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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-KSB

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

     [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  FOR THE TEN MONTHS ENDED DECEMBER 31, 2000

                        COMMISSION FILE NUMBER: 0-08718

                               CT HOLDINGS, INC.
                (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

           DELAWARE                                              75-2432011
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

           3811 TURTLE CREEK BLVD., SUITE 770, DALLAS, TX 75219-4421
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                (214) 520-9292
               (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                    COMMON STOCK, PAR VALUE $.01 PER SHARE
                               (TITLE OF CLASS)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period 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 [ ]

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

State issuer's revenues for its most recent fiscal year $460,985

As of April 12, 2001, the last reported sale price of the Company's common stock
was $0.38 per share. The aggregate market value of the voting and non-voting
common stock held by non-affiliates of the Company was $12,747,286 as of April
12, 2001.
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As of April 12, 2001, there were 53,825,300 shares of common stock, $.01 par
value per share, outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement (the "Proxy Statement") to be filed
with the Securities and Exchange Commission relative to the Company's Annual
Meeting of Stockholders for the fiscal year ended December 31, 2000 are
incorporated by reference into Part III of this Report.

Transitional Small Business Disclosure Format.  Yes [ ] No [X]

                                       2
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                               CT HOLDINGS, INC.
                                  FORM 10-KSB
                                 ANNUAL REPORT
                           FOR THE FISCAL YEAR ENDED
                               DECEMBER 31, 2000

                               Table of Contents

PART I

Item 1.  Description of Business                                               5

Item 2.  Description of Property                                              31

Item 3.  Legal Proceedings                                                    32

Item 4.  Submission of Matters to a Vote of Security Holders                  33

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters             34

Item 6.  Management's Discussion and Analysis                                 35

Item 7.  Financial Statements                                                 44

Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure                                                          44

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act                             44

Item 10. Executive Compensation                                               44

Item 11. Security Ownership of Certain Beneficial Owners and Management       45

Item 12. Certain Relationships and Related Transactions                       45

Item 13. Exhibits and Reports on Form 8-K                                     45

This Annual Report on Form 10-KSB contains forward-looking statements that
involve known and unknown risks and uncertainties. The statements contained in
this Report that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. In this Report, the words "anticipates,"
"believes," "expects," "estimates," "intends," "future" and similar

                                       3
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expressions identify forward-looking statements. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed elsewhere in this
Report under the heading "Factors That May Affect Future Operating Results" as
well as those discussed elsewhere in this Report, and the risks discussed in our
Securities and Exchange Commission filings.

                                       4
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PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW OF CT HOLDINGS

We assist in the development of technology-based companies and we provide early
stage ventures with management capital, as well as consulting on operations,
marketing and strategic planning. In addition, we may pursue acquisitions of
complementary companies that fit our business strategy. Our business model is
designed to enable the companies with whom we partner to become market leaders
in their industries. We believe that by focusing on technology companies, we are
positioned to identify the latest trends and opportunities and attract promising
companies and talent in this industry. We may also pursue business opportunities
in markets other than technology for companies with compelling valuations and
strong business models.  Our strategy is to leverage the expertise of our
management and affiliates and to capitalize upon opportunities to cross-
pollinate the strongest qualities among the companies we assist. We believe that
the anticipated growth in technology creates strong opportunities for us to
increase shareholder value by investing in well-positioned early stage ventures.

We began our development activities in 1999 with the formation of Parago, Inc.,
an application service provider (ASP) and Internet based business process
outsourcer (BPO) that provides a suite of technology offerings (including
PromoCenter, ValueRewards(SM) and KnowledgeCenter) designed to increase sales,
reduce costs, and retain customers for retailers, manufacturers and service
organizations. Parago's continuous customer interaction services include online
promotional management (including online rebate processing), proactive email,
online surveys, and customer data analysis and reporting. Parago markets its
solutions to retailers, manufacturers and service providers across multiple
industries. Parago provides its online solutions to approximately 180 clients at
December 31, 2000, an increase of more than 38.5% over last year. Parago's
preliminary unaudited results for the year ended December 31, 2000 included
revenues of approximately $19.5 million. Through December 2000, Parago had
received approximately $81.3 million in private equity financing from venture
capital investors including THLee.Putnam Internet

                                       5
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Partners, Dain Rauscher Wessels Investors, Watershed Capital and Seaboard
Ventures, as well as angel investors. CT Holdings continues to hold 20 million
shares of Parago common stock.

In May 2000, we acquired a minority interest in River Logic, Inc. River Logic
develops decision-support applications for industry. Using COR Technology(TM), a
rapid-application development system, developers at River Logic create
applications that enable industry professionals to model complex enterprises and
explore financial relationships on a desktop computer or laptop. Embedded
analytics allow end-users to understand the financial implications of critical
business decisions easily by manipulating graphical icons that model their
enterprise.

Headquartered in Beverly, Massachusetts, with offices in Atlanta, Austin,
Dallas, and Portland, River Logic is a privately held corporation receiving
venture capital support from Cardinal Investment, CT Holdings, EBSCO CASIAS,
eMed Ventures, the Intel 64 Fund, and Mercury Ventures. River Logic's solutions
incorporate several patented technologies and leverages research originally
conducted at University of Massachusetts and the Russian Academy of Sciences.

In April 2001, River Logic received a strategic investment from the Intel
64 Fund, an affiliate of Intel Corporation, Cardinal Investment, eMed Ventures
and Mercury Ventures, and we converted a portion of our convertible notes into
shares of the Series C Preferred Stock offered by River Logic.

In addition to our business development strategy, we continue to operate our
"Citadel Technology" security software line, which is focused on developing and
marketing security and administration software products for both computer
networks and desktop personal computers. Our integrated, easy-to-use software
products enable network administrators to control access to network resources,
automate routine network maintenance tasks, and automatically shutdown and
restart servers and desktop PCs in the event of a network crash. These software
products also enable individual PC users to control access to their desktops,
secure files, and index and retrieve files stored in a variety of storage media.
Our Citadel Technology software products are designed to reduce the direct and
indirect costs of computer network operations, protect proprietary networks and
information, and otherwise improve overall office productivity.

Our core focus is on our business development services, and we are currently
analyzing various strategic alternatives for our Citadel Technology security
software business, including new strategic alliances with third parties, new
applications of the technology, new third party licensing or joint venture
arrangements or the sale of the business line. As a result, management believes
that the results of operations for our Citadel Technology security software
business will continue to be adversely affected in the future by our core focus
on business development services.

We have received a report from our independent auditors for our fiscal year
ended December 31, 2000 containing an explanatory paragraph that describes the
uncertainty regarding our ability to continue as a going concern due to our
historical negative cash flow and because, as of the date they rendered their
opinion, we did not have access to sufficient committed capital to meet our
projected operating needs for at least the next 12 months. Please see
Management's Discussion and Analysis -- Liquidity and Capital Resources and Note
A to our financial statements which discuss some of the conditions that could
impact our ability to continue operations under the current business conditions.

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OVERVIEW OF PARAGO

Parago's Technology Approach to Promotional Management

Parago offers a technology platform that designed to improve the promotional
management industry by using the power of the Internet.  Potential clients for
Parago include any retailer, manufacturer or service provider who is looking to
increase the return on their marketing investment while improving customer
retention and operational efficiencies.

Current State of the Industry

Currently there is a substantial amount of dissatisfaction and ineffectiveness
associated with marketing programs such as rebates and instant discounts. Many
companies feel that these programs are a necessary evil required to maintain or
increase their position in their competitive marketplaces. The evolution of the
Internet as a purchasing channel has made promotional marketing even more
necessary. Online customers have a much easier task when it comes to product and
price comparisons. With many products viewed by consumers as interchangeable,
price and/or promotional incentives are often a deciding factor. Consequently,
many companies offer incentive programs to influence the purchase decision.

One disadvantage of many traditional promotional  programs is that they tend to
condition customers to be price sensitive.  Additionally, they often fail to
address the retention of the customer: a company offers a promotion
(rebate/discount), a customer accepts the offer, and the interaction between the
company and their customer ends after the check is sent or the discount
received.  These programs focus on acquiring customers rather than retaining
them through enhanced continuous customer interaction.  Customers may be
satisfied with that particular experience, but there is no real reason for them
to return unless companies continue to discount their product or service.

Parago's PromoCenter solution offers its business clients the opportunity to
increase sales, strengthen brand loyalty and increase customer retention via a
fully functional web-based promotion center, branded with the "look and feel" of
the clients' own web sites and "powered by Parago". To the customers of Parago's
clients, the PromoCenter is a part of the clients' web sites, while behind the
scenes, it is completely developed, maintained and serviced by Parago.

Parago's Solutions

With Parago, companies may actually benefit from increased redemptions.  At the
point of redemption, Parago introduces a patent-pending, technology
upsell/cross-sell platform called ValueRewards(SM), which allows customers to
exchange their promotional offer for other products and services of a higher
retail value.  Often, these products and services complement the product or
service just purchased.  Additionally, ValueRewards can be customized and
dynamically changed at any time.  By leveraging the power of the Internet, this
targeted upsell/cross-sell offering all happens online.

                                       7
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When customers exchange promotional dollars for ValueReward items, Parago
believes that everybody can benefit.  The company offering the promotion
recognizes additional revenue, lower overall promotional costs and better
customer relationships.  Customers may be more satisfied with the incremental
value received from ValueRewards, and loyalty increases as the client company
demonstrates an understanding of customer needs and preferences.

All transactions from promotions and ValueRewards are aggregated into
KnowledgeCenter (Parago's data warehouse).  Parago and its clients can analyze
this data to determine promotional effectiveness in real time.  In addition,
Parago clients can use this fresh, accurate and usable data derived from
KnowledgeCenter to target new promotions through an email campaign.

This combination of a promotional transaction with a ValueReward option and
collection of resulting data through Parago's technology platform is called
Continuous Customer Interaction(SM).

Parago believes that the following benefits result from its Continuous Customer
Interaction model:

Increased Sales:  When a customer selects a ValueReward in exchange for the
promotional offer, the value of the offer becomes additional top-line revenue to
the client company offering the promotion (to the extent the ValueReward is a
product or service offered by the client).  There is also an opportunity for
additional transactions when Parago integrates into the client's shopping cart.
Additionally, since companies will now know the e-mail address of their
customers who have opted in, the client is in a position to initiate additional
commerce discussions, potentially resulting in increased sales of higher margin
products and/or services.

Reduced Promotion Costs:  Every time a customer selects ValueRewards, the
client's overall promotion cost is reduced.  A higher value product and/or
service is typically offered to the customer that bears a lower cost to the
client.

Improved Marketing Efficiencies: Parago collects and aggregates the promotion
and transaction information that it collects on behalf of its clients into its
KnowledgeCenter solution.  Information on the success of the promotional program
can be evaluated daily, and the promotion can be modified to improve
effectiveness.  This detailed information can be analyzed to determine, among
other things, how best to promote products, what channels are effective for each
type of promotion and which customers will be most likely to take advantage of a
promotional offer.  Parago clients may realize a better return on their
promotional investment when effectively using the data analysis available in
KnowledgeCenter.

Enhanced Customer Relationships:  As a result of Parago's innovative approach to
promotional marketing, clients may develop better relationships with their
customers. Features such as proactive email to confirm the receipt of their
promotional request, the ability of customers to do online status checks, and a
quick turnaround time on check

                                       8
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payment all contribute to increased customer satisfaction and ultimately to
customer loyalty. Further, ValueRewards opportunities create a value-add for
customers, and future targeted marketing of peripheral products and services may
extend the customer relationship.

The ideal Parago client is a company who is looking at promotions not just as a
short-term selling tactic, but as part of an overall Customer Relationship
Management (CRM) solution. Parago helps clients integrate this lofty but
critical discipline into their day-to-day business operations.  Leveraging
Parago's Continuous Customer Interaction technology platform may enable clients
to increase sales, lower costs and enhance relationships with their customers.

At December 31, 2000, CT Holdings owned 20,000,000 shares of the common stock of
Parago, representing less than 50%  of the outstanding common stock of Parago.
As a result, we account for our ownership interest in Parago using the equity
method of accounting. Since its inception, Parago has incurred net losses and
now has a substantial accumulated deficit, which have had an impact upon and are
reflected in our financial statements. For example, for the ten month period
ended December 31, 2000, we recorded an "equity in loss of unconsolidated
affiliate" of $1,220,516.  We understand that Parago expects to incur net losses
for the foreseeable future, and, even though our investment in Parago is
currently carried at zero, we may record significant losses relating to our
Parago subsidiary in our investment is carried at an amount greater than zero
and Parago incurs losses.

Parago filed a registration statement with the Securities and Exchange
Commission relating to an initial public offering of shares of its common stock
in October 1999, but applied to withdraw this registration statement in March
2000. We previously announced that we intend to distribute 15% of the shares of
Parago common stock that we hold to our stockholders, subject to compliance with
the SEC requirements applicable to the proposed distribution and upon the
expiration of a 180-day lock-up agreement between the underwriters of the Parago
proposed initial public offering and us. If there are problems associated with
compliance with SEC requirements or state law, then the distribution of Parago
shares may be delayed or may not occur. There can be no assurance that Parago's
initial public offering will be completed, or that we will otherwise complete
the distribution of a portion of our Parago shares to our stockholders on the
proposed terms or at all.

OVERVIEW OF RIVER LOGIC

In May 2000, we acquired a minority interest in River Logic, Inc. River Logic
develops decision-support applications for industry. Using COR Technology(TM), a
rapid-application development system, developers at River Logic create
applications that enable industry professionals to model complex enterprises and
explore financial relationships on a desktop computer or laptop. Embedded
analytics allow end-users to understand the

                                       9
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financial implications of critical business decisions easily by manipulating
graphical icons that model their enterprise.

As part of this transaction we acquired approximately 1.19 million, or 5.9%,
shares of common stock of River Logic from several of its existing shareholders
in exchange for 333,333 shares of our common stock. We also acquired shares of
Series A Convertible Preferred Stock from River Logic in exchange for the
contribution by one of our wholly-owned subsidiaries of the ESRN Assets, as
described below. The acquired shares of River Logic's preferred stock were
convertible into shares of common stock that represented approximately 13.1% of
the currently outstanding shares of capital stock of River Logic on a post
conversion basis as of May 5, 2000 when the initial transaction was completed.

In connection with our investment in River Logic, we also made two $300,000
bridge loans to River Logic that together were convertible into 800,000 shares,
in the aggregate, of common stock that represented approximately 3.8% of the
currently outstanding capital stock of River Logic on a post conversion basis as
of May 5, 2000. Each of the bridge loans (i) bears interest at a rate of 12% per
annum through its first anniversary and at one percent above the prime rate per
annum thereafter, (ii) is secured by certain assets of River Logic, (iii) is
payable upon the Company's demand and (iv) is prepayable by River Logic
commencing on its third anniversary date. In connection with the Series C
Preferred Stock round described below, we converted $450,000 of the principal
amount of the notes into shares of the Series C Preferred Stock.  Following
these transactions, we own approximately 10% of the capital stock of River
Logic.

The ESRN Assets consist of the EBSCO School Resource Network (ESRN Network), an
educational network catering to kindergarten through 12th grade (K-12). The ESRN
Network is designed to support school administrators, teachers, students and
parents by providing them with a comprehensive set of tools and resources
targeting their specific needs. The ESRN Network is comprised of learning
applications that integrate EBSCO Industries' database of content relating to K-
12. The ESRN Network was acquired by a wholly-owned subsidiary of the Company
from EBSCO Industries in connection with this transaction in exchange for
666,667 shares of the Company's common stock.

We intend to file a resale registration statement relating to the shares of our
common stock issued in connection with this transaction.

In July 2000, River Logic closed a $3 million private placement of shares of its
Series B preferred stock to a venture capital firm that specializes in early
stage technology firms that offer Internet solutions that provide strong value-
oriented models for their prospective market-space.

In April 2001, River Logic received a strategic investment in shares of its
Series C Preferred Stock from the Intel 64 Fund, an affiliate of Intel
Corporation, Cardinal Investment, Inc., eMed Ventures and Mercury Ventures, and
we converted a portion of our convertible notes into shares of the Series C
Preferred Stock offered by River Logic.

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In addition, River Logic, PricewaterhouseCoopers, LLC and one of River Logic's
resellers, Heads Up! Systems, LLC, entered into a strategic alliance offering
clients of process- and supply-chain modeling applications reliability in the
use of enterprise modeling tools. New software such as COR Technology(C) by
River Logic, provides business planners and managers with the ability to
identify profit improvement opportunities, design and communicate supply chain
and business process information, and to develop model-based tactical and
strategic plans. The crucial step of model validation - ensuring that these
complex and detailed models accurately and reliably represent business behaviors
and financial results - is vital for instilling confidence by users and ensuring
that models function properly.

Our Chief Executive Officer, Steven B. Solomon, serves on the board of directors
of River Logic.

As we hold a less than 20% ownership interest in River Logic the investment has
been accounted for under the cost method of accounting.

Headquartered in Beverly, Massachusetts, with offices in Atlanta, Austin,
Dallas, and Portland, River Logic is a privately held corporation receiving
venture capital support from Cardinal Investment, Inc., CT Holdings, EBSCO
CASIAS, eMed Ventures, the Intel 64 Fund, and Mercury Ventures. The company's
solution incorporates several patented technologies and leverages research
originally conducted at University of Massachusetts and the Russian Academy of
Sciences.

OUR CITADEL TECHNOLOGY BUSINESS LINE

In addition to our business development business, we continue to operate our
"Citadel Technology" security software line, which is focused on developing and
marketing security and administration software products for both computer
networks and desktop personal computers. Our integrated, easy-to-use software
products enable network administrators to control access to network resources,
automate routine network maintenance tasks, and automatically shutdown and
restart servers and desktop PCs in the event of a network crash. These software
products also enable individual PC users to control access to their desktops,
secure files, and index and retrieve files stored in a variety of storage media.
Our Citadel Technology software products are designed to reduce the direct and
indirect costs of computer network operations, protect proprietary networks and
information, and otherwise improve overall office productivity.

OUR CITADEL TECHNOLOGY STRATEGY

Our core focus will be on our business development services, and we are
currently analyzing various strategic alternatives for our Citadel Technology
security software business, including new strategic alliances with third
parties, new applications of the technology, new third party licensing or joint
venture arrangements or the sale of the business. Management has reduced
operating expenses related to the software business

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while we implement our new strategic focus. As a result, management believes
that our results of operations for our Citadel Technology security software
business will continue to be adversely affected in the future.

OUR CITADEL TECHNOLOGY PRODUCTS

WinShield Secure PC provides desktop security and access control for computers
running Microsoft Windows versions 95, 98, ME, NT, 2000 and XP. Its advanced
set of features allow users to apply security policies to users or groups of
users within an organization.

The company sells this product in two configurations. Secure PC Workstation is
designed for home, educational or commercial non-networked computers. Secure PC
Network is designed for environments with multiple computers connected to a
Windows NT, 2000 or Novell NetWare network.

The network version of Secure PC has been designed to scale dynamically within
network environments ranging from departmental LANs to global WAN capacity and
includes tools that provide remote installation and configuration of the Secure
PC client software.

Secure PC provides a rich feature set that can prevent users from accidentally
or deliberately changing configuration settings on their computer that can
result in downtime, loss of data or expose the computer or network to security
vulnerabilities. In addition, Secure PC can be configured to provide additional
protection against viruses by protecting operating system files, application
executable files and other system components that are typical targets of worms,
Trojan horses or other malicious viruses.

During 1999 and 2000 WinShield Secure PC was awarded several editorial awards
including NT Security.Net's Ultimate Security Toolkit, WinMag.Com's WinList,
and Curriculum Administrator Magazine's top 100.

