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 June 30, 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.)

              255 West 36th Street, Suite 800, New York, N.Y. 10018
              -----------------------------------------------------
                    (Address of Principal Executive Offices)

                                  212-300-2112
                                  ------------
                (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 August 1, 2005
                 -----                      -----------------------------
    Common stock - par value $.00001              11,424,248 shares
    --------------------------------              -----------------

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION

Item l. Financial Statements.


                                       1
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                      June 30,      December 31,
                                                                        2005            2004
                                                                    ------------    ------------
                                                                     (Unaudited)
<S>                                                                 <C>             <C>
ASSETS
   Current:
      Cash and cash equivalents                                     $    101,391    $     84,408
      Accounts receivable, net of allowance for doubtful accounts        172,887         172,010
        of $66,000 in 2005 and $51,000 in 2004
      Inventory                                                          313,322         260,487
      Other                                                                8,964           8,273
                                                                    ------------    ------------
        Total current assets                                             596,564         525,178
   Fixed assets, net                                                     333,243         394,509
   Intellectual property rights, net                                   1,305,349       1,361,948
   Goodwill                                                            7,285,894       7,285,894
   Prepaid expenses and other assets                                       7,661          21,265
                                                                    ------------    ------------
                  Total assets                                      $  9,528,711    $  9,588,794
                                                                    ============    ============

LIABILITIES
   Current:
      Accounts payable and accrued expenses                         $  1,627,724    $  1,476,124
      Interest payable                                                   246,904         128,050
      Short-term credit arrangements                                      96,859         191,395
      Line of credit                                                       3,524          19,199
      Current portion of notes payable                                        --          17,243
      Notes and debenture payable                                        850,000         850,000
      10% subordinated notes payable                                   1,000,000         966,710
      Other notes payable                                                 42,690          23,330
                                                                    ------------    ------------
        Total current liabilities                                      3,867,701       3,672,051
   Notes payable, net of current portion                                      --          22,059
   Deferred grant revenue                                                     --         300,000
                                                                    ------------    ------------
           Total liabilities                                           3,867,701       3,994,110
                                                                    ------------    ------------

   Commitments and contingencies

STOCKHOLDERS' EQUITY
   Preferred stock                                                           145             134
   Common stock                                                              127             121
   Paid-in surplus                                                    30,243,169      29,919,185
   Accumulated deficit                                               (21,709,331)    (21,451,656)
                                                                    ------------    ------------
                                                                       8,534,110       8,467,784
   Less treasury stock, at cost - 1,238,656 shares                    (2,873,100)     (2,873,100)
                                                                    ------------    ------------
           Total stockholders' equity                                  5,661,010       5,594,684
                                                                    ------------    ------------
                  Total liabilities and stockholders' equity        $  9,528,711    $  9,588,794
                                                                    ============    ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       2
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                      Three Months                     Six Months
                                                     Ended June 30,                  Ended June 30,
                                              ----------------------------    ----------------------------
                                                  2005            2004            2005            2004
                                              ------------    ------------    ------------    ------------
                                               (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
<S>                                           <C>             <C>             <C>             <C>
Revenues:
   Product sales                              $    132,836    $    261,962    $    512,961    $    893,400
   Service fee income                              152,230         262,518         352,414         582,653
   Internet related income                          18,491          25,838          64,953          57,207
                                              ------------    ------------    ------------    ------------
                                                   303,557         550,318         930,328       1,533,260
   Cost of goods sold                              150,340         281,616         327,869         785,315
                                              ------------    ------------    ------------    ------------

      Gross profit                                 153,217         268,702         602,459         747,945
                                              ------------    ------------    ------------    ------------

Other expenses:
   Advertising                                      16,477          12,208          34,285          36,928
   Compensation and related costs                  189,686         453,030         401,287         821,592
   General and administrative                      218,526         363,083         459,692         663,299
   Product development                                  --          31,368              --          37,609
   Depreciation and amortization                    48,342          48,857          97,547          96,356
                                              ------------    ------------    ------------    ------------
                                                   473,031         908,546         992,811       1,655,784
                                              ------------    ------------    ------------    ------------

Loss before other income (expenses)               (319,814)       (639,844)       (390,352)       (907,839)

