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

                                   FORM 10-KSB

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

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


                         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.)


           8750 N. CENTRAL EXPRESSWAY, SUITE 100, DALLAS, TEXAS 75231
                    (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 revenue from continuing operations for its most recent fiscal
year $ 0

As of April 13, 2004, the last reported sale price of the Company's common stock
was $ 0.045 per share. The aggregate market value of the voting and non-voting
common stock held by non-affiliates of the Company was $1,763,044 as of April
13, 2004.

As of April 13, 2004, there were 58,545,928 shares of common stock, $.01 par
value per share, outstanding.

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


<PAGE>
                                CT HOLDINGS, INC.
                                   FORM 10-KSB
                                  ANNUAL REPORT
                            FOR THE FISCAL YEAR ENDED
                                DECEMBER 31, 2003
                                TABLE OF CONTENTS


PART I

Item 1.  Description of Business . . . . . . . . . . . . . . . . . . . . . .   3

Item 2.  Description of Property . . . . . . . . . . . . . . . . . . . . . .  12

Item 3.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .  12

Item 4.  Submission of Matters to a Vote of Security Holders . . . . . . . .  14

PART II

Item 5.  Market for Common Equity, Related Stockholder Matters
         and Small Business Issuer Repurchases of Equity Securities. . . . .  14

Item 6.  Management's Discussion and Analysis. . . . . . . . . . . . . . . .  15

Item 7.  Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .  21

Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . .  21

Item 8A. Control and Procedures. . . . . . . . . . . . . . . . . . . . . . .  22

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act . . . . . . . . .  23

Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . .  27

Item 11. Security Ownership of Certain Beneficial Owners and Management. . .  29

Item 12. Certain Relationships and Related Transactions. . . . . . . . . . .  30

Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .  32

Item 14. Principal Accountant Fees and Services. . . . . . . . . . . . . . .  32

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33

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 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.


                                        2
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW OF CT HOLDINGS

Since 1996 CT Holdings, Inc. (the "Company" or "CT Holdings") has provided
management expertise including consulting on operations, marketing and strategic
planning and has been a source of capital to early stage technology companies.
The Company was incorporated in Delaware in 1992.  The business model is
designed to enable the companies with whom the Company acquires or invests to
become market leaders in their industries.  The strategy during the years since
1996 has led to the development, acquisition and operation of technology based
businesses with compelling valuations and strong business models.  The goal is
to realize the value of these investments for the Company's shareholders through
a subsequent liquidity event such as a sale, merger or initial public offering
of the investee companies.

At December 31, 2003, the Company held an investment in Parago Inc. ("Parago"),
with no carrying value recorded for this investment in Parago on the balance
sheets at December 31, 2003 and 2002.  Parago was formed in 1999 as an
application service provider ("ASP") and Internet based business process
outsourcer 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.

Prior to December 2001, our ownership percentage in Parago exceeded 20% and
accordingly our investment had been accounted for under the equity method of
accounting. The carrying value of the investment in Parago was reduced to zero
due to the recognition of our proportionate share of equity in Parago's losses
under the equity method of accounting. In December 2001 Parago entered into an
equity financing arrangement for which the Company declined to participate and
as a result, the Company's ownership percentage fell to less than 1%. Since
December 2001, the investment has been accounted for using the cost method of
accounting. Parago reported its first unaudited operating profit during the year
ended December 31, 2003. While we believe that Parago has been successful in
executing its business plan there can be no assurance that Parago will remain
profitable or that an acceptable return on our investment in Parago will be
achieved in the foreseeable future.

At December 31, 2003, the Company holds an investment in River Logic, Inc.
("River Logic") which also has no carrying value recorded on the balance sheets
at December 31, 2003 and 2002. In May 2000, CT Holdings acquired a minority
interest in River Logic which develops decision-support applications for
corporations across many industries. 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. We
accounted for our investment in River Logic using the cost method because our
ownership percentage was below the 20% ownership requirement to use the equity
method of accounting. Due to the economic conditions affecting information
technology spending in 2002 and River Logic's results of operations in 2002 the
Company wrote down the carrying value of the investment in River Logic to zero
during the year ended December 31, 2002. During the year ended December 31,
2003, River Logic raised cash through the issuance of preferred stock and notes
payable. We believe that our investment in River Logic may provide an acceptable
return on investment in the future but there can be no assurance that an
acceptable return may be achieved in the foreseeable future.

CITADEL DISTRIBUTION

On May 17, 2002, CT Holdings completed the spin-off of Citadel Security Software
Inc. ("Citadel") through the declaration of a pro rata dividend distribution to
CT Holdings shareholders (the "Distribution"). The Distribution consisted of one
(1) share of Citadel common stock for every four (4) shares of CT Holdings (the
"Distribution Ratio") held by CT Holdings shareholders as of May 6, 2002, the
Record Date. Following the Distribution on May 17, 2002, Citadel became an
independent company and CT Holdings retained no ownership interest in Citadel.
The Distribution is intended to be a tax free distribution for U.S. federal tax
purposes. The results of operations and the cash flows for the period from
January 1, 2002 through May 17, 2002 of Citadel are presented as discontinued
operations in the statement of operations for the year ended December 31, 2002.

On the Distribution Date, CT Holdings and Citadel entered into a series of
agreements including a distribution agreement, a transition services agreement,
an indemnity agreement and a tax disaffiliation agreement which provides for,
among other things, the principal corporate transactions required to effect the
Distribution, to provide for an orderly transition to the status of two
independent companies and to define the continuing relationship between Citadel
and CT Holdings after the Distribution.  These agreements remained in effect at
December 31, 2003, and the transition services agreement expires in May 2004.


                                        3
<PAGE>
OVERVIEW OF PARAGO

We formed Parago in 1999 through the contribution of some technology assets
acquired in the late 1990's during the growth period of Internet electronic
commerce industry.  Parago provides a proprietary, promotional marketing
technology platform that helps clients reduce promotional program costs,
increase sales, and enhance customer relationships.

Parago's services include:
     -    Technology applications that automate and optimize both traditional
          and non-traditional promotional marketing initiatives
     -    On-line and off-line rebate management
     -    Patent-pending upsell/cross-sell application
     -    Transaction data client reporting

Many companies today use promotional marketing programs such as rebates,
buy-one-get-one-free and instant discounts to entice customers and hopefully
drive some measure of customer satisfaction and loyalty.  But while these
programs may be effective for acquisition, they most often fail when it comes to
retention as there is little focus on customer satisfaction.

Parago's solutions seek to change the way companies think about rebates and
other promotional tools.  Currently rebates are viewed as a necessary evil
required to remain competitive.  However, all parties have been dissatisfied
with the status quo. By implementing Parago's solutions, clients can turn these
flawed tactical, one-way customer acquisition initiatives into strategic,
two-way customer retention imperatives.  By leveraging the power of the Internet
and innovative technology Parago takes the pain of traditional, short-term
promotional marketing programs like rebates and converts it into long-term gain
and competitive advantage in the form of lower costs, increased sales and better
customer relationships.

Parago's products, PromoCenter, ClickChoice and KnowledgeCenter, have all been
developed collectively with the objective of leveraging Internet-based
technology, processes and resources to make promotional marketing programs more
efficient and effective resulting in an improved bottom line and happier
customers for its clients.  Parago offers a Continuous Customer Interaction
business model powered by three fully integrated business centers dedicated to
automating and optimizing promotions like rebates thereby creating significant
competitive advantage for Parago's clients.

     -    PromoCenter: A client-branded site where customers can search for
          current promotional information, initiate the redemption process,
          obtain continuously updated claim status and take advantage of
          upsell/cross-sell opportunities.

     -    ClickChoice: A patent-pending, fully integrated application that
          provides customers the ability to upgrade their promotion to higher
          valued products or services while reducing client's promotional
          expense.

     -    KnowledgeCenter: A powerful transactional data collection and
          reporting environment that provides fresh, accurate and usable
          information reporting.

At December 31, 2003, the Company holds 20,000 shares of Parago common stock and
warrants to purchase 28.8749 shares of Series A-3 convertible preferred stock
(convertible into 2,887 shares of common stock), after giving effect to 1 for
1000 reverse stock split in connection with Parago's Series E preferred stock
offering in December 2001 to February 2002, in which the Company elected not to
participate. In February 2004, our CEO loaned us $30,000 in order for us to
exercise our warrants to purchase shares of Series A-3 convertible preferred
stock, pursuant to a promissory note secured by a pledge of the preferred stock.
In February 2004, our CEO elected to exercise an exchange right whereby he
exchanged 5,000,000 (pre-1:1000 reverse stock split) shares of Parago, Inc.
common stock for 6,000,000 shares of CT Holdings common stock. The CEO has
waived his right to receive these shares until such time as the shares become
authorized. In December 2001 and January 2002 Parago raised equity financing of
approximately $15.0 million. We elected not to participate in the equity
financing and as a result, our ownership percentage in Parago was reduced to
approximately 1%. Our investment in Parago has no carrying value on our balance
sheet as a result of applying the equity method of accounting prior to our
investment falling below the 20% ownership requirement for applying the equity
method of accounting. Parago has recently recorded an unaudited profit for the
year ended December 31, 2003 and although Parago has had a history of operating
losses, we believe that our initial $50,000 investment in Parago represented by
20,000 shares of common stock, 28.8749 shares of Series A-3 convertible
preferred stock (convertible into 2,887 shares of Parago common stock) and an
additional 5,000 shares (5,000,000 pre reverse split shares) received in
February 2004 when the CEO exercised his exchange right may ultimately provide
an appropriate return.


                                        4
<PAGE>
OVERVIEW OF RIVER LOGIC

In May 2000, CT Holdings acquired a less than 20% minority ownership interest in
River Logic. River Logic develops and markets enterprise optimization
technologies and decision support applications. Recognizing a need in the
marketplace, River Logic created strategic-level, process modeling tools and
approaches for helping senior managers suggest, evaluate, and understand the
impact of business decisions as they relate to the overall profitability of
their organizations. River Logic's optimization tools integrate several
technologies such as mixed integer optimization, visual process modeling,
accounting, and constraint theory to bring together the best active financial
planning and profitability tools on the market.

The Enterprise Optimizer tool suite provides a structured process for modeling
an enterprise, identifying material relationships, uncovering hidden value, and
measuring the impact of decisions and relationships as they relate to the
bottom-line profit of the entire organization.  With Enterprise Optimizer,
quickly developing a powerful and robust model that combines operational
processes, profit implications, and financial analysis can be achieved without
programming or understanding of the theoretical or mathematical principles used.

A new user of Enterprise Optimizer may quickly become a productive modeler and
financial analyst.  River Logic's tools allow flexibility in abstracting
organizational data so that the time-to-value for building valid and valuable
models is very short without any loss in functionality.  The power of the
embedded expert knowledge base is that it automatically translates visual
diagrams into mathematical representations that are validated, verified,
optimized, and processed by several hundred algorithms and analytical
procedures.  Financial reports such as income statements, balance sheets, and
cash flow statements are automatically prepared and analyzed.

River Logic's XLerator Server enables users to quickly re-purpose content
products and other intellectual property using standard applications and
delivery mediums to reduce the product development cycle and quickly generate
new revenue streams.  XLerator provides the power to securely and transparently
organize, share and publish internal and external information and data across an
extended organization or to customers.

The Company holds an ownership interest in River Logic of approximately 8% at
December 31, 2003.  River Logic is an early stage software company, has a
history of operating losses and requires additional funding to continue
operations and to attain profitability.  Since the initial investment in May
2000, River Logic has raised additional capital through the issuance of
preferred stock and other equity securities.  The Company periodically evaluates
the carrying value of its ownership interests in its investee companies taking
into consideration, among other factors, the investee company's valuation
following recent infusions of capital.  The Company views the pricing of recent
capital transactions with unrelated third parties as a measure of the fair value
of the investment in River Logic.

In June 2002, River Logic entered into an equity credit line financing
arrangement at a valuation substantially below the carrying value of the
investment in River Logic. As a result of the lower valuation, general
information technology industry conditions during the year ended December 31,
2002 and lower operational performance by River Logic during the year ended
December 31, 2002, the Company believed that the net realizable value of the
investment has been permanently impaired, is now zero and accordingly, the
Company wrote down its investment in River Logic to zero at December 31, 2002.
During the year ended December 31, 2003, River Logic reported an operating loss
and raised additional cash through the issuance of notes payable and preferred
stock. While we believe that our investment in River Logic will be successful
there can be no assurance that River Logic become profitable in the foreseeable
future.

EMPLOYEES

As of December 31, 2003 and 2002, CT Holdings had no employees. Pursuant to the
transition services agreement between Citadel and CT Holdings all employees
employed by CT Holdings prior to the May 17, 2002 were transferred to Citadel
after the Distribution. Approximately five employees of Citadel including the
CEO and CFO spend up to 20% to 33% of their time managing the business
development activities of CT Holdings. Citadel receives a transition services
fee from CT Holdings for administrative serves including the costs of the shared
employees. The transition services agreement expires in May 2004. Our CEO also
serves as CEO and a director of Citadel, and a director of Parago and River
Logic. Our CFO serves as CFO of Citadel, and another of our directors serves as
a director of Citadel.

GOVERNMENT REGULATION

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

ACCOUNTANT'S REPORT

We have received a report from our independent auditors for our year ended
December 31, 2003 containing an explanatory paragraph that describes the
uncertainty regarding our ability to continue as a going concern due to our
recurring operating losses and our significant working capital deficiency.
Please see Management's Discussion and Analysis - Liquidity and Capital
Resources,


                                        5
<PAGE>
Factors That May Affect Future Operating Results and Note A to our financial
statements for discussions of some of the conditions that could impact our
ability to continue operations under the current business conditions.

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, 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 that 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, or results of operations 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.

