing
      competitive pressure and look for solutions to help them meet the demand from
      their customers for high-quality video and entertainment services. Because
      the
      IPTV market is expected to be lucrative for technology companies providing
      products and services that enable broadband providers to deliver IPTV services,
      it has attracted a large number of both new and established companies that
      are
      competing for IPTV business. These companies include providers of video
      infrastructure (e.g., video head-ends, etc.), content, distribution, and
      customer premise equipment (e.g., set-top boxes). In certain cases, the company
      may compete with these technology providers, in many cases we partner with
      them
      and utilize their products and services to provide our IPTV solution. The
      company believes that its IPTVComplete solution is unique in providing a
      turnkey, end-to-end IPTV solution providing the company with a competitive
      advantage; however, other companies offer competitive solutions that could
      affect sales of the company’s IPTV solutions.




Eagle
      competes with many established companies in the set-top-box business, including
      Scientific Atlanta, Motorola, and a number of smaller companies. The market
      for
      IP set top boxes is projected to continue to grow, fueled by increasing demand
      from hospitality operators, broadband providers and business enterprises. The
      projected growth has attracted both established companies as well as new
      entrants offering set-top box solutions. The company was first -to-market with
      its high-definition MediaPro set-top box, which provided the company with a
      competitive advantage in the marketplace. Because of increased demand for IP
      set-top boxes in the residential IPTV market, competition is expected to
      increase; however, the company believes it is well positioned to win business
      from both new and existing set-top box customers.




The
      market for satellite communications services continues to grow as demand from
      government, military and commercial customers is fueled by the post-9/11
      emphasis on reliable communications to enhance public safety and security,
      an
      increase in the number and severity of natural disasters (e.g., hurricanes,
      etc.), as well as ongoing military operations. The company’s SatMAX satellite
      communications system is a proprietary, non-line-of-sight communications system
      that was designed to meet these needs. We are not currently aware of other
      companies in the U.S. that offer products that can provide similar, fully
      wireless, non-line-of-sight satellite-based voice and data communications
      services, providing the company with a unique competitive advantage. However,
      the satellite communications market has many large and small companies that
      provide satellite communications products and services.




-7-




Eagle’s
      broadband and security services compete directly and indirectly with many
      established companies and service providers that provide fiber and cable,
      structured wiring, broadband data/Internet, security monitoring, cable
      television and telephone services. Managed Services competes with many
      established companies in the fiber and cable, structured wiring and project
      management services areas. The use of the subcontractors located across the
      nation allows us to complete large projects in a cost-effective and efficient
      manner.




**Proprietary
      Information**




The
      company protects its proprietary technology through a combination of trade
      secrets, non-disclosure agreements, patent applications, copyright filings,
      trademarks, technical measures, and common law remedies with respect to its
      proprietary technology. We have filed a number of patent applications but have
      not yet been issued any patents on our products, technology or processes against
      such applications. Any protections may not preclude competitors from developing
      products with features similar to our products. The laws of some foreign
      countries in which we sell or may sell our products may not protect our
      proprietary rights in the products to the same extent as do the laws of the
      United States. Although we believe that our 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 us in the future.
      If
      litigation results in our inability to use technology, we might be required
      to
      expend substantial resources to develop alternative technology. There can be
      no
      assurance that we could successfully develop alternative technology on
      commercially acceptable terms.




**Regulation**




Several
      of our 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 us in connection with the manufacture and sale of our products
      and
      by customers to operate our 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 IPTV, set-top box, satellite
      communications and/or broadband services markets 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
      markets for our products. Although recent deregulation of international
      telecommunications industries along with recent radio frequency spectrum
      allocations made by the FCC have increased the demand for our products, there
      can be no assurance that the trend toward deregulation and current regulatory
      developments favorable to the promotion of new and expanded IPTV, broadband
      and
      communications services will continue or that future regulatory changes will
      have a positive impact on the company.




**Employees**




As
      of
      November 23, 2005, we had approximately 95 employees and retained independent
      contractors as necessary. We believe our employee relations are good. We also
      enter into independent contractual relationships with various individuals,
      from
      time to time, as needed.




**Executive
      Officers of the Registrant** [pursuant to Instruction 3 to Regulation S-K, Item 401(b)]




David
      Micek (age 52) has served as President and Chief Executive Officer since April
      2005 and as a Director since October 2005. From November 2004 to April 2005,
      Mr.
      Micek served as Chief Operating Officer of the company. From 2002 to 2003,
      Mr.
      Micek was president at Internet search company AltaVista Software. From 2000
      to
      2001, Mr. Micek was president and CEO of wireless networking company Zeus
      Wireless. From 1999 to 2000, he was president and CEO of broadband video
      applications company iKnowledge. From 1995 to 1997, Mr. Micek was vice president
      and general manager at Texas Instruments Software. From 1985 to 1995, he held
      various senior marketing, product management and general management positions
      at
      enterprise and applications software companies Neuron Data, Borland
      International and Ashton-Tate. He holds an MBA from the University of Southern
      California.




Eric
      Blachno (age 43) has served as Chief Financial Officer since November, 2004.
      From 2003 to 2004, Mr. Blachno served as Vice President of Finance and Chief
      Financial Officer at Cascade Microtech, Inc, a manufacturer of electrical
      metrology semiconductor equipment. From 2000 to 2003, Mr. Blachno served as
      Vice
      President of Finance and Chief Financial Officer at Luminent, Inc., a fiber
      optic components provider which was acquired by MRV Communications. From 1998
      to
      2000, Mr. Blachno served as managing director at PMG Capital, an investment
      banking firm which was acquired by Investec. From 1995 to 1998, Mr. Blachno
      served as managing director and senior communications equipment analyst at
      investment bank Bear Stearns & Co, Inc. From 1986 to 1995, Mr. Blachno held
      various management and staff positions in software development, communications
      systems, sales and marketing, and finance at International Business Machines
      Corporation. Mr. Blachno holds an MBA in Finance from the Wharton School,
      University of Pennsylvania, an MS in Telecommunications from Pace University,
      and a BS with High Honors in Computer Science from the University of
      Florida.




-8-




**Item
                  2.*****Properties.***




Our
      headquarters are located in League City, Texas, and include approximately 25,550
      square feet of leased office, production, and storage space. The lease expires
      in May 2009. We believe that our rental rates are at market prices. We insure
      our facilities in an amount that we believe is adequate and customary in the
      industry.




**Item
                  3.*****Legal
                  Proceedings.***




In
      December 2000, Clearworks.net, Inc. became a defendant in State of Florida
      Department of Environmental Protection vs. Reco-Tricote, Inc., and Southeast
      Tire Recycling, Inc., currently known as Clearworks.net, Inc., in the Circuit
      Court of the Tenth Judicial Circuit in and for Polk County, Florida. The Florida
      DEP included Clearworks in a lawsuit 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 million, attorneys’ fees and cost of
      court. Clearworks denies the claims against it and intends to vigorously contest
      all claims in this case and to enforce its indemnification rights against the
      principals of Southeast Tire Recycling. The company has not accrued any expenses
      against this lawsuit, as the outcome cannot be predicted at this
      time.




In
      July
      2003, Eagle became a defendant in Cornell Capital Partners, L.P., vs. Eagle
      Broadband, Inc., et al., Civil Action No. 03-1860 (KSH), in the United States
      District Court for the District of New Jersey. The suit presents claims for
      breach of contract, state and federal securities fraud and negligent
      misrepresentation. The plaintiff has also alleged that Eagle has defaulted
      on a
      convertible debenture for failing to timely register the shares of common stock
      underlying the convertible debenture and is seeking to accelerate the maturity
      date of the debenture. In November 2003, the principal balance of the debenture
      was repaid, although the suit remains outstanding. Cornell claims damages of
      approximately $1 million. The company denies the claims and intends to
      vigorously defend this lawsuit and the claims against it. Eagle has asserted
      counterclaims against Cornell for fraud and breach of contract in the amount
      of
      $2 million. The company has accrued $416,000 in expenses against this lawsuit,
      although the outcome cannot be predicted at this time.




In
      September 2003, Enron sued United Computing Group in Enron Corp., et al., vs.
      United Computing Group, Inc., in the United States Bankruptcy Court for the
      Southern District of New York to avoid and recover a transfer in the amount
      of
      approximately $1.5 million. In October 2005, the parties agreed to a dismissal
      of all adversary proceedings and claims against each other, and on November
      9,
      2005, the Bankruptcy Court entered an order confirming such
      dismissal.




In
      June
      2004, The Tail Wind Fund Ltd. sued Link Two Communications, Inc., and Eagle
      Broadband, Inc., Civil Action 04-CV-05776, in the United States District Court
      for the Southern District of New York. Tail Wind claims breach of contract
      seeking $25 million. The company is currently in negotiations with Tail Wind
      to
      settle this lawsuit and believes it can be settled out of court. For the year
      ended August 31, 2004, the company had accrued $500,000 in expenses for this
      lawsuit. As of August 31, 2005, the company has accrued an additional $4.5
      million in expenses against this lawsuit for a total accrued liability of $5
      million. This amount is included on the Consolidated Balance Sheet as of August
      31, 2005, as part of accrued expenses.




In
      November 2004, Palisades Master Fund L.P. sued Eagle Broadband, Inc., and David
      Weisman, Civil Action 04603626, in New York County, New York Supreme Court,
      seeking an injunction setting a conversion price on certain convertible debt
      and
      warrants at $0.4456 per share of Eagle common stock and damages in excess of
      $3.1 million. In April 2005, the parties entered into a confidential settlement
      agreement ending this lawsuit.




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




No
      matters were submitted to a vote of security holders during the fourth quarter
      of the company’s fiscal year. See Note 24-Subsequent Events for a summary of the
      2005 Annual Meeting of Shareholders held October 18, 2005.




-9-




**PART
      II**




**Item
                  5.*****Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity
                  Securities.***




Shares
      of
      Eagle common stock are listed on the American Stock Exchange under the symbol
      EAG. On November 23, 2005, our common stock closed at $0.15 per share. We are
      authorized to issue 350,000,000 shares of common stock, of which 303,086,275
      were issued and outstanding at November 23, 2005. At November 23, 2005, there
      were approximately 1,140 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.




High
            
            LowFiscal
                Year 20051st
                Quarter ended November 30, 2004
            
            
            0.90
            
            
            0.592nd
                Quarter ended February 28, 2005
            
            
            0.82
            
            
            0.363rd
                Quarter ended May 31, 2005
            
            
            0.40
            
            
            0.194th
                Quarter ended August 31, 2005
            
            
            0.30
            
            
            0.15Fiscal
                Year 20041st
                Quarter ended November 30, 2003
            
            
            1.77
            
            
            0.432nd
                Quarter ended February 28, 2004
            
            
            2.05
            
            
            1.183rd
                Quarter ended May 31, 2004
            
            
            1.55
            
            
            0.794th
                Quarter ended August 31, 2004
            
            
            1.19
            
            
            0.75




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




**Recent
      Sales of Unregistered Securities**




In
      August
      2005, the company entered into a purchase agreement with certain accredited
      investors for the sale of 30 million shares of our common stock, pursuant to
      Regulation D of the Securities Act of 1933, at a price per share of $0.135,
      for
      total gross proceeds of $4.05 million. The company paid a placement agent a
      cash
      commission of 7% of the gross dollar proceeds, and on November 16, 2005, issued
      such agent a five-year warrant to purchase 843,750 shares of Eagle common stock
      at an exercise price of $0.24 per share.




In
      August
      2005, the company issued 1,157,895 shares of common stock to John McCaleb
      pursuant to a settlement agreement to resolve a litigation claim in the amount
      of $220,000. The issuance of these shares was exempt from registration pursuant
      to Section 3(a)(10) of the Securities Act. No sales commissions were
      paid.




In
      June
      2005, the company issued 7,954,085 shares of common stock to a former executive
      officer and director, David Weisman, and three non-executive officers, Billie
      Mize, John Nagel and Jon Hayden, to satisfy obligations in the aggregate amount
      of $2,086,251 for contingent guaranty obligations with respect to unexercised
      options and notes held by these individuals. This issuance of these shares
      is
      exempt from registration under Section 3(a)(9) of the Securities Act. No sales
      commissions were paid.




In
      December 2004, the company issued 10 million shares to Jango Capital, LLC,
      to
      resolve a debt of $6,190,760. No sales commissions were paid. This transaction
      was completed pursuant to Regulation D of the Securities Act.




In
      October 2004, 6,983,806 shares of common stock were issued upon conversion
      of
      $2.5 million of debt. The original issuance of debt, as well as the issuance
      of
      the shares, was pursuant to Section 4(2) of the Securities Act. No sales
      commissions were paid.




-10-




**Item
                  6.*****Selected
                  Financial Data.***




The
      data
      that follows should be read in conjunction with the company’s consolidated
      financial statements and the notes included in Item 8 and Item 7, “Management’s
      Discussion and Analysis.”




*(Thousands
                  of dollars, except per share amounts)*
              Year
                  ended August 31,Operating
                  Data:
              
              2005
              
              2004
              
              2003
              
              2002
              
              2001Net
                  Sales
              
              $
              8,592
              
              $
              12,490
              
              $
              11,593
              
              $
              29,817
              
              $
              28,110Operating
                  Expenses
              
              
              56,038
              
              
              31,055
              
              
              31,884
              
              
              83,821
              
              
              16,582Operating
                  Income (Loss)
              
              
              (56,354
              )
              
              (30,952
              )
              
              (31,075
              )
              
              (76,708
              )
              
              (8,880
              )Other
                  Income (Expense), Net
              
              
              (656
              )
              
              (8,053
              )
              
              (5,426
              )
              
              (265
              )
              
              2,348Net
                  Income (Loss)
              
              $
              (57,010
              )
              $
              (39,005
              )
              $
              (36,501
              )
              $
              (76,973
              )
              $
              (6,532
              )Earnings
                  Per Share (Basic)
              
              
              (0.24
              )
              
              (0.21
              )
              
              (0.38
              )
              
              (1.20
              )
              
              (0.13
              )**Statement
                  of Cash Flows Data:**Cash
                  Used by Operating Activities
              
              $
              (11,827
              )
              $
              (3,493
              )
              $
              (6,085
              )
              $
              (797
              )
              $
              (699
              )Cash
                  Used by Investing Activities
              
              $
              (611
              )
              $
              (1,216
              )
              $
              (1,276
              )
              $
              (13,668
              )
              $
              (9,721
              )Cash
                  Provided (Used) by Financing Activities
              
              $
              14,407
              
              $
              5,936
              
              $
              6,912
              
              $
              (2,342
              )
              $
              (3,846
              )**Balance
                  Sheet Data:**Total
                  Assets
              
              $
              41,913
              
              $
              70,211
              
              $
              77,366
              
              $
              89,151
              
              $
              170,021Long-Term
                  Debt
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              1,272
              
              $
              2,136Total
                  Stockholders’ Equity
              
              $
              23,104
              
              $
              50,103
              
              $
              58,336
              
              $
              76,548
              
              $
              148,482


**Item
                  7.*****Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations.***




This
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations (MD&A) should be read in conjunction with the other sections of
      this annual report on Form 10-K, including Part I, “Item 1: Business”; Part II,
“Item 6: Selected Financial Data”; and Part II, “Item 8: Financial Statements
      and Supplementary Data.” The various sections of this MD&A contain a number
      of forward-looking statements, all of which are based on our current
      expectations and could be affected by the uncertainties and risk factors
      described throughout this filing.




**Executive
      Overview**




Eagle
      Broadband, Inc. (the “company” or “Eagle”), is a provider of broadband, Internet
      protocol (IP) and satellite communications technology and services. The company
      is focused on the following core areas: IPTV CompleteTM, MediaPro IP set-top
      boxes, and SatMAXTM satellite communications technology. The company’s product
      offerings include IPTVComplete, a fast, low-cost way for broadband providers
      to
      deliver competitive IP video services; the MediaPro line of standard and high
      definition IP set-top boxes that enable broadband providers and hotel operators
      to maximize revenues by delivering advanced interactive entertainment services;
      and the SatMAX satellite communications system that provides civilian
      government, military, homeland security and corporate customers with reliable,
      non-line-of-sight, satellite-based voice and data communications from any
      location on Earth.




As
      of
      August 31, 2005, the company’s active subsidiaries were: Eagle Broadband
      Services, Inc., D.S.S. Security, Inc., operating as Eagle Broadband Security,
      EBI Funding Corporation and Etoolz, Inc. Additionally, Eagle has a number of
      inactive subsidiaries that had results in one or more of the periods included
      in
      the financial statements covered by this report. These inactive subsidiaries
      include: Clearworks Communications, Inc., Clearworks.net, Inc., Clearworks
      Home
      Systems, Inc., Contact Wireless, Inc., United Computing Group, Inc., Atlantic
      Pacific Communications, Inc., and Link Two Communications, Inc. Eagle has
      incorporated certain ongoing operations of the inactive subsidiaries into the
      active subsidiaries listed above including Atlantic Pacific Communications,
      Inc.
      and Clearworks Communications, Inc. 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.




We
      intend
      for this discussion to provide the reader with information that will assist
      in
      understanding our financial statements, the changes in certain key items in
      those financial statements from year to year, and the primary factors that
      accounted for those changes, as well as how certain accounting principles affect
      our financial statements. The discussion also provides information about the
      financial results of the various segments of our business to provide a better
      understanding of how those segments and their results affect the financial
      condition and results of operations of the company as a whole. This discussion
      should be read in conjunction with our financial statements and accompanying
      notes for the year ended August 31, 2005.




-11-




At
      the
      start of fiscal 2005, the company’s business strategy was focused on pursuing
      business opportunities in its core business segments, which included its
      broadband bundled services and related products. Changes in executive
      management, including the hiring of David Micek as COO and Eric Blachno as
      CFO
      in November 2004 and the subsequent appointment of Mr. Micek as President and
      CEO in April 2005, led to a thorough review of the company’s operations. During
      the third quarter of fiscal 2005, the company implemented a corporate
      restructuring which included the formation of three main operating divisions:
      IPTV Solutions, Satellite Communications and Broadband Services. Key components
      of the restructuring included:




· Reducing
        payroll-related expenses, lowering operational overhead and controlling
        expenditures.


· Hiring
        of
        additional experienced sales staff to accelerate revenue
        growth.


· Realigning
        staff and resources to maximize efficiencies, better serve our customers
        and
        partners, and concentrate on sales of our three core offerings as the company
        shifted its emphasis to providing solutions to broadband
        and service provider partners as opposed to offering broadband services directly
        to consumers.




**Results
      of Operations**




**Fiscal
      Year Ended August 31, 2005, Compared to Fiscal Year Ended August 31,
      2004**




The
      following table sets forth summarized consolidated financial information for
      the
      fiscal years ended August 31, 2005 and 2004:




**Condensed
      Financial Information**




Year
                Ended August 31,*($
                in thousands)*
            
            2005
            
            2004
            
            $
                Change
            
            %
                ChangeNet
                Sales
            
            $
            8,592
            
            $
            12,490
            
            $
            (3,898
            )
            
            (31%)Cost
                of Goods Sold
            
            
            8,908
            
            
            12,387
            
            
            (3,479
            )
            
            (28%)Gross
                Profit
            
            
            (316
            )
            
            103
            
            
            (419
            )
            
            (407%)Percent
                of Sales
            
            
            (3.7%
            )
            
            0.8
            %Operating
                Expenses
            
            
            56,038
            
            
            31,055
            
            
            24,983
            
            
            80%Loss
                from Operations
            
            
            (56,354
            )
            
            (30,952
            )
            
            (25,402
            )
            
            82%Other
                Income (Expense)
            
            
            (656
            )
            
            (8,053
            )
            
            7,397
            
            
            (92%)Net
                Loss
            
            
            (57,010
            )
            
            (39,005
            )
            
            (18,005
            )
            
            46%Unrealized
                Holding Loss
            
            
            —
            
            
            (321
            )
            
            321
            
            
            (100%)Comprehensive
                Loss
            
            $
            (57,010
            )
            $
            (39,326
            )
            $
            (17,684
            )
            
            45%






For
      the
      fiscal year ended August 31, 2005, the company’s business operations reflected
      an increase in broadband, security and managed services. For the year ended
      August 31, 2005, the company’s consolidated operations generated net sales of
      $8,592,000 compared to prior year net sales of $12,490,000. The decrease in
      net
      sales is primarily attributable to a decrease in prior year product sales of
      $3,788,000 from a major customer. For the year ended August 31, 2005, the
      company had a corresponding negative gross profit margin of 3.7%, compared
      to a
      gross profit percentage of 0.8% for the prior year. The negative gross profit
      percentage is primarily attributable to additional costs of $759,000 for design
      changes and expedite charges incurred due to a change in product requirements
      from a key customer, depreciation expenses associated with the build out of
      the
      company’s broadband services infrastructure, and a non-cash obsolescence charge
      for slow moving inventory of $300,000.  (See Note 1-Basis of
      Presentation and Significant Accounting Policies.)




The
      company incurred a net loss of $57,010,000 for the fiscal year ended August
      31,
      2005. Key components of the loss include a $28,815,000 non-cash impairment
      charges and $7,261,000 of additional non-cash charges. (See
      Note
      5-Impairment of Long-Lived Assets, Note 6-Impairment of Goodwill and Other
      Intangible Assets, and Note 9-Supplemental Non-Cash Disclosures for additional
      details.)




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




-12-




*Sales
      Information*




Set
      forth
      below is a table presenting summarized sales information for our business
      segments for the fiscal years ended August 31, 2005 and 2004:




*($
                in thousands)*
            
            Year
                Ended August 31,Business
                Segment
            
            2005
            
            %
                of
              Total
            
            2004
            
            %
                of
              Total
            
            $
              Change
            
            %
              ChangeStructured
                Wiring
            
            $
            1,343
            
            
            16%
            
            $
            678
            
            
            5%
            
            $
            665
            
            
            98%Broadband
                Services
            
            
            4,348
            
            
            51%
            
            
            5,525
            
            
            44%
            
            
            (1,177
            )
            
            (21%)Products
            
            
            2,770
            
            
            32%
            
            
            6,190
            
            
            50%
            
            
            (3,420
            )
            
            (55%)Other
            
            
            131
            
            
            2%
            
            
            97
            
            
            1%
            
            
            34
            
            
            35%Total
            
            $
            8,592
            
            
            100%
            
            $
            12,490
            
            
            100%
            
            $
            (3,898
            )
            
            (31%)




For
      the
      fiscal year ended August 31, 2005, net sales decreased to $8,592,000 from
      $12,490,000 for the year ended August 31, 2004. The overall decrease of 31%
      was
      attributable to a $3,420,000 decrease in product sales and a decrease of
      $1,177,000 of broadband services, offset by an increase of $665,000, or 98%,
      in
      structured wiring sales. The $3,420,000 decrease in sales of the company’s
      products for the year ended August 31, 2005, was primarily attributable to
      a
      decrease in prior year product sales of $3,788,000 from a major customer. The
      decrease of $1,177,000 in broadband services is primarily attributable to a
      decline in recurring security monitoring sales resulting from the sale of
      security contracts to a major customer during the third and fourth quarters
      of
      2005. The increase of $665,000 in structured wiring sales is primarily
      attributable to increased sales efforts to pursue commercial structured wiring
      and cabling opportunities.




