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

                                   FORM 10-QSB

(Mark One)

|X|   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                  For the quarterly period ended March 31, 2005
                                                 --------------

|_|   Transition report under Section 13 or 15(d) of the Exchange Act of 1934

             For the transition period from __________ to __________

                          Commission file number 1-9224

                                 CNE GROUP, INC.
                                 ---------------
        (Exact Name of Small Business Issuer as Specified 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, N.Y. 10019
              -----------------------------------------------------
                    (Address of Principal Executive Offices)

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

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 |_|

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

                  Class                        Outstanding at May 1, 2005
                  -----                        --------------------------

     Common stock - par value $.00001               10,790,915 shares
     --------------------------------               -----------------

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION

Item l. Financial Statements.


                                       1
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                      March 31,     December 31,
                                                                        2005            2004
                                                                    ------------    ------------
                                                                     (Unaudited)
<S>                                                                 <C>             <C>
ASSETS
   Current:
      Cash and cash equivalents                                     $     71,195    $     84,408
      Accounts receivable, net of allowance for doubtful accounts        386,872         172,010
        of $61,000 in 2005 and $51,000 in 2004
      Inventory                                                          283,174         260,487
      Other                                                               10,293           8,273
                                                                    ------------    ------------
        Total current assets                                             751,534         525,178
   Fixed assets, net                                                     373,713         394,509
   Intellectual property rights, net                                   1,333,648       1,361,948
   Goodwill                                                            7,285,894       7,285,894
   Prepaid expenses and other assets                                      16,962          21,265
                                                                    ------------    ------------
                  Total assets                                      $  9,761,751    $  9,588,794
                                                                    ============    ============

LIABILITIES
   Current:
      Accounts payable and accrued expenses                         $  1,790,990    $  1,476,124
      Interest payable                                                   187,477         128,050
      Short-term credit arrangements                                     131,314         191,395
      Line of credit                                                      12,917          19,199
      Current portion of notes payable                                    12,148          17,243
      Notes and debenture payable                                        860,000         850,000
      10% subordinated notes payable                                     991,673         966,710
      Other notes payable                                                 27,217          23,330
                                                                    ------------    ------------
        Total current liabilities                                      4,013,736       3,672,051
   Notes payable, net of current portion                                  18,677          22,059
   Deferred grant revenue                                                300,000         300,000
                                                                    ------------    ------------
           Total liabilities                                           4,332,413       3,994,110
                                                                    ------------    ------------

   Commitments and contingencies

STOCKHOLDERS' EQUITY
   Preferred stock                                                           134             134
   Common stock                                                              121             121
   Paid-in surplus                                                    29,919,185      29,919,185
   Accumulated deficit                                               (21,617,002)    (21,451,656)
                                                                    ------------    ------------
                                                                       8,302,438       8,467,784
   Less treasury stock, at cost - 1,238,656 shares                    (2,873,100)     (2,873,100)
                                                                    ------------    ------------
           Total stockholders' equity                                  5,429,338       5,594,684
                                                                    ------------    ------------
                  Total liabilities and stockholders' equity        $  9,761,751    $  9,588,794
                                                                    ============    ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       2
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

                                                           Three Months
                                                          Ended March 31,
                                                   ----------------------------
                                                       2005            2004
                                                   ------------    ------------
                                                    (Unaudited)     (Unaudited)
Revenues:
   Product sales                                   $    380,125    $    631,438
   Service fee income                                   200,184         320,135
   Internet related income                               46,462          31,369
                                                   ------------    ------------
                                                        626,771         982,962
   Costs of goods sold                                  177,529         503,699
                                                   ------------    ------------

      Gross profit                                      449,242         479,263

Other expenses:
   Advertising                                           17,808          24,720
   Compensation and related costs                       211,601         368,562
   General and administrative                           241,166         300,216
   Product development                                       --           6,241
   Depreciation and amortization                         49,205          47,499
                                                   ------------    ------------
                                                        519,780         747,238
                                                   ------------    ------------

