UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2007
or
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to  _____

Commission File Number 001-15649

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



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



| |                                                     | 
| | --------------------------------------------------- | 
| | 101 COURAGEOUS DRIVE
LEAGUE CITY, TEXAS 77573       | 
| | (Address of principal executive offices) (Zip Code) | 



| |                                                      | 
| | ---------------------------------------------------- | 
| | (281) 538-6000                                       | 
| | (Registrants telephone number, including area code) | 



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



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



Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [X]



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
[  ] Yes     [X] No



As of July 19, 2007, the registrant had 42,415,072 shares of common stock outstanding.







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|                                                                                              |  |   
|--------------------------------------------------------------------------------------------- |  | --
|EAGLE BROADBAND, INC.
FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2007
TABLE OF CONTENTS         
|                                                                                              |  |   
|                                                                                              |  |   
|                                                                                              |  |   
|PART IFINANCIAL INFORMATION                                                                  |  |   
|                                                                                              |  |   
|Item 1. Financial Statements                                                                  |  | 3 
|Consolidated Balance Sheets                                                                   |  | 3 
|Consolidated Statements of Operations                                                         |  | 4 
|Consolidated Statements of Shareholders Equity (Deficit)                                     |  | 5 
|Consolidated Statements of Cash Flows                                                         |  | 6 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 20
|Item 4. Controls and Procedures                                                               |  | 30
|                                                                                              |  |   
|PART IIOTHER INFORMATION                                                                     |  |   
|                                                                                              |  |   
|Item 1. Legal Proceedings                                                                     |  | 31
|Item 1A. Risk Factors.                                                                        |  | 31
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.                          |  | 32
|Item 6. Exhibits                                                                              |  | 32







2



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PART IFINANCIAL INFORMATION

Item 1.

Financial Statements.

EAGLE BROADBAND, INC.
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                   |              |           |                 |   |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------ | --------- | --------------- | - | ---------
|(Dollars in thousands)                                                                                                                                             | May 31, 2007 |           | August 31, 2006
|(Unaudited)                                                                                                                                                        | (Audited)   
|ASSETS                                                                                                                                                             |              |           |                 |   |          
|Current Assets                                                                                                                                                     |              |           |                 |   |          
|Cash and cash equivalents                                                                                                                                          | $            | 45        |                 | $ | 3,139    
|Accounts receivable, net of allowance for doubtful accounts of $196 and $49 at May 31, 2007 and August 31, 2006, respectively                                      |              | 424       |                 |   | 516      
|Inventories                                                                                                                                                        |              | 480       |                 |   | 734      
|Assets held for sale                                                                                                                                               |              | ―         |                 |   | 899      
|Prepaid expenses                                                                                                                                                   |              | 132       |                 |   | 322      
|Total Current Assets                                                                                                                                               |              | 1,081     |                 |   | 5,610    
|Property and Equipment                                                                                                                                             |              |           |                 |   |          
|Operating equipment                                                                                                                                                |              | 11,717    |                 |   | 18,691   
|Less: accumulated depreciation                                                                                                                                     |              | (7,961)   |                 |   | (7,347)  
|Total Property and Equipment                                                                                                                                       |              | 3,756     |                 |   | 11,344   
|Other Assets                                                                                                                                                       |              |           |                 |   |          
|Deferred costs                                                                                                                                                     |              | 19        |                 |   | ―        
|Goodwill                                                                                                                                                           |              | 4,095     |                 |   | 4,095    
|Contract rights, net                                                                                                                                               |              | ―         |                 |   | 389      
|Customer relationships, net                                                                                                                                        |              | 473       |                 |   | 129      
|Other intangible assets, net                                                                                                                                       |              | 256       |                 |   | 197      
|Total Other Assets                                                                                                                                                 |              | 4,843     |                 |   | 4,810    
|Total Assets                                                                                                                                                       | $            | 9,680     |                 | $ | 21,764   
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                     |              |           |                 |   |          
|Current Liabilities                                                                                                                                                |              |           |                 |   |          
|Notes payable & current portion of long-term debt, net of discount                                                                                                 | $            | 3,092     |                 | $ | 3,990    
|Accounts payable                                                                                                                                                   |              | 4,945     |                 |   | 6,147    
|Accrued expenses                                                                                                                                                   |              | 2,074     |                 |   | 1,929    
|Accrued expenses  related party                                                                                                                                   |              | 2,824     |                 |   | 2,430    
|Compound embedded derivative                                                                                                                                       |              | 1,631     |                 |   | 1,564    
|Warrant liability                                                                                                                                                  |              | 426       |                 |   |         
|Deferred revenue                                                                                                                                                   |              | 80        |                 |   | 163      
|Total Current Liabilities                                                                                                                                          |              | 15,072    |                 |   | 16,223   
|Long-Term Liabilities                                                                                                                                              |              |           |                 |   |          
|Long-term debt, net of current portion and discount                                                                                                                |              | 442       |                 |   | 1,443    
|Compound embedded derivative                                                                                                                                       |              |          |                 |   | 2,153    
|Warrant liability                                                                                                                                                  |              |          |                 |   | 82       
|Total Long-Term Liabilities                                                                                                                                        |              | 442       |                 |   | 3,678    
|Total Liabilities                                                                                                                                                  |              | 15,514    |                 |   | 19,901   
|Commitments and Contingencies                                                                                                                                      |              | ―         |                 |   | ―        
|Shareholders’ Equity (Deficit)                                                                                                                                     |              |           |                 |   |          
|Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued                                                                                        | ―            |           |                 | ―
|Common Stock – $0.001 par value, 350,000,000 shares authorized, 30,646,409 and 12,092,758 issued and outstanding at May 31, 2007 and August 31, 2006, respectively |              | 31        |                 |   | 12       
|Additional paid in capital                                                                                                                                         |              | 250,256   |                 |   | 242,900  
|Accumulated deficit                                                                                                                                                |              | (256,121) |                 |   | (241,049)
|Total Shareholders Equity (Deficit)                                                                                                                               |              | (5,834)   |                 |   | 1,863    
|Total Liabilities and Shareholders Equity (Deficit)                                                                                                               | $            | 9,680     |                 | $ | 21,764   

See accompanying notes to consolidated financial statements.



3



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EAGLE BROADBAND, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                            |                                    |          |                                   |   |         |  |      |          |  |   |        
|------------------------------------------- | ---------------------------------- | -------- | --------------------------------- | - | ------- |  | ---- | -------- |  | - | -------
|(Dollars in thousands)                      | For the three months
ended May 31, |          | For the nine months
ended May 31,
|                                            | 2007                               |          | 2006                              |   | 2007    |  | 2006
|Net Sales                                   |                                    |          |                                   |   |         |  |      |          |  |   |        
|Structured wiring                           | $                                  | 615      |                                   | $ | 491     |  | $    | 1,496    |  | $ | 1,376  
|Broadband services                          |                                    | 119      |                                   |   | 141     |  |      | 364      |  |   | 499    
|Products                                    |                                    | 74       |                                   |   | 137     |  |      | 786      |  |   | 919    
|Other                                       |                                    | ―        |                                   |   | 32      |  |      | ―        |  |   | 110    
|Total Sales                                 |                                    | 808      |                                   |   | 801     |  |      | 2,646    |  |   | 2,904  
|Costs of Goods Sold                         |                                    |          |                                   |   |         |  |      |          |  |   |        
|Direct labor and related costs              |                                    | 215      |                                   |   | 221     |  |      | 554      |  |   | 714    
|Products and integration service            |                                    | 130      |                                   |   | 380     |  |      | 693      |  |   | 634    
|Impairment slow moving & obsolete inventory |                                    | 199      |                                   |   | ―       |  |      | 248      |  |   | 107    
|Structured wiring labor and materials       |                                    | 345      |                                   |   | 394     |  |      | 1,195    |  |   | 1,114  
|Broadband services costs                    |                                    | 6        |                                   |   | (47)    |  |      | 51       |  |   | 251    
|Depreciation and amortization               |                                    | 59       |                                   |   | 206     |  |      | 173      |  |   | 636    
|Other manufacturing costs                   |                                    |         |                                   |   | (81)    |  |      |         |  |   |       
|Total Costs of Goods Sold                   |                                    | 954      |                                   |   | 1,073   |  |      | 2,914    |  |   | 3,456  
|Gross Profit (Loss)                         |                                    | (146)    |                                   |   | (272)   |  |      | (268)    |  |   | (552)  
|Operating Expenses                          |                                    |          |                                   |   |         |  |      |          |  |   |        
|Salaries and related costs                  |                                    | 879      |                                   |   | 899     |  |      | 2,369    |  |   | 2,871  
|Advertising and promotion                   |                                    | 47       |                                   |   | 42      |  |      | 126      |  |   | 84     
|Depreciation and amortization               |                                    | 417      |                                   |   | 267     |  |      | 924      |  |   | 929    
|Other support costs                         |                                    | 1,113    |                                   |   | 486     |  |      | 3,683    |  |   | 3,154  
|Research and development                    |                                    | 80       |                                   |   | 304     |  |      | 145      |  |   | 538    
|Impairment expense                          |                                    | 8,666    |                                   |   | ―       |  |      | 8,666    |  |   | ―      
|Total Operating Expenses                    |                                    | 11,202   |                                   |   | 1,998   |  |      | 15,913   |  |   | 7,576  
|Loss from Operations                        |                                    | (11,348) |                                   |   | (2,270) |  |      | (16,181) |  |   | (8,128)
|Other Income/(Expenses)                     |                                    |          |                                   |   |         |  |      |          |  |   |        
|Interest income                             |                                    | ―        |                                   |   | 2       |  |      | 12       |  |   | 15     
|Interest expense                            |                                    | (731)    |                                   |   | (282)   |  |      | (2,424)  |  |   | (562)  
|Derivative income                           |                                    | 2,923    |                                   |   | 161     |  |      | 1,900    |  |   | 181    
|Gain on sale of assets                      |                                    | ―        |                                   |   | 1       |  |      | ―        |  |   | 40     
|Loss on extinguishment of debt              |                                    | (1)      |                                   |   | (22)    |  |      | (187)    |  |   | (22)   
|Other income/(expense)                      |                                    | 1,840    |                                   |   | (60)    |  |      | 1,808    |  |   | (60)   
|Total Other Income (Expense)                |                                    | 4,031    |                                   |   | (200)   |  |      | 1,109    |  |   | (408)  
|Loss from Continuing Operations             |                                    | (7,317)  |                                   |   | (2,470) |  |      | (15,072) |  |   | (8,536)
|Loss from discontinued operations           |                                    | ―        |                                   |   | (17)    |  |      | ―        |  |   | (657)  
|Net Loss                                    | $                                  | (7,317)  |                                   | $ | (2,487) |  | $    | (15,072) |  | $ | (9,193)
|Basic and diluted loss per Common Share:    |                                    |          |                                   |   |         |  |      |          |  |   |        
|Loss from continuing operations             | $                                  | (0.28)   |                                   | $ | (0.28)  |  | $    | (0.72)   |  | $ | (0.99) 
|Loss from discontinued operations           | $                                  | ―        |                                   | $ | ―       |  | $    | ―        |  | $ | (0.08) 
|Net loss                                    | $                                  | (0.28)   |                                   | $ | (0.28)  |  | $    | (0.72)   |  | $ | (1.07) 

See accompanying notes to consolidated financial statements.



