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

                               AMENDMENT No. 2 to
                                   FORM 10-K/A

 _______________________________________________________________________________

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

                   For the fiscal year ended August 31, 2003

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


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

                       Commission file number: 000-23163

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

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

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

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

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

Check  whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

Yes [ X ]  No [   ]

Check if there is no  disclosure of  delinquent  filers in response to Item 405
of Regulation  S-K is not contained in this form, and no disclosure will be
contained,  to the best of registrant's  knowledge,  in definitive proxy or
information  statements  incorporated  by  reference  in Part III of this Form
10-K or any  amendment  to this Form
10-K. [   ]


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


Issuer's revenues for its fiscal year ended August 31, 2003, were $11,593,000.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  based on the closing price of the common stock on the American
Stock Exchange on February 28, 2003,  was  $15,341,000.  As of April 28, 2004,
registrant had 191,517,856 shares of common stock outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE

The registrant is incorporating by reference in Part III of this Form 10-K
certain information contained in the registrant's proxy statement for its annual
meeting of shareholders, which proxy statement was filed by the registrant
before December 29, 2003.
<PAGE>



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

        In some cases, you can identify  forward-looking  statements by
terminology such as "may,"  "will,"  "should,"  "expects,"  "plans,"
"anticipates,"  "believes," "estimates,"  "predicts,"  "potential,"  or the
negative of these terms or other comparable terminology. These statements are
only predictions. Actual results in future periods may differ materially from
the forward-looking  statements due to a number of risks and  uncertainties,
including but not limited to fluctuations in the  construction,  technology,
communication  and industrial  sectors;  the success of the Company's
restructuring and cost reduction plans; the success of the  Company's
competitive  pricing;  the  Company's   relationship  with  its suppliers;
relations  with the Company's  employees;  the Company's  ability to manage its
operating costs; the continued  availability of financing and working capital to
fund business operations;  governmental regulations; risks associated with
regional, national, and world economies; and consummation of the merger and
asset purchase transactions. Any forward-looking statements should be considered
in light of these factors.

          Although Eagle believes that the expectations  reflected in the
forward-looking statements are reasonable,  Eagle cannot  guarantee  future
results,  levels of activity,  performance or  achievements.  Moreover,  neither
Eagle nor any other person  assumes  responsibility  for the  accuracy  and
completeness  of  these forward-looking  statements.  Eagle  is  under  no  duty
to  update  any of the forward-looking  statements  after the date of this
report to conform its prior statements to actual results.

                                     PART I

Item 1.  Description of Business

Overview

         Eagle  Broadband,  Inc.,  (the "Company" or "Eagle") is a supplier of
broadband, communications, project management and enterprise management products
and services.  Eagle's exclusive  "four-play" suite of very high-speed Internet,
cable-style  television,  voice and security monitoring Bundled Digital Services
(BDS),  HDTV-ready  multimedia  set-top  boxes,  and turnkey suite of financing,
design, deployment and operational services enables municipalities,  real estate
developers,  hotels,  multi-tenant  owners  and  service  providers  to  deliver
exceptional value, state-of-the-art entertainment and communications choices and
single-bill  convenience to their residential and business customers.  Eagle has
extensive  "last mile" cable and fiber  installation  capabilities  and provides
complete IT business  integration,  project management and enterprise management
solutions including network security, intrusion detection,  anti-virus,  managed
firewall and content filtering to Fortune 1000 companies. Eagle also markets the
Orb'Phone Exchange  non-line-of-sight  communications system that provides true,
"total"  global voice,  data and Internet  communications  services  through the
Iridium  Satellite  network to Fortune 1000  enterprises,  commercial  aviation,
government, the military and homeland security customers.

         As of August 31, 2003, the Company's  active  subsidiaries  were: Eagle
Broadband  Services,  Inc.  (EBS) - operating as Eagle BDS; DSS  Security,  Inc.
(DSS) - operating as Eagle Security Services;  Atlantic Pacific  Communications,
Inc. (APC) - operating as Eagle  Communications  Services;  Etoolz, Inc. (ETI) -
Eagle's research and development subsidiary; Eagle Wireless International,  Inc.
(EWI);  and Contact  Wireless,  Inc. (CWI) - operated as Eagle Paging  Services.
Additionally,  Eagle has a number of inactive  subsidiaries  that had results in
one or more of the periods included in the financial  statements covered by this
report. These inactive subsidiaries  include:  ClearWorks  Communications,  Inc.
(COMM) - formerly operated as BDS; ClearWorks.net,  Inc. (.NET); ClearWorks Home
Systems,  Inc. (HSI) - operated as Eagle Residential  Structured Wiring;  United
Computing Group,  Inc. (UCG) - operated as Eagle Technology  Services;  and Link
Two Communications, Inc. (LINK II) - operated as Eagle Messaging Services. Eagle
has incorporated  certain ongoing  operations of the inactive  subsidiaries into
the active  subsidiaries  listed above.  The consolidated  financial  statements
include  the  accounts  of the Company  and its  subsidiaries.  All  significant
inter-company transactions and balances have been eliminated in consolidation.

         Eagle  designs and  manufactures  a wide range of broadband  products
and provides complete  installation  services for copper, fiber, and wireless to
commercial and residential  markets.  Core products  offered by Eagle target end
users of broadband services and include Internet,  telephone,  cable television,
and security monitoring services,  which services we refer to as bundled digital
services (or BDS). Each subscriber  provides the company with the opportunity to
create a recurring  revenue stream as well as the opportunity to sell additional
products,  such as Eagle's set-top-boxes to existing customers.  This balance of
near-term and long-term  recurring  revenue is a combination that in the opinion
of  management  is highly  desirable.  The  combination  of  Eagle's  convergent
hardware products,  network services,  wireless  products,  wireless network and
spectrum services,  strong  manufacturing and R&D capabilities and the BDS "last
mile" cable and fiber installation should provide a well-balanced revenue mix as
the combined company offers a full complement of broadband products and services
to its customers.

                                       1
<PAGE>

         Eagle  designs,  manufactures,  markets,  and services its products
under  the  Eagle  name.   These  products  include   transmitters,   receivers,
controllers,  software  and  other  equipment  used in  personal  communications
systems and radio and telephone systems. Most of Eagle's broad line of products,
covering  the  messaging  spectrum  as well as specific  personal  communication
systems,  and  specialized  mobile radio  products are  certified by the Federal
Communications Commission.  Eagle provides service and support for its products,
as well as consulting and research development on a contract basis. In addition,
Eagle has introduced a completely new line of multi-media and Internet  products
to the  telecommunications  industry,  including a family of digital set-top-box
products and markets these products under the name of BroadbandMagic.

         Eagle  through its  subsidiary,  Atlantic  Pacific  Communications,
Inc., is engaged in the business of project  management of professional  quality
data,  voice,  and  fiber  optic  cable  installations  and  services  for  both
re-sellers and end-users.

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

Product and Service Categories

Eagle BDS Services

         Eagle provides  fiber-to-the-user  ("FTTU") network services for
neighborhoods  and  businesses  utilizing its Bundled  Digital  Services.  These
services include  high-speed  Internet  connectivity,  home security,  telephone
service,  and cable-style TV service over fiber.  Eagle's exclusive  "four-play"
suite of very high-speed Internet, video/cable TV, voice and security monitoring
Bundled Digital Services, HDTV-ready multimedia set-top boxes, and turnkey suite
of financing,  network  design,  deployment  and  operational  services  enables
municipalities,  real-estate developers, hotels, multi-tenant owners and service
providers  to deliver  exceptional  value,  state-of-the-art  entertainment  and
communication  choices and  single-bill  convenience  to their  residential  and
business customers.

         Eagle  provides  up to 100 Mbps  switched  service per home with up to
six drops per home wired by Eagle's wiring  standards.  Connections of up to 100
Mbps are  approximately  2,000 times  faster  than a 56K modem.  The fiber optic
networks that Eagle deploys into residential  communities and businesses consist
of two parts:  (a) the headend  facility and (b) the fiber optic cable installed
into the home.

         Eagle also sells  structured  wiring and  audio/video  products to
single and  multi-family  units.  These  products  and  services  are being made
available to both residential and commercial customers on a national basis.

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

Eagle Security Services

         Eagle, through its subsidiary,  DSS Security, Inc., markets
security-monitoring  services. DSS Security's principal business activity is the
providing  of  monthly  security  monitoring  service  to  both  commercial  and
residential  customers.  Currently  DSS Security is  providing  services to over
6,000 customers.

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

Eagle Satellite-Based Voice and Data Communications Services

The Orb'Phone Exchange

         The Orb'Phone Exchange represents innovative and proprietary
non-line-of-sight communications technology that enables users of the Iridium(R)
satellite network to quickly and easily establish highly reliable voice and data
communications to and from any location where the user is unable to gain line of
sight to an  orbiting  Iridium  Satellite  such as onboard  in-flight  aircraft,
within buildings,  under ground or from obstructed areas. The technology enables
truly 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
Orb'Phone  Exchange  extends  customers' usage area, while enhancing the utility
and  overall  value  for both new and  existing  Iridium  aviation,  government,

                                       2
<PAGE>

military, homeland security and commercial/enterprise customers. The company has
received  certification  by both  the  Federal  Communications  Commission  (FCC
Certification  Identifier # LOKJHJLBT05A00021) and Iridium Satellite LLC for the
Orb' Phone Exchange.

         Subsequent  to the fiscal  year ending  August 31,  2003,  the Company
announced that General  Dynamics  Decision  Systems,  a business unit of General
Dynamics,  signed a distribution agreement to sell and support Eagle's Orb'Phone
Exchange to customers in the U.S. Department of Defense (DOD),  General Services
Administration  (GSA), Defense Information Systems Agency (DISA), and other U.S.
and foreign government agencies.

         Revenues for Eagle's Orb' Phone  Exchange  were not  applicable  in the
fiscal year ended August 31, 2003,  as the product was  released  subsequent  to
year end and in future  periods will be reported  under the category of Products
on the Company's  Consolidated  Statements of Operations included as page F-4 of
this  report  and also  under  the  category  Eagle  within  Note 22 -  Industry
Segments.

Broadband Multimedia and Internet Products

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

Host Pro

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

Computer Plus

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

IP Express

         The IP Express  provides users with either  dial-up or high-speed
Internet access, the ability to check e-mail,  surf the web, or play games. With
the  built-in  TV tuner  card,  users  can  auto-tune,  have  picture-in-picture
capabilities, and channel preview while connected to the Internet. This unit can
be attached either to a monitor or basic TV.

Media Pro

         The Media  Pro's  architecture,  which  includes  exceptional  ED
graphics, MPEG 2 hardware decoder and low-power CPU, makes it ideally suited for
multimedia  environments such as Video-on-Demand  (VOD) and Video  Conferencing.
This unit is marketed to the  hospitality  market,  hospitals,  schools,  and in
Multiple Dwelling Units (i.e. apartments, etc.).

         The VP-2100  along with  Eagle's  Video-View  software  enables the
consumer to do point-to-point  video  conferencing,  as well as have up to eight
video  conferencing  feeds using our advanced  video  multicasting.  The VP-2100
provides corporate  executives and other customers a cost effective  alternative
to the high cost and risk of travel,  as well as  eliminating  the  unproductive
time associated with long distance business meetings.

EZMagic-HD

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

                                       3
<PAGE>

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

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

Eagle Communications Services

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

o        Multi-site rollout installation
o        Statement of Work/Request For Quotation preparation
o        Installation supervision
o        Structured wiring design
o        Comprehensive project management
o        Copper wiring configuration
o        Fiber optic acceptance testing
o        Aerial and underground OSP
o        Fiber optic and copper cable
o        Field service and support

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

Eagle Technology Services

         Eagle,  through its United  Computing Group,  Inc.,  subsidiary,  sells
computer hardware and provides IT Business Integration and Enterprise Management
solutions to companies  with complex  computing  and  communication  systems and
needs.  Eagle helps its clients integrate and deploy the latest  technologies to
help ensure they remain  competitive  within their industry,  while reducing the
cost of  integrating  these  solutions  in order to maximize the return on their
technology investments.

                  Eagle has historically targeted  medium-sized  businesses and
organizations as its primary client base but has recently  expanded its focus to
include  Fortune  1000  enterprises.  Medium-sized  businesses  tend  to rely on
specialized  IT service  providers to help implement and manage their IT systems
and complex computing environments.  Eagle believes its expertise will allow its
clients to address all or selected parts of the full, IT life cycle  management,
including  network   management  and  monitoring,   network  design,   security,
anti-virus protection, product fulfillment, configuration, implementation, fault
diagnosis,  fault  resolution,  reporting,  upgrading and  documentation.  Eagle
accomplishes  this through its different  service  offerings that are managed by
its Client Care Center that is operated 24 hours per day, seven days per week in
League City, Texas.

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


Eagle Consulting Services

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

                                       4
<PAGE>

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

Eagle Service and Support

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

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

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

Eagle Paging Services.

         Eagle,  through its subsidiary  Contact  Wireless,  Inc.,  markets
paging and mobile  telephone  solutions.  Eagle  acquired  Contact  Wireless  in
January  2002.  Contact  Wireless  provides  customers  with  paging  and mobile
telephone  products  and  related  monthly  services  in San Antonio and Houston
areas.  Subsequent  to the fiscal year ended August 31, 2003,  Eagle  intends to
divest this operating subsidiary in a related-party transaction.

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

Eagle Messaging Services

         Eagle,  through its subsidiary Link Two  Communications,  Inc., markets
messaging network services.  Eagle is a common carrier of exclusively  wholesale
one-way messaging and two-way messaging network services. Its customers purchase
messaging network services as an aggregator and resell Link Two  Communication's
network services to individual  subscribers and other communications  providers.
Link Two  Communications  has been classified as an incumbent carrier by the FCC
and has secured the rights to use or options to purchase  spectrum in all of the
major metropolitan U.S. cities on five PCP frequencies.  Link Two Communications
has also secured several exclusive RCC frequencies  providing  regional coverage
in two of the top ten markets.  Link Two Communications has secured an exclusive
block of FCC  spectrum  covering a  majority  of the  population  centers in the
southern and western United States in a successful bidding at the FCC auction.

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

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

                                       5
<PAGE>

Eagle Wireless International

Wireless Messaging Hardware

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

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

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

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

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

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

         Eagle  offers its  customers  an  end-to-end  solution  for  narrowband
personal communication services applications. Eagle has developed new technology
based  products  with enhanced  architecture  and  technology  from its existing
messaging  systems  to  accommodate  the  advanced  services  available  through
messaging  and PCS.  This system  approach  includes full product lines of radio
frequency network controllers,  transmitters, receivers, and a special satellite
receiver system, to receive the response message from the end-user.

                                       6
<PAGE>

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

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

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

Switches

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

Radio Frequency Equipment, Transmitters and Receivers

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

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

Controllers

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

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

Base Stations and Transmitters

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

Radio Frequency Power Amplifiers

         Radio-frequency  power  amplifiers are a  sub-component  of both
messaging and SMR transmitters and base stations. The high, medium and low power
base station and link transmitter  power amplifiers are designed to operate with
any FCC type accepted  exciter or may be combined with an Eagle optional plug-in
base  station  in the  same  space  as the  power  amplifier.  All  Eagle  power
amplifiers  above 100 Watts are equipped  with Eagle "Heat  Trap"(TM)  design to
provide the user with long life and high reliability performance.

Extend-A-Page

         Extend-a-Page is a compact  lower-power  transmitter and receiver set
designed to provide fill-in  coverage in fringe locations where normal messaging
service from a wide-area  messaging  system is not adequate.  The  Extend-a-Page
receives the messaging data

                                       7
<PAGE>

on either a radio  frequency  control link or wireline  link and  converts  this
information into low power simulcast compatible  messaging  transmissions on any
of the common messaging frequencies.  The Extend-a-Page  transmits the messaging
information  at a one to two Watt level  directly  into hard to reach  locations
such as hospitals,  underground  structures,  large industrial  plants, and many
locations near the outer coverage contour of messaging systems.

Link Products

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

         In December  2002,  the Company  entered into a 4-year  agreement,
licensing  its wireless  infrastructure  products and service  technology  to DX
Radio Systems, Inc., of Sun Valley,  California. The contract allows DX Radio to
manufacture  and market the wireless  infrastructure  products and services that
Eagle Wireless  International has been supplying for several years to the paging
and  specialized  mobile radio (SMR) markets.  Eagle Wireless  products  covered
under this agreement  include  transmitters,  base stations,  paging  terminals,
controllers,  repeaters and receivers in all three major paging frequency bands.
These  products are now being sold under the DX Eagle trade name.  Additionally,
Eagle consigned certain inventory, sold certain trade booth assets and subleased
certain  facility space as a part of the agreement.  The agreement  allows Eagle
Wireless to derive monthly revenue through the licensing agreement over the life
of the contract,  while totally eliminating the overhead associated in its Eagle
Wireless subsidiary.

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

Customers

         Eagle sells to a broad range of customers.

         BroadbandMagic  sells  to  a  broad  range  of  customers.   These
customers are primarily  within the hospitality  industry,  business-to-business
and the government sectors.

         Eagle BDS Services  historically  sold its products  and services
primarily in the Houston, San Antonio, Austin and Phoenix markets although today
markets such products and services nationwide.  Eagle BDS Services markets these
products and services  through  direct  marketing  efforts and via Eagle's sales
staff and service centers. The majority of its customers  historically have been
real estate  developers,  which  required  the  structured  wiring  component in
addition to the BDS services.  Today,  the Company has  experienced  significant
success in marketing the BDS Services to municipalities, real estate developers,
hospitality   operators  and  public  utility  districts  with  residential  and
commercial  customers  typically  subscribing  to one or  more  bundled  digital
services such as voice, video, data/Internet and security monitoring.

         Eagle  Technology  Services  markets its  products and  services
nationwide  to a wide  range  of  companies  including  small  to  medium  sized
businesses as well as Fortune 1000 enterprises. The primary industries are oil /
gas, medical, hardware / software, real estate, staff leasing and government.

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

         Eagle  Messaging  Services  sells its  messaging  products and services
to both individual consumers and businesses.

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

         The Company did not have any customers  that  aggregated ten percent or
more of  consolidated  revenues  in  fiscal  year  2003  and  2002;  and had two
customers  in fiscal year 2001 that  accounted  for 30% and 15% of  consolidated
revenues.

                                       8
<PAGE>

Marketing and Sales

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

         Eagle BDS  Services  sells its  products  and services on a  nationwide
basis through direct  marketing  efforts of its sales staff and service centers.
For the years  ended  August  31,  2003,  2002,  and 2001,  Eagle BDS  Services,
represented 15%, 7%, and 2% of consolidated revenues, respectively.

         Eagle  Technology  Services are marketed  through  direct sales staff
and through  various types of direct  marketing.  For the years ended August 31,
2003, 2002, and 2001, Eagle Technology Services represented 21%, 54%, and 65% of
consolidated revenues, respectively.

         Eagle  Communications  Services  are marketed  through  Eagle's  direct
sales  staff.  For the years  ended  August  31,  2003,  2002,  and 2001,  Eagle
Communications Services, represented 34%, 18%, and 20% of consolidated revenues,
respectively.

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

         Eagle also markets the Orb'Phone  Exchange  non-line-of-sight
communications system directly to Fortune 1000 enterprises, commercial aviation,
government,  the military and homeland  security  customers.  Subsequent  to the
fiscal year ending August 31, 2003, the Company  announced that General Dynamics
Decision  Systems,  a business  unit of  General  Dynamics,  signed a  five-year
distribution  agreement  to sell  and  support  Eagle's  breakthrough  Orb'Phone
Exchange  communications platform to customers in the U.S. Department of Defense
(DOD), General Services Administration (GSA), Defense Information Systems Agency
(DISA), and other U.S. and foreign government agencies.

         Eagle Paging Services products and services are marketed through
Eagle's direct sales staff.

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

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

Research and Development

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

         From 1999 to 2003,  Eagle has focused a large portion of its new
development  resources on the  development  of the new broadband  multimedia and
Internet  product  line.  In  addition,  Eagle has formed a number of  strategic
relationships  with other large suppliers and manufacturers  that will allow the
latest in technology and techniques to be utilized in the company's  convergence
set-top-box  product line. Eagle will continue to incur research and development
expenses  with respect to the  convergence  set-top-box  product line during the
current fiscal year.