Loss before other income (expenses)                     (70,538)       (267,975)

Other income (expenses):
   Amortization of debt discount                        (24,963)       (124,821)
   Interest expense                                     (69,873)        (81,182)
   Interest income                                           28             144
                                                   ------------    ------------

Loss before provision for income taxes                 (473,834)       (473,834)

   Provision for income tax provision                        --              --
                                                   ------------    ------------

Net loss                                           $   (165,346)   $   (473,834)
                                                   ============    ============

Loss per common share - basic and diluted:         $       (.02)   $       (.05)
                                                   ============    ============

Weighted average number of common
   shares outstanding  - basic and diluted:          10,790,915      10,057,582
                                                   ============    ============


See Notes to Consolidated Financial Statements.

                                       3
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            Three Months Ended March 31,
                                                                            ----------------------------
                                                                                2005             2004
                                                                            -----------      -----------
                                                                            (Unaudited)      (Unaudited)
<S>                                                                         <C>              <C>
Cash flows from operating activities:
   Net loss                                                                 $  (165,346)     $  (473,834)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                                            49,205           47,499
        Provision for doubtful accounts                                          10,000            7,000
        Amortization of debt discount                                            24,963          124,821
        Changes in:
           Accounts receivable                                                 (224,862)        (429,577)
           Inventory                                                            (22,687)         (46,563)
           Prepaid expenses and other assets                                      2,283          (18,650)
           Accrued expenses and other liabilities                               265,500           66,715
                                                                            -----------      -----------

              Net cash used in operating activities                             (60,944)        (722,589)
                                                                            -----------      -----------

Cash flows from investing activities:
   Purchase of furniture and equipment                                                            (1,191)
                                                                            -----------      -----------

              Net cash used in investing activities                                (109)          (1,191)
                                                                            -----------      -----------

Cash flows from financing activities:
   Net proceeds from issuance of 1,750,000 shares of Common Stock                                571,000
   Proceeds from notes payable                                                   10,000

   Principal repayments on notes payable, lines of credit
      and short-term credit arrangements                                        (70,953)        (114,851)
                                                                            -----------      -----------

              Net cash provided by financing activities                         (60,953)         456,149
                                                                            -----------      -----------

Decrease in cash and cash equivalents                                          (122,006)        (267,631)
Cash and cash equivalents at beginning of period                                193,201          460,832
                                                                            -----------      -----------

Cash and cash equivalents at end of period                                  $    71,195      $   193,201
                                                                            ===========      ===========

Supplemental disclosures of cash flow information related to
   continuing operations:
      Cash paid during the period for:
        Interest                                                            $    13,974      $    77,776
        Income taxes                                                        $        --      $        --

      Non-cash financing activities relating to forgiveness of
      interest indebtedness to an officer and an employee of the Company:
           Interest payable                                                                       20,000
           Paid in surplus                                                                       (20,000)
</TABLE>


See Notes to Consolidated Financial Statements.

                                       4
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE A - THE COMPANY

The  following   consolidated  financial  statements  of  CNE  Group,  Inc.  and
subsidiaries  (collectively  referred to as the  "Company  or "CNE,"  unless the
context  requires  otherwise)  are  prepared  in  accordance  with the rules and
regulations  of the  Securities  and  Exchange  Commission  for Form  10-QSB and
reflect  all  adjustments   (consisting  of  normal   recurring   accruals)  and
disclosures  which,  in the  opinion of  management,  are  necessary  for a fair
statement of results for the interim  periods  presented.  It is suggested  that
these financial  statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended  December 31, 2004,  which was filed with the Securities and Exchange
Commission.

The  results of  operations  for the three  months  ended March 31, 2005 are not
necessarily indicative of the results to be expected for the entire fiscal year.