4



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EAGLE BROADBAND, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)

|                                                            |       |              |  |                 |    |                            |   |                   |   |                                      |  |   |           |  |   |          | 
|----------------------------------------------------------- | ----- | ------------ |  | --------------- | -- | -------------------------- | - | ----------------- | - | ------------------------------------ |  | - | --------- |  | - | -------- | 
|(Shares and dollars in thousands)                           |       | Common Stock |  | Preferred Stock |    | Additional Paid in Capital |   | Retained Earnings |   | Total Shareholders Equity (Deficit)
|Shares                                                      | Value
|                                                            |       |              |  |                 |    |                            |   |                   |   |                                      |  |   |           |  |   |         
|Shareholders Equity at August 31, 2005                     |       | 8,235        |  | $               | 8  |                            |  |                   | $ | 237,212                              |  | $ | (214,116) |  | $ | 23,104  
|Net loss for the year ended August 31, 2006                 |       |             |  |                 |   |                            |  |                   |   |                                     |  |   | (26,933)  |  |   | (26,933)
|Stock issued for services and compensation                  |       | 151          |  |                 |   |                            |  |                   |   | 244                                  |  |   |          |  |   | 244     
|Stock issued for retirement of debt and accrued liabilities |       | 1,060        |  |                 | 1  |                            |  |                   |   | 957                                  |  |   |          |  |   | 958     
|Proceeds from sale of common stock, net                     |       | 1,722        |  |                 | 2  |                            |  |                   |   | 1,593                                |  |   |          |  |   | 1,595   
|Stock-based compensation                                    |       |             |  |                 |   |                            |  |                   |   | 642                                  |  |   |          |  |   | 642     
|Reclassification of stock payable, net                      |       | 425          |  |                 |   |                            |  |                   |   | 2,008                                |  |   |          |  |   | 2,008   
|Incentive shares to Dutchess for note                       |       | 500          |  |                 | 1  |                            |  |                   |   | 244                                  |  |   |          |  |   | 245     
|Shareholders Equity at August 31, 2006                     |       | 12,093       |  | $               | 12 |                            |  |                   | $ | 242,900                              |  | $ | (241,049) |  | $ | 1,863   
|Net loss for the nine months ended May 31, 2007             |       |              |  |                 |    |                            |   |                   |   |                                     |  |   | (15,072)  |  |   | (15,072)
|Stock issued for services and compensation                  |       | 1,178        |  |                 | 2  |                            |  |                   |   | 445                                  |  |   |          |  |   | 447     
|Stock issued for retirement of debt                         |       | 6,958        |  |                 | 7  |                            |  |                   |   | 2,554                                |  |   |          |  |   | 2,561   
|Stock issued for acquisitions                               |       | 1,204        |  |                 | 1  |                            | ― |                   |   | 637                                  |  |   | ―         |  |   | 638     
|Proceeds from sale of common stock, net                     |       | 9,213        |  |                 | 9  |                            | — |                   |   | 3,200                                |  |   | —         |  |   | 3,209   
|Stock-based compensation                                    |       | —            |  |                 | —  |                            | — |                   |   | 520                                  |  |   | —         |  |   | 520     
|Shareholders’ Deficit at May 31, 2007                       |       | 30,646       |  | $               | 31 |                            | — |                   | $ | 250,256                              |  | $ | (256,121) |  | $ | (5,834) 

See accompanying notes to consolidated financial statements.



5



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EAGLE BROADBAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                             |                     |          |      |   |        
|---------------------------------------------------------------------------- | ------------------- | -------- | ---- | - | -------
|(Dollars in thousands)                                                       | For the nine months
|ended May 31,                                                               
|                                                                             | 2007                |          | 2006
|Cash Flows from Operating Activities                                         |                     |          |      |   |        
|Net Loss                                                                     | $                   | (15,072) |      | $ | (9,193)
|Adjustments to reconcile net loss to net cash used for operating activities: |                     |          |     
|Impairment, write-downs & restructuring cost                                 |                     | 8,666    |      |   | ―      
|Depreciation and amortization                                                |                     | 1,097    |      |   | 1,598  
|Provision for inventory obsolescence                                         |                     | 248      |      |   | —      
|Loss on extinguishment of debt                                               |                     | 187      |      |   | 22     
|Stock for services and compensation                                          |                     | 967      |      |   | 557    
|Amortization of debt discount                                                |                     | 1,630    |      |   | 377    
|Derivative income                                                            |                     | (1,900)  |      |   | (181)  
|Provision for bad debt                                                       |                     | 186      |      |   | 495    
|Loss on sale of assets                                                       |                     | ―        |      |   | 148    
|Adjustments to cost of sales                                                 |                     | ―        |      |   | 24     
|Adjustment to settlement expense                                             |                     | ―        |      |   | (576)  
|Change in Assets and Liabilities:                                            |                     |          |      |   |        
|Decrease in restricted cash                                                  |                     | ―        |      |   | 203    
|(Increase)/decrease in accounts receivable                                   |                     | (94)     |      |   | 837    
|(Increase)/decrease in inventories                                           |                     | 19       |      |   | 212    
|(Increase)/decrease in prepaid expenses                                      |                     | 190      |      |   | 43     
|(Increase)/decrease in other assets                                          |                     | (24)     |      |   | 675    
|Increase/(decrease) in accounts payable                                      |                     | (1,702)  |      |   | (98)   
|Increase/(decrease) in accrued expenses                                      |                     | 455      |      |   | (181)  
|Total Adjustment                                                             |                     | 9,925    |      |   | 4,155  
|Net Cash Used for Operating Activities                                       |                     | (5,147)  |      |   | (5,038)
|Cash Flows from Investing Activities                                         |                     |          |      |   |        
|Purchase of property and equipment                                           |                     | (1,042)  |      |   | (54)   
|Increase in deferred costs                                                   |                     | (19)     |      |   | ―      
|Principal collections on direct financing leases                             |                     | 899      |      |   | 296    
|Proceeds from the sale of assets                                             |                     | ―        |      |   | 234    
|Net Cash (Used) Provided by Investing Activities                             |                     | (162)    |      |   | 476    
|Cash Flows from Financing Activities                                         |                     |          |      |   |        
|Payments on notes payable and long-term debt                                 |                     | (2,194)  |      |   | (282)  
|Proceeds from notes payable and long-term debt                               |                     | 1,200    |      |   | 750    
|Proceeds from sale of common stock, net                                      |                     | 3,209    |      |   | 335    
|Net Cash Provided by Financing Activities                                    |                     | 2,215    |      |   | 803    
|Net decrease in cash and cash equivalents                                    |                     | (3,094)  |      |   | (3,759)
|Cash and cash equivalents at the beginning of the period                     |                     | 3,139    |      |   | 4,020  
|Cash and cash equivalents at the end of the period                           | $                   | 45       |      | $ | 261    
|Supplemental Disclosure of Cash Flow Information                             |                     |          |      |   |        
|Net cash paid during the period for:                                         |                     |          |      |   |        
|Interest                                                                     | $                   | 356      |      | $ | 47     
|Income taxes                                                                 | $                   | ―        |      | $ | ―      
|Non-cash investing and financing disclosures                                 |                     |          |      |   |        
|Common stock issued for retirement of debt                                   | $                   | 2,561    |      | $ | 1,347  
|Common stock issued for asset purchase                                       | $                   | 638      |      | $ | —      

See accompanying notes to consolidated financial statements.



6



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Eagle Broadband, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements May 31, 2007 
(Unaudited)



NOTE 1 - Basis of Presentation and Significant Accounting Policies



The Consolidated Balance Sheet of the company as of May 31, 2007, the related Consolidated Statements of Operations for the three months and nine months ended May 31, 2007 and 2006, the Consolidated Statements of Changes in Shareholders Equity (Deficit) as of May 31, 2007 and the Consolidated Statements of Cash Flows for the nine months ended May 31, 2007 and 2006, included in the financial statements have been prepared by the company without audit.  In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal, recurring adjustments) necessary to summarize fairly the companys financial position and results of operations.  The results of operations for the three and nine months ended May 31, 2007, are not necessarily indicative of the results of operations for the full year or any other interim period.  The information included in this Form 10-Q should be read in conjunction with Managements Discussion and Analysis and Financial Statements and notes thereto included in the companys August 31, 2006, Form 10-K.



On May 12, 2006, the company effected a 1-for-35 reverse stock split.  In these Notes to the Consolidated Financial Statements, all previously reported stock information has been adjusted to reflect the effect of the reverse stock split.



In accordance with the provisions of SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets, the results of operations of the disposed assets and the losses related to the sale of the security monitoring business component have been classified as discontinued operations for all periods presented in the accompanying consolidated statements of operations.  See Note 18  Discontinued Operations.



NOTE 2 - Related Party Transactions



H. Dean Cubley, a former director and former officer of the company, is the holder of a promissory note with a remaining principal amount of $1,924,000.  The note is currently in default and is accruing interest under the terms of the original agreement.  The note was issued upon the modification of outstanding options for 2,000,000 common shares (pre-reverse split) and reflects a guaranteed compensation of the modified options equivalent to $1.75 less the option strike price.  Interest, calculated at 18% per the agreement is $764,922 and $506,000 as of May 31, 2007 and August 31, 2006, respectively.  The note payable and accrued interest are included in the balance sheet as accrued expenses.  In June 2007, a judgment was entered against the company and an additional $135,558 was accrued at May 31, 2007 for interest and other costs included in the judgment (see Legal Proceedings in Note 9  Commitments and Contingent Liabilities).



NOTE 3  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:



|                |              |     |                 |   |    
|--------------- | ------------ | --- | --------------- | - | ---
|                | May 31, 2007 |     | August 31, 2006
|Raw materials   | $            | 231 |                 | $ | 288
|Work in process |              | 150 |                 |   | 169
|Finished goods  |              | 99  |                 |   | 277
|                | $            | 480 |                 | $ | 734





7



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NOTE 4 - Impairment of Long-Lived Assets



Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets requires that long-lived assets (asset groups) shall be tested for recoverability whenever events or change in circumstances indicate that its carrying amount may not be recoverable.  In May 2007, the company entered into an asset purchase agreement to sell its fiber optic network located in Harris and Fort Bend County, Texas.  This agreement, together with lower than expected revenues, prompted the company to test for recoverability.  The company performed, with the assistance of independent valuation experts, tests to determine if an impairment loss existed.  For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.



These tests took into consideration a number of factors including (i) current market conditions, (ii) the companys current and future financial performance, (iii) intrinsic risks evident in the markets in which the company operates and (iv) the underlying nature of Eagles operations and business.  Utilizing a fair value standard as set forth in SFAS 144, as of May 31, 2007, management determined an impairment of $8,056,354 existed for certain Houston-area communities where broadband infrastructure had been installed.



The companys market capitalization as of year ended August 31, 2006, was below the book value of its assets, which indicated the need to test for recoverability.  The company performed, with the assistance of independent valuation experts, tests to determine if an impairment loss existed.  For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.



These tests took into consideration a number of factors including (i) current market conditions, (ii) the companys current and future financial performance, (iii) intrinsic risks evident in the markets in which the company operates and (iv) the underlying nature of Eagles operations and business.  Utilizing a fair value standard as set forth in SFAS 144, as of August 31, 2006, management determined an impairment of $10,341,262 existed for certain Houston-area communities where broadband infrastructure had been installed.



NOTE 5 - Intangible Assets



Intangible assets consist of the following (in thousands):



|                               |              |          |                 |   |         
|------------------------------ | ------------ | -------- | --------------- | - | --------
|                               | May 31,
2007 |          | August 31, 2006
|Goodwill                       | $            | 4,095    |                 | $ | 4,095   
|                               |              |          |                 |   |         
|Contract Rights                | $            | 9,242    |                 | $ | 9,603   
|Accumulated amortization       |              | (9,242)  |                 |   | (9,214) 
|                               | $            | ―        |                 | $ | 389     
|                               |              |          |                 |   |         
|Customer Relationships         | $            | 3,200    |                 | $ | 2,447   
|Accumulated amortization       |              | (2,727)  |                 |   | (2,318) 
|                               | $            | 473      |                 | $ | 129     
|                               |              |          |                 |   |         
|Other intangible assets        | $            | 3,455    |                 | $ | 3,374   
|Accumulated amortization       |              | (3,199)  |                 |   | (3,177) 
|                               | $            | 256      |                 | $ | 197     
|                               |              |          |                 |   |         
|Total intangible assets        | $            | 19,992   |                 | $ | 19,519  
|Total accumulated amortization |              | (15,168) |                 |   | (14,709)
|Net of amortization            | $            | 4,824    |                 | $ | 4,810   





8



---

Intangible assets are amortized using methods that approximate the benefit provided by the utilization of the assets.  Contract rights, customer relationships and other intangibles are amortized on a straight-line basis.  We continually evaluate the amortization period and carrying basis of intangible assets to determine whether subsequent events and circumstances warrant a revised estimated useful life or reduction in value.