         Eagle has extensive  expertise in the  technologies  required to
develop wireless  communications systems and products including high power, high
frequency RF design digital signal processing,  real-time  software,  high-speed
digital logic,  wireless DSL products,  radio frequency and data network design.
Eagle believes that by having a research and development staff with expertise in
these key areas, it is well positioned to develop  enhancements for its existing
products  as well as the next  generation  of personal  communication  products.
Investment in advanced  computer-aided  design tools for simulation and analysis
has  allowed  Eagle to reduce  the time for  bringing  new  products  to market.
Research  and  development  expenditures  incurred by Eagle for the fiscal years
ended August 31, 2003,  2002,  and 2001 were  $411,000,  $404,000 and $1,276,000
respectively.

Manufacturing

         Eagle currently  manufactures its  satellite-based  communications and
wireless products at its facilities in League City,  Texas.  Some  subassemblies
are manufactured for Eagle by subcontractors at various locations throughout the
world. Eagle's manufacturing

                                       9
<PAGE>

expertise  resides  in  assembling  subassemblies  and  final  systems  that are
configured to its customers' specifications.  The components and assemblies used
in Eagle's products include electronic components such as resistors, capacitors,
transistors,  and semiconductors such as field programmable gate arrays, digital
signal processors and microprocessors, and mechanical materials such as cabinets
in which the systems are built.  Substantially  all of the  components and parts
used in Eagle's products are available from multiple sources. In those instances
where  components are purchased  from a single source,  the supplier is reviewed
frequently  for stability and  performance.  Additionally,  as necessary,  Eagle
purchases sufficient  quantities of components that have long-lead  requirements
in the world  market.  Eagle  ensures that all  products  are tested,  tuned and
verified prior to shipment to the customer.

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

Competition

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

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

         Eagle  Technology  Services  competes with many  established  companies
in  the  enterprise   integration  and  network  management  solutions  markets.
Historically,  this business unit also  participated  in product  fulfillment by
reselling  hardware.  Most of these companies have greater  resources  available
than Eagle  Technology  Services.  Eagle has studied these markets and is of the
belief  that  by  offering   enterprise  and  network   management  and  product
fulfillment as a turnkey  solution,  to medium sized  companies and Fortune 1000
enterprises  with  competitive  pricing  is a  competitive  advantage  for Eagle
Technology Services.  However,  there can be no assurance that these conclusions
are correct and that the demand for these products and services will continue to
expand  at their  current  rates and that  Eagle  Technology  Services  can gain
significant market share in the future.

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

         Eagle  Messaging  Services  competes with many  established  companies
in the  nationwide  one and  two-way  messaging  services  area.  Most of  these
companies have greater resources available than Eagle Messaging Services.

Proprietary Information

         Eagle  attempts  to  protect  its  proprietary   technology   through
a combination of trade secrets,  non-disclosure agreements, patent applications,
copyright filings,  technical measures,  and common law remedies with respect to
its  proprietary  technology.  Eagle has not yet been  issued any patents on its
products,  technology  or  processes  against  such  patent  applications.  This
protection may not preclude  competitors from developing  products with features
similar to Eagle's  products.  The laws of some foreign countries in which Eagle

                                       10
<PAGE>

sells or may sell its products do not protect Eagle's  proprietary rights in the
products to the same extent as do the laws of the United States.  Although Eagle
believes  that its products and  technology  do not infringe on the  proprietary
rights of others,  there can be no assurance  that third parties will not assert
infringement  claims  against  Eagle in the future.  If  litigation  resulted in
Eagle's  inability  to  use  technology,  Eagle  might  be  required  to  expend
substantial  resources  to  develop  alternative  technology.  There  can  be no
assurance  that Eagle  could  successfully  develop  alternative  technology  on
commercially  acceptable terms. Eagle has registered and trademarked the name of
BroadbandMagic  for this wholly owned subsidiary.  This name is thought by Eagle
to be a valuable addition to the intellectual property rights of Eagle.

Regulation

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

Employees

         As  of  November  14,  2003,   Eagle  employed   approximately  73
persons and  retained 4  independent  contractors.  Eagle  believes its employee
relations to be good.  Eagle enters into independent  contractual  relationships
with various individuals, from time to time, as needed.

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

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

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

         From inception through February 29, 2004, we have incurred an
accumulated  deficit in the  amount of  $92,320,000.  For the fiscal  year ended
August 31, 2003, and the six months ended February 29, 2004, we incurred  losses
from operations in the amount of $28,267,000 and $17,859,000,  respectively.  We
anticipate  that we will incur  losses from  operations  for the current  fiscal
year.  We will need to generate  significant  revenues  and control  expenses to
achieve profitability.  Our future revenues may never exceed operating expenses,
thereby  making the continued  viability of our company  dependent  upon raising
additional capital.

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

We have not generated positive cash flow from operations during the last three
fiscal  years and we  currently  rely on  external  sources  of  capital to fund
operations.  For the last three  fiscal  years,  we have  suffered  losses  from
operations  of  approximately   $73,011,000.   At  February  29,  2004,  we  had
approximately  $5,189,000 in cash, cash equivalents and securities available for
sale, and a working  capital  deficit of  approximately  $3,370,000 Our net cash
used by  operations  for the six  month  period  ended  February  29,,  2004 was
approximately $3,165,000.

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

                                       11
<PAGE>

operations or sell assets.

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

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

Intratech Capital  Partners,  Ltd. vs.  Clearworks.net,  Inc. In September 2003,
Intratech sued Clearworks.net alleging breach of contract for failing to pay for
financial advice and services allegedly  rendered.  Intratech is seeking damages
of approximately $6.8 million plus attorney's fees and costs.

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

Cornell Capital Partners, LP. vs. Eagle Broadband. In July 2003, Cornell Capital
sued  Eagle  Broadband   alleging  breach  of  contract,   fraud  and  negligent
misrepresentation.  Cornell Capital 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.  To date, we have not  registered the resale of
the shares  underlying  Cornell Capital's  convertible  debenture and we are not
doing so hereby. As of November 30, 2003, the principal balance of the debenture
of approximately $1.2 million was repaid, although the suit remains outstanding.

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

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

         For the twelve months ended August 31, 2003 and the six months ended
February 29, 2004,  approximately 24% and 67%, respectively,  of our revenue was
generated by  recurring-revenue  contracts with Eagle Broadband Services and our
security  monitoring  contracts with DSS Security.  Although to date we have not
experienced  any  significant  interruptions  or  problems in our  broadband  or
security services,  any defects or errors in our services or any failure to meet
customers' expectations could result in the cancellation of services, the refund
of customers' money, or the requirement that we provide additional services to a
client at no charge.  Any of these  events,  could  reduce the  revenues  or the
margins associated with this revenue segment.

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

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

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

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

Approximately 60% of our total assets are comprised of goodwill, which is
subject to review on a periodic basis to determine  whether an impairment on the
goodwill is required.  An impairment would not only greatly diminish our assets,
but would also require us to record a significant charge against our earnings.

                                       12
<PAGE>

         We are required under generally accepted accounting principles to
review  our  intangible   assets  for  impairment  when  events  or  changes  in
circumstances  indicate the carrying value may not be  recoverable.  Goodwill is
required to be tested for impairment at least annually. At the fiscal year ended
August 31, 2003,  management determined that $1.8 million of goodwill associated
with the Comtel  Communications  acquisition was impaired. At November 30, 2003,
our goodwill was $76.3 million. If management determines that impairment exists,
we will be required to record a significant  charge to earnings in our financial
statements  during  the  period  in which  any  impairment  of our  goodwill  is
determined.

In the past, we have incurred significant non-cash impairment charges with
respect  to some of our  assets.  If we decide we need to  further  restructure,
abandon  or impair  any of our  operations  or assets,  we would  incur  further
charges, which would reduce our earnings.

         At August 31, 2003 and 2002, management determined that significant
non-cash impairment charges were necessary. For the fiscal year ended August 31,
2002, management determined that approximately $27.1 million in assets should be
impaired in order to properly value certain assets and licenses.  For the fiscal
year ended August 31,  2003,  management  determined  to impair  intangible  and
long-lived  assets in the amount of $7.6 million,  associated with the Company's
decision  to no longer  pursue the sales of low margin  commodity  products  and
unprofitable  business operations.  In future periods, if management  determines
that impairment  exists,  we will be required to record a significant  charge to
earnings in our financial  statements  during the period in which any impairment
of our long- lived assets is determined.

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

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

o        cease selling products that use the challenged intellectual property;
o        obtain from the owner of the infringed intellectual property a license
         to sell or use the relevant technology, which license may not be
         available on reasonable terms, or at all; or
o        redesign those products that use infringing intellectual property.

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

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

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

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

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

                                       13
<PAGE>

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

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

         Our telecommunication and cable products are regulated by federal,
state, and local  governments.  We are generally  required to obtain  regulatory
approvals in connection with providing  telephone and television  services.  For
example,  the cable and satellite  television  industry is regulated by Congress
and  the  Federal  Communications   Commission,   and  various  legislative  and
regulatory  proposals under  consideration  from time to time may  substantially
affect  the way we design our  products.  New laws or  regulations  may harm our
ability to timely introduce new products and technologies,  which could decrease
our revenues by shortening the life-cycle of a product.


Item 2.   Description of Property

         Eagle's  headquarters  are located in League City, Texas and include
approximately  34,375  square  feet of leased  office,  production,  and storage
space. The lease expires in May 2004. Eagle also maintains subsidiary offices in
one other Houston area location, with the lease expiring in December 2005 and in
San Antonio,  Texas,  with a lease expiring in July 2006.  Facilities leases are
described herein in further detail in the Note 17 to the Company's  Consolidated
Financial Statements included herein.

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

Item 3.   Legal Proceedings

         On February 23, 2001,  ClearWorks  and Eagle became  defendants in
Kaufman Bros., LLP v. Clearworks.Net,  Inc. and Eagle Wireless,  Inc., Index No.
600939/01,  pending in the Supreme Court of the State of New York, County of New
York.  In this  action,  plaintiff  alleges  that  defendants  have  breached an
agreement  with  ClearWorks  to pay  plaintiff  a fee for  financial  advice and
services  allegedly  rendered by  plaintiff.  The complaint  seeks  compensatory
damages of $4,000,000,  plus attorneys' fees and costs. The Company settled this
lawsuit on  November  4, 2003 by issuing  cash and stock  totaling a fair market
value of $1,320,000 as of the settlement date and  consequently,  $1,320,000 was
charged to operations in the Company's fiscal 2003 financial statements.


         On December 17,  2001,  Kevan Casey and Tommy Allen sued
ClearWorks.net,   Inc.,  ClearWorks   Integration,   Inc.,  and  Eagle  Wireless
International,  Inc. for breach of contract and other  related  matters in Cause
No.  2001-64056;  In the 281st Judicial District Court of Harris County,  Texas.
The Company  settled  this lawsuit on November 26, 2003 for cash and stock to be
paid and issued  totaling a fair market value of $3,000,000 as of the settlement
date and  consequently,  $3,000,000  was charged to  operations in the Company's
fiscal 2003 financial statements.


         On July 10, 2003, Eagle became a defendant in Cornell Capital
Partners,  L.P. vs. Eagle  Broadband,  Inc.,  et al.,  Civil Action No.  03-1860
(KSH), In the United States  District Court for the District of New Jersey.  The
suit presents claims for breach of contract,  state and federal securities fraud
and  negligent  misrepresentation.  Plaintiff  has also  alleged  that Eagle has
defaulted on a convertible  debenture for failing to timely  register the shares
of  common  stock  underlying  the  convertible  debenture  and  is  seeking  to
accelerate  the  maturity  date of the  debenture.  As of August 31,  2003,  the
principal  balance of the debenture was approximately  $1.2 million.  During the
three month  period  ended  November  30,  2003,  the  principal  balance of the
debenture was repaid, although the suit remains outstanding.  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.  The company has not accrued any expenses against this lawsuit, as the
outcome cannot be predicted at this time.


         On December  14,  2000,  ClearWorks  became a defendant in State Of
Florida  Department  Of  Environmental  Protection  vs. Reco  Tricote,  Inc. And
Southeast Tire Recycling,  Inc. A/K/A Clearwork.net,  Inc.; In The Circuit Court
Of The Tenth Judicial Circuit In And For Polk County,  Florida.  The Florida EPA
sued  ClearWorks.net  presenting  claims for recovery  costs and penalties for a
waste

                                       14
<PAGE>

tire  processing  facility.  The suit seeks recovery of costs and penalties in a
sum in  excess of  $1,000,000,  attorneys'  fees and cost of  court.  ClearWorks
denies the claims and intends to vigorously  contest all claims in this case and
to enforce its  indemnification  rights against the principals of Southeast Tire
Recycling. The Company has not accrued any expenses against this lawsuit, as the
outcome cannot be predicted at this time.


         On September 26, 2003 Intratech served a lawsuit on ClearWorks.net  in
Intratech Capital Partners, Ltd. vs. ClearWorks.net, Inc.; Case No. CF3 20136 in
the High Court of Justice,  Queen's Bench Division,  Cardiff District  Registry.
This  lawsuit  presents  claims for breach of  contract  for  failing to pay the
plaintiff for financial advice and services  allegedly  rendered.  The complaint
seeks  damages of  $6,796,245.50,  plus  attorneys'  fees and costs.  ClearWorks
denies the claims and  intends to  vigorously  defend  this  lawsuit  and claims
against  it. The Company  has  accrued  $100,000  in its fiscal  2003  financial
statements  for  litigation  expenses but has not accrued any  settlement  costs
against this lawsuit as the outcome cannot be predicted at this time.


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

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

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

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

         None.




                                       15
<PAGE>


                                    PART II

Item 5.   Market for Common Equity and Related Shareholder Matters

         Shares of Eagle common stock are listed on the American  Stock
Exchange under the symbol "EAG." On April 28,, 2004, Eagle's common stock closed
at $1.15 per share.  Eagle is authorized to issue  350,000,000  shares of common
stock,  191,517,856  of which were issued and  outstanding at April 28, 2004. At
April 28, 2004 there were approximately  1,077 holders of record of Eagle common
stock.

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


                                            Eagle Common Stock
                                            ------------------
                                             High         Low
 FISCAL 2003
        Quarter ended November 30, 2002       $0.54       $0.27
        Quarter ended February 28, 2003       $0.53       $0.16
        Quarter ended May 31, 2003            $0.37       $0.12
        Quarter ended August 31, 2003         $0.63       $0.33
 FISCAL 2002
        Quarter ended November 30, 2001       $0.95       $0.52
        Quarter ended February 28, 2002       $1.00       $0.40
        Quarter ended May 31, 2002            $0.47       $0.33
        Quarter ended August 31, 2002         $0.72       $0.32

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

Recent Sales of Unregistered Securities

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

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

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


                                       16
<PAGE>

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

Item 6. Selected Financial Data

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

                                                                       Year Ended August 31,
                                                                   ------------------------------
<S>                                         <C>                <C>            <C>               <C>                <C>

  ($ in thousands)                         2003               2002             2001             2000               1999
                                      ----------------  ----------------- ---------------  ----------------  ------------------

Operating Data:
Net sales                                     $11,593            $29,817         $28,110            $5,240              $2,217
Operating expenses                            $29,076            $43,635         $15,924            $3,985              $1,319
Operating income (loss)                     $(28,267)          $(36,522)        $(8,222)          $(1,227)              $(438)
Other income (expense), net                  $(5,426)             $(265)          $2,348            $1,516                $789
Income tax provision                               $0                 $0              $0               $96                 $91
                                      ----------------  ----------------- ---------------  ----------------  ------------------
Net income (loss)                           $(33,693)          $(36,787)        $(5,874)              $175                $168
                                      ================  ================= ===============  ================  ==================

Earnings per share  (basic)                   $(0.35)            $(0.57)         $(0.12)             $0.01               $0.01

Statement of Cash Flows Data:
Cash provided by operating
    activities                               $(6,085)            $ (797)          $(699)          $(5,299)            $(1,902)
Cash used by investing                       $(1,276)          $(13,668)        $(9,721)          $(2,224)               $(33)
    activities
Cash provided (used) by financing              $6,912          $ (2,406)        $(3,846)           $39,681              $1,025
    activities
</TABLE>

<TABLE>

<CAPTION>
                                                                          As of August 31,
                                           2003               2002             2001             2000               1999
                                      ----------------  ----------------- ---------------  ----------------  ------------------
<S>                                          <C>                <C>              <C>               <C>                 <C>

Balance Sheet Data:
Total assets                                 $121,006           $129,983        $170,667           $57,641             $10,320
Long-term debt                                    ---             $1,272          $2,136               $73                 $12
Total stockholders' equity                   $101,976           $117,380        $149,128           $54,061              $8,894

</TABLE>

Item 7.  Management's Discussion and Analysis

Overview

         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  headcount by 114 or a 50%  reduction for the fiscal year
ended August 31, 2003 as compared to the fiscal year ended August 31, 2002.  The
predominate  reduction in headcount related to the Company's  Atlantic Pacific /
Homes Systems  structured  wiring and commercial  cabling segment with headcount
reductions of nine,  six and 57 personnel in the first three  quarters of fiscal
2003;  aggregating an overall headcount  reduction of 72 or 71% of this segments
workforce. Additionally, the Company reduced its United Computing Group computer
hardware  sales  segment  by 18,  nine,  and two  personnel  in the first  three
quarters of fiscal 2003;  aggregating an overall  reduction of 29 or 59% of this
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

                                       17
<PAGE>

reductions.  In conjunction with the appointment of Mr. Weisman as our new Chief
Executive  Officer  in early  October  2003,  the  Company  completed  the final
consolidation  of the United Computing Group segment into other Eagle operations
while  further  reducing the Atlantic  Pacific / Home Systems  operations  to an
outsource  commercial  cabling and  structured  wiring  operation  that  project
manages affiliate contractors.

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

o        A revised  collection  assessment of certain  accounts  receivable from
         these and other  down-sized  Eagle business segments.
o        The  decision to no longer  pursue new  commercial  structured  cabling
         opportunities  on a direct  basis  versus the outsource  model;
         thereby  resulting in the  impairment of goodwill from its Atlantic
         Pacific operations.
o        The decision to no longer  pursue Home Systems  structured  wiring
         opportunities  on a direct  standalone model basis outside its BDS
         model; thereby resulting in the impairment of its Home Systems
         inventory.
o        The  decision  to  withdraw  from  certain   unprofitable  BDS
         projects,   namely  its  Austin  area  BDS developments; thereby
         impairing certain assets including property, plant and equipment.
o        The decision to settle  certain  existing  legal  proceedings  versus
         continuing  the time  consuming and costly process of defending such
         proceedings;  thereby  resulting in the accrual of numerous reserves
         for such settlements.
o        The decisions to consolidate its operating  segments into its corporate
         lease space;  thereby resulting in  reserves for property lease
         settlements.
o        The decision to negotiate the settlement of certain sales tax
         liabilities  that resulted from a sales tax audit of United  Computing
         Group  operations  for periods  that  preceded  the  acquisition  date
         of this subsidiary.

