UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




**FORM
      10-Q**




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


For
      the
      quarterly period ended November 30, 2005




or




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


For
      the
      transition period from
              
to




Commission
      File Number 001-15649




**EAGLE
      BROADBAND, INC.**


(Exact
      name of registrant as specified in its charter)




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




101
      COURAGEOUS DRIVE


LEAGUE
      CITY, TEXAS 77573


(Address
      of principal executive offices) (Zip Code)




(281)
      538-6000


(Registrant’s
      telephone number, including area code)






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




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




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




As
      of
      January 6, 2006, the registrant had 303,086,275 shares of common stock
      outstanding.




-1-




**EAGLE
      BROADBAND, INC.**


**FORM
      10-Q**


**FOR
      THE QUARTER ENDED NOVEMBER 30, 2005**




**TABLE
        OF CONTENTS**


**PART
                  I–FINANCIAL
                  INFORMATION**
              
              
              **3****ITEM
                  1. FINANCIAL
                  STATEMENTS**
              
              
              3CONSOLIDATED
                  BALANCE
                  SHEETS
              
              
              3CONSOLIDATED
                  STATEMENTS OF
                  OPERATIONS
              
              
              4CONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS'
                  EQUITY
              
              
              5CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS
              
              
              6**ITEM
                  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS**
              
              
              17**ITEM
                  4. CONTROLS AND
                  PROCEDURES**
              
              
              26**PART
                  II–OTHER
                  INFORMATION**
              
              
              **26****ITEM
                  1. LEGAL
                  PROCEDINGS**
              
              
              26**ITEM
                  4. SUBMISSION OF MATTERS TO A VOTE
                  OF SECURITY HOLDERS**
              
              
              27**ITEM
                  6. EXHIBITS**
              
              
              27




-2-




**PART
      I-FINANCIAL
      INFORMATION**


**Item
      1.****Financial
      Statements*****.***






**EAGLE
      BROADBAND, INC.**


**CONSOLIDATED
      BALANCE SHEETS**




November
                  30,
                2005
              
              August
                  31,
                2005**ASSETS****Current
                  Assets**Cash
                  and Cash Equivalents
              
              $
              2,033
              
              $
              4,020Cash
                  in Restricted Account
              
              
              203
              
              
              203Accounts
                  Receivable, net
              
              
              2,258
              
              
              1,890Inventories
              
              
              707
              
              
              802Net
                  investment in direct financing leases
              
              
              524
              
              
              525Other
                  Assets
              
              
              298
              
              
              298Prepaid
                  Expenses
              
              
              1,004
              
              
              632**Total
                  Current Assets**
              
              
              **7,027**
              
              
              **8,370****Property
                  and Equipment**Operating
                  Equipment
              
              
              32,246
              
              
              32,298Less:
                  Accumulated Depreciation
              
              
              (9,467
              )
              
              (8,994
              )**Total
                  Property and Equipment**
              
              
              **22,779**
              
              
              **23,304****Other
                  Assets**Net
                  investment in direct financing leases
              
              
              750
              
              
              853Goodwill,
                  net
              
              
              4,095
              
              
              4,095Contract
                  rights, net
              
              
              2,849
              
              
              2,921Customer
                  relationships, net
              
              
              811
              
              
              831Other
                  Intangible assets, net
              
              
              834
              
              
              859Other
                  Assets
              
              
              5
              
              
              680**Total
                  Other Assets**
              
              
              **9,344**
              
              
              **10,239****Total
                  Assets**
              
              **$**
              **39,150**
              
              **$**
              **41,913****LIABILITIES
                  AND SHAREHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  Payable
              
              $
              4,500
              
              $
              6,640Stock
                  Payable
              
              
              —
              
              
              2,008Accrued
                  Expenses
              
              
              11,243
              
              
              9,477Notes
                  Payable
              
              
              152
              
              
              61Deferred
                  revenue
              
              
              511
              
              
              623**Total
                  Current Liabilities**
              
              
              **16,406**
              
              
              **18,809****Shareholders’
                  Equity**Preferred
                  Stock - $0.001 par value5,000,000
                  shares authorized, none issued
              
              
              —
              
              
              —Common
                  Stock - $0.001 par value350,000,000
                  shares authorized, 303,086,275 and 288,211,275 issued and outstanding
                  at
                  November 30, 2005 and August 31, 2005, respectively
              
              
              303
              
              
              288Additional
                  Paid in Capital
              
              
              239,191
              
              
              236,932Accumulated
                  Deficit
              
              
              (216,750
              )
              
              (214,116
              )**Total
                  Shareholders’ Equity**
              
              
              **22,744**
              
              
              **23,104****Total
                  Liabilities and Shareholders’ Equity**
              
              **$**
              **39,150**
              
              **$**
              **41,913**




See
      accompanying notes to consolidated financial statements.




-3-




**EAGLE
      BROADBAND, INC.**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**




For
                  the three months
                  ended
                    November 30,2005
              
              2004**Net
                  Sales**Structured
                  wiring
              
              $
              422
              
              $
              262Broadband
                  services
              
              
              852
              
              
              1,216Products
              
              
              622
              
              
              26Other
              
              
              38
              
              
              24**Total
                  Sales**
              
              
              **1,934**
              
              
              **1,528****Costs
                  of Goods Sold**Direct
                  Labor and Related Costs
              
              
              500
              
              
              262Products
                  and Integration Service
              
              
              255
              
              
              38Structured
                  Wiring Labor and Materials
              
              
              289
              
              
              175Broadband
                  Services Costs
              
              
              144
              
              
              920Depreciation
                  and Amortization
              
              
              229
              
              
              290Other
                  Manufacturing Costs
              
              
              —
              
              
              16Total
                  Costs of Goods Sold
              
              
              1,417
              
              
              1,685**Gross
                  Profit**
              
              
              **517**
              
              
              **(157**
              **)****Operating
                  Expenses**Salaries
                  and Related Costs
              
              
              1,550
              
              
              399Advertising
                  and Promotion
              
              
              30
              
              
              10Depreciation
                  and Amortization
              
              
              361
              
              
              841Other
                  Support Costs
              
              
              1,111
              
              
              2,949Research
                  and Development
              
              
              105
              
              
              143**Total
                  Operating Expenses**
              
              
              **3,157**
              
              
              **4,342****Loss
                  from Operations**
              
              
              **(2,640**
              **)**
              
              **(4,499**
              **)****Other
                  Income/(Expenses)**Interest
                  Income
              
              
              8
              
              
              4Interest
                  Expense
              
              
              (2
              )
              
              (102
              )Gain
                  (Loss) on Sale of Assets
              
              
              —
              
              
              149**Total
                  Other Income (Expense)**
              
              
              **6**
              
              
              **51****Net
                  Loss**
              
              
              **(2,634**
              **)**
              
              **(4,448**
              **)****Other
                  Comprehensive Loss**Unrealized
                  Holding Gain
              
              
              —
              
              
              1,048**Total
                  Other Comprehensive Loss**
              
              
              —
              
              
              **1,048****Comprehensive
                  Loss**
              
              **$**
              **(2,634**
              **)**
              **$**
              **(3,400**
              **)****Net
                  Loss per Common Share**Basic
              
              
              (0.01
              )
              
              (0.02
              )Diluted
              
              
              (0.01
              )
              
              (0.02
              )Comprehensive
                  Loss
              
              
              (0.01
              )
              
              (0.02
              )


See
      accompanying notes to consolidated financial statements.




-4-


**EAGLE
      BROADBAND, INC.**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’
EQUITY**




Common
                  Stock
              
              
              
              
              
              
              
              
              
              
              
              Accumulated
              
              
              TotalPreferred
              
              
              Additional
                  Paid
              Retained
              
              
              Comprehensive
              
              
              Shareholders’**(*****Shares
                  and dollars in thousands*****)**
              
              
              Shares
              
              
              Value
              
              
              Stock
              
              
              in
                  Capital
              
              Earnings
              
              
              Income
              
              
              Equity**Shareholders’
Equity
                  at August
                  31,****2004**
              
              **205,509**
              
              **$**
              **206**
              
              
              __
              
              **$**
              **208,051**
              
              **$**
              **(157,106**
              **)**
              **$**
              **(1,048**
              **)**
              **$**
              **50,103**Net
                  Loss for the year ended August 31, 2005
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (57,010
              )
              
              —
              
              
              (57,010
              )**New
                  Stock Issued:**For
                  services and compensation
              
              
              5,119
              
              
              5
              
              
              —
              
              
              2,339
              
              
              —
              
              
              —
              
              
              2,344For
                  retirement of debt and accrued liabilities
              
              
              27,663
              
              
              27
              
              
              —
              
              
              13,334
              
              
              —
              
              
              —
              
              
              13,361Proceeds
                  from sale of common stock, net
              
              
              45,795
              
              
              46
              
              
              —
              
              
              11,263
              
              
              —
              
              
              —
              
              
              11,309Proceeds
                  from exercise of options
              
              
              4,125
              
              
              4
              
              
              —
              
              
              1,945
              
              
              —
              
              
              —
              
              
              1,949Unrealized
                  Holding Loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,048
              
              
              1,048**Shareholders’
                  Equity at August 31, 2005**
              
              
              **288,211**
              
              **$**
              **288**
              
              
              **—**
              
              **$**
              **236,932**
              
              **$**
              **(214,116**
              **)**
              **$**
              **—**
              
              **$**
              **23,104**Net
                  Loss for the three months ended
                November
                  30, 2005
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2,634
              )
              
              —
              
              
              (2,634
              )**New
                  Stock Issued:**Proceeds
                  from sale of common stock, net
              
              
              14,875
              
              
              15
              
              
              —
              
              
              1,993
              
              
              —
              
              
              —
              
              
              2,008Stock
                  based compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              266
              
              
              —
              
              
              —
              
              
              266**Shareholders’
                  Equity at November 30, 2005**
              
              
              **303,086**
              
              **$**
              **303**
              
              
              **—**
              
              **$**
              **239,191**
              
              **$**
              **(216,750**
              **)**
              **$**
              **—**
              
              **$**
              **22,744**




See
      accompanying notes to consolidated financial statements.