Total amortization of intangible assets was $484,120 and $350,600 for the nine months ended May 31, 2007 and 2006, respectively.



On March 22, 2007, the company completed the acquisition of the telecom services division of Alliance & Maintenance Services, Inc.  As part of the acquisition, the company acquired (1) a customer list valued at $234,000, which is being amortized over two years, and (2) a non-compete agreement valued at $211,000 and is being amortized over one year.



On January 2, 2007, the company completed the acquisition of a customer list from Connex Services, Inc., which was valued at $638,000 and is being amortized over eight months.



Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets requires that goodwill and intangible assets be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain circumstances.  The carrying amount of an intangible asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  That assessment shall be based on the carrying amount of the asset at the date it is tested for recoverability.  The company performed, with the assistance of independent valuation experts, an impairment test of the carrying value of intangible assets.  Eagle has intangible assets related to goodwill, contracts, customers and subscribers.  As of May 31, 2007, the company determined there had been erosion of contracts, customers and subscribers acquired in the January 2001 merger of Clearworks.net, Inc.  The company evaluated and considered two separate methodologies in conducting the analysis and selected the approach assigning the greater value realized from the present value technique or the quoted market approach.  The following factors were considered (i) current market conditions, (ii) the companys current and future financial performance, (iii) intrinsic risks evident in the markets in which the company operates and (iv) the underlying nature of Eagles operations and business.  Utilizing a fair value standard as set forth in SFAS 142, as of May 31, 2007, management determined an impairment charge of $610,137 existed for its intangible assets, primarily the contract rights, customer relationships and other intangible assets related to the January 2001 merger of Clearworks.net, Inc.



Utilizing a fair value standard as set forth in SFAS 142, as of August 31, 2006, management determined an impairment charge of $3,427,830 existed for the intangible assets of contract rights, customer relationships and other intangible assets related to the January 2001 merger of Clearworks.net, Inc.



The company assessed the fair value of goodwill as of May 31, 2007, and August 21, 2006 and concluded that the goodwill valuations remain at an amount greater than the current carrying asset value.





9



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NOTE 6 - Notes Payable and Long-Term Debt



The following table lists the companys note obligations as of May 31, 2007, and August 31, 2006 (in thousands):



|                                      |                                       |  |               |  |               |  |                   |  |                      |  |               |  |              |  |                
|------------------------------------- | ------------------------------------- |  | ------------- |  | ------------- |  | ----------------- |  | -------------------- |  | ------------- |  | ------------ |  | ---------------
|                                      | Terms                                 |  | Maturity Date |  | Interest Rate |  | Principal balance |  | Derivative Liability |  | Debt Discount |  | May 31, 2007 |  | August 31, 2006
|Dutchess convertible note and warrant | $90,157 per month including interest  |  | May 07        |  | 12%           |  | 10                |  | 25                   |  | ―             |  | 35           |  | 480            
|Dutchess promissory note              | $250,000 per month including interest |  | Jul 08        |  | 12%           |  | 4,053             |  | 1,404                |  | (2,095)       |  | 3,362        |  | 3,835          
|Dutchess promissory note              | $100,000 per month including interest |  | Jun 08        |  | 12%           |  | 1,300             |  | 564                  |  | (1,082)       |  | 782          |  | ―              
|Tail Wind notes                       | $16,667 per month                     |  | Mar 08        |  | 0%            |  | 1,347             |  | 64                   |  | (38)          |  | 1,373        |  | 4,625          
|Note with related party               | $200,000 due 4/1/07 plus interest     |  | Apr 07        |  | 25%           |  | ―                 |  | ―                    |  | ―             |  | ―            |  | 200            
|Notes payable                         | Various                               |  | Various       |  | Various       |  | 39                |  | ―                    |  | ―             |  | 39           |  | 92             
|Total debt                            |                                       |  |               |  |               |  | 6,749             |  | 2,057                |  | (3,215)       |  | 5,591        |  | 9,232          
|Less current maturities               |                                       |  |               |  |               |  |                   |  |                      |  |               |  | (6,007)      |  | (3,990)        
|Less current debt discount            |                                       |  |               |  |               |  |                   |  |                      |  |               |  | 2,915        |  | ―              
|Less derivatives                      |                                       |  |               |  |               |  |                   |  |                      |  |               |  | (2,057)      |  | (3,799)        
|Long-term debt                        |                                       |  |               |  |               |  |                   |  |                      |  |               |  | 442          |  | 1,443          



DUTCHESS PROMISSORY NOTE



On February 2, 2007, the company entered into a promissory note agreement with Dutchess Private Equities Fund, Ltd., pursuant to which the company sold a $1,300,000, 12% promissory note due June 2, 2008.  The company agreed to issue 200,000 shares of unregistered restricted common stock and a warrant for 2,500,000 shares with an exercise price of $0.001 per share to Dutchess as an incentive for the investment.



The note bears interest at 12%, provides for monthly interest and principal payments of $100,000 beginning June 2, 2007, and matures on June 2, 2008.  If any portion of the face amount of the note remains unpaid upon maturity, Dutchess has the right to increase such amount by five percent (5%) as an initial penalty and an additional two percent (2%) per month paid, pro rata for partial periods, compounded daily, as liquidated damages.  In the event of default, Dutchess may either (i) convert the note to a three-year convertible debenture or (ii) accelerate the payments due under the note.  The note is secured by all of the assets of the company.



The promissory note was determined to include various embedded derivative liabilities. The derivative liabilities are the conversion feature, conversion price, reset provision and the companys optional early redemption right and cash payment penalty (compound embedded derivative liability).  At the date of issuance (February 2, 2007) the promissory note and compound embedded derivative liability were measured at fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques.  At inception, the fair value of this single compound embedded derivative was bifurcated from the host debt contract and recorded as a derivative liability which resulted in a reduction of the initial notional carrying amount of the promissory note.  The derivative liability will be marked-to-market each quarter with the change in fair value recorded in the income statement.



At May 31, 2007, the company was not current with the payments on either of the two Dutchess promissory notes.  Dutchess granted the company a waiver on July 13, 2007, suspending both of these events of default indefinitely, provided that no future events of default occur.



10



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NOTE 7 - Stock Options and Warrants



In June 2005, the Board of Directors adopted, and the companys shareholders approved, the 2005 Employee Stock Option Plan under which 30,000,000 shares (pre-reverse split) of the companys common stock were reserved for issuance.  In February 2006, the Executive Committee of the Board of Directors of the company voted to amend the plan to reduce the shares available for issuance under the plan from 30,000,000 to 20,000,000.  On May 12, 2006, the company effected a 1-for-35 reverse stock split, which reduced the number of shares available for issuance under the plan to 571,429.  As of May 31, 2007, 571,429 shares of common stock had been issued under the plan, and options issued under the plan covering 341,036 shares were outstanding, of which 270,287 were exercisable.



In November 2006, the Board of Directors adopted, and the companys shareholders approved, the 2007 Stock Option and Stock Bonus Plan, under which 2,000,000 shares of the companys common stock have been reserved for issuance.  In July 2007, the Board adopted an amendment to the plan to increase the number of shares available for issuance under the plan to 4,500,000.  As of May 31, 2007, 869,078 shares of common stock had been issued under the plan and no stock options have been issued under the plan.



The weighted average fair value of the options granted during the nine months ended May 31, 2007, is estimated at $0.45 on the date of grant.  The fair values of the options granted during the nine months ended May 31, 2007, were determined using a Black-Scholes option-pricing model with the following assumptions:



|                        |  |                      |  |                    
|----------------------- |  | -------------------- |  | -------------------
|                        |  | December 2006
Grants |  | January 2007
Grants
|Dividend Yield          |  | 0%                   |  | 0%                 
|Risk-free interest rate |  | 4.53%                |  | 4.75%              
|Volatility              |  | 75%                  |  | 69%                
|Expected Life           |  | 3.5 years            |  | 3.5 years          



Option and warrant activity, including employees and third parties, was as follows for the nine months ended May 31, 2007:



|                                   |  |        |           |                                 |  |   |       |  |  | 
|---------------------------------- |  | ------ | --------- | ------------------------------- |  | - | ----- |  |  | 
|                                   |  | Shares |           | Weighted Average Exercise Price
|Outstanding at beginning of period |  |        | 474,040   |                                 |  | $ | 20.95
|Granted                            |  |        | 3,096,245 |                                 |  |   | 0.10 
|Exercised                          |  |        | (78,333)  |                                 |  |   | 0.38 
|Forfeited/cancelled                |  |        | (15,657)  |                                 |  |   | 15.47
|Outstanding at end of period       |  |        | 3,476,295 |                                 |  | $ | 2.79 
|Exercisable at end of period       |  |        | 3,405,546 |                                 |  | $ | 2.62 





11



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Information about options and warrants outstanding was as follows at May 31, 2007:



|                         |  |                    |  |                                          |  |                        |  |                    |  |                       
|------------------------ |  | ------------------ |  | ---------------------------------------- |  | ---------------------- |  | ------------------ |  | ----------------------
|Range of Exercise Prices |  | Number Outstanding |  | Avg. Remaining Contractual Life in Years |  | Average Exercise Price |  | Number Exercisable |  | Average Exercise Price
|$0.001                   |  | 2,500,000          |  | 4.68                                     |  | $ 0.001                |  | 2,500,000          |  | $ 0.001               
|$0.384                   |  | 564,245            |  | 3.67                                     |  | $ 0.384                |  | 564,245            |  | $ 0.384               
|$0.48  $0.9765          |  | 54,622             |  | 1.70                                     |  | $ 0.79                 |  | 54,622             |  | $ 0.79                
|$4.20  $9.45            |  | 269,893            |  | 2.46                                     |  | $ 6.45                 |  | 209,694            |  | $ 6.39                
|$14.00  $39.55          |  | 64,678             |  | 1.73                                     |  | $ 25.98                |  | 54,128             |  | $ 24.72               
|$262.50                  |  | 22,857             |  | 1.15                                     |  | $ 262.50               |  | 22,857             |  | $ 262.50              
|                         |  | 3,476,295          |  | 4.21                                     |  | $ 2.79                 |  | 3,405,546          |  | $ 2.62                



NOTE 8 - Risk Factors



Financial instruments that potentially subject the company to concentrations of credit risk consist principally of trade accounts receivable.  The company controls credit risk associated with its receivables through credit checks and approvals, credit limits and monitoring procedures.  Generally, the company requires no collateral from its customers.  Two customers comprised 31% and 17%, respectively, of outstanding receivables at May 31, 2007.  Two customers comprised 34% and 13%, respectively, of outstanding accounts receivable at August 31, 2006.



For the nine months ended May 31, 2007, substantially all of the companys business activities have remained within the United States.  Approximately 25% of the companys revenues and receivables have been created solely in the state of Texas, 5% in the international market, and the approximate 70% remainder relatively evenly over the rest of the nation during the nine months ended May 31, 2007; whereas approximately 27% of the companys revenues and receivables were created solely in the state of Texas, 0% in the international market, and the approximate 73% remainder relatively evenly over the rest of the nation during the nine months ended May 31, 2006.



The company maintains cash deposits in banks which from time to time exceed the amount of deposit insurance available.  Management periodically assesses the financial condition of the institutions and believes that any potential credit loss is minimal.



NOTE 9 - Commitments and Contingent Liabilities



Leases



For the nine months ended May 31, 2007 and 2006, rental expenses of approximately $264,700 and $227,000, respectively, were incurred.