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

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

o                 Inventory  impairment  charges  of  $2,627,000;  of  which
                  $501,000  was  attributable  to the  decisions affecting the
                  Company's  Atlantic Pacific / Home Systems  operations and
                  $74,000  attributable to  the  decisions  affecting  its
                  United  Computing  Group  operations.  Additionally,  the
                  Company recorded an impairment  charge of $1,125,000 for
                  slow-moving and obsolete  inventory in its Eagle operations.
                  This charge  primarily  resulted  from a major  client's
                  decision to upgrade from a 400 MHz  chip  to a 500 MHz  chip
                  for the  Company's  convergent  set  top  box.  The  Company's
                  inventory  that was  impaired  was an AMD chip K-6  III-E
                  400ATZ  which was an AMD "end of life"  product.  The  Company
                  was  required to place its final order by July 1, 2002 for
                  this chip that was deemed "end of life" by AMD for  deliveries
                  through  the  Company's  fiscal  year 2003.  The Company took
                  delivery of  approximately  14,000 units between the final
                  order date and January 2, 2004 under  non-cancelable,
                  non-returnable and  non-rescheduleable  terms.  During the
                  Company's fiscal  fourth  quarter  of 2003,  the  Company  had
                  discussions  with one of its major  clients regarding  future
                  orders and volume  commitments  for  set-top  boxes.  Also,
                  during the fourth quarter of fiscal 2004,  the  Company's
                  third party  manufacturer  of the set-top  boxes and the
                  Company  determined that additional  components were
                  approaching  "end of life". The Company was faced with a
                  decision to either  complete a redesign  using the remaining
                  chips in inventory and  then to  complete  another  redesign
                  to  migrate  to  AMD's  new  chip  along  with  replacement
                  components  that were  approaching  "end of life".  The
                  Company  determined that it was more cost effective  to
                  complete  one  redesign  on the new chip and other  "end of
                  life"  components  and consequently recorded an impairment
                  charge in the amount of $1,125,000.

o                 Litigation  settlement  costs  and  reserves  of  $3,650,000
                  against  certain  of the  legal  proceedings previously
                  discussed in Item 3. Legal  Proceedings.  Additionally,  the
                  Company recorded charges aggregating  $2,274,000 to settle
                  threatened and existing legal proceeding  associated with
                  prior financing transactions, including the Kaufman
                  litigation.
o                 Lease settlement costs and reserves of $171,000 were
                  attributable to the decision to consolidate  various operating
                  segments into its corporate lease space;  thereby resulting in
                  reserves for early exit of such leases.

o                 Impairment,  write-down's  and  restructuring  costs
                  aggregating  $7,611,000;  of  which  $1,878,000  was
                  attributable  to  an  impairment  of  goodwill  in  the
                  Company's  Atlantic  Pacific  operations following  the
                  Company's  decision to no

                                       18
<PAGE>

                  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.  With respect to
                  the Company's  $3,412,000  impairment  charge  related to
                  property and equipment,  the Company's  Atlantic  Pacific and
                  Home Systems  operating  segment  downsized  unprofitable
                  operations  including the Austin Area BDS projects during the
                  second and third quarters of fiscal 2003 in an effort to
                  reduce the operating  expenses and associated  cash  burn.
                  The Company  subsequently  made a decision  to  withdraw  from
                  certain  unprofitable  BDS  projects and sent  correspondence
                  to affected  homeowners on September  11, 2003.  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.  The
                  final  determination  from this audit was completed on June
                  10, 2003.


         Eagle does not expect to incur any  additional  future  period costs
associated with such  restructuring  activities other than those recorded in the
fourth quarter of fiscal 2003.

         The Company  reduced its  personnel  from a headcount  of 228 at August
31, 2002 to 114 at August 31, 2003 and then  further to 73 by November 30, 2003.
The Company's  payroll is processed and paid every two weeks resulting in 26 pay
periods per annum.  The Company's per pay period  payroll costs was reduced from
$441,307 at August 31,  2002 to $222,528 at August 31, 2003 and then  further to
$161,745 at November 30, 2003;  resulting in per payroll  period cost savings of
$218,779  at August 31, 2003 and  $279,562  at November  30, 2003 as compared to
August 31, 2002. These respective per payroll period cost savings translate into
annualized cost savings of approximately $5,688,242 and $7,268,591 at August 31,
2003 and November 30, 2003,  respectively.  Of the  $5,688,242  annualized  cost
savings from  personnel  reductions  at August 31, 2003,  $2,955,705  relates to
"Direct Labor and Related Costs"  contained in Cost of Goods Sold and $2,732,537
relates to the  Company's  operating  expenses  line item  "Salaries and Related
Costs". Of the $7,268,591  annualized cost savings from personnel  reductions at
November  30,  2003,  $3,638,499  relates to "Direct  Labor and  Related  Costs"
contained  in Cost  of  Goods  Sold  and  $3,630,092  relates  to the  Company's
operating expenses line item "Salaries and Related Costs


         For the year  ended  August 31,  2003,  Eagle's  business  operations
reflected  further  investment  and expansion  into the  broadband  products and
services  sector;  paving  the way for  future  growth  of the BDS  business  in
conjunction  with one of Eagle's  objectives of producing  profitable  recurring
revenues  while moving away from  commodity  product and service  sales with low
gross  margins.  In  addition,  during  fiscal  2003 and 2002,  Eagle  conducted
extensive  cost  reduction  and  containment  activities  associated  with  such
decisions to move away from selling these  commodity  products.  We believe that
the effects of these cost reductions will  significantly  reduce our fiscal 2004
operating  expenses.  Eagle's  consolidated  operations  generated  revenues  of
$11,593,000  with a  corresponding  gross profit of $809,000 for the fiscal year
ended August 31,  2003.  The  significant  decline in revenues in fiscal 2003 is
primarily  attributable to the discontinued direct sales of low-margin commodity
computer products in Eagle's subsidiary United Computing Group, Inc.  consistent
with their previously  announced strategy of concentrating  UCG's  going-forward
efforts as a  technology  service  provider  versus its  historical  emphasis on
direct product  fulfillment.  Additionally,  a decline in the sale of commercial
and   residential   home  cabling   occurred  as  a  result  of  a  deferral  of
implementation  of  national  contracts  and a  discontinuance  of home  cabling
projects in Arizona,  Houston, San Antonio and Austin, Texas markets,  partially
offset by increased sales of broadband products and services.

         Eagle  incurred  a net loss of  $33,693,000  for the  fiscal  year
ended August 31, 2003. The loss was primarily  attributable to Eagle's loss from
operations that included non-cash impairment of intangible and long-lived assets
of $7,611,000 associated with impairments,  write-off's and reserves,,$3,650,000
of litigation  settlement charges,  $2,274,000 to settle threatened and existing
legal proceedings associated with prior financing  transactions,  and $2,177,000
for accounts receivable write-off's and reserves discussed in detail immediately
above.. Eagle consolidated  management  positions and centralized  financial and
administrative  functions,  research and development activities and marketing of
all products and services in an effort to minimize  unnecessary  and duplicative
expenditures,  decrease net loss,  and to streamline  the flow of information to
senior management from such centralization and consolidation  measures. To date,
senior  management  believes  that the  implementation  of cost  reductions  has
enabled  management  to receive  more  timely  information  to react to changing
market conditions.

           Concurrently,  Eagle is expanding its' BDS model for nationwide
distribution of voice, video and data content. Eagle has increased sales efforts
in the telephone,  cable, Internet,  security services and wireless segments and
securing   long-term   relationships  for  its'  bundled  digital  services  and
marketing/sales  agreements  with  other  companies  for the  sale of  broadband
products and  services.  On a nationwide  basis,  we are entering  into business
relationships with financial and technology companies to provide bundled digital

                                       19
<PAGE>

services (digital content) to cities and  municipalities  that currently have or
are in the process of completing  construction of their own fiber infrastructure
to the home. We believe that our  companies  have the  technology,  products and
capabilities to provide these fiber-ready  cities with digital content,  set-top
boxes and structured wiring services.


CRITICAL ACCOUNTING POLICIES

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

Impairment of Long-Lived Assets and Goodwill

         Background:

         Goodwill and other intangibles of $82,164,000 net of prior impairments
and  amortization  were recorded under the purchase  method for the purchases of
ClearWorks.net,  Inc.,  Atlantic  Pacific,  Inc.,  DSS Security,  Inc.,  Contact
Wireless,  Inc., and Comtel,  Inc. The majority of the intangibles were from the
ClearWorks   acquisition.   ClearWorks   was  in   the   business   of   selling
telecommunications services to residential neighborhoods.

         ClearWorks.net, prior to the acquisition by Eagle, was still early in
the development of solutions focused on delivering fiber-to-the-home services in
pursuit of capturing future revenues from service  offerings  including  digital
cable, high speed internet and telephone  services.  ClearWorks.net  anticipated
that significant  capital  investments  would be required to generate  recurring
revenues from such services.  The ClearWorks.net  business model expected future
profitability  and  contemplated  that the  financing  for  such  infrastructure
investments would be available in the public markets.

         Eagle acquired ClearWorks.net at a point when raising additional
capital became difficult for  ClearWorks.net  and continued the build out of the
fiber network  post-acquisition.  Eagle was confronted with a number of business
and  market   factors  in  the  pursuit  of  building   out  the   digital-based
fiber-to-the-home  system.  These  included,  a higher cost than  anticipated to
implement the  fiber-to-the-home  model,  lower than expected market penetration
during the early stages of the build-out and an extremely  poor public  equities
market for  raising  additional  capital to finance  expansion  of the  network.
Throughout this expansion  period,  Eagle added content and related  services to
enhance the distribution system. Through technology enhancements to the original
ClearWorks.net  headend and content  delivery  system,  Eagle was able to expand
delivery  of  these  services  to a  larger  national  customer  base  including
developers  and  municipalities  who were  financing  and building out their own
systems.

         Strategy Change:

         Given the obstacles  discussed  immediately above and Eagle's
enhancement to the  digital-based  fiber-to  the-home  system,  Eagle's board of
directors and management began  reassessing it long-term  strategy in early 2003
and made a strategic decision to focus its fiber-to-the-home activities on being
a service  and  content  provider  to  developers  and  municipalities  who were
financing  and  building  out their own fiber  infrastructures.  In fiscal 2003,
Eagle  realized  it  had  failed  to  successfully  achieve  profits  using  the
ClearWorks  model of  installing  fiber optic cable to  neighborhoods  under the
speculative attempt to capture enough individual homeowners in each neighborhood
via individual  selling  methods to pay for the cable  infrastructure.  In early
2003,  Eagle modified its strategy to deliver the ClearWorks  developed  bundled
digital services approach including  Internet,  telephone,  cable television and
security  monitoring  services to  residential  and business  users by targeting
municipalities, homebuilders and residential real estate developers that finance
and  install  the fiber  optic  cable  backbone  in every  lot and  offer  Eagle
exclusive  rights to deliver  digital  bundled  services  to  homeowners,  using
pre-selling promotions and other low cost mass marketing techniques.  Eagle does
not expect to incur any upfront costs  associated  with being granted  exclusive
rights to deliver BDS to homeowners in the developer  financed  model,  although
the  developer  participates  in the revenue  stream from the BDS  proceeds.  In
testing the fair value of goodwill at August 31, 2003, the Company's BDS revenue
projections  included a bundled basic charge for digital TV, Internet,  security
and  telephone  services  of $143 per month  against  30,060  homes in  existing
developments  being  brought on over the next four years and 35,500  home in new
development,  which  are  currently  under  negotiation.  The $143 per month BDS
charge  represented  the net  expected  average  monthly  proceed  expected  for
purposes  of  testing  the  fair  value of its  goodwill,  after  deducting  the
developers  participation.  The Company  assumed a 36% EBITDA result for the BDS
projections  used in testing  the fair  value of  goodwill  at August 31,  2003,
comprised of 68% gross  margin less a 32%  allocation  for selling,  general and
administrative  expenses. The Company's change in strategy did not result in the
sale or cancellation of customer  contracts,  restructuring  costs,  impairment,
sale or  abandonment  of  assets.  In  October  2003,  Eagle  hired a new  Chief
Executive  Officer with an extensive  sales and marketing  background and proven
senior

                                       20
<PAGE>

management and operational skills leading  high-growth  technology  companies to
implement  its  modified  strategy.  As of  December  5,  2003,  the date of the
auditor's report, Eagle had realized several initial successes in projects where
the   municipalities,   public  utility  districts  and  developers  assume  the
predominate  capital cost  responsibility and contract with Eagle to provide the
services and content;  thereby  significantly  limiting  the  Company's  capital
outlays on such projects Namely,  the Company  announced being selected to video
content and BDS to Lake Las Vegas, broadband technology, services and content to
a Phoenix-based  luxury  condominium  development by North Peak Construction and
broadband technology,  services and content to the Truckee Donner Public Utility
District in Truckee, California. Revenues from these contracts will be reflected
in the Company's BDS category in future operating periods,  following  build-out
and implementation.


         Eagle's  strategy  change had the distinct  advantage of  minimizing
the front end capital outlays while improving the time to  profitability on such
projects.  Most importantly,  this change in strategy allows Eagle to market its
services to an existing customer base without investing significant capital. The
bundled digital  services  provided to the customers under the new developer and
municipal financed model are essentially  identical to those previously provided
under  the  ClearWorks.net  model.  The  Company  is  not  aware  of  any  known
uncertainties  that could  adversely  impact our ability to recover the carrying
value of its assets.  Though the Company has realized several initial  successes
since implementing this strategy change, there can be no assurances that we will
be  successful  in the future.  In the event that the  Company  fails to achieve
sales  sufficient  to recover the carrying  value of these  assets,  we would be
required to record a significant charge to earnings in our financial  statements
during the period in which any  impairment  of our  goodwill is  determined.  At
August 31, 2003, our goodwill was $76.3 million.

         Impairment Assessment:

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

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

         The Company  evaluates the carrying  value of long-lived  assets and
identifiable  intangible assets for potential impairment on an ongoing basis. An
impairment  loss would be deemed  necessary  when the  estimated  non-discounted
future  cash flows are less than the  carrying  net  amount of the asset.  If an
asset were deemed to be impaired, the asset's recorded value would be reduced to
fair market value. In determining  the amount of the charge to be recorded,  the
following  methods  would be utilized to determine  fair market value (i) quoted
market prices in active markets, (ii) estimate based on prices of similar assets
and (iii)  estimate based on valuation  techniques.  The Company tested the fair
value of its goodwill and  intangibles as of August 31, 2003 and determined that
these assets totaling $81.6 million were not impaired.

Revenue Recognition

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



         Eagle adopted EITF 00-21,  "Revenue  Arrangements  with Multiple
Deliverables," in the fourth quarter of fiscal 2003. The impact of adopting EITF
00-21 did not have a material effect to Eagle's  results of operations.  Eagle's
contracts that contain multiple  elements as of February 29, 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

                                       21
<PAGE>

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  under the  heading  Accrued  Expenses  until the  service is
performed  and then  recognized in the period in which the service is completed.
Eagle's deferred  revenues  primarily  consist of billings in advance for cable,
internet,  security and telephone services,  which generally are between one and
three months of services.  Eagle had deferred  revenues of $230,397 and $147,696
as of August 31, 2003 and 2002, respectively.


Eagle Wireless International, Inc.

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


BroadbandMagic

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


Eagle Broadband, Inc.

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


Eagle BDS Services - dba ClearWorks Communications, Inc.

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

                                       22
<PAGE>


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

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


Eagle Communication Services - dba Atlantic Pacific Communications, Inc.

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


Etoolz, Inc.

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


Eagle Messaging Services - dba Link Two Communications, Inc.

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


Eagle Paging Services - dba Contact Wireless, Inc.

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


Eagle Security Services - dba DSS Security, Inc.

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


Eagle Technology Services - dba United Computing Group, Inc.

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


Receivables

         For the year ended August 31, 2003,  Eagle accounts  receivables
decreased to $1,704,000 from $5,028,000 at August 31, 2002. The majority of this
decrease was due to the decline in lower margin  commodity  computer product and
structured  cabling revenues  compared to the prior year combined with the write
down of $2,177,000 in accounts  receivable  for allowance for doubtful  accounts
associated  with  realigned  and  impaired  operations  and the sale of a net of
$243,650 in accounts receivable to Southwest Bank

                                       23
<PAGE>

of Texas in  conjunction  with a purchase  and sale  agreement  entered  into by
Eagle's  subsidiaries,   United  Computing  Group,  Inc.  and  Atlantic  Pacific
Communications,  Inc. Accounts  receivable  write-off's and reserves  aggregated
$2,177,000;  of which $1,348,000 was attributable to the decisions affecting the
Company's Atlantic Pacific / Home Systems  operations,  $15,000 was attributable
to the decisions  affecting its United  Computing Group  operations and $814,000
was attributable to the Company's Eagle, EBS and Other segment operations.

         During  fiscal 2003,  the  Company's  accounts  receivable  aging as
measured by day's sales outstanding, "DSO", increased substantially from quarter
to quarter.  DSO increased from 86 days for the first quarter ended November 30,
2002 to 121 days for the second  quarter ended February 28, 2003 and then to 172
days for the third  quarter  ended May 31, 2003.  The  Company's  allowance  for
doubtful  accounts totaled  $242,000,  $242,000 and $284,000 for the first three
quarters,  respectively. The Company believed that the customers contributing to
the  increased DSO were credit  worthy,  notwithstanding  increased  receivables
aging, and had the ability to pay,  although the associated aging of receivables
from certain major  national home builders in the Company's  Atlantic  Pacific /
Home  System  segment  had  deteriorated  as  evidenced  by the  increased  DSO.
Management's  confidence in its ability to collect aged receivables was based on
the long-term nature of it BDS development  contracts and the perceived  ability
of its customers to pay. Eagle initiated certain aggressive  collection measures
including filing liens on national home builders in its BDS developments  during
the third  quarter of fiscal 2003.  Following the  appointment  of its new Chief
Executive Officer in October 2003 and the finalization of going-forward business
strategy by segment,  the Company  made  decisions to no longer  pursue  certain
business opportunities,  including the Company's Atlantic Pacific / Home Systems
and United  Computing  Group  segments as discussed in additional  detail in the
Overview  section of Item 7 Following  the  decision to no longer  pursue  these
business  opportunities,  numerous home builders  disputed  receivable  balances
related to these exited BDS  projects and claimed  offsets for having to replace
Eagle with alternative  contractors.  Due to the decisions reached in the fourth
quarter of fiscal 2003  regarding  the  decisions  to no longer  pursue  certain
business opportunities,  Eagle's management subsequently determined that certain
of its receivables, previously viewed as collectible in prior reporting periods,
had become impaired and accordingly,  in conjunction  with these decisions,  the
Company recorded  write-off's and reserves  aggregating  $2,177,000  against its
account  receivable,  thereby  bringing  its DSO down to 75 days at the  quarter
ended August 31, 2003.


         Eagle  maintains  allowances for doubtful  accounts for estimated
losses  resulting from the inability of our customers to make required  payments
or other  customer  disputes that Eagle's  management  determines  might lead to
impairment.  If the conditions of our customers or distribution partners were to
deteriorate or otherwise  should our business  strategy  changes have a material
impact on such  relationships,  resulting  in a  potential  impairment  of their
ability or decision to make required  payments,  we examine our  provisions  for
doubtful accounts and record for such estimate losses. 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, 2003,  Eagle's
inventory  totaled  $3,199,000 as compared to $6,059,000 at August 31, 2002. The
majority  of this  decrease  was due to a decrease  in raw  materials  inventory
resulting from reserves,  write-downs and allowances of $2,627,000 for realigned
and impaired  commodity  related  product lines.  Inventory  impairment  charges
totaled  $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 the  Company's  determination  that it was  more  cost
effective  to  complete  one  redesign  on a new chip set and  other end of life
components  versus a redesign  revolving  around being able to use the remaining
chips in inventory following a major client's decision to upgrade from a 400 MHz
chip to a 500 MHz chip for the Company's convergent set top box.


Recent Accounting Pronouncements

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

                                       24
<PAGE>


         In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of Indebtedness of Others." For certain  guarantees  issued
after December 31, 2002, FIN 45 requires a guarantor to recognize, upon issuance
of a guarantee,  a liability  for the fair value of the  obligations  it assumes
under the guarantee. Guarantees issued prior to January 1, 2003, are not subject
to liability recognition,  but are subject to expanded disclosure  requirements.
The Company does not believe that the adoption of this  Interpretation has had a
material  effect  on  its  consolidated   financial  position  or  statement  of
operations.

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

         In April  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical  Corrections,"  which requires
that the  extinguishment  of debt not be considered an extraordinary  item under
APB Opinion No. 30 ("APB 30"),  "Reporting  the Results of  Operations-Reporting
the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and
Infrequently  Occurring Events and Transactions," unless the debt extinguishment
meets the "unusual in nature and infrequent of  occurrence"  criteria in APB 30.
SFAS 145 is effective for fiscal years  beginning  after May 15, 2002, and, upon
adoption,  companies  must  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 May  2003,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 150 ("SFAS 150"),  "Accounting for Certain  Financial  Instruments
with Characteristics of both Liabilities and Equity." This Statement establishes
standards  for  how  an  issuer   classifies  and  measures  certain   financial
instruments with  characteristics  of both  liabilities and equity.  It requires
that an issuer  classify a  financial  instrument  that is within its scope as a
liability (or an asset in some circumstances).  The provisions of this Statement
are effective for financial  instruments  entered into or modified after May 31,
2003,  and otherwise are effective at the beginning of the first interim  period
beginning  after June 15, 2003.  The adoption of this  Statement did not have an
impact on the Company's financial results of operations and financial position.