Other income (expenses):
   Amortization of debt discount                    (8,327)        (24,963)        (33,290)       (149,784)
   Grant income                                    300,000              --         300,000              --
   Interest expense                                (64,252)        (86,460)       (134,125)       (167,342)
   Interest income                                      63             155              91             299
                                              ------------    ------------    ------------    ------------

Loss before provision for income taxes             (92,330)       (751,112)       (257,676)     (1,224,666)

   Provision for income taxes                           --              --              --              --
                                              ------------    ------------    ------------    ------------

Net loss                                      $    (92,330)   $   (751,112)   $   (257,676)   $ (1,224,666)
                                              ============    ============    ============    ============

Loss per common share - basic and diluted:    $       (.01)   $       (.07)   $       (.02)   $       (.12)
                                              ============    ============    ============    ============

Weighted average number of common
   shares outstanding  - basic and diluted:     11,324,248      10,640,915      11,057,582      10,349,248
                                              ============    ============    ============    ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       3
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                     Six Months Ended June 30,
                                                                                       2005            2004
                                                                                   ------------    ------------
                                                                                    (Unaudited)     (Unaudited)
<S>                                                                                <C>             <C>
Cash flows from operating activities:
   Net loss                                                                        $   (257,676)   $ (1,224,666)
   Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization                                                    97,547          96,356
        Provision for doubtful accounts                                                  15,000          13,207
        Issuance of common stock for services                                            54,000              --
        Amortization of debt discount                                                    33,290         149,784
        Changes in:
           Accounts receivable                                                          (15,877)        (85,014)
           Inventory                                                                    (72,756)        (68,413)
           Prepaid expenses and other assets                                             12,913          17,381
           Accounts payable, accrued expenses and deferred grant revenue                 (2,953)        247,404
                                                                                   ------------    ------------

              Net cash used in operating activities                                    (136,512)       (853,961)
                                                                                   ------------    ------------

Cash flows from investing activities:
   Purchase of furniture and equipment                                                  (20,318)        (30,764)
                                                                                   ------------    ------------

              Net cash used in investing activities                                     (20,318)        (30,764)
                                                                                   ------------    ------------

Cash flows from financing activities:
   Proceeds from issuance Series G Preferred Stock                                      220,000              --
   Proceeds from sale of 333,333 shares of restricted common stock                       50,000
   Net proceeds from issuance of 1,750,000 shares of common stock                                       571,000
   Proceeds from notes payable                                                           20,000
   Principal repayments on notes payable - other                                       (150,153)       (245,515)
                                                                                   ------------    ------------

              Net cash provided by financing activities                                 139,847         475,485
                                                                                   ------------    ------------

Increase (decrease) in cash and cash equivalents                                        (16,983)       (409,240)
Cash and cash equivalents at beginning of period                                         84,408         460,832
                                                                                   ------------    ------------

Cash and cash equivalents at end of period                                         $    101,391    $     51,592
                                                                                   ============    ============

Supplemental disclosures of cash flow information related to
   continuing operations:
      Cash paid during the period for:
        Interest                                                                   $     16,666    $    137,861
        Income taxes                                                               $         --    $         --

      Non-cash investing and financing activities relating to conversion of debt
      to preferred stock, and forgiveness of interest indebtedness to an officer
      and an employee of the Company:
           Interest payable                                                                  --    $     40,000
           8% notes payable                                                                  --       1,000,000
           Issuance of preferred stock, at par                                               --             (10)
           Paid in surplus                                                                   --      (1,039,990)
</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 June 30,  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 June 30, 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 June  30,  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, (ii)  additional  equity and debt financing  activities,  and (iii) a
merger/acquisition  transaction or a transaction of a similar nature in addition
to those set forth in the 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.

For information relating to a merger transaction entered into by the Company see
Note F - Subsequent Event.


                                       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 April 20, 2005, an individual  purchased  100,000 shares
            of the  Company's  Series G Preferred  Stock at a price of $0.20 per
            share.