*Cost
      of Goods Sold*




The
      following table sets forth summarized cost of goods sold information for the
      fiscal years ended August 31, 2005 and 2004:




Year
                  Ended August 31,*($
                  in thousands)*
              
              2005
              
              2004
              
              $
                  Change
              
              % ChangeDirect
                  Labor and Related Costs
              
              $
              1,613
              
              $
              1,244
              
              $
              369
              
              
              30
              %Products
                  and Integration Services
              
              
              3,077
              
              
              5,372
              
              
              (2,295
              )
              
              (43
              %)Impairment
                  Slow Moving & Obsolete Inventory
              
              
              300
              
              
              1,300
              
              
              (1,000
              )
              
              (77
              %)Structured
                  Wiring Labor and Material
              
              
              1,031
              
              
              448
              
              
              583
              
              
              130
              %Broadband
                  Services Costs
              
              
              1,729
              
              
              2,856
              
              
              (1,127
              
              
              (39
              %)Depreciation
                  and Amortization
              
              
              1,158
              
              
              1,141
              
              
              17
              
              
              1
              %Other
                  Manufacturing Costs
              
              
              __
              
              
              26
              
              
              (26
              )
              
              (100
              %)Total
                  Cost of Goods Sold
              
              $
              8,908
              
              $
              12,387
              
              $
              (3,479
              )
              $
              (28
              %)




For
      the
      year ended August 31, 2005, cost of goods sold decreased by $3,479,000, or
      28%,
      to $8,908,000 from $12,387,000 as compared to the fiscal year ended August
      31,
      2004. The decrease of $3,479,000 in cost of goods sold is primarily attributable
      to (i) product costs of $2,295,000 associated with prior year product sales
      to a
      major customer and (ii) $1,127,000 of broadband service cost associated with
      the
      decline in recurring security monitoring contracts resulting from sale of
      security contracts to a major customer during the third and fourth quarters
      of
      2005. The increase of $583,000 in structured wiring cost is primarily
      attributable to increased personnel costs needed to expand the company’s
      commercial customer base and pursue additional structured wiring
      opportunities.




-13-




*Operating
      Expenses*




The
      following table sets forth summarized operating expense information for the
      fiscal years ended August 31, 2005 and 2004:





Year
                            Ended August 31,*($
                            in thousands)*
                        
                        2005
                        
                        2004
                        
                        $
                            Change
                        
                        %
                            ChangeSalaries
                            and Related Costs
                        
                        $
                        5,734
                        
                        $
                        13,146
                        
                        $
                        (7,412
                        )
                        
                        (56%)Advertising
                            and Promotion
                        
                        
                        80
                        
                        
                        29
                        
                        
                        51
                        
                        
                        175%Depreciation
                            and Amortization
                        
                        
                        3,267
                        
                        
                        3,956
                        
                        
                        (689
                        )
                        
                        (17%)Research
                            and Development
                        
                        
                        776
                        
                        
                        557
                        
                        
                        219
                        
                        
                        39%Other
                            Support Costs
                        
                        
                        17,666
                        
                        
                        13,367
                        
                        
                        4,299
                        
                        
                        32%Impairment,
                            write-downs & restructuring costs
                        
                        
                        28,515
                        
                        
                        -
                        
                        
                        28,515
                        
                        
                        -Total
                            Operating Expenses
                        
                        $
                        56,038
                        
                        $
                        31,055
                        
                        $
                        24,983
                        
                        
                        80%


The
      following table breaks out “Other support costs” information as presented in the
      preceding table for the fiscal years ended August 31, 2005 and
      2004:




Year
                  Ended August 31,*($
                  in thousands)*
              
              2005
              
              2004
              
              $
                  Change
              
              %
                  ChangeAuto
                  Related
              
              
              43
              
              
              22
              
              
              21
              
              
              94%Bad
                  Debt
              
              
              568
              
              
              2,643
              
              
              (2,075
              )
              
              (78%)Delivery
                  and Postage
              
              
              42
              
              
              47
              
              
              (5
              )
              
              (11%)Fees
              
              
              276
              
              
              288
              
              
              (12
              )
              
              (4%)Insurance
                  and Office
              
              
              922
              
              
              425
              
              
              497
              
              
              117%Professional
                  and Contract Labor
              
              
              11,532
              
              
              6,818
              
              
              4,714
              
              
              69%Rent
              
              
              418
              
              
              507
              
              
              (89
              )
              
              (18%)Repairs
                  and Maintenance
              
              
              65
              
              
              43
              
              
              22
              
              
              50%Travel
              
              
              453
              
              
              237
              
              
              216
              
              
              91%Taxes
              
              
              2,794
              
              
              1,474
              
              
              1,320
              
              
              90%Telephone
                  and Utilities
              
              
              428
              
              
              794
              
              
              (366
              )
              
              (46%)Other
              
              
              125
              
              
              69
              
              
              56
              
              
              81%Total
                  Operating Expenses
              
              $
              17,666
              
              $
              13,367
              
              $
              4,299
              
              
              32%




For
      the
      fiscal year ended August 31, 2005, operating expenses increased by 80% to
      $56,038,000, as compared to $31,055,000 for the fiscal year ended August 31,
      2004. The increases that occurred, as evidenced by the immediately preceding
      tables, are discussed below:






·
            A
                $7,412,000 decrease in salaries and related costs. The decrease is
                primarily attributable to (i) a prior year non-cash expense of $4,493,000
                incurred on the issuance of promissory notes upon the modification
                of
                outstanding options for 4,200,000 common shares and (ii) a guaranteed
                compensation of the modified options equivalent to $1.75 less the
                option
                strike price, which was an additional $4,074,000 accrued in August
                2004.
                In June 2005, the company entered into note exchange agreements whereby
                the note holders representing $2,086,000 agreed to accept 7,954,000
                of the
                company’s common stock to fully satisfy such debt obligation. The
                remaining principal amount of $1,924,000 is currently in default
                and is
                accruing interest according to the terms of the original agreement.
                (See
                Note 2-Related Party Transactions.)




·
            A
                $689,000 decrease in depreciation and amortization, due principally
                to
                disposition of assets and the completion of depreciation of certain
                capital assets.




·
            A
                $219,000 increase in research and development expenses, primarily
                for
                product development and engineering activities associated with the
                company’s IPTV, set-top box and satellite communications product
                lines.




·
            A
                $4,299,000 increase in other support costs, the components of which
                are
                set forth in the table above. The increase of $1,320,000 is attributable
                to a state sales tax assessment that is pending while under review,
                a
                $4,714,000 increase in professional fees that included cost associated
                with corporate compliance, auditors fees and consulting, and litigation,
                and $497,000 attributable to general liability and officer and director
                insurance coverage. These increases are offset by decreases of $2,075,000
                in bad debt, $89,000 in rent expense and $366,000 in telephone and
                utilities.




-14-




·
            A
                $28,515,000 increase in impairment primarily consisting of (i) an
                impairment charge of $23,912, 668 for the intangible assets of contract
                rights, customers relationships and other intangible assets primarily
                attributable to the BDS communities acquired in the January 2001
                merger of
                Clearworks.net, Inc., and (ii) an impairment charge of $3,229,405
                for
                certain Houston-area communities where broadband infrastructure had
                been
                installed. (See Note 5-Impairment of Long Live Assets and Note
                6-Impairment of Goodwill and Other Intangible Assets for additional
                details.)




**Net
      Loss**




Net
      loss
      for the fiscal year ended August 31, 2005, was $57,010,000, compared to a net
      loss of $39,005,000 during the fiscal year ended August 31, 2004.




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




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




Fiscal
                Year Ended August 31,*($
                in thousands)*
            
            2004
            
            2003
            
            $
                Change
            
            %
                ChangeNet
                Sales
            
            $
            12,490
            
            $
            11,593
            
            $
            (897
            )
            
            8%Cost
                of Goods Sold
            
            
            12,387
            
            
            10,784
            
            
            (1,603
            )
            
            15%Gross
                Profit
            
            
            103
            
            
            809
            
            
            (706
            )
            
            (87%)Percent
                of Sales
            
            
            0.8
            %
            
            7.0
            %Operating
                Expenses
            
            
            31,055
            
            
            31,884
            
            
            (829
            )
            
            (3%)Loss
                from Operations
            
            
            (30,952
            )
            
            (31,075
            )
            
            123
            
            
            0%Other
                Income (Expense)
            
            
            (8,053
            )
            
            (5,426
            )
            
            (2,627
            )
            
            48%Net
                Loss
            
            
            (39,005
            )
            
            (36,501
            )
            
            (2,504
            )
            
            7%Unrealized
                Holding Loss
            
            
            (321
            )
            
            (71
            )
            
            (250
            )
            
            352%Comprehensive
                Loss
            
            $
            (39,326
            )
            $
            (36,572
            )
            $
            (2,754
            )
            
            8%




*Sales
      Information*




Set
      forth
      below is a table presenting the revenue derived from our business for the fiscal
      years ended August 31, 2004 and 2003:




*($
                in thousands)*
            
            Fiscal
                Year Ended August 31,Business
                Segment
            
            2004
            
            %
                of
              Total
            
            2003
            
            %
                of
              Total
            
            $
              Change
            
            %
              ChangeStructured
                Wiring
            
            $
            678
            
            
            5%
            
            $
            3,692
            
            
            32%
            
            $
            (3,014
            )
            
            (82%)Broadband
                Services
            
            
            5,525
            
            
            44%
            
            
            2,809
            
            
            24%
            
            
            2,716
            
            
            97%Products
            
            
            6,190
            
            
            50%
            
            
            3,342
            
            
            29%
            
            
            2,848
            
            
            85%Other
            
            
            97
            
            
            1%
            
            
            1,750
            
            
            15%
            
            
            (1,653
            )
            
            (95%)Total
            
            $
            12,490
            
            
            100%
            
            $
            11,593
            
            
            100%
            
            $
            897
            
            
            8%




For
      the
      fiscal year ended August 31, 2004, net sales increased to $12.5 million from
      $11.6 million during the fiscal year ended August 31, 2003. The overall increase
      of 7.7% was attributable to a $1.4 million increase in the company’s product
      sales of IP set-top boxes and an increase of $2.7 million in the company’s BDS
      sales; offset by decreases of $3 million in structured wiring operations and
      a
      $1.7 million decrease in other sales. The $2.8 million increase in the company’s
      Products segment was primarily attributable to shipment of IP set-top boxes
      and
      related equipment to a major customer. The $2.7 million increase in sales of
      the
      company’s broadband services was primarily attributable to contracts valued at
      $3.1 million executed by the company’s security-monitoring subsidiary, D.S.S.
      Security, Inc., against which the company realized sales of $2.9 million during
      the fiscal year ended August 31, 2004.




-15-




Without
      giving effect to the security monitoring contract transactions of $2.9 million,
      the company’s base broadband services sales decreased by approximately $158,000
      in the fiscal year ended August 31, 2004, primarily attributable to the exit
      from the unprofitable Austin, Texas BDS market discussed in prior periods,
      and
      the decline in recurring security monitoring sales resulting from the sale
      of
      certain security monitoring contracts in the company’s portfolio to Sweetwater
      Capital, LLC. The $3 million decrease in structured wiring sales corresponded
      to
      the company’s previously announced strategy to no longer pursue structured
      wiring and commercial cabling opportunities on a direct basis outside of the
      its
      BDS model. The $1.7 million decrease in other sales was primarily attributable
      to the other sales components from various operating segments that were divested
      or phased out during fiscal 2004.




*Cost
      of Goods Sold*




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




Year
                Ended August 31,*($
                in thousands)*
            
            2004
            
            2003
            
            $
                Change
            
            %
                ChangeDirect
                Labor and Related Costs
            
            $
            1,244
            
            $
            2,195
            
            $
            (951
            )
            
            (43%)Products
                and Integration Service
            
            
            5,372
            
            
            2,773
            
            
            2,599
            
            
            94%Impairment
                Slow Moving & Obsolete Inventory
            
            
            1,300
            
            
            2,627
            
            
            (1,327
            )
            
            (51%)Structured
                Wiring Labor and Material
            
            
            448
            
            
            1,774
            
            
            (1,326
            )
            
            (75%)Broadband
                Services Costs
            
            
            2,856
            
            
            903
            
            
            1,953
            
            
            216%Depreciation
                and Amortization
            
            
            1,141
            
            
            456
            
            
            685
            
            
            150%Other
                Manufacturing Costs
            
            
            26
            
            
            56
            
            
            (30
            )
            
            (54%)Total
            
            $
            12,387
            
            $
            10,784
            
            $
            1,603
            
            
            15%




For
      the
      fiscal year ended August 31, 2004, cost of goods sold increased 14.9% to $12.4
      million from $10.8 million compared to the fiscal year ended August 31, 2003.
      The overall increase of $1.6 million was primarily attributable to the shipment
      of IP set-top boxes and the purchase and resale of certain related equipment.
      The company’s overall gross profit percentage was 1% and 7% for the fiscal years
      ended August 31, 2004 and 2003, respectively. This substantial decrease in
      gross
      profit percentage is primarily attributable to a heavy sales mix of product
      shipments of IP set-top boxes and the dilutive effect of the purchase and resale
      of certain related equipment versus the prior fiscal year; the dilutive effect
      of the security monitoring transactions recorded in the fiscal year ended August
      31, 2004, i.e., sales recorded of $2.9 million with corresponding cost of sales
      of $1.9 million, the decision to no longer pursue structured wiring outside
      of
      its BDS model, and an increase in depreciation expenses associated with the
      build-out of the company’s BDS infrastructure.




*Operating
      Expenses*




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


Year
                  Ended August 31,*($
                  in thousands)*
              
              2004
              
              2003
              
              $
                  Change
              
              %
                  ChangeSalaries
                  and Related Costs
              
              $
              13,146
              
              $
              6,102
              
              $
              7,044
              
              
              115%Advertising
                  and Promotion
              
              
              29
              
              
              247
              
              
              (218
              )
              
              (88%)Depreciation
                  and Amortization
              
              
              3,956
              
              
              4,776
              
              
              (820
              )
              
              (17%)Research
                  and Development
              
              
              557
              
              
              411
              
              
              146
              
              
              36%Other
                  Support Costs
              
              
              13,367
              
              
              12,737
              
              
              630
              
              
              5%Impairment,
                  write-downs & restructuring costs
              
              
              0
              
              
              7,611
              
              
              (7,611
              )
              
              (100%)Total
                  Operating Expenses
              
              $
              31,055
              
              $
              31,884
              
              $
              (829
              )
              
              (3%)




-16-




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




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




For
      the
      fiscal year ended August 31, 2004, operating expenses decreased by 3% to $31.1
      million as compared to $31.9 million for the fiscal year ended August 31, 2003.
      The primary fluctuations that occurred as evidenced by the two preceding tables
      immediately above are discussed below:




·
            A
                $7 million increase in salaries and related costs. The increase was
                attributable to an expansion of executive and general management
                compensation expenses, increased Board of Director compensation expense,
                and compensation expense associated with stock option exercises and
                severance. In addition, compensation for certain officers and key
                employees under incentive clauses of their employment contracts (i)
                includes a non-cash expense of $4.5 million incurred upon the modification
                of warrants for 4.2 million shares and (ii) reflects a guaranteed
                compensation of the modified warrants equivalent to $1.75 less the
                warrant
                strike price.




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




·
            A
                $630,000 increase in other support costs, the components of which
                are set
                forth on the table included immediately above. Included in this increase
                is a $1.3 million increase in property taxes recorded against the
                company’s BDS infrastructure, a $687,000 increase in professional and
                contract labor, and a $466,000 increase in bad debt; offset by a
                $676,000
                decrease in rent expense and a $597,000 decrease in telephone and
                utilities.




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




**Changes
      in Cash Flow**




The
      company’s operating activities increased net cash used to $11,827,000 in the
      year ended August 31, 2005, compared to use of net cash of $3,493,000 in the
      year ended August 31, 2004. The increase in net cash used by operating
      activities was primarily attributable to fund an increase in the company’s net
      operating loss, net of $36,076,000 non-cash charges combined with $9,107,000
      of
      cash provided by fluctuations in working capital requirements consisting of
      the
      combination of accounts receivable, inventory, other assets, prepaid expenses,
      accounts payable and accrued expenses. The company’s investing activities used
      net cash of $611,000 in the year ended August 31, 2005, compared to use of
      net
      cash $1,216,000 in the year ended August 31, 2004. The decrease was due
      primarily to proceeds from sale of assets held for sale and direct finance
      leasing. The company’s financing activities provided net cash proceeds of
      $14,407,000 in the year ended August 31, 2005, compared to $5,936,000 of cash
      provided in the year ended August 31, 2004. The increase resulted from net
      proceeds of $11,309,000 from the sale of 45.795 million shares of common stock
      to certain accredited investors and $1,949,000 from the exercise of stock
      options.




-17-




**Liquidity
      and Capital Resources**




At
      August
      31, 2005, the company’s current assets totaled $8,370,000 (including cash and
      cash equivalents of $4,223,000 of which $203,000 is cash restricted). Total
      current liabilities were $18,809,000, which gave the company a negative working
      capital of $10,439,000. The company has funded operations through a combination
      of utilizing cash on hand, issuing common stock to settle current liabilities
      and raising additional capital through the sale of its securities.




In
      order
      to preserve cash, the company has historically used company stock to retire
      certain liabilities on a negotiated basis. During the year ended August 31,
      2005, the company retired $7,007,000 in debt with stock versus cash. The company
      expects to continue its practice of retiring certain liabilities as may be
      negotiated through a combination of cash and the issuance of shares of the
      company’s common stock. At this time, the company is not able to quantify the
      amount of common stock that may need to be issued to retire current or future
      debts, and there is no assurance that this strategy will be successful in the
      future.




Historically,
      the company has financed operations through the sale of debt and equity
      securities. During the year ended August 31, 2005, the company raised
      $13,958,000 cash through the issuance of common stock upon the exercise of
      derivative securities. The company currently does not have credit facilities
      available with financial institutions or other third parties and historically
      we
      have relied upon best efforts third-party funding. Though we have been
      successful at raising additional capital on a best efforts basis in the past,
      we
      can provide no assurance that we will be successful in any future best-efforts
      financing endeavors. The company will continue to rely upon financing from
      external sources to fund its operations for the foreseeable future and it will
      likely need to raise additional capital to fund working capital requirements
      in
      the third quarter of 2006. If we are unable to raise sufficient capital from
      external sources to fund our operations for the foreseeable future, the company
      may need to sell assets to meet working capital needs or curtail certain
      operations.




**Contractual
      Obligations**




The
      following table sets forth contractual obligations as of August 31,
      2005:




(*Thousands
                of dollars*)
              **Contractual
                Obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than**
              **5
                years**Long-Term
                Debt Obligations
            
            $
            61
            
            $
            61
            
            $
            —
            
            $
            —
            
            $
            —Capital
                (Finance) Lease Obligations
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Operating
                Lease Obligations
            
            
            1,175
            
            
            300
            
            
            875
            
            
            —
            
            
            —Purchase
                Obligations and Commitments
            
            
            3,000
            
            
            600
            
            
            1,800
            
            
            600
            
            
            —Total
            
            $
            4,236
            
            $
            961
            
            $
            2,675
            
            $
            600
            
            $
            —




The
      company’s contractual obligations consist of long-term debt as set forth in Note
      8 - Notes
      Payable to the company’s financial statements, certain obligations for office
      space operating leases requiring future minimal commitments under non-cancelable
      leases (see Note 16 - Commitments
      and Contingent Liabilities to the company’s financial statements), and a
      purchase obligation to share monthly satellite transponder costs associated
      with
      the delivery of the company’s IPTVComplete service.




*LLV
      Broadband, LLC Agreement*




In
      August
      2005, the company and Neva Holdings, LLC (“Neva”), executed an agreement whereby
      the parties agreed to terminate the Restated Limited Liability Company Agreement
      (“LLC Agreement”) that the parties entered into on November 23, 2004. The
      termination of the agreement provides for the company’s withdrawal as a member
      of LLV Broadband, LLC (“LLC”), and complete release from any future obligations
      under the LLC Agreement. The terms and conditions of the LLC Agreement called
      for the company to participate in the construction, development and operation
      of
      a system for the provision of a range of broadband, entertainment and
      communications services to the commercial, recreational and residential
      buildings located within the Lake Las Vegas Resort and surrounding geographical
      areas. Under the terms of the LLC Agreement, the company was required to make
      a
      capital contribution of between $3 million and $5 million to fund ongoing
      development and operating activities. The parties initially estimated that
      the
      LLC’s gross revenues would be approximately $15.5 million over a six-year period
      through the year 2010. As a result of the termination, the company will not
      be
      required to make any additional capital contributions to the LLC and will not
      recognize any revenues from the LLC. The company will not incur any early
      termination penalties associated with the termination of the LLC
      Agreement.




The
      service agreement entered into by the company and the LLC in July 2003 remained
      in effect until November 4, 2005. Under this agreement, the company provided
      video content, network monitoring and billing services to the LLC according
      to a
      previously agreed-to fee arrangement until November 4, 2005.




-18-




**Off-Balance
      Sheet Arrangements**




As
      of
      August 31, 2005, we did not have any significant off-balance-sheet arrangements,
      as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.




**CRITICAL
      ACCOUNTING POLICIES**




Management
      strives to report the financial results of the company in a clear and
      understandable manner, even though in some cases accounting and disclosure
      rules
      are complex and require us to use technical terminology. In preparing our
      consolidated financial statements, we follow accounting principles generally
      accepted in the United States. These principles require us to make certain
      estimates and apply judgments that affect our financial position and results
      of
      operations as reflected in our financial statements. These judgments and
      estimates are based on past events and expectations of future outcomes. Actual
      results may differ from our estimates.




Management
      continually reviews its accounting policies, how they are applied and how they
      are reported and disclosed in our financial statements. Following is a summary
      of our more significant accounting policies and how they are applied in the
      preparation of the financial statements.




**Impairment
      Assessment**




Statement
      of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other
      Intangible Assets” requires that goodwill and intangible assets be tested for
      impairment at the reporting unit level (operating segment or one level below
      an
      operating segment) on an annual basis and between annual tests in certain
      circumstances. The carrying amount of an intangible asset is not recoverable
      if
      it exceeds the sum of the undiscounted cash flows expected to result from the
      use and eventual disposition of the asset. That assessment shall be based on
      the
      carrying amount of the asset at the date it is tested for
      recoverability.




The
      company performed, with the assistance of independent valuation experts, an
      impairment test of the carrying value of intangible assets. Eagle has intangible
      assets related to goodwill, contracts, customers and subscribers. For the year
      ended August 31, 2005, the company determined there had been significant erosion
      of contracts, customers and subscribers primarily attributable to the BDS assets
      acquired in the January 2001 merger of Clearworks.net, Inc.




The
      company evaluated and considered two separate methodologies in conducting the
      analysis and selected the approach assigning the greater value realized from
      the
      present value technique or the quoted market approach. The following factors
      were considered (i) current market conditions, (ii) the company’s current
      and future financial performance, (iii) intrinsic risks evident in the markets
      in which the company operates and (iv) the underlying nature of Eagle’s
      operations and business.




Utilizing
      a fair value standard as set forth in SFAS 142, as of August 31, 2005,
      management determined an impairment charge of $23,912,668 existed for the
      intangible assets of contract rights, customer relationships and other
      intangible assets primarily attributable to the BDS assets acquired in the
      January 2001 merger of Clearworks.net, Inc.




Eagle
      assessed the fair value of goodwill as of August 31, 2005 and concluded that
      the
      goodwill valuations remain at an amount greater than the current carrying asset
      value. Eagle assessed the fair value of the intangible assets as of August
      31,
      2004 and concluded that the goodwill and other intangible assets valuations
      remain at an amount greater than the current carrying and other intangible
      assets value.




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




**Impairment
      of Long-Lived Assets**




Statement
      of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the
      Impairment or Disposal of Long-Lived Assets” requires that long-lived assets
      (asset groups) shall be tested for recoverability whenever events or change
      in
      circumstances indicate that its carrying amount may not be recoverable. The
      company’s market capitalization as of year ending August 31, 2005 has been below
      its shareholder equity which indicated the need to test for recoverability.
      The
      company performed, with the assistance of independent valuation experts, tests
      to determine if an impairment loss existed. For purposes of recognition and
      measurement of an impairment loss, a long-lived asset is grouped with other
      assets at the lowest level for which identifiable cash flows are largely
      independent of the cash flows of other assets.




