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

                                   FORM 10-QSB

                                   (Mark One)

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

                  For the quarterly period ended March 31, 2004

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

             For the transition period from __________ to __________

                          Commission file number 1-9224

                                 CNE GROUP, INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

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

              200 West 57th Street, Suite 507, New York, N.Y. 10019
                    (Address of Principal Executive Offices)

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

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

                                 Yes |X| No |_|

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

                   Class                          Outstanding at April 30, 2004
                   -----                          -----------------------------

      Common stock - par value $.00001                  10,640,915 shares

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION

Item l. Financial Statements.

      The following consolidated financial statements of CNE Group, Inc. and
      subsidiaries (collectively referred to as the "Company," 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, 2003, which was filed with the
      Securities and Exchange Commission.

      The results of operations for the three-months ended March 31, 2004 are
      not necessarily indicative of the results to be expected for the entire
      fiscal year.


                                       1
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                       March 31,         December 31,
                                                                          2004               2003
                                                                      ------------       ------------
                                                                      (Unaudited)
<S>                                                                   <C>                <C>
ASSETS

Current:
   Cash and cash equivalents                                          $    193,201       $    460,832
   Accounts receivable, net of allowance for doubtful
      accounts of $58,500 in 2004 and $51,500 in 2003                      630,935            208,358
   Inventory                                                               293,282            246,719
   Other                                                                    46,490             27,840
                                                                      ------------       ------------
      Total current assets                                               1,163,908            943,749
Fixed assets, net                                                          429,570            447,579
Intellectual property rights, net                                        1,446,846          1,475,145
Goodwill                                                                 7,285,894          7,285,894
Other assets                                                                18,961             18,961
                                                                      ------------       ------------
           Total assets                                               $ 10,345,179       $ 10,171,328
                                                                      ============       ============

LIABILITIES

Current:
   Accounts payable and accrued expenses                              $    990,594       $    940,253
   Interest payable                                                         73,428             89,950
   Short-term credit arrangements                                           50,795             45,779
   Lines of credit                                                         163,699            164,314
   Notes payable                                                            37,502            146,988
   Debenture payable                                                       100,000            100,000
                                                                      ------------       ------------
      Total current liabilities                                          1,416,018          1,487,284
Notes payable, net of current portion                                      320,680            326,045
Subordinated notes payable                                               1,891,821          1,767,000
Deferred revenue                                                            32,115             23,620
Deferred grant revenue                                                     300,000            300,000
                                                                      ------------       ------------
        Total liabilities                                                3,960,634          3,903,949
                                                                      ------------       ------------

Commitments and contingencies

STOCKHOLDERS' EQUITY

Preferred stock (Notes A and E)                                                124                124
Common stock (Notes A and F)                                                   119                101
Paid-in surplus                                                         28,849,197         28,258,215
Accumulated deficit                                                    (19,591,795)       (19,117,961)
                                                                      ------------       ------------
                                                                         9,257,645          9,140,479
Less treasury stock, at cost - 1,238,656 shares in 2004 and 2003        (2,873,100)        (2,873,100)
                                                                      ------------       ------------
        Total stockholders' equity                                       6,384,545          6,267,379
                                                                      ------------       ------------
           Total liabilities and stockholders' equity                 $ 10,345,179       $ 10,171,328
                                                                      ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                        2
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                Three Months
                                                                               Ended March 31,
                                                                       ------------------------------
                                                                           2004               2003
                                                                       ------------       -----------
                                                                        (Unaudited)       (Unaudited)
<S>                                                                    <C>                <C>
Revenues:
   Product sales                                                       $    631,438       $        --
   Service fee income                                                       320,135                --
   Internet related income                                                   31,369            45,039
                                                                       ------------       -----------
                                                                            982,962            45,039
   Costs of goods sold                                                      503,699                --
                                                                       ------------       -----------

      Gross profit                                                          479,263            45,039

Other expenses:
   Advertising                                                               24,720                --
   Compensation and related costs                                           368,562            90,231
   General and administrative                                               300,216            98,988
   Product development                                                        6,241                --
   Depreciation and amortization                                             47,499            11,083
                                                                       ------------       -----------
                                                                            747,238           200,302
                                                                       ------------       -----------

Loss before other income (expenses)                                        (267,975)         (155,263)

Other income (expenses):
   Amortization of debt discount                                           (124,821)               --
   Interest expense                                                         (81,182)          (87,942)
   Interest income                                                              144               282
                                                                       ------------       -----------

Loss before provision for income taxes                                     (473,834)         (242,923)

   Provision for income tax provision, net of valuation allowance                --                --
                                                                       ------------       -----------

Net loss                                                               $   (473,834)      $  (242,923)
                                                                       ============       ===========

Loss per common share - basic and diluted:                             $       (.05)      $      (.04)
                                                                       ============       ===========

Weighted average number of common
   shares outstanding - basic and diluted:                               10,057,582         5,590,944
                                                                       ============       ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                        3
<PAGE>

CNE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            Three Months Ended March 31,
                                                                            ----------------------------
                                                                               2004            2003
                                                                             ---------       ---------
                                                                            (Unaudited)     (Unaudited)
<S>                                                                          <C>             <C>
Cash flows from operating activities:
   Net loss                                                                  $(473,834)      $(242,923)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                                           47,499          11,083
        Provision for doubtful accounts                                          7,000              --
        Amortization of debt discount                                          124,821              --
        Changes in:
           Accounts receivable                                                (429,577)         70,609
           Inventory                                                           (46,563)             --
           Prepaid expenses and other assets                                   (18,650)             --
           Accrued expenses and other liabilities                               66,715          74,778
                                                                             ---------       ---------

              Net cash used in operating activities                           (722,589)        (86,453)
                                                                             ---------       ---------

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

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

Cash flows from financing activities:
   Net proceeds from issuance of 1,750,000 shares of common stock              571,000              --
   Principal repayments on notes payable                                      (114,851)             --
                                                                             ---------       ---------

              Net cash provided by financing activities                        456,149              --
                                                                             ---------       ---------

Decrease in cash and cash equivalents                                         (267,631)        (86,453)
Cash and cash equivalents at beginning of period                               460,832         183,200
                                                                             ---------       ---------

Cash and cash equivalents at end of period                                   $ 193,201       $  96,747
                                                                             =========       =========

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

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

See Notes to Consolidated Financial Statements.