                                  GENERAL RISKS

WE HAVE RECEIVED A GOING CONCERN REPORT FROM OUR AUDITORS, HAVE A HISTORY OF NET
LOSSES AND WILL NEED ADDITIONAL FINANCING TO CONTINUE AS A GOING CONCERN.

We received a report from our independent auditors for our year ended December
31, 2003 containing an explanatory paragraph that describes the uncertainty
regarding our ability to continue as a going concern due to our recurring
operating losses and a significant working capital deficiency.  Historically, we
have incurred recurring operating losses and have a significant stockholders'
deficit at December 31, 2003 of approximately $1,379,000.  We had no cash
balance or current assets at December 31, 2003 and current liabilities total
approximately $1,379,000.  We have no access to capital at December 31, 2003 and
we have no plans to raise capital, nor have we identified sources of capital.
In the past our funding needs of the business have been provided by financings
through short-term notes payable and additional investments from related
parties, including our Chief Executive Officer, however there can be no
assurance that such funds will be available from these related parties.  The
Company has been and continues to be dependent upon outside financing to perform
its business development activities, make investments in new technology
companies and to fund operations.

Our plans to continue to support and expand our business development activities
are limited due to a lack of identification of near term capital. As a result,
it is unlikely that the implementation of the Company's business strategy will
generate positive cash flow in the foreseeable future. Achieving positive cash
flow is currently highly dependent upon obtaining liquidity from our investments
in unconsolidated affiliates. We have no plans at December 31, 2003 to raise
additional capital to invest in new business opportunities. We estimate that we
will need to raise up to $1.4 million to settle liabilities and to continue to
support our incubator and business development activities. Historically, we have
obtained short-term funding from our Chief Executive Officer or Directors of the
Company. The amount of capital and the timing of any future financing have not


                                        6
<PAGE>
been determined and there can be no assurance that we will be able to raise new
capital or that sources of capital would be available at terms we would be
willing to accept.

We have made investments in entities that we believe may provide liquidity to
the Company in the long term and we believe that our investments in Parago and
River Logic have been successful.  Parago has recently attained profitability.
As is expected in early stage companies, River Logic has not been profitable and
has had to scale back operations. Historically both companies have experienced
cash flow deficiencies.  The current private equity and venture capital market
conditions have limited the availability of investment capital for investment in
private companies.  In addition, we have not participated in the additional
capital infusions since our initial investments and as a result, our ownership
percentage in both investee companies has been diluted.  Our ownership
percentage in Parago is less than 1% and approximately 8% in River Logic and the
carrying values of both investments have been written down to zero.

While the performance of the investee companies to date has been as expected,
there can be no assurance that we will ever achieve liquidity from these
investments.  In addition, there can be no assurance that our plans will be
successful or what other actions may become necessary in the future. Until we
are able to create liquidity from our investments through sale to a strategic
investor, an initial public offering or some other liquidity transaction, we
will continue to require working capital to fund operating expenses.  Although
we have been successful raising capital in the past, an inability to raise
capital may require us to sell assets.  Such actions could have a material
adverse effect on our business and operations and result in charges that could
be material to the Company's business and results of operations.  At December
31, 2003 we have not identified sources of capital nor do we have any plans to
raise capital to settle liabilities or to fund business development activities.

OUR BUSINESS FOCUS IS THE DEVELOPMENT AND ACQUISITION OF EARLY STAGE COMPANIES;
HENCE, WE WILL ENCOUNTER NUMEROUS RISKS ASSOCIATED WITH OUR BUSINESS FOCUS AND
OUR PRIOR OPERATING HISTORY MAY NOT BE A MEANINGFUL GUIDE TO EVALUATING OUR
FUTURE PERFORMANCE.

Our business model is designed to enable the companies in whom we invest or
acquire to become market leaders in their industries.  Our strategy over the
years has led to the development, acquisition and operation of technology based
businesses with strong business models and compelling valuations. We believe
that the anticipated growth in technology creates strong opportunities for us to
increase shareholder value by investing in early stage ventures well positioned
for growth in their respective marketplaces.  We will attempt to increase the
value of each investee by providing management, marketing and financial
expertise along with financial capital and then realize this new value through a
subsequent liquidity event such as a sale, merger or initial public offering of
the investee companies.  However, the impact of any advice and expertise may be
limited due to a lack of a significant ownership percentage in any of our
investees and the lack of available capital.

In May 2002, we were successful in spinning off Citadel into a standalone
company through the pro-rata dividend distribution of Citadel common stock to
shareholders of CT Holdings.  At December 31, 2003 we held investments in two
companies, Parago and River Logic.  However the investments have no carrying
value on the balance sheet of the Company at December 31, 2003 and 2002 due to
general economic and information technology market conditions, as well as
historical performance of the investee companies.  During 2003 we looked for
businesses and technologies in which to invest but economic and stock market
conditions along with a general decline in the availability of private and
public capital available to us has prevented us from making any additional
investments and there can be no assurance that these factors will improve so
that the Company can continue to execute its business plan.


                                        7
<PAGE>
Other than our formation and development of Citadel, Parago and River Logic, we
have a brief history in executing our business strategy.  As a consequence, our
prior operating history may not provide a meaningful guide to our prospects in
emerging markets.  Moreover, our 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. We may be unable to execute our strategy of developing
our business due to numerous risks, including the following:

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

     -    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.

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

     -    Our expenses will increase as we build the infrastructure necessary to
          implement this model.

     -    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.

     -    We will require additional capital resources in order to implement our
          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 and River Logic (our "investees" or
"investee companies") and completed the spin-off transaction of Citadel in May
2002.  Inasmuch as our investee companies are early stage ventures, it is
difficult to judge their future prospects.  Economic, governmental, industry and
internal company factors outside of our control affect each of our investee
companies.

CT HOLDINGS DOES NOT HAVE ACCESS TO THE CASH FLOW OR ASSETS OF CITADEL, AND HAS
BEEN UNABLE TO OPERATE PROFITABLY FOLLOWING THE DISTRIBUTION

Historically, since prior to the Distribution the businesses that comprise each
of Citadel and CT Holdings were under one ultimate parent, they were able to
rely, to some degree, on the earnings, assets and cash flow of each other for
capital requirements. After the Distribution, CT Holdings has not been able to
rely on the security software business for such requirements.  Following the
Distribution, CT Holdings continues to maintain its own credit and banking
relationships and perform its own financial and investor relations functions.
Because a significant number of key employees of CT Holdings have been employed
by Citadel following the Distribution, there can be no assurance that CT
Holdings will be able to successfully put in place the financial, administrative
and managerial structure necessary to continue to operate as an independent
public company, or that the development of such structure will not require a
significant amount of management's time and other resources.

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 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 voided, and a
court-appointed receiver could take control of us and liquidate our business.
Following the Distribution of Citadel, we may be deemed to be an investment
company unless we qualify for a safe harbor within the time permitted under the
1940 Act.


                                        8
<PAGE>
Although we have yet to make any investments in the investment securities of
companies other than Citadel, 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.

OUR STOCK IS TRADED IN THE OVER THE COUNTER MARKET.

Our common stock was de-listed from the NASDAQ SmallCap Market on May 17, 2001,
because we did not meet the NASDAQ's requirements for continued listing. Our
common stock now trades on the OTC Bulletin Board.  The OTC Bulletin Board is
generally considered to be a less efficient market, and our stock price, as well
as the liquidity of our common stock, may be adversely impacted as a result.

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 PART I 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 experienced no revenue or earnings which have had an
immediate and significant adverse effect on the trading price of our common
stock.  This may occur again in the future.

FAILURE TO QUALIFY AS A TAX-FREE TRANSACTION COULD RESULT IN SUBSTANTIAL
LIABILITY

CT Holdings and Citadel intend for the Distribution to be tax-free for U.S.
federal income tax purposes.  Neither CT Holdings nor Citadel has requested an
advance ruling from the Internal Revenue Service, or any opinion of their tax
advisors, as to the tax consequences of the Distribution.  No assurance can be
given that the Internal Revenue Service or the courts will agree that the
Distribution is tax-free.

If the Distribution does not qualify for tax-free treatment, a substantial
corporate tax would be payable by the consolidated group of which CT Holdings is
the common parent measured by the difference between (1) the aggregate fair
market value of the Citadel Shares on the Distribution Date and (2) CT Holdings'
adjusted tax basis in the Citadel Shares on the Distribution Date.  The
corporate level tax would be payable by CT Holdings.  However, Citadel has
agreed under certain circumstances to indemnify CT Holdings for all or a portion
of this tax liability.  In addition, under the applicable treasury regulations,
each member of CT Holdings' consolidated group (including Citadel) is severally
liable for such tax liability.

Furthermore, if the Distribution does not qualify as tax-free, each CT Holdings
stockholder who received Citadel Shares in the Distribution would be taxed as if
he had received a cash dividend equal to the fair market value of his Citadel
Shares on the Distribution Date.

Even if the Distribution qualifies as tax-free, CT Holdings could nevertheless
incur a substantial corporate tax liability under Section 355(e) of the Internal
Revenue Code of 1986, as amended (the Internal Revenue Code or the Code), if CT
Holdings or Citadel were to undergo a change in control (whether by acquisition,
additional share issuance or otherwise) pursuant to a plan or series of related
transactions which include the Distribution.  Any transaction which occurs
within the four-year period beginning two years prior to the


                                        9
<PAGE>
Distribution is presumed to be part of a plan or series of related transactions
which includes the Distribution unless CT Holdings establishes otherwise.  Under
certain circumstances, Citadel would be obligated to indemnify CT Holdings for
all or a portion of this substantial corporate tax liability under the tax
disaffiliation agreement.

RISKS RELATED TO OUR INVESTEES

The following are some risks related to the business of Parago and River Logic,
our investees, 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.

THERE CAN BE NO ASSURANCE THAT OUR INVESTEES WILL COMPLETE AN INITIAL PUBLIC
OFFERING OR OTHER LIQUIDITY EVENT.

There can be no assurance that any of our investees will complete an initial
public offering, merger, sale or other liquidity event. The failure to complete
an offering or other liquidity event such as an acquisition by a third party
could have a material adverse effect on our stock price. You cannot be assured
that an initial public offering or other liquidity event will occur in the near
future or ever at all. Even if a liquidity event is achieved, we may not receive
material proceeds from a liquidity event because of the existence of other
securities with preferences to the securities we hold or if the price received
by the investee company is not sufficient to generate a favorable return to us.
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, and in May 2002 we
exchanged 1,200 Parago shares held by some of the 2-Lane Media shareholders into
139,806 shares of our common stock. 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. In May 2002, the Company exchanged 16,000 shares of
the Company's common stock for 40 shares of Parago common stock with one of
these shareholders. In February 2004, our CEO elected to exercise an exchange
right whereby he exchanged 5,000,000 (pre 1:1000 reverse split shares) shares of
Parago common stock for 6,000,000 shares of CT Holdings common stock. 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.

OUR INVESTEES' BUSINESSES AND FUTURE PROSPECTS ARE EXTREMELY DIFFICULT TO
EVALUATE BECAUSE THEIR OPERATING HISTORIES ARE VERY LIMITED AND THEIR BUSINESS
MODELS ARE NEW, UNPROVEN AND EVOLVING.

Our investees are early stage companies, and therefore each investee has only a
limited operating history on which one can base an investment decision.  You
should consider their prospects in light of the uncertainties and difficulties
frequently encountered by companies in their early stages of development.
In addition, each investee's business model is new, unproven and evolving.  We
cannot assure that our investees' business models will be commercially
successful, or that their solutions will be accepted by businesses or consumers.
If our investees are unable to establish pricing and service models acceptable
to manufacturers, retailers and service providers and attractive to their
customers, their solutions may not be commercially successful.

EACH INVESTEE HAS A HISTORY OF NET LOSSES AND COULD INCUR SUBSTANTIAL NET LOSSES
IN THE FUTURE.

Parago has only recently reported its first unaudited full year profit and River
Logic has never reported a profit. Both investees could incur substantial losses
in the future, if our investees' revenues do not grow as they anticipate, our
investees may never be profitable.

TO CONTINUE THEIR OPERATIONS AND BUSINESSES, OUR INVESTEES MUST RAISE ADDITIONAL
FINANCING.

Parago has only recently reported its first unaudited full year profit and River
Logic has never reported a profit. Both investees could incur substantial losses
in the future, if our investees do not raise additional funds, or achieve
profitability, their businesses and results of operations will be seriously


                                       10
<PAGE>
harmed, and our assets and share price would be materially and adversely
impacted.  This additional financing may not be available to our investees on a
timely basis if at all, or, if available, on terms acceptable to our investees.
Moreover, additional financing may cause material and immediate dilution to
existing stockholders of our investees, including us.

IN THE EVENT OF THE COMPLETION OF AN INITIAL PUBLIC OFFERING BY ANY OF OUR
INVESTEES, THEIR STOCK PRICE IS LIKELY TO BE VERY VOLATILE.

Currently, the securities of our investees cannot be bought or sold publicly.
There can be no assurance that any of our investees 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 our
investees' 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 their 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 and River
Logic's common stock, if the shares become publicly traded.

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


                                       11
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY

CT Holdings shares office space with Citadel Security Software and as part of
the transition services agreement CT Holdings is charged a monthly
administrative fee of approximately $20,000 per month which includes the cost of
the space. We believe that these facilities will be sufficient to meet our needs
for the foreseeable future.

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

ITEM 3. LEGAL PROCEEDINGS

Set forth below are 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, 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 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 warrants to purchase 1.8 million
shares of CT Holdings common stock at an exercise price of $0.89 per share,
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. The Company 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, to attempt to resolve the disputes between it and JMA, 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 both parties.