NetOFF. NetOFF is designed to protect a network by shutting down unattended
client PCs automatically after a specified period of inactivity.  Network
administrators may also use NetOFF to shut down such PCs to complete a clean
backup. The product ensures an orderly shutdown by automatically closing all
open files and applications on the PC and saving the information. NetOFF is
available for the Windows NT and NetWare platforms and supports Windows 95, 98,
ME, Windows NT,  Windows 2000 and Windows XP desktop PCs. The benefits of NetOFF
include:

 .    Enhancing Overall Computer Security. Unattended desktop PCs subject the
     network and PC to a heightened risk of data theft. NetOFF protects
     confidential files and information by loading a screen blocker and logging
     off the unattended PCs, thus shutting off access to PC hard drives and the
     networks.

 .    Facilitating Clean Back-Ups. To protect important information, almost every
     company employs a back-up system. The back-up system is a magnetic tape
     drive or

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     other storage medium that periodically copies all of the data stored in the
     network. Should a data loss occur from a power failure, mechanical failure
     or other error, the lost information can be restored in a relatively short
     time, saving the company the time and effort necessary to attempt to
     reconstruct lost data and files. The back-up system, however, backs up only
     closed files. If a PC is logged on during the process, data in open files
     can be corrupted or omitted from the back-up tape. NetOFF eliminates these
     problems by automatically logging off network client stations at a time
     pre-selected by the network administrator.

 .    Conserving Resources. Software license fees are often based on the number
     of actual users of the licensed product. Many companies pay excess license
     fees for programs that are left open on unattended computers. NetOFF helps
     customers reduce costs by logging off unattended PCs.

 .    NetOFF's unique screen blocking and automated logoff features help
     organizations achieve and maintain HIPPA compliance. The Health Insurance
     Portability and Accountability Act of 1996 requires each organization that
     uses communications or networks to protect communications containing health
     information that are transmitted electronically over open networks so that
     they cannot be easily intercepted and interpreted by parties other than the
     indented recipient.

FolderBolt. FolderBolt provides desktop users, particularly users in a shared
desktop PC  environment, such as education, with several tools to protect
proprietary information. Users can protect groups of directories, individual
directories, or files by designating them as locked or read-only protected or as
a secure drop box. Optional data encryption adds another layer of security
against more sophisticated intruders. Users are able to send self-extracting
encrypted e-mails within the company or across the Internet. FolderBolt is
available for Windows 95 and 98.

PRODUCT DEVELOPMENT

In developing new Citadel Technology products, we strive to meet the following
standards in product development:

 .    Standards Compliance and Network Compatibility. Our products comply with
     industry standards and are designed to be compatible with the leading
     network and desktop PC operating systems, including Novell's NetWare and
     Microsoft's Windows NT. To that end, our products are currently developed
     using XML, Microsoft Visual C++, and Novell toolkits.

 .    Ease of Use. Our products are designed to function without extensive and
     continual user involvement. The aim is to simplify, not complicate, the
     user's work environment.

 .    Ease of Administration. We have extended our ease-of-use concept to network
     administration with our Citadel Network Administrator, which is designed to
     provide

                                       13
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     central management and security features with the ability to "plug and
     play" additional functions at a low cost.

 .    Cost Effectiveness. We provide products at a price and performance level
     that we believe offers superior network and PC security and administration
     options at affordable prices.

Schedules for the development of high technology products are inherently
difficult to predict, and there can be no assurance that we will achieve
targeted initial customer shipment dates for any of our products, or at all.


CITADEL TECHNOLOGY COMPETITION

The security and administration software industry is intensely competitive and
rapidly changing. We compete against large companies (such as Microsoft, Novell,
Computer Associates, Network Associates, Symantec and others) that offer network
and desktop PC security and administration software as a segment of their
businesses. We also compete with a large number of small companies that offer
security and administration software for networks and desktop PCs as a portion
of their product line. Some of these competitors offer products that address
multiple aspects of network and desktop security and administration and
management, while other competitors market products that provide narrow
solutions. Many of our competitors have longer operating histories and
significantly greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger installed customer
base, than we do. Further, many competitors have established relationships with
our customers and end users of our products. Our competitors could, in the
future, introduce products with more features and lower prices than our product
offerings. These companies could also bundle existing or new products with
other, more established products in order to compete with us.

We generally compete on the basis of product features and functions, product
architecture, product quality, the ability of products to run on a variety of
different network and desktop operating systems, technical support and other
related services, and price/performance features. Based on these factors, we
believe that our products are well positioned in the market and that we have
targeted promising niche opportunities.

We also expect that competition may increase as a result of software industry
consolidations, which have occurred in the past. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. In addition, network and desktop PC
operating system vendors could introduce new or upgrade existing operating
systems or environments that include security and administration functionality
offered by our products, which could render our products obsolete and
unmarketable. There can be no assurance that we will be able to compete
successfully against current or future competitors or that competitive pressures
faced by

                                       14
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us will not materially adversely affect our business, operating results and
financial conditions.

INTELLECTUAL PROPERTY RIGHTS

We regard some features of our Citadel Technology internal operations, software
and documentation to be proprietary intellectual property. We have been and will
be dependent in part on our ability to protect our proprietary technology. We
rely primarily upon a combination of copyright, trademarks, trade secret laws,
confidentiality agreements and other measures to establish and protect our
rights in our proprietary technology. We do not have any patents or statutory
copyrights on any of our proprietary technology which we believe to be material
to our future success, and we cannot be certain that others will not develop
substantially equivalent or superseding proprietary technology.  Furthermore,
there can be no assurance that any confidentiality agreements between our
employees and us will provide meaningful protection of our proprietary
information in the event of any unauthorized use or disclosure of such
proprietary information.

There can be no assurance that we will not become the subject of claims of
infringement with respect to intellectual property rights associated with our
products. In addition, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any such claims could be time consuming and could
result in costly litigation or lead us to enter into royalty or licensing
agreements rather than disputing the merits of such claims.


EMPLOYEES

As of December 31, 2000, we had six employees. Our future success depends in
significant part upon the continued service of our key technical and senior
management personnel and our continuing ability to retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that we can retain our key technical and
managerial employees or that we can assimilate or retain other highly qualified
technical and managerial personnel in the future. None of our employees are
represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good.

GOVERNMENT REGULATION

Government regulation has not had a material effect on the conduct of our
business to date.

                                       15
<PAGE>


FORWARD-LOOKING STATEMENTS

The following discussion contains forward-looking statements that involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others things, those risk factors set forth in this
section and elsewhere in this report. We identify forward-looking statements by
words such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or similar terms that refer to the future. We cannot guarantee future results,
levels of activity, performance or achievements.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

Investing in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.

In addition to the other information in this Report, the following factors
should be considered carefully in evaluating the Company and its business. This
disclosure is for the purpose of qualifying for the "safe harbor" provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. It contains factors which could
cause results to differ materially from such forward-looking statements. These
factors are in addition to any other cautionary statements, written or oral,
which may be made or referred to in connection with any such forward-looking
statement.

The following matters, among other things, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to these factors in
the context of a forward-looking statement or statements shall be deemed to be a
statement that any one or more of the following factors may cause actual results
to differ materially from those in such forward-looking statement or statements.

Before you invest in our common stock, you should be aware of various risks,
including those described below. Investing in our common stock involves a high
degree of risk. You should carefully consider these risk factors, together with
all of the other information included in this Report, before you decide whether
to purchase shares of our common stock. Our business and results of operations
could be seriously harmed by any of the following risks. The trading price of
our common stock could decline due to any of these risks, and you may lose part
or all of your investment.

                                       16
<PAGE>

                                 GENERAL RISKS

WE RECENTLY DECIDED TO CHANGE OUR BUSINESS TO FOCUS ON DEVELOPMENT AND
ACQUISITIONS OF EARLY STAGE COMPANIES; HENCE, WE WILL ENCOUNTER NUMEROUS RISKS
ASSOCIATED WITH OUR NEW BUSINESS FOCUS AND OUR PRIOR OPERATING HISTORY MAY NOT
BE A MEANINGFUL GUIDE TO EVALUATING OUR FUTURE PERFORMANCE.

In January 2000 we announced that we were changing our business model to focus
on the development of early stage ventures. Other than our formation and
development of Parago, we have little experience in this area. As a consequence,
our prior operating history may not provide a meaningful guide to our prospects
in emerging markets. Moreover, our new business model and prospects must be
considered in light of the risk, expense and difficulties frequently encountered
by companies in early stages of development, particularly companies in new and
rapidly evolving markets such as e-commerce. We may be unable to execute our
strategy of developing our business due to numerous risks, including the
following:

  o We may be unable to identify or develop relationships with attractive
emerging companies.

  o Any companies that we are able to attract may not succeed and the value of
our assets and the price of our common stock could consequently decline.

  o Our new business model is unproven and depends on the willingness of
companies to participate in our business development model and collaborate with
us and each other.

  o Our expenses will increase as we refocus on our new business model and seek
to build the infrastructure necessary to implement this model.

  o We face competition from incubators, some of which are publicly traded
companies, venture capital companies and large corporations; many of these
competitors have greater financial resources and brand name recognition than we
do, which may make it difficult for us to effectively compete.

  o We will require additional capital resources in order to implement our new
business model and we may not be able to obtain these resources on attractive
terms, if at all.

WE HAVE INVESTED IN EARLY STAGE VENTURES; AND THERE CAN BE NO ASSURANCE THAT OUR
INVESTMENTS WILL PROVE TO BE FINANCIALLY ATTRACTIVE.

We have developed and invested in Parago, Inc. and River Logic, Inc. Inasmuch as
Parago and River Logic are early stage ventures, it is difficult to judge their
future prospects.

WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND MAY SUFFER
OTHER ADVERSE CONSEQUENCES IF WE ARE DEEMED TO BE AN INVESTMENT COMPANY.

We may incur significant costs to avoid investment company status and may suffer
other

                                       17
<PAGE>

adverse consequences if we are deemed to be an investment company under the
Investment Company Act of 1940. Some of our contemplated equity investments in
other businesses may constitute investment securities under the 1940 Act. A
company may be deemed to be an investment company if it owns investment
securities with a value exceeding 40% of its total assets, subject to certain
exclusions. Investment companies are subject to registration under, and
compliance with, the 1940 Act unless a particular exclusion or Securities and
Exchange Commission safe harbor applies. If we were to be deemed an investment
company, we would become subject to the requirements of the 1940 Act. As a
consequence, we would be prohibited from engaging in some businesses or issuing
our securities and might be subject to civil and criminal penalties for
noncompliance. In addition, certain of our contracts might be voidable, and a
court-appointed receiver could take control of us and liquidate our business.

Although we have yet to make any investments in the investment securities of
companies other than Parago and River Logic, such investments, if and when made,
could fluctuate in value, which may cause the value of such securities to exceed
40% of our total assets. Unless an exclusion or safe harbor were available to
us, we would have to attempt to reduce our investment securities as a percentage
of our total assets. This reduction could be accomplished in a number of ways,
including the disposition of investment securities and the acquisition of non-
investment security assets. If we were required to sell investment securities,
we may sell them sooner than we may otherwise have preferred. These sales may be
at depressed prices and we might never realize anticipated benefits from, and
may incur losses on, these investments. Some investments may not be sold due to
contractual or legal restrictions or the inability to locate a suitable buyer.
Moreover, we may incur tax liabilities when we sell assets. We may also be
unable to purchase additional investment securities that may be important to our
operating strategy. If we decide to acquire non-investment security assets, we
may not be able to identify and acquire suitable assets and businesses.

WE HAVE A HISTORY OF NET LOSSES AND WILL NEED ADDITIONAL FINANCING TO CONTINUE
AS A GOING CONCERN.

We have incurred recurring operating losses and have a working capital
deficiency. We have used cash in operations of approximately $1.3 million during
the 10 months ended December 31, 2000. We have a cash balance of approximately
$22,000 at December 31, 2000 and current liabilities exceed current assets by
approximately $ 1.6 million. As outlined below, these assets do not reflect the
value that may be realized from our investments in Parago and River Logic. We
have been and continue to be dependent upon outside financing to develop our
software products, perform our business development activities, invest in
unconsolidated affiliates and provide for ongoing working capital requirements.
During 2000, substantially all of this financing has been provided by related
parties.


                                       18
<PAGE>

Over the next year we expect to generate cash from the sale of our software and
will incur costs relating to such operations which may result in a cash
deficiency. We will also continue to incur expenses relating to corporate
overhead and activities related to managing our investments and considering
additional opportunities. We are currently analyzing various strategic
alternatives for our Citadel Technology security software business, including
new strategic alliances with third parties, new applications of the technology,
new third party licensing, joint venture arrangements or the sale of the
business line. While we have reduced costs as we have transitioned the core
focus of our business plans to business development activities, we may require
cash from financing activities to fund the deficits expected over the next year.

Our strategy of continuing to support and expand our business development
activities requires us to obtain additional capital. The complete implementation
of this element of our strategy will not generate positive cashflow in the
foreseeable future. Achieving positive cashflow is currently highly dependent
upon obtaining liquidity from our investments in unconsolidated affiliates. We
estimate we will need to raise a minimum of $1 million to fund the plan through
the remainder of 2001 and substantially greater amounts if we expect to continue
to acquire investments or if amounts become due to settle contingent
liabilities. Historically, we have obtained any short-term bridge funding from
its Chief Executive Officer or Directors of the Company. While this may occur in
the future there can be no assurance that such financing will be available, or
if available on terms that we would be willing to accept.


                                       19
<PAGE>

Since the development of our new focus on businesses development activities we
have made investments in two companies that we believe may provide liquidity to
us in the long term. Our first investment in Parago we believe has been
successful in that it has grown from the original $50,000 of equity provided by
us and no revenue, to net revenue of approximately $19.5 million for the year
ended December 31, 2000 (unaudited). As expected in an early stage company,
Parago has not been profitable and has experienced cash flow deficiencies as it
implements its business plan. We believe, however, that our investment of
20,000,000 common shares of Parago may ultimately provide an appropriate return.
Until we are able to create liquidity from our investments through sale to a
strategic investor, an initial public offering or some other activity, we will
continue to require working capital to fund our own operating expenses.

Similarly, our investment in River Logic we believe has also been successful.
Since our initial investment, River Logic has made substantial progress in
executing its strategy through its development and introduction of new products
and establishment of new customer relationships. In addition, during April, 2001
River Logic obtained a significant strategic investment from a subsidiary of
Intel, Cardinal Investments, eMed Ventures, and Mercury Ventures. As part of
that round, we converted $450,000 of demand notes receivable into River Logic
Series C Preferred stock, the same equity instruments purchased by the other
investees. The remainder of our note receivable totaling approximately $200,000
was paid in April 2001. Similar to the investments into Parago, we recognized
that these investments would be initially illiquid. While we are pleased with
the performance of Parago and River Logic to date, there can be no assurance
that we will ever achieve liquidity for our investments.

                                       20
<PAGE>

There can be no assurance that management's plans will be successful or what
other actions may become necessary. Although we have been successful raising
capital in the past, any inability to raise capital may require us to sell
assets or reduce the level of our operations. Such actions could have a material
adverse effect on our business and operations and result in charges that could
be material to our business and results of operations.

WE HAVE RECEIVED A NOTICE OF DELISTING OF OUR SHARES OF COMMON STOCK FROM THE
NASDAQ SMALLCAP MARKET. OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ
SMALLCAP MARKET. IF OUR SHARES ARE DELISTED, THEY MAY TRADE IN THE OVER THE
COUNTER MARKET, ALTHOUGH THERE CAN BE NO ASSURANCES IN THIS REGARD.

Our common stock has been trading at below $1.00 per share for more than thirty
consecutive days, and we received a letter from the Nasdaq Market advising us
that if we were unable to demonstrate compliance with the Nasdaq Market's $1.00
minimum bid requirement for ten consecutive trading days before March 15, 2001,
our common stock would be subject to being de-listed at the close of business on
March 15, 2001. Because our shares did not meet the minimum bid requirement by
March 15, 2001, we received a letter from the Nasdaq Market that our shares
would be delisted.  We have requested a hearing to address the Nasdaq notice,
and the hearing will be held on April 26, 2001.  If a delisting were to occur,
our common stock would trade on the OTC Bulletin Board or in the "pink sheets"
maintained by the National Quotation Bureau, Inc. Such alternatives are
generally considered to be less efficient markets, and our stock price, as well
as the liquidity of our common stock, may be adversely impacted as a result.


                                       21
<PAGE>

WE ARE INVOLVED IN LEGAL PROCEEDINGS THAT COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS

We are involved in legal proceedings as described in "Item 3. Legal Proceedings"
and from time to time, we may be subject to other legal proceedings, including
but not limited to claims that we have infringed the intellectual property
rights of others, product liability claims, or other claims incidental to our
business. While we intend to defend such lawsuits, adverse decisions or
settlements, and the costs of defending such suits, could have a material
adverse effect on our business.

OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.

Due to the factors noted in this Report, our earnings and stock price have been
and may continue to be subject to significant volatility, particularly on a
quarterly basis. We have previously experienced shortfalls in revenue and
earnings from levels expected by investors, which have had an immediate and
significant adverse effect on the trading price of our common stock. This may
occur again in the future.

Additionally, we have received requests from the staff of the Securities and
Exchange Commission for additional information regarding the accounting for some
of our acquisitions, including questions relating to the write-off of associated
in-process research and development costs and other matters. While we have
responded to these requests, we cannot determine at this time the effect, if
any, that the outcome of this matter will have on our reported financial
position or results of operations. However, should the staff of the Securities
and Exchange Commission require us to retroactively record any adjustments, the
effect could have a material adverse impact on the future trading price of our
common stock.

             RISKS RELATED TO OUR INTERNET SUBSIDIARY, PARAGO, INC.

The following are some risks related to the business of Parago, Inc., our
Internet subsidiary, and should be considered in addition to the risk factors
described in this Report. Any of these factors could have a material adverse
effect on us, as we owned 20,000,000 of the outstanding shares of common stock
of Parago at December 31, 2000.

THERE CAN BE NO ASSURANCE THAT PARAGO WILL COMPLETE AN INITIAL PUBLIC OFFERING.

There can be no assurance that Parago will complete an initial public offering.
The delay or complete abandonment of the contemplated initial public offering
could have a material adverse effect on our stock price due to our substantial
equity interest in Parago. You cannot be assured that the initial public
offering will occur in the near future or ever

                                       22
<PAGE>

at all. In addition, we have agreed to convert the shares of Parago common stock
issued in connection with the acquisition of 2-Lane Media by Parago into up to
500,000 of our shares at the option of the 2-Lane Media shareholders. Pursuant
to the terms of the subscription agreements between Parago and some of its
stockholders, we may be required to issue up to 414,000 shares of our common
stock based on a conversion price of $3.75 per share (above the fair market
value on the dates of issuance) at the option of such stockholders. These
provisions could have the effect of diluting our stockholders if the market
price for our stock is above that price at the time of conversion.

WE MAY NOT BE ABLE TO EFFECT THE DISTRIBUTION OF PARAGO SHARES.

We previously announced that we intend to distribute shares of Parago common
stock to our shareholders upon compliance with the Securities and Exchange
Commission (SEC) requirements applicable in connection with the proposed
distribution and upon the expiration of a 180 day lockup agreement between the
underwriters of Parago's previously proposed initial public offering and us. If
there are problems associated with compliance with SEC requirements or state
law, then the distribution of Parago shares may be delayed or may not occur.
There can be no assurance that we will complete the distribution on the proposed
terms or at all.

PARAGO'S BUSINESS AND FUTURE PROSPECTS ARE EXTREMELY DIFFICULT TO EVALUATE
BECAUSE ITS OPERATING HISTORY IS VERY LIMITED AND ITS BUSINESS MODEL IS NEW,
UNPROVEN AND EVOLVING.

Parago was formed in January 1999. Since its formation, Parago has:

     o   acquired its rebates operation in May 1999;

     o   launched its Web site in September 1999; and

     o   completed the initial development of its online rebate application in
    December 1999.

As a result, Parago has only a limited operating history on which one can base
an investment decision. You should consider its prospects in light of the
uncertainties and difficulties frequently encountered by companies in their
early stages of development.