Business
--------

CNE Group,  Inc. 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.  The Company has incurred  substantial
losses,  sustained substantial operating cash outflows and has a working capital
deficit at both March 31, 2005 and December 31, 2004.  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 March 31,  2005  management
believes that the working  capital  deficit,  losses and negative cash flow will
ultimately be improved by (i) cost reduction strategies initiated in January and
June 2004 and (ii) additional  equity and debt financing  activities in addition
to those set forth in these financial statements.  The Company has been notified
that, subject to the procedural requirements of the American Stock Exchange, its
stock could be delisted (see "American Stock Exchange Listing" below).  There is
no  assurance  that the  Company  can  obtain  additional  financing  or achieve
profitable  operations  or  generate  positive  cash  flow.  The  2005  and 2004
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.


                                       5
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE A - THE COMPANY (CONTINUED)

Private Financings
------------------

      1.    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.

      2.    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.

      3.    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
            May 15,  2005  the  outstanding  principal  balance  of the note was
            $10,000.  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 of Common Stock at $0.50 per
            share, subject to appropriate anti-dilution provisions.

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

On May 5, 2005,  the Company  received  notice from the American  Stock Exchange
("AMEX") Staff  indicating  that at December 31, 2004 it did not meet certain of
AMEX's continuing listing standards,  specifically its (i) Stockholders'  Equity
being less than $6,000,000 (Section  1003(a)(iii) of the AMEX Company Guide) and
(ii)  financial  condition has become so impaired  that it appears  questionable
that it will be able to continue  operations and/or meet its obligations as they
mature (Section 1003(a)(iv) of the AMEX Company Guide).

AMEX has  requested  the  Company to submit a plan,  by June 6, 2005,  that will
demonstrate  to AMEX the Company's  ability to regain  compliance  (the "Plan"),
which the  Company  intends to do. The Plan is  subject to the  approval  and to
periodic  monitoring  by AMEX.  Assuming  the  Company  achieves  its  scheduled
financial milestones as determined by AMEX, the Company will have until November
5, 2005 to regain compliance with the continuing  listing  requirements.  If the
Company it does not achieve its scheduled financial  milestones as determined by
AMEX, the Company will lose its AMEX listing.

At  March  31,  2005,  the  Company's  Stockholders'  Equity  was  approximately
$5,429,000,  its current assets were $752,000,  and its current liabilities were
$4,014,000 of which primarily  included notes payable  ($1,602,000 due April 30,
2005 and $150,000 due June 30, 2005) and related interest  payable  amounting to
approximately  $2,039,000.  No event of default has been  declared by any holder
thereof as of the date  hereof.  Management  and the  noteholders,  who  include
directors,  officers and an employee of the Company who is also a director,  are
currently renegotiating the terms of these notes.


                                       6
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

[1]   Inventory:

      Inventory  is  stated  at the  lower  of  cost  (determined  by  first-in,
      first-out  method) or market.  The  Company's  inventory  consists  of the
      following:

                                        March 31,    December 31,
                                          2005           2004
                                        ---------    ------------

               Raw materials            $ 256,447     $ 242,061
               Work in progress            24,227        15,926
               Finished goods              2,500,         2,500
                                        ---------     ---------
                        Total           $ 283,174     $ 260,487
                                        =========     =========

[2]   Income (loss) per share:

      Basic and diluted  earnings  (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 three
      month periods ended March 31, 2005 and 2004.  Common Stock  equivalents to
      purchase  Common Stock of the Company that were  outstanding  at March 31,
      2005 and 2004 were not included in the computation of diluted net loss per
      share as their effect would have been anti-dilutive.

[3]   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.

      At March 31, 2005 and  December 31,  2004,  the Company had a  stock-based
      employee compensation plan - the 2003 Plan.