However, the Company and JMA were unable to negotiate the final definitive
settlement agreement. The case was dismissed in August 2000 without any
resolution of this issue. On March 27, 2001, JMA attempted to reopen this
matter, but the Court hearing the JMA lawsuit issued a Summary Order denying
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. There was
no activity on the case from March 2001 through August 2001. On August 27, 2001
JMA refiled its lawsuit with a federal court in New York, and the Company filed
its motion to dismiss the case because the plaintiffs lacked the required
diversity jurisdiction to pursue the claims in federal court. On October 31,
2001 the case was dismissed in federal court. In December 2001, the plaintiffs
refiled the lawsuit in the state court seeking to enforce the proposed
settlement term sheet. The case was filed in Supreme Court of New York, that
state's trial court, in a case styled Roan Meyers v. CT Holdings. CT Holdings
has filed counterclaims for breach of the term sheet as well as breach of the
placement agency agreement. Cross motions for partial summary judgments have
been argued but the court has not ruled on the motions. No trial date has been
set at the time. The Company intents to vigorously defend this case.


                                       12
<PAGE>
In June 2000, CT Holdings was served with a lawsuit filed in the 157th State
District Court in Houston, Texas by Michael and Patricia Ferguson for breach of
contract, breach of fiduciary duty, tortuous interference, violation of the
Texas Deceptive Trade Practices Act and negligence.  The case was styled Michael
and Patricia Ferguson v. CT Holdings, Inc.  Specifically, the Ferguson's claim
that they were damaged when they attempted to exercise warrants during a time
when CT Holdings' related registration statement could not be used. In July,
2002, the plaintiffs were awarded damages of $575,510, pre-judgment interest of
$86,748, attorneys' fees of $103,818, post-judgment interest at 10% per year,
and costs. The Company had a liability of $785,000 recorded at December 31, 2002
for this judgment.

CT Holdings appealed the judgment in a case styled CT Holdings Inc. v. Michael
and Patricia Ferguson in the Fourteenth Court of Appeals in Houston, Texas.  In
January 2003, the plaintiffs filed a motion to have the District Court appoint a
receiver to sell assets to satisfy the judgment.  In April 2003 the parties
settled the lawsuit for $225,000 in cash, which was obtained from Citadel in
exchange for a demand note payable bearing interest at 12% per year.

In June 2000, Tech Data Corporation filed suit against CT Holdings, alleging a
breach of a Software Distribution Agreement with CT Holdings. The lawsuit is
styled Tech Data Corporation v. Citadel Technology, Inc. (now known as CT
Holdings), and was filed in Dallas County Court at Law No. 2. During 2003 the
parties reached a settlement whereby Tech Data has agreed to receive 12 monthly
payments of $8,000 per month for settlement of this liability. As part of the
Distribution, Citadel assumed payment responsibility for this lawsuit and has
begun making the payments.

In October 2002, S&S Public Relations Inc. filed a lawsuit against CT Holdings
and Steven B. Solomon, its CEO, alleging breach of contract and fraud, and
seeking damages in the amount of at least $25,215, along with exemplary damages,
attorneys' fees, court costs, and pre- and post-judgment interest. The case is
styled S&S Public Relations Inc. v. CT Holdings and Steven B. Solomon, and was
filed in the County Court at Law No. 4, Dallas County, Texas. The Company had a
liability accrued and in April 2003, the Company settled the liability and this
lawsuit by issuing 50,000 shares of CT Holdings common stock along with 12,500
pro rata dividend shares of Citadel common stock that had been reserved for
issuance at the Distribution Date.

In August 2002, PriceWaterhouseCoopers, LLP ("PWC") filed a lawsuit against CT
Holdings seeking payment of $131,816 for services performed pursuant to a
contract with CT Holdings related to the JMA lawsuit described above. The court
ordered that mediation be held by July 2003.  The case is styled
PriceWaterhouseCoopers, LLP v. CT Holdings, and was filed in the 192nd District
Court, Dallas County, Texas.  In July 2003, PWC obtained a summary judgment
against the Company for damages of $131,816 plus pre-judgment interest of


                                       13
<PAGE>
$57,615, post-judgment interest at 10% and attorneys' fees in the amount of
$8,605. During the year ended December 31, 2003 the Company recorded an accrual
for legal settlement of $207,000 including accrued interest in association with
this judgment. PWC has obtained a garnishment of CT Holdings' bank account and
is seeking to obtain post-judgement discovery.  CT Holdings is attempting to
negotiate a settlement of this case.

In January 2003, R.R Donnelly asserted claims against the Company and Steve B.
Soloman alleging non-payment for services provided to CT Holdings by the
plaintiff during the nine months ended September 30, 2002. The plaintiff is
seeking $16,872 from the Company for past due invoices as well as attorney's
fees in the amount of $24,000, court costs and post-judgment interests at the
highest legal rate. The Company had a liability of approximately $50,000
recorded at December 31, 2003 and 2002 for the services preformed by the vendor.
The Company intends to vigorously defend this lawsuit.

In April 2003 MWW Group re-filed an old suit styled "MWW Group v. CT Holdings
et.al" in the Superior Court of Bergen County, New Jersey which had been
dismissed for want of prosecution. On July 21, 2003 a default judgment was
entered against CT Holdings and Steve Solomon. On December 9, 2003, the Court
signed an order vacating the default judgment. The plaintiff alleges damages in
the amount of $91,290. The case is in the discovery stage and is not yet
scheduled for trial. The Company intends to vigorously defend this case.

In April 2003, Harte Hanks, Inc. filed a lawsuit styled "Harte Hanks, Inc. v. CT
Holdings Inc. dba Citadel Computer" seeking payment of $12,513 for services
performed. In July 2003, the plaintiffs filed a motion for receivership and
alternatively to compel discovery in the lawsuit. At a hearing on the matter
held on September 5, 2003 in the County Court of Law Number Three of Dallas
County, Texas, the court ordered the Company to provide additional discovery by
October 20, 2003 which the Company failed to produce. As part of the
Distribution, Citadel assumed responsibility for this liability, and has settled
this liability for a total payment of $8,000.

We may become involved from time to time in litigation on various matters which
are routine to the conduct of our business. We believe that none of these
actions, individually or in the aggregate, will have a material adverse effect
on our financial position or results of operations, though any adverse decision
in these cases or the costs of defending or settling such claims could have a
material adverse effect on our business.


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

None

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PUECHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock trades on the OTC Bulletin Board under the symbol CITN.  The
following table sets forth, for the periods indicated, the high and low closing
sale prices for the Common Stock as reported by the OTCBB and displayed on its
website.  The quotations reflect inter-dealer prices, without retail markup,
markdown or commission, and may not represent actual transactions.

<TABLE>
<CAPTION>
                                     HIGH     LOW
                                   -------  -------
<S>                                <C>      <C>
     YEAR ENDED DECEMBER 31, 2003
          1st Quarter . . . . . . .$ 0.020  $ 0.011
          2nd Quarter . . . . . . .  0.065    0.010
          3rd Quarter . . . . . . .  0.036    0.021
          4th Quarter . . . . . . .  0.079    0.021

     YEAR ENDED DECEMBER 31, 2002
          1st Quarter . . . . . . .$ 0.449  $ 0.208
          2nd Quarter . . . . . . .  0.343    0.060
          3rd Quarter . . . . . . .  0.070    0.026
          4th Quarter . . . . . . .  0.030    0.006
</TABLE>

At December 31, 2003 there were approximately 786 holders of common stock of the
Company.  Holders of common stock are entitled to dividends when and if declared
by the Board of Directors out of funds legally available therefore.  The Company
has never paid cash dividends on its common stock, and management intends, for


                                       14
<PAGE>
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 stock option information shown below is not subject to a stock option plan
approved by shareholders.

<TABLE>
<CAPTION>
                               Equity Compensation Plan Information
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Number of
                                                                                                                  securities
                                                                                                             remaining available
                                                                                                             for future issuance
                                                                                                                under equity
                                                                                                              compensation plans
                                 Number of securities to be issued      Weighted-average exercise price           (excluding
                                    Upon exercise of outstanding       of outstanding options, warrants      securities reflected
Plan category                       options, warrants and rights                  and rights                    in column (a))
-----------------------------    ---------------------------------    -----------------------------------   ---------------------
                                                (a)                                   (b)                            (c)
<S>                              <C>                                 <C>                                    <C>
Equity compensation plans
approved by security holders.                    -                                     -                              -

Equity compensation plans not
approved by security holders.               2,917,500 (1)                            $0.24                            -
</TABLE>

(1)  Excludes common stock that may be issued in the event the Company's CEO
     exercises a right to exchange 5,000,000 (pre 1:1000 reverse stock split)
     shares of Parago common stock for 6,000,000 shares of CT Holdings common
     stock. This exchange right was exercised in February 2004. The CEO has
     waived his right to receive these shares until such time as shares become
     authorized.

Recent Sales of Unregistered Securities

During the year ended December 31, 2003, the Company settled liabilities in the
aggregate amount of approximately $665,000 in exchange for 1,000,000 shares of
CT Holdings common stock and other consideration.


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

CT Holdings, Inc. provides management expertise and sources of capital to early
stage companies. At December 31, 2003 and 2002 we held investments in Parago and
River Logic. We were incorporated in Delaware in 1992. Our business model is
designed to enable the companies in whom we invest or acquire to become market
leaders in their industries. Our strategy has led to the development,
acquisition and operation of technology based businesses with compelling
valuations and strong business models. 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. Our goal is to realize the
value of our investments for our shareholders through a subsequent liquidity
event such as a spin-off, sale, merger or initial public offering of the
investee companies.

Recent geopolitical, economic and stock market conditions along with lack of
available capital have limited our ability to raise sufficient capital to invest
in additional companies and technologies that could offer us and our
shareholders a reasonable rate of return on their investment in the foreseeable
future. Historically, these factors have also affected the businesses of our
investee companies and as a result, in years prior to the year ended December
31, 2003 the carrying values of our investments in Parago and River Logic have
been written down to zero. We expect that if and when capital becomes available
to us, we may continue our business development and investment activities,


                                       15
<PAGE>
however there can be no assurance that any capital will be available to us.
Until such time as capital becomes available the Company's business activities
will be limited to reviewing investment opportunities, filing of compliance
documents and defending the lawsuits disclosed in Part I, Item 3 - Legal
Proceedings.

THE CITADEL SECURITY SOFTWARE DISTRIBUTION AND DISCONTINUED OPERATIONS

In November 2001, the board of directors of CT Holdings approved the spin-off of
Citadel Security Software, Inc. ("Citadel") through the declaration of a pro
rata dividend distribution to the holders of record of the outstanding shares of
CT Holdings common stock (the "Distribution"). The Distribution consisted of one
(1) share of Citadel common stock for every four (4) shares of CT Holdings (the
"Distribution Ratio") held by CT Holdings shareholders as of May 6, 2002 (the
"Record Date"). Following the Distribution on May 17, 2002 (the "Distribution
Date"), Citadel became an independent company and CT Holdings has no continuing
ownership interest in Citadel. The Distribution is intended to be a tax free
distribution for U.S. federal tax purposes although neither we nor Citadel have
requested or obtained any opinions as to the tax treatment of the Distribution.
On the Distribution Date, CT Holdings and Citadel entered into a series of
agreements including a distribution agreement, a transition services agreement
expiring May 2004 and a tax disaffiliation agreement which provide for, among
other things, the principal corporate transactions required to effect the
Distribution, to provide for an orderly transition to the status of two
independent companies and to define the continuing relationship between Citadel
and CT Holdings after the Distribution.

After the Distribution, two of five directors of CT Holdings were directors of
Citadel and the Chief Executive Officer and the Chief Financial Officer of CT
Holdings hold the same positions with Citadel. Following the Distribution up to
20% to 33% of the officers' time has been be spent on work related to CT
Holdings. All employees of CT Holdings became employees of Citadel following the
Distribution. Under the transition services agreement Citadel provides
accounting, administrative, information management, office space and other
services, including the services of the two officers, to CT Holdings in return
for a payment of a monthly administrative fee initially estimated at $20,000 per
month. The fee may be adjusted quarterly subject to a reallocation of the
estimated time devoted to each company. The transition services agreement
expires in May 2004.

As a result of the Distribution, the financial statements and the results of
operations of Citadel are presented in the statement of operations as
discontinued operations in CT Holdings' financial statements for the period from
January 1, 2002 through the Distribution Date of May 17, 2002.  Summary
financial information with respect to Citadel is provided below:

<TABLE>
<CAPTION>
                                                        Period
                                                    January 1, 2002
                                                        through
                                                     May 17, 2002
                                                    ---------------
<S>                                                 <C>
            Results of operations:
               Revenue                               $     130,519
               Net Loss                                   (942,939)
</TABLE>

OVERVIEW OF PARAGO

In January 1999, we formed Parago, an application service provider and Internet
based business process outsourcer that provides a suite of technology offerings
(including PromoCenter, ClickChoice 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.

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 a
maximum of 500,000 of our shares at the option of the shareholders of the
company acquired by Parago. In May 2002 the Company exchanged 139,806 shares of
the Company's common stock for 1,200 post reverse split shares of Parago common
stock with some of these shareholders. 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. In May 2002, the Company
exchanged 16,000 shares of the Company's common stock for 40 post reverse split
shares of Parago common stock with one of these shareholders. In February 2004,
our CEO elected to exercise an exchange right whereby he exchanged 5,000,000
(pre 1:1000 post reverse split) shares of Parago for 6,000,000 shares of CT
Holdings common stock. These provisions could have the effect of diluting our
stockholders.

