SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-KSB

(Mark One)

  |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

      For the fiscal year ended December 31, 2004 ____________

  |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)

      For the transition period from __________ to __________

      Commission file number l-9224
                             ------

                                 CNE Group, Inc.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                DELAWARE                             56-2346563
-----------------------------------------   ------------------------------
      (State or Other Jurisdiction of            (I.R.S. Employer
       Incorporation or Organization)          Identification No.)

        200 West 57th Street, Suite 507, New York, NY              10019
-------------------------------------------------------         -----------
          (Address of Principal Executive Offices)              (Zip Code)

                                  212-977-2200
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                    Name of Each Exchange
          Title of Each Class                       on Which Registered
          -------------------                       -------------------

    Common stock - par value $0.00001              American Stock Exchange

         Securities registered under Section 12(g) of the Exchange Act:

                                      None
--------------------------------------------------------------------------------
                                (Title of Class)

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

Yes X  No
   ---   ---

                           (Cover page 1 of 2 pages)

<PAGE>

                                       2


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

      Issuer's revenues for 2004, its most recent fiscal year, were $2,675,986.

      As of April 8, 2005,  the  aggregate  market value of voting stock held by
non-affiliates of the Issuer was approximately $2,178,600.
                                               ----------

      The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

                 Class                       Outstanding at April 8, 2005
                 -----                       ----------------------------

   Common stock - par value $0.00001                10,790,915
   ---------------------------------                ----------

                       DOCUMENTS INCORPORATED BY REFERENCE

      None.


                            (Cover page 2 of 2 pages)
<PAGE>

                                       3


                                     PART I

Forward Looking Statements
--------------------------

Certain statements in this Annual Report Form 10-KSB constitute "forward-looking
statements" relating to the Company within the meaning of the Private Securities
Litigation  Reform Act of 1995. All  statements  regarding  future  events,  our
financial  performance  and  operating  results,  our business  strategy and our
financing plans are forward-looking  statements.  In some cases you can identify
forward-looking statements by terminology, such as

      o "may,"

      o "will,"

      o "would,"

      o "should,"

      o "could,"

      o "expect,"

      o "intend,"

      o "plan,"

      o "anticipate,"

      o "believe,"

      o "estimate,"

      o "predict,"

      o "potential" or

      o "continue,"


the negative of such terms or other comparable terminology. These statements are
only predictions. Known and unknown risks, uncertainties and other factors could
cause  actual  results  to differ  materially  from  those  contemplated  by the
statements.  In evaluating these statements,  you should  specifically  consider
various  factors,  including the risks outlined under the Risk Factors set forth
herein. These factors may cause our actual results to differ materially from any
forward-looking statements.

Although  we believe  that the  expectations  reflected  in the  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking  statements  after  the date of this  report  to  conform  those
statements to actual results or to changes in our expectations.

<PAGE>

                                       4


Item l. Description of Business.

The  Company was  incorporated  under the laws of the State of Delaware in 2003.
Unless the context requires otherwise, the term "Company," "our," or "we" refers
to CNE Group,  Inc. and its wholly-owned  subsidiaries SRC  Technologies,  Inc.,
U.S. Commlink, Ltd. and CareerEngine Network, Inc.

      General
      -------

      We are a holding  company whose  primary  operating  subsidiaries  are SRC
      Technologies,  Inc. ("SRC") and U.S. Commlink,  Ltd. ("US Commlink").  SRC
      has two operating subsidiaries;  Connectivity,  Inc.  ("Connectivity") and
      Econo-Comm,  Inc.  ("ECI").  Econo-Comm,  Inc. conducts business under the
      name of  Mobile  Communications  and is  sometimes  referred  to herein as
      "Mobile  Comm."  These  companies,  which we acquired  on April 23,  2003,
      market,  manufacture,  repair and maintain remote radio and cellular-based
      emergency  response  products  to a variety  of  federal,  state and local
      government institutions,  and other vertical markets throughout the United
      States.  SRC has  intellectual  property rights to certain key elements of
      these  products  -  specifically,  certain  communication,  data entry and
      telemetry devices. In addition,  we engage in the business of e-recruiting
      through our subsidiary,  CareerEngine, Inc. The e-recruiting business does
      not generate a significant part of our revenue,  and is not significant to
      the operations of the Company.

      Our corporate  executive  offices and CareerEngine are located at 200 West
      57th Street, New York, NY 10019 (212-977-2200).  SRC, Connectivity and ECI
      are located at 3733 NW 16th Street,  Lauderhill,  FL 33311 (954-587-1414).
      US  Commlink  is  located  at 6244  Preston  Avenue,  Livermore,  CA 94550
      (925-960-0097).

      Connectivity,  US  Commlink  and  Mobile  Comm  are  part of the  wireless
      communications  industry. Our markets include Intelligent Traffic Systems,
      referred to as ITS and  security  related  products.  We also  manufacture
      ancillary devices for wireless data networks. Our business objective is to
      design  and  distribute   cost  effective   wireless   products  that  are
      interoperable    between    people-to-people,    people-to-machine,    and
      machine-to-machine,  and to address the remote communication  requirements
      of our customers  with  solutions  that deliver  safety,  convenience  and
      security

<PAGE>
                                       5


      benefits.  We compete by  offering  niche  products  that  utilize  either
      existing  infrastructures or low cost wireless systems that can be rapidly
      deployed.

      The wireless business we compete in consists of three distinct categories:

            o     product development, engineering, and manufacturing;

            o     sales, distribution and installation of wireless products; and

            o     service and  maintenance  of our own and other  manufacturers'
                  wireless products.

      All three operating subsidiaries are engaged in product development.  Both
      Mobile Comm and US  Commlink  design,  engineer  and  distribute  wireless
      products  that are either  radio or cellular  based.  All three  companies
      market their own products and services,  but  Connectivity has the primary
      responsibility  for these activities.  Mobile Comm and US Commlink install
      their  products.  Mobile  Comm is also an  authorized  dealer of  Motorola
      products.

      We provide a 12-month  warranty that our hardware  performs within certain
      specifications,  and we warrant the performance of our software for a like
      period of time.  To date,  we have not  received  notice  of any  warranty
      claims.  We have accrued  $1,000 for future  warranty  claims for the year
      ended December 31, 2004.

      Mobile Comm has a number of customers  with which it has long term service
      and maintenance contracts for wireless  communications  products.  Many of
      these customers are state, county and municipal agencies. US Commlink also
      provides service and maintenance contracts to its customers.

      Connectivity, Inc.
      ------------------

      Connectivity  has  marketed  wireless  call box  products  to a variety of
      federal, state and local government agencies and departments, and numerous
      other vertical markets throughout the United States. Some of our customers
      include:

            o     State Departments of Transportation (DOT's);

            o     college campuses;

            o     private and public golf courses;


<PAGE>
                                       6


            o     hospitals;

            o     air/sea ports;

            o     parking facilities; and

            o     amusement/county parks.

      The retail  prices for these  products  range from $2,500 to over  $5,000,
      depending  upon the  features  that are  included.  Connectivity's  profit
      margins vary,  depending on the type of distribution channel through which
      its products are sold.

      Prior to June 25, 2003,  Connectivity  marketed its call boxes directly to
      end users and through a network of approximately 25 independent Authorized
      Agents, referred to as AA's, throughout the United States pursuant to oral
      agreements  that  could be  terminated  by either  party at will.  The AAs
      purchased the products from  Connectivity  at a discount  equal to between
      10% and 25% of retail  prices.  The AA's were not required to purchase any
      minimum  number  of  units,  but  were  not  permitted  to sell  competing
      products.  For the fiscal year ended December 31, 2003,  Connectivity sold
      approximately  84% of its products directly to end users and approximately
      16% to AA for resale. No one distributor accounted for more than 5% of its
      sales during this period.

      On  June  25,  2003,  Connectivity  entered  into a  written  distribution
      agreement  with  Motorola,  Inc.  pursuant  to which  Motorola  has  begun
      marketing  certain  Connectivity  call boxes in North America  through its
      network of authorized  dealers.  The dealers  purchase these products from
      Connectivity at a discount from retail prices. Dealers are not required to
      purchase any minimum number of units,  and are permitted to sell competing
      products.  All of the AAs previously  used by us are Motorola  dealers and
      are  participating  in our distribution  agreement with Motorola.  We also
      continue  to market  our  products  directly.  For the  fiscal  year ended
      December 31, 2004,  Connectivity  sold  approximately  29% of its products
      directly  to end  users  and  approximately  71% to  dealers  for  resale.
      Motorola  accounted for approximately  63% of Connectivity's  sales during
      this period.

      U.S. Commlink, Ltd.
      -------------------

      Although US Commlink commenced operations in June 2003, its management has
      been engaged, primarily in the State

<PAGE>
                                       7


      of  California,  in the wireless  communications  and  emergency  call box
      systems business for the past 25 years. US Commlink designs, manufactures,
      installs  and  services  several  wireless  and wired ITS systems for both
      private  and  municipal  organizations.  US  Commlink  is also a State  of
      California certified general contractor. Its services include:

<TABLE>
<S>                                 <C>                          <C>
            o  System Design        o   Specialized Software     o   Contract Management
            o  Device Integration   o   Technical Support        o   General Engineering
            o  Custom Products      o   Site Installation        o   Field Construction
</TABLE>

      US Commlink  has two devices  that have  varying  applications  in the ITS
      market. The Smart Remote Controller,  or SRC device, is a telemetry device
      that transmits  wireless data from up to four peripheral devices at remote
      locations to a central  receiving  location.  The second  device is a Text
      Telephony,  or TTY, keyboard for cellular based emergency call boxes. This
      keyboard  currently exceeds all of the regulatory  requirements  under the
      Americans With  Disabilities  Act of 1990 as it pertains to  accessibility
      guidelines.

      Both  the  SRC  and TTY  devices  have  been  approved  by the  California
      Department  of  Transportation.  The SRC device is the  central  component
      around which many other products may be developed.  The  applications  for
      this device include, but are not limited to:

            o     transmission of remotely gathered environmental data;

            o     traffic speeds and volume counts;

            o     gas, electric and seismic meter reading;

            o     video monitoring; and

            o     reporting adverse weather  conditions through various types of
                  sensors.

      The SRC device is  currently  being used in several  different  California
      locations as a Datalink Smart Remote  Controller.  This controller detects
      fog and traffic speed levels and transmits this data  wirelessly back to a
      central station. The central station then automatically compiles this data
      on the conditions and reports the information to highway  variable message
      signs.

<PAGE>
                                       8


      Mobile Comm
      -----------

      Mobile  Comm,  which was  founded in 1984,  manufactures  all of our radio
      based  call box  products.  Its  primary  revenue-generating  business  is
      maintaining  and  servicing  radio  systems  for  city,  county  and state
      government agencies. Its secondary business includes pager repair, two-way
      radio equipment repair and maintenance of highway callbox systems.  Mobile
      Comm is a  Motorola  radio  dealer,  which  allows  it to sell and  repair
      Motorola radio products.

      Mobile Comm has maintenance contracts with

            o     the State of Florida DOT for more than 800 call boxes  located
                  on  the  Ronald  Reagan  Turnpike,   Bee-Line  Expressway  and
                  Sun-Coast Parkway;

            o     the  Broward  County  School  Board to service  the mobile and
                  portable radios for its approximately 280 schools;

            o     the Broward  County  Transit  Authority  to service the radios
                  located  on all of the  Transit  Authority's  buses in Broward
                  County; and

            o     a number of other  public and private  institutions  for radio
                  maintenance.

      Revenue Distribution
      --------------------

      Mobile  Comm's,  Connectivity's  and US Commlink's  revenue  accounted for
      approximately  38%, 46%, and 12%,  respectively,  of CNE's revenue for the
      year ended December 31, 2004.  Maintaining radio systems,  maintaining and
      servicing  call  boxes,  and  other  maintenance  services  accounted  for
      approximately 66% of Mobile Comm's revenue for the year ended December 31,
      2004.

      Competition
      -----------

      The wireless  call box industry is  characterized  by rapid  technological
      changes,  frequent  new product and service  introductions,  and  evolving
      industry standards. We believe that to compete successfully in this market
      we must have the ability to:

            o     Properly identify customer needs;

            o     Price our products competitively;

            o     Innovate and develop new or enhanced products;

<PAGE>
                                       9


            o     Successfully   commercialize  new  technologies  in  a  timely
                  manner;

            o     Manufacture and deliver our products on time and in sufficient
                  volumes to produce them on a commercially viable basis; and

            o     Differentiate our offerings from our competitors' offerings.

      Numerous  providers  serve the  market  for  emergency  call box  systems,
      including

            o     Signal Communications Corporation (www.sigcom.com),

            o     Comarco, Inc. (NYSE symbol CMRO),

            o     Gaitronics,  a division  of Hubble  Corporation  (NYSE  symbol
                  HUBB),

            o     Talk-A-Phone (www.talkaphone.com),

            o     Code Blue (codeblue.com)

      and certain  other  manufacturers  of wireless and wireline  emergency and
      information telephones.

      The  following  information  was  obtained  from  the  web  sites  of  the
      respective  companies  and from other  publicly  disseminated  promotional
      information:

            o     Signal Communications  Corporation,  which provides call boxes
                  and other communications  devices and has been in business for
                  more than 28 years,  markets products primarily in the eastern
                  United States.

            o     Comarco Inc, a public company  operating in several  different
                  business   sectors,   has  a  subsidiary,   Comarco   Wireless
                  Technologies, Inc., that has been manufacturing solar powered,
                  cellular call boxes since 1986.

            o     The Hubbell Corporation, a multi-billion dollar company, which
                  owns Gaitronics  (another  hard-wired  call box company),  has
                  been  manufacturing  enclosures for over 45 years and offers a
                  variety of shapes and sizes of enclosures through a variety of
                  distribution channels.

            o     Blue Light Phone  Company,  known as Code Blue,  a  hard-wired
                  call box competitor, is a private company founded in 1989.

      Most of our  competitors are larger and have greater  financial  resources
      than we do,  but we  believe  that the  patents  that  cover our  wireless
      applications products provide us with a competitive advantage.

<PAGE>
                                       10


      Research and Development
      ------------------------

      The  proposals  that  we  bid  on  drive  our  research  and   development
      activities.  Prior  to  bidding  on a  contract,  we  retain a team of two
      independent  engineers  that  work  under  the  direction  of our  product
      development  staff to design  what we  require  to meet the  contract  bid
      specifications. Accordingly, we depend significantly on the creativity and
      efficiency  of these  independent  engineers to compete for the  contracts
      that  we bid on.  We  cannot  assure  you  that  these  engineers  will be
      available for our use in the future.  If they are not and we are unable to
      obtain qualified  replacements,  our ability to bid on new contracts would
      be adversely affected.

      Manufacturing and Suppliers
      ---------------------------

      We assemble  our products at our  facilities  in  Lauderhill,  Florida and
      Livermore,   California,  and  use  contract  labor  for  this  work.  Our
      manufacturing   process  involves  the  assembly  of  numerous  individual
      component parts and materials,  which consist primarily of printed circuit
      boards,  specialized  subassemblies,   fabricated  housings  and  chassis,
      radios, cellular telephones,  and small electric circuit components,  such
      as integrated circuits,  semiconductors,  resistors, and capacitors. Third
      parties  make a  majority  of the  components  and  sub-assemblies  to our
      specifications,  which  are  delivered  to us  for  final  testing  before
      assembly.  Although we use sole  sources for certain of these  components,
      all of these components are readily  available from a number of suppliers.
      We do not have written  agreements  with any of our  suppliers  except for
      Motorola.

      Patents and Intellectual Property
      ---------------------------------

      We hold a patent for a radio-based  callbox apparatus and a patent for our
      TTY keyboard for cellular  call boxes.  As of the date hereof,  we are not
      parties to any infringement  claims with respect to our patented  products
      and have not received any notices of  infringement  claims with respect to
      our  products.  We  also  rely  on a  combination  of  trade  secrets  and
      confidentiality  agreements to protect the intellectual  property embodied
      in the  hardware and software  components  of our wireless  call boxes and
      other products.

<PAGE>
                                       11


      Industry Practices Impacting Working Capital
      --------------------------------------------

      Existing industry  practices that affect our working capital and operating
      cash flow include

            o     the level of  variability of customer  orders  relative to the
                  volume of production,

            o     vendor lead times,

            o     materials availability for critical parts,

            o     inventory  levels held to achieve rapid customer  fulfillment,
                  and

            o     provisions of extended payment terms.

      Currently, we sell our products under purchase orders that are placed with
      short-term  delivery  requirements.  As a result, we maintain  significant
      levels of inventory and associated production and technical staff in order
      to meet our obligations. Delays in planned customer orders could result in
      higher inventory levels and negatively impact our operating results.

      Our standard terms require  customers to pay for our products and services
      in U.S.  dollars  within  30  days  after  receipt  of  invoice.  Non-U.S.
      customers  are  required to pay in U.S.  Dollars when the order is placed.
      There  were no sales to  non-U.S.  customers  for the fiscal  years  ended
      December 31, 2004 and 2003. On projects that require  special  components,
      we generally  receive  25-50% of our payment when we begin and the balance
      30 days after completion.

      Employees
      ---------

      As of April 1, 2005, including our two executive officers,  we employed 19
      employees; 13 by Mobile Comm (two engineers, eight wireless communications
      technicians,  two administrative  personnel, and one executive personnel),
      two by  Connectivity  (two sales  personnel),  two by US Commlink  (one in
      construction  management  and one  executive)  and three at our  executive
      offices in New York City (one communications  technician and two executive
      personnel).  The majority of our employees are professional,  technical or
      administrative   personnel   who  possess   training  and   experience  in
      engineering,  computer science, or management. We have no union contracts.
      We believe that our employee relations are satisfactory.

<PAGE>
                                       12


      Our future  success  depends  in large  part on our  ability to retain key
      technical,  marketing, and management personnel, and to attract and retain
      qualified employees, particularly those highly skilled in radio frequency,
      design,  process,  and test engineering involved in the development of new
      products.  Competition for such personnel is intense,  and the loss of key
      employees,  as  well  as the  failure  to  recruit  and  train  additional
      technical personnel in a timely manner,  could have a material and adverse
      effect on our operating results.

      Our success also depends,  to a significant,  extent upon the contribution
      of our  executive  officers and other key  employees.  We have  employment
      agreements  with our executive  officers,  and maintain an employee  stock
      option plan whereby key employees can  participate in our success.  All of
      our employees are currently covered by this plan.

      Our Discontinued Operations
      ---------------------------

      In August 2003 the Company, for nominal consideration,  sold all the stock
      of one of the  subsidiaries  whose remaining  assets and liabilities  were
      transferred  to a trust for the benefit of its creditors and  recognized a
      gain amounting to approximately $583,634.

      Subsidiaries
      ------------

      Our active subsidiaries are SRC Technologies,  Inc., U.S. Commlink,  Ltd.,
      and CareerEngine Network,  Inc. SRC's subsidiaries are Connectivity,  Inc.
      and Econo-Comm, Inc. (d/b/a/ Mobile Communications). CareerEngine Network,
      Inc.'s  subsidiaries are  CareerEngine,  Inc., Shaw Realty Company,  Inc.,
      Helmstar  Funding,  Inc.,  Burrows,  Hayes Company,  Inc.,  Dover,  Sussex
      Company,  Inc., Housing Capital Corporation,  Randel,  Palmer & Co., Inc.,
      Parker,  Reld & Co., Inc.,  McAdam,  Taylor & Co., Inc. and Ryan,  Jones &
      Co., Inc. CareerEngine,  Inc.'s wholly-owned subsidiaries include Advanced
      Digital Networks,  Inc. and A.E. Lander Corp.  (formerly Alexander Edwards
      International,  Inc.).  All of  CareerEngine  Network,  Inc.'s  direct and
      indirect subsidiaries are operationally  inactive except for CareerEngine,
      Inc.

      Regulation
      ----------

      We do not  believe  that our  business is subject to  regulation  as it is
      currently being conducted.

<PAGE>
                                       13


      American Stock Exchange Listing
      -------------------------------

      On December 31, 2003, we received  notice from the American Stock Exchange
      Staff  indicating that we had evidenced  compliance with the  requirements
      necessary for continued listing on the American Stock Exchange.

      As is the case for all listed issuers,  our continued listing  eligibility
      is  assessed  on an  ongoing  basis  and  we  continue  to be  subject  to
      additional  scrutiny (as set forth in Section  1009(h) of the AMEX Company
      Guide) as is the case for any listed Company that has regained compliance.

      Risk Factors That May Affect Future Results
      -------------------------------------------

      The  following  discussion  highlights  certain of the risks we  currently
      face.

            Risks Related to our Financial Condition
            ----------------------------------------

                  We  have  operated  on a  negative  cash  flow  basis  and our
                  business  and  financial  condition  will  be  materially  and
                  adversely  affected  if we are  unable to  generate a positive
                  cash flow on a continuing basis.

                  For the year  ended  December  31,  2004,  we  operated  at an
                  average  monthly  negative  cash  flow  rate of  approximately
                  $158,000.  We  estimate  that,  based on our  current  rate of
                  operations,   we  must  generate  an  aggregate  of  at  least
                  approximately  $580,000 per month in average gross revenues in
                  order for our cash flow to be adequate to cover our  operating
                  expenses and capital  expenditures.  We cannot assure you when
                  or if we will ever be able to operate on a positive  cash flow
                  basis.  If we are  unable to  achieve  the  level of  revenues
                  needed to attain a positive  cash flow,  we may be required to
                  take  actions,  including  but not  limited  to  reducing  our
                  operations, seeking an acquisition and/or merging with another
                  entity,  that could materially  change and/or adversely affect
                  our business.

                  We have a history of losses  and we cannot  assure you that we
                  will be able to operate profitably in the foreseeable  future,
                  if at all.

<PAGE>
                                       14


                  We have not had income from  continuing  operations  since our
                  fiscal year ended  December  31,  1997.  For our fiscal  years
                  ended  December  31,  2004 and  December  31, 2003 we incurred
                  losses from continuing operations of approximately  $2,334,000
                  and $1,703,000, respectively. Our ability to become profitable
                  depends on our ability to increase  our revenues to an average
                  of approximately $580,000 per month while keeping our expenses
                  at current levels.  In January,  June and October 2004, and in
                  February and April 2005 our management  took several  actions,
                  including   reducing  executive  salaries  and  administrative
                  expenses and the waiving certain debt service payments,  in an
                  effort to address  this  problem  and our  negative  cash flow
                  problem. If we do achieve profitability,  we cannot assure you
                  that we will be able to sustain or increase such profitability
                  on a monthly,  quarterly  or annual  basis in the future.  Our
                  inability  to achieve or  maintain  profitability  or positive
                  cash flow could

                        o     result in disappointing financial results,

                        o     impede implementation of our growth strategy,

                        o     cause  the  market  price of our  common  stock to
                              decrease,

                        o     impede  our  ability  to  procure   financing   on
                              acceptable terms or at all, and

                        o     otherwise   adversely   affect  our  business  and
                              financial condition.

                  If we  are  unable  to pay or  otherwise  satisfy  substantial
                  indebtedness  that becomes due at the end of April and in June
                  2005, way may be unable to continue our business.

                  On April 30 and June 30, 2005, in accordance with the terms of
                  currently  outstanding  principal  indebtedness,  we  will  be
                  required  to  pay   approximately   $1,750,000   and  $150,000
                  respectively.  If we are unable to pay or otherwise reschedule
                  or satisfy this indebtedness, we will most likely be unable to
                  continue our business.  We currently do not have the financial
                  resources  to pay this  indebtedness  and have no agreement to
                  reschedule  or otherwise  satisfy it.  Accordingly,  we cannot
                  assure you

<PAGE>
                                       15


                  that we will be able to satisfy this indebtedness.

                  We may be unable to continue as a going concern.
                  ------------------------------------------------

                  Our independent auditors' report on our consolidated financial
                  statements  for the years  ended  December  31,  2004 and 2003
                  includes language reflecting that substantial doubt exists, as
                  to  our  ability  to  continue   as  a  going   concern.   Our
                  management's  notes to these financial  statements  included a
                  discussion of our ability to continue as a going concern. They
                  describe the reasons why there is substantial  doubt about our
                  ability  to  continue  as  a  going  concern.   Our  financial
                  statements show an accumulated deficit at December 31, 2004 of
                  approximately   $21,500,000  and  an  accumulated  deficit  at
                  December 31, 2003 of approximately $19,100,000.  Our financial
                  statements  do not include any  adjustments  that might result
                  from the  outcome  of this  uncertainty.  As noted  above,  we
                  cannot  assure  you that we will  not  continue  to incur  net
                  losses and negative cash flow for the foreseeable future.

                  Under certain  circumstances we could incur an impairment loss
                  that could adversely affect our stockholders' equity.

                  We  have  accounted  for  our   acquisition  of  SRC  and  its
                  affiliated  companies,  and US  Commlink  under  the  purchase
                  method,   which   resulted  in  our  recording   approximately
                  $7,286,000  in  goodwill.   If,  among  other  things,   these
                  companies, in the aggregate,  are unable to attain and sustain
                  a positive cash flow by approximately  December 2005, one year
                  after our last valuation, we may incur an impairment loss that
                  could decrease the value of our goodwill and adversely  affect
                  our stockholders' equity to the extent of this loss.

<PAGE>
                                       16


                  We may  require  financing  if our  revenues  do not  meet our
                  projections or our expenses are greater than we anticipate, or
                  to  finance  the  further  development  of our  business.  Our
                  inability  to obtain  financing,  if  required,  would have an
                  adverse effect on our business.

                  We may need to obtain financing if our actual costs are higher
                  than projected or our contemplated  future revenues fall below
                  our current expectations, in order to

                        o     finance more rapid expansion,

                        o     increase marketing and sales,

                        o     develop new or enhanced technology,

                        o     respond to competitive pressures,

                        o     establish strategic relationships, and/or

                        o     provide for working capital.

                  If we raise such  financing by issuing  equity or  convertible
                  debt securities,  the percentage ownership of our stockholders
                  will be diluted.  Any new debt or equity securities could have
                  rights,  preferences  and  privileges  senior to rights of our
                  common stock holders. We currently have no commitments for any
                  such financing and,  accordingly,  cannot assure you that such
                  financing will be available when and to the extent required or
                  that, if available,  it will be on terms  acceptable to us. If
                  adequate  financing is not available on acceptable  terms,  we
                  may be unable to finance the activities  referred to above. In
                  such event, our business may be adversely affected.

                  Recently  enacted and proposed  changes in securities laws and
                  regulations will increase our costs.

                  The  Sarbanes-Oxley  Act of 2002 that  became law in July 2002
                  has required and will  continue to require  changes in some of
                  our corporate governance practices.  The Act also required the
                  SEC to  promulgate  new rules on a  variety  of  subjects.  In
                  addition to final rules and rule proposals already made by the
                  SEC, the American Stock Exchange has proposed revisions to its
                  requirements  for  companies  such as us that have  securities
                  listed with it. We expect these new

<PAGE>
                                       17


                  rules and  regulations  to  increase  our legal and  financial
                  compliance  costs, and to make some activities more difficult,
                  time consuming  and/or more costly.  We also expect that these
                  new rules and  regulations  may make it more  costly to obtain
                  director and officer liability insurance coverage,  and we may
                  be required to accept reduced coverage or incur  substantially
                  higher  costs to  obtain  it.  We  currently  do not have this
                  coverage.  These new rules and regulations  could also make it
                  more difficult for us to attract and retain qualified  members
                  of our board of directors,  particularly to serve on our audit
                  committee,  and qualified  executive  officers.  In accordance
                  with the  Sarbanes-Oxley  Act, we have  instituted a number of
                  changes relating to corporate  governance  practices including
                  the  certification  of our consolidated  financial  statements
                  pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and
                  adoption of certain internal controls.  The Sarbanes-Oxley Act
                  has provisions that have implementation  deadlines,  including
                  those  related  to Section  404  concerning  internal  control
                  procedures.  Implementation  of those  procedures will require
                  resources and a portion of our management's time and efforts.

                  Our reported  financial  results may be adversely  affected by
                  changes in  accounting  principles  generally  accepted in the
                  United States.