-5-


**EAGLE
      BROADBAND, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS**


For
                  the three monthsended
                  November 30,2005
              
              2004**Cash
                  Flows from Operating Activities**Net
                  Loss
              
              $
              (2,634
              )
              $
              (4,448
              )Adjustments
                  to Reconcile Net Loss to Net Cash:Stock
                  for compensation expense
              
              
              266
              
              
              —Depreciation
                  and amortization
              
              
              590
              
              
              1,131Stock
                  issued for interest expense
              
              
              —
              
              
              96Stock
                  issued for services rendered
              
              
              —
              
              
              1,423Provision
                  for bad debt
              
              
              —
              
              
              19(Increase)/decrease
                  in accounts receivable
              
              
              (368
              )
              
              88(Increase)/decrease
                  in inventories
              
              
              95
              
              
              (1,238
              )(Increase)/decrease
                  in prepaid expenses
              
              
              (372
              )
              
              (79
              )Increase/(decrease)
                  in accounts payable
              
              
              (2,140
              )
              
              481Increase
                  in accrued expenses
              
              
              1,708
              
              
              1,657Total
                  Adjustment
              
              
              (2,229
              )
              
              3,578**Net
                  Cash Used for Operating Activities**
              
              
              **(2,855**
              **)**
              
              **(870**
              **)****Cash
                  Flows from Investing Activities**(Purchase)/Disposal
                  of Property and Equipment
              
              
              2
              
              
              (144
              )Increase/(Decrease)
                  in Intangible Costs
              
              
              —
              
              
              (3
              )Increase/(Decrease)
                  in Marketable Securities
              
              
              —
              
              
              551(Increase)/Decrease
                  in Other Assets
              
              
              675
              
              
              —Gross
                  Equipment Purchase for Direct Financing Leases
              
              
              —
              
              
              (641
              )Principal
                  Collections on Direct Financing Leases
              
              
              104
              
              
              49**Net
                  Cash Used for Investing Activities**
              
              
              **777**
              
              
              **(188**
              **)****Cash
                  Flows from Financing Activities**Increase/(Decrease)
                  in Notes Payable & Long-Term Debt
              
              
              91
              
              
              (519
              )**Net
                  Cash Provided by Financing Activities**
              
              
              **91**
              
              
              **(519**
              **)**Net
                  Increase/(Decrease) in Cash
              
              
              (1,987
              )
              
              (1,577
              )Cash
                  at the beginning of the period
              
              
              4,020
              
              
              2,051**Cash
                  at the end of the period**
              
              **$**
              **2,033**
              
              **$**
              **474****Supplemental
                  Disclosure of Cash Flow Information**Net
                  Cash Paid During the Year for:Interest
              
              $
              1
              
              $
              6Income
                  taxes
              
              $
              —
              
              $
              —




See
      accompanying notes to consolidated financial statements.




-6-




**Eagle
      Broadband, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements November 30, 2005
      (Unaudited)**




**NOTE
      1 - Basis of Presentation and Significant Accounting
      Policies**




The
      balance sheet of the Company as of November 30, 2005, the related statements
      of
      operations for the three months ended November 30, 2005 and 2004, and the
      statements of cash flows for the three months ended November 30, 2005 and 2004,
      included in the financial statements have been prepared by the Company without
      audit. In the opinion of management, the accompanying financial statements
      include all adjustments (consisting of normal, recurring adjustments) necessary
      to summarize fairly the Company’s financial position and results of operations.
      The results of operations for the three months ended November 30, 2005, are
      not
      necessarily indicative of the results of operations for the full year or any
      other interim period. The information included in this Form 10-Q should be
      read
      in conjunction with Management’s Discussion and Analysis and Financial
      Statements and notes thereto included in the Company’s August 31, 2005, Form
      10-K.




**NOTE
      2 - Related Party Transactions**




Dr.
      H.
      Dean Cubley, a director and former officer of the company, is the holder of
      a
      promissory note with a remaining principal amount of $1,924,000. The note is
      currently in default and is accruing interest under the terms of the original
      agreement. The note was issued upon the modification of outstanding options
      for
      2,000,000 common shares and reflects a guaranteed compensation of the modified
      options equivalent to $1.75 less the option strike price. Interest of $243,449
      and $154,922 has been accrued as of November 30, 2005 and August 31, 2005,
      respectively. The note payable and accrued interest are included in the Balance
      Sheets as accrued expenses.




Dr.
      Cubley is a director of ERF Wireless, Inc. ERF Wireless acted as a third-party
      construction subcontractor for Eagle during the quarter ended November 30,
      2005.
      Purchases totaled $92,900 during the quarter ended November 30,
      2005.




**NOTE
      3 - Accounts Receivable**




Accounts
      receivable consist of the following (in thousands):




November
                30,
              2005
            
            August
                31,
              2005Accounts
                receivable
            
            $
            2,412
            
            $
            4,578Allowance
                for doubtful accounts
            
            
            (154
            )
            
            (2,688
            )Accounts
                receivable, net
            
            $
            2,258
            
            $
            1,890




**NOTE
      4 - Property, Plant and Equipment and Intangible Assets**




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




November
                30,
              2005
            
            August
                31,
              2005Automobile
            
            $
            123
            
            $
            123Headend
                facility and fiber infrastructure
            
            
            24,031
            
            
            24,154Furniture
                and fixtures
            
            
            520
            
            
            520Leasehold
                improvements
            
            
            183
            
            
            183Office
                equipment
            
            
            1,093
            
            
            1,027Manufacturing
                and operating equipment
            
            
            6,296
            
            
            6,291Total
                property, plant and equipment
            
            $
            32,246
            
            $
            32,298Less
                accumulated depreciation
            
            
            (9,467
            )
            
            (8,994
            )Net
                property, plant and equipment
            
            $
            22,779
            
            $
            23,304




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 $29,000 and $12,000 for the three months
      ended November 30, 2005 and 2004, respectively, whereas it did not have any
      major improvements for the same time periods.




-7-




Eagle’s
      headend facilities and fiber infrastructure consist primarily of digital
      computing and telecommunications equipment that comprise the Company’s main
      headend facility at its headquarters, wireless headend equipment, a digital
      headend facility and a fiber backbone in the master planned communities in
      which
      it operates and a fiber ring connecting the various master planned communities
      in the Houston area. The Company determined that twenty-year straight-line
      depreciation method is appropriate for its headend facilities and fiber
      infrastructure based on industry standards for these asset types.




Components
      of intangible assets are as follows (in thousands):




November
                30,
              2005
            
            August
                31,
              2005Goodwill
            
            $
            4,095
            
            $
            4,095Contract
                Rights
            
            $
            11,847
            
            $
            11,847Accumulated
                amortization
            
            
            (8,998
            )
            
            (8,926
            )$
            2,849
            
            $
            2,921Customer
                Relationships
            
            $
            3,067
            
            $
            3,067Accumulated
                amortization
            
            
            (2,256
            )
            
            (2,236
            )$
            811
            
            $
            831Other
                intangible assets
            
            $
            3,937
            
            $
            3,937Accumulated
                amortization
            
            
            (3,103
            )
            
            (3,078
            )$
            834
            
            $
            859Total
                intangible assets
            
            $
            22,946
            
            $
            22,946Total
                accumulated amortization
            
            
            (14,358
            )
            
            (14,240
            )Net
                of amortization
            
            $
            8,589
            
            $
            8,706




**NOTE
      5 - Notes Payable**




The
      following table lists the Company’s note obligations as of November 30, 2005,
      and August 31, 2005 (in thousands):




Annual
                Interest
                Rate
              
              
              Due
                Date
              
              
              November
                  30,2005
              
              
              August
                  31,2005Notes
                  Payable:Other
              
              
              Various
              
              
              Various
              
              
              152
              
              
              61Total
                  Notes Payable
              
              
              
              
              
              
              
              $
              152
              
              $
              61Less
                  current portion
              
              
              
              
              
              
              
              
              152
              
              
              61Total
                  long-term debt
              
              
              
              
              
              
              
              $
              —
              
              $
              —




**NOTE
      6 - Assets Held for Sale**




For
      the
      year ended August 31, 2005, and the quarter ended November 30, 2005, the Company
      has security contracts of $298,000 that are considered an Asset Held for Sale.
      These contracts are classified in other current assets. The Company intends
      to
      sell the remainder of these contracts during fiscal 2006.




-8-




**NOTE
      7 - Income Taxes**




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




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




November
                30,
              2005
            
            August
                31,
              2005U.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 applying the U.S. Federal income tax rate of 34%
      to
      pretax income from continuing operations as a result of the following (in
      thousands):




November
                30,
              2005
            
            August
                31,
              2005Computed
                expected tax benefit
            
            $
            (887
            )
            $
            (19,360
            )Increase
                in valuation allowance
            
            
            887
            
            
            19,360Income
                tax expense
            
            $
            —
            
            $
            —




The
      tax
      effects of temporary differences that give rise to significant portions of
      the
      deferred tax assets and deferred tax liabilities at November 30, 2005, and
      August 31, 2005, are presented below (in thousands) and include the balances
      of
      the merged company ClearWorks.net., Inc.




November
                30,
              2005
            
            August
                31,
              2005Deferred
                tax assets:Net
                operating loss carry forwards
            
            $
            (71,733
            )
            $
            (70,846
            )Less
                valuation allowance
            
            
            71,733
            
            
            70,846Net
                deferred tax assets
            
            $
            —
            
            $
            —




The
      valuation allowance for deferred tax assets of November 30, 2005, and August
      31,
      2005, was $71,733,000 and $70,846,000, respectively. As of November 30, 2005,
      the Company has net operating loss carry-forwards of $210,981,000, which is
      available to offset future federal taxable income, if any, with expirations
      from
      2021 to 2023.