-19-




These
      tests took into consideration a number of factors including (i) current market
      conditions, (ii) the company’s current and future financial performance, (iii)
      intrinsic risks evident in the markets in which the company operates and (iv)
      the underlying nature of Eagle’s operations and business. Utilizing a fair value
      standard as set forth in SFAS 144 as of August 31, 2005, management determined
      an impairment of $3,229,405 existed for certain Houston-area communities where
      broadband infrastructure had been installed. (See Note 5-Impairment of
      Long-Lived Assets.)




During
      the second quarter of 2005, the company also determined an impairment loss
      existed primarily for Link-Two Communications, Inc. assets. Management
      determined that the value of the assets was nominal after a review of the
      marketplace and recorded an impairment loss of $1,050,000. (See Note
      5-Impairment of Long-Lived Assets.)




During
      the fourth quarter of 2005, the company had an additional impairment charge
      of
      $322,792 on assets held for sale.


(See
      Note
      7-Assets Held for Sale.)




**Revenue
      Recognition**




The
      company designs, manufactures, markets and services its products and services
      under the Eagle Broadband, Inc., Eagle Broadband Services, Inc., D.S.S.
      Security, Inc. and EBI Funding Corporation, names.




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




**Deferred
      Revenues**




Revenues
      that are billed in advance of services being completed are deferred until the
      conclusion of the period of the service for which the advance billing relates.
      Deferred revenues are included on the balance sheet as a current liability
      until
      the service is performed and then recognized in the period in which the service
      is completed. Eagle’s deferred revenues historically have consisted primarily of
      billings in advance for cable, Internet, security and telephone services, which
      generally are for between one and three months of services. The company has
      deferred revenue from the sale of security monitoring contracts, both purchased
      and owned until the contract provisions are fulfilled. The company has a
      twelve-month holdback provision for security contracts sold to a major customer
      during fiscal 2005. Eagle had deferred revenues of $623,000 as of August 31,
      2005, which of this total, $465,608 is deferred for the security contracts
      sold
      to a major customer. As of August 31, 2004, the company had deferred revenues
      of
      $96,000.




**Eagle
      Broadband, Inc.**




Eagle
      designs, manufactures and markets various hardware, software and systems, along
      with other equipment used in the delivery of broadband, video entertainment
      and
      communications services. Revenues from these products are recognized when the
      product is shipped. Eagle Broadband Inc.’s international product revenues are
      reported under the category “Products” on Eagle’s Consolidated Statements of
      Operations included as page F-4 of this report and also under the category
      “Eagle” within Note 20-Industry Segments.




The
      company designs, manufactures and markets a complete line of MediaPro IP set-top
      boxes. Eagle recognizes revenue when set-top boxes are shipped to the customer.
      The company’s set-top box revenues are reported under the category “Products” on
      Eagle’s Consolidated Statements of Operations included as page F-4 of this
      report and also under the category “Eagle” within Note 20-Industry Segments.
      Revenue from software consists of software licensing. There is no post-contract
      customer support. Software revenue is allocated to the license using vendor
      specific objective evidence of fair value (“VSOE”) or, in the absence of VSOE,
      the residual method. The price charged when the element is sold separately
      generally determines VSOE. In the absence of VSOE of a delivered element, the
      company allocates revenue to the fair value of the undelivered elements and
      the
      residual revenue to the delivered elements. Eagle recognizes revenue allocated
      to software licenses at the inception of the license.




-20-




The
      company engages independent agents, resellers and distributors for sales
      principally in foreign countries and certain geographic regions in the United
      States. Under the terms of these agreements, these third parties provide the
      company with sales leads. The transactions from these third parties are subject
      to Eagle’s approval prior to sale. In certain circumstances, the sales agent or
      reseller/distributor 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 transactions are not a significant portion
      of
      total sales in any of the periods presented. Eagle’s Broadband, Inc., revenues
      are reported under the category “Products” on the company’s Consolidated
      Statements of Operations included as page F-4 of this report and also under
      the
      category “Eagle” within Note 20-Industry Segments.




The
      company sells and installs structured wiring and related customer premise
      equipment in residential customers’ homes. This company 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 customer premise
      equipment to the homebuyers. For consistency with prior period reporting,
      Eagle’s residential structured wiring revenues are reported under the category
“Structured Wiring” on Eagle’s Consolidated Statements of Operations included as
      page F-4 of this report and also under the category “APC/HSI” within Note
      20-Industry Segments.




**Eagle
      Broadband Services, Inc. (BDS)**




Eagle
      Broadband Services, Inc. provides broadband bundled digital services to business
      and residential customers, primarily in the Texas market. Revenue is derived
      from fees charged for the delivery of bundled digital services, which can
      include telephone, long distance, Internet, security monitoring and cable
      services. This subsidiary recognizes revenue and the related costs at the time
      the services are rendered. Installation fees are recognized upon completion
      and
      acceptance. The revenues are reported under the category “Broadband Services” on
      the company’s Consolidated Statements of Operations included as page F-4 of this
      report and also under the category “EBS/DSS” within Note 20-Industry
      Segments.




Eagle
      Broadband Services, Inc. provides project planning, installation, project
      management, testing and documentation of fiber and cable to commercial and
      industrial clients throughout the United States. The revenue from the fiber
      and
      cable installation and services is recognized upon percentage of completion
      of
      the project. Most projects are completed in less than one month, therefore,
      matching revenue and expense in the period incurred. Service, training and
      extended warranty contract revenues are recognized as services are completed.
      For consistency with prior period reporting, Eagle’s communications services
      revenues are reported under the category “Structured Wiring” on Eagle’s
      Consolidated Statements of Operations included as page F-4 of this report and
      also under the category “APC/HSI” within Note 20-Industry Segments.




Eagle
      Broadband Services, Inc. provides business-to-business hardware and software
      network solutions and network monitoring services. The revenue from the hardware
      and software sales is recognized at the time of shipment. The monitoring
      services recognition policy is to record revenue on completion. For consistency
      with prior period reporting, Eagle’s technology services product revenues are
      reported under the category “Products” while the services components are
      reported under the category “Other” on Eagle’s Consolidated Statements of
      Operations included as page F-4 of this report and also under the category
“UCG”
within Note 20-Industry Segments.




**D.S.S.
      Security, Inc. (d/b/a Eagle Broadband Security)**




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




**Receivables**




For
      the
      fiscal year ended August 31, 2005, Eagle accounts receivable increased to
      $1,890,000 from $1,470,000 at August 31, 2004. The majority of this increase
      was
      due to the sale of retail security contracts to a major customer in the third
      and fourth quarter of fiscal 2005 in the amount, net of hold back, of $1,545,447
      and $582,553, respectively.




The
      company’s accounts receivable aging as measured by days sales outstanding (DSO)
      totaled 47 days at August 31, 2005, and 29 days at August 31, 2004, on an
      adjusted basis after recording the write-offs and reserves. The increase in
      DSO
      from 29 days at August 31, 2004, to 47 days at August 31, 2005, was primarily
      attributable to a customer that delayed payment on a significant portion of
      a
      set-top box order due to a disagreement related to operability issues with
      the
      set-top boxes. The company has resolved these issues with the customer and
      expects to collect more than 80% of the outstanding receivable. The remaining
      amount due on this order has been reserved in the company’s allowance for
      doubtful accounts.




-21-




**Allowance
      for Doubtful Accounts**




The
      company’s allowance for doubtful accounts totaled $2,688,000 and $2,396,000 for
      the years ended August 31, 2005 and 2004, respectively. These allowances for
      doubtful accounts amounts represented 59% and 62% of the gross accounts
      receivable balances for the years ended August 31, 2005 and 2004, respectively;
      while they likewise represented 82% and 7% of the company’s greater than 90-day
      accounts for these same respective time periods.




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




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




**Inventory**




Inventories
      are valued at the lower of cost or market. The cost is determined by using
      the
      first-in first-out method. At August 31, 2005, Eagle’s inventory totaled
      $802,000 as compared to $403,000 at August 31, 2004. The majority of this
      increase is in the company’s work in process inventory anticipating plan
      customer orders in the near future. In the year ended August 31, 2005, the
      company had an impairment charge of $300,000 related to a partial impairment
      of
      inventory on hand as of August 31, 2004.  Management had
      reasonably identified prospects for this inventory at August 31, 2004, which
      did
      not materialize as planned in fiscal 2005.  At the end of fiscal 2004,
      management incorporated “just in time” inventory practices to avoid inventory
      obsolesce. The company continues to outsource production as needed based on
      contract orders from customers.




**Recent
      Accounting Pronouncements**




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




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




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




-22-




In
      December 2004, the FASB issued a revision to SFAS 123 (also known as SFAS 123R)
      that amends existing accounting pronouncements for share-based payment
      transactions in which an enterprise receives employee and certain non-employee
      services in exchange for (a) equity instruments of the enterprise or (b)
      liabilities that are based on the fair value of the enterprise’s equity
      instruments or that may be settled by the issuance of such equity instruments.
      SFAS 123R eliminates the ability to account for share-based compensation
      transactions using APB 25 and generally requires such transactions be accounted
      for using a fair-value-based method. SFAS 123R’s effective date would be
      applicable for awards that are granted, modified, become vested, or settled
      in
      cash in interim or annual periods beginning after December 15, 2005. SFAS 123R
      includes three transition methods: one that provides for prospective application
      and two that provide for retrospective application. The company intends to
      adopt
      SFAS 123R prospectively commencing in the second quarter of the fiscal year
      ending August 31, 2006, and it will have a significant impact on the
      consolidated statement of operations as the company will be required to expense
      the fair value of stock option grants and stock purchases under employee stock
      purchase plan. It is expected that the adoption of SFAS 123R will cause the
      company to record as expense each quarter a non-cash accounting charge
      approximating the fair value of such share-based compensation meeting the
      criteria outlined in the provisions of SFAS 123R.




**Item
                  7A.*****Quantitative
                  and Qualitative Disclosures About Market
                  Risk.***




Not
      applicable.




**Item
                  8.*****Financial
                  Statements and Supplementary
                  Data.***




Eagle’s
      financial statements as of August 31, 2005 and 2004, and for each of the years
      in the three-year period ended August 31, 2005, together with the Reports of
      our
      Independent Registered Public Accounting Firm are included in this Annual Report
      on Form 10-K on the pages indicated below.




PageReports
                of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
                Balance Sheets
            
            
            F-3Consolidated
                Statements of Operations
            
            
            F-4Consolidated
                Statements of Changes in Shareholders’ Equity
            
            
            F-5Consolidated
                Statements of Cash Flows
            
            
            F-6Notes
                to Consolidated Financial Statements
            
            
            F-7




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




Not
      applicable.




**Item
                  9A.*****Controls
                  and Procedures*****.**




Attached
      as exhibits to this Form 10-K are certifications of our Chief Executive Officer
      (CEO) and Chief Financial Officer (CFO), which are required in accordance with
      Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange
      Act). This section includes information concerning the controls and controls
      evaluation referred to in those certifications. Page F-2 of this Form 10-K
      sets forth the report of Lopez, Blevins, Bork & Associates, LLP, our
      independent registered public accounting firm, regarding its audit of our
      internal control over financial reporting and of management’s assessment of
      internal control over financial reporting set forth below in this section.
      This
      section should be read in conjunction with the certifications and the auditor’s
      report for a more complete understanding of the topics presented.




**Evaluation
      of Disclosure Controls and Procedures**




We
      conducted an evaluation of the effectiveness of the design and operation of
      our
      disclosure controls and procedures (Disclosure Controls) as of the end of the
      period covered by this Form 10-K. The controls evaluation was conducted under
      the supervision and with the participation of management, including our CEO
      and
      CFO. Disclosure Controls are controls and procedures designed to reasonably
      assure that information required to be disclosed in our reports filed under
      the
      Exchange Act, such as this Form 10-K, is recorded, processed, summarized and
      reported within the time periods specified in the U.S. Securities and Exchange
      Commission’s rules and forms. Disclosure Controls are also designed to
      reasonably assure that such information is accumulated and communicated to
      our
      management, including the CEO and CFO, as appropriate to allow timely decisions
      regarding required disclosure. Our quarterly evaluation of Disclosure Controls
      includes an evaluation of some components of our internal control over financial
      reporting, and internal control over financial reporting is also separately
      evaluated on an annual basis for purposes of providing the management report
      which is set forth below.




-23-




The
      evaluation of our Disclosure Controls included a review of the controls’
objectives and design, the company’s implementation of the controls and the
      effect of the controls on the information generated for use in this Form 10-K.
      In the course of the controls evaluation, we reviewed identified data errors,
      control problems or acts of fraud and sought to confirm that appropriate
      corrective actions, including process improvements, were being undertaken.
      This
      type of evaluation is performed on a quarterly basis so that the conclusions
      of
      management, including the CEO and CFO, concerning the effectiveness of the
      Disclosure Controls can be reported in our periodic reports on Form 10-Q and
      Form 10-K. Many of the components of our Disclosure Controls are also evaluated
      on an ongoing basis by a third-party consultant and our Accounting Department.
      The overall goals of these various evaluation activities are to monitor our
      Disclosure Controls, and to modify them as necessary. Our intent is to maintain
      the Disclosure Controls as dynamic systems that change as conditions
      warrant.




Based
      upon the controls evaluation, our CEO and CFO have concluded that, subject
      to
      the limitations noted in this Part II, Item 9A, as of the end of the period
      covered by this Form 10-K, our Disclosure Controls were effective to provide
      reasonable assurance that information required to be disclosed in our Exchange
      Act reports is recorded, processed, summarized and reported within the time
      periods specified by the SEC, and that material information relating to Intel
      and its consolidated subsidiaries is made known to management, including the
      CEO
      and CFO, particularly during the period when our periodic reports are being
      prepared.




**Management
      Report on Internal Control Over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting to provide reasonable assurance regarding
      the
      reliability of our financial reporting and the preparation of financial
      statements for external purposes in accordance with generally accepted
      accounting principles. Internal control over financial reporting includes those
      policies and procedures that (i) pertain to the maintenance of records that
      in
      reasonable detail accurately and fairly reflect the transactions and
      dispositions of the assets of the company; (ii) provide reasonable assurance
      that transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles, and
      that
      receipts and expenditures of the company are being made only in accordance
      with
      authorizations of management and directors of the company; and (iii) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of the company’s assets that could have a
      material effect on the financial statements.




Management
      assessed our internal control over financial reporting as of August 31, 2005,
      the end of our fiscal year. Management based its assessment on criteria
      established in Internal Control-Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission. Management’s assessment
      included evaluation of such elements as the design and operating effectiveness
      of key financial reporting controls, process documentation, accounting policies,
      and our overall control environment. This assessment is supported by testing
      and
      monitoring performed both by a third-party consultant and our Accounting
      Department.




Based
      on
      our assessment, management has concluded that our internal control over
      financial reporting was effective as of the end of the fiscal year to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external reporting purposes in
      accordance with generally accepted accounting principles. We reviewed the
      results of management’s assessment with the Audit Committee of our Board of
      Directors.




Our
      independent registered public accounting firm, Lopez, Blevins, Bork &
Associates, LLP, audited management’s assessment and independently assessed the
      effectiveness of the company’s internal control over financial reporting. Lopez,
      Blevins, Bork & Associates, LLP, has issued an attestation report concurring
      with management’s assessment, which is included at Page F-2 of this Form
      10-K.




**Inherent
      Limitations on Effectiveness of Controls**




Our
      management, including the CEO and CFO, does not expect that our Disclosure
      Controls or our internal control over financial reporting will prevent or detect
      all error and all fraud. A control system, no matter how well designed and
      operated, can provide only reasonable, not absolute, assurance that the control
      system’s objectives will be met. The design of a control system must reflect the
      fact that there are resource constraints, and the benefits of controls must
      be
      considered relative to their costs. Further, because of the inherent limitations
      in all control systems, no evaluation of controls can provide absolute assurance
      that misstatements due to error or fraud will not occur or that all control
      issues and instances of fraud, if any, within the company have been detected.
      These inherent limitations include the realities that judgments in decision
      making can be faulty and that breakdowns can occur because of simple error
      or
      mistake. Controls can also be circumvented by the individual acts of some
      persons, by collusion of two or more people, or by management override of the
      controls. The design of any system of controls is based in part on certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions. Projections of any evaluation of controls effectiveness
      to
      future periods are subject to risks. Over time, controls may become inadequate
      because of changes in conditions or deterioration in the degree of compliance
      with policies or procedures.




-24-




**Item
                  9B.*****Other
                  Information*****.**




None.




**PART
      III**






**Item
                  10.*****Directors
                  and Executive Officers of the
                  Registrant.***




The
      following sets forth certain information about our directors. Each director
      holds office until his or her successor is duly elected or appointed and
      qualified or until his or her death, retirement, disqualification, resignation
      or removal, if earlier. Information about our executive officers can be found
      in
      Part I, Item 1.




C.
      J.
      (Jim) Reinhartsen (age 62) has served as a Director since November 2002 and
      as
      Chairman since April 2005. Since 1993, Mr. Reinhartsen has served as President
      of the Clear Lake Area Economic Development Foundation (CLAEDF), which in 2003
      he renamed the Bay Area Houston Economic Partnership. From 1988 to 1993, when
      he
      retired with 30 years service at Grumman, Mr. Reinhartsen was Vice President
      and
      General Manager for the Grumman Houston Corporation headquartered in Houston,
      Texas.




Robert
      L.
      Bach (age 56) has served as a Director since October 2005. Mr. Bach is an
      attorney with the Minneapolis, Minnesota law firm of Felhaber, Larson, Fenlon
      & Vogt, P.A., where he has practiced for 28 years. Mr. Bach is a civil trial
      specialist certified by the Minnesota State Bar Association. He received his
      J.D. from the University of Minnesota Law School and his B.A. from the
      University of Iowa.




Dr.
      H.
      Dean Cubley (age 63) has served as a Director since March 1996, was chief
      executive officer from March 1996 to October 2003 and president from March
      1996
      until September 2001. Dr. Cubley has served as chairman of ERF Wireless, Inc.
      since 2004. From 1965 to 1984, Dr. Cubley worked for the NASA Manned Spacecraft
      Center in the Electromagnetic Systems Branch of the Engineering and Development
      Directorate. Dr. Cubley holds a Ph.D. in electrical engineering from the
      University of Houston and B. S. and M. S. in electrical engineering from the
      University of Texas.




Dr.
      Glenn
      Goerke (age 73) has served as a Director since March 2000. Dr. Goerke is
      president emeritus of the University of Houston and currently serves as a
      director of The Institute for the Future of Higher Education. He has served
      as
      vice president of Edusafe Systems, Inc. since 1996. From 1995 to 1997, Dr.
      Goerke served as president of the University of Houston. From 1991 to 1995,
      he
      served as president of the University of Houston - Clear Lake. Dr. Goerke holds
      a Ph.D. in Adult and Higher Education from Michigan State University and M.A.
      and B.A. degrees from Eastern Michigan University.




Lorne
      Persons (age 58) has served as Director since March 2003. He has been a sales
      executive in the Insurance Industry since 1975. Since 1995, Mr. Persons has
      served as President of National Insurance Marketing Corporation, Aurora,
      Colorado, and is currently contracted to National States Insurance Company
      as a
      regional sales and recruiting director in a five-state area.




Judge
      James D. Yarbrough (age 49) has served as a Director of Eagle since October
      2004. Since 1995, Judge Yarbrough has served as Chief Executive Officer and
      County Judge of Galveston County. From 1989 to 1994, Judge Yarbrough was the
      founder and President of James D. Yarbrough & Company. He also serves as a
      Director at American National Insurance Company, where he is Chairman of its
      Compensation Committee, and a member and financial expert for its Audit
      Committee.




**Board
      Committees**




Our
      Board
      of Directors has an executive committee, an audit committee, a compensation
      committee and a nominating committee.




**Executive
      Committee**




The
      Executive Committee of the Board consists of the Chairman of the Board, the
      Chairman of the Audit Committee, and the Chief Executive Officer of the company.
      The Executive Committee has the authority to consider and make decisions on
      all
      matters requiring Board approval that arise between scheduled meetings of the
      Board, including the authority to authorize the sale and issuance of shares
      of
      the company. However, the Executive Committee has no authority with respect
      to
      matters where action of the entire Board is required to be taken by Article
      2.36B of the Texas Business Corporation Act.




-25-




**Audit
      Committee**






The
      Audit
      Committee of the Board consists of three non-employee directors: Messrs. Goerke,
      Bach and Yarbrough (Audit Committee Chair). Each of Messrs. Goerke, Bach and
      Yarbrough are independent as defined in the listing standards of the American
      Stock Exchange. The Audit Committee engages the company’s independent auditors,
      reviews the company’s financial controls, evaluates the scope of the annual
      audit, reviews audit results, consults with management and the company’s
      independent auditors prior to the presentation of financial statements to
      shareholders and, as appropriate, initiates inquiries into aspects of the
      company’s internal accounting controls and financial affairs.




**Compensation
      Committee**




The
      Compensation Committee of the Board reviews and approves salaries and incentive
      compensation for the company’s executive officers. The Compensation Committee
      consists of three, non-employee directors: Messrs. Goerke, Persons and
      Reinhartsen (Compensation Committee Chair). Messrs. Goerke, Persons and
      Reinhartsen are independent as defined in the listing standards of the American
      Stock Exchange.




**Nominating
      Committee**




The
      Nominating Committee is a new standing committee of the Board effective as
      of
      October 2004 created to review and approve candidates for election and to fill
      vacancies on the Board. The Nominating Committee consists of five non-employee
      directors: Messrs. Goerke (Nominating Committee Chair), Persons, Bach,
      Reinhartsen and Yarbrough. Each of Messrs. Goerke, Persons, Bach, Reinhartsen
      and Yarbrough are independent as defined in the listing standards of the
      American Stock Exchange.




**Director
      Compensation**




Directors
      receive an annual fee of $20,000, which is paid quarterly. The Chairman of
      the
      Board receives an additional fee of $55,000 annually, which is paid monthly.
      Committee chairmen receive an annual fee of $5,000, with the exception of the
      Audit Committee chairman, who receives an annual fee of $10,000, which are
      all
      paid quarterly. Directors receive $1,500 for each of the six regular meetings
      attended each year and $1,000 for each regularly scheduled committee meeting
      attended. During the fiscal year ended August 31, 2004, directors received
      options to purchase 50,000 shares of common stock. In October 2005, directors
      received options to purchase 100,000 shares of common stock. Directors are
      also
      eligible to receive grants of restricted stock based on the attainment of
      certain objectives by the company. Company employees that also serve as
      directors do not receive the abovementioned fees, stock options or restricted
      stock.




**Compensation
      Committee Interlocks and Insider Participation**




The
      Compensation Committee consists of three, non-employee directors, Messrs.
      Goerke, Persons and Reinhartsen (Compensation Committee Chair). None of the
      members of the Compensation Committee has been or is an officer or employee
      of
      the company. None of the company’s executive officers serves on the Board of
      Directors or compensation committee of a company that has an executive officer
      that serves on the company’s Board or Compensation Committee. No member of the
      company’s Board is an executive officer of a company in which one of the
      company’s executive officers serves as a member of the Board of Directors or
      Compensation Committee of that company.




*Code
      of Ethics for the*  *Chief
      Executive Officer and Chief Financial Officer*




Eagle
      maintains a Code of Ethics for the Chief Executive Officer and Chief Financial
      Officer. The Code incorporates our guidelines designed to deter wrongdoing
      and
      to promote honest and ethical conduct and compliance with applicable laws and
      regulations. They also incorporate our expectations of our employees that enable
      us to provide accurate and timely disclosure in our filings with the Securities
      and Exchange Commission and other public communications. The full text of the
      Code is published on our web site at www.eaglebroadband.com/coe.asp. The company
      will provide its Code of Ethics free of charge upon request.