         In April 2003,  the FASB issued SFAS No. 149,  "Amendment of Statement
133  on  Derivative  Instruments  and  Hedging  Activities,"  which  amends  and
clarifies financial accounting and reporting derivative  instruments,  including
certain  derivative  instruments  embedded  in other  contracts  and for hedging
activities  under SFAS No.  133,  "Accounting  for  Derivative  Instruments  and
Hedging  Activities."  This statement is effective for contracts entered into or
modified  and for hedging  relationships  designated  after June 30,  2003.  The
adoption of this  statement  did not have an impact on the  Company's  operating
results or financial position.

Results of Operations

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

         Net Sales.  For the year ended  August 31,  2003,  net sales  declined
to  $11,593,000  from  $29,817,000  during the year ended August 31,  2002.  The
overall decrease of 61% was primarily  attributable to the Company's decision to
no longer pursue direct sales of low-margin  commodity  computer products in the
Company's   subsidiary  United  Computing  Group,  Inc.  consistent  with  their
previously announced strategy of concentrating UCG's going-forward  efforts as a
technology  service  provider  versus its historical  emphasis on direct product
fulfillment.  Additionally,  a decline in the sale of commercial and residential
home cabling  occurred as a result of a deferral of  implementation  of national
contracts and the Company's decision to no longer pursue Atlantic Pacific / Home
Systems  structuring  wiring  opportunities  on a direct  standalone model basis
outside of its BDS model,  including home cabling projects in Arizona,  Houston,
San Antonio and Austin,  Texas markets,  partially  offset by increased sales of
broadband products and services.

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

         Eagle's  Structured  Wiring cost of goods sold  decreased to
$1,774,000  from  $2,121,000  for the period  ending  August 31,  2003 and 2002,
respectively on corresponding  revenues for these same periods of $3,692,000 and
$8,036,000;  thereby  resulting in a

                                       25
<PAGE>

gross margin decline to $1,918,000  from  $5,915,000 for the same periods.  This
gross margin decline is primarily  attributable to the company's  decision to no
longer  pursue the direct sales of  commercial  structured  wiring and inventory
write-downs totaling $0.5 million.

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

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

         Operating  Expenses.  For the year ended  August 31, 2003,  operating
expenses decreased to $29,076,000 from $43,635,000 for the year ended August 31,
2002. The primary portions of the decrease are discussed below:

         A $19,489,000  decrease in non-cash  impairment  charges resulting from
         a $7,611,000  non-cash  impairment charge for the year ended August 31,
         2003 associated  with the Company's  decision to no longer pursue the
         direct  sales of low  margin  commodity  products  discussed  above
         compared  to a  $27,100,000  non-cash impairment  charge for the year
         ended August 31, 2002,  for the  impairment  of licenses and  equipment
         in Eagle's  Link Two  subsidiary.  At August 31,  2003,  management
         determined  that a  $7,611,000  non-cash impairment charge was
         necessary for realigned,  impaired and abandoned  operations  including
         direct sales of low margin  commodity  products,  residential  and
         commercial  structured  wiring  operations  and the withdrawal  from
         its  Austin,  Texas area BDS  development  based on the lack of demand
         for BDS  services  resulting from a slower build out of the development
         than originally  projected in conjunction with local market
         competition.  Included  in the  impairment  was the write  down of
         goodwill  associated  with the Atlantic Pacific Comtel acquisition of
         $1,878,000.

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

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

         A  $1,431,000  decrease in  depreciation  and  amortization,  due
         principally  to the disposal of certain assets from the Company's
         Austin area BDS operations.

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

         Net Loss.  For the year ended August 31, 2003,  Eagle's net loss was
$33,693,000,  compared to a net loss of $36,787,000 during the year ended August
31, 2002.

         Changes in Cash Flow.  Eagle's  operating  activities used net cash of
$6,085,000  in the year ended  August 31,  2003,  compared to use of net cash of
$797,000 in the year ended  August 31,  2002.  The  increase in net cash used by
operating activities was primarily  attributable to an increase in the Company's
net operating loss, net of non-cash charges.  Eagle's investing  activities used
net  cash  of  $1,276,000  in the  year  ended  August  31,  2003,  compared  to
$13,668,000 in the year ended August 31, 2002. The decrease was due primarily to
a  significant  decline in  investment  activities  and  purchase  of  equipment
associated with the prior years build out of Eagle's network and  infrastructure
for the delivery of broadband  services.  Eagle's financing  activities provided
cash of $6,912,000, in the year ended August 31, 2003, compared to $2,406,000 of
cash used in the year ended August 31, 2002. The increase is  attributable to an
increase  in  notes  payable  aggregating  $7,297,000  in  conjunction  with the
Company's  financing  activities  in fiscal 2003 as compared to a net  repayment
against  lines of credit in the amount of  $1,846,000  and  purchase of treasury
stock of $918,000 in fiscal 2002.

                                       26
<PAGE>


         Liquidity  and Capital  Resources.  Current  assets for the year ended
August 31,  2003  totaled  $8,109,000  (includes  cash and cash  equivalents  of
$824,000  and  Securities   held  for  Resale  of  $1,714,000)  as  compared  to
$14,866,000 reported for the year ended August 31, 2002. During the first fiscal
quarter of 2004,  Eagle has  received net  proceeds of  $7,687,000  from private
placement  offerings  of stock  and  bonds and  through  the sale of  marketable
securities held as short term  investments and has retired or reduced certain of
its notes payable,  accounts payable and other  obligations  including  numerous
lawsuits;  thereby  significantly  reducing the Company's current and contingent
liabilities. Additionally, the Company has $1,259,000 of Burst.com stock held in
short term investments; valued as of November 21, 2003.

         The Company  anticipates that it will incur  significantly  less
capital  expenditures for broadband fiber  infrastructure for the balance of the
current  fiscal year as a result of an emphasis of the sale of its BDS  services
to  municipalities,  real  estate  developers,  hotels,  multi-tenant  units and
service  providers  that own or will build a fiber  network.  Historically,  the
Company  built  out  these  networks,   thereby  incurring  significant  capital
expenditures. The Company incurred approximately $94,000 in capital expenditures
in the first fiscal quarter of 2004 ended November 30, 2003. The Company expects
to  spend  $1,000,000  or  less on  capital  expenditures  in  fiscal  2004;  an
anticipated  reduction  of at least  $1,121,000  as compared to  $2,121,000  for
fiscal 2003.  However,  the Company could adjust its capital expenditure plan in
the second half of the  current  fiscal  year if future  business  opportunities
dictate.

         The Company  reduced its  personnel  from a headcount  of 228 at August
31, 2002 to 114 at August 31, 2003 and then  further to 73 by November 30, 2003.
The Company  payroll is processed  and paid every two weeks  resulting in 26 pay
periods per annum.  The Company's per pay period  payroll costs was reduced from
$441,307 at August 31,  2002 to $222,528 at August 31, 2003 and then  further to
$161,745 at November 30, 2003;  resulting in per payroll  period cost savings of
$218,779  at August 31, 2003 and  $279,562  at November  30, 2003 as compared to
August 31, 2002.  These  respective per payroll  period cost savings  translates
into  annualized  cost savings of  approximately  $5,688,242  and  $7,268,591 at
August 31, 2003 and November 30, 2003, respectively.


         The  Company  expects  that  certain of its  liabilities  listed on the
balance sheet under the headings Accounts Payable, Accrued Liabilities and Notes
Payable will be retired by issuing  stock versus cash during the next 12 months.
The Company has historically used stock for retirement of certain liabilities on
a  negotiated  basis.  The  Company  issued  stock  for  retirement  of  certain
liabilities aggregating $5,696,000,  $3,586,000 and $13,878,000 for fiscal years
2001,  2002,  and 2003,  respectively.  During the first  fiscal  quarter  ended
November 30, 2003, the Company retired  approximately  $6,067,000 in liabilities
with stock  versus  cash Eagle  Broadband  expects to continue  its  practice of
retiring certain  liabilities as may be negotiated through a combination of cash
and the issuance of shares of Eagle common stock.  The Company  cannot  quantify
the amount of common  stock  expected  to be issued to retire such debts at this
time and as such will report these  results on a quarterly  basis.  In the first
quarter,  the  Company  completed  a  $7.7  million  financing.   The  Company's
management  believes it has sufficient  capital to fund  operations for the next
twelve  months  based  on:  (i)  the  Company's   reduced  capital   expenditure
requirements  for  fiscal  2004,  (ii) the  Company's  annualized  cost  savings
expected  from  personnel  and  operating  expense  reductions,  and  (iii)  the
Company's  current cash and cash  equivalents,  including  recent net  financing
proceeds  and sale of  marketable  securities  received  during the first fiscal
quarter 2004.

         Historically,  we have  financed  operations  through  the sale of debt
and  equity  securities.  We do  not  have  any  significant  credit  facilities
available with financial  institutions or other third parties and  historically,
we have relied upon best efforts third-party funding from individual  accredited
investors.  Though we have been  successful at raising  additional  capital on a
best  efforts  basis in the past,  we can provide no  assurance  that we will be
successful  in any future best efforts  financing  efforts.  If we are unable to
either obtain  financing from external  sources or generate  internal  liquidity
from  operations  before  September 2004 or  thereafter,  we may need to curtail
operations or sell assets.  Our ability to raise capital  through further equity
offerings is limited  because nearly all shares of common stock have either been
issued or reserved for issuance.

Contractual Obligations

    Contractual obligations                  Payments due by period
                                Total      Less than     1-3      3-5  More than
                                           1 year      years    years   5 years
    Long-Term Debt              5,779       5,779       ---      ---       ---
    Obligations
    Operating Lease               695         521       174      ---       ---
    Obligations
                       Total    6,474       6,300       174      ---       ---

                                       27
<PAGE>

         The Company's  contractual  obligations consist of long-term debt as
set forth in Note 6, (Notes Payable),  to the Company's financial statements and
certain   off-balance  sheet  obligations  for  office  space  operating  leases
requiring future minimal commitments under non-cancelable leases. - See Item 7 -
Management's  Discussion  and  Analysis  under the  heading  (Off-Balance  Sheet
Arrangements)  and  Note 17 to the  Company's  financial  statements  under  the
heading (Commitments and Contingent Liabilities).

Year Ended August 31, 2002 Compared to Year Ended August 31, 2001

         Net Sales.  For the year ended  August 31,  2002,  net sales  increased
to  $29,817,000  from  $28,110,000  during the year ended August 31,  2001.  The
overall  increase  of 6% was  primarily  attributable  to added  sales  from the
Company's  broadband  service  offerings  through  its  subsidiaries  ClearWorks
Communications and ClearWorks Home Systems, along with revenues from its Contact
Wireless and DSS Security subsidiaries that were acquired in January 2002. These
increases  were  partially  offset by a decline  in  product  revenues  from the
Company's  United Computing Group subsidiary due to the loss of a major customer
in the energy sector and an overall decline in the IT procurement market in 2002
and  a  minor  decrease  in  revenues  from  the  Company's   Atlantic   Pacific
Communications   subsidiary.   Atlantic  Pacific   provides  project   planning,
installation,  project management,  testing and documentation of fiber and cable
to commercial and industrial  clients  throughout the United States while United
Computing  Group  provides  business-to-business  hardware and software  network
solutions and network monitoring services.

         Cost of Goods Sold. For the year ended August 31, 2002,  cost of goods
sold increased to $22,704,000 from $20,408,000  during the year ended August 31,
2001. The increase was primarily  attributable  to added cost of sales comprised
of direct labor,  materials and related  costs for both  broadband  services and
Eagle's Atlantic Pacific  Communications  subsidiary.  Atlantic Pacific provides
project planning, installation, project management, testing and documentation of
fiber and cable to  commercial  and  industrial  clients  throughout  the United
States.  Eagle's  overall gross profit  percentage was 24% and 27% for the years
ended  August  31,  2002  and  August  31,  2001.  This  decrease  is  primarily
attributable  to lower profit  margins on volume sales of computers  and related
equipment  and  increases  in  other  manufacturing  costs  associated  with the
production of the convergent set-top box.

         Eagle's  Structured  Wiring cost of goods sold  decreased to
$2,121,000  from  $2,345,000  for the period  ending  August 31,  2002 and 2001,
respectively on corresponding  revenues for these same periods of $8,036,000 and
$7,643,000;  thereby  resulting in a gross margin  increase to  $5,915,000  from
$5,298,000  for the same  periods.  This  gross  margin  increase  is  primarily
attributable  to the  increase in  revenues  for this  sector  combined  with an
increase in commercial cabling margin rates

         Eagle's  Broadband  Services cost of goods sold  increased to $763,000
from $260,000 for the period ending  August 31, 2002 and 2001,  respectively  on
corresponding  revenues  for these same  periods  of  $2,657,000  and  $523,000;
thereby resulting in a gross margin increase to $1,894,000 from $263,000 for the
same  periods.  This gross  margin  increase is  primarily  attributable  to the
increase in revenues for this sector.

         Eagle's  Products  cost of goods sold  increased to  $15,250,000  from
$14,931,000  for the period  ending  August 31, 2003 and 2002,  respectively  on
corresponding  revenues for these same periods of $16,108,000  and  $19,342,000;
thereby  resulting in a gross margin decline to $858,000 from $4,411,000 for the
same periods. This gross margin decline is primarily attributable to the decline
in revenues for this sector  resulting  from Eagle's loss of a major Fortune 100
customer that filed for protection under Chapter 11 of the Bankruptcy Code.

         Operating  Expenses.  For the year ended  August 31, 2002,  operating
expenses increased to $43,635,000 from $15,924,000 for the year ended August 31,
2001. The primary portions of the increase are discussed below:

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

                                       28
<PAGE>

         A  $1,626,000  increase in salaries  and  related  costs,  as a result
         of its  acquisitions  and  expanded   business.

         A $363,000  increase in advertising  and promotion,  due primarily to
         introductions  and expansion of the Company's broadband services and
         convergent set-top box offerings.

         A $335,000 net increase in other support  costs,  due to an increase in
         salary and related  costs,  rents, interest,  contract  labor,
         professional  fees and  communication  costs.  This net increase
         included an offset of $729,000  associated  with a decrease in
         advertising  and promotion,  due primarily to decreased  attendance at
         conventions and trade shows.

         Net  Earnings.  For the year ended August 31, 2002,  Eagle's net loss
was  $36,787,000,  compared  to a net loss of  $5,874,000  during the year ended
August 31, 2001.

         Off-Balance   Sheet   Arrangements.   The  Company  has  no
off-balance sheet structured financing  arrangements.  The Company has operating
leases  primarily for office  space.  The Company  incurred  office space rental
expense of  $1,183,000,  $436,219  and $232,195 in fiscal years ended August 31,
2003,  2002, and 2001,  respectively.  Future minimum rental  commitments  under
non-cancelable leases are $521,000,  $116,000 and $58,000 for fiscal years ended
August 31, 2004, 2005 and 2006, respectively. .

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate and Equity Market Risks

         The Company is exposed  both to market risk from  changes in interest
rates on funded debt and changes in equity values on common stock investments it
holds in publicly traded  companies.  The Company also has exposure that relates
to the  Company's  revolving  credit  facility.  The Company  fully  retired its
revolving credit facility in September 2003 and thus no longer has such exposure
related  to  interest  rate risk.  Borrowings  under the  credit  facility  bear
interest at variable rates based on the bank prime rate. The extent of this risk
with respect to interest rates on funded debt is not quantifiable or predictable
due to the variability of future interest rates;  however,  the Company does not
believe a change in these  rates  would  have a material  adverse  effect on the
Company's operating results, financial condition, and cash flows.

         The  Company's  cash and cash  equivalents  are invested in mortgage
and asset backed  securities,  mutual  funds,  money market  accounts and common
stock.  Accordingly,  the Company is subject to both changes in market  interest
rates and the equity  market  fluctuations  and risk.  There is an inherent roll
over risk on these funds as they accrue  interest at current  market rates.  The
extent of this risk is not quantifiable or predictable due to the variability of
future  interest  rates.  The  Company  does not believe a change in these rates
would  have a  material  adverse  effect  on the  Company's  operating  results,
financial  condition,  and cash flows with respect to invested funds in mortgage
and asset backed  securities,  mutual funds and money market accounts,  however;
the company does have both cash and liquidity  risks  associated with its common
stock investments aggregating $1,714,006 in market value as of August 31, 2003.

Credit Risks

         The Company monitors its exposure for credit losses and maintains
allowances for anticipated  losses,  but does not require  collateral from these
parties.  The company did not have any customers which represented  greater than
10% of its revenues  during fiscal 2002 and, as such,  does not believe that the
credit risk posed by any specific  customer would have a material adverse affect
on its financial condition.

International Business Risk

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

Item 8.  Consolidated Financial Statements

         The financial statements commencing on page F-1 have been audited by
Malone & Bailey,  PLLC as of August 31,  2003,  and the  related  statements  of
operations,  stockholders'  equity,  and cash  flows for the year then ended and
McManus & Co., P.C., independent certified public accountants, to the extent and
for the periods set forth in their reports  appearing  elsewhere  herein and are
included in reliance  upon such reports given upon the authority of said firm as
experts in auditing and accounting.

                                       29
<PAGE>

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

         This disclosure has been previously reported in the Company's Form 8-K
         filed September 15, 2003.


Item 9A.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's  disclosure  controls and procedures (as such
term is defined in Rules 13a-15(b) under the Securities Exchange Act of 1934, as
amended (the Exchange  Act)) as of the end of the period  covered by this annual
report.  Based  on such  evaluation,  such  officers  have  concluded  that  the
Company's disclosure controls and procedures are effective in alerting them on a
timely  basis to material  information  relating to the Company  (including  its
consolidated  subsidiaries)  required to be included in the  Company's  periodic
filings under the Exchange Act.

Changes In Internal Controls

         There has been no change in the Company's internal control over
financial reporting that occurred during the year ended August 31, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         Certain  information  required  by this item is  incorporated  herein
by reference from the information  provided in Eagle's Proxy Statement.  Certain
information about the executive officers of Eagle is set forth below.  Executive
officers of Eagle are elected to serve until they resign or are removed,  or are
otherwise  disqualified  to serve,  or until  their  successors  are elected and
qualified.


                                       30

<PAGE>


                                                EXECUTIVE OFFICERS
Our executive officers are as follows:

                          Name                  Age                Office Held
                          ----                  ---                -----------
              David Weisman                      41      Chief Executive Officer
              H. Dean Cubley                     62      Chief Technical Officer
              Christopher W. Futer               65      Secretary
              Richard Royall                     57      Chief Financial Officer


         MR. DAVID A. WEISMAN.  Mr. Weisman,  age 41, has served as director and
chief  executive  officer of Eagle Broadband since October 2003. Mr. Weisman was
elected  chairman of the board on April 27, 2004.  Prior to joining  Eagle,  Mr.
Weisman served as Vice  President  Sales and Marketing for IP Dynamics from 2002
to 2003. Mr. Weisman co-founded and served as Vice President Sales and Marketing
for  Canyon  Networks  from  2001-2002.  Mr.  Weisman  served as Vice  President
Marketing  and Customer  Service for ACT Networks  from 2000 to 2001 until being
acquired by Clarent Corporation.. Mr. Weisman also co-founded and served as Vice
President of Sales and  Marketing for Thomson  Enterprise  Networks from 1996 to
1998.  Following  his career at Thomson and prior to joining ACT  Networks,  Mr.
Weisman took time off from his career during 1998-2000.


         DR. H. DEAN  CUBLEY.  Dr.  Cubley,  age 62,  served as  chairman of the
board from March 1996 to April 27, 2004, as chief  executive  officer from March
1996 to October 2003, and as president from March 1996 until September 2001. Mr.
Cubley assumed the role of Chief Technical Officer in October 2003 and continues
as a director.

         CHRISTOPHER W. "JAMES" FUTER. Mr. Futer,  age 65, has served as a
director  and  company  secretary  of Eagle  since March 1996 and served as vice
president of Eagle from 1996 to July 2002 when he retired

         RICHARD R.  ROYALL.  Mr.  Royall,  age 57, has served as chief
financial  officer  since March  1996.  Mr.  Royall has been a certified  public
accountant since 1971.