After a 1 for 1000 reverse stock split by Parago in connection with its Series E
preferred stock offering in December 2001 to February 2002, in which the


                                       16
<PAGE>
Company elected not to participate, the Company holds 20,000 shares of common
stock of Parago and warrants to purchase 28.8749 shares of Parago's Series A-3
Preferred Stock (convertible into 2,887 shares of Parago's common stock) at
December 31, 2003. In February 2004, our CEO loaned us $30,000 in order for us
to exercise our warrants to purchase shares of Series A-3 convertible preferred
stock, pursuant to a promissory note secured by a pledge of the preferred stock.
In December 2001 Parago completed the first closing ($13.6 million) of an equity
financing of approximately $15.0 million. Approximately $1.4 million of equity
financing was closed in February 2002. We elected not to participate in their
financing transaction. As a result, our ownership percentage in Parago was
reduced to less than 1%. Our investment in Parago for the period from January 1,
2001 through December 12, 2001 was accounted for under the equity method of
accounting for investments and accordingly as a result of our ownership falling
below 20%, has been accounted for using the cost method of accounting since
December 13, 2001. Under the cost method of accounting, the Company's share of
the income or loss from Parago is not included in operations. Under the equity
method of accounting, the Company's share of the investee's income or losses is
included in the statements of operations. 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 Company's ownership percentage exceeds 20% and 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 is recovered through our
proportionate share of net income if Parago turns profitable. We believe that
our $50,000 investment in Parago represented by 20,000 shares of Parago's common
stock (plus 1,240 shares to be received from the exchanges in May 2002), 28.8749
shares of Series A-3 preferred stock (convertible into 2,887 shares of Parago
common stock) and an additional 5,000 shares (5,000,000 pre 1:1000 post reverse
split) received in February 2004 when the CEO exercised his exchange rights for
6,000,000 shares of the Company's common stock may ultimately provide an
appropriate return.

OVERVIEW OF RIVER LOGIC

In May 2000, we made an investment in River Logic by acquiring 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 ("Series A") 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 our common stock. In connection with the
investment in River Logic, we also made two bridge loans totaling $600,000 to
River Logic that were convertible into shares of capital stock of River Logic.

Since the Company's initial investments, River Logic has made progress in
executing its strategy through its development and introduction of new products
and establishment of new customer relationships. As of December 31, 2002, the
Company recognized that this investment would continue to be initially illiquid.
However during the year ended December 31, 2002 general economic conditions
worsened, stock market valuations declined from the values at December 31, 2001
and raising capital at previous historical valuations became difficult. We
considered all the facts and circumstances of River Logic's business,
marketplace and cost of new capital and based on these considerations we
determined that the fair market value of the Company's investment in River Logic
had been permanently impaired and that our investment in River Logic may never
be realized. Accordingly we wrote down the carrying value of our investment in
River Logic to $0 at December 31, 2002. Our investment in River Logic is
accounted for using the cost method of accounting for investments in common
stock therefore no proportionate share of equity in income or loss is recorded.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities.  On an
ongoing basis, we evaluate our estimates, including those related to our
investments in our investee companies and commitments and contingencies. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting policies are most important to the
presentation of our financial statements and require the most difficult,
subjective and complex judgments.


                                       17
<PAGE>
IMPAIRMENT CHARGES

We periodically evaluate the carrying value of our ownership interests in our
investee companies for possible impairment based on achievement of business plan
objectives and milestones, the value of each ownership interest in the investee
company relative to carrying value, the financial condition and prospects of the
investee company, and other relevant factors.  The business plan objectives and
milestones we consider include, among others, those related to financial
performance such as achievement of planned financial results or completion of
capital raising activities, and those that are not primarily financial in nature
such as obtaining key business relationships or the hiring of key employees.  If
an indication of impairment exists with respect to the carrying value of an
investee company, we perform an evaluation by comparing the estimated fair value
of the asset with its carrying value.  Fair value is determined by estimating
the cash flows related to the asset, including estimated proceeds on
disposition, if any.  If the fair value is less than the carrying value a loss
is recorded.

COMMITMENTS AND CONTINGENCIES

From time to time, we are a defendant or plaintiff in various legal actions,
which arise in the normal course of business. We are also a guarantor of various
third-party obligations and commitments.  We are required to assess the
likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses.  A determination of the amount of reserves
required for these contingencies, if any, which would be charged to earnings, is
made after careful analysis of each individual issue.  The required reserves may
change in the future due to new developments in each matter or changes in
circumstances, such as a change in settlement strategy.

Changes in required reserves could increase or decrease our earnings in the
period the changes are made.

EFFECT OF VARIOUS ACCOUNTING METHODS FOR EQUITY INVESTMENTS

The various interests that we acquire in our investee companies are accounted
for under three broad methods: consolidation, equity method and cost method.
The applicable accounting method is generally determined based on our percentage
ownership in an investee company.

CONSOLIDATION METHOD: Investee companies in which we directly or indirectly own
more than 50% of the outstanding securities or those where we have effective
control are generally accounted for under the consolidation method of
accounting.  Under this method, an investee company's accounts are consolidated
within our financial statements. Participation of other unrelated stockholders
in the earnings or losses of a consolidated investee company would be reflected
as a minority interest in consolidated financial statements.  Minority interest
adjusts our consolidated net results of operations to reflect only our share of
the earnings or losses of the consolidated investee company.  At December 31,
2003 and 2002, we had no investee company qualified for this accounting method.

EQUITY METHOD: Investee companies whose results we do not consolidate, but over
whom we exercise significant influence, are generally accounted for under the
equity method of accounting.  Whether or not we exercise significant influence
with respect to an investee company depends on an evaluation of several factors
including, among others, representation on the investee company's board of
directors and percentage ownership level, which is generally a 20% to 50%
interest in the securities of the investee company, including our holdings in
common, preferred and other convertible instruments in the investee company
where we may have voting rights.  Under the equity method of accounting, an
investee company's accounts are not reflected within our financial statements;
however, our share of the earnings or losses of the investee company is
reflected in our statements of operations. At December 31, 2003 and 2002, we had
no investee company qualified for this accounting method.

COST METHOD: Investee companies not accounted for under either the consolidation
or the equity method of accounting are accounted for under the cost method of
accounting.  Under this method, our share of the earnings or losses of these
companies is not included in our statements of operations. Our investments in
Parago and River Logic were accounted for using this method of accounting at
December 31, 2003 and 2002.

RESULTS OF OPERATIONS

THE YEAR ENDED DECEMBER 31, 2003 COMPARED WITH THE ENDED DECEMBER 31, 2002

Our continuing operations consist of costs and expenses for providing services
to our investee companies and the activities to identify additional technologies
and companies in which we might invest.  We do not generate any direct revenue
and because our investee companies are not consolidated, we do not report
revenue from investee businesses.  Due to the spin-off of Citadel on May 17,
2002 the results of operations of Citadel are presented as discontinued
operations in all periods presented prior to the distribution date.  Citadel's


                                       18
<PAGE>
loss from operations from January 1, 2002 through May 17, 2002 is presented as
loss from discontinued operations in the statements of operations.  For the
periods prior to the distribution date, costs and expenses related to the
Citadel business have been allocated to Citadel based on an estimate of the
proportion of amounts allocable to Citadel utilizing such factors as revenues,
number of employees, and other relevant factors.

GENERAL AND ADMINISTRATIVE EXPENSES

During the year ended December 31, 2003 general and administrative expenses were
approximately $296,000 representing a decrease of approximately $614,000 or
67.5% from the approximately $910,000 of general and administrative expenses
recorded for the year ended December 31, 2002. The decrease is primarily due to
lower legal, accounting, consulting and other professional fees and expenses
resulting from the lower business development activities during the year ended
December 31, 2003 versus the similar period of 2002.

FORGIVENESS OF ACCOUNTS PAYABLE

During the year ended December 31, 2003, a vendor released the Company from
payment of approximately $162,000 of invoices for professional services rendered
to the Company.

COMMON STOCK ISSUED AS COMPENSATION

During the year ended December 31, 2002 the Company issued 6,647,500 shares of
common stock to employees and directors of the Company pursuant to the exercise
of stock options. The aggregate exercise price of these stock options was
approximately $1,347,000. Notes receivable for $1,312,500 were received for the
exercise price and subsequently fully reserved and expensed as stock
compensation expense. An additional $34,500 was recorded as a stock bonus
expense during the year ended December 31, 2002.

LITIGATION ACCRUAL AND REVERSAL

In June 2000, CT Holdings was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, tortuous
interference and negligence. Specifically, the Ferguson's claimed that they were
damaged when they attempted to exercise warrants during a time when CT Holdings'
related registration statement could not be used. The trial in this case was
held from April 22, 2002 until May 1, 2002, and the Company received the
judgment from the trial court in July 2002. The trial court awarded the
Fergusons approximately $766,000 in damages, interest and legal fees. As a
result of the judgment, the Company recorded approximately $766,000 plus $19,000
of interest expense as a nonrecurring charge related to the litigation. At
December 31, 2002 we had an accrued liability of $785,000 for this lawsuit.

In April 2003 we settled the lawsuit for $225,000 payable in cash and
accordingly reversed $560,000 of the accrued liability. Citadel loaned us
$225,000 which is represented by a demand note payable bearing interest at 12%
per year. As of December 31, 2003 the accrued interest balance was approximately
$21,000.

In August 2002, PriceWaterhouseCoopers, LLP ("PWC") filed a lawsuit against CT
Holdings seeking payment of $131,816 for services performed pursuant to a
contract with CT Holdings related to the JMA lawsuit. The court ordered that
mediation be held by July 2003. The case is styled PriceWaterhouseCoopers, LLP
v. CT Holdings, and was filed in the 192nd District Court, Dallas County, Texas.
In July 2003, PWC obtained a summary judgment against the Company for damages of
$131,816 plus pre-judgment interest of $57,615, post-judgment interest at 10%
and attorneys' fees in the amount of $8,605. During the year ended December 31,
2003 the Company recorded an accrual for legal settlement of $207,000 in
association with this judgment including post-judgement accured interest of
approximately $7,000.

WRITEDOWN OF INVESTMENT IN AFFILIATES

During the year ended December 31, 2002 general economic conditions worsened,
stock market valuations declined from the previous values and raising capital at
previous historical valuations became difficult.  We considered these and other
facts and circumstances of River Logic's business, marketplace and cost of new
capital and based on an this consideration at June 30, 2002 we determined that
the fair market value of the Company's investment in River Logic had declined to
approximately $500,000 and accordingly wrote down the investment by $2,203,975.
At December 31, 2002 we determined that the fair value of our investment in
River Logic had declined to zero and accordingly wrote down the remaining
carrying value to zero at December 31, 2002.

GAIN ON SETTLEMENT OF LIABILITIES

During the year ended December 31, 2003 we completed negotiations to settle
approximately $665,000 of liabilities that had been outstanding prior to the
Citadel Distribution by issuing 1,000,000 shares of CT Holdings common stock
along with 250,000 pro rata dividend shares of Citadel common stock that had
been reserved for issuance at the Distribution Date. The difference between the
fair value of the shares and the recorded liabilities of approximately $415,000
was recognized as a gain in the statement of operations. A gain on the
settlement of a liability with stock of approximately $9,000 was recognized in
the year ended December 31, 2002.

GAIN FROM OFFSET OF NOTES RECIEVABLE AGAINST NOTES PAYABLE

During 2003, the Company agreed to offset a note payable to our CEO, a note
payable to a former director and a note payable to an entity controlled by an
employee (as to each of which the Company was in default) aggregating
approximately $525,000 plus accrued interest of approximately $172,000 against
notes receivable from these individuals aggregating approximately $1,107,000
plus accrued interest receivable of approximately $148,000. The notes receivable
and related accrued interest had been fully reserved. As a result, the Company
has recorded a gain of approximately $642,000.

INTEREST (INCOME) EXPENSE

Interest expense for the year ended December 31, 2003 was approximately $125,000
representing interest expense on advances and notes payable to related parties,
notes payable to shareholders and the demand note payable to Citadel. Interest
expense for the year ended December 31, 2002 was approximately $129,000 and
includes a charge of approximately $51,000 related to the beneficial conversion
feature of $600,000 of convertible debt issued during the year ended December
31, 2002 and approximately $43,000 of


                                       19
<PAGE>
interest expense on advances and notes payable to related parties and notes
payable to shareholders. The increase in interest expense, excluding the charge
for the beneficial conversion feature, is due to higher average balances of
interest bearing debt outstanding during the year ended December 31, 2003.
Interest income of approximately $55,000 related to notes receivable from
shareholders was recognized during the year ended December 31, 2003.

OTHER (INCOME) EXPENSE

Other expense for the year ended December 31, 2002 was approximately $36,000
representing the fair market value of common stock issued for the exercise of
exchange rights granted by the Company.

NET INCOME (LOSS)

For the year ended December 31, 2003 we reported a net income from continuing
operations of approximately $1,211,000 versus a loss from continuing operations
of approximately $5,932,000 for the year ended December 31, 2002. As a result of
the Distribution, the results of operations of Citadel for the year ended
December 31, 2002 are presented as discontinued operations. The loss from
discontinued operations related to Citadel for the year ended December 31, 2002
was approximately $943,000. In addition to the loss from discontinued
operations, we recorded transaction costs directly related to the spin-off
transaction, primarily, legal and accounting fees, of $185,000 for the year
ended December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

We received a report from our independent auditors for our year ended December
31, 2003 containing an explanatory paragraph that describes the uncertainty
regarding our ability to continue as a going concern due to our recurring
operating losses and our significant working capital deficiency. Historically,
we have incurred recurring operating losses and have a significant stockholders'
deficit at December 31, 2003 of approximately $1,352,000. We had no cash balance
or current assets at December 31, 2003 and current liabilities total
approximately $1,352,000. We have no access to capital at December 31, 2003 and
we have no plans to raise capital nor have we identified sources of capital. Our
past funding needs of the business have been provided by financings through
short-term notes payable and additional investments from related parties,
including our Chief Executive Officer, however there can be no assurance that
such funds will be available from this related party. The Company has been and
continues to be dependent upon outside financing to perform its business
development activities, make investments in new technology companies and to fund
operations.