The
      information appearing in our definitive
      proxy statement for the 2006 annual meeting of shareholders (“2006 Proxy
      Statement”) under
      the
      heading “Section
      16(a) Beneficial Ownership Reporting Compliance” is incorporated by
      reference.




**Item
                  11.*****Executive
                  Compensation.***




The
      information appearing in our 2006 Proxy Statement under the headings “Executive
      Compensation,” “Director Compensation,” “Employment Contracts and Change of
      Control Arrangements,” “Report of the Compensation Committee on Executive
      Compensation,” “Stock Price Performance Graph” and “Compensation Committee
      Interlocks and Insider Participation” is
      incorporated by reference .




-26-




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




The
      information appearing in our 2006 Proxy Statement under the headings “Security
      Ownership of Certain Beneficial Owners and Management” is incorporated by
      reference.




**Item
                  13.*****Certain
                  Relationships and Related
                  Transactions.***




The
      information appearing in our 2006 Proxy Statement under the heading “Certain
      Relationships and Related Transactions” is incorporated by
      reference.




**Item
                  14.*****Principal
                  Accounting Fees and Services*****.**




The
      information appearing in our 2006 Proxy Statement under the headings “Report
      of the Audit Committee” and “Ratification of Selection of Independent Registered
      Public Accounting Firm” is incorporated by reference.




**PART
      IV**




**Item
                  15.*****Exhibits,
                  Financial Statement
                  Schedules.***




1.  Financial
      Statements: See Part II, Item 8, “Financial Statements and Supplementary
      Data.”




2.  Financial
      Statement Schedule: See “Schedule II-Valuation and Qualifying Accounts” on page
      F-28 of this Form 10-K.




3.  Exhibits:
      The exhibits listed in the accompanying Index to Exhibits are filed or
      incorporated by reference as part of this Form 10-K.




-27-




**INDEX
      TO EXHIBITS**




Exhibit
                  Number
              
              Description3.1
              
              Restated
                  Articles of Incorporation.3.2
              
              Amended
                  and Restated Bylaws (Incorporated by reference to Exhibit 3.2 of
                  Form
                  10-KSB for the fiscal year ended August 31, 2001, filed November
                  16,
                  2001).4.1
              
              Purchase
                  Agreement by and between Eagle Broadband, Inc. and Investors dated
                  October
                  2, 2003, including registration rights and security agreement attached
                  as
                  an exhibit thereto (Incorporated by reference to Exhibit 10.1 of
                  Form S-3,
                  file no. 333-109481, filed October 3, 2003).\4.2
              
              Q-Series
                  Bond Agreement (Incorporated by reference to Exhibit 10.3 of Form
                  S-3,
                  file no. 333-106074, filed June 12, 2003).4.3
              
              Addendum
                  to Q-Series Bond Agreement (Incorporated by reference to Exhibit
                  10.4 of
                  Form S-3, file no. 333-106074, filed June 12, 2003).4.4
              
              Form
                  of Subscription Agreement for Q Series Bond, between Eagle Broadband
                  and
                  certain investors (Incorporated by reference to Exhibit 10.5 of
                  Form S-3,
                  file no. 333- 106074, filed June 12, 2003).10.1
              
              Securities
                  Purchase Agreement between Eagle Broadband, Inc., and the Purchasers
                  identified on the signature pages thereto, dated August 2005 (Incorporated
                  by reference to Exhibit 10.1 of Form 8-K, filed August 18,
                  2005).10.2
              
              Registration
                  Rights Agreement between Eagle Broadband, Inc., and the Purchasers
                  identified on the signature pages thereto (Incorporated by reference
                  to
                  Exhibit 10.2 of Form 8-K, filed August 18, 2005).10.3
              
              Securities
                  Purchase Agreement between Eagle Broadband, Inc., and the Purchasers
                  identified on the signature pages thereto (Incorporated by reference
                  to
                  Exhibit 10.1 of Form 8-K, filed February 18, 2005).10.4
              
              1996
                  Incentive Stock Option Plan (Incorporated by reference to Exhibit
                  10.1 of
                  Form S-8, file no. 333-72645, filed February 19, 1999).10.5
              
              2002
                  Stock Incentive Plan (Incorporated by reference to Exhibit 10.1
                  of Form
                  S-8, file no. 333-97901, filed August 9, 2002).10.6
              
              Amendment
                  to the 2002 Stock Incentive Plan (Incorporated by reference to
                  Exhibit
                  10.2 of Form S-8, file no. 333-102506, filed January 14,
                  2003).10.7
              
              2003
                  Stock Incentive and Compensation Plan (Incorporated by reference
                  to
                  Exhibit 10.1 of Form S-8, file no. 333-103829, filed March 14,
                  2003).10.8
              
              Amendment
                  to the 2003 Stock Incentive and Compensation Plan (Incorporated
                  by
                  reference to Exhibit 10.2 of Form S-8, file no. 333-105074, filed
                  May 8,
                  2003).10.9
              
              Amendment
                  No. 2 to the 2003 Stock Incentive and Compensation Plan (Incorporated
                  by
                  reference to Exhibit 10.2 of Form S-8, file no. 333-109339, filed
                  October
                  1, 2003).10.10
              
              2004
                  Stock Incentive Plan (Incorporated by reference to Exhibit 10.1
                  of Form
                  S-8, file no. 333-110309, filed November 6, 2003).10.11
              
              June
                2004 Compensatory Stock Option Plan (Incorporated by reference to
                Exhibit
                10.1 of Form S-8, file no. 333-117690, filed July 27, 2004).10.12
              
              2005
                  Employee Stock Option Plan (Incorporated by reference to Exhibit
                  10.10 of
                  Form S-1/A, file no. 333-127895, filed October 28,
                  2005).10.13
              
              Employment
                  Agreement between Eagle Broadband, Inc. and Eric Blachno (Incorporated
                  by
                  reference to Exhibit 10.13 of Form 10-K/A for the fiscal year ended
                  August
                  31, 2004, filed December 29,
                  2004).




-28-




Exhibit
                Number
            
            Description


10.14
                
                Amended
                    and Restated Employment Agreement between Eagle Broadband, Inc.
                    and David
                    Micek (Incorporated by reference to Exhibit 10.12 of Form S-1/A,
                    file no.
                    333-127895, filed October 28, 2005).21.1
                
                List
                    of Subsidiaries (Incorporated by reference to Exhibit 21.1 of
                    Form S-1/A,
                    file no. 333-127895, filed October 28, 2005).23.1
                
                Consent
                    of Lopez, Blevins, Bork and Associates, LLP, Independent Registered
                    Public
                    Accounting Firm.31.1
                
                Certification
                    of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002.31.2
                
                Certification
                    of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002.
  32.1
                  
                  Certification
                      of Chief Executive Officer and Chief Financial Officer pursuant
                      to Section
                      906 of the Sarbanes-Oxley Act of
                      2002.


-29-




**SIGNATURES**






Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




EAGLE
                BROADBAND, INC.(Registrant)By:
            /s/ DAVID
                MICEKDavid
                Micek
              President
                and Chief Executive OfficerDate:
                November 29, 2005






Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/
                DAVID MICEK
            
            Chief
                Executive Officer and Director
            
            November
                29, 2005David
                Micek
            
            *Principal
                Executive Officer*/s/
                ERIC BLACHNO
            
            Chief
                Financial Officer
            
            November
                  29, 2005Eric
                Blachno
            
            *Principal
                Financial Officer*/s/
                JULIET MARKOVICH
            
            Corporate
                Controller & Principal Accounting Officer
            
            November
                  29, 2005Juliet
                Markovich
            
            *Principal
                Accounting Officer*/s/
                ROBERT BACH
            
            Director
            
            November
                  29, 2005Robert
                Bach/s/
                H. DEAN CUBLEY
            
            Director
            
            November
                  29, 2005H.
                Dean Cubley/s/
                GLENN GOERKE
            
            Director
            
            November
                  29, 2005Glenn
                Goerke/s/
                LORNE PERSONS
            
            Director
            
            November
                  29, 2005Lorne
                Persons/s/
                C. J. REINHARTSEN
            
            Director
            
            November
                  29, 2005C.
                J. Reinhartsen/s/
                JAMES YARBROUGH
            
            Director
            
            November
                  29, 2005James
                Yarbrough






-30-






**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
 To
          the
          Board of Directors
 Eagle
          Broadband, Inc.
 Houston,
          Texas
  We
          have
          audited the accompanying consolidated balance sheets of Eagle Broadband,
          Inc. as
          of August 31, 2005 and 2004, and the related consolidated statements of
          operations, shareholders’ equity, and cash flows for each of the three
          years in the period ended August 31, 2005. These financial statements are
          the
          responsibility of Eagle Broadband, Inc.’s management. Our responsibility is to
          express an opinion on these financial statements based on our
          audits.
  We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. An audit includes examining,
          on a
          test basis, evidence supporting the amounts and disclosures in the financial
          statements. An audit also includes assessing the accounting principles
          used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audits provide a
          reasonable basis for our opinion.
  In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Eagle Broadband, Inc.
          as of
          August 31, 2005 and 2004, and the results of its operations and its cash
          flows
          for each of the three years in the period ended August 31, 2005, in conformity
          with accounting principles generally accepted in the United States of
          America.
  We
          also
          have audited, in accordance with the Standards of the Public Company Accounting
          Oversight Board (United States), the effectiveness of the Company’s internal
          control over financial reporting as of August 31, 2005, based on criteria
          established in Internal Control-Integrated Framework issued by the Committee
          of
          Sponsoring Organizations of the Treadway Commission, and our report dated
          November 18, 2005 expressed an unqualified opinion thereon.
   /s/
          Lopez, Blevins, Bork and Associates, LLP
   Lopez,
          Blevins, Bork and Associates, LLP
 Houston,
          Texas
   November
          18, 2005
 F-1
 **REPORT
            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
   To
            the
            Board of Directors
 Eagle
            Broadband, Inc.
 Houston,
            Texas
   We
            have
            audited management’s assessment, included in Management’s Report on Internal
            Control Over Financial Reporting in Item 9A, that Eagle Broadband, Inc.
            maintained effective internal control over financial reporting as of
            August 31, 2005, based on criteria established in Internal Control -
            Integrated Framework issued by the Committee of Sponsoring Organizations
            of the
            Treadway Commission (COSO). The Company’s management is responsible for
            maintaining effective internal control over financial reporting and for
            its
            assessment of the effectiveness of internal control over financial reporting.
            Our responsibility is to express an opinion on management’s assessment and an
            opinion on the effectiveness of the Company’s internal control over financial
            reporting based on our audit.
  We
            conducted our audit in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether effective
            internal control over financial reporting was maintained in all material
            respects. Our audit included obtaining an understanding of internal control
            over
            financial reporting, evaluating management’s assessment, testing and evaluating
            the design and operating effectiveness of internal control, and performing
            such
            other procedures as we considered necessary in the circumstances. We
            believe
            that our audit provides a reasonable basis for our opinion.
  A
            company’s internal control over financial reporting is a process designed to
            provide reasonable assurance regarding the reliability of financial reporting
            and the preparation of financial statements for external purposes in
            accordance
            with generally accepted accounting principles. A company’s internal control over
            financial reporting includes those policies and procedures that (1) pertain
            to
            the maintenance of records that, in reasonable detail, accurately and
            fairly
            reflect the transactions and dispositions of the assets of the company;
            (2) provide reasonable assurance that transactions are recorded as
            necessary to permit preparation of financial statements in accordance
            with
            generally accepted accounting principles, and that receipts and expenditures
            of
            the company are being made only in accordance with authorizations of
            management
            and directors of the company; and (3) provide reasonable assurance
            regarding prevention or timely detection of unauthorized acquisition,
            use, or
            disposition of the company’s assets that could have a material effect on the
            financial statements.
  Because
            of its inherent limitations, internal control over financial reporting
            may not
            prevent or detect misstatements. Also, projections of any evaluation
            of
            effectiveness to future periods are subject to the risk that controls
            may become
            inadequate because of changes in conditions, or that the degree of compliance
            with the policies or procedures may deteriorate.
  In
            our
            opinion, management’s assessment that Eagle Broadband, Inc. maintained effective
            internal control over financial reporting as of August 31, 2005, is fairly
            stated, in all material respects, based on the COSO criteria. Also, in
            our
            opinion, Eagle Broadband, Inc. maintained, in all material respects,
            effective
            internal control over financial reporting as of August 31, 2005, based on
            the COSO criteria.
  We
            have
            also audited, in accordance with the standards of the Public Company
            Accounting
            Oversight Board (United States), the consolidated balance sheets of Eagle
            Broadband, Inc. as of August 31, 2005 and 2004, and the related
            consolidated statements of operations, shareholders’ equity and cash flows for
            each of the three years in the period ended August 31, 2005 and our report
            dated November 18, 2005 expressed an unqualified opinion
            thereon.
   /s/
            Lopez, Blevins, Bork and Associates, LLP
   Lopez,
            Blevins, Bork and Associates, LLP
 Houston,
            Texas
   November
            18, 2005
 
 F-2
 **EAGLE
          BROADBAND, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
  (Thousands
                        of dollars)
                      August
                        31,2005
                    
                    2004**ASSETS****Current
                        Assets**Cash
                        and Cash Equivalents
                    
                    $
                    4,020
                    
                    $
                    2,051Cash
                        in Restricted Account
                    
                    
                    203
                    
                    
                    —Securities
                        Available for Sale
                    
                    
                    —
                    
                    
                    551Accounts
                        Receivable, net
                    
                    
                    1,890
                    
                    
                    1,470Inventories
                    
                    
                    802
                    
                    
                    403Net
                        investment in direct financing leases
                    
                    
                    525
                    
                    
                    291Other
                        Assets
                    
                    
                    298
                    
                    
                    —Prepaid
                        Expenses
                    
                    
                    632
                    
                    
                    327**Total
                        Current Assets**
                    
                    
                    **8,370**
                    
                    
                    **5,093****Property
                        and Equipment**Operating
                        Equipment
                    
                    
                    32,298
                    
                    
                    36,415Less:
                        Accumulated Depreciation
                    
                    
                    (8,994
                    )
                    
                    (7,837
                    )**Total
                        Property and Equipment**
                    
                    
                    **23,304**
                    
                    
                    **28,578****Other
                        Assets**Net
                        investment in direct financing leases
                    
                    
                    853
                    
                    
                    623Goodwill,
                        net
                    
                    
                    4,095
                    
                    
                    4,095Contract
                        rights, net
                    
                    
                    2,921
                    
                    
                    21,678Customer
                        relationships, net
                    
                    
                    831
                    
                    
                    5,431Other
                        Intangible assets, net
                    
                    
                    859
                    
                    
                    4,034Other
                        Assets
                    
                    
                    680
                    
                    
                    679**Total
                        Other Assets**
                    
                    
                    **10,239**
                    
                    
                    **36,540****Total
                        Assets**
                    
                    **$**
                    **41,913**
                    ****
                    **$**
                    **70,211****Current
                        Liabilities**Accounts
                        Payable
                    
                    $
                    6,640
                    
                    $
                    4,445Stock
                        Payable
                    
                    
                    2,008
                    
                    
                    —Accrued
                        Expenses
                    
                    
                    9,477
                    
                    
                    9,647Notes
                        Payable
                    
                    
                    61
                    
                    
                    5,920Deferred
                        revenue
                    
                    
                    623
                    
                    
                    96**Total
                        Current Liabilities**
                    
                    
                    **18,809**
                    
                    
                    **20,108****Shareholders’
                        Equity**Preferred
                        Stock - $0.001 par value5,000,000
                        shares authorized, none issued
                    
                    
                    —
                    
                    
                    —Common
                        Stock - $0.001 par value350,000,000
                        shares authorized, 288,211,275 and 205,508,662
                      issued
                        and outstanding at August 31, 2005 and 2004, respectively
                    
                    
                    288
                    
                    
                    206Additional
                        Paid in Capital
                    
                    
                    236,932
                    
                    
                    208,051Accumulated
                        Deficit
                    
                    
                    (214,116
                    )
                    
                    (157,106
                    )Accumulated
                        Comprehensive Income (Loss)
                    
                    
                    —
                    
                    
                    (1,048
                    )**Total
                        Shareholders’ Equity**
                    
                    
                    **23,104**
                    
                    
                    **50,103****Total
                        Liabilities and Shareholders’ Equity**
                    
                    $
                    41,913
                    
                    $
                    70,211
  See
          accompanying notes to consolidated financial statements.
 F-3
  **EAGLE
          BROADBAND, INC.**
 **CONSOLIDATED
            STATEMENTS OF OPERATIONS**
  *(Thousands
                        of dollars, except per share amounts)*
                      For
                        the years ended August 31,2005
                    
                    2004
                    
                    2003**Net
                        Sales**Structured
                        wiring
                    
                    $
                    1,343
                    
                    $
                    678
                    
                    $
                    3,692Broadband
                        services
                    
                    
                    4,348
                    
                    
                    5,525
                    
                    
                    2,809Products
                    
                    
                    2,770
                    
                    
                    6,190
                    
                    
                    3,342Other
                    
                    
                    131
                    
                    
                    97
                    
                    
                    1,750**Total
                        Sales**
                    
                    
                    **8,592**
                    
                    
                    **12,490**
                    
                    
                    **11,593****Costs
                        of Goods Sold**Direct
                        Labor and Related Costs
                    
                    
                    1,613
                    
                    
                    1,244
                    
                    
                    2,195Products
                        and Integration Service
                    
                    
                    3,077
                    
                    
                    5,372
                    
                    
                    2,773Impairment
                        Slow Moving & Obsolete Inventory
                    
                    
                    300
                    
                    
                    1,300
                    
                    
                    2,627Structured
                        Wiring Labor and Materials
                    
                    
                    1,031
                    
                    
                    448
                    
                    
                    1,774Broadband
                        Services Costs
                    
                    
                    1,729
                    
                    
                    2,856
                    
                    
                    903Depreciation
                        and Amortization
                    
                    
                    1,158
                    
                    
                    1,141
                    
                    
                    456Other
                        Manufacturing Costs
                    
                    
                    —
                    
                    
                    26
                    
                    
                    56Total
                        Costs of Goods Sold
                    
                    
                    8,908
                    
                    
                    12,387
                    
                    
                    10,784**Gross
                        Profit**
                    
                    
                    **(316**
                    **)**
                    
                    **103**
                    
                    
                    **809****Operating
                        Expenses**Salaries
                        and Related Costs
                    
                    
                    5,734
                    
                    
                    13,146
                    
                    
                    6,102Advertising
                        and Promotion
                    
                    
                    80
                    
                    
                    29
                    
                    
                    247Depreciation
                        and Amortization
                    
                    
                    3,267
                    
                    
                    3,956
                    
                    
                    4,776Other
                        Support Costs
                    
                    
                    17,666
                    
                    
                    13,367
                    
                    
                    12,737Research
                        and Development
                    
                    
                    776
                    
                    
                    557
                    
                    
                    411Impairment,
                        Write-Downs & Restructuring Costs
                    
                    
                    28,515
                    
                    
                    —
                    
                    
                    7,611**Total
                        Operating Expenses**
                    
                    
                    **56,038**
                    
                    
                    **31,055**
                    
                    
                    **31,884****Loss
                        from Operations**
                    
                    
                    **(56,354**
                    **)**
                    ****
                    **(30,952**
                    **)**
                    ****
                    **(31,075**
                    **)****Other
                        Income/(Expenses)**Interest
                        Income
                    
                    
                    36
                    
                    
                    32
                    
                    
                    68Interest
                        Expense
                    
                    
                    (768
                    )
                    
                    (8,325
                    )
                    
                    (5,494
                    )Gain
                        (Loss) on Sale of Assets
                    
                    
                    (16
                    )
                    
                    240
                    
                    
                    —Gain
                        (Loss) on Sale of Marketable Securities
                    
                    
                    (899
                    )
                    
                    —
                    
                    
                    —Gain
                        (Loss) on Extinguishment of Debt
                    
                    
                    991
                    
                    
                    —
                    
                    
                    —**Total
                        Other Income (Expense)**
                    
                    
                    **(656**
                    **)**
                    ****
                    **(8,053**
                    **)**
                    ****
                    **(5,426**
                    **)****Net
                        Loss**
                    
                    
                    **(57,010**
                    **)**
                    ****
                    **(39,005**
                    **)**
                    ****
                    **(36,501**
                    **)****Other
                        Comprehensive Loss**Unrealized
                        Holding Loss
                    
                    
                    —
                    
                    
                    (321
                    )
                    
                    (71
                    )**Total
                        Other Comprehensive Loss**
                    
                    
                    **—**
                    
                    
                    **(321**
                    **)**
                    
                    **(71**
                    **)****Comprehensive
                        Losses**
                    
                    **$**
                    **(57,010**
                    **)**
                    **$**
                    **(39,326**
                    **)**
                    **$**
                    **(36,572**
                    **)****Net
                        Loss per Common Share**Basic
                    
                    
                    (0.24
                    )
                    
                    (0.21
                    )
                    
                    (0.38
                    )Diluted
                    
                    
                    (0.24
                    )
                    
                    (0.21
                    )
                    
                    (0.38
                    )Comprehensive
                        Loss
                    
                    
                    (0.24
                    )
                    
                    (0.21
                    )
                    
                    (0.38
                    )
  See
            accompanying notes to consolidated financial statements.
 F-4
  **EAGLE
            BROADBAND, INC.**
 **CONSOLIDATED
              STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY**
 Common
                        Stock
                    
                    
                    
                    
                    
                    
                    
                    Accumulated
                    
                    Total***(Shares
                      and dollars in thousands)***
                    
                    Shares
                    
                    Value
                    
                    Preferred
                      Stock
                    
                    Additional
                        Paid
                      in
                        Capital
                    
                    Retained
                      Earnings
                    
                    Comprehensive
                      Income
                    
                    Shareholders'
                      Equity**Shareholders’
                        Equity at September 1, 2002**
                    
                    
                    **73,051**
                    
                    **$**
                    **73**
                    ****
                    ****
                    **—**
                    ****
                    **$**
                    **158,731**
                    ****
                    **$**
                    **(81,600**
                    **)**
                    **$**
                    **(656**
                    **)**
                    **$**
                    **76,548**Net
                        Loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (36,501
                    )
                    
                    —
                    
                    
                    (36,501
                    )**New
                        Stock Issued**For
                        Services and Compensation
                    
                    
                    7,437
                    
                    
                    7
                    
                    
                    —
                    
                    
                    1,813
                    
                    
                    —
                    
                    
                    —
                    
                    
                    1,820For
                        Property and Other Assets
                    
                    
                    14,938
                    
                    
                    15
                    
                    
                    —
                    
                    
                    3,032
                    
                    
                    —
                    
                    
                    —
                    
                    
                    3,047For
                        Retirement of Debt and Liabilities
                    
                    
                    50,816
                    
                    
                    51
                    
                    
                    —
                    
                    
                    13,827
                    
                    
                    —
                    
                    
                    —
                    
                    
                    13,878For
                        Employee Stock Option Plan
                    
                    
                    1,647
                    
                    
                    2
                    
                    
                    —
                    
                    
                    180
                    
                    
                    —
                    
                    
                    —
                    
                    
                    182Syndication
                        Costs
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (368
                    )
                    
                    —
                    
                    
                    —
                    
                    
                    (368
                    )Treasury
                        Stock
                    
                    
                    (442
                    )
                    
                    (1
                    )
                    
                    —
                    
                    
                    (198
                    )
                    
                    —
                    
                    
                    —
                    
                    
                    (199
                    )Unrealized
                        Holding Loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (71
                    )
                    
                    (71
                    )**Shareholders’
                        Equity at August 31, 2003**
                    
                    
                    **147,447**
                    ****
                    ****
                    **147**
                    ****
                    ****
                    **—**
                    ****
                    ****
                    **177,017**
                    ****
                    ****
                    **(118,101**
                    **)**
                    ****
                    **(727**
                    **)**
                    ****
                    **58,336**Net
                        Loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (39,005
                    )
                    