In addition, its business model is new, unproven and evolving. In December 1999,
Parago focused its business to concentrate on its online customer care
solutions. Parago cannot assure that its new, focused business model will be
commercially successful. Parago cannot assure you that that its online solutions
will be accepted by businesses or consumers. If Parago is unable to establish
pricing and service models acceptable to manufacturers, retailers and service
providers and attractive to their customers, its Internet-based solution may not
be commercially successful.

                                       23
<PAGE>


PARAGO HAS A HISTORY OF NET LOSSES AND EXPECTS TO CONTINUE TO INCUR SUBSTANTIAL
NET LOSSES IN THE FUTURE.

Parago had a net loss of approximately $32.5 million (unaudited) for the ten
months ended December 31, 2000 which includes an estimated loss on the sale of
2Lane assets of $1.8 million and an accumulated deficit of approximately $71.8
million (unaudited) at December 31, 2000. Parago anticipates that its operating
expenses will increase in the foreseeable future as Parago continues to develop
its technology and applications, increase its sales and marketing activities,
expand its outsourced solutions capabilities and improve its operational and
financial systems. In addition, because its increasing expense levels are based,
in part, on expectations of its future revenues, any decline in its revenues
below its expectations would have a disproportionately adverse impact on its
operating results. Accordingly, Parago expects to incur additional losses for
the foreseeable future. If its revenues do not grow as Parago anticipates,
Parago may never be profitable.

TO CONTINUE ITS OPERATIONS AND BUSINESS, PARAGO MUST RAISE ADDITIONAL FINANCING.

Parago's ability to maintain and grow its business is dependent on its access to
sufficient funds to support its working capital and capital expenditure needs.
If Parago does not raise additional funds, its business and results of
operations will be seriously harmed, and our assets and share price would be
materially and adversely impacted. This additional financing may not be
available to Parago on a timely basis if at all, or, if available, on terms
acceptable to Parago. Moreover, additional financing may cause material and
immediate dilution to existing Parago stockholders, including us.


PARAGO AND OUR COMPANY, CT HOLDINGS, COULD FACE POTENTIAL CONFLICTS OF INTERESTS
RELATING TO EACH OTHER.

Because of Parago's relationship with us, and because we owned 20,000,000 of its
outstanding shares of common stock at December 31, 2000, and because of our
interlocking directors and officers, who collectively owned 16.7% of Parago's
outstanding shares of common stock as of December 31, 2000, Parago and we are
likely to face potential conflicts of interest relating to each other.

Executives, employees and consultants associated with us assisted in the
development of Parago's business model. Steven B. Solomon, our CEO and
President, was the founder, Chairman and CEO of Parago during its formative
stages. In addition, Lawrence Lacerte, Victor K. Kiam II, and Steven B. Solomon
serve as directors of both Parago and CT Holdings.

Some of Parago's executive officers, key employees and directors also
beneficially own, or hold options or warrants to purchase, approximately 30.4%
of our outstanding common stock as of December 31, 2000. Steven B. Solomon owned
approximately 10.0% of our common stock as of December 31, 2000.

                                       24
<PAGE>

Accordingly, conflicts of interest may arise from time to time between Parago
and us, particularly with respect to the pursuit of overlapping business or
financing opportunities. Neither Parago nor CT Holdings has adopted any formal
plan or arrangement to address these potential conflicts of interest and each
company intends to review related-party transactions on a case-by-case basis.

  o Because Parago has interlocking directors and officers with CT Holdings,
there may be inherent conflicts of interest for these directors and officers
related to transactions between Parago and us. Directors may be required to
abstain from voting with respect to matters involving both us and Parago. Parago
may lose valuable management input from the directors and officers who have
conflicts.

IN THE EVENT OF THE COMPLETION OF PARAGO'S INITIAL PUBLIC OFFERING, PARAGO'S
STOCK PRICE IS LIKELY TO BE VERY VOLATILE.

Currently, Parago's common stock can not be bought or sold publicly. There can
be no assurance that Parago will be able to complete an initial public offering.
Although it is anticipated that the initial public offering price (if an initial
public offering is completed) would be determined based on several factors, the
market price after the offering may vary significantly from the initial offering
price. The market price of Parago's common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors that are beyond
its control. A decline in Parago's stock price will adversely affect our stock
price.

Domestic and international stock markets often experience extreme price and
volume fluctuations. Market fluctuations, as well as general political and
economic conditions, such as a recession or interest rate or currency rate
fluctuations, could adversely affect the market price of Parago's common stock,
if it becomes publicly traded.

Sales of a substantial number of shares of Parago's common stock in the public
market after its initial public offering could depress the market price of the
Parago common stock and could impair Parago's ability to raise capital through
the sale of additional equity securities.

                                       25
<PAGE>

                RISKS RELATED TO OUR CITADEL TECHNOLOGY BUSINESS

OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO
ADAPT OUR DEVELOPMENT TO THESE CHANGES.

We participate in a highly dynamic industry characterized by rapid change and
uncertainty relating to new and emerging technologies and markets. The recent
trend toward server-based applications in networks and applications distributed
over the Internet could have a material adverse affect on sales of our products.
Future technology or market changes may cause some of our products to become
obsolete more quickly than expected.

THE MARKET FOR OUR PRODUCTS IS INTENSELY COMPETITIVE AND WE EXPECT THAT
COMPETITION WILL CONTINUE AND MAY INCREASE.

The market in which we compete is influenced by the strategic direction of major
microcomputer hardware manufacturers and operating system providers. Our
competitiveness depends on our ability to enhance existing products and to offer
successful new products on a timely basis. We have limited resources and must
restrict product development efforts to a relatively small number of projects.

INTRODUCTION OF NEW OPERATING SYSTEMS MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR
FINANCIAL RESULTS AND STOCK PRICE.

If we are unable to successfully and timely develop products that operate under
existing or new operating systems, or if pending or actual releases of the new
operating systems delay the purchase of our products, our future net revenues
and operating results could be materially adversely affected. Additionally, as
hardware vendors incorporate additional server-based network management and
security tools into network operating systems, the demand may decrease for some
of our products, including those currently under development.

THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE
EFFECTIVELY.

As consolidation in the software industry continues, fewer companies dominate
particular markets, changing the nature of the market and potentially providing
consumers with fewer choices. Also, many of these companies offer a broader
range of products than us, ranging from desktop to enterprise solutions. We may
not be able to compete effectively against these competitors. Furthermore, we
may use strategic acquisitions, as necessary, to acquire technology, people and
products for our overall product strategy. We have completed a number of
acquisitions and dispositions of technologies, companies and products and may
acquire and dispose of other technologies, companies and products in the future.
The trend toward consolidation in our industry may result in increased
competition in acquiring these technologies, people or products, resulting in
increased acquisition costs or the inability to acquire the desired
technologies, people or products. Any of these changes may have a significant
adverse effect on our future revenues and operating results.

                                       26
<PAGE>


WE MUST EFFECTIVELY ADAPT TO CHANGES IN THE DYNAMIC TECHNOLOGICAL ENVIRONMENT OF
THE INTERNET IN A TIMELY MANNER.

Critical issues concerning the commercial use of the Internet, including
security, reliability, cost, ease of use, accessibility, quality of service or
potential tax or other government regulation, remain unresolved and may affect
the use of the Internet as a medium to distribute or support our software
products and the functionality of some of our products. If we are unsuccessful
in timely assimilating changes in the Internet environment into our business
operations and product development efforts, our future net revenues and
operating results could be adversely affected.

WE FACE INTENSE PRICE-BASED COMPETITION FOR SALES OF OUR PRODUCTS.

Price competition is often intense in the software market, especially for
utility and security products. Many of our competitors have significantly
reduced the price of their products. Price competition may continue to increase
and become even more significant in the future, resulting in reduced profit
margins.

THE TRANSITION TO INTEGRATED SUITES OF UTILITIES MAY RESULT IN REDUCED REVENUES.

We and our competitors now provide integrated suites of utility products. The
price of integrated utility suites is significantly less than the aggregate
price of stand-alone products that are included in these utility suites when
sold separately. As a result of the shift to integrated utility suites, price
competition is intense and we have experienced cannibalization of our stand-
alone products that are included within the suite. As a result, there may be a
negative impact on our revenues and operating income from selling integrated
utility suites rather than individual products, as the lower price of integrated
utility suites may not be offset by increases in the total volume of utility
suites sold. Additionally, our products may not compete effectively with
competitors' products or integrated utility suites introduced in the future.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.

We have been subject to substantial fluctuations in quarterly net revenues, and
these fluctuations may occur in the future. Fluctuations may be caused by a
number of factors, including:

  o the timing of announcements and releases of new or enhanced versions of our
products and product upgrades;

  o the introduction of competitive products by existing or new competitors;

  o reduced demand for any given product;

                                       27
<PAGE>

  o seasonality in the end-of-period buying patterns of foreign and domestic
software markets; and

  o the market's transition between operating systems.

Due to these factors, forecasts may not be achieved, either because expected
sales do not occur or because they occur at lower prices or on terms that are
less favorable to us. In addition, these factors increase the chances that our
results could diverge from the expectations of investors and analysts.

WE MAY BE UNSUCCESSFUL IN UTILIZING NEW DISTRIBUTION CHANNELS.

We currently offer products over the Internet. We may not be able to effectively
adapt our existing, or adopt new, methods of distributing our software products
utilizing the rapidly evolving Internet and related technologies. The adoption
of new channels may adversely impact existing channels and/or product pricing,
which may reduce our future revenues and profitability.

PRODUCT RETURNS MAY AFFECT OUR NET REVENUES.

Product returns can occur when we introduce upgrades and new versions of
products or when distributors or retailers have excess inventories. Our return
policy allows distributors, subject to various limitations, to return purchased
products in exchange for new products or for credit towards future purchases.
End users may return our products through dealers and distributors within a
reasonable period from the date of purchase for a full refund. In addition,
retailers may return older versions of our products. We estimate and maintain
reserves for product returns. However, future returns could exceed the reserves
we have established, which could have a material adverse affect on our operating
results.

OUR INCREASED SALES OF SITE LICENSES MAY INCREASE FLUCTUATIONS IN OUR FINANCIAL
RESULTS AND COULD AFFECT OUR BUSINESS.

We sell corporate site licenses through the distribution channel and through
corporate resellers. We are increasingly emphasizing sales to corporations and
small businesses through volume licensing agreements. These licensing
arrangements tend to involve a longer sales cycle than sales through other
distribution channels, require greater investment of resources in establishing
the enterprise relationship and can sometimes result in lower operating margins.
The timing of the execution of volume licenses, or their non-renewal or
renegotiation by large customers, could cause our results of operations to vary
significantly from quarter to quarter and could have a material adverse impact
on our results of operations. In addition, if the corporate marketplace grows
and becomes a larger component of the overall marketplace, we may not be
successful in expanding our corporate segment to take advantage of this growth.

                                       28
<PAGE>

WE DEPEND ON DISTRIBUTION BY VALUE ADDED RESELLERS AND INDEPENDENT SOFTWARE
VENDORS FOR A SIGNIFICANT PORTION OF OUR REVENUES.

We distribute some of our products through value added resellers and independent
software vendors under arrangements through which our products are included with
these resellers' and vendors' hardware and software products prior to sale by
them through retail channels. If we are unsuccessful in maintaining our current
relationships and securing license agreements with additional value added
resellers and independent software vendors, or if these resellers and vendors
are unsuccessful in selling their products, our future net revenues and
operating results may be adversely affected.

THE RESULTS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE UNCERTAIN.

We believe that we will need to make significant research and development
expenditures to remain competitive. While we perform extensive usability and
beta testing of new products, the products we are currently developing or may
develop in the future may not be technologically successful. If they are not
technologically successful, our resulting products may not achieve market
acceptance and our products may not compete effectively with products of our
competitors currently in the market or introduced in the future.

THE LENGTH OF THE PRODUCT DEVELOPMENT CYCLE IS DIFFICULT TO PREDICT.

The length of our product development cycle has generally been greater than we
originally expected. We are likely to experience delays in future product
development. These delays could have a material adverse affect on the amount and
timing of future revenues.

WE MUST MANAGE AND RESTRUCTURE OUR OPERATIONS EFFECTIVELY.

  We continually evaluate our product and corporate strategy. We have in the
past undertaken and will in the future undertake organizational changes and/or
product and marketing strategy modifications. These organizational changes
increase the risk that objectives will not be met due to the allocation of
valuable limited resources to implement changes. Further, due to the uncertain
nature of any of these undertakings, these efforts may not be successful and we
may not realize any benefit from these efforts.

WE MUST ATTRACT AND RETAIN PERSONNEL WHILE COMPETITION FOR PERSONNEL IN OUR
INDUSTRY IS INTENSE.

We believe that our future success will depend in part on our ability to recruit
and retain highly skilled management, marketing and technical personnel.
Competition in recruiting personnel in the software industry is intense. To
accomplish this, we believe that we must

                                       29
<PAGE>

provide personnel with a competitive compensation package, including stock
options, which requires ongoing stockholder approval.

WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

We regard our software as proprietary and underlying technology as proprietary.
We seek to protect our proprietary rights through a combination of
confidentiality agreements and copyright, patent, trademark and trade secret
laws. However, we do not employ technology to prevent copying of our products.
Third parties may copy aspects of our products or otherwise obtain and use our
proprietary information without authorization or develop similar technology
independently. We do not have any patents or statutory copyrights on any of our
proprietary technology which we believe to be material to our future success,
although Parago has filed a provisional patent application with respect to some
of its business applications and intellectual property rights. In selling our
products, we rely primarily on "shrink wrap" licenses that are not signed by
licensees, and, therefore, such licenses may be unenforceable under the laws of
some jurisdictions. In addition, existing copyright laws afford limited
practical protection. Furthermore, the laws of some foreign countries do not
offer the same level of protection of our proprietary rights as the laws of the
United States. There can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology substantially equivalent or superseding
proprietary technology. Furthermore, there can be no assurance that any
confidentiality agreements between us and our employees will provide meaningful
protection of our proprietary information, in the event of any unauthorized use
or disclosure thereof. Any legal action that we may bring to protect proprietary
information could be expensive and may distract management from day-to-day
operations.

WE ARE INVOLVED IN LITIGATION THAT COULD, AND FUTURE CLAIMS AGAINST US MAY,
AFFECT OUR FINANCIAL RESULTS.

From time to time, we may be subject to claims that we have infringed the
intellectual property rights of others, that our products are not Year 2000
compliant or other product liability claims, or other claims incidental to our
business. We are involved in a number of judicial and administrative proceedings
incidental to our business. We intend to defend and/or pursue all claims against
us. We may suffer an unfavorable outcome as a result of one or more claims. We
do not expect the final resolution of these claims to have a material adverse
effect on our financial position, individually or in the aggregate. However,
depending on the amount and timing of unfavorable resolutions of claims against
us, or the costs of settlement or litigation, our future results of operations
or cash flows could be materially adversely affected in a particular period.

SOFTWARE DEFECTS AND PRODUCT LIABILITY.

Software products frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. For example, in
the past, our anti-virus software products have incorrectly detected viruses
that do not exist. We have not

                                       30
<PAGE>

experienced any material adverse effects resulting from any of these defects or
errors to date and we test our products prior to release. Nonetheless, defects
and errors could be found in current versions of our products, future upgrades
to current products or newly developed and released products. Software defects
could result in delays in market acceptance or unexpected reprogramming costs,
which could materially adversely affect our operating results. Most of our
license agreements with customers contain provisions designed to limit our
exposure to potential product liability claims. It is possible, however, that
these provisions limiting our liability may not be valid as a result of federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions. A
successful product liability claim could have a material adverse affect on our
business, operating results and financial condition.

OUR SOFTWARE PRODUCTS AND WEB SITE MAY BE SUBJECT TO INTENTIONAL DISRUPTION.

While we have not been the target of software viruses specifically designed to
impede the performance of our products, such viruses could be created and
deployed against our products in the future. Similarly, experienced computer
programmers, or hackers, may attempt to penetrate our network security or the
security of our Web site from time to time. A hacker who penetrates our network
or Web site could misappropriate proprietary information or cause interruptions
of our services. We might be required to expend significant capital and
resources to protect against, or to alleviate, problems caused by virus creators
and hackers.

WE RELY ON MICROSOFT AND NOVELL TECHNOLOGY.

Our software products are designed for Microsoft technologies, including Windows
NT and Windows 95/98, and Novell NetWare. Although we believe that Microsoft and
Novell technologies are and will be widely utilized by businesses in the
corporate market, no assurances can be given that these businesses will actually
adopt such technologies as anticipated or will not in the future migrate to
other computing technologies that the Company does not support. Moreover, if our
products and technology are not compatible with new developments in Microsoft
and Novell technologies, as to which there can be no assurances, our business,
results of operations and financial condition could be materially and adversely
affected.


ITEM 2. DESCRIPTION OF PROPERTY

We lease approximately 7,200 square feet as our principal executive office
premises located at 3811 Turtle Creek Blvd., Suite 770, Dallas, Texas, as well
as the office space that Parago subleases from us, approximately 14,500 square
feet of office space in Dallas, Texas, pursuant to a lease that expires in March
2002 with two five-year renewal options. We believe that these facilities are
adequate for our current needs and that suitable additional or alternative space
will be available in the future on commercially reasonable terms as needed.

                                       31
<PAGE>

The telephone number of our principal office is (214) 520-9292. The Company
maintains a site on the World Wide Web at http://www.ct-holdings.com.

ITEM 3. LEGAL PROCEEDINGS

Set forth below are some litigation matters to which we are a party. We believe
that we have meritorious defenses and will vigorously defend ourselves. However,
an unfavorable resolution of or settlement or defense costs related to one or
more of these lawsuits could have a material adverse effect on our business,
results of operations or financial condition.

In August 1998, Janssen-Meyers Associates L.P. ("JMA") filed a lawsuit against
us arising out of an alleged 1995 contract with our predecessor "("Old
Citadel"). The suit alleged that Old Citadel breached a letter of intent dated
September 1995 and/or a Placement Agency Agreement dated November 1995 between
JMA and Old Citadel. As its damages, JMA claimed that it was entitled to, among
other things, the cash value of 1.8 million $0.89 warrants valued during May
1996. According to JMA's valuation of those warrants, potential damages were
alleged to exceed $40 million. The Company vigorously disputes that it breached
either the letter of intent or the Placement Agency Agreement or that it is
liable to JMA. The lawsuit was styled Janssen-Meyers Associates, L.P. v. Citadel
Technology, Inc., and was filed in the Supreme Court of the State of New York,
County of New York. We removed the case to federal court in the Southern
District of New York.

Following mediation in July 2000, we entered into a settlement term sheet to
attempt to resolve the disputes between us and JMA, pursuant to which we and JMA
agreed in principle to settle the lawsuit for an aggregate of $3 million, in a
combination of $1.5 million in cash and 300,000 shares of common stock with a
guaranteed value of $5 per share as of January, April and October 2001 (with
respect to 100,000 of the shares for each period). The settlement was subject to
execution of definitive settlement documents and approval of the boards of
directors of the companies. As a result, we recorded approximately $1,912,500 as
a nonrecurring charge related to the settlement of the litigation during the ten
months ended December 31, 2000. Under the terms of the previously proposed
settlement, we would have been required to record additional charges (in the
amount of the difference between $1,500,000 and the gross proceeds from the
sales of the stock by JMA at the relevant periods) in the event our shares of
common stock did not trade above $5 per share for five consecutive trading days
during the guarantee periods.


The Company and JMA were unable to negotiate the final definitive settlement
agreement and, as a result, the matter is still not finally settled. On March
27, 2001, the Court hearing the JMA lawsuit issued a Summary Order that denied
JMA's motion to enforce the settlement term sheet and confirmed the prior
dismissal of the lawsuit. The Court further ruled that JMA would either have to
bring an action on the proposed settlement or move to re-open the dismissed
case. The Court stated that it did not express

                                       32
<PAGE>

any view with respect to the merits of the proposed settlement that brought
about the dismissal of the case. Given these recent events, the Company is
unable to estimate the potential loss related to this matter. The Company has
also filed a lawsuit against JMA to recover excess amounts charged by JMA in
connection with related bridge loans.