                                        4
<PAGE>

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

NOTE A - THE COMPANY

Business

CNE Group, Inc. (the "Company" or "CNE") is a holding company whose primary
operating subsidiary is SRC Technologies, Inc. ("SRC"). SRC, also a holding
company, is the parent of Connectivity, Inc. ("Connectivity"), Econo-Comm, Inc.
("ECI") (d/b/a Mobile Communications), and U.S. Commlink, Ltd. ("USCL").
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. SRC 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 Company has incurred substantial losses, sustained substantial operating
cash outflows and has a working capital deficit at both March 31, 2004 and
December 31, 2003. 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
continuously in the process of raising additional financing and has initiated a
cost reduction strategy. At March 31, 2004, management believes that the working
capital deficit, losses and negative cash flow will ultimately be improved by
(i) the acquisitions of SRC and ECI and (ii) cost reduction strategies initiated
in January 2004. There is no assurance that the Company can obtain additional
financing or achieve profitable operations or generate positive cash flow. The
2004 and 2003 financial statements do not include any adjustments relating to
the recoverability or classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary as a result of this going
concern uncertainty.

American Stock Exchange Listing

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

As is the case for all listed issuers, the Company's continued listing
eligibility will be assessed on an ongoing basis; however, during the year
ending December 31, 2004, the Company will be subject to additional scrutiny (as
set forth in Section 1009(h) of the AMEX Company Guide) as is the case for any
listed company that has regained compliance.

Corporate Matters

On April 17, 2003, pursuant to the terms of Section 251(g) of the Delaware
General Corporation Law, CareerEngine Network, Inc. ("CareerEngine") became a
wholly-owned subsidiary of the Company. Pursuant to this transaction, the
Company acquired all of the assets of CareerEngine and all former stockholders
of CareerEngine became the stockholders of the Company, which is the entity that
is now publicly traded on the American Stock Exchange under the symbol "CNE." As
a successor entity to CareerEngine, the Company's shares are deemed to be
registered under Section 12(g) of the Securities

See Notes to Consolidated Financial Statements.


                                       5
<PAGE>

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



NOTE A - THE COMPANY (CONTINUED)

Exchange Act of 1934 and Rule 12g-3 promulgated thereunder. The shares were
issued without registration in reliance upon exemptions provided in Section
3(a)(9) of the Securities Act of 1933 and Rule 145 promulgated thereunder.

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

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

Acquisition of all of the outstanding stock of SRC and ECI

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

      SRC

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

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

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

See Notes to Consolidated Financial Statements.


                                        6
<PAGE>

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

NOTE A - THE COMPANY (CONTINUED)

      ECI

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

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

      The Series A Preferred Stock has an aggregate liquidating preference over
      all other CNE equity of $1,697,966 and the Series B Preferred Stock has an
      aggregate liquidating preference over all other CNE equity except the
      Series B Preferred Stock liquidating value of $440,000. The Series C
      Preferred Stock has no liquidating preference.

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

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

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

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

Private Financings

On April 23, 2003, the Company also completed a private financing pursuant to
which it issued notes (the "Notes") in the aggregate principal amount of
$1,000,000, of which $650,000 was to the officers of the Company, and 4,165,800
ten year cashless Class B Warrants, each to purchase one share of its Common
Stock at $0.50 per share. The Notes bear interest at the annual rate of 10%
payable quarterly and are due on April 30, 2004. The aggregate number of shares
for which the Warrants may be exercised must equal 15% of the Company's
outstanding Common Stock on a fully-diluted basis. These Warrants are anti-

See Notes to Consolidated Financial Statements.


                                       5
<PAGE>

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

NOTE A - THE COMPANY (CONTINUED)

dilutive until the Notes have been repaid. The due date of the Notes may be
extended at the Company's option for an additional year in consideration for the
issuance of 10-year warrants to purchase an additional 4% of the Company's then
outstanding common stock at $0.50 per share. These Warrants would also be
anti-dilutive until the Notes have been repaid. In addition, the Company valued
the warrants, utilizing the Black-Scholes Pricing Model, at $699,000, which is
being accounted for as debt discount and is being amortized ratably over the
one-year term of the Notes.

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

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

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

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

The Company is using the funds obtained from these financings primarily for
working capital purposes as well as to pay certain ECI notes payable. The
aforementioned financings were effected pursuant to the exemption from the
registration provisions of the Securities Act of 1993 provided by Section 4(2)
thereof.

Catastrophe on September 11, 2001

On September 11, 2001 the Company's headquarters were located at Suite 2112 of
Two World Trade Center in New York City. The catastrophe of September 11, 2001
involved no injury to any of the Company's employees. However, with the complete
destruction of the building, all of the Company's leasehold improvements,
furniture and fixtures, and office and computer equipment located at this site
were also destroyed. Since the attack through the date of the acquisitions and
financing set forth above, the Company's management had been preoccupied with
the relocation and reestablishment of its businesses, assessing and processing
of insurance claims with the assistance of a risk manager with its insurers, and
seeking sources of financing. In 2002, the Company received insurance proceeds,
based on

See Notes to Consolidated Financial Statements.


                                       8
<PAGE>

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

NOTE A - THE COMPANY (CONTINUED)

replacement costs, in amounts that have exceeded the net carrying value of the
destroyed assets. The Company also had insurance coverage for other than assets
destroyed. In 2003, all outstanding insurance claims relating to the catastrophe
were settled.