Our plans to continue to support and expand our business development activities
are limited due to a lack of identification and availability of near term
capital. As a result, it is unlikely that the implementation of the Company's
business strategy will generate positive cash flow in the foreseeable future.
Achieving positive cash flow is currently highly dependent upon obtaining
liquidity from our investments in unconsolidated affiliates. We have no plans at
December 31, 2003 to raise additional capital to invest in new business
opportunities. To do so we estimate that we will need to raise up to $1.4
million to settle liabilities after which we may then begin to support our
incubator and business development activities. However there can be no assurance
that we will raise additional funds needed to settle our liabilities.

There can be no assurance that management's plans will be successful or what
other actions may become necessary.  There can be no assurance that the Company
will ever achieve liquidity for its investments.  Until we are able to create
liquidity from an additional inflow of new capital or from our investments
through sale to a strategic investor, an initial public offering or some other


                                       20
<PAGE>
liquidity transaction, we will continue to require external sources of working
capital to fund our operating expenses. Our inability to raise capital could
have a material adverse effect on our business and operations that could be
material to our results of operations.

The net cash used in operating activities was $225,000 for the year ended
December 31, 2003. This is the result of net income of approximately $1,211,000
for the year ended December 31,2003 and an accrual for a legal settlement of
$207,000 including accured interest, offset by the reversal of litigation
accrual of $560,000 resulting from the settlement of a legal claim, a gain on
the offset of notes payable with note receivable that were previously written
off of approximately $697,000, the forgiveness of vendor accounts payable of
approximately $162,000 a gain of approximately $415,000 recognized upon the
settlement of operating liabilities with the issuance of common stock and offset
by cash from changes in operating assets and liabilities of approximately
$192,000.

The net cash used in operations of approximately $418,000 for the year ended
December 31, 2002 is principally a result of the net loss of approximately
$7,060,000 offset by a net loss from discontinued operations of approximately
$943,000, stock compensation expense of $1,347,000, a write down of our
investment in affiliates of approximately $2,734,000, a legal settlement accrual
of $785,000 and the changes in operating assets and liabilities of approximately
$748,000.

There was no cash from investing activities for the years ended December 31,
2003 or 2002.  Cash flows provided from financing activities for the year ended
December 31, 2003 includes $225,000 of proceeds from a note payable to Citadel.
In April 2003 we settled a lawsuit for $225,000 payable in cash.  Citadel loaned
the Company $225,000 which is represented by a demand note payable bearing
interest at 12% per year.

Cash flows provided by financing activities was approximately $618,000 for the
year ended December 31, 2002, primarily resulting from the proceeds of a
convertible note from a shareholder of $600,000, proceeds of notes and advances
payable from related parties of approximately $518,000 offset by payments on
notes payable to related parties of approximately $533,000 and $25,000 in
proceeds from the sale of common stock.

At December 31, 2003 the Company was in default on the following indebtedness:

     -    $9,000, an 8% note payable to a shareholder. The note continues to
          bear interest at 8% with accrued interest at December 31, 2003 of
          $2,355.

As a result of the aforementioned factors, there were no net cash flows from
continuing operations in the year ended December 31, 2003.  During the year
ended December 31, 2002 there were approximately $200,000 of net cash flows
provided by continuing operations and the net contribution by CT Holdings to
Citadel was approximately $200,000 for the same period.  The net result in both
periods was no cash balance at December 31, 2003 and 2002.

CONTRACTUAL OBLIGATIONS

At December 31, 2003 we have no long term debt obligations, capital lease
obligations, operating lease obligations or long term capital purchase
commitments. However at December 31, 2003 we have accrued obligations for
estimated payments of legal judgments against us and for payments to Citadel
under the transition services agreement and demand note payable, none of which
may be paid until such time as the Company has sufficient cash to pay these
obligations.

ITEM 7.   FINANCIAL STATEMENTS

The Financial Statements for the years ended December 31, 2003 and 2002 are
found following the signature page of this report.


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

On March 7, 2003 the Company filed a Report on Form 8-K to report a change in
accountants due to a merger of accounting firms.  Effective March 1, 2003, King
Griffin & Adamson P.C. merged with BDA&K Business Services, Inc. and formed a
new entity, KBA Group LLP.  The personnel that the Registrant has dealt with at
King Griffin & Adamson P.C. are now employees of KBA Group LLP.  As a result of
this merger, on March 1, 2003, King Griffin & Adamson P.C. resigned to allow its
successor entity KBA Group LLP to be engaged as the Registrant's independent
public accountants.


                                       21
<PAGE>
ITEM 8A.  CONTROL AND PROCEDURES

The Company's management, including the Company's principal executive officer
and principal financial officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the year ended
December 31, 2003, the period cover by the Annual Report on Form 10-KSB. Based
upon that evaluation, the Company's principal executive officer and principal
financial officer have concluded that the disclosure controls and procedures
were effective as of December 31, 2003 to provide reasonable assurance that
material information relating to the Company is made known to management
including the CEO and CFO.

There were no changes in the Company's internal control over financial reporting
that occurred during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                       22
<PAGE>
                                    PART III

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


DIRECTORS  The names of our directors, their principal occupations and the year
in which each current Director of CT Holdings, Inc. (the "Company") initially
joined the Board of Directors are set forth below.

<TABLE>
<CAPTION>
                                                                            DIRECTOR
NAME                AGE              POSITION WITH THE COMPANY               SINCE
------------------  ---  -------------------------------------------------  --------
<S>                 <C>  <C>                                                <C>
Steven B. Solomon    39  President, Chief Executive Officer,
                          and Secretary                                         1992
Chris A. Economou    48  Director                                               1993
Mark Rogers          43  Director                                               1996
Dr. Axel Sawallich   58  Director                                               1993
</TABLE>

STEVEN B. SOLOMON has served as President and Chief Executive Officer of CT
Holdings since May 1997 and as a director of CT Holdings since February 1996, as
the President and Chief Executive Officer of Citadel Security since its
formation in December 1996 and as a director of LoneStar Hospitality Corp from
1992 until its merger with the Company in 1996. Mr. Solomon also serves as a
Director of Parago, Inc., an incubation venture of CT Holdings that is an
application solution provider and Internet-based business process outsourcer
that provides an on-line suite of promotional offerings designed to automate
promotional management and optimize the customer care services offered by its
clients, and he served as Chairman of the Board of Directors of Parago from
January 1999 to April 2001, and Chief Executive Officer of Parago from January
1999 to August 2000. Since May 5, 2000 Mr. Solomon has also served as a director
of River Logic, Inc., an incubation venture of CT Holdings that creates and
operates integrated networks of decision support tools, elearning solutions and
ecommerce capabilities designed to enable decision makers to leverage knowledge
and information to gain competitive advantage.


CHRIS A. ECONOMOU has served as a director of CT Holdings since February 1996
and as a director of Citadel since November 2001, and as a director of LoneStar
Hospitality Corp. from June 1993 until its merger with the Company in 1996. Mr.
Economou has been engaged in the private practice of law in Fort Lauderdale,
Florida, primarily in the transactional and corporate areas since 1981. Mr.
Economou also served as a director of Parago during its incubation phase from
January 1999 to February 2000.


MARK ROGERS has served as a director of the Company since July 1996. Since 1999
Mr. Rogers has been President of Alchemy Consulting, Inc., a business advisor
firm focusing on venture-backed technology companies throughout their life
cycle. He has been involved with several turnarounds and has also advised and
assisted start-up companies with strategy and financings including mergers and
acquisitions. From 1989 to 1999 Mr. Rogers has served as a partner and Chief
Operating Officer of NFT Ventures, a venture capital fund established by Ray
Noorda, the founder of Novell, Inc.  In connection with his position at NFT
Ventures, Mr. Rogers advised several computer software companies in Texas, Utah
and Silicon Valley, with respect to various strategic and developmental matters.
Mr. Rogers also served as a director of Parago during its incubation phase from
January 1999 to February 2000.

DR. AXEL SAWALLICH has served as a director of the Company since February 1996
and was a director of LoneStar from March 1993 until its merger with the Company
in 1996. Since January 1997, Dr. Sawallich has been chief investment consultant
for Lifeplan Investments, Vienna, Austria. Since 1993, he has been the managing
partner of Global Invest, an investment firm located in Vienna. Dr. Sawallich
has also been acting as an independent, publicly certified, investment advisor
since 1993.

There are no family relationships among any of the directors or executive
officers of the Company. See "Certain Relationships and Related Transactions"
for a description of transactions between the Company and its directors,
executive officers or their affiliates. Section 16(a) of the Exchange Act, as
amended, requires the Company's Directors, executive officers and persons who


                                       23
<PAGE>
own more than 10% of a registered class of the Company's equity securities to
file certain reports regarding ownership of the Company's Common Stock with the
SEC.  These insiders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.  To the Company's knowledge, based
solely on a review of the copies of the Section 16(a) forms furnished to the
Company during 2003, or written representations from certain reporting persons
that no Forms 5 were required for those persons, all Section 16(a) filing
requirements applicable to the Company's officers, Directors and beneficial
owners of more than 10% of the outstanding shares of Common Stock were filed on
a timely basis.

EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

                                 POSITION WITH            Officer
NAME               AGE            THE COMPANY              Since
-----------------  ---  -------------------------------  ----------

Steven B. Solomon   39  President,
                         Chief Executive Officer,
                         Secretary and Director                1992

STEVEN B. SOLOMON has served as President and Chief Executive Officer of CT
Holdings since May 1997 and as a director of CT Holdings since February 1996, as
the President and Chief Executive Officer of Citadel Security since its
formation in December 1996 and as a director of LoneStar Hospitality Corp from
1992 until its merger with the Company in 1996. Mr. Solomon also serves as a
Director of Parago, Inc., an incubation venture of CT Holdings that is an
application solution provider and Internet-based business process outsourcer
that provides an on-line suite of promotional offerings designed to automate
promotional management and optimize the customer care services offered by its
clients, and he served as Chairman of the Board of Directors of Parago from
January 1999 to April 2001, and Chief Executive Officer of Parago from January
1999 to August 2000. Since May 5, 2000 Mr. Solomon has also served as a director
of River Logic, Inc., an incubation venture of CT Holdings that creates and
operates integrated networks of decision support tools, elearning solutions and
ecommerce capabilities designed to enable decision makers to leverage knowledge
and information to gain competitive advantage.

Committees of the Board of Directors

During fiscal year 2003, there was one meeting of the Company Board of
Directors. All directors attended 75% or more of the aggregate of meetings of
the Board and their committees held during their respective terms. In addition,
the Board took action by written consent three times.

The Company's board of directors has established a standing audit committee
composed exclusively of outside directors, Mr. Economou and Mr. Rogers to assist
in the discharge of its responsibilities.

The Audit Committee meets with the Company's financial management and
independent auditors and reviews the accounting principles and the scope and
control of the Company's financial reporting practices, and makes reports and
recommendations to the Board with respect to audit matters. The Audit Committee
also recommends to the Board the appointment of the firm selected to be
independent certified public accountants for the Company and monitors the
performance of such firm; reviews and approves the scope of the annual audit and
evaluates with the independent certified public accountants the Company's annual
audit and annual financial statements; and reviews with management the status of
internal accounting controls and internal audit procedures and results. The
Audit Committee met four (4) times during fiscal year 2003 and took action by
written consent one time. The Audit Committee is required to have and will
continue to have at least two members, all of whom must be "independent
directors" as defined in the Marketplace Rules of the Nasdaq Stock Market.
Messrs. Economou and Rogers are the current members of the Audit Committee. The
Board has determined that


                                       24
<PAGE>
Messrs. Economou and Rogers are financially literate in the areas that are of
concern to the Company, and are able to read and understand fundamental
financial statements. The Board has also determined that Messrs. Economou and
Rogers each meet the independence requirements set forth in the Marketplace
Rules of the Nasdaq Stock Market.

The Securities and Exchange Commission ("SEC") has adopted rules to implement
certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public
company audit committees. One of the rules adopted by the SEC requires a company
to disclose whether it has an "audit committee financial expert" serving on its
audit committee. Based on its review of the criteria of an audit committee
financial expert under the rule adopted by the SEC, the Board of Directors does
not believe that any member of the Board of Directors' Audit Committee would be
described as an audit committee financial expert. At this time, the Board of
Directors believes it would be desirable for the Audit Committee to have an
audit committee financial expert serving on the committee, though the Company
believes that its current financial position will render it difficult to engage
an audit committee expert at this time. Because of the Company's small size and
limited resources, the Company believes that it would be difficult to recruit an
audit committee financial expert.

The Company's Board of Directors has adopted a written charter for the Audit
Committee of the Board. A copy of the written Audit Committee charter will be
attached as an exhibit to the proxy statement for CT Holdings annual shareholder
meeting and will be made available on the company's website,
www.ct-holdings.com.

The Company does not have a compensation committee, but the entire Board reviews
the compensation and employee benefits of officers of the Company.

The Board does not have a nominating committee, as nominations are made by the
independent members of the Board as a whole.

The Board seeks to identify qualified individuals to become board members and
determine the composition of the Board and its committees. When considering a
potential director candidate, the Board looks for personal and professional
integrity, demonstrated ability and judgment and business experience. The Board
will review and consider director nominees recommended by stockholders. There
are no differences in the manner in which the Board evaluates director nominees
based on whether the nominee is recommended by a shareholder.

Directors' Compensation

CT Holdings reviews its compensation arrangements for directors from time to
time and may alter these arrangements. Directors will receive no cash
compensation for services as a director or as a member of a committee of CT
Holdings' board. CT Holdings will reimburse each director for out-of-pocket
expenses incurred in connection with attendance at board and committee meetings.