In June 2000, the Company was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, tortious
interference and negligence. Specifically, the Fergusons claim that they were
damaged when they attempted to exercise certain warrants during a time when the
Company's related registration statement could not be used. On June 29, 2000,
the Company moved to transfer venue from Harris County, Texas, to Dallas County,
Texas. On June 30, 2000, the Company answered (subject to its Motion to Transfer
Venue). On July 28, 2000, also subject to its Motion to Transfer, the Company
filed a third party petition against Yorkton Securities, Inc. and Yorkton
Capital, Inc., which acted as the Fergusons' broker in connection with the
transaction at issue. In the third party petition, the Company contends that the
Yorkton entities are liable to the Company based on negligence and contribution
for, among other things, failing to disclose to the Fergusons that the
registration statement could not be used. The Company believes that the claims
asserted by the Fergusons are without merit and will vigorously defend the
claims, and the Company will vigorously prosecute the claims it has filed
against Yorkton Securities.

At this time, the Company is unable to predict the ultimate outcome of these
suits, the costs associated with defending the claims and pursuing
counterclaims, and monetary compensation awarded, if any. Unfavorable
resolutions of these lawsuits or costs of litigation and settlement could have a
material adverse effect on our results of operations or financial condition.

We are a party to some other legal proceedings. At this time, we are unable to
predict the ultimate outcome of these proceedings, the costs associated with
defending the claims and pursuing counterclaims, and monetary compensation
awarded, if any. Unfavorable resolutions of these proceedings or the costs of
litigation and settlement could have a material adverse effect on our results of
operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On February 25, 2000, we held our Annual Stockholders Meeting, at which time our
stockholders approved the election of the following individuals as directors of
the Company:

NAME                     FOR      WITHHELD
Steven B. Solomon     31,087,420    21,767
Victor Kiam II        31,087,420    21,767
Lawrence Lacerte      31,087,420    21,767
Chris A. Economou     31,087,420    21,767
Mark Rogers           31,087,420    21,767
Michael Ruff          31,087,420    21,767
Dr. Axel Sawallich    31,087,420    21,767

                                       33
<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock began trading on the Nasdaq SmallCap Market under the symbol
CITN on February 29, 2000. The Common Stock was traded on the OTC Bulletin Board
prior to its listing on the Nasdaq SmallCap Market. The following table sets
forth, for the periods indicated, the high and low bid and ask prices for the
Common Stock as reported on the OTC Bulletin Board for all periods through the
fourth quarter of the 2000 fiscal year. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. For periods beginning after the fourth quarter of the 2000
fiscal year the table sets forth the high and low sale prices.  We have received
notice from the Nasdaq that our shares are subject to delisting as a result of
the failure to maintain a minimum bid price of $1.00 per share.  We have
requested a hearing with the Nasdaq to contest the delisting, which will be held
on April 26, 2001, although there can be no assurances that we will be
successful in this hearing.  In the event our shares are delisted, we will seek
to have the shares listed on the Over The Counter Bulletin Board services.
<TABLE>
<CAPTION>

                                            High   Low
<S>                                         <C>    <C>

Fiscal Year Ended February 28, 1999
            1st Quarter...................   1.94   .35
            2nd Quarter...................   2.20   .80
            3rd Quarter...................   1.05   .40
            4th Quarter...................   4.09   .65

Fiscal Year Ended February 29, 2000
            1st Quarter...................   3.62  1.94
            2nd Quarter...................   2.97  1.34
            3rd Quarter...................   3.13  1.81
            4th Quarter...................   7.84  2.13

Ten Months Ended December 31, 2000
            1st Quarter...................   7.38  4.91
                (March 1 - 31)
            2nd Quarter...................
                (April 1 - June 30)          5.22  1.35
            3rd Quarter...................
                (July 1 - September 30)      2.36  0.72
            4th Quarter...................
                (October 1 - December 31)    1.31  0.25

</TABLE>

                                       34
<PAGE>

Holders of common stock are entitled to dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. The Company has
never paid cash dividends on its Common Stock, and management intends, for the
immediate future, to retain any earnings for the operation and expansion of the
Company's business. Any future determination regarding the payment of dividends
will depend upon results of operations, capital requirements, the financial
condition of the Company and such other factors that the Board of Directors of
the Company may consider. The Company has issued preferred stock, which entitles
the holders thereof to preferences as to payment of dividends and liquidation
proceeds.

Recent Sales of Unregistered Securities

During the ten months ended December 31, 2000, the Company sold 2,500,000
restricted shares of its common stock to two of its directors pursuant to
private placements to accredited investors under Section 4(2) of the Securities
Act, for proceeds of $2,500,000.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion should be read in conjunction with the financial
statements and notes thereto found elsewhere herein, as well as the disclosure
relating to forward-looking statements set forth above under the caption
"Factors That May Affect Future Operating Results."

OVERVIEW

We assist in the development of technology-based companies and we provide early
stage ventures with management capital, as well as consulting on operations,
marketing and strategic planning. In addition, we may pursue acquisitions of
complementary companies that fit our business strategy. Our business model is
designed to enable the companies with whom we partner to become market leaders
in their industries. We believe that by focusing on technology companies, we are
positioned to identify the latest trends and opportunities and attract promising
companies and talent in this industry. We may also pursue business opportunities
in markets other than technology for companies with compelling valuations and
strong business models.  Our strategy is to leverage the expertise of our
management and affiliates and to capitalize upon opportunities to cross-
pollinate the strongest qualities among the companies we assist. We believe that
the anticipated growth in technology and e-commerce creates strong opportunities
for us to increase shareholder value by investing in well-positioned early stage
ventures.

In addition to this business development strategy, we continue to operate our
"Citadel Technology" security software line, which is focused on developing and
marketing security and administration software products for both computer
networks and desktop personal computers. Our integrated, easy-to-use software
products enable network administrators to control access to network resources,
automate routine network

                                       35
<PAGE>

maintenance tasks, and automatically shutdown and restart servers and desktop
PCs in the event of a network crash. These software products also enable
individual PC users to control access to their desktops, secure files, and index
and retrieve files stored in a variety of storage media. Our Citadel Technology
software products are designed to reduce the direct and indirect costs of
computer network operations, protect proprietary networks and information, and
otherwise improve overall office productivity.

Our core focus is on our business development services, and we are currently
analyzing various strategic alternatives for our Citadel Technology security
software business, including new strategic alliances with third parties, new
applications of the technology, new third party licensing or joint venture
arrangements or the sale of the business line. As a result, management believes
that the results of operations for our Citadel Technology security software
business will continue to be adversely affected in the future by our core focus
on business development services.

OVERVIEW OF PARAGO SUBSIDIARY

We began our business development activities in January 1999 with the formation
of Parago, Inc., an application service provider (ASP) and Internet based
business process outsourcer (BPO) that provides a suite of technology offerings
(including PromoCenter, ValueRewards and KnowledgeCenter) designed to increase
sales, reduce costs, and retain customers for retailers, manufacturers and
service organizations. Parago's continuous customer interaction services include
online promotional management (including online rebate processing), proactive
email, online surveys, and customer data analysis and reporting. Parago's
comprehensive integrated suite of outsourced customer care solutions are
marketed across multiple industry lines. Parago's preliminary unaudited results
for the year ended December 31, 2000 included revenues of approximately $19.5
million. Through December 2000, Parago had received approximately $81.3 million
in private equity financing from venture capital investors including
THLee.Putnam Internet Partners, Dain Rauscher Wessels Investors, Watershed
Capital and Seaboard Ventures, as well as angel investors. CT Holdings continues
to hold 20 million shares of Parago common stock.

Parago provides Internet-based solutions that automate customer relationship
management. Parago's solutions enable both brick-and-mortar and e-commerce
businesses to more efficiently develop, retain and extend customer relationships
and improve sales, marketing and customer retention. Parago's Internet-enabled
enterprise solutions include PromoCenter, ValueRewards and KnowledgeCenter. By
automating customer care activities such as online and traditional rebate
processing and promotions, Parago allows its clients to enhance customer
retention, increase revenue opportunities and improve operating efficiencies.
Parago's Internet-based solutions seek to transform promotional management and
product information from customer service liabilities to retention and extension
opportunities.

Parago's online solutions provide a new vehicle for its clients to conduct
targeted marketing to customers with whom they have traditionally lost contact
subsequent to the

                                       36
<PAGE>

point of purchase. Parago is developing proprietary software that will provide
an online mechanism for customers, many of whom have immediate purchasing power
in the form of promotional proceeds, to apply those proceeds towards the
purchase of additional products or services. Parago's solutions also capture
valuable customer information that can help its clients better understand
customer behavior. Parago plans to provide fee-based customer specific or
aggregated data analyses to assist clients in designing future promotions.
Parago's solutions also enable businesses to improve operating efficiencies by
allowing them to analyze the results of their promotions and manage these
promotions on a real time basis.

Parago markets its solutions to retailers, manufacturers and service providers
across multiple industries. Parago provided its online solutions to
approximately 180 clients as of December 31, 2000, an increase of more than
38.5% over last year.

In connection with an acquisition by Parago in March 1999, we agreed to convert
the Parago shares of common stock issued in connection with the merger into up
to 500,000 of our shares at the option of the shareholders of the Company
acquired by Parago. In addition, pursuant to the terms of the subscription
agreements between Parago and some of its stockholders, we may be required to
issue up to 414,000 shares of our common stock to such stockholders based upon a
conversion price of $3.75 per share. These provisions could have the effect of
diluting our stockholders if the market price of our common stock is above the
effective conversion prices at the time of conversion.

At December 31, 2000, we owned 20,000,000 shares of the common stock of Parago,
representing less than 50%  of the outstanding common stock of Parago. As a
result, we account for our ownership interest in Parago using the equity method
of accounting. Since its inception, Parago has incurred net losses and now has a
substantial accumulated deficit, which have had an impact upon and are reflected
in our financial statements. For example, for the ten months ended December 31,
2000 and the year ended February 29, 2000, we recorded an "equity in loss of
unconsolidated affiliate" of $1,220,516 and

                                       37
<PAGE>

$18,122,874, respectively. We understand that Parago expects to incur net losses
for the foreseeable future, and, even though our investment in Parago is
currently carried at zero and will not be further reduced, we may record
significant losses relating to our Parago subsidiary as it continues to develop
its business services in the future if increases in Parago equity occur.

Parago filed a registration statement with the Securities and Exchange
Commission relating to an initial public offering of shares of its common stock
in October 1999, but applied to withdraw this registration statement in March
2000. We previously announced that we intend to distribute 15% of the shares of
Parago common stock that we hold to our stockholders, subject to compliance with
the SEC requirements applicable to the proposed distribution and upon the
expiration of a 180-day lock-up agreement between the underwriters of the Parago
proposed initial public offering and us. If there are some problems associated
with compliance with SEC requirements or state law, then the distribution of
Parago shares may be delayed or may not occur. There can be no assurance that
Parago's initial public offering will be completed, or that we will otherwise
complete the distribution of a portion of our shares to our stockholders on the
proposed terms or at all.

OVERVIEW OF RIVER LOGIC

In May 2000, the Company acquired approximately 1.19 million shares, or 5.9%, of
common stock of River Logic from several of its existing shareholders in
exchange for 333,333 shares of the Company's common stock. The Company also
acquired shares of Series A Convertible Preferred Stock from River Logic in
exchange for the contribution of assets acquired from a third party by the
Company through exchange of 666,667 shares of the Company's common stock.  The
acquired shares of River Logic's preferred stock are convertible into shares of
common stock that represented approximately 13.1% of the currently outstanding
shares of capital stock of River Logic on a post conversion basis as of May 5,
2000.

In connection with the investment in River Logic, the Company also made two
$300,000 bridge loans to River Logic that together were convertible into 800,000
shares, in the aggregate, of common stock that represented approximately 3.8% of
the then currently outstanding capital stock of River Logic. Each of the bridge
loans (i) bears interest at a rate of 12% per annum through its first
anniversary and at one percent above the prime rate per annum thereafter, (ii)
is secured by certain assets of River Logic, (iii) is payable upon the Company's
demand and (iv) is prepayable by River Logic commencing on its third anniversary
date. In April 2001, River Logic received a strategic investment from the Intel
64 Fund, Cardinal Investment, Inc, eMed Ventures and Mercury Ventures, and the
Company converted $450,000 of the principal amount of the notes into shares of
the Series C Preferred Stock, and River Logic repaid the $216,000 balance of
these notes as of April 2001. As a result of the transactions, the Company owns
as of April 2001 approximately 10% of the capital stock of River Logic.

                                       38
<PAGE>

Altogether, the carrying value of the River Logic investment includes the fair
value of 1,000,000 shares of the Company's common stock exchanged to acquire the
interest in River Logic. The carrying value also includes legal fees paid in
connection with the investment and 50,000 shares of the Company's common stock
granted to a consultant for identifying the investment. Soon after the closing
of the transaction this consultant became President and Chief Operating Officer
of River Logic, and was granted 100,000 fully vested stock options to purchase
the Company's stock at $5 per share.

RESULTS OF OPERATIONS

TEN MONTHS ENDED DECEMBER 31, 2000 AS COMPARED WITH YEAR ENDED FEBRUARY 29, 2000

NET REVENUE

During the ten months ended December 31, 2000, we had net sales of $460,985, a
decrease of $831,265, or 64.3%, compared to net sales of $1,292,250 for the year
ended February 29, 2000. We attribute the decrease in our software product
revenues for fiscal 2000 to our focus on our activities as an Internet business
developer and the late introduction of our desktop and network versions of our
WinShield Secure PC products.

COST OF SALES

The costs and expenses incurred in connection with producing the Company's
products for the ten months ended December 31, 2000 were $8,310 compared to
$61,564 for the year ended February 29, 2000, or a decrease of $53,254, or
86.5%. The decrease in the dollars of our cost of sales for the ten months ended
December 31, 2000 as compared to the year ended February 29, 2000 can be
attributed to the overall decrease in revenues due to our focus on our Internet
business development model.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the ten months ended December
31, 2000 were $2,690,160 as compared to $4,334,755 for the year ended February
29, 2000, or a decrease of $1,644,595, or 37.9%. The decrease in our selling,
general and administrative expenses for the ten months ended December 31, 2000
resulted primarily from the shift in our business to an Internet business
development model, the inclusion of ten months rather then twelve, and our
decreased emphasis on selling and marketing activities related to our software
business, and reduced headcount.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization expense for the ten months ended December 31, 2000
was $917,492, compared to $1,361,556 for the year ended February 29, 2000, or a
decrease of $444,064, or 32.6%. This decrease resulted from the write-off of
approximately $625,000

                                       39
<PAGE>

of software costs in the fourth quarter of the fiscal year ended February 29,
2000. For the ten months ended December 31, 2000, we wrote off $230,643 of
software costs and we reduced the estimated useful life of all remaining
unamortized software costs of $591,925 to 12 months based upon the Company's
ongoing evaluation of capitalized software costs and projected net sales.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development costs charged to expense for the ten months ended
December 31, 2000, were $112,992 as compared to $392,315 for the year ended
February 29, 2000, or a decrease of $279,323, or 71.2%, principally as a result
of lower headcount. For the ten months ended December 31, 2000 and the year
ended February 29, 2000, we capitalized approximately $102,000 and $649,000,
respectively. The decrease in costs capitalized for the ten months ended
December 31, 2000 related primarily to the halting of development work on its
products due to decreases in headcount. In the fiscal year ended February 29,
2000, we internally developed our WinShield Secure PC product ("Secure PC"), the
total security solution for desktops, while we completed upgrading Secure PC to
become Office 2000 compatible during the  quarter ended May 31, 2000.

WRITE-OFF OF PURCHASED AND CAPITALIZED SOFTWARE COSTS

In the ten months ended December 31, 2000, purchased and capitalized software
costs were written down by $230,643 as compared to $625,336 for the fiscal year
ended February 29, 2000, resulting in a decrease of $394,693 or 63.1%. These
write-offs were recognized as a result of the net book value of some of our
products exceeding the net realizable value associated with those same products.

NONRECURRING LITIGATION SETTLEMENT CHARGE

In August 1998, Janssen-Meyers Associates L.P. ("JMA") filed a lawsuit against
the Company arising out of an alleged 1995 contract with the Company's
predecessor "("Old Citadel"). The suit alleged that Old Citadel breached a
letter of intent dated September 1995 and/or a Placement Agency Agreement dated
November 1995 between JMA and Old Citadel. As its damages, JMA claimed that it
was entitled to, among other things, the cash value of 1.8 million $0.89
warrants valued during May 1996. According to JMA's valuation of those warrants,
potential damages were alleged to exceed $40 million. The Company vigorously
disputes that it breached either the letter of intent or the Placement Agency
Agreement or that it is liable to JMA. The lawsuit was styled Janssen-Meyers
Associates, L.P. v. Citadel Technology, Inc., and was filed in the Supreme Court
of the State of New York, County of New York. We removed the case to federal
court in the Southern District of New York.

Following mediation in July 2000, the Company entered into a settlement term
sheet, pursuant to which the Company and JMA agreed in principle to settle the
lawsuit for an aggregate of $3 million, in a combination of $1.5 million in cash
and 300,000 shares of the Company's common stock with a guaranteed value of $5
per share as of January, April and October 2001 (with respect to 100,000 of the
shares for each period). The

                                       40
<PAGE>

settlement was subject to execution of definitive settlement documents and
approval of the boards of directors of the companies. As a result, the Company
recorded approximately $1,912,500 as a nonrecurring charge related to the
settlement of the litigation.

The Company and JMA were unable to negotiate the final definitive settlement
agreement and, as a result, the matter is still not finally settled. On March
27, 2001, the Court hearing the JMA lawsuit issued a Summary Order that denied
JMA's motion to enforce the settlement term sheet and confirmed the prior
dismissal of the lawsuit. The Court further ruled that JMA would either have to
bring an action on the proposed settlement or move to re-open the dismissed
case. The Court stated that it did not express any view with respect to the
merits of the settlement that brought about the dismissal of the case.  Given
these recent events, the Company is unable to estimate the potential loss
related to this matter.  The Company has also filed a lawsuit against JMA to
recover excess amounts charged by JMA in connection with related bridge loans.


OTHER INCOME (EXPENSE)

Interest expense for the ten months ended December 31, 2000 and the year ended
February 29, 2000 was $9,129 and $53,340, respectively. This decrease in expense
resulted primarily from the Company having less interest bearing debt during the
ten months ended December 31, 2000 as compared to the fiscal year ended February
29, 2000. Equity in loss of unconsolidated affiliate was $1,220,516 for the year
ended February 29, 2000 as compared to $18,122,874 for the fiscal year ended
February 29, 2000. The significant decreases in the equity in loss of
unconsolidated affiliate is due to the Company no longer applying the equity
method due to our share of Parago's accumulated losses being in excess of the
carrying value of our investment in Parago.  For further discussion of our
application of the equity method see Note A in the financial statements. We
expect that these losses would continue to be significant for at least the
foreseeable future as Parago continues to develop its business services.

NET LOSS

As a result of these factors, for the ten months ended December 31, 2000, we
reported a net loss of $8,125,258, compared to a net loss of $23,656,939 for the
fiscal year ended February 29, 2000.

DIVIDENDS ON PREFERRED STOCK

Preferred stock dividends for the fiscal year ended February 29, 2000 consisted
primarily of dividends accrued on Series D preferred stock. In June 1999, the
Company converted $2,000,000 of Series D preferred stock, plus dividends in
arrears of approximately $238,000, into 2,081,937 shares of the Company's common
stock.

                                       41
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents at December 31, 2000 were $21,647.