In addition, the Company applied for government assistance grants related to the
catastrophe. In 2002 and 2003, the Company received grants aggregating $300,000
($291,827 at March 31, 2003). The grants have a restriction that could require
their repayment, specifically if the Company were to relocate a substantial
portion its operations outside of New York City before May 1, 2005. Until such
time as this restriction shall no longer apply, the grants will be classified as
a liability of the Company. Upon the satisfaction or lapse of the restrictions,
the Company will remove the liability and record grant income on its financial
statements or, alternatively, repay such grants if the above condition is not
satisfied.

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

[1] Principles of consolidation:

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

[2] Revenue recognition:

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

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

[3] Depreciation and amortization:

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

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

[4] Cash and cash equivalents:

      The Company considers all highly liquid debt instruments purchased with an
      original maturity of three months or less to be cash equivalents. At March
      31, 2004, cash equivalents amounting to

See Notes to Consolidated Financial Statements.


                                        9
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      $51,492 consisted of $9,934 in an interest bearing savings account and a
      $41,558 certificate of deposit with a bank. At December 31, 2003 there
      were no cash equivalents.

[5] Accounts and Trade Receivables:

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

[6] Concentration of Credit Risk:

      Financial instruments that subject the Company to risk of loss consist
      principally of accounts receivable and deposits with financial
      institutions. The Company grants credit terms to customers in the normal
      course of doing business. Credit risk with respect to trade receivables is
      considered minimal due to the Company's diverse customer base throughout
      the United States and strict enforcement of its credit policies. The
      Company generally does not require security deposits or other collateral
      to support credit sales. The consolidated financial statements have been
      adjusted for anticipated losses thereon. Deposits held with banks may
      exceed the amount of insurance provided on such deposits.

      The Company's sales are made primarily to customers throughout the United
      States. Non-U.S. customers are required to pay in U.S. Dollars when the
      order is placed. There were no sales to non-U.S. customers for the
      three-month periods ended March 31, 2004 and 2003. During the three-month
      periods ended March 31, 2004 and 2003, no single customer or group of
      related customers accounted for ten percent (10%) or more of the Company's
      sales, and credit losses were not significant.

[7] Inventory:

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

                                            March 31,     December 31,
                                              2004            2003
                                            --------        --------

            Raw materials                   $277,182        $158,347
            Work in progress                   8,600           3,089
            Finished goods                     7,500          85,283
                                            --------        --------
                     Total                  $293,282        $246,719
                                            ========        ========

See Notes to Consolidated Financial Statements.


                                       10
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[8] 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 period ended March 31, 2004 and 2003, respectively. Common
      stock equivalents to purchase common stock of the Company that were
      outstanding at March 31, 2004 and March 31, 2003 were not included in the
      computation of diluted net loss per share as their effect would have been
      anti-dilutive.

[9] Financial instruments:

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

[10] Stock-based compensation:

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

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

See Notes to Consolidated Financial Statements.


                                       11
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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>
                                                                              Three Month Period
                                                                                Ended March 31,
                                                                          ---------------------------
                                                                              2004            2003
                                                                          -----------     -----------
<S>                                                                       <C>             <C>
            Net loss, as reported                                         $  (473,834)    $  (242,923)
            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                                            $  (642,114)    $  (242,923)
                                                                          ===========     ===========

            Net loss per share - basic and diluted:
                 As reported                                              $     (0.05)    $     (0.04)
                                                                          ===========     ===========
                 Pro forma                                                $     (0.06)    $     (0.04)
                                                                          ===========     ===========
</TABLE>

      On April 30, 2003, incentive stock options to purchase 1,987,500 shares of
      the Company's Common Stock were granted by the Incentive Compensation
      Committee to five officers (1,800,000) and one employee (187,500) of the
      Company at a weighted average exercise price of $1.32 per share. On
      November 4, 2003, incentive stock options to purchase 950,000 shares of
      the Company's Common Stock were granted by the Incentive Compensation
      Committee to three officers of the Company at a weighted average exercise
      price of $1.09 per share. On January 21 2004, incentive stock options to
      purchase 601,000 shares of the Company's common stock were granted by the
      Incentive Compensation Committee of the Board of Directors to one officer
      and 18 employees of the Company at a weighted average exercise price of
      $0.50 per share. On April 30, 2003 (435,000), November 4, 2003 (220,000),
      November 21, 2003 (100,000) and January 21, 2004 (295,500), non-qualified
      stock options to purchase an aggregate 1,050,500 shares of the Company's
      Common Stock were granted by the Board of Directors to certain independent
      contractors of the Company. The Company recorded a charge of $-0- in
      general and administrative expense, relating to the 1,050,000
      non-qualified stock options that were vested at March 31, 2004, on its
      Statement of Operations for the three-month period then ended. No options
      granted have been exercised.

[11] Use of estimates:

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

See Notes to Consolidated Financial Statements.


                                       12
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[12] Advertising costs:

      Advertising costs, which amounted to $24,720 and $0 for the three-month
      periods ended March 31, 2004 and 2003, respectively, are expensed as
      incurred.

[13] Warranty Expense:

      The Company generally warrants its products against defects for a period
      of one to three years. A provision for estimated future costs relating to
      warranties is recorded when products are shipped and revenue recognized.
      At March 31, 2004 and December 31, 2003, estimated future costs relating
      to warranties were $34,602 and $40,260, respectively.

[14] Impairment of long-lived assets:

      Impairment losses are recognized for long-lived assets used in operations
      when indicators of impairment are present and the undiscounted cash flows
      estimated to be generated by those assets are not sufficient to recover
      the assets' carrying amount. The impairment loss is measured by comparing
      the fair value of the asset to its carrying amount. No write-down of
      assets for impairment losses were required during the three-month period
      ended March 31, 2004 and the year ended December 31, 2003.

[15] Intellectual Property Rights and Goodwill:

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

[16] Startup Activities

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

See Notes to Consolidated Financial Statements.