The company and its landlord, ANREM Corporation, amended the lease agreement for office space in League City, Texas.  The amended lease commenced on June 1, 2007, and has an expiration date of May 31, 2009.  The company exercised its one-time termination option and negotiated an amendment with the lessor to the new lease for a reduction in the rentable area from 25,515 square feet to 13,253 square feet.  The company and lessor agreed to a pro-rated termination penalty in the amount of $34,949, which was reduced by applying $11,081 of the existing security deposit, resulting in a net termination penalty of $23,868.  The amended lease calls for base rent payments of $12,977 per month for the months of June to August 2007, and $14,081 per month for the months of September 2007 to May 2009.  In addition, the company and lessor each agreed to pay one-half of the demising expenses associated with the reduction in rentable area.  The companys portion of the demising expenses, $1,436 per month for the remainder of the lease, will be added to the monthly base rent payment.





12



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Future minimum rental payments under the companys amended primary office lease are as follows:



|                            |            |  |        |        
|--------------------------- | ---------- |  | ------ | -------
|                            | August 31, |  | Amount
|For the three months ending | 2007       |  | $      | 43,239 
|For the year ending         | 2008       |  |        | 186,210
|For the year ending         | 2009       |  |        | 139,657
|                            | Total      |  | $      | 369,106



Legal Proceedings



In August 2006, Eagle became a defendant in H. Dean Cubley vs. Eagle Broadband, Inc.  Mr. Cubley, a former director of the company, filed a lawsuit against the company seeking to enforce a promissory note entered into by the company in December 2003, in lieu of the issuance of shares for stock options then held by Mr. Cubley, who was at the time Chairman of the Board of the company.  The lawsuit seeks recovery of the principal balance of approximately $1.9 million plus accrued interest.  The company asserted defenses, including a defense that the execution of the promissory note by the company was induced by misrepresentations.  In May 2007, the court granted Mr. Cubleys partial motion for summary judgment, and in June 2007, the court entered a final judgment against the company awarding Mr. Cubley the principal balance of $1,923,053, interest of $814,113 through March 1, 2007, additional interest at 18% from March 1, 2007, and attorneys fees and court costs of approximately $53,000.  As of May 31, 2007, the company has accrued approximately $2.8 million in connection with this claim.



In May 2006, Eagle filed a demand for arbitration before JAMS in Los Angeles, California, in connection with an agreement between the company and GlobeCast North America Incorporated.  The company is seeking an arbitral award declaring that either (i) both parties are excused from performance due to the existence of a force majeure event or (ii) the company is excused from performance due to GlobeCasts prior breach of the agreement.  GlobeCast denies that the agreement was unenforceable, that Eagles alleged failure to perform is excused and that there was a failure of any of the conditions precedent under the agreement.  GlobeCast also asserts that Eagle owes GlobeCast at least $250,000 for Eagles alleged failure to pay GlobeCast in accordance with the agreement, and, in the alternative, owes GlobeCast at least $1.5 million under a claim for restitution.  The company believes that its claims are meritorious and intends to vigorously pursue them, and that GlobeCasts claims lack merit and intends to vigorously defend itself against them.  The company has accrued $250,000 in connection with this lawsuit.



In September 2005, the State of Texas filed a lawsuit against United Computing Group, Inc., and H. Dean Cubley, individually, for unpaid sales and use tax, interest and penalties in the amount of $568,637 for the time period of March 1998 through December 2001.  The company has accrued $560,000 in connection with this lawsuit.



In July 2003, Eagle became a defendant in Cornell Capital Partners, L.P., vs. Eagle Broadband, Inc., et al., Civil Action No. 03-1860 (KSH), in the United States District Court for the District of New Jersey.  The suit presents claims for breach of contract, state and federal securities fraud and negligent misrepresentation.  Cornell also alleged that Eagle defaulted on a convertible debenture for failing to timely register the shares of common stock underlying the convertible debenture and is seeking to accelerate the maturity date of the debenture.  In November 2003, the principal balance of the debenture was repaid, although the suit remains outstanding.  Cornell claims damages of approximately $1.3 million.  Eagle asserted counterclaims against Cornell for fraud and breach of contract in the amount of $2 million.  In March 2006, the court ruled in favor of Cornell on certain claims, granting Cornells motion for partial summary judgment on its breach of contract claim and denying all of Eagles counterclaims.  The court ruled in favor of Eagle on other claims, granting Eagles motion for summary judgment on Cornells claims of common law fraud, state and federal securities fraud, and negligent misrepresentation.  In July 2007, the company and Cornell agreed to a settlement of this lawsuit, pursuant to which the company issued Cornell two, non-interest bearing convertible notes in the aggregate principle amount of $1.15 million.  As of May 31, 2007, the company has accrued $1,150,000 in connection with this lawsuit.





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In December 2000, Clearworks.net, Inc. became a defendant in State of Florida Department of Environmental Protection vs. Reco-Tricote, Inc., and Southeast Tire Recycling, Inc., currently known as Clearworks.net, Inc., in the Circuit Court of the Tenth Judicial Circuit in and for Polk County, Florida.  The Florida DEP included Clearworks in a lawsuit presenting claims for recovery costs and penalties for a waste tire processing facility.  The suit seeks recovery of costs and penalties in a sum in excess of $1 million, attorneys fees and cost of court.  Clearworks denies the claims against it and intends to vigorously contest all claims in this case and to enforce its indemnification rights against the principals of Southeast Tire Recycling.  The company has not accrued any expenses against this lawsuit, as the outcome cannot be predicted at this time.



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



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



NOTE 10 - Other Income



The company evaluated its accounts payable aging, particularly its accounts payable related to its inactive subsidiaries.  After consultation with outside counsel, the company determined that based on the statute of limitations in Texas for the collection of past due accounts, approximately $1.8 million of accounts payable that came due on or before May 31, 2003, would be uncollectible under Texas law and should be reversed.  These adjustments are reflected in Other Income on the companys Consolidated Statements of Operations.





14



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NOTE 11 - Earnings per Share



The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per share computations for net income for the nine months ended May 31, 2007 and 2006 (in thousands, except per share amounts):



|                                        |                                   |          |        |        |           |        |                    |   |         |  |           |  |       
|--------------------------------------- | --------------------------------- | -------- | ------ | ------ | --------- | ------ | ------------------ | - | ------- |  | --------- |  | ------
|                                        | For the nine months ended May 31,
|                                        | 2007                              |          | 2006  
|                                        | Net Income
/(Loss)                |          | Shares |        | Per Share |        | Net Income
/(Loss) |   | Shares  |  | Per Share
|Continuing Operations:                  |                                   |          |        |        |           |        |                    |   |         |  | (1)       |  |       
|Basic EPS                               |                                   |          |        |        |           |        |                    |   |         |  |           |  |       
|Income available to common shareholders | $                                 | (15,072) |        | 20,888 |           | (0.72) |                    | $ | (8,536) |  | 8,606     |  | (0.99)
|Effective of dilutive securities        |                                   | ―        |        | ―      |           | ―      |                    |   | ―       |  | ―         |  | ―     
|Diluted EPS                             | $                                 | (15,072) |        | 20,888 |           | (0.72) |                    | $ | (8,536) |  | 8,606     |  | (0.99)
|Discontinued Operations:                |                                   |          |        |        |           |        |                    |   |         |  |           |  |       
|Basic EPS                               |                                   |          |        |        |           |        |                    |   |         |  |           |  |       
|Income available to common shareholders | $                                 | ―        |        | 20,888 |           | ―      |                    | $ | (657)   |  | 8,606     |  | (0.08)
|Effective of dilutive securities        |                                   | ―        |        | ―      |           | ―      |                    |   | ―       |  | ―         |  | ―     
|Diluted EPS                             | $                                 | ―        |        | 20,888 |           | ―      |                    | $ | (657)   |  | 8,606     |  | (0.08)
|Total:                                  |                                   |          |        |        |           |        |                    |   |         |  |           |  |       
|Basic EPS                               |                                   |          |        |        |           |        |                    |   |         |  |           |  |       
|Income available to common shareholders | $                                 | (15,072) |        | 20,888 |           | (0.72) |                    | $ | (9,193) |  | 8,606     |  | (1.07)
|Effective of dilutive securities        |                                   | ―        |        | ―      |           | ―      |                    |   | ―       |  | ―         |  | ―     
|Diluted EPS                             | $                                 | (15,072) |        | 20,888 |           | (0.72) |                    | $ | (9,193) |  | 8,606     |  | (1.07)



(1)

The number of shares and per share amounts have been restated to reflect the impact of the May 12, 2006 one-for-thirty five reverse stock split.

NOTE 12 - Major Customers



The company had gross sales of $2,646,000 and $2,904,000 for the nine months ended May 31, 2007 and 2006, respectively.  The company had three customers that represented approximately 13%, 12% and 10%, respectively, of the gross sales for the nine months ended May 31, 2007, and had one customer that represented 22% of the gross sales for the nine months ended May 31, 2006.



NOTE 13 - Industry Segments



This summary reflects the companys current and past operating segments, as described below.  All have ceased operations except Eagle Broadband, Inc. and Eagle Broadband Services, Inc.



Eagle:

Eagle Broadband, Inc. (Eagle) is a provider of broadband, Internet Protocol (IP) and satellite communications technology and equipment with related software and broadband products.



EBS/DSS:

Eagle Broadband Services, Inc. (EBS) provides broadband services to residential and business customers in select communities.



D.S.S. Security, Inc. (DSS) was a wholesale security monitoring company.  (Has ceased operations.)

Clearworks Communications, Inc. provided solutions to consumers by implementing technology both within the residential community and home, through the installation of fiber optic backbones to deliver voice, video and data solutions directly to consumers.  (Has ceased operations.)





15



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APC/HSI:

Atlantic Pacific Communications, Inc. (APC) specialized in providing professional data and voice cable and fiber optic installations through project management services on a nationwide basis for multiple site-cabling installations for end users and resellers.  (Has ceased operations.)
Clearworks Home Systems, Inc. (HSI) specialized in providing fiber optic and copper based structured wiring solutions and audio and visual equipment to single-family and multi-family dwelling units.  (Has ceased operations.)



UCG:

United Computing Group, Inc. (UCG) was a computer hardware and software reseller.  (Has ceased operations.)



Other:

Link-Two Communications, Inc. was a developer and marketer of messaging systems.  (Has ceased operations.)

Clearworks.net, Inc. (.NET) is inactive with exception of debt related expenses.  (Has ceased operations.)



Contact Wireless, Inc. was a paging, cellular, and mobile services provider and reseller whose assets were sold in October 2003.  (Has ceased operations.)