The net cash used in operations of $1,249,982 for the ten months ended December
31, 2000 is principally a result of the net loss of $8,125,258, partially offset
by non-cash charges including $1,220,516 associated with equity in losses of
unconsolidated affiliate, $1,544,456 provision for forgiveness of notes
receivable from related parties and $1,912,500 of legal accruals, and $917,492
of depreciation and amortization. The net cash used in operations of $3,086,101
for the fiscal year ended February 29, 2000 is principally a result of the net
loss of $23,656,939, partially offset by non-cash charges including $18,122,874
associated with equity in losses of unconsolidated affiliate, $1,361,556 of
depreciation and amortization and other non-cash charges totaling $1,322,817.

Cash flows used in investing activities was $1,957,059 for the ten months ended
December 31, 2000, as compared to $1,666,994 for the fiscal year ended February
29, 2000. The change results from an increase in notes receivable from
affiliates related to the bridge loans issued to River Logic, Inc. and Perclick,
Inc. offset by the reduction in cash due to deconsolidation of Parago in 1999.

Cash flows provided by financing activities primarily from the sale of our
common stock were $2,523,536 for the ten months ended December 31, 2000, as
compared to $2,074,138 for the year ended February 29, 2000.

As a result of the aforementioned factors, cash and cash equivalents decreased
by $685,765 for the ten months ended December 31, 2000, versus a decrease of
$2,678,957 for the fiscal year ended February 29, 2000.

Liquidity

The Company has incurred recurring operating losses and has a working capital
deficiency. The Company has used cash in operations of approximately $1.3
million during the 10 months ended December 31, 2000. The Company has a
cash balance of approximately $22,000 at December 31, 2000 and current
liabilities exceed current assets by approximately $ 1.6 million. As outlined
below, these assets do not reflect the value that may be realized from our
investments in Parago and River Logic. The Company has been and continues to be
dependent upon outside financing to develop its software products, perform its
business development activities, invest in unconsolidated affiliates and provide
for ongoing working capital requirements. During 2000, substantially all of this
financing has been provided by related parties.

                                       42
<PAGE>

Over the next year the Company expects to generate cash from the sale of the
Company's software and will incur costs relating to such operations which may
result in a cash deficiency. The Company will also continue to incur expenses
relating to corporate overhead and activities related to managing the Company's
investments and considering additional opportunities. The Company is currently
analyzing various strategic alternatives for its Citadel Technology security
software business, including new strategic alliances with third parties, new
applications of the technology, new third party licensing, joint venture
arrangements or the sale of the business line. While the Company has reduced
costs as it has transitioned the core focus of its business plans to business
development activities, the Company may require cash from financing activities
to fund the deficits expected over the next year.

The Company's strategy of continuing to support and expand its business
development activities requires the Company to obtain additional capital. The
complete implementation of this element of our strategy will not generate
positive cashflow in the foreseeable future. Achieving positive cashflow is
currently highly dependent upon obtaining liquidity from the Company's
investments in unconsolidated affiliates. The Company estimates it will need to
raise a minimum of $1 million to fund the plan through the remainder of 2001 and
substantially greater amounts if the Company expects to continue to acquire
investments or if amounts become due to settle contingent liabilities.
Historically, the Company has obtained any short-term bridge funding from its
Chief Executive Officer or Directors of the Company. While this may occur in the
future there can be no assurance that such financing will be available, or if
available on terms that the Company would be willing to accept.

                                       43
<PAGE>

Since the development of our new focus on businesses development activities we
have made investments in two companies that we believe may provide liquidity to
the Company in the long term. Our first investment in Parago we believe has been
successful in that it has grown from the original $50,000 of equity provided by
the Company and no revenue, to net revenue of approximately $19.5 million for
the year ended December 31, 2000 (unaudited). As expected in an early stage
company, Parago has not been profitable and has experienced cash flow
deficiencies as it implements its business plan. We believe, however, that our
investment of 20,000,000 common shares of Parago may ultimately provide an
appropriate return. Until we are able to create liquidity from the company's
investments through sale to a strategic investor, an initial public offering or
some other activity, the Company will continue to require working capital to
fund its own operating expenses.

Similarly, the Company's investment in River Logic we believe has also been
successful. Since our initial investment, River Logic has made substantial
progress in executing its strategy through its development and introduction of
new products and establishment of new customer relationships. In addition,
during April, 2001 River Logic obtained a significant strategic investment from
a subsidiary of Intel, Cardinal Investments, eMed Ventures, and Mercury
Ventures. As part of that round, the Company converted $450,000 of demand notes
receivable into River Logic Series C Preferred stock, the same equity
instruments purchased by the other investees. The remainder of our note
receivable totaling approximately $200,000 was paid in April 2001. Similar to
the investments into Parago, the Company recognized that these investments would
be initially illiquid. While we are pleased with the performance of Parago and
River Logic to date, there can be no assurance that the Company will ever
achieve liquidity for its investments.

There can be no assurance that management's plans will be successful or what
other actions may become necessary. Although the Company has been successful
raising capital in the past, the inability of the Company to raise capital may
require the Company to sell assets or reduce the level of its operations. Such
actions could have a material adverse effect on the Company's business and
operations and result in charges that could be material to the Company's
business and results of operations.

ITEM 7. FINANCIAL STATEMENTS

The Financial Statements for the ten month period ended December 31, 2000 and
the fiscal year ended February 29, 2000 are found following the signature page
of this report.

ITEM 8. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS

None


                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

The information set forth under the captions "Election of Directors" and
"Executive Officers" of the Proxy Statement for our Annual Meeting of
Stockholders is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

The information set forth under the caption "Director and Executive
Compensation" of the Proxy Statement for our Annual Meeting of Stockholders is
incorporated herein by reference.


                                      44
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Outstanding Capital Stock and Stock
Ownership of Directors, Certain Executive Officers and Principal Stockholders"
of the Proxy Statement for our Annual Meeting of Stockholders is incorporated
herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Transactions" of the Proxy
Statement for our Annual Meeting of Stockholders is incorporated herein by
reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

2.1    Second Amended and Restated Plan of Merger, dated February 29, 1996, by
       and between LoneStar Hospitality Corporation, LSHC Acquisition, Inc. and
       Citadel Computer Systems Incorporated (without exhibits) (incorporated by
       reference to Exhibit 2.1 of the Company's Current Report on Form 8-K
       dated February 29, 1996).

2.2    Purchase and Sale Agreement, dated March 1, 1996, by and between the
       LoneStar Hospitality Corporation, LS Holding Corp. and Miami Subs USA,
       Inc. (without exhibits) (incorporated by reference to Exhibit 2.2 of the
       Company's Current Report on Form 8-K dated February 29, 1996).

2.3    Technology Transfer Agreement, by and between LoneStar Hospitality
       Corporation and Circuit Masters Software, Inc., dated February 29, 1996
       (without exhibits) (incorporated by reference to Exhibit 2.3 of the
       Company's Current Report on Form 8-K dated February 29, 1996).

2.4    Technology Transfer Agreement, by and between the Company and Bill
       Mulvany, dated February 29, 1996 (without exhibits) (incorporated by
       reference to Exhibit 2.4 of the Company's Current Report on Form 8-K
       dated February 29, 1996).

2.5    Technology Transfer Agreement, by and between the Company and Kim Marie
       Newman, dated February 29, 1996 (without exhibits) (incorporated by
       reference to Exhibit 2.5 of the Company's Current Report on Form 8-K
       dated February 29, 1996).

2.6    Agreement, by and between the Company, Circuit Masters Software, Inc.,
       Patrick William Mulvany and Kim Marie Newman, dated May 16, 1996,
       effective as of February 29, 1996 (incorporated by reference to Exhibit
       2.6 of the Current Report on Form 8-K/A filed with the Securities and
       Exchange Commission on June 10, 1996).

3.1    Certificate of Incorporation (incorporated by reference to the
       registration statement on Form S-1, File No. 33-25462, for Apollo
       Resources, Inc., on November 10, 1988, and declared effective
       January 4, 1989).

                                       45
<PAGE>

3.2    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on June 4, 1990 (incorporated by reference to
       Exhibit 3.2 of the Company's Annual Report on Form 10-KSB for the fiscal
       year ended February 29, 1996).

3.3    Bylaws (incorporated by reference to the registration statement on Form
       S-1, File No. 33-25462, filed with the Securities and Exchange Commission
       on November 10, 1988).

3.4    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on October 15, 1991 (incorporated by
       reference to the Company's Annual Report on Form 10-KSB for the year
       ended December 31, 1991).

3.5    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on July 20, 1994 (incorporated by reference
       to the Company's Quarterly Report on Form 10-QSB for the quarter ended
       June 30, 1994).

3.6    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on December 11, 1995 (incorporated by
       reference to the Company's Quarterly Report on Form 10-QSB for the
       quarter ended December 31, 1995).

3.7    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on May 1, 1996 (incorporated by reference to
       Exhibit 3.7 of the Company's Annual Report on Form 10-KSB for the fiscal
       year ended February 29, 1996).

3.8    Certificate of Designations of Series A Preferred Stock. (incorporated by
       reference to Exhibit 4 of the Company's Quarterly Report on Form 10-QSB
       for the fiscal quarter ended May 31, 1996).

3.9    Certificate of Designations of Series B Preferred Stock (incorporated by
       reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-QSB
       for the fiscal quarter ended August 31, 1996).

3.10   Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on February 27, 1998 (incorporated by
       reference to Exhibit 4.2 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.11   Certificate of Designations of Series C Preferred Stock (incorporated by
       reference to Exhibit 4.6 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

                                       46
<PAGE>

3.12   Certificate of Designations of Series D Preferred Stock (incorporated by
       reference to Exhibit 4.8 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.13   Certificate of Designations of Series E Preferred Stock (incorporated by
       reference to Exhibit 4.7 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.14   Certificate for Renewal and Revival of Charter filed with the Delaware
       Secretary of State on October 29, 1999 (incorporated by reference to
       Exhibit 3.14 to the Company's Annual Report on Form 10-KSB for the fiscal
       year ended February 29, 2000).

10.1   Employment Agreement dated July 15, 1997, by and between the Company and
       Steven Solomon (incorporated by reference to Exhibit 10.1 to the
       Company's Annual Report on Form 10-KSB for the fiscal year ended February
       28, 1998).

10.2   Stock Purchase Agreement, dated August 16, 1996, among the Company,
       Kent-Marsh Ltd., Inc., Bob Wesolek and Vance Nesbitt. (incorporated by
       reference to Exhibit 2.1 of the Company's Current Report on Form 8-K
       filed September 3, 1996).

10.3   Stock Purchase Agreement, dated August 16, 1996, among the Company,
       Astonishing Developments, Inc., Bob Wesolek and Vance Nesbitt
       (incorporated by reference to Exhibit 2.2 of the Company's Current Report
       on Form 8-K filed September 3, 1996).

10.4   Agreement dated April 11, 1997, among the Company, George Sharp and Gil
       Gertner (incorporated by reference to Exhibit 99.1 of the Company's
       Current Report on Form 8-K filed April 11, 1997).

10.5   Form of Offshore Securities Subscription Agreement, Convertible Notes,
       Warrants and Registration Rights Agreement between the Company and First
       Bermuda Securities Limited (incorporated by reference to Exhibits 99.1
       through 99.4 of the Company's Current Report on Form 8-K filed March 26,
       1997).

10.6   Form of Offshore Securities Subscription Agreement, Convertible Notes,
       Warrants and Registration Rights Agreement between the Company and
       Willora Company Ltd. (incorporated by reference to Exhibits 99.1 through
       99.4 of the Company's Current Report on Form 8-K filed April 28, 1997).

10.7   Form of Offshore Securities Subscription Agreement, Convertible Notes,
       Warrants and Registration Rights Agreement between the Company and
       Silenus Ltd. (incorporated by reference to Exhibits 99.1 through 99.4 of
       the Company's Current Report on Form 8-K filed June 24, 1997).

                                       47
<PAGE>

10.8   Purchase Agreement between the Company and CORESTAFF, Inc., dated
       October 6, 1997 (incorporated by reference to Exhibit 10.10 to the
       Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1997).

10.9   Warrant to Purchase Common Stock of the Company issued to Worldwide
       PetroMoly Inc. (incorporated by reference to Exhibit 10.11 to the
       Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1997).

10.10  Series D Preferred Stock Purchase Agreement between the Company and
       METAMOR WORLDWIDE, Inc., dated May 15, 1998 (incorporated by reference to
       Exhibit 10.12 to the Company's Annual Report on Form 10-KSB for the
       fiscal year ended February 28, 1998).

10.11  Stock Purchase Agreement between the Company and Precision Capital
       Limited Partnership I, dated April 30, 1998 (incorporated by reference to
       Exhibit 10.13 to the Company's Annual Report on Form 10-KSB for the
       fiscal year ended February 28, 1998).

10.12  Stock Purchase Agreement between the Company and Icarus Investments I,
       Ltd., dated May 27, 1998 (incorporated by reference to Exhibit 10.14 to
       the Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1998).

10.13  Stock Purchase Agreement, dated March 11, 1999, among inLighten.com,
       Inc., 2-Lane Media, Inc., and the shareholders of 2-Lane Media,
       Inc.(incorporated by reference to Exhibit 10.15 to the Company's Annual
       Report on Form 10-KSB for the fiscal year ended February 28, 1999).

10.14  Stock Purchase Agreement, dated May 20, 1999, among inLighten.com, Inc.,
       Forward Communications, Inc., FCI Services Inc., and the shareholders of
       Forward Communications, Inc. and FCI Services Inc. (incorporated by
       reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
       filed June 3, 1999).

10.15  Agreement and Plan of Reorganization, dated May 20, 1999, among
       inLighten.com, Inc., Forward Freight, Inc., and the shareholders of
       Forward Freight Inc. (incorporated by reference to Exhibit 2.1 to the
       Company's Current Report on Form 8-K filed June 3, 1999).

10.16  Settlement and Release Agreement dated January 14, 2000 by and among
       Richard L. Travis, How2.com, Inc. and the Company (incorporated by
       reference to Exhibit 10.18 to Post-Effective Amendment No. 1 to the
       Company's Registration Statement on Form SB-2 filed March 23, 2000).

10.17  Settlement and Release Agreement dated March 1, 2000 by and among Bennett
       Klein and the Company (incorporated by reference to Exhibit 10.19 to
       Post-Effective Amendment No. 1 to the Company's Registration Statement on
       Form SB-2 filed March 23, 2000).

                                       48
<PAGE>

10.18  Standard Office Lease, dated August 2, 1999, between Arden Realty Limited
       Partnership and How2HQ.com, Inc. (Santa Monica, California) (incorporated
       by reference to Exhibit 10.18 to the Company's Annual Report on Form
       10-KSB for the fiscal year ended February 29, 2000).

10.19  Guaranty of Lease, dated August 2, 1999, by the Company to Arden Realty
       Limited Partnership, with respect to certain obligations of How2HQ.com,
       Inc. under Standard Office Lease (incorporated by reference to Exhibit
       10.19 to the Company's Annual Report on Form 10-KSB for the fiscal year
       ended February 29, 2000).

10.20  Promissory Note dated September 30, 1999 payable to How2HQ.com, Inc.
       (incorporated by reference to Exhibit 10.20 to the Company's Annual
       Report on Form 10-KSB for the fiscal year ended February 29, 2000).

10.21  Asset Purchase Agreement dated as of May 5, 2000 by and between EBSCO
       CASIAS, Inc., iNetze.com, Inc., ESRN Acquisition, LLC and the Company
       (incorporated by reference to Exhibit 2.1 to the Company's Current Report
       on Form 8-K filed June 12, 2000).

10.22  Asset Contribution Agreement dated as of May 5, 2000 by and between
       iNetze.com, Inc., ESRN Acquisition, LLC, the Company and the stockholders
       set forth on the signature pages attached hereto (incorporated by
       reference to Exhibit 2.2 to the Company's Current Report on Form 8-K
       filed June 12, 2000).

10.23  Stock Purchase Agreement dated as of May 5, 2000 by and between the
       Company, Tim Collins, F. Shanahan McAdoo and Robert C. Whitehair
       (incorporated by reference to Exhibit 2.3 to the Company's Current Report
       on Form 8-K filed June 12, 2000).

 21    Subsidiaries of the Company (incorporated by reference to Exhibit 21 to
       the Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 29, 2000).

*23.1  Consent of Ernst & Young LLP.


* Filed herewith.


REPORTS ON FORM 8-K

The Company filed no Current Reports on Form 8-K for the fourth quarter of the
ten months ended December 31, 2000.

                                       49
<PAGE>

     SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized.


     Date: April  16, 2001     CT HOLDINGS, INC.

By: /s/ STEVEN B. SOLOMON
    ---------------------
     Steven B. Solomon, President and
     Chief Executive Officer

     POWER OF ATTORNEY


     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven B. Solomon his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to sign any and all amendments to this Annual Report on Form 10-KSB and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, or any of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>

SIGNATURE                                         TITLE                      DATE
<S>                                 <C>                                 <C>

/s/ STEVEN B. SOLOMON
---------------------------------   President, Chief Executive Officer
Steven B. Solomon                   and Director                                April 16, 2001
                                    (Principal Executive Officer and
                                    Principal  Accounting Officer)

/s/ VICTOR K. KIAM, II
---------------------------------   Chairman of the Board                       April  12, 2001
Victor K. Kiam, II


/s/ LAWRENCE LACERTE
---------------------------------   Director                                    April 16, 2001
Lawrence Lacerte


/s/ CHRIS A. ECONOMOU
---------------------------------   Director                                    April 16, 2001
Chris A. Economou
</TABLE>

                                       50
<PAGE>

<TABLE>
<CAPTION>
<S>                                 <C>                                         <C>
/s/ MARK ROGERS
-----------------------             Director                                    April 16, 2001
Mark Rogers


/s/ PHILLIP J. ROMANO
-----------------------             Director                                    April 16, 2001
Phillip J. Romano


/s/ DR. AXEL SAWALLICH
-----------------------             Director                                    April 16, 2001
Dr. Axel Sawallich
</TABLE>

                                       51
<PAGE>

INDEX TO FINANCIAL STATEMENTS


Report of Independent Auditors                                           F-2

Balance Sheets as of December 31, 2000 and February 29, 2000             F-3

Statements of Operations for the ten months ended December 31, 2000
  and the year ended February 29, 2000                                   F-5

Statements of Stockholders' Equity for the ten months ended December
  31, 2000 and the year ended February 29, 2000                          F-6

Statements of Cash Flows for the ten months ended December 31, 2000
  and the year ended February 29, 2000                                  F-10

Notes to  Financial Statements                                          F-11


                                      F-1

<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
CT Holdings, Inc.

    We have audited the accompanying balance sheets of CT Holdings, Inc. (the
Company) as of December 31, 2000 and February 29, 2000, and the related
statements of operations, stockholders' equity, and cash flows for the ten
months ended December 31, 2000 and the year ended February 29, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CT Holdings, Inc. as of
December 31, 2000 and February 29, 2000, and the results of its operations and
its cash flows for the ten months ended December 31, 2000 and the year ended
February 29, 2000 in conformity with accounting principles generally accepted in
the United States.

    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note A, the
Company has incurred recurring operating losses and has a working capital
deficiency. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note A. The financial statements do not include any
adjustments that may result from the outcome of this uncertainty.

                                         /S/ Ernst & Young LLP

Dallas, Texas
April 10, 2001

                                      F-2
<PAGE>

                               CT HOLDINGS, INC.