                  We  prepare  our  financial   statements  in  conformity  with
                  accounting principles generally accepted in the United States.
                  These accounting  principles are subject to  interpretation by
                  the  Financial   Accounting   Standards  Board,  the  American
                  Institute of Certified Public Accountants, the SEC and various
                  bodies formed to interpret and create  appropriate  accounting
                  policies. A change in these policies or interpretations  could
                  have a significant  effect on our reported  financial results,
                  and could  affect  the  reporting  of  transactions  completed
                  before  the  announcement  of a  change.  For  example,  while
                  current  accounting  rules  allow us to exclude the expense of
                  stock  options  from  our  financial  statements,  influential
                  business  policy  groups,  including the Financial  Accounting
                  Standards  Board,  have suggested that the rules be changed to
                  require these options to be expensed. Technology

<PAGE>
                                       18


                  companies  generally,  and  our  company,  specifically,  rely
                  heavily on stock options as a major  component of our employee
                  compensation  packages.  If we are required to expense options
                  granted  to our  officers  and  employees,  although  our cash
                  position  would not be  affected,  our income from  continuing
                  operations and our stockholders' equity would decrease and our
                  stock price could be adversely affected. In such event, we may
                  have to decrease or  eliminate  option  grants to our officers
                  and employees,  which could  negatively  impact our ability to
                  attract  and  retain   qualified   employees   and   executive
                  personnel.

                  Our ability to use net  operating  loss  carryforwards  may be
                  limited  in the  future,  which  could  adversely  affect  our
                  financial condition.

                  As of  December  31,  2004,  we had a federal  income  tax net
                  operating loss  carryforward of  approximately  $38.8 million.
                  Section 382 of the Internal  Revenue Code of 1986, as amended,
                  (the "Code")  provides that our use of our net operating  loss
                  carryover and similar  corporate tax  attributes is limited if
                  there is an "ownership change" as defined in that Section.  In
                  general,  the  post-ownership  change  limitation is an amount
                  equal to our fair market value  multiplied by a deemed rate of
                  return  on the  investment  of that  fair  market  value.  The
                  selected  deemed rate of return is the federal  "long-term tax
                  exempt  rate,"  reflecting  the rate of return  on our  equity
                  value had we sold our  assets and  invested  the  proceeds  in
                  long-term  tax-exempt bonds. The application of the limitation
                  would  severely  restrict our ability to use our net operating
                  loss  carryforward to offset any taxable income we may earn in
                  future years.  This would  adversely  affect our net after tax
                  cash, which could adversely affect our financial  condition as
                  well as the price of our common stock.

                  In general,  for  purposes of the Code,  an  ownership  change
                  occurs  when  5%  or  more  owners  increase  their  ownership
                  percentage by more than 50% over the lowest  percentage  owned
                  by those owners at any time during a testing period,  which is
                  generally the three years prior to the

<PAGE>
                                       19


                  increase  in  ownership  by 5% or  more  owners.  The  IRS has
                  authority  to treat  warrants,  options,  contracts to acquire
                  stock,  convertible debt interests and other similar interests
                  as if they are stock and stock as if it is not stock. Although
                  we  believe  that we have not had an  ownership  change on the
                  basis of  existing  rules,  we cannot  assure you that the IRS
                  will accept our  position.  In any event,  it is possible that
                  past and/or  future  transactions  affecting  our equity could
                  create an ownership  change and trigger this limitation on the
                  use of our net operating loss.

                  We have  amended  our  by-laws to  restrict  transfers  of our
                  common  stock  that  could  cause an  ownership  change but we
                  cannot  assure  you  that  this   amendment  will  prevent  an
                  ownership change. In addition, this transfer restriction could
                  adversely affect the value of our common stock.

            Risks Related to our Business
            -----------------------------

                  Our  business  faces  intense  competition.   If  we  fail  to
                  adequately  meet  this  competition,  our  business  could  be
                  adversely affected.

                  We encounter aggressive competition in the Intelligent Traffic
                  System  ("ITS")  and  call  box  markets.   We  have  numerous
                  competitors  that range from large U.S.  corporations  to many
                  relatively  small and  highly  specialized  firms.  We compete
                  primarily on the basis of

                        o     technology,

                        o     performance,

                        o     price,

                        o     quality,

                        o     reliability,

                        o     customer service, and

                        o     support.

                  Most of our competitors have substantially  greater financial,
                  technical and marketing resources,  longer operating histories
                  and  greater  name  recognition  to  apply  to each  of  these
                  factors, and in some cases have built significant  reputations
                  with the customer base in the markets in which we compete.  If
                  we are unable to successfully compete, our business, financial
<PAGE>
                                       20


                  condition,  and  operating  results  could be  materially  and
                  adversely affected.

                  Our products must conform to the requirements of the Americans
                  With  Disabilities Act of 1990 as it pertains to accessibility
                  guidelines. If we fail to meet these requirements our business
                  could be adversely affected.

                  Our  products  are  manufactured  to comply with the ADA as it
                  relates to accessibility guidelines. In the event that the law
                  changes and we fail to adapt our products to comply with these
                  changes, our business would be adversely affected.

                  Because we have fixed costs, any decline in our revenues could
                  disproportionately   and   adversely   affect  our   financial
                  condition and operating results.

                  Significant  portions  of our costs are fixed,  due in part to
                  our  fixed  sales,   engineering  and  product  support,   and
                  manufacturing   facilities.  As  a  result,  relatively  small
                  declines  in  revenue  could  disproportionately   affect  our
                  operating results. Additionally, we have a limited backlog and
                  a limited  view of when an order will be received and shipped,
                  which may affect revenue in any given period.

                  Changes in product demand, among other things, could adversely
                  affect  our  manufacturing  capacity,  which  would  adversely
                  affect our business.

                  Because  we build  our  inventory  to meet  specific  contract
                  requirements, customer demand is not a factor that will result
                  in   excess   manufacturing   capacity.    However,   if   our
                  manufacturing  capacity  does not keep pace with our  contract
                  awards,  we will be  unable  to  fulfill  orders  in a  timely
                  manner, which could adversely affect our operating results. In
                  addition,  any  significant  disruption  in our  manufacturing
                  operation,   whether  due  to  fire,   natural  disaster,   or
                  otherwise,  also will  materially  and  adversely  affect  our
                  financial condition and operating results.

<PAGE>
                                       21


                  Because we rely on  independent  and single source  suppliers,
                  failure of a supplier  to deliver to us may  adversely  affect
                  our business.

                  We  rely on  independent  suppliers  to  provide  us with  the
                  components  that we use to assemble  our  products.  We do not
                  have  written   agreements  with  our  suppliers   except  for
                  Motorola.  We are an authorized dealer for Motorola radios but
                  the sale of new Motorola  radios is not a material  portion of
                  our  business.  Accordingly,  because we do not control  these
                  suppliers,  our business  could be  adversely  affected to the
                  extent that our suppliers fail to make these components to our
                  specifications or deliver them in a timely manner.

                  In addition,  we currently procure,  and expect to continue to
                  procure,  approximately  10% of the components  that we use to
                  build our products  from single  source  manufacturers  due to
                  unique  component  designs,  as well as  certain  quality  and
                  performance requirements.  We also purchase certain customized
                  components  from single  sources in order to take advantage of
                  volume pricing  discounts.  In the future, we could experience
                  shortages of single-source  components.  In such event, we may
                  have  to  make   adjustments  to  both  product   designs  and
                  production  schedules  that  could  result  in  delays  in the
                  production  and  delivery of our  products.  Such delays could
                  have materially and adversely  affect our financial  condition
                  and operating results.

                  If we fail to obtain a bidding partner,  our business could be
                  adversely affected.

                  Approximately 70% of our gross and net revenues for our fiscal
                  year  ended   December   31,  2004  were   generated   by  our
                  participation in public projects.  This participation involves
                  competitive bidding, which generally requires us to post a bid
                  bond equal to 10% of the total cost of the project.  If we are
                  awarded  the  bid,  we are  usually  required  to  post a 100%
                  performance  bond. We have been able to obtain these bonds for
                  the work we currently are performing but,  because of our weak
                  financial  condition,  in the  future  we may be  required  to
                  obtain a financially  responsible  partner to participate with
                  us in the

<PAGE>
                                       22


                  bidding process. We cannot assure you that such a partner will
                  be available to us, if required.  If and to the extent that we
                  fail to find such a partner when needed, our business would be
                  adversely affected.

                  If we fail to introduce  new products on a timely  basis,  our
                  business could be adversely affected.

                  We  sell  our   products  in  the  ITS   industry,   which  is
                  characterized by;

                        o     rapid technological changes,

                        o     frequent new product introductions, and

                        o     evolving industry standards.

                  Without  the  timely   introduction   of  new   products   and
                  enhancements,  our products will likely become technologically
                  obsolete over time, in which case our operating  results would
                  suffer.  The success of our new product  offerings will depend
                  on several factors, including our ability to;

                        o     properly identify customer needs,

                        o     price our products competitively,

                        o     innovate   and   develop  new   technologies   and
                              applications,

                        o     successfully  commercialize  new technologies in a
                              timely manner,

                        o     manufacture and deliver our products in sufficient
                              volumes on time, and

                        o     differentiate  our  offerings  from  those  of our
                              competitors.

                  Development   of  new  products  may  require  a   substantial
                  investment before we can determine the commercial viability of
                  these  innovations.  We would  suffer  competitive  harm if we
                  dedicate  a  significant   amount  of  our  resources  to  the
                  development  of  products  that do not  achieve  broad  market
                  acceptance.

                  Our business could be adversely  affected if our products have
                  defects.

                  Our  products may have  defects  despite any internal  testing
                  that we may  undertake.  These defects could result in product
                  returns or

<PAGE>
                                       23


                  recalls  and loss or delay in market  acceptance,  which could
                  materially  and  adversely  affect  our  business,   operating
                  results,  and/or financial condition.  We warrant our products
                  against certain defects for a period of one year and, although
                  we have not  received  notice  of any  warranty  claims in the
                  past, we cannot assure you that no such claims will be made in
                  the future.

                  Because most of our products are based on constantly  changing
                  technology,  our business  could be  adversely  affected if we
                  fail to adequately adapt our products to these changes.

                  Most of our products  are based on wireless and solar  powered
                  technology.  This  technology  is  constantly  being  updated.
                  Accordingly,  our operating results could suffer if we fail to
                  adapt our products to meet this changing technology. Among the
                  factors that make a smooth transition from current products to
                  new products difficult are:

                        o     delays in product development or manufacturing,

                        o     variations in product costs, and

                        o     delays in customer  purchases of existing products
                              in anticipation of new product introductions.

                  Our  operating  results could also suffer due to the timing of
                  product  introductions by our competitors.  This is especially
                  true when a competitor introduces a new product just before we
                  do.

                  Our  business  could  be  adversely  affected  if we  fail  to
                  maintain rights to our intellectual property.

                  We  generally  rely upon  patent and trade  secret  laws,  and
                  agreements  with our  employees,  customers,  and  partners to
                  establish   and  maintain  our   proprietary   rights  in  our
                  technology  and  products.  However,  any of our  intellectual
                  proprietary  rights  could  be  challenged,   invalidated,  or
                  circumvented.  Our  intellectual  property may not necessarily
                  provide  significant  competitive  advantages.   In  addition,
                  because of

<PAGE>
                                       24


                  the rapid pace of technological change in the ITS and call box
                  markets,  certain  of our  products  rely on key  technologies
                  developed by third parties, and we may not be able to continue
                  to obtain  licenses  from these third  parties.  Third parties
                  also  may  claim  that we are  infringing  their  intellectual
                  property.  Even if we do not  believe  that our  products  are
                  infringing third parties'  intellectual property rights, these
                  claims can be  time-consuming  and costly to defend and divert
                  our  management's   attention  and  resources  away  from  our
                  business.  Claims of intellectual  property infringement might
                  also  require  us to enter  into  costly  royalty  or  license
                  agreements.  If we  cannot  or do not  license  the  infringed
                  technology  or  substitute  similar  technology  from  another
                  source, our business could suffer.

                  If we fail to integrate with third parties when required to do
                  so, our business could be adversely affected.

                  In the normal  course of  business,  we  frequently  engage in
                  discussions  with third  parties  relating to  integrated  bid
                  participations and strategic alliances, possible acquisitions,
                  and joint ventures. Although completion of any one transaction
                  may not have a  material  effect  on our  financial  position,
                  results of  operations,  or cash flows  taken as a whole,  our
                  financial  results may differ from the investment  community's
                  expectations  in a given quarter.  Acquisitions  and strategic
                  alliances may require us to integrate with  different  company
                  cultures,  management teams, and business infrastructures.  We
                  may also have to develop,  manufacture, and market products in
                  a way that enhances the  performance of the combined  business
                  or product  line.  Depending on the size and  complexity of an
                  acquisition,  our successful  integration of an entity depends
                  on a variety of factors, including

                        o     hiring and retaining key employees,

                        o     managing  facilities  and  employees  in  separate
                              geographic areas, and

                        o     integrating or coordinating different research and
                              development and product manufacturing facilities.

<PAGE>
                                       25


                  All of these  efforts  require  varying  levels of  management
                  resources,  which may divert our attention from other business
                  operations.

                  Our  business  may  suffer  if we  lose  the  services  of our
                  executive  officers,  or  if  we  cannot  recruit  and  retain
                  additional skilled personnel.

                  We depend on the continued  services and performance of George
                  W.  Benoit,  our  Chairman  and Chief  Executive  Officer  and
                  Anthony S. Conigliaro,  our Chief Financial  Officer,  for our
                  future success. If either Mr. Benoit or Mr. Conigliaro becomes
                  unable or unwilling to continue in his current  position,  our
                  business and financial conditions could be damaged. We are not
                  the  beneficiaries  of any key person life insurance  covering
                  them or any other executive.

                  We also depend upon our  ability to attract,  hire,  train and
                  retain highly  skilled  technical,  sales and  marketing,  and
                  support  personnel,  particularly  with  expertise in wireless
                  call box  products and  services.  Competition  for  qualified
                  personnel  throughout  our industry is intense.  If we fail to
                  attract, hire or retain such personnel, our business,  results
                  of operations and financial  condition could be materially and
                  adversely affected. We may experience difficulty providing the
                  proper level of service to our  customers  or incur  increased
                  costs due to rising salary and benefit levels.

            Risks Related to the ownership of our Common Stock
            --------------------------------------------------

                  Because  our assets are  insufficient  to pay our  outstanding
                  debt  and  preferred  stock  liquidation  preferences,  if  we
                  liquidated  now,  owners of our common stock would not receive
                  any proceeds from the liquidation.

                  As of December 31, 2004, we had  outstanding  indebtedness  of
                  approximately  $3,994,000 and outstanding preferred stock with
                  an   aggregate    liquidation    preference   of   $4,137,966.
                  Accordingly, if we liquidated,  based on our current financial
                  condition,  no assets would be available for  distribution  to
                  our common

<PAGE>
                                       26


                  stockholders  after  distributions to creditors and holders of
                  our preferred stock.

                  Your  ability  to sell any  common  stock  may be  restricted,
                  because   there  is  a  limited   trading   market  for  these
                  securities.

                  Although our common stock is currently  traded on the American
                  Stock  Exchange,  a  liquid  market  in  our  stock  has  been
                  sporadic.  Accordingly,  if you  purchase  any  shares  of our
                  common  stock,  you may not be able to sell them when you want
                  or at the price you want, if at all.

                  Our  common  stock  could  be  delisted  from  trading  on the
                  American Stock  Exchange,  in which event your ability to sell
                  any shares you may own could be  significantly  and  adversely
                  affected.

                  Although  our  common  stock  is  listed  for  trading  on the
                  American  Stock  Exchange (the  "AMEX"),  it could be delisted
                  because  we may be  unable to  satisfy  certain  AMEX  listing
                  guidelines,  including  earnings  per share,  market price and
                  stockholders' equity criteria. Among other things, we must (i)
                  continuously  maintain our  stockholders'  equity in excess of
                  $6,000,000,   and  (ii)  hold,  annually,  a  meeting  of  our
                  stockholders,   to  meet   the   AMEX's   continuing   listing
                  requirements.  On August 26, 2003, we received notice from the
                  AMEX that as of June 30,  2003,  we were below  certain of its
                  continuing listing standards.  At that date, our stockholders'
                  equity was  $2,069,635;  however,  at September 30, 2003,  our
                  stockholders'  equity  was  $6,900,790.  On January 2, 2004 we
                  received a notice dated  December 31, 2003 from the AMEX Staff
                  indicating that we evidenced  compliance with the requirements
                  necessary  for  continued  listing on the AMEX. As is the case
                  for all listed issuers,  our continued listing  eligibility is
                  assessed on an ongoing  basis and we continue to be subject to
                  additional  scrutiny  (as set forth in Section  1009(h) of the
                  AMEX Company Guide) as is the case for any listed company that
                  has  regained  compliance.  If we  fail  to  comply  with  the
                  continuing listing standards, our securities would most likely
                  be delisted  from the AMEX.  We cannot assure you that we will
                  continue to be in such compliance.

<PAGE>
                                       27


                  If we do not retain the AMEX  listing and our common  stock is
                  thereafter quoted only on the OTC Electronic Bulletin Board, a
                  significantly  less liquid market than the AMEX, a stockholder
                  will find it even more  difficult  to dispose of, or to obtain
                  accurate  price  quotations of our common stock.  In addition,
                  depending on several  factors  including,  among  others,  the
                  future  market  price of our common  stock,  these  securities
                  could become subject to the so-called "penny stock" rules that
                  impose   additional   sales   practice   and   market   making
                  requirements on  broker-dealers  who sell and/or make a market
                  in such securities.  These factors could affect the ability or
                  willingness of  broker-dealers to sell and/or make a market in
                  our common stock and the ability of  purchasers  of our common
                  stock  to  sell  their  shares  in  the  secondary  market.  A
                  delisting  could also  negatively  affect our ability to raise
                  capital in the future.

                  The market price of our common  stock may be  volatile,  which
                  could adversely  affect the value of any common stock that you
                  may own.

                  The   market   price  of  our  common   stock  may   fluctuate
                  significantly in response to the following factors:

                        o     variations in our quarterly operating results;

                        o     our   announcements   of  significant   contracts,
                              milestones or acquisitions;

                        o     our relationships with other companies;

                        o     our ability to obtain capital commitments;

                        o     additions or departures of our key personnel;

                        o     sales of our common stock by others or termination
                              of stock transfer restrictions;

                        o     changes in estimates of our financial condition by
                              securities analysts; and

                        o     fluctuations in stock market price and volume.

                  The last three factors are beyond our control.

                  In the past,  following  periods of  volatility  in the market
                  price of a company's securities,

<PAGE>
                                       28


                  securities  class action  litigation often has been instituted
                  against that company. Such litigation is expensive and diverts
                  management's  attention and resources.  Any one of the factors
                  noted above  could have an adverse  affect on the value of our
                  common stock.

                  Anti-takeover  provisions of the Delaware General  Corporation
                  Law and in our Certificate of Incorporation could discourage a
                  merger or other type of corporate  reorganization  or a change
                  in control,  even if it could be favorable to the interests of
                  our stockholders.

                  The Delaware  General  Corporation  Law and our Certificate of
                  Incorporation   contain   provisions   that  may   enable  our
                  management  to retain  control  and resist a  takeover  of our
                  Company.  These provisions  generally prevent us from engaging
                  in a broad  range of  business  combinations  with an owner of
                  15%, 20% in the case of our Certificate of  Incorporation,  or
                  more of our  outstanding  voting  stock  for a period of three
                  years from the date that this person  acquires his stock.  Our
                  Certificate of Incorporation  and our By Laws also require the
                  affirmative vote of at least 60% or our voting stockholders to
                  effect    certain    actions,    including,    under   certain
                  circumstances,  the removal of directors,  and provide for the
                  election of different  classes of  directors  with the term of
                  each class ending at different times. In addition, our By-Laws
                  require the affirmative  vote of at least 60% or our directors
                  to  change  the   composition  of  our  Executive   Committee.
                  Accordingly,  these  provisions  could discourage or make more
                  difficult  a change in  control  or a merger or other  type of
                  corporate  reorganization even if it could be favorable to the
                  interests of our stockholders.

                  Our officers and directors exercise  significant  control over
                  our affairs,  which could result in their taking  actions that
                  other stockholders do not approve of.

                  Our executive officers and directors,  and persons or entities
                  affiliated  with them,  currently  control  about 17.2% of our
                  outstanding  common  stock.  These  stockholders,  if they act
                  together, may be able to exercise substantial influence

<PAGE>
                                       29


                  over  all  matters  requiring  approval  by our  stockholders,
                  including   the   election  of   directors   and  approval  of
                  significant  corporate  transactions.  This  concentration  of
                  ownership may also delay or prevent a change in control of our
                  Company and might affect the market price of our common stock.

                  We do not intend to pay cash  dividends on our common stock in
                  the foreseeable future.

                  We have never paid any cash  dividends on our common stock and
                  currently  intend to retain all future  earnings,  if any,  to
                  invest  in our  business.  Accordingly,  we do not  anticipate
                  paying cash  dividends on our common stock in the  foreseeable
                  future.

                  If our Board  issues  common  stock,  which it can do  without
                  stockholder  approval,  a purchaser  of our common stock could
                  experience substantial dilution.

                  Our Board of  Directors  has the  authority  to issue up to 40
                  million  shares  of  common  stock  and to issue  options  and
                  warrants  to  purchase  shares  of our  common  stock  without
                  stockholder approval. In the future, we could issue additional
                  shares of our common stock at values  substantially  below the
                  current  market  price  for  our  common  stock,  which  could
                  substantially  dilute the equity  ownership  of holders of our
                  common stock. In addition,  our Board could issue large blocks
                  of our  common  stock to  prevent  unwanted  tender  offers or
                  hostile takeovers without any stockholder approval.

                  Our ability to issue preferred stock may adversely  affect the
                  rights of common  stockholders and be used as an anti-takeover
                  device.

                  Our  Certificate  of  Incorporation  authorizes  our  Board of
                  Directors to issue up to 25 million shares of preferred  stock
                  without approval from our  stockholders.  Accordingly,  all of
                  our common stock will be junior to any preferred  stock issued
                  by us, and our Board has the right,  without  the  approval of
                  common   stockholders,   to  fix  the   relative   rights  and
                  preferences of such

<PAGE>
                                       30


                  preferred  stock.  This  could  affect  the  rights  of common
                  stockholders regarding,  among other things, voting, dividends
                  and  liquidation.  We could also use an issuance of  preferred
                  stock  to  deter or  delay a  change  in  control  that may be
                  opposed by our management,  even if the  transaction  might be
                  favorable to the common stockholders.

                  Any exercise of  outstanding  options and warrants will dilute
                  then-existing  stockholders'  percentage  of  ownership of our
                  common stock.

                  We  have a  significant  number  of  outstanding  options  and
                  warrants.  Shares  issuable upon the exercise of these options
                  and warrants,  at prices ranging currently from $0.15 to $6.00
                  per  share,   represent   approximately  73.8%  of  our  total
                  outstanding  stock on a fully-diluted  basis.  The exercise of
                  all of the  outstanding  options and warrants would dilute the
                  then-existing stockholders' percentage ownership of our common
                  stock.  Any sales  resulting  from the exercise of options and
                  warrants  in the public  market,  such as sales by the selling
                  stockholders  pursuant  to this  prospectus,  could  adversely
                  affect   prevailing   market  prices  for  our  common  stock.
                  Moreover,  our  ability to obtain  additional  equity  capital
                  could be adversely  affected  since the holders of outstanding
                  options and warrants may exercise them at a time when we would
                  also wish to enter the market to obtain  capital on terms more
                  favorable than those provided by such options and warrants. We
                  lack  control over the timing of any exercise or the number of
                  shares issued or sold if exercises occur.

Item 2. Description of Property.

      Our principal  executive offices and e-recruiting  business are located at
      200 West 57th Street,  Suite 507,  New York,  New York 10019 where we rent
      approximately  500 square feet under a lease that will expire on April 30,
      2005  pursuant  to which we pay a base  monthly  rental  of  $3,250.  SRC,
      Connectivity  and  Mobile  Comm  are  located  at  3733  NW  16th  Street,
      Lauderhill,  FL 33311,  where they rent  approximately  5,000  square feet
      under a lease that  expires on March 31,  2006  pursuant to which we pay a
      base monthly  rental of $6,750.  This lease is with  affiliates  of Thomas
      Sullivan, who is one of our

<PAGE>
                                       31


      executive officers and Gary L. Eichsteadt, who is one of our directors and
      one of our  employees.  US  Commlink  is located at 6244  Preston  Avenue,
      Livermore, CA 94550, where it leases approximately 2,000 square feet under
      a lease that expires May 31, 2005  pursuant to which we pay a base monthly
      rental of $1,981.

<PAGE>
                                       32


Item 3. Legal Proceedings.

      We are a party to various vendor related litigations. Based on the opinion
      of legal counsel,  we have accrued a liability of  approximately  $100,000
      and,  accordingly,  this liability has been reflected in accounts  payable
      and accrued  expenses  within the  consolidated  financial  statements  at
      December 31, 2004.

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

      On June 18, 2004, we held an annual meeting of our  stockholders  at which
      our stockholders  elected three  directors,  ratified the selection of our
      auditors  for 2004 and approved and adopted an amendment to our 2003 Stock
      Incentive Plan.

      Our  stockholders  elected  George W.  Benoit,  David W. Dube and Carol A.
      Gutowski for three year terms.  The following  table sets forth the number
      of votes for, against, withheld, abstained and broker no votes:

                                                                      Broker No
      Name of Director       For      Against   Withheld  Abstained     Votes
      ----------------       ---      -------   --------  ---------     -----

      George W. Benoit    7,747,103        --    35,243          --          --
      David W. Dube       7,747,203        --    35,143          --          --
      Carol L. Gutowski   7,747,203        --    35,143          --          --

      Our  stockholders  ratified the selection of Rosen Seymour Shapss Martin &
      Company LLP as our auditors for 2004. The vote was 7,751,5033  for, 21,733
      against,  none  withheld,  9,110  abstained  and no broker  no votes.  Our
      stockholders  also  ratified  the  resolution  to  approve  and  adopt  an
      amendment to the 2003 Stock  Incentive  Plan.  The vote was 5,400,591 for,
      89,087 against,  none withheld,  2,525  abstained and 2,143,865  broker no
      votes.

      On June 30, 2004, Ms.  Gutowski  resigned from our board,  and on June 28,
      2004,  Anthony  S.  Conigliaro,  our Vice  President  and Chief  Financial
      Officer,  was appointed to our board.  On January 11, 2005, as part of the
      settlement of  litigation  with Mr.  Gutowski and Larry M. Reid,  the both
      resigned as  directors.  On April 6, 2005,  we  terminated  Rosen  Seymour
      Shapss  Martin & Company LLP as our  independent  auditors  and  appointed
      Wheeler, Herman, Hopkins & Lagor, P.A.

<PAGE>
                                       33


                                     PART II

Item 5. Market For Common Equity and Related Stockholder Matters.

      Exchange Listing:
      -----------------

      Our common stock is listed on the American Stock Exchange  (trading symbol
      CNE).

      The number of record  holders of our common  stock as of April 1, 2005 was
      approximately 287.

      Equity Sale Prices:
      -------------------

                                       Common Stock
                                       ------------
                       High Sales Price            Low Sales Price
                       ----------------            ---------------
              2004
              ----
          1st Quarter       1.20                          0.50
          2nd Quarter       1.35                          0.37
          3rd Quarter       0.40                          0.23
          4th Quarter       0.50                          0.30

              2003
              ----
          1st Quarter       0.96                          0.25
          2nd Quarter       1.20                          0.55
          3rd Quarter       0.92                          0.45
          4th Quarter       0.65                          0.52

      Dividends:
      ----------

      We have not previously paid cash dividends on our common stock.  Our Board
      of  Directors  does not  currently  intend  to pay cash  dividends  on the
      outstanding  shares of our common  stock in the  foreseeable  future.  The
      payments of future  dividends and the amount  thereof will depend upon our
      earnings, financial condition, capital requirements and such other factors
      as our Board of Directors may consider relevant.

      Private Issuance of Company Securities:
      ---------------------------------------

      During the year ended December 31, 2004, we issued common stock, notes and
      warrants  in  private   transactions   pursuant  to  the  exemption   from
      registration  provided by Section 4(2) of the  Securities Act of 1933. For
      information  on  these  issuances,  see  "Part  II - Item 6:  Management's
      Discussion and Analysis of Financial

<PAGE>
                                       34


      Condition and Results of Operations - Liquidity and Capital Resources." We
      issued  preferred  stock,  common stock,  warrants and notes in connection
      with  our  acquisition  of SRC  and ECI  pursuant  to the  exemption  from
      registration  provided by  Regulation D promulgated  under the  Securities
      Act. For information on these issuances,  see "Part II - Item 7: Financial
      Statements - Notes to Financial Statements."