      4.    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 was (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.  On
            June 10, 2005 the company repaid this note in full. In addition,  on
            or about April 15, 2005,  the Company  sold to this  lender,  for an
            aggregate  purchase  price of $50,000,  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 requested the Company to submit a plan that would demonstrate to AMEX the
Company's ability to regain compliance (the "Plan"). On June 6, 2005 the Company
submitted the Plan. On June 13, 2005, the Staff notified the Company that it had
determined that the Plan did not make a reasonable demonstration of the
Company's ability to regain compliance with the continued listing standards, as
required by Section 1009 of the Company Guide and, as provided by Section
1009(d) thereof, the Staff has determined to proceed with the filing of an
application with the Securities and Exchange Commission to strike the Company's
common stock from listing and registration on AMEX.


                                       6
<PAGE>

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

NOTE A - THE COMPANY (CONTINUED)

In  accordance  with  Sections 1203 and 1009(d) of the Company Guide the Company
had a limited  right to appeal the Staff's  determination  at an oral hearing or
one based on a written  submission  before a Listing  Qualifications  Panel. The
Company requested,  and was subsequently  granted,  an oral hearing on August 8,
2005 to appeal the Staff's  determination.  The Company is awaiting the decision
of the Listings Qualifications Panel. The Company can give no assurance that its
appeal will be successful.

If the appeal is successful  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 may 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 June 30, 2005, our  Stockholders'  Equity was approximately  $5,661,000,  our
current assets were $597,000,  and our current  liabilities were $3,868,000 that
primarily  included  notes  payable  ($1,850,000  due as of June 30,  2005)  and
related interest  payable  amounting to  approximately  $2,097,000.  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.

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:

                                      June 30,     December 31,
                                        2005           2004
                                    ------------   ------------

             Raw materials            $295,166       $242,061
             Work in progress           15,656         15,926
             Finished goods              2,500          2,500
                                      --------       --------
                      Total           $313,322       $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 June 30,
      2005 and 2004 were not included in the computation of diluted net loss per
      share as their effect would have been anti-dilutive.


                                       7
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[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 June 30, 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
      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>
                                                               Six Month Period Ended June 30,
                                                               -------------------------------
                                                                   2005               2004
                                                               ------------       ------------
<S>                                                             <C>               <C>
           Net loss, as reported                                $(257,676)        $(1,224,666)

           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                                   $(257,676)        $(1,392,946)
                                                                =========         ===========

           Net loss per share - basic and diluted:
                As reported                                        $(0.02)             $(0.12)
                                                                =========         ===========
                Pro forma                                          $(0.02)             $(0.13)
                                                                =========         ===========
</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


                                       8
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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).

      On May 9, 2005, the Company tendered 850,000 shares of its common stock in
      accordance with the applicable provisions of the settlement agreement.  On
      or about July 9, 2005, Mr. and Mrs. Gutowski and Mr. Reid delivered to the
      Company  those  securities  required  to be  delivered  by the  settlement
      agreement. The Company subsequently retired these securities.

[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
      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


                                       9
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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.

NOTE C - RESTRUCTURING OF CERTAIN NOTES PAYABLE

As of June 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  $220,000 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 include  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.  Management
      of 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


                                       10
<PAGE>

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

NOTE D - LITIGATION (CONTINUED)

[3]   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

      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.

      On May 9, 2005, the Company tendered 850,000 shares of its common stock in
      accordance with the applicable provisions of the settlement agreement.  On
      or about July 9, 2005, Mr. and Mrs. Gutowski and Mr. Reid delivered to the
      Company  those  securities  required  to be  delivered  by the  settlement
      agreement.  The Company subsequently  retired these securities.  All other
      provisions of the  settlement  agreement  have also been satisfied by both
      parties.


                                       11
<PAGE>

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

NOTE E - CONSULTING AGREEMENT

On May  11,  2005  the  Company  entered  into a  consulting  Agreement  with an
individual that included the issuance of 300,000 shares of its restricted Common
Stock and  three-year  warrants to purchase an  aggregate  of 250,000  shares at
$0.46 per share, subject to appropriate anti-dilution provisions.

NOTE F - SUBSEQUENT EVENT

On July 28,  2005,  the Company  signed an Agreement of Plan to Merge with Arrow
Resources Development Ltd. ("Arrow"),  a Bermuda registered company based in New
York City, to merge  operations  subject to  stockholder  approval.  The current
stockholders and creditors of the Company. will retain 4% of the common stock of
the Company,  and the  stockholders of Arrow, at Closing,  will be issued 96% of
the  common  stock of the  Company,  on a fully  diluted  basis.  In  connection
therewith,  the Company will issue 10,000,000 shares of its Series AAA Preferred
Stock which will be automatically  convertible into such number of shares of the
Company's  common  Stock as shall  equal 96% of the then  number of  outstanding
shares if and when stockholder approval is obtained for such conversion.