                    —
                    
                    
                    (39,005
                    )**New
                        Stock Issued**For
                        Services and Compensation
                    
                    
                    11,016
                    
                    
                    12
                    
                    
                    —
                    
                    
                    6,335
                    
                    
                    —
                    
                    
                    —
                    
                    
                    6,347For
                        Retirement of Debt and Liabilities
                    
                    
                    47,046
                    
                    
                    47
                    
                    
                    —
                    
                    
                    13,294
                    
                    
                    —
                    
                    
                    —
                    
                    
                    13,341Stock-Based
                        Compensation
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    4,493
                    
                    
                    —
                    
                    
                    —
                    
                    
                    4,493Beneficial
                        Conversion Features onConvertible
                        Debentures
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    6,912
                    
                    
                    —
                    
                    
                    —
                    
                    
                    6,912Unrealized
                        Holding Loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (321
                    )
                    
                    (321
                    )**Shareholders’
                        Equity at August 31, 2004**
                    
                    
                    **205,509**
                    ****
                    ****
                    **206**
                    ****
                    ****
                    **—**
                    ****
                    ****
                    **208,051**
                    ****
                    ****
                    **(157,106**
                    **)**
                    ****
                    **(1,048**
                    **)**
                    ****
                    **50,103**Net
                        Loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (57,010
                    )
                    
                    —
                    
                    
                    (57,010
                    )**New
                        Stock Issued**For
                        services and compensation
                    
                    
                    5,119
                    
                    
                    5
                    
                    
                    —
                    
                    
                    2,339
                    
                    
                    —
                    
                    
                    —
                    
                    
                    2,344For
                        retirement of debt and accrued liabilities
                    
                    
                    27,663
                    
                    
                    27
                    
                    
                    —
                    
                    
                    13,334
                    
                    
                    —
                    
                    
                    —
                    
                    
                    13,361Proceeds
                        from sale of common stock, net of expenses
                    
                    
                    45,795
                    
                    
                    46
                    
                    
                    —
                    
                    
                    11,263
                    
                    
                    —
                    
                    
                    —
                    
                    
                    11,309Proceeds
                        from exercise of options
                    
                    
                    4,125
                    
                    
                    4
                    
                    
                    —
                    
                    
                    1,945
                    
                    
                    —
                    
                    
                    —
                    
                    
                    1,949Unrealized
                        Holding Loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    1,048
                    
                    
                    1,048**Shareholders’
                        Equity at August 31, 2005**
                    
                    
                    **288,211**
                    ****
                    **$**
                    **288**
                    ****
                    ****
                    **—**
                    ****
                    **$**
                    **236,932**
                    ****
                    **$**
                    **(214,116**
                    **)**
                    **$**
                    **—**
                    ****
                    **$**
                    **23,104**
  See
          accompanying notes to consolidated financial statements.
 F-5
  **EAGLE
            BROADBAND, INC.**
 **CONSOLIDATED
            STATEMENTS OF CASH FLOWS**
 *(Thousands
                        of dollars)*
                      For
                        the year ended August 31,2005
                    
                    2004
                    
                    2003**Cash
                        Flows from Operating Activities**Net
                        Loss
                    
                    $
                    (57,010
                    )
                    $
                    (39,005
                    )
                    $
                    (36,501
                    )Adjustments
                        to Reconcile Net Loss to Net Cash:Impairment
                        and write-downs
                    
                    
                    28,815
                    
                    
                    1,300
                    
                    
                    10,238Loss
                        on sale of assets
                    
                    
                    16
                    
                    
                    611
                    
                    
                    —Loss
                        on sale of marketable securities
                    
                    
                    899
                    
                    
                    —
                    
                    
                    —Gain
                        on extinguishment of debt
                    
                    
                    (991
                    )
                    
                    —
                    
                    
                    —Interest
                        for beneficial conversion value
                    
                    
                    —
                    
                    
                    6,912
                    
                    
                    91Depreciation
                        and amortization
                    
                    
                    4,425
                    
                    
                    5,097
                    
                    
                    5,232Stock
                        issued for interest expense
                    
                    
                    568
                    
                    
                    108
                    
                    
                    2,477Stock
                        issued for services rendered
                    
                    
                    1,776
                    
                    
                    10,841
                    
                    
                    1,820Provision
                        for bad debt
                    
                    
                    568
                    
                    
                    2,643
                    
                    
                    2,177(Increase)/decrease
                        in accounts receivable
                    
                    
                    (988
                    )
                    
                    (1,750
                    )
                    
                    124(Increase)/decrease
                        in inventories
                    
                    
                    (699
                    )
                    
                    1,496
                    
                    
                    (910
                    )(Increase)
                        in other assets
                    
                    
                    (1,003
                    )
                    
                    —
                    
                    
                    —(Increase)/decrease
                        in prepaid expenses
                    
                    
                    (305
                    )
                    
                    341
                    
                    
                    (311
                    )Increase/(decrease)
                        in accounts payable
                    
                    
                    2,195
                    
                    
                    (1,016
                    )
                    
                    921Increase
                        in stock payable
                    
                    
                    2,008
                    
                    
                    —
                    
                    
                    —Increase
                        in accrued expenses
                    
                    
                    7,899
                    
                    
                    8,929
                    
                    
                    8,557Total
                        Adjustment
                    
                    
                    45,183
                    
                    
                    35,512
                    
                    
                    30,416**Net
                        Cash Used for Operating Activities**
                    
                    
                    **(11,827**
                    **)**
                    ****
                    **(3,493**
                    **)**
                    ****
                    **(6,085**
                    **)****Cash
                        Flows from Investing Activities**Purchase
                        of Property and Equipment
                    
                    
                    (804
                    )
                    
                    (729
                    )
                    
                    (2,121
                    )Increase
                        in Restricted Cash
                    
                    
                    (203
                    )
                    
                    —
                    
                    
                    —Increase/(Decrease)
                        in Deferred Costs
                    
                    
                    —
                    
                    
                    334
                    
                    
                    —Increase/(Decrease)
                        in Intangible Costs
                    
                    
                    (4
                    )
                    
                    (40
                    )
                    
                    —Proceeds
                        from the sale of Marketable Securities
                    
                    
                    700
                    
                    
                    842
                    
                    
                    434Proceeds
                        from Sale of Assets
                    
                    
                    367
                    
                    
                    —
                    
                    
                    —(Increase)/Decrease
                        in Other Assets
                    
                    
                    (1
                    )
                    
                    (452
                    )
                    
                    411Gross
                        Equipment Purchase for Direct Financing Leases
                    
                    
                    (971
                    )
                    
                    (1,212
                    )
                    
                    —Principal
                        Collections on Direct Financing Leases
                    
                    
                    305
                    
                    
                    41
                    
                    
                    —**Net
                        Cash Used for Investing Activities**
                    
                    
                    **(611**
                    **)**
                    ****
                    **(1,216**
                    **)**
                    ****
                    **(1,276**
                    **)****Cash
                        Flows from Financing Activities**Increase/(Decrease)
                        in Notes Payable & Long-Term Debt
                    
                    
                    1,149
                    
                    
                    5,936
                    
                    
                    7,297Proceeds
                        from Sale of Common Stock, Net
                    
                    
                    11,309
                    
                    
                    —
                    
                    
                    182Proceeds
                        from exercise of option
                    
                    
                    1,949
                    
                    
                    —
                    
                    
                    —Syndication
                        costs
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (368
                    )Acquisition
                        of Treasury Stock
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (199
                    )**Net
                        Cash Provided by Financing Activities**
                    
                    
                    **14,407**
                    
                    
                    **5,936**
                    
                    
                    **6,912**Net
                        Increase/(Decrease) in Cash
                    
                    
                    1,969
                    
                    
                    1,227
                    
                    
                    (449
                    )Cash
                        at the Beginning of the Year
                    
                    
                    2,051
                    
                    
                    824
                    
                    
                    1,273**Cash
                        at the End of the Year**
                    
                    **$**
                    **4,020**
                    
                    **$**
                    **2,051**
                    
                    **$**
                    **824****Supplemental
                        Disclosure of Cash Flow Information**Net
                        Cash Paid During the Year for:Interest
                    
                    $
                    70
                    
                    $
                    1,305
                    
                    $
                    3,288Income
                        taxes
                    
                    $
                    —
                    
                    $
                    —
                    
                    $
                    —
 See
                Note
                9-Supplemental Non-Cash Disclosure and Consolidated Statements of
                Changes in
                Shareholders’ Equity.
 
 See
                accompanying notes to consolidated financial statements.
 F-6
 **Eagle
          Broadband, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements August 31, 2005**
  **NOTE
          1 - Basis of Presentation and Significant Accounting
          Policies**
  Eagle
          Broadband, Inc. (the “Company” or “Eagle”), incorporated as a Texas corporation
          on May 24, 1993, and commenced business in April of 1996. The Company is
          a
          provider of broadband, Internet Protocol (IP) and communications technology
          and
          services. The Company’s product offerings include IPTVCompleteTM, the MediaPro
          line of standard and high definition IP set-top boxes; and the SatMAXTM satellite
          communications system that provides civilian government, military, homeland
          security and corporate customers with non-line-of-sight, satellite voice
          and
          data communications from any location on Earth.
  A)
          Consolidation
  At
          August 31, 2005, 2004, and 2003, the Company’s consolidated subsidiaries were:
          Eagle Broadband Services, Inc., EBI Funding Corporation, Etoolz, Inc.,
          Atlantic
          Pacific Communications, Inc., Eagle Wireless International, Inc.,
          Clearworks.net, Inc., Clearworks Communications, Inc., Clearworks Home
          Systems,
          Inc., D.S.S. Security, Inc., United Computing Group, Inc., and Link-Two
          Communications, Inc.
  As
          of August 31, 2005, the Company’s active subsidiaries were: Eagle Broadband
          Services, Inc., D.S.S. Security, Inc., operating as Eagle Broadband Security,
          EBI Funding Corporation, and Etoolz, Inc. Additionally, Eagle has a number
          of
          inactive subsidiaries that had results in one or more of the periods included
          in
          the financial statements covered by this report. These inactive subsidiaries
          include: Clearworks Communications, Inc., Clearworks.net, Inc., Clearworks
          Home
          Systems, Inc., Contact Wireless, Inc., United Computing Group, Inc., Atlantic
          Pacific Communications, and Link-Two Communications, Inc. Eagle has incorporated
          certain ongoing operations of the inactive subsidiaries into the active
          subsidiaries listed above, including Atlantic Pacific Communications, Inc.
          and
          Clearworks Communications, Inc. The consolidated financial statements include
          the accounts of the Company and its subsidiaries. All significant inter-company
          transactions and balances have been eliminated in consolidation.
  B)
          Cash and Cash Equivalents
  The
          Company considers all highly liquid financial instruments with original
          maturities to be cash equivalents. The Company maintains cash deposits
          in banks
          which from time to time exceed the amount of deposit insurance available.
          Management periodically assesses the financial condition of the institutions
          and
          believes that any potential credit loss is minimal.
  The
          Company had $4,020,000 and $2,051,000 of cash and cash equivalents invested
          in
          interest bearing accounts at August 31, 2005 and August 31, 2004,
          respectively.
  In
          conjunction with the Company’s agreement with a third-party provider, the
          Company has an irrevocable Letter of Credit secured with restricted cash
          of
          $203,000 as of August 31, 2005.
  C)
          Allowance Method Used to Record Bad Debts
  The
          Company uses the allowance method to account for uncollectible accounts
          receivable. The Company’s estimate is based on historical collection experience
          and a review of the current status of accounts receivable. The Company
          reviews
          its accounts receivable balances by customer for accounts greater than
          90 days
          old and makes a determination regarding the collectibility of the accounts
          based
          on specific circumstances and the payment history that exists with such
          customers. The Company also takes into account its prior experience, the
          customer’s ability to pay and an assessment of the current economic conditions
          in determining the net realizable value of its receivables. The Company
          also
          reviews its allowances for doubtful accounts in aggregate for adequacy
          following
          this assessment. Accordingly, the Company believes that its allowances
          for
          doubtful accounts fairly represent the underlying collectibility risks
          associated with its accounts receivable.
 F-7
   D)
          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:
  YearsHeadend
                    Facility and Fiber Infrastructure
                
                
                20Manufacturing
                    Equipment
                
                
                3-7Furniture
                    and Fixtures
                
                
                2-7Office
                    Equipment
                
                
                5Leasehold
                    Improvements
                
                
                Life
                    of leaseProperty
                    and Equipment
                
                
                5Vehicles
                
                
                5
  Expenditures
            for maintenance and repairs are charged against income as incurred whereas
            major
            improvements are capitalized. Eagle has acquired all of its property
            and
            equipment with either cash or stock and has not capitalized any interest
            expenses in its capital assets.
  E)
            Impairment of Long-Lived Assets
  The
            Company reviews long-lived assets for indicators of impairment whenever
            events
            or changes in circumstances indicate that the carrying value may not
            be
            recoverable. If the review indicates that the carrying amount of the
            asset may
            not be recoverable, the potential impairment is measured based on a projected
            discounted cash flow method using a discount rate that is considered
            to be
            commensurate with the risk inherent in the company’s current business model. For
            purposes of recognition and measurement of an impairment loss, a long-lived
            asset is grouped with other assets at the lowest level for which identifiable
            cash flows are largely independent of the cash flows of other assets.
            During the
            year ended August 31, 2005, the Company recorded an impairment loss of
            $4,279,405. (See Note 5.)
  For
            the year ended August 31, 2004, management assessed long-lived assets
            for
            indicators of impairment and determined no impairment charge was required
            for
            fixed assets.
  At
            August
            31, 2003, management determined that a $7,611,000 non-cash impairment
            charge was
            necessary against realigned operations and the discontinued sale of low
            margin
            commodity products, residential and commercial structured wiring operations
            and
            the withdrawal from its Austin area BDS development based on the lack
            of demand
            for BDS services resulting from a slower build out of the development
            than
            originally projected in conjunction with local market competition. Included
            in
            the impairment was the write down of goodwill associated with the Comtel
            acquisition of $1,878,000.
  The
            impairment loss for long-lived assets has been allocated on a pro-rata
            basis
            using the relative carrying amounts of those assets, except that the
            loss
            allocated to an individual long-lived asset of the group has not reduced
            the
            carrying amount of that asset below its fair value. The adjusted carrying
            amount
            of the long lived assets is its new cost basis. For a depreciable long-lived
            asset, the new cost basis shall be depreciated (amortized) over the remaining
            useful life of that asset.
  F)
            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
                        31,2005
                    
                    2004Raw
                        Materials
                    
                    $
                    126
                    
                    $
                    294Work
                        in Process
                    
                    
                    676
                    
                    
                    108Finished
                        Goods
                    
                    
                    —
                    
                    
                    1$
                    802
                    
                    $
                    403
  In
              the year ended August 31, 2005, the company had an
              impairment charge of $300,000 related to a partial impairment of
              inventory on hand as of August 31, 2004.  Management had
              reasonably identified prospects for this inventory at August 31, 2004,
              which did
              not materialize as planned in fiscal 2005.
 F-8
  G)
          Revenue Recognition
  The
          Company designs, manufactures, markets and services its products and services
          under the names Eagle Broadband, Inc., Eagle Broadband Services, Inc.,
          D.S.S.
          Security, Inc., doing business as Eagle Broadband Security, and EBI Funding
          Corporation.
  Eagle
          adopted EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” in the
          fourth quarter of fiscal 2003. The impact of adopting EITF 00-21 did not
          have a
          material effect on Eagle’s results of operations. Eagle’s contracts that contain
          multiple elements as of August 31, 2004, or prior were immaterial. When
          elements
          such as hardware, software and consulting services are contained in a single
          arrangement, or in related arrangements with the same customer, Eagle allocates
          revenue to each element based on its relative fair value, provided that
          such
          element meets the criteria for treatment as a separate unit of accounting.
          The
          price charged when the element is sold separately generally determines
          fair
          value. In the absence of fair value for a delivered element, Eagle allocates
          revenue first to the fair value of the undelivered elements and allocates
          the
          residual revenue to the delivered elements. In the absence of fair value
          for an
          undelivered element, the arrangement is accounted for as a single unit
          of
          accounting, resulting in a delay of revenue recognition for the delivered
          elements until the undelivered elements are fulfilled. Eagle limits the
          amount
          of revenue recognition for delivered elements to the amount that is not
          contingent on the future delivery of products or services or subject to
          customer-specified return or refund privileges.
  *Deferred
          Revenues*
  Revenues
          that are billed in advance of services being completed are deferred until
          the
          conclusion of the period of the service for which the advance billing relates.
          Deferred revenues are included on the balance sheet as a current liability
          until
          the service is performed and then recognized in the period in which the
          service
          is completed. Eagle’s deferred revenues consist of billings in advance for
          cable, Internet, security and telephone services, which generally are between
          one and three months of services. Eagle’s deferred revenues also consist of
          revenues deferred in conjunction with a twelve-month holdback provision
          for two
          contracts executed in fiscal 2005 with Alarm Security Group LLC for purchases
          of
          security contracts. Eagle had deferred revenues of $623,000 and $96,000
          as of
          August 31, 2005 and 2004, respectively.
  *Eagle
          Broadband, Inc.*
  Eagle
          designs, manufactures and markets various hardware, software and systems,
          along
          with other equipment used in the delivery of broadband, video entertainment
          and
          communications services. Revenues from these products are recognized when
          the
          product is shipped. Eagle Broadband Inc.’s international product revenues are
          reported under the category “Products” on Eagle’s Consolidated Statements of
          Operations included as page F-4 of this report and also under the category
          “Eagle” within Note 20-Industry Segments.
  The
          Company designs, manufactures and markets a complete line of MediaPro IP
          set-top
          boxes. Eagle recognizes revenue when set-top boxes are shipped to the customer.
          The Company’s set-top box revenues are reported under the category “Products” on
          Eagle’s Consolidated Statements of Operations included as page F-4 of this
          report and also under the category “Eagle” within Note 20-Industry Segments.
          Revenue from software consists of software licensing. There is no post-contract
          customer support. Software revenue is allocated to the license using vendor
          specific objective evidence of fair value (“VSOE”) or, in the absence of VSOE,
          the residual method. The price charged when the element is sold separately
          generally determines VSOE. In the absence of VSOE of a delivered element,
          Eagle
          allocates revenue to the fair value of the undelivered elements and the
          residual
          revenue to the delivered elements. Eagle recognizes revenue allocated to
          software licenses at the inception of the license.
  The
          Company engages independent agents, resellers and distributors for sales
          principally in foreign countries and certain geographic regions in the
          United
          States. Under the terms of these agreements, these third parties provide
          the
          Company with sales leads. The transactions from these third parties are
          subject
          to Eagle’s approval prior to sale. In certain circumstances, the sales agent or
          reseller/distributor 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 transactions are not a significant portion
          of
          total sales in any of the periods presented. Eagle’s Broadband, Inc., revenues
          are reported under the category “Products” on the company’s Consolidated
          Statements of Operations included as page F-4 of this report and also under
          the
          category “Eagle” within Note 20-Industry Segments.
  The
          Company sells and installs structured wiring, audio and visual components
          to
          homes. Eagle 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. For consistency
          with prior period reporting, Eagle’s residential structured wiring revenues are
          reported under the category “Structured Wiring” on Eagle’s Consolidated
          Statements of Operations included as page F-4 of this report and also under
          the
          category “APC/HSI” within Note 20-Industry Segments.
 F-9
  *Eagle
          Broadband Services, Inc. (BDS)*
  Eagle
          Broadband Services, Inc. provides bundled digital services to business
          and
          residential customers, primarily in the Texas market. Revenue is derived
          from
          fees charged for the delivery of bundled digital services, which includes
          telephone, long distance, Internet, security monitoring and cable services.
          This
          subsidiary recognizes revenue and the related costs at the time the services
          are
          rendered. Installation fees are recognized upon completion and acceptance.
          The
          revenues are reported under the category “Broadband Services” on the Company’s
          Consolidated Statements of Operations included as page F-4 of this report
          and
          also under the category “EBS/DSS” within Note 20-Industry Segments.
  Eagle
          Broadband Services, Inc. provides project planning, installation, project
          management, testing and documentation of fiber and cable to commercial
          and
          industrial clients throughout the United States. The revenue from the fiber
          and
          cable installation and services is recognized upon percentage of completion
          of
          the project. Most projects are completed in less than one month, therefore,
          matching revenue and expense in the period incurred. Service, training
          and
          extended warranty contract revenues are recognized as services are completed.
          For consistency with prior period reporting, Eagle’s communications services
          revenues are reported under the category “Structured Wiring” on Eagle’s
          Consolidated Statements of Operations included as page F-4 of this report
          and
          also under the category “APC/HSI” within Note 20-Industry Segments.
  Eagle
          Broadband Services, Inc. provides business-to-business hardware and software
          network solutions and network monitoring services. The revenue from the
          hardware
          and software sales is recognized at the time of shipment. The monitoring
          services recognition policy is to record revenue on completion. For consistency
          with prior period reporting, Eagle’s technology services product revenues are
          reported under the category “Products” while the services components are
          reported under the category “Other” on Eagle’s Consolidated Statements of
          Operations included as page F-4 of this report and also under the category
“UCG”
within Note 20-Industry Segments.
  *D.S.S.
          Security, Inc. (d/b/a Eagle Broadband Security)*
  D.S.S.
          Security, Inc. provides security monitoring services to residential and
          commercial customers, purchases and resells and bundles and sells contracts
          from
          its own portfolio to independent third-party companies. Security monitoring
          customers are billed three months in advance of service usage. The revenues
          are
          deferred at the time of billing and ratably recognized over the prepayment
          period as service is provided. Installation fees are recognized upon completion
          and acceptance. Revenues from the sale of security monitoring contracts,
          both
          purchased and owned, are recognized upon contract execution except for
          reserves,
          hold backs or retentions, which are deferred until the contract provisions
          are
          fulfilled. Eagle’s security services revenues are reported under the category
“Broadband Services” on Eagle’s Consolidated Statements of Operations included
          as page F-4 of this report and also under the category “EBS/DSS” within Note
          20-Industry Segments.
  *Etoolz,
          Inc.*
  Etoolz,
          Inc. provides research and development support for all Eagle companies
          and does
          not currently provide billable services to independent third
          parties.
  H)
          Research and Development Costs
  Research
          and development expenditures are generally charged to operations as incurred.
          The Company performed research and development activities for internal
          projects
          related to its SatMAX non-line-of-sight communications system, IP set-top
          boxes
          and its multimedia entertainment centers. Research and development costs
          of
          $776,000, $557,000, and $411,000 were expensed for the years ended August
          31,
          2005, 2004, and 2003, respectively. No research and development services
          were
          performed for outside parties for the years ended August 31, 2005, 2004,
          and
          2003.
  I)
          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.
 F-10
  J)
          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:
  2005
                  
                  2004
                  
                  2003Weighted
                      Average Number of Common
                    Shares
                      Outstanding Including:Basic
                      Common Stock Equivalents
                  
