U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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, 2004

[ ]      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)                      (IRS Employer
  of incorporation or organization                 Identification No.)

                              101 Courageous Drive
                          League City Texas 77573-3925
          (Address of principal executive offices, including zip code)

                                 (281) 538-6000
              (Registrant's telephone number, including area code)
                                  _____________

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

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

As of July 7, 2004, there were 201,964,815 shares of common stock outstanding.

<PAGE>

                     EAGLE BROADBAND, INC. AND SUBSIDIARIES
                                    Form 10-Q
                       For the Quarter Ended May 31, 2004

                                Table of Contents


Part 1 - Financial Information                                              Page

Item 1. Consolidated Financial Statements (Unaudited)

        Consolidated Balance Sheets at May 31, 2004, and August 31, 2003       3

        Consolidated Statements of Operations for the Three Months and
        Nine Months Ended May 31, 2004, and May 31, 2003                       4

        Consolidated Statements of Changes In Shareholders' Equity for the
        Nine Months Ended May 31, 2004, and Twelve Months Ended
        August 31, 2003                                                        5

        Consolidated Statements of Cash Flows for the Nine Months Ended
        May 31, 2004, and May 31, 2003                                         6

        Notes to the Consolidated Financial Statements                         7

Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                         28

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           37

Item 4.  Controls and Procedures                                              37

Part 2 - Other Information

Item 1.  Legal Proceedings                                                    38

Item 2.  Recent Sales of Unregistered Securities or Changes
         in Securities and Use of Proceeds.                                   38

Item 3.  Defaults Upon Senior Securities                                      38

Item 4.  Submission of Matters to a Vote of Security Holders                  38

Item 5.  Other Information                                                    38

Item 6.  Exhibits and Reports on Form 8-K                                     38

Signatures                                                                    40

<PAGE>

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

                                     ASSETS
                                                       May 31,        August 31,
                                                        2004            2003
                                                        ----            ----
                                                   (Unaudited)        (Audited)
                                                                       Restated
Current Assets:
     Cash and Cash Equivalents                   $        1,627   $      824
     Securities Available for Sale                        1,563        1,714
     Accounts Receivable, net                             4,622        1,704
     Inventories                                          2,859        3,199
     Net Investment in Direct Financing Leases              129          ---
     Prepaid Expenses                                       420          668
                                                 --------------   ----------
         Total Current Assets                            11,220        8,109

Property and Equipment:
     Operating Equipment                                 36,372       36,422
     Less:  Accumulated Depreciation                     (7,277)      (5,689)
                                                 --------------   ----------
         Total Property and Equipment                    29,095       30,733

Other Assets:
     Deferred Costs                                         ---          334
     Net Investment in Direct Financing Leases              409          ---
     Goodwill, net                                       41,660       41,660
     Contract rights, net                                22,156       23,590
     Customer relations, net                              5,551        5,912
     Other Intangible Assets, net                         4,132        4,366
     Other Assets                                           784          227
                                                 --------------   ----------
         Total Other Assets                              74,692       76,089
                                                 --------------   ----------
Total Assets                                     $     115,007    $  114,931
                                                 ==============   ==========


                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Accounts Payable                            $        8,928   $    5,461
     Accrued Expenses                                     3,616        7,560
     Notes Payable                                        5,581        5,779
     Deferred Revenue                                       492          230
                                                 --------------   ----------

         Total Current Liabilities                      18,617        19,030

Commitments and Contingent Liabilities

Shareholders' Equity:
     Preferred Stock  -  $.001 par value
         Authorized  5,000,000 shares
         Issued  -0- shares                                 ---          ---
     Common Stock  -  $.001 par value
         Authorized Shares at May 31, 2004, and
         August 31, 2003 -- 350,000,000 and
         200,000,000, respectively
         Issued and Outstanding Shares at May 31,
         2004, and August 31, 2003 -- 188,479,000
         and 147,447,000, respectively                      188          147
     Paid in Capital                                    201,026      177,017
     Retained Earnings                                 (104,141)    (80,536)
     Accumulated Comprehensive Income (Loss)               (683)       (727)
                                                 --------------   ----------

         Total Shareholders' Equity                      96,390       95,901
                                                 --------------   ----------
Total Liabilities and Shareholders' Equity       $      115,007   $  114,931
                                                 ==============   ==========

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                     For the Three Months ended May 31        For the Nine Months ended May 31

                                                          2004               2003                  2004               2003
                                                     ---------------     --------------     ---------------    ---------------
Net Sales:
<S>                                                  <C>
    Structured Wiring                                $                   $                  $                  $
    Broadband Services                                       156                 598                673              3,198
    Products                                                 709                 657              4,805              2,219
    Other                                                  4,226                 527              5,673              2,722
                                                             ---                  65                 81              1,389
                                                     ---------------     --------------     ---------------    ---------------
Total Sales                                                5,091               1,847             11,232              9,528
                                                     ---------------     --------------     ---------------    ---------------
Costs of Goods Sold:
    Direct Labor and Related Costs                           226                 245              1,078                993
    Products and Integration Service                       3,937                 605              4,375              2,256
    Structured Wiring Labor and Materials                    115                 326                376                984
    Broadband Services Costs                                 304                 152              2,550                682
    Depreciation and Amortization                            285                 114                856                342
    Other Manufacturing Costs                                ---                 ---                 26                155
                                                     ---------------     --------------     ---------------    ---------------
Total Costs of Goods Sold                                  4,867               1,442              9,261              5,412
                                                     ---------------     --------------     ---------------    ---------------
Gross Profit                                                 224                 405              1,971              4,116
                                                     ---------------     --------------     ---------------    ---------------
Operating Expenses:
    Selling, General and Administrative:
        Salaries and Related Costs                           884                 413              7,686              3,276
        Advertising and Promotion                            ---                  21                 20                 77
        Depreciation and Amortization                        960                 915              2,945              2,709
        Other Support Costs                                2,494               2,524              6,586              4,766
        Research and Development                             129                 125                395                184
                                                     ---------------     --------------     ---------------    ---------------
Total Operating Expenses                                   4,467               3,998             17,632             11,012
                                                     ---------------     --------------     ---------------    ---------------

Loss from Operations                                      (4,243)             (3,593)           (15,661)            (6,896)

Other Income / (Expenses):
    Interest Income - Net                                     10                  52                 21                  69
    Interest (Expense)                                      (140)               (292)            (7,789)               (551)
    Loss on Sale of Assets                                   ---                 ---               (642)               ---
    Gain on Sale of Marketable Securities                    ---                 ---                466                ---
                                                     ---------------     --------------     ---------------    ---------------
       Total Other Income (Expense)                         (130)               (240)            (7,944)              (482)

Net Loss                                                  (4,373)             (3,833)           (23,605)            (7,378)
                                                     ---------------     --------------     ---------------    ---------------

Other Comprehensive Loss
Unrealized Holding Gain/(Loss)                               (11)                346                 44               (595)
                                                     ---------------     --------------     ---------------    ---------------
Other Comprehensive Loss                               $  (4,384)          $  (3,487)        $  (23,561)         $  (7,973)
                                                     ===============     ==============     ===============    ===============
Net Loss per Common Share:
Basic                                                     $ (0.02)            $ (0.05)           $ (0.13)            $ (0.09)
Diluted                                                   $ (0.02)            $ (0.05)           $ (0.13)            $ (0.09)
Comprehensive Loss                                        $ (0.02)            $ (0.05)           $ (0.13)            $ (0.09)

</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

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

<TABLE>
<CAPTION>


                                                                Additional                  Accumulated     Total
                                                    Preferred   Paid in        Retained    Comprehensive  Shareholders
                           Shares       Value         Stock     Capital        Earnings        Income       Equity
                           ------       -----       ---------   ----------     --------    -------------  ------------
<S>                         <C>            <C>                  <C>            <C>             <C>            <C>
Total Shareholders'         73,051         $ 73       ---       $ 158,731      $(44,035)       $ (656)        $114,113
Equity As of August 31,
2002
                           ========    ===========   ======     ===========    ============   ===========   ===========

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

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

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

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

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

Total Shareholders'
Equity
   As of August 31, 2003   147,447          147       ---         177,017       (80,536)         (727)          95,901
                           ========    ===========   ======     ===========    ============   ===========    ==========

Net Loss for the Nine
Months Ended May 31, 2004      ---          ---       ---             ---       (23,605)                      (23,605)

New Stock Issued to
Shareholders
  Services and
  Compensation               5,090            5       ---           4,448            ---                         4,453
  Property and Other
  Assets                                              ---                            ---
  Retirement of Debt and
  Liabilities               35,942           36       ---           8,156            ---                         8,192
  Interest for
  Beneficial Conversion
  Value                                               ---           6,912            ---                         6,912
   Retirements /
 Issuance of Warrants                                               4,493                                        4,493

Unrealized Holding Gain                               ---                                           44              44

Total Shareholders'
Equity as of
May 31, 2004               188,479         $188       ---        $201,026      $(104,141)       $ (683)         $96,390
                           ========    ===========   ======     ===========    ============   ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

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

<TABLE>
<CAPTION>

                                                                             For the Nine Months Ended May 31,
                                                                      ------------------------------------------------

                                                                                  2004                 2003
                                                                              -------------        -------------
                                                                                                      Restated
Cash Flows from Operating Activities:
<S>                                                                            <C>                     <C>
Net Loss                                                                       $ (23,605)              $ (7,378)

Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
        Gain (Loss) on Sale of Assets                                                 611                   ---
        Interest for Beneficial Conversion Value                                    6,912                    91
        Depreciation and Amortization                                               3,801                 3,051
        Stock Issued for Interest Expense                                             108                   266
        Stock Issued for Services Rendered                                          8,947                 1,060
        Allowance for Doubtful Accounts                                               372                   643
        (Increase)/Decrease in Accounts Receivable                                (3,246)                   837
        (Increase)/Decrease in Inventories                                            340               (1,124)
        (Increase)/Decrease in Direct Finance Leasing                               (538)                   ---
        (Increase)/Decrease in Prepaid Expenses                                       248                 (777)
        Increase/(Decrease) in Accounts Payable                                     3,467                 1,284
        Increase/(Decrease) in Accrued Expenses                                   (1,453)                 1,456
                                                                              -------------        -------------
                Total Adjustment                                                   19,569                 6,787
                                                                              -------------        -------------

Net Cash Used by Operating Activities                                             (4,036)                 (591)

Cash Flows from Investing Activities:
        (Purchase)/Disposal of Property and Equipment                               (686)               (3,486)
        (Increase)/Decrease in Deferred Costs                                         334                  (52)
        (Increase)/Decrease in Intangible Costs                                       ---                 (368)
        (Increase)/Decrease in Marketable Securities                                  151                   951
        (Increase)/Decrease in Other Assets                                          (557)                  ---
                                                                              -------------        -------------

Net Cash Used by Investing Activities                                               (758)               (2,955)
                                                                              -------------        -------------

Cash Flows from Financing Activities:
       Increase/(Decrease) in Notes Payable & Long-Term Debt                        5,597                 3,360
                                                                              -------------        -------------

Net Cash Provided by Financing Activities                                           5,597                 3,360
                                                                              -------------        -------------

Net Increase/(Decrease) in Cash                                                       803                 (186)
                                                                              -------------        -------------

Cash at the Beginning of Period                                                       824                 1,273
Cash at the End of Period                                                          $1,627                $1,087
                                                                              =============        =============

Supplemental Disclosure of Cash Flow Information:
Net Cash Paid During the Year for
       Interest                                                                      $312                 $ 286
       Income Taxes                                                                   ---                   ---

</TABLE>

     Supplemental non-cash investing activities (See Note 21) and changes in
shareholder's equity.


See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

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

NOTE 1 -  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:

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

A)        Consolidation

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

B)        Cash and Cash Equivalents

          The Company has $1,627,000 and $824,000 of cash invested in interest
          bearing accounts and cash equivalents at May 31, 2004, and August 31,
          2003, respectively.