      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


                                       7
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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>
                                                              Three Month Period Ended March 31,
                                                              ----------------------------------
                                                                 2005                    2004
                                                              ----------              ----------
<S>                                                           <C>                     <C>
          Net loss, as reported                               $ (165,346)             $ (473,834)

          Less, Total stock-based employee compensation
          expense determined under fair value-based method
          for all awards, net of related tax effects                  --                (168,280)
                                                              ----------              ----------

          Pro forma net loss                                  $ (165,346)             $ (642,114)
                                                              ==========              ==========

          Net loss per share - basic and diluted:
               As reported                                    $    (0.02)             $    (0.05)
                                                              ==========              ==========
               Pro forma                                      $    (0.02)             $    (0.06)
                                                              ==========              ==========
</TABLE>

      On May 10,  2005,  pursuant to a  litigation  Settlement  Agreement  dated
      January 10, 2005,  the Company  tendered an aggregate of 850,000 shares of
      the Company's Common Stock to Larry M. Reid, Michael J. Gutowski and Carol
      L.  Gutowski  in exchange  for all of their (i)  incentive  stock  options
      (1,550,000),  (ii) Series AA Preferred Stock  (1,000,000),  (iii) Series A
      Preferred Stock (305,336) and related Class A Warrants (305,336), and (iv)
      Series  C  Preferred  Stock  (4,867,937)  and  related  Class  C  Warrants
      (4,867,937).  These tendered  securities will be delivered to Messrs. Reid
      and Gutowski and Ms. Gutowski when the securities for which they are being
      exchanged are delivered to the Company.

[4]   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 2005 or 2004.

      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


                                       8
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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. The adoption of this standard did
      not have an impact on the Company's  consolidated  financial statements in
      2005 and 2004.

      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.


                                       9
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE C - RESTRUCTURING OF CERTAIN NOTES PAYABLE

As of April 30, 2005,  the Company's  (i) 10%  Subordinated  Notes  amounting to
$1,000,000,  (ii) 18% Promissory  Note amounting to $300,000,  (iii) 10% Secured
Note  amounting to $150,000,  and (iv) 24% Secured Notes  amounting to $150,000,
were all due and payable.  Unpaid interest  relating to these notes amounting to
approximately  $165,000 is also due and payable. As of the date hereof, no event
of  default  has  been  declared  by any  holder  thereof.  Management  and  the
noteholders,  which includes directors,  officers and an employee of the Company
who is also a director, are currently renegotiating the terms of these notes.

NOTE D - LITIGATION

[1]   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.

[2]   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:

            1.    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;

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

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

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


                                       10
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE D - LITIGATION (CONTINUED)

            5.    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 10, 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 being  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 E - 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  for the
      Company issuing to them 384,375 of its Class B Warrants,  each to give the
      holder  thereof the right to purchase  one share of Common  Stock at $0.40
      per share. 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 for the Company issuing to them 254,167 of
      its  Class B  Warrants,  each to give  the  holder  thereof  the  right to
      purchase  one share of Common  Stock at $0.30 per share.  The  noteholders
      include two officers of the Company.  The Company is currently  awaiting a
      response to this proposal.

[2]   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. 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  for the Company  issuing to
      them 80,222 of its Class H Warrants,  each to give the holder  thereof the
      right to  purchase  one share of  Common  Stock at $0.30  per  share.  The
      Company is currently awaiting a response to this proposal.

[3]   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.  The Company used the funds
      obtained from this financing primarily for working capital purposes.


                                       11
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE E - SUBSEQUENT EVENTS (CONTINUED)

[4]   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.  The Company used the funds  obtained  from this
      financing primarily for working capital purposes.

[5]   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 May 15, 2005 the outstanding  principal balance of the
      note was  $10,000.  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 Company used the funds  obtained from this
      financing primarily for working capital purposes.


                                       12
<PAGE>

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

      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 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.

      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.

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


                                       13
<PAGE>

      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 March 31, 2005,  our  allowance  for  doubtful  accounts was $61,000 or
      13.6%  of  gross  receivables,  compared  to  $51,000  or  22.9%  of gross
      receivables  as of December  31,  2004.  The  decrease in the reserve as a
      percentage of gross  receivables at March 31, 2005 as compared to December
      31, 2004 is the result of an increase in accounts receivable from December
      31, 2004 to March 31, 2005 and a lessor  requirement  for an allowance for
      doubtful accounts at March 31, 2005 than at December 31, 2004.