Item 11.  Executive Compensation

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

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

Equity Compensation Plan Information

         The  following  table sets forth  information,  as of August 31,  2003,
with  respect to the  Company's compensation plans under which common stock is
 authorized for issuance
<TABLE>
<CAPTION>


                                                                          Number of Securities
                                                                       Remaining Available for
                            Number of Securities    Weighted Average    Future Issuance Under
                            To be Issued Upon      Exercise Price of    Equity Compensation
                          Exercise of Outstanding      Outstanding         Plans (Excluding
                           Options, Warrants and        Options,              Securities
                                   Rights          Warrants and Rights  Reflected in Column A)
         Plan Category               (A)                    (B)                   (C)
---------------------------------------------------------------------- -------------------------
---------------------------------------------------------------------- -------------------------
<S>                                <C>                   <C>                   <C>
Equity Compensation Plans        406,131                 $1.27                551,370
Approved by Security Holders
Equity Compensation Plans Not
Approved by Security Holders
(1)                             5,991,667                $1.47                   0
                             -----------------------------------------  ------------------------
                                6,397,798                $1.45                551,370
             Total

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

                                       31
<PAGE>

Item 13.  Certain Relationships and Related Transactions

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

Item 14.  Principal Accounting Fees and Services

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


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


(a)      Financial Statements and Schedules:

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

(b)      Reports on Form 8-K

         The following reports were furnished on Form 8-K during the three
months ended August 31, 2003:

         A report on Form 8-K, announcing information under Item 5 of the
report, was filed on June 30, 2003 with the Securities and Exchange Commission.

         A report on Form 8-K, announcing information under Item 5 of the
report,  was  filed  on  August  27,  2003  with  the  Securities  and  Exchange
Commission.

(c)      Exhibit Listing

         EXHIBIT NO.                IDENTIFICATION OF EXHIBIT

         Exhibit 3.1(a)             Eagle Broadband, Inc. Articles of
                                    Incorporation, as Amended and Restated,
                                    dated February 13, 2002.
         Exhibit 3.1(b)             Eagle Broadband, Inc. Articles of
                                    Incorporation, as Amended, dated February
                                    17, 2004.

         Exhibit 3.2                Amended and Restated Eagle Broadband, Inc.
                                    Bylaws (Incorporated by reference
                                    to Exhibit 3.2 of Form 10-KSB for the fiscal
                                    year ended August 31, 2001, filed
                                    November 16, 2001)
         Exhibit 4.1                Form of Common Stock Certificate
                                    (incorporated by reference to Exhibit 4 of
                                    Form S-3, file no. 333-111160).
         Exhibit 4.2                Purchase Agreement by and between Eagle
                                    Broadband and Investors dated August
                                    23, 2003, including registration rights and
                                    security agreement attached as an exhibit
                                    thereto (incorporated by reference to
                                    Exhibit 10.1 of Form S-3 file  no.
                                    333-109481)
         Exhibit 4.3                Q-Series Bond Agreement (incorporated by
                                    reference to Exhibit 10.3 of Form S-3, file
                                    no. 333-106074)
         Exhibit 4.4                Addendum to Q-Series Bond Agreement
                                    (incorporated by reference to Exhibit 10.4
                                    of Form S-3, file no. 333-106074)
         Exhibit 4.5                Form of Subscription Agreement for Q Series
                                    Bond, between Eagle Broadband and certain
                                    investors (incorporated by reference to
                                    Exhibit 10.5 of Form S-3, file no.
                                    333-106074)
         Exhibit 10.1               Asset Purchase Agreement between Eagle
                                    Telecom International, Inc., a Delaware
                                    corporation and Eagle Telecom International,
                                    Inc., a Texas corporation (incorporated by
                                    reference to Exhibit 10.1 of Form SB-2 file
                                    no. 333-20011)
         Exhibit 10.2               1996 Incentive Stock Option Plan
                                    (incorporated by reference to Exhibit 10.1
                                    of Form S-8 file no. 333-72645)
         Exhibit 10.3               2002 Stock Incentive Plan (incorporated by
                                    reference to Exhibit 10.1 of Form S-8 file
                                    no. 333-97901)

                                       32
<PAGE>


         Exhibit 10.4               2002 Stock Incentive Plan, as Amended
                                    (incorporated by reference to Exhibit
                                    10.1 of Form S-8 file no. 333-102506)
         Exhibit 10.5               2003 Stock Incentive and Compensation Plan
                                    (incorporated by reference to Exhibit 10.1
                                    of Form S-8 file no. 333-103829)
         Exhibit 10.6               2003 Stock Incentive and Compensation Plan,
                                    as Amended (incorporated by reference to
                                    Exhibit 10.1 of Form S-8 file no.
                                    333-105074)
         Exhibit 10.7               2003 Stock Incentive and Compensation Plan,
                                    as Amended (incorporated by reference to
                                    Exhibit 10.1 of Form S-8 file no.
                                    333-109339)
         Exhibit 10.8               2004 Stock Incentive Plan (incorporated by
                                    reference to Exhibit 10.1 of Form S-8 file
                                    no. 333-110309)
         Exhibit 10.9               Agreement and Plan of Reorganization by and
                                    between Eagle Wireless International, Inc.
                                    Clearworks.net, Inc., and Eagle Acquisition
                                    Corporation dated September 15, 2000
                                    (incorporated by reference to Exhibit 10.1
                                    of Form S-4 file no. 333-49688)
         Exhibit 10.10              Stock Purchase Agreement between Eagle
                                    Wireless International, Inc. and the
                                    shareholders of Comtel Communications, Inc.
                                    (incorporated by reference to Exhibit 10.4
                                    of Form 10-KSB for the fiscal year ended
                                    August 31, 2000, filed December 13, 2000)
         Exhibit 10.11              Stock Purchase Agreement between Eagle
                                    Wireless International, Inc. and the
                                    shareholders of Atlantic Pacific
                                    Communications, Inc. (incorporated by
                                    reference to Exhibit 10.5 of Form 10-KSB for
                                    the fiscal year ended August 31, 2000, filed
                                    December 13, 2000)
         Exhibit 10.12              Stock Purchase Agreement between Eagle
                                    Wireless International, Inc. and the
                                    shareholders of Etoolz, Inc. (incorporated
                                    by reference to Exhibit 10.6 of Form 10-KSB
                                    for the fiscal year ended August 31, 2000,
                                    filed December 13, 2000)
         Exhibit 21.1               List of Subsidiaries (incorporated by
                                    reference to Exhibit 21.1 of Form S-4
                                    file no. 333-49688)
         Exhibit 23.1               Consent of McManus & Co., P.C
         Exhibit 23.2               Consent of Malone & Bailey, PLLC
         Exhibit 31.1               Certification of Chief Executive Officer
                                    pursuant to Section 302 of the
                                    Sarbanes-Oxley Act of 2002
         Exhibit 31.2               Certification of Chief Financial Officer
                                    pursuant to Section 302 of the
                                    Sarbanes-Oxley Act of 2002
         Exhibit 32.1               Certification of Chief Executive Officer
                                    pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002
         Exhibit 32.2               Certification of Chief Financial Officer
                                    pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002


                                       33

<PAGE>

                                   SIGNATURES

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

                                              Eagle Broadband, Inc.



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


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


<TABLE>
<CAPTION>

Signature                           Title                                        Date


<S>                                 <C>                                          <C>
/S/ David A. Weisman                Chairman of the Board and                    May 3 2004
----------------------------------- Chief Executive Officer
David A. Weisman                    (Principal Executive Officer)

/S/ Richard R. Royall               Chief Financial Officer                      May 3, 2004
----------------------------------- (Principal Financial and Accounting Officer)
Richard R. Royall

/S/ H. Dean Cubley                  Director, Chief Technical Officer            May 3, 2004
-----------------------------------
H. Dean Cubley

/S/ Christopher W. Futer            Director                                     May 3, 2004
-----------------------------------
Christopher W. Futer

/S/ A. L. Clifford                 Director                                      May 3, 2004
-----------------------------------
A. L. Clifford

/S/ Glenn A. Goerke                Director                                      May 3, 2004
-----------------------------------
Glenn A. Goerke

/S/ Lorne E. Persons               Director                                      May 3, 2004
-----------------------------------
Lorne E. Persons

/S/ Jim Reinhartsen                Director                                      May 3, 2004
-----------------------------------
Jim Reinhartsen

</TABLE>

                                       34

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


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

We have audited the accompanying consolidated balance sheet of Eagle Broadband,
Inc. as of August 31, 2003, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of Eagle Broadband, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Broadband,
Inc. as of August 31, 2003, and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 2, the Company restated its prior period financial
statements.

/S/ Malone & Bailey, PLLC
----------------------------
Malone & Bailey, PLLC
Houston, Texas
www.malone-bailey.com

December 5, 2003

                                      F-1

<PAGE>


                         INDEPENDENT ACCOUNTANT'S REPORT


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

We have audited the accompanying consolidated balance sheets of Eagle Broadband,
Inc. and subsidiaries as of August 31, 2002, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the two
years ended August 31, 2002 and 2001. These financial statements are the
responsibility of Eagle Broadband, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Eagle Broadband, Inc. and subsidiaries as of August 31, 2002, and
the results of their earnings, shareholders' equity, and their cash flows for
each of the two years then ended are in conformity with generally accepted
accounting principles.


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

December 13, 2002



                                      F-2

<PAGE>

                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)


<TABLE>
<CAPTION>

                 ASSETS
                                                                         August 31,
                                                                   2003            2002
                                                                                (Restated)
<S>                                                         <C>               <C>
Current Assets
  Cash and Cash Equivalents                                 $        824      $      1,273
  Securities Available for Sale                                    1,714             2,148
  Accounts Receivable, net                                         1,704             5,028
  Inventories                                                      3,199             6,059
  Prepaid Expenses                                                   668               358
                                                            -------------     -------------
     Total Current Assets                                          8,109            14,866

Property and Equipment
  Operating Equipment                                             36,422            34,509
  Less:  Accumulated Depreciation                                 (5,689)           (3,661)
                                                            -------------     -------------
     Total Property and Equipment                                 30,733            30,848

Other Assets:
  Deferred Costs                                                     334               334
  Goodwill                                                        76,273            78,151
  Other Intangible assets                                          5,330             5,387
  Other Assets                                                       227               397
                                                            -------------     -------------
     Total Other Assets                                           82,164            84,269

Total Assets                                                $    121,006      $    129,983
                                                            =============     =============

                LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts Payable                                          $      5,461      $      4,757
  Accrued Expenses                                                 7,790             2,873
  Notes Payable                                                    5,779             3,653
  Capital Lease Obligation                                            --                48
                                                            -------------     -------------
     Total Current Liabilities                                    19,030            11,331

Long-Term Liabilities:
  Capital Lease Obligations
     (net of current maturities)                                      --                70
  Long-Term Debt                                                      --             1,202
                                                            -------------     -------------
     Total Long-Term Liabilities                                      --             1,272

Commitments and Contingent Liabilities

Shareholders' Equity:
  Preferred Stock  -  $.001 par value
    Authorized  5,000,000 shares
    Issued  -0- shares                                                --                --
  Common Stock  -  $.001 par value
    Authorized 200,000,000 shares
    Issued and Outstanding at August 31, 2003
    and 2002, 147,447,000 and 73,051,000, respectively               147                73
  Paid in Capital                                                177,017           158,731
  Accumulated Deficit                                            (75,188)          (41,424)
                                                            -------------     -------------
     Total Shareholders' Equity                                  101,976           117,380
                                                            -------------     -------------

Total Liabilities and Shareholders' Equity                 $     121,006    $      129,983
                                                            =============     =============

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3

<PAGE>

                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                     For the years ended August 31,
                                             ----------------------------------------------
                                                   2003           2002            2001
                                             --------------  --------------  --------------
<S>                                                 <C>             <C>             <C>
Net Sales:
 Structured wiring                                  $3,692          $8,036          $7,643
 Broadband services                                  2,809           2,657             523
 Products                                            3,342          16,108          19,342
 Other                                               1,750           3,016             602
                                             --------------  --------------  --------------
Total Sales                                         11,593          29,817          28,110
                                             --------------  --------------  --------------

Costs of Goods Sold:
 Direct Labor and Related Costs                      2,195           3,160           1,638
 Products and Integration Service                    5,400          15,250          14,931
 Structured Wiring Labor and Materials               1,774           2,121           2,345
 Broadband Services Costs                              903             763             260
 Depreciation and Amortization                         456             377           1,053
 Other Manufacturing Costs                              56           1,033             181
                                             --------------  --------------  --------------
Total Costs of Goods Sold                           10,784          22,704          20,408
                                             --------------  --------------  --------------
Gross Profit                                           809           7,113           7,702
                                             --------------  --------------  --------------

Operating Expenses:
 Selling, General and Administrative:
  Salaries and Related Costs                         6,102           7,795           6,169
  Advertising and Promotion                            247             963             600
  Depreciation and Amortization                      1,968           3,399           3,615
  Other Support Costs                               12,737           3,974           4,264
  Research and Development                             411             404           1,276
  Impairment, write-downs & restructuring
   costs                                             7,611          27,100             ---
                                             --------------  --------------  --------------
Total Operating Expenses                            29,076          43,635          15,924
                                             --------------  --------------  --------------

Loss from Operations                               (28,267)        (36,522)         (8,222)

Other Income/(Expenses)
 Interest income,                                       68             360           2,348
 Interest expense                                   (5,494)           (625)            ---
                                             --------------  --------------  --------------
Total Other Income (Expense)                        (5,426)           (265)          2,348
                                             --------------  --------------  --------------

Net Loss                                           (33,693)        (36,787)         (5,874)
Other Comprehensive Loss:

Unrealized Holding Loss                                (71)           (279)           (359)
                                             --------------  --------------  --------------

Other Comprehensive Loss                          $(33,764)       $(37,066)        $(6,233)
                                             --------------  --------------  --------------
                                             --------------  --------------  --------------

Net Loss per Common Share:
 Basic                                              $(0.35)         $(0.57)         $(0.12)
 Diluted                                            $(0.35)         $(0.57)         $(0.12)
 Comprehensive Loss                                 $(0.35)         $(0.58)         $(0.13)

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>

                     EAGLE BROADBAND, INC., AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                   Additional                   Total
                                    Common Stock       Preferred    Paid in     Retained    Shareholders'
                                  Shares      Value    Stock        Capital     Earnings        Equity
<S>                               <C>         <C>      <C>           <C>        <C>         <C>
Total Shareholders' Equity
   As of August 31, 2000           25,609        $26     $---        $52,160      $1,875           $54,061

Net Earnings                          ---        ---      ---            ---      (5,874)           (5,874)

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

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

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

Unrealized Holding Loss               ---        ---      ---            ---        (359)             (359)

                                ---------------------------------------------------------------------------
Total Shareholders' Equity
   As of August 31, 2001           60,264         60      ---        153,426      (4,358)          149,128

Net Loss                              ---        ---      ---            ---     (36,787)          (36,787)

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

Syndication Costs                     ---        ---      ---            ---         ---               ---

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

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

                                ---------------------------------------------------------------------------
Total Shareholders' Equity
   As of August 31, 2002           73,051         73      ---        158,731     (41,424)          117,380

Net Loss                              ---        ---      ---            ---     (33,693)          (33,693)

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

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

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

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

                                ---------------------------------------------------------------------------
Total Shareholders' Equity
   As of August 31, 2003          147,447       $147      ---       $177,017    $(75,188)         $101,976
                                ==========  =========              ==========  ==========  ================
</TABLE>


See accompanying notes to consolidated financial statements.
--------------------------------------------------------------------------------

                                      F-5

<PAGE>



                     Eagle Broadband, Inc., and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


<TABLE>
<CAPTION>

                                                    For the years ended August 31,
                                            -----------------------------------------------
                                                 2003            2002             2001
                                            --------------  --------------  ---------------
<S>                                              <C>             <C>               <C>
Cash Flows from Operating Activities
Net Loss                                         $(33,693)       $(36,787)         $(5,874)

Adjustments to Reconcile Net Loss to Net
 Cash
Used by Operating Activities:
 Impairment, write-downs & restructuring
  costs                                             7,611          27,100              ---
 Interest for conversion value                         91             ---              ---
 Depreciation and Amortization                      2,424           3,776            4,667
 Stock Issed for Services Rendered                  1,820             882              974
 Stock Issued for Interest Expense                  2,477             100              ---
 Changes in Assets and Liabilities
 (Increase)/Decrease in Accounts
  Receivable                                          724           2,479             (462)
 (Increase)/Decrease in Inventories                 1,717           4,578              515
 (Increase)/Decrease in Prepaid Expenses             (311)            386              516
 Increase/(Decrease) in Accounts Payable              921             232           (1,793)
 Increase/(Decrease) in Accrued Expenses            8,557          (3,180)           1,494
 Increase/(Decrease) in Expense Allowable
  for Doubtful Acccounts                            2,177            (363)             ---
 Increase/(Decrease) in Federal Income
  Taxes Payables                                      ---             ---             (736)
                                            --------------  -------------------------------
 Total Adjustment                                  27,608          35,990            5,175
                                            --------------  --------------  ---------------
Net Cash Used by Operating Activities              (6,085)           (797)            (699)
                                            --------------  --------------  ---------------

Cash Flows from Investing Activities
 (Purchase)/Disposal of Property and
  Equipment                                        (2,121)        (12,886)         (16,394)
 (Purchase)/Disposal of Contact Wireless &
  DSS Security, Net of Cash Acquired                  ---            (869)             ---
 (Increase)/Decrease in Security Deposits             ---             ---             (102)
 (Increase)/Decrease in Investments                   434              87           (3,189)
 (Increase)/Decrease in Notes Receivable              ---             ---            8,655
 (Increase)/Decrease in Deferred
  Advertising Costs                                   ---             ---               21
 (Increase)/Decrease in Deferred
  Syndication Costs                                   ---             ---              270
 (Increase)/Decrease in Other Intangible
  Assets                                              ---             ---            1,009
 (Increase)/Decrease in Other Assets                  411             ---                9
                                            --------------  --------------  ---------------
Net Cash Used by Investing Activities              (1,276)        (13,668)          (9,721)

Cash Flows from Financing Activities
 Increase/(Decrease) in Notes Payable               7,297             387            6,148
 Increase/(Decrease) in Capital Leases                 --               3               63
 Increase/(Decrease) in Line of Credit                ---          (1,846)             230
 Increase/(Decrease) in Deferred Taxes                ---             (32)             ---
 Proceeds from Sale of Common Stock, Net              182             ---            1,078
 Retirement of ESOP Shares                            ---             ---           (2,740)
 Syndication costs                                   (368)            ---              ---
 Treasury Stock                                      (199)           (918)          (8,625)
                                            --------------  --------------  ---------------
Net Cash Provided by Financing Activities           6,912          (2,406)          (3,846)
                                            --------------  --------------  ---------------

Net Increase/(Decrease) in Cash                      (449)        (16,807)         (14,266)
Cash at the Beginning of the Year                   1,273          18,080           32,346
                                            --------------  --------------  ---------------
Cash at the End of the Year                          $824          $1,273          $18,080
                                            --------------  --------------  ---------------
                                            --------------  --------------  ---------------

Supplemental Disclosure of Cash Flow
 Information:
Net Cash Paid During the Year for:
 Interest                                          $3,288            $165             $112
 Income Taxes                                         ---             ---              ---

</TABLE>

Supplemental non-cash investing activities (See Notes 5 & Note 12)
See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


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 supplier of broadband products and services,
          providing telecommunications equipment with related software,
          broadband products, and fiber and cable as used by service providers
          in the paging and other personal communications markets. The Company
          designs, manufactures, markets and services its products under the
          Eagle Broadband, Inc., and BroadbandMagic names. These products
          include transmitters, receivers, controllers, software, convergent
          set-top boxes, fiber, cable, and other equipment used in commercial
          and personal communications systems and radio and telephone systems.
          Additionally, the Company provides cable television, telephone,
          security, Internet connectivity, and related services under a bundled
          digital services package, commonly known as "BDS," through single
          source billing. Also provided is last mile cable and fiber
          installation services as well as comprehensive IT products and
          services.