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

      Summary Financial Information
      -----------------------------

      The summary  financial data set forth below are derived from and should be
      read in  conjunction  with the financial  statements,  including the notes
      thereto, filed as part of this Annual Report in Form 10-KSB.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                                              2004                     2003
                                                              ----                     ----
                                                           (in thousands, except share data)
<S>                                                        <C>                      <C>
           Statement of Operations Data
             Revenues                                        $ 2,676                  $ 2,149
             Net loss                                        $(2,333)                 $(1,119)
             Net loss per
              common share:
               Basic                                         $  (.22)                 $  (.16)
               Diluted                                       $  (.22)                 $  (.18)
             Weighted average number  of common shares
              outstanding:
               Basic                                       10,545,082                7,161,756
               Diluted                                     10,545,082               10,541,956

<CAPTION>

                                                                       December 31,
                                                             2004                       2003
                                                             ----                       ----
                                                                      (in thousands)
<S>                                                        <C>                         <C>
          Balance Sheet Data
             Working capital                               $ (3,147)                   $  (544)
             Total assets                                  $  9,589                    $10,141
             Total liabilities                             $  3,994                    $ 3,873
             Stockholders' equity                          $  5,595                    $ 6,268
</TABLE>

      General
      -------

      We are a holding company whose primary operating  subsidiaries are SRC and
      US Commlink.  SRC, also a holding  company,  is the parent of Connectivity
      and ECI.  These  companies,  which we acquired on April 23, 2003,  market,
      manufacture, repair and maintain remote radio and cellular-based emergency
      response  products  to a variety of  federal,  state and local  government
      agencies

<PAGE>
                                       35


      as well as other vertical markets located throughout the United States. In
      addition,   we  engage  in  the  business  of  e-recruiting   through  our
      subsidiary, CareerEngine, Inc. The e-recruiting business does not generate
      a  significant  part  of  our  revenue,  and  is  not  significant  to the
      operations of the Company.

      Acquisition of all of the outstanding stock of SRC and ECI
      ----------------------------------------------------------

      On April 23, 2003 we issued (i) 899,971  shares of our common stock,  (ii)
      1,697,966  shares of our non-voting  Series A Preferred Stock and an equal
      number of ten year Class A Warrants,  (iii)  4,400  shares of our Series B
      Preferred  Stock,  and (iv) 9,735,875  shares of our  non-voting  Series C
      Preferred  Stock and a like number of ten year Class C Warrants,  for 100%
      ownership of SRC, US Commlink and ECI. In addition, ECI's sellers retained
      certain of ECI's trade receivables aggregating  approximately $100,000. We
      also  acquired a patent  related to the  operation  of ECI's  business  in
      exchange  for  notes  aggregating  $2,000,000  bearing  8%  interest.  The
      consolidated  financial  statements  include the  operating  results of US
      Commlink, and those of SRC and ECI from the date of their acquisition. The
      details of such transactions are set forth below.

            SRC
            ---

      On April  23,  2003,  we  issued  to Mr.  and Mrs.  Gutowski,  the  former
      principal common  stockholders of SRC, an aggregate of 4,867,937 shares of
      our  non-voting  Series C  Preferred  Stock and a like  number of ten year
      Class C Warrants,  each to purchase one share of our Common Stock at $1.00
      per share. The Class C Warrants are not exercisable or detachable from the
      Series C Preferred Stock prior to 66 months after their issuance.

      We issued to the other former common  stockholders  of SRC,  including Mr.
      Reid, an aggregate of 899,976 shares of its Common Stock, 1,697,966 shares
      of our non-voting  Series A Preferred  Stock and a like number of ten year
      non-detachable Class A Warrants,  each to purchase one share of our Common
      Stock at $1.00 per share.  The Class A  Warrants  are not  exercisable  or
      detachable  from the Series A  Preferred  Stock  prior to 66 months  after
      their issuance.

      On January 10, 2005, as part of the a litigation  settlement  with Messrs.
      Reid and Gutowski and Mrs.

<PAGE>
                                       36


      Gutowski, they agreed to exchange all of their Class AA, Class A and Class
      C Preferred Stock, and all of their 1,550,000  incentive stock options for
      850,000  shares of our common stock if the exchange is made on or prior to
      May 9, 2005, 950,000 shares if the exchange is made on or prior to June 9,
      2005,  or 1,050,000  shares if the exchange is made on or prior to July 9,
      2005.

      We issued an aggregate of 4,400 shares of our Series B Preferred  Stock to
      the former holders of the SRC Series B Preferred Stock.

            ECI
            ---

      On April 23, 2003,  the Company  issued to Gary L.  Eichsteadt  and Thomas
      Sullivan, the former stockholders of ECI, an aggregate of 4,867,938 shares
      of its Series C Preferred Stock and a like number of Class C Warrants.  In
      addition,  Messrs. Eichsteadt and Sullivan retained certain of ECI's trade
      receivables aggregating  approximately $100,000. We also acquired a patent
      ("ECI  Patent)  related  to the  operation  of  ECI's  business  from  Mr.
      Eichsteadt  for notes in the  aggregate  principal  amount of  $2,000,000,
      bearing interest at the annual rate of 8%, payable  quarterly,  and due on
      October 31, 2008. Mr. Sullivan  remained an executive officer ECI. On July
      31,  2003,  we  transferred  all the stock of ECI to SRC and ECI  became a
      wholly-owned  subsidiary of SRC. In addition,  in 2003 we transferred  our
      title to the ECI Patent to SRC. In 2004 we transferred title back to us as
      collateral for certain or our 24% secured notes.

      On May 19, 2003, Mr. Eichsteadt  assigned $1,500,000 of the aforementioned
      8% notes  equally to Mr.  Sullivan,  Mr.  Gutowski and Mrs.  Gutowski.  On
      August 31, 2003, Mr. and Mrs.  Gutowski  converted their notes aggregating
      $1,000,000  into  1,000,000  shares of the  Company's  Series AA Preferred
      Stock and on June 18, 2004 Messrs,  Eichsteadt and Sullivan also converted
      their note into  1,000,000  shares of the  Company's  Series AA  Preferred
      Stock.  As noted  above,  Mr.  Gutowski  and  Mrs.  Gutowski's  Series  AA
      Preferred Stock are subject to an exchange agreement for common stock.

      The Series AA Preferred  Stock has an 8% cumulative  dividend,  payable in
      common  stock or cash,  and a  liquidating  preference  over all other CNE
      equity of  $1,000,000.  The  Series A  Preferred  Stock has a  liquidating
      preference  over all other CNE equity except the Series AA of  $1,697,961.
      The Series B Preferred

<PAGE>
                                       37


      Stock has a  liquidating  preference  over all other CNE equity except the
      Series AA and A Preferred Stock of $440,000.  The Series C Preferred Stock
      has no liquidating preference.

      The total consideration,  including acquisition costs, was allocated based
      on the estimated fair values of the net assets acquired on the acquisition
      date.

<PAGE>
                                       38

                               ECI            SRC          Total
                          -----------    -----------    -----------

      Tangible assets     $   588,492    $   292,979    $   857,593
      Patents               1,379,789        170,820      1,550,609
      Goodwill              2,766,233      4,519,661      7,285,894
      Liabilities          (2,144,771)      (857,033)    (3,001,804)
                          -----------    -----------    -----------
        Net asset value
                          $ 2,589,743    $ 4,126,427    $ 6,716,170
                          ===========    ===========    ===========

      There were no relationships between us or any of our affiliates and any of
      the  sellers  of  the  assets  we  acquired   prior  to  the   acquisition
      transactions.

      Catastrophe of September 11, 2001
      ---------------------------------

      In 2001,  our  headquarters  were located at Suite 2112 of Two World Trade
      Center in New York City. In April and September  2002, and August 2003, we
      received  governmental   assistance  grants  related  to  the  catastrophe
      aggregating  $300,000.  The grants have a  restriction  that could require
      their repayment, specifically if we were to relocate a substantial portion
      our  operations  outside of New York City  before May 1, 2005.  Until such
      time as this restriction no longer applies, we will classify the grants as
      a liability of the Company.  We will remove the liability and record grant
      income on our financial  statements when these  restrictions  lapse or are
      satisfied or,  alternatively,  repay such grants if the above condition is
      not satisfied.

      Critical Accounting Policies and Estimates
      ------------------------------------------

      The preparation of financial  statements in accordance with U.S. generally
      accepted   accounting   principles  requires  us  to  make  estimates  and
      assumptions  that affect the reported amounts of assets and liabilities at
      the date of the  financial  statements  and the  reported  amounts  of net
      revenue and expenses during the reporting  period. On an ongoing basis, we
      evaluate our  estimates,  including  those  related to our  allowance  for
      doubtful accounts,  inventory reserves,  goodwill and purchased intangible
      asset  valuations,  and  asset  impairments.  We  base  our  estimates  on
      historical  experience and on various other assumptions that we believe to
      be reasonable under the circumstances, the results of which form the basis
      for making  judgments about the carrying values of assets and liabilities.
      Actual results may differ from these estimates under different assumptions
      or conditions.

<PAGE>
                                       39


      We believe the  following  critical  accounting  policies,  among  others,
      affect the  significant  judgments and estimates we use in the preparation
      of our consolidated financial statements:

            Allowance for Doubtful Accounts, Revenue Recognition
            ----------------------------------------------------

      We evaluate  the  collectibility  of our  accounts  receivable  based on a
      combination of factors.  In circumstances where we are aware of a specific
      customer's inability to meet its financial  obligations to us, we record a
      specific  allowance  to  reduce  the  net  receivable  to  the  amount  we
      reasonably believe will be collected.  For all other customers,  we record
      allowances  for  doubtful  accounts  based  on  the  length  of  time  the
      receivables  are past due, the  prevailing  business  environment  and our
      historical experience. If the financial condition of our customers were to
      deteriorate  or  if  economic   conditions  were  to  worsen,   additional
      allowances may be required in the future.

      We recognize  product revenue when  persuasive  evidence of an arrangement
      exists, the sales price is fixed, the service is performed or products are
      shipped to  customers,  which is when title and risk of loss  transfers to
      the customers, and collectibility is reasonably assured.

      At December 31, 2004,  our allowance for doubtful  accounts was $51,000 or
      22.9%  of  gross  receivables,  compared  to  $51,500  or  18.8%  of  grow
      receivables  as of December  31,  2003.  The  increase in the reserve as a
      percentage of gross receivable from prior year is the result of a decrease
      in accounts  receivable  and a  requirement  for an allowance for doubtful
      accounts of an almost equal amount to that required in 2003.

            Inventory Valuation
            -------------------

      At each balance sheet date, we evaluate our ending  inventories for excess
      quantities and  obsolescence.  This evaluation  includes analyses of sales
      levels by product and projections of future demand. If inventories on hand
      are in excess of forecasted  demand, we provide  appropriate  reserves for
      such excess  inventory.  If we have previously  recorded the value of such
      inventory  determined  to be  in  excess  of  projected  demand,  or if we
      determine that inventory is obsolete,

<PAGE>
                                       40


      we write off these  inventories in the period the  determination  is made.
      Remaining  inventory balances are adjusted to approximate the lower of our
      cost or market  value.  If future  demand  or market  conditions  are less
      favorable  than our  projects,  additional  inventory  write-downs  may be
      required,  and would be  reflected  in cost of  revenues in the period the
      revision is made.

            Valuation of Goodwill.  Purchased  Intangible  Assets and Long-Lived
            Assets

      We perform goodwill  impairment tests on an annual basis and on an interim
      basis if an event or  circumstance  indicates  that it is more likely than
      not that  impairment  has  occurred.  We assess  the  impairment  of other
      amortizable  intangible  assets and long-lived  assets  whenever events or
      changes  in  circumstances  indicate  that the  carrying  value may not be
      recoverable.   Factors  we  consider   important  that  could  trigger  an
      impairment review include  significant  underperformance  to historical or
      projected operating results,  substantial changes in our business strategy
      and significant  negative  industry or economic trends. If such indicators
      are  present,  we  evaluate  the fair  value of the  goodwill.  For  other
      intangible  assets and long-lived  assets we determine  whether the sum of
      the  estimated  undiscounted  cash  flows  attributable  to the  assets in
      question  is less than  their  caring  value.  If less,  we  recognize  an
      impairment  loss based on the excess of the carrying  amount of the assets
      over their respective fair values. Fair value of goodwill is determined by
      using a  valuation  model  based on market  capitalization.  Fair value of
      other intangible assets and long-lived assets is determined by future cash
      flows,  appraisals or other methods. If the long-lived asset determined to
      be impaired is to be held and used, we recognize an  impairment  charge to
      the extent the  anticipated  net cash flows  attributable to the asset are
      less than the asset's  carrying  value.  The fair value of the  long-lived
      asset then becomes the asset's new  carrying  value,  which we  depreciate
      over  the  remaining  estimated  useful  life  of the  asset.  See  Note D
      "Intellectual Property Rights and Goodwill."

      Recent Accounting Pronouncements
      --------------------------------

      In  January  2003,  the FASB  issued  FIN 46,  Consolidation  of  Variable
      Interest  Entities  (VIE's),  and a revision  to FIN 46 in  December  2003
      (together,  "FIN 46"),  which  requires  identification  of the  Company's
      participation

<PAGE>

                                       41


      in VIE's.  VIE's are defined as entities  with a level of invested  equity
      that is not sufficient to fund future activities to permit them to operate
      on  a   stand-alone   basis,   or  whose   equity   holders  lack  certain
      characteristics  of  a  controlling   financial  interest.   For  entities
      identified  as  VIE's,  FIN 46 sets  forth a model to  evaluate  potential
      consolidation  based on the  assessment  of which  party to a VIE, if any,
      bears a majority of the risk of the VIE's  expected  losses,  or stands to
      gain from a majority of the VIE's expected returns. FIN 46 also sets forth
      certain   disclosures   regarding   interest  in  VIE's  that  are  deemed
      significant,  even if consolidation  is not required.  FIN 46 is effective
      for all VIE's created after January 31, 2003.  The Company  adopted FIN 46
      during 2003 and the adoption of this interpretation did not have an impact
      on the Company's consolidated financial statements in 2004 or 2003.

      In May  2003,  the  FASB  issued  SFAS No.  150,  Accounting  for  Certain
      Financial Instruments with Characteristics of Both Liabilities and Equity.
      SFAS No.  150  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).  Many of those  instruments were previously  classified as
      equity.  SFAS No. 150 is effective for financial  instruments entered into
      or modified after May 31, 2003. The Company  adopted this standard  during
      2003 and the adoption did not have an impact on the Company's consolidated
      financial statements in 2004 or 2003.

      During  December 2004, the Financial  Accounting  Standards Board ("FASB")
      issued SFAS No. 153,  Exchanges of  Nonmonetary  Assets -- An Amendment of
      APB  Opinion  No.  29. APB  Opinion  No. 29,  Accounting  for  Nonmonetary
      Transactions  ("APB 29") required that nonmonetary  exchanges be accounted
      for at fair value, subject to certain exceptions. SFAS 153 has removed the
      exception for  nonmonetary  exchanges of similar  productive  assets,  and
      replaced  it  with  an  exception  for  exchanges  that  lack   commercial
      substance.  The provisions of SFAS 153 are effective prospectively for all
      nonmonetary  asset  exchanges in fiscal periods  beginning  after June 15,
      2004.  Early  adoption  is  permitted.  The  Company  does not  expect the
      adoption  of SFAS  No.  153 to have a  material  impact  on the  Company's
      consolidated financial statements.

<PAGE>
                                       42


      During December 2004, FASB issued SFAS No. 123 (Revised 2004), Share-Based
      Payment  ("SFAS  123R").  SFAS 123R replaces SFAS No. 123,  Accounting for
      Stock-Based  Compensation  (SFAS 123),  and supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees.  SFAS 123R requires companies to
      recognize   the   compensation   cost  related  to   share-based   payment
      transactions with employees in the financial statements.  The compensation
      cost is  measured  based  upon the fair  value of the  instrument  issued.
      Share-based  compensation  transactions with employees covered within SFAS
      123R include  share  options,  restricted  share plans,  performance-based
      awards, share appreciation rights, and employee share purchase plans. SFAS
      123  included a  fair-value-based  method of  accounting  for  share-based
      payment transactions with employees,  but allowed companies to continue to
      apply the guidance in APB 25 provided  that they disclose in the footnotes
      to  the   financial   statements   the  pro  forma   net   income  if  the
      fair-value-based  method been applied.  The Company is currently reporting
      share-based payment  transactions with employees in accordance with APB 25
      and provides the required disclosures. SFAS 123R will be effective for the
      Company beginning January 1, 2006.

      In implementing SFAS 123R the Company will apply the modified  prospective
      application  transition  method.  The  modified  prospective   application
      transition method requires the application of this standard to:

            o     All new awards issued after the effective date;

            o     All  modifications,  repurchased or  cancellations of existing
                  awards after the effective date; and

            o     Unvested awards at the effective date.

      For  unvested  awards,  the  compensation  cost  related to the  remaining
      "requisite  service' that has not been rendered at the effective date will
      be determined by the  compensation  cost  calculated  currently for either
      recognition or pro forma  disclosures  under SFAS 123. The Company will be
      adopting the modified prospective application of SFAS 123R.

A.    Results of Operations: 2004 Compared to 2003
      --------------------------------------------

      Revenues

<PAGE>
                                       43


      Total revenues from continuing  operations increased to $2,675,986 for the
      year ended  December 31, 2004 from  $2,149,370 for the year ended December
      31, 2003.

      Product sales income  increased to $1,884,751  for the year ended December
      31, 2004 from  $1,445,324  for the year ended December 31, 2003 due to the
      increase in sales to our dealers, primarily Motorola, Inc.

      Service fee income  increased to $686,647 for the year ended  December 31,
      2004 from $548,762 for the year ended December 31, 2003 due to our Florida
      operations being awarded new contracts in 2004.

      Internet  related income decreased to $104,588 for the year ended December
      31,  2004  from  $155,284  for the year  ended  December  31,  2003 as the
      operations of our subsidiary,  CareerEngine,  Inc. continue to decline due
      to our relatively small size in the e-recruiting industry.

      Cost of Goods Sold

      Costs of goods sold,  which relates to product  sales and related  service
      fee income  increased to $1,553,749  for the year ended  December 31, 2004
      from  $1,176,900 for the year ended December 31, 2003 due to our increased
      revenue from continuing operations.

      Other Expenses

      Total other expenses from  continuing  operations  increased to $2,943,177
      for the year ended  December 31, 2004 from  $2,666,457  for the year ended
      December 31, 2003.

      Selling expenses decreased to $35,522 for the year ended December 31, 2004
      from  $47,806 for the year ended  December 31, 2003 due to the decrease in
      the number of trade shows we participated in 2004 as compared to 2003.

      Compensation  and related costs decreased to $1,081,175 for the year ended
      December 31, 2004 from $1,212,150 for the year ended December 31, 2003 due
      primarily to the termination of three officers of the Company in September
      2004.

      General and  administrative  expenses increased to $1,446,671 for the year
      ended  December 31, 2004 from  $1,247,096  for the year ended December 31,
      2003

<PAGE>
                                       44


      primarily due to an increase in legal and audit related services.

      Depreciation and amortization  expenses increased to $196,491 for the year
      ended  December  31, 2004 from  $159,405  for the year ended  December 31,
      2003,  primarily due to the effect of a complete year of  depreciation  in
      2004  compared to a partial year of  depreciation  in 2003 on those assets
      purchased in April, 2003.

      Other Items

      Amortization  of debt  discount  decreased  to $199,710 for the year ended
      December 31, 2004 from  $467,000 for the year ended  December 31, 2003 due
      to the effect of the change in the rate of amortization  from 12 months to
      24 months commencing the date the maturity of the notes was extended.

      Interest  expense  decreased to $316,051  for the year ended  December 31,
      2004 from  $423,625 for the year ended  December 31, 2003 due primarily to
      the net effect of a decrease in (i) the average outstanding balance of our
      indebtedness and effective interest rates, for the year ended December 31,
      2004 as compared to the year ended December 31, 2003.

      The Tax Settlement  adjustment of $895,622,  for the year end December 31,
      2003  relates  to the  accepted  and  paid  Offer in  Compromise  with the
      Internal  Revenue  Service  ($50,000)  pertaining  to  a  previous  years'
      estimated $945,000 tax liability of a subsidiary of the Company.

      Operating Loss

      On a pre-tax basis, we had a loss from continuing operations of $2,333,695
      for the year ended December 31, 2004 compared with a loss from  continuing
      operations of $1,688,990 for the year ended December 31, 2003.

      Our loss from  continuing  operations for the year ended December 31, 2004
      was  $2,333,695  compared  with  a  loss  from  continuing  operations  of
      $1,702,955  for the year  ended  December  31,  2003.  For the year  ended
      December 31, 2004, loss per common share from continuing operations, basic
      and diluted,  was $0.24 per share.  For the year ended  December 31, 2003,
      loss per common share

<PAGE>
                                       45


      from continuing operations, basic and diluted, was $0.22 per share.

      Income  from  discontinued  operations  of  $583,634  for the  year  ended
      December  31,  2003  relates  to  a  gain  on  the  sale  of  one  of  our
      subsidiaries.  For the year ended  December  31,  2003,  basic  income per
      common share from discontinued  operations was $0.08 per share and diluted
      income per common share from discontinued operations was $0.06 per share.

      Our net loss for the year ended December 31, 2004 was $2,333,695  compared
      with net a net loss of  $1,119,321  for the year ended  December 31, 2003.
      For the year ended  December  31,  2004,  basic and  diluted  net loss per
      common  share was $0.22 per share.  For the year ended  December 31, 2003,
      basic net loss per common  share from was $0.16 per share and  diluted net
      loss per common share was $0.18 per share.

B.    Liquidity and Capital Resources

      As reflected in the 2004 and 2003  financial  statements,  the Company has
      incurred   substantial  losses  from  continuing   operations,   sustained
      substantial cash outflows from operating  activities,  and at December 31,
      2004 had a working capital and stockholders' deficiency. The above factors
      raise substantial doubt about the Company's ability to continue as a going
      concern.  The  Company's  continued  existence  depends on its  ability to
      obtain  additional equity and/or debt financing to fund its operations and
      ultimately to achieve profitable operations.  The Company is attempting to
      raise additional financing and has initiated a cost reduction strategy. At
      December 31, 2004 management  believes that the working  capital  deficit,
      losses and  negative  cash flow will  ultimately  be  improved  by (i) the
      acquisitions  of SRC and ECI (ii) cost reduction  strategies  initiated in
      January  and June  2004 and (iii)  additional  equity  and debt  financing
      activities in addition to those set forth in the financial statements.  In
      addition,  the Company had been notified  that,  subject to the procedural
      requirements  of the American Stock Exchange (the  "Exchange"),  its stock
      could be  delisted.  However,  on January 2, 2004 the  Company  received a
      notice  dated  December  31, 2003 from the  Exchange  indicating  that the
      Company had  demonstrated  compliance  with the  requirement for continued
      listing on the Exchange.  However,  as is the case for all listed issuers,
      our continued  listing  eligibility is assessed on an ongoing basis and we
      continue  to be subject to  additional  scrutiny  (as set forth in Section
      1009(h) of the AMEX Company  Guide) as is the case for any listed  Company
      that has regained  compliance.  There is no assurance that the Company can
      obtain additional financing or achieve profitable operations or generate

<PAGE>
                                       46


      possible cash flow. The 2004 and 2003 financial  statements do not include
      any  adjustments  relating  to the  recoverability  or  classification  of
      recorded  asset amounts or the amount and  classification  of  liabilities
      that might be necessary as a result of this ongoing concern uncertainty

      Off-Balance Sheet Arrangements
      ------------------------------

      At December 31, 2004, we had no off-balance sheet arrangements.

      Operating Activities
      --------------------

      We utilized  $1,220,212  of cash in operating  activities  during the year
      ended December 31, 2004. We had a net loss from  continuing  operations of
      $2,333,695  during this period which  included an aggregate of $445,701 of
      non-cash items, including  depreciation and amortization,  amortization of
      debt discount,  allowance for doubtful accounts and common stock issued in
      lieu of cash for  professional  fees..  In  addition  to the net impact of
      non-cash items,  our operating  activities for the year ended December 31,
      2004 also reflected an increase in inventory,  accounts  payable,  accrued
      expenses and other liabilities.  These were offset in part by decreases in
      accounts  receivable,  other current and  non-current  assets and deferred
      income.

      We utilized  $1,361,966  of cash in operating  activities  during the year
      ended December 31, 2003. We had a net loss from  continuing  operations of
      $1,702,955  during this period which included an aggregate of ($70,467) of
      non-cash items, including  depreciation and amortization,  amortization of
      debt discount,  allowance for doubtful accounts and common stock issued in
      lieu of cash for professional fees offset by tax settlement  adjustment on
      a previous year's  estimated tax liability.  In addition to the net impact
      of non-cash  items,  our operating  activities for the year ended December
      31, 2003 also reflected an increase in accounts and insurance  receivable,
      inventory,  accrued  expenses and other  liabilities,  and deferred  grant
      revenue.  These  were  offset  in  part by  decreases  other  current  and
      non-current assets.

      On January 21, 2004, we took several  initiatives to address our operating
      cash  deficiency,  which included,  but were not limited to, the reduction
      and/or elimination of certain executive salaries, waiving of

<PAGE>
                                       47


      certain  interest  payments  due  officers  and/or  directors,  waiving of
      certain accounts receivable due an officer and employee, and the reduction
      of certain  administrative costs. In addition, we raised gross proceeds of
      $700,000  in  February  2004  from  the  sale  of our  common  stock  (see
      "Financing  Activities" below), and restructured certain short-term credit
      arrangements   into  a  $300,000  note  payable  due  in  February   2005.
      Furthermore,  in July through  December  2004 we  restructured  and issued
      approximately $450,000 of our debt securities.

      Financing Activities
      --------------------

      On April 23, 2003, the Company also completed a private financing pursuant
      to which it issued notes (the "Notes") in the aggregate  principal  amount
      of $1,000,000,  of which $650,000 was to certain  officers of the Company,
      and  4,165,800 ten year  cashless  Class B Warrants,  each to purchase one
      share of its Common Stock at $0.50 per share.  The Notes bear  interest at
      the annual rate of 10% payable  quarterly  and are due on April 30,  2004.
      The  aggregate  number of shares for which the  Warrants  may be exercised
      equal 15% of the  Company's  outstanding  Common Stock on a  fully-diluted
      basis.  The Warrants are  anti-dilutive  until the Notes have been repaid.
      The due date of the Notes may be extended at the  Company's  option for an
      additional year in  consideration  for the issuance of 10-year warrants to
      purchase 4% of the Company's  then  outstanding  common stock at $0.50 per
      share.  These  Warrants would also be  anti-dilutive  until the Notes have
      been repaid. In addition,  the Company valued the Warrants,  utilizing the
      Black-Scholes Pricing Model, at $699,000,  which is being accounted for as
      debt discount and is being amortized ratably over the one-year term of the
      Notes.

      On March 12, 2004, the Company  notified the Class B Warrant holders that,
      to  satisfy  the 15%  non-dilutive  provisions  of their  Warrants,  these
      Warrants were now exercisable for an aggregate of 5,245,200  shares of the
      Company's common stock at approximately $0.40 per share. On this date, the
      Company also exercised its option to extend the maturity date of the notes
      to April 30, 2005 and  satisfied  the  requirement  for the  additional 4%
      non-dilutive interest in the Company by issuing to the noteholders Class B
      Warrants to  purchase  an  additional  1,708,900  shares of the  Company's
      common  stock at $0.50  per  share.  The  non-dilutive  provisions  of the
      Warrants terminate when all of the notes have been paid in full.

<PAGE>

                                       48


      In April 2005,  the Company will notify the Class B Warrant  holders that,
      to satisfy the now 19%  non-dilutive  provisions of their Warrants,  these
      Warrants were now exercisable for an additional of 1,122,100 shares of the
      Company's common stock at approximately $0.40 per share.

      In addition, on September 17, 2003, we sold 1,250,000 shares of our common
      stock at $0.40 per share to an existing  noteholder and stockholder of the
      Company.

      On February 10,  2004,  the Company  sold  1,750,000  shares of its Common
      Stock at $0.40 per share. The net proceeds of the transaction  amounted to
      $571,000.  The  Company  used  the  funds  obtained  from  this  financing
      primarily for working capital purposes.

      On June 24, 2004 the Company repaid, in full, one of its outstanding lines
      of  credit  amounting  to  approximately  $146,000.  On the same  date the
      Company  issued a secured note  payable to an employee of a subsidiary  of
      the Company in the amount of $150,000. This employee is also a director of
      the  Company.  The note is secured by the  furniture  and  equipment  of a
      subsidiary  of the Company.  The note bears  interest at 10% per annum and
      the principal  and all interest  thereon was due on September 24, 2004. In
      consideration of extending the maturity date of the note to April 30, 2005
      and deferring the payment of all accrued  interest for the period June 24,
      2004  through  April 30,  2005,  the  individual  was issued  Warrants  to
      purchase 101,000 shares of the Company's common stock at $0.28 per share.