**NOTE
      8 - Stock Options and Warrants**




In
      July
      1996, the Board of Directors adopted, and the Company’s shareholders approved,
      the 1996 Incentive Stock Option Plan under which 400,000 shares of the Company’s
      common stock have been reserved for issuance. In June 2004, the Board of
      Directors adopted, and the Company’s shareholders approved, the June 2004
      Compensatory Stock Option Plan under which 10,000,000 shares of the
      Company’s common stock has been reserved for issuance. In June
      2005, the Board of Directors adopted, and the Company’s shareholders approved,
      the 2005 Employee Stock Option Plan under which 30,000,000 shares of the
      Company’s common stock has been reserved for issuance. As of November 30, 2005,
      options issued to employees covering 12,403,818 shares were outstanding, of
      which 4,524,287 were exercisable.




The
      Company has adopted FASB Statement 123R “Accounting for Stock-Based
      Compensation” effective September 1, 2005, for the fiscal year ending August 31,
      2006. SFAS 123R supersedes APB Opinion No. 25, Accounting for Stock Issued
      to
      Employees.” As permitted under SFAS 123R, the Company adopted the modified
      prospective method on September 1, 2005. In accordance with the “modified
      prospective” method, compensation cost is recognized beginning with the
      effective date (a) based on the requirements of SFAS 123R for all share-based
      payments granted after the effective date and (b) based on the requirements
      of
      SFAS 123 for all awards granted to employees prior to the effective date of
      SFAS
      123R that remain unvested on the effective date. (See Recent Accounting
      Pronouncements and Note 17-Supplemental Non-Cash Disclosures.)




-9-




The
      weighted average fair value of the individual options issued and granted during
      the three months ended November 30, 2005
      is estimated as $0.77 on the date of grant. The fair values were determined
      using a Black-Scholes option-pricing model with the following assumptions:




November
                30,2005
            
            2004Dividend
                yield
            
            
            0.00%
            
            
            0.00%Volatility
            
            
            90%
            
            
            91%Risk-free
                interest rate
            
            
            3.50%
            
            
            4.00%Expected
                life
            
            
            5
                years
            
            
            5
                years




Prior
      to
      September 1, 2005, the Company followed 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. In accordance with the provisions of SFAS 123R,
      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 months ended November 30, 2004:




Three
                months ended
              November
                30, 2004Net
              loss, as reported
            
            $
            (4,448
            )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
            
            
            (61
            )Pro
                forma net earnings/(loss)
            
            $
            (4,509
            )Net
                loss per share:As
                reported
            
            $
            (0.02
            )Pro
                forma
            
            $
            (0.02
            )Diluted
                net loss per share:As
                reported
            
            $
            (0.02
            )Pro
                forma
            
            $
            (0.02
            )




Option
      and warrant activity was as follows for the three months ended November 30,
      2005:




Shares
            
            Weighted-AverageExercise
                PriceOutstanding
                at beginning of period
            
            
            13,454,745
            
            $
            0.83Granted
            
            
            1,543,750
            
            
            0.21Assumed
                through acquisitions
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Forfeited/cancelled
            
            
            (34,150
            )
            
            2.00Outstanding
                at end of period
            
            
            14,964,345
            
            $
            0.77Exercisable
                at end of period
            
            
            7,084,814
            
            
            1.25




-10-




Information
      about options and warrants outstanding was as follows at November 30,
      2005:




Range
                of
              Exercise
                Prices
            
            Number
                Outstanding
            
            Avg.Remaining
                ContractualLife
              in
                Years
            
            Average
              Exercise
              Price
            
            Number
                Exercisable
            
            Average
              Exercise
              Price$0.00
                - $0.50
            
            
            10,167,161
            
            
            3.91
            
            
            0.21
            
            
            3,914,369
            
            
            0.24$0.51
                - $1.00
            
            
            3,522,644
            
            
            3.26
            
            
            0.77
            
            
            2,145,905
            
            
            0.76$1.01
                - $7.50
            
            
            1,274,540
            
            
            2.23
            
            
            5.21
            
            
            1,024,540
            
            
            6.1514,964,345
            
            
            3.61
            
            
            0.77
            
            
            7,084,814
            
            
            1.25




**NOTE
      9 - Risk Factors**




For
      the
      three months ended November 30, 2005, substantially all of the Company’s
      business activities have remained within the United States and have been
      extended to the wireless infrastructure, fiber, cabling, computer services
      and
      broadband industries. Approximately, 30% of the Company's revenues and
      receivables have been created solely in the state of Texas, 0% in the
      international market, and the approximate 70% remainder relatively evenly over
      the rest of the nation during the three months ended November 30, 2005; whereas
      approximately, 71% of the Company's revenues and receivables were created solely
      in the state of Texas, 0% in the international market, and the approximate
      29%
      remainder relatively evenly over the rest of the nation during the three months
      ended November 30, 2004. Through the normal course of business, the Company
      generally does not require its customers to post any collateral.




**NOTE
      10 - Foreign Operations**




Although
      the Company is based in the United States, certain of its products are sold
      in
      international markets. Presently, international sales total 0% and 0% for the
      three months ended November 30, 2005 and 2004, respectively.




**NOTE
      11 - Commitments and Contingent Liabilities**




**Leases**




For
      the
      three months ended November 30, 2005 and 2004, rental expenses of approximately
      $77,000 and $94,000, respectively, were incurred.




The
      Company renewed its primary office lease space in League City, Texas, for
      $24,983 per month with South Shore Harbor Development, Ltd. The renewal lease
      commenced on June 1, 2004, and expires on May 31, 2009. The lessor agreed to
      grant the Company a one-time option to terminate the lease at 36 months by
      paying an unamortized leasing commission of $35,000 and a penalty of 11⁄2 months
      rent of $37,000 for a combined total of $72,000.




August
                31,
            
            AmountFor
                the nine months ending
            
            
            2006
            
            $
            224,852For
                the year ending
            
            
            2007
            
            
            306,180For
                the year ending
            
            
            2008
            
            
            325,316For
                the year ending
            
            
            2009
            
            
            243,987Total
            
            $
            1,100,335




**Legal
      Proceedings**




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




-11-




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




In
      June
      2004, The Tail Wind Fund Ltd. sued Link-Two Communications, Inc., and Eagle
      Broadband, Inc., Civil Action 04-CV-05776, in the United States District Court
      for the Southern District of New York. Tail Wind claims breach of contract
      seeking $25 million. The Company is currently in negotiations with Tail Wind
      to
      settle this lawsuit and believes it can be settled out of court. As of November
      30, 2005, and August 31, 2005, the Company has accrued $5 million in expenses
      against this lawsuit.




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




In
      October 2005, the Company filed a lawsuit in the Superior Court of California,
      Santa Clara County, Civil Action 1-05-CV-050179, against certain individuals
      whose identities are unknown, for unfair business practices and defamation.
      The
      Company believes these individuals have deliberately posted false and misleading
      information on the Yahoo! Finance message board for the purpose of injuring
      the
      Company in several ways including, but not limited to, deflating the price
      of
      the Company’s stock and reaping profits from their illegal activities. The
      Company is seeking to enjoin these individuals from continuing such conduct,
      in
      addition to the full measure of damages and other remedies permitted by
      law.




In
      December 2005, the Company sued Neva Holdings, LLC (“Neva”) and other entities
      affiliated with Neva, Civil Action 05-CV-1525, in the United States District
      Court for the District of Nevada, for breach of the Termination Agreement
      entered into in August 2005 between the Company and Neva. The Company is seeking
      to recover payments in excess of $800,000 for hardware and equipment delivered
      and services rendered pursuant to the Termination Agreement, in addition to
      attorneys’ fees and pre- and post-judgment interest.




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




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




-12-




**NOTE
      12 - Earnings per Share**




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




For
                the three months ended November 30, 2005Income
              (Numerator)
            
            Shares
              (Denominator)
            
            Per
                Share
              AmountNet
                loss
            
            $
            (2,634
            )
            
            —
            
            $
            —Basic
                EPS:Income
                available to common shareholders
            
            
            (2,634
            )
            
            290,336
            
            
            (0.01
            )Effect
                of dilutive securities warrants
            
            
            —
            
            
            —
            
            
            —Diluted
                EPS:Income
                available to common stockholders and assumed conversions
            
            $
            (2,634
            )
            
            290,336
            
            $
            (0.01
            )For
                the three months ended November 30, 2004Income
              (Numerator)
            
            
            Shares
              (Denominator)
            
            
            Per
                Share
              
              
              AmountNet
                loss
            
            $
            (4,448
            )
            
            —
            
            $
            —Basic
                EPS:Income
                available to common shareholders
            
            
            (4,448
            )
            
            209,418
            
            
            (0.02
            )Effect
                of dilutive securities warrants
            
            
            —
            
            
            —
            
            
            —Diluted
                EPS:Income
                available to common stockholders and assumed conversions
            
            $
            (4,448
            )
            
            209,418
            
            $
            (0.02
            )




For
      the three
      months ended November 30 ,
      2005
      and 2004, dilutive securities existed. (See Note 8.) The
      weighted average shares outstanding on a fully diluted basis as of November
      30,
      2005, and August 31, 2005, were approximately 295,009,000 and 242,566,000,
      respectively.




**NOTE
      13 - Retirement Plans**




During
      October 1997, the Company initiated a 401(k) plan for its employees, funded
      through the contributions of its participants. Prior to March 2003, the Company
      matched the participant’s contribution up to 3% of their salary. Subsequent to
      March 2003, the plan was amended and the Company match became elective. For
      the
      three months ended November 30, 2005 and 2004, employee contributions were
      approximately $21,495 and $27,989, respectively. The Company matched $0 and
      $0,
      respectively, for those same periods.




**NOTE
      14 - Major Customer**




The
      Company had gross revenues of $1,934,000 and $1,528,000 for the three months
      ended November 30, 2005 and 2004, respectively. The three-month period ended
      November 30, 2005, included $383,350, or 20% of the quarter’s total sales, for
      sales of security contracts to a third party by the Company’s
      security-monitoring service subsidiary, D.S.S. Security, Inc. The same
      three-month period ended November 30, 2005 also included $436,220 for the sale
      of set-top boxes and other products to a third party, or 23% of the quarter’s
      total sales.