For the nine months ended May 31, 2007 (in thousands):



|                                           |         |         |         |   |          |  |       |         |       |   |         |  |        |        |  |   |          |  |   |         
|------------------------------------------ | ------- | ------- | ------- | - | -------- |  | ----- | ------- | ----- | - | ------- |  | ------ | ------ |  | - | -------- |  | - | --------
|                                           | APC/HSI |         | EBS/DSS |   | UCG      |  | Eagle |         | Other |   | Elim.   |  | Consol
|Revenue                                    | $       | ―       |         | $ | 364      |  | $     | ―       |       | $ | 2,282   |  | $      | ―      |  | $ | ―        |  | $ | 2,646   
|Segment loss                               |         | ―       |         |   | (8,675)  |  |       | ―       |       |   | (7,506) |  |        | ―      |  |   | ―        |  |   | (16,181)
|Total assets                               |         | (8,918) |         |   | (36,583) |  |       | (3,101) |       |   | 85,074  |  |        | 16,320 |  |   | (43,112) |  |   | 9,680   
|Capital expenditures                       |         | ―       |         |   | ―        |  |       | ―       |       |   | 1,083   |  |        | ―      |  |   | ―        |  |   | 1,083   
|Depreciation, amortization, and impairment |         | 1       |         |   | 8,590    |  |       | 2       |       |   | 1,170   |  |        | ―      |  |   | ―        |  |   | 9,763   
|Goodwill                                   |         | ―       |         |   | ―        |  |       | ―       |       |   | 4,095   |  |        | ―      |  |   | ―        |  |   | 4,095   



For the nine months ended May 31, 2006 (in thousands):



|                              |         |         |         |   |          |  |       |         |       |   |         |  |        |        |  |   |          |  |   |        
|----------------------------- | ------- | ------- | ------- | - | -------- |  | ----- | ------- | ----- | - | ------- |  | ------ | ------ |  | - | -------- |  | - | -------
|                              | APC/HIS |         | EBS/DSS |   | UCG      |  | Eagle |         | Other |   | Elim.   |  | Consol
|Revenue                       | $       | ―       |         | $ | 499      |  | $     | ―       |       | $ | 2,405   |  | $      | ―      |  | $ | ―        |  | $ | 2,904  
|Segment loss                  |         | ―       |         |   | (1,305)  |  |       | (2)     |       |   | (6,821) |  |        | ―      |  |   | ―        |  |   | (8,128)
|Total assets                  |         | (8,917) |         |   | (17,319) |  |       | (3,098) |       |   | 89,436  |  |        | 16,320 |  |   | (43,112) |  |   | 33,310 
|Capital expenditures          |         | ―       |         |   | 4        |  |       | ―       |       |   | 50      |  |        | ―      |  |   | ―        |  |   | 54     
|Depreciation and amortization |         | 1       |         |   | 1,007    |  |       | 2       |       |   | 588     |  |        | ―      |  |   | ―        |  |   | 1,598  
|Goodwill                      |         | ―       |         |   | ―        |  |       | ―       |       |   | 4,095   |  |        | ―      |  |   | ―        |  |   | 4,095  



Reconciliation of Segment Loss from Operations to Net Loss (in thousands):



|                                   |  |                           |          |      |   |        
|---------------------------------- |  | ------------------------- | -------- | ---- | - | -------
|                                   |  | Nine Months Ended
May 31,
|                                   |  | 2007                      |          | 2006
|Total segment loss from operations |  | $                         | (16,181) |      | $ | (8,128)
|Total other income (expense)       |  |                           | 1,109    |      |   | (408)  
|Loss from Discontinued Operations  |  |                           | ―        |      |   | (657)  
|Net loss                           |  | $                         | (15,072) |      | $ | (9,193)





16



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The accounting policies of the reportable segments are the same as those described in the section titled Critical Accounting Policies.  The company evaluates the performance of its operating segments based on income before net interest expense, income taxes, depreciation and amortization expense, accounting changes and non-recurring items.



NOTE 14 - Equity Financing



In January 2007, the Company entered into an investment agreement with Brittany Capital Management Limited (Brittany).  The nature of the investment agreement is commonly known as an equity line of credit.  The maximum amount the company may raise under the equity line is $5,000,000, provided we register enough shares to raise this amount.  The company is not obligated to request the entire $5,000,000.  Over a period of 36 months, we may periodically deliver new issue shares of our common stock to Brittany, which then delivers cash to us based on a price per share tied to the current market price of our common stock.  As of May 31, 2007, the company issued 5,081,781 shares of common stock to Brittany for proceeds of $908,970.



In May 2007, the company entered into an investment agreement with Dutchess Private Equities Fund, Ltd. (Dutchess).  The nature of the investment agreement is commonly known as an equity line of credit.  The maximum amount the company may raise under the equity line is $5,000,000, provided we register enough shares to raise this amount.  The company is not obligated to request the entire $5,000,000.  Over a period of 36 months, we may periodically deliver new issue shares of our common stock to Dutchess, which then delivers cash to us based on a price per share tied to the current market price of our common stock.  The actual number of shares that we may issue subject to the investment agreement is not determinable as it is based on the market price of our common stock from time to time. At May 31, 2007 there have been no draws against this equity line.



NOTE 15  Acquisitions



In March 2007, the company entered into an agreement with Alliance Maintenance & Services, Inc. (Alliance), under which the company acquired Alliances telecom services division effective April 1, 2007, for $500,000 in company common stock.  On July 9, 2007, the company issued 1,851,852 shares to Alliance, and will issue an additional 3,173,274 shares at a future date.  This transaction was determined to be a business combination according to SFAS 141.  The $500,000 is included in accounts payable at May 31, 2007.  The purchase price allocation based  on the fair value, with the assistance of  independent valuation experts, was as follows:



|                           |           
|-------------------------- | ----------
|Tangible assets            | $  55,000 
|Intangible  Customer list | 234,000   
|Intangible  Non-compete   | 211,000   
|Total purchase price       | $  500,000



In December 2006, the company entered into an asset purchase agreement with Connex Services, Inc. (Connex), under which the company acquired all of Connexs customers effective January 2, 2007.  Connex is a Houston-based IT services company providing national and international project management services for data, voice, fiber-optic, wireless, hospitality systems, access control, audio and satellite installations.  The company paid $638,000 in company common stock (1,203,774 shares).  The fair value of the customer list is being amortized over its expected life.



NOTE 16  Asset Sale Agreement



On May 30, 2007, the company entered into an asset purchase agreement with Optical Entertainment Network, Inc. (OEN), under which OEN has agreed to purchase the companys fiber optic network located in Harris County and Fort Bend County, Texas.  Due to issues involving certain tax liens filed against a subsidiary of the company by the State of Texas related to a sales tax assessment, the sale has not closed.  The company is currently negotiating with the State of Texas to settle the sales tax issue and have the liens released.





17



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Under the terms of the agreement, OEN will deliver to the company $200,000 in cash and a promissory note for $1,700,000.  The promissory note will be secured by the network, will bear interest at 9% per annum, and will provide for 12 monthly payments of $100,000 each followed by a balloon payment on July 15, 2008 for the outstanding principle balance and accrued interest.  The asset purchase agreement also provides that, upon the subsequent sale of the network by OEN, or the sale of OEN itself, OEN will pay the company $800,000 in cash.



NOTE 17  Discontinued Operations



On February 28, 2006, the company entered into an asset purchase agreement with a third party to acquire the assets of D.S.S. Security, Inc. for a purchase price of $1,400,000.  The following table reports the results of the component of Eagles operations reported as discontinued operations (in thousands):



|                                               |                            |   |                           |   |      |  |      |   |  |   |      
|---------------------------------------------- | -------------------------- | - | ------------------------- | - | ---- |  | ---- | - |  | - | -----
|                                               | Three months ended May 31, |   | Nine months ended May 31,
|                                               | 2007                       |   | 2006                      |   | 2007 |  | 2006
|Broadband services revenues:                   |                            |   |                           |   |      |  |      |   |  |   |      
|Sale of security contracts                     | $                          |  |                           | $ | 58   |  | $    |  |  | $ | 1,187
|Security monitoring revenue                    |                            |  |                           |   |     |  |      |  |  |   | 469  
|Total revenue from discontinued operations     |                            |  |                           |   | 58   |  |      |  |  |   | 1,656
|Cost of goods sold for security contracts sold |                            |  |                           |   |     |  |      |  |  |   | 579  
|Operating expenses                             |                            |  |                           |   | 153  |  |      |  |  |   | 1,544
|Other expense (income)                         |                            |  |                           |   | (78) |  |      |  |  |   | 190  
|Net income (loss) on discontinued operations   | $                          |  |                           | $ | (17) |  | $    |  |  | $ | (657)



In accordance with the provisions of Statement of Financial Accounting Standard, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the results of operations of the disposed assets and the losses related to this sale have been classified as discontinued operations for all periods presented in the accompanying consolidated statements of operations.





18



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NOTE 18 - Financial Condition and Going Concern



The company has incurred a loss for the nine months ended May 31, 2007, of $15,072,000 and has an accumulated deficit at May 31, 2007, of $256,121,000.  Because of its losses, the company will require additional working capital to develop its business operations.  The company intends to raise additional working capital through private placements, public offerings, bank financing or the sale of assets.



There are no assurances that the company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations or (2) obtain additional financing through either private placements, public offerings or bank financing necessary to support the companys working capital requirements.  To the extent that funds generated from operations and any private placements, public offerings or bank financing are insufficient, the company will have to raise additional working capital.  No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the company.



These conditions raise substantial doubt about the companys ability to continue as a going concern.  The financial statements do not include any adjustments that might be necessary should the company be unable to continue as a going concern.



Management is pursuing additional financing and is continuously evaluating all financing options available to the company, including the sale of one or more of the companys operating divisions.  While pursuing such options, management will continue to implement its plan, which includes expanding the delivery of the IPTVComplete to additional markets inside and outside Florida, expanding the newly acquired satellite installation and support services business to areas beyond Texas and Louisiana, devoting resources towards attaining market leadership in the IPTV and hospitality set-top box markets, and continuously evaluating gross margin performance and searching for additional opportunities to reduce operating expenses.  However, there can be no assurance that the company will be successful in achieving any of these objectives.



NOTE 19 - Subsequent Events



During June 2007, the company issued a total of 1,918,219 shares of common stock to Brittany Capital Management Limited under an equity line of credit and received proceeds of $267,532 therefrom.



During June and July 2007, the company issued a total of 5,082,270 shares of common stock to Dutchess Private Equities Fund, Ltd. under an equity line of credit and received proceeds of $388,615 therefrom.



In July 2007, the company issued a total of 1,476,969 shares of common stock to Cornell Capital Partners, L.P., in connection with a conversion under one of the convertible notes held by Cornell, reducing the balance of such note by $100,000.





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Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations.



The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.  Information included herein relating to projected growth and future results and events constitute forward-looking statements.  Actual results in future periods may differ materially from the forward-looking statements due to a number of risks and uncertainties, including but not limited to fluctuations in the construction, technology, communications and industrial sectors; the success of the companys restructuring and cost reduction plans; the success of the companys competitive pricing; the companys relationship with its suppliers; relations with the companys employees; the companys ability to manage its operating costs; the continued availability of financing and working capital to fund business operations; governmental regulations, risks associated with regional, national, and world economies; and the ability to enter into strategic, profitable business relationships relating to our products and services.  Any forward-looking statements should be considered in light of these factors.  Eagle cannot guarantee future results, levels of activity, performance or achievements.  Moreover, neither Eagle nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.  Eagle is under no duty to update any of the forward-looking statements after the date of this report to conform its prior statements to actual results.



Executive Overview



Eagle Broadband, Inc. (the “company” or “Eagle”), is a provider of Internet protocol (IP), information technology services and satellite communications products and services.  The company’s product offerings are:



·

IPTVCompleteTM, delivering over 250 channels of digital television and music content via IP to many market sectors, such as  multi-dwelling unit operators (e.g., condominiums), triple-play operators (Internet data, phone and television, all over IP) or telephone companies, including our MediaPro standard or high-definition set-top boxes for both hospitality and IPTV customers; and

·

IT Services, through which we provide various IP and satellite-related technology implementations to a broad cross section of markets, including remote network management, structured cabling, IT integration services and our patented SatMAX® satellite telephony extension technology.



In June 2007, the company entered into a multi-year agreement with SecureNet, a next-generation broadband services provider, to deliver IPTV services to condominium communities.  Palo Alto-based SecureNet plans to deliver the integration of television, telephone and Internet as high quality IP packets over high-speed fiber connections to the commercial and luxury residential markets.



In April 2007, the company signed a contract with a leading hospitality solutions provider under which a series of purchase orders are scheduled to be placed for its MediaPro IP3000HD, the newest offering in Eagle Broadbands line of IPTV set-top boxes.  As of July 13, 2007, this customer had placed orders for 1,425 set-top boxes.



Also in April 2007, the company received an initial purchase order from Sprint Nextel in the amount of $500,000 for a rollout of infrastructure network cabling and equipment installation supporting the activities of the U.S. Transportation Security Administration at a number of airports across the United States.



In March 2007, the company entered into an agreement with Alliance Maintenance & Services, Inc. (Alliance), under which the company acquired Alliances telecom services division effective April 1, 2007.  Alliances telecom services division provides satellite and network support services to businesses throughout the south central United States.  During the first three months of operations (April through June), the company has recognized over $525,000 in revenue from this business.