      In July and August 2004,  the Company  issued  $150,000 of its 24% Secured
      Notes due April 30, 2005 to the wife of the Chief Executive Officer and an
      existing 10% subordinated noteholder of the Company. Interest on the notes
      is payable  quarterly  in  arrears.  The notes are  secured by (i) all the
      stock of SRC and  USCL,  and (ii) the  pledge of  Patent  Nos.  6,060,979,
      6,047,173  and  5,701,338 - all owned by the Company.  On October 1, 2004,
      the holders of 100% of the  Company's  24% Secured  Notes  agreed to defer
      $5,867 of interest due on such date to January 1, 2005 in consideration of
      the Company  issuing to them 53,333 Class B Warrants of the Company,  each
      to give the holder  thereof the right to purchase a share of common  stock
      at $0.33 per  share.  On  January  1,  2005,  the  holders  of 100% of the
      Company's 24% Secured Notes agreed to defer $9,200 of interest due on such
      date and further defer the interest that was due and

<PAGE>
                                       49


      deferred on October 1, 2004 ($5,867) to April 1, 2005 in  consideration of
      the Company issuing to them 113,000 Class B Warrants of the Company,  each
      to give the holder  thereof the right to purchase a share of common  stock
      at $0.40 per share.

      In October  2004,  the Company and USCL  entered  into a two-year  Project
      Financing  Agreement  with an  institutional  lender  relating  to  USCL's
      anticipated   participation   in  the  "Cellular   Call  Box  Upgrade  and
      Maintenance  Service"  projects for numerous Service Authority for Freeway
      Emergencies  ("SAFE") programs within the state of California.  These call
      box programs  operate over 17,000 motorist aid analog call boxes that will
      require upgrades to digital cellular technology available through USCL. We
      cannot assure you that we will participate in these projects or, if we do,
      to what extent such  participation  will be. This  agreement  provides the
      Company with  finished  goods and accounts  receivable  financing of up to
      $2,000,000  relating  to  these  potential  aforementioned  projects.  The
      effective  interest rate is  approximately 3% per month on the outstanding
      balance  of the  amount  receivables  financed.  The  finished  goods  and
      accounts receivable to be financed, as well as all the other assets of the
      Company not  previously  pledged,  will secure the  borrowings  under this
      agreement.

      In October, November and December 2004, the Company issued (i) $150,000 of
      its 10% Convertible  Subordinated Notes due June 30, 2005 and (ii) 945,000
      Class C Cashless Warrants of the Company,  each to give the holder thereof
      the right to  purchase  a share of common  stock at $0.50 per  share.  The
      notes were sold to the wife of the Chief Executive  Officer of the Company
      and other accredited  investors and are convertible by the holder,  at any
      time,  into common  stock of the Company at $0.50 per share.  The warrants
      expire on April 30, 2013. Interest on the notes is due at maturity.

      On or about  April  1,  2005,  two  individuals,  both of whom  are  adult
      children of the  Company's  Chief  Executive  Officer,  purchased  545,000
      shares of the Company's  Series G Preferred  Stock at a price of $0.20 per
      share.  The Series G  Preferred  Stock is non voting,  has no  liquidating
      preference  over  the  common  stock  and  each  share  is   automatically
      convertible  into two shares of common stock when such conversion has been
      approved by the Company's common stockholders. This transaction was exempt
      from the registration provisions of the Securities Act of 1933 pursuant to
      Section 4(2) thereof.

      On or about  April 12,  2005,  four  individuals,  three of whom are adult
      children or related  thereto of the  Company's  Chief  Executive  Officer,
      purchased  500,000 shares of the Company's  Series G Preferred  Stock at a
      price  of  $0.20  per  share.   This   transaction  was  exempt  from  the
      registration  provisions of the Securities Act of 1933 pursuant to Section
      4(2) thereof.

      On or about March 15,  2005,  the Company  borrowed  $25,000 from a lender
      evidenced by a secured convertible  subordinated note due on September 15,
      2005 and bearing  interest at the annual rate of 20% payable at  maturity.
      The note is (i) secured by  approximately  $42,000 in one of the Company's
      bank accounts;  (ii)  convertible  into the Company's  common stock at the
      rate of $0.24 per share, subject to certain anti-dilution provisions;  and
      (iii)  subordinated to the Company's  Senior  Indebtedness as that term is
      defined therein.  At April 15, 2005 the outstanding  principal  balance of
      the note was $15,000. In addition, on or about April 11, 2005, the Company
      sold to this lender, for an aggregate purchase price of $100,000,  333,333
      shares of restricted  common stock and three-year  warrants to purchase an
      aggregate  of 100,000  shares at $0.50 per share,  subject to  appropriate
      anti-dilution  provisions.  The sale of the restricted  stock and warrants
      was exempt from the registration  provisions of the Securities Act of 1933
      pursuant to Section 4(2) thereof.

      We are using the funds obtained from these financings for working capital.
      The  financings   were  effected   pursuant  to  the  exemption  from  the
      registration  provisions of the Securities Act of 1993 provided by Section
      4(2) thereof.

      We did not have any material  commitments  for capital  expenditures as of
      December 31, 2004.

C.    Inflation
      ---------

<PAGE>
                                       50


      We believe  that  inflation  does not  significantly  impact  our  current
      operations.

Item 7. Financial Statements.

      Our financial statements to be filed hereunder follow, beginning with page
      F-1.


<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of CNE Group, Inc.

We  have  audited  the  accompanying  balance  sheets  of CNE  Group,  Inc.  and
Subsidiaries  as of December 31,  2004,  and the related  statements  of income,
stockholders'  equity and comprehensive  income,  and cash flows for each of the
years in the two-year period ended December 31, 2004. These financial statements
are the  responsibility of the company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  financial  position  of  CNE  Group,  Inc.  and
Subsidiaries  as of December 31, 2004, and the results of its operations and its
cash flows for each of the years in the two-year  period ended December 31, 2004
in conformity with accounting principles generally accepted in the United States
of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note A to the
financial  statements,  the  Company  has  experienced  substantial  losses  and
sustained net operating cash outflows from continuing operations and anticipates
that such conditions will continue into fiscal year 2005. These conditions raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans  regarding  those matters are also  described in Note A. The
financial statements do not include any adjustments


                                          WHEELER, HERMAN, HOPKINS & LAGOR, P.A.
                                          CERTIFIED PUBLIC ACCOUNTANTS


Tampa, Florida
April 15, 2005

                                                                             F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
of CNE Group, Inc.

We have audited the consolidated  statements of operations,  changes in (capital
deficit)  stockholders'  equity and cash flows for the year ended  December  31,
2003.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of operations  and cash flows of CNE Group,
Inc. and  Subsidiaries  for the year ended December 31, 2003 in conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note A to the
financial  statements,  the  Company  has  experienced  substantial  losses  and
sustained net operating cash outflows from continuing operations and anticipates
that such conditions will continue into fiscal year 2004. These conditions raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans  regarding  those matters are also  described in Note A. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



                                       ROSEN SEYMOUR SHAPSS MARTIN & COMPANY LLP
                                       CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
March 5, 2004


                                                                             F-2
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheet
December 31, 2004

<TABLE>
<S>                                                                            <C>
ASSETS
   Current:
      Cash and cash equivalents                                                $     84,408
      Accounts receivable, net of allowance for doubtful accounts of $51,000        172,010
      Inventory                                                                     260,487
      Other                                                                           8,273
                                                                               ------------
        Total current assets                                                        525,178
   Fixed assets, net                                                                394,509
   Intellectual property rights, net                                              1,361,948
   Goodwill                                                                       7,285,894
   Prepaid expenses and other assets                                                 21,265
                                                                               ------------
                  Total assets                                                 $  9,588,794
                                                                               ============

LIABILITIES
   Current:
      Accounts payable and accrued expenses                                    $  1,476,124
      Interest payable                                                              128,050
      Short-term credit arrangements                                                191,395
      Line of credit                                                                 19,199
      Current portion of notes payable                                               17,243
      Notes and debenture payable                                                   850,000
      10% subordinated notes payable                                                966,710
      Other notes payable                                                            23,330
                                                                               ------------
        Total current liabilities                                                 3,672,051
   Notes payable, net of current portion                                             22,059
   Deferred grant revenue                                                           300,000
                                                                               ------------
           Total liabilities                                                      3,994,110
                                                                               ------------

   Commitments and contingencies (Note N)

STOCKHOLDERS' EQUITY
   Preferred stock (Notes A and I)                                                      134
   Common stock (Notes A and J)                                                         121
   Paid-in surplus                                                               29,919,185
   Accumulated deficit                                                          (21,451,656)
                                                                               ------------
                                                                                  8,467,784
   Less treasury stock, at cost - 1,238,656 shares                               (2,873,100)
                                                                               ------------
           Total stockholders' equity                                             5,594,684
                                                                               ------------
                  Total liabilities and stockholders' equity                   $  9,588,794
                                                                               ============
</TABLE>

See Notes to Consolidated Financial Statements.                             F-3

<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

                                                       Year Ended December 31,
                                                      -------------------------
                                                          2004          2003
                                                      -----------   -----------
Revenues:
   Product sales                                      $ 1,884,751   $ 1,445,324
   Service fee income                                     686,647       548,762
   Internet related income                                104,588       155,284
                                                      -----------   -----------
                                                        2,675,986     2,149,370
   Costs of goods sold                                  1,553,749     1,176,900
                                                      -----------   -----------

      Gross profit                                      1,122,237       972,470

Other expenses:
   Advertising                                             35,522        47,806
   Compensation and related costs                       1,081,175     1,212,150
   General and administrative                           1,446,671     1,247,096
   Product development                                    183,319            --
   Depreciation and amortization                          196,491       159,405
                                                      -----------   -----------
                                                        2,943,177     2,666,457
                                                      -----------   -----------
Loss from continuing operations
   before other income and (expenses)                  (1,820,940)   (1,693,987)

   Amortization of debt discount                         (199,710)     (467,000)
   Interest expense                                      (316,051)     (423,625)
   Tax settlement adjustment (Note M)                          --       895,622
   Interest income                                          3,006            --
                                                      -----------   -----------

Loss from continuing operations before income taxes    (2,333,695)   (1,688,990)

   Income tax provision                                        --        13,965
                                                      -----------   -----------

Loss from continuing operations                        (2,333,695)   (1,702,955)

Discontinued operations:
   Income from discontinued operations                         --       583,634
                                                      -----------   -----------

Net income (loss)                                     $(2,333,695)  $(1,119,321)
                                                      ===========   ===========


See Notes to Consolidated Financial Statements.                             F-4
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations, continued

                                             Year Ended December 31,
                                            ------------------------
                                               2004          2003
                                            ----------    ----------

Income (loss) per common share:
   Basic:
      Loss from continuing operations       $     (.22)   $     (.24)
      Income from discontinued operations           --           .08
                                            ----------    ----------
        Net income (loss)                   $     (.22)   $     (.16)
                                            ==========    ==========
   Diluted:
      Loss from continuing operations       $     (.22)   $     (.24)
      Income from discontinued operations           --           .06
                                            ----------    ----------
        Net income (loss)                   $     (.22)   $     (.18)
                                            ==========    ==========

Weighted average number of common
   shares outstanding:
   Basic                                    10,545,082     7,161,756
                                            ==========    ==========
   Diluted                                  10,545,082    10,541,956
                                            ==========    ==========


See Notes to Consolidated Financial Statements.                             F-5
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in (Capital Deficit) Stockholders' Equity
Years ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                            Common Stock               Preferred Stock
                                     ---------------------------   ---------------------------     Paid-in      Accumulated
                                        Shares         Amount         Shares         Amount        Surplus        Deficit
                                     ------------   ------------   ------------   ------------   ------------   ------------
<S>                                    <C>          <C>              <C>          <C>            <C>            <C>
Balance - January 1, 2003               6,829,600   $    682,960                  $         --   $ 16,290,691   $(17,998,640)
 Portion of $1,000,000 10%
  Subordinated Notes deemed
  Equity subject to amortization                                                                      699,000
 Effect of change in par value
  from $0.10 to $0.00001                                (682,892)                                     682,892
 Stock issued related to
  acquisition of SRC,
  Connectivity, Econo-Comm and
  related intellectual property
  rights                                  899,971              9     11,438,241            114      6,095,836
 Stock options issued for
  services, at market value                                                                           135,250
 Conversion of $2,300,000 12%
  Debentures Payable and related
  interest to Equity                    1,150,000             12                                    2,644,988
 Conversion of $1,000,000 8%
  Promissory Notes to Equity                                          1,000,000             10        999,990
 Sale of common stock for cash          1,250,000             12                                      499,988
 Capital contributions by
  officers, directors and
  stockholders in the form of
  compensation and interest
  forgiveness                                                                                         209,580
 Net loss                                                                                                         (1,119,321)
                                     ------------   ------------   ------------   ------------   ------------   ------------
Balance - January 1, 2004              10,129,571   $        101     12,438,241   $        124   $ 28,258,215   $(19,117,961)
 Sale of common stock for cash          1,750,000             18                                      570,982
 Conversion of $1,000,000 8%
  Promissory Notes to Equity                                          1,000,000            100        999,990
 Common stock issued for services,
  at market value                         150,000              2                                       49,998
 Capital contributions by an
  officer and employee in the form
  of interest forgiveness                                                                              40,000
 Net loss                                                                                                         (2,333,695)
                                     ------------   ------------   ------------   ------------   ------------   ------------
Balance - December 31, 2004            12,029,571   $        121     13,438,241   $        134   $ 29,919,185   $(21,451,656)
                                     ============   ============   ============   ============   ============   ============

<CAPTION>

                                          Treasury Stock
                                     ---------------------------
                                        Shares         Amount          Total
                                     ------------   ------------    ------------
<S>                                     <C>         <C>             <C>
Balance - January 1, 2003               1,238,656   $ (2,873,100)   $ (3,898,089)
 Portion of $1,000,000 10%
  Subordinated Notes deemed
  Equity subject to amortization                                         699,000
 Effect of change in par value
  from $0.10 to $0.00001                                                      --
 Stock issued related to
  acquisition of SRC,
  Connectivity, Econo-Comm and
  related intellectual property
  rights                                                               6,095,959
 Stock options issued for
  services, at market value                                              135,250
 Conversion of $2,300,000 12%
  Debentures Payable and related
  interest to Equity                                                   2,645,000
 Conversion of $1,000,000 8%
  Promissory Notes to Equity                                           1,000,000
 Sale of common stock for cash                                           500,000
 Capital contributions by
  officers, directors and
  stockholders in the form of
  compensation and interest
  forgiveness                                                            209,580
 Net loss                                                             (1,119,321)
                                     ------------   ------------    ------------
Balance - January 1, 2004               1,238,656   $ (2,873,100)   $  6,267,379
 Sale of common stock for cash                                           571,000
 Conversion of $1,000,000 8%
  Promissory Notes to Equity                                           1,000,000
 Common stock issued for services,
  at market value                                                         50,000
 Capital contributions by an
  officer and employee in the form
  of interest forgiveness                                                 40,000
 Net loss                                                             (2,333,695)
                                     ------------   ------------    ------------
Balance - December 31, 2004             1,238,656   $ (2,873,100)   $  5,594,684
                                     ============   ============    ============
</TABLE>


See Notes to Consolidated Financial Statements.                             F-6
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                          --------------------------
                                                                             2004           2003
                                                                          -----------    -----------
<S>                                                                       <C>            <C>
Cash flows from operating activities:
   Loss from continuing operations                                        $(2,333,695)   $(1,702,955)
   Adjustments to reconcile loss from continuing operations to net cash
      provided by (used in) operating activities:
        Depreciation and amortization                                         196,491        159,405
        Issuance of common stock for services                                  50,000        135,250
        Provision for doubtful accounts                                          (500)        16,500
        Amortization of debt discount                                         199,710        467,000
        Tax settlement adjustment                                                           (895,622)
        Changes in:
           Accounts receivable                                                 35,848       (123,754)
           Inventory                                                          (13,768)       (15,833)
           Prepaid expenses and other assets                                   17,263         15,066
           Accounts payable, accrued expenses and other liabilities           652,059        551,184
           Deferred revenue                                                   (23,620)        23,620
           Deferred grant revenue                                                              8,173
                                                                          -----------    -----------
Cash used in continuing operations                                         (1,220,212)    (1,361,966)
Cash provided by discontinued operations                                           --             --
                                                                          -----------    -----------

              Net cash used in operating activities                        (1,220,212)    (1,361,966)
                                                                          -----------    -----------

Cash flows from investing activities:
   Purchase of furniture and equipment                                        (30,224)       (35,478)
                                                                          -----------    -----------

              Net cash used in investing activities                           (30,224)       (35,478)
                                                                          -----------    -----------

Cash flows from financing activities:
   Proceeds from issuance 1,250,000 shares of Common Stock                         --        500,000
   Proceeds from issuance 1,750,000 shares of Common Stock                    571,000
   Proceeds from issuance of 10% notes payable                                             1,000,000
   Proceeds from other notes payable                                                         300,000
   Proceeds from 18% note payable                                             300,000
   Proceeds from 10% secured notes payable                                    150,000
   Proceeds from 24% secured notes payable                                    150,000
   Proceeds from 10% convertible notes payable                                150,000
   Principal repayments on notes payable and line of credit                  (446,988)       (24,924)
   Payment of accounts receivable due Sellers of Econo-Comm, Inc.                  --       (100,000)
                                                                          -----------    -----------

              Net cash provided by financing activities                       874,012      1,675,076
                                                                          -----------    -----------

(Decrease) increase in cash and cash equivalents                             (376,424)       277,632
Cash and cash equivalents at beginning of period                              460,832        183,200
                                                                          -----------    -----------

Cash and cash equivalents at end of period                                $    84,408    $   460,832
                                                                          ===========    ===========
</TABLE>


See Notes to Consolidated Financial Statements.                             F-7
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, continued

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                                   --------------------------
                                                                                      2004           2003
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
Supplemental disclosures of cash flow information related to
   continuing operations:
      Cash paid during the period for:
        Interest                                                                   $   171,341    $   135,931
        Income taxes                                                               $        --    $    50,000

      Non-cash investing and financing activities relating to the acquisition of
      subsidiaries and certain intellectual property rights:
           Accounts receivable                                                                    $   102,048
           Inventory                                                                                  230,886
           Intellectual property rights                                                             1,550,609
           Goodwill                                                                                 7,285,894
           Fixed assets                                                                               462,792
           Other assets                                                                                61,867
           Accrued expenses and other liabilities                                                  (1,645,893)
           8% notes payable                                                                        (2,000,000)
           Issuance of preferred stock, at par                                                           (114)
           Issuance of common stock, at par                                                                (9)
           Paid in surplus                                                                         (6,048,080)
      Non-cash investing and financing  activities relating to the conversion of
      certain notes and debentures, sale of common stock, and capital
      contributions of significant stockholders, and directors and officers:
           Accounts payable and accrued expenses                                                      196,246
           Interest payable                                                             40,000         13,334
           8% notes payable                                                          1,000,000      1,000,000
           Debentures payable and related interest payable                                          2,645,000
           Issuance of preferred stock                                                     (10)           (10)
           Issuance of common stock                                                                       (12)
           Paid in surplus                                                          (1,039,990)    (3,854,588)
</TABLE>

Other non-cash investing and financing activities - See Note Q


See Notes to Consolidated Financial Statements.                             F-8
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE A - THE COMPANY

Business
--------

CNE Group,  Inc.  (the  "Company" or "CNE") is a holding  company  whose primary
operating  subsidiaries are SRC  Technologies,  Inc. ("SRC") and U.S.  Commlink,
Ltd. ("USCL"). SRC, also a holding company, is the parent of Connectivity,  Inc.
("Connectivity")  and Econo-Comm,  Inc. (d/b/a Mobile  Communications)  ("ECI").
Connectivity, ECI and USCL market, manufacture, repair and maintain remote radio
and cellular-based  emergency  response products to a variety of federal,  state
and local government  institutions,  and other vertical  markets  throughout the
United  States.  The Company  has  intellectual  property  rights to certain key
elements of these products - specifically, certain communication, data entry and
telemetry devices.

The Company also  generates  revenue from its  subsidiary,  CareerEngine,  Inc.,
which  is  engaged  in  the  business  of  e-recruiting.  This  segment  is  not
significant to the operations of the Company.

Going Concern
-------------

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  As  reflected in the 2004 and 2003
financial   statements,   the  Company  has  incurred  substantial  losses  from
continuing  operations,  sustained  substantial  cash  outflows  from  operating
activities,  and at December  31, 2004 had a working  capital and  stockholders'
deficiency.  The above  factors  raise  substantial  doubt  about the  Company's
ability to  continue  as a going  concern.  The  Company's  continued  existence
depends on its ability to obtain additional equity and/or debt financing to fund
its operations and ultimately to achieve profitable  operations.  The Company is
attempting to raise  additional  financing  and has  initiated a cost  reduction
strategy.  At December 31, 2004  management  believes  that the working  capital
deficit,  losses and negative  cash flow will  ultimately be improved by (i) the
acquisitions of SRC and ECI (ii) cost reduction  strategies initiated in January
and June 2004 and (iii)  additional  equity  and debt  financing  activities  in
addition to those set forth in these financial statements.  The Company had been
notified  that,  subject to the  procedural  requirements  of the American Stock
Exchange,  its stock could be delisted.  There is no assurance  that the Company
can obtain  additional  financing or achieve  profitable  operations or generate
positive cash flow.  The 2004 and 2003  financial  statements do not include any
adjustments  relating to the  recoverability or classification of recorded asset
amounts or the amount and  classification of liabilities that might be necessary
as a result of this going concern uncertainty.

Corporate Matters
-----------------

On April 17,  2003,  pursuant  to the terms of  Section  251(g) of the  Delaware
General Corporation Law, CareerEngine Network,  Inc.  ("CareerEngine")  became a
wholly-owned  subsidiary  of the  Company.  Pursuant  to this  transaction,  the
Company acquired all of the assets of CareerEngine  and all former  stockholders
of CareerEngine became the stockholders of the Company, which is the entity that
is now publicly traded on the American Stock Exchange under the symbol "CNE." As
a  successor  entity to  CareerEngine,  the  Company's  shares  are deemed to be
registered  under Section 12(g) of the Securities  Exchange Act of 1934 and Rule
12g-3  promulgated  thereunder.  The shares were issued without  registration in
reliance upon  exemptions  provided in Section  3(a)(9) of the Securities Act of
1933 and Rule 145 promulgated thereunder.


                                                                             F-9
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE A - THE COMPANY (CONTINUED)

In addition,  the officers and directors of CareerEngine became the officers and
directors of the  Company.  On April 23,  2003,  three  directors of the Company
resigned  (Kevin J.  Benoit,  Edward A.  Martino and James J.  Murtha) and their
replacements  were appointed  (Michael J.  Gutowski,  Larry M. Reid and Carol L.
Gutowski). Ms. Gutowski is the wife of Michael J. Gutowski. Messrs. Gutowski and
Reid were also  appointed  the  President  and Chief  Operating  Officer and the
Executive Vice President of the Company,  respectively.  See "Acquisition of all
of the outstanding stock of SRC and ECI" below.

Ms.  Gutowski,  and  Messrs.  Gutowski  and  Reid,  resigned  from the  Board of
Directors  of the Company on June 28, 2004 and January 11,  2005,  respectively.
They were terminated as officers of the Company on September 7, 2004. Anthony S.
Conigliaro,  Vice  President  and Chief  Financial  Officer of the Company,  was
appointed  to the Board of Directors on June 18,  2004.  Gary L  Eichsteadt,  an
employee of the Company and a substantial  holder of the Company's Series AA and
Series C Preferred  Stock,  was appointed to the Company's Board of Directors on
January 11, 2005.

In  addition,  on April 23, 2003,  the Board of Directors  and a majority of the
stockholders  approved  the  reorganization  of  the  Company  and  pursuant  to
Accounting  Standards ARB 43 which increased the authorized  number of shares of
common  stock to  40,000,000  shares with a par value of $0.00001  per share and
increased  the  authorized  number of shares of  preferred  stock to  25,000,000
shares with a par value of $0.00001 per share. The preferred stock may be issued
in one or more series at the discretion of the Board of Directors.

Acquisition of all of the outstanding stock of SRC and ECI
----------------------------------------------------------

On April 23, 2003 the Company  issued (i)  899,971  shares of its common  stock,
(ii) 1,697,966  shares of its non-voting  Series A Preferred  Stock and an equal
number  of ten  year  Class A  Warrants,  (iii)  4,400  shares  of its  Series B
Preferred Stock, and (iv) 9,735,875 shares of its non-voting  Series C Preferred
Stock and a like number of ten year Class C Warrants, each to purchase one share
of the Company's  Common Stock at a $1.00 per share,  for 100%  ownership of SRC
and ECI. In addition,  ECI's sellers retained certain of ECI's trade receivables
aggregating  approximately  $100,000. The Company also acquired a patent related
to the operation of ECI's business in exchange for notes aggregating  $2,000,000
bearing 8% interest. The consolidated financial statements include the operating
results  of SRC and ECI  from  the  date of  acquisition.  The  details  of such
transactions are set forth below.

      SRC
      ---

      On April 23, 2003, the Company issued to Mr. and Ms. Gutowski,  the former
      principal common  stockholders of SRC, an aggregate of 4,867,937 shares of
      its  non-voting  Series C Preferred  Stock and an equal number of ten year
      Class C Warrants,  each to purchase one share of its Common Stock at $1.00
      per share. The Class C Warrants are not exercisable and are not detachable
      from the Series C Preferred Stock prior to 66 months after their issuance.
      See Note I.

      The  Company  issued  to the  other  former  common  stockholders  of SRC,
      including  Mr. Reid,  an aggregate of 899,971  shares of its Common Stock,
      1,697,966  shares of its  non-voting  Series A Preferred  Stock and a like
      number of ten year non-detachable  Class A Warrants,  each to purchase one
      share of its Common Stock at $1.00 per share. The Class A Warrants are not
      exercisable and are not detachable from the Series A Preferred Stock prior
      to 66 months after their issuance. See Note I.


                                                                            F-10
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE A - THE COMPANY (CONTINUED)

      The Company  issued an aggregate of 4,400 shares of its Series B Preferred
      Stock to the former holders of the SRC Series B Preferred  Stock. See Note
      I.

      ECI
      ---

      Also,  on April 23, 2003,  the Company  issued to Gary L.  Eichsteadt  and
      Thomas L.  Sullivan,  the former  stockholders  of ECI,  an  aggregate  of
      4,867,938  shares of its Series C Preferred  Stock and an equal  number of
      Class C Warrants,  each to purchase one share of its Common Stock at $1.00
      per share. The Class C Warrants are not exercisable and are not detachable
      from the Series C Preferred  Stock prior to 66 months after their issuance
      (see  Note I). In  addition,  Messrs.  Eichsteadt  and  Sullivan  retained
      certain of ECI's trade receivables aggregating approximately $100,000. The
      Company also acquired a patent ("ECI  Patent)  related to the operation of
      ECI's business from Mr.  Eichsteadt  for notes in the aggregate  principal
      amount of $2,000,000,  bearing  interest at the annual rate of 8%, payable
      quarterly,  and due on  October  31,  2008.  The notes  were  secured by a
      certain Pledge Agreement - see Note H. Mr. Sullivan  remained an executive
      officer ECI. On July 31, 2003,  the Company  transferred  all the stock of
      ECI to SRC and ECI became a  wholly-owned  subsidiary of SRC. In addition,
      the Company transferred its rights to the ECI Patent to SRC. On August 19,
      2004 SRC transferred its rights to the ECI Patent to the Company to secure
      certain 24% Promissory Notes amounting to $150,000 issued by the Company.

      On May 19, 2003, Mr. Eichsteadt  assigned $1,500,000 of the aforementioned
      8% notes equally to Mr. Sullivan, Mr. Gutowski and Ms. Gutowski. On August
      31,  2003,  Mr.  and  Ms.  Gutowski   converted  their  notes  aggregating
      $1,000,000  into  1,000,000  shares of the  Company's  Series AA Preferred
      Stock. Further on June 18, 2004, Mr. Eichsteadt and Mr. Sullivan converted
      their notes aggregating  $1,000,000 into 1,000,000 shares of the Company's
      Series AA Preferred Stock.

      The Series AA Preferred Stock has a liquidating  preference over all other
      CNE equity of $2,000,000.  The Series A Preferred  Stock has a liquidating
      preference  over all other CNE equity except the Series AA of  $1,697,961.
      The Series B Preferred  Stock has a liquidating  preference over all other
      CNE equity  except the Series AA and A Preferred  Stock of  $440,000.  The
      Series C Preferred Stock has no liquidating preference.