The
      three-month period ended November 30, 2004, included $753,000 or 49% of the
      quarter’s total sales, from Sweetwater Security Capital, LLC, that were executed
      with the Company’s security monitoring service subsidiary, D.S.S. Security,
      Inc.




-13-




**NOTE
      15 - Industry Segments**




This
      summary reflects the Company’s current and past operating segments, as described
      below. All have discontinued operations except Eagle Broadband, Inc., Eagle
      Broadband Services, Inc., and D.S.S. Security, Inc.




**Eagle:**


Eagle
      Broadband, Inc. (Eagle) is a provider of broadband, Internet Protocol (IP)
      and
      communications technology and equipment with related software and broadband
      products (including past subsidiaries Eagle Wireless International, Inc.; and
      Etoolz, Inc., for this summary).




**EBS/DSS:**


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




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




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




**APC/HSI:**


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




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




**UCG:**


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




**Other:**


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




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




Contact
      Wireless, Inc. was a paging, cellular, and mobile services provider and reseller
      whose assets were sold October 10, 2003. (Has discontinued
      operations.)




For
      the
      three months ended November 30, 2005


APC/HSI
              
              EBS/DSS
              
              UCG
              
              Eagle
              
              Other
              
              Elim.
              
              ConsolRevenue
              
              
              0
              
              
              852
              
              
              0
              
              
              1,082
              
              
              0
              
              
              0
              
              
              1,934Segment
                  Loss
              
              
              1
              
              
              (794
              )
              
              (1
              )
              
              (1,846
              )
              
              0
              
              
              0
              
              
              (2,640
              )Total
                  Assets
              
              
              (8,975
              )
              
              (16,280
              )
              
              (3,778
              )
              
              94,989
              
              
              16,305
              
              
              (43,111
              )
              
              39,150Capital
                  Expenditures
              
              
              0
              
              
              0
              
              
              0
              
              
              2
              
              
              0
              
              
              0
              
              
              2Depreciation
              
              
              0
              
              
              341
              
              
              1
              
              
              248
              
              
              0
              
              
              0
              
              
              590




For
      the three
      months ended November 30 ,
      2004





APC/HSI
            
            EBS/DSS
            
            UCG
            
            Eagle
            
            Other
            
            Elim.
            
            ConsolRevenue
            
            $
            21
            
            $
            1,216
            
            $
            —
            
            $
            291
            
            $
            —
            
            $
            —
            
            $
            1,528Segment
                Loss
            
            
            (35
            )
            
            (839
            )
            
            —
            
            
            (3,604
            )
            
            (21
            )
            
            —
            
            
            (4,499
            )Total
                Assets
            
            
            30
            
            
            28,579
            
            
            32
            
            
            125,551
            
            
            56,935
            
            
            (142,367
            )
            
            68,760Capital
                Expenditures
            
            
            —
            
            
            70
            
            
            —
            
            
            74
            
            
            —
            
            
            —
            
            
            144Depreciation
            
            
            10
            
            
            397
            
            
            1
            
            
            702
            
            
            21
            
            
            —
            
            
            1,131




-14-




Reconciliation
      of Segment Loss from Operations to Net Loss




Three
                Months Ended
              November
                30,2005
            
            2004Total
                segment loss from operations
            
            
            (2,640
            )
            $
            (4,499
            )Total
                other income (expense)
            
            
            6
            
            
            51Net
                loss
            
            
            (2,634
            )
            $
            (4,488
            )




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




**NOTE
      16 - Unaudited Quarterly Financial Data**




Nov.
                30
            
            Feb.
                28
            
            May
                31
            
            Aug.
                31Year
                Ended August 31, 2006Revenues
            
            $
            1,934Net
                earnings (loss)
            
            
            (2,634
            )Basic
                loss per share
            
            
            (0.01
            )Diluted
                loss per share
            
            
            (0.01
            )Year
                Ended August 31, 2005Revenues
            
            $
            1,528
            
            $
            2,683
            
            $
            2,976
            
            $
            1,405Net
                earnings (loss)
            
            
            (4,448
            )
            
            (9,326
            )
            
            (3,951
            )
            
            (39,285
            )Basic
                loss per share
            
            
            (0.02
            )
            
            (0.04
            )
            
            (0.02
            )
            
            (0.14
            )Diluted
                loss per share
            
            
            (0.02
            )
            
            (0.04
            )
            
            (0.02
            )
            
            (0.14
            )Year
                Ended August 31, 2004Revenues
            
            $
            2,397
            
            $
            3,744
            
            $
            5,091
            
            $
            1,258Net
                earnings (loss)
            
            
            (8,461
            )
            
            (9,398
            )
            
            (4,373
            )
            
            (16,773
            )Basic
                loss per share
            
            
            (0.05
            )
            
            (0.05
            )
            
            (0.02
            )
            
            (0.08
            )Diluted
                loss per share
            
            
            (0.05
            )
            
            (0.05
            )
            
            (0.02
            )
            
            (0.08
            )




**NOTE
      17 - Supplemental Non-Cash Disclosures**




During
      the three months ended November 30, 2005, the company did not issue any stock
      in
      lieu of cash payments. The Company adopted SFAS 123R, “Accounting for
      Share-Based Payment”, during the quarter ended November 30, 2005, and has
      recorded a $266,000 non-cash charge to approximate the fair value of share-based
      compensation meeting the criteria outlined in the provisions of SFAS 123R.
      Stock
      payable of $2,008,215 was relieved during the current quarter to issue
      14,875,000 shares sold to investors in August 2005. (See Note 18.)





Non-Cash
                Settlements*($
                in thousands)*
              
              
              Three
                    months ended
                  November
                    30,2005
              
              
              2004Interest
                  Expense
              
              $
              —
              
              $
              100Professional
                  Fees
              
              
              —
              
              
              294Salary
                  and Compensation
              
              
              —
              
              
              94Accrued
                  Liabilities
              
              
              —
              
              
              3,631Notes
                  Payable
              
              
              —
              
              
              1,184Total
                  Non-Cash Settlements
              
              $
              —
              
              
              5,303




**NOTE
      18 - Equity Financing**




In
      August
      2005, the Company entered into a purchase agreement with certain investors
      for
      the sale of 30 million shares of its common stock at a price of $0.135 per
      share, and received total gross proceeds of $4,050,000. On August 26, 2005,
      the
      American Stock Exchange approved for listing 15,125,000 of these shares and
      notified the Company that shareholder approval was required for the issuance
      of
      the remaining 14,875,000 shares. On September 2, 2005, the Company voluntarily
      placed the funds received for the 14,875,000 shares




-15-




($2,008,125)
      into an escrow account pending the shareholder vote. On September 8, 2005,
      the
      Company sent a revised proxy statement to its shareholders adding a fourth
      proposal to be voted on at its 2005 annual meeting of shareholders, which was
      scheduled to be held September 20, 2005, to approve the issuance of the
      14,875,000 shares. On September 15, 2005, the Company announced its plan to
      adjourn the 2005 annual meeting until October 18, 2005, to allow shareholders
      adequate time to receive the revised proxy statement and consider the added
      proposal. At the October 18, 2005 meeting, shareholders approved the issuance
      of
      the 14,875,000 shares, and on October 19, 2005, the escrowed funds were released
      to the Company. On October 21, 2005, the Company applied for listing the
      14,875,000 shares with the American Stock Exchange and received approval on
      November 17, 2005. The Company paid a placement agent a cash commission of
      7% of
      the gross dollar proceeds, and agreed to issue such agent a five-year warrant
      to
      purchase 843,750 shares of Eagle common stock at an exercise price of $0.24
      per
      share, expiring on August 31, 2010.




**NOTE
      19 - Subsequent Events**




In
      November 2005, the Company entered into an agreement with a third party, under
      which the Company has agreed to lease the network and infrastructure used to
      deliver its bundled digital services for ten years. The Company’s obligation to
      lease the network and infrastructure is contingent upon the third party
      obtaining the financing necessary to fund the payments due under the agreement
      by December 31, 2005. As of December 31, 2005, the third party had not obtained
      such financing; however, the Company and the third party are negotiating to
      extend the December 31, 2005 deadline.




In
      December 2005, the Company sued Neva Holdings, LLC (“Neva”) and other entities
      affiliated with Neva, Civil Action 05-CV-1525, in the United States District
      Court for the District of Nevada, for breach of the Termination Agreement
      entered into in August 2005 between the Company and Neva. The Company is seeking
      to recover payments in excess of $800,000 for hardware and equipment delivered
      and services rendered pursuant to the Termination Agreement, in addition to
      attorneys’ fees and pre- and post-judgment interest.




In
      January 2006, the Company entered into an agreement with Eric Blachno, pursuant
      to which Mr. Blachno resigned as the company’s Chief Financial Officer effective
      as of January 3, 2006. Under the agreement, Mr. Blachno will receive severance
      payments over a six-month period equal to six months salary. In connection
      with
      entering into the agreement, the Employment Agreement between Mr. Blachno and
      the Company dated November 4, 2004, was terminated. The severance payments
      provided for in the Agreement will be made in lieu of all compensation, bonuses,
      benefits and claims Mr. Blachno may have had under the Employment Agreement.
      The
      Company has engaged the same accounting consulting firm it engaged to complete
      its Sarbanes-Oxley 404 compliance project to assist
      the management team during the CFO transition .




-16-




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




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




**Executive
      Overview**




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




As
      of
      November 30, 2005, the company’s active subsidiaries were: Eagle Broadband
      Services, Inc., D.S.S. Security, Inc., operating as Eagle Broadband Security,
      EBI Funding Corporation and Etoolz, Inc. Additionally, Eagle has a number of
      inactive subsidiaries that had results in one or more of the periods included
      in
      the financial statements covered by this report. These inactive subsidiaries
      include: Clearworks Communications, Inc., Clearworks.net, Inc., Clearworks
      Home
      Systems, Inc., Contact Wireless, Inc., United Computing Group, Inc., Atlantic
      Pacific Communications, Inc., and Link Two Communications, Inc. Eagle has
      incorporated certain ongoing operations of the inactive subsidiaries into the
      active subsidiaries listed above including Atlantic Pacific Communications,
      Inc.
      and Clearworks Communications, Inc. The consolidated financial statements
      include the accounts of the company and its subsidiaries. All significant
      inter-company transactions and balances have been eliminated in
      consolidation.