                                       13
<PAGE>

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

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[17] Recent accounting pronouncements:

      In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
      "Consolidation of Variable Interest Entities." In general, a variable
      interest entity is a corporation, partnership, trust, or any other legal
      structure used for business purposes that either (a) does not have equity
      investors with voting rights or (b) has equity investors that do not
      provide sufficient financial resources for the entity to support its
      activities. FIN 46 requires certain variable interest entities to be
      consolidated by the primary beneficiary of the entity if the investors do
      not have the characteristics of a controlling financial interest or do not
      have sufficient equity at risk for the entity to finance its activities
      without additional subordinated financial support from other parties. The
      consolidation requirements of FIN 46 apply immediately to variable
      interest entities created after January 31, 2003. The consolidation
      requirements apply to older entities in the first fiscal year or interim
      period beginning after December 15, 2003. Certain of the disclosure
      requirements apply in all financial statements issued after January 31,
      2003, regardless of when the variable interest entity was established. The
      adoption of this statement has had no effect on the Company's financial
      position or results of operations.

      In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
      on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS
      No. 149 amends and clarifies financial accounting and reporting for
      derivative instruments, including certain derivative instruments embedded
      in other contracts (collectively referred to as derivatives) and for
      hedging activities under FASB Statement No. 133, "Accounting for
      Derivative Instruments and Hedging Activities". This Statement requires
      that contracts with comparable characteristics be accounted for
      consistently as either derivatives or hybrid instruments. This Statement
      is effective for contracts entered into or modified after June 30, 2003,
      and for hedging relationships designated after June 30, 2003. The adoption
      of this statement has had no effect on the Company's financial statements.

      In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
      Financial Instruments with Characteristics of Both Liabilities and
      Equity." SFAS No. 150 changes the accounting for certain financial
      instruments that under previous guidance issuers could account for as
      equity. It requires that those instruments be classified as liabilities in
      balance sheets. The guidance in SFAS No. 150 is generally effective for
      all financial instruments entered into or modified after May 31, 2003, and
      otherwise is effective on July 1, 2003. The adoption of this statement has
      had no effect on the Company's financial statements.

NOTE C - CONVERSION OF DEBENTURES PAYABLE

In August and September 2003, holders of 95.83333% of $2,400,000 principal
amount of the debentures payable issued by a subsidiary of the Company elected
to (i) convert the outstanding principal balance of their debentures amounting
to $2,300,000 into 1,150,000 shares of the Company's Common Stock, (ii) cancel
575,000 of the related 600,000 outstanding B Warrants of the subsidiary of the
Company (the related Class A Warrants of the subsidiary of the Company expired
on March 31, 2003), and (iii) waive all accrued and unpaid interest relating
thereto ($345,000), in consideration for the issuance of the Company's five-year
common stock Class F Warrants to purchase 1,150,000 shares of the Company's

See Notes to Consolidated Financial Statements.


                                       14
<PAGE>

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

NOTE C - CONVERSION OF DEBENTURES PAYABLE (CONTINUED)

Common Stock at $3.00 per share. One-half of these warrants (575,000) were
exercisable upon issuance with the balance exercisable commencing January 1,
2004. In addition, unamortized debt discount of $29,768 on the debentures was
recognized as interest expense in 2002. The Company also recognized as expense
the unamortized deferred financing costs associated with the debentures of
$320,350 in 2002. The subsidiary of the Company also granted the placement agent
a warrant exercisable through June 2005 to purchase five units at $60,000 per
unit. If the warrant for all five units is exercised, the purchaser shall
effectively receive 125,000 shares of the Company's common stock and the right
to purchase an additional 62,500 common shares at $6.00 per share - see Note G.
At March 31, 2004 and December 31, 2003 the outstanding principal balance of a
debenture payable of a subsidiary of the Company was $100,000.

NOTE D - SUBORDINATED NOTES PAYABLE

The Company has the following subordinated notes payable at March 31, 2004 and
December 31, 2003:

10% Subordinated Notes due April 30, 2005

On April 23, 2003, the Company issued $1,000,000 in principal amount of its 10%
Subordinated Notes originally due April 30, 2004 to investors for a 15%
non-dilutive interest in the Company in the form of 4,165,800 cashless warrants,
each to purchase one share of Common Stock at $0.50 per share. The Company has
the option to extend the maturity date of the notes to April 30, 2005 in
consideration for issuing the noteholders an additional 4% non-dilutive interest
in the Company (see below). The notes also require the Company to prepay them in
an amount equal to 100% of any net financing proceeds obtained by the Company
after the issuance of the notes. The noteholders waived this provision to the
extent of $2,000,000 through April 15, 2004, of which $1,200,000 has been
raised. The investors included two officers of the Company. Interest is payable,
in arrears, calendar quarterly. The Company valued the warrants, utilizing the
Black-Scholes Pricing Model, at $699,000, which is being accounted for as debt
discount and is being amortized ratably over the initial one-year term of the
Notes.

On March 12, 2004, the Company notified the Class B Warrant holders that, to
satisfy the 15% non-dilutive provisions of their Warrants, these Warrants were
now exercisable for an aggregate of 5,245,200 shares of the Company's common
stock at approximately $0.40 per share. On this date, the Company also exercised
its option to extend the maturity date of the notes to April 30, 2005 and
satisfied the requirement for the additional 4% non-dilutive interest in the
Company by issuing to the noteholders Class B Warrants to purchase an additional
1,708,900 shares of the Company's common stock at $0.50 per share. The
non-dilutive provisions of the Warrants terminate when all of the notes have
been paid in full. At March 31, 2004 and December 31, 2003 the 10% subordinated
notes had an outstanding principal balance of $891,821 and $767,000,
respectively.

8% Subordinated Notes due April 30, 2008

On April 23, 2003, the Company issued $2,000,000 of its 8% subordinated notes
due April 30, 2008 to three officers and an employee of the Company. Interest is
payable quarterly on a calendar year basis. The notes are secured by the all of
the issued and outstanding common stock of SRC and ECI, which represents
substantially all of the assets of the Company, pursuant to a certain Pledge
Agreement, which shall terminate upon repayment or other satisfaction of a
certain subsidiary's indebtedness (see Note I)

See Notes to Consolidated Financial Statements.