Arrow is  initiating  the  commercial  development  of  timber  resources  and a
eucalyptus  plantation  operation in Papua,  New Guinea  through  Arrow  Pacific
Resources  PNG Ltd.  ("APR"),  an affiliated  company.  Arrow has entered into a
Marketing Agreement with APR to act as the publicly-listed management, financial
and corporate  operations arm for all of APR's timber  activities in Papua,  New
Guinea.

APR has been granted  licenses from the government of Papua,  New Guinea for the
development  of plantation  operations  on more than 750,000 acres of land.  The
Marketing  Agreement  provides  for  Arrow to  receive  10% of the  gross  sales
generated  by all  plantation  operations,  from all  resources  and any and all
derivative products (e.g. paper, pulp, chips).

The Agreement of Plan to Merge  replaces the previous  transaction  announced on
June 1, 2005, in which CNE Group's Board of Directors approved a spin-off to its
stockholders of a recently formed subsidiary.


                                       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 had a  restriction  that could  require
      their repayment, specifically if we were to relocate a substantial portion
      our  operations  outside of New York City. On May 1, 2005 the  restriction
      lapsed and,  accordingly,  we removed the  liability  and  recorded  grant
      income on our financial statements.

      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 June 30, 2005, our allowance for doubtful accounts was $66,000 or 28.1%
      of gross receivables, compared to $51,000 or 22.9% of gross receivables as
      of December 31, 2004. The increase in the reserve as a percentage of gross
      receivables at June 30, 2005 as compared to December 31, 2004 is primarily
      the result of increased requirement for an allowance for doubtful accounts
      at June 30, 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


                                       15
<PAGE>

      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 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 June 30, 2005 Compared to the Three-Month Period
      --------------------------------------------------------------------------
      Ended June 30, 2004
      -------------------


                                       16
<PAGE>

      Revenues

      Total revenues decreased to $303,557 for the three-month period ended June
      30, 2005 from  $550,318  for the  three-month  period  ended June 30, 2004
      primarily due to a reduction of the contracts  awarded to Connectivity and
      ECI.

      Product  sales income  decreased to $132,836  for the  three-month  period
      ended June 30, 2005 from  $261,962 for the  three-month  period ended June
      30,  2004  primarily  due to a  reduction  of  the  contracts  awarded  to
      Connectivity.

      Service fee income decreased to $152,230 for the three-month  period ended
      June 30, 2005 from $262,518 for the three-month period ended June 30, 2004
      primarily due to a reduction of the contracts awarded to Connectivity.

      Internet  related income  decreased to $18,491 for the three-month  period
      ended June 30, 2005 from $25,838 for the three-month period ended June 30,
      2004  as  the  operations  of  our  subsidiary,  CareerEngine,  Inc.  have
      continued 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 decreased to $150,340 for the three-month period ended June 30,
      2005 from $281,616 for the  three-month  period ended June 30, 2004 due to
      the related decrease in revenues

      Other Expenses

      Total other  expenses  decreased  to $473,031 for the  three-month  period
      ended June 30, 2005 from  $908,546 for the  three-month  period ended June
      30, 2004 as the effect of certain cost  reduction  initiatives,  including
      the reduction of our executive  personnel,  which when instituted effected
      the  three-month  period  ended June 30,  2005  however did not effect the
      three month period ended June 30, 2004.

      Advertising expenses increased to $16,477 for the three-month period ended
      June 30, 2005 from $12,208 for the three-month  period ended June 30, 2004
      as we increased our attendance at industry trade shows.

      Compensation  and related costs  decreased to $189,686 for the three-month
      period ended June 30, 2005 from $453,030 for the three-month  period ended
      June 30, 2004 as we instituted  certain payroll reduction  initiatives in,
      primarily,  the third  quarter of 2004,  including  the  reduction  of our
      executive personnel.