A)        Consolidation

          At August 31, 2003, 2002 and 2001, the Company's subsidiaries were:
          Atlantic Pacific Communications, Inc. (APC) - operated as Eagle
          Communication Services; Etoolz, Inc. (ETI); Eagle Wireless
          International, Inc. (EWI); ClearWorks.net, Inc. (.NET); ClearWorks
          Communications, Inc. (COMM) - operated as Eagle BDS Services;
          ClearWorks Home Systems, Inc. (HSI) - operated as Eagle Residential
          Structured Wiring; Contact Wireless, Inc. (CWI) - operating as Eagle
          Paging Services; DSS Security, Inc., (DSS) - operated as Eagle
          Security Services; United Computing Group, Inc. (UCG) - operated as
          Eagle Technology Services; and Link Two Communications, Inc. (LINK II)
          - operated as Eagle Messaging Services. The consolidated financial
          statements include the accounts of the Company and its subsidiaries.
          All significant inter-company transactions and balances have been
          eliminated in consolidation.

B)        Cash and Cash Equivalents

          The Company has $824,000 and $1,273,000 of cash and cash equivalents
          invested in interest bearing accounts at August 31, 2003, and August
          31, 2002, respectively.

          The Company also has Securities available for sale that include
          1,480,000 shares of common stock of Burst.com, 146,085,264 shares of
          Celerity Systems common stock and $350,000 Celerity Systems Bonds.
          These common stock and bond investments have an aggregate cost basis
          of $1,075,000 and an aggregate fair market value of $1,714,006 and are
          included in the Balance Sheet category of Securities available for
          sale as of August 31, 2003 and 2002. See (Note 10).


C)        Property and Equipment

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

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

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


D)        Inventories

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

                                                       August 31,
                                                 2003             2002

                  Raw Materials                $ 1,826            $ 4,515
                  Work in Process                1,237              1,262
                  Finished Goods                   136                282
                                                $3,199            $ 6,059

                                      F-7

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


E)        Revenue Recognition

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


          Eagle adopted EITF 00-21, "Revenue Arrangements with Multiple
          Deliverables," in the fourth quarter of fiscal 2003. The impact of
          adopting EITF 00-21 did not have a material effect to Eagle's results
          of operations. Eagle's contracts that contain multiple elements as of
          February 29, 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 under the heading Accrued
          Expenses until the service is performed and then recognized in the
          period in which the service is completed. Eagle's deferred revenues
          primarily consist of billings in advance for cable, internet, security
          and telephone services, which generally are between one and three
          months of services. Eagle had deferred revenues of $230,397 and
          $147,696 as of August 31, 2003 and 2002, respectively.


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

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

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

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

                                      F-8

<PAGE>


                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


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

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

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

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

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

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

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

F)        Research and Development Costs

          For the years ended August 31, 2003, 2002 and 2001, the Company
          performed research and development activities for internal projects
          related to its Orb'Phone Exchange, convergent set-top boxes as well as
          its multi-media entertainment centers. Research and development costs
          of $ 411,000, $404,000, and $1,276,000 were expensed for the years
          ended August 31, 2003, 2002, and 2001, respectively.

          No research and development services were performed for outside
          parties for the year ended August 31, 2003, 2002 and 2001.

G)        Income Taxes

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

H)        Net Earnings Per Common Share

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

                                      F-9

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

<TABLE>
<CAPTION>

                                                                       August 31,
                                                       ------------------------------------------
                                                         2003            2002            2001
                                                       ----------     -----------     -----------
        <S>                                            <C>            <C>             <C>
        Weighted Average Number of Common
          Shares Outstanding Including

        Basic Common Stock Equivalents                    95,465          64,004          49,726
        Fully Diluted Common Stock Equivalents            95,465          64,158          49,880

</TABLE>


I)        Impairment of Long-Lived Assets and Goodwill

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

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

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

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

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

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


J)        Intangible Assets

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

          Other intangible assets consist of licenses and permits, which are
          being amortized using the straight-line method over their estimated
          useful life of twenty (20) years. Eagle's licenses include FCC
          licenses for designated narrowband personal communications services,
          radio frequencies or spectrum to service providers. Prior to the
          adoption of FAS 142, Eagle amortized these licenses using the straight
          line method over twenty years. At August 31, 2002, management
          estimated through recent sales of equipment and industry pricing of
          FCC licenses that an impairment charge of $27,100,000 was necessary to
          reflect the ongoing value of its assets and licenses; thereby leaving
          an unamortized balance of licenses on its books of $1,267,365. Eagle
          does not maintain that these licenses have an indefinite life, but
          rather has ceased amortizing the remaining balance of $1,267,365 as
          management believes that this balance represents the salvage value of
          such assets. Eagle, to date, has maintained all operational
          requirements to keep its licenses current, and periodically assesses
          both future operating requirements as well as the salvage of such
          assets.

                                      F-10

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


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

          Goodwill and other intangibles of $82,164,000 net of prior impairments
          and amortization were recorded under the purchase method for the
          purchases of ClearWorks.net, Inc., Atlantic Pacific, Inc., DSS
          Security, Inc., Contact Wireless, Inc., and Comtel, Inc. The majority
          of the intangibles were from the ClearWorks acquisition. ClearWorks
          was in the business of selling telecommunications services to
          residential neighborhoods. In fiscal 2003, Eagle realized it had
          failed to successfully achieve profits using the ClearWorks model of
          installing fiber optic cable to neighborhoods under the speculative
          attempt to capture enough individual homeowners in each neighborhood
          via individual selling methods to pay for the cable infrastructure. In
          early 2003, Eagle modified its strategy to deliver the ClearWorks
          developed bundled digital services approach including Internet,
          telephone, cable television and security monitoring services to
          residential and business users by targeting municipalities,
          homebuilders and residential real estate developers that finance and
          install the fiber optic cable backbone in every lot and offer Eagle
          exclusive rights to deliver digital bundled services to homeowners,
          using pre-selling promotions and other low cost mass marketing
          techniques. In October 2003, Eagle hired a new Chief Executive Officer
          with an extensive sales and marketing background and proven senior
          management and operational skills leading high-growth technology
          companies to implement its modified strategy. As of December 5, 2003,
          the date of the auditor's report, Eagle had realized several initial
          successes in projects where the municipalities, public utility
          districts and developers assume the predominate capital cost
          responsibility and contract with Eagle to provide the services and
          content; thereby significantly limiting the Company's capital outlays
          on such projects.

          Eagle assessed the fair value of the intangible assets as of August
          31, 2003 and concluded that the goodwill valuation remains at an
          amount greater than the current carrying value.

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

K)        Advertising Costs

          In fiscal 2003, 2002, and 2001, advertising costs have been
          capitalized and amortized on the basis of contractual agreements
          entered into by the Company. These contracts are amortized over the
          life of the individual contracts or expensed in the period incurred.
          For the year ended August 31, 2003, 2002, and 2001, the Company
          expensed $247,000, $963,000 and $600,000 respectively.

L)        Deferred Syndication Costs

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

M)        Use of Estimates

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

N)        Marketable Securities


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


                                      F-11

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


O)        Other Comprehensive Income

          In 1997, the Financial Accounting Standards Board issued Statement of
          Financial Accounting Standards No. 130, "Other Comprehensive Income,"
          effective for fiscal years beginning after December 15, 1997. This
          statement considers the presentation of unrealized holding gains and
          losses attributable to debt and equity securities classified as
          available-for-sale. As stated, any unrealized holding gains or losses
          affiliated to these securities are carried below net income under the
          caption "Other Comprehensive Income." For the fiscal year ended August
          31, 2003, 2002, and 2001 comprehensive loss was ($71,000), ($279,000)
          and ($359,000), respectively.

P)        Reclassification

          The Company has reclassified certain assets costs and expenses for the
          year ended August 31, 2002, and 2001, to facilitate comparisons.

Q)        Supporting Costs in Selling, General and Administrative Expenses

          Other support cost for the twelve months ended August 31, 2003, 2002,
          and 2001 are as follows, in thousands: -

<TABLE>
<CAPTION>
                                                      2003          2002             2001
                                                 ------------------------------------------
                  <S>                            <C>            <C>             <C>
                  Advertising/Conventions         $     ---              8     $       737
                  Auto Related                           66            174
                  Bad debt                            2,177            ---             ---
                  Contract Labor                        907            100             ---
                  Delivery/Postage                       95            162             178
                  Fees                                  418            ---             ---
                  Insurance                             437            181             263
                  Office & telephone                    675            880             482
                  Other                                 291             21              17
                  Professional                        5,222            424             831
                  Rent                                1,183          1,052             791
                  Travel                                377            459             437
                  Taxes                                 170             53              90
                  Utilities                             719            460             438
                                                  ----------     ----------      ----------
                  Total                           $  12,737          3,974       $   4,264
                                                  ==========     ==========      ===========

</TABLE>

R)        Recent Pronouncements

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

          In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
          "Guarantor's Accounting and Disclosure Requirements for Guarantees,
          Including Indirect Guarantees of Indebtedness of Others." For certain
          guarantees issued after December 31, 2002, FIN 45 requires a guarantor
          to recognize, upon issuance of a guarantee, a liability for the fair
          value of the obligations it assumes under the guarantee. Guarantees
          issued prior to January 1, 2003, are not subject to liability
          recognition, but are subject to expanded disclosure requirements. The
          Company does not believe that the adoption of this Interpretation has
          had a material effect on its consolidated financial position or
          statement of operations.

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

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

                                      F-12

<PAGE>


                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          In May 2003, the FASB issued Statement of Financial Accounting
          Standards No. 150 ("SFAS 150"), "Accounting for Certain Financial
          Instruments with Characteristics of both Liabilities and Equity." This
          Statement establishes standards for how an issuer classifies and
          measures certain financial instruments with characteristics of both
          liabilities and equity. It requires that an issuer classify a
          financial instrument that is within its scope as a liability (or an
          asset in some circumstances). The provisions of this Statement are
          effective for financial instruments entered into or modified after May
          31, 2003, and otherwise are effective at the beginning of the first
          interim period beginning after June 15, 2003. The adoption of this
          Statement did not have an impact on the Company's financial results of
          operations and financial position.

          In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
          133 on Derivative Instruments and Hedging Activities," which amends
          and clarifies financial accounting and reporting derivative
          instruments, including certain derivative instruments embedded in
          other contracts and for hedging activities under SFAS No. 133,
          "Accounting for Derivative Instruments and Hedging Activities." This
          statement is effective for contracts entered into or modified and for
          hedging relationships designated after June 30, 2003. The adoption of
          this statement did not have an impact on the Company's operating
          results or financial position.

S)        Product Warranties

          The Company warrants its products against defects in design, materials
          and workmanship generally for six months to a year. Other warranties
          from our vendors which are incorporated in our products are passed on
          to the customer at the completion of the sale. Provision for estimated
          warranty costs is made in the period in which such costs become
          probable. Historically, Eagle has not incurred any material warranty
          costs and, accordingly, Eagle has not accrued for these costs at
          August 31, 2003 and 2002. Eagle provides for the estimated cost of
          product warranties at the time it recognizes revenue. Eagle engages in
          product quality programs and processes, including actively monitoring
          and evaluating the quality of its component suppliers; however,
          ongoing product failure rates, material usage and service delivery
          costs incurred in correcting a product failure, as well as specific
          product class failures outside of Eagle's baseline experience, affect
          the estimated warranty obligation. If actual product failure rates,
          material usage or service delivery costs differ from estimates,
          revisions to the estimated warranty liability would be required.

T)        Beneficial Conversion Values:

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

NOTE 2 -  RESTATEMENT OF FINANCIAL STATEMENTS

          In August 2003, the Company reclassified certain of its intangible
          assets from "contract rights" to goodwill. There was no effect on cash
          or cash flows or on the net loss. The accompanying consolidated
          financial statements as of August 31, 2002 have been restated for the
          correction.

          A comparison of the Company's consolidated financial position as of
          August 31, 2002 prior to and following the restatement follows:

                                                 As Restated       As Reported
                  Goodwill                       $     82,429     $      7,916
                  Contract rights                $          -     $     74,513

NOTE 3 -  Accounts Receivable:

          Accounts receivable consist of the following, in thousands:

                                                          August 31,
                                                     2003              2002
                                                  -----------      ------------
       Accounts Receivable                        $   2,116        $   5,270
       Allowance for Doubtful Accounts                 (412)            (242)
                                                  -----------      ------------
       Net Accounts Receivable                    $   1,704        $   5,028
                                                  ===========      ============

                                      F-13

<PAGE>


                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


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

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

<TABLE>
<CAPTION>
                                                                                   August 31,
                                                                              2003            2002
                                                                            ----------      ----------
                  <S>                                                 <C>              <C>
                  Automobile                                                $     143       $     392
                  Headend Facility and Fiber Infrastructure                    26,688          20,090
                  Construction in progress                                        ---           7,074
                  Furniture & Fixtures                                            565             634
                  Leasehold Improvements                                          122             216
                  Office Equipment                                                979           1,015
                  Property, Manufacturing & Equipment                           7,925           5,088
                                                                            ----------      ----------
                      Total Property, Plant & Equipment                     $  36,422       $  34,509
                         Less: Accumulated Depreciation                        (5,689)         (3,661)
                                                                            ----------      ----------
                      Net Property, Plant & Equipment                       $  30,733       $  30,848
                                                                            ==========      ==========
</TABLE>


          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 $47,000, $63,000, and $47,354 for the three years ended
          August 31, 2003, 2002 and 2001, respectively, whereas it did not have
          any capitalized major improvements for the same time periods.

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

          Components of intangible assets are as follows, in thousands:

<TABLE>
<CAPTION>

                                                                        August 31,
                                                                   2003            2002
                                                               -----------      ----------
      <S>                                                       <C>              <C>
      Goodwill, gross value                                    $   80,551       $  82,429
      Licenses & Permits                                            5,330           5,387
                                                               -----------      ----------
          Total Intangible Assets                              $   85,881       $  87,816
             Less: Accumulated Amortization                        (4,278)         (4,278)
                                                               -----------      ----------
          Net Intangible Assets                                $   81,603       $  83,538
                                                               ===========      ==========

</TABLE>

          The changes in the carrying amount of goodwill, net of accumulated
          amortization for the twelve months ended August 31, 2003 are as
          follows (in thousands):

<TABLE>
<CAPTION>


                                                      Eagle             Other           Total
                  <S>                           <C>                <C>              <C>
                  Balance at August 31, 2002    $        76,589   $        1,562   $     78,151
                  Acquisitions and other (1)            (1,878)                0         (1,878)(1)
                                                ---------------------------------------------------
                  Balance at August 31, 2003    $       74,711    $        1,562   $     76,273
                                                ===================================================

</TABLE>

(1)  Other primarily includes the $1,878,000 of impairment recorded against the
     Comtel goodwill as discussed in Note 1 (J) to the Company's Consolidated
     Financial Statements.


NOTE 5  - Business Combinations:


          On February 1, 2001, the Company completed the purchase of
          ClearWorks.net, Inc., and its subsidiaries, ClearWorks Communication,
          Inc., ClearWorks Structured Wiring Services, Inc., ClearWorks
          Integration Services, Inc., United Computing Group, Link Two
          Communications, Inc., and LD Connect, Inc., (collectively, ClearWorks)
          by acquiring all the outstanding common stock for a total purchase
          price of approximately $99.8 million. The acquisition was accounted
          for using the purchase method of accounting. ClearWorks is a
          communications carrier providing broadband data, video and voice
          communication services to residential and commercial customers,
          currently within Houston, Texas. These services are provided over
          fiber-optic networks ("Fiber-To-The-Home" or "FTTH"), which the
          Company designed, constructed, owned and operated inside large
          residential master-planned communities and office complexes.
          ClearWorks also provides information technology staffing personnel,
          network engineering, vendor evaluation of network hardware,
          implementation of network hardware and support of private and
          enterprise networks, as well as, developing residential, commercial
          and education accounts for deployment of structured wiring solutions.
          The results of operation for ClearWorks are included in the
          accompanying financial statements since the date of acquisition. The
          Company acquired the net assets of ClearWorks for $99,797,000 through
          the issuance of 29,410,000 shares of its common stock valued at
          $91,172,000 and a cash total of $8,625,000. Prior to the acquisition,
          the Company provided to ClearWorks, working capital and materials
          totaling $8,625,000. During February 2001, ClearWorks repaid these
          advances through the issuance of 7,346,000 shares of its common stock,
          which converted into 5,877,000 Eagle Wireless International, Inc.,
          common stock shares. These shares were converted to Treasury shares at
          this date. The Company allocated (in thousands) the acquisition costs
          to current assets of $11,708, property, plant and equipment of $6,570,
          intangible assets of $96,920 (which consist of $74,513 in goodwill and
          $22,407 in licenses), other assets of $79 and assumed liabilities of
          accounts payable and accrued expenses of $10,784, banks lines of
          credit and notes of $4,696 for a total acquisition of $99,797,000. The
          allocation of the purchase price is based on the fair value of assets
          and liabilities assumed as determined either by independent third
          parties or management's estimates, based on existing contracts, recent
          purchases of assets and underlying loan documents.


                                      F-14

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          Effective January 1, 2002, the Company acquired DSS Security, Inc.,
          and Contact Wireless in a business combination accounted for as a
          purchase. DSS Security, Inc., provides security monitoring to business
          and residential customers. Contact Wireless sells and services mobile
          phones and one- and two-way messaging devices. The Company paid cash
          of $450,000 and issued a short-term note payable of $130,000 for the
          assets of Contact Wireless for a total purchase price of $580,000.
          Additionally, the Company acquired DSS Security, Inc., for $2,002,147.
          In this transaction, the Company issued 2,002,147 shares of its common
          stock with a guaranteed value of $1 per share. The Company allocated
          $51,595 to the fair value of the property and equipment and $1,950,552
          in goodwill. The allocation of the purchase price is based on the fair
          value of the assets acquired based on management's estimates and
          existing contracts. At August 31, 2003 and 2002, the Company has
          accruals for $573,000 and $921,000; respectively for the portion of
          the purchase that represents the difference between purchase price and
          market value of the Company's common stock on the date of purchase.

NOTE 6 -  Notes Payable:

          The following table lists the Company's note obligations as of August
          31, 2003 and 2002, in thousands:

                             Annual
                            Interest                         Amount
                              Rate       Due Date       2003      2002
                          -----------------------------------------------
        Vehicles            Various      Various     $      4  $     27
        5% Convertible
         Debenture
         (Note 9)
        Tail Wind             5.0%       Demand         1,200     2,000
         Convertible
         Debenture            2.0%       Demand         1,595     2,000
        Notes Payable
         - Investor          10.0%       October          900       ---
         Group                            2003
        Notes Payable
         - Q Series
         Bonds               12.0%       Various        1,363       ---
        Other             Various        Various          717       828

                                                     --------  --------
        Total notes
         payable                                     $  5,779  $  4,855
                                                     --------  --------
        Less current
         portion                                        5,779     3,653
                                                     --------  --------
        Total long-term
         debt                                        $    ---  $  1,202
                                                     ========  ========


NOTE 7 -  Capital Lease Obligations:

          The Company historically has leased equipment from various companies
          under capital leases. The assets and liabilities under the capital
          lease are recorded at the lower of the present value of the minimum
          lease payments or the fair value of the asset. The assets are
          depreciated over the estimated useful life with the value and
          depreciation being included as a component of Property and Equipment
          under operating equipment.

NOTE 8 -  Lines of Credit:

          On September 29, 2000, Atlantic Pacific Communications, Inc., "(APC",
          a wholly owned subsidiary of the Company) entered into a one year
          $900,000 line of credit agreement with Southwest Bank of Texas,
          ("SWBT"). This note bears interest at SWBT's prime rate plus .25%,
          which was payable monthly with principal due September 28, 2001. APC's
          accounts receivable are pledged as collateral with Eagle Wireless
          International, Inc., the guarantor. This line of credit was repaid to
          Southwest Bank of Texas in the six months ended February 28, 2002;
          therefore, there was not a balance outstanding as of August 31, 2002.
          Subsequent to the fiscal year ended August 31, 2002, APC entered into
          a new credit facility with SWBT to provide working capital and fund
          ongoing operations. The new credit facility is a purchase and sale
          agreement against accounts receivable, provides for borrowings up to
          $1,000,000 based on eligible accounts receivable and is secured by APC
          accounts receivable and guaranteed by Eagle Broadband, Inc. As of
          August 31, 2003, APC reduced its accounts receivable by $198,851 to
          reflect the gross sale of $360,003 to SWBT less $161,851 of reserves
          held by SWBT against such purchases. Subsequent to the fiscal year
          ended August 31, 2003, APC repaid and canceled the line of credit in
          full to SWBT in September 2003.