                                       15
<PAGE>

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

NOTE D - SUBORDINATED NOTES PAYABLE (CONTINUED)

that initially amounted to $2,400,000. At March 31, 2004 and December 31, 2003,
$2,300,000 of this indebtedness had been converted into Common Stock of the
Company as discussed in Note C.

On August 31, 2003, two holders who are officers of the Company, converted
$1,000,000 of the Company's 8% Subordinated Notes into 1,000,000 shares of the
Company's Series AA Preferred Stock, par value $.00001 per share. The Series AA
Preferred Stock has a liquidating preference to all other equity securities of
the Company. It also has an 8% cumulative dividend, payable in common stock or
cash. At March 31, 2004 and December 31, 2003 the 8% subordinated notes had an
outstanding principal balance of $1,000,000.

NOTE E - PREFERRED STOCK

Preferred Stock consisted of the following at March 31, 2004 and December 31,
2003:

      Par value per share                                       $  0.00001
                                                                ==========
      Authorized number of shares                               25,000,000
                                                                ==========
      Issued and outstanding number of shares:
         Series AA                                               1,000,000
         Series A                                                1,697,966
         Series B                                                    4,400
         Series C                                                9,735,875
                                                                ----------
               Total                                            12,438,241
                                                                ==========

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

NOTE F - COMMON STOCK

Common Stock consists of the following:

                                                  March 31,       December 31,
                                                    2004               2003
                                                 -----------      ------------

      Par value per share                        $   0.00001       $   0.00001
                                                 ===========       ===========
      Authorized number of shares                 40,000,000        40,000,000
                                                 ===========       ===========
      Issued number of shares                     11,879,571        10,129,571
         Less, Treasury shares                    (1,238,656)       (1,238,656)
                                                 -----------       -----------
      Issued and outstanding number of shares     10,640,915         8,890,915
                                                 ===========       ===========

See Notes to Consolidated Financial Statements.


                                       16
<PAGE>

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

NOTE G - WARRANTS

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

<TABLE>
<CAPTION>
                                                                                       March 31,        December 31,
                                                                                          2004              2003
        Type of                                                     Exercise           ---------        ------------
        Warrant         Exercise Date          Expiration Date        Price               Shares of Common Stock
        -------         -------------          ---------------      --------           -----------------------------
<S>                   <C>                     <C>                     <C>              <C>               <C>
        Class A        October 22, 2008         April 22, 2013        $1.00            1,697,966         1,697,966
        Class B         April 23, 2003          April 30, 2013        $0.50                   --         4,904,800
        Class B         April 23, 2003          April 30, 2013        $0.40            5,245,200                --
        Class B         March 12, 2004          April 30, 2013        $0.50            1,708,900                --
       Class BB          May 10, 2003            May 10, 2006         $0.50               20,000            20,000
       Class BB         June 10, 2003           June 10, 2006         $0.50               20,000            20,000
       Class BB         July 10, 2003           July 10, 2006         $0.50               20,000            20,000
       Class BB        August 10, 2003         August 10, 2006        $0.50               20,000            20,000
       Class BB       September 10, 2003      September 10, 2006      $0.50               20,000            20,000
       Class BB        October 10, 2003        October 10, 2006       $0.50               20,000            20,000
       Class BB         June 10, 2003           June 10, 2006         $2.50               10,000            10,000
       Class BB         July 10, 2003           July 10, 2006         $3.00               10,000            10,000
       Class BB        August 10, 2003         August 10, 2006        $4.00               10,000            10,000
       Class BB       September 10, 2003      September 10, 2006      $4.50               10,000            10,000
       Class BB        October 10, 2003        October 10, 2006       $5.00               10,000            10,000
       Class BB        January 21, 2004        February 4, 2009       $0.50              150,000                --
       Class BB       February 10, 2004       February 10, 2014       $1.00              350,000                --
        Class C        October 22, 2008         April 22, 2013        $1.00            9,735,875         9,735,875
        Class F        January 1, 2004        December 31, 2009       $3.00            1,150,000         1,150,000
      Class B(1)          Immediate             March 31, 2005        $6.00               25,000            25,000
      Class B(1)          Immediate             June 28, 2005         $6.00               62,500            62,500
                                                                                      ----------        ----------
                                                                                      20,295,441        17,746,141
                                                                                      ==========        ==========
</TABLE>

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

(2)   A subsidiary of the Company has issued debentures, which if converted, and
      units, which if exercised, would entitle the holders thereof to 175, 000
      shares of the Common Stock of the Company.

NOTE H - CAPITAL CONTRIBUTIONS

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

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

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

See Notes to Consolidated Financial Statements.


                                       17
<PAGE>

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

NOTE H - CAPITAL CONTRIBUTIONS (CONTINUED)

In addition, on January 21, 2004 an officer and an employee of the Company
waived the interest on the Company's 8% Subordinated Note Payable for the period
January 1, 2004 thought December 31, 2004 amounting to $20,000 per calendar
quarter. The aforementioned amount has been reflected in the financial
statements as a contribution to the capital of the Company during the
three-month period ended March 31, 2004.

NOTE I - SETTLEMENT OF TAX ASSESSMENT PAYABLE OF A SUBSIDIARY OF THE COMPANY

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

NOTE J - ACQUISITIONS AND RELATED UNAUDITED PRO FORMA FINANCIAL INFORMATION

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

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

                                                          Three Months Ended
                                                            March 31, 2003
                                                            --------------
                                                               Unaudited

      Revenues                                                $   794,399
      Expenses                                                  1,565,223
                                                              -----------
        Net loss                                              $  (770,824)
                                                              ===========

      Loss from continuing operations per share:
        Basic and diluted                                     $     (0.14)
                                                              ===========

See Notes to Consolidated Financial Statements.