                  
                  241,234
                  
                  
                  185,046
                  
                  
                  95,465Fully
                      Diluted Common Stock Equivalents
                  
                  
                  241,234
                  
                  
                  185,046
                  
                  
                  95,465
  K)
              Impairment of Other Intangible Assets
  Our
              other intangible assets primarily include contract rights, customer
              relationships and other intangibles of licenses and permits and other
              acquired
              contracts. These intangible assets include the Company rights to deliver
              bundled
              digital services such as, Internet, telephone, cable television and
              security
              monitoring services to residential and business users. The Company
              evaluates the
              recoverability of identifiable intangible assets whenever events or
              changes in
              circumstances indicate that an intangible asset’s carrying amount may not be
              recoverable. 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 impaired, the asset’s recorded value would be
              reduced to fair market value. In determining the amount of the charge
              to be
              recorded, the following methods would be utilized to determine fair
              market
              value: (i) quoted market prices in active markets, (ii) an estimate
              based on
              prices of similar assets, and (iii) an estimate based on valuation
              techniques. During the year ended August 31, 2005, the Company recorded
              an
              impairment loss of $23,912,668 related to intangible assets (see Note
              6).
  L)
              Impairment of Goodwill
  Goodwill
              represents the excess of the cost of companies acquired over the fair
              value of
              their net assets at the dates of acquisition. Under current accounting
              pronouncement, the Company is required to annually assess the carrying
              value of
              goodwill associated with each of its distinct business units that comprise
              its
              business segments of the Company to determine if impairment in value
              has
              occurred. The Company updated its assessment as of August 31, 2005
              and concluded
              that based on a valuation model incorporating expected future cash
              flows in
              consideration of historical cash flows and results to date, no impairment
              charge
              to goodwill was necessary. (See Note 6.)
  M)
              Advertising Costs
  Advertising
              costs are expensed when incurred. For the years ended August 31, 2005,
              2004, and
              2003, the Company expensed $80,000, $29,000, and $247,000,
              respectively.
  N)
              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.
  O)
              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.
 F-11
  P)
              Marketable Securities
  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.” The Company had securities available for sale that
              included shares of common stock and bonds. These investments have a
              fair market
              value of $0 and of $551,000 and are included in the Balance Sheet category
              “Securities Available for Sale” as of August 31, 2005 and 2004, respectively.
              (See Note 11.)
  Q)
              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 with these securities are carried
              below net
              income under the caption “Other Comprehensive Income.” For the fiscal years
              ended August 31, 2005, 2004 and 2003, other comprehensive loss was
              $0, $321,000,
              and $71,000, respectively.
  R)
              Reclassification
  The
              Company has reclassified certain assets, costs and expenses for the
              years ended
              August 31, 2005, 2004 and 2003, to facilitate comparisons.
  S)
              Supporting Costs in Selling, General and Administrative Expenses
  Other
              support costs for the years ended August 31, 2005, 2004, and 2003 are
              as
              follows, in thousands:
  2005
                      
                      2004
                      
                      2003Auto
                          Related
                      
                      $
                      43
                      
                      $
                      22
                      
                      $
                      19Bad
                          Debt
                      
                      
                      568
                      
                      
                      2,643
                      
                      
                      2,177Delivery
                          and Postage
                      
                      
                      42
                      
                      
                      47
                      
                      
                      95Fees
                      
                      
                      276
                      
                      
                      288
                      
                      
                      418Insurance
                          and Office
                      
                      
                      922
                      
                      
                      425
                      
                      
                      437Professional
                          and Contract Labor
                      
                      
                      11,532
                      
                      
                      6,818
                      
                      
                      6,129Rent
                      
                      
                      418
                      
                      
                      507
                      
                      
                      1,183Repairs
                          and Maintenance
                      
                      
                      64
                      
                      
                      43
                      
                      
                      47Travel
                      
                      
                      453
                      
                      
                      237
                      
                      
                      377Taxes
                      
                      
                      2,794
                      
                      
                      1,474
                      
                      
                      170Telephone
                          and Utilities
                      
                      
                      428
                      
                      
                      794
                      
                      
                      1,394Other
                      
                      
                      126
                      
                      
                      69
                      
                      
                      291Total
                      
                      $
                      17,666
                      
                      $
                      13,367
                      
                      $
                      12,737
  T)
                  Recent Pronouncements
  In
                  April 2002, the FASB issued Statement of Financial Accounting Standards
                  No. 145
                  (“SFAS 145”), “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
                  Statement No. 13, and Technical Corrections,” which requires that the
                  extinguishment of debt not be considered an extraordinary item
                  under APB Opinion
                  No. 30 (“APB 30”), “Reporting the Results of Operations-Reporting the Effects of
                  Disposal of a Segment of Business, and Extraordinary, Unusual and
                  Infrequently
                  Occurring Events and Transactions,” unless the debt extinguishment meets the
“unusual in nature and infrequent of occurrence” criteria in APB 30. SFAS 145 is
                  effective for fiscal years beginning after May 15, 2002, and, upon
                  adoption,
                  companies must reclassify prior period items that do not meet the
                  extraordinary
                  item classification criteria in APB 30. The Company adopted SFAS
                  145 and related
                  rules as of August 31, 2002. The adoption of SFAS 145 had no effect
                  on the
                  Company’s financial position or results of operations.
  In
                  July 2002, the FASB issued Statement of Financial Accounting Standards
                  No. 146
                  (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal
                  Activities,” which nullifies EITF Issue No. 94-3, “Liability Recognition for
                  Certain Employee Termination Benefits and Other Costs to Exit an
                  Activity
                  (including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that
                  costs associated with an exit or disposal activity be recognized
                  only when the
                  liability is incurred (that is, when it meets the definition of
                  a liability in
                  the FASB’s conceptual framework). SFAS 146 also establishes fair value as
                  the
                  objective for initial measurement of liabilities related to exit
                  or disposal
                  activities. SFAS 146 is effective for exit or disposal activities
                  that are
                  initiated after December 31, 2002. The Company adopted SFAS 146
                  in the first
                  quarter of fiscal 2003.
 F-12
  In
          January 2003, FASB issued Interpretation No. 46 (FIN 46), an interpretation
          of
          Accounting Research Bulletin No. 51, which requires the Company to consolidate
          variable interest entities for which it is deemed to be the primary beneficiary
          and disclose information about variable interest entities in which it has
          a
          significant variable interest. FIN 46 became effective immediately for
          variable
          interest entities formed after January 31, 2003 and effective for periods
          ending
          after December 15, 2003, for any variable interest entities formed prior
          to
          February 1, 2003. The Company does not believe that this Interpretation
          will
          have a material impact on its consolidated financial statements.
  In
          April 2004, the Emerging Issues Task Force (“EITF”) issued Statement No. 03-06
“Participating Securities and the Two-Class Method Under FASB Statement
          No. 128,
          Earnings Per Share” (“EITF 03-06”). EITF 03-06 addresses a number of questions
          regarding the computation of earnings per share by companies that have
          issued
          securities other than common stock that contractually entitle the holder
          to
          participate in dividends and earnings of the Company when, and if, it declares
          dividends on its common stock. The issue also provides further guidance
          in
          applying the two-class method of calculating earnings per share, clarifying
          what
          constitutes a participating security and how to apply the two-class method
          of
          computing earnings per share once it is determined that a security is
          participating, including how to allocate undistributed earnings to such
          a
          security. EITF 03-06 became effective during the quarter ended June 30,
          2004,
          the adoption of which did not have an impact on the calculation of earnings
          per
          share of the Company.
  In
          July 2004, the EITF issued a draft abstract for EITF Issue No. 04-08, “The
          Effect of Contingently Convertible Debt on Diluted Earnings per Share” (“EITF
          04-08”). EITF 04-08 reflects the Task Force’s tentative conclusion that
          contingently convertible debt should be included in diluted earnings per
          share
          computations regardless of whether the market price trigger has been met.
          If
          adopted, the consensus reached by the Task Force in this Issue will be
          effective
          for reporting periods ending after December 15, 2004. Prior period earnings
          per
          share amounts presented for comparative purposes would be required to be
          restated to conform to this consensus and the Company would be required
          to
          include the shares issuable upon the conversion of the Notes in the diluted
          earnings per share computation for all periods during which the Notes are
          outstanding. Currently, there would be no effect of this proposed statement
          on
          our financial position and results of operations.
  In
          September 2004, the EITF delayed the effective date for the recognition
          and
          measurement guidance previously discussed under EITF Issue No. 03-01, “The
          Meaning of Other-Than-Temporary Impairment and Its Application to Certain
          Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed
          statement. The proposed statement will clarify the meaning of
          other-than-temporary impairment and its application to investments in debt
          and
          equity securities, in particular investments within the scope of FASB Statement
          No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
          investments accounted for under the cost method. Currently, there would
          be no
          effect of this proposed statement on its financial position and results
          of
          operations.
  In
          December 2004, the FASB issued a revision to SFAS 123 (also known as SFAS
          123R)
          that amends existing accounting pronouncements for share-based payment
          transactions in which an enterprise receives employee and certain non-employee
          services in exchange for (a) equity instruments of the enterprise or (b)
          liabilities that are based on the fair value of the enterprise’s equity
          instruments or that may be settled by the issuance of such equity instruments.
          SFAS 123R eliminates the ability to account for share-based compensation
          transactions using APB 25 and generally requires such transactions be accounted
          for using a fair-value-based method. SFAS 123R’s effective date would be
          applicable for awards that are granted, modified, become vested, or settled
          in
          cash in interim or annual periods beginning after December 15, 2005. SFAS
          123R
          includes three transition methods: one that provides for prospective application
          and two that provide for retrospective application. The Company intends
          to adopt
          SFAS 123R prospectively commencing in the second quarter of the fiscal
          year
          ending August 31, 2006, and it will have a significant impact on the
          consolidated statement of operations as the Company will be required to
          expense
          the fair value of stock option grants and stock purchases under employee
          stock
          purchase plan. It is expected that the adoption of SFAS 123R will cause
          the
          Company to record as expense each quarter a non-cash accounting charge
          approximating the fair value of such share-based compensation meeting the
          criteria outlined in the provisions of SFAS 123R.
  U)
          Product Warranties
  The
          Company warrants its products against defects in design, materials and
          workmanship generally for six months to a year. Other warranties from our
          vendors which are incorporated in our products are passed on to the customer
          at
          the completion of the sale. Provision for estimated warranty costs is made
          in
          the period in which such costs become probable. Historically, Eagle has
          not
          incurred any material warranty costs and, accordingly, Eagle has not accrued
          for
          these costs at August 31, 2005 and 2004. Eagle provides for the estimated
          cost
          of product warranties at the time it recognizes revenue. Eagle engages
          in
          product quality programs and processes, including actively monitoring and
          evaluating the quality of its component suppliers; however, ongoing product
          failure rates, material usage and service delivery costs incurred in correcting
          a product failure, as well as specific product class failures outside of
          Eagle’s
          baseline experience, affect the estimated warranty obligation. If actual
          product
          failure rates, material usage or service delivery costs differ from estimates,
          revisions to the estimated warranty liability would be required.
 F-13
  V)
          Beneficial Conversion Values:
  Beneficial
          conversion values are calculated at the difference between the conversion
          price
          and the fair value of the common stock into which the debt is convertible,
          multiplied by the number of shares into which the debt is convertible.
          The
          beneficial conversion value is charged to interest expense because the
          debt is
          convertible at the date of issuance. The value is limited to the total
          proceeds
          received.
  W)
            Direct
            Financing Leases
  Income
            from direct financing lease transactions is reported using the financing
            method
            of accounting, in which the company investment in the leased property
            is
            reported as a receivable from the lessee to be recovered through future
            rentals.
            The income portion of each rental payment is calculated so as to generate
            a
            constant rate of return on the net receivable outstanding. All of our
            financing
            leases are for products related to the multi media industry. The term
            of our
            leases is typically 48 months and open ended leases, meaning that potential
            residual risk, or the difference between the fair market value of the
            equipment
            and the amount owed to us, lies with the customer.
 **NOTE
          2 - Related Party Transactions**
  In
          February 2004, compensation for certain officers and key employees under
          incentive clauses of their employment contracts (i) includes a non-cash
          expense of $4,493,000 incurred on the issuance of promissory notes upon
          the
          modification of outstanding options for 4,200,000 common shares and (ii)
          reflects a guaranteed compensation of the modified options equivalent to
          $1.75
          less the option strike price, which was an additional $4,074,000 accrued
          in
          August 2004. The amount of the accrual varies at each quarter end depending
          on
          the stock market value fluctuation or upon exercise of options subject
          to
          employment agreements.
  In
          June 2005, the Company entered into note exchange agreements with Jonathan
          Hayden, Billie Mize, John Nagel and David Weisman in which the Company
          issued
          7,954,085 shares of its common stock to fully satisfy the Company’s outstanding
          guarantee obligations in the amount of $2,086,251, and any remaining obligations
          under the promissory notes. The note exchange agreements also fully satisfy
          the
          Company’s contingent guarantee obligation with respect to unexercised options
          held by Mr. Hayden and Mr. Nagel.
  Dr.
          H. Dean Cubley, a director and former officer of the company, did not enter
          into
          the note exchange agreement. The remaining principal amount of $1,924,000
          is
          currently in default and is accruing interest under the terms of the original
          agreement.
  For
          the year ended August 31, 2005, accrued interest payable and interest expense
          was $154,922.
  **NOTE
          3 - Accounts Receivable**
  Accounts
          receivable consist of the following (in thousands):
 Year
                            Ended August 31,2005
                        
                        
                        2004Accounts
                            receivable
                        
                        $
                        4,578
                        
                        $
                        3,866Allowance
                            for doubtful accounts
                        
                        
                        (2,688
                        )
                        
                        (2,396
                        )Accounts
                            receivable, net
                        
                        $
                        1,890
                        
                        $
                        1,470
 F-14
  **NOTE
          4 - Property, Plant and Equipment and Intangible Assets**
  Components
          of property, plant and equipment are as follows (in thousands):
 Year
                      Ended August 31,2005
                  
                  
                  2004Automobile
                  
                  $
                  123
                  
                  $
                  143Headend
                      facility and fiber infrastructure
                  
                  
                  24,154
                  
                  
                  27,146Furniture
                      and fixtures
                  
                  
                  520
                  
                  
                  516Leasehold
                      improvements
                  
                  
                  183
                  
                  
                  133Office
                      equipment
                  
                  
                  1,027
                  
                  
                  1,023Manufacturing
                      and operating equipment
                  
                  
                  6,291
                  
                  
                  7,454Total
                      property, plant and equipment
                  
                  $
                  32,298
                  
                  $
                  36,415Less
                      accumulated depreciation
                  
                  
                  (8,994
                  )
                  
                  (7,837
                  )Net
                      property, plant and equipment
                  
                  $
                  23,304
                  
                  
                  28,578
  Eagle
              expenses repairs and maintenance against income as incurred, whereas
              major
              improvements are capitalized. Eagle defines major improvements as those
              assets
              acquired that extend the life of the underlying base asset, while defining
              other
              improvements that do not extend the life as repairs and maintenance.
              Eagle
              expensed repairs and maintenance of $65,000, $43,000 and $47,000 for
              the years
              ended August 31, 2005, 2004 and 2003, respectively, whereas it did
              not have any
              major improvements for the same time periods.
  Eagle’s
              headend facilities and fiber infrastructure consist primarily of digital
              computing and telecommunications equipment that comprise the Company’s main
              headend facility at its headquarters, wireless headend equipment, a
              digital
              headend facility and a fiber backbone in the master planned communities
              in which
              it operates and a fiber ring connecting the various master planned
              communities
              in the Houston area. The Company determined that twenty-year straight-line
              depreciation method is appropriate for its headend facilities and fiber
              infrastructure based on industry standards for these asset types.
  Components
              of intangible assets are as follows (in thousands):
 Year
                          Ended August 31,2005
                      
                      
                      2004Goodwill
                      
                      $
                      4,095
                      
                      $
                      4,095Contract
                          Rights
                      
                      $
                      11,847
                      
                      $
                      28,691Accumulated
                          amortization
                      
                      
                      (8,926
                      )
                      
                      (7,013
                      )$
                      2,921
                      
                      $
                      21,678Customer
                          Relationships
                      
                      $
                      3,067
                      
                      $
                      7,189Accumulated
                          amortization
                      
                      
                      (2,236
                      )
                      
                      (1,758
                      )$
                      831
                      
                      $
                      5,431Other
                          intangible assets
                      
                      $
                      3,937
                      
                      $
                      6,839Accumulated
                          amortization
                      
                      
                      (3,078
                      )
                      
                      (2,805
                      )$
                      859
                      
                      $
                      4,034Total
                          intangible assets
                      
                      $
                      22,946
                      
                      $
                      46,814Total
                          accumulated amortization
                      
                      
                      (14,240
                      )
                      
                      (11,576
                      )Net
                          of amortization
                      
                      $
                      8,706
                      
                      $
                      35,238
  **NOTE
          5 - Impairment of Long-Lived Assets**
  Statement
          of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the
          Impairment or Disposal of Long-Lived Assets” requires that long-lived assets
          (asset groups) shall be tested for recoverability whenever events or change
          in
          circumstances indicate that its carrying amount may not be recoverable.
          The
          Company’s market capitalization as of year ending August 31, 2005 has been below
          its shareholder equity which indicated the need to test for recoverability. The
          Company performed, with the assistance of independent valuation experts,
          tests
          to determine if an impairment loss existed. For purposes of recognition
          and
          measurement of an impairment loss, a long-lived asset is grouped with other
          assets at the lowest level for which identifiable cash flows are largely
          independent of the cash flows of other assets.
 F-15
 These
            tests took into consideration a number of factors including (i) current
            market
            conditions, (ii) the Company ’s
            current and future financial performance, (iii) intrinsic risks evident
            in the
            markets in which the Company operates and (iv) the underlying nature
            of Eagle’s
            operations and business. Utilizing a fair value standard as set forth
            in SFAS
            144, as of August 31, 2005, management determined an impairment of $3,229,405
            existed for certain Houston-area communities where broadband infrastructure
            had
            been installed.
  During
            the second quarter of 2005, the Company also determined an impairment
            loss
            existed primarily for Link-Two Communications, Inc.’s assets. Management
            determined that the value of the assets was nominal after a review of
            the
            marketplace and recorded an impairment loss of $1,050,000.
  **NOTE
            6 - Impairment of Goodwill and Other Intangible Assets**
  Statement
            of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other
            Intangible Assets” requires that goodwill and intangible assets be tested for
            impairment at the reporting unit level (operating segment or one level
            below an
            operating segment) on an annual basis and between annual tests in certain
            circumstances. The carrying amount of an intangible asset is not recoverable
            if
            it exceeds the sum of the undiscounted cash flows expected to result
            from the
            use and eventual disposition of the asset. That assessment shall be based
            on the
            carrying amount of the asset at the date it is tested for
            recoverability.
  The
            Company performed, with the assistance of independent valuation experts,
            an
            impairment test of the carrying value of intangible assets. Eagle has
            intangible
            assets related to goodwill, contracts, customers, and subscribers. For
            the year
            ended August 31, 2005, the Company determined there had been significant
            erosion
            of contracts, customers, and subscribers acquired in the January 2001
            merger of
            Clearworks.net, Inc.
  The
            Company evaluated and considered two separate methodologies in conducting
            the
            analysis and selected the approach assigning the greater value realized
            from the
            present value technique or the quoted market approach. The following
            factors
            were considered (i) current market conditions, (ii) the Company’s current
            and future financial performance, (iii) intrinsic risks evident in the
            markets
            in which the Company operates and (iv) the underlying nature of Eagle’s
            operations and business.
  Utilizing
            a fair value standard as set forth in SFAS 142, as of August 31, 2005,
            management determined an impairment charge of $23,912,668 existed for
            the
            intangible assets of contract rights, customer relationships and other
            intangible assets related to the January 2001 merger of Clearworks.net,
            Inc.
  Eagle
            assessed the fair value of goodwill as of August 31, 2005 and concluded
            that the
            goodwill valuations remain at an amount greater than the current carrying
            asset
            value. Eagle assessed the fair value of the intangible assets as of August
            31,
            2004 and concluded that the goodwill and other intangible assets valuations
            remain at an amount greater than the current carrying and other intangible
            assets value.
  At
            August
            31, 2003, management determined that a $7,611,000 non-cash impairment
            charge was
            necessary against realigned operations and the discontinued sale of low
            margin
            commodity products, residential and commercial structured wiring operations
            and
            the withdrawal from its Austin area BDS development based on the lack
            of demand
            for BDS services resulting from a slower build out of the development
            than
            originally projected in conjunction with local market competition. Included
            in
            the impairment was the write down of goodwill associated with the Comtel
            acquisition of $1,878,000.
  **NOTE
            7 - Assets Held for Sale**
  The
            Company entered into an agreement to repurchase security contracts for
            $1,003,316. Under the terms of the agreement, $985,000 of the $1,003,316
            was
            offset against a receivable the Company had from the seller. These contracts
            are
            considered an asset held for sale and are included in other current assets.
            The
            company resold approximately 63% of the contracts during the fourth quarter
            of
            2005 and recognized a loss on sale of assets of $15,735 as of August
            31, 2005.
            The Company determined the fair value of the contracts as of August 31,
            2005 was
            $298,000 and recorded an impairment charge of $322,792 to record the
            contracts
            at fair value as of August 31, 2005. The Company intends to sell the
            remainder
            of these contracts during fiscal 2006.
 F-16
  **NOTE
            8 - Notes Payable**
  The
            following table lists the Company’s note obligations as of August 31, 2005, and
            August 31, 2004 (in thousands):
  Annual
                      
                      
                      
                      
                      
                      Year
                          Ended August 31,Interest
                      
                      
                      DueRate
                      
                      
                      Date
                      
                      
                      2005
                      
                      
                      2004Notes
                          Payable:Investor
                          group
                      
                      
                      8%
                      
                      
                      Demand
                      
                      $
                      —
                      
                      $
                      4,888Q-Series
                          bonds
                      
                      
                      12%
                      
                      
                      Various
                      
                      
                      —
                      
                      
                      744Other
                      
                      
                      Various
                      
                      
                      Various
                      
                      
                      61
                      
                      
                      288Total
                          Notes Payable
                      
                      
                      
                      
                      
                      
                      
                      $
                      61
                      
                      $
                      5,920Less
                          current portion
                      
                      
                      
                      
                      
                      
                      
                      
                      61
                      
                      
                      5,920Total
                          long-term debt
                      
                      
                      
                      
                      
                      
                      
                      $
                      —
                      
                      $
                      —
  Between
                  October 30, 2003, and November 5, 2003, the Company sold approximately
                  $4.1
                  million of convertible debt securities to 36 accredited investors.
                  The
                  securities consisted of $25,000, 12% five-year bonds. The bonds
                  are due and
                  payable upon maturity at the end of the five-year period. Interest
                  on the bonds
                  is payable at the rate of 12% per annum, and is payable semiannually.
                  The
                  bondholder may require the Company to convert the bond (including
                  any unpaid
                  interest) into shares of the Company’s common stock at any time during the first
                  year but not thereafter. The conversion rates vary from $0.50 to
                  $0.75 per
                  share. During the years ended August 31, 2005 and 2004, all of
                  the bonds were
                  redeemed and converted for stock.
  Eagle
                  entered into a Securities Purchase Agreement dated June 2, 2004,
                  with four
                  accredited investors, pursuant to which Eagle agreed to sell, and
                  the investors
                  agreed to purchase, debentures in the principle amount of $4,888,400
                  bearing
                  interest at the rate of 8% per annum, maturing in June 2007, convertible
                  into an
                  aggregate of 5,360,088 shares of Eagle common stock, together with
                  five-year
                  warrants to purchase an aggregate of 1,340,022 shares of Eagle
                  common stock at
                  an exercise price of $1.265 per share. During the year ended August
                  31, 2005,
                  all of the bonds were redeemed and converted for stock.
  **NOTE
                  9 - Supplemental Non-Cash Disclosures**
  During
                  the year ended August 31, 2005, the company issued stock in lieu
                  of cash as
                  payment for the following:
  Non-Cash
                              Settlements
                              *($
                                in thousands)*Settlements
                                including Legal
                            
                            $
                            1,041Interest
                                Expense
                            