            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,  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


                                       14
<PAGE>

      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.

      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 our 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.  We adopted FIN 46 during
      2003 and the adoption of this interpretation did not have an impact on our
      consolidated financial statements in 2005 or 2004.

      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. We adopted this standard  during 2003 and
      the  adoption  did  not  have  an  impact  on our  consolidated  financial
      statements in 2005 or 2004.

      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


                                       15
<PAGE>

      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.  The
      adoption  of this  standard  did not have an  impact  on our  consolidated
      financial statements in 2005 or 2004.

      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.   We  are  currently   reporting
      share-based payment  transactions with employees in accordance with APB 25
      and provides the required disclosures.  SFAS 123R will be effective for us
      beginning January 1, 2006.

      In  implementing  SFAS  123R  we  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. We will be adopting
      the modified prospective application of SFAS 123R.

A.    Results of Operations:
      ----------------------

      Three-Month Period Ended March 31, 2005 Compared to the Three-Month Period
      --------------------------------------------------------------------------
      Ended March 31, 2004
      --------------------

      Revenues


                                       16
<PAGE>

      Total  revenues  decreased  to $626,771 for the  three-month  period ended
      March 31, 2005 from  $982,962 for the  three-month  period ended March 31,
      2004 due to a decrease in the dollar  amount of the awarded  contracts  to
      USCL.

      Product  sales income  decreased to $380,125  for the  three-month  period
      ended March 31, 2005 from $631,438 for the three-month  period ended March
      31, 2004 due to a decrease in the dollar  amount of the awarded  contracts
      to USCL.

      Service fee income decreased to $200,184 for the three-month  period ended
      March 31, 2005 from  $320,135 for the  three-month  period ended March 31,
      2004 due to the loss of certain maintenance contracts by ECI.

      Internet  related income  increased to $46,463 for the three-month  period
      ended March 31, 2005 from $31,369 for the  three-month  period ended March
      31, 2004 as the  operations  of our  subsidiary,  CareerEngine,  Inc. have
      stabilized,  although  we have  relatively  small  operations  within  the
      e-recruiting industry.

      Cost of Goods Sold

      Costs of goods sold,  which relates to product  sales and related  service
      fee income,  decreased to $177,529 for the three-month  period ended March
      31, 2005 from $503,699 for the three-month period ended March 31, 2004 due
      to the decrease in related revenues.

      Other Expenses

      Total other  expenses  decreased  to $519,780 for the  three-month  period
      ended March 31, 2005 from $747,238 for the three-month  period ended March
      31, 2004 as the effect of certain cost  reduction  initiatives,  including
      the  reduction  of our  executive  personnel,  were in effect  during  the
      three-month  period ended March 31, 2005 that were not in effect during in
      the three month period ended March 31, 2004.

      Advertising expenses decreased to $17,808 for the three-month period ended
      March 31, 2005 from  $24,720 for the  three-month  period  ended March 31,
      2004 as we  decreased  our  attendance  at  industry  trade  shows.  These
      expenditures  relate to the  acquired  operations  of USCL and SRC and its
      subsidiaries.

      Compensation  and related costs  decreased to $211,601 for the three-month
      period ended March 31, 2005 from $368,562 for the three-month period ended
      March 31, 2004 as we instituted  certain payroll reduction  initiatives in
      2004, including the reduction of our executive personnel.

      General  and  administrative   expenses  decreased  to  $241,166  for  the
      three-month  period ended March 31, 2005 from $300,216 for the three-month
      period  ended  March  31,  2004  due  to the  decreased  cost  and  use of
      professional services in the operations of the Company.


                                       17
<PAGE>

      Product  development  expenses decreased to nil for the three-month period
      ended March 31, 2005 from $6,241 for the  three-month  period  ended March
      31, 2004 due to the cessation of certain initiatives  commenced by USCL to
      develop products to meet our customers' future requirements.

      Depreciation and amortization  expenses modestly  increased to $49,205 for
      the  three-month  period  ended  March  31,  2005  from  $47,499  for  the
      three-month period ended March 31, 2004.