      General  and  administrative   expenses  decreased  to  $218,526  for  the
      three-month period ended June


                                       17
<PAGE>

      30, 2005 from $363,083 for the three-month  period ended June 30, 2004 due
      to the decreased cost and use of  professional  services in the operations
      of the Company.

      Product  development  expenses decreased to nil for the three-month period
      ended June 30, 2005 from $31,368 for the three-month period ended June 30,
      2004 due to the cessation of certain initiatives  commenced by SRC and its
      subsidiaries   to  develop   products  to  meet  our   customers'   future
      requirements.

      Depreciation and amortization  expenses modestly  decreased to $48,342 for
      the  three-month   period  ended  June  30,  2005  from  $48,857  for  the
      three-month period ended June 30, 2004

      Other Items

      Amortization  of debt  discount  decreased  to $8,327 for the  three-month
      period ended June 30, 2005 from $24,963 for the  three-month  period ended
      June 30, 2004 as the debt discount was fully  amortized at April 30, 2005.
      There was one month of amortization  in the three-month  period ended June
      30, 2005 as compared to three months in the three-month  period ended June
      30, 2004.

      Interest  expense  decreased to $64,252 for the  three-month  period ended
      June 30, 2005 from $86,460 for the three-month  period ended June 30, 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%.

      Grant income  increased to $300,000 for the three-month  period ended June
      30, 2005 from nil for the  three-month  period  ended June 30, 2004 as the
      restrictions set forth in the grant have expired.

      Operating Loss

      On a pre-tax  basis,  we had a net loss before income taxes of $92,330 for
      the three-month period ended June 30, 2005 compared with a net loss before
      income taxes of $751,112 for the three-month period ended June 30, 2004.

      Our net loss for the  three-month  period  ended June 30, 2005 was $92,330
      compared with a net loss of $751,112 for the three-month period ended June
      30, 2004.  For the  three-month  period ended June 30, 2005,  net loss per
      common share, basic and diluted,  was $0.01 per share. For the three-month
      period ended June 30, 2004, net loss per common share,  basic and diluted,
      was $0.07 per share.

      Six-Month  Period  Ended June 30, 2005  Compared to the  Six-Month  Period
      --------------------------------------------------------------------------
      Ended June 30, 2004
      -------------------


                                       18
<PAGE>

      Revenues

      Total revenues  decreased to $930,328 for the six-month  period ended June
      30, 2005 from  $1,533,260  for the  six-month  period  ended June 30, 2004
      primarily due to a decrease in the dollar amount of the contracts  awarded
      to Connectivity and ECI.

      Product sales income  decreased to $512,961 for the six-month period ended
      June 30, 2005 from $893,400 for the  six-month  period ended June 30, 2004
      primarily due to a decrease in the dollar amount of the contracts  awarded
      to Connectivity.

      Service fee income  increased to $352,414 for the  six-month  period ended
      June 30, 2005 from $582,653 for the  six-month  period ended June 30, 2004
      primarily due to a decrease in the dollar amount of the contracts  awarded
      to ECI.

      Internet  related  income  increased to $64,953 for the  six-month  period
      ended June 30, 2005 from $57,207 for the  six-month  period ended June 30,
      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 $327,869 for the six-month  period ended June 30,
      2005 from $785,315 for the six-month period ended June 30, 2004 due to the
      related decrease in revenues

      Other Expenses

      Total other expenses  decreased to $992,811 for the six-month period ended
      June 30, 2005 from $1,655,784 for the six-month period ended June 30, 2004
      as the  effect  of  certain  cost  reduction  initiatives,  including  the
      reduction of our  executive  personnel,  were  instituted in the six-month
      period  ended  June 30,  2005  that were not  instituted  in the six month
      period ended June 30, 2004.

      Advertising  expenses  modestly  decreased  to $34,285  for the  six-month
      period  ended June 30, 2005 from  $36,928 for the  six-month  period ended
      June 30, 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 $401,287 for the  six-month
      period ended June 30, 2005 from  $821,592 for the  six-month  period ended
      June 30, 2004 as we instituted  certain payroll reduction  initiatives in,
      primarily,  the third  quarter of 2004,  including  the  reduction  of our
      executive personnel.