                                      F-15

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          The Company, through its subsidiary United Computing Group, Inc.
          (UCG), maintained $3,000,000 line of credit with IBM Credit
          Corporation (IBM) bearing a variable rate of interest. At May 31,
          2002, a balance of $1,012,000 existed. During July 2002, UCG entered
          into a credit facility with Southwest Bank of Texas (SWBT) to provide
          working capital, repay the IBM credit line and fund ongoing
          operations. The new credit facility is a purchase and sale agreement
          against accounts receivable, provides for borrowings up to $3,000,000
          based on eligible accounts receivable and is secured by UCG accounts
          receivable and guaranteed by Eagle Broadband, Inc. As of August 31,
          2002, UCG reduced its accounts receivable by $817,401 to reflect the
          gross sale of $961,649 to SWBT less $144,247 of reserves held by SWBT
          against such purchases. As of August 31, 2003, UCG reduced its
          accounts receivable by $44,799 to reflect the gross sale of $52,210 to
          SWBT less $7,832 of reserves held by SWBT against such purchases.
          Subsequent to the fiscal year ended August 31, 2003, APC repaid and
          canceled the line of credit in full to SWBT in September 2003.

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

NOTE 9 -  Convertible Debentures:

          During October 2002, the Company entered into a $3,000,000 convertible
          debenture agreement with Cornell Capital Partners, LP (CCP). At CCP's
          option, the entire principal amount and all accrued interest shall be
          either (a) paid to CCP on the third year anniversary from the date of
          the debenture or (b) converted into Company common stock according to
          a schedule set forth in the debenture, or (c) partially repaid and
          partially converted into Company common stock. The significant
          conversion terms are that CCP is entitled, at its option, to convert,
          and sell on the same day, at any time and from time to time subject to
          the terms of the agreement, until payment in full of the debenture,
          all or any part of the principal amount of the debenture, plus accrued
          interest, into shares of the Company's common stock at the price per
          share equal to either (a) $1.00 or (b) 90% of the average of the four
          lowest closing trade prices of the common stock, for the five trading
          days immediately preceding the conversion date. Eagle determined that
          the conversion value of this note to be $91,000. This value has been
          accounted for as interest expense. CCP shall not be entitled to
          convert the debenture for a period of 180 days from the date of the
          debenture. After 180 days, if the conversion price is below $1.00, CCP
          shall be entitled, at its option, to convert, and sell on the same day
          up to $50,000 every five business days. After 12 months from the date
          of the debenture, if the conversion price is below $1.00, CCP shall be
          entitled, at its option, to convert and sell on the same day up to
          $75,000 every five business days. Notwithstanding the foregoing, after
          180 days from the date of the debenture, CCP shall be entitled, at its
          option, to convert and sell on the same day without restriction if the
          conversion price is above $1.00. Under the terms of this agreement
          Eagle received $2,500,000 in cash and a $500,000 secured convertible
          debenture from Celerity Systems, Inc., (CCI) bearing interest at ten
          percent due September 19, 2007. Eagle is entitled, at its option, to
          convert, and sell on the same day, at any time, until payment in full
          of this debenture, all or any part of the principal amount of the
          debenture, plus accrued interest, into CCI shares. The conversion
          price is equal to either $.06 or eighty-seven and one-half percent
          (87.5%) of the lowest bid price of the common stock for the preceding
          five trading days. At August 31, 2003, Eagle has converted $150,000 of
          the bond into 146,085,264 shares of CCI. Eagle intends to liquidate
          the bond into cash through the conversion process and immediate sale
          of CCI shares. This investment is recorded at a cost of $500,000 until
          the debenture or converted shares are sold. At August 31, 2003, the
          underlying value of this debenture is approximately $520,000. Eagle is
          in discussions with CCP to amend certain provisions of the debenture
          as it relates to shares currently issued and stock payments for
          accrued interest. Subsequent to the fiscal year ended August 31, 2003,
          the Company entered into discussions with CCP regarding the retirement
          of the convertible debenture and settlement of CCP commitment fees in
          connection to a $20,000,000 Equity Line of Credit. During the three
          month period ended November 30, 2003, the principal balance of the
          debenture was repaid, although a lawsuit remains outstanding - see
          Legal Proceedings. Subsequent to the fiscal year ended August 31,
          2003, the Company entered into discussions with CCP regarding the
          retirement of the convertible debenture and settlement of CCP
          commitment fees in connection to a $20,000,000 Equity Line of Credit.

          At August 31, 2003, the Company issued $1,363,000 five-year Q-Series
          Bonds as more fully described in Note 14. Subsequent to August 31,
          2003, the bondholders have elected to be repaid in Common Stock as
          defined in the bond agreement. Accordingly, these bonds have been
          classified as a current liability in Notes Payable. The Company
          determined that no significant conversion value existed at the date of
          bond issuance.

          At August 31, 2002, $2,000,000 in principal plus $600,000 of accrued
          interest and fees were outstanding to Candlelight Investors, LLC. In
          November 2002, the Company issued 2,600,000 shares of stock to settle
          this debt.

          During 2001, the Company acquired ClearWorks.net, Inc., and as a
          result, ClearWorks is a wholly owned subsidiary of Eagle. Link Two
          Communications, Inc., is a subsidiary of ClearWorks, and as a result
          of the merger, is now a secondary subsidiary of Eagle. Link Two
          entered an agreement with The Tail Wind Fund Ltd., under which Tail
          Wind purchased from Link Two a 2% convertible note in the initial
          amount of $5,000,000 (the "First Note"), and Link Two has the ability
          to require Tail Wind to purchase additional convertible notes in the
          amount of $4,000,000 (the "Second Note") and $3,000,000 (the "Third
          Note"). The conversion terms of the convertible debentures become
          effective after ninety days of the initial closing date. The note
          balance will be due in fiscal 2003. Link Two may require Tail Wind to
          purchase the Second Note if: (a) the price of Eagle's common stock is
          above $5.00 per share for 20 consecutive trading days during calendar
          2001,and other various terms are met. Link Two may require Tail Wind
          to purchase the Third Note if the price of Eagle's common stock is
          above $8.00 per share for 20 consecutive trading days during calendar
          2001, and the agreed upon covenants are met. In conjunction with the
          issuance of the First Note, Link Two issued Tail Wind a warrant, and
          if Link Two chooses to issue the Second and Third Notes, it will issue
          Tail Wind additional warrants.

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

                                      F-16

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          The Company has agreed to pre-pay the notes at the rate of a minimum
          of $250,000 per month and a maximum of $500,000 per month. The
          pre-payment may be in cash or in shares of our common stock at the
          rate of 90% of the average of the two lowest market prices of our
          common stock for the applicable month. However, the Company may not
          issue shares of our common stock for pre-payment purposes if the total
          number of shares exceeds the aggregate trading volume of our common
          stock for the twelve trading days preceding the date of payment, in
          which case we must pay the difference in cash. As the number of shares
          to be issued for pre-payment purposes is dependent on the price and
          trading volume of our common stock, there is no way to determine the
          number of shares that may be issued at this time. Eagle has filed a
          registration statement for the potential conversion shares for the
          note and warrants exercise. As of May 31, 2002, the Company has paid
          to Tail Wind $2,000,000 towards the reduction of debt. The current
          financial statements have recorded as current maturity for this debt,
          $1,595,000.

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

          In our agreement with Tail Wind, the Company granted Tail Wind
          anti-dilution rights. If the Company sells common stock or securities
          exercisable for or convertible into shares of our common stock for
          less than $1.79 per share, the Company must reduce the conversion
          price of the notes and the exercise price of the warrants to the price
          the Company sold the common stock or the exercise or conversion price
          the Company issued the convertible securities. The Company has agreed
          to register for resale any additional shares that will be issued
          pursuant to these anti-dilution rights on a future registration
          statement, unless such additional shares are available in the current
          registration statement. In addition, under the terms of the agreement,
          without Tail Wind's approval, the Company may not issue Tail Wind
          shares of common stock such that Tail Wind would ever be considered to
          beneficially own greater than 4.99% of the outstanding common stock.
          In connection with this transaction, Link Two Communications, Inc. has
          paid Ladenburg Thalman and Co. a fee of 5% of the purchase price of
          the notes. Additionally, the Company has valued the conversion feature
          of the convertible debenture and warrants at $1,648,045 and
          $1,270,995, respectively; the amounts were determined by using the
          Black-Scholes calculation. These amounts have been capitalized as part
          of the cost of developing the wireless infrastructure. At August 31,
          2003, Eagle and Tail Wind were renegotiating the terms of this note.
          During the renegotiation period, the Company has agreed to pay
          interest until all new terms and conditions have been resolved.

NOTE 10   Securities held for Resale:

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

          Securities available for sale include 1,480,000 shares of common stock
          of Burst.com, 146,085,264 shares of Celerity Systems common stock and
          $350,000 Celerity Systems Bonds. These common stock and bond
          investments have an aggregate cost basis of $1,075,000 and an
          aggregate fair market value of $1,714,006 and are included in the
          Balance Sheet category of Securities available for sale as of August
          31, 2003.


NOTE 11 - Income Taxes:

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

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

                                                           August 31,
                                                         2003    2002     2001
                                                          %       %       %
                  U.S. Federal Statutory Tax Rate         34       34     34
                  U.S. Valuation Difference               (34)  (34)      (34)
                  Effective U.S. Tax Rate                  0        0     0
                  Foreign Tax Valuation                    0        0     0
                  Effective Tax Rate                       0        0     0


                                      F-17

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

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

<TABLE>
<CAPTION>
                                                                                 August 31,
                                                                  2003             2002            2001
                                                             ------------       -----------     -----------
                  <S>                                        <C>               <C>              <C>
                  Computed expected tax benefit              $   (11,456)       $  (12,508)     $  (1,997)
                  Increase in valuation allowance                 11,456            12,508           1997
                                                             ------------       -----------     -----------
                                                             $       ---         $      ---     $      ---
                                                             ============       ===========     ===========

</TABLE>

          The tax effects of temporary differences that give rise to significant
          portions of the deferred tax assets and deferred tax liabilities at
          August 31, 2003 and 2002, are presented below, in thousands and
          include the balances of the merged company ClearWorks.net.

<TABLE>
<CAPTION>

                                                                  2003            2002
                                                                ---------       ---------
                  <S>                                           <C>             <C>
                  Deferred tax assets:
                  Accounts receivable, principally due
                  to allowance for doubtful accounts      $            0  $             0

                  Net operating loss carry-forwards               35,503           24,047
                  Less valuation allowance                       (35,503)         (24,047)
                                                                ---------       ----------
                  Net deferred tax assets                            ---              ---

                  Deferred tax liabilities:
                  Differences in depreciation                          0                0
                                                                ---------       ----------
                  Net deferred tax liabilities            $            0  $             0
                                                                =========       ==========

</TABLE>


          The valuation allowance for deferred tax assets of August 31, 2003,
          2002, and 2001, was $35,503,000, $24,047,000, and $10,956,000,
          respectively. At August 31, 2003 and 2002, the Company has net
          operating loss carry-forwards of $104,420,588 and $70,727,000,
          respectively, which are available to offset future federal taxable
          income, if any, with expirations from 2020 to 2021.

NOTE 12 - Issuance of Common Stock:

          During the fiscal year ended August 31, 2003, the Company issued
          shares of common stock. The following table summarizes the shares of
          common stock issued, in thousands.


<TABLE>
<CAPTION>

                  <S>                                                         <C>
                  Shares Outstanding August 31, 2002                                   73,051
                  Shares issued for Services and Compensation                           7,437
                  Shares issued for Property and Other Assets                          14,938
                  Shares issued for Retirement of Debt and Liabilities                 50,816
                  Shares issued for Stock Option exercise                               1,647
                  Treasury Stock                                                        (442)
                                                                              ----------------
                  Shares Outstanding August 31, 2003                                  147,447
                                                                              ================

</TABLE>


NOTE 13 - Preferred Stock, Stock Options and Warrants:

          In July 1996, the Board of Directors and majority shareholders adopted
          an employee stock option plan under which 400,000 shares of Common
          Stock have been reserved for issuance. Since that time, the Board of
          Directors have amended the July 1996, employee stock option plan under
          which 1,000,000 shares of Common Stock have been reserved for
          issuance. As of August 31, 2003, options to purchase 406,131 are
          outstanding and 551,370 are available to be issued.

          The Company has issued (or has acquired through its acquisitions) and
          has outstanding the following warrants which have not yet been
          exercised at August 31, 2003:

          50,000 stock purchase options issued to L.A. Delmonico Consulting,
          Inc., expiring April 4, 2005. The warrants are to purchase fully paid
          and non-assessable shares of the common stock, par value $.001 per
          share at a purchase price of $1.04 per share. The shares of common
          stock underlying these warrants were registered for resale on August
          9, 2002, under the Securities Act of 1933. As of August 31, 2003, none
          of these options have been exercised

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          January 1, 2004. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $2.00 per share. As of August 31, 2003, none of
          these warrants have been exercised.

          41,667 stock purchase warrants issued to Peter Miles expiring July 20,
          2004. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $2.00 per share. The shares of common stock underlying these
          have not been registered as of November 30, 2002, under the Securities
          Act of 1933. As of August 31, 2003, none of these warrants have been
          exercised.


                                      F-18

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          41,667 stock purchase warrants issued to Peter Miles expiring July 20,
          2004. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $2.25 per share. The shares of common stock underlying these
          warrants have not been registered or issued, under the Securities Act
          of 1933. As of August 31, 2003, none of these warrants have been
          exercised. s

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          April 1, 2004. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $1.10 per share. The shares of common stock
          underlying these warrants were registered for resale on August 9,
          2002, under the Securities Act of 1933. As of August 31, 2003, none of
          these warrants have been exercised.

          58,333 stock purchase warrants issued to Peter Miles expiring July 20,
          2004. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $3.00 per share. The shares of common stock underlying these
          warrants have not been registered or issued, under the Securities Act
          of 1933. As of August 31, 2003, none of these warrants have been
          exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring July
          1, 2004. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $1.35 per share. The shares of common stock underlying these
          warrants were registered for resale on August 9, 2002, under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          October 1, 2004. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.69 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          January 1, 2005. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.61 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          April 1, 2005. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.38 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          192,000 stock purchase warrants issued to Tech Technologies Services,
          LLC, expiring April 24, 2008. The warrants are to purchase fully paid
          and non-assessable shares of the common stock, par value $.001 per
          share at a purchase price of $7.50 per share. The shares of common
          stock underlying these warrants have not been registered or issued,
          under the Securities Act of 1933. As of August 31, 2003, none of these
          warrants have been registered, issued or exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring July
          1, 2005. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $0.39 per share. The shares of common stock underlying these
          warrants were not registered for resale under the Securities Act of
          1933. As of August 31, 2003, none of these warrants have been
          exercised.

          240,000 stock purchase warrants issued to Shannon D. McLeroy expiring
          April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As August 31, 2003, none of these warrants
          have been registered, issued or exercised.

          168,000 stock purchase warrants issued to Michael T. McClere expiring
          April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As August 31, 2003, none of these warrants
          have been registered, issued or exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          October 1, 2005. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.35 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          40,000 stock purchase warrants issued to Rachel McClere 1998 Trust
          expiring April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As of August 31, 2003, none of these
          warrants have been registered, issued or exercised.

          160,000 stock purchase warrants issued to McClere Family Trust
          expiring April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As August 31, 2003, none of these warrants
          have been registered, issued or exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          January 1, 2006. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.28 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          April 1, 2006. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.26 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring July
          1, 2006. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $0.38 per share. The shares of common stock underlying these
          warrants were not registered for resale under the Securities Act of
          1933. As of August 31, 2003, none of these warrants have been
          exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          October 1, 2006. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.45 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of August 31, 2003, none of these warrants
          have been exercised.

          3,800,000 stock purchase warrants issued to Eagle Broadband employees
          under incentive clauses of employment contracts expiring September 1,
          2008. The warrants vest based on market performance of Eagle's common
          stock at market capitalization between $50 million and $200 million.
          The warrants are to purchase fully paid and non-assessable shares of
          the common stock, par value $.001 per share at a purchase price of
          $0.41 per share. The shares of common stock underlying these warrants
          were not registered for resale under the Securities Act of 1933. As of
          August 31, 2003, none of these warrants have been exercised.

                                      F-19

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          400,000 stock purchase warrants issued to Eagle Broadband employee
          under incentive clauses of employment contracts expiring September 1,
          2008 The warrants vest based on market performance of Eagle's common
          stock at market capitalization between $50 million and $200 million.
          The warrants are to purchase fully paid and non-assessable shares of
          the common stock, par value $.001 per share at a purchase price of
          $0.60 per share. The shares of common stock underlying these warrants
          were not registered for resale under the Securities Act of 1933. As of
          August 31, 2003, none of these warrants have been exercised.

          500,000 stock purchase warrants issued to Eagle Broadband employee
          under incentive clauses of employment contracts expiring September 1,
          2008. The warrants vest based on market performance of Eagle's common
          stock at market capitalization between $50 million and $200 million.
          The warrants are to purchase fully paid and non-assessable shares of
          the common stock, par value $.001 per share at a purchase price of
          $0.75 per share. The shares of common stock underlying these warrants
          were not registered for resale under the Securities Act of 1933. As of
          August 31, 2003, none of these warrants have been exercised.

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


                  Warrants Issued & Outstanding        Warrants Exercisable
Class of                    August 31,                       August 31,
Warrants             2003               2002              2003      2002
---------         -----------------------------        --------------------
    0.26             25,000                  -            25,000         -
    0.28             25,000                  -            25,000         -
    0.35             25,000                  -            25,000         -
    0.38             50,000                  -            50,000         -
    0.39             25,000                  -            25,000         -
    0.41          3,800,000                  -         1,550,000         -
    0.45             25,000                  -            25,000         -
    0.60            400,000                  -                 -         -
    0.61             25,000                  -            25,000         -
    0.69             25,000                  -            25,000         -
    0.75            500,000                  -                 -         -
    1.04             50,000             50,000            50,000    50,000
    1.10             25,000                  -            25,000         -
    1.35             25,000                  -            25,000         -
    1.55                  -             25,000                 -    25,000
    1.75                  -             13,766                 -    13,766
    2.00             25,000             25,000            25,000    25,000
    2.00             41,667             41,667            41,667    41,667
    2.25             41,667             41,667            41,667    41,667
    3.00                  -             50,000                 -    50,000
    3.00             58,333             58,333            58,333    58,333
    3.75                  -             40,000                 -    40,000
    3.75                  -            160,000                 -   160,000
    3.75                  -            232,000                 -   232,000
    3.75                  -            176,000                 -   176,000
    3.95                  -            328,000                 -   328,000
    4.50                  -             25,000                 -    25,000
    7.00                  -            100,000                 -   100,000
    7.49                  -            250,000                 -   250,000
    7.50                  -             25,000                 -    25,000
    7.50            192,000            192,000           192,000   192,000
    7.50            240,000            240,000           240,000   240,000
    7.50            168,000            168,000           168,000   168,000
    7.50            200,000            200,000           200,000   200,000
    9.68                  -             50,000                 -    50,000
   10.00                  -            275,000                 -   275,000
   12.00                  -            250,000                 -   250,000
   14.00                  -            350,000                 -   350,000
   18.00                  -            250,000                 -   250,000
   25.00                  -            150,000                 -   150,000
   ESOP             406,131         *  355,170        *  406,131   355,170
                  -----------------------------        --------------------
                  6,397,798     **   4,121,603         3,247,798 4,121,603
                  =============================        ====================

          *Denotes warrants which would have an anti-dilutive effect if
          currently used to calculate earnings per share for the years ended
          August 31, 2003 and 2002.

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

                                      F-20

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


NOTE 14 - Capitalization Activities:

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

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

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

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


NOTE 15 - Risk Factors:

          For the years ended August 31, 2003, 2002, and 2001, 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,
          seventy four percent of the Company's revenues and receivables have
          been created solely in the state of Texas, zero percent have been
          created in the international market, and the approximate twenty-six
          percent remainder have been created relatively evenly over the rest of
          the nation during the year ended August 31, 2003. Approximately,
          eighty four percent of the Company's revenues and receivables have
          been created solely in the state of Texas, zero percent have been
          created in the international market, and the approximate sixteen
          percent remainder have been created relatively evenly over the rest of
          the nation during the year ended August 31, 2002. Whereas
          approximately eighty seven percent of the Company's revenues and
          receivables have been created solely in the state of Texas, two
          percent have been created in the international market, and the
          approximate eleven percent remainder has been created relatively
          evenly over the rest of the nation for the year ended August 31, 2001.
          Through the normal course of business, the Company generally does not
          require its customers to post any collateral.

