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

AMENDMENT No. 2 to
FORM 10-K/A
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[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934

For the fiscal year ended August 31, 2003

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

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

Commission file number: 000-23163

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

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

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

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

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

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

Yes [X] No [ ]

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the common stock on the American Stock
Exchange on February 28, 2003, was $15,341,000. As of March 18, 2004, registrant
had 191,238,584 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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

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

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

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

PART I

Item 1. Description of Business

Overview

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

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

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

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

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

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

Product and Service Categories

Eagle BDS Services

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

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

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

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

Eagle Security Services

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

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

Eagle Satellite-Based Voice and Data Communications Services

The Orb'Phone Exchange

The Orb'Phone Exchange represents innovative and proprietary
non-line-of-sight communications technology that enables users of the Iridium(R)
satellite network to quickly and easily establish highly reliable voice and data
communications to and from any location where the user is unable to gain line of
sight to an orbiting Iridium Satellite such as onboard in-flight aircraft,
within buildings, under ground or from obstructed areas. The technology enables
truly global communications that enhance user productivity, mobility, problem
solving, field-to-headquarters collaboration and emergency backup/response for a
wide range of mission-critical and everyday communications needs. By extending
coverage indoors to areas not traditionally served by satellite networks, the
Orb'Phone Exchange extends customers' usage area, while enhancing the utility
and overall value for both new and existing Iridium aviation, government,
military, homeland security and commercial/enterprise customers. The company has
received certification by both the Federal Communications Commission (FCC
Certification Identifier # LOKJHJLBT05A00021) and Iridium Satellite LLC for the
Orb' Phone Exchange.

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

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

Broadband Multimedia and Internet Products

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

Host Pro

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

Computer Plus

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

IP Express

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

Media Pro

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

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

EZMagic-HD

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

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

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

Eagle Communications Services

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

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

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

Eagle Technology Services

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

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

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

Eagle Consulting Services

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

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

Eagle Service and Support

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

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

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

Eagle Paging Services.

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

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

Eagle Messaging Services

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

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

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

Eagle Wireless International

Wireless Messaging Hardware

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

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

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

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

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

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

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

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

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

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

Switches

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

Radio Frequency Equipment, Transmitters and Receivers

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

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

Controllers

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

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

Base Stations and Transmitters

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

Radio Frequency Power Amplifiers

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

Extend-A-Page

Extend-a-Page is a compact lower-power transmitter and receiver set
designed to provide fill-in coverage in fringe locations where normal messaging
service from a wide-area messaging system is not adequate. The Extend-a-Page
receives the messaging data on either a radio frequency control link or wireline
link and converts this information into low power simulcast compatible messaging
transmissions on any of the common messaging frequencies. The Extend-a-Page
transmits the messaging information at a one to two Watt level directly into
hard to reach locations such as hospitals, underground structures, large
industrial plants, and many locations near the outer coverage contour of
messaging systems.

Link Products

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

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

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

Customers

Eagle sells to a broad range of customers.

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

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

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

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

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

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

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

Marketing and Sales

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

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

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

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

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

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

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

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

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

Research and Development

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

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

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

Manufacturing

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

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

Competition

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

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

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

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

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

Proprietary Information

Eagle attempts to protect its proprietary technology through a
combination of trade secrets, non-disclosure agreements, patent applications,
copyright filings, technical measures, and common law remedies with respect to
its proprietary technology. Eagle has not yet been issued any patents on its
products, technology or processes against such patent applications. This
protection may not preclude competitors from developing products with features
similar to Eagle's products. The laws of some foreign countries in which Eagle
sells or may sell its products do not protect Eagle's proprietary rights in the
products to the same extent as do the laws of the United States. Although Eagle
believes that its products and technology do not infringe on the proprietary
rights of others, there can be no assurance that third parties will not assert
infringement claims against Eagle in the future. If litigation resulted in
Eagle's inability to use technology, Eagle might be required to expend
substantial resources to develop alternative technology. There can be no
assurance that Eagle could successfully develop alternative technology on
commercially acceptable terms. Eagle has registered and trademarked the name of
BroadbandMagic for this wholly owned subsidiary. This name is thought by Eagle
to be a valuable addition to the intellectual property rights of Eagle.

Regulation

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

Employees

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

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

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

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

From inception through November 30, 2003, we have incurred an
accumulated deficit in the amount of $83,340,000. For the fiscal year ended
August 31, 2003 and the three months ended November 30, 2003, we incurred losses
from operations in the amount of $28,267,000 and $1,737,000, respectively. We
anticipate that we will incur losses from operations for the current fiscal
year. We will need to generate significant revenues and control expenses to
achieve profitability. Our future revenues may never exceed operating expenses,
thereby making the continued viability of our company dependent upon raising
additional capital.

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

We have not generated positive cash flow from operations during the last three
fiscal years and we currently rely on external sources of capital to fund
operations. For the last three fiscal years, we have suffered losses from
operations of approximately $73,011,000. At November 30, 2003, we had
approximately $7,550,000 in cash, cash equivalents and securities held for
resale, and a working capital deficit of approximately $3,342,000. At January
30, 2004, we had approximately $5,236,000 in cash, cash equivalents and
securities held for resale. Our net cash used by operations for the three month
period ended November 30, 2003 was approximately $490,000.

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

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

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

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

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

Cornell Capital Partners, LP. vs. Eagle Broadband. In July 2003, Cornell Capital
sued Eagle Broadband alleging breach of contract, fraud and negligent
misrepresentation. Cornell Capital has also alleged that Eagle has defaulted on
a convertible debenture for failing to timely register the shares of common
stock underlying the convertible debenture and is seeking to accelerate the
maturity date of the debenture. To date, we have not registered the resale of
the shares underlying Cornell Capital's convertible debenture and we are not
doing so hereby. As of November 30, 2003, the principal balance of the debenture
was repaid in full.