As of May 31, 2007, the companys only active subsidiary was Eagle Broadband Services, Inc.  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: D.S.S. Security, Inc., Clearworks Communications, Inc., Clearworks.net, Inc., Clearworks Home Systems, Inc., United Computing Group, Inc., Atlantic Pacific Communications, Inc., and Link Two Communications, Inc.  Eagle has incorporated certain ongoing operations of the inactive subsidiaries into the active subsidiaries listed above including Atlantic Pacific Communications, Inc. and Clearworks Communications, Inc.  The consolidated financial statements include the accounts of the company and its subsidiaries.  All significant intercompany transactions and balances have been eliminated in consolidation.



20



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We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements.  The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of the company as a whole.  This discussion should be read in conjunction with our financial statements and accompanying notes for the nine months ended May 31, 2007.



Results of Operations



Three and Nine Months Ended May 31, 2007, Compared to Three and Nine Months Ended May 31, 2006



The following table sets forth summarized consolidated financial information for the three and nine months ended May 31, 2007 and 2006:



Condensed Financial Information

|                                  |                            |          |      |   |          |  |                            |         |      |          |      |   |          |  |          |         |  |         |         |     |       
|--------------------------------- | -------------------------- | -------- | ---- | - | -------- |  | -------------------------- | ------- | ---- | -------- | ---- | - | -------- |  | -------- | ------- |  | ------- | ------- | --- | ------
|                                  | Three months ended May 31, |          |      |   |          |  | Nine months ended 
May 31, |         |      |          |     
|                                  | 2007                       |          | 2006 |   | $ Change |  | % Change                   |         | 2007 |          | 2006 |   | $ Change |  | % Change
|Net sales                         | $                          | 808      |      | $ | 801      |  | $                          | 7       |      | 1%       |      | $ | 2,646    |  | $        | 2,904   |  | $       | (258)   |     | (9%)  
|Cost of goods sold                |                            | 954      |      |   | 1,073    |  |                            | (119)   |      | (11%)    |      |   | 2,914    |  |          | 3,456   |  |         | (542)   |     | (16%) 
|Gross profit (loss)               |                            | (146)    |      |   | (272)    |  |                            | 126     |      | (46%)    |      |   | (268)    |  |          | (552)   |  |         | 284     |     | (51%) 
|Percent of sales                  |                            | (18.1%)  |      |   | (34.0%)  |  |                            |         |      |          |      |   | (10.1%)  |  |          | (19.0%) |  |         |         |     |       
|                                  |                            |          |      |   |          |  |                            |         |      |          |      |   |          |  |          |         |  |         |         |     |       
|Operating expenses                |                            | 11,202   |      |   | 1,998    |  |                            | 9,204   |      | 461%     |      |   | 15,913   |  |          | 7,576   |  |         | 8,337   |     | 110%  
|Loss from operations              |                            | (11,348) |      |   | (2,270)  |  |                            | (9,078) |      | 400%     |      |   | (16,181) |  | (8,128)  |         |  | (8,053) |         | 99%
|Other income (expense)            |                            | 4,031    |      |   | (200)    |  |                            | 4,231   |      | (2,116%) |      |   | 1,109    |  |          | (408)   |  |         | 1,517   |     | (372%)
|Loss from continuing operations   |                            | (7,317)  |      |   | (2,470)  |  |                            | (4,847) |      | 196%     |      |   | (15,072) |  |          | (8,536) |  |         | (6,536) |     | 77%   
|Loss from discontinued operations |                            | ―        |      |   | (17)     |  |                            | 17      |      | (100%)   |      |   | ―        |  |          | (657)   |  |         | 657     |     | (100%)
|Net loss                          | $                          | (7,317)  |      | $ | (2,487)  |  | $                          | (4,830) |      | 194%     |      | $ | (15,072) |  | $        | (9,193) |  | $       | (5,879) |     | 64%   



Overview



The large increase in the net loss for both the three months and the nine months ended May 31, 2007, as compared to these same periods last year, was due to a non-cash impairment charge of $8.7 million taken during the current quarter (see Note 4 - Impairment of Long-Lived Assets and Note 5  Intangible Assets).  These impairment charges were partially offset by the recognition of derivative income in the current quarter of $2.9 million and the recognition of other income related to the reversal of approximately $1.8 million of accounts payable the company determined to be uncollectible (see Note 10 - Other Income).  Excluding these items, our net loss is $3.3 million for the current quarter and $11.1 million for the nine-month period ended May 31, 2007.



The negative gross margin for the three-month period and nine-month period ended May 31, 2007, is primarily due to regularly incurring fixed costs associated with the implementation of IPTV delivery with minimal corresponding revenue.  The negative gross margin for both the three-month and nine-month periods ended May 31, 2007, have been reduced by about 50%, which is primarily due to reductions in cost of goods sold related to reductions in labor costs and depreciation.





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The large increase in other income (expense) for the current quarter is due to the following:



·

$2.9 million of derivative income compared to $0.2 million in derivative income for the same period last year.

·

$1.8 million of other income related to the reversal of accounts payable the company determined to be uncollectible.

·

$731,000 in interest expense compared to $282,000 for the same period last year.



Loss from operations of $16.2 million for the nine-month period ended May 31, 2007, includes the non-cash impairment charge mentioned above.  Excluding this impairment charge, the loss from operations for the nine-month period is $7.5 million, a decrease of approximately $600,000 from the nine-month period of the prior year.



Sales Information



Set forth below is a table presenting summarized sales information for our business segments for the three months and nine months ended May 31, 2007 and 2006:



|                   |  |                            |     |            |      |      |   |            |  |          |  |          |      |  |       
|------------------ |  | -------------------------- | --- | ---------- | ---- | ---- | - | ---------- |  | -------- |  | -------- | ---- |  | ------
|($ in thousands)   |  | Three months ended May 31, |     |            |      |     
|                   |  | 2007                       |     | % of Total |      | 2006 |   | % of Total |  | $ Change |  | % Change
|Structured wiring  |  | $                          | 615 |            | 76%  |      | $ | 491        |  | 61%      |  | $        | 124  |  | 25%   
|Broadband services |  |                            | 119 |            | 15%  |      |   | 141        |  | 18%      |  |          | (22) |  | (16%) 
|Products           |  |                            | 74  |            | 9%   |      |   | 137        |  | 17%      |  |          | (63) |  | (46%) 
|Other              |  |                            | ―   |            | 0%   |      |   | 32         |  | 4%       |  |          | (32) |  | (100%)
|Total              |  | $                          | 808 |            | 100% |      | $ | 801        |  | 100%     |  | $        | 7    |  | 1%    



|                   |  |                           |       |            |      |      |   |            |  |          |  |          |       |  |       
|------------------ |  | ------------------------- | ----- | ---------- | ---- | ---- | - | ---------- |  | -------- |  | -------- | ----- |  | ------
|($ in thousands)   |  | Nine months ended May 31, |       |            |      |     
|                   |  | 2007                      |       | % of Total |      | 2006 |   | % of Total |  | $ Change |  | % Change
|Structured wiring  |  | $                         | 1,496 |            | 57%  |      | $ | 1,376      |  | 47%      |  | $        | 120   |  | 9%    
|Broadband services |  |                           | 364   |            | 13%  |      |   | 499        |  | 17%      |  |          | (135) |  | (27%) 
|Products           |  |                           | 786   |            | 30%  |      |   | 919        |  | 32%      |  |          | (133) |  | (14%) 
|Other              |  |                           | ―     |            | 0%   |      |   | 110        |  | 4%       |  |          | (110) |  | (100%)
|Total              |  | $                         | 2,646 |            | 100% |      | $ | 2,904      |  | 100%     |  | $        | (258) |  | (9%)  



For the third quarter, net sales increased slightly from the same quarter last year.  Structured wiring sales increased $124,000, or 25%, from the same quarter last year, due primarily to the acquisition of Alliance Maintenance & Services, Inc.s telecom division effective April 1, 2007.  The increase in structured wiring sales offset decreases in broadband services and products sales.  The decrease in broadband services reflects managements decision to contract with a third party to operate a majority of the companys bundled services business in April 2006.  The decrease in product sales is attributed to two reasons:  a decrease in SatMAX sales and a decrease in set-top box sales.  The decrease in set-top box sales was due to an unexpected delay in the development of our set-top box software, which resulted in one of our largest customers postponing the placement of purchase orders from the current quarter to the fourth quarter of the current fiscal year.



For the nine-month period ended May 31, 2007, net sales were $2.6 million compared to $2.9 million during the same nine-month period last year.  Structured wiring sales increased 9% during the current nine-month period, primarily due to the acquisition of Alliances telecom division.  The decrease in broadband services sales over the comparable nine-month period last year is due to managements decision to contract with a third party to operate a majority of the companys bundled services business in April 2006.  The decrease in product sales during the current nine-month period reflects sales of $436,000 to a major customer in the first quarter of the prior year that have not recurred in the current fiscal year.



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Cost of Goods Sold



The following table sets forth summarized cost of goods sold information for the three and nine months ended May 31, 2007 and 2006:

|                                            |     |                            |     |      |   |          |     |          |                           |      |        |      |   |          |     |          |       |     |   |       |  |      
|------------------------------------------- | --- | -------------------------- | --- | ---- | - | -------- | --- | -------- | ------------------------- | ---- | ------ | ---- | - | -------- | --- | -------- | ----- | --- | - | ----- |  | -----
|($ in thousands)                            |     | Three months ended May 31, |     |      |   |          |     |          | Nine months ended May 31, |      |        |      |   |         
|                                            |     | 2007                       |     | 2006 |   | $ Change |     | % Change |                           | 2007 |        | 2006 |   | $ Change |     | % Change
|Direct labor and related costs              |     | $                          | 215 |      | $ | 221      |     | $        | (6)                       |      | (3%)   |      | $ | 554      |     | $        | 714   |     | $ | (160) |  | (22%)
|Products and integration services           |     |                            | 130 |      |   | 380      |     |          | (250)                     |      | (66%)  |      |   | 693      |     |          | 634   |     |   | 59    |  | 9%   
|Impairment slow moving & obsolete inventory | 199 |                            |     | ―    |   |          | 199 |          |                           |      |        | 248  |   |          | 107 |          |       | 141 |   | 132% 
|Structured wiring labor and material        |     |                            | 345 |      |   | 394      |     |          | (49)                      |      | (12%)  |      |   | 1,195    |     |          | 1,114 |     |   | 81    |  | 7%   
|Broadband services costs                    |     |                            | 6   |      |   | (47)     |     |          | 53                        |      | (113%) |      |   | 51       |     |          | 251   |     |   | (200) |  | (80%)
|Depreciation and amortization               |     |                            | 59  |      |   | 206      |     |          | (147)                     |      | (71%)  |      |   | 173      |     |          | 636   |     |   | (463) |  | (73%)
|Other manufacturing costs                   |     |                            |    |      |   | (81)     |     |          | 81                        |      |        |      |   |         |     |          |      |     |   |      |  |     
|Total                                       |     | $                          | 954 |      | $ | 1,073    |     | $        | (119)                     |      | (11%)  |      | $ | 2,914    |     | $        | 3,456 |     | $ | (542) |  | (16%)



For the quarter ended May 31, 2007, cost of goods sold decreased $119,000, or 11%, from the quarter ended May 31, 2006.  The overall decrease was primarily attributable to a $250,000 reduction of materials and supplies (in part because of lower product sales), and a $147,000 decrease in depreciation expense due to the impairment of long-lived assets taken in the year ended August 31, 2006.  The company wrote down to market value $199,000 of slow moving and obsolescent inventory during the current quarter.  Excluding this write-down, cost of goods sold would have decreased by $318,000 in the current quarter compared to the same quarter last year.



For the nine months ended May 31, 2007, cost of goods sold decreased $542,000, or 16% compared to the nine months ended May 31, 2006.   The overall decrease is primarily attributable to a $463,000 reduction in depreciation expense due to the impairment of long-lived assets taken in the year ended August 31, 2006.  Other items of note include the following:





·

A 22% decrease in direct labor due to workforce reductions during the current fiscal year.

·

An 80% reduction in broadband services costs due to managements decision to contract with a third party to operate a majority of the companys bundled services business.

·

A 132% increase in impairment costs on inventory in the current year due to the company writing down to market value slow moving and obsolescent inventory.