          The Company also has securities available for sale that include
          967,500 shares of common stock of Burst.com, 146,085,264 shares of
          Celerity Systems common stock and $350,000 Celerity Systems Bonds.
          These common stock and bond investments have an aggregate cost basis
          of $867,650 and an aggregate fair market value of $1,563,149 and are
          included in the Balance Sheet category of Securities Available for
          Sale as of May 31, 2004. See (Note 8)

          Subsequent to the quarter ended May 31, 2004, Celerity Systems, Inc.
          repurchased the Celerity Systems common stock and bonds from the
          Company for $662,308 in cash.

C)        Property and Equipment

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

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

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

                                       7
<PAGE>

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

D)        Inventories

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


                                       May 31,                     August 31,
                                          2004                          2003
                                       ---------                   -----------
            Raw Materials              $   1,437                  $    1,826
            Work in Process                  915                       1,237
            Finished Goods                   507                         136
                                       ---------                   -----------
                                       $   2,859                  $    3,199
                                       =========                   ===========

E)        Revenue Recognition

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

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

          Deferred Revenues

          Revenues that are billed in advance of services being completed are
          deferred until the conclusion of the period of the service for which
          the advance billing relates. Deferred revenues are included on the
          balance sheet as a current liability until the service is performed
          and then recognized in the period in which the service is completed.
          Eagle's deferred revenues primarily consist of billings in advance for
          cable, internet, security and telephone services, which generally are
          between one and three months of services. Eagle had deferred revenues
          of $491,953 and $230,397 as of May 31, 2004, and August 31, 2003,
          respectively.

          EAGLE WIRELESS INTERNATIONAL, INC.
          Eagle designs, manufactures and markets transmitters, receivers,
          controllers and software, along with other equipment used in
          commercial and personal communication systems, radio and telephone
          systems. Revenues from these products are recognized when the product
          is shipped. Eagle's Wireless International Product revenues are
          reported under the category of Products on Eagle's Consolidated
          Statements of Operations included as page 4 of this report and also
          under the category Eagle within Note 20 - Industry Segments.

          BROADBANDMAGIC
          BroadbandMagic designs, manufactures and markets the convergent
          set-top boxes. Products are sent principally to commercial customers
          for a pre-sale test period of ninety days. Upon the end of the
          pre-sale test period, the customer either returns the product or
          accepts the product, at which time Eagle recognizes the revenue.
          Eagle's Broadband Multimedia and Internet Products revenues are
          reported under the category of Products on Eagle's Consolidated
          Statements of Operations included as page 4 of this report and also
          under the category Eagle within Note 20 - Industry Segments. Revenue
          from software consists of software licensing. There is no
          post-contract customer support. Software revenue is allocated to the
          license using vendor specific objective evidence of fair value
          ("VSOE") or, in the absence of VSOE, the residual method. The price
          charged when the element is sold separately generally determines VSOE.
          In the absence of VSOE of a delivered element, Eagle allocates revenue
          to the fair value of the undelivered elements and the residual revenue
          to the delivered elements. Eagle recognizes revenue allocated to
          software licenses at the inception of the license.

                                      8
<PAGE>

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

          EAGLE BROADBAND, INC.
          Eagle Broadband, Inc., engages independent agents for sales
          principally in foreign countries and certain geographic regions in the
          United States. Under the terms of these one-year agreements the
          distributor or sales agents provide the companies with manufacturing
          business sales leads. The transactions from these distributors and
          agents are subject to Eagle's approval prior to sale. The
          distributorship or sales agent receives commissions based on the
          amount of the sales invoice from the companies to the customer. The
          sale is recognized at the time of shipment to the customer. These
          sales agents and distributors are not a significant portion of total
          sales in any of the periods presented. Eagle's Broadband, Inc.,
          revenues are reported under the category of Products on Eagle's
          Consolidated Statements of Operations included as page 4 of this
          report and also under the category Eagle within Note 20 - Industry
          Segments.

          EAGLE BDS SERVICES - DBA CLEARWORKS COMMUNICATIONS, INC.
          ClearWorks Communications, Inc., provides Bundled Digital Services to
          business and residential customers, primarily in the Texas market.
          Revenue is derived from fees charged for the delivery of Bundled
          Digital Services, which includes telephone, long distance, internet,
          security monitoring and cable services. This subsidiary recognizes
          revenue and the related costs at the time the services are rendered.
          Installation fees are recognized upon completion and acceptance. Eagle
          BDS Services' revenues are reported under the category of Broadband
          Services on Eagle's Consolidated Statements of Operations included as
          page 4 of this report and also under the category EBS/DSS within
          Note 20 - Industry Segments.

          EAGLE RESIDENTIAL STRUCTURED WIRING-DBA CLEARWORKS HOME SYSTEMS, INC.
          ClearWorks Home Systems, Inc., sells and installs structured wiring
          and audio and visual components to homes. This subsidiary recognizes
          revenue and the related costs at the time the services are performed.
          Revenue is derived from the billing of structured wiring to homes and
          the sale of audio and visual components to the homebuyers. Eagle's
          Residential Structured Wiring revenues are reported under the category
          of Structured Wiring on Eagle's Consolidated Statements of Operations
          included as page 4 of this report and also under the category
          APC/HSI within Note 20 - Industry Segments.

          EAGLE COMMUNICATION SERVICES-DBA ATLANTIC PACIFIC COMMUNICATIONS, INC.
          Atlantic Pacific Communications, Inc., provides project planning,
          installation, project management, testing and documentation of fiber
          and cable to commercial and industrial clients throughout the United
          States. The revenue from the fiber and cable installation and services
          is recognized upon percentage of completion of the project. Most
          projects are completed in less than one month, therefore, matching
          revenue and expense in the period incurred. Service, training and
          extended warranty contract revenues are recognized as services are
          completed. Eagle's Communications Services revenues are reported under
          the category of Structured Wiring on Eagle's Consolidated Statements
          of Operations included as page 4 of this report and also under the
          category APC/HSI within Note 20 - Industry Segments.

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

          EAGLE MESSAGING SERVICES - DBA LINK TWO COMMUNICATIONS, INC.
          Link Two Communications, Inc., provides customers with one- and
          two-way messaging systems. The revenue from the sale of these products
          is recognized at the time the services are provided. Eagle's Messaging
          Services revenues are reported under the category of Other on Eagle's
          Consolidated Statements of Operations included as page 4 of this
          report and also under the category Eagle within Note 20 - Industry
          Segments.

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

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

          EAGLE TECHNOLOGY SERVICES - DBA UNITED COMPUTING GROUP, INC.
          United Computing Group, Inc., provides business-to-business hardware
          and software network solutions and network monitoring services. The
          revenue from the hardware and software sales is recognized at the time
          of shipment. The monitoring services recognition policy is to record
          revenue on completion. Eagle's Technology Services product revenues
          are reported under the category of "Products" while the services
          components are reported under the category "Other" on Eagle's
          Consolidated Statements of Operations included as page 4 of this
          report and also under the category UCG within Note 20 - Industry
          Segments.

                                       9
<PAGE>

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

F)        Research and Development Costs

          For the three months ended May 31, 2004, and May 31, 2003, the Company
          performed research and development activities for internal projects
          related to its Orb'Phone Exchange, convergent set-top boxes as well as
          its multi-media entertainment centers. Research and development costs
          of $129,000 and $125,000 were expensed for the three months ended May
          31, 2004, and May 31, 2003, respectively. Research and development
          costs of $395,000 and $184,000 were expensed for the nine months ended
          May 31, 2004, and May 31, 2003, respectively.

          No research and development services were performed for outside
          parties for the three months ended May 31, 2004 and May 31, 2003.

G)        Income Taxes

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

H)        Net Earnings Per Common Share

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

                                                     May 29,        August 31,
                                                        2004            2003
                                                     --------       -----------
           Weighted Average Number of Common
             Shares Outstanding Including

           Primary Common Stock Equivalents            179,228          95,465
           Fully Dilutive Common Stock Equivalents     179,228          95,465


I)        Impairment of Long-Lived Assets and Goodwill

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

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

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

                                       10
<PAGE>

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

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

          As of May 31, 2004, no impairment existed.

J)        Intangible Assets

          Goodwill represents the excess of the cost of companies acquired over
          the fair value of their net assets at the dates of acquisition.

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

          Other intangible assets consist of licenses and permits and other
          acquired contracts, which are being amortized using the straight-line
          method over their estimated useful lives of 1 to twenty (20) years.
          Eagle's licenses include FCC licenses for designated narrowband
          personal communications services, radio frequencies or spectrum to
          service providers. Eagle does not maintain that these licenses have an
          indefinite life, but rather has ceased amortizing the remaining
          balance of $1,562,000, as management believes that this balance
          represents the salvage value of such assets. Eagle, to date, has
          maintained all operational requirements to keep its licenses current,
          and periodically assesses both future operating requirements as well
          as the salvage of such assets.

          Eagle is required to periodically assess the carrying value of
          goodwill and licenses associated with each of its distinct business
          units that comprise its business segments of the Company to determine
          if impairment in value has occurred. The Company updated its
          assessment as of August 31, 2003, and concluded that based on a
          valuation model incorporating expected future cash flows in
          consideration of historical cash flows and results to date, no
          impairment charge was necessary.

          Goodwill and other intangibles of $75,528,000 net of prior impairments
          and amortization were recorded under the purchase method for the
          purchases of ClearWorks.net, Inc.; Atlantic Pacific, Inc.; DSS
          Security, Inc.; Contact Wireless, Inc.; and Comtel, Inc. The majority
          of the intangibles were from the ClearWorks acquisition. ClearWorks
          was in the business of selling telecommunications services to
          residential neighborhoods. In fiscal 2003, Eagle realized it had
          failed to successfully achieve profits using the ClearWorks model of
          installing fiber optic cable to neighborhoods under the speculative
          attempt to capture enough individual homeowners in each neighborhood
          via individual selling methods to pay for the cable infrastructure. In
          early 2003, Eagle modified its strategy to deliver the ClearWorks
          developed bundled digital services approach including Internet,
          telephone, cable television and security monitoring services to
          residential and business users by targeting municipalities,
          homebuilders and residential real estate developers that finance and
          install the fiber optic cable backbone in every lot and offer Eagle
          exclusive rights to deliver digital bundled services to homeowners,
          using pre-selling promotions and other low-cost mass marketing
          techniques. In October 2003, Eagle hired a new Chief Executive Officer
          with an extensive sales and marketing background and proven senior
          management and operational skills leading high-growth technology
          companies to implement its modified strategy.

          Eagle assessed the fair value of the intangible assets as of August
          31, 2003, and May 31, 2004, and concluded that the goodwill valuation
          remains at an amount greater than the current carrying value.

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

K)        Advertising Costs

          Advertising costs have been capitalized and amortized on the basis of
          contractual agreements entered into by the Company. These contracts
          are amortized over the life of the individual contracts or expensed in
          the period incurred. For the three and nine months ended May 31, 2004,
          the Company has expensed $0, and $21,000. For the three and nine
          months ended May 31, 2003, the Company has expensed $20,000 and
          $77,000.

                                       11
<PAGE>

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

L)        Deferred Syndication Costs

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

M)        Use of Estimates

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

N)        Marketable Securities

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

O)        Other Comprehensive Income

          In 1997, the Financial Accounting Standards Board issued Statement of
          Financial Accounting Standards No. 130, "Other Comprehensive Income,"
          effective for fiscal years beginning after December 15, 1997. This
          statement considers the presentation of unrealized holding gains and
          losses attributable to debt and equity securities classified as
          available-for-sale. As stated, any unrealized holding gains or losses
          affiliated to these securities are carried below net income under the
          caption "Other Comprehensive Income." For the three months ended May
          31, 2004, and May 31, 2003, the Company recorded a comprehensive loss
          of $11,000 and comprehensive gain of $346,000, respectively. For the
          nine months ended May 31, 2004, and May 31, 2003, the Company recorded
          a comprehensive gain of $44,000 and a comprehensive loss of $595,000,
          respectively.