                                       18
<PAGE>

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

NOTE K - STOCK OPTION PLANS

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

2003 Stock Incentive Plan

On April 30, 2003, the Board of Directors of the Company approved the 2003 Stock
Incentive Plan, which provided, among other matters, for incentive and
non-qualified stock options to purchase 3,500,000 shares of the Company's common
stock. On November 4, 2003, the 2003 Stock Incentive Plan was amended by the
Board of Directors of the Company to increase the number of shares of Common
Stock for which the incentive and non-qualified stock options may be granted
from 3,500,00 to 5,000,000. The purpose of the 2003 Stock Incentive Plan, as
amended, ("2003 Stock Incentive Plan") is to provide incentives to officers, key
employees, directors, independent contractors and agents whose performance will
contribute to the long-term success and growth of the Company, to strengthen the
ability of the Company to attract and retain officers, key employees, directors,
independent contractors and agents of high competence, to increase the identity
of interests of such people with those of the Company's stockholders and to help
build loyalty to the Company through recognition and the opportunity for stock
ownership. The 2003 Stock Incentive Plan, as amended, was ratified by a majority
of the stockholders of the Company on December 18, 2003. On April 16,2004, the
2003 Stock Incentive Plan was amended by the Board of Directors of the Company
to increase the number of shares of Common Stock for which the incentive and
non-qualified stock options may be granted from 5,000,00 to 10,000,000. The
Company is seeking to obtain stockholder ratification for this amendment at its
annual stockholders meeting scheduled to be held on June 18, 2004. The Plan is
administered by the Incentive Compensation Committee of the Board.

On April 30, 2003, incentive stock options to purchase 1,987,500 shares of the
Company's Common Stock were granted by the Incentive Compensation Committee to
five officers (1,800,000) and one employee (187,500) of the Company at a
weighted average exercise price of $1.32 per share. On November 4, 2003,
incentive stock options to purchase 950,000 shares of the Company's Common Stock
were granted by the Incentive Compensation Committee to three officers of the
Company at a weighted average exercise price of $1.09 per share. On January 21
2004, incentive stock options to purchase 601,000 shares of the Company's common
stock were granted by the Incentive Compensation Committee of the Board of
Directors to one officer and 18 employees of the Company at a weighted average
exercise price of $0.50 per share. On April 30, 2003 (435,000), November 4, 2003
(220,000), November 21, 2003 (100,000) and January 21, 2004 (295,500),
non-qualified stock options to purchase an aggregate 1,050,500 shares of the
Company's Common Stock were granted by the Board of Directors to certain
independent contractors of the Company. No options granted have been exercised.

See Notes to Consolidated Financial Statements.


                                       19
<PAGE>

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

NOTE K - STOCK OPTION PLANS (CONTINUED)

Stock option activity, for the three-month period ended March 31, 2004, under
the 2003 Stock Incentive Plan is summarized as follows:

<TABLE>
<CAPTION>
                                          Three-Month Period Ended March 31, 2004
                                       ---------------------------------------------
                                       Incentive    Non-Qualified   Weighted Average
                                         Shares         Shares       Exercise Price
                                       ---------    -------------   ----------------
<S>                                    <C>              <C>            <C>
      Options outstanding at
         December 31, 2003             2,937,500        755,000        $    1.14
      Options granted                    601,000        295,500        $    0.50
      Options cancelled                       --             --
                                       ---------      ---------
      Options outstanding
         at March 31, 2004             3,538,500      1,050,500        $    1.02
                                       =========      =========
      Options available
         at March 31, 2004               411,000                       $    1.04
                                       =========
</TABLE>

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

<TABLE>
<CAPTION>
                     Options Outstanding                            Options Available
            ---------------------------------------     ---------------------------------------
                                                         Weighted
              Range                        Weighted      Average                       Weighted
               of                           Average     Remaining                       Average
            Exercise                       Exercise      Life in                       Exercise
              Price           Shares         Price        Years         Shares           Price
            --------          ------       --------     ---------       ------         --------
<S>                         <C>             <C>            <C>          <C>             <C>
          $0.15 - $3.00     4,589,000       $ 1.02         8.68         411,000         $ 1.04
</TABLE>

NOTE L - BREACH OF SELLERS' ACQUISITION REPRESENTATIONS

As set forth in Note A above, in April 2003, the Company acquired all the
outstanding stock of ECI. Pursuant to the related acquisition agreements the
sellers represented to the Company that certain real estate and related
encumbrances were removed from ECI prior to the closing of the transaction. On
or about May 6, 2004, the Company was informed that the real estate and related
encumbrances remained in the name of ECI, contrary to such representations. The
sellers who, respectively, are currently an officer and an employee of the
Company, are responsible for any adverse consequences the Company may suffer as
a result their breach of such representation, including any related expenses
associated with its correction.

The Company is currently rectifying this matter expeditiously and expects to
complete the removal of the real estate and related encumbrances by the end of
June 2004. Based on a review of an independent appraisal of the real estate
performed in May 2004, the Company believes that the valuation of the real
estate exceeds the outstanding principal balance of the related mortgages. In
addition, the rent from related leases exceeds the property's related expenses
and debt service payments on the related mortgages.

As appropriate, the financial statements of the Company do not reflect the
ownership of the real estate and the related encumbrances. In addition, the
financial statements do not reflect the activities related to such real estate
including income from rents or property and mortgage related expenses.

See Notes to Consolidated Financial Statements.


                                       20
<PAGE>

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

      General

      CNE Group, Inc. (the "Company," "CNE" or "we") is a holding company whose
      primary operating subsidiary is SRC. SRC, also a holding company, is the
      parent of Connectivity, ECI, and US Commlink. 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.