      Other Items

      Amortization  of debt  discount  decreased to $24,963 for the  three-month
      period ended March 31, 2005 from $124,821 for the three-month period ended
      March 31, 2004 due to the change in the monthly  rate of  amortization  of
      the debt discount  ($699,000) related to the 10% subordinated notes issued
      on April 23, 2003 from $58,250 to $8,321.  The change in the  amortization
      rate was caused by the  extension of the  maturity  date of the notes from
      April 30, 2004 to April 30, 2005.

      Interest  expense  decreased to $69,873 for the  three-month  period ended
      March 31, 2005 from  $81,182 for the  three-month  period  ended March 31,
      2004 due primarily to a decrease in the use, by SRC and its  subsidiaries,
      of  accounts  receivable  financing  commonly  referred  to as  factoring.
      Factoring, when utilized, has an annual interest rate in excess of 36%.

      Operating Loss

      On a pre-tax  basis,  we had a loss from  operations  of $165,346  for the
      three-month  period  ended  March  31,  2005  compared  with a  loss  from
      operations of $473,834 for the three-month period ended March 31, 2004.

      Our loss from operations for the  three-month  period ended March 31, 2005
      was $165,346  compared with a loss from continuing  operations of $473,834
      for the  three-month  period  ended March 31,  2004.  For the  three-month
      period  ended  March 31,  2005,  loss per  common  share  from  continuing
      operations,  basic and diluted,  was $.02 per share.  For the  three-month
      period  ended  March 31,  2004,  income per common  share from  continuing
      operations, basic and diluted, was $.05 per share.

      Our net loss for the three-month  period ended March 31, 2005 was $165,346
      compared with net loss of $473,834 for the three-month  period ended March
      31, 2004.  For the  three-month  period ended March 31, 2005, net loss per
      common share,  basic and diluted,  was $.02 per share. For the three-month
      period ended March 31, 2004, net loss per common share, basic and diluted,
      was $.05 per share.

B.    Liquidity and Capital Resources
      -------------------------------


                                       18
<PAGE>

      We have incurred substantial losses,  sustained  substantial cash outflows
      from operating  activities and had a working  capital deficit at March 31,
      2005 and December 31, 2004.  The above  factors  raise  substantial  doubt
      about our ability to continue as a going concern.  Our continued existence
      depends on our ability to obtain  additional  equity and/or debt financing
      to fund our  operations,  financial  obligations  as they become due,  and
      ultimately to achieve  profitable  operations.  We are continuously in the
      process  of  raising  additional  financing  and  have  initiated  a  cost
      reduction  strategy.  At March 31, 2005 and December  31, 2004  management
      believes that the working capital  deficit,  losses and negative cash flow
      will ultimately be improved by (i) cost reduction  strategies initiated in
      January  and June  2004  and (ii)  additional  equity  and debt  financing
      activities in addition to those set forth in the financial statements.  On
      May 5, 2005, we received notice from the American Stock Exchange  ("AMEX")
      Staff  indicating  that at December  31,  2004 we did not meet  certain of
      AMEX's continuing  listing  standards,  specifically our (i) Stockholders'
      Equity  being  less  than  $6,000,000  (Section  1003(a)(iii)  of the AMEX
      Company Guide) and (ii) financial condition has become so impaired that it
      appears  questionable  that we will be able to continue  operations and/or
      meet our  obligations  as they  mature  (Section  1003(a)(iv)  of the AMEX
      Company  Guide).  AMEX has requested us to submit a plan, by June 6, 2005,
      that  will  demonstrate  to AMEX our  ability  to regain  compliance  (the
      "Plan"), which we intend to do. The Plan is subject to the approval and to
      periodic  monitoring by AMEX.  Assuming we achieve our scheduled financial
      milestones as  determined by AMEX, we will have until  November 5, 2005 to
      regain compliance with the continuing listing  requirements.  If we do not
      achieve our scheduled financial  milestones as determined by AMEX, we will
      lose our AMEX listing.  At March 31, 2005,  our  Stockholders'  Equity was
      approximately  $5,429,000,  our  current  assets  were  $752,000,  and our
      current  liabilities were $4,014,000 that primarily included notes payable
      ($1,602,000  due as of April 30, 2005 and  $150,000 due June 30, 2005) and
      related interest payable amounting to approximately  $2,039,000.  No event
      of default has been declared by any holder  thereof as of the date hereof.
      Management  and the  noteholders,  who include  certain of our  directors,
      officers  and  an  employee  who  is  also  a  director,   are   currently
      renegotiating the terms of these notes.  There is no assurance that we can
      obtain additional  financing or achieve profitable  operations or generate
      possible  cash flow or that we can retain our  listing.  Our 2005 and 2004
      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 March 31, 2005 and  December  31,  2004,  we had no  off-balance  sheet
      arrangements.