                            
                            568Professional
                                Fees
                            
                            
                            570Salary
                                and Compensation
                            
                            
                            165Accrued
                                Liabilities
                            
                            
                            7,345Notes
                                Payable
                            
                            
                            7,007Total
                                Non-Cash Settlements
                            
                            $
                            16,696
  **NOTE
                        10 - Lines of Credit**
  On
                        July 16, 2002, the Company entered into a $20,000,000 line
                        of credit with
                        Cornell Capital Partners, LP (CCP). The Company has not drawn
                        on the line of
                        credit and currently has no plans to do so. One of the issues
                        of the litigation
                        between CCP and the Company  is whether the Company owes CCP a commitment
                        fee for this line of credit. Cornell contends that the Company
                        owes $592,500;
                        the Company denies the liability. (See Note 16 –
                        Legal
                        Proceedings.)
  **NOTE
                        11 - Securities Available for Sale**
  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.” As of August 31, 2005, the
                        Company had no marketable equity securities.
 F-17
  At
                        August 31, 2004, the securities available for sale include
                        580,000 shares of
                        Burst.com with a cost basis of $127,832 and a fair market
                        value of $551,000. The
                        Company recognized a loss of $899,347 on the sale of these
                        securities for the
                        year ended August 31, 2005. The Company’s marketable equity securities are
                        classified as available-for-sale.
  **NOTE
                        12 - Income Taxes**
  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.
  The
                        effective tax rate for the Company is reconcilable to statutory
                        tax rates as
                        follows:
 Year
                                    Ended August 31,2005
                                
                                2004
                                
                                2003U.S.
                                    Federal statutory tax rate
                                
                                
                                34
                                %
                                
                                34
                                %
                                
                                34
                                %U.S.
                                    valuation difference
                                
                                
                                (34
                                %)
                                
                                (34
                                %)
                                
                                (34
                                %)Effective
                                    U.S. tax rate
                                
                                
                                0
                                %
                                
                                0
                                %
                                
                                0
                                %Foreign
                                    tax valuation
                                
                                
                                0
                                %
                                
                                0
                                %
                                
                                0
                                %Effective
                                    tax rate
                                
                                
                                0
                                %
                                
                                0
                                %
                                
                                0
                                %
  Income
                            tax expense (benefit) attributable to income from continuing
                            operations differed
                            from the amounts computed by applying the U.S. Federal
                            income tax rate of 34% to
                            pretax income from continuing operations as a result
                            of the following (in
                            thousands):
 Year
                                          Ended August 31,2005
                                      
                                      
                                      2004
                                      
                                      
                                      2003Computed
                                          expected tax benefit
                                      
                                      $
                                      (19,360
                                      )
                                      $
                                      (13,262
                                      )
                                      $
                                      (12,410
                                      )Increase
                                          in valuation allowance
                                      
                                      
                                      19,360
                                      
                                      
                                      13,262
                                      
                                      
                                      12,410Income
                                          tax expense
                                      
                                      $
                                      —
                                      
                                      $
                                      —
                                      
                                      $
                                      —
  The
                                  tax effects of temporary differences that give
                                  rise to significant portions of
                                  the deferred tax assets and deferred tax liabilities
                                  at August 31, 2005, and
                                  August 31, 2004, are presented below (in thousands)
                                  and include the balances of
                                  the merged company ClearWorks.net., Inc.
 Year
                                              Ended August 31,2005
                                          
                                          2004Deferred
                                              tax assets:Net
                                              operating loss carry forwards
                                          
                                          $
                                          (70,846
                                          )
                                          $
                                          (51,486
                                          )Less
                                              valuation allowance
                                          
                                          
                                          70,846
                                          
                                          
                                          51,486Net
                                              deferred tax assets
                                          
                                          $
                                          —
                                          
                                          $
                                          —
  The
                                      valuation allowance for deferred tax assets
                                      of August 31, 2005, and August 31,
                                      2004, was $70,846,000 and $51,486,000, respectively.
                                      As of August 31, 2005 and
                                      2004, the Company has net operating loss carry-forwards
                                      of $208,372,000 and
                                      $151,430,000, respectively, which are available
                                      to offset future federal taxable
                                      income, if any, with expirations from 2021
                                      to 2023.
 F-18
 **NOTE
                                        13 - Stock Options and Warrants**
  In
                                          July
                                          1996, the Board of Directors adopted, and
                                          the Company’s shareholders approved,
                                          the 1996 Incentive Stock Option Plan under
                                          which 400,000 shares of the Company’s
                                          common stock have been reserved for issuance.
                                          In June 2004, the Board of
                                          Directors adopted, and the Company’s shareholders approved, the June 2004
                                          Compensatory Stock Option Plan under which
                                          10,000,000 shares of the
                                          Company’s common stock has been reserved for issuance. In June
                                          2005, the Board of Directors adopted, and
                                          the Company’s shareholders approved,
                                          the 2005 Employee Stock Option Plan under
                                          which 30,000,000 shares of the
                                          Company’s common stock has been reserved for issuance.
                                          As of August 31, 2005,
                                          options issued to employees covering 11,737,968
                                          shares were outstanding, of
                                          which 3,762,132 were exercisable.
 The
                                        Company has elected to follow APB 25, “Accounting for Stock Issued to
                                        Employees.” Accordingly, since employee stock options
                                        are granted at market
                                        price on the date of grant, no compensation
                                        expense is recognized. However, SFAS
                                        123 requires presentation of pro forma net
                                        income and earnings per share as if
                                        the Company had accounted for its employee
                                        stock options granted under the fair
                                        value method of that statement. The weighted
                                        average fair value of the
                                        individual options issued and granted during
                                        the year ended August 31, 2005, is
                                        estimated as $0.41 on the date of grant.
                                        Management estimates the average fair
                                        value for options granted during fiscal 2005
                                        to be comparable to those granted
                                        in fiscal 2004. The impact on net loss is
                                        minimal; therefore, the pro forma
                                        disclosure requirements prescribed by SFAS
                                        123 are not significant to the
                                        Company. The fair values were determined
                                        using a Black-Scholes option-pricing
                                        model with the following assumptions:
 Year
                                                    Ended August 31,2005
                                                
                                                2004Dividend
                                                    yield
                                                
                                                
                                                0.00%
                                                
                                                
                                                0.00%Volatility
                                                
                                                
                                                83%
                                                
                                                
                                                91%Risk-free
                                                    interest rate
                                                
                                                
                                                3.50%
                                                
                                                
                                                4.00%Expected
                                                    life
                                                
                                                
                                                5
                                                
                                                
                                                5
  The
                                            pro forma effect on net loss as if the
                                            fair value of stock-based compensation
                                            had been recognized as compensation expense
                                            on a straight-line basis over the
                                            vesting period of the stock option or
                                            purchase right was as follows for the
                                            years ended August 31, 2005, and August
                                            31, 2004:
 Year
                                                        Ended August 31,2005
                                                    
                                                    
                                                    2004
                                                    
                                                    
                                                    2003Net
                                                        loss, as reported
                                                    
                                                    $
                                                    (57,010
                                                    )
                                                    $
                                                    (39,005
                                                    )
                                                    $
                                                    (36,501
                                                    )Add:
                                                        Stock-based employee compensation
                                                      included
                                                        in reported net earnings/(loss),
                                                        net of
                                                      related
                                                        tax effects
                                                    
                                                    
                                                    18
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    —Less:
                                                        Stock-based employee compensation
                                                      expense
                                                        determined under fair-value
                                                        based
                                                      method
                                                        for all awards, net of related
                                                        tax effects
                                                    
                                                    
                                                    (2,007
                                                    )
                                                    
                                                    (9
                                                    )
                                                    
                                                    (20
                                                    )Pro
                                                        forma net earnings/(loss)
                                                    
                                                    $
                                                    (58,999
                                                    )
                                                    $
                                                    (39,014
                                                    )
                                                    $
                                                    (36,521
                                                    )Net
                                                        loss per share:As
                                                        reported
                                                    
                                                    $
                                                    (0.24
                                                    )
                                                    $
                                                    (0.21
                                                    )
                                                    $
                                                    (0.38
                                                    )Pro
                                                        forma
                                                    
                                                    $
                                                    (0.24
                                                    )
                                                    $
                                                    (0.21
                                                    )
                                                    $
                                                    (0.38
                                                    )Diluted
                                                        net loss per share:As
                                                        reported
                                                    
                                                    $
                                                    (0.24
                                                    )
                                                    $
                                                    (0.21
                                                    )
                                                    $
                                                    (0.38
                                                    )Pro
                                                        forma
                                                    
                                                    $
                                                    (0.24
                                                    )
                                                    $
                                                    (0.21
                                                    )
                                                    $
                                                    (0.38
                                                    )
  Option
                                                and warrant activity was as follows
                                                for the year ended August 31,
                                                2005:
 Shares
                                                        
                                                        
                                                        2005
                                                          Weighted-Average
                                                          Exercise
                                                            PriceOutstanding
                                                            at beginning of year
                                                        
                                                        
                                                        6,837,779
                                                        
                                                        $
                                                        1.30Granted
                                                        
                                                        
                                                        11,445,118
                                                        
                                                        
                                                        0.41Assumed
                                                            through acquisitions
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        —Exercised
                                                        
                                                        
                                                        (4,125,000
                                                        )
                                                        
                                                        0.46Forfeited/cancelled
                                                        
                                                        
                                                        (703,152
                                                        )
                                                        
                                                        0.74Outstanding
                                                            at end of year
                                                        
                                                        
                                                        13,454,745
                                                        
                                                        
                                                        0.83Exercisable
                                                            at year end
                                                        
                                                        
                                                        5,478,909
                                                        
                                                        
                                                        1.56
 F-19
  Information
          about options and warrants outstanding was as follows at August 31,
          2005:
  Range
                      of
                    Exercise
                      Prices
                  
                  
                  Number
                    Outstanding
                  
                  
                  Avg.
                      Remaining
                    Contractual
                    Life
                      in Years
                  
                  
                  Average
                    Exercise
                    Price
                  
                  
                  Number
                    Exercisable
                  
                  
                  Average
                    Exercise
                    Price$0.00
                      - $0.50
                  
                  
                  8,623,411
                  
                  
                  4.00
                  
                  
                  0.21
                  
                  
                  2,300,355
                  
                  
                  0.25$0.50
                      - $1.00
                  
                  
                  3,522,644
                  
                  
                  3.51
                  
                  
                  0.77
                  
                  
                  2,119,864
                  
                  
                  0.76$1.01
                      - $7.50
                  
                  
                  1,308,690
                  
                  
                  2.42
                  
                  
                  5.12
                  
                  
                  1,058,690
                  
                  
                  6.0113,454,745
                  
                  
                  3.72
                  
                  
                  0.83
                  
                  
                  5,478,909
                  
                  
                  1.56
  **NOTE
              14 - Concentrations**
  For
              the years ended August 31, 2005, 2004 and 2003, substantially all of
              the
              Company’s business activities have remained within the United States and have
              been extended to the wireless infrastructure, fiber, cabling, computer
              services
              and broadband industries. Approximately 21% of the Company’s revenues and
              receivables were generated in the state of Texas, 0% in the international
              market, and the approximate 79% remainder relatively evenly over the
              rest of the
              nation during the year ended August 31, 2005. Approximately 83% of
              the Company’s
              revenues and receivables were generated in the state of Texas, 0% in
              the
              international market, and the approximate17% remainder relatively evenly
              over
              the rest of the nation for the year ended August 31, 2004. Approximately
              74% of
              the Company’s revenues and receivables were generated in the state of Texas, 0%
              in the international market, and the approximate 26% remainder relatively
              evenly
              over the rest of the nation for the year ended August 31, 2003. Through
              the
              normal course of business, the Company generally does not require its
              customers
              to post any collateral.
  **NOTE
              15 - Foreign Operations**
  Although
              the Company is based in the United States, certain of its products
              are sold in
              international markets. Presently, international sales total 0% for
              the years
              ended August 31, 2005, 2004 and 2003.
  **NOTE
              16 - Commitments and Contingent Liabilities**
  **Leases**
  For
              the years ended August 31, 2005, 2004 and 2003, rental expenses of
              approximately
              $418,000, $507,000 and $1,183,000, respectively, were incurred.
  The
              Company renewed its primary office lease space in League City, Texas,
              for
              $24,983 per month with South Shore Harbor Development, Ltd. The renewal
              lease
              commenced on June 1, 2004, and expires on May 31, 2009. The lessor
              agreed to
              grant the Company a one-time option to terminate the lease at 36 months
              by
              paying an unamortized leasing commission of $35,000 and a penalty of
              11⁄2 months
              rent of $37,000 for a combined total of $72,000.
 Year
                            Ended
                          August
                            31,
                        
                        
                        Amount2006
                        
                        $
                        299,8012007
                        
                        
                        306,1802008
                        
                        
                        325,3162009
                        
                        
                        243,987Total
                        
                        $
                        1,175,284
  **LLV
                    Broadband, LLC Agreement**
  In
                    August 2005, the Company and Neva Holdings, LLC (“Neva”), executed an agreement
                    whereby the parties agreed to terminate the Restated Limited
                    Liability Company
                    Agreement (“LLC Agreement”) that the parties entered into on November 23, 2004.
                    The termination of the agreement provides for the Company’s withdrawal as a
                    member of LLV Broadband, LLC (“LLC”), and complete release from any future
                    obligations under the LLC Agreement. The terms and conditions
                    of the LLC
                    Agreement called for the Company to participate in the construction,
                    development
                    and operation of a system for the provision of a range of broadband,
                    entertainment and communications services to the commercial,
                    recreational and
                    residential buildings located within the Lake Las Vegas Resort
                    and surrounding
                    geographical areas. Under the terms of the LLC Agreement, the
                    Company was
                    required to make a capital contribution of between $3 million
                    and $5 million to
                    fund ongoing development and operating activities. The parties
                    initially
                    estimated that the LLC’s gross revenues would be approximately $15.5 million
                    over a six-year period through the year 2010. As a result of
                    the termination,
                    the Company will not be required to make any additional capital
                    contributions to
                    the LLC and will not recognize any revenues from the LLC. The
                    Company will not
                    incur any early termination penalties associated with the termination
                    of the LLC
                    Agreement.
 F-20
  The
                      service agreement entered into by the Company and the LLC in
                      July 2003 remained
                      in effect until November 4, 2005. Under this agreement, the
                      Company provided
                      video content, network monitoring and billing services to the
                      LLC according to a
                      previously agreed-to fee arrangement until November 4, 2005.
  **Legal
                      Proceedings**
  In
                      December 2000, Clearworks.net, Inc. became a defendant in State
                      of Florida
                      Department of Environmental Protection vs. Reco-Tricote, Inc.,
                      and Southeast
                      Tire Recycling, Inc., currently known as Clearworks.net, Inc.,
                      in the Circuit
                      Court of the Tenth Judicial Circuit in and for Polk County,
                      Florida. The Florida
                      DEP included Clearworks in a lawsuit 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 million, attorneys’ fees and cost of
                      court. Clearworks denies the claims against it and intends
                      to vigorously contest
                      all claims in this case and to enforce its indemnification
                      rights against the
                      principals of Southeast Tire Recycling. The Company has not
                      accrued any expenses
                      against this lawsuit, as the outcome cannot be predicted at
                      this
                      time.
  In
                      July
                      2003, Eagle became a defendant in Cornell Capital Partners,
                      L.P., vs. Eagle
                      Broadband, Inc., et al., Civil Action No. 03-1860 (KSH), in
                      the United States
                      District Court for the District of New Jersey. The suit presents
                      claims for
                      breach of contract, state and federal securities fraud and
                      negligent
                      misrepresentation. The plaintiff has also alleged that Eagle
                      has defaulted on a
                      convertible debenture for failing to timely register the shares
                      of common stock
                      underlying the convertible debenture and is seeking to accelerate
                      the maturity
                      date of the debenture. In November 2003, the principal balance
                      of the debenture
                      was repaid, although the suit remains outstanding. Cornell
                      claims damages of
                      approximately $1 million. The Company denies the claims and
                      intends to
                      vigorously defend this lawsuit and the claims against it. Eagle
                      has asserted
                      counterclaims against Cornell for fraud and breach of contract
                      in the amount of
                      $2 million. The company has accrued $416,000 in expenses against
                      this lawsuit,
                      although the outcome cannot be predicted at this time.
  In
                      September 2003, Enron sued United Computing Group in Enron
                      Corp., et al., vs.
                      United Computing Group, Inc., in the United States Bankruptcy
                      Court for the
                      Southern District of New York to avoid and recover a transfer
                      in the amount of
                      approximately $1.5 million. In October 2005, the parties agreed
                      to a dismissal
                      of all adversary proceedings and claims against each other,
                      and in November
                      2005, the Bankruptcy Court entered orders confirming dismissal
                      of such
                      proceedings and claims.
  In
                      June
                      2004, The Tail Wind Fund Ltd. sued Link-Two Communications,
                      Inc., and Eagle
                      Broadband, Inc., Civil Action 04-CV-05776, in the United States
                      District Court
                      for the Southern District of New York. Tail Wind claims breach
                      of contract
                      seeking $25 million. The Company is currently in negotiations
                      with Tail Wind to
                      settle this lawsuit and believes it can be settled out of court.
                      For the year
                      ended August 31, 2004, the Company had accrued $500,000 in
                      expenses for this
                      lawsuit. As of August 31, 2005, the Company has accrued an
                      additional $4.5
                      million in expenses against this lawsuit for a total accrued
                      liability of $5
                      million. This amount is included on the Consolidated Balance
                      Sheet as of August
                      31, 2005, as part of accrued expenses.
  In
                      November 2004, Palisades Master Fund L.P. sued Eagle Broadband,
                      Inc., and David
                      Weisman, Civil Action 04603626, in New York County, New York
                      Supreme Court,
                      seeking an injunction setting a conversion price on certain
                      convertible debt and
                      warrants at $0.4456 per share of Eagle common stock and damages
                      in excess of
                      $3.1 million. In April 2005, the parties entered into a confidential
                      settlement
                      agreement ending this lawsuit.
  The
                      Company is involved in lawsuits, claims and proceedings, including
                      those
                      identified above, which arise in the ordinary course of business.
                      In accordance
                      with SFAS No. 5, “Accounting for Contingencies,” Eagle makes a provision for a
                      liability when it is both probable that a liability has been
                      incurred and the
                      amount of the loss can be reasonably estimated. The Company
                      believes it has
                      adequate provisions for any such matters. The Company reviews
                      these provisions
                      at least quarterly and adjusts these provisions to reflect
                      the impacts of
                      negotiations, settlements, rulings, advice of legal counsel,
                      and other
                      information and events pertaining to a particular case. Litigation
                      is inherently
                      unpredictable. However, the Company believes that it has valid
                      defenses with
                      respect to legal matters pending against it. Nevertheless,
                      it is possible that
                      cash flows or results of operations could be materially affected
                      in any
                      particular period by the unfavorable resolution of one or more
                      of these
                      contingencies.
 F-21
  **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):
 For
                                        the year ended August 31, 2005Income
                                      (Numerator)
                                    
                                    
                                    Shares
                                      (Denominator)
                                    
                                    
                                    Per
                                        Share
                                      AmountNet
                                        loss
                                    
                                    $
                                    (57,010
                                    )
                                    
                                    —
                                    
                                    $
                                    —Basic
                                        EPS:Income
                                        available to common shareholders
                                    
                                    (57,010
                                    )
                                    
                                    241,234
                                    
                                    
                                    (0.24
                                    )Effect
                                        of dilutive securities warrants
                                    
                                    
                                    —
                                    
                                    
                                    —
                                    
                                    
                                    —Diluted
                                        EPS:Income
                                        available to common stockholders and
                                      assumed
                                        conversions
                                    $
                                    (57,010
                                    )
                                    
                                    241,234
                                    
                                    $
                                    (0.24
                                    )
  For
                                            the year ended August 31, 2004Income
                                          (Numerator)
                                        
                                        
                                        Shares
                                          (Denominator)
                                        
                                        
                                        Per
                                            Share
                                          AmountNet
                                            loss
                                        
                                        $
                                        (39,005
                                        )
                                        
                                        —
                                        
                                        $
                                        —Basic
                                            EPS:Income
                                            available to common shareholders
                                        
                                        (39,005
                                        )
                                        
                                        185,046
                                        
                                        
                                        (0.21
                                        )Effect
                                            of dilutive securities warrants
                                        
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        
                                        —Diluted
                                            EPS:Income
                                            available to common stockholders and
                                          assumed
                                            conversions
                                        $
                                        (39,005
                                        )
                                        
                                        185,046
                                        
                                        $
                                        (0.21
                                        )
  For
                                                the year ended August 31, 2003Income
                                              (Numerator)
                                            
                                            
                                            Shares
                                              (Denominator)
                                            
                                            
                                            Per
                                                Share
                                              AmountNet
                                                loss
                                            
                                            $
                                            (36,501
                                            )
                                            
                                            —
                                            
                                            $
                                            —Basic
                                                EPS:Income
                                                available to common shareholders
                                            
                                            (36,501
                                            )
                                            
                                            95,465
                                            
                                            
                                            (0.38
                                            )Effect
                                                of dilutive securities warrants
                                            
                                            
                                            —
                                            
                                            
                                            —
                                            
                                            
                                            —Diluted
                                                EPS:Income
                                                available to common stockholders
                                                and
                                              assumed
                                                conversions
                                            $
                                            (36,501
                                            )
                                            
                                            95,465
                                            
                                            $
                                            (0.38
                                            )
  For
                                          the
                                          years ended August 31, 2005 and 2004, dilutive
                                          securities existed. (See Note
                                          13.) The weighted average shares outstanding
                                          on a fully diluted basis as of
                                          August 31, 2005 and 2004, were approximately
                                          242,566,000 and 185,452,000,
                                          respectively.
 **NOTE
                                        18 - Retirement Plans**
  During
                                        October 1997, the Company initiated a 401(k)
                                        plan for its employees, funded
                                        through the contributions of its participants.
                                        Prior to March 2003, the Company
                                        matched the participant’s contribution up to 3% of their salary.
                                        Subsequent to
                                        March 2003, the plan was amended and the
                                        Company match became elective. For the
                                        years ended August 31, 2005 and 2004, employee
                                        contributions were approximately
                                        $116,860 and $109,000, respectively. The
                                        Company matched $0 and $0,
                                        respectively, for these periods.
 F-22
 **NOTE
                                          19 - Major Customer**
  The
                                          Company had gross revenues of $8,592,000
                                          and $12,490,000 for the years ended
                                          August 31, 2005 and 2004, respectively.
                                          The fiscal year ended August 31, 2005,
                                          included $2,128,000, or 25% of the fiscal
                                          year total sales, for sales of
                                          security contracts to Alarm Security Group,
                                          LLC by the Company’s
                                          security-monitoring service subsidiary,
                                          D.S.S. Security, Inc. Also during this
                                          period, Eagle Broadband, Inc. had product
                                          sales of $1,957,000, or 23% of sales,
                                          to a major customer. The fiscal year ended
                                          August 31, 2004, included $3,103,937,
                                          or 25% of the fiscal year total sales,
                                          for sales of security contracts to
                                          Sweetwater Security Capital, LLC, by the
                                          Company’s security-monitoring service
                                          subsidiary, D.S.S. Security, Inc. Also
                                          during this period, Eagle Broadband, Inc.
                                          had product sales of $3,806,806, or 30%
                                          of sales, to a major
                                          customer.
  **NOTE
                                          20 - Industry Segments**
  This
                                          summary reflects the Company’s current and past operating segments,
                                          as described
                                          below. All have discontinued operations
                                          except Eagle Broadband, Inc., Eagle
                                          Broadband Services, Inc., and D.S.S. Security,
                                          Inc.
  **Eagle:**
  Eagle
                                          Broadband, Inc. (Eagle) is a provider of
                                          broadband, Internet Protocol (IP) and
                                          communications technology and equipment
                                          with related software and broadband
                                          products (including past subsidiaries Eagle
                                          Wireless International, Inc.; and
                                          Etoolz, Inc., for this summary).
  **EBS/DSS:**
  Eagle
                                          Broadband Services, Inc. (EBS) provides
                                          broadband services to residential and
                                          business customers in select communities.
  D.S.S.
                                          Security, Inc. (DSS) is a wholesale security
                                          monitoring company.
  Clearworks
                                          Communications, Inc. provided solutions
                                          to consumers by implementing technology
                                          both within the residential community and
                                          home, through the installation of
                                          fiber optic backbones to deliver voice,
                                          video and data solutions directly to
                                          consumers. (Has discontinued operations.)
  **APC/HSI:**
  Atlantic
                                          Pacific Communications, Inc. (APC) specialized
                                          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 resellers. (Has discontinued
                                          operations.)
  Clearworks
                                          Home Systems, Inc. (HSI) specialized in
                                          providing fiber optic and copper based
                                          structured wiring solutions and audio and
                                          visual equipment to single-family and
                                          multi-family dwelling units. (Has discontinued
                                          operations.)
  **UCG:**
  United
                                          Computing Group, Inc. (UCG) was a computer
                                          hardware and software reseller. (Has
                                          discontinued operations.)
  **Other:**
  Link-Two
                                          Communications, Inc. (Link II) was a developer
                                          and marketer of messaging
                                          systems. (Has discontinued operations.)
  Clearworks.net,
                                          Inc. (.NET) is inactive with exception
                                          of debt related expenses. (Has
                                          discontinued operations.)
  Contact
                                          Wireless, Inc. was a paging, cellular,
                                          and mobile services provider and reseller
                                          whose assets were sold October 10, 2003.
                                          (Has discontinued operations.)
  For
                                          the year ended August 31, 2005
 APC/HSI
                                      