We
      intend
      for this discussion to provide the reader with information that will assist
      in
      understanding our financial statements, the changes in certain key items in
      those financial statements from year to year, and the primary factors that
      accounted for those changes, as well as how certain accounting principles affect
      our financial statements. The discussion also provides information about the
      financial results of the various segments of our business to provide a better
      understanding of how those segments and their results affect the financial
      condition and results of operations of the company as a whole. This discussion
      should be read in conjunction with our financial statements and accompanying
      notes for the three months ended November 30, 2005.




-17-




**Results
      of Operations**




**Three
      Months Ended November 30, 2005, Compared to Three Months Ended November 30,
      2004**




The
      following table sets forth summarized consolidated financial information for
      the
      three months ended November 30, 2005 and 2004:




**Condensed
      Financial Information**




Three
                  Months Ended
                November
                  30,*($
                  in thousands)*
              
              2005
              
              2004
              
              $
                  Change
              
              %
                  ChangeNet
                  Sales
              
              $
              1,934
              
              $
              1,528
              
              $
              406
              
              
              27%Cost
                  of Goods Sold
              
              
              1,417
              
              
              1,685
              
              
              (268
              )
              
              (16%)Gross
                  Profit
              
              
              517
              
              
              (157
              )
              
              674Percent
                  of Sales
              
              
              27%
              
              
              (10%)Operating
                  Expenses
              
              
              3,157
              
              
              4,342
              
              
              (1,185
              )
              
              (27%)Loss
                  from Operations
              
              
              (2,640
              )
              
              (4,499
              )
              
              1,859
              
              
              (41%)Other
                  Income (Expense)
              
              
              6
              
              
              51
              
              
              (45
              )
              
              (88%)Net
                  Loss
              
              
              (2,634
              )
              
              (4,448
              )
              
              1,814
              
              
              (41%)Unrealized
                  Holding Loss
              
              
              —
              
              
              1,048
              
              
              (1,048
              )
              
              (100%)Comprehensive
                  Loss
              
              $
              (2,634
              )
              $
              (3,400
              )
              $
              766
              
              
              (23%)




For
      the
      three months ended November 30, 2005, the company’s business operations
      reflected an increase in broadband, security, and managed services. For the
      quarter ended November 30, 2005, the company’s consolidated operations generated
      net sales of $1,934,000 with a corresponding gross profit of $517,000. The
      overall increase of 27% in net sales for the three months ended November 30,
      2005 as compared to the three months ended November 30, 2004 was primarily
      attributable to increased sales of IP set-top boxes, IPTVComplete and SatMAX
      units.




The
      company incurred a net loss of $2,634,000 for the three months ended November
      30, 2005. The loss was attributable primarily to $1,151,000 in salaries and
      related costs and $991,000 for professional fess including legal, consulting
      and
      accounting, and direct labor costs of $500,000.




The
      company’s net loss for the three months ended November 30, 2005, included
      approximately $590,000 in depreciation and amortization expenses and $150,000
      in
      other support costs for shared monthly satellite transponder costs associated
      with the delivery of the company’s IPTVComplete service. The net loss included
      $321,000 for salary expenses for prepaid commissions related
      to security contracts sold to a third party in November 2005, and a $266,000
      non-cash charge to approximate the fair value of share-based compensation
      meeting the criteria outlined in the provisions of SFAS 123R.




The
      company’s net loss for the three months ended November 30, 2005 included a
      decrease in bad debt expense of $904,000 for the collection of receivables
      that
      had been deemed uncollectible from prior years.




-18-




*Sales
        Information*
  Set
        forth
        below is a table presenting summarized sales information for our business
        segments for the three months ended November 30, 2005 and 2004:
  *($
                  in thousands)*
              
              Three
                  Months Ended November 30,Business
                  Segment
              
              2005
              
              %
                  of
                Total
              
              2004
              
              %
                  of
                Total
              
              $
                Change
              
              %
                ChangeStructured
                  Wiring
              
              $
              422
              
              
              22%
              
              $
              262
              
              
              17%
              
              $
              160
              
              
              61%Broadband
                  Services
              
              
              852
              
              
              44%
              
              
              1,216
              
              
              80%
              
              
              (364
              )
              
              (30%)Products
              
              
              622
              
              
              32%
              
              
              26
              
              
              2%
              
              
              596
              
              
              2,292%Other
              
              
              38
              
              
              2%
              
              
              24
              
              
              1%
              
              
              14
              
              
              59%Total
              
              $
              1,934
              
              
              100%
              
              $
              1,528
              
              
              100%
              
              $
              406
              
              
              27%
  For
        the
        three months ended November 30, 2005, net sales increased to $1,934,000 from
        $1,528,000, compared to the three-month period ended November 30, 2004. The
        overall increase of 27% was attributable to a $596,000 increase in the company’s
        product sales, an increase of $262,000 in structured wiring operations, a
        decrease of $364,000 in the company’s broadband services sales; and a $14,000
        increase in other sales. The $596,000 increase in product sales includes
        sales
        of IP set-top boxes, IPTVComplete and SatMAX units.
  The
        decrease of $364,000 in broadband services is primarily attributable to the
        decline in recurring security monitoring sales resulting from the sales of
        certain security monitoring contracts in the company’s portfolio to Alarm
        Security Group, LLC. The $262,000 increase in structured wiring sales
        corresponded to the company’s previously announced strategy to provide solutions
        to broadband and service provider partners within the BDS model. The $14,000
        increase in other sales was primarily attributable to financing income lease
        payments for products related to the multimedia industry.
  *Cost
        of Goods Sold*
  The
        following table sets forth summarized cost of goods sold information for
        the
        three months ended November 30, 2005 and 2004:
  Three
                    Months Ended
                  November
                    30,*($
                    in thousands)*
                
                2005
                
                2004
                
                $
                    Change
                
                %
                    ChangeDirect
                    Labor and Related Costs
                
                $
                500
                
                $
                262
                
                $
                238
                
                
                91%Products
                    and Integration Services
                
                
                255
                
                
                38
                
                
                217
                
                
                571%Structured
                    Wiring Labor and Material
                
                
                289
                
                
                175
                
                
                114
                
                
                65%Broadband
                    Services Costs
                
                
                144
                
                
                920
                
                
                (776
                )
                
                (84%)Depreciation
                    and Amortization
                
                
                229
                
                
                290
                
                
                (61
                )
                
                (21%)Total
                    Cost of Goods Sold
                
                $
                1,417
                
                $
                1,685
                
                $
                (268
                )
                
                (16%)
  For
        the
        three months ended November 30, 2005, cost of goods sold decreased by 16%
        to
        $1,417,000 from $1,685,000 as compared to the three months ended November
        30,
        2004. The overall decrease of $268,000 was primarily attributable to the
        company’s decrease in base broadband services provided. The company’s overall
        gross profit percentage was 27% for the three months ended November 30, 2005,
        compared to an overall negative gross profit percentage of 10% for the three
        months ended November 30, 2004. This substantial increase in gross profit
        percentage is primarily attributable to (i) a decrease in depreciation expense
        for BDS assets and (ii) a decrease in broadband service costs as the
        company continued to realign staff and resources to concentrate on the three
        core offerings of the company: IPTV solutions, satellite communications and
        providing solutions to broadband and service provider partners.
  -19-
  *Operating
        Expenses*
  The
        following table sets forth summarized operating expense information for the three
        months ended November 30 ,
        2005
        and 2004:
  Three
                    Months Ended
                  November
                    30,*($
                    in thousands)*
                
                2005
                
                2004
                
                $
                    Change
                
                %
                    ChangeSalaries
                    and Related Costs
                
                $
                1,550
                
                $
                399
                
                $
                1,151
                
                
                288%Advertising
                    and Promotion
                
                
                30
                
                
                10
                
                
                20
                
                
                200%Depreciation
                    and Amortization
                
                
                361
                
                
                841
                
                
                (480
                )
                
                (57%)Research
                    and Development
                
                
                105
                
                
                143
                
                
                (38
                )
                
                (27%)Other
                    Support Costs
                
                
                1,111
                
                
                2,949
                
                
                (1,838
                )
                
                (62%)Total
                    Operating Expenses
                
                $
                3,157
                
                $
                4,342
                
                $
                (1,185
                )
                
                (27%)
  The
        following table breaks out “Other support costs” information as presented in the
        preceding table for the three
        months ended November 30 ,
        2005
        and 2004:
  Three
                    Months Ended
                  November
                    30,2005
                
                2004
                
                $
                    Change
                
                %
                    Change*($
                    in thousands)*Auto
                    Related
                
                
                19
                
                
                3
                
                
                16
                
                
                533%Bad
                    Debt
                
                
                (904
                )
                
                19
                
                
                (923
                )
                
                (4,858%)Delivery
                    and Postage
                
                
                155
                
                
                13
                
                
                142
                
                
                1,092%Fees
                
                
                8
                
                
                36
                
                
                (28
                )
                
                (78%)Insurance
                    and Office
                
                
                104
                
                
                83
                
                
                21
                
                
                25%Professional
                    and Contract Labor
                
                
                991
                
                
                2,290
                
                
                (1,229
                )
                
                (57%)Rent
                
                
                92
                
                
                94
                
                
                (2
                )
                
                (2%)Repairs
                    and Maintenance
                
                
                29
                
                
                12
                
                
                17
                
                
                142%Travel
                
                
                82
                
                
                88
                
                
                (6
                )
                
                (7%)Taxes
                
                
                167
                
                
                132
                
                
                35
                
                
                27%Telephone
                    and Utilities
                
                
                163
                
                
                156
                
                
                7
                
                
                4%Other
                
                
                205
                
                
                23
                
                
                182
                
                
                791%Total
                    Other Support Costs
                
                $
                1,111
                
                $
                2,949
                
                $
                (1,838
                )
                