      The total consideration,  including acquisition costs, was allocated based
      on the estimated fair values of the net assets and liabilities acquired on
      the acquisition date.

                                   ECI            SRC          Total
                               -----------    -----------    -----------

        Tangible assets        $   588,492    $   292,979    $   881,471
        Patents                  1,379,789        170,820      1,550,609
        Goodwill                 2,766,233      4,519,661      7,285,894
        Liabilities             (2,144,771)      (857,033)    (3,001,804)
                               -----------    -----------    -----------
             Net asset value   $ 2,589,743    $ 4,126,427    $ 6,716,170
                               ===========    ===========    ===========


                                                                            F-11
<PAGE>

NOTE A - THE COMPANY (CONTINUED)

     There were no  relationships  between the Company or any of its  affiliates
     and any of the sellers of the assets (SRC and ECI)  acquired by the Company
     prior to the acquisition transactions.

     On January 10, 2005,  as part of the  settlement  of a litigation  with the
     Company,  Messrs. Reid and Gutowski and Ms. Gutowski agreed to exchange all
     of their Class AA,  Class A and Class C Preferred  Stock,  and all of their
     1,550,000  incentive  stock  options  for 850,000  shares of the  Company's
     common  stock if the  exchange is made on or prior to May 9, 2005,  950,000
     shares if the  exchange is made on or prior to June 9, 2005,  or  1,050,000
     shares if the exchange is made on or prior to July 9, 2005.

Private Financings

     1.  On April 23,  2003,  the Company  also  completed  a private  financing
         pursuant  to which it  issued  notes  (the  "Notes")  in the  aggregate
         principal  amount of $1,000,000,  of which $650,000 was to the officers
         of the Company, and 4,165,800 ten year cashless Class B Warrants,  each
         to purchase one share of its Common Stock at $0.50 per share. The Notes
         bear  interest at the annual rate of 10% payable  quarterly and are due
         on April  30,  2004.  The  aggregate  number  of  shares  for which the
         Warrants may be exercised equal 15% of the Company's outstanding Common
         Stock on a fully-diluted  basis. The Warrants are  anti-dilutive  until
         the Notes have been  repaid.  The due date of the Notes may be extended
         at the Company's option for an additional year in consideration for the
         issuance  of 10-year  warrants to  purchase  4% of the  Company's  then
         outstanding  common stock at $0.50 per share. These Warrants would also
         be  anti-dilutive  until the Notes have been repaid.  In addition,  the
         Company valued the warrants, utilizing the Black-Scholes Pricing Model,
         at $699,000, which is being accounted for as debt discount and is being
         amortized ratably over the one-year term of the Notes.

         On March 12, 2004,  the Company  notified  the Class B Warrant  holders
         that, to satisfy the 15%  non-dilutive  provisions  of their  Warrants,
         these  Warrants  were now  exercisable  for an  aggregate  of 5,245,200
         shares of the Company's common stock at approximately  $0.40 per share.
         On this  date,  the  Company  also  exercised  its option to extend the
         maturity  date of the  notes  to  April  30,  2005  and  satisfied  the
         requirement for the additional 4% non-dilutive  interest in the Company
         by  issuing  to  the  noteholders  Class  B  Warrants  to  purchase  an
         additional  1,708,900 shares of the Company's common stock at $0.50 per
         share. The non-dilutive  provisions of the Warrants  terminate when all
         of the notes have been paid in full.  In April 2005,  the Company  will
         notify  the  Class B  Warrant  holders  that,  to  satisfy  the now 19%
         non-dilutive  provisions  of their  Warrants,  these  Warrants were now
         exercisable  for an  additional  of 1,122,100  shares of the  Company's
         common stock at approximately $0.40 per share.

     2.  On September 17, 2003, the Company sold 1,250,000  shares of its Common
         Stock at $0.40 per share to an existing  noteholder and  stockholder of
         the Company.


                                                                            F-12
<PAGE>


CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE A - THE COMPANY (CONTINUED)

      3.    On  January  21,  2004,  a  secured  factoring  arrangement  with an
            individual,  which  amounted to $300,000 at December 31,  2003,  was
            restructured into a $300,000 unsecured Note Payable due February 10,
            2005.  The  individual was also issued Class BB Warrants to purchase
            150,000 shares of the Company's common stock at $0.50 per share. The
            Company is currently negotiating new terms with regard to this note.

      4.    On February  10,  2004,  the Company  sold  1,750,000  shares of its
            Common Stock at $0.40 per share. The net proceeds of the transaction
            amounted to $571,000.  The Company used the funds obtained from this
            financing primarily for working capital purposes.

      5.    On June 9, 2004,  the two holders of the  Company's 8%  Subordinated
            Promissory  Notes, in the aggregate  principal amount of $1,000,000,
            converted their notes into 1,000,000  shares of the Company's Series
            AA 8% Cumulative  Preferred Stock, par value $0.00001 per share (the
            "Series AA Preferred Stock").

      6.    On June 10, 2004,  as amended as of September  28, 2004,  an officer
            and  employee of a  subsidiary  relinquished  all their rights to an
            aggregate  420,000 vested incentive stock options of the Company for
            104  equal  weekly  cash  payments,  commencing  December  1,  2004,
            aggregating  $50,000.  The  individuals  or their designee were also
            issued, in the aggregate, Warrants to purchase 235,000 shares of the
            Company's common stock at $0.28 per share.

      7.    In June 2004,  in an effort to conserve the  financial  resources of
            the Company,  the Board of Directors of the Company deferred 100% of
            the salaries of four  officers of the Company until such time as the
            Board   deems   otherwise.   In   September   2004,   three  of  the
            aforementioned   officers  were  terminated  by  the  Company.   The
            accompanying financial statements include the accrued salary owed to
            the non-terminated officer for the amounts so deferred.

      8.    On June 24, 2004 the Company repaid, in full, one of its outstanding
            lines of credit  amounting to  approximately  $146,000.  On the same
            date the Company  issued a secured  note payable to an employee of a
            subsidiary  of the  Company in the amount of  $150,000.  The note is
            secured  by the  furniture  and  equipment  of a  subsidiary  of the
            Company.  The note bears interest at 10% per annum and the principal
            and  all  interest  thereon  was  due  on  September  24,  2004.  In
            consideration  of extending  the maturity  date of the note to April
            30, 2005 and deferring  the payment of all accrued  interest for the
            period June 24, 2004 through  April 30,  2005,  the  individual  was
            issued Warrants to purchase  101,000 shares of the Company's  common
            stock at $0.28 per share.

      9.    As of  July  1,  2004,  the  holders  of 55% of  the  Company's  10%
            subordinated  notes agreed to defer  $13,750 of interest due on such
            date to October 1, 2004 in  consideration  of the Company issuing to
            them  105,769  Class B  Warrants  of the  Company,  each to give the
            holder  thereof  the right to  purchase  a share of common  stock at
            $0.39  per  share.  The  noteholders  include  two  officers  of the
            Company.


                                                                            F-13
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE A - THE COMPANY (CONTINUED)

      10.   In July and August  2004,  the  Company  issued  $150,000 of its 24%
            Secured Notes due April 30, 2005 to the wife of the Chief  Executive
            Officer and an existing 10% subordinated  noteholder of the Company.
            Interest on the notes is payable quarterly in arrears. The notes are
            secured by (i) all the stock of SRC and USCL, and (ii) the pledge of
            Patent Nos.  6,060,979,  6,047,173  and 5,701,338 - all owned by the
            Company.  On October 1, 2004,  the holders of 100% of the  Company's
            24% Secured  Notes  agreed to defer  $5,867 of interest  due on such
            date to January 1, 2005 in  consideration  of the Company issuing to
            them 53,333 Class B Warrants of the Company, each to give the holder
            thereof the right to  purchase a share of common  stock at $0.33 per
            share.  On January 1, 2005, the holders of 100% of the Company's 24%
            Secured  Notes  agreed to defer  $9,200 of interest due on such date
            and further  defer the interest that was due and deferred on October
            1,  2004  $5,867 to April 1, 2005 in  consideration  of the  Company
            issuing to them  113,000  Class B Warrants of the  Company,  each to
            give the  holder  thereof  the right to  purchase  a share of common
            stock at $0.40 per share.

      11.   As of October  1, 2004,  the  holders  of 75% of the  Company's  10%
            subordinated  notes agreed to defer  $18,750 of interest due on such
            date and further  defer the  interest  that was due and  deferred on
            July 1, 2004  $13,750  to January  1, 2005 in  consideration  of the
            Company  issuing to them  295,455  Class B Warrants of the  Company,
            each to give the  holder  thereof  the right to  purchase a share of
            common  stock  at $0.33  per  share.  The  noteholders  include  two
            officers of the Company.

      12.   In  October  2004,  the  Company  and USCL  entered  into a two-year
            Project Financing Agreement with an institutional lender relating to
            USCL's  anticipated  participation in the "Cellular Call Box Upgrade
            and Maintenance Service" projects for numerous Service Authority for
            Freeway   Emergencies   ("SAFE")   programs   within  the  state  of
            California. These call box programs operate over 17,000 motorist aid
            analog call boxes that will  require  upgrades  to digital  cellular
            technology  available  through  USCL.  This  agreement  provides the
            Company with finished goods and accounts receivable  financing of up
            to $2,000,000 relating to these potential  aforementioned  projects.
            The  effective  interest rate is  approximately  3% per month on the
            outstanding balance of the amount receivables financed. The finished
            goods and accounts  receivable  to be  financed,  as well as all the
            other assets of the Company not previously pledged,  will secure the
            borrowings under this agreement.

      13.   In October,  November  and  December  2004,  the Company  issued (i)
            $150,000 of its 10% Convertible Subordinated Notes due June 30, 2005
            and (ii) 945,000  Class C Warrants of the Company,  each to give the
            holder  thereof  the right to  purchase  a share of common  stock at
            $0.50  per  share.  The  notes  were  sold to the wife of the  Chief
            Executive Officer of the Company and other accredited  investors and
            are convertible by the holder, at any time, into common stock of the
            Company at $0.50 per share.  The warrants  expire on April 30, 2013.
            Interest on the notes is due at maturity.


                                                                            F-14
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE A - THE COMPANY (CONTINUED)

      14.   As of January  1, 2004,  the  holders  of 75% of the  Company's  10%
            subordinated  notes agreed to defer  $18,750 of interest due on such
            date and further  defer the  interest  that was due and  deferred on
            July 1  $13,750  and  October  1, 2004  $18,750  to April 1, 2005 in
            consideration  of the  Company  issuing  to  them  384,375  Class  B
            Warrants of the Company,  each to give the holder  thereof the right
            to  purchase  a share  of  common  stock  at $0.30  per  share.  The
            noteholders include two officers of the Company.

      The Company is using the funds  obtained from these  financings  primarily
      for working capital  purposes as well as to pay certain ECI notes payable.
      The aforementioned financings were effected pursuant to the exemption from
      the  registration  provisions  of the  Securities  Act of 1933 provided by
      Section 4(2) thereof.

Catastrophe on September 11, 2001
---------------------------------

On September 11, 2001 the Company's  headquarters  were located at Suite 2112 of
Two World Trade Center in New York City.  In April and  September  2002,  and in
August 2003,  the Company  received  government  assistance  grants  aggregating
$300,000.  The grants have a restriction  that could  require  their  repayment,
specifically  if the  Company  were to  relocate  a  substantial  portion of its
operations  outside of New York City before May 1, 2005. Until such time as this
restriction  shall no longer apply, the grants will be classified as a liability
of the Company. Upon the satisfaction or lapse of the restrictions,  the Company
will remove the liability  and record grant income on its  financial  statements
or, alternatively, repay such grants if the above condition is not satisfied.

American Stock Exchange Listing
-------------------------------

On January 2, 2004 the Company  received a notice  dated  December 31, 2003 from
the American Stock Exchange Staff  indicating that the Company had  demonstrated
compliance with the requirements necessary for continued listing on the American
Stock Exchange.

As is  the  case  for  all  listed  issuers,  the  Company's  continued  listing
eligibility will be assessed on an ongoing basis; however, the Company continues
to be subject to  additional  scrutiny  (as set forth in Section  1009(h) of the
AMEX  Company  Guide) as is the case for any listed  Company  that has  regained
compliance.

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

[1]   Principles of consolidation:

      The accompanying consolidated financial statements include the accounts of
      the  Company  and its  wholly-owned  subsidiaries,  SRC  and  CareerEngine
      Network,  Inc.  ("CareerEngine  Network").  All  significant  intercompany
      balances and transactions have been eliminated.


                                                                            F-15
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

[2]   Revenue recognition:

      The  Company's   operations  relating  to  manufacturing,   marketing  and
      servicing  its  remote  and  cellular-based  emergency  response  products
      recognizes  revenue  from  the  sale of a  product  upon  installation  or
      delivery to the customer,  depending on the terms of the underlying  sales
      agreement.

      E-recruiting  fees  are  earned  on  job  placement   advertisements   and
      sponsorship  advertisements  on the Company's  website and are  recognized
      over the period during which the  advertisements  are  exhibited.  Website
      construction  fees are recognized  ratably over the  construction  period.
      Monthly hosting and maintenance fees for such sites are recognized ratably
      over the period of the underlying contract.

[3]   Depreciation and amortization:

      Furniture,   fixtures  and  equipment  are  being  depreciated  using  the
      straight-line  method  over  estimated  lives of  three  to  seven  years.
      Computer  equipment is being depreciated on a straight-line  basis over an
      estimated life of three to five years.

      Leasehold  improvements  were amortized on a straight-line  basis over the
      shorter of the term of the lease or their estimated useful lives.

[4]   Cash and cash equivalents:

      The Company considers all highly liquid debt instruments purchased with an
      original  maturity  of three  months  or less to be cash  equivalents.  At
      December 31, 2004 cash equivalents  consisted principally of an investment
      of  approximately  $42,000 in a money market account  securing a letter of
      credit  issued by the  Company.  At  December  31, 2003 there were no cash
      equivalents.

[5]   Accounts and Trade Receivables:

      The Company  extends credit to its customers on an unsecured  basis in the
      ordinary  course of business but mitigates the  associated  credit risk by
      performing  credit  checks and actively  pursuing  past due  accounts.  An
      allowance for doubtful  accounts has been established  since management is
      of the opinion that all accounts  receivable may not be fully collectible.
      The allowance for doubtful accounts is based on an estimated percentage of
      overall accounts receivable.

[6]   Concentration of Credit Risk:

      Financial  instruments  that  subject the Company to risk of loss  consist
      principally of accounts receivable,  deposits with financial institutions.
      The Company grants credit terms to customers in the normal course of doing
      business. Credit risk with respect to trade receivables is considered


                                                                            F-16
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      minimal due to the Company's  diverse  customer base throughout the United
      States  and  strict  enforcement  of  its  credit  policies.  The  Company
      generally  does not  require  security  deposits  or other  collateral  to
      support credit sales.  The  consolidated  financial  statements  have been
      adjusted for  anticipated  losses  thereon.  Deposits  held with banks may
      exceed the amount of insurance provided on such deposits.

      The Company's sales are made primarily to customers  throughout the United
      States.  Non-U.S.  customers are required to pay in U.S.  Dollars when the
      order is placed. There were no sales to non-U.S.  customers for the fiscal
      year ended  December  31,  2004 and 2003.  During  the  fiscal  year ended
      December 31, 2004, only one customer,  Motorola,  Inc.,  accounted for ten
      percent (10%) or more of the Company's  sales,  and credit losses were not
      significant.  During the fiscal year ended  December  31, 2003 no customer
      accounted for more than ten percent (10%) or more of the Company's  sales,
      and credit losses were not significant.

[7]   Inventory:

      Inventory  is  stated  at the  lower  of  cost  (determined  by  first-in,
      first-out method) or market. At December 31, 2004 the Company's  inventory
      consisted of the following:

                  Raw materials                  $ 242,061
                  Work in progress                  15,926
                  Finished goods                     2,500
                                                 ---------
                           Total                 $ 260,487
                                                 =========

[8]   Income (loss) per share:

      Basic and diluted net income (loss) per common share have been computed in
      accordance  with SFAS No. 128,  "Earnings Per Share."  Basic  earnings per
      share   ("BEPS")  is  computed  by  dividing  net  income  (loss)  by  the
      weighted-average  number of common  shares  outstanding  during  the year.
      Diluted  earnings  per share  ("DEPS") is computed by dividing  net income
      (loss) used  indetermining  BEPS by the weighted  average number of common
      shares outstanding during the period, plus the incremental shares, if any,
      that would have been  outstanding  upon the  assumed  exercise  of certain
      dilutive stock options and warrants.

      The  reconciliation  of shares used to calculate  BEPS and DEPS (loss) per
      share consists of the following:

                                                         Year Ended December 31,
                                                        ----------   ----------
                                                           2004         2003
                                                        ----------   ----------
       Shares used in BEPS computations -
          weighted average shares outstanding                   --    7,161,756
                                                                     10,545,082
       Net effect of dilutive common share equivalents          --    3,380,200
                                                        ----------   ----------
       Shares used in DEPS computations                 10,545,082   10,541,956
                                                        ==========   ==========


                                                                            F-17
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Common stock equivalents to purchase common stock of the Company that were
      outstanding  at December 31, 2004 were not included in the  computation of
      diluted net loss per share as their effect would have been  anti-dilutive.
      The anti-dilutive  common stock equivalents for December 31, 2004, and the
      common  stock  equivalents  for  December  31, 2003  consist  primarily of
      incentive stock options,  convertible debentures that are convertible into
      Common Stock of the Company at an  approximate  conversion  price of $2.00
      and warrants to purchase  common stock of the Company at prices that range
      from $0.50 - $6.00.

[9]   Income taxes:

      Deferred income taxes are measured by applying enacted  statutory rates in
      effect at the balance sheet date to net operating loss  carryforwards  and
      to the  differences  between the tax bases of assets and  liabilities  and
      their reported amounts in the financial statements. The resulting deferred
      tax asset as of December  31, 2004 and 2003 was fully  reserved  since the
      likelihood of realization of future tax benefits cannot be established.

[10]  Financial instruments:

      The  Financial   Accounting   Standards  Board's  Statement  of  Financial
      Accounting  Standards No. 107,  Disclosures  about Fair Value of Financial
      Instruments ("SFAS 107"),  defines fair value of a financial instrument as
      the  amount  at which  the  instrument  could be  exchanged  in a  current
      transaction between willing parties. The Company's carrying value of cash,
      accounts  receivable,   inventory,  accounts  payable,  short-term  credit
      arrangements,  lines of  credit,  notes  payable,  and  subordinated  debt
      approximates fair value because the instruments have a short-term maturity
      or  because  the  applicable  interest  rates are  comparable  to  current
      investing or borrowing rates of those instruments.

[11]  Stock-based compensation:

      As permitted under SFAS No. 123,  Accounting for Stock-based  Compensation
      (SFAS No. 123), the Company has elected to continue to follow the guidance
      of APB Opinion No. 25,  Accounting  for Stock Issued to Employees (APB No.
      25), and  Financial  Accounting  Standards  Board  Interpretation  No. 44,
      Accounting  for  Certain  Transactions  Involving  Stock  Compensation--an
      Interpretation  of APB Opinion No. 25 (FIN No. 44), in accounting  for its
      stock-based   employee   compensation   arrangements.    Accordingly,   no
      compensation  cost is  recognized  for any of the  Company's  fixed  stock
      options granted to employees when the exercise price of each option equals
      or exceeds the fair value of the  underlying  common stock as of the grant
      date for each stock option.  Changes in the terms of stock option  grants,
      such as extensions of the vesting period or changes in the exercise price,
      result in  variable  accounting  in  accordance  with APB  Opinion No. 25.
      Accordingly,  compensation  expense is measured in accordance with APB No.
      25 and recognized over the vesting period.  If the modified grant is fully
      vested, any additional compensation costs is recognized  immediately.  The
      Company  accounts  for  equity  instruments  issued  to  non-employees  in
      accordance with the provisions of SFAS No. 123.


                                                                            F-18
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      At December 31, 2004, the Company had a stock-based employee  compensation
      plan - the 2003 Plan.  Two of  Company's  subsidiaries  each had  separate
      stock-based  employee  compensation  plans. These subsidiaries' plans were
      contractually  terminated by the Company upon the  acquisition  of SRC and
      ECI on April 23, 2003.  Furthermore,  on March 14, 2003, all recipients of
      options granted pursuant to these plans rescinded all of their interests.

      As   permitted   under   SFAS  No.   148,   Accounting   for   Stock-Based
      Compensation--Transition  and Disclosure,  which amended SFAS No. 123, the
      Company has elected to continue to follow the  intrinsic  value  method in
      accounting  for its  stock-based  employee  compensation  arrangements  as
      defined by APB No. 25 and related  interpretations  including  FIN No. 44.
      The following table  illustrates the effect on net loss and loss per share
      if the Company had applied the fair value  recognition  provisions of SFAS
      No. 123 to stock-based employee compensation for options granted under its
      plan.

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                            ----------------------------
                                                                               2004            2003
                                                                            -----------      -----------
<S>                                                                         <C>              <C>
               Net loss , as reported                                       $(2,333,695)     $(1,119,321)
               Less, Total stock-based employee compensation
               expense determined under fair value-based method for
               all awards, net of related tax effects                                --              --
                                                                            -----------      -----------

               Pro forma net loss                                           $(2,333,695)     $(1,119,321)
                                                                            ===========      ===========

               Net loss per share:
                    As reported:
                        Basic                                                    $(0.22)          $(0.16)
                                                                                 ======           ======
                        Diluted                                                  $(0.22)          $(0.18)
                                                                                 ======           ======
                    Pro forma:
                        Basic                                                    $(0.22)          $(0.16)
                                                                                 ======           ======
                        Diluted                                                  $(0.22)          $(0.18)
                                                                                 ======           ======
</TABLE>

      On April 30, 2003, incentive stock options to purchase 1,987,500 shares of
      our common stock were granted by the Incentive  Compensation  Committee to
      five officers  (1,800,000) and one employee  (187,500) of the Company at a
      weighted  average  exercise price of $1.32 per share. On November 4, 2003,
      incentive  stock  options to purchase  950,000  shares of our common stock
      were granted by the Incentive  Compensation Committee to three officers of
      the Company at a weighted  average  exercise price of $1.09 per share.  On
      January 21, 2004,  incentive  stock options to purchase  601,000 shares of
      our common stock were granted by the Incentive  Compensation  Committee to
      one officer and eighteen  employees  of the Company at a weighted  average
      exercise price of $0.50 per share.  On September 12, 2004 incentive  stock
      options to purchase 500,000 shares of our common stock were granted by the
      Incentive  Compensation  Committee  to one  officer  of the  Company at an
      exercise price of $0.28 per share.  On December 1, 2004,  incentive  stock
      options to purchase 110,000 shares of our common stock were granted by the
      Incentive


                                                                            F-19
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Compensation  Committee to fifteen  employees of the Company at a weighted
      average  exercise price of $0.40 per share.  On April 30, 2003  (435,000),
      November 4, 2003  (220,000) and November 21, 2003  (100,000),  January 21,
      2004 (295,500),  September 12, 2004 (900,000)  non-qualified stock options
      to purchase an aggregate 1,950,500 shares of our common stock were granted
      by the Board of Directors to certain  independent  contractors and outside
      directors of the Company. No options granted have been exercised.

      On June  10,  2004,  as  amended  pursuant  to an  Agreement  dated  as of
      September 28, 2004, an officer and an employee of the Company entered into
      an Option  Cancellation  Agreement  pertaining to 420,000  incentive stock
      options issued on January 21, 2004  relinquishing  all rights and title to
      their award in consideration of 104 equal weekly cash payments aggregating
      $50,000.

      On January 10, 2005, as part of the  settlement  of a litigation  with the
      Company,  Messrs.  Reid (300,000) and Gutowski  (775,000) and Ms. Gutowski
      (475,000) agreed to exchange all of their incentive stock options, as well
      as all of their Class AA and Class C Preferred Stock for 850,000 shares of
      the  Company's  common stock if the exchange is made on or prior to May 9,
      2005,  950,000 shares if the exchange is made on or prior to June 9, 2005,
      or 1,050,000 shares if the exchange is made on or prior to July 9, 2005.

[12]  Use of estimates:

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

[13]  Advertising costs:

      Advertising  costs,  which  amounted  to $35,522 and $47,806 for the years
      ended December 31, 2004 and 2003, respectively, are expensed as incurred.

[14]  Warranty Expense:

      The Company  generally  warrants its products against defects for a period
      of one to three years. A provision for estimated  future costs relating to
      warranties is recorded  when products are shipped and revenue  recognized.
      At  December  31,  2004 and  2003,  estimated  future  costs  relating  to
      warranties were $1,000 and $40,260, respectively.

[15]  Impairment of long-lived assets:

      Impairment  losses are recognized for long-lived assets used in operations
      when indicators of impairment are present and the undiscounted  cash flows
      estimated to be generated by those assets


                                                                            F-20
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      are not sufficient to recover the assets' carrying amount.  The impairment
      loss is measured by comparing  the fair value of the asset to its carrying
      amount. No write-down of assets for impairment losses were required during
      the years ended December 31, 2004 and 2003.

[16]  Intellectual Property Rights and Goodwill:

      In July 2001, the FASB issued SFAS No. 141, Business  Combinations  ("SFAS
      141"), and SFAS No. 142,  Goodwill and Other Intangible  Assets.  SFAS 141
      requires  that the purchase  method of accounting be used for all business
      combinations  initiated  after June 30, 2001, and that certain  intangible
      assets  acquired in a business  combination  be recognized as assets apart
      from goodwill.  SFAS 142 requires  goodwill to be tested for impairment on
      an annual  basis and between  annual tests in certain  circumstances,  and
      written  down when  impaired,  rather  than being  amortized  as  previous
      standards  required.  Furthermore,  SFAS 142 requires  intangible  assets,
      other than goodwill,  to be amortized over their useful lives unless these
      lives are determined to be indefinite. Other intangible assets are carried
      at  cost  less  accumulated  amortization.  Intellectual  Property  Rights
      acquired by the Company in the ECI business combination in April 2003 (see
      Note A) are being amortized on a  straight-line  basis over the shorter of
      the remaining lives of the patents when acquired or their estimated useful
      remaining   lives,   generally  eleven  to  fourteen  years.  No  goodwill
      impairment charge was recorded in 2004 in accordance with SFAS No. 142.

[17]  Startup Activities

      Costs  associated  with the  organization  and start-up  activities of the
      Company are expensed as incurred.

[18]  Recent accounting pronouncements:

      In  January  2003,  the FASB  issued  FIN 46,  Consolidation  of  Variable
      Interest  Entities  (VIE's),  and a revision  to FIN 46 in  December  2003
      (together,  "FIN 46"),  which  requires  identification  of the  Company's
      participation  in VIE's.  VIE's are  defined as  entities  with a level of
      invested equity that is not sufficient to fund future activities to permit
      them to operate on a  stand-alone  basis,  or whose  equity  holders  lack
      certain  characteristics of a controlling financial interest. For entities
      identified  as  VIE's,  FIN 46 sets  forth a model to  evaluate  potential
      consolidation  based on the  assessment  of which  party to a VIE, if any,
      bears a majority of the risk of the VIE's  expected  losses,  or stands to
      gain from a majority of the VIE's expected returns. FIN 46 also sets forth
      certain   disclosures   regarding   interest  in  VIE's  that  are  deemed
      significant,  even if consolidation  is not required.  FIN 46 is effective
      for all VIE's created after January 31, 2003.  The Company  adopted FIN 46
      during 2003 and the adoption of this interpretation did not have an impact
      on the Company's consolidated financial statements in 2004 or 2003.

      In May  2003,  the  FASB  issued  SFAS No.  150,  Accounting  for  Certain
      Financial Instruments with Characteristics of Both Liabilities and Equity.
      SFAS No.  150  establishes  standards  for how an  issuer  classifies  and
      measures certain financial instruments with characteristics of both


                                                                            F-21
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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).  Many of those  instruments were previously  classified as
      equity.  SFAS No. 150 is effective for financial  instruments entered into
      or modified after May 31, 2003. The Company  adopted this standard  during
      2003 and the adoption did not have an impact on the Company's consolidated
      financial statements in 2004 or 2003.

      During  December 2004, the Financial  Accounting  Standards Board ("FASB")
      issued SFAS No. 153,  Exchanges of  Nonmonetary  Assets -- An Amendment of
      APB  Opinion  No.  29. APB  Opinion  No. 29,  Accounting  for  Nonmonetary
      Transactions  ("APB 29") required that nonmonetary  exchanges be accounted
      for at fair value, subject to certain exceptions. SFAS 153 has removed the
      exception for  nonmonetary  exchanges of similar  productive  assets,  and
      replaced  it  with  an  exception  for  exchanges  that  lack   commercial
      substance.  The provisions of SFAS 153 are effective prospectively for all
      nonmonetary  asset  exchanges in fiscal periods  beginning  after June 15,
      2004.  Early  adoption  is  permitted.  The  Company  does not  expect the
      adoption  of SFAS  No.  153 to have a  material  impact  on the  Company's
      consolidated financial statements.