We may, in our discretion, grant stock options and other equity awards to our
non-employee directors. Our outside directors hold no options to purchase common
stock of the Company at December 31, 2003.

Our Board of Directors adopted a Code of Business Conduct for all of our
directors, officers and employees and a Code of Ethics for our CEO and Senior
Financial Executives in April 2004. Stockholders may request a free copy of our
Code of Business Conduct and Code of Ethics from:

CT Holdings, Inc.
Attention: Investor Relations
8750 North Central Expressway, Suite 100
Dallas, Texas 75231
214/520-9292


                                       25
<PAGE>
To date, there have been no waivers under our Code of Business Conduct and
Ethics. We will post any waivers, if and when granted, of our Code of Business
Conduct and Ethics on our website at www.ct-holdings.com.
                                     --------------------


                                       26
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION

The table below sets forth certain information with respect to the annual and
long term compensation of the named executives for services to CT Holdings for
its chief executive officer and chief financial officer who are the only
officers of CT Holdings. Since the Distribution on May 17, 2002 Mr. Solomon has
been employed by Citadel, also as Citadel's CEO. During the year ended December
31, 2001 and the period from January 1, 2002 through May 17, 2002 compensation
was paid by CT Holdings and has been allocated to the operations of Citadel as
if paid by Citadel. Pursuant to the transition services agreement CT holdings is
charged $20,000 per month for the services of Mr. Solomon as CEO. Except for
share information the compensation table presents the total compensation paid by
CT Holdings to Mr. Solomon.


<TABLE>
<CAPTION>
                                          SUMMARY COMPENSATION TABLE
                                                                                        LONG-TERM
                                            ANNUAL COMPENSATION                        COMPENSATION
                           --------------------------------------------------------   -------------
                                                                                       SECURITIES
                           PERIOD                     ANNUAL           OTHER           UNDERLYING         ALL OTHER
                            ENDED    SALARY ($)     BONUS ($)     COMPENSATION ($)     OPTIONS (#)     COMPENSATION ($)
                           -------   -----------    ----------    -----------------   -------------    -----------------
<S>                        <C>      <C>            <C>           <C>                  <C>             <C>
Steven B.Solomon           12/2003  $           0  $          0  $                0            0      $             0
  Chief Executive Officer  12/2002         75,000        56,250                   0    2,000,000 (1)            7,804 (2)
                           12/2001        200,000       150,000                   0    5,000,000 (1)           17,548 (3)
<FN>
(1)  Excludes 6,000,000 shares of CT Holdings common stock that were issued in
     February 2004 to Mr. Solomon when he exercised his right to exchange
     5,000,000 (pre- 1:1000 reverse stock split) shares of Parago common stock
     for shares of common stock of the Company. Because the Company did not have
     enough authorized shares at the date of exercise, Mr. Solomon has waived
     his right to those shares until such time as additional shares are
     authorized

(2)  Includes a car allowance of $4,275, and payments for life, health and
     disability insurance premiums.

(3)  Includes a car allowance of $11,400 plus $6,048 for payments of life
     insurance premiums.
</TABLE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                             INDIVIDUAL GRANTS
                   -------------------------------------------------------------------
                                             PERCENT OF
                   NUMBER OF SECURITIES     TOTAL OPTIONS       EXERCISE
                    UNDERLYING OPTIONS       GRANTED TO          PRICE      EXPIRATION
NAME                     GRANTED          EMPLOYEES IN 2003      ($/SH)        DATE
-----------------  --------------------  ------------------    ----------   ----------
<S>                <C>                   <C>                  <C>           <C>
Steven B. Solomon                     0                 0.0%  $       0.00           -
</TABLE>


                                       27
<PAGE>
The following table describes, for each of the Named Executive Officers, options
exercised and the potential values for their unexercised in-the-money options at
December 31, 2003:

<TABLE>
<CAPTION>
                                                             NUMBER OF              VALUE OF
                                                            SECURITIES            UNEXERCISED
                                                            UNDERLYING            IN-THE-MONEY
                                                       UNEXERCISED OPTIONS          OPTIONS
                                       SHARES            AT FISCAL YEAR-        AT FISCAL YEAR-
                   ACQUIRED ON         VALUE            END (EXERCISABLE/     END (EXERCISABLE/
NAME                EXERCISE          REALIZED           UNEXERCISABLE)       UNEXERCISABLE) (2)
-----------------  -----------  --------------------  ---------------------  --------------------
<S>                <C>          <C>                   <C>                    <C>
Steven B. Solomon            0  $                  0        2,000,000 / 0(1) $             0 / $0
</TABLE>

(1)  Based on the market price on the date exercised less the exercise price
     payable for each share.

(2)  Based on the fair market value of the Company's Common Stock (at December
     31, 2003) per share less the exercise price payable for each share.


EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS

The transition services agreement between Citadel and CT Holdings calls for the
sharing of the salaries and benefits of the CEO, CFO and some administrative
employees of Citadel that perform services for CT Holdings but whose payroll and
benefits are assigned to Citadel. The agreement allows for a charge to CT
Holdings of $20,000 per month representing an allocation of the payroll,
benefits and an allocation of overhead (includes rent and general office
expenses applied as a percentage of payroll and benefits) associated with the
shared employees. The transition service agreement expires May 2004. At December
31, 2003, Mr. Solomon does not have an employment agreement with CT Holdings.


                                       28
<PAGE>
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of April 6, 2004, there were issued and outstanding approximately 58,545,928
shares of Common Stock.  There is no other class of voting security of the
Company issued or outstanding.  The following table sets forth the number of
shares of the Company's Common Stock beneficially owned, as of April XX, 2004 by
(i) each person known to the Company to own more than 5% of the Common Stock of
the Company (the only class of voting securities now outstanding), (ii) each
director, (iii) each executive officer named in the Summary Compensation Table
and (iv) all directors, named executive officers and other executive officers as
a group.  The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Securities Exchange Act and the information
is not necessarily indicative of beneficial ownership for any other purpose.
Under this rule, beneficial ownership includes any shares to which the
individual has the right to acquire within 60 days of April 6, 2004 through the
exercise of any stock option or other right.  Unless otherwise indicated in the
footnotes or table, each person or entity has sole voting and investment power
(or shares such powers with his or her spouse) with respect to the shares shown
as beneficially owned and has an address of c/o CT Holdings, 8750 North Central
Expressway, Suite 100, Dallas, Texas 75231.

                                             NUMBER OF    APPROXIMATE
                                                             PERCENT
NAME AND ADDRESS                           SHARES OWNED     OF CLASS
-----------------------------------------  ------------  ------------

Steven B. Solomon (1)                        16,285,993         24.5%

Chris A. Economou                               724,400          1.2%
     150 North Federal Highway, # 210
     Fort Lauderdale, Florida 33301

Mark Rogers                                     651,500          1.1%
     751 Laurel St. #19
     San Carlos, California

Dr. Axel Sawallich                              387,144           *
     Beatrixgasse 3
     1030 Vienna, Austria.

Lawrence Lacerte (2)                          5,450,000          9.3%
     5950 Sherry Lane
     Dallas, Texas 75225

Thomas E. Oxley (3)                           6,244,800         10.2%
     2727 South Ocean Blvd., #803
     Highland Beach, FL 33487

All officers and directors
  as a group (5 persons)(4)                  18,324,037        27.54%

*    Less than 1%

(1)  Includes 2,000,000 shares of Common Stock subject to fully vested options.
     Includes 6,000,000 shares of CT Holdings common stock that were issuable in
     February 2004 when Mr. Solomon exercised his right to exchange 5,000,000
     (pre 1:1000 reverse stock split) shares of Parago common stock. Since the
     issuance of all 6,000,000 shares would cause the number of shares
     outstanding to exceed the authorized shares of 60,000,000, Mr. Solomon has
     waived his right to these shares until such time as the shares become
     authorized.

(2)  Includes 200,000 shares of Common Stock subject to fully vested options.

(3)  During the first quarter of 2003, Mr. Oxley converted a $600,000 note
     convertible note payable into 2,700,000 shares of common stock of the
     Company. Since the issuance of all 2,700,000 would cause the number of
     shares outstanding to exceed the authorized shares of 60,000,000, Mr. Oxley
     has waived his right to these shares until such time as the shares become
     authorized.

(4)  Includes 2,000,000 shares issuable pursuant to presently exercisable
     options or warrants and 6,000,000 shares of CT Holdings Common Stock that
     were issuable in February 2004 when Mr. Solomon exercised his right to
     exchange 5,000,000 pre 1:1000 split shares of Parago common stock for
     shares of CT Holdings Common Stock. Mr. Solomon has elected not to receive
     the actual shares until such time as the shares become authorized.


                                       29
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following is a description of the material terms of the agreements and
arrangements involving the Company and its subsidiaries.

AGREEMENTS RELATING TO THE CITADEL SECURITY SOFTWARE DISTRIBUTION

We have entered into several agreements with Citadel to define our ongoing
relationship after the Distribution and to allocate tax and other specified
liabilities and obligations arising from periods prior to the distribution date.
We entered into these agreements prior to the Distribution while Citadel was a
wholly owned subsidiary of CT Holdings.

DISTRIBUTION AGREEMENT

In connection with the Distribution, CT Holdings and Citadel entered into the
distribution agreement, which provides for, among other things, the principal
corporate transactions required to effect the Distribution and certain other
agreements relating to the continuing relationship between Citadel and CT
Holdings after the Distribution.

The distribution agreement provides that prior to the Distribution Date, Citadel
will have issued to CT Holdings a number of Citadel Shares equal to one fourth
of the total number of shares of CT Holdings common stock outstanding on the
Distribution Date (plus an additional immaterial number of Citadel Shares to be
distributed with respect to fractional shares that are rounded up).  CT Holdings
effected the Distribution by delivering a certificate representing 100% of the
Citadel Shares to the Distribution Agent.

Under the distribution agreement and effective as of the Distribution Date,
Citadel assumed and agreed to indemnify CT Holdings against all liabilities,
litigation and claims, including related insurance costs, arising out of
Citadel's businesses (including discontinued or sold security software
businesses), and CT Holdings retained and agreed to indemnify Citadel against
all other liabilities, litigation and claims, including related insurance costs.
The foregoing obligations do not entitle an indemnified party to recovery to the
extent any such liability is covered by proceeds received by such party from any
third party insurance policy.

Under the distribution agreement for a two-year period beginning on the
Distribution Date, except in limited circumstances, Citadel will not solicit or
recruit any CT Holdings employee without CT Holdings' prior written consent and
likewise, CT Holdings will not solicit or recruit any Citadel employee without
Citadel's prior written consent.

The distribution agreement also provides that each of CT Holdings and Citadel
shall be granted access to certain records and information in the possession of
the other, and requires the retention by each of CT Holdings and Citadel for a
period of six years following the Distribution Date of all such information in
its possession.

TRANSITION SERVICES AGREEMENT

In connection with the Distribution, Citadel entered into a transition services
agreement with CT Holdings. This agreement provides that CT Holdings and Citadel
will provide each other services in such areas as information management and
technology, sharing of office space, personnel and indirect overhead expenses,
employee benefits administration, payroll, financial accounting and reporting,
claims administration and reporting, and other areas where CT Holdings and
Citadel may need transitional assistance and support. The transition services
agreement provides generally that each of Citadel and CT Holdings will undertake
to provide substantially the same level of service and use substantially the
same degree of care as their respective personnel provided and used in providing
such services prior to the execution of the agreement. The agreement provided
for an initial one year term and will renew for additional one year term, which
expires in May 2004, but may be terminated earlier under certain circumstances,
including a default, and may be renewed for additional. Initially, CT Holdings
will pay Citadel a monthly fee of $20,000, subject to adjustment on a quarterly
basis. No adjustments to the fee have been made through December 31,2003 We
believe that the terms and conditions of the transition services agreement are
as favorable to us as those available from unrelated parties for a comparable
arrangement.

TAX DISAFFILIATION AGREEMENT

On the Distribution Date CT Holdings and Citadel entered into a tax
disaffiliation agreement which sets out each party's rights and obligations with
respect to deficiencies and refunds, if any, of federal, state, local or foreign
taxes for periods before and after the Distribution Date and related matters
such as the filing of tax returns and the conduct of Internal Revenue Service
and other audits.  Under the tax disaffiliation agreement, Citadel will
indemnify CT Holdings for all taxes and liabilities incurred as a result of
Citadel's or an


                                       30
<PAGE>
affiliate's post-Distribution action or omission contributing to an Internal
Revenue Service determination that the Distribution was not tax-free.  CT
Holdings will indemnify Citadel for all taxes and liabilities incurred solely
because CT Holdings or an affiliate's post-Distribution action or omission
contributes to an Internal Revenue Service determination that the Distribution
was not tax-free.  If the Internal Revenue Service determines that the
Distribution was not tax-free for any other reason, CT Holdings and Citadel will
indemnify each other against all taxes and liabilities pro rata based on
relative values as of the Distribution Date.

Citadel will indemnify CT Holdings against any taxes resulting from any internal
realignment undertaken to facilitate the Distribution on or before the
Distribution Date.

CT HOLDINGS' RELATED PARTY TRANSACTIONS

Mr. Solomon, our CEO, and a director, is also CEO, and a director of Citadel,
and a director of Parago and River Logic.  Messrs. Lacerte and Romano are former
directors of CT Holdings having resigned from the CT Holdings Board effective
with the Distribution.  Messrs. Lacerte and Romano are former directors of
Citadel having resigned from the Citadel Board in October 2002.  Both are
shareholders in Citadel and CT Holdings.  Mr. Lacerte is also a former director
and shareholder of Parago.  Mr. Romano served as a director of Encore, an
investment that was liquidated in 2002.