                (62%)
  For
        the
        three months ended November 30, 2005, operating expenses decreased by 27%
        to
        $3,157,000 as compared to $4,342,000 for the three months ended November
        30,
        2004. The primary fluctuations that occurred as evidenced by the two preceding
        tables immediately above are discussed below:
  ·
              A
                  $1,838,000 decrease in other support costs, the components of which
                  are
                  set forth on the table included immediately above, that was primarily
                  due
                  to (i) a $923,000 decrease in bad debt expense for the collection
                  of
                  receivables deemed uncollectible in prior years that were collected
                  in
                  November 2005 and (ii) a $1,229,000 decrease in professional fees
                  and
                  contract labor, including a decrease of $1,040,000 in consulting
                  fees,
                  $145,000 decrease in accounting fees and $172,000 decrease in legal
                  fees.
                  These decreases were offset by a $142,000 increase in delivery
                  fees for
                  warranty product and a $182,000 increase in other fees that included
                  costs
                  associated with a purchase obligation to share monthly satellite
                  transponder costs associated with the delivery of the company’s
                  IPTVComplete service.
  ·
              A
                  $1,151,000 increase in salaries and related costs that included
                  an
                  increase of $90,000 for Board of Directors compensation, a non-cash
                  charge
                  of $266,000 for compensation expense in accordance with the provisions
                  of
                  SFAS 123R, and a non-cash charge of $321,000 to expense prepaid
                  commissions related to security contracts sold to a third party
                  in
                  November 2005. Salaries and related costs for the period ending
                  November
                  30, 2004, were reduced for a market to market adjustment of $336,000
                  related to guaranteed compensation. No similar adjustment was required
                  for
                  the period ending November 30,
                  2005.
  ·
              A
                  $480,000 decrease in depreciation and amortization expense for
                  long-lived
                  assets and intangibles that had impairment charges recorded for
                  the year
                  ended August 31, 2005, thus decreasing the depreciable basis and
                  related
                  depreciation expense for the quarter ended November 30,
                  2005.
  -20-
  **Net
        Loss**
  Net
        loss
        for the three months ended November 30, 2005, was $2,634,000, compared to
        a net
        loss of $4,448,000 during the three months ended November 30, 2004.
  **Changes
        in Cash Flow**
  Eagle’s
        operating activities used net cash of $2,855,000 in the three months ended
        November 30, 2005, compared to use of net cash of $870,000 in the three months
        ended November 30, 2004. The increase in net cash used by operating activities
        was primarily attributable to fund an increase in the company’s net operating
        loss, net of non-cash charges, totaling $856,000 combined with $1,077,000
        of
        cash provided by fluctuations in working capital requirements consisting
        of the
        combination of accounts receivable, inventory, prepaid expenses, accounts
        payable and accrued expenses. Eagle’s investing activities provided net cash of
        $777,000 in the three months ended November 30, 2005, compared to cash used
        of
        $188,000 in the three months ended November 30, 2004. The increase was due
        primarily to the release of a $675,000 surety bond for a completed project.
        Eagle’s financing activities provided net cash of $91,000 in the three months
        ended November 30, 2005, compared to $519,000, of cash used in the three
        months
        ended November 30, 2004. The increase was due to the execution of a short-term
        note payable for insurance. (See Note 18-Equity Financing.)
  **Liquidity
        and Capital Resources**
  Current
        assets for the three months ended November 30, 2005, totaled $7,027,000
        (includes cash and cash equivalents of $2,236,000) as compared to $8,370,000
        reported for the year ended August 31, 2005. During the three months ended
        November 30, 2005, net proceeds of $2,008,215 were released from escrow to
        Eagle
        for the sale of 14,875,000 shares sold to investors in August 2005. The funds
        were voluntarily placed in escrow by the Company on September 2, 2005 pending
        approval by shareholders for issuance of such shares. The shareholders approved
        the issuance at the annual meeting on October 18, 2005.
  The
        company anticipates that it will incur significantly less capital expenditures
        for broadband fiber infrastructure 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 their own fiber networks.
        Historically, the company built out these networks, thereby incurring
        significant capital expenditures. The company incurred approximately $2,000
        in
        capital expenditures during the three months ended November 30, 2005. The
        company currently intends to continue its nationwide expansion into the delivery
        of bundled digital services using partnerships and joint marketing agreements
        funded through cash in amounts equal to or exceeding expenditures in fiscal
        2005
        as well as through equity securities.
  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. Eagle 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.
  Historically,
        we have financed operations through the sale of debt and equity securities.
        During the year ended August 31, 2005, we raised $13,958,000 cash through
        the
        issuance of common stock upon the exercise of derivative 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. Though we have been successful at raising additional
        capital on a best efforts basis in the past, we can provide no assurance
        that we
        will be successful in any future best-efforts financing endeavors. The company
        will continue to rely upon financing from external sources to fund its
        operations for the foreseeable future and it will likely need to raise
        additional capital to fund working capital requirements in the third quarter
        of
        2006. If we are unable to either obtain financing from external sources or
        generate internal liquidity from operations in the future, we may need to
        curtail operations or sell assets.
  -21-
  **Contractual
        Obligations**
  The
        following table sets forth contractual obligations as of November 30,
        2005:
  (*Thousands
                  of dollars*)
                **Contractual
                  Obligations**
              
              **Total**
              
              **Less
                  than**
                **1
                  year**
              
              **1-3
                  years**
              
              **3-5
                  years**
              
              **More
                  than**
                **5
                  years**Notes
                  Payable Obligations
              
              $
              152
              
              $
              152
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  Lease Obligations
              