      During December 2004, FASB issued SFAS No. 123 (Revised 2004), Share-Based
      Payment  ("SFAS  123R").  SFAS 123R replaces SFAS No. 123,  Accounting for
      Stock-Based  Compensation  (SFAS 123),  and supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees.  SFAS 123R requires companies to
      recognize   the   compensation   cost  related  to   share-based   payment
      transactions with employees in the financial statements.  The compensation
      cost is  measured  based  upon the fair  value of the  instrument  issued.
      Share-based  compensation  transactions with employees covered within SFAS
      123R include  share  options,  restricted  share plans,  performance-based
      awards, share appreciation rights, and employee share purchase plans. SFAS
      123  included a  fair-value-based  method of  accounting  for  share-based
      payment transactions with employees,  but allowed companies to continue to
      apply the guidance in APB 25 provided  that they disclose in the footnotes
      to  the   financial   statements   the  pro  forma   net   income  if  the
      fair-value-based  method been applied.  The Company is currently reporting
      share-based payment  transactions with employees in accordance with APB 25
      and provides the required disclosures. SFAS 123R will be effective for the
      Company beginning January 1, 2006.

      In implementing SFAS 123R the Company will apply the modified  prospective
      application  transition  method.  The  modified  prospective   application
      transition method requires the application of this standard to:

            o     All new awards issued after the effective date;

            o     All  modifications,  repurchased or  cancellations of existing
                  awards after the effective date; and

            o     Unvested awards at the effective date.


                                                                            F-22
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      For  unvested  awards,  the  compensation  cost  related to the  remaining
      "requisite  service' that has not been rendered at the effective date will
      be determined by the  compensation  cost  calculated  currently for either
      recognition or pro forma  disclosures  under SFAS 123. The Company will be
      adopting the modified prospective application of SFAS 123R.

NOTE C - FIXED ASSETS, NET

Fixed assets, net consists of the following at December 31, 2004:

        Machinery and equipment          $ 439,808
        Office and computer equipment       66,048
        Transportation equipment            23,873
        Furniture and fixtures              40,505
                                         ---------
                                           570,234
        Less, accumulated depreciation    (175,725)
                                         ---------
        Fixed assets, net                $ 394,509
                                         =========

Depreciation  expense for the years  ended  December  31, 2004 and 2003  totaled
$83,294 and $83,941, respectively.

NOTE D - INTELLECTUAL PROPERTY RIGHTS AND GOODWILL

Detail of  intellectual  property  rights and goodwill is as follows at December
31, 2004:

Intellectual property rights:

        Intellectual property rights, stated at lower of
           cost or fair market value                       $ 1,550,609
        Less, accumulated amortization                        (188,661)
                                                           -----------
        Intellectual property rights, net                  $ 1,361,948
                                                           ===========

The estimated future amortization expense of intellectual  property rights is as
follows:

          2005                                             $   113,196
          2006                                                 113,196
          2007                                                 113,196
          2008                                                 113,196
          2009                                                 113,196
          Thereafter                                           795,968
                                                           -----------
                   Total                                   $ 1,361,948
                                                           ===========

Additional  amortization  will be recognized in future  periods if impairment of
the rights  occurs.  Amortization  expense for the year ended  December 31, 2004
totaled $113,196.


                                                                            F-23
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE D - INTELLECTUAL PROPERTY RIGHTS AND GOODWILL

Goodwill:

        Gross carrying amount     $7,285,894
        Less, impairment charge           --
                                  ----------
        Total goodwill            $7,285,894
                                  ==========

The Company is required to perform goodwill  impairment tests on an annual basis
and between annual tests in certain circumstances.  In 2004, the Company did not
incur any goodwill  impairment.  Future goodwill  impairment tests may result in
charges to earnings if the Company determines that goodwill has become impaired.

The Company  recognizes an  impairment  loss based on the excess of the carrying
amount of the assets over their  respective fair values.  Fair value of goodwill
is  determined  by using a  valuation  model  based  on a market  capitalization
approach. Fair value of the intangible assets is determined by discounted future
cash flows,  appraisals or other methods.  If the intangible asset determined to
be impaired is to be held and used, the Company  recognizes an impairment charge
to the extent the present value of anticipated  net cash flows  attributable  to
the asset are less than the asset's carrying value.

NOTE E - SHORT-TERM FINANCING ARRANGEMENTS

The  Company  accounts  for credit  card  obligations  as  short-term  financing
arrangements. The obligations require minimum monthly payments that are based on
approximately  3% of  the  outstanding  balance  and  interest  accrues  on  the
outstanding balances at rates ranging from 10.5% to 25%. Outstanding balances of
these obligations aggregated $48,931 at December 31, 2004.

From time to time during 2004,  the Company  factored  its accounts  receivables
with a  financial  institution  and an  individual.  Funds are  advanced  to the
Company based on 75% of submitted accounts  receivables.  Interest is charged at
the effective rate of 3.33% - 4.00% per month. The submitted accounts receivable
secure  the  advances  to the  Company.  At  December  31,  2004 such  factoring
arrangements amounted to $142,464.

NOTE F - LINES OF CREDIT

The Company has the following line of credit at December 31, 2004:

$20,000 unsecured line of credit with a bank. Interest payments are due monthly,
which are  calculated  at At December 31, 2004 the interest  rate was 6.25%;  1%
above the Prime Rate. The  outstanding  balance of the line at December 31, 2004
is $19,199.

NOTE G - NOTES AND DEBENTURE PAYABLE

The Company has the following notes and debenture payable at December 31, 2004:

18% Promissory Note
-------------------

Promissory  note  payable to an  individual  due in one payment on February  10,
2005. The note accrues


                                                                            F-24
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE G - NOTES AND DEBENTURE PAYABLE (CONTINUED)

interest at 18.00% which is payable  quarterly  commencing May 1, 2004. The note
is  unsecured.  At  December  31,  2004 the  outstanding  balance on the note is
$300,000.  The Company is  currently  negotiating  new terms with regard to this
note.

10% Promissory Note
-------------------

On June 24, 2004 the Company  issued a secured  note payable to an employee of a
subsidiary of the Company in the amount of $150,000.  The note is secured by the
furniture and equipment of a subsidiary of the Company.  The note bears interest
at 10% per annum and the principal and all interest thereon was due on September
24, 2004. In  consideration  of extending the maturity date of the note to April
30, 2005 and deferring  the payment of all accrued  interest for the period June
24, 2004 through April 30, 2005, the individual was issued  Warrants to purchase
101,000 shares of the Company's common stock at $0.28 per share. At December 31,
2004 the outstanding balance on the note is $150,000.

24% Secured Notes
-----------------

In July and August 2004,  the Company  issued  $150,000 of its 24% Secured Notes
due April 30,  2005 to the wife of the Chief  Executive  Officer and an existing
10%  subordinated  noteholder  of the Company.  Interest on the notes is payable
quarterly  in  arrears.  The notes are  secured  by (i) all the stock of SRC and
USCL,  and (ii) the pledge of Patent Nos.  6,060,979,  6,047,173 and 5,701,338 -
all owned by the  Company.  On  October  1,  2004,  the  holders  of 100% of the
Company's  24% Secured Notes agreed to defer $5,867 of interest due on such date
to January 1, 2005 in  consideration of the Company issuing to them 53,333 Class
B Warrants of the Company, each to give the holder thereof the right to purchase
a share of common stock at $0.33 per share.  On January 1, 2005,  the holders of
100% of the  Company's  24% Secured Notes agreed to defer $9,200 of interest due
on such date and further defer the interest that was due and deferred on October
1, 2004  ($5,867) to April 1, 2005 in  consideration  of the Company  issuing to
them 113,000  Class B Warrants of the Company,  each to give the holder  thereof
the right to  purchase a share of common  stock at $0.40 per share.  At December
31, 2004 the outstanding balance on the notes is $150,000.

10% Convertible Note
--------------------

In October,  November and December  2004, the Company issued (i) $150,000 of its
10%  Convertible  Subordinated  Notes due June 30, 2005 and (ii) 945,000 Class C
Warrants of the Company, each to give the holder thereof the right to purchase a
share of common stock at $0.50 per share. The notes were sold to the wife of the
Chief Executive  Officer of the Company and other  accredited  investors and are
convertible  by the holder,  at any time,  into  common  stock of the Company at
$0.50 per share. The warrants expire on April 30, 2013. Interest on the notes is
due at maturity.  At December 31, 2004 the  outstanding  balance on the notes is
$150,000.


                                                                            F-25
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE G - NOTES AND DEBENTURE PAYABLE (CONTINUED)

12% Debenture
-------------

In August and  September  2003,  holders of  95.83333% of  $2,400,000  principal
amount of the debentures  payable issued by a subsidiary of the Company  elected
to (i) convert the outstanding  principal balance of their debentures  amounting
to $2,300,000 into 1,150,000 shares of the Company's  Common Stock,  (ii) cancel
575,000 of the related  600,000  outstanding B Warrants of the subsidiary of the
Company (the related Class A Warrants of the  subsidiary of the Company  expired
on March 31,  2003),  and (iii) waive all accrued and unpaid  interest  relating
thereto ($345,000), in consideration for the issuance of the Company's five-year
common  stock  Class F Warrants to purchase  1,150,000  shares of the  Company's
Common Stock at $3.00 per share,  all of which are  currently  exercisable.  The
subsidiary of the Company also granted the placement agent a warrant exercisable
through  June 2005 to purchase 5 units at $60,000  per unit.  If the warrant for
all 5 units is exercised, the purchaser shall effectively receive 125,000 shares
of the  Company's  common stock and the right to purchase an  additional  62,500
common  shares  at  $5.00  per  share - see  Note K. At  December  31,  2004 the
outstanding  principal  balance of a debenture  payable of a  subsidiary  of the
Company is $100,000.

Other Notes
-----------

Note  payable to Ford Motor  Credit due  February  16,  2007.  The note  accrues
interest  at 5.0% and is  payable  in  monthly  installments  of  principal  and
interest  of  $1,032.  The  note is  collateralized  by a  vehicle  owned by the
Company.  At December 31, 2004 the outstanding balance on the note is $24,723 of
which $12,148 has been classified as current portion of notes payable.

Note payable to  Ingersoll-Rand  Financial  Services  due May 1, 2007.  The note
accrues  interest  at an  effective  rate  of 7.4%  and is  payable  in  monthly
installments  of principal and interest of $569. The note is  collateralized  by
equipment owned by the Company.  At December 31, 2004 the outstanding balance on
the note is $14,579 of which $5,905 has been  classified  as current  portion of
notes payable.

Installment notes payable to two individuals,  who are employees of a subsidiary
of the Company,  dated April 23, 2003 and due February 1, 2004. The notes accrue
interest at 8.00% of which all accrued  interest was due and payable on February
1, 2004. Principal payments of $53,333 were due August 1, 2003, November 1, 2003
and  February  1,  2004.  The notes are  unsecured.  At  December  31,  2004 the
outstanding  principal balance of the notes is $23,330. The Company is currently
negotiating new terms with regard to this note.

NOTE H - SUBORDINATED NOTES PAYABLE

The Company has the following subordinated notes payable at December 31, 2004:

10% Subordinated Notes due April 30, 2005
-----------------------------------------

On April 23, 2003 the Company issued  $1,000,000 in principal  amount of its 10%
Subordinated  Notes due  April  30,  2004 to  investors  for a 15%  non-dilutive
interest in the Company in the form of 4,165,800


                                                                            F-26
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE H - SUBORDINATED NOTES PAYABLE (CONTINUED)

cashless  warrants,  each to  purchase  one share of  Common  Stock at $0.50 per
share.  The Company has the option to extend the  maturity  date of the notes to
April 30, 2005 in  consideration  for issuing the  noteholders  an additional 4%
non-dilutive  interest  in the  Company.  The notes also  require the Company to
prepay them in an amount equal to 100% of any net financing proceeds obtained by
the  Company  after the  issuance  of the notes.  The  noteholders  waived  this
provision  to the  extent  of  $2,000,000  through  April  15,  2005,  of  which
$1,500,000 has been raised.  The investors included two officers of the Company.
Interest is payable,  in arrears,  calendar  quarterly.  The Company  valued the
warrants, utilizing the Black-Scholes Pricing Model, at $699,000, which is being
accounted for as debt discount and is being  amortized  ratably over the initial
one-year term of the Notes.

On March 12, 2004,  the Company  notified the Class B Warrant  holders  that, to
satisfy the 15% non-dilutive  provisions of their Warrants,  these Warrants were
now  exercisable  for an aggregate of 5,245,200  shares of the Company's  common
stock at approximately $0.40 per share. On this date, the Company also exercised
its  option  to extend  the  maturity  date of the  notes to April 30,  2005 and
satisfied the  requirement  for the additional 4%  non-dilutive  interest in the
Company by issuing to the noteholders Class B Warrants to purchase an additional
1,708,900  shares  of the  Company's  common  stock  at  $0.50  per  share.  The
non-dilutive  provisions  of the Warrants  terminate  when all of the notes have
been paid in full.  In April 2005,  the Company  will notify the Class B Warrant
holders that, to satisfy the now 19% non-dilutive  provisions of their Warrants,
these Warrants were now exercisable for an additional of 1,122,100 shares of the
Company's  common stock at  approximately  $0.40 per share. At December 31, 2004
the 10% subordinated notes had an outstanding principal balance of $966,710.

Conversion of 8% Subordinated Notes
-----------------------------------

On April 23, 2003, the Company issued  $2,000,000 of its 8%  subordinated  notes
due April 30, 2008 to three  officers and an employee of the  Company.  Interest
was payable  quarterly on a calendar  year basis.  The notes were secured by the
all of the issued and outstanding  common stock of SRC and ECI. In 2003 and 2004
all of the 8%  subordinated  notes were converted  into the Company's  Series AA
Preferred Stock. Specifically, on August 31, 2003, two holders who were officers
of the Company, converted $1,000,000 of the Company's 8% Subordinated Notes into
1,000,000  shares of the Company's  Series AA Preferred  Stock. On June 9, 2004,
the other two holders of the Company's 8% Subordinated  Promissory Notes who are
an officer  and an employee of the  Company  converted  their notes  aggregating
$1,000,000 into 1,000,000  shares of the Company's Series AA Preferred Stock. It
also has an 8% cumulative dividend, payable in common stock or cash.

Maturities of long-term debt subsequent to December 31, 2004 are as follows:

          2005                                                       17,243
          2006                                                       19,268
          2007                                                        2,791
          2008                                                           --
          2009                                                           --
                                                                  ---------
                   Total                                          $  39,302
                                                                  =========


                                                                            F-27
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE I - PREFERRED STOCK

Preferred Stock consists of the following at December 31, 2004:

        Par value per share                        $  0.00001
        Authorized number of shares                25,000,000
        Issued and outstanding number of shares:
           Series AA                                2,000,000
           Series A                                 1,697,966
           Series B                                     4,400
           Series C                                 9,735,875
           Series E                                        --
                                                   ----------
                 Total                             13,438,241
                                                   ==========

The Series AA Preferred Stock has an 8% cumulative  dividend,  payable in common
stock or cash,  and a  liquidating  preference  over all  other  CNE  equity  of
$2,000,000.  The Series A Preferred Stock has a liquidating  preference over all
other CNE  equity  except the Series AA of  $1,697,961.  The Series B  Preferred
Stock has a liquidating  preference  over all other CNE equity except the Series
AA and A  Preferred  Stock of  $440,000.  The  Series C  Preferred  Stock has no
liquidating preference.

NOTE J - COMMON STOCK

Common Stock consists of the following at December 31, 2004:

        Par value per share                       $   0.00001
        Authorized number of shares                40,000,000
        Issued number of shares                    12,029,571
           Less, Treasury shares                   (1,238,656)
                                                  -----------
        Issued and outstanding number of shares    10,790,915
                                                  ===========


                                                                            F-28
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE K - WARRANTS

At December 31, 2004 outstanding warrants to acquire common stock consisted of:

<TABLE>
<CAPTION>
     Type of                                                         Exercise         Shares of
     Warrant         Exercise Date          Expiration Date           Price         Common Stock
     -------        ----------------        ---------------          --------      --------------
<S>                 <C>                     <C>                       <C>              <C>
     Class A        October 22, 2008        April 22, 2013            $1.00            1,697,966
     Class B        April 23, 2003          April 30, 2013            $0.40            5,245,200
     Class B        March 12, 2004          April 30, 2013            $0.50            1,708,900
     Class B        July 1, 2004            April 30, 2013            $0.39              105,769
     Class B        October 1, 2004         April 30, 2013            $0.33              295,455
     Class BB       May 10, 2003            May 10, 2006              $0.50               20,000
     Class BB       June 10, 2003           June 10, 2006             $0.50               20,000
     Class BB       July 10, 2003           July 10, 2006             $0.50               20,000
     Class BB       August 10, 2003         August 10, 2006           $0.50               20,000
     Class BB       September 10, 2003      September 10, 2006        $0.50               20,000
     Class BB       October 10, 2003        October 10, 2006          $0.50               20,000
     Class BB       June 10, 2003           June 10, 2006             $2.50               10,000
     Class BB       July 10, 2003           July 10, 2006             $3.00               10,000
     Class BB       August 10, 2003         August 10, 2006           $4.00               10,000
     Class BB       September 10, 2003      September 10, 2006        $4.50               10,000
     Class BB       October 10, 2003        October 10, 2006          $5.00               10,000
     Class BB       January 21, 2004        February 4, 2009          $0.50              150,000
     Class BB       February 10, 2004       February 10, 2014         $1.00              350,000
     Class BB       August 29, 2004         August 29, 2009           $1.50               25,000
     Class BB       August 29, 2004         August 29, 2009           $2.00               25,000
     Class BB       August 29, 2004         August 29, 2009           $2.50               25,000
     Class BB       August 29, 2004         August 29, 2009           $3.00               25,000
     Class BB       August 29, 2004         August 29, 2009           $3.50               25,000
     Class BB       August 29, 2004         August 29, 2009           $4.00               25,000
     Class C        October 22, 2008        April 22, 2013            $1.00            9,735,875
     Class F        January 1, 2004         December 31, 2009         $3.00            1,150,000
     Class G        October 1, 2004         October 1, 2014           $0.28              736,000
     Class H        October 1, 2004         October 1, 2014           $0.33               53,333
     Class I        October, November and   June 30, 2014             $0.50              945,000
                    December, 2004
     Class B(1)     Immediate               March 31, 2005            $6.00               25,000
     Class B(1)     Immediate               June 28, 2005             $6.00               62,500
                                                                                     -----------
                                                                                      22,580,998
                                                                                     ===========
</TABLE>

(1)   Class B warrants and Units of a subsidiary of the Company are  exercisable
      for the Company's common shares (see Note G: Notes and Debenture Payable).


                                                                            F-29
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE L - CAPITAL CONTRIBUTIONS

Capital Contributions

On June 9, 2004 an officer  and an employee  of the  Company  waived  $40,000 of
interest on certain the outstanding 8% promissory notes (see Note H)and has been
reflected in the  financial  statements as  contributions  to the capital of the
Company during the year ended December 31, 2004.

On January 21,  2004  (retroactive  to  December  31,  2003)  certain  officers,
directors and  stockholder of the Company waived certain  amounts due to them as
follows:

          Compensation and certain reimbursable expenses          $  66,246
          Interest on promissory notes                               13,334
          Accounts receivable due stockholders                      130,000
                                                                  ---------
             Total                                                $ 209,580
                                                                  =========

These aforementioned  amounts have been reflected in the financial statements as
contributions  to the capital of the Company  during the year ended December 31,
2003.

NOTE M - INCOME TAXES

The provision for income taxes applicable to continuing operations, all of which
is current, consists of the following at December 31, 2004 and 2003:

                                                       2004        2003
                                                     -------     -------

        Federal                                      $    --     $    --
        State and local franchise taxes                   --      13,965
                                                     -------     -------

                                                     $    --     $13,965
                                                     =======     =======

At December 31, 2004,  the Company had a net  operating  loss  carryforward  for
federal income tax purposes of approximately  $36,500,000,  which expires in the
years 2005 through 2023.

The Company's deferred tax assets and liabilities consists of the following:

<TABLE>
<CAPTION>
                                                                          2004            2003
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
        Deferred tax assets:
           Net operating loss carryforward                            $ 17,838,001    $ 16,777,000
           Other                                                            21,620          23,690
                                                                      ------------    ------------
              Total deferred tax assets, before valuation allowance     17,859,621      16,800,690
        Valuation allowance                                            (17,859,621)    (16,800,690)
                                                                      ------------    ------------
              Total deferred tax assets                               $          0    $          0
                                                                      ============    ============
</TABLE>

The valuation allowance increased (decreased) by approximately $1,058,931 during
2004 and  $2,018,690  during 2003.  The increase in the  valuation  allowance of
$1,058,931  for the year ended  December 31, 2004  resulted from the increase in
the valuation allowance attributable to the deferred tax benefit of


                                                                            F-30
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE M - INCOME TAXES (CONTINUED)

approximately $1,061,001 on the loss from continuing operations. The increase in
the  valuation  allowance  of  $2,018,690  for the year ended  December 31, 2003
resulted  from the  increase  in the  valuation  allowance  attributable  to the
deferred tax benefit of  approximately  $2,287,161  on the loss from  continuing
operations and a benefit of $268,471 recognized from discontinued operations.

The effective  tax rate  applicable  to  continuing  operations  varied from the
statutory federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                 -----------------------
                                                                    2004        2003
                                                                 ---------    ---------
<S>                                                                   <C>        <C>
        Statutory rate                                                (34)%      (34)%
        State and local taxes, net of federal income tax effect       (12)       (12)
        Nondeductible expenses                                          2          2
        Valuation allowance                                            44         44
                                                                   ------     ------

        Effective rate                                                  0%         0%
                                                                   ======     ======
</TABLE>

The Internal  Revenue  Service  ("IRS") has examined the Company's  consolidated
federal income tax returns  through 1989. The returns for the years 1999 through
2004 remain open.

Settlement of Tax Assessment Payable of a Subsidiary of the Company
-------------------------------------------------------------------

On July 16, 2003, the IRS accepted an "Offer in Compromise"  submitted in April,
2003 by a  subsidiary  of the  Company  to  settle  its Tax  Assessment  Payable
amounting to approximately  $946,000,  including interest, at June 30, 2003. The
accepted  Offer in Compromise  provided for payment of $50,000 cash on or before
October 14, 2003.  The $50,000  cash was paid in July and  September  2003.  The
Company  recognized a gain on settlement  in the amount of $895,622  relating to
this transaction during the year ended December 31, 2003.

NOTE N - COMMITMENTS, LITIGATION AND OTHER MATTERS

[1]   The Company's  principal  executive offices and e-recruiting  business are
      located at 200 West 57th Street, Suite 507, New York, New York 10019 where
      the Company  rents  approximately  500 square feet under a lease that will
      expire on April 30, 2005 pursuant to which the Company pays a monthly base
      rent of $3,250.  SRC Technologies and its  subsidiaries,  Connectivity and
      Mobile  Comm are  located at 3733 NW 16th  Street,  Lauderhill,  FL 33311,
      where they rent approximately 5,000 square feet under a lease that expires
      on March 31, 2006  pursuant to which the Company  pays a monthly base rent
      of $6,750.  This lease is with an affiliate of Thomas L. Sullivan,  who is
      one of the Company's  executive officers and Gary L. Eichsteadt,  who is a
      director and an employee of the Company.  U.S. Commlink is located at 6244
      Preston Avenue,  Livermore,  CA 94550, where it leases approximately 2,000
      square feet under a lease that expires May 31, 2005  pursuant to which the
      Company pays a monthly base rent of $1,981.


                                                                            F-31
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE N - COMMITMENTS, LITIGATION AND OTHER MATTERS (CONTINUED)

      Rental  expense  amounted to  $120,964  and  $115,791  for the years ended
      December 31, 2004 and 2003,  respectively.  Minimum  future  annual rental
      payments at December 31, 2004 are as follows:

               2005                                              $  103,905
               2006                                                  20,250
               2007                                                      --
                                                                 ----------
                                                                 $  124,155
                                                                 ==========

[2]   A subsidiary  of the Company is the sponsor a Retirement  Savings Plan for
      its  employees  pursuant to Section  401(k) of the Internal  Revenue Code.
      Employee   contributions  to  the  plan  and  the  subsidiary's   matching
      contributions vest immediately.  There were no contributions for the years
      ended December 31, 2004 and 2003.

[3]   The Company has employment agreements with three executive officers. These
      agreements provide for minimum salary levels. The aggregate commitment for
      future salaries of these three executive officers at December 31, 2004 was
      approximately $493,000. See Note 5 below.

[4]   The Company is a party to various vendor related litigations. Based on the
      opinion  of  legal  counsel,  the  Company  has  accrued  a  liability  of
      approximately $100,000 and, accordingly, this liability has been reflected
      in accounts payable and accrued expenses.

[5]   On August  19,  2004,  two of the  Company's  then  officers,  Michael  J.
      Gutowski  and Larry M. Reid,  who were then also  directors,  informed the
      Company that their employment contracts may have been breached.  On August
      27,  2004,  these  officers  filed suit  against the Company in the United
      States District  Court,  Southern  District of Florida,  alleging that (i)
      their  employment  contracts  had been  breached and (ii)  certain  future
      compensation  relating  thereto  to be  paid to  them  amounting  up to an
      aggregate of $1,003,000 had been accelerated. On October 5, 2004, Carol L.
      Gutowski,  then an  officer  of one of the  Company's  subsidiaries  and a
      former  director of the Company,  instituted a suit against the subsidiary
      in the Circuit Court,  17th Judicial  Circuit,  Broward  County,  Florida,
      alleging (i) a breach of her employment  agreement with the subsidiary and
      (ii) that certain future  compensation  relating thereto to be paid to her
      from the  subsidiary  amounting  up to an  aggregate  of $274,000 had been
      accelerated.

      The Company  reported  that it did not believe that it had  committed  any
      breach of these agreements and,  accordingly,  had not incurred the claims
      that these officers  alleged.  In addition,  the Company  reported that it
      believed that these officers had committed  violations of their employment
      agreements  and had taken other  actions  that had  damaged  the  Company.
      Accordingly,  the Company  filed a defense to these  actions and  asserted
      appropriate counterclaims.

      On January 10, 2005, both of the aforementioned  actions were settled.  In
      accordance therewith, the parties agreed, among other things, as follows:


                                                                            F-32
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE N - COMMITMENTS, LITIGATION AND OTHER MATTERS (CONTINUED)

Each  party  will  release  the other  from any and all  claims  except  for any
obligations set forth in the settlement  agreement and the legal actions between
the parties, including both the Federal Court and Florida Circuit Court actions,
will be dismissed with prejudice;

            1.    The parties shall bear their own fees and expenses relating to
                  the litigation;

            2.    Messrs.  Reid and Gutowski and Ms.  Gutowski shall be released
                  from  the  non-competition   provisions  of  their  respective
                  employment contracts;

            3.    Messrs. Reid and Gutowski agreed to resign as directors of the
                  Company; and

            4.    Messrs. Reid and Gutowski and Ms. Gutowski shall exchange,  in
                  the aggregate,  (i) all of their Class AA (1,000,000  shares),
                  Class A  (305,336  shares),  and  Class C  (4,867,937  shares)
                  Preferred Stock of the Company,  and (ii) all issued incentive
                  stock  options of the  Company,  aggregating  1,550,000 in the
                  aggregate,  for  850,000  shares  of our  common  stock if the
                  exchange is made on or prior to May 9, 2005, 950,000 shares if
                  the exchange is made on or prior to June 9, 2005, or 1,050,000
                  shares  if the  exchange  is made on or prior to July 9,  2005
                  subject to certain restrictions relating to the sale thereof.

      The  settlement  agreement has been filed with the United States  District
      Court Southern District of Florida, Case No:  04-61125-Civ-Cooke/McAliley,
      Michael J.  Gutowski and Larry M. Reid,  Plaintiffs,  v. CNE Group,  Inc.,
      Defendant/Counter-Plaintiff,  v.  Michael J.  Gutowski,  Larry M. Reid and
      Carol L. Gutowski, Counter-Defendants.