During the years ended December 31, 2003 and 2002 CT Holdings received
substantially all of its financing from its CEO, directors and other related
parties.  The related party transactions of CT Holdings are described below.
Other than transactions related to the agreements related to the Distribution
described above there were no transactions with Citadel following the
Distribution Date.

During the years ended December 31, 2003 and 2002, CT Holdings incurred legal
fees in the amount of approximately $12,675 and $134,000 to a law firm in which
David Wood, an attorney who was a former CT Holdings' employee and is a relative
of our CEO, is a partner.

During the year ended December 31, 2001, CT Holdings issued an 8% note payable
to Mr. Lacerte for $250,000 and payable April 30, 2002. This note was unpaid at
December 31, 2002 and was in default. In May 2002, prior to the Distribution
Date, Mr. Lacerte exercised stock options for 2,250,000 shares of CT Holdings'
common stock by entering into a note payable to CT Holdings for $450,000, the
aggregate exercise price of the options. This note receivable was fully
reserved. Pursuant to an agreement with the Company the note payable and note
receivable have been offset at their equivalent fair values.

At December 31, 2001 CT Holdings had a liability to its CEO of approximately
$290,000 for cash advances received to fund operations in 2001.  From January 1,
2002 through the Distribution Date CT Holdings received approximately $267,500
of additional advances from its CEO, repaid $322,500 of the total advances to
its CEO and offset $8,934 of the CEO's business expenses against the net amount
due the CEO.  The remaining amount due the CEO of approximately $226,000 was
converted by CT Holdings into a 5% note payable due July 1, 2002, and at
December 31, 2002 is in default and accruing interest at 18% per annum.

In June 2001, our CEO funded and guaranteed CT Holdings' participation in a bank
bridge loan financing of Parago. In consideration for this funding and
guarantees, CT Holdings has agreed to permit the CEO to exchange up to 5,000,000
(pre 1:1000 reverse stock split) Parago shares into up to 6,000,000 shares of CT
Holdings' common stock including a right to any dividends. The exercise of the
exchange right will require Citadel to issue up to 1,500,000 shares of Citadel
common stock. This exchange right was exercised in February 2004 and the CEO
waived his right to receive the shares of our common stock until such time as we
have sufficient authorized shares of common stock to issue them..

On April 1, 2002, prior to the Distribution, CT Holdings entered into a $600,000
non-interest bearing convertible note payable due April 1, 2003 to Thomas Oxley,
a greater than 5% shareholder.  Subsequent to December 31, 2002, the note
payable was converted by the shareholder into 2,700,000 shares of CT Holdings
common stock and 675,000 shares of Citadel common stock. Since the issuance of
all 2,700,000 shares of CT Holdings common stock would cause the number of
shares outstanding to exceed the number of authorized shares of 60,000,000, the
shareholder waived his right to these shares until such time as the shares
become authorized.

In May 2002 Mr. Solomon exercised options for 3,000,000 shares of common stock
in exchange for a note in the amount of $600,000. This note receivable was fully
reserved. Pursuant to an agreement with the Company the note payable and note
receivable have been offset at the equivalent fair values. As noted above, Mr.
Lacerte exercised options for 2,250,000 shares of common stock in exchange for a
note in the amount of $450,000. In addition, options for 1,250,000 shares were
exercised in May 2002 for notes in the amount of $262,500 from officers, key
employees and consultants to the Company. The aggregate amount of all of the
notes for $1,312,500 was written off as stock compensation expense. In addition
options for 147,500 shares of common stock were exercised by an officer and key
employees


                                       31
<PAGE>
of the Company for which the aggregate exercise price of $34,500 was forgiven
and recorded as stock compensation expense.  The holders of these shares
received approximately 1,661,875 shares of Citadel common stock as a result of
the Distribution.

In May 2002, prior to the record date of the Distribution, CT Holdings entered
into negotiations to settle approximately $860,000 of operating liabilities in
exchange for 1,662,500 shares of CT Holdings common stock. As of December 31,
2002 the extinguishment of approximately $163,000 of these liabilities was
completed and approximately 612,500 shares of CT Holdings common stock was
issued including 100,000 shares for services provided by an independent
consultant, 12,500 shares to a consultant for services performed prior to
employment as the CT Holdings' and Citadel's Chief Financial Officer, 250,000
shares to a shareholder for consulting services, and 250,000 shares to David
Wood for the performance of professional services to the Company. At the
Distribution Date approximately 153,125 shares of Citadel common stock were
issued to these same individuals. At December 31, 2002 approximately $697,000 of
CT Holdings operating liabilities were not yet settled with approximately
1,050,000 shares of the CT Holdings' common stock which if issued will require
Citadel to issue approximately 262,500 shares of Citadel common stock. During
2003, the Company settled liabilities in the aggregate amount of $665,000 in
exchange for 1,000,000 shares of CT Holdings common stock and 250,000 Citadel
common stock. At December 31, 2003, 50,000 shares of CT Holdings common stock
and 12,500 shares of Citadel common stock were reserved for settlement of
accrued liabilities of approximately $32,000. We believe that the negotiations
will ultimately be concluded with the issuance of the shares in full settlement
of these liabilities however there can be no assurance that such settlement will
be finalized or on terms favorable to the Company.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report.

(b)  REPORTS ON FORM 8-K

None

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES


(1)  Audit Fees:

Fees for audit services provided by KBA Group LLP and its predecessor total
approximately $30,000 for 2003 and approximately $36,000 for 2002, including
fees associated with the annual audit, the reviews of the Company's quarterly
reports on Form 10-QSB and review of the registration statements.

(2)  Audit Related Fees:

KBA Group LLP did not bill the Company any audit related fees during 2003 or
2002.

(3)  Tax Fees:

KBA Group LLP did not bill the Company any tax fees during 2003 or 2002.

(4)  All Other Fees:

KBA Group LLP did not bill the Company any other fees during 2003 or 2002.

(5)  Audit Committee's Pre-Approval Policies and Procedures

(i)  The audit committee of the board of directors approves the scope of
services and fees of the outside accountants on an annual basis, generally prior
to the beginning of the services.


(ii) The audit committee of the board of directors reviewed and  approved 100%
of the fees for the services above.


                                       32
<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 14, 2004                    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:


       SIGNATURE                      TITLE                         DATE
------------------------  -----------------------------------  --------------

 /s/  STEVEN B. SOLOMON   President, Chief Executive Officer   April 14, 2004
------------------------   and Director
      Steven B. Solomon   (Principal Executive Officer)


 /s/ RICHARD CONNELLY     Chief Financial Officer              April 14, 2004
------------------------  (Principal Accounting Officer)
     Richard Connelly


 /s/  CHRIS A. ECONOMOU    Director                            April 14, 2004
------------------------
      Chris A. Economou


 /s/  MARK ROGERS          Director                            April 14, 2004
------------------------
      Mark Rogers


                           Director
------------------------
      Dr. Axel Sawallich


                                       33
<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).

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
          year 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
          year 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 year 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 year 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).


<PAGE>
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
          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
          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.


<PAGE>
          (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
          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).

10.24     Form of Plan and Agreement of Distribution between the Company and
          Citadel Security Software Inc.

10.25     Form of Tax Disaffiliation Agreement between the Company and Citadel
          Security Software Inc.

10.26     Form of Transition Services Agreement between the Company and Citadel
          Security Software Inc.

*10.27    Secured Promissory Note dated as of February 17, 2004 payable by the
          Company to the order of Steven B. Solomon.

*10.28    Security and Pledge Agreement dated as of February 17, 2004 between
          the Company and Steven B. Solomon as Secured Party.

*10.29    Approval and Release Agreement dated December 31, 2003 between the
          Company and Steven B. Solomon.

*23.1     Consent of KBA Group LLP.

*24.1     Power of Attorney (included as part of the signature page of this
          Annual Report on Form 10-KSB).

*31.1     Certification of Principal Executive Officer.

*31.2     Certification of Principal Financial Officer.

*32.1     Certification of Chief Executive Officer and Chief Financial Officer
          Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.


*    Filed Herewith


<PAGE>
                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Certified Public Accountants . . . . . . . . . . . . . F-2

Balance Sheets as of December 31, 2003 and 2002. . . . . . . . . . . . . . . F-3

Statements of Operations for the years ended December 31, 2003 and 2002. . . F-4

Statements of Stockholders' Deficit for the years ended
    December 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . F-5

Statements of Cash Flows for the years ended
    December 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . F-6

Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-7



                                      F-1
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders.
CT Holdings, Inc.

We have audited the accompanying balance sheets of CT Holdings, Inc. (the
Company) as of December 31, 2003 and 2002, and the related statements of
operations, stockholders' (deficit) equity and cash flows for the years then
ended.  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
audits 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, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended 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 significant
working capital deficiency at December 31, 2003.  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/KBA Group LLP
Dallas, Texas
April 2, 2004


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                    CT HOLDINGS, INC.
                                      BALANCE SHEETS
                                                            DECEMBER 31,
                                                      2003               2002
                                                -----------------  ----------------
<S>                                             <C>                <C>
                   ASSETS
                   ------
Total Assets                                    $              -   $             -
                                                =================  ================

    LIABILITIES AND STOCKHOLDERS' DEFICIT
    -------------------------------------
CURRENT LIABILITIES
 Accounts payable and accrued expenses          $        501,330   $     1,344,051
 Payable to Citadel                                      635,000           150,000
 Advances and notes payable to related parties                 -           524,796
 Notes payable to shareholders                             9,000           609,000
 Accrual for legal settlement                            207,000           785,000
                                                -----------------  ----------------
Total current liabilities                              1,352,330         3,412,847

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
 Preferred stock, $.01 par value per share;
   1,000,000 shares authorized; no shares issued
   at December 31, 2003 and 2002                               -                 -
 Common stock, $.01 par value per share;
   60,000,000 shares authorized; 58,545,928
   and 57,545,928 shares issued at
   December 31, 2003 and 2002                            585,460           575,460
 Common stock pending issuance                           600,000                 -
 Additional paid-in capital                           57,190,601        56,950,601
 Accumulated deficit                                 (59,728,391)      (60,938,908)
                                                -----------------  ----------------
Total stockholders' deficit                           (1,352,330)       (3,412,847)
                                                -----------------  ----------------
                                                $              -   $             -
                                                =================  ================
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                CT HOLDINGS, INC.
                            STATEMENTS OF OPERATIONS

                                                          Years Ended
                                                          December 31,
                                                      2003            2002
                                                 --------------  --------------
<S>                                              <C>             <C>
Revenue                                          $           -   $           -
General and administrative expense                     296,262         909,838
Forgiveness of accounts payable                       (162,384)              -
Common stock issued as compensation                          -       1,347,000
Reversal of legal settlement                          (560,000)              -
Accrual for litigation                                 202,000         785,000
Writedown in investments of affiliates                       -       2,733,975
Gain on settlement of liabilities with stock          (414,930)         (8,501)
Gain on settlement with related parties               (641,549)              -
Interest income                                        (55,350)              -
Interest expense                                       125,434         128,961
Other expense                                                -          35,847
                                                 --------------  --------------
Income (Loss) from continuing operations
   before income taxes                               1,210,517      (5,932,120)
Provision for income taxes                                   -               -
                                                 --------------  --------------
Income (Loss) from continuing operations             1,210,517      (5,932,120)
Costs incurred in connection with
  spin-off of subsidiary                                     -        (185,431)
Loss from discontinued operations                            -        (942,939)
                                                 --------------  --------------
Net income (loss)                                $   1,210,517   $  (7,060,490)
                                                 ==============  ==============

Net income (loss) per share - basic and diluted
  Continuing operations                          $        0.02   $       (0.11)
  Discontinued operations                                    -           (0.02)
                                                 --------------  --------------
                                                 $        0.02   $       (0.13)
                                                 ==============  ==============

Weighted average shares outstanding -
  basic and diluted                                 59,909,558      55,078,095
                                                 ==============  ==============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                                        CT HOLDINGS, INC.
                                              STATEMENTS OF STOCKHOLDERS' DEFICIT

                                            Common Stock        Common
                                      -----------------------   Stock     Additional
                                                               Pending     Paid-in      Accumulated     Treasury
                                        Shares       Amount     Issue      Capital        Deficit        Stock         Total
                                      -----------  ----------  --------  ------------  -------------  ------------  ------------
<S>                                   <C>          <C>         <C>       <C>           <C>            <C>           <C>
Balances at December 31, 2001         53,994,221   $ 539,943   $      -  $56,429,100   $(53,878,418)  $(2,500,239)  $   590,386

Sale of common stock                     100,000       1,000          -       24,000              -             -        25,000

Issuance of common stock
 pursuant to the exercise
 of stock options in exchange
 for notes receivable which
 were simultaneously fully
 reserved and recorded as
 compensation expense                  6,500,000      65,000          -    1,247,500              -             -     1,312,500

Issuance of common stock
 pursuant to the exercise
 of stock options recorded as
 compensation expense                    147,500       1,475          -       33,025              -             -        34,500

Common stock issued in lieu of cash
 for settlement of liabilities
 and for services                        625,000       6,250          -      152,023              -             -       158,273

Common stock issued in
 exchange for shares of
 an affiliate                            155,806       1,558          -       37,393              -             -        38,951

Cancellation of treasury shares       (4,164,613)    (41,646)         -   (2,458,593)             -     2,500,239             -

Beneficial conversion feature of
 convertible debt                              -           -          -       51,300              -             -        51,300

Net stockholders' deficit of
 subsidiary at date of spin-off                -           -          -    1,436,733              -             -     1,436,733

Other                                    188,014       1,880          -       (1,880)             -             -             -

Net loss                                       -           -          -            -     (7,060,490)            -    (7,060,490)
                                      -----------  ----------  --------  ------------  -------------  ------------  ------------
Balances at December 31, 2002         57,545,928     575,460          -   56,950,601    (60,938,908)            -    (3,412,847)