NOTE 16 - Foreign Operations:

          Although the Company is based in the United States, its product is
          sold on the international market. Presently, international sales total
          approximately 0%, 0% and 2% at August 31, 2003, 2002, and 2001,
          respectively.

NOTE 17 - Commitments and Contingent Liabilities:

          Leases

          The Company leases its primary office space in League City, Texas, for
          $36,352 per month with Gateway Park Joint Venture. This non-cancelable
          lease commenced on January 1, 2002, and expires on May 31, 2004.

          For the years ending August 31, 2003and 2002, rental expenses of
          approximately $1,183,000 and $436,219 respectively, were incurred.

          The Company also leased office space in Oxnard, California with Tiger
          Ventura County, L.P. This three-year non-cancelable lease commenced
          August 1, 2000, and expires July 31, 2004. Under the terms of the
          lease, monthly payments will be $2,130 for the first twelve months
          whereas the monthly payments will increase by 3.5% at the beginning of
          both the second and third years.

          The Company's wholly owned subsidiary, Atlantic Pacific, leases office
          space in Houston, Texas with Houston Industrial Partners, Ltd. This
          non-cancelable lease expires December 2005. The monthly payments are
          $9,030 per month.

          Atlantic Pacific also leased office space in Chicago, Illinois with
          Lasalle Bank National Association. This twenty-nine month lease
          commenced on October 1, 2000,and expired February 28, 2003. Under the
          terms of the lease, monthly payments will be $2,220 for the first
          twelve months whereas they will increase by 3.2% at the thirteenth and
          twenty-fifth months.

          Atlantic Pacific also leased office space in Houston, Texas with WL
          and Deborah Miller in the amount of $4,500 per month. This
          non-cancelable lease expired September 2002 and maintains a five-year
          renewal option. The renewal option was waived in September 2002.

          The Company's subsidiary, ClearWorks.net, Inc., leased office space in
          Houston, Texas with 2000 North Loop. This non-cancelable lease expired
          on April 30, 2003. The monthly payments increased from $7,306 to
          $11,091 on April 30, 2000, and again on May 1, 2002, to $11,217 for
          the remaining twelve months.


                                      F-21
<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          Also, ClearWorks.net, Inc., leased office space in Phoenix, Arizona
          with Airpark Holdings. This non-cancelable lease expired on July 31,
          2003. The monthly payments are variable.

          Also, ClearWorks.net, Inc., leased office space in San Antonio, Texas
          with Wade Holdings. This is a month-to-month lease. The monthly
          payments were $3,300.

          The Company's subsidiary, United Computing Group, leased office space
          in Houston, Texas with Eastgroup Properties, L.P. This non-cancelable
          lease expired on August 31, 2003. The monthly payments were $8,570.
          UCG previously leased office space with Techdyne, Inc., that expired
          August 31, 2002.

          The Company's subsidiary, ClearWorks Home Systems, leases office space
          in Austin, Texas with Ditto Communications Technologies, Inc. This
          non-cancelable lease commenced on September 1, 2002, and expires
          January 31, 2005. The monthly payments are $5,876.

          The Company's subsidiary, United Computing Group, leased office space
          in Dallas, Texas with AMB Property II, LP. This non-cancelable lease
          commenced on June 19, 2000, expired on June 30, 2002, and was extended
          to expire on June 30, 2003. The monthly payments are $2,794. Future
          obligations under the non-cancelable lease terms areas follows:

                         Period Ending
                          August 31,                   Amount

                             2004                    $ 521,000
                             2005                      116,000
                             2006                       58,000
                                                -------------------
                             Total                   $ 695,000
                                                ===================

          Legal Proceedings

          On February 23, 2001, ClearWorks and Eagle became defendants in
          Kaufman Bros., LLP v. Clearworks.Net, Inc. and Eagle Wireless, Inc.,
          Index No. 600939/01, pending in the Supreme Court of the State of New
          York, County of New York. In this action, plaintiff alleges that
          defendants have breached an agreement with ClearWorks to pay plaintiff
          a fee for financial advice and services allegedly rendered by
          plaintiff. The complaint seeks compensatory damages of $4,000,000,
          plus attorneys' fees and costs. The Company settled this lawsuit on
          November 4, 2003 by issuing cash and stock totaling a fair market
          value of $1,320,000 as of the settlement date and consequently,
          $1,320,000 was charged to operations in the Company's fiscal 2003
          financial statements..


          On December 17, 2001, Kevan Casey and Tommy Allen sued ClearWorks.net,
          Inc., ClearWorks Integration, Inc., and Eagle Wireless International,
          Inc. for breach of contract and other related matters in Cause No.
          2001-64056; In the 281st Judicial District Court of Harris County,
          Texas. This lawsuit is scheduled for the two-week docket beginning
          December 1, 2003. The Company denies the claims and intends to
          vigorously defend this lawsuit and claims against it. The Company
          settled this lawsuit on November 26, 2003 for cash and stock to be
          paid and issued totaling a fair market value of $3,000,000 as of the
          settlement date and consequently, $3,000,000 was charged to operations
          in the Company's fiscal 2003 financial statements.


          On July 10, 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, fraud and
          negligent misrepresentation. Plaintiff has also alleged that Eagle has
          defaulted on a convertible debenture for failing to timely register
          the shares of common stock underlying the convertible debenture and is
          seeking to accelerate the maturity date of the debenture. As of August
          31, 2003, the principal balance of the debenture was approximately
          $1.2 million. During the three month period ended November 30, 2003,
          the principal balance of the debenture was repaid, although the suit
          remains outstanding. 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. TheCompany has not accrued any expenses against this
          lawsuit, as the outcome cannot be predicted at this time.


          On December 14, 2000, ClearWorks became a defendant in State Of
          Florida Department Of Environmental Protection vs. Reco Tricote, Inc.
          And Southeast Tire Recycling, Inc. A/K/A Clearwork.net, Inc.; In The
          Circuit Court Of The Tenth Judicial Circuit In And For Polk County,
          Florida. The Florida EPA sued ClearWorks.net presenting claims for
          recovery costs and penalties for a waste tire processing facility. The
          suit seeks recovery of costs and penalties in a sum in excess of
          $1,000,000, attorneys' fees and cost of court. ClearWorks denies the
          claims and intends to vigorously contest all claims in this case and
          to enforce its indemnification rights against the principals of
          Southeast Tire Recycling. The Company has not accrued any expenses
          against this lawsuit as the outcome cannot be predicted at this time.



                                      F-22
<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003



          On September 26, 2003 Intratech served a lawsuit on ClearWorks.net in
          Intratech Capital Partners, Ltd. vs. ClearWorks.net, Inc.; Case No.
          CF3 20136 in the High Court of Justice, Queen's Bench Division,
          Cardiff District Registry. This lawsuit presents claims for breach of
          contract for failing to pay the plaintiff for financial advice and
          services allegedly rendered. The complaint seeks damages of
          $6,796,245.50, plus attorneys' fees and costs. ClearWorks denies the
          claims and intends to vigorously defend this lawsuit and claims
          against it. The Company has accrued $100,000 in its fiscal 2003
          financial statements for litigation expenses but has not accrued any
          settlement costs against this lawsuit as the outcome cannot be
          predicted at this time.


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


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

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


                                      F-23

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

NOTE 18 - Earnings Per Share:

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

<TABLE>
<CAPTION>

                                                              For the year ended August 31, 2003
                                                      Income            Shares           Per-Share
                                                    (Numerator)      (Denominator)        Amount
         <S>                                        <C>              <C>                 <C>

         Net Loss                                   $(32,025)

         Basic EPS:
          Income available to
          common stockholders                        (33,693)           95,465            $(0.35)
         Effect of Dilutive Securities
          Warrants                                   --------          --------          ---------

         Diluted EPS:
           Income available to
           common stockholders
            and assumed conversions.                $(33,693)           95,465            $(0.35)
                                                    =========          ========          =========

</TABLE>

<TABLE>
<CAPTION>

                                                            For the year ended August 31, 2002
                                                      Income            Shares           Per-Share
                                                    (Numerator)      (Denominator)        Amount
         <S>                                        <C>              <C>                 <C>

         Net Income                                $ (36,787)

         Basic EPS:
          Income available to
          common stockholders                        (36,787)           64,004             $(0.57)

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

         Diluted EPS:
           Income available to
           common stockholders
           and assumed conversions.                $ (36,787)           64,158             $(0.57)
                                                   =========          ========           =========

</TABLE>


          For the year ended August 31, 2002, and August 31, 2001, anti-dilutive
          securities existed. (see Note 13)

NOTE 19 - Employee Stock Option Plan:

          In July 1996, the Board of Directors and majority stockholders adopted
          a stock option plan under which 400,000 shares of the Company's common
          stock have been reserved for issuance. Since that time, the Board of
          Directors have amended the July 1996, employee stock option plan under
          which 1,000,000 shares of Common Stock have been reserved for
          issuance. Under this plan, as of August 31, 2003, a total of 406,131
          options have been issued to various employees.

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

                                                     2003           2002
                                                   ---------      --------
                                                   ---------      --------
                     Dividend Yield                 0.00%         0.00%
                     Volatility                      0.91         0.91
                     Risk-free Interest Rate        4.00%         7.00%
                     Expected Life                    5             5


                                      F-24

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003

          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, 2003,
          2002 and 2001:
<TABLE>
<CAPTION>


                                                                   2003       2002          2001
                                                                           In thousands,
                                                                      except per share amounts
<S>                                                              <C>        <C>            <C>
Net loss, as reported                                            $(33,693)  $(36,787)      $(5,874)
Add: Stock-based employee compensation included in reported net
 earnings (loss), net of related tax effects                            -          -             -
Less: stock-based employee compensation expense determined
 under fair-value based method for all awards, net of related
 tax effects                                                          (20)       (50)         (181)
                                                                 ---------  ---------  ------------

Pro forma net earnings (loss)                                    $(33,713)  $(36,837)      $(6,055)
                                                                 =========  =========  ============
Net loss per share:
  As reported                                                      $(0.35)    $(0.57)       $(0.12)
  Pro forma                                                        $(0.35)    $(0.57)       $(0.12)
Diluted net loss per share
  As reported                                                      $(0.35)    $(0.57)       $(0.12)
  Pro forma                                                        $(0.35)    $(0.57)       $(0.12)

</TABLE>

Option activity was as follows for the years ended August 31, 2003, 2002 and
2001:

<TABLE>
<CAPTION>

                                   2003                   2002                   2001
                                       Weighted-               Weighted-               Weighted-
                                        Average                 Average                 Average
                                       Exercise                Exercise                Exercise
                             Shares      Price      Shares       Price       Shares      Price
<S>                          <C>          <C>      <C>             <C>      <C>           <C>
Outstanding at beginning of
 year                        355,170       $2.32    355,170         $2.32    242,607       $2.93
Granted                      50,961-        0.45          -             -    237,809        1.83
Assumed through
 acquisitions                      -           -          -             -          -           -
Exercised                          -           -          -             -          -           -
Forfeited/Cancelled                -           -          -             -    125,246        2.62
                            ---------              ---------                ---------

Outstanding at end of year   406,131        1.27    355,170         $2.32    355,170        2.32

Exercisable at year-end      406,131       $1.27    355,170         $2.32    355,170       $2.32

</TABLE>

Information about options outstanding was as follows at August 31, 2003:

<TABLE>
<CAPTION>

                                            Options Outstanding              Options Exercisable
                                                   Weighted-
                                                    Average
                                                   Remaining   Weighted-                Weighted-
                                                  Contractual   Average                  Average
                                     Number        Life in      Exercise      Number    Exercise
   Range of Exercise Prices        Outstanding       Years       Price      Exercisable   Price
   <S>                             <C>               <C>        <C>        <C>          <C>
   $0-$1.00                         264,865          5.0        $0.55        264,865     $0.55
   $1.01-$2.00                      115,766          5.0        $1.73        115,766     $1.73
   $2.01-$7.50                       25,500          5.5        $6.55         25,500     $6.55

                                    406,131          5.2        $2.32        406,131     $2.32

</TABLE>


NOTE 20 - Retirement Plans:

          During October 1997, the Company initiated a 401(k) plan for its
          employees, which is funded through the contributions of its
          participants. This plan maintains that the Company will match up to 3%
          of each participant's contribution. For the year ended August 31, 2003
          and 2002, employee contributions were approximately $279,000 and
          $279,000, respectively. The Company matched approximately $67,850 and
          $67,850, respectively for those same periods.

                                      F-25

<PAGE>


                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


NOTE 21 - Major Customer:

          The Company had gross revenues of $11,593,000 and $29,817,000 for the
          year ended August 31, 2003 and 2002, respectively. There were no
          parties individually that represented a greater than ten percent of
          these revenues.

NOTE 22 - Industry Segments:

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

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

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

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

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

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

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

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

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

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


<TABLE>
<CAPTION>



                                   For the year ending August 31, 2003

(in thousands)       APC/HSI   EBS/DSS     UCG      Eagle     Other     Elim.    Consol.
                    ----------------------------------------------------------------------
<S>                     <C>       <C>       <C>       <C>         <C>   <C>        <C>
Revenue                 4,220     2,809     2,433     1,803       328       ---    11,593
Segment Loss           (4,500)   (6,083)   (2,279)  (15,041)     (364)      ---   (28,267)
Total Assets            8,929    31,316       114   141,588    83,852  (144,793)  121,006
Capital Expenditures       11     6,254         1       ---       158       ---     6,424
Depreciation              372     1,351        72       376       253       ---     2,424

                                   For the year ending August 31, 2002

(in thousands)       APC/HSI   EBS/DSS     UCG      Eagle     Other     Elim.    Consol.
                    ----------------------------------------------------------------------
Revenue                 8,767     2,657    16,143     1,699       551       ---    29,817
Segment Loss             (279)     (193)   (1,304)   (5,554)  (29,192)      ---   (36,522)
Total Assets            5,114    30,980       853   162,290    68,528  (137,782)  129,983
Capital Expenditures      125    12,034       ---       562       156       (11)   12,886
Dep. and Amort.           208       715       166     1,418     1,269       ---     3,776


                                   For the year ending August 31, 2001

(in thousands)       APC/HSI     EBS       UCG      Eagle     Other     Elim.    Consol.
                    ----------------------------------------------------------------------
Revenue                 8,173       571    18,137     1,205        24              28,110
Segment Loss             (990)     (299)     (211)   (4,559)   (2,163)             (8,222)
Total Assets            5,351    13,149     4,394   156,760    34,128   (43,114)  170,668
Capital Expenditures      151     9,350        24       198     6,671              16,394
Dep. and Amort.           149     1,053        19     2,591       857               4,669

</TABLE>

                                      F-26

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


<TABLE>
<CAPTION>


Reconciliation of Segment Loss from        August 31,     August 31,     August 31,
 Operations to Net Loss:                      2003           2002           2001

<S>                                      <C>            <C>            <C>
Total segment loss from operations       $    (28,267)  $    (36,522)  $     (8,222)

Total Other Income (Expense)                   (5,426)          (265)         2,348

Net Loss                                 $    (33,693)  $    (36,787)) $     (5,874)

</TABLE>

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

Note 23 - Quarterly Financial Data.

                           Nov. 30,    Feb. 28,      May 31,     Aug. 31,
                         ---------------------------------------------------
 Year Ended August 31,
  2003
   Revenues                    4,618        3,063        1,847        2,065
   Net Earnings (loss)          (831)        (979)      (2,921)     (28,962)
   Basic Loss per Share        (0.01)       (0.01)       (0.04)       (0.29)
   Diluted Loss per Share      (0.01)       (0.02)       (0.04)       (0.29)

 Year Ended August 31,
  2002
   Revenues                    8,761        7,380        6,485        7,191
   Net Earnings (loss)        (3,371)      (2,013)      (1,824)     (29,579)
   Basic Loss per Share        (0.06)       (0.03)       (0.03)       (0.45)
   Diluted Loss per Share      (0.06)       (0.03)       (0.03)       (0.45)


          For the year ended August 31, 2002, the quarterly financial
          information has been adjusted to reflect the application of Financial
          Accounting Standards Pronouncements No. 142 (Goodwill and other
          Intangible Assets) and No. 144 (Accounting for the Impairment or
          Disposal of Long-Lived Assets).

Note 24 - Exit Activities:.

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

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

          --   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.

                                      F-27

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003


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

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

          --   Accounts receivable write-off's and reserves aggregating
               $2,177,000; of which $1,348,000 was attributable to the decisions
               affecting the Company's Atlantic Pacific / Home Systems
               operations, $15,000 attributable to the decisions affecting its
               United Computing Group operations and $814,000 attributable to
               the Company's Eagle, EBS and Other segment operations.
          --   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 clients
               decision to upgrade from a 400 MHz chip to a 500 MHz chip for the
               Company's convergent 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-down's and restructuring costs aggregating
               $7,611,000; of which $1,878,000 was attributable to an impairment
               of goodwill in the Company's Atlantic Pacific operations
               following the Company's decision to no longer pursue commercial
               cabling opportunities on a direct basis versus an outsource
               model. These costs were also comprised of $3,412,000 in
               impairment of property and equipment following the Company's
               decision to withdraw from certain unprofitable BDS projects,
               namely in the Austin area, and $323,000 of impairment of property
               and equipment from the Company's Atlantic Pacific / Home Systems
               operations following the decision to no longer pursue structured
               wiring opportunities on a direct standalone basis outside of its
               BDS model. Additionally, the aggregate total included a $553,000
               charge for certain sales tax liabilities that resulted from an
               audit of the Company's United Computing Group operations for time
               periods that preceded the acquisition date of this operation.

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


Note 25 - Subsequent Events.

          Resignation/Appointment of Chief Executive Officer. In October 2003,
          H. Dean Cubley resigned as chief executive officer to become the chief
          technology officer, and David Weisman accepted the position of chief
          executive officer.

          Recent Financings. During the first fiscal quarter of 2004, Eagle has
          received net proceeds of $7,687,000 from private placement offerings
          of stock and bonds and through the sale of stock held as short term
          investments and has retired or reduced certain of its notes payable,
          accounts payable and other obligations including numerous lawsuits;
          thereby significantly reducing the Company's current and contingent
          liabilities.

          Conversion of Outstanding Debt. During the four months ended September
          30, 2003, holders of the Q-Series Bonds elected to convert bonds with
          an aggregate principal balance of 6,483,158 into 31,620,049 shares of
          common stock, of which 2,000,000 shares were registered in a Form S-3
          Registration statement filed in October 2003.

          Private Placement Offering. In October 2003, we received gross
          proceeds of $3,000,000 from a private placement to accredited
          investors in which we issued promissory notes in the aggregate
          principal amount of $3,000,000 ("Notes") and 2,000,000 shares of
          Series A Convertible Preferred Stock ("Series A Preferred"). The
          Series A Preferred is convertible into 29,500,000 shares of common
          stock, subject to adjustment based on certain anti-dilution
          provisions. We received net proceeds from this offering of $2,915,000,
          which we intend to use for general corporate purposes. Terms of the
          Series A Preferred and Notes are described below under the caption
          "Description of Securities." We granted registration rights to the
          selling stockholders covering the resale of shares of our common
          stock, which are issuable upon conversion of the Series A Preferred.
          We registered the resale of 29,500,000 shares of common stock
          underlying 2,000,000 shares Series A Preferred on a Form S-3
          Registration Statement.

                                      F-28

<PAGE>

                     Eagle Broadband, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                 August 31, 2003



                                   SCHEDULE II


                        VALUATION AND QUALIFYING ACCOUNTS



                   Years Ended August 31, 2003, 2002, and 2001



<TABLE>
<CAPTION>
                                                              Additions

                                                 Balance at   Charged to                   Balance at

                                                Beginning of  Expenses/                      End of

                 Description                       Period      Revenues    Deductions        Period

                                                                     (In thousands)
Allowance for doubtful accounts:

<S>                                                <C>         <C>          <C>             <C>
      2003                                          $242        $2,177       $(2,007 )       $   412

      2002                                          $480        $  125       $  (363 )       $   242

      2001                                          $ 89        $  391       $   ---         $   480


</TABLE>

                                      F-29