                                BALANCE SHEETS
<TABLE>
<CAPTION>

                                                        December 31, February 29,
        ASSETS                                             2000         2000
                                                        ----------   ----------
<S>                                                     <C>          <C>
CURRENT ASSETS
Cash and cash equivalents                               $   21,647   $  707,412
Accounts receivable-trade, less allowance of
   $28,693 and $1,100,000                                   54,794       55,241
Accounts receivable, other                                  45,250           --
Notes receivable from related parties                      588,559      208,934
Notes receivable from affiliates                           730,000           --
Inventory                                                   42,077       80,617
Prepaid expenses                                            94,217       78,535
                                                        ----------   ----------

    Total current assets                                 1,576,544    1,130,739

INVESTMENT IN UNCONSOLIDATED AFFILIATES                  2,613,976      827,350

PROPERTY AND EQUIPMENT, NET                                 94,054      228,102

PURCHASED SOFTWARE, net of accumulated
   amortization of $1,045,696 and $1,505,536               106,704      546,864

CAPITALIZED SOFTWARE DEVELOPMENT COSTS,
   net of accumulated amortization of
   $851,204 and $786,000                                   485,221      944,674

OTHER ASSETS                                                42,095      154,308
                                                        ----------   ----------

                                                        $4,918,594   $3,832,037
                                                        ==========   ==========
</TABLE>

                                      F-3
<PAGE>

                               CT HOLDINGS, INC.

                          BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>

                                                December 31,  February 29,
        ASSETS                                     2000          2000
                                               ------------  -------------
<S>                                            <C>          <C>

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

 Accounts payable and accrued expenses              922,113      1,030,501
 Accrual for legal settlement                     1,912,500             --
 Payable to affiliate                               126,028         71,299
 Notes payable                                      248,425        261,288
                                               ------------   ------------

  Total current liabilities                       3,209,066      1,363,088

COMMITMENTS AND CONTINGENCIES                            --             --

STOCKHOLDERS' EQUITY
 Common stock, $.01 par value per share;
   authorized, 60,000,000 shares; issued
   and outstanding, 53,825,317 shares at
   December 31, 2000 and 50,136,400 shares
   at February 29, 2000                             538,253        501,364
 Preferred stock, $.01 par value per share;
   authorized, 1,000,000 shares; issued and
   outstanding Series B convertible, 50
   shares (liquidation value, $50,000)                    1              1
 Additional paid-in capital                      56,383,496     50,390,070
 Accumulated deficit                            (52,711,983)   (44,586,725)
 Treasury stock, at cost (4,164,613
   common shares)                                (2,500,239)    (2,500,239)
 Notes receivable for exercise of
   options/warrants                                      --     (1,335,522)
                                               ------------   ------------

  Total stockholders' equity                      1,709,528      2,468,949
                                               ------------   ------------
                                               $  4,918,594   $  3,832,037
                                               ============   ============
</TABLE>


  The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                               CT HOLDINGS, INC.

                           STATEMENTS OF OPERATIONS

                                        Ten Months Ended  Year Ended
                                        ---------------- -------------
                                           December 31,    February 29,
                                              2000            2000
                                          -----------    ------------


NET SALES                                 $   460,985   $  1,292,250

COST OF SALES, EXCLUDING DEPRECIATION
 AND AMORTIZATION                               8,310         61,564

OPERATING EXPENSES
  Selling, general and administrative
     expenses                               2,690,160      4,334,755
  Depreciation and amortization               917,492      1,361,556
  Research and development expense            112,992        392,315
  Write-off of capitalized software
     costs                                    230,643        625,336
  Forgiveness of notes
     from related parties                   1,544,456             --
  Accrual for legal settlement              1,912,500             --
                                          -----------   ------------
                                            7,408,243      6,713,962

      Operating loss                       (6,955,568)    (5,483,276)

OTHER INCOME (EXPENSE)
  Interest expense                             (9,129)       (53,340)
  Interest income and other                    59,955          2,551
  Equity in loss of unconsolidated
     affiliate                             (1,220,516)   (18,122,874)
                                          -----------   ------------
                                           (1,169,690)   (18,173,663)
                                          -----------   ------------


      Net loss                             (8,125,258)   (23,656,939)

Preferred stock dividend requirement           (2,083)       (64,493)
                                          -----------   ------------
Net loss allocable to common
     stockholders                         $(8,123,175)  $(23,721,432)
                                          ===========   ============

Net loss per share-basic and diluted      $     (0.17)  $      (0.56)
                                          ===========   ============


Weighted average shares outstanding        47,643,782     42,503,070
                                          ===========   ============

The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                               CT HOLDINGS, INC.

                      STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                     Common stock                                        Additional
                                -----------------------        Preferred    Equity         paid-in
                                 Shares          Amount          stock       notes         capital
                                ----------      --------      ----------   ---------     -----------
<S>                             <C>             <C>            <C>         <C>            <C>

Balances at March 1, 1999       43,259,274      $432,592        $    21    $ 150,000     $32,985,018
Exercise of stock options
 and warrants                    3,652,505        36,526             --           --       1,892,142

Conversions to common stock
 Equity notes                      533,684         5,337             --     (150,000)        194,492
 Preferred stock -
  Series D                       2,081,937        20,819            (20)          --         217,283
 Debt                              400,000         4,000             --           --         193,000

Sale of common stock               200,000         2,000             --           --         498,000

Shares issued for legal
 settlement                          7,500            75             --           --          21,225

Equity in sales of common
 stock by subsidiary                    --            --             --           --      14,157,466

Repayment of notes receivable           --            --             --           --              --

Forgiveness of note receivable
 issued as payment for the
 exercise of stock options              --            --             --           --              --

Stock-based compensation                --            --             --           --         285,000

Other                                1,500            15             --           --         (53,556)

Net loss                                --            --             --           --              --
                                ----------      --------        -------    ---------     -----------

As of February 29, 2000         50,136,400      $501,364        $     1    $      --     $50,390,070
                                ==========      ========        =======    =========     ===========
</TABLE>

                                       F-6
<PAGE>


<TABLE>
<CAPTION>
                                     Accumulated      Treasury        Notes
                                       deficit          stock       receivable      Total
                                   ---------------  -------------  ------------  -----------
<S>                                <C>              <C>            <C>           <C>

Balances at March 1, 1999            $(20,641,875)   $(2,500,239)  $(1,933,265)  $ 8,492,252
Exercise of stock options
 and warrants                                  --             --       (55,860)    1,872,808

Conversions to common stock
 Equity notes                             (49,829)            --            --            --
 Preferred stock -
   Series D                              (238,082)            --            --            --
   Debt                                        --             --            --       197,000

Sale of common stock                           --             --            --       500,000

Shares issued for legal
  settlement                                   --             --            --        21,300

Equity in sales of common
 stock by subsidiary                           --             --            --    14,157,466

</TABLE>
<TABLE>
<S>                                        <C>            <C>       <C>           <C>
Repayment of notes receivable                  --             --       224,603       224,603

Forgiveness of note receivable
  issued as payment for the
  exercise of stock options                    --             --       295,000       295,000

Stock-based compensation                       --             --            --       285,000

Other                                          --             --       134,000        80,459

Net loss                              (23,656,939)            --            --   (23,656,939)
                                     ------------    -----------   -----------   -----------

As of February 29, 2000              $(44,586,725)   $(2,500,239)  $(1,335,522)  $ 2,468,949
                                     ============    ===========   ===========   ===========
</TABLE>

                                      F-7
<PAGE>

                               CT HOLDINGS, INC.

                 STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
<TABLE>
<CAPTION>


                                               Common stock                         Additional
                                         ----------------------       Preferred       paid-in
                                            Shares      Amount         stock          capital
                                         ------------  --------       --------      -----------
<S>                                      <C>           <C>            <C>          <C>

Balances at March 1, 2000                 50,136,400      $501,364     $       1    $50,390,070

Exercise of stock options
 and warrants                                 55,583           556            --         35,844

Issuance of common stock to related
     party for cash                        2,500,000        25,000            --      2,475,000

Equity increase in subsidiary                     --            --            --        393,166

Non-employee stock-based
     compensation                                 --            --            --         30,440

Common stock issued in connection
   with investment in
   unconsolidated affiliate                1,050,000        10,500            --      2,476,417

Allowance for uncollectible notes
  receivable from related parties                 --            --            --             --

Stock issued to employee as
  severance upon termination                  83,334           833            --        582,559

Net loss                                          --            --            --             --
                                       -------------   -----------   -----------    -----------

As of December 31, 2000                   53,825,317   $   538,253   $         1    $56,383,496
                                       =============   ===========   ===========    ===========

</TABLE>


                                      F-8
<PAGE>

<TABLE>
<CAPTION>
                                        Accumulated     Treasury        Notes
                                         deficit         stock       receivable      Total
                                       -------------   -----------   -----------   ----------
<S>                                    <C>             <C>           <C>           <C>
Balances at March 1, 2000               $(44,586,725)  $(2,500,239)  $(1,335,522)  $ 2,468,949

Exercise of stock options
 and warrants                                     --            --            --        36,400

Issuance of common stock to related
   party for cash                                 --            --            --     2,500,000

Equity increase in subsidiary                     --            --            --       393,166


Non-employee stock-based
   expense                                        --            --            --        30,440

Common stock issued in connection
   with investment in
   unconsolidated affiliate                       --            --            --     2,486,917

Stock issued to employee as
  severance upon termination                      --            --            --       583,392


Forgiveness of notes
  from related parties                            --            --     1,335,522     1,335,522

Net loss                                  (8,125,258)           --            --    (8,125,258)
                                       -------------   -----------   -----------   -----------

As of December 31, 2000                 $ 52,711,983   $(2,500,239)  $      --     $ 1,709,528
                                       =============   ===========   ===========   ===========
</TABLE>

The accompanying notes are an integral part of this statement.


                                      F-9
<PAGE>

                               CT HOLDINGS, INC.

                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 Ten Months Ended    Year Ended
                                                                 -----------------  -------------
                                                                   December 31,     February 29,
                                                                       2000            2000
                                                                  ---------------   ------------
<S>                                                              <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                          $(8,125,258)  $(23,656,939)
    Adjustments to reconcile net loss to
          net cash used by operating activities:
          Depreciation and amortization                                   917,492      1,361,556
          Equity in loss of unconsolidated
           affiliate                                                    1,220,516     18,122,874
          Common stock and options issued
           as payment of expenses                                          30,440         25,482
          Forgiveness of notes from related
           parties                                                      1,544,456             --
          Write-down of software development
            costs                                                         230,643        625,336
          Noncash employee severance expense                              583,392        580,000
          Accrued compensation offset to
           notes receivable from related party                            506,000             --
          Other                                                                --         91,999
    Changes in operating assets and liabilities:
       Accounts receivable                                                (44,803)       411,047
       Prepaid expenses                                                   (15,682)       129,686
       Inventory                                                           38,540         68,059
       Accounts payable and accrued expenses                             (108,388)    (1,170,572)
       Accrual for legal settlement                                     1,912,500             --
       Payable to affiliate                                                54,729         71,299
       Other                                                                5,441        254,072
                                                                      -----------   ------------
NET CASH USED BY OPERATING ACTIVITIES                                  (1,249,982)    (3,086,101)

CASH FLOWS FROM INVESTING ACTIVITIES
    Decrease (increase) in notes receivable
      from related parties, net                                        (1,100,000)       369,603
    Proceeds from certificate of deposit                                  100,000             --
    Increase in notes receivable from
      affiliates                                                         (730,000)            --
    Capital expenditures                                                       --        (70,388)
    Software development costs                                           (102,261)      (649,131)
    Reduction in cash due to deconsolidation
      of Parago, Inc.                                                          --     (1,176,292)
    Cost to acquire investment in
          unconsolidated affiliates                                      (127,059)      (140,786)
                                                                      -----------   ------------
NET CASH USED BY INVESTING ACTIVITIES                                  (1,957,059)    (1,666,994)

CASH FLOWS FROM FINANCING ACTIVITIES
    Payments on notes payable                                            (103,312)      (149,362)
    Proceeds from notes payable                                            90,449         70,226
    Proceeds from related party advances                                  780,000             --
    Repayments to related party advances                                 (780,000)            --
    Repayments on long-term debt                                               --       (161,812)
    Proceeds from issuance of common stock                              2,536,400      2,315,086
                                                                      -----------   ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                               2,523,537      2,074,138
                                                                      -----------   ------------

Net decrease in cash                                                     (685,765)    (2,678,957)
Cash at beginning of the year                                             707,412      3,386,369
                                                                      -----------   ------------

Cash at end of the year                                               $    21,647   $    707,412
                                                                      ===========   ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                     F-10
<PAGE>

                               CT HOLDINGS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

CT Holdings, Inc., formerly Citadel Technology, Inc.,  ("CT Holdings") is a
developer of technology-based companies that provides early stage ventures with
a single source of management capital, as well as consulting on operations,
marketing and strategic planning.  Its development model is designed to enable
the start up companies with whom it partners to become online market leaders in
their industries.  CT Holdings began its business development activities in 1999
with the formation of Parago, Inc. (Parago), an application service provider
(ASP) and Internet based business process outsourcer (BPO) that provides an
online suite of offerings designed to increase sales, reduce costs, retain
customers and increase client profitability.  These services include online
promotional management, online rebate processing, proactive email, online
surveys, and customer data warehousing, analysis and reporting.  Parago's
comprehensive integrated suite of outsourced customer care solutions are
marketed across multiple industry lines.  In May 2000, CT Holdings acquired a
minority interest in River Logic, Inc. (River Logic), which is headquartered in
Beverly, Massachusetts and develops decision-support applications for industry.
Using COR Technology, a rapid-application development system, developers at
River Logic create applications that enable industry professionals to model
complex enterprises and explore financial relationships on a desktop computer or
laptop. Embedded analytics allow end-users to understand the financial
implications of critical business decisions easily by manipulating graphical
icons that model their enterprise.

In addition to its business development business, CT Holdings continues to
operate its "Citadel Technology" security software line, which is focused on
marketing security and administration software products for both computer
networks and desktop personal computers.  Its integrated, easy-to-use software
products enable network administrators to control access to network resources,
automate routine network maintenance tasks, and automatically shutdown and
restart servers and desktop PCs in the event of a network crash.  These software
products also enable individual PC users to control access to their desktops,
secure files, and index and retrieve files stored in a variety of storage media.
The Citadel Technology software products are designed to reduce the direct and
indirect costs of computer network operations, protect proprietary networks and
information, and otherwise improve overall office productivity.

During 2000, CT Holdings changed its fiscal year end from February 28 to
December 31.  Therefore, the fiscal year ending December 31, 2000 is a
transition period consisting of a ten month period from March 1, 2000 through
December 31, 2000.  The following table shows the ten months ended December 31,
2000 and the comparative ten months ended December 31, 1999.

                                     F-11
<PAGE>

                                                     Ten Months Ended
                                                --------------------------
                                                 December 31,  December 31,
                                                      2000        1999
                                                  (Audited)    (Unaudited)
                                                ------------  ------------

  Net sales                                     $   460,985   $  1,256,923
  Net loss                                       (8,125,258)   (18,116,854)
  Preferred stock dividend                               --        (64,493)
  Net loss allocable to common stockholders      (8,125,258)   (18,181,347)
  Loss per common share                         $     (0.17)  $      (0.43)

Liquidity

The Company has incurred recurring operating losses and has a working capital
deficiency. The Company has used cash in operations of approximately $1.3
million during the 10 months ended December 31, 2000. The Company has a cash
balance of approximately $22,000 at December 31, 2000 and current liabilities
exceed current assets by approximately $ 1.6 million. As outlined below, these
assets do not reflect the value that may be realized from our investments in
Parago and River Logic. The Company has been and continues to be dependent upon
outside financing to develop its software products, perform its business
development activities, invest in unconsolidated affiliates and provide for
ongoing working capital requirements. During 2000, substantially all of this
financing has been provided by related parties.

Over the next year the Company expects to generate cash from the sale of the
Company's software and will incur costs relating to such operations which may
result in a cash deficiency. The Company will also continue to incur expenses
relating to corporate overhead and activities related to managing the Company's
investments and considering additional opportunities. The Company is currently
analyzing various strategic alternatives for its Citadel Technology security
software business, including new strategic alliances with third parties, new
applications of the technology, new third party licensing, joint venture
arrangements or the sale of the business line. While the Company has reduced
costs as it has transitioned the core focus of its business plans to business
development activities, the Company may require cash from financing activities
to fund the deficits expected over the next year.

The Company's strategy of continuing to support and expand its business
development activities requires the Company to obtain additional capital. The
complete implementation of this element of our strategy will not generate
positive cashflow in the foreseeable future. Achieving positive cashflow is
currently highly dependent upon obtaining liquidity from the Company's
investments in unconsolidated affiliates. The Company estimates it will need to
raise a minimum of $1 million to fund the plan through the remainder of 2001 and
substantially greater amounts if the Company expects to continue to acquire
investments or if amounts become due to settle contingent liabilities.
Historically, the Company has obtained any short-term bridge funding from its
Chief Executive Officer or Directors of the Company. While this may occur in the
future there can be no assurance that such financing will be available or if
available based on terms that the Company would be willing to accept.

                                     F-12
<PAGE>

Since the development of our new focus on businesses development activities we
have made investments in two companies that we believe may provide liquidity to
the Company in the long term. Our first investment in Parago we believe has been
successful in that it has grown from the original $50,000 of equity provided by
the Company and no revenue, to net revenue of approximately $19.5 million for
the year ended December 31, 2000 (unaudited). As expected in an early stage
company, Parago has not been profitable and has experienced cash flow
deficiencies as it implements its business plan. We believe, however, that our
investment of 20,000,000 common shares of Parago may ultimately provide an
appropriate return. Until we are able to create liquidity from the company's
investments through sale to a strategic investor, an initial public offering or
some other activity, the Company will continue to require working capital to
fund its own operating expenses.

Similarly, the Company's investment in River Logic we believe has also been
successful. Since our initial investment, River Logic has made substantial
progress in executing its strategy through its development and introduction of
new products and establishment of new customer relationships. In addition,
during April, 2001 River Logic obtained a significant strategic investment from
a subsidiary of Intel, Cardinal Investments, eMed Ventures, and Mercury
Ventures. As part of that round, the Company converted $450,000 of demand notes
receivable into River Logic Series C Preferred stock, the same equity
instruments purchased by the other investees. The remainder of our note
receivable totaling approximately $200,000 was paid in April 2001. Similar to
the investments into Parago, the Company recognized that these investments would
be initially illiquid. While we are pleased with the performance of Parago and
River Logic to date, there can be no assurance that the Company will ever
achieve liquidity for its investments.

There can be no assurance that management's plans will be successful or what
other actions may become necessary. Although the Company has been successful
raising capital in the past, the inability of the Company to raise capital may
require the Company to sell assets or reduce the level of its operations. Such
actions could have a material adverse effect on the Company's business and
operations and result in charges that could be material to the Company's
business and results of operations.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from those estimates.

Investment in Unconsolidated Affiliates

For the ten months ended December 31, 2000 and the year ended February 29, 2000,
the ownership interests that the Company holds in Parago and River Logic have
been accounted for under the equity method for Parago and the cost method for
River Logic. The Company records its investments in equity-method and cost-
method investees on its  balance sheets as "Investment in Unconsolidated
Affiliates" and its share of the equity-method investee's losses in "Equity in
Loss of Unconsolidated Affiliate." All significant intercompany accounts and
transactions have been eliminated.

For the ten months ended December 31, 2000 and the year ended February 29, 2000,
the Company's investment in Parago is presented under the equity method of
accounting. Under the

                                     F-13
<PAGE>

equity method of accounting, the Company's share of the investee's income or
losses is included in the statements of operations. Under the equity method,
when Parago sells its common stock to unrelated parties at a price in excess of
its book value, the Company's net investment in that affiliate increases. If the
carrying value of the Company's net investment falls below zero, the Company
discontinues applying the equity method until the carrying value of the net
investment rises above zero. In addition, in the event the value of the
Company's equity investment rises above zero, the Company will resume applying
the equity method and will recognize an investment in Parago after the Company's
share of net losses not recognized during the period the equity method was
suspended of approximately $16.2 million (unaudited) are recovered by income or
an increase in equity. The Company continues to hold 20,000,000 shares of common
stock of Parago at December 31, 2000, representing approximately 45% of Parago's
outstanding common stock at December 31, 2000.