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Operating Expenses



The following table sets forth summarized operating expense information for the three and nine months ended May 31, 2007 and 2006:



|                                              |  |                            |        |      |   |          |  |          |                           |      |       |      |   |          |  |          |       |  |   |       |  |      
|--------------------------------------------- |  | -------------------------- | ------ | ---- | - | -------- |  | -------- | ------------------------- | ---- | ----- | ---- | - | -------- |  | -------- | ----- |  | - | ----- |  | -----
|($ in thousands)                              |  | Three months ended May 31, |        |      |   |          |  |          | Nine months ended May 31, |      |       |      |   |         
|                                              |  | 2007                       |        | 2006 |   | $ Change |  | % Change |                           | 2007 |       | 2006 |   | $ Change |  | % Change
|Salaries and related costs                    |  | $                          | 879    |      | $ | 899      |  | $        | (20)                      |      | (2%)  |      | $ | 2,369    |  | $        | 2,871 |  | $ | (502) |  | (17%)
|Advertising and promotion                     |  |                            | 47     |      |   | 42       |  |          | 5                         |      | 12%   |      |   | 126      |  |          | 84    |  |   | 42    |  | 50%  
|Depreciation and amortization                 |  |                            | 417    |      |   | 267      |  |          | 150                       |      | 56%   |      |   | 924      |  |          | 929   |  |   | (5)   |  | (1%) 
|Research and development                      |  |                            | 80     |      |   | 304      |  |          | (224)                     |      | (74%) |      |   | 145      |  |          | 538   |  |   | (393) |  | (73%)
|Other support costs                           |  |                            | 1,113  |      |   | 486      |  |          | 627                       |      | 129%  |      |   | 3,683    |  |          | 3,154 |  |   | 529   |  | 17%  
|Impairment, write-downs & restructuring costs |  |                            | 8,666  |      |   | ―        |  |          | 8,666                     |      |       |      |   | 8,666    |  |          | ―     |  |   | 8,666 |  |      
|Total                                         |  | $                          | 11,202 |      | $ | 1,998    |  | $        | 9,204                     |      | 461%  |      | $ | 15,913   |  | $        | 7,576 |  | $ | 8,337 |  | 110% 



The following table breaks out “Other support costs” information as presented in the preceding table for the three and nine months ended May 31, 2007 and 2006:



|                                |  |                            |       |      |   |          |  |          |                           |      |        |      |   |          |  |          |       |  |   |       |  |       
|------------------------------- |  | -------------------------- | ----- | ---- | - | -------- |  | -------- | ------------------------- | ---- | ------ | ---- | - | -------- |  | -------- | ----- |  | - | ----- |  | ------
|($ in thousands)                |  | Three months ended May 31, |       |      |   |          |  |          | Nine months ended May 31, |      |        |      |   |         
|                                |  | 2007                       |       | 2006 |   | $ Change |  | % Change |                           | 2007 |        | 2006 |   | $ Change |  | % Change
|Auto related                    |  | $                          | 17    |      | $ | 4        |  | $        | 13                        |      | 325%   |      | $ | 34       |  | $        | 33    |  | $ | 1     |  | 2%    
|Bad debt                        |  |                            | (2)   |      |   | ―        |  |          | (2)                       |      |        |      |   | 186      |  |          | (782) |  |   | 968   |  | (124%)
|Delivery and postage            |  |                            | 2     |      |   | 7        |  |          | (5)                       |      | (71%)  |      |   | 13       |  |          | 167   |  |   | (154) |  | (92%) 
|Fees                            |  |                            | 17    |      |   | 140      |  |          | (123)                     |      | (88%)  |      |   | 109      |  |          | 148   |  |   | (39)  |  | (26%) 
|Insurance and office            |  |                            | 131   |      |   | 87       |  |          | 44                        |      | 50%    |      |   | 381      |  |          | 249   |  |   | 132   |  | 53%   
|Professional and contract labor |  |                            | 655   |      |   | (77)     |  |          | 732                       |      | (951%) |      |   | 2,149    |  |          | 2,012 |  |   | 137   |  | 7%    
|Rent                            |  |                            | 116   |      |   | 74       |  |          | 42                        |      | 56%    |      |   | 261      |  |          | 251   |  |   | 10    |  | 4%    
|Repairs and maintenance         |  |                            | 7     |      |   | 2        |  |          | 5                         |      | 250%   |      |   | 22       |  |          | 68    |  |   | (46)  |  | (68%) 
|Travel                          |  |                            | 72    |      |   | 90       |  |          | (18)                      |      | (20%)  |      |   | 212      |  |          | 263   |  |   | (51)  |  | (19%) 
|Taxes                           |  |                            | 36    |      |   | 105      |  |          | (69)                      |      | (66%)  |      |   | (45)     |  |          | 50    |  |   | (95)  |  | (190%)
|Telephone and utilities         |  |                            | 53    |      |   | 37       |  |          | 16                        |      | 43%    |      |   | 149      |  |          | 275   |  |   | (126) |  | (46%) 
|Other                           |  |                            | 9     |      |   | 17       |  |          | (8)                       |      | (47%)  |      |   | 212      |  |          | 420   |  |   | (208) |  | (49%) 
|Total Other Support Costs       |  | $                          | 1,113 |      | $ | 486      |  | $        | 627                       |      | 129%   |      | $ | 3,683    |  | $        | 3,154 |  | $ | 529   |  | 17%   



For the three months ended May 31, 2007, operating expenses of $11.2 million include a non-cash impairment charge of $8.7 million.  Excluding the impairment charge, operating expenses were $2.5 million during the current quarter, compared to $2 million for the same quarter last year.  However, operating expenses for the prior quarter included a $500,000 credit resulting from the reversal of an accrual related to a legal matter that the company settled at no cost (reflected in professional and contract labor in the table above).  Excluding the impairment charge and the prior quarter credit, operating expenses for the current quarter increased by $38,000.   Depreciation and amortization increased due to the amortization related to the Connex acquisition.  The increase in professional and contract labor costs (excluding the $500,000 credit mentioned above) was due to outside services costs incurred in the development of set-top box software.  These increases were offset by decreases in research and development expenses, fees and taxes.





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Excluding the abovementioned impairment charge, operating expenses for the nine-month period ended May 31, 2007, were $7.2 million, compared to $7.6 million for the nine months ended May 31, 2006.  However, in addition to the abovementioned credit of $500,000, the company also recognized a debit to bad debt expense of approximately $900,000 during the prior year due to the collection of a receivable in November 2005 of an account previously deemed uncollectible.  Adjusting for these items, operating expenses for the nine months ended May 31, 2006 were approximately $9 million.  This $1.8 million decrease in operating expenses is primarily due to the following:



·

Reductions in our workforce and reductions in executive compensation.

·

Reductions in the utilization of outside professional and contract labor.

·

Decreases in delivery and postage expenses as the prior nine month period reflects higher than normal delivery costs associated with warranty work.

·

Decreases in telephone and utilities costs related to workforce reductions.



Changes in Cash Flow



Eagles operating activities used net cash of $5,147,000 during the nine months ended May 31, 2007, compared to $5,038,000 in the nine months ended May 31, 2006.  Eagles investing activities used net cash of $162,000 in the nine months ended May 31, 2007, compared to cash provided of $476,000 in the nine months ended May 31, 2006.  This change was due to capital expenditures of $1,042,000 primarily for the completion of the super-headend in Miami, Florida, which was offset by the sale of equipment leases for $899,000.  Eagles financing activities provided net cash of $2,215,000 in the nine months ended May 31, 2007, compared to $803,000 of cash provided in the nine months ended May 31, 2006.  For the nine months ended May 31, 2007, the company raised approximately $4.4 million, consisting primarily of drawdowns under the equity credit line with Dutchess Private Equities Fund and additional borrowings from Dutchess, which was offset by paying down approximately $2.2 million of notes payable.



Liquidity and Capital Resources



Historically, the company has not generated cash in amounts adequate to meet its operating needs, but has instead relied upon third-party funding or has sold assets to meet those needs.  It is unlikely that the company will generate adequate amounts of cash to fund its operations over the remainder of the fiscal year; however, company management continues to implement its plan to increase sales and gross profit, and continues to reduce operating expenses.  The initiatives in this plan include, but are not limited to:



·

Expanding the satellite and network support services business purchased from Alliance Maintenance & Services, Inc. to areas beyond Texas and Louisiana.

·

Expanding the delivery of IPTVComplete to additional customers in Miami, San Francisco and elsewhere around the U.S.

·

Applying more consultative sales approaches for attaining market leadership in the IPTV and hospitality set-top box markets.

·

Continuously evaluating gross margin performance and searching for opportunities to further reduce operating expenses.



Until the companys operations generate cash sufficient to fund our operating needs, we will continue to rely upon third-party funding.  If we are unable to raise additional financing, we will need to curtail operations or sell assets, which may include one or more of the companys operating divisions.  Management is working with a variety of investment bankers and consultants to obtain significant, long-term financing for the company, as well as exploring opportunities as they arise to sell one or more of our operating divisions.  Though we have been successful at raising additional capital on this basis in the past, we can provide no assurance that we will be successful in any future financing endeavors.  In addition, the company has an equity line of credit upon which it can draw, provided registration statements are filed and declared effective by the SEC.





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In May 2007, the company entered into an agreement with Dutchess Private Equities Fund, Ltd, (Dutchess) for a $5,000,000 equity line of credit.  Under this agreement, the company may request drawdowns by delivering a put notice to Dutchess stating the dollar amount of shares we intend to sell to Dutchess.  The purchase price Dutchess is required to pay for the shares are equal to 93% of the market price.  The market price is equal to the lowest closing best bid price during the pricing period.  The pricing period is the five-trading-day period beginning on the day Dutchess receives a drawdown request.  The amount we may request in a given drawdown is either (i) 200% of the average daily U.S. market trading volume of our common stock for the three trading days prior to the request multiplied by the average of the three daily closing best bid prices immediately preceding our request, or (ii) $500,000.  In June 2007, a registration statement was declared effective by the SEC, registering 9,000,000 shares for resale by Dutchess.  As of July 16, 2007, the company had issued 5,082,270 shares to Dutchess under this equity line.



In May 2007, the company entered into a factoring agreement with LSQ Funding Group L.C. (LSQ), under which the company may sell accounts receivable to LSQ from time to time.  Under the terms of the agreement, the company pays LSQ a 0.07% daily fee on the face amount of any account receivable purchased by LSQ from the date purchased until the date LSQ receives payment from the account debtor.



Contractual Obligations



The following table sets forth contractual obligations to be settled in cash as of May 31, 2007:



|                                              |  |       |       |                  |   |           |  |           |       |                   |   |   |  |   |  
|--------------------------------------------- |  | ----- | ----- | ---------------- | - | --------- |  | --------- | ----- | ----------------- | - | - |  | - | -
|(Thousands of dollars)Contractual Obligations |  | Total |       | Less than 1 year |   | 1-3 years |  | 3-5 years |       | More than
5 years
|Debt Obligations (Current & Long Term)        |  | $     | 7,194 |                  | $ | 1,550     |  | $         | 5,644 |                   | $ |  |  | $ | 
|Operating Lease Obligations                   |  |       | 369   |                  |   | 43        |  |           | 326   |                   |   |  |  |   | 
|Total                                         |  | $     | 7,563 |                  | $ | 1,593     |  | $         | 5,970 |                   | $ |  |  | $ | 



The companys contractual obligations consist of long-term debt and interest as set forth in Note 4 to the companys financial statements, Notes Payable and Long-Term Debt, and certain obligations for office space operating leases requiring future minimal commitments under non-cancelable leases set forth in Note 9  Commitments and Contingent Liabilities.



Off-Balance Sheet Arrangements



As of May 31, 2007, we did not have any significant off-balance-sheet arrangements as defined in Item 303(a) (4) (ii) of SEC Regulation S-K.