                                       19
<PAGE>

      General  and  administrative   expenses  decreased  to  $459,692  for  the
      six-month  period  ended June 30,  2005 from  $663,299  for the  six-month
      period  ended  June  30,  2004  due  to  the  decreased  cost  and  use of
      professional services in the operations of the Company.

      Product  development  expenses  decreased to nil for the six-month  period
      ended June 30, 2005 from $37,609 for the  six-month  period ended June 30,
      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 $97,547 for
      the  six-month  period ended June 30, 2005 from $96,356 for the  six-month
      period ended June 30, 2004.

      Other Items

      Amortization  of debt  discount  decreased  to $33,290  for the  six-month
      period ended June 30, 2005 from  $149,784 for the  six-month  period ended
      June 30, 2004 due the combined  effect of a decreased  period of time that
      the  amortization  of the debt  discount  ($699,000),  relating to the 10%
      subordinated notes issued in April 2003, pertained,  and the change in the
      rate of  amortization  when the notes were extended for an additional year
      in March 2004. The debt discount was fully amortized on April 30, 2005.

      Interest expense decreased to $134,125 for the six-month period ended June
      30, 2005 from  $167,342 for the  six-month  period ended June 30, 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%.

      Grant income increased to $300,000 for the six-month period ended June 30,
      2005  from  nil  for the  six-month  period  ended  June  30,  2004 as the
      restrictions set forth in the grant have expired.

      Operating Loss

      On a pre-tax basis,  we had a net loss before income taxes of $257,676 for
      the  six-month  period ended June 30, 2005 compared with a net loss before
      income taxes of $1,224,666 for the six-month period ended June 30, 2004.

      Our net loss for the  six-month  period  ended June 30, 2005 was  $257,676
      compared with a net loss of $1,224,666 for the six-month period ended June
      30, 2004.  For the  six-month  period  ended June 30,  2005,  net loss per
      common share,  basic and diluted,  was $0.02 per share.  For the six-month
      period ended June 30, 2004, net loss per common share,  basic and diluted,
      was $0.12 per share.


                                       20
<PAGE>

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

      We have incurred substantial losses,  sustained  substantial cash outflows
      from operating  activities and had a working  capital  deficit at June 30,
      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 June 30, 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,  (ii)  additional   equity  and  debt  financing
      activities, and (iii) a merger/acquisition transaction or a transaction of
      a  similar  nature  in  addition  to  those  set  forth  in the  financial
      statements.

      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  requested the Company to submit a plan
      that would  demonstrate to AMEX the Company's ability to regain compliance
      (the "Plan").  On June 6, 2005 the Company submitted the Plan. On June 13,
      2005, the Staff notified the Company that it had determined  that the Plan
      did not make a reasonable demonstration of the Company's ability to regain
      compliance with the continued  listing  standards,  as required by Section
      1009 of the Company Guide and, as provided by Section 1009(d) thereof, the
      Staff has determined to proceed with the filing of an application with the
      Securities  and Exchange  Commission to strike the Company's  common stock
      from listing and  registration  on AMEX. In accordance  with Sections 1203
      and 1009(d) of the Company Guide the Company had a limited right to appeal
      the  Staff's  determination  at an oral  hearing or one based on a written
      submission before a Listing  Qualifications  Panel. The Company requested,
      and was subsequently  granted, an oral hearing on August 8, 2005 to appeal
      the Staff's  determination.  The Company is awaiting  the  decision of the
      Listing  Qualifications  Panel. The Company can give no assurance that its
      appeal will be successful. If the appeal is successful 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  may 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 June 30, 2005, our Stockholders'  Equity was approximately  $5,661,000,
      our  current  assets  were  $597,000,  and our  current  liabilities  were
      $3,868,000 that


                                       21
<PAGE>

      primarily included notes payable  ($1,850,000 due as of June 30, 2005) and
      related interest payable amounting to approximately  $2,097,000.  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

      On July 28,  2005,  the Company  signed an Agreement of Plan to Merge with
      Arrow Resources  Development Ltd. ("Arrow"),  a Bermuda registered company
      based in New  York  City,  to  merge  operations  subject  to  stockholder
      approval.  The current  stockholders  and  creditors of the Company.  will
      retain 4% of the common  stock of the  Company,  and the  stockholders  of
      Arrow, at Closing,  will be issued 96% of the common stock of the Company,
      on a fully diluted basis. In connection therewith,  the Company will issue
      10,000,000  shares  of its  Series  AAA  Preferred  Stock  which  will  be
      automatically  convertible  into such  number  of shares of the  Company's
      common Stock as shall equal 96% of the then number of  outstanding  shares
      if and when stockholder approval is obtained for such conversion.