      Acquisition of all of the outstanding stock of SRC and ECI

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

            SRC

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

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


                                       21
<PAGE>

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

            ECI

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

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

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

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

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

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

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


                                       22
<PAGE>

      Catastrophe of September 11, 2001

      Our headquarters were located at Suite 2112 of Two World Trade Center in
      New York City. The catastrophe of September 11, 2001 involved no injury to
      any of our employees. However, with the complete destruction of the
      building, all of our leasehold improvements, furniture and fixtures, and
      office and computer equipment located at this site were also destroyed.
      Since the attack through the date of the acquisitions and financing set
      forth above, our management had been preoccupied with the relocation and
      reestablishment of our businesses, assessing and processing of insurance
      claims with the assistance of a risk manager with our insurers, and
      seeking sources of financing. The Company received insurance proceeds in
      amounts that have exceeded the net carrying value of the destroyed assets.
      We also had insurance coverage for other than assets destroyed. In 2003,
      we received all outstanding insurance claims relating to the catastrophe.

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

      Critical Accounting Policies and Estimates

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

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


                                       23
<PAGE>

            Revenue Recognition

      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.

            Allowance for Doubtful Accounts

      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.

      At March 31, 2004, our allowance for doubtful accounts was $58,500 or
      8.49% of gross receivables, compared to $51,500 or 19.8% of gross
      receivables as of December 31, 2003. The decrease in the reserve as a
      percentage of gross receivable from prior period is the result of a
      significant increase in accounts receivable and a significant decrease in
      the need for an allowance for doubtful accounts.

            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


                                       24
<PAGE>

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

      Recent Accounting Pronouncements

      In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
      "Consolidation of Variable Interest Entities." In general, a variable
      interest entity is a corporation, partnership, trust, or any other legal
      structure used for business purposes that either (a) does not have equity
      investors with voting rights or (b) has equity investors that do not
      provide sufficient financial resources for the entity to support its
      activities. FIN 46 requires certain variable interest entities to be
      consolidated by the primary beneficiary of the entity if the investors do
      not have the characteristics of a controlling financial interest or do not
      have sufficient equity at risk for the entity to finance its activities
      without additional subordinated financial support from other parties. The
      consolidation requirements of FIN 46 apply immediately to variable
      interest entities created after January 31, 2003. The consolidation
      requirements apply to older entities in the first fiscal year or interim
      period beginning after December 15, 2003. Certain of the disclosure
      requirements apply in all financial statements issued after January 31,
      2003, regardless of when the variable interest entity was established. The
      adoption of this statement has had no effect on the Company's financial
      position or results of operations.

      In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
      on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS
      No. 149 amends and clarifies financial accounting and reporting for
      derivative instruments, including certain derivative instruments embedded
      in other contracts (collectively referred to as derivatives) and for
      hedging activities under FASB Statement No. 133, Accounting for Derivative
      Instruments and Hedging Activities. This Statement requires that contracts
      with comparable characteristics be accounted for consistently as either
      derivatives or hybrid instruments. This Statement is effective for
      contracts entered into or modified after June 30, 2003,


                                       25
<PAGE>

      and for hedging relationships designated after June 30, 2003. The adoption
      of this statement has had no effect on our financial statements.

      In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
      Financial Instruments with Characteristics of Both Liabilities and
      Equity." SFAS No. 150 changes the accounting for certain financial
      instruments that under previous guidance issuers could account for as
      equity. It requires that those instruments be classified as liabilities in
      balance sheets. The guidance in SFAS No. 150 is generally effective for
      all financial instruments entered into or modified after May 31, 2003, and
      otherwise is effective on July 1, 2003. The adoption of this statement has
      had no effect on our financial statements.

A.    Results of Operations: Three-Month Period Ended March 31, 2004 Compared to
      the Three-Month Period Ended March 31, 2003

      Revenues

      Total revenues increased to $982,962 for the three-month period ended
      March 31, 2004 from $45,039 for the three-month period ended March 31,
      2003 due to the acquisition of SRC and its subsidiaries in April 2003.

      Product sales income increased to $631,438 for the three-month period
      ended March 31, 2004 from nil for the three-month period ended March 31,
      2003 due to the acquired operations of SRC and its subsidiaries in April
      2003.

      Service fee income increased to $320,135 for the three-month period ended
      March 31, 2004 from nil for the three-month period ended March 31, 2003
      due to the acquired operations of SRC and its subsidiaries in April 2003.

      Internet related income decreased to $31,369 for the three-month period
      ended March 31, 2004 from $45,039 for the three-month period ended March
      31, 2003 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 increased to $503,699 for the three-month period ended March
      31, 2004 from nil for the three-month period ended March 31, 2003 due to
      the acquired operations of SRC and its subsidiaries in April 2003.

      Other Expenses

      Total other expenses increased to $747,238 for the three-month period
      ended March 31, 2004 from $200,302 for the three-month period ended March
      31, 2003 due to the acquired operations, in April 2003, of SRC and its
      subsidiaries.


                                       26
<PAGE>

      Selling expenses increased to $24,720 for the three-month period ended
      March 31, 2004 from nil for the three-month period ended March 31, 2003
      due to the acquired operations, in April 2003, of SRC and its
      subsidiaries.

      Compensation and related costs increased to $368,562 for the three-month
      period ended March 31, 2004 from $90,231 for the three-month period ended
      March 31, 2003 due to the acquired operations and related increase in
      personnel, in April 2003, of SRC and its subsidiaries.

      General and administrative expenses increased to $300,216 for the
      three-month period ended March 31, 2004 from $98,988 for the three-month
      period ended March 31, 2003 due to the costs associated with the
      acquisition and related operations of SRC and its subsidiaries, and the
      professional fees associated the significantly increased operations of the
      Company.

      Depreciation and amortization expenses increased to $47,499 for the
      three-month period ended March 31, 2004 from $11,083 for the three-month
      period ended March 31, 2003, due to the net effect of the depreciation and
      amortization expense relating to the relatively long-life fixed assets and
      intellectual property rights associated with the acquisition of SRC and
      its subsidiaries in the three-month period ended March 31, 2004, and the
      depreciation of certain short-life assets of the Company that remained in
      the three-month period ended March 31, 2003.

      Other Items

      Amortization of debt discount increased to $124,821 for the three-month
      period ended March 31, 2004 from nil for the three-month period ended
      March 31, 2003 due to the commencement, in May 2003, of amortization of
      the debt discount ($699,000) related to the newly issued 10% subordinated
      notes.