Because the Company owned less than 20% of the ownership interest in River Logic
at December 31, 2000 the investment has been accounted for under the cost method
of accounting, and the carrying value of the investment is recorded at the
original acquisition costs.  Under this method, the Company's share of the
income or losses of River Logic is not included in the Company's statements of
operations. The investment in unconsolidated affiliate at December 31, 2000 of
approximately $2.6 million represents the investment in River Logic as the
investment in Parago was reduced to zero as discussed above.

The company periodically evaluates the investment in River Logic for impairment
based upon the prospects of the entity and the value of the investment when
compared to other investments in the entity from other unrelated parties.  If
these two factors indicate that an other than temporary impairment exists, then
the Company will write down the value of the investment to its realizable value.
However, no such indications were identified at December 31, 2000 and the
investment in River Logic is stated at its original acquisition cost.

Revenue Recognition

The Company recognizes revenues when persuasive evidence of a sale arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable.

Revenues generated from products sold through traditional channels where the
right of return exist are reduced by reserves for estimated product returns.
Such reserves are based on estimates developed by management. As unused products
in these channels are exposed to rapid changes in consumer preferences or
technological obsolescence due to new operating systems or computing products,
it is reasonably possible that these estimates may change in the future.

Revenues related to significant post-contract support agreements (generally
product maintenance agreements) are deferred and recognized over the period of
the agreements.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.

Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over estimated useful lives of the assets.

                                     F-14
<PAGE>

Software Costs

Purchased software is recorded at cost and is amortized by the greater of the
revenue method or the straight-line method over four to seven years.

The Company capitalizes software development costs when technological
feasibility has been established. Software development costs not qualifying for
capitalization are expensed as research and development costs. Research and
development expense totaled $112,992 and $392,315 for the ten months ended
December 31, 2000 and the year ended February 29, 2000, respectively.
Capitalized costs are amortized using the greater of the revenue method or the
straight-line method with useful lives ranging from three to five years.
Amortization expense related to purchase software and capitalized software
development costs was $771,231 and $1,108,017  for the ten months ended December
31, 2000 and the year ended February 29, 2000, respectively. The Company
evaluates the estimated net realizable value of each software product at each
balance sheet date and records write-downs to net realizable value for any
products for which the net book value is in excess of net realizable value. For
the ten months ended December 31, 2000 and the fiscal year ended February 29,
2000, software costs were written down by $230,643 and $625,336, respectively.
As of December 31, 2000 the Company reduced the estimated useful life of all
remaining unamortized capitalized software costs of $591,925 to 12 months based
upon the Company's ongoing evaluation of the capitalized software development
costs and projected cash flows.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company reviews long-lived assets pertaining to those
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If conditions indicate
an asset might be impaired , the Company estimates the future cash flows
expected to result from the use of the asset and its eventual disposition. The
impairment would be measured by the amount by which the asset exceeds the future
discounted cash flow.

Income Taxes

Deferred income tax expenses are provided based upon estimated future tax
effects of differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes
calculated based upon provisions of enacted laws.

Advertising and Marketing Expense

The Company expenses costs associated with advertising and marketing as they are
incurred and includes these costs in selling, general and administrative
expense. Advertising and marketing expense for the ten months ended December 31,
2000 and the year ended February 29, 2000 was $10,082 and $748,605,
respectively.

Stock-Based Compensation

The Company has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations. Accordingly, compensation

                                     F-15
<PAGE>

cost for stock options is measured as the excess, if any, of the fair market
value of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. See Note F regarding the pro forma net
loss and earnings per share information as required by the alternative fair
value accounting provided for under Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).

The Company accounts for stock based awards issued to non-employees based on
fair value.

Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and long-term obligations are carried at
cost, which approximates fair value due to the short maturity of these
instruments.

Net Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. Basic
loss per share excludes any dilutive effects of options. Diluted loss per common
share includes the dilutive effect of options and warrants calculated using the
treasury stock method, and, includes the effect of convertible preferred stock
using the if-converted method. Stock options and warrants to purchase 5,824,105
shares of common stock have been excluded from the computation of diluted loss
per share, as the effect would be anti-dilutive. In addition, approximately
9,400 shares (based on the price per share for the Company's common stock on
December 31, 2000), which would be issued upon the conversion of Series B
preferred stock, have been excluded from the computation of loss per share.

Presentation

Prior year amounts have been restated to conform to current period
presentation.

NOTE B - PROPERTY AND EQUIPMENT

Major classes of property and equipment and their estimated useful lives are as
follows:

                                               December 31,   February 29,
                                    Lives          2000           2000
                                 ----------   ------------      ---------

Furniture                        5-10 years      $ 170,981       $170,981
Office equipment                 3-7 years          83,935         83,935
Leasehold improvements           Lease term         68,672         68,672
Computer equipment               3-7 years         643,753        643,753
                                                 ---------       --------
                                                   967,341        967,341
Less accumulated depreciation                     (873,287)      (739,239)

                                     F-16
<PAGE>

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

Net property and equipment        $  94,054      $ 228,102
                                  =========      =========



NOTE C - NOTES PAYABLE

Notes payable consist of the following:
                                              December 31, February 29,
                                                 2000         2000
                                              ----------- ----------
Non-interest bearing note due Xerox,
   (matured September 1998)                     $150,000  $150,000

Unsecured notes payable to individuals,
   due at various dates, bearing
   interest at rates ranging from 0% to 10%;
   weighted average interest rate is
   approximately 6.1%                             27,500    27,500

Note payable to banks, bearing interest at
   7.35% to 7.45%                                     --    55,833

Other notes payable                               70,925    27,955
                                                --------  --------
                                                $248,425  $261,288
                                                ========  ========

Certain of the unsecured notes payable to individuals were issued with warrants
to purchase common stock. The total number of warrants issued was 509,375 with
an exercise price ranging from $0.32 to $0.89 per share.  A note for $140,000
plus accrued interest was converted into 400,000 shares of common stock during
the year ended February 29, 2000.



NOTE D - INCOME TAXES


The significant components of the Company's deferred tax liabilities and assets
are as follows:

                                          December 31,   February 29,
                                             2000            2000
                                          ------------   -----------

Deferred tax assets (liabilities)
 Net operating loss carryforwards         $ 11,353,705   $ 7,432,000

                                     F-17
<PAGE>

 Accounts receivable                            11,047       479,000
 Investment in subsidiary                       19,250      (257,000)
 Accounts payable and accrued expenses        (112,156)      (15,000)
                                          ------------   -----------
Total deferred tax assets, net              11,271,846     7,639,000
Valuation allowance                        (11,271,846)   (7,639,000)
                                          ------------   -----------
Total deferred tax assets, net            $        --    $        --
                                          ============   ===========

The difference between the provision for income taxes and the amount computed by
applying the federal statutory rate to loss before provision for income taxes is
explained below:

                                                 December 31,    February 29,
                                                     2000            2000
                                                -------------   -------------

Benefit computed at federal statutory rate      $ (2,762,588)   $ (7,885,000)
Operating loss not benefitted                      2,750,993       8,815,000
Other                                                 11,595        (930,000)
                                               -------------    ------------
                                               $          --    $         --
                                               =============    ============

For federal income tax purposes, at December 31, 2000, the Company had a net
operating loss carryforward of approximately $30,700,000. The net operating loss
carryover, which is subject to annual limitations as prescribed by the Internal
Revenue Code, is available to offset future taxable income through 2015. A
valuation allowance has been recorded for the entire amount of the net deferred
tax asset due to uncertainty of realization.

NOTE E - STOCKHOLDERS' EQUITY

Preferred Stock

The Company's outstanding Series B preferred stock is convertible into shares of
common stock at 83% of the average market price of the common stock for the five
days preceding conversion. Each share of Series B preferred stock has a
conversion value of $1,000. Dividends accrue at 5%. As of December 31, 2000 all
but 50 shares have been converted into common stock. If the shares had been
converted on December 31, 2000, approximately 9,400 shares of common stock would
be issued. Holders of Series B convertible preferred stock have limited voting
rights.

Dividends on all series of preferred stock are payable in cash or common stock
at the option of the Company.

Equity Notes

The equity notes outstanding as of March 1, 1999 were unsecured and convertible
at any time until maturity into common stock at 80% of the average market price
of the Company's common

                                     F-18
<PAGE>

stock. During the year ended February 29, 2000, the remaining balance of the
equity notes of $150,000 were converted to 533,684 shares of common stock.

Stock Options and Warrants

The Company has issued stock options to purchase common stock to directors,
employees, and others. Options are granted at no less than fair value at date of
grant, as determined by the board of directors. Generally, the options vest over
no more than three years. Following is a summary of option transactions for the
periods beginning March 1, 1999:

                                               Weighted
                                                average
                                               exercise
                                       Shares    price
                                               per share
                                     --------- ---------

Outstanding at March 1, 1999         2,962,157    $0.55
Granted                                728,000     4.92
Exercised                           (2,169,455)    0.47
Expired or canceled                   (254,435)    1.06
                                    ----------

Outstanding at February 29, 2000     1,266,267     3.07

Granted                                155,000     4.06
Exercised                             (107,667)    0.33
Expired or cancelled                    15,000     3.00

Outstanding at December 31, 2000     1,298,600    $3.42
                                    ==========

Exercisable at February 29, 2000       377,821    $0.63
Exercisable at December 31, 2000     1,202,386    $3.59


Weighted-average fair value of options granted to employees and directors during
the ten months ended December 31, 2000 and year ended February 29, 2000 are
$2.22 and $2.88, respectively.

The following table summarizes other information regarding stock options at
December 31, 2000:
<TABLE>
<CAPTION>

                                   Outstanding                    Exercisable
                        ---------------------------------   ------------------------
                                    Weighted
                                    average
                                   remaining    Weighted                Weighted
                                   contractual   average                 average
   Range of                           life      exercise                 exercise
exercise prices          Shares    (in years)     price       Shares      price
---------------         ---------  ----------   ---------   -----------  -----------
<S>                     <C>        <C>         <C>       <C>          <C>

       $ 0.25 - 0.50      165,350        3.6      $0.30      165,350        $0.30

</TABLE>

                                     F-19
<PAGE>

<TABLE>
<S>                     <C>           <C>        <C>        <C>        <C>


         0.67 - 1.75      275,250        2.4       0.86      205,703         0.90
         2.00 - 5.00      858,000        4.2       4.83      831,333         4.91
                        ---------                          ---------

                        1,298,600                 $3.42    1,202,386        $3.59
                        =========                          =========
</TABLE>

If the Company had recognized compensation expense based upon the fair value at
the grant date for options granted to employees during the ten months ended
December 31, 2000 and the fiscal year ended February 29, 2000, the pro forma
effect on net loss and loss per share would have been as follows:


                                 Ten Months     Year Ended
                                    Ended
                                -------------  ------------
                                 December 31,  February 29,
                                     2000           2000
                                ------------   ------------

       Net loss
          As reported            $(8,125,258)  $(23,656,939)
          Pro forma               (9,038,968)   (24,130,110)
       Loss per common share
          As reported                   (.17)          (.56)
          Pro forma                     (.19)          (.57)


The fair value of these options were estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:


                               Ten Months    Year Ended
                                  Ended
                              ------------ --------------
                              December 31,   February 29,
                                  2000          2000
                              ------------ --------------

Expected volatility               154.0%          113.5%
Risk-free interest rates            5.7%            6.0%
Dividend yield                        0%              0%
Expected option lives            5 years       1-3 years



The following summarizes the activity of warrants to purchase common stock for
the ten months ended December 31, 2000 and the fiscal year ended February 29,
2000:


                                                    Weighted
                                                    average
                                      Shares     exercise price
                                    -----------  --------------

                                     F-20
<PAGE>

Outstanding at March 1, 1999         6,039,805            $2.82

Exercised                           (1,483,050)            0.58
                                    ----------            -----

Outstanding at February 29, 2000     4,556,755             3.55

Exercised                              (31,250)            0.89
                                    ----------            -----

Outstanding at December 31, 2000     4,525,505            $2.68
                                    ==========            =====


All the warrants are exercisable and expire at varying times between April 2001
and September 2003.

NOTE F. INVESTMENT IN UNCONSOLIDATED AFFILIATE

Parago Investment

In the first quarter of fiscal year 2000, the Company accounted for its
investment in Parago under the consolidation method. Through subsequent sale and
distribution by Parago of shares of its common stock, the Company's ownership
was reduced below 50% beginning in July 1999. As a result, beginning July 1999,
the Company began accounting for its remaining investment in Parago under the
equity method of accounting. Prior to these events, the operating results of
Parago were consolidated in the Company's consolidated financial statements. At
December 31, 2000, the Company owns 45% of Parago's outstanding shares of common
stock.

From January to March 2000, Parago raised an aggregate of $36,500,000, including
$21,500,000 through the issuance of 430,000 shares of Series C Convertible
Preferred Stock to THLee.Putnam Internet Partners LP, Dain Rauscher Wessels
Investors LLC and Watershed Capital I, L.P. At the time of issuance, the Series
C preferred stock is convertible into 4,300,000 shares of Parago common stock.
In addition, in September 2000, Parago sold an additional $15,000,000 in Series
D Preferred Stock to THLee.Putnam and Watershed Capital. In connection with the
Series A, B, C, and D preferred stock financings, the preferred stockholders
were issued approximately 5,618,000 warrants to purchase common stock. The
warrants vest immediately and have a weighted average exercise price of $1.25.

The following is the unaudited condensed financial information of Parago at
December 31, 2000 and February 29, 2000 and for the ten months ended December
31, 2000 and the fiscal year ended February 29, 2000.


SUMMARIZED BALANCE SHEET      DECEMBER 31, 2000  FEBRUARY 29, 2000
------------------------      -----------------  -----------------

Current assets                $29,416,701        $18,880,751
Noncurrent assets              24,724,368         21,931,528
                              -----------        -----------

                                     F-21
<PAGE>

         Total assets               $54,141,069        $40,812,279
                                    ===========        ===========

Current liabilities                 $30,768,193        $23,870,338
Long-term debt and capital
         lease obligations            2,390,910            623,140
                                    -----------        -----------
         Total liabilities           33,159,103         24,493,478
                                    -----------        -----------
Redeemable common stock               2,000,000          2,000,000
Shareholders' equity                 18,981,966         14,318,801
                                    -----------        -----------
                                    $54,141,069        $40,812,279
                                    ===========        ===========


SUMMARIZED STATEMENT                  TEN MONTHS ENDED     TWELVE MONTHS ENDED
   OF OPERATIONS                      DECEMBER 31, 2000     FEBRUARY 29, 2000
--------------------                  -----------------     -----------------
       Revenues                       $ 17,075,779          $  8,293,650
       Operating expenses               40,397,689            20,171,534
       Loss on sale of assets            1,786,135                    --
       Operating loss                  (30,416,577)          (40,491,249)
       Net loss                        (32,449,476)          (39,307,459)

Parago has incurred recurring operating losses and has a working capital
deficiency. Parago has a net operating loss of $30.4 million during the 10
months ending December 31, 2000, and a working capital deficiency of $1.4
million as of December 31, 2000. Consequently, Parago is seeking to raise
additional capital to execute its business plans. The Parago financial
information does not include any adjustments that might result from the outcome
of this uncertainty regarding Parago's liquidity and capital resources.

The Company has agreed to convert shares of Parago common stock issued in
connection with the an acquisition by Parago into up to 500,000 of the Company's
common shares at the option of the acquired entity's shareholders. Pursuant to
the terms of the subscription agreements between Parago and some of its
stockholders, the Company may be required at the option of such stockholders to
issue up to 414,000 shares of the Company's common stock.

                                     F-22
<PAGE>

River Logic Investment

In May 2000, the Company acquired approximately 1.19 million, or 5.9%, shares of
common stock of River Logic from several of its existing shareholders in
exchange for 333,333 shares of the Company's common stock. The Company also
acquired shares of Series A Convertible Preferred Stock from River Logic in
exchange for the contribution of assets acquired from a third party by the
Company through exchange of 666,667 shares of the Company's common stock.  The
acquired shares of River Logic's preferred stock are convertible into shares of
common stock that represented approximately 13.1% of the currently outstanding
shares of capital stock of River Logic on a post conversion basis as of May 5,
2000.

In connection with the investment in River Logic, the Company also made two
$300,000 bridge loans to River Logic that together were convertible into 800,000
shares, in the aggregate, of common stock that represented approximately 3.8% of
the then currently outstanding capital stock of River Logic. Each of the bridge
loans (i) bears interest at a rate of 12% per annum through its first
anniversary and at one percent above the prime rate per annum thereafter, (ii)
is secured by certain assets of River Logic, (iii) is payable upon the Company's
demand and (iv) is prepayable by River Logic commencing on its third anniversary
date. In April 2001, River Logic received a venture capital investment from the
Intel 64 Fund, Cardinal Investment, Inc, eMed Ventures and Mercury Ventures, and
the Company converted $450,000 of the principal amount of the notes into shares
of the Series C Preferred Stock, and the remainder was paid in April, 2001. As a
result of the transactions, the Company owns as of April 2001 approximately 10%
of the capital stock of River Logic.

Altogether, the carrying value of the River Logic investment includes the fair
value of 1,000,000 shares of the Company's common stock exchanged to acquire the
interest in River Logic. The carrying value also includes legal fees paid in
connection with the investment and 50,000 shares of the Company's common stock
granted to a consultant for identifying the investment. The total value of the
1,050,000 shares granted equates to $2,486,917. Soon after the closing of the
transaction the consultant that identified the investment became President and
Chief Operating Officer of River Logic, and was granted 100,000 fully vested
stock options to purchase the Company's stock at $5 per share.

NOTE G - RELATED PARTY TRANSACTIONS

From May 2000 to August  2000, the Company's Chief Executive Officer loaned
$780,000 to the Company to assist with working capital needs and provide for the
$600,000 in bridge loans to River Logic.  The entire $780,000 was repaid by the
Company in August 2000.

In October 2000, the Company with approval from the board of directors loaned
$1.2 million to the Chief Executive Officer. The note receivable is callable
after April 2, 2001 and bears interest at 5% per year. The balance at December
31, 2000 is approximately $589,000, which is net of payments of approximately
$100,000 and approximately $506,000 in accrued salary and bonus due to him
pursuant to his employment agreement. Further, during the Company's evaluation
and review of the non-cash compensation strategies available to continue to
provide incentives to the Chief Executive Officer and to respond to changing
equity

                                     F-23
<PAGE>

market conditions, the Company determined it would forgive a note receivable
issued in connection with the exercise of stock options granted to the officer
in the amount of $208,934.

The Chief Executive Officer is also a director of Parago and funded $4 million
of his personal assets to Parago to assist with its working capital needs during
the ten months ended December 31, 2000 and the year ended February 29, 2000. The
amounts funded during each period were repaid in January and April 2001,
respectively. Parago also provided the Chief Executive Officer with
approximately $6.8 million in advances in April, 2000 which was repaid during
the same month.

At December 31, 2000, the Company had $1,335,522 in notes receivable that were
outstanding from current and former directors and employees which have been
fully reserved. A majority of these notes were due during the ten months ended
December 31, 2000. The notes were issued in fiscal 1999 in connection with the
exercise of stock options granted to the directors and employees. At the time of
issuance the notes were issued with recourse, interest at 5%, and were
collateralized by the Company's common stock held by the directors and
employees. During the Company's evaluation and review of the non-cash
compensation strategies available to continue to provide incentives to these
directors and employees and to respond to changing equity market conditions, the
Company determined it would forgive all such notes receivable. Consequently, the
Company recorded a provision for all of the notes receivable.

One of the Company's former directors in June 1999 joined the Company's
subsidiary, Parago, as its President and Chief Operating Officer. In connection
therewith, the former director was granted options to purchase 2,000,000 shares
of Parago common stock at $0.025 per share and options to purchase 1,800,000
shares of Parago common stock at $0.25 per share.

During the ten months ended December 31, 2000 and the fiscal year ended February
29, 2000, the Company and Parago incurred legal fees in the amount of
approximately $90,000 and $86,000, respectively to an attorney who was a former
employee and  is a relative of the Company's Chief Executive Officer. After
leaving the Company, this attorney continued to provide legal services to the
Company and subsequent to February 28, 1999, this attorney joined Parago as an
executive officer.