P)        Beneficial Conversion Values

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

Q)        Reclassification

          The Company has reclassified certain assets, costs and expenses for
          the three and nine months ended May 31, 2004, and May 31, 2003, to
          facilitate comparisons.

R)        Recent Pronouncements

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

                                     12
<PAGE>

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

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

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

          In April 2002, the FASB issued Statement of Financial Accounting
          Standards No. 145 (SFAS 145), "Rescission of FASB Statements No. 4, 44
          and 64, Amendment of FASB Statement No. 13, and Technical
          Corrections," which requires that the extinguishment of debt not be
          considered an extraordinary item under APB Opinion No. 30 (APB 30),
          "Reporting the Results of Operations-Reporting the Effects of Disposal
          of a Segment of Business, and Extraordinary, Unusual and Infrequently
          Occurring Events and Transactions," unless the debt extinguishment
          meets the "unusual in nature and infrequent of occurrence" criteria in
          APB 30. SFAS 145 is effective for fiscal years beginning after May 15,
          2002, and, upon adoption, companies must reclassify prior period items
          that do not meet the extraordinary item classification criteria in APB
          30. The Company adopted SFAS 145 and related rules as of August 31,
          2002. The adoption of SFAS 145 had no effect on the Company's
          financial position or results of operations.

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

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

S)        Product Warranties

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

NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS


          During the quarter ended May 31, 2004, and subsequent to the issuance
          of the Company's financial statements as of August 31, 2003, it
          was determined that the allocation of the purchase price to net
          assets acquired in connection with its merger with
          Clearworks.net, Inc. and certain other classifications of
          intangible assets had not been appropriately accounted for. The
          principal change to previously issued financial statements
          related to the reclassification of a portion of the Company's
          goodwill acquired in the Clearwork.net, Inc. merger to contract
          rights, customer relationships and other intangible assets that
          are amortizable versus goodwill not being amortizable following
          the Company's adoption of FAS 142. Accordingly, the Company has
          restated its consolidated financial statements for the years
          ended August 31, 2003, 2002 and 2001 to correctly present
          goodwill, intangible assets, amortization expense and net loss.


                                       13
<PAGE>

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

          The accompanying consolidated financial statements for the three and
          nine months ended May 31, 2003 have been restated to correctly present
          amortization expense and net loss.

          The following table summarizes the impact of these adjustments on the
          results of operations for the three and nine months ended May 31,
          2003.

<TABLE>
<CAPTION>


                                                Three Months Ended              Nine Months Ended
                                                   May 31, 2003                  May 31, 2003
                                              As               As                As            As
                                            Reported        Restated          Reported      Restated
                                           ---------      -----------         ---------     --------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                 Depreciation and
                 amortization              $      213     $       915       $      603     $    2,709
                 Total Operating Expenses
                                                3,086           3,998            8,365         11,012
                 Loss from Operations          (2,681)         (3,593)          (4,249)        (6,896)
                 Net Loss                      (2,921)         (3,833)          (4,731)        (7,378)
                 Other Comprehensive Loss
                                               (2,575)         (3,487)          (5,326)        (7,973)

                 Basic                     $    (0.04)    $     (0.05)      $    (0.06)    $    (0.09)
                 Diluted                   $    (0.04)    $     (0.05)      $    (0.06)    $    (0.09)
                 Comprehensive Loss        $    (0.04)    $     (0.05)      $    (0.06)    $    (0.09)

</TABLE>

NOTE 3 - ACCOUNTS RECEIVABLE:

                  Accounts receivable consist of the following, in thousands:

                                                         May 31,      August 31,
                                                          2004          2003
                                                         -------      ---------

                  Accounts Receivable               $     4,958     $     2,116
                  Allowance for Doubtful Accounts          (336)          (412)
                                                         --------      --------
                  Net Accounts Receivable           $     4,622     $     1,704
                                                         ========      ========

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS:

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

                                                     May 31,         August 31,
                                                       2004            2003
                                                     --------        ----------
         Automobile                               $       143       $      143
         Headend Facility & Fiber Infrastructure       27,361           26,688
         Furniture, Fixtures & Equipment                1,539            1,544
         Leasehold Improvements                           124              122
         Property, Manufacturing & Equipment            7,205            7,925
                                                  -----------        ---------
                                                  -----------        ---------
             Total Property, Plant & Equipment         36,372           36,422
                Less: Accumulated Depreciation         (7,277)         (5,689)
                                                  -----------       -----------
             Net Property, Plant & Equipment      $    29,095       $   30,733
                                                  ===========       ===========

          Eagle expenses repairs and maintenance against income as incurred
          whereas major improvements are capitalized. Eagle defines major
          improvements as those assets acquired that extend the life of the
          underlying base asset while defining other improvements that do not
          extend the life as repairs and maintenance. Eagle expensed repairs and
          maintenance of $16,125 and $18,000 for the three months ended May 31,
          2004, and May 31, 2003, respectively, whereas it did not have any
          capitalized major improvements for the same time periods. Eagle
          expensed repairs and maintenance of $35,698 and $26,000 for the nine
          months ended May 31, 2004, and May 31, 2003, respectively, whereas it
          did not have any capitalized major improvements for the same time
          periods.

          Eagle's headend facility and fiber infrastructure consist primarily of
          digital computing and telecommunications equipment that comprise
          Eagle's main headend facility at it headquarters, wireless headend
          equipment, a digital headend facility and a fiber backbone in the
          master planned communities in which it operates and a fiber ring
          connecting the various master planned communities in the Houston area.
          These fiber and headend infrastructures are similar to those that
          would exist in a major telecommunications or cable television provider
          that offers digital services for Internet, cable TV, telephone and
          security monitoring services. Eagle determined that a 20-year
          straight-line depreciation method is appropriate for its headend
          facility and fiber infrastructure based on industry standards for
          these asset types.

                                       14
<PAGE>

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

          The Company has also reclassified the accumulated amortization
          relating to goodwill and intangible assets.


NOTE 5 - NOTES PAYABLE:

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

<TABLE>
<CAPTION>

                                                         Annual
                                                        Interest                       May 31,      August 31,
                                                          Rate          Due Date         2004         2003
                                                    ---------------- --------------- ------------- -----------
<S>                                                                                  <C>           <C>
                 Vehicles                               Various        Various       $       ---   $        4
                 5% Convertible Debenture (Note 9)       5 .0%          Demand               ---        1,200
                 Tail Wind Convertible Debenture         2.0%           Demand               ---        1,595
                 Notes Payable - Investor Group          10.0%       October 2003            ---          900
                 Notes Payable - Q Series Bonds          12.0%         Various             5,275        1,363
                 Other                                  Various        Various               306          717
                                                                                        ----------    -------
                 Total notes Payable                                                 $     5,581     $  5,779
                                                                                        ----------    -------
                 Less Current Portion                                                      5,581        5,779
                                                                                        ----------    -------
                 Total Long-Term Debt                                                $       ---$         ---
                                                                                        ==========    =======
</TABLE>

NOTE 6 - LINE OF CREDIT:

          APC entered into a credit facility with Southwest Bank of Texas (SWBT)
          to provide working capital and fund ongoing operations. This credit
          facility is a purchase and sale agreement against accounts receivable
          and provides for borrowings up to $1,000,000 based on eligible
          accounts receivable and is secured by APC accounts receivable and
          guaranteed by Eagle Broadband, Inc. During the first quarter of fiscal
          2004, APC repaid and canceled the line of credit.

          UCG entered into a credit facility with Southwest Bank of Texas (SWBT)
          to provide working capital, repay the IBM credit line and fund ongoing
          operations. The new credit facility is a purchase and sale agreement
          against accounts receivable, provides for borrowings up to $3,000,000
          based on eligible accounts receivable and is secured by UCG accounts
          receivable and guaranteed by Eagle Broadband, Inc. During the first
          quarter of fiscal 2004, UCG repaid and canceled the line of credit,

NOTE 7 - CONVERTIBLE DEBENTURES:

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

                                       15
<PAGE>

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

          During 2001, the Company acquired ClearWorks.net, Inc., and as a
          result, ClearWorks is a wholly owned subsidiary of Eagle. Link Two
          Communications, Inc., is a subsidiary of ClearWorks. Link Two entered
          an agreement with The Tail Wind Fund Ltd., under which Tail Wind
          purchased from Link Two a 2% convertible note in the initial amount of
          $5,000,000. As a result of the acquisition, Eagle the parent of Link
          Two, has guaranteed the Link Two notes issued to Tail Wind and allowed
          Tail Wind to convert the above mentioned debt into Eagle common stock
          and warrants at various rates. During the three-month period ended
          February 29, 2004, the note was repaid.

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

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

NOTE 8 - SECURITIES AVAILABLE FOR SALE:

          At May 31, 2004 and August 31, 2003, all of the Company's marketable
          equity securities are classified as available-for-sale.

          Securities available for sale include 967,500 shares of common stock
          of Burst.com, 146,085,264 shares of Celerity Systems common stock and
          $350,000 Celerity Systems Bonds as of May 31, 2004. These common stock
          and bond investments have an aggregate cost basis of $867,650 and an
          aggregate fair market value of $1,563,149.

          Subsequent to the quarter ended May 31, 2004, Celerity Systems, Inc.
          repurchased the Celerity Systems common stock and bonds from the
          Company for $662,308 in cash.

NOTE 9 - INCOME TAXES:

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

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

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

                                               May 31,          August 31,
                                                2004               2003
                                           --------------      -----------
          Computed Expected Tax Benefit    $    (8,026)        $  (11,456)
          Increase in Valuation Allowance        8,026             11,456
                                           --------------      -----------
                                           $     0             $    0
                                           ==============      ===========

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

                                     16
<PAGE>

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


<TABLE>
<CAPTION>

                                                               May 31,            August 31,
                                                                2004                2003
                                                        -----------------        -----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
           Deferred tax assets:
           Accounts Receivable, Principally Due to
           Allowance for Doubtful Accounts              $      ---               $     ---

           Net Operating Loss Carry-Forwards                43,529                    35,503
           Less Valuation Allowance                        (43,529)                  (35,503)
                                                        -----------------        -----------
           Net Deferred Tax Assets                             ---                     ---

           Deferred Tax Liabilities:
           Differences in Depreciation                         ---                     ---
                                                        -----------------        ------------

           Net Deferred Tax Liabilities               $        ---               $     ---
                                                        =================        ============
</TABLE>

          The valuation allowance for deferred tax assets of May 31, 2004, and
          August 31, 2003, was $43,529,000 and $35,503,000, respectively. At May
          31, 2004, the Company has net operating loss carry-forwards of
          $128,026,000, which are available to offset future federal taxable
          income, if any, with expirations from 2020 to 2021.

NOTE 10 - ISSUANCE OF COMMON STOCK:

          For the nine months ended May 31, 2004, the Company issued shares of
          common stock. The following table summarizes the shares of common
          stock issued, in thousands.

          Shares Outstanding August 31, 2003                             147,447
                                                                       ---------
          Shares Issued for Retirement of Debt and Liabilities            35,942
          Shares Issued for Services, Compensation, Property and           5,090
          Other Assets
                                                                       ---------
          Shares Outstanding May 31, 2004                                188,479
                                                                       =========

NOTE 11 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS:

          In July 1996, the Board of Directors and majority shareholders adopted
          an employee stock option plan under which 400,000 shares of Common
          Stock have been reserved for issuance. Since that time, the Board of
          Directors have amended the July 1996, employee stock option plan under
          which 1,000,000 shares of Common Stock have been reserved for
          issuance. As of May 31, 2004, options to purchase 351,233 are
          outstanding and 648,767 are available to be issued.

          The Company has issued (or has acquired through its acquisitions) and
          has outstanding the following warrants which have not yet been
          exercised at May 31, 2004:

          50,000 stock purchase options issued to L. A. Delmonico Consulting,
          Inc., expiring April 4, 2005. The warrants are to purchase fully paid
          and non-assessable shares of the common stock, par value $.001 per
          share at a purchase price of $1.04 per share. The shares of common
          stock underlying these warrants were registered for resale on August
          9, 2002, under the Securities Act of 1933. As of May 31, 2004, none of
          these options have been exercised

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          January 1, 2004. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $2.00 per share. As of May 31, 2004, these
          warrants have expired unexercised.