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

For the twelve months ended August 31, 2003 and the three months ended
November 30, 2003, approximately 24% and 65%, respectively, of our revenue was
generated by recurring-revenue contracts with Eagle Broadband Services and our
security monitoring contracts with DSS Security. Although to date we have not
experienced any significant interruptions or problems in our broadband or
security services, any defects or errors in our services or any failure to meet
customers' expectations could result in the cancellation of services, the refund
of customers' money, or the requirement that we provide additional services to a
client at no charge. Any of these events, could reduce the revenues or the
margins associated with this revenue segment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Item 2. Description of Property

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

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

Item 3. Legal Proceedings

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

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

On July 10, 2003, Eagle became a defendant in Cornell Capital Partners,
L.P. vs. Eagle Broadband, Inc., et al., Civil Action No. 03-1860 (KSH), In the
United States District Court for the District of New Jersey. The suit presents
claims for breach of contract, state and federal securities fraud and negligent
misrepresentation. Plaintiff has also alleged that Eagle has defaulted on a
convertible debenture for failing to timely register the shares of common stock
underlying the convertible debenture and is seeking to accelerate the maturity
date of the debenture. As of August 31, 2003, the principal balance of the
debenture was approximately $1.2 million. During the three month period ended
November 30, 2003, the principal balance of the debenture was repaid, although
the suit remains outstanding. The Company denies the claims and intends to
vigorously defend this lawsuit and the claims against it.

On December 14, 2000, ClearWorks became a defendant in State Of Florida
Department Of Environmental Protection vs. Reco Tricote, Inc. And Southeast Tire
Recycling, Inc. A/K/A Clearwork.net, Inc.; In The Circuit Court Of The Tenth
Judicial Circuit In And For Polk County, Florida. The Florida EPA sued
ClearWorks.net presenting claims for recovery costs and penalties for a waste
tire processing facility. The suit seeks recovery of costs and penalties in a
sum in excess of $1,000,000, attorneys' fees and cost of court. ClearWorks
denies the claims and intends to vigorously contest all claims in this case and
to enforce its indemnification rights against the principals of Southeast Tire
Recycling.

On September 26, 2003 Intratech served a lawsuit on ClearWorks.net in
Intratech Capital Partners, Ltd. vs. ClearWorks.net, Inc.; Case No. CF3 20136 in
the High Court of Justice, Queen's Bench Division, Cardiff District Registry.
This lawsuit presents claims for breach of contract for failing to pay the
plaintiff for financial advice and services allegedly rendered. The complaint
seeks damages of $6,796,245.50, plus attorneys' fees and costs. ClearWorks
denies the claims and intends to vigorously defend this lawsuit and claims
against it.

On or about September 2003, Enron sued United Computing Group, Inc. in
Enron Corp. (Debtors/Plaintiff) vs. United Computing Group, Inc.; Case No.
01-16034 in the United States Bankruptcy Court for the Southern District of New
York. The suit presents claims pursuant to sections 547 and 550 of the
Bankruptcy Code to avoid and recover a transfer in the amount of approximately
$1,500,000.00. Defendant has filed an answer, denies the claims and intends to
vigorously defend this lawsuit and claims against it.

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

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

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

None.

PART II

Item 5. Market for Common Equity and Related Shareholder Matters

Shares of Eagle common stock are listed on the American Stock Exchange
under the symbol "EAG." On March 18,, 2004, Eagle's common stock closed at $1.33
per share. Eagle is authorized to issue 350,000,000 shares of common stock,
191,238,584 of which were issued and outstanding at March 18, 2004. At March 18,
2004 there were approximately 1,077 holders of record of Eagle common stock.

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

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

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

Recent Sales of Unregistered Securities

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

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

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

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

Item 6. Selected Financial Data

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

Year Ended August 31,
-----------------------
($ in thousands) 2003 2002 2001 2000 1999
------------- ------------ ------------ ------------- -------------

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

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

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

As of August 31,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
------------- ------------ ------------ ------------ -------------
Balance Sheet Data:
Total assets $121,006 $129,983 $170,667 $57,641 $10,320
Long-term debt --- $1,272 $2,136 $73 $12
Total stockholders' equity $101,976 $117,380 $149,128 $54,061 $8,894

Item 7. Management's Discussion and Analysis

Overview

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

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

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

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

-- Accounts receivable write-off's and reserves aggregating
$2,177,000; of which $1,348,000 was attributable to the decisions
affecting the Company's Atlantic Pacific / Home Systems
operations, $15,000 was attributable to the decisions affecting
its United Computing Group operations and $814,000 was
attributable to the Company's Eagle, EBS and Other segment
operations.
-- Inventory impairment charges of $2,627,000; of which $501,000 was
attributable to the decisions affecting the Company's Atlantic
Pacific / Home Systems operations and $74,000 attributable to the
decisions affecting its United Computing Group operations.
Additionally, the Company recorded an impairment charge of
$1,125,000 for slow-moving and obsolete inventory in its Eagle
operations. This charge primarily resulted from a major client's
decision to upgrade from a 400 MHz chip to a 500 MHz chip for the
Company's convergent set top box.
-- Litigation settlement costs and reserves of $3,650,000 against
certain of the legal proceedings previously discussed in Item 3.
Legal Proceedings. Additionally, the Company recorded charges
aggregating $2,274,000 to settle threatened and existing legal
proceeding associated with prior financing transactions,
including the Kaufman litigation.
-- Lease settlement costs and reserves of $171,000 were attributable
to the decision to consolidate various operating segments into
its corporate lease space; thereby resulting in reserves for
early exit of such leases.
-- Impairment, write-down's and restructuring costs aggregating
$7,611,000; of which $1,878,000 was attributable to an impairment
of goodwill in the Company's Atlantic Pacific operations
following the Company's decision to no longer pursue commercial
cabling opportunities on a direct basis versus an outsource
model. These costs were also comprised of $3,412,000 in
impairment of property and equipment following the Company's
decision to withdraw from certain unprofitable BDS projects,
namely in the Austin area, and $323,000 of impairment of property
and equipment from the Company's Atlantic Pacific / Home Systems
operations following the decision to no longer pursue structured
wiring opportunities on a direct standalone basis outside of its
BDS model. Additionally, the aggregate total included a $553,000
charge for certain sales tax liabilities that resulted from an
audit of the Company's United Computing Group operations for time
periods that preceded the acquisition date of this operation.