NOTE O - ACQUISITIONS AND RELATED UNAUDITED PRO FORMA FINANCIAL INFORMATION

The purchase price of the acquisition of SRC and ECI was allocated to the assets
and  liabilities  acquired,  both tangible and  intangible  (as determined by an
independent  appraiser),  with the  excess of the  purchase  price over the fair
value of the net assets acquired of $7,285,894  being recorded as Goodwill.  The
value of the intellectual property rights, amounting to $1,550,609,  acquired in
the related  financing was also determined by an independent  appraiser.  Due to
these acquisitions and related financing, SRC has acquired intellectual property
rights to  certain  key  elements  of these  products  -  specifically,  certain
communication, data entry and telemetry devices.

The  Company's   consolidated   financial  statements  include  the  results  of
operations of SRC from its respective acquisition dates. The following unaudited
pro forma information  presents a summary of the Company's  consolidated results
of operations as if the SRC and ECI acquisitions  and the related  financing had
taken place on January 1, 2003 for the year ended December 31, 2003. The SRC and
ECI acquisitions have been recorded in accordance with SFAS No. 141;  therefore,
no  amortization  of goodwill or intangible  assets without  determinable  lives
related to SRC and ECI is reflected in the prior year  amounts.  These pro forma
results have been prepared for  comparative  purposes only and do not purport to
be indicative of the results of operations  which  actually  would have resulted
had the  acquisitions  occurred  on  January  1, 2003 or which may result in the
future.


                                                                            F-33
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE O - ACQUISITIONS AND RELATED UNAUDITED PRO FORMA FINANCIAL INFORMATION
         (CONTINUED)

                                                            Year Ended
                                                         December 31, 2003
                                                         -----------------
                                                             Unaudited

         Revenues                                          $   2,703,406
         Expenses                                              4,706,100
                                                           -------------
           Loss from continuing operations                 $  (2,002,694)
                                                           =============

         Loss from continuing operations per share:
           Basic                                                 $(0.11)
                                                                 =======
           Diluted                                               $(0.11)
                                                                 =======

NOTE P - STOCK OPTION PLANS

At December 31, 2004, the Company had a stock-based employee compensation plan -
the 2003 Stock Incentive Plan. Two of Company's  subsidiaries  each had separate
stock-based   employee   compensation  plans.  These  subsidiaries'  plans  were
contractually  terminated by the Company upon the  acquisition of SRC and ECI on
April 23,  2003.  Furthermore,  on March 14,  2003,  all  recipients  of options
granted pursuant to these terminated plans rescinded all of their interests.

Contractually Terminated Subsidiaries' Plans
--------------------------------------------

      CareerEngine Network 1990 Plan and CareerEngine Network 1999 Plan
      -----------------------------------------------------------------

In 1990, the Company's subsidiary,  CareerEngine Network, adopted a stock option
plan (the "CareerEngine  Network 1990 Plan") for granting options to purchase up
to 750,000 shares of its common stock,  pursuant to which officers and other key
employees were eligible to receive incentive and/or  nonqualified stock options,
stock appreciation rights, and restricted stock awards.  Incentive stock options
granted under the  CareerEngine  Network 1990 Plan were exercisable for a period
of up to 10 years (five years in the case of a 10% or greater  stockholder) from
date of grant at an  exercise  price  which was not less than the quoted  market
price on date of grant,  except that the exercise price of options  granted to a
stockholder  owning more than 10% of the outstanding  capital stock may not have
been less than 110% of the quoted  market  price of the common  stock at date of
grant. The CareerEngine Network 1990 Plan was terminated on June 3, 1999.

In 1999, CareerEngine Network adopted a new stock option plan (the "CareerEngine
Network 1999 Plan") for granting options to purchase up to 350,000 shares of its
common stock,  pursuant to which  officers and other key  employees,  directors,
independent  contractors  and agents were eligible to receive  incentive  and/or
nonqualified stock options.  Options granted under the CareerEngine Network 1999
Plan were  exercisable  for a period of up to 10 years  from date of grant at an
exercise price which was not less than the quoted market price on date of grant,
except that the exercise  price of options  granted to a stockholder  owing more
than 10% of the  outstanding  capital  stock may not have been less than 110% of
the quoted market price of the common stock at date of grant.


                                                                            F-34
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE -P STOCK OPTION PLANS (CONTINUED)

Stock option  activity under the terminated  CareerEngine  Network 1990 Plan and
the CareerEngine Network 1999 Plan is summarized as follows:

                                                       Year Ended December 31,
                                                       -----------------------
                                                                 2003
                                                       -----------------------
                                                                     Weighted
                                                                     Average
                                                                     Exercise
                                                         Shares       Price
                                                        --------    --------

        Options outstanding at beginning of year         290,000    $   2.55
        Options cancelled                                      0
        Rescission by recipients of all their
           interest in options                          (290,000)       2.55
                                                        --------    --------
        Options outstanding at end of year                     0        2.55
                                                        --------    --------
        Options available at end of year                       0    $   2.55
                                                        ========    ========

      CareerEngine 1999 Plan
      ----------------------

In 1999,  CareerEngine,  Inc., a subsidiary of CareerEngine  Network,  adopted a
stock  option  plan (the  "CareerEngine  1999  Plan")  for  granting  options to
purchase up to 2,000,000 shares of its common stock,  pursuant to which officers
and other key employees were eligible to receive  incentive and/or  nonqualified
stock options. Options granted under the CareerEngine 1999 Plan were exercisable
for a period of up to 10 years from date of grant at an exercise price which was
not less than the fair value on date of grant, except that the exercise price of
options granted to a stockholder owing more than 10% of the outstanding  capital
stock may not have been less than 110% of the fair value of the common  stock at
date of grant.

Stock option activity under the terminated  CareerEngine 1999 Plan is summarized
as follows:

                                                     Year Ended December 31,
                                                   ----------------------------
                                                             2003
                                                   ----------------------------
                                                                   Weighted
                                                                    Average
                                                     Shares      Exercise Price
                                                   ----------   ---------------

        Options outstanding at
          beginning of year                          52,000         $  2.50
        Options cancelled                                 0         $  2.50
        Rescission by recipients of all their
           interest in options                      (52,000)        $  2.50
                                                    -------         -------
        Options outstanding at end of year                0         $  2.50
                                                    =======         =======
        Options available at end of year                  0         $  2.50
                                                    =======         =======


                                                                            F-35
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE -P STOCK OPTION PLANS (CONTINUED)

Current Plan of the Company
---------------------------

      2003 Stock Incentive Plan
      -------------------------

On April 30, 2003, the Board of Directors of the Company approved the 2003 Stock
Incentive  Plan,  which  provided,   among  other  matters,  for  incentive  and
non-qualified stock options to purchase 3,500,000 shares of the Company's common
stock.  On November 4, 2003,  the 2003 Stock  Incentive  Plan was amended by the
Board of  Directors  of the  Company to  increase  the number of  incentive  and
non-qualified  stock  options  that may be granted  from  3,500,000 to 5,000,000
shares of Common  Stock.  On June 18, 2004,  the 2003 Stock  Incentive  Plan was
amended  by the Board of  Directors  of the  Company to  increase  the number of
incentive and non-qualified  stock options that may be granted from 5,000,000 to
10,000,000 shares of Common Stock. The purpose of the 2003 Stock Incentive Plan,
as amended,  ("2003 Stock Incentive Plan") is to provide incentives to officers,
key employees,  directors,  independent contractors and agents whose performance
will  contribute  to  the  long-term  success  and  growth  of the  Company,  to
strengthen  the  ability  of the  Company to attract  and retain  officers,  key
employees, directors,  independent contractors and agents of high competence, to
increase the  identity of  interests of such people with those of the  Company's
stockholders  and to help build loyalty to the Company  through  recognition and
the opportunity for stock ownership.  The 2003 Stock Incentive Plan was ratified
by a majority of the  stockholders  of the  Company on December  18, 2003 and is
administered by the Incentive Compensation Committee of the Board.

On April 30, 2003,  incentive stock options to purchase  1,987,500 shares of our
common  stock  were  granted by the  Incentive  Compensation  Committee  to five
officers  (1,800,000)  and one  employee  (187,500) of the Company at a weighted
average exercise price of $1.32 per share. On November 4, 2003,  incentive stock
options  to  purchase  950,000  shares of our common  stock were  granted by the
Incentive  Compensation Committee to three officers of the Company at a weighted
average exercise price of $1.09 per share. On January 21, 2004,  incentive stock
options  to  purchase  601,000  shares of our common  stock were  granted by the
Incentive  Compensation  Committee to one officer and eighteen  employees of the
Company at a weighted  average  exercise price of $0.50 per share.  On September
12, 2004 incentive stock options to purchase  500,000 shares of our common stock
were  granted by the  Incentive  Compensation  Committee  to one  officer of the
Company at an exercise price of $0.28 per share. On December 1, 2004,  incentive
stock options to purchase 110,000 shares of our common stock were granted by the
Incentive  Compensation  Committee  to  fifteen  employees  of the  Company at a
weighted average exercise price of $0.40 per share. On April 30, 2003 (435,000),
November 4, 2003  (220,000)  and November 21, 2003  (100,000),  January 21, 2004
(295,500),  September 12, 2004 (900,000) non-qualified stock options to purchase
an aggregate  1,950,500  shares of our common stock were granted by the Board of
Directors  to certain  independent  contractors  and  outside  directors  of the
Company. The Company recorded a change of $135,250 in general and administration
expenses  for the year ended  December 31,  2003.  No options  granted have been
exercised.

On June 10, 2004, as amended  pursuant to an Agreement dated as of September 28,
2004,  an  officer  and an  employee  of the  Company  entered  into  an  Option
Cancellation  Agreement  pertaining to 420,000 incentive stock options issued on
January  21,  2004  relinquishing  all  rights  and  title  to  their  award  in
consideration of 104 equal weekly cash payments aggregating $50,000.


                                                                            F-36
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE -P STOCK OPTION PLANS (CONTINUED)

On January 10, 2005, as part of the settlement of a litigation with the Company,
Messrs.  Reid (300,000) and Gutowski (775,000) and Ms. Gutowski (475,000) agreed
to exchange all of their incentive stock options,  as well as all of their Class
AA and Class C Preferred Stock for 850,000 shares of the Company's  common stock
if the  exchange  is made on or  prior to May 9,  2005,  950,000  shares  if the
exchange  is made on or  prior  to June 9,  2005,  or  1,050,000  shares  if the
exchange is made on or prior to July 9, 2005.

Stock option  activity  under the 2003 Stock  Incentive  Plan for the year ended
December 31, 2004 is summarized as follows:

<TABLE>
<CAPTION>
                                                Year Ended December 31, 2004
                                       ----------------------------------------------
                                                                          Weighted
                                        Incentive       Non-Qualified      Average
                                          Shares            Shares     Exercise Price
                                       -----------     --------------  --------------
<S>                                     <C>               <C>              <C>
        Options outstanding at
           December 31, 2003            2,937,500           755,000        $0.92
        Options granted                 1,211,000         1,195,500        $0.37
        Options cancelled                (420,000)               --        $0.50
                                        ---------         ---------
        Options outstanding
           at December 30, 2004         3,728,500         1,950,500        $0.85
                                        =========         =========
        Options available
           at December 30, 2004         4,321,000                          $0.84
                                        =========
</TABLE>

The following table presents  information  relating to stock options outstanding
at December 31, 2004 relating to the 2003 Incentive Stock Plan:

<TABLE>
<CAPTION>
                       Options Outstanding                         Options Available
          ------------------------------------------   -------------------------------------------
                                                         Weighted
              Range                        Weighted      Average                       Weighted
               of                           Average     Remaining                       Average
            Exercise                       Exercise      Life in                       Exercise
              Price           Shares         Price        Years         Shares           Price
          -------------    -------------  ----------   -----------    ----------     -------------
<S>                            <C>           <C>           <C>         <C>              <C>
          $0.15 - $3.00        5,679,000     $ .85         7.86        4,321,000        $ 0.84
</TABLE>


                                                                            F-37
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE P - STOCK OPTION PLANS (CONTINUED)

Stock option  activity  under the 2003 Stock  Incentive  Plan for the year ended
December 31, 2003 is summarized as follows:

<TABLE>
<CAPTION>
                                                       Year Ended December 31, 2003
                                                --------------------------------------------
                                                                                 Weighted
                                                 Incentive     Non-Qualified      Average
                                                   Shares          Shares     Exercise Price
                                                -----------   --------------  --------------
<S>                                              <C>               <C>              <C>
        Options outstanding at
          beginning of year                               0              0           --
        Options granted                           2,937,500        755,000        $0.92
        Options cancelled                                 0              0
                                                  ---------        -------
        Options outstanding at end of year        2,937,500        755,000        $0.92
                                                  =========        =======
        Options available at end of year          1,307,500                       $1.17
                                                  =========
</TABLE>

The following table presents  information  relating to stock options outstanding
at December 31, 2003 relating to the 2003 Incentive Stock Plan:

<TABLE>
<CAPTION>
                     Options Outstanding                            Options Available
          ------------------------------------------   -------------------------------------------
                                                         Weighted
              Range                        Weighted      Average                       Weighted
               of                           Average     Remaining                       Average
            Exercise                       Exercise      Life in                       Exercise
              Price           Shares         Price        Years         Shares           Price
          -------------    -------------  ----------   -----------    ----------     -------------
<S>                            <C>          <C>            <C>         <C>              <C>
          $0.15 - $3.00        3,692,500    $ 0.92         8.79        1,307,500        $ 1.17
</TABLE>

NOTE Q - DISCONTINUED OPERATIONS

On August 15, 2003 the Company,  for a nominal amount, sold all the stock of one
of the subsidiaries whose remaining assets and liabilities were transferred to a
trust for the  benefit of its  creditors  and  recognized  a gain  amounting  to
approximately $583,634.

NOTE R - PROJECT FINANCING AGREEMENT

In October 2004, the Company and USCL entered into a two-year Project  Financing
Agreement  with  an   institutional   lender  relating  to  USCL's   anticipated
participation  in the  "Cellular  Call  Box  Upgrade  and  Maintenance  Service"
projects  for  numerous  Service  Authority  for  Freeway  Emergencies  ("SAFE")
programs  within the state of California.  These call box programs  operate over
17,000  motorist  aid analog  call boxes that will  require  upgrades to digital
cellular technology  available through USCL. This agreement provides the Company
with  finished  goods and  accounts  receivable  financing  of up to  $2,000,000
relating to these potential aforementioned projects. The effective interest rate
is approximately 3% per month on the outstanding balance of the amount financed.
The finished  goods and accounts  receivable to be financed,  as well as all the
other assets of the Company not previously  pledged,  will secure the borrowings
under this agreement.


                                                                            F-38
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2004 and 2003

NOTE S - SUBSEQUENT EVENTS

[1]   As of January 1, 2005,  certain holders of the Company's 10%  subordinated
      notes  agreed to defer  $18,750 of  interest  due on such date and further
      defer the interest that was due and deferred on July 1, 2004 ($13,750) and
      October 1, 2004 ($18,750) to April 1, 2005 in consideration of the Company
      issuing to them 384,375 Class B Warrants of the Company,  each to give the
      holder  thereof the right to purchase a share of common stock at $0.40 per
      share. The noteholders include two officers of the Company.

[2]   On April 1, 2005, the holders of the Company's 10% subordinated notes were
      asked to agree to defer  $25,000 of interest  due on such date and further
      defer the interest  that was due and  deferred on July 1, 2004  ($13,750),
      October 1, 2004  ($18,750) and January 1, 2005 ($187,50) to April 30, 2005
      in  consideration  of the Company issuing to them 254,167 Class B Warrants
      of the  Company,  each to give the holder  thereof the right to purchase a
      share of common  stock at $0.30 per share.  The  noteholders  include  two
      officers of the Company.

[3]   On January 1, 2005,  the holders of the Company's 24% Secured Notes agreed
      to defer  $9,200  of  interest  due on such  date and  further  defer  the
      interest  that was due and  deferred on October 1, 2004  ($5,867) to April
      30, 2005 in  consideration  of the Company issuing to them 113,000 Class H
      Warrants  of the  Company,  each to give the holder  thereof  the right to
      purchase a share of common stock at $0.30 per share.

[4]   On April 1, 2005,  the holders of the  Company's  24%  Secured  Notes were
      asked to agree defer $9,200 of interest due on such date and further defer
      the  interest  that was due and  deferred on October 1, 2004  ($5,867) and
      January 1, 2005 ($92,00) to April 30, 2005 in consideration of the Company
      issuing to them 80,222 Class H Warrants of the  Company,  each to give the
      holder  thereof the right to purchase a share of common stock at $0.30 per
      share.

[5]   On or about  April  1,  2005,  two  individuals,  both of whom  are  adult
      children of the  Company's  Chief  Executive  Officer,  purchased  545,000
      shares of the Company's  Series G Preferred  Stock at a price of $0.20 per
      share.  The Series G  Preferred  Stock is non voting,  has no  liquidating
      preference  over  the  common  stock  and  each  share  is   automatically
      convertible  into two shares of common stock when such conversion has been
      approved by the Company's common stockholders. This transaction was exempt
      from the registration provisions of the Securities Act of 1933 pursuant to
      Section 4(2) thereof.

[6]   On or about  April 12,  2005,  four  individuals,  three of whom are adult
      children or related  thereto of the  Company's  Chief  Executive  Officer,
      purchased  500,000 shares of the Company's  Series G Preferred  Stock at a
      price  of  $0.20  per  share.   This   transaction  was  exempt  from  the
      registration  provisions of the Securities Act of 1933 pursuant to Section
      4(2) thereof.

[7]   On or about March 15,  2005,  the Company  borrowed  $25,000 from a lender
      evidenced by a secured convertible  subordinated note due on September 15,
      2005 and bearing  interest at the annual rate of 20% payable at  maturity.
      The note is (i) secured by  approximately  $42,000 in one of the Company's
      bank accounts;  (ii)  convertible  into the Company's  common stock at the
      rate of $0.24 per share, subject to certain anti-dilution provisions;  and
      (iii)  subordinated to the Company's  Senior  Indebtedness as that term is
      defined therein.  At April 15, 2005 the outstanding  principal  balance of
      the note was $15,000. In addition, on or about April 11, 2005, the Company
      sold to this lender, for an aggregate purchase price of $100,000,  333,333
      shares of restricted  common stock and three-year  warrants to purchase an
      aggregate  of 100,000  shares at $0.50 per share,  subject to  appropriate
      anti-dilution  provisions.  The sale of the restricted  stock and warrants
      was exempt from the registration  provisions of the Securities Act of 1933
      pursuant to Section 4(2) thereof.




                                                                            F-39
<PAGE>

Item 8. Changes in and Disagreements with Accountants on

      Accounting and Financial  Disclosure.On April 6, 2005, we terminated Rosen
      Seymour  Shapss  Martin &  Company  LLP as our  independent  auditors  and
      appointed Wheeler, Herman, Hopkins & Lagor, P.A.

Item 8A. Controls and Procedures

      Our Chief Executive  Officer and Chief Financial Officer have conducted an
      evaluation  of the  effectiveness  of disclosure  controls and  procedures
      pursuant to Exchange Act Rule 13a-14. Based on that evaluation,  they have
      concluded  that our  disclosure  controls and  procedures are effective in
      ensuring that all material information required to be filed in this Annual
      Report on Form  10-KSB  has been made  known to them in a timely  fashion.
      There have been no significant  changes in internal controls,  or in other
      factors that could significantly  affect internal controls,  subsequent to
      the date they completed their evaluation.

<PAGE>
                                       51


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act.

      (a)   Directors and Executive Officers
            --------------------------------

      Under our By-Laws,  the Board of Directors is divided into three  classes.
      Each of the three  classes has a term that is  staggered  by one year from
      one  another.  Members  of each  class are  elected to serve for a term of
      three  years  and  until  their  successors  are  elected  or until  their
      resignation, removal or ineligibility.

      Set forth below are our directors and executive officers, their respective
      names and ages,  positions  with us,  principal  occupations  and business
      experiences  during  at least  the past  five  years  and the dates of the
      commencement of each individual's term as a director and/or officer.

<TABLE>
<CAPTION>
      Name                      Age   Position
      ----                      ---   --------
<S>                             <C>   <C>
      George W. Benoit          68    Chairman of the Board and Chief Executive Officer
      Anthony S. Conigliaro     54    Vice President, Chief Financial Officer and Director
      Gary L. Eichsteadt        55    Director
      David W. Dube             48    Director
      Joseph G. Anastasi        67    Director
      Charles W. Currie         61    Director
      Thomas L. Sullivan        48    President and Director of ECI
</TABLE>

      GEORGE W.  BENOIT  has been our  Chief  Executive  Officer  and one of our
      directors  since 1971 and our Chairman of the Board since 1972. He is also
      Chairman of the Board of  Directors  of SRC and ECI.  His term  expires in
      2007.

      ANTHONY S.  CONIGLIARO  has been our Vice  President  and Chief  Financial
      Officer since March 1999 and he became a Director in June 2004. He is also
      Chief Financial  Officer of SRC,  Connectivity,  ECI and US Commlink.  Mr.
      Conigliaro is a certified public accountant. His term expires in 2005.

      GARY L.  EICHSTEADT has been a Director since January 14, 2005 when he was
      also appointed to our Executive

<PAGE>
                                       52


      Committee. He was the co-founder in 1984 of Econo-Comm, Inc. and from that
      date through its  acquisition  by us in April 2003 was its  President  and
      sole  director.  He is currently and since April 2003 has been an employee
      of Econo-Comm. His term expires in 2005.

      DAVID W. DUBE has been one of our directors  since June 1996.  Mr. Dube is
      President of Peak Capital Corporation,  a corporate finance and management
      advisory   firm,   and   Peak   Securities   Corporation,   a   registered
      broker-dealer.  Mr. Dube was Senior  Vice  President  and Chief  Financial
      Officer of FAB Capital Corp., a merchant banking and securities investment
      firm, and served in various other  capacities  with this company from 1997
      through  October  1999.  From  1996  to 1997 he was  President  and  Chief
      Executive Officer of Optimax  Industries,  Inc., a company that engaged in
      the  horticultural,   decorative  giftware  and  truck  parts  accessories
      industries.  Mr. Dube serves on the Board of Directors of  publicly-traded
      GlycoGenesys,  Inc.  and New World Wine Group,  Ltd.  His term  expires in
      2007.

      JOSEPH G.  ANASTASI  has been one of our  directors  of the Company  since
      September 1986.  Since 1960, Mr. Anastasi has been the owner and president
      of Montgomery Realty Company, Inc., a firm specializing in commercial real
      estate sales,  development  consulting and property  management.  His term
      expires in 2005.

      CHARLES W. CURRIE has been one of our directors since 1986. Mr. Currie is,
      and has  been  since  October  2002,  a  partner  in First  American  Fund
      Services,  Inc., a company that provides  marketing services to investment
      managers.  Mr. Currie was a partner in Asset Management  Services LLC from
      August 1996 through September 2002. His term expires in 2006.

      THOMAS L.  SULLIVAN has been the  President and a director of ECI since we
      acquired it in April  2003.  He  co-founded  ECI in 1984 and served as its
      Vice  President from its inception  until its  acquisition by the Company.
      Mr.  Sullivan  has more  than 25 years  experience  in the  communications
      industry.

      There  are no  family  relationships  among  our  directors  or  executive
      officers.

      (b)   Meetings of the Board and its Committees

      During 2004, the Board had 15 meetings.

<PAGE>
                                       53


      Our By-Laws provide for an Executive Committee  consisting of the Chairman
      of the Board and not less than two other  Directors to exercise the powers
      of the Board during the intervals  between  meetings of the Board.  During
      the period  January 1 through  June 17,  2004,  the  Executive  Committee,
      consisted  of  Messrs.  Benoit,  Gutowski,  Reid and Dube,  and it had ten
      meetings.  For the period June 18, 2004 through  September  11, 2004,  the
      Executive Committee consisted of Messrs. Benoit, Dube, Anastasi,  Gutowski
      and Reid and it had four  meetings.  For the  period  September  12,  2004
      through  January 14, 2005 the  Executive  committee  consisted  of Messrs.
      Benoit,  Anastasi,  Dube, Currie,  Conigliaro and Anastasi and it had four
      meetings.  On January  15,  2005,  Mr.  Eichsteadt  joined  the  Executive
      Committee.

      The Board  also has an Audit  Committee  that  consists  of three  outside
      Directors.  This committee discusses audit and financial reporting matters
      with both our management and our independent public accountants. To ensure
      independence,  our independent  public accountants may meet with the Audit
      Committee  with or without  the  presence of  management  representatives.
      During  the  period  January  1  through  December  31,  2004,  the  Audit
      Committee,  consists of Joseph J. Anastasi, Charles W. Currie and David W.
      Dube,  had  seven  meetings.   Each  of  these  committee  members  is  an
      Independent  Director  as  that  term is  defined  by the  American  Stock
      Exchange.  In  addition,  Mr.  Dube is a  financial  expert as  defined in
      Securities  and  Exchange  Commission  rules.  We believe that each of the
      Committee   members  is   independent   of  management  and  free  of  any
      relationship  that  would  interfere  with  his  exercise  of  independent
      judgment as a member of this committee.

      The  principal  function  of  the  Audit  Committee  is  to  serve  as  an
      independent  and  objective  party to  assist  the Board of  Directors  in
      monitoring the integrity of our financial statements,  our compliance with
      legal and regulatory requirements, and the independence and performance of
      our auditors.

      The Board also has a  Compensation  Committee for the purpose of reviewing
      the compensation of our officers and employees and making  recommendations
      to the Board with respect thereto. During 2004 this Committee consisted of
      Messrs. Benoit, Gutowski, Reid and Dube and

<PAGE>
                                       54


      had no meetings. Messrs. Gutowski, Reid were removed from the Committee on
      September 11, 2005.

      The Board also has a Nominating Committee to propose nominees for election
      to the Board.  During  2004 this  Committee,  which  consisted  of Messrs.
      Benoit,  Gutowski, Reid and Dube, had no meetings.  Messrs. Gutowski, Reid
      were removed from the  Committee on  September  11, 2005.  The  Nominating
      Committee will consider  suggestions for potential  nominees  submitted by
      stockholders if mailed to the Chairman of the Board.

      The Board also has an Incentive  Compensation Committee for the purpose of
      administering and making incentive compensation awards under our Incentive
      Compensation Plans. During 2004 this Committee, which consisted of Messrs.
      Dube, Anastasi and Currie, had two meetings.

      During 2004 each  Director  attended at least 75% of the  aggregate of the
      total number of Board meetings and meetings of all committees of the Board
      on which he served.

      (c)   Compliance with Section 16(a) of the Exchange Act
            -------------------------------------------------

      This  information will be included in our definitive proxy statement to be
      sent to our stockholders for our next annual  stockholders  meeting and is
      incorporated herein by reference.

Item 10. Executive Compensation.

      (a)   Executive Officer Compensation

      The following table sets forth all  compensation  awarded to, earned by or
      paid to,  our Chief  Executive  Officer  and our most  highly  compensated
      executive officers. In

<PAGE>
                                       55


      2004,  annual salaries of such  individuals did not exceed  $100,000.  The
      following table represents  annual  compensation for all services rendered
      in all  capacities to us by  individuals  earning  $100,000 or more during
      2004, 2003 and 2002.

                               Summary Compensation Table
                               --------------------------

                Name and
                Principal                                          All Other
                Position               Year   Salary   Bonus     Compensation
                --------               ----   ------   -----     ------------


      George W. Benoit, President,     2004
      Chief Executive Officer and      2003
      Chairman                         2002

      Anthony S. Conigliaro, Vice      2004
      President and Chief              2003
      Financial Officer                2002

      Executive  compensation  can vary  widely  from  year to year.  We may pay
      discretionary bonuses to its salaried employees. Bonuses are determined by
      the  Compensation  Committee  of the  Board of  Directors.  There  were no
      bonuses in 2004.

      We have three-year employment agreements, commencing April 2003, with each
      of our executive officers. These agreements provide for annual salaries as
      follows:

<PAGE>
                                       56


             Executive Officers                                   Annual Salary
             ------------------                                   -------------

      George W. Benoit                                               $ 150,000

      Anthony S. Conigliaro                                          $ 110,000

      Thomas L. Sullivan                                             $ 100,000

      During 2004,  Mr.  Benoit was paid no salary and Mr.  Conigliaro  was paid
      $45,846. We have accrued the unpaid salaries.

      In 2004, the Company had employment agreements with three former executive
      officers.  These three  agreements  were  terminated  in  September  2004.
      Compensation  paid  to  each  of  these  individuals   pursuant  to  these
      agreements did not exceed $100,000 during 2004.