Richard L. Travis, Jr., the Company's former Chief Operating Officer and Chief
Financial Officer, resigned from the Company and his employment agreement was
terminated effective as of January 14, 2000. In connection with his resignation
from the Company and the termination of his employment agreement, Mr. Travis and
the Company entered into a Settlement and Release Agreement which provides,
among other things, for the payment of an aggregate of $50,001 to Mr. Travis in
three equal monthly installments of $16,667 commencing on the last day of each
of the first three months following Mr. Travis' resignation from the Company.
The Settlement and Release Agreement also provides for Mr. Travis to perform
certain financial consulting services for the Company (as an independent
contractor) until April 14, 2000. Also, in connection with the Settlement and
Release Agreement, the Company agreed to forgive an aggregate of $295,000, plus
accrued interest, of indebtedness owed by Mr. Travis to the Company. In
addition, Parago accelerated certain of the Parago options granted to Mr.
Travis, which resulted in compensation expense of $285,000 to the Company.

Bennet S. Klein, the Company's former Vice President of Business Development,
resigned the Company and his employment agreement was terminated effective as of
March 1, 2000.  In connection with his resignation, the executive and the
Company entered into a Settlement and

                                     F-24
<PAGE>

Release Agreement which provided for the executive to forego the remaining
compensation due him under his employment agreement in exchange for the
Company's agreement to accelerate the vesting of his remaining stock options and
to pay the exercise price related to those shares. The acceleration of vesting
and forgiveness of the exercise cost resulted in $583,392 of compensation
expense based on the fair market value of the Company's stock on the date of
termination.

During the ten months ended December 31, 2000, the Company sold 2,500,000
restricted shares of its common stock to two of its directors under a private
placement for proceeds of $2,500,000.

The Company also has a $130,000 note receivable due from an entity that one of
the Company's directors also serves on the board of directors of such entity.
This note is payable on demand and bears interest at 10%.

Equity Investee

On January 7, 1999, the Company acquired 20,000,000 shares of Parago common
stock in an organizational subscription for an aggregate purchase price of
$50,000 and sharing of the Company's resources, including personnel,
administrative and financial resources. The Company continued to provide these
resources to Parago through June 30, 1999. In consideration for these resources,
the Company allocated a portion of its overhead costs related to these services
to Parago. These allocated expenses, totaling approximately $141,000, were
recognized by Parago as a contribution to equity, as the services were provided
in connection with the Company's initial equity investment.

The Company continues to sublease a portion of its headquarters' officespace to
Parago and remains fully obligated on such lease.  Approximately, $300,000 in
the ten months ended December 31, 2000 was paid directly by Parago to the
Company's lessor based upon square footage utilized by Parago.

During the fiscal year ended February 29, 2000, the Company borrowed cash from
Parago to cover short-term cash requirements. As a result, the Company issued
promissory notes to Parago for approximately $571,299 for its initial investment
of $50,000 in Parago and sharing of other cash disbursements made to assist the
Company in meeting short-term cash requirements. The promissory notes are
secured by 300,000 shares of Parago common stock, are due on demand, and bear
interest at five percent. The balance of the notes at December 31, 2000 and
February 29, 2000, is $71,299.  The Company also owes Parago $54,729 for various
resources the equity investee provided to the Company.

During the ten months ended December 31, 2000, the Company provided $900,000 in
funding to Parago to cover the equity investee's working capital needs, and the
entire amount was repaid.

During the ten months ended December 31, 2000, one of the Company's directors
who is also a director of Parago funded $2 million to Parago to provide interim
working capital.  All of the $2 million was repaid by December 31, 2000. Two of
the Company's directors also have in aggregate approximately $52,000 of notes
receivable due to Parago.

                                     F-25
<PAGE>

NOTE H - COMMITMENTS AND CONTINGENCIES

The Company leases office space and certain equipment under noncancellable
operating lease agreements expiring at various dates through 2002. Future
minimum lease payments under these leases at December 31, 2000, were as follows:

       2001                            $  532,523
       2002                               141,831
                                       ----------

       Total                           $  674,354
                                       ==========



Rental expense totaled approximately $171,000 and $228,000 for the ten months
ended December 31, 2000 and the year ended February 29, 2000, respectively. The
Company remains obligated for office space sub-leased to Parago (see Related
Party Transactions).

In January 2000 the parties in the previously disclosed Vestcom v. Citadel
lawsuit reached an agreement to settle the suit for the original amount of the
warrants claimed (100,000 shares with an exercise price of $1.375 per share).
This action was dismissed for want of prosecution on the announcement of
settlement by the parties. Assuming Vestcom received actual or constructive
notice of that dismissal near the time of its entry, the Company believes that
the time to seek reinstatement of the case, a new trial, or review before the
Court of Appeals has expired. However, as of the date of issuance of these
financial statements, no binding agreement has been signed by both parties, and
accordingly the Company has not accrued for a loss contingency related to the
issuance of the warrants for the amount of any possible unfavorable outcome is
not estimatable.

In August 1998, Janssen-Meyers Associates L.P. ("JMA") filed a lawsuit against
the Company arising out of an alleged 1995 contract with the Company's
predecessor "("Old Citadel"). The suit alleged that Old Citadel breached a
letter of intent dated September 1995 and/or a Placement Agency Agreement dated
November 1995 between JMA and Old Citadel. As its damages, JMA claimed that it
was entitled to, among other things, the cash value of 1.8 million $0.89
warrants valued during May 1996. According to JMA's valuation of those warrants,
potential damages were alleged to exceed $40 million. The Company vigorously
disputes that it breached either the letter of intent or the Placement Agency
Agreement or that it is liable to JMA. The lawsuit was styled Janssen-Meyers
Associates, L.P. v. Citadel Technology, Inc., and was filed in the Supreme Court
of the State of New York, County of New York. We removed the case to federal
court in the Southern District of New York.

Following mediation in July 2000, the Company entered into a settlement term
sheet, pursuant to which the Company and JMA agreed in principle to settle the
lawsuit for an aggregate of $3 million, in a combination of $1.5 million in cash
and 300,000 shares of the Company's common stock with a guaranteed value of $5
per share as of January, April and October 2001 (with respect to 100,000 of the
shares for each period). The settlement was subject to execution of definitive
settlement documents and approval of the boards of directors of the companies.
As a result, the Company recorded approximately $1,912,500 as a nonrecurring
charge related to the settlement of the litigation.

                                     F-26
<PAGE>

The Company and JMA were unable to negotiate the final definitive settlement
agreement and, as a result, the matter is still not finally settled. On March
27, 2001, the Court hearing the JMA lawsuit issued a Summary Order that denied
JMA's motion to enforce the settlement term sheet and confirmed the prior
dismissal of the lawsuit. The Court further ruled that JMA would either have to
bring an action on the proposed settlement or move to re-open the dismissed
case. The Court stated that it did not express any view with respect to the
merits of the settlement that brought about the dismissal of the case.  Given
these recent events, the Company is unable to estimate the potential loss
related to this matter.  The Company has also filed a lawsuit against JMA to
recover excess amounts charged by JMA in connection with related bridge loans.

In June 2000, the Company was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, tortious
interference and negligence. Specifically, the Fergusons claim that they were
damaged when they attempted to exercise certain warrants during a time when the
Company's related registration statement could not be used. On June 29, 2000,
the Company moved to transfer venue from Harris County, Texas, to Dallas County,
Texas. On June 30, 2000, the Company answered (subject to its Motion to Transfer
Venue). On July 28, 2000, also subject to its Motion to Transfer, the Company
filed a third party petition against Yorkton Securities, Inc. and Yorkton
Capital, Inc., which acted as the Fergusons' broker in connection with the
transaction at issue. In the third party petition, the Company contends that the
Yorkton entities are liable to the Company based on negligence and contribution
for, among other things, failing to disclose to the Fergusons that the
registration statement could not be used. The Company believes that the claims
asserted by the Fergusons are without merit and will vigorously defend the
claims and the Company will vigorously prosecute the claims it has filed against
Yorkton Securities.

At this time, the Company is unable to predict the ultimate outcome of some of
these suits, the costs associated with defending the claims and pursuing
counterclaims, and monetary compensation awarded, if any. The Company has, when
appropriate, recorded its current estimate of the amounts necessary to settle
the litigation.

The Company is also involved in other litigation. Such litigation is not
material to the Company's financial condition or results of operations.

NOTE I - MAJOR CUSTOMERS

The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts based on the expected collectibility of all trade accounts receivable.
To date, the losses incurred by the Company have not exceeded management's
expectations.

Major customer information is presented based on the aggregate amount of sales
net of any returns. During the ten months ended December 31, 2000, four
customers accounted for approximately 27% of the Company's net sales, while
during the fiscal year ending 2000, four different customers accounted for
approximately 29% of net sales.

                                     F-27
<PAGE>

NOTE J - SUBSEQUENT EVENTS

In February, 2001, in return for past services as directors and ongoing support
of the Company, the Company granted 2,500,000 options to purchase the Company's
common stock to two directors of the Company with an exercise price of $0.375
per share. Since the exercise price on the date of grant equaled or exceeded the
market value of the Company's common stock the Company will not record any
compensation expense related to these option grants. The options vest
immediately and expire in five years.

                                     F-28
<PAGE>

                              INDEX TO EXHIBITS

EXHIBIT
NUMBER            DESCRIPTION

2.1    Second Amended and Restated Plan of Merger, dated February 29, 1996, by
       and between LoneStar Hospitality Corporation, LSHC Acquisition, Inc. and
       Citadel Computer Systems Incorporated (without exhibits) (incorporated by
       reference to Exhibit 2.1 of the Company's Current Report on Form 8-K
       dated February 29, 1996).

2.2    Purchase and Sale Agreement, dated March 1, 1996, by and between the
       LoneStar Hospitality Corporation, LS Holding Corp. and Miami Subs USA,
       Inc. (without exhibits) (incorporated by reference to Exhibit 2.2 of the
       Company's Current Report on Form 8-K dated February 29, 1996).

2.3    Technology Transfer Agreement, by and between LoneStar Hospitality
       Corporation and Circuit Masters Software, Inc., dated February 29, 1996
       (without exhibits) (incorporated by reference to Exhibit 2.3 of the
       Company's Current Report on Form 8-K dated February 29, 1996).

2.4    Technology Transfer Agreement, by and between the Company and Bill
       Mulvany, dated February 29, 1996 (without exhibits) (incorporated by
       reference to Exhibit 2.4 of the Company's Current Report on Form 8-K
       dated February 29, 1996).

2.5    Technology Transfer Agreement, by and between the Company and Kim Marie
       Newman, dated February 29, 1996 (without exhibits) (incorporated by
       reference to Exhibit 2.5 of the Company's Current Report on Form 8-K
       dated February 29, 1996).

2.6    Agreement, by and between the Company, Circuit Masters Software, Inc.,
       Patrick William Mulvany and Kim Marie Newman, dated May 16, 1996,
       effective as of February 29, 1996 (incorporated by reference to Exhibit
       2.6 of the Current Report on Form 8-K/A filed with the Securities and
       Exchange Commission on June 10, 1996).

3.1    Certificate of Incorporation (incorporated by reference to the
       registration statement on Form S-1, File No. 33-25462, for Apollo
       Resources, Inc., on November 10, 1988, and declared effective
       January 4, 1989).

3.3    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on June 4, 1990 (incorporated by reference to
       Exhibit 3.2 of the Company's Annual Report on Form 10-KSB for the fiscal
       year ended February 29, 1996).

3.3    Bylaws (incorporated by reference to the registration statement on
       Form S-1, File No. 33-25462, filed with the Securities and Exchange
       Commission on November 10, 1988).

                                       82
<PAGE>

3.4    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on October 15, 1991 (incorporated by
       reference to the Company's Annual Report on Form 10-KSB for the year
       ended December 31, 1991).

3.5    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on July 20, 1994 (incorporated by reference
       to the Company's Quarterly Report on Form 10-QSB for the quarter ended
       June 30, 1994).

3.6    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on December 11, 1995 (incorporated by
       reference to the Company's Quarterly Report on Form 10-QSB for the
       quarter ended December 31, 1995).

3.7    Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on May 1, 1996 (incorporated by reference to
       Exhibit 3.7 of the Company's Annual Report on Form 10-KSB for the fiscal
       year ended February 29, 1996).

3.8    Certificate of Designations of Series A Preferred Stock. (incorporated by
       reference to Exhibit 4 of the Company's Quarterly Report on Form 10-QSB
       for the fiscal quarter ended May 31, 1996).

3.9    Certificate of Designations of Series B Preferred Stock (incorporated by
       reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-QSB
       for the fiscal quarter ended August 31, 1996).

3.10   Certificate of Amendment to Certificate of Incorporation filed with the
       Delaware Secretary of State on February 27, 1998 (incorporated by
       reference to Exhibit 4.2 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.11   Certificate of Designations of Series C Preferred Stock (incorporated by
       reference to Exhibit 4.6 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.12   Certificate of Designations of Series D Preferred Stock (incorporated by
       reference to Exhibit 4.8 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.13   Certificate of Designations of Series E Preferred Stock (incorporated by
       reference to Exhibit 4.7 of the Company's registration statement on Form
       S-8 filed May 20, 1998, File No. 333-53131).

3.14   Certificate for Renewal and Revival of Charter filed with the Delaware
       Secretary of State on October 29, 1999.
       (incorporated by reference to Exhibit 3.14 to the Company's Annual Report
       on Form 10-KSB for the fiscal year ended  February 29, 2000).

10.1   Employment Agreement dated July 15, 1997, by and between the Company

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<PAGE>

       and Steven Solomon (incorporated by reference to Exhibit 10.1 to the
       Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1998).

10.2   Stock Purchase Agreement, dated August 16, 1996, among the Company, Kent-
       Marsh Ltd., Inc., Bob Wesolek and Vance Nesbitt. (incorporated by
       reference to Exhibit 2.1 of the Company's Current Report on Form 8-K
       filed September 3, 1996).

10.3   Stock Purchase Agreement, dated August 16, 1996, among the Company,
       Astonishing Developments, Inc., Bob Wesolek and Vance Nesbitt
       (incorporated by reference to Exhibit 2.2 of the Company's Current Report
       on Form 8-K filed September 3, 1996).

10.4   Agreement, dated April 11, 1997, among the Company, George Sharp and
       Gil Gertner (incorporated by reference to Exhibit 99.1 of the Company's
       Current Report on Form 8-K filed April 11, 1997).

10.5   Form of Offshore Securities Subscription Agreement, Convertible Notes,
       Warrants and Registration Rights Agreement between the Company and
       First Bermuda Securities Limited (incorporated by reference to Exhibits
       99.1 through 99.4 of the Company's Current Report on Form 8-K filed
       March 26, 1997).

10.6   Form of Offshore Securities Subscription Agreement, Convertible Notes,
       Warrants and Registration Rights Agreement between the Company and
       Willora Company Ltd. (incorporated by reference to Exhibits 99.1
       through 99.4 of the Company's Current Report on Form 8-K filed April
       28, 1997).

10.7   Form of Offshore Securities Subscription Agreement, Convertible Notes,
       Warrants and Registration Rights Agreement between the Company and
       Silenus Ltd. (incorporated by reference to Exhibits 99.1 through 99.4
       of the Company's Current Report on Form 8-K filed June 24, 1997).

10.8   Purchase Agreement between the Company and CORESTAFF, Inc., dated
       October 6, 1997 (incorporated by reference to Exhibit 10.10 to the
       Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1997).

10.9   Warrant to Purchase Common Stock of the Company issued to Worldwide
       PetroMoly Inc. (incorporated by reference to Exhibit 10.11 to the
       Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1997).

10.10  Series D Preferred Stock Purchase Agreement between the Company and
       METAMOR WORLDWIDE, Inc., dated May 15, 1998 (incorporated by reference
       to Exhibit 10.12 to the Company's Annual Report on Form 10-KSB for the
       fiscal year ended February 28, 1998).

10.11  Stock Purchase Agreement between the Company and Precision Capital

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       Limited Partnership I, dated April 30, 1998 (incorporated by reference
       to Exhibit 10.13 to the Company's Annual Report on Form 10-KSB for the
       fiscal year ended February 28, 1998).

10.12  Stock Purchase Agreement between the Company and Icarus Investments I,
       Ltd., dated May 27, 1998 (incorporated by reference to Exhibit 10.14 to
       the Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 28, 1998).

10.13  Stock Purchase Agreement, dated March 11, 1999, among inLighten.com,
       Inc., 2-Lane Media, Inc., and the shareholders of 2-Lane Media,
       Inc.(incorporated by reference to Exhibit 10.15 to the Company's Annual
       Report on Form 10-KSB for the fiscal year ended February 28, 1999).

10.14  Stock Purchase Agreement, dated May 20, 1999, among inLighten.com,
       Inc., Forward Communications, Inc., FCI Services Inc., and the
       shareholders of Forward Communications, Inc. and FCI Services Inc.
       (incorporated by reference to Exhibit 2.1 to the Company's Current
       Report on Form 8-K filed June 3, 1999).

10.15  Agreement and Plan of Reorganization, dated May 20, 1999, among
       inLighten.com, Inc., Forward Freight, Inc., and the shareholders of
       Forward Freight Inc. (incorporated by reference to Exhibit 2.1 to the
       Company's Current Report on Form 8-K filed June 3, 1999).

10.16  Settlement and Release Agreement dated January 14, 2000 by and among
       Richard L. Travis, How2.com, Inc. and the Company (incorporated by
       reference to Exhibit 10.18 to Post-Effective Amendment No. 1 to the
       Company's Registration Statement on Form SB-2 filed March 23, 2000).

10.17  Settlement and Release Agreement dated March 1, 2000 by and among
       Bennett Klein and the Company (incorporated by reference to Exhibit
       10.19 to Post-Effective Amendment No. 1 to the Company's Registration
       Statement on Form SB-2 filed March 23, 2000).

10.18  Standard Office Lease, dated August 2, 1999, between Arden Realty
       Limited Partnership and How2HQ.com, Inc. (Santa Monica, California).
       (incorporated by reference to Exhibit 10.18 to the Company's Annual
       Report on Form 10-KSB for the fiscal year ended February 29, 2000).

10.19  Guaranty of Lease, dated August 2, 1999, by the Company to Arden Realty
       Limited Partnership, with respect to certain obligations of How2HQ.com,
       Inc. under Standard Office Lease.
       (incorporated by reference to Exhibit 10.19 to the Company's Annual
       Report on Form 10-KSB for the fiscal year ended February 29, 2000).

10.20  Promissory Note dated September 30, 1999 payable to How2HQ.com, Inc.
       (incorporated by reference to Exhibit 10.20 to the Company's Annual
       Report on Form 10-KSB for the fiscal year ended February 29, 2000).

10.21  Asset Purchase Agreement dated as of May 5, 2000 by and between EBSCO

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       CASIAS, Inc., iNetze.com, Inc., ESRN Acquisition, LLC and the Company
       (incorporated by reference to Exhibit 2.1 to the Company's Current
       Report on Form 8-K filed June 12, 2000).

10.22  Asset Contribution Agreement dated as of May 5, 2000 by and between
       iNetze.com, Inc., ESRN Acquisition, LLC, the Company and the
       stockholders set forth on the signature pages attached hereto
       (incorporated by reference to Exhibit 2.2 to the Company's Current
       Report on Form 8-K filed June 12, 2000).

10.23  Stock Purchase Agreement dated as of May 5, 2000 by and between the
       Company, Tim Collins, F. Shanahan McAdoo and Robert C. Whitehair
       (incorporated by reference to Exhibit 2.3 to the Company's Current
       Report on Form 8-K filed June 12, 2000).

 21    Subsidiaries of the Company (incorporated by reference to Exhibit 21 to
       the Company's Annual Report on Form 10-KSB for the fiscal year ended
       February 29, 2000).

*23.1  Consent of Ernst & Young LLP.

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