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

The reductions implemented will impact salaries and benefits, rents,
travel, and other support expenses on an annualized basis. The Company's
anticipates $7,822,000 annualized cost savings results from reducing its
personnel from a headcount of 228 at August 31, 2002 to 114 at August 31, 2003
and then further to 73 by November 30, 2003, thereby producing annualized
savings of $7,822,000 as reported under the Company's operating expenses line
item "Salaries and Related Costs", "Direct Labor and Related Costs" contained in
Cost of Goods Sold and personnel and consulting costs reported under operating
expenses line item "Other Support Costs".

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

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

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

CRITICAL ACCOUNTING POLICIES

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

Impairment of Long-Lived Assets and Goodwill

Background:

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

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

Strategy Change:

Given the obstacles discussed immediately above and Eagle's enhancement
to the digital-based fiber-to the-home system, Eagle's board of directors and
management began reassessing it long-term strategy in early 2003 and made a
strategic decision to focus its fiber-to-the-home activities on being a service
and content provider to developers and municipalities who were financing and
building out their own fiber infrastructures. In fiscal 2003, Eagle realized it
had failed to successfully achieve profits using the ClearWorks model of
installing fiber optic cable to neighborhoods under the speculative attempt to
capture enough individual homeowners in each neighborhood via individual selling
methods to pay for the cable infrastructure. In early 2003, Eagle modified its
strategy to deliver the ClearWorks developed bundled digital services approach
including Internet, telephone, cable television and security monitoring services
to residential and business users by targeting municipalities, homebuilders and
residential real estate developers that finance and install the fiber optic
cable backbone in every lot and offer Eagle exclusive rights to deliver digital
bundled services to homeowners, using pre-selling promotions and other low cost
mass marketing techniques. In October 2003, Eagle hired a new Chief Executive
Officer with an extensive sales and marketing background and proven senior
management and operational skills leading high-growth technology companies to
implement its modified strategy. As of December 5, 2003, the date of the
auditor's report, Eagle had realized several initial successes in projects where
the municipalities, public utility districts and developers assume the
predominate capital cost responsibility and contract with Eagle to provide the
services and content; thereby significantly limiting the Company's capital
outlays on such projects.

Eagle's strategy change had the distinct advantage of minimizing the
front end capital outlays while improving the time to profitability on such
projects. Most importantly, this change in strategy allows Eagle to market its
services to an existing customer base without investing significant capital. The
bundled digital services provided to the customers under the new developer and
municipal financed model are essentially identical to those previously provided
under the ClearWorks.net model. Though the Company has realized several initial
successes since implementing this strategy change, there can be no assurances
that we will be successful in the future. In the event that the Company fails to
achieve sales sufficient to recover the carrying value of these assets, we would
be required to record a significant charge to earnings in our financial
statements during the period in which any impairment of our goodwill is
determined. At August 31, 2003, our goodwill was $76.3 million.

Impairment Assessment:

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

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

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

Revenue Recognition

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

Eagle adopted EITF 00-21, "Revenue Arrangements with Multiple
Deliverables," in the fourth quarter of fiscal 2003. The impact of adopting EITF
00-21 had no affect to Eagle's results of operations as Eagle did not have any
contracts that have multiple elements as of January 2004 or prior. When elements
such as hardware, software and consulting services are contained in a single
arrangement, or in related arrangements with the same customer, Eagle allocates
revenue to each element based on its relative fair value, provided that such
element meets the criteria for treatment as a separate unit of accounting. The
price charged when the element is sold separately generally determines fair
value. In the absence of fair value for a delivered element, Eagle allocates
revenue first to the fair value of the undelivered elements and allocates the
residual revenue to the delivered elements. In the absence of fair value for an
undelivered element, the arrangement is accounted for as a single unit of
accounting, resulting in a delay of revenue recognition for the delivered
elements until the undelivered elements are fulfilled. Eagle limits the amount
of revenue recognition for delivered elements to the amount that is not
contingent on the future delivery of products or services or subject to
customer-specified return or refund privileges.

Deferred Revenues

Revenues that are billed in advance of services being completed are
deferred until the conclusion of the period of the service for which the advance
billing relates. Deferred revenues are included on the balance sheet as a
current liability under the heading Accrued Expenses until the service is
performed and then recognized in the period in which the service is completed.
Eagle's deferred revenues primarily consist of billings in advance for cable,
internet, security and telephone services, which generally are between one and
three months of services. Eagle had deferred revenues of $230,397 and $147,696
as of August 31, 2003 and 2002, respectively.

Eagle Wireless International, Inc.

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

BroadbandMagic

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

Eagle Broadband, Inc.

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

Eagle BDS Services - dba ClearWorks Communications, Inc.

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

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

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

Eagle Communication Services - dba Atlantic Pacific Communications, Inc.

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

Etoolz, Inc.

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

Eagle Messaging Services - dba Link Two Communications, Inc.

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

Eagle Paging Services - dba Contact Wireless, Inc.

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

Eagle Security Services - dba DSS Security, Inc.

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

Eagle Technology Services - dba United Computing Group, Inc.