CRITICAL ACCOUNTING POLICIES



The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is pertinent to this managements discussion and analysis.  Management strives to report the financial results of the company in a clear and understandable manner, even though in some cases accounting and disclosure rules are complex and require us to use technical terminology.  In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States.  These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations as reflected in our financial statements.  These judgments and estimates are based on past events and expectations of future outcomes.  Management believes it has exercised proper judgment in determining these estimates based on the facts and circumstances available to its management at the time the estimates were made.  Actual results may differ from our estimates.



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





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Revenue Recognition



The companys revenue recognition policy is objective in that it recognizes revenue when products are shipped or services are delivered.  Accordingly, there are no estimates or assumptions that have caused deviation from its revenue recognition policy.  Additionally, the company has a limited amount of sales returns which would affect its revenue earned.



Eagle accounts for arrangements that contain multiple elements in accordance with EITF 00-21, Revenue Arrangements with Multiple Deliverables.  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.



Allowance Method Used to Record Bad Debts



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



Deferred Revenues



Revenues that are billed in advance of services being completed are deferred until the conclusion of the period of the service for which the advance billing relates.  Deferred revenues are included on the balance sheet as a current liability until the service is performed and then recognized in the period in which the service is completed.



Impairment Assessment



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



The company performed, with the assistance of independent valuation experts, an impairment test of the carrying value of intangible assets.  Eagle has intangible assets related to goodwill, contracts, customers and subscribers.  For the nine months ended May 31, 2007, the company determined there had been continued erosion of contract rights, customer relationships and other intangible assets primarily attributable to the BDS assets acquired in the January 2001 merger of Clearworks.net, Inc.





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These intangible assets were valued using a present value technique of future cash flows since no quoted market for these intangible assets was available.  The future cash flows were based on supportable assumptions provided by management based on historical performance, current contracts in place, future plans and market information and was reviewed by the outside valuation experts for reasonableness.  In addition, multiple scenarios were considered and each cash flow alternative was probability weighted.  The fair value assigned to the intangible asset was the discounted future weighted cash flows.



Utilizing a fair value standard as set forth in SFAS 142, for the nine months ended May 31, 2007, management determined an impairment charge of $610,137 existed for the intangible assets of contract rights, customer relationships and other intangible assets primarily attributable to the BDS assets acquired in the January 2001 merger of Clearworks.net, Inc.



Utilizing a fair value standard as set forth in SFAS 142, for the year ended August 31, 2006, management determined an impairment charge of $3,427,830 existed for the intangible assets of contract rights, customer relationships and other intangible assets primarily attributable to the BDS assets acquired in the January 2001 merger of Clearworks.net, Inc.



Utilizing a fair value standard as set forth in SFAS 142, for the year ended August 31, 2005, management determined an impairment charge of $23,913,000 existed for the intangible assets of contract rights, customer relationships and other intangible assets primarily attributable to the BDS assets acquired in the January 2001 merger of Clearworks.net, Inc.



Eagle assessed the fair value of goodwill as of May 31, 2007 and concluded that the goodwill valuations remain at an amount greater than the current carrying asset value.  Eagle assessed the fair value of goodwill as of August 31, 2006 and concluded that the goodwill valuations remain at an amount greater than the current carrying asset value.  Eagle assessed the fair value of goodwill as of August 31, 2005 and concluded that the goodwill valuations remain at an amount greater than the current carrying assets value.



Impairment of Long-Lived Assets



Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets requires that long-lived assets (asset groups) shall be tested for recoverability whenever events or change in circumstances indicate that its carrying amount may not be recoverable.  The companys market capitalization for the nine months ending May 31, 2007 and the years ending August 31, 2006 and 2005 has been below the book value of these assets which indicated the need to test for recoverability.  The company performed, with the assistance of independent valuation experts, tests to determine if an impairment loss existed.  For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.



These tests took into consideration a number of factors including (i) current market conditions, (ii) the companys current and future financial performance, (iii) intrinsic risks evident in the markets in which the company operates and (iv) the underlying nature of Eagles operations and business.



Utilizing a fair value standard as set forth in SFAS 144 for the nine months ended May 31, 2007, management determined an impairment of $8,056,354 existed for certain Houston-area communities where broadband infrastructure had been installed.



Utilizing a fair value standard as set forth in SFAS 144 for the year ended August 31, 2006, management determined an impairment of $10,341,262 existed for certain Houston-area communities where broadband infrastructure had been installed.



Utilizing a fair value standard as set forth in SFAS 144 for the year ended August 31, 2005, management determined an impairment of $3,230,000 existed for certain Houston-area communities where broadband infrastructure had been installed.





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Accounting for Stock-Based Compensation



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



Derivative Financial Instruments



The company accounts for all derivative financial instruments in accordance with SFAS No. 133.  Derivative financial instruments are recorded as liabilities in the consolidated balance sheet, measured at fair value.



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



Derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income in the period in which the changes occur.  For options, warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, we estimate fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques.  The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the option.  We have estimated the future volatility of our common stock price based on not only the history of our stock price but also the experience of other entities considered comparable to us.  The fair value of the derivative liabilities are subject to the changes in the trading value of the companys common stock.  As a result, the companys financial statements may fluctuate from quarter to quarter based on factors such as the price of the companys stock at the balance sheet date and the amount of shares converted by note holders and/or exercised by warrant holders.  Consequently, our financial position and results of operations may vary from quarter to quarter based on conditions other than our operating revenues and expenses.



Under SFAS No. 133, all derivative financial instruments held by the company are not designated as hedges.



Discontinued Operations



In accordance with the provisions of Statement of Financial Accounting Standard, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the results of operations of the disposed assets and the losses related to the sale of the component of residential security monitoring have been classified as discontinued operations for all periods presented in the accompanying consolidated statements of operations.





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Item 4.

Controls and Procedures.



The companys Chief Executive Officer and Principal Accounting Officer have evaluated the effectiveness of the companys disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of May 31, 2007.  Based on such evaluation, such officers have concluded that the companys disclosure controls and procedures are effective.



Changes in Internal Controls



There has been no change in the companys internal control over financial reporting identified in connection with our evaluation as of the end of the fiscal quarter ended May 31, 2007, that has materially affected, or is reasonably likely to materially affect, the companys internal controls over financial reporting.





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PART IIOTHER INFORMATION



Item 1.

Legal Proceedings.



In May 2007, in the case styled H. Dean Cubley vs. Eagle Broadband, Inc., the court granted Mr. Cubleys partial motion for summary judgment, and in June 2007, the court entered a final judgment against the company awarding Mr. Cubley (i) the principal balance of $1,923,053, (ii) interest through March 1, 2007 of $814,113, (iii) additional interest at 18% from March 1, 2007 until the judgment is paid, and (iv) attorneys fees and court costs of approximately $53,000.  Mr. Cubley, a former director of the company, filed a lawsuit against the company in August 2006 seeking to enforce a promissory note issued by the company in December 2003 in lieu of the issuance of shares for stock options then held by Mr. Cubley, who was at the time Chairman of the Board of the company.  The company asserted defenses, including a defense that the execution of the promissory note by the company was induced by Mr. Cubleys misrepresentations.



In July 2007, the company and Cornell Capital Partners, L.P., agreed to a settlement of the lawsuit styled Cornell Capital Partners, L.P., vs. Eagle Broadband, Inc., et al., pursuant to which the company issued Cornell two, non-interest bearing convertible notes in the aggregate principle amount of $1.15 million.  Cornell sued the company and other defendants in July 2003 for breach of contract, state and federal securities fraud and negligent misrepresentation.  Cornell also alleged that Eagle 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.  Cornell claimed damages of approximately $1.3 million.  Eagle asserted counterclaims against Cornell for fraud and breach of contract in the amount of $2 million.  In March 2006, the court ruled in favor of Cornell on certain claims, granting Cornells motion for partial summary judgment on its breach of contract claim and denying all of Eagles counterclaims.  The court ruled in favor of Eagle on other claims, granting Eagles motion for summary judgment on Cornells claims of common law fraud, state and federal securities fraud, and negligent misrepresentation.



Item 1A.

Risk Factors.



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



From inception through May 31, 2007, we have incurred an accumulated deficit in the amount of $256,121,000.  For the nine months ended May 31, 2007, we incurred losses from continuing operations in the amount of $15,072,000.  We anticipate that we will incur losses from operations for the foreseeable future.  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, 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 and have relied on external sources of capital to fund operations.  At May 31, 2007, we had approximately $45,000 in cash, cash equivalents and securities available for sale, and a working capital deficit of approximately $13,991,000.  Our net cash used by operations for the nine months ended May 31, 2007, was approximately $5,147,000.



Though we have been successful at raising capital on a best efforts basis in the past, we can provide no assurance that we will be successful in any future best-efforts financing endeavors.  We will need to continue to rely upon financing from external sources to fund our operations for the foreseeable future.  If we are unable to raise sufficient capital from external sources to fund our operations, we will need to sell assets, including one or more of the companys operating divisions, to meet working capital needs or significantly curtail operations.





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In April 2007, our common stock was removed from listing on the American Stock Exchange, which could limit investors ability to make transactions in our common stock and subject our common stock to penny stock trading restrictions.



On November 29, 2006, the company received notice from the American Stock Exchange (Amex) that the company did not satisfy certain of the Amexs continued listing standards concerning shareholders equity and losses from continuing operations.  On January 5, 2007, the company submitted a plan demonstrating the companys ability to satisfy such continued listing standards.  On February 7, 2007, the company received notice from the Amex that the staff of the Amexs Listing Qualifications Department determined not to accept the companys plan, and the company requested a hearing before an Amex Listing Qualifications Panel.  On March 27, 2007, company notified the Amex that the Board of Directors of the company determined not to pursue the hearing before the Panel, and the companys stock was removed from listing on the Amex effective April 9, 2007.



Delisting from the Amex could result in a limited availability of market quotations for our common stock and will likely result in a designation of our common stock as a penny stock under SEC Rule 3a51-1.  The principal effect of being designated a penny stock is that securities broker-dealers cannot recommend our stock but must trade it on an unsolicited basis.  Such a designation may result in a reduced level of trading activity in the secondary trading market for our common stock, a limited amount of news and analyst coverage for our company and a decreased ability to issue additional securities or obtain additional financing in the future.



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.



In March 2007, the company issued 48,333 shares of common stock to Lorne Persons, Jr., to satisfy an obligation of $14,500 under a Consulting Agreement.  The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Securities Act.  No sales commissions were paid.



In April 2007, the company issued 50,000 shares to Seacoast Advisors, Inc. pursuant to a Consulting Agreement.  The issuance of these shares will be exempt from registration pursuant to Section 4(2) of the Securities Act.  No sales commissions were paid.



In April 2007, the company issued 1,428,571 shares to Ron Persons, in satisfaction of a $200,000 principal balance on a promissory note.  The issuance of these shares was exempt from registration under Section 3(a)(9) of the Securities Act.  No sales commissions were paid.



In April 2007, the company issued 62,366 shares of common stock to Lorne Persons, Jr., to satisfy an obligation of $9,667 under a Consulting Agreement.  The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Securities Act.  No sales commissions were paid.



In May 2007, the company issued 282,253 shares of common stock to Dutchess Private Equities Fund upon the conversion of $29,411 of convertible debt.  The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Securities Act.  No sales commissions were paid.



Item 6.

Exhibits.

|               |  |                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                         
|               |  |                                                                                                                                     
|31.1           |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                 
|               |  |                                                                                                                                     
|31.2           |  | Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                            
|               |  |                                                                                                                                     
|32.1           |  | Certification of Chief Executive Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |     |                                                      
|------------------- | --- | -----------------------------------------------------
|                    |     | EAGLE BROADBAND, INC.                                
|                    |     | (Registrant)                                         
|                    |     |                                                      
|                    |     |                                                      
|Date: July 23, 2007 | By: | /s/ DAVID MICEK                                      
|                    |     | David Micek                                          
|                    |     | President and Chief Executive Officer                
|                    |     |                                                      
|                    |     |                                                      
|Date: July 23, 2007 | By: | /s/ MARK MANN                                        
|                    |     | Mark Mann                                            
|                    |     | Corporate Controller and Principal Accounting Officer





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