              
              1,100
              
              
              225
              
              
              875
              
              
              —
              
              
              —Purchase
                  Obligations and Commitments
              
              
              2,850
              
              
              450
              
              
              1,800
              
              
              600
              
              
              —Total
              
              $
              4,102
              
              $
              827
              
              $
              2,675
              
              $
              600
              
              $
              —
  The
        company’s contractual obligations consist of current notes payable as set forth
        in Note 5 - Notes
        Payable to the company’s financial statements, certain obligations for office
        space operating leases requiring future minimal commitments under non-cancelable
        leases (see Note 11 - Commitments
        and Contingent Liabilities to the company’s financial statements), and a
        purchase obligation to share monthly satellite transponder costs associated
        with
        the delivery of the company’s IPTVComplete service.
  **Off-Balance
        Sheet Arrangements**
  As
        of
        November 30, 2005, we did not have any significant off-balance-sheet
        arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation
        S-K.
  **CRITICAL
        ACCOUNTING POLICIES**
  Management
        strives to report the financial results of the company in a clear and
        understandable manner, even though in some cases accounting and disclosure
        rules
        are complex and require us to use technical terminology. In preparing our
        consolidated financial statements, we follow accounting principles generally
        accepted in the United States. These principles require us to make certain
        estimates and apply judgments that affect our financial position and results
        of
        operations as reflected in our financial statements. These judgments and
        estimates are based on past events and expectations of future outcomes. Actual
        results may differ from our estimates.
  Management
        continually reviews its accounting policies, how they are applied and how
        they
        are reported and disclosed in our financial statements. Following is a summary
        of our more significant accounting policies and how they are applied in the
        preparation of the financial statements.
  **Impairment
        Assessment**
  Statement
        of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other
        Intangible Assets” requires that goodwill and intangible assets be tested for
        impairment at the reporting unit level (operating segment or one level below
        an
        operating segment) on an annual basis and between annual tests in certain
        circumstances. The carrying amount of an intangible asset is not recoverable
        if
        it exceeds the sum of the undiscounted cash flows expected to result from
        the
        use and eventual disposition of the asset. That assessment shall be based
        on the
        carrying amount of the asset at the date it is tested for
        recoverability.
  The
        company performed, with the assistance of independent valuation experts,
        an
        impairment test of the carrying value of intangible assets  for
        the
        year ended August 31, 2005. Eagle has intangible assets related to goodwill,
        contracts, customers and subscribers. For the year ended August 31, 2005,
        the
        company determined there had been significant erosion of contracts, customers
        and subscribers primarily attributable to the BDS assets acquired in the
        January
        2001 merger of Clearworks.net, Inc.
  The
        company evaluated and considered two separate methodologies in conducting
        the
        analysis and selected the approach assigning the greater value realized from
        the
        present value technique or the quoted market approach. The following factors
        were considered (i) current market conditions, (ii) the company’s current
        and future financial performance, (iii) intrinsic risks evident in the markets
        in which the company operates and (iv) the underlying nature of Eagle’s
        operations and business.
  Utilizing
        a fair value standard as set forth in SFAS 142, as of August 31, 2005,
        management determined an impairment charge of $23,912,668 existed for the
        intangible assets of contract rights, customer relationships and other
        intangible assets primarily attributable to the BDS assets acquired in the
        January 2001 merger of Clearworks.net, Inc.
  Eagle
        assessed the fair value of goodwill as of August 31, 2005 and concluded that
        the
        goodwill valuations remain at an amount greater than the current carrying
        asset
        value. Eagle assessed the fair value of the intangible assets as of August
        31,
        2004 and concluded that the goodwill and other intangible assets valuations
        remain at an amount greater than the current carrying and other intangible
        assets value.
  -22-
  For
        the
        quarter ending November 30, 2005, management has determined there are no
        changes
        in circumstances since the fiscal year ended August 31, 2005 to indicate
        testing
        for impairment at the reporting unit level (operating segment or one level
        below
        an operating segment) is required.
  **Impairment
        of Long-Lived Assets**
  Statement
        of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the
        Impairment or Disposal of Long-Lived Assets” requires that long-lived assets
        (asset groups) shall be tested for recoverability whenever events or change
        in
        circumstances indicate that its carrying amount may not be recoverable. The
        company’s market capitalization as of year ending August 31, 2005 was below its
        shareholder equity which indicated the need to test for recoverability. The
        company performed, with the assistance of independent valuation experts,
        tests
        to determine if an impairment loss existed for the year ended August 31,
        2005.
        For purposes of recognition and measurement of an impairment loss, a long-lived
        asset is grouped with other assets at the lowest level for which identifiable
        cash flows are largely independent of the cash flows of other
        assets.
  These
        tests took into consideration a number of factors including (i) current market
        conditions, (ii) the company’s current and future financial performance, (iii)
        intrinsic risks evident in the markets in which the company operates and
        (iv)
        the underlying nature of Eagle’s operations and business. Utilizing a fair value
        standard as set forth in SFAS 144 as of August 31, 2005, management determined
        an impairment of $3,229,405 existed for certain Houston-area communities
        where
        broadband infrastructure had been installed.
  During
        the second quarter of 2005, the company also determined an impairment loss
        existed primarily for Link-Two Communications, Inc. assets. Management
        determined that the value of the assets was nominal after a review of the
        marketplace and recorded an impairment loss of $1,050,000. During the fourth
        quarter of 2005, the company had an additional impairment charge of $322,792
        on
        assets held for sale.
  For
        the
        quarter ending November 30, 2005, management has determined there are no
        changes
        in circumstances or events that have occurred subsequent to the fiscal year
        ended August 31, 2005 to indicate testing for recoverability was
        required.
  **Revenue
        Recognition**
  The
        company designs, manufactures, markets and services its products and services
        under the Eagle Broadband, Inc., Eagle Broadband Services, Inc., D.S.S.
        Security, Inc. and EBI Funding Corporation, names.
  Eagle
        adopted EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” in the
        fourth quarter of fiscal 2003. The impact of adopting EITF 00-21 did not
        have a
        material effect to Eagle’s results of operations. Eagle’s contracts that contain
        multiple elements as of August 31, 2004, or prior were immaterial. When elements
        such as hardware, software and consulting services are contained in a single
        arrangement, or in related arrangements with the same customer, Eagle allocates
        revenue to each element based on its relative fair value, provided that such
        element meets the criteria for treatment as a separate unit of accounting.
        The
        price charged when the element is sold separately generally determines fair
        value. In the absence of fair value for a delivered element, Eagle allocates
        revenue first to the fair value of the undelivered elements and allocates
        the
        residual revenue to the delivered elements. In the absence of fair value
        for an
        undelivered element, the arrangement is accounted for as a single unit of
        accounting, resulting in a delay of revenue recognition for the delivered
        elements until the undelivered elements are fulfilled. Eagle limits the amount
        of revenue recognition for delivered elements to the amount that is not
        contingent on the future delivery of products or services or subject to
        customer-specified return or refund privileges.
  **Deferred
        Revenues**
  Revenues
        that are billed in advance of services being completed are deferred until
        the
        conclusion of the period of the service for which the advance billing relates.
        Deferred revenues are included on the balance sheet as a current liability
        until
        the service is performed and then recognized in the period in which the service
        is completed. Eagle’s deferred revenues historically have consisted primarily of
        billings in advance for cable, Internet, security and telephone services,
        which
        generally are for between one and three months of services. The company has
        deferred revenue from the sale of security monitoring contracts, both purchased
        and owned until the contract provisions are fulfilled. The company has a
        twelve-month holdback provision for security contracts sold to a major customer
        during fiscal 2005. Eagle had deferred revenues of $511,000 as of November
        30,
        2005, which of this total, $411,608 is deferred for security contracts sold
        to a
        major customer. As of August 31, 2005, the company had deferred revenues
        of
        $623,000.
  -23-
  **Eagle
        Broadband, Inc.**
  Eagle
        designs, manufactures and markets various hardware, software and systems,
        along
        with other equipment used in the delivery of broadband, video entertainment
        and
        communications services. Revenues from these products are recognized when
        the
        product is shipped. Eagle Broadband Inc.’s international product revenues are
        reported under the category “Products” on Eagle’s Consolidated Statements of
        Operations included as page F-3 of this report and also under the category
        “Eagle” within Note 15-Industry Segments.
  The
        company designs, manufactures and markets a complete line of MediaPro IP
        set-top
        boxes. Eagle recognizes revenue when set-top boxes are shipped to the customer.
        The company’s set-top box revenues are reported under the category “Products” on
        Eagle’s Consolidated Statements of Operations included as page F-3 of this
        report and also under the category “Eagle” within Note 15-Industry Segments.
        Revenue from software consists of software licensing. There is no post-contract
        customer support. Software revenue is allocated to the license using vendor
        specific objective evidence of fair value (“VSOE”) or, in the absence of VSOE,
        the residual method. The price charged when the element is sold separately
        generally determines VSOE. In the absence of VSOE of a delivered element,
        the
        company allocates revenue to the fair value of the undelivered elements and
        the
        residual revenue to the delivered elements. Eagle recognizes revenue allocated
        to software licenses at the inception of the license.
  The
        company engages independent agents, resellers and distributors for sales
        principally in foreign countries and certain geographic regions in the United
        States. Under the terms of these agreements, these third parties provide
        the
        company with sales leads. The transactions from these third parties are subject
        to Eagle’s approval prior to sale. In certain circumstances, the sales agent or
        reseller/distributor receives commissions based on the amount of the sales
        invoice from the companies to the customer. The sale is recognized at the
        time
        of shipment to the customer. These transactions are not a significant portion
        of
        total sales in any of the periods presented. Eagle’s Broadband, Inc., revenues
        are reported under the category “Products” on the company’s Consolidated
        Statements of Operations included as page F-3 of this report and also under
        the
        category “Eagle” within Note 15-Industry Segments.
  The
        company sells and installs structured wiring and related customer premise
        equipment in residential customers’ homes. This company recognizes revenue and
        the related costs at the time the services are performed. Revenue is derived
        from the billing of structured wiring to homes and the sale of customer premise
        equipment to the homebuyers. For consistency with prior period reporting,
        Eagle’s residential structured wiring revenues are reported under the category
        “Structured Wiring” on Eagle’s Consolidated Statements of Operations included as
        page F-3 of this report and also under the category “APC/HSI” within Note
        15-Industry Segments.
  **Eagle
        Broadband Services, Inc. (BDS)**
  Eagle
        Broadband Services, Inc. provides broadband bundled digital services to business
        and residential customers, primarily in the Texas market. Revenue is derived
        from fees charged for the delivery of bundled digital services, which can
        include telephone, long distance, Internet, security monitoring and cable
        services. This subsidiary recognizes revenue and the related costs at the
        time
        the services are rendered. Installation fees are recognized upon completion
        and
        acceptance. The revenues are reported under the category “Broadband Services” on
        the company’s Consolidated Statements of Operations included as page F-3 of this
        report and also under the category “EBS/DSS” within Note 15-Industry
        Segments.
  Eagle
        Broadband Services, Inc. provides project planning, installation, project
        management, testing and documentation of fiber and cable to commercial and
        industrial clients throughout the United States. The revenue from the fiber
        and
        cable installation and services is recognized upon percentage of completion
        of
        the project. Most projects are completed in less than one month, therefore,
        matching revenue and expense in the period incurred. Service, training and
        extended warranty contract revenues are recognized as services are completed.
        For consistency with prior period reporting, Eagle’s communications services
        revenues are reported under the category “Structured Wiring” on Eagle’s
        Consolidated Statements of Operations included as page F-3 of this report
        and
        also under the category “APC/HSI” within Note 15-Industry Segments.
  Eagle
        Broadband Services, Inc. provides business-to-business hardware and software
        network solutions and network monitoring services. The revenue from the hardware
        and software sales is recognized at the time of shipment. The monitoring
        services recognition policy is to record revenue on completion. For consistency
        with prior period reporting, Eagle’s technology services product revenues are
        reported under the category “Products” while the services components are
        reported under the category “Other” on Eagle’s Consolidated Statements of
        Operations included as page F-3 of this report and also under the category
“UCG”
within Note 15-Industry Segments.
  **D.S.S.
        Security, Inc. (d/b/a Eagle Broadband Security)**
  D.S.S.
        Security, Inc. provides security monitoring services to residential and
        commercial customers, purchases, bundles and resells contracts from its own
        portfolio to independent third-party companies. Security monitoring customers
        are billed three months in advance of service usage. The revenues are deferred
        at the time of billing and ratably recognized over the prepayment period
        as
        service is provided. Installation fees are recognized upon completion and
        acceptance. Revenues from the sale of security monitoring contracts, both
        purchased and owned, are recognized upon contract execution except for reserves,
        hold backs or retentions, which are deferred until the contract provisions
        are
        fulfilled. Eagle’s security services revenues are reported under the category
“Broadband Services” on Eagle’s Consolidated Statements of Operations included
        as page F-3 of this report and also under the category “EBS/DSS” within Note
        15-Industry Segments.
  -24-
  **Receivables**
  For
        the
        quarter ended November 30, 2005, Eagle accounts receivable increased to
        $2,258,000 from $1,890,000 at August 31, 2005. The majority of this increase
        was
        due to the sale of set-top boxes to a major customer at the end of November
        in
        the amount of $236,000 which was collected subsequent to the end of the
        quarter.
  The
        company’s accounts receivable aging, as measured by days sales outstanding
        (DSO), totaled 53 days at November 30, 2005, and 47 days at August 31, 2005,
        on
        an adjusted basis after recording the write-offs and reserves. The increase
        in
        DSO from 47 days at August 31, 2005, to 53 days at November 30, 2005, was
        primarily attributable to several slow paying customers.
  **Allowance
        for Doubtful Accounts**
  The
        company’s allowance for doubtful accounts totaled $154,000 and $2,688,000 for
        the three months ended November 30, 2005 and the year ended August 31, 2005,
        respectively. These allowances for doubtful accounts amounts represented
        6% and
        59% of the gross accounts receivable balances for the quarter ended November
        30,
        2005 and the year ended August 31, 2005. They represented 36% and 82% of
        the
        company’s greater than 90-day accounts for the quarter ended November 30, 2005,
        and the year August 31, 2005. The decrease in the allowance for doubtful
        accounts from August 31, 2005 to November 30, 2005, was attributable to (i)
        the
        collection of a receivable previously included in the allowance and (ii)
        the
        direct write off of a receivable previously deemed uncollectible in a prior
        year.
  The
        company reviews its accounts receivable balances by customer for accounts
        greater than 90 days old and makes a determination regarding the collectibility
        of the accounts based on specific circumstances and the payment history that
        exists with such customers. The company also takes into account its prior
        experience, the customer’s ability to pay and an assessment of the current
        economic conditions in determining the net realizable value of its receivables.
        The company also reviews its allowances for doubtful accounts in aggregate
        for
        adequacy following this assessment. Accordingly, the company believes that
        its
        allowances for doubtful accounts fairly represent the underlying collectibility
        risks associated with its accounts receivable.
  Earnings
        are charged with a provision for doubtful accounts based on collection
        experience and current review of the collectibility of accounts receivable.
        Accounts receivables deemed uncollectible are charged against the allowance
        for
        doubtful accounts.
  **Inventory**
  Inventories
        are valued at the lower of cost or market. The cost is determined by using
        the
        first-in first-out method. At November 30, 2005, Eagle’s inventory totaled
        $707,000 as compared to $802,000 at August 31, 2005. The majority of this
        decrease is for a sale that occurred during the quarter. At the end of fiscal
        2004, management incorporated “just in time” inventory practices to avoid
        inventory obsolesce. The company continues to outsource production as needed
        based on contract orders from customers.
  **Recent
        Accounting Pronouncements**
  In
        April
        2004, the Emerging Issues Task Force (“EITF”) issued Statement No. 03-06
“Participating Securities and the Two-Class Method Under FASB Statement No.
        128,
        Earnings Per Share” (“EITF 03-06”). EITF 03-06 addresses a number of questions
        regarding the computation of earnings per share by companies that have issued
        securities other than common stock that contractually entitle the holder
        to
        participate in dividends and earnings of the company when, and if, it declares
        dividends on its common stock. The issue also provides further guidance in
        applying the two-class method of calculating earnings per share, clarifying
        what
        constitutes a participating security and how to apply the two-class method
        of
        computing earnings per share once it is determined that a security is
        participating, including how to allocate undistributed earnings to such a
        security. EITF 03-06 became effective during the quarter ended June 30, 2004,
        the adoption of which did not have an impact on the calculation of earnings
        per
        share of the company.
  In
        July
        2004, the EITF issued a draft abstract for EITF Issue No. 04-08, “The Effect of
        Contingently Convertible Debt on Diluted Earnings per Share” (“EITF 04-08”).
        EITF 04-08 reflects the Task Force’s tentative conclusion that contingently
        convertible debt should be included in diluted earnings per share computations
        regardless of whether the market price trigger has been met. If adopted,
        the
        consensus reached by the Task Force in this Issue will be effective for
        reporting periods ending after December 15, 2004. Prior period earnings per
        share amounts presented for comparative purposes would be required to be
        restated to conform to this consensus and the company would be required to
        include the shares issuable upon the conversion of the Notes in the diluted
        earnings per share computation for all periods during which the Notes are
        outstanding. Currently, there would be no effect of this proposed statement
        on
        our financial position and results of operations.
  -25-
  In
        September 2004, the EITF delayed the effective date for the recognition and
        measurement guidance previously discussed under EITF Issue No. 03-01, “The
        Meaning of Other-Than-Temporary Impairment and Its Application to Certain
        Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed
        statement. The proposed statement will clarify the meaning of
        other-than-temporary impairment and its application to investments in debt
        and
        equity securities, in particular investments within the scope of FASB Statement
        No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
        investments accounted for under the cost method. Currently, there would be
        no
        effect of this proposed statement on its financial position and results of
        operations.
  In
        December 2004, the FASB issued a revision to SFAS 123 (also known as SFAS
        123R)
        that amends existing accounting pronouncements for share-based payment
        transactions in which an enterprise receives employee and certain non-employee
        services in exchange for (a) equity instruments of the enterprise or (b)
        liabilities that are based on the fair value of the enterprise’s equity
        instruments or that may be settled by the issuance of such equity instruments.
        SFAS 123R eliminates the ability to account for share-based compensation
        transactions using APB 25 and generally requires such transactions be accounted
        for using a fair-value-based method. SFAS 123R’s effective date would be
        applicable for awards that are granted, modified, become vested, or settled
        in
        cash in interim or annual periods beginning after December 15, 2005. SFAS
        123R
        includes two transition methods: the modified prospective method or the modified
        retrospective method. The company adopted SFAS 123R commencing in the first
        quarter of the fiscal year ending August 31, 2006. The Company adopted the
        modified prospective method on September 1, 2005. In accordance with the
        “modified prospective” method, compensation cost is recognized beginning with
        the effective date (a) based on the requirements of SFAS 123R for all
        share-based payments granted after the effective date and (b) based on the
        requirements of SFAS 123 for all awards granted to employees prior to the
        effective date of SFAS 123R that remain unvested on the effective date. The
        company does not anticipate that adoption of SFAS 123R will have a material
        impact on its results of operations or its financial position.
  **Item
        4.****Controls
        and Procedures.**
  The
        company’s Chief Executive Officer and Principal Accounting Officer have
        evaluated the effectiveness of the company’s disclosure controls and procedures
        (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as
        of
        the end of November 30, 2005. Based on such evaluation, such officers have
        concluded that the company’s disclosure controls and procedures are
        effective.
  **Changes
        in Internal Controls**
  There
        has
        been no change in the company’s internal control over financial reporting
        identified in connection with our evaluation as of the end our first fiscal
        quarter ended November 30, 2005, that has materially affected, or is reasonably
        likely to materially affect, the company’s internal controls over financial
        reporting.
  **PART
        II-OTHER INFORMATION**
  **Item
        1.****Legal
        Proceedings.**
  In
        October 2005, the Company and Enron Corp. agreed to a
        dismissal of all adversary proceedings and claims against each other in the
        proceedings filed against the Company by Enron in September 2003. In November
        2005, the Bankruptcy Court entered orders confirming dismissal of such
        proceedings and claims.
  In
        October 2005, the Company filed a lawsuit in the Superior Court of California,
        Santa Clara County, Civil Action 1-05-CV-050179, against certain individuals
        whose identities are unknown, for unfair business practices and defamation.
        The
        Company believes these individuals have deliberately posted false and misleading
        information on the Yahoo! Finance message board for the purpose of injuring
        the
        Company in several ways including, but not limited to, deflating the price
        of
        the Company’s stock and reaping profits from their illegal activities. The
        Company is seeking to enjoin these individuals from continuing such conduct,
        in
        addition to the full measure of damages and other remedies permitted by
        law.
  In
        December 2005, the Company sued Neva Holdings, LLC (“Neva”) and other entities
        affiliated with Neva, Civil Action 05-CV-1525, in the United States District
        Court for the District of Nevada, for breach of the Termination Agreement
        entered into in August 2005 between the Company and Neva. The Company is
        seeking
        to recover payments in excess of $800,000 for hardware and equipment delivered
        and services rendered pursuant to the Termination Agreement, in addition
        to
        attorneys’ fees and pre- and post-judgment interest.
  -26-
  **Item
        4.****Submission
        of Matters to a Vote of Security Holders.**
  At
        the
        Company’s Annual Shareholders’ Meeting on October 18, 2005, the shareholders
        elected each of the director nominees, ratified the selection of our independent
        registered public accounting firm, approved the 2005 Employee Stock Option
        Plan,
        and approved the issuance of 14,875,000 shares of the Company’s common
        stock.
  Number
                  of Shares1.To
                  elect seven directors to the Board of Directors to serve until
                  the next
                  annual meeting of shareholders or until their respective successors
                  have
                  been elected or appointed
              