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

Receivables

For the year ended August 31, 2003, Eagle accounts receivables
decreased to $1,704,000 from $5,028,000 at August 31, 2002. The majority of this
decrease was due to the decline in lower margin commodity computer product and
structured cabling revenues compared to the prior year combined with the write
down of $2,177,000 in accounts receivable for allowance for doubtful accounts
associated with realigned and impaired operations and the sale of a net of
$243,650 in accounts receivable to Southwest Bank of Texas in conjunction with a
purchase and sale agreement entered into by Eagle's subsidiaries, United
Computing Group, Inc. and Atlantic Pacific Communications, Inc. Accounts
receivable write-off's and reserves aggregated $2,177,000; of which $1,348,000
was attributable to the decisions affecting the Company's Atlantic Pacific /
Home Systems operations, $15,000 was attributable to the decisions affecting its
United Computing Group operations and $814,000 was attributable to the Company's
Eagle, EBS and Other segment operations.

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

Eagle maintains allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments or other
customer disputes that Eagle's management determines might lead to impairment.
If the conditions of our customers or distribution partners were to deteriorate
or otherwise should our business strategy changes have a material impact on such
relationships, resulting in a potential impairment of their ability or decision
to make required payments, we examine our provisions for doubtful accounts and
record for such estimate losses. Earnings are charged with a provision for
doubtful accounts based on collection experience and current review of the
collectibility of accounts receivable. Accounts receivables deemed uncollectible
are charged against the allowance for doubtful accounts.

Inventory

Inventories are valued at the lower of cost or market. The cost is
determined by using the first-in first-out method. At August 31, 2003, Eagle's
inventory totaled $3,199,000 as compared to $6,059,000 at August 31, 2002. The
majority of this decrease was due to a decrease in raw materials inventory
resulting from reserves, write-downs and allowances of $2,627,000 for realigned
and impaired commodity related product lines. Inventory impairment charges
totaled $2,627,000; of which $501,000 was attributable to the decisions
affecting the Company's Atlantic Pacific / Home Systems operations and $74,000
attributable to the decisions affecting its United Computing Group operations.
Additionally, the Company recorded an impairment charge of $1,125,000 for
slow-moving and obsolete inventory in its Eagle operations. This charge
primarily resulted from a major client's decision to upgrade from a 400 MHz chip
to a 500 MHz chip for the Company's convergent set top box.

Recent Accounting Pronouncements

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

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

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

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

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

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

Results of Operations

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

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

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

Eagle's Structured Wiring cost of goods sold decreased to $1,774,000
from $2,121,000 for the period ending August 31, 2003 and 2002, respectively on
corresponding revenues for these same periods of $3,692,000 and $8,036,000;
thereby resulting in a gross margin decline to $1,918,000 from $5,915,000 for
the same periods. This gross margin decline is primarily attributable to the
company's decision to no longer pursue the direct sales of commercial structured
wiring and inventory write-downs totaling $0.5 million.

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

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

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

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

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

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

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

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

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

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

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

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

The Company also anticipates that it will generate annualized cost
savings aggregating $7,822,000 from staffing reductions and related operating
expense reductions discussed in the Company's plans in Note 24 to the
Consolidated Financial Statements, (Subsequent Events). The Company anticipates
$7,822,000 annualized cost savings results from reducing its personnel from a
headcount of 228 at August 31, 2002 to 114 at August 31, 2003 and then further
to 73 by November 30, 2003, thereby producing annualized savings of $7,822,000
as reported under the Company's operating expenses line item "Salaries and
Related Costs", "Direct Labor and Related Costs" contained in Cost of Goods Sold
and personnel and consulting costs reported under operating expenses line item
"Other Support Costs"

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

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

Contractual Obligations

Contractual obligations Payments due by period
Total Less than 1-3 3-5 More than 5
1 year years years years

Long-Term Debt 5,779 5,779 --- --- ---
Obligations
Operating Lease 695 521 174 --- ---
Obligations
Total 6,474 6,300 174 --- ---

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

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

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

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

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

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

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

Operating Expenses. For the year ended August 31, 2002, operating
expenses increased to $43,635,000 from $15,924,000 for the year ended August 31,
2001. The primary portions of the increase are discussed below:
27

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

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

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

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

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

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate and Equity Market Risks

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

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

Credit Risks

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

International Business Risk

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

Item 8. Consolidated Financial Statements

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

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

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

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

PART III

Item 10. Directors and Executive Officers of the Registrant

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

EXECUTIVE OFFICERS

Our executive officers are as follows:

Name Age Office Held

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

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

DR. H. DEAN CUBLEY. Dr. Cubley, age 62, has served as chairman of the
board since March 1996, as chief executive officer from March 1996 to October
2003, and as president from March 1996 until September 2001.

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

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

Item 11. Executive Compensation

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

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

Equity Compensation Plan Information

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

Number of Securities
Remaining Available for
Number of Securities Weighted Average Future Issuance Under
To be Issued Upon Exercise Price of Equity Compensation
Exercise of Outstanding Outstanding Plans (Excluding
Options, Warrants and Options, Securities
Rights Warrants and Rights Reflected in Column A)
Plan Category (A) (B) (C)
---------------------------------------------------------------------------------------------------------------------------------

Equity Compensation Plans
Approved by Security Holders 406,131 $1.27 551,370
Equity Compensation Plans Not
Approved by Security Holders(1) 5,991,667 $1.47 0
----------------------------- -------------------- ---------------------------
6,397,798 $1.45 551,370
Total

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

Item 13. Certain Relationships and Related Transactions

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

Item 14. Principal Accounting Fees and Services

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

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

(a) Financial Statements and Schedules:

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

(b) Reports on Form 8-K

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

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

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

EXHIBIT NO. IDENTIFICATION OF EXHIBIT

Exhibit 3.1(a) Eagle Broadband, Inc. Articles of Incorporation, as Amended
and Restated, dated February 13, 2002.
Exhibit 3.1(b) Eagle Broadband, Inc. Articles of Incorporation, as Amended,
dated February 17, 2004.
Exhibit 3.2 Amended and Restated Eagle Broadband, Inc. Bylaws
(Incorporated by reference to Exhibit 3.2 of Form 10-KSB for
the fiscal year ended August 31, 2001, filed November 16,
2001)
Exhibit 4.1 Form of Common Stock Certificate (incorporated by reference
to Exhibit 4 of Form S-3, file no. 333-111160).
Exhibit 4.2 Purchase Agreement by and between Eagle Broadband and
Investors dated August 23, 2003, including registration
rights and security agreement attached as an exhibit thereto
(incorporated by reference to Exhibit 10.1 of Form S-3 file
no. 333-109481)
Exhibit 4.3 Q-Series Bond Agreement (incorporated by reference to
Exhibit 10.3 of Form S-3, file no. 333-106074)
Exhibit 4.4 Addendum to Q-Series Bond Agreement (incorporated by
reference to Exhibit 10.4 of Form S-3, file no. 333-106074)
Exhibit 4.5 Form of Subscription Agreement for Q Series Bond, between
Eagle Broadband and certain investors (incorporated by
reference to Exhibit 10.5 of Form S-3, file no. 333-106074)
Exhibit 10.1 Asset Purchase Agreement between Eagle Telecom
International, Inc., a Delaware corporation and Eagle
Telecom International, Inc., a Texas corporation
(incorporated by reference to Exhibit 10.1 of Form SB-2 file
no. 333-20011)
Exhibit 10.2 1996 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.1 of Form S-8 file no. 333-72645)
Exhibit 10.3 2002 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 of Form S-8 file no. 333-97901)
Exhibit 10.4 2002 Stock Incentive Plan, as Amended (incorporated by
reference to Exhibit 10.1 of Form S-8 file no. 333-102506)
Exhibit 10.5 2003 Stock Incentive and Compensation Plan (incorporated by
reference to Exhibit 10.1 of Form S-8 file no. 333-103829)
Exhibit 10.6 2003 Stock Incentive and Compensation Plan, as Amended
(incorporated by reference to Exhibit 10.1 of Form S-8 file
no. 333-105074)
Exhibit 10.7 2003 Stock Incentive and Compensation Plan, as Amended
(incorporated by reference to Exhibit 10.1 of Form S-8 file
no. 333-109339)
Exhibit 10.8 2004 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 of Form S-8 file no. 333-110309)
Exhibit 10.9 Agreement and Plan of Reorganization by and between Eagle
Wireless International, Inc. Clearworks.net, Inc., and Eagle
Acquisition Corporation dated September 15, 2000
(incorporated by reference to Exhibit 10.1 of Form S-4 file
no. 333-49688)
Exhibit 10.10 Stock Purchase Agreement between Eagle Wireless
International, Inc. and the shareholders of Comtel
Communications, Inc. (incorporated by reference to Exhibit
10.4 of Form 10-KSB for the fiscal year ended August 31,
2000, filed December 13, 2000)

Exhibit 10.11 Stock Purchase Agreement between Eagle Wireless
International, Inc. and the shareholders of Atlantic Pacific
Communications, Inc. (incorporated by reference to Exhibit
10.5 of Form 10-KSB for the fiscal year ended August 31,
2000, filed December 13, 2000)
Exhibit 10.12 Stock Purchase Agreement between Eagle Wireless
International, Inc. and the shareholders of Etoolz, Inc.
(incorporated by reference to Exhibit 10.6 of Form 10-KSB
for the fiscal year ended August 31, 2000, filed December
13, 2000)
Exhibit 21.1 List of Subsidiaries (incorporated by reference to Exhibit
21.1 of Form S-4 file no. 333-49688)
Exhibit 23.1 Consent of McManus & Co., P.C
Exhibit 23.2 Consent of Malone & Bailey, PLLC
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

Eagle Broadband, Inc.

By: /S/David Weisman_________________
David Weisman,
Chief Executive Officer

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

Signature Title Date

/S/David Weisman Chief Executive Officer, Director March 30, 2003
- ----------------------- (Principal Executive Officer)
David Weisman

/S/Richard R. Royall Chief Financial Officer March 30, 2003
- ----------------------- (Principal Financial and
Richard R. Royall Accounting Officer)

/S/H. Dean Cubley Director, Chairman of the Board March 30, 2003
- -----------------------
H. Dean Cubley

/S/Christopher W. Futer Director March 30, 2003
- -----------------------
Christopher W. Futer

/S/A. L. Clifford Director March 30, 2003
- -----------------------
A. L. Clifford

/S/Glenn A. Goerke Director March 30, 2003
- -----------------------
Glenn A. Goerke

/S/Lorne E. Persons Director March 30, 2003
- -----------------------
Lorne E. Persons

/S/Jim Reinhartsen Director March 30, 2003
- -----------------------
Jim Reinhartsen

INDEPENDENT AUDITOR'S REPORT

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

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

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

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

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

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

December 5, 2003

F-1

INDEPENDENT ACCOUNTANT'S REPORT

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

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

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

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

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

December 13, 2002

F-2

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

ASSETS
August 31,
2003 2002
(Restated)

Current Assets
Cash and Cash Equivalents $ 824 $ 1,273
Securities Held for Resale 1,714 2,148
Accounts Receivable, net 1,704 5,028
Inventories 3,199 6,059
Prepaid Expenses 668 358
----------------- -----------------
Total Current Assets 8,109 14,866

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

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

Total Other Assets 82,164 84,269
----------------- -----------------
Total Assets $ 121,006 $ 129,983
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY

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

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

Total Long-Term Liabilities --- 1,272
----------------- -----------------
Commitments and Contingent Liabilities

Shareholders' Equity:
Preferred Stock - $.001 par value
Authorized 5,000,000 shares
Issued -0- shares --- ---
Common Stock - $.001 par value
Authorized 200,000,000 shares
Issued and Outstanding at August 31, 2003
and 2002, 147,447,000 and 73,051,000, respectively 147 73
Paid in Capital 177,017 158,731
Accumulated Deficit (75,188) (41,424)
----------------- -----------------
Total Shareholders' Equity 101,976 117,380
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 121,006 $ 129,983
================= =================
See accompanying notes to consolidated financial statements.

