Notes to the Consolidated Financial Statements August 31, 2003

NOTE 1 - Basis of Presentation and Significant Accounting Policies:

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

A) Consolidation

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

B) Cash and Cash Equivalents

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

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

C) Property and Equipment

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

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

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

D) Inventories

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

                                     August 31,
                               2003             2002

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

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

E) Revenue Recognition

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

Eagle adopted EITF 00-21, "Revenue Arrangements with Multiple Deliverables," in the fourth quarter of fiscal 2003. The impact of adopting EITF 00-21 did not have a material effect to Eagle's results of operations. Eagle's contracts that contain multiple elements as of February 29, 2004, or prior were immaterial. When elements such as hardware, software and consulting services are contained in a single arrangement, or in related arrangements with the same customer, Eagle allocates revenue to each element based on its relative fair value, provided that such element meets the criteria for treatment as a separate unit of accounting. The price charged when the element is sold separately generally determines fair value. In the absence of fair value for a delivered element, Eagle allocates revenue first to the fair value of the undelivered elements and allocates the residual revenue to the delivered elements. In the absence of fair value for an undelivered element, the arrangement is accounted for as a single unit of accounting, resulting in a delay of revenue recognition for the delivered elements until the undelivered elements are fulfilled. Eagle limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services or subject to customer-specified return or refund privileges.

Deferred Revenues

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

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

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

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

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

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

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

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

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

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

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

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

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

F) Research and Development Costs

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

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

G) Income Taxes

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

H) Net Earnings Per Common Share

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

                                                               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.

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

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

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

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

J) Intangible Assets

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

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

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

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

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

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

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

K) Advertising Costs

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

L) Deferred Syndication Costs

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

M) Use of Estimates

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

N) Marketable Securities

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

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.

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

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

                                                                 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)(1)
                              ---------------------------------------------------
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 $99,797,000. The allocation of the purchase price is based on the fair value of assets and liabilities assumed as determined either by independent third parties or management's estimates, based on existing contracts, recent purchases of assets and underlying loan documents.

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.

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

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

NOTE 7 - Capital Lease Obligations:

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

NOTE 8 - Lines of Credit:

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

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

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

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

NOTE 9 - Convertible Debentures:

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

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

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

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

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

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

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

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

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

NOTE 10 Securities held for Resale:

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

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

NOTE 11 - Income Taxes:

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

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

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

                                                               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.

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.

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.

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.

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

NOTE 14 - Capitalization Activities:

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

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

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

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

NOTE 15 - Risk Factors:

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

NOTE 16 - Foreign Operations:

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

NOTE 17 - Commitments and Contingent Liabilities:

Leases

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

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

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

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

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

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

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

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

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

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

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

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

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

Period Ending
 August 31,                   Amount

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

Legal Proceedings

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

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

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

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

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

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

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

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

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

                                                     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.

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

                                                                   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.

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

NOTE 21 - Major Customer:

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

NOTE 22 - Industry Segments:

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

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

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

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

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

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

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

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

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

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

                                   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

Reconciliation of Segment Loss from        August 31,     August 31,     August 31,
 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.

                          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.

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

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

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

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

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