                                      EBS/DSS
                                      
                                      UCG
                                      
                                      Eagle
                                      
                                      Other
                                      
                                      Elim.
                                      
                                      ConsolRevenue
                                      
                                      
                                      21
                                      
                                      
                                      4,348
                                      
                                      
                                      —
                                      
                                      
                                      4,223
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      8,592Segment
                                          Loss
                                      
                                      
                                      (113
                                      )
                                      
                                      (7,148
                                      )
                                      
                                      (658
                                      )
                                      
                                      (45,601
                                      )
                                      
                                      (2,834
                                      )
                                      
                                      —
                                      
                                      
                                      (56,354
                                      )Total
                                          Assets
                                      
                                      
                                      (8,921
                                      )
                                      
                                      (14,526
                                      )
                                      
                                      (3,072
                                      )
                                      
                                      95,204
                                      
                                      
                                      16,339
                                      
                                      
                                      (43,111
                                      )
                                      
                                      41,913Capital
                                          Expenditures
                                      
                                      
                                      —
                                      
                                      
                                      723
                                      
                                      
                                      —
                                      
                                      
                                      92
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      814Depreciation
                                      
                                      
                                      40
                                      
                                      
                                      5,154
                                      
                                      
                                      2
                                      
                                      
                                      25,111
                                      
                                      
                                      1,583
                                      
                                      
                                      —
                                      
                                      
                                      31,890
 F-23
  For
                                the year ended August 31, 2004
 APC/HSI
                                        
                                        EBS/DSS
                                        
                                        UCG
                                        
                                        Eagle
                                        
                                        Other
                                        
                                        Elim.
                                        
                                        ConsolRevenue
                                        
                                        
                                        678
                                        
                                        
                                        5,525
                                        
                                        
                                        445
                                        
                                        
                                        5,761
                                        
                                        
                                        81
                                        
                                        
                                        —
                                        
                                        
                                        12,490Segment
                                            Loss
                                        
                                        
                                        (827
                                        )
                                        
                                        (2,483
                                        )
                                        
                                        (58
                                        )
                                        
                                        (27,534
                                        )
                                        
                                        (50
                                        )
                                        
                                        —
                                        
                                        
                                        (30,952
                                        )Total
                                            Assets
                                        
                                        
                                        148
                                        
                                        
                                        28,204
                                        
                                        
                                        32
                                        
                                        
                                        127,896
                                        
                                        
                                        56,956
                                        
                                        
                                        (142,768
                                        )
                                        
                                        70,468Capital
                                            Expenditures
                                        
                                        
                                        —
                                        
                                        
                                        729
                                        
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        
                                        729Depreciation
                                        
                                        
                                        176
                                        
                                        
                                        1,565
                                        
                                        
                                        66
                                        
                                        
                                        3,192
                                        
                                        
                                        98
                                        
                                        
                                        —
                                        
                                        
                                        5,097
  For
                                  the year ended August 31, 2003
 APC/HSI
                                          
                                          EBS/DSS
                                          
                                          UCG
                                          
                                          Eagle
                                          
                                          Other
                                          
                                          Elim.
                                          
                                          ConsolRevenue
                                          
                                          
                                          4,220
                                          
                                          
                                          2,809
                                          
                                          
                                          2,433
                                          
                                          
                                          1,803
                                          
                                          
                                          328
                                          
                                          
                                          —
                                          
                                          
                                          11,593Segment
                                              Loss
                                          
                                          
                                          (4,500
                                          )
                                          
                                          (6,083
                                          )
                                          
                                          (2,279
                                          )
                                          
                                          (17,849
                                          )
                                          
                                          (364
                                          )
                                          
                                          —
                                          
                                          
                                          (31,075
                                          )Total
                                              Assets
                                          
                                          
                                          8,929
                                          
                                          
                                          31,316
                                          
                                          
                                          114
                                          
                                          
                                          97,948
                                          
                                          
                                          83,852
                                          
                                          
                                          (144,793
                                          )
                                          
                                          77,366Capital
                                              Expenditures
                                          
                                          
                                          11
                                          
                                          
                                          6,254
                                          
                                          
                                          1
                                          
                                          
                                          —
                                          
                                          
                                          158
                                          
                                          
                                          —
                                          
                                          
                                          6,424Depreciation
                                          
                                          
                                          372
                                          
                                          
                                          1,351
                                          
                                          
                                          72
                                          
                                          
                                          3,184
                                          
                                          
                                          253
                                          
                                          
                                          —
                                          
                                          
                                          5,232
 Reconciliation
                                of Segment Loss from Operations to Net Loss
 Year
                                            Ended August 31,2005
                                        
                                        2004
                                        
                                        2003Total
                                            segment loss from operations
                                        
                                        $
                                        (56,354
                                        )
                                        $
                                        (30,952
                                        )
                                        $
                                        (31,075
                                        )Total
                                            other income (expense)
                                        
                                        
                                        (656
                                        )
                                        
                                        (8,053
                                        )
                                        
                                        (5,426
                                        )Net
                                            loss
                                        
                                        $
                                        (57,010
                                        )
                                        $
                                        (39,005
                                        )
                                        $
                                        (36,501
                                        )
  The
                          accounting policies of the reportable segments are the
                          same as those described
                          in the section titled Critical Accounting Policies. 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
                            21 - Unaudited Quarterly Financial Data**
  Nov.
                                        30
                                    
                                    Feb.
                                        28
                                    
                                    May
                                        31
                                    
                                    Aug.
                                        31Year
                                        Ended August 31, 2005Revenues
                                    
                                    
                                    1,528
                                    
                                    
                                    2,683
                                    
                                    
                                    2,976
                                    
                                    
                                    1,405Net
                                        earnings (loss)
                                    
                                    
                                    (4,448
                                    )
                                    
                                    (9,326
                                    )
                                    
                                    (3,951
                                    )
                                    
                                    (39,285
                                    )Basic
                                        loss per share
                                    
                                    
                                    (0.02
                                    )
                                    
                                    (0.04
                                    )
                                    
                                    (0.02
                                    )
                                    
                                    (0.14
                                    )Diluted
                                        loss per share
                                    
                                    
                                    (0.02
                                    )
                                    
                                    (0.04
                                    )
                                    
                                    (0.02
                                    )
                                    
                                    (0.14
                                    )Year
                                        Ended August 31, 2004Revenues
                                    
                                    
                                    2,397
                                    
                                    
                                    3,744
                                    
                                    
                                    5,091
                                    
                                    
                                    1,258Net
                                        earnings (loss)
                                    
                                    
                                    (8,461
                                    )
                                    
                                    (9,398
                                    )
                                    
                                    (4,373
                                    )
                                    
                                    (16,773
                                    )Basic
                                        loss per share
                                    
                                    
                                    (0.05
                                    )
                                    
                                    (0.05
                                    )
                                    
                                    (0.02
                                    )
                                    
                                    (0.08
                                    )Diluted
                                        loss per share
                                    
                                    
                                    (0.05
                                    )
                                    
                                    (0.05
                                    )
                                    
                                    (0.02
                                    )
                                    
                                    (0.08
                                    )Year
                                        Ended August 31, 2003Revenues
                                    
                                    
                                    4,618
                                    
                                    
                                    3,063
                                    
                                    
                                    1,947
                                    
                                    
                                    1,965Net
                                        earnings (loss)
                                    
                                    
                                    (1,533
                                    )
                                    
                                    (2,012
                                    )
                                    
                                    (3,833
                                    )
                                    
                                    (29,123
                                    )Basic
                                        loss per share
                                    
                                    
                                    (0.02
                                    )
                                    
                                    (0.03
                                    )
                                    
                                    (0.05
                                    )
                                    
                                    (0.28
                                    )Diluted
                                        loss per share
                                    
                                    
                                    (0.02
                                    )
                                    
                                    (0.03
                                    )
                                    
                                    (0.05
                                    )
                                    
                                    (0.28
                                    )
 F-24
  **NOTE
                          22 - Equity Financing**
  On
                          February 14, 2005, the Company completed the sale of 20
                          million shares of its
                          common stock to certain investors at a price of $0.41 per
                          share. The net
                          proceeds to the Company from this offering after placement
                          agent fees and
                          offering expenses were $7,504,000.
  On
                          April 15, 2005, the Company additionally completed the
                          sale of 10 million shares
                          of its common stock to certain investors at a price of
                          $0.2035 per share. The
                          net proceeds to the Company from this offering after placement
                          agent fees were
                          $1,935,000.
  In
                          August 2005, the Company entered
                          into a purchase agreement with certain investors for the
                          sale of 30 million
                          shares of its common stock at a price of $0.135 per share.
                          As of August 31,
                          2005, 15,125,000 of the 30 million shares were issued.
                          The remaining 14,875,000
                          shares were not issued due to notification from the AMEX
                          to obtain shareholder
                          approval. (See Note 24-Subsequent Events.) The
                          net proceeds to the Company from this offering after placement
                          agent fees were $3,766,500 .
  During
                          the year ended August 31, 2005, the Company entered into
                          an agreement with a
                          former employee whereby the Company utilized his services
                          as a settlement
                          consultant. Under the agreement, the consultant received
                          approximately 15.5
                          million shares of the Company’s common stock that were liquidated by the
                          consultant and the proceeds were used to discharge certain
                          obligations of the
                          Company. The consultant settled approximately $6.5 million
                          in liabilities. In
                          connection with this agreement, the company incurred fees
                          of approximately $1.7
                          million. The settlement consultant also made cash advances
                          to the company of
                          approximately $1.4 million which was repaid in stock. Fees
                          and interest incurred
                          by the Company associated with the advances were approximately
                          $362,000.
  **NOTE
                          23 - Exit Activities**
  During
                          the fiscal year ended August 31, 2003, we implemented cost
                          reductions in various
                          operating segments. In the aggregate, the Company reduced
                          its overall personnel
                          by 114 headcount or a 50% reduction for the fiscal year
                          ended August 31, 2003 as
                          compared to the fiscal year ended August 31, 2002. The
                          predominate reduction in
                          headcount related to the Company’s Atlantic Pacific/Homes Systems structured
                          wiring and commercial cabling segment with headcount reductions
                          of nine, six and
                          57 personnel in the first three quarters of fiscal 2003;
                          aggregating an overall
                          headcount reduction of 72 or 71% of this segment’s workforce. Additionally, the
                          Company reduced its United Computing Group computer hardware
                          sales segment by
                          18, nine, and two personnel in the first three quarters
                          of fiscal 2003;
                          aggregating an overall reduction of 29 or 59% of this segment’s workforce. These
                          two operating segments accounted for 101 of the 114 headcount
                          reductions
                          affected in fiscal 2003. Specifically, certain components
                          of these operating
                          segments, i.e., home systems structured wiring, commercial
                          cabling and computer
                          hardware sales, were not expected to provide significant
                          long-term revenues and
                          profitability, and therefore were reduced.  Following
                          the series of cost reduction activities implemented during
                          the first three
                          quarters of fiscal 2003, Eagle’s management assessed the viability of continued
                          financial investment in these unprofitable segments in
                          the fourth quarter of
                          fiscal 2003 and into early first quarter of fiscal 2004
                          and made further
                          reductions. In conjunction with the appointment of Mr.
                          Weisman as our new Chief
                          Executive Officer in early October 2003, the Company completed
                          the final
                          consolidation of the United Computing Group segment into
                          other Eagle operations
                          while further reducing the Atlantic Pacific/Home Systems
                          operations to an
                          outsource commercial cabling and structured wiring operation
                          that project
                          manages affiliate contractors.
  Additionally,
                          in conjunction with the appointment of Mr. Weisman as Chief
                          Executive Officer,
                          the Company made certain decisions during the preparation
                          of its Form 10-K in
                          our first quarter of fiscal 2004 that affected the value
                          of certain assets as of
                          August 31, 2003. These decisions included:
  ·
                                  A
                                      revised collection assessment of certain accounts
                                      receivables from these
                                      and other down-sized Eagle business
                                      segments.
  ·
                                  The
                                      decision to no longer pursue new commercial
                                      structured cabling
                                      opportunities on a direct basis versus the
                                      outsource model, thereby
                                      resulting in the impairment of goodwill from
                                      its Atlantic Pacific
                                      operations.
  ·
                                  The
                                      decision to no longer pursue Home Systems structured
                                      wiring opportunities
                                      on a direct standalone model basis outside
                                      its BDS model, thereby
                                      resulting in the impairment of its Home Systems
                                      inventory.
  ·
                                  The
                                      decision to withdraw from certain unprofitable
                                      BDS projects, namely its
                                      Austin area BDS developments thereby impairing
                                      certain assets including
                                      property, plant and equipment.
  ·
                                  The
                                      decision to settle numerous existing and threatened
                                      legal proceedings
                                      versus continuing the timing consuming and
                                      costly process of defending
                                      such proceedings, thereby resulting in the
                                      accrual of numerous reserves
                                      for such settlements.
  ·
                                  The
                                      decisions to consolidate its operating segments
                                      into its corporate lease
                                      space, thereby resulting in reserves for property
                                      lease
                                      settlements.
  F-25
  ·
                                  The
                                      decision to negotiate the settlement of certain
                                      sales tax liabilities that
                                      resulted from a sales tax audit of United Computing
                                      Group operations for
                                      periods that preceded the acquisition date
                                      of this
                                      subsidiary.
  Accordingly,
                            Eagle incurred certain asset impairments and operating
                            charges in the fourth
                            quarter associated with these decisions. These asset
                            impairment charges,
                            allowances, write-offs and reserves included the following:
  ·
                                  Accounts
                                      receivable write-offs and reserves aggregating
                                      $2,177,000, of which
                                      $1,348,000 was attributable to the decisions
                                      affecting the Company’s
                                      Atlantic Pacific/Home Systems operations, $15,000
                                      attributable to the
                                      decisions affecting its United Computing Group
                                      operations and $814,000
                                      attributable to the Company’s Eagle, EBS and Other segment
                                      operations.
  ·
                                  Inventory
                                      impairment charges of $2,627,000, of which
                                      $501,000 was attributable to
                                      the decisions affecting the Company’s Atlantic Pacific/Home Systems
                                      operations and $74,000 attributable to the
                                      decisions affecting its United
                                      Computing Group operations. Additionally, the
                                      Company recorded an
                                      impairment charge of $1,125,000 for slow-moving
                                      and obsolete inventory in
                                      its Eagle operations. This charge primarily
                                      resulted from a major client’s
                                      decision to upgrade from a 400 MHz chip to
                                      a 500 MHz chip for the
                                      Company’s IP set top box.
  ·
                                  Litigation
                                      settlement costs and reserves of $3,650,000
                                      against certain of the legal
                                      proceedings previously discussed in Item 3.
                                      Legal Proceedings.
                                      Additionally, the Company recorded charges
                                      aggregating $2,274,000 to
                                      settle threatened and existing legal proceeding
                                      associated with prior
                                      financing transactions, including the Kaufman
                                      litigation.
  ·
                                  Lease
                                      settlement costs and reserves of $171,000 were
                                      attributable to the
                                      decision to consolidate various operating segments
                                      into its corporate
                                      lease space; thereby resulting in reserves
                                      for early exit of such
                                      leases.
  ·
                                  Impairment,
                                      write-downs and restructuring costs aggregating
                                      $7,611,000, of which
                                      $1,878,000 was attributable to an impairment
                                      of goodwill in the Company’s
                                      Atlantic Pacific operations following the Company’s decision to no longer
                                      pursue commercial cabling opportunities on
                                      a direct basis versus an
                                      outsource model. These costs were also comprised
                                      of $3,412,000 in
                                      impairment of property and equipment following
                                      the Company’s decision to
                                      withdraw from certain unprofitable BDS projects,
                                      namely in the Austin
                                      area, and $323,000 of impairment of property
                                      and equipment from the
                                      Company’s Atlantic Pacific/Home Systems operations
                                      following the decision
                                      to no longer pursue structured wiring opportunities
                                      on a direct standalone
                                      basis outside of its BDS model. Additionally,
                                      the aggregate total included
                                      a $553,000 charge for certain sales tax liabilities
                                      that resulted from an
                                      audit of the Company’s United Computing Group operations for time
                                      periods
                                      that preceded the acquisition date of this
                                      operation.
  Eagle
                              incurred approximately $96,000 for severance and accrued
                              vacation related to
                              employees terminated in fiscal 2003. Eagle does not
                              expect to incur any
                              additional future period costs associated with such
                              restructuring activities
                              other than those accrued for and recorded in the fourth
                              quarter of fiscal
                              2003.
  An
                              analysis of accrued costs and amounts charged against
                              the provision
                              follows:
  Beginning
                                        Balance
                                        8/31/2003
                                      
                                      Period
                                          Costs
                                        (Additional)
                                      
                                      Payments
                                      
                                      Ending
                                        Balance
                                        8/31/2004Accrued
                                          Exit Expenses:Severance
                                      
                                      $
                                      —
                                      
                                      $
                                      —
                                      
                                      $
                                      —
                                      
                                      $
                                      —Terminated
                                          Lease Costs
                                      
                                      
                                      171,000
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      171,000$
                                      171,000
                                      
                                      $
                                      —
                                      
                                      $
                                      —
                                      
                                      $
                                      171,000
  For
                                  the year ended August 31, 2003, the Company incurred
                                  exit costs of $267,000
                                  which are principally severance and lease termination
                                  costs. The total expected
                                  exit costs for severance and terminated leases
                                  are $96,000 and $171,000,
                                  respectively. These costs are included in the consolidated
                                  statement of income
                                  under the categories of salaries and related costs
                                  and other support
                                  costs.
 F-26
  These
                                  period and accumulated costs are included in the
                                  segment reporting as
                                  follows:
  APC/HSI
                                          
                                          EBS/DSS
                                          
                                          UCG
                                          
                                          Eagle
                                          
                                          Other
                                          
                                          TotalSeverance
                                          
                                          $
                                          37,000
                                          
                                          $
                                          24,000
                                          
                                          $
                                          14,000
                                          
                                          $
                                          21,000
                                          
                                          $
                                          —
                                          
                                          $
                                          96,000Terminated
                                              Lease Costs
                                          
                                          
                                          50,000
                                          
                                          
                                          —
                                          
                                          
                                          44,000
                                          
                                          
                                          —
                                          
                                          
                                          7,700
                                          
                                          
                                          101,700Total
                                          
                                          $
                                          87,000
                                          
                                          $
                                          24,000
                                          
                                          $
                                          58,000
                                          
                                          $
                                          21,000
                                          
                                          $
                                          7,700
                                          
                                          $
                                          197,700






**NOTE
      24 - Subsequent Events**




In
      August
      2005, the Company entered
      into a purchase agreement with certain investors for the sale of 30 million
      shares of its common stock at a price of $0.135 per share, and received total
      gross proceeds of $4,050,000. On August 26, 2005, the American Stock Exchange
      approved for listing 15,125,000 of these shares and notified the Company that
      shareholder approval was required for the issuance of the remaining 14,875,000
      shares. On September 2, 2005, the Company voluntarily placed the funds received
      for the 14,875,000 shares ($2,008,125) into an escrow account pending the
      shareholder vote. On
      September 8, 2005, the Company sent a revised proxy statement to its
      shareholders adding a fourth proposal to be voted on at its 2005 annual meeting
      of shareholders, which was scheduled to be held September 20, 2005, to approve
      the issuance of the 14,875,000 shares. On September 15, 2005, the Company
      announced its plan to adjourn the 2005 annual meeting until October 18, 2005,
      to
      allow shareholders adequate time to receive the revised proxy statement and
      consider the added proposal. At the
      October 18, 2005 meeting, shareholders approved the issuance of the 14,875,000
      shares, and on October 19, 2005, the escrowed funds were released to the
      Company. On October 21, 2005, the Company applied for listing the 14,875,000
      shares with the
      American Stock Exchange and received approval on November 17, 2005. The company
      paid a placement agent a cash commission of 7% of the gross dollar proceeds,
      and
      on November 16, 2005, issued such agent a five-year warrant to purchase 843,750
      shares of Eagle common stock at an exercise price of $0.24 per
      share.




In
      October 2005, the Company and Enron Corp. agreed to a
      dismissal of all adversary proceedings and claims against each other in the
      proceedings filed against the Company by Enron in September 2003. In November
      2005, the Bankruptcy Court entered orders confirming dismissal of such
      proceedings and claims.




On
      October 18, 2005, the 2005 Annual Meeting of Shareholders of the Company was
      held in League City, Texas. At the meeting, four proposals were voted on by
      the
      shareholders. The first proposal was for the election of directors of the
      Company. The following persons were elected: Robert Bach, H. Dean Cubley, Glenn
      Goerke, David Micek, Lorne Persons, C.J. Reinhartsen and James Yarbrough. The
      second proposal was to approve the 2005 Employee Stock Option Plan, which was
      approved by a vote of approximately 72 million shares for and approximately
      25
      million shares against. The third proposal was to ratify the appointment of
      Lopez, Blevins, Bork and Associates, LLP, as the Company’s auditors for the
      fiscal year ended August 31, 2005, which was approved by a vote of approximately
      229 million shares for and approximately 9 million shares against. The last
      proposal was to approve the issuance of 14,875,000 shares of the Company’s
      common stock, which was approved by a vote of approximately 66 million shares
      for and approximately 17 million shares against.




In
      November 2005, the Company entered into an agreement with a third party, under
      which the Company has agreed to lease the network and infrastructure used to
      deliver its bundled digital services for ten years. The Company’s obligation to
      lease the network and infrastructure is contingent upon the third party
      obtaining the financing necessary to fund the payments due under the
      agreement.


F-27







**SCHEDULE
      II**






**VALUATION
      AND QUALIFYING ACCOUNTS**






Years
      ended August 31, 2005, 2004, and 2003 (amounts in thousands):




Description
            
            Balance
                at
              beginning
                of
              period
            
            Additions
              Charged
                to
              Expenses/
              Revenues
            
            Deductions
            
            Balance
                at
              end
                of periodAllowance
                for Doubtful Accounts2005
            
            $
            2,396
            
            $
            568
            
            $
            (276
            )
            $
            2,6882004
            
            $
            412
            
            $
            2,643
            
            $
            (659
            )
            $
            2,3962003
            
            $
            242
            
            $
            2,177
            
            $
            (2,007
            )
            $
            412




F-28