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

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

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

                                       17
<PAGE>

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


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

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          October 1, 2004. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.69 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of November 30, 2003 none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          January 1, 2005. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.61 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          April 1, 2005. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.38 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been exercised.

          192,000 stock purchase warrants issued to Tech Technologies Services,
          LLC, expiring April 24, 2008. The warrants are to purchase fully paid
          and non-assessable shares of the common stock, par value $.001 per
          share at a purchase price of $7.50 per share. The shares of common
          stock underlying these warrants have not been registered or issued,
          under the Securities Act of 1933. As of May 31, 2004, none of these
          warrants have been registered, issued or exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring July
          1, 2005. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $0.39 per share. The shares of common stock underlying these
          warrants were not registered for resale under the Securities Act of
          1933. As of May 31, 2004, none of these warrants have been exercised.

          240,000 stock purchase warrants issued to Shannon D. McLeroy expiring
          April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been registered, issued or exercised.

          168,000 stock purchase warrants issued to Michael T. McClere expiring
          April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been registered, issued or exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          October 1, 2005. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.35 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been exercised.

          40,000 stock purchase warrants issued to Rachel McClere 1998 Trust
          expiring April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been registered, issued or exercised.

          160,000 stock purchase warrants issued to McClere Family Trust
          expiring April 24, 2008. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $7.50 per share. The shares of common stock
          underlying these warrants have not been registered or issued, under
          the Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been registered, issued or exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          January 1, 2006. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.28 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          April 1, 2006. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.26 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been exercised.

          25,000 stock purchase warrants issued to Synchton, Inc., expiring July
          1, 2006. The warrants are to purchase fully paid and non-assessable
          shares of the common stock, par value $.001 per share at a purchase
          price of $0.38 per share. The shares of common stock underlying these
          warrants were not registered for resale under the Securities Act of
          1933. As of May 31, 2004, none of these warrants have been exercised.

                                       18
<PAGE>

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


          25,000 stock purchase warrants issued to Synchton, Inc., expiring
          October 1, 2006. The warrants are to purchase fully paid and
          non-assessable shares of the common stock, par value $.001 per share
          at a purchase price of $0.45 per share. The shares of common stock
          underlying these warrants were not registered for resale under the
          Securities Act of 1933. As of May 31, 2004, none of these warrants
          have been exercised.

          3,650,000 stock purchase warrants issued to Eagle Broadband employees
          under incentive clauses of employment contracts expiring September 1,
          2008. The warrants vest based on market performance of Eagle's common
          stock at market capitalization between $50 million and $200 million.
          The warrants are to purchase fully paid and non-assessable shares of
          the common stock, par value $.001 per share at a purchase price of
          $0.41 per share. The shares of common stock underlying these warrants
          were not registered for resale under the Securities Act of 1933. As of
          May 31, 2004, none of these warrants have been exercised.

          400,000 stock purchase warrants issued to Eagle Broadband employee
          under incentive clauses of employment contracts expiring September 1,
          2008. The warrants vest based on market performance of Eagle's common
          stock at market capitalization between $50 million and $200 million.
          The warrants are to purchase fully paid and non-assessable shares of
          the common stock, par value $.001 per share at a purchase price of
          $0.60 per share. The shares of common stock underlying these warrants
          were not registered for resale under the Securities Act of 1933. As of
          May 31, 2004, none of these warrants have been exercised.

          500,000 stock purchase warrants issued to Eagle Broadband employee
          under incentive clauses of employment contracts expiring September 1,
          2008. The warrants vest based on market performance of Eagle's common
          stock at market capitalization between $50 million and $200 million.
          The warrants are to purchase fully paid and non-assessable shares of
          the common stock, par value $.001 per share at a purchase price of
          $0.75 per share. The shares of common stock underlying these warrants
          were not registered for resale under the Securities Act of 1933. As of
          May 31, 2004, none of these warrants have been exercised.

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

                      Warrants Issued &                            Warrants
                          Outstanding                              Exercisable
          -----------------------------------  ---------------------------------
Class of
Warrants        May 31,2004   August 31, 2003     May 31,2004    August 31, 2003
--------------------------------------------------------------------------------
     0.26           25,000            25,000          25,000              25,000
     0.28           25,000            25,000          25,000              25,000
     0.35           25,000            25,000          25,000              25,000
     0.38           50,000            50,000          50,000              50,000
     0.39           25,000            25,000          25,000              25,000
     0.41        3,650,000         3,800,000       3,650,000           1,550,000
     0.45           25,000            25,000          25,000              25,000
     0.60          400,000           400,000         400,000                   -
     0.61           25,000            25,000          25,000              25,000
     0.69           25,000            25,000          25,000              25,000
     0.75          500,000           500,000         500,000                   -
     1.04           50,000            50,000          50,000              50,000
     1.35           25,000            25,000          25,000              25,000
     2.00           41,667            41,667          41,667              41,667
     2.25           41,667            41,667          41,667              41,667
     3.00           58,333            58,333          58,333              58,333
     7.50          192,000           192,000         192,000             192,000
     7.50          240,000           240,000         240,000             240,000
     7.50          168,000           168,000         168,000             168,000
     7.50          200,000           200,000         200,000             200,000
   ESOP            351,233 *         406,131 *       351,233 *           406,131
          -----------------  ----------------  --------------  -----------------
                 6,142,900 **      6,347,798 **    6,142,900 **        3,197,798
          =================  ================  ==============  =================

          *Denotes warrants which would have an anti-dilutive effect if
          currently used to calculate earnings per share for the period ended
          May 31, 2004, and August 31, 2003.

          **Denotes 12,650,000 warrants for shares that have been excluded from
          this table that are subject to issuance to certain employees under
          incentive clauses of employment contracts expiring five years from the
          date of issuance. The warrants vest based on accumulated revenue
          targets ranging from $50 million to $500 million and on market
          performance of Eagle's common stock at market capitalization between
          $450 million and $1 billion. The warrants are to purchase fully paid
          and non-assessable shares of the common stock, par value $0.001 per
          share at purchase prices ranging from $0.41 to $10.00 per share. The
          Company has determined that the probability of the achievement of such
          targets is remote as of the date of the issuance of the Company's
          financial statements and thus has not included them in the outstanding
          warrant table above. The shares of common stock underlying these
          warrants were not registered for resale under the Securities Act of
          1933. As of May 31, 2004, none of these warrants have been either
          earned or exercised.

                                       19
<PAGE>

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


NOTE 12 - CAPITALIZATION ACTIVITIES:

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

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

NOTE 13 - RISK FACTORS:

          For the nine months ended May 31, 2004, and May 31, 2003,
          substantially all of the Company's business activities have remained
          within the United States and have been extended to the wireless
          infrastructure, fiber, cabling computer services and broadband
          industry. Approximately eighty-five percent of the Company's revenues
          and receivables have been created solely in the state of Texas, zero
          percent have been created in the international market, and the
          approximate fifteen percent remainder have been created relatively
          evenly over the rest of the nation during the nine months ended May
          31, 2004. Whereas approximately seventy-six percent of the Company's
          revenues and receivables have been created solely in the state of
          Texas, zero percent have been created in the international market, and
          the approximate twenty-four percent remainder has been created
          relatively evenly over the rest of the nation for the nine months
          ended May 31, 2003. Through the normal course of business, the Company
          generally does not require its customers to post any collateral.

NOTE 14 - FOREIGN OPERATIONS:

          Although the Company is based in the United States, its product is
          sold on the international market. Presently, international sales total
          approximately 0% and 0% for the nine months ended May 31, 2004, and
          May 31, 2003, respectively.

NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES:

          Leases

          For the nine months ending May 31, 2004, and May 31, 2003, rental
          expenses of approximately $464,000 and $709,000 respectively, were
          incurred.

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

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

          The Company's wholly owned subsidiary, Contact Wireless, Inc., leases
          office space in San Antonio, Texas with Wade Holdings. This
          non-cancelable lease expires June 2007. The monthly payments are
          $3,300.

          The Company's wholly owned subsidiary, Contact Wireless, Inc., leases
          office space in San Antonio, Texas with Cotter & Sons. This
          non-cancelable lease expires August 2004. The monthly payments are
          $2,698.

                                       20
<PAGE>

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


         Future obligations under the non-cancelable lease terms areas follows:


                       Period Ending August 31,             Amount
                                                         -------------
                                 2004                      $ 189,574
                                 2005                        447,761
                                 2006                        375,521
                                 2007                        339,180
                                 2008                        325,316
                                 2009                        243,988
                                                         -------------
                                Total                     $1,921,340
                                                         =============

         Legal Proceedings

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

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

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

          On December 14, EPA sued ClearWorks.net presenting claims for recovery
          costs and penalties for a waste tire processing facility. The suit
          seeks recovery of costs and penalties in a sum in excess of
          $1,000,000, attorneys' fees and cost of court. ClearWorks denies the
          claims and intends to vigorously contest all claims in this case and
          to enforce its indemnification rights against the principals of
          Southeast Tire Recycling. The Company has not accrued any expenses
          against this lawsuit, as the outcome cannot be predicted at this time.

          On September 26, 2003, Intratech served a lawsuit on ClearWorks.net in
          Intratech Capital Partners, Ltd. vs. ClearWorks.net, Inc.; Case No.
          CF3 20136 in the High Court of Justice, Queen's Bench Division,
          Cardiff District Registry. This lawsuit presents claims for breach of
          contract for failing to pay the plaintiff for financial advice and
          services allegedly rendered. The complaint seeks damages of
          $6,796,245, plus attorneys' fees and costs. ClearWorks denies the
          claims and intends to vigorously defend this lawsuit and claims
          against it. The Company has accrued $100,000 in its fiscal 2003
          financial statements for litigation expenses but has not accrued any
          settlement costs against this lawsuit as the outcome cannot be
          predicted at this time.

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

          On January 31, 2004, Eagle became a defendant in Avnet, Inc. d/b/a
          Cilicon vs. Eagle Broadband, Inc. f/k/a Eagle Wireless International,
          Inc.; Cause No. 04CV0046; in the 56th Judicial Court, Galveston
          County, Texas. This suit presents claims for breach of contract,
          anticipatory breach, failure to pay money due on sworn account and
          quantum meruit. The suit seeks recovery of damages in the sum of
          $780,056, plus interest, attorney fees and court costs. The Company
          settled this lawsuit on April 6, 2004, for cash to be paid totaling
          $612,500 between April 30, 2004, and June 30, 2004, and consequently
          $612,500 was charged to operations in the Company's fiscal 2003 and
          2004 financial statements.

                                       21
<PAGE>

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

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

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

NOTE 16 - EARNINGS PER SHARE:

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

<TABLE>
<CAPTION>

                                                         For the nine months ended May 31, 2004
                                                      Income            Shares          Per-Share
                                                    (Numerator)      (Denominator)        Amount
<S>                                                <C>
         Net Loss                                  $(23,605)

         Basic EPS:
          Income Available to
          Common Stockholders                       $(23,605)          179,228            $(0.13)

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

         Diluted EPS:
           Income Available to
           Common Stockholders
             and Assumed Conversions.               $(23,605)          179,228            $(0.13)
                                                    =========          =========         =========


                                                         For the nine months ended May 31, 2003
                                                      Income            Shares           Per-Share
                                                    (Numerator)      (Denominator)        Amount
         Net Loss                                     $(7,378)

         Basic EPS:
          Income Available to
          Common Stockholders                         $(7,378)           83,117            $(0.09)

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

         Diluted EPS:
           Income Available to
           Common Stockholders
             and Assumed Conversions.                 $(7,378)           83,271            $(0.09)
                                                    ---------           --------         ---------
</TABLE>

          For the nine months ended May 31, 2004, and May 31, 2003,
          anti-dilutive securities existed (see Note 11).