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


                                       19
<PAGE>

      We utilized $60,944 of cash in operating activities during the three-month
      period  ended March 31,  2005.  We had a net loss of $165,346  during this
      period,  which  included  an  aggregate  of  $84,168  of  non-cash  items,
      including depreciation and amortization, amortization of debt discount and
      an allowance for doubtful accounts.  In addition to the impact of non-cash
      items, our operating activities for the three-month period ended March 31,
      2005 also reflected an increase in inventory,  accounts  payable,  accrued
      expenses and other liabilities,  and accounts receivable and a decrease in
      other assets.

      We  utilized   $722,589  of  cash  in  operating   activities  during  the
      three-month  period  ended March 31,  2004.  We had a net loss of $473,834
      during this  period,  which  included an aggregate of $179,320 of non-cash
      items,  including  depreciation  and  amortization,  amortization  of debt
      discount and allowance for doubtful accounts. In addition to the impact of
      non-cash items, our operating  activities for the three-month period ended
      March  31,  2004  also  reflected  an  increase  in  accounts  receivable,
      inventory,  prepaid  expenses and other assets,  and accrued  expenses and
      other  liabilities.  Our  significant  increase in accounts  receivable is
      principally  due to  the  completion  of  our  contract  with  the  Nevada
      Department of Transportation.

      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 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. We are currently attempting
      to restructure  the debt due April 30, 2005  amounting to $1,600,000  with
      the holders thereof.

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

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


                                       20
<PAGE>

      accounted  for as debt  discount and is being  amortized  ratably over the
      one-year term of the Notes.

      On March 12,  2004,  we  notified  the Class B Warrant  holders  that,  to
      satisfy the 15% non-dilutive provisions of their Warrants,  these Warrants
      were then  exercisable for an aggregate of 5,245,200  shares of our Common
      Stock at  approximately  $0.40 per share.  On this date, we also exercised
      our 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 our 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 May 2005,  we will  notify the Class B Warrant
      holders  that,  to satisfy the now 19%  non-dilutive  provisions  of their
      Warrants,  these  Warrants  will now be  exercisable  for an additional of
      1,122,100 shares of our 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,  we sold  1,750,000  shares of our Common Stock at
      $0.40 per share. The net proceeds of the transaction amounted to $571,000.

      On June 24,  2004 we  repaid,  in full,  one of our  outstanding  lines of
      credit amounting to approximately  $146,000.  On the same date we issued a
      secured  note  payable to an  employee of one of our  subsidiaries  in the
      amount of $150,000.  This employee is also now one of our  directors.  The
      note is secured by the furniture and equipment of the subsidiary. The note
      bears interest at 10% per annum and the principal and all interest thereon
      was due on September 24, 2004. In consideration for 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, we
      issued the noteholder  individual  Warrants to purchase  101,000 shares of
      our Common Stock at $0.28 per share.  Management  and the  noteholder  are
      currently renegotiating the terms of these notes.