      Interest expense decreased to $81,182 for the three-month period ended
      March 31, 2004 from $87,942 for the three-month period ended March 31,
      2003 due primarily to the net effect of the issuance of the Company's 10%
      and 8% subordinated notes in April 2003 and the cessation of interest
      expense on a subsidiary's 12% Debentures Payable and Tax Assessment
      Payable in July and August 2003.

      Operating Loss

      On a pre-tax basis, we had a net loss before income taxes of $473,834 for
      the three-month period ended March 31, 2004 compared with a net loss
      before income taxes of $242,923 for the three-month period ended March 31,
      2003.

      Our net loss for the three-month period ended March 31, 2004 was $473,834
      compared with a net loss of $242,923 for the three-month period ended
      March 31, 2003. For the three-month period ended March 31, 2004, net loss
      per common share, basic and diluted, was $0.05 per share. For the
      three-month period ended


                                       27
<PAGE>

      March 31, 2003, net loss per common share, basic and diluted, was $0.04
      per share.

B.    Liquidity and Capital Resources

      The Company has incurred substantial losses, sustained substantial cash
      outflows from operating activities and had a working capital deficit at
      March 31, 2004 and December 31, 2003. 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, financial obligations
      as they become due, and ultimately to achieve profitable operations. The
      Company is continuously in the process of raising additional financing and
      has initiated a cost reduction strategy. At March 31, 2004 and December
      31, 2003, management believed that the working capital deficit, losses and
      negative cash flow will ultimately be improved by (i) the acquisitions of
      SRC and ECI, (ii) cost reduction strategies initiated in January 2004, and
      (iii) additional equity and debt financing activities in addition to those
      set forth in the financial statements. On January 2, 2004, the Company
      received a notice dated December 31, 2003 from the American Stock Exchange
      indicating that the Company had demonstrated compliance with the
      requirement for continued listing on the Exchange. As is the case for all
      listed issuers, the Company's continued listing eligibility will be
      assessed on an ongoing basis; however, during the year ending December 31,
      2004, the Company will be subject to additional scrutiny (as set forth in
      Section 1009(h) of the AMEX Company Guide) as is the case for any listed
      company that has regained compliance. There is no assurance that the
      Company can obtain additional financing or achieve profitable operations
      or generate positive cash flow.

      Off-Balance Sheet Arrangements

      At March 31, 2004 and December 31, 2003, the Company had no off-balance
      sheet arrangements.

      Operating Activities

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

      We utilized $86,453 of cash in operating activities during the three-month
      period ended March 31, 2003. We had a net loss of $242,923 during this
      period which


                                       28
<PAGE>

      included depreciation, a non-cash item, amounting to $11,083. In addition
      to the impact of non-cash items, our operating activities for the
      three-month period ended March 31, 2003 also reflected an decrease in
      accounts receivable, and an increase accrued expenses and other
      liabilities.

      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 (net cash proceeds of $571,000) 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 (see Note A to our Consolidated Financial Statements).

      Financing Activities

      On April 23, 2003, we issued $1,000,000 in principal amount of our 10%
      Subordinated Notes due April 30, 2004 to investors for a 15% non-dilutive
      interest in the Company in the form of 4,165,800 cashless Class B
      Warrants, each to purchase one share of Common Stock at $0.50 per share.
      We had the option to extend the maturity date of the notes to April 30,
      2005 in consideration for issuing the noteholders an additional 4%
      non-dilutive interest in the Company. The notes also require prepayment in
      an amount equal to 100% of any net financing proceeds obtained by us after
      the issuance of the notes. The noteholders waived this provision to the
      extent of $2,000,000 through April 15, 2004, of which $1,200,000 was
      raised. The investors included two of our officers. Interest is payable,
      in arrears, calendar quarterly. 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 initial 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 now exercisable for an aggregate of 5,245,200 shares of our common
      stock at approximately $0.40 per share. On this date, we also exercised
      our option to extend the maturity date of the notes to April 30, 2005 and
      satisfied the requirement for the additional 4% non-dilutive interest in
      the Company by issuing to the noteholders Class B Warrants to purchase an
      additional 1,708,900 shares of our common stock at $0.50 per share. The
      non-dilutive provisions of the Warrants terminate when all of the notes
      have been paid in full.

      In 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.


                                       29
<PAGE>

      On February 10, 2004, the Company sold 1,750,000 shares of our common
      stock at $0.40 per share in consideration of $700,000 cash (net cash
      proceeds of $571,000).

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

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

C.    Inflation

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

Item 3. Controls and Procedures

      The Chief Executive Officer and Chief Financial Officer of the Company
      have conducted an evaluation of the effectiveness of disclosure controls
      and procedures pursuant to Exchange Act Rule 13a-14. Based on that
      evaluation, they have concluded that the Company's 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.


                                       30
<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings.

      The Company is a party to various vendor related litigations. Based on the
      opinion of management and legal counsel, the Company has accrued a
      liability of approximately $100,000.

Item 5. Other Information.

      On April 28, 2004, the Company's Board of Directors approved the Company's
      Code of Business Conduct and Ethics for the Directors, Officers and
      Employees of CNE Group, Inc. (the "Code"). The Company has posted the Code
      on its corporate website: www.cnegroupinc.com.

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

      (a)   Exhibits:

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

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

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

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

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

      (b)   Reports on Form 8-K:

            The Company filed a report on Form 8-K on February 10, 2004.


                                       31
<PAGE>

                                   SIGNATURES

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

                                      CNE GROUP, INC.


                                        /s/ George W. Benoit
                                      -----------------------------------------
Date: May 24, 2004                    George W. Benoit, Chairman of the Board
                                      of Directors, and Chief Executive
                                      Officer


                                        /s/ Anthony S. Conigliaro
                                      -----------------------------------------
Date: May 24, 2004                    Anthony S. Conigliaro, Vice President and
                                      Chief Financial Officer


                                       32