                                       22
<PAGE>

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


NOTE 17 - EMPLOYEE STOCK OPTION PLAN:

          In July 1996, the Board of Directors and majority stockholders adopted
          a stock option plan under which 400,000 shares of the Company's common
          stock have been reserved for issuance. Since that time, the Board of
          Directors have amended the July 1996, employee stock option plan under
          which 1,000,000 shares of Common Stock have been reserved for
          issuance. Under this plan, as of May 31, 2004, 351,233 options have
          been issued and are outstanding to various employees.

          The Company has elected to follow APB 25, "Accounting for Stock Issued
          to Employees." Accordingly, since employee stock options are granted
          at market price on the date of grant, no compensation expense is
          recognized. However, SFAS 123 requires presentation of pro forma net
          income and earnings per share as if the Company had accounted for its
          employee stock options granted under the fair value method of that
          statement. For the nine months ended May 2004 and 2003, the impact on
          net income is minimal; therefore, the pro forma disclosure
          requirements prescribed by SFAS 123 are not significant to the
          Company. The fair values were determined using a Black-Scholes
          option-pricing model with the following assumptions:

<TABLE>
<CAPTION>

                                                           May 31,              May 31,
                                                             2004                2003
                                                       -----------------    ---------------
<S>                                                         <C>                <C>
                          Dividend Yield                    0.00%              0.00%
                          Volatility                         0.91               0.91
                          Risk-Free Interest Rate           4.00%              7.00%
                          Expected Life                       5                  5

</TABLE>

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


<TABLE>
<CAPTION>

                                                                                      2004           2003
                                                                                  -------------  -------------
<S>                                                                               <C>            <C>
   Net loss, as reported                                                          $    (4,373)   $    (3,833)
   Add: Stock-Based Employee Compensation Included in Reported Net Earnings
   (Loss), Net of Related Tax Effects                                                       -              -
   Less: Stock-Based Employee Compensation Expense Determined under Fair-Value
   Based Method for All Awards, Net of Related Tax Effects                                 (-)            (-)
                                                                                  -------------  -------------

   PRO FORMA NET EARNINGS (LOSS)                                                  $    (4,373)   $    (3,833)
                                                                                  =============  =============

       Net Loss Per Share:
           As Reported                                                            $     (0.02)   $     (0.05)
           Pro Forma                                                              $     (0.02)   $     (0.05)

       Diluted Net Loss Per Share
           As Reported                                                            $     (0.02)   $     (0.05)
           Pro Forma                                                              $     (0.02)   $     (0.05)

</TABLE>

         Option activity was as follows for the nine months ended May 31, 2004:

<TABLE>
<CAPTION>

                                                                                             Weighted-Average
                                                                              Shares          Exercise Price
                                                                            -------------     ----------------

<S>                                                                             <C>           <C>
                       Outstanding at beginning of year                         406,131       $    1.27
                       Granted                                                        -
                       Assumed through acquisitions                                   -
                       Exercised                                                (54,898)           0.66
                       Forfeited/Cancelled                                            -               -

                       Outstanding at end of year                               351,233            1.36

                       Exercisable at year-end                                  351,233       $    1.36
</TABLE>

                                       23
<PAGE>

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


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

<TABLE>
<CAPTION>

                                             Options Outstanding                             Options Exercisable
                           ---------------------------------------------------------   ---------------------------------

                                                    Weighted-           Weighted-                           Weighted-
                                                     Average             Average                             Average
                                                    Remaining          ------------                        ------------
                                 Number            Contractual          Exercise          Number            Exercise
Range of Exercise Prices      Outstanding         Life in Years          Price          Exercisable          Price
                           ------------------    ----------------      ------------     ------------       ------------
<C>                             <C>                    <C>                <C>               <C>               <C>
$0-$1.00                        213,141                5.0                $0.55             213,141           $0.55
$1.01-$2.00                     112,532                5.0                $1.73             112,532           $1.73
$2.01-$7.50                      25,550                5.5                $6.55              25,550           $6.55
                           ---------------------------------------------------------------------------------------------

                                351,233                5.2                $2.32             351,233           $2.32
                           ==================    ================     ==============   ================   ==============

</TABLE>

NOTE 18 - RETIREMENT PLANS:

          During October 1997, the Company initiated a 401(k) plan for its
          employees, which is funded through the contributions of its
          participants. This plan maintains that the Company will match up to 3%
          of each participant's contribution. For the three months ended May 31,
          2004, and May 31, 2003, employee contributions were approximately
          $28,091 and $0 respectively. The Company matched approximately $0 and
          $0 respectively for those same periods.

NOTE 19 - MAJOR CUSTOMERS:

          The Company had gross sales of $5,091,000 and $1,847,000 for the three
          months ended May 31, 2004, and May 31, 2003, respectively. The three
          month period ended May 31, 2004, reflects $3,788,175 or 74% of the
          quarter's total sales from a major customer in conjunction with
          shipments of products that included multimedia set-top boxes and other
          related equipment.

          The Company had gross sales of $11,232,000 and $9,528,000 for the nine
          months ended May 31, 2004, and May 31, 2003, respectively. The nine
          month period ended May 31, 2004, included $2,873,548 or 26% of the
          nine month period total sales from Sweetwater Security Capital, LLC,
          in conjunction with contracts valued at $3,115,354 that were executed
          with the Company's security-monitoring service subsidiary, DSS
          Security, Inc. The remaining $241,806 associated with these contracts
          has been deferred in conjunction with nine-month holdback provisions
          of these contracts. Additionally, the nine-month ended May 31, 2004,
          included $934,592 or 8% of the nine months total sales from General
          Dynamics in conjunction with shipments of convergent set-top-boxes.
          Also during the third quarter May 31, 2004, Eagle Broadband Inc, had
          sales of $3,788,175 or 34% sales to major customers for shipment of
          multimedia set-top boxes and related equipment.

          There were no parties individually that represented greater than ten
          percent of the revenues in the three and nine months ended May 31,
          2003.

NOTE 20 - INDUSTRY SEGMENTS:

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

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

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

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

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

                                     24
<PAGE>

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


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

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

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

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

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

<TABLE>
<CAPTION>

                                      For the nine months ending May 31, 2004

                (in thousands)           APC/HSI     EBS/DSS    UCG       Eagle     Other      Elim.     Consol.
                                       --------------------------------------------------------------------------
<S>                                          <C>      <C>          <C>      <C>          <C>               <C>
                Revenue                      673      4,805        445      5,228        81        ---     11,232
                Segment Loss                (688)    (1,475)       (19)   (13,449)      (30)       ---    (15,661)
                Total Assets                 361     28,830         72    168,354    57,006   (139,615)   115,007
                Capital Expenditures           0        692         16         41         0                   749
                Depreciation                 132      1,156         46      2,391        76        ---      3,801

                                      For the nine months ending May 31, 2003

                (in thousands)           APC/HSI     EBS/DSS    UCG       Eagle     Other      Elim.     Consol.
                                       --------------------------------------------------------------------------
                Revenue                    3,456      2,219      1,938      1,612       303        ---      9,528
                Segment Loss                (882)    (3,168)      (821)    (1,745)     (280)       ---     (6,896)
                Total Assets              11,950     36,330        310    156,622     73,054   (149,326)  128,940
                Capital Expenditures          11      6,126          1        ---       158        ---      6,296
                Dep. and Amort.              169        462         62      2,272        86        ---      3,051


                                                                          May 31, 2004           May 31, 2003
                                                                       --------------------  -------------------
          Reconciliation of Segment Loss from Operations to Net Loss:
          Total Segment Loss from Operations                            $      (15,661)       $    (6,896)
          Total Other Income (Expense)                                          (7,944)              (482)

          Net Loss                                                     $       (23,605)       $    (7,378)

</TABLE>

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

NOTE 21  SUPPLEMENTAL NON-CASH DISCLOSURES:

          During the quarter ended November 30, 2003, the Company issued
          $3,000,000 of convertible debt which was retired through the issuance
          of 2,000,000 shares of Series A Preferred Stock which was concurrently
          converted into 29,500,000 shares of the Company's Common Stock.
          Additionally, the Company received proceeds of $3,912,000 from the
          sale of convertible Q-Series Bonds. See Note 12 - Capitalization
          Activities.

          The beneficial conversion values associated with these financings
          aggregating $6,912,000 are calculated at the difference between the
          conversion price and the fair value of the common stock into which the
          debt is convertible, multiplied by the number of shares into which the
          debt is convertible. Since the beneficial conversion value exceeded
          the $6,912,000 raised on these convertible instruments, the value
          charged to interest expense during the quarter was limited to
          $6,912,000. This non-cash charge comprises $6,912,000 of the
          $7,080,000 interest expense on the Company's Statement of Operations
          and is shown as an adjustment to reconcile net loss to net cash on the
          Company's Statement of Cash Flows.

          During the nine month period ended May 31, 2004, the Company recorded
          a non-cash expense of $4,493,000 in Salaries and Related Costs
          associated with the cancellation and re-issuance of warrants for
          4,200,000 common shares issued to certain officers and key employees
          under incentive clauses of employment contracts.

                                       25
<PAGE>

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

NOTE 22 - EXIT ACTIVITIES

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

<TABLE>
<CAPTION>


                                     Beginning                                             Ending
                                      Balance          Period                             Balance
                                     11/30/2003   Costs (Additions)      Payments         5/31/2004
<S>     <C>    <C>    <C>    <C>    <C>    <C>
           Accrued Exit Expenses:
           Severance                 $-                                                  $-
           Terminated Lease costs     171,000                                    -            $171,000
                    Total            $171,000                                                 $171,000

</TABLE>

NOTE 23  SUBSEQUENT EVENTS

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

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

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

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

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

This summary description of the Financing described by the Agreements does not
purport to be complete and is qualified in its entirety by reference to the form
of the Agreements and the other documents and instruments that are filed as
Exhibits hereto.

The Company issued a press release issued on June 7, 2004, relating to the
Financing and filed a Form 8-K on June 17, 2004.

                                       26
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

     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, communication and industrial sectors; the
success of the Company's restructuring and cost reduction plans; the success of
the Company's competitive pricing; the Company's relationship with its
suppliers; relations with the Company's employees; the Company's ability to
manage its operating costs; the continued availability of financing;
governmental regulations; risks associated with regional, national, and world
economies. Any forward-looking statements should be considered in light of these
factors.

Results of Operations

     Three and Nine Months Ended May 31, 2004, Compared to the Three and Nine
Months Ended May 31, 2003

     The following table sets forth summarized consolidated financial
information for the three and nine months ended May 31, 2004, and May 31, 2003


<TABLE>
<CAPTION>

Condensed Financial Information
-------------------------------
                                  Three Months Ended May 31,              Nine Months Ended May 31,
                                  --------------------------           -------------------------------------

<C>                                  <C>     <C>                          <C>     <C>
($ in thousands)                     2004    2003  $Change  % Change      2004    2003   $Change  % Change
                                  ----------------------------------   -------------------------------------

Total Sales                        $5,091  $1,847  $3,244      176%     $ 11,232  $9,528   $1,704     18%
Cost of Goods Sold                  4,867   1,442   3,425      238%        9,261   5,412    3,849     71%
                                  -----------------------------------------------------------------------
Gross Profit                          224     405    (181)     -45%        1,971   4,116   (2,145)   -52%
                                  -----------------------------------------------------------------------
   % of Total Sales                     4%     22%     -6%                  18%     43%    -126%
Operating Expenses                  4,467   3,998     469       12%       17,632  11,012    6,620     60%
                                  -----------------------------------------------------------------------
Loss from Operations               (4,243) (3,593)   (650)      18%      (15,661) (6,896)  (8,765)   127%
                                  -----------------------------------------------------------------------
Other Income (Expense)               (130)   (240)    110      -46%       (7,944)   (482)  (7,462)  1548%
                                  -----------------------------------------------------------------------
Net Loss                           (4,373) (3,833)   (540)      14%      (23,605) (7,378) (16,227)   220%
                                  =======================================================================
Unrealized Holding Loss               (11)    346    (357)    -103%          44    (595)     639    -107%
                                  -----------------------------------------------------------------------
Other Comprehensive Loss          $(4,384)$(3,487)  $(897)      26%     $(23,561)$(7,973)$(15,588)   196%
                                  =======================================================================
</TABLE>

Overview

     For the three-month period ended May 31, 2004, Eagle's business operations
reflected emphasis and further expansion of its convergent set-top box and BDS
business segments including Eagle's broadband Bundled Digital Services
(Internet, video, voice and security) for residential and business customers.
The Company's consolidated operations generated revenues of $5,091,000 with a
corresponding gross profit of $224,000 for the three-month period ended May 31,
2004. The overall increase of 176% in revenues for the three-month period ended
May 31, 2004, as compared to the corresponding period of 2003, was primarily
attributable to a $3,699,000 increase in the Company's convergent set-top box
and ancillary equipment product shipments; offset by decreases of $442,000 in
structured wiring operations.