      (b)   Compensation Pursuant to Plans

      401(k) Cash or Deferred  Compensation  Plan.  CareerEngine  Network,  Inc.
      ("CareerEngine"),  one  of our  subsidiaries,  maintains  a  tax-qualified
      401(k) cash or deferred  compensation  plan that covers all  employees who
      have completed  three months of service and attained age 21.  Participants
      are  permitted,  within the  limitations  imposed by the Internal  Revenue
      Code,  to make  pre-tax  contributions  to the  plan  pursuant  to  salary
      reduction  agreements.  CareerEngine  may, in its  discretion on an annual
      basis,   make  additional   contributions.   The   contributions   of  the
      participants  and those of  CareerEngine  are held in  separate  accounts.
      Participants are always fully vested in both accounts.

      1990  Incentive  Compensation  Plan.  This Plan was  terminated on June 3,
      1999. On March 14, 2003 the recipients of all outstanding awards under the
      Plan waived their rights to such awards.

      1999 Stock Option Plan.  This Plan was  terminated  on April 23, 2003.  On
      March 14, 2003 the  recipients  of all  outstanding  awards under the Plan
      waived their rights to such awards.

      2003  Stock  Incentive  Plan.  Our  Stockholders  approved  the 2003 Stock
      Incentive Plan (the "2003 Plan"), which provides, among other matters, for
      incentive and non-qualified stock options to purchase 10,000,000 shares of
      our common stock. The purpose of the 2003 Plan is to provide incentives to
      officers, key employees,

<PAGE>
                                       57


      directors,  independent  contractors  and agents  whose  performance  will
      contribute to our long-term  success and growth, to strengthen our ability
      to attract and retain  officers,  key  employees,  directors,  independent
      contractors  and agents of high  competence,  to increase  the identity of
      interests of such people with those of our  stockholders and to help build
      loyalty to the Company  through  recognition and the opportunity for stock
      ownership.  The 2003 Plan is  administered  by the Incentive  Compensation
      Committee of the Board.

      The 2003 Plan permits the  granting of both  incentive  stock  options and
      non-qualified stock options. Generally, the option price of both incentive
      stock  options and  non-qualified  stock options must be at least equal to
      100% of the fair  market  value of the  shares on the date of  grant.  The
      maximum  term of each option is ten years.  For any  participant  who owns
      shares  possessing  more than 10% of the voting rights of the  outstanding
      shares of our common  stock,  the exercise  price of any  incentive  stock
      option  must be at least  equal to 110% of the  fair  market  value of the
      shares  subject  to such  option  on the date of grant and the term of the
      option may not be longer than five years.  Options  become  exercisable at
      such  time or times  as the  Board  may  determine  at the time it  grants
      options.

      Under the 2003  Plan,  incentive  stock  options  may be  granted  only to
      officers and employees and  non-qualified  stock options may be granted to
      officers,  employees as well as  directors,  independent  contractors  and
      agents.

      The 2003 Plan may be amended,  terminated  or modified by the Board at any
      time,  except  that the Board may not,  without  approval by a vote of our
      stockholders  (i) increase the maximum  number of shares for which options
      may be granted  under the 2003 Plan,  (ii) change the persons  eligible to
      participate  in the 2003 Plan, or (iii)  materially  increase the benefits
      accruing  to  participants  under  the  2003  Plan.  No such  termination,
      modification  or amendment  may affect the rights of an optionee  under an
      outstanding option or the grantee of an award.

      On April 30, 2003, incentive stock options to purchase 1,987,500 shares of
      our common stock were granted by the Incentive  Compensation  Committee to
      five officers  (1,800,000) and one employee  (187,500) of the Company at a
      weighted  average  exercise price of $1.32 per share. On November 4, 2003,
      incentive stock options to purchase

<PAGE>
                                       58


      950,000  shares  of  our  common  stock  were  granted  by  the  Incentive
      Compensation  Committee  to three  officers  of the  Company at a weighted
      average exercise price of $1.09 per share. On January 21, 2004,  incentive
      stock options to purchase  601,000 shares of our common stock were granted
      by the  Incentive  Compensation  Committee  to one  officer  and  eighteen
      employees of the Company at a weighted average exercise price of $0.50 per
      share. On September 12, 2004 incentive  stock options to purchase  500,000
      shares of our common  stock were  granted  by the  Incentive  Compensation
      Committee to one officer of the Company at an exercise  price of $0.28 per
      share. On December 1, 2004,  incentive  stock options to purchase  110,000
      shares of our common  stock were  granted  by the  Incentive  Compensation
      Committee  to fifteen  employees  of the  Company  at a  weighted  average
      exercise price of $0.40 per share. On April 30, 2003  (435,000),  November
      4, 2003  (220,000)  and  November  21,  2003  (100,000),  January 21, 2004
      (295,500),  September 12, 2004  (900,000)  non-qualified  stock options to
      purchase an aggregate 1,950,500 shares of our common stock were granted by
      the Board of  Directors  to certain  independent  contractors  and outside
      directors of the Company. No options granted have been exercised.

      On June  10,  2004,  as  amended  pursuant  to an  Agreement  dated  as of
      September 28, 2004, an officer and an employee of the Company entered into
      an Option  Cancellation  Agreement  pertaining to 420,000  incentive stock
      options issued on January 21, 2004  relinquishing  all rights and title to
      their award in consideration of 104 equal weekly cash payments aggregating
      $50,000.

      On January 10, 2005, as part of the  settlement  of a litigation  with us,
      Messrs.  Reid (300,000) and Gutowski  (775,000) and Ms. Gutowski (475,000)
      agreed to exchange all of their incentive stock options, as well as all of
      their Class AA and Class C Preferred Stock as follows:  for 850,000 shares
      of our common  stock if the  exchange  is made on or prior to May 9, 2005,
      950,000  shares if the  exchange  is made on or prior to June 9, 2005,  or
      1,050,000 shares if the exchange is made on or prior to July 9, 2005.

      (c)   Director Compensation
            ---------------------

      Until  October  1,  2003,  we did not pay  directors  who  were  also  our
      employees any fees for serving as directors, but reimbursed them for their
      out-of-pocket  expenses in connection with such duties.  Effective October
      1, 2003,

<PAGE>
                                       59


      we  agreed  to pay  directors  who are not also our  employees  a  monthly
      retainer of $1,000,  plus expenses incurred for attending  meetings of the
      Board, Annual Stockholders  Meetings,  and for each meeting of a committee
      of the Board not held in conjunction  with a Board  meeting.  In addition,
      effective  October  1,  2003,  any  Director  who is also a member  of the
      Executive Committee will be paid an additional monthly retainer of $1,000.
      Accrued Director  compensation,  in the aggregate,  amounted to $58,000 in
      2004.

<PAGE>
                                       60


Item 11. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth, at April 1, 2005, the shares of our common
      stock owned beneficially;  by each of our current directors; by all of our
      current directors and executive  officers as a group; and by persons known
      to us to own,  beneficially,  more than five  percent  of the  outstanding
      shares of our common stock:

<TABLE>
<CAPTION>
                                                                                         Percent of Aggregate
                                                                    Common Stock             Voting Power and
                           Name of                                   Beneficially           Outstanding Equity
                     Beneficial Owner(1)                               Owned(2)                 Owned(3)
                     -------------------                               --------                 --------
<S>                                                                    <C>                        <C>
      Grace C. Lindblom (13)                                           3,406,883                  26.47

      George W. Benoit (4)(7)(9)(10)(14)(15)                           2,229,120                  19.40

      Maureen Benoit (9)(14)                                           3,057,903                  22.08

      Frank Ciolli (21)                                                1,542,833                  12.51

      G. Martin Fell                                                     590,833                   5.19

      Barry W. Blank (8)                                               2,569,795                  19.80

      Michael J. Gutowski and Carol A. Gutowski (16) (19)                775,000                   6.70

      Kevin J. Benoit(5)(7)(10)(12)                                      681,577                   5.98

      Anthony S. Conigliaro (12)(17)                                   1,316,277                  10.87

      Gary L. Eichsteadt (24)                                            218,500                   1.98

      Charles W. Currie (6)                                              504,280                   4.57

      David W. Dube (18)                                                 104,000                   *

      Joseph G. Anastasi (22)                                            234,700                   2.13

      Thomas L. Sullivan (20)                                            117,500                   1.08

      All Directors and Executive Officers as a group
      (7 persons)                                                      7,782,280                  46.42
</TABLE>

*     Owns less than one (1%) percent.

(1)   The address of all the beneficial  owners except Mr. Blank,  Ms. Lindblom,
      Mr.  Gutowski,  Mr. Ciolli and Mr. Fell, is CNE Group,  Inc.,  Inc., Suite
      507, 200 West 57th Street,  New York, New York 10019.  Mr. Blank's address
      is P.O. Box 32056, Phoenix,  Arizona 85064, Ms. Lindblom's address is 1412
      W. Colonial Drive,

<PAGE>
                                       61


      Orlando,FL  32804, Mr. Gutowski's  address is 1271 SE 9th Avenue,  Pompano
      Beach, FL 33060, Mr. Ciolli's address is 7 Jessup Lane, Westhampton Beach,
      NY 11978, and Mr. Fell's address is 150 East 58th Street,  23rd Floor, New
      York, NY 10155.

(2)   A person is  deemed to be a  beneficial  owner of  securities  that can be
      acquired by such person within 60 days from the filing of this Form 10-KSB
      upon the exercise of options and  warrants or  conversion  of  convertible
      securities.  Each beneficial owner's percentage ownership is determined by
      assuming that options,  warrants and convertible  securities that are held
      by such person (but not held by any other person) and that are exercisable
      or  convertible  within 60 days from the filing of this Form  10-KSB  have
      been exercise or converted.  Except as otherwise indicated, and subject to
      applicable  community  property and similar laws, to our knowledge each of
      the persons named has sole voting and investment power with respect to the
      shares shown as beneficially owned.

(3)   All percentages of beneficial ownership are calculated based the number of
      shares  outstanding  as of April 8, 2005.  On such date we had  10,790,915
      shares of common stock issued and outstanding.

(4)   Ownership and  percentage  numbers  include  90,700 shares of common stock
      held in Mr.  Benoit's  401K Plan.

(5)   Ownership and percentage numbers include (a) 31,000 shares of common stock
      held in the Kevin J. Benoit 1998 Family Trust,  of which Mr. Benoit is the
      Trustee;  and (b)  35,300  shares of  common  stock  held in Mr.  Benoit's
      Individual Retirement Account.

(6)   Ownership and  percentage  numbers  include (a) 200 shares of common stock
      owned by Mr.  Currie's  wife, (b) 9,900 shares of common stock held in Mr.
      Currie's Individual  Retirement Account, (c) 25,000 shares of common stock
      that Mr.  Currie can acquire by  exercising  non-qualified  stock  options
      issued  pursuant to our 2003 Stock  Incentive Plan; and (d) 207,500 shares
      of common  stock that he can  acquire  by  exercising  warrants  issued in
      conjunction with his purchase of our 10% Convertible Notes.

(7)   Ownership and  percentage  numbers  include  50,000 shares of common stock
      that each of these individuals can acquire by exercising warrants.

(8)   Ownership  and  percentage  numbers  include (i) 150,000  shares of common
      stock that Mr. Blank can acquire by exercising warrants of the Company and
      (ii)  1,885,695  shares of common  stock  that Mr.  Blank can  acquire  by
      exercising  warrants issued to him in conjunction with his purchase of our
      10% Promissory Notes.

(9)   George W. Benoit and Maureen  Benoit are husband and wife.


(10)  George W. Benoit is the father of Kevin J. Benoit.

(11)  not used

(12)  Ownership and percentage  numbers  include  514,277 shares of common stock
      that Mr.  Conigliaro  and Mr. K.  Benoit can each  acquire  by  exercising
      warrants  issued to them in  conjunction  with their  purchase  of our 10%
      Promissory Notes.

(13)  Ownership and percentage  numbers include 2,081,550 shares of common stock
      that Ms.  Lindblom  can acquire by  exercising

<PAGE>
                                       62


      warrants  issued  to her in  conjunction  with  her  purchase  of our  10%
      Promissory Notes.

(14)  Ownership and percentage numbers consist of (i) 2,571,388 shares of common
      stock  that Mrs.  Benoit  can  acquire by  exercising  warrants  issued in
      conjunction with her purchase of our 10% Promissory Notes and (ii) 207,500
      shares of common stock that she can acquire by exercising  warrants issued
      in conjunction  with her purchase of our 10% Convertible  Notes, and (iii)
      279,015 shares of common stock that she can acquire by exercising warrants
      issued in conjunction  with her purchase of our 24% Secured Notes.  George
      Benoit disclaims beneficial ownership of these securities.

(15)  Ownership and percentage  numbers  include  600,000 shares of common stock
      that Mr. Benoit can acquire by exercising  incentive  stock options issued
      pursuant to our 2003 Stock Incentive Plan.

(16)  Ownership and percentage numbers consist of 775,000 shares of common stock
      that Mr. Gutowski can acquire by exercising incentive stock options issued
      to him pursuant to our 2003 Stock  Incentive  Plan.  Michael  Gutowski and
      Carol Gutowski are husband and wife.

(17)  Ownership and percentage  numbers  include  800,000 shares of common stock
      that Mr.  Conigliaro  can acquire by  exercising  incentive  stock options
      issued to him pursuant to our 2003 Stock Incentive Plan.

(18)  Ownership and percentage  numbers  include  100,000 shares of common stock
      that Mr. Dube can acquire by exercising non-qualified stock options issued
      pursuant to our 2003 Stock Incentive Plan.

(19)  Ownership and percentage numbers consist of 475,000 shares of common stock
      that Mrs.  Gutowski  can acquire by  exercising  incentive  stock  options
      issued to her pursuant to our 2003 Stock Incentive Plan.

(20)  Ownership and percentage  numbers  include  117,500 shares of common stock
      that Mr. Sullivan can acquire by exercising.

(21)  Ownership and  percentage  numbers  consist of 1,542,833  shares of common
      stock that Mr.  Ciolli can acquire by  exercising  of  warrants  issued in
      conjunction with his purchase of our 10% Promissory Notes.

(22)  Ownership and percentage numbers include (i) 25,000 shares of common stock
      that Mr.  Anastasi can acquire by exercising  non-qualified  stock options
      issued  pursuant to our 2003 Stock  Incentive Plan and (ii) 207,500 shares
      of common  stock that he can  acquire  by  exercising  warrants  issued in
      conjunction with his purchase of our 10% Convertible Notes.

(23)  Ownership and percentage  numbers  consist of (i) 462,849 shares of common
      stock  that  Mr.  Fell  can  acquire  by  exercising  warrants  issued  in
      conjunction with his purchase of our 10% Promissory Notes and (ii) 127,984
      shares of common stock that he can acquire by exercising  warrants  issued
      in conjunction with his purchase of our 24% Secured Notes.

(24)  Ownership and percentage  numbers  include  218,500 shares of common stock
      that Mr. Eichsteadt can acquire by exercising.

<PAGE>
                                       63


Item 12. Certain Relationships and Related Transactions.

      On April 23,  2003 we  acquired  SRC and ECI.  These  acquisitions,  which
      involved  certain of our current  officers,  directors and employees,  are
      discussed under the heading "Item 6: Management's  Discussion and Analysis
      of Financial  Condition and Results of Operations - Acquisition  of all of
      the outstanding stock of SRC and ECI" above.

      On January  21,  2004,  George  Benoit  waived  certain  compensation  and
      reimbursable  expenses  due him from the Company  amounting  to $66,246 at
      December 31, 2003.

      Maureen Benoit,  George Benoit's wife, purchased $600,000 of the Company's
      10%  Subordinated  Notes due April 30, 2004 (extended to April 30, 2005 on
      March 12,  2004) (the "10%  Notes") and  related  2,499,480  common  stock
      warrants on April 23, 2003. On October 14, 2003, Mrs. Benoit sold $150,000
      in principal amount of the 10% Notes and 624,870 related warrants to Frank
      Ciolli for her cost.  On March 2,  2004,  Mrs.  Benoit  sold  $200,000  in
      principal amount of the 10% Notes and 833,160 related warrants to Barry W.
      Blank for her cost.  Mrs.  Benoit  currently  owns  $250,000 in  principal
      amount of the 10% Notes and 1,738,525 related warrants,  including 697,075
      warrants  issued to her due to  certain  non-dilutive  and loan  extension
      provisions of her 10% Notes.

      Mr. Conigliaro  currently owns $50,000 of the 10% Notes and related common
      stock  warrants  (208,290,  which was  increased to 347,705 due to certain
      non-dilutive  and  loan  extension  provisions  of  the  notes)  which  he
      purchased on April 23, 2003.

      Mr. and Mrs.  Gutowski  currently own, in the  aggregate,  (i) 100% of our
      Series AA Preferred Stock amounting to 1,000,000  shares,  and (ii) 50% of
      our Series C Preferred  Stock  amounting to  4,867,937  shares and related
      common stock warrants  (4,867,937)  which they acquired in 2003. On August
      31, 2003, they converted the Company's 8% Subordinated Notes due April 30,
      2008  (the "8%  Notes")  then  owned by them in the  principal  amount  of
      $1,000,000  into  1,000,000  shares of our Series AA Preferred  Stock.  On
      January  21,  2004,  Mr. and Mrs.  Gutowski  waived  interest  due them of
      $13,334  relating to the period of time they held the 8% Notes. On January
      10, 2005, as part of the a litigation settlement with Mr. and Mrs.

<PAGE>
                                       64


      Gutowski,  they  agreed to exchange  all of their  Class AA,  Class AA and
      Class C Preferred  Stock,  and all of their  incentive  stock  options for
      shares of our common  stock if the exchange is made on or prior to July 9,
      2005.

      Messrs. Sullivan and Eichsteadt,  in the aggregate,  currently own (i) 50%
      our Series AA Preferred  Stock  amounting to  $1,000,000,  (ii) 50% of our
      Series C Preferred Stock amounting to 4,867,938  shares and related common
      stock  warrants  (4,867,938),  and  (iii)  certain  8%  installment  notes
      amounting to $65,076,  all of which they acquired  during 2003. On January
      21, 2004,  Messrs.  Sullivan  and  Eichsteadt  waived  $130,000 of certain
      accounts receivable due them from the Company.

      We have employment agreements with our executive officers and have granted
      stock  options and  warrants to purchase  common stock to our officers and
      directors.  These employment agreements and grants are discussed under the
      headings  "Item  10:  Executive   Compensation"  and  "Item  11:  Security
      Ownership of Certain Beneficial Owners and Management" above.

      On May 1, 2003, our  subsidiary,  SRC,  entered into a two-year lease with
      T&G  16th  Street  Property,  relating  to its  office  and  manufacturing
      premises  located in Lauderhill,  FL, at a monthly  rental of $5,830.  The
      lease contains one,  one-year  renewal option at the current annual rental
      rate.  SRC's primary  obligations  pursuant to the lease agreement are the
      payment of rent and its  incurred  utility  costs.  Messrs.  Sullivan  and
      Eichsteadt  are the  principals  of T&G 16th Street  Property.  Commencing
      December 1, 2004 this lease agreement was amended to provide for a monthly
      base rent of $6,750 through the expiration date of the lease.

      There are no material proceedings to which any of our officers,  directors
      or  affiliates,  or any  associates  thereof  is a  party  adverse  to our
      interests or do any of these  individuals have a material interest adverse
      to the Company.

Item 13. Exhibits, List and Reports on Form 8-K.

      (a)   Exhibits
            --------

      Certain of the  following  exhibits,  as indicated  parenthetically,  were
      previously  filed as exhibits to other reports or registration  statements
      filed by the

<PAGE>
                                       65


      Registrant  under  the  Securities  Act of 1933 or  under  the  Securities
      Exchange Act of 1934 and are hereby incorporated by reference.

      2.1   Agreement  and Plan of Merger  among CNE Group,  Inc.,  CNE  General
            Acquisition, Inc. (a wholly-owned subsidiary of CNE Group, Inc.) and
            CareerEngine Network,  Inc., dated as of April 7, 2003 (Incorporated
            by reference to the Registrant's Current Report on Form 8-K filed on
            May 6, 2003).

      2.2   Agreement  and  Plan  of  Reorganization  of CNE  Group,  Inc.,  CNE
            Acquisition Corp. I (a wholly-owned  subsidiary of CNE Group, Inc.),
            SRC   Technologies,   Inc.   and   others,   dated  April  23,  2003
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      2.3   Agreement  and Plan of  Reorganization  among CNE Group,  Inc.,  CNE
            Acquisition Corp. II (a wholly-owned subsidiary of CNE Group, Inc.),
            Econo-Comm, Inc. D/B/A Mobile Communications and the Stockholders of
            Econo-Comm,  Inc.  dated  as of  April  23,  2003  (Incorporated  by
            reference to the  Registrant's  Current  Report on Form 8-K filed on
            May 6, 2003).

      3.1   Certificate of  Incorporation  of CNE Group,  Inc.  (Incorporated by
            reference to the  Registrant's  Current  Report on Form 8-K filed on
            May 6, 2003).

      3.2   Certificate of Amendment of the Certificate of  Incorporation of CNE
            Group, Inc.  (Incorporated by reference to the Registrant's  Current
            Report on Form 8-K filed on May 6, 2003).

      3.3   Amended and Restated  By-Laws of CNE Group,  Inc.  (Incorporated  by
            reference to the  Registrant's  Current  Report on Form 8-K filed on
            May 6, 2003).

      3.4   Amendment to Amended and Restated By-Laws of CNE Group, Inc. adopted
            on March 18, 2004

      4.1   Certificate of Designations of CNE Group,  Inc.,  Series A Preferred
            Stock  adopted  pursuant to Section  151(g) of the Delaware  General
            Corporation  Law  (Incorporated  by  reference  to the  Registrant's
            Current Report on Form 8-K filed on May 6, 2003).

<PAGE>
                                       66


      4.2   Certificate of Designations of CNE Group,  Inc.,  Series B Preferred
            Stock  adopted  pursuant to Section  151(g) of the Delaware  General
            Corporation  Law  (Incorporated  by  reference  to the  Registrant's
            Current Report on Form 8-K filed on May 6, 2003).

      4.3   Certificate of Designations of CNE Group,  Inc.,  Series C Preferred
            Stock  adopted  pursuant to Section  151(g) of the Delaware  General
            Corporation  Law  (Incorporated  by  reference  to the  Registrant's
            Current Report on Form 8-K filed on May 6, 2003).

      4.4   Certificate of Designations of CNE Group,  Inc.,  Series E Preferred
            Stock  adopted  pursuant to Section  151(g) of the Delaware  General
            Corporation  Law  (Incorporated  by  reference  to the  Registrant's
            Current Report on Form 8-K filed on May 6, 2003).

      4.5   Form of Class A Warrants to Purchase Common Stock of CNE Group, Inc.
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      4.6   Form of Class B Warrants to Purchase Common Stock of CNE Group, Inc.
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      4.7   Form of Class C Warrants to Purchase Common Stock of CNE Group, Inc.
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      4.8   Form of CNE Group,  Inc.  10%  Subordinated  Note  (Incorporated  by
            reference to the  Registrant's  Current  Report on Form 8-K filed on
            May 6, 2003).

      4.9   Form of 8%  Subordinated  Note issued by CNE Group,  Inc. to Gary l.
            Eichsteadt,  to purchase all right, title and interest in Patent No.
            6,060,979,  dated April 23, 2003  (Incorporated  by reference to the
            Registrant's Current Report on Form 8-K filed on May 6, 2003).

      4.10  Certificate of Designations of CNE Group,  Inc., Series AA Preferred
            Stock  adopted  pursuant to


<PAGE>
                                       67


            Section 151(g) of the Delaware General Corporation Law.

      10.1  Asset  Purchase  Agreement  between  CNE  Group,  Inc.  and  Gary L.
            Eichsteadt,  dated April 23, 2003  (Incorporated by reference to the
            Registrant's Current Report on Form 8-K filed on May 6, 2003).

      10.2  Assignment of patent by Gary L. Eichsteadt to CNE Group, Inc., dated
            April  23,  2003  (Incorporated  by  reference  to the  Registrant's
            Current Report on Form 8-K filed on May 6, 2003).

      10.3  Pledge  Agreement  made by CNE Group,  Inc. and Gary L.  Eichsteadt,
            dated April 23, 2003  (Incorporated by reference to the Registrant's
            Current Report on Form 8-K filed on May 6, 2003).

      10.4  Employment  Agreement  between CNE Group,  Inc. and George W. Benoit
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      10.5  Employment   Agreement  between  CNE  Group,  Inc.  and  Anthony  S.
            Conigliaro  (Incorporated by reference to the  Registrant's  Current
            Report on Form 8-K filed on May 6, 2003).

      10.6  Employment Agreement between  Connectivity,  Inc. and Carol Gutowski
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      10.7  Employment Agreement between Econo-Comm, Inc. and Gary L. Eichsteadt
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      10.8  Employment  Agreement  between  CNE  Group,  Inc.  and Larry M. Reid
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      10.9  Employment Agreement between CNE Group, Inc. and Michael J. Gutowski
            (Incorporated  by reference to the  Registrant's  Current  Report on
            Form 8-K filed on May 6, 2003).

      10.10 Employment Agreement between Econo-Comm, Inc. and Thomas L. Sullivan
            (Incorporated  by reference to

<PAGE>
                                       68


            the Registrant's Current Report on Form 8-K filed on May 6, 2003).

      21.0  Subsidiaries of the Registrant.

            U.S. Commlink, Ltd. (California),  SRC Technologies,  Inc. (Florida)
            and CareerEngine  Network,  Inc. (Delaware).  SRC's subsidiaries are
            Connectivity,   Inc.  (Florida)  and  Econo-Comm,   Inc.  (Florida).
            CareerEngine  Network,  Inc.'s  subsidiaries are CareerEngine,  Inc.
            (New York) Helmstar Funding,  Inc.  (Pennsylvania),  Burrows,  Hayes
            Company,  Inc (New York),  Shaw  Realty  Company,  Inc.  (New York),
            Helmstar Funding,  Inc. (New York), Dover, Sussex Company, Inc. (New
            York), Housing Capital Corporation (New York), Randel, Palmer & Co.,
            Inc. (New York), Parker, Reld & Co., Inc. (New York), McAdam, Taylor
            & Co.,  Inc.  (New York) and Ryan,  Jones & Co.,  Inc.  (New  York).
            CareerEngine,  Inc.'s wholly-owned subsidiaries are Advanced Digital
            Networks, Inc. (New York) and A.E. Lander Corp. (New York).

      31.1  Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act of
            2002 from the Company's Chief Executive Officer

      31.2  Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act of
            2002 from the Company's Chief Financial Officer

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

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

      (b)   During the last  quarter of the  period  covered by this  report the
            Company filed no reports on Form 8K

<PAGE>
                                       69


Item 14. Principal Accountant Fees and Services

      (1)   Audit Fees

      The  aggregate  fees  billed for  professional  services  rendered  by our
      independent  auditors for the audit of our annual financial statements and
      review of our financial  statements  included in our quarterly  reports or
      services  that  are  normally  provided  by the  independent  auditors  in
      connection  with  statutory and  regulatory  filings or  engagements  were
      $172,600 for the fiscal year ended  December 31, 2004 and $125,261 for the
      fiscal year ended December 31, 2003.

      (2)   Audit-Related Fees

      Duringour last two fiscal years our  independent  auditors did not perform
      any assurance and related  services  that were  reasonably  related to the
      performance or review of our financial statements for which we were billed
      except as may have been  included in the fees set forth in  Paragraph  (1)
      above.

      (3)   Tax Fees

      Our independent  auditors did not provide us with any tax compliance,  tax
      advice or tax  planning  services  during our last two  fiscal  years and,
      accordingly, did not bill us for such services during these years.

      (4)   All Other Fees

      During our last two fiscal years our independent  auditors did not provide
      us with any  products  and did not provide us with or bill us any fees for
      services other than those set forth in Paragraph (1) above.

<PAGE>
                                       70


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the  undersigned,  thereunto duly authorized on the 15th day of April,
2005.

CNE Group, Inc.


           /s/ George W. Benoit
-------------------------------------------------
   George W. Benoit, Chairman of the Board
          and Chief Executive Officer


          /s/ Anthony S. Conigliaro
-------------------------------------------------
   Anthony S. Conigliaro, Vice President
         and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the  following  persons on behalf of the  Registrant in
the capacities indicated on the 15th day of April, 2005.

       Signature                         Title
       ---------                         -----


/s/ George W. Benoit             Chairman of the Board,
--------------------             President,
(George W. Benoit)               Chief Executive Officer



/s/ Joseph G. Anastasi           Director
----------------------
(Joseph G. Anastasi)


/s/ Charles W. Currie            Director
---------------------
(Charles W. Currie)


/s/ David W. Dube                Director
-----------------
(David W. Dube)


/s/ Anthony S. Conigliaro        Director
-------------------------
(Anthony S. Conigliaro)

<PAGE>
                                       71


                                 Director
-----------------------
(Gary L. Eichsteadt)