F-3

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

For the years ended August 31,
----------------------------------------------
2003 2002 2001
-------------- -------------- --------------

Net Sales:
Structured wiring $3,692 $8,036 $7,643
Broadband services 2,809 2,657 523
Products 3,342 16,108 19,342
Other 1,750 3,016 602
-------------- -------------- --------------
Total Sales 11,593 29,817 28,110
-------------- -------------- --------------

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

F-4

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

Additional Total
Common Stock Preferred Paid in Retained Shareholders'
Shares Value Stock Capital Earnings Equity

Total Shareholders'
Equity As of
August 31, 2000 25,609 $26 $--- $52,160 $1,875 $54,061

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

F-5

For the years ended August 31,
-----------------------------------------------
2003 2002 2001
-------------- -------------- ---------------

Cash Flows from Operating Activities
Net Loss $(33,693) $(36,787) $(5,874)

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

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

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

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

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

Supplemental non-cash investing activities (See Notes 5 & Note 12)

See accompanying notes to consolidated financial statements.

F-6

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

NOTE 1 - Basis of Presentation and Significant Accounting Policies:

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

A) Consolidation

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

B) Cash and Cash Equivalents

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

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

C) Property and Equipment

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

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

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

D) Inventories

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

August 31,
2003 2002,

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

F-7

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

E) Revenue Recognition

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

Eagle adopted EITF 00-21, "Revenue Arrangements with Multiple
Deliverables," in the fourth quarter of fiscal 2003. The impact of
adopting EITF 00-21 had no affect to Eagle's results of operations as
Eagle did not have any contracts that have multiple elements as of
January 2004 or prior. When elements such as hardware, software and
consulting services are contained in a single arrangement, or in
related arrangements with the same customer, Eagle allocates revenue to
each element based on its relative fair value, provided that such
element meets the criteria for treatment as a separate unit of
accounting. The price charged when the element is sold separately
generally determines fair value. In the absence of fair value for a
delivered element, Eagle allocates revenue first to the fair value of
the undelivered elements and allocates the residual revenue to the
delivered elements. In the absence of fair value for an undelivered
element, the arrangement is accounted for as a single unit of
accounting, resulting in a delay of revenue recognition for the
delivered elements until the undelivered elements are fulfilled. Eagle
limits the amount of revenue recognition for delivered elements to the
amount that is not contingent on the future delivery of products or
services or subject to customer-specified return or refund privileges.

Deferred Revenues

Revenues that are billed in advance of services being
completed are deferred until the conclusion of the period of the
service for which the advance billing relates. Deferred revenues are
included on the balance sheet as a current liability under the heading
Accrued Expenses until the service is performed and then recognized in
the period in which the service is completed. Eagle's deferred revenues
primarily consist of billings in advance for cable, internet, security
and telephone services, which generally are between one and three
months of services. Eagle had deferred revenues of $230,397 and
$147,696 as of August 31, 2003 and 2002, respectively.

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

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

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

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

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

F-8

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

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

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

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

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

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

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

F) Research and Development Costs

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

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

G) Income Taxes

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

H) Net Earnings Per Common Share

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

F-9

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

August 31,
--------------------------------
2003 2002 2001
------ ------ ------
Weighted Average Number of Common
Shares Outstanding Including

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

I) Impairment of Long-Lived Assets and Goodwill

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

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

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

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

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

J) Intangible Assets

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

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

F-10

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

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

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

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

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

K) Advertising Costs

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

L) Deferred Syndication Costs

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

M) Use of Estimates

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

N) Marketable Securities

In May 1993, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective for fiscal years
beginning after December 15, 1993. This statement considers debt
securities that the Company has both the positive intent and ability to
hold to maturity are carried at amortized cost. Debt securities that
the company does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as
available-for-sale or trading securities and are carried at fair market
value. Unrealized holding gains and losses on securities classified as
trading are reported in earnings. Unrealized holding gains and losses
on securities classified as available-for-sale were previously carried
as a separate component of stockholders' equity. SFAS No. 115 as
amended by Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Other Comprehensive Income".
Management determines the appropriate classification of marketable
equity and debt securities at the time of purchase and re-evaluates
such designation as of each balance sheet date.

F-11

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

O) Other Comprehensive Income

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

P) Reclassification

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

Q) Supporting Costs in Selling, General and Administrative Expenses

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

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

R) Recent Pronouncements

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

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

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

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

F-12

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

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

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

S) Product Warranties

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

T) Beneficial Conversion Values:

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

NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS

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

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

As Restated As Reported

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

NOTE 3 - Accounts Receivable:

Accounts receivable consist of the following, in thousands:

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

F-13

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

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

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

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

Eagle expenses repairs and maintenance against income as incurred whereas major
improvements are capitalized. Eagle defines major improvements as those assets
acquired that extend the life of the underlying base asset while defining other
improvements that do not extend the life as repairs and maintenance. Eagle
expensed repairs and maintenance of $47,000, $63,000, and $47,354 for the three
years ended August 31, 2003, 2002 and 2001, respectively, whereas it did not
have any capitalized major improvements for the same time periods.