     The Company incurred a net loss of $4,373,000 for the three-month period
ended May 31, 2004. The loss was attributable to an overall decline in gross
margins to $224,000 for the three month period ended May 31, 2004 as compared to
$4,467,000 in operating expenses and $130,000 in net interest expenses for the
same three month period.

     The Company's net loss for the three month period ended May 31, 2004
included approximately $1,245,000 in depreciation and amortization expenses and
$176,000 in expenses associated with an increase in the Company's accounts
receivable allowances. Additionally, the Company's expenses included $524,000 of
charges for which stock was issued to pay for interest expense and for services
rendered.

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

                                       27
<PAGE>


Restatement of Financial Statements
-----------------------------------

During the quarter ended May 31, 2004, and subsequent to the issuance of
the Company's financial statements as of August 31, 2003, it was determined that
the allocation of the purchase price to net assets acquired in connection with
its merger with Clearworks.net, Inc. and certain other classifications of
intangible assets had not been appropriately accounted for. The principal change
to previously issued financial statements related to the reclassification of a
portion of the Company's goodwill acquired in the Clearwork.net, Inc. merger to
contract rights, customer relationships and other intangible assets that are
amortizable versus goodwill not being amortizable following the Company's
adoption of FAS 142. Accordingly, the Company has restated its consolidated
financial statements for the years ended August 31, 2003, 2002 and 2001 to
correctly present goodwill, intangible assets, amortization expense and net
loss. The Company has included tables in its amended Form 10-K and its Form 10-Q
for the quarter ended May 31, 2004 under the heading Note 2 - Restatement of
Financial Statements to summarize the impact of these adjustments on the
consolidated financial position and results of operations. As summarized in
these tables, all such changes were of a "non-cash" nature and did not impact
the Company's previously reported revenues, gross margins, liquidity, or cash
flows.



     The follow table sets forth summarized sales information for the three and
nine months ended May 31, 2004, and May 31, 2003.


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

                           Three Months Ended May 31,

($ in                    % of              % of
 thousands)        2004   Total     2003   Total   $Change % Change
               -----------------------------------------------------

Structured
 Wiring            $156       3%    $598       32%   $(442)     -74%
Broadband
 Services           709      14%     657       36%      52        8%
Products          4,226      83%     527       29%   3,699      702%
Other                 0       0%      65        3%     (65)    -100%
               -----------------------------------------------------
Total Sales      $5,091     100%  $1,847      100%  $3,244      176%
               =====================================================

                            Nine Months Ended May 31,

($ in                    % of              % of
 thousands)        2004   Total     2003   Total   $Change % Change
               -----------------------------------------------------

Structured
 Wiring            $673       6%  $3,198       34% $(2,525)     -79%
Broadband
 Services         4,805      43%   2,219       23%   2,586      117%
Products          5,673      50%   2,722       29%   2,951      108%
Other                81       1%   1,389       14%  (1,308)     -94%
               -----------------------------------------------------
Total Sales     $11,232     100%  $9,528      100%  $1,704       18%
               =====================================================

     Net Sales. For the three-month period ended May 31, 2004, net sales
increased to $5,091,000 from $1,847,000 during the three-month period ended May
31, 2003. The overall increase of 176% was attributable to a $3,699,000 increase
in the Company's product shipments of convergent set top boxes and a $52,000
increase in BDS revenues; offset by decreases of $442,000 in structured wiring
operations and a $65,000 decrease in other sales. The $3,699,000 increase in
sales of the Company's convergent set top boxes was primarily attributable to
shipment of products that included multimedia set-top boxes and other related
equipment to a major customer during the quater. The $442,000 decrease in
structured wiring sales corresponded to the Company's previously announced
strategy to no longer pursue structured wiring and commercial cabling
opportunities on a direct basis outside of the its BDS model

     For the nine-month period ended May 31, 2004, net sales increased to
$11,232,000 from $9,528,000 during the nine-month period ended May 31, 2003. The
overall increase of 18% was attributable to a $2,951,000 increase in the
Company's product sales of convergent set top boxes and an increase of
$2,586,000 in the Company's BDS sales; offset by decreases of $2,525,000 in
structured wiring operations and a $1,308,000 decrease in other sales. The
$2,951,000 increase in the Company's product sales was primarily attributable to
shipment of multimedia set-top boxes and related equipment to a major customer
during the quarter. The $2,586,000 increase in sales of the Company's broadband
services was primarily attributable to contracts valued at $3,111,354 executed
by the Company's security-monitoring subsidiary, DSS Security, Inc., against
which the Company realized sales of $2,873,548 during the nine months ended May
31, 2004. Absent the security monitoring contract transactions of $2,873,548,
the Company's base broadband services sales decreased by approximately $288,000
in the nine-month period ended May 31, 2004, primarily attributable to the exit
from the unprofitable Austin area BDS market discussed in prior periods and the
decline in recurring security monitoring sales resulting from the sale of
certain security monitoring contracts in the Company's portfolio to Sweetwater
Capital, LLC, in the first and second quarters of fiscal 2004. The $2,525,000
decrease in structured wiring sales corresponded to the Company's previously
announced strategy to no longer pursue structured wiring and commercial cabling
opportunities on a direct basis outside of the its BDS model. The $1,308,000
decrease in other sales was primarily attributable to the other sales components
from various operating segments that were divested or phased out during fiscal
2003 including Contact Wireless, UCG, and Eagle Wireless.

                                       29
<PAGE>

     The following table sets forth summarized cost of goods sold information
for the three and six months ended May 31, 2004, and May 31, 2003

<TABLE>
<CAPTION>

Costs of Goods Sold:
--------------------------
                             Three Months Ended May 31,       Nine Months Ended May 31,
                          -------------------------------- -------------------------------
($ in thousands)             2004   2003 $Change % Change    2004   2003 $Change % Change
                          -------------------------------- -------------------------------
Direct Labor and Related
<S>                          <C>    <C>      <C>        <C>         <C>      <C>        <C>
 Costs                       $226   $245     (19)      -8% $1,078   $993     $85        9%
Products and Integration
 Service                    3,937    605   3,332      551%  4,375  2,256   2,119       94%
Structured Wiring Labor
 and Materials                115    326    (211)     -65%    376    984    (608)     -62%
Broadband Services Costs      304    152     152      100%  2,550    682   1,868      274%
Depreciation and
 Amortization                 285    114     171      150%    856    342     514      150%
Other Manufacturing Costs       0      0       0        0%     26    155    (129)     -83%
                          -------------------------------- -------------------------------
Total Operating Expenses   $4,867 $1,442  $3,425      238% $9,261 $5,412  $3,849       71%
                          ================================ ===============================
</TABLE>

     Cost of Goods Sold. For the three-month period ended May 31, 2004, cost of
goods sold increased by 238% to $4,867,000 from $1,442,000 as compared to the
three-month period ended May 31, 2003. The overall increase of $3,425,000 was
primarily attributable to the shipment of multimedia set-top boxes and related
equipment to a major customer during the three month period ended May 31, 2004.
The Company's overall gross profit percentage was 4% and 22% for the three-month
periods ended May 31, 2004, and May 31, 2003. This substantial decrease in gross
profit percentage is primarily attributable to a heavy sales mix of product
shipments of multimedia set-top boxes and the dilutive effect of the purchase
and resale of certain related equipment versus the prior year period and an
increase in depreciation expenses associated with the build-out of the company's
BDS infrastructure.

     For the nine-month period ended May 31, 2004, cost of goods sold increased
by 71% to $9,261,000 from $5,412,000 as compared to the nine-month period ended
May 31, 2003. The overall increase of $3,849,000 was primarily attributable to
the shipment of convergent set top boxes and the purchase and resale of certain
related equipment. The Company's overall gross profit percentage was 18% and 43%
for the nine-month periods ended May 31, 2004, and May 31, 2003. This
substantial decrease in gross profit percentage is primarily attributable to a
heavy sales mix of product shipments of convergent set-top boxes and the
dilutive effect of the purchase and resale of certain related equipment versus
the prior year period; the dilutive effect of the security monitoring
transactions recorded in the nine-months ended May 31, 2004, i.e., sales
recorded of $2,873,548 with corresponding cost of sales of $1,900,534, the
decision to no longer pursue structured wiring outside of its BDS model and an
increase in depreciation expenses associated with the build-out of the company's
BDS infrastructure.

     The following table sets forth summarized operating expense information for
the three and nine months ended May 31, 2004, and May 31, 2003.

<TABLE>
<CAPTION>

Operating Expenses:
-----------------------
                       Three Months Ended May 31,          Nine Months Ended May 31,
                       ----------------------------------- -----------------------------------
($ in thousands)           2004   2003   $Change % Change     2004    2003   $Change % Change
                       ----------------------------------- -----------------------------------
Salaries and Related
<S>                        <C>    <C>       <C>       <C>   <C>     <C>       <C>         <C>
 Costs                     $884   $413      $471      114%  $7,686  $3,276    $4,410      135%
Advertising and
 Promotion                    0     21       (21)    -100%      20      77       (57)     -74%
Depreciation and
 Amortization               960    915        45        5%   2,945   2,709       236        9%
Other Support Costs       2,494  2,524       (30)      -1%   6,586   4,766     1,820       38%
Research and
 Development                129    125         4        3%     395     184       211      115%
                       ----------------------------------- -----------------------------------
Total Operating
 Expenses                $4,467 $3,998      $469       12% $17,632 $11,012    $6,620       60%
                       =================================== ===================================

</TABLE>

                                       29
<PAGE>

     The following table breaks out other support costs information for the
three and nine months ended May 31, 2004, and May 31, 2003.