              Voted
                  For
              
              WithheldRobert
                  Bach
              
              227,198,797
              
              10,724,901H.
                  Dean Cubley
              
              215,420,639
              
              22,503,059Glenn
                  Goerke
              
              225,070,852
              
              12,852,846David
                  Micek
              
              227,409,459
              
              10,514,240Lorne
                  Persons
              
              225,130,454
              
              12,793,244C.
                  J. (Jim) Reinhartsen
              
              225,164,608
              
              12,759,090James
                  Yarbrough
              
              224,992,973
              
              12,930,725
 
 Number
                  of SharesVoted
                  For
              
              Voted
                  Against
              
              Abstain
              
              Broker
                  Non-
                Votes
                  (1)2.To
                  approve the 2005 Employee Stock Option Plan
              72,669,515
              
              23,481,777
              
              1,523,094
              
              140,249,3133.To
                  ratify selection of independent registered public accounting
                  firm
              229,326,271
              
              6,064,937
              
              2,532,491
              
              —4.To
                  approve the issuance of 14,875,000 shares of the Company’s common
                  stock
              66,326,529
              
              15,568,366
              
              1,813,468
              
              154,215,336
  (1)
              Pursuant
                  to Article 2.28(B) of the Texas Business Corporation Act, the affirmative
                  vote of the majority of the votes cast was required to pass each
                  of
                  Proposals 2 and 4. Significantly fewer shares voted on each of
                  Proposals 2
                  and 4 than voted on Proposal 1, the election of directors, and
                  Proposal 3,
                  the ratification of the selection of the Company’s independent registered
                  public accounting firm. “Broker non-votes” accounted for this difference
                  in voted shares. For certain types of “non-routine” proposals, such as
                  Proposals 2 and 4, brokers do not have the discretionary authority
                  to vote
                  their clients’ shares, and therefore they must refrain from voting on such
                  proposals in the absence of instructions from their
                  clients.
  **Item
        6.****Exhibits.**
  Exhibit
                  Number
              
              Description31.1
              
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.31.2
              
              Certification
                  of Principal Accounting Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Certification
                  of Chief Executive Officer and Principal Accounting Officer pursuant
                  to
                  Section 906 of the Sarbanes-Oxley Act of
                  2002.
 
 -27-
  **SIGNATURES**
   Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  EAGLE
                  BROADBAND, INC.(Registrant)By:
                  /s/ DAVID MICEKDavid
                    Micek
                  President
                    and Chief Executive Officer
                  Date:
                      January 9, 2005By:
                  /s/ JULIET MARKOVICHJuliet
                    Markovich
                  Corporate
                    Controller and Principal Accounting Officer
                  Date:
                      January 9, 2005
  -28-