      Arrow is initiating the commercial  development of timber  resources and a
      eucalyptus plantation operation in Papua, New Guinea through Arrow Pacific
      Resources PNG Ltd. ("APR"), an affiliated company.  Arrow has entered into
      a Marketing Agreement with APR to act as the  publicly-listed  management,
      financial and corporate  operations arm for all of APR's timber activities
      in Papua, New Guinea.

      APR has been granted licenses from the government of Papua, New Guinea for
      the  development  of  plantation  operations on more than 750,000 acres of
      land.  The  Marketing  Agreement  provides for Arrow to receive 10% of the
      gross sales generated by all plantation operations, from all resources and
      any and all derivative products (e.g. paper, pulp, chips).

      The Agreement of Plan to Merge replaces the previous transaction announced
      on June 1,  2005,  in which CNE  Group's  Board of  Directors  approved  a
      spin-off to its stockholders of a recently formed subsidiary.

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

      At June 30,  2005 and  December  31,  2004,  we had no  off-balance  sheet
      arrangements.


                                       22
<PAGE>

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

      We utilized $136,512 of cash in operating  activities during the six-month
      period  ended June 30,  2005.  We had a net loss of  $257,676  during this
      period,  which  included an  aggregate  of  $199,837  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 six-month  period ended June 30,
      2004 also  reflected an increase in accounts  receivable,  inventory,  and
      accounts  payable,  accrued  expenses,  and deferred grant revenue,  and a
      decrease in prepaid expenses and other assets.

      We utilized $853,961 of cash in operating  activities during the six-month
      period ended June 30, 2004.  We had a net loss of  $1,224,666  during this
      period,  which  included an  aggregate  of  $172,347  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 six-month  period ended June 30,
      2004 also  reflected an increase in accounts  receivable,  inventory,  and
      accrued expenses and other liabilities, and a decrease in prepaid expenses
      and other 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 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


                                       23
<PAGE>

      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 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
      (which we are  currently  negotiating  an  extension)  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 notified the Class B Warrant  holders  that, to
      satisfy  the now 19%  non-dilutive  provisions  of their  Warrants,  these
      Warrants are now 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


                                       24
<PAGE>

      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 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 April 20, 2005, an individual  purchased 100,000 shares of the
      Company's Series G Preferred Stock at a price of $0.20 per share.

      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


                                       25
<PAGE>

      and bearing  interest at the annual rate of 20% payable at  maturity.  The
      note was (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.  On June 10,  2005  the  Company  repaid  this  note in full.  In
      addition, on or about April 15, 2005, the Company sold to this lender, for
      an  aggregate  purchase  price of $50,000,  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.

      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.

      For information  relating to a merger transaction entered into on July 28,
      2005 by the Company see Note F - Subsequent Event to the interim financial
      statements included with this filing.

      We did not have any material  commitments  for capital  expenditures as of
      June 30, 2005.

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

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


                                       26
<PAGE>

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.


                                       27
<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1.     Legal Proceedings.

            We are a party to various vendor related  litigations.  Based on the
            opinion of  management,  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:

                  2.1   Agreement and Plan of Merger between CNE Group, Inc. and
                        Arrow  Development  Resources Ltd. dated as of August 1,
                        2005

                  2.2   Series AAA Preferred Stock Purchase Agreement

                  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 May 26,  2005,  a
                  report on Form 8-K on June 17, 2005, a report on Form 8-K/A on
                  June 23, 2005, and a report on Form 8-K on August 2, 2005.


                                       28
<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: August 12, 2005                George W. Benoit, Chairman of the Board
                                     of Directors, and Chief Executive
                                     Officer


                                     /s/ Anthony S. Conigliaro
                                     ------------------------------------
Date: August 12, 2005                Anthony S. Conigliaro, Vice President and
                                     Chief Financial Officer


                                       29