<TABLE>
<CAPTION>

Other Support Costs:
----------------------
                      Three Months Ended May 31,           Nine Months Ended May 31,

                      -----------------------------------  -----------------------------------

($ in thousands)          2004   2003   $Change % Change     2004   2003     $Change % Change
                      -----------------------------------  -----------------------------------

Advertising and                                   -NA-                                 -NA-
<S>                         <C>    <C>       <C>               <C>    <C>         <C>
 Conventions                $-     $-        $-                $-     $-          $-
Auto Related                11      5         6      120%      17     43         (26)     -60%
Bad Debt                   176    311      (135)  -NA-        372    642        (270)     -42%
Delivery and Postage        12     14        (2)     -14%      37     80         (43)     -54%
Fees                        91     88         3        3%     218    278         (60)     -22%
Insurance & Office         167     13       154   -NA-        590    127         463      365%
Other                       11     88       (77)     -88%      49    158        (109)     -69%
Professional &
 Contract Labor          1,047  1,435      (388)     -27%   3,139  1,737       1,402       81%
Rent                       149    237       (88)     -37%     464    709        (245)     -35%
Repairs and
 Maintenance                16     20        (4)     -20%      36     46         (10)     -22%
Travel                      75     64        11       17%     176    217         (41)     -19%
Taxes                      640      7       633     9043%   1,199     72       1,127     1565%
Telephone and
 Utilities                  99    242      (143)     -59%     289    657        (368)     -56%
                      -----------------------------------  -----------------------------------
Total Other Support
 Costs                  $2,494 $2,524      $(30)      -1%  $6,586 $4,766      $1,820       38%
                      ===================================  ===================================

</TABLE>

     Operating Expenses. For the three-month period ended May 31, 2004,
operating expenses increased by 12% to $4,467,000 as compared to $3,998,000 for
the three-month period ended May 31, 2003. The primary fluctuations that
occurred as evidenced by the two preceding tables immediately above are
discussed below:

o    A $471,000 increase in salaries and related costs. The increase was
     attributable to an expansion of executive and general management
     compensation expenses, increased Board of Director compensation expense,
     and compensation expense associated with stock option exercises and
     severance.

o    A $21,000 decrease in advertising and promotion as the Company placed more
     emphasis on directly marketing its products and services to its customers
     as well as entering into business relationships with financial and
     technology companies to provide BDS services to cities and municipalities.

o    A $45,000 increase in depreciation and amortization, due principally to the
     additional build-out of the Company's BDS infrastructure in fiscal 2003 and
     amortization of intangibles.

o    A $30,000 decrease in other support costs; the components of which are set
     forth on the table included immediately above. Included in this increase
     was a $633,000 increase in property taxes recorded against the Company's
     BDS infrastructure, a $164,000 increase in insurance and office expenses,
     offset by a $135,000 decrease in bad debt expense, a $388,000 decrease in
     professional fees and contract labor and a $143,000 decrease in telephone
     and utilities.

o    A $4,000 increase in research and development expenses, primarily
     consisting of the Company's continued investment in HDTV-ready multimedia
     set-top boxes for hospitality and broadband customers and the Orb'Phone
     Exchange satellite voice and data communications products for military,
     government and commercial customers.

     For the nine-month period ended May 31, 2004, operating expenses increased
by 60% to $17,632,000 as compared to $11,012,000 for the nine-month period ended
May 31, 2003. The primary fluctuations that occurred as evidenced by the two
preceding tables immediately above are discussed below:

o    A $4,410,000 increase in salaries and related costs. The increase was
     primarily attributable to non-cash compensation expense of $4,494,000
     recorded against the cancellation and re-issuance of warrants for 4,200,000
     common shares issued to certain officers and key employees under incentive
     clauses of employment contracts partially offset by a decline in salaries
     and related costs associated with the Company's reduction in personnel in
     fiscal 2003. Excluding this non-cash compensation expensed recorded in the
     second quarter of fiscal 2004, salaries and related costs declined by
     $84,000 in the nine-month period ended May 31, 2004, as compared to the
     nine-month period ended May 31, 2003.

                                       30
<PAGE>

o    A $57,000 decrease in advertising and promotion as the Company placed more
     emphasis on directly marketing its products and services to its customers
     as well as entering into business relationships with financial and
     technology companies to provide BDS services to cities and municipalities.

o    A $236,000 increase in depreciation and amortization, due principally to
     the additional build-out of the Company's BDS infrastructure in fiscal
     2003.

o    A $1,820,000 increase in other support costs, the components of which are
     set forth on the table included immediately above. Included in this
     increase was $1,402,000 in professional fees associated with the Company's
     ongoing legal matters, a $1,127,000 increase in property taxes recorded
     against the Company's BDS infrastructure, a $486,000 increase in insurance
     and office expenses, partially offset by a $270,000 decrease in bad debt
     expenses, a $368,000 decrease in telephone and utility expenses, and a
     $245,000 decrease in rent expenses.

o    An $211,000 increase in research and development expenses, primarily
     consisting of the Company's continued investment in HDTV-ready multimedia
     set-top boxes for hospitality and broadband customers and the Orb'Phone
     Exchange satellite voice and data communications products for military,
     government and commercial customers.

     Net Loss. For the three months ended May 31, 2004, Eagle's net loss was
$4,373,000, compared to a net loss of $3,833,000 during the three month period
ended May 31, 2003. For the nine months ended May 31, 2004, Eagle's net loss was
$23,605,000, compared to a net loss of $7,378,000 during the nine month period
ended May 31, 2003.

     Changes in Cash Flow. Eagle's operating activities used net cash of
$4,036,000 in the nine-month period ended May 31, 2004, compared to use of net
cash of $591,000 in the nine-month period ended May 31, 2003. The increase in
net cash used by operating activities was primarily attributable to fund an
increase in the Company's net operating loss, net of non-cash charges, totaling
$2,854,000 combined with $1,182,000 of cash utilized for fluctuations in working
capital requirements consisting of the combination of accounts receivable,
inventory, prepaid expenses, accounts payable and accrued expenses Eagle's
investing activities used net cash of $758,000 in the nine-month period ended
May 31, 2004, compared to $2,955,000 in the nine-month period ended May 31,
2003. The decrease was due primarily to a significant decline in investment
activities and purchase of equipment associated with the prior years build out
of Eagle's network and infrastructure for the delivery of broadband services.
Eagle's financing activities provided cash of $5,597,000, in the nine-month
period ended May 31, 2003, compared to $3,360,000 of cash provided in the
nine-month ended May 31, 2003. The increase is attributable to an increase in
convertible notes aggregating a net of $5,608,000 in conjunction with the
Company's financing activities in the first fiscal quarter of 2004.

     Liquidity and Capital Resources. Current assets for the period ended May
31, 2004, totaled $11,220,000 (includes cash and cash equivalents of $1,627,000
and securities available for sale of $1,563,000) as compared to $8,109,000
reported for the year ended August 31, 2003. During the first nine months ended
May 31, 2004, Eagle received net proceeds of $6,174,000 from the sale of
convertible bonds and notes and through the sale of marketable securities held
as short-term investments and has retired or reduced certain of its notes
payable and accrued expenses including numerous lawsuits, thereby reducing the
Company's current and contingent liabilities.

     The Company anticipates that it will incur significantly less capital
expenditures for broadband fiber infrastructure for the balance of the current
fiscal year as a result of an emphasis of the sale of its BDS services to
municipalities, real estate developers, hotels, multi-tenant units and service
providers that own or will build a fiber network. Historically, the Company
built out these networks, thereby incurring significant capital expenditures.
The Company incurred approximately $686,000 in capital expenditures in the first
nine months of fiscal 2004 ended May 31, 2004. The Company expects to spend
$1,000,000 or less on capital expenditures in fiscal 2004; an anticipated
reduction of at least $1,121,000 as compared to $2,121,000 for fiscal 2003.
However, the Company could adjust its capital expenditure plan in the fourth
quarter of the current fiscal year if future business opportunities dictate.

     The Company expects that certain of its liabilities listed on the balance
sheet under the headings Accounts Payable, Accrued Liabilities and Notes Payable
will be retired by issuing stock versus cash during the next 12 months. The
Company has historically used stock for retirement of certain liabilities on a
negotiated basis. The Company issued stock for retirement of certain liabilities
aggregating $5,696,000, $3,586,000 and $13,878,000 for fiscal years 2001, 2002,
and 2003, respectively. During the first nine months ended May 31, 2004, the
Company retired approximately $8,192,000 in liabilities with stock versus cash.
Eagle Broadband expects to continue its practice of retiring certain liabilities
as may be negotiated through a combination of cash and the issuance of shares of
Eagle common stock. The Company cannot quantify the amount of common stock
expected to be issued to retire such debts at this time and as such will report
these results on a quarterly basis. In the first nine months of fiscal 2004, the
Company completed $5,597,000 in net financing activities. The Company's
management believes it has sufficient capital to fund operations for the next
twelve months based on: (i) the Company's reduced capital expenditure
requirements for fiscal 2004, (ii) the Company's current cash, cash equivalents
and securities held for resale, including recent net financing proceeds and sale
of marketable securities received during the first nine months of fiscal 2004
and (iii) the Company's completion of $4.9 million in new financing from an
investor group in a private placement financing round subsequent to the quarter
ended May 31, 2004; as previously announced in the Company's press release dated
June 7, 2004 and as further disclosed in the Company's Form 8-K filing on June
17, 2004.

                                       31
<PAGE>

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

Contractual Obligations

<TABLE>
<CAPTION>

                                                Payments Due by Period
                                                    (in Thousands)
                             -------------------------------------------------------------
  Contractual Obligations       Total     Less than   1-3 years   3-5 years  More than 5
                                           1 year                               years
------------------------------------------------------------------------------------------
<S>                                <C>         <C>
Long-Term Debt Obligations         5,581       5,581     ---         ---          ---
Operating Lease Obligations        1,921         190    1,162        569          ---
                             -------------------------------------------------------------
                             -------------------------------------------------------------
           Total                   7,502       5,771    1,162        569          ---
                             =============================================================
</TABLE>

     The Company's contractual obligations consist of long-term debt as set
forth in Note 5 (Notes Payable) to the Company's financial statements and
certain off-balance sheet obligations for office space operating leases
requiring future minimal commitments under non-cancelable leases. See Item 2 -
Management's Discussion and Analysis under non-cancelable leases as described in
Note 15 to the Company's financial statements under the heading Commitments and
Contingent Liabilities.

CRITICAL ACCOUNTING POLICIES

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

Impairment of Long-Lived Assets and Goodwill

         Background:

     Goodwill and other intangibles of $81,603,000 net of prior impairments and
amortization were recorded under the purchase method for the purchases of
ClearWorks.net, Inc.; Atlantic Pacific, Inc.; DSS Security, Inc.; Contact
Wireless, Inc.; and Comtel, Inc. The majority of the intangibles were from the
ClearWorks acquisition. ClearWorks was in the business of selling
telecommunications services to residential neighborhoods.

         Impairment Assessment:

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

     Goodwill is primarily the Company rights to deliver bundled digital
services such as Internet, telephone, cable television and security monitoring
services to residential and business users. The Company obtained an independent
appraisal as of August 31, 2003, to assess the fair value of the intangible
assets. There were a number of significant and complex assumptions used in the
calculation of the fair value of the intangible assets. If any of these
assumptions prove to be incorrect, the Company could be required to record a
material impairment to its intangible assets. The assumptions included
significant market penetration in its current markets under contract and
significant market penetration in markets where they are currently negotiating
contracts.

     The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing basis. An
impairment loss would be deemed necessary when the estimated non-discounted
future cash flows are less than the carrying net amount of the asset. If an
asset were deemed to be impaired, the asset's recorded value would be reduced to
fair market value. In determining the amount of the charge to be recorded, the
following methods would be utilized to determine fair market value (i) quoted
market prices in active markets, (ii) estimate based on prices of similar assets
and (iii) estimate based on valuation techniques. The Company tested the fair
value of its goodwill and intangibles as of February 29, 2004, and August 31,
2003, and determined that these assets totaling $81.6 million were not impaired.

                                       32
<PAGE>

Revenue Recognition

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

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

Deferred Revenues

     Revenues that are billed in advance of services being completed are
deferred until the conclusion of the period of the service for which the advance
billing relates. Deferred revenues are included on the balance sheet as a
current liability until the service is performed and then recognized in the
period in which the service is completed. Eagle's deferred revenues primarily
consist of billings in advance for cable, internet, security and telephone
services, which generally are between one and three months of services. Eagle
had deferred revenues of $492,000 and $230,000 as of May 31, 2004, and August
31, 2003, respectively.

EAGLE WIRELESS INTERNATIONAL, INC.
     Eagle designs, manufactures and markets transmitters, receivers,
controllers and software, along with other equipment used in commercial and
personal communication systems, radio and telephone systems. Revenues from these
products are recognized when the product is shipped. Eagle's Wireless
International Product revenues are reported under the category of Products on
Eagle's Consolidated Statements of Operations included as page F-4 of this
report and also under the category Eagle within Note 20 - Industry Segments.