      In July and August 2004,  we issued  $150,000 of our 24% Secured Notes due
      April 30, 2005 to the wife of our Chief Executive  Officer who is also the
      holder  of one of our 10%  subordinated  notes.  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 us. On October 1, 2004,  the holders of 100%
      of our 24% Secured  Notes  agreed to defer  $5,867 of interest due on such
      date to January 1, 2005 in consideration for our issuing to them 53,333 of
      our  Class B  Warrants,  each to give  the  holder  thereof  the  right to
      purchase one share of our Common  Stock at $0.33 per share.  On January 1,
      2005, the holders of 100% of our 24% Secured Notes agreed to


                                       21
<PAGE>

      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  for our  issuing to them  113,000 of our Class B  Warrants,
      each to give the holder  thereof  the right to  purchase  one share of our
      Common Stock at $0.40 per share.  Management  and the  noteholders,  which
      includes  directors,   and  an  officer  of  the  Company,  are  currently
      renegotiating the terms of these notes.

      In October  2004,  we 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. 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 us 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 of our other assets not previously pledged, will
      secure the borrowings under this agreement.

      In October,  November and December 2004, we issued (i) $150,000 of our 10%
      Convertible  Subordinated  Notes due June 30, 2005 and (ii) 945,000 of our
      Class C Cashless  Warrants,  each to give the holder  thereof the right to
      purchase one share of our Common Stock at $0.50 per share.  The notes were
      sold to the wife of our  Chief  Executive  Officer  and  other  accredited
      investors and are convertible by the holder,  at any time, into our Common
      Stock 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 our Chief Executive  Officer,  purchased 545,000 shares of our
      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 our
      Common Stock and each share is  automatically  convertible into two shares
      of our Common Stock when such  conversion  has been approved by our Common
      Stockholders.

      On or about  April 12,  2005,  four  individuals,  three of whom are adult
      children  or related  thereto of our Chief  Executive  Officer,  purchased
      500,000  shares of our  Series G  Preferred  Stock at a price of $0.20 per
      share.

      On or about March 15, 2005, we borrowed $20,000 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 our bank accounts;  (ii)
      convertible into our Common Stock at the rate of $0.24 per share,  subject
      to certain anti-dilution provisions;  and (iii) subordinated to our Senior
      Indebtedness  as that  term is  defined  therein.  At March  31,  2005 the
      outstanding  principal balance of the note was $10,000. In addition, on or
      about April 11, 2005,  we sold to this lender,  for an aggregate  purchase
      price of $100,000, 333,333 shares of restricted Common


                                       22
<PAGE>

        Stock and three-year warrants to purchase an aggregate of 100,000 shares
        of  our  Common  Stock  at  $0.50  per  share,  subject  to  appropriate
        anti-dilution provisions.

        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
        March 31, 2005.

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

        Due to the  nature of our  business,  inflation  does not  significantly
        impact our operations.

Item 3. 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 Rule 13a-14 of the Exchange Act.  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 Quarterly Report on Form 10-QSB 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.


                                       23
<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings.

        We are a party  to  various  vendor  related  litigations.  Based on the
        opinion of management  and legal  counsel,  we have accrued an estimated
        liability of approximately $100,000.

Item 5. Other Information.

        None

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

        (a)    Exhibits:

                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

                        A  statement  regarding  the  computation  of per  share
                        earnings is omitted because the computation is described
                        in  Note  B  of  the  Notes  to  Consolidated  Financial
                        Statements (Unaudited) in this Form 10-QSB.

        (b)     Reports on Form 8-K:

                The Company  filed a report on Form 8-K on January 14,  2005,  a
                report on Form 8-K on April 11,  2005,  and a report on Form 8-K
                on May 11, 2005.


                                       24
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                       CNE GROUP, INC.


                                       /s/ George W. Benoit
                                       -----------------------------------------
Date: May 23, 2005                     George W. Benoit, Chairman of the Board
                                       of Directors, and Chief Executive
                                       Officer


                                       /s/ Anthony S. Conigliaro
                                       -----------------------------------------
Date: May 23, 2005                     Anthony S. Conigliaro, Vice President and
                                       Chief Financial Officer


                                       25