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

Components of intangible assets are as follows, in thousands:

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

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

Eagle Other Total

Balance at August 31, 2002 $ 76,589 $ 1,562 $ 78,151
Acquisitions and other (1) (1,878) 0 (1,878)
-------------------------------------------
Balance at August 31, 2003 $ 74,711 $ 1,562 $ 76,273
===========================================

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

NOTE 5 - Business Combinations:

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

F-14

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

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

NOTE 6 - Notes Payable:

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

Annual
Interest Amount
Rate Due Date 2003 2002
------------------------------------------------------------

Vehicles Various Various $ 4 $ 27
5% Convertible Debenture (Note 9) 5.0% Demand 1,200 2,000
Tail Wind Convertible Debenture 2.0% Demand 1,595 2,000
Notes Payable - Investor Group 10.0% October 2003 900 ---
Notes Payable - Q Series Bonds 12.0% Various 1,363 ---
Other Various Various 717 828
---------- ---------
Total notes payable $ 5,779 $ 4,855
---------- ---------
Less current portion 5,779 3,653
---------- ---------
Total long-term debt $ --- $ 1,202
========== =========

NOTE 7 - Capital Lease Obligations:

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

NOTE 8 - Lines of Credit:

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

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

F-15

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

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

NOTE 9 - Convertible Debentures:

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

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

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

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

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

F-16

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

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

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

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

NOTE 10 Securities held for Resale:

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

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

NOTE 11 - Income Taxes:

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

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

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

F-17

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

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

August 31,
2003 2002 2001
--------- ---------------------------

Computed expected tax benefit $ (11,456) $ (12,508) $ (1,997)
Increase in valuation allowance 11,456 12,508 1997
--------- ---------------------------
$ --- $ --- $ ---
========= ===========================

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

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

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

Deferred tax liabilities:
Differences in depreciation 0 0
--------- --------

Net deferred tax liabilities $ 0 $ 0
========= ========

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

NOTE 12 - Issuance of Common Stock:

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

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

NOTE 13 - Preferred Stock, Stock Options and Warrants:
-------------------------------------------

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

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

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

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

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

F-18

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-19

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

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

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

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

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

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

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

F-20

NOTE 14 - Capitalization Activities:

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

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

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

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

NOTE 15 - Risk Factors:

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

NOTE 16 - Foreign Operations:

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

NOTE 17 - Commitments and Contingent Liabilities:

Leases

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

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

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

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

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

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

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

F-21

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

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

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

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

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

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

Period Ending
August 31, Amount

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

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

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

On July 10, 2003, Eagle became a defendant in Cornell Capital Partners,
L.P. vs. Eagle Broadband, Inc., et al., Civil Action No. 03-1860 (KSH),
In the United States District Court for the District of New Jersey. The
suit presents claims for breach of contract, fraud and negligent
misrepresentation. Plaintiff has also alleged that Eagle has defaulted
on a convertible debenture for failing to timely register the shares of
common stock underlying the convertible debenture and is seeking to
accelerate the maturity date of the debenture. As of August 31, 2003,
the principal balance of the debenture was approximately $1.2 million.
During the three month period ended November 30, 2003, the principal
balance of the debenture was repaid, although the suit remains
outstanding. The Company denies the claims and intends to vigorously
defend this lawsuit and the claims against it.

On December 14, 2000, ClearWorks became a defendant in State Of Florida
Department Of Environmental Protection vs. Reco Tricote, Inc. And
Southeast Tire Recycling, Inc. A/K/A Clearwork.net, Inc.; In The
Circuit Court Of The Tenth Judicial Circuit In And For Polk County,
Florida. The Florida EPA sued ClearWorks.net presenting claims for
recovery costs and penalties for a waste tire processing facility. The
suit seeks recovery of costs and penalties in a sum in excess of
$1,000,000, attorneys' fees and cost of court. ClearWorks denies the
claims and intends to vigorously contest all claims in this case and to
enforce its indemnification rights against the principals of Southeast
Tire Recycling.

On September 26, 2003 Intratech served a lawsuit on ClearWorks.net in
Intratech Capital Partners, Ltd. vs. ClearWorks.net, Inc.; Case No. CF3
20136 in the High Court of Justice, Queen's Bench Division, Cardiff
District Registry. This lawsuit presents claims for breach of contract
for failing to pay the plaintiff for financial advice and services
allegedly rendered. The complaint seeks damages of $6,796,245.50, plus
attorneys' fees and costs. ClearWorks denies the claims and intends to
vigorously defend this lawsuit and claims against it.

On or about September 2003, Enron sued United Computing Group, Inc. in
Enron Corp. (Debtors/Plaintiff) vs. United Computing Group, Inc.; Case
No. 01-16034 in the United States Bankruptcy Court for the Southern
District of New York. The suit presents claims pursuant to sections 547
and 550 of the Bankruptcy Code to avoid and recover a transfer in the
amount of approximately $1,500,000.00. Defendant has filed an answer,
denies the claims, and intends to vigorously defend this lawsuit and
claims against it.

F-22

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

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

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

NOTE 18 - Earnings Per Share:

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

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

Net Loss $(32,025)

Basic EPS:
Income available to
common stockholders (33,693) 95,465 $(0.35)
Effect of Dilutive Securities
Warrants
----------- ------------- ------
Diluted EPS:
Income available to
common stockholders
and assumed conversions. $(33,693) 95,465 $(0.35)
=========== ============= ======

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

Net Income $ (36,787)

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

Effect of Dilutive Securities
Warrants --- 154 ---
----------- ------------- ------
Diluted EPS:
Income available to
common stockholders
and assumed conversions. $ (36,787) 64,158 $(0.57)
=========== ============= ======

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

NOTE 19 - Employee Stock Option Plan:

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

F-23

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

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

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

F-24

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

The pro forma effect on net loss as if the fair value of stock-based
compensation had been recognized as compensation expense on a straight-line
basis over the vesting period of the stock option or purchase right was as
follows for the years ended August 31, 2003, 2002 and 2001:

2003 2002 2001
--------- --------- ------------
In thousands,
except per share amounts

Net loss, as reported $(33,693) $(36,787) $(5,874)
Add: Stock-based employee compensation included in reported net
earnings (loss), net of related tax effects - - -
Less: stock-based employee compensation expense determined
under fair-value based method for all awards, net of related
tax effects (20) (50) (181)
--------- --------- ------------

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

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

2003 2002 2001
--------------------- ----------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------

Outstanding at beginning of
year 355,170 $2.32 355,170 $2.32 242,607 $2.93
Granted 50,961 0.45 - - 237,809 1.83
Assumed through
acquisitions - - - - - -
Exercised - - - - - -
Forfeited/Cancelled - - - - 125,246 2.62
--------- --------- ---------

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

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

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

406,131 5.2 $2.32 406,131 $2.32
============ ===========

NOTE 20 - Retirement Plans:

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

NOTE 21 - Major Customer:

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

F-25

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

NOTE 22 - Industry Segments:

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

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

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

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

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

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

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

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

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

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

For the year ending August 31, 2003

(in thousands) APC/HSI EBS/DSS UCG Eagle Other Elim. Consol.
----------- ---------- --------- ---------- ---------- ---------- ----------

Revenue 4,220 2,809 2,433 1,803 328 --- 11,593
Segment Loss (4,500) (6,083) (2,279) (15,041) (364) --- (28,267)
Total Assets 8,929 31,316 114 141,588 83,852 (144,793) 121,006
Capital Expenditures 11 6,254 1 --- 158 --- 6,424
Depreciation 372 1,351 72 376 253 --- 2,424

For the year ending August 31, 2002

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

For the year ending August 31, 2001

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

F-26

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

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

Total segment loss from operations $ (28,267) $ (36,522) $ (8,222)
Total Other Income (Expense) (5,426) (265) 2,348
================== =================== =================
Net Loss $ (33,693) $ (36,787)) $ (5,874)

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

Note 23 - Quarterly Financial Data.

Nov. 30, Feb. 28, May 31, Aug.31,
---------------------------------------------------------------------

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

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

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

Note 24 - Exit Activities:.

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

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

- -- A revised collection assessment of certain accounts receivables from
these and other down-sized Eagle business segments.
- -- The decision to no longer pursue new commercial structured cabling
opportunities on a direct basis versus the outsource model; thereby resulting in
the impairment of goodwill from its Atlantic Pacific operations.
- -- The decision to no longer pursue Home Systems structured wiring
opportunities on a direct standalone model basis outside its BDS model; thereby
resulting in the impairment of its Home Systems inventory.

F-27

- -- The decision to withdraw from certain unprofitable BDS projects, namely
its Austin area BDS developments; thereby impairing certain assets including
property, plant and equipment.
- -- The decision to settle numerous existing and threatened legal
proceedings versus continuing the timing consuming and costly process of
defending such proceedings; thereby resulting in the accrual of numerous
reserves for such settlements.
- -- The decisions to consolidate its operating segments into its corporate
lease space; thereby resulting in reserves for property lease settlements.
- -- The decision to negotiate the settlement of certain sales tax
liabilities that resulted from a sales tax audit of United Computing Group
operations for periods that preceded the acquisition date of this subsidiary.

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

- -- Accounts receivable write-off's and reserves aggregating $2,177,000; of
which $1,348,000 was attributable to the decisions affecting the Company's
Atlantic Pacific / Home Systems operations, $15,000 attributable to the
decisions affecting its United Computing Group operations and $814,000
attributable to the Company's Eagle, EBS and Other segment operations.
- -- Inventory impairment charges of $2,627,000; of which $501,000 was
attributable to the decisions affecting the Company's Atlantic Pacific / Home
Systems operations and $74,000 attributable to the decisions affecting its
United Computing Group operations. Additionally, the Company recorded an
impairment charge of $1,125,000 for slow-moving and obsolete inventory in its
Eagle operations. This charge primarily resulted from a major clients decision
to upgrade from a 400 MHz chip to a 500 MHz chip for the Company's convergent
set top box.
- -- Litigation settlement costs and reserves of $3,650,000 against certain
of the legal proceedings previously discussed in Item 3. Legal Proceedings.
Additionally, the Company recorded charges aggregating $2,274,000 to settle
threatened and existing legal proceeding associated with prior financing
transactions, including the Kaufman litigation.
- -- Lease settlement costs and reserves of $171,000 was attributable to the
decision to consolidate various operating segments into its corporate lease
space; thereby resulting in reserves for early exit of such leases.
- -- Impairment, write-down's and restructuring costs aggregating
$7,611,000; of which $1,878,000 was attributable to an impairment of goodwill in
the Company's Atlantic Pacific operations following the Company's decision to no
longer pursue commercial cabling opportunities on a direct basis versus an
outsource model. These costs were also comprised of $3,412,000 in impairment of
property and equipment following the Company's decision to withdraw from certain
unprofitable BDS projects, namely in the Austin area, and $323,000 of impairment
of property and equipment from the Company's Atlantic Pacific / Home Systems
operations following the decision to no longer pursue structured wiring
opportunities on a direct standalone basis outside of its BDS model.
Additionally, the aggregate total included a $553,000 charge for certain sales
tax liabilities that resulted from an audit of the Company's United Computing
Group operations for time periods that preceded the acquisition date of this
operation.

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

Note 25 - Subsequent Events.

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

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

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

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

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Years Ended August 31, 2003, 2002, and 2001

Additions

Balance at Charged to Balance at

Beginning of Expenses/ End of

Description Period Revenues Deductions Period

(In thousands)

Allowance for doubtful accounts:

2003 $ 242 $2,177 $(2,00) $ 412

2002 $ 480 $ 125 $ (363) $ 242

2001 $ 89 $ 391 $ --- $ 480

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