BROADBANDMAGIC
     BroadbandMagic designs, manufactures and markets the convergent set-top
boxes. Products are sent principally to commercial customers for a pre-sale test
period of ninety days. Upon the end of the pre-sale test period, the customer
either returns the product or accepts the product, at which time Eagle
recognizes the revenue. Eagle's Broadband Multimedia and Internet Products
revenues are reported under the category of Products on Eagle's Consolidated
Statements of Operations included as page F-4 of this report and also under the
category Eagle within Note 20 - Industry Segments. Revenue from software
consists of software licensing. There is no post-contract customer support.
Software revenue is allocated to the license using vendor specific objective
evidence of fair value ("VSOE") or, in the absence of VSOE, the residual method.
The price charged when the element is sold separately generally determines VSOE.
In the absence of VSOE of a delivered element, Eagle allocates revenue to the
fair value of the undelivered elements and the residual revenue to the delivered
elements. Eagle recognizes revenue allocated to software licenses at the
inception of the license.

EAGLE BROADBAND, INC.
     Eagle Broadband, Inc., engages independent agents for sales principally in
foreign countries and certain geographic regions in the United States. Under the
terms of these one-year agreements the distributor or sales agents provide the
companies with manufacturing business sales leads. The transactions from these
distributors and agents are subject to Eagle's approval prior to sale. The
distributorship or sales agent receives commissions based on the amount of the
sales invoice from the companies to the customer. The sale is recognized at the
time of shipment to the customer. These sales agents and distributors are not a
significant portion of total sales in any of the periods presented. Eagle's
Broadband, Inc., revenues are reported under the category of Products on Eagle's
Consolidated Statements of Operations included as page F-4 of this report and
also under the category Eagle within Note 20 - Industry Segments.

                                       33
<PAGE>

EAGLE BDS SERVICES - DBA CLEARWORKS COMMUNICATIONS, INC.
     ClearWorks Communications, Inc., provides Bundled Digital Services to
business and residential customers, primarily in the Texas market. Revenue is
derived from fees charged for the delivery of Bundled Digital Services, which
includes telephone, long distance, Internet, security monitoring and cable
services. This subsidiary recognizes revenue and the related costs at the time
the services are rendered. Installation fees are recognized upon completion and
acceptance. Eagle's BDS Services revenues are reported under the category of
Broadband Services on Eagle's Consolidated Statements of Operations included as
page F-4 of this report and also under the category EBS/DSS within Note 20 -
Industry Segments.

EAGLE RESIDENTIAL STRUCTURED WIRING - DBA CLEARWORKS HOME SYSTEMS, INC.
     ClearWorks Home Systems, Inc., sells and installs structured wiring, audio
and visual components to homes. This subsidiary recognizes revenue and the
related costs at the time the services are performed. Revenue is derived from
the billing of structured wiring to homes and the sale of audio and visual
components to the homebuyers. Eagle's Residential Structured Wiring revenues are
reported under the category of Structured Wiring on Eagle's Consolidated
Statements of Operations included as page F-4 of this report and also under the
category APC/HSI within Note 20 - Industry Segments.

EAGLE COMMUNICATION SERVICES - DBA ATLANTIC PACIFIC COMMUNICATIONS, INC.

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

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

EAGLE MESSAGING SERVICES - DBA LINK TWO COMMUNICATIONS, INC.
     Link Two Communications, Inc., provides customers with one- and two-way
messaging systems. The revenue from the sale of these products is recognized at
the time the services are provided. Eagle's Messaging Services revenues are
reported under the category of Other on Eagle's Consolidated Statements of
Operations included as page F-4 of this report and also under the category Eagle
within Note 20 - Industry Segments.

EAGLE PAGING SERVICES - DBA CONTACT WIRELESS, INC.

     Contact Wireless, Inc., provides customers with paging and mobile telephone
products and related monthly services. Revenue from product sales is recorded at
the time of shipment. Revenue for the mobile phone and paging service is billed
monthly as the service is provided. Eagle's Paging Services revenues are
reported under the category of Other on Eagle's Consolidated Statements of
Operations included as page F-4 of this report and also under the category Other
within Note 20 - Industry Segments.

EAGLE SECURITY SERVICES - DBA DSS SECURITY, INC.

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

EAGLE TECHNOLOGY SERVICES - DBA UNITED COMPUTING GROUP, INC.

     United Computing Group, Inc., provides business-to-business hardware and
software network solutions and network monitoring services. The revenue from the
hardware and software sales is recognized at the time of shipment. The
monitoring services recognition policy is to record revenue on completion.
Eagle's Technology Services product revenues are reported under the category of
"Products" while the services components are reported under the category "Other"
on Eagle's Consolidated Statements of Operations included as page F-4 of this
report and also under the category UCG within Note 20 - Industry Segments.

Receivables

     For the nine-month period ended May 31, 2004, Eagle accounts receivable
increased to $4,622,000 from $1,704,000 at August 31, 2003. The majority of this
increase was due to the increased sales of convergent set top boxes and
ancillary equipment to a major customer in the third quarter ended May 31, 2004,
totaling $3,806,806, as discussed earlier herein.

     The Company's accounts receivable aging as measured by day's sales
outstanding (DSO) totaled 88 days at May 31, 2004, as compared to 90 days at
November 30, 2003, and 75 days at August 31, 2003, on an adjusted basis after
recording the write-off's and reserves in the fourth quarter of fiscal 2003. The
primary increase in DSO from 75 days at August 31, 2003, to 88 days at May 31,
2004, was attributable to deferred revenue components of the transactions
entered into with Sweetwater Security, LLC, totaling $241,805 and the impact of
large dollar volume transactions associated with customers comprising greater
than ten percent of the Company's revenues during the period ended May 29, 2004.

                                       34
<PAGE>

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

Inventory

     Inventories are valued at the lower of cost or market. The cost is
determined by using the first-in first-out method. At May 31, 2004, Eagle's
inventory totaled $2,859,000 as compared to $3,199,000 at August 31, 2003. The
majority of this decrease was due to a decrease in finished goods and raw
materials inventory associated with in recent set-top box shipments.

Recent Accounting Pronouncements

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

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

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

     In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 (SFAS 145), "Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," which requires that the
extinguishment of debt not be considered an extraordinary item under APB Opinion
No. 30 (APB 30), "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," unless the debt extinguishment meets the
"unusual in nature and infrequent of occurrence" criteria in APB 30. SFAS 145 is
effective for fiscal years beginning after May 15, 2002, and, upon adoption,
companies must reclassify prior period items that do not meet the extraordinary
item classification criteria in APB 30. The Company adopted SFAS 145 and related
rules as of August 31, 2002. The adoption of SFAS 145 had no effect on the
Company's financial position or results of operations.

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

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

                                     35
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate and Equity Market Risks

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

     The Company's cash and cash equivalents and securities available for sale
are invested in mortgage and asset backed securities, mutual funds, money market
accounts and common stock. Accordingly, the Company is subject to both changes
in market interest rates and the equity market fluctuations and risk. There is
an inherent rollover risk on these funds as they accrue interest at current
market rates. The extent of this risk is not quantifiable or predictable due to
the variability of future interest rates. The Company does not believe a change
in these rates would have a material adverse effect on the Company's operating
results, financial condition, and cash flows with respect to invested funds in
mortgage and asset backed securities, mutual funds and money market accounts;
however, the company does have both cash and liquidity risks associated with its
common stock investments aggregating $1,563,000 in market value as of May 31,
2004.

Credit Risks

     The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses, but does not require collateral from these
parties. The company had three customers that represented greater than 10% of
its revenues during the three- and six-month period ended May 31, 2004. See Note
19 - Major Customers. With respect to transactions entered into with Sweetwater
Capital, LLC, for the nine months ended May 31, 2004, the Company had collected
$2,873,549 of the aggregate contract value of $3,115,354 while $241,805 remained
in accounts receivable, of which $241,805 related to deferred revenue. With
respect to transactions entered into with General Dynamics for the nine months
ended May 31, 2004, the Company had collected $921,689 of the nine-month sales
totaling $934,592 while $12,903 remained in accounts receivable at May 31, 2004.
Subsequent to the period ended May 31, 2004, the Company collected in accounts
receivable associated with this client. With respect to another major customer
against which the Company entered into transactions for sale of convergent
set-top boxes and ancillary equipment in the quarter ended May 31, 2004
aggregating $3,788,175; such customers are within terms as of the date of this
filing. Given collections to date against these accounts and an assessment of
the collectibility of the accounts, the Company believes that it has mitigated
any significant credit risk posed by specific customers which could have had a
material adverse affect on its financial condition.

Item 4.  Controls and Procedures

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

     There were no changes in Eagle's internal control over financial reporting
that occurred during the quarter ended May 31, 2004, that have materially
affected, or reasonably likely to materially affect, Eagle's internal control
over financial reporting.

     Eagle's disclosure controls and procedures are designed to provide a
reasonable level of assurance of reaching Eagle's desired disclosure control
objectives and are effective in reaching that level of reasonable assurance.

                                       36
<PAGE>

Part 2. - Other Information

Item 1 - Legal Proceedings

     For a description of certain legal matters, refer to Note 15. "Commitments
and Contingent Liabilities" under the heading Legal Proceedings in Part 1, Item
1.,"Consolidated Financial Statements."

     The Company is also 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 a material adverse
effect on the Company's financial condition or results of operations (Note 15).

     Item 2 - Recent Sales of Unregistered Securities or Changes in Securities
and Use of Proceeds

         None

Item 3 - Defaults Upon Senior Securities

         None

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

         None

Item 5 - Other Information

         None


Item 6 - Exhibits, Financial Statement Schedules and Reports on Form 8-K -
(Brewer & Pritchard to review and Advise)


(a)      Financial Statements and Schedules:

     The financial statements are set forth under Item 1 of this Quarterly
Report on Form 10-Q. Financial statement schedules have been omitted since they
are either not required, not applicable, or the information is otherwise
included.

(b)      Reports on Form 8-K

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

     A report on Form 8-K, announcing information under Item 5 of the report,
was filed on April 28, 2004, with the Securities and Exchange Commission.

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

 (c)     Exhibit Listing

         EXHIBIT NO.                IDENTIFICATION OF EXHIBIT

Exhibit 3.1     Eagle Broadband, Inc. Articles of Incorporation, as Amended and
                Restated, dated February 13, 2002 (incorporated by reference to
                Exhibit 3.1 (a) of Form 1-KSB/A Amendment No. 2 for the fiscal
                year ended August 31, 2003, filed March 30, 2004).

Exhibit 3.2     Eagle Broadband, Inc. Articles of Incorporation, as Amended,
                dated February 17, 2004 (incorporated by reference to Exhibit
                3.1 (b) of Form 1-KSB/A Amendment No. 2 for the fiscal year
                ended August 31, 2003, filed March 30, 2004).

Exhibit 3.3     Amended and Restated Eagle Broadband, Inc. Bylaws (incorporated
                by reference to Exhibit 3.2 of Form 10-KSB for the fiscal year
                ended August 31, 2001, filed November 16, 2001).

Exhibit 4.1     Form of Common Stock Certificate (incorporated by reference to
                Exhibit 4 of Form S-3/A, file no. 333-111160, filed March 26,
                2004).

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

                                       37
<PAGE>

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

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

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

Exhibit 4.6     Securities Purchase Agreement dated June 2, 2004 between Eagle
                and certain investors (incorporated by reference to Form 8-K
                filed June 17, 2004, file no. 001-15649).

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

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

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

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

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

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

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

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

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

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

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

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

Exhibit 10.13   Purchase Agreement between Eagle Broadband, Inc.'s subsidiary,
                Contact Wireless, Inc.

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

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

Exhibit 31.2    Certification of Chief Financial Officer pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002.

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

Exhibit 32.2    Certification of Chief Financial Officer pursuant to Section
                906 of the Sarbanes-Oxley Act of 2002.

                                       38
<PAGE>

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.
Date:  July 15, 2004


                                   By:  /S/David A. Weisman
                                        -------------------
                                        David A Weisman
                                        Chairman of the Board and
                                        Chief Executive Officer
                                        (Principal Executive Officer)

                                        /S/Richard R. Royall
                                        ---------------------
                                        Chief Financial Officer
                                        (Principal Financial & Accounting
                                        Officer)





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