Common stock issued in lieu of cash
 for settlement of liabilities         1,000,000      10,000          -      240,000              -             -       250,000

Note payable converted to common stock
 pending issuance                              -           -    600,000            -              -             -       600,000

Net income                                     -           -          -            -      1,210,517             -     1,210,517
                                      -----------  ----------  --------  ------------  -------------  ------------  ------------
Balances at December 31, 2003         58,545,928   $ 585,460   $600,000  $57,190,601   $(59,728,391)  $         -   $(1,352,330)
                                      ===========  ==========  ========  ============  =============  ============  ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                  CT HOLDINGS, INC.
                              STATEMENTS OF CASH FLOWS

                                                                   Years Ended
                                                                   December 31,
                                                              2003            2002
                                                         --------------  --------------
<S>                                                      <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                        $   1,210,517   $  (7,060,490)
 Less net loss from discontinued operations                                    942,939
 Adjustments to reconcile net income (loss) to net cash
  used in operating activities:
   Common stock issued as compensation                               -       1,347,000
   Beneficial conversion feature of convertible debt
     recognized as interest expense                                  -          51,300
   Write down of investment in affiliate                             -       2,733,975
   Accrual for legal settlement                                207,000         785,000
   Reversal of accrual for litigation                         (560,000)              -
   Gain from offset of notes payable
     against notes receivable                                 (696,899)              -
   Common stock and options issued in lieu of
    cash for services                                                -           4,148
   Forgiveness of accounts payable                            (162,384)              -
   Gain on settlement of liability in exchange for
    shares of common stock                                    (414,930)              -
   Other non-cash expense                                            -          29,951
 Changes in operating assets and liabilities:
   Other assets                                                      -           2,000
   Accounts payable and accrued expenses                       156,696         595,843
   Payable to Citadel                                          260,000         150,000
   Accrual for legal settlement                               (225,000)              -
                                                         --------------  --------------
NET CASH USED IN OPERATING ACTIVITIES                         (225,000)       (418,334)

CASH FLOWS FROM INVESTING ACTIVITIES                                 -               -

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from notes payable to shareholders                         -         609,000
 Proceeds from advances and notes payable
  to related parties                                           225,000         517,500
 Payments on advances and notes payable
  to related parties                                                 -        (533,034)
 Proceeds from sale of common stock                                  -          25,000
                                                         --------------  --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                      225,000         618,466

Net cash provided by continuing operations                           -         200,132
Net cash used by discontinued operations                             -        (200,132)
                                                         --------------  --------------
Net change in cash                                                   -               -
Cash and cash equivalents at the beginning of the year               -               -
                                                         --------------  --------------
Cash and cash equivalents at the end of the year         $           -   $           -
                                                         ==============  ==============


SUPPLEMENT DISCLOSURE OF INTEREST AND INCOME TAXES PAID  $           -   $           -
 Interest paid                                           $           -   $           -
                                                         ==============  ==============
 Income taxes paid                                       $           -   $           -
                                                         ==============  ==============
</TABLE>

NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ending December 31, 2003, the Company issued 1,000,000 shares of
common stock valued at $250,000 to settle approximately $665,000 of liabilities.
The Company agreed with related parties to offset approximately $525,000 of
Notes Payable and approximately $172,000 of Accrued Interest that were currently
in default against the Note Receivable outstanding balance that had been
previously fully reserved by the Company. The Company also converted a related
party's Note Payable with a balance of $600,000 to Equity.

During the year ending December 31, 2002 the Company issued 625,000 shares of
common stock to settle approximately $158,000 of liabilities and exchanged
155,806 shares of common stock for shares of common stock of an affiliate
expensing approximately $39,000 representing the fair value of the common stock
issued.

The accompanying notes are an integral part of these financial statements.


                                         F-6
<PAGE>
CT HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS

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

NATURE OF BUSINESS

CT Holdings, Inc. (the "Company" or "CT Holdings") provides management expertise
including consulting on operations, marketing and strategic planning and a
single source of capital to early stage technology companies.  The Company was
incorporated in Delaware in 1992.  The business model is designed to enable the
companies with whom the Company acquires or invests to become market leaders in
their industries.  The strategy over the years has led to the development,
acquisition and operation of technology based businesses with compelling
valuations and strong business models.  The goal is to realize the value of
these investments for the Company's shareholders through a subsequent liquidity
event such as a sale, merger or initial public offering of the investee
companies.

At December 31, 2003 the Company held investments in two companies, Parago, Inc.
("Parago") and River Logic, Inc. ("River Logic").  At December 31, 2003 the
Company owns less than 1% of Parago and approximately 8% of River Logic.  In May
2002 the Company's investment in Citadel Security Software Inc. ("Citadel") was
distributed to CT Holdings shareholders in a pro rata dividend distribution.  In
October 2002, the Company received approximately $2,000 in liquidating proceeds
for its investment in Encore Telecommunications Inc. ("Encore").

Parago was formed in 1999 as an application service provider ("ASP") and
Internet based business process outsourcer 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.  Prior to December 2001, the investment in Parago had
been accounted for under the equity method of accounting.  However, the Company
declined to participate in an equity financing in December 2001 which resulted
in the Company's ownership percentage falling to less than 1%.  Prior to the
decline in ownership percentage, the carrying value of the investment in Parago
was reduced to zero due to the recognition of the proportionate share of equity
in Parago's losses under the equity method of accounting.

In May 2000, CT Holdings acquired a minority interest in River Logic, Inc.
("River Logic"), which 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.  The Company accounted for its investment in
River Logic using the cost method.   Due to the economic conditions affecting
information technology spending in 2002 and River Logic's results of operations
in 2002 the Company wrote down the carrying value of the investment in River
Logic to zero during the year ended December 31, 2002.

In January 2002, CT Holdings filed a registration statement and in March and
April 2002 filed amendments to the registration statement with the Securities
and Exchange Commission ("SEC") to spin-off as a separate public company its
wholly owned subsidiary Citadel in a pro rata dividend distribution of the
common stock of Citadel to CT Holdings' shareholders. (See the Citadel
Distribution below.)  The registration statement became effective in April 2002,
a declaration date was set and the pro rata dividend distribution was completed
on May 17, 2002.  The financial statements of Citadel previously consolidated
with the financial statements of the Company are presented in these financial
statements as discontinued operations pursuant to the completion of the
Distribution.


                                      F-7
<PAGE>
CITADEL DISTRIBUTION

In November 2001, the board of directors of CT Holdings approved the spin-off of
Citadel through the declaration of a pro rata dividend distribution to the
holders of record of the outstanding shares of CT Holdings common stock (the
"Distribution").  The Distribution consisted of one (1) share of Citadel common
stock for every four (4) shares of CT Holdings (the Distribution Ratio) held by
CT Holdings shareholders as of a May 6, 2002, the Record Date.  The Distribution
was completed on May 17, 2002, the Distribution Date.  Following the
Distribution, Citadel became an independent company and CT Holdings retained no
ownership interest in Citadel.  The Distribution is intended to be a tax free
distribution for U.S. federal tax purposes.

On the Distribution Date, CT Holdings and Citadel entered into a series of
agreements including a distribution agreement, a transition services agreement,
a sublease agreement, an indemnity agreement and a tax disaffiliation agreement
which will provide for, among other things, the principal corporate transactions
required to effect the Distribution, to provide for an orderly transition to the
status of two independent companies and to define the continuing relationship
between Citadel and CT Holdings after the Distribution.

LIQUIDITY

The Company has incurred recurring operating losses and has a significant
working capital and stockholders' deficiency at December 31, 2003 and 2002. Cash
used in operations was $225,000 and approximately $418,000 during the years
ended December 31, 2003 and 2002, respectively. The Company had no cash balance
or current assets at December 31, 2003 and current liabilities total
approximately $1.4 million. Immediate funding needs of the business are expected
to be provided by financings through short-term notes payable and additional
investments from related parties. The Company has been and continues to be
dependent upon outside financing to perform its business development activities,
make investments in new technology companies and to fund operations. However,
limited investment opportunities have limited the Company's ability to raise
funds. During the years ended December 31, 2003 and 2002, related parties
provided substantially all of the Company's financing. Future cash may come from
the realization of the value of our investments in Parago and River Logic;
however, there can be no assurance that any value will ever be realized from
these investments.

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 the Company's strategy will not
generate positive cash flow in the foreseeable future. Achieving positive cash
flow is currently highly dependent upon obtaining liquidity from the Company's
investments in unconsolidated affiliates. The Company estimates it will need to
raise $1.4 million to settle liabilities and to begin to support its incubator
and business development activities for the next twelve months. Historically,
the Company has obtained 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 with
terms that the Company would be willing to accept.

The Company has made investments in entities that it believes may provide
liquidity to the Company in the long term. The Company believes that the
investment in Parago has been successful; however, as expected in an early stage
company, Parago has a history of operating losses and has experienced cash flow
deficiencies as it implements its business plan. Parago has been successful in
raising capital to support its operations but there is no assurance that it will
be able to raise sufficient capital in the future to support operations or that
its operations will attain profitability. During 2001, the Company's percentage
ownership in Parago was reduced to less than 1% as a result of an additional
equity financing raised by Parago in December 2001. The Company believes,
however, that the investment of 20,000 common shares of Parago (following a
1-for-1000 reverse stock split), warrants to purchase 28.8749 shares of Series
A-3 preferred stock (convertible into 2,887 shares of common stock) and an
additional 5,000 (5,000,000 pre 1:1000 reverse stock split) shares received from
our CEO in February 2004 upon exercising his exchange right for 6,000,000 shares
of the Company's common stock may ultimately provide an appropriate return.

Since the Company's initial investment, River Logic has made progress in
executing its strategy through its development and introduction of new products
and establishment of new customer relationships.  During the year ended December
31, 2002 River Logic entered into an equity line of credit for $1.5 million.
Through December 31, 2002 River Logic has drawn down $750,000 of this equity
line further reducing the Company's ownership percentage in River Logic.  River
Logic will issue shares of its common stock as it draws down the equity line of
credit.  Due to the lower per share valuation of the equity line of credit,
River Logic's continuing operating losses and negative cash flow coupled with
the general


                                      F-8
<PAGE>
decline in the economy and spending for information technology products during
the year ended December 31, 2002, the Company determined that the investment in
River Logic should be written down to a net realizable value of zero.  Similar
to the investment in Parago, the Company recognized that its investment in River
Logic would be illiquid in the early stages of its business.

There can be no assurance that management's plans will be successful or what
other actions may become necessary.  There can be no assurance that the Company
will ever achieve liquidity for its investments.  Until the Company is able to
create liquidity from its investments through sale to a strategic investor, an
initial public offering or some other liquidity transaction, the Company will
continue to require external sources of working capital to fund its own
operating expenses.  Although the Company has been successful raising capital in
the past, the inability of the Company to raise capital could have a material
adverse effect on the Company's business and operations that could be material
to the Company's business and results of operations.

BASIS OF PRESENTATION

The accompanying financial statements of CT Holdings have been prepared in
accordance with accounting principles generally accepted in the United States.
The balance sheet, results of operations and the cash flows of Citadel are
presented as discontinued operations as a result of the Distribution. Where
appropriate, prior year amounts have been reclassified to conform to the current
period presentation.

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

At December 31, 2003 the Company held investments in two companies, Parago and
River Logic.  The Company recorded the carrying amount of these investments
under the cost method of accounting because the Company's percentage ownership
in each Company was a non-controlling interest of less than 20%.

Except for Citadel, which has been presented as discontinued operations during
the year ended December 31, 2002, the Company presents its investments in these
companies on its balance sheets as Investment in Unconsolidated Affiliates and
its share of the equity-method investee's losses, when applicable, on the
statements of operations as Equity in Loss of Unconsolidated Affiliate.

After a 1 for 1000 reverse stock split, the Company holds 20,000 shares of
common stock of Parago and warrants to purchase 28.8749 shares of Series A-3
preferred stock (convertible into 2,887 shares of common stock) at December 31,
2003 and an additional 5,000 (5,000,000 pre 1:1000 reverse stock split) shares
received from our CEO in February 2004 upon exercising his exchange right for
6,000,000 shares of the Company's common stock. In December 2001 Parago
completed an equity financing of approximately $13.6 million of a total $15
million financing. Approximately $1.4 million of equity financing was closed in
February 2002. As a result of the equity financing, the Company's ownership
percentage in Parago was reduced to less than 1%. The Company's investment in
Parago for the period from January 1, 2001 through December 12, 2001 was
accounted for under the equity method of accounting for investments and
accordingly as a result of the Company's ownership falling below 20%, has been
accounted for using the cost method of accounting beginning December 13, 2001.
Under the cost method, the Company's share of income or loss of Parago is not
included in the Company's Statements of operations. Under the equity method of
accounting, the Company's share of the investee's income or losses is included
in the statements of operations. If the carrying value of the Company's net
investment falls below zero, as it did during the year ended December 31, 2000,
the Company discontinues applying the equity method until the carrying value of
the net investment rises above zero. In addition, in the event the Company's
ownership percentage exceeds 20% and 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 is recovered through its proportionate share of net income
if Parago turns profitable.


                                      F-9
<PAGE>
As the Company owned approximately 8% of the outstanding shares in River Logic
at December 31, 2002, the investment has been accounted for under the cost
method of accounting. 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 Company's carrying value of its investment in River Logic was $2,703,975 at
December 31, 2001. In July 2002 River Logic entered into an equity line of
credit at a per share valuation below the carrying value of the Company's
investment in River Logic. Management determined that due to the new valuation,
lower spending in the information technology industry, and continuing operating
losses by River Logic that the carrying value of the investment in River Logic
should be reduced to zero. The Company periodically evaluates the carrying value
of its investments in investee companies 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 factors indicate that an
other than temporary impairment exists, then the Company will write down the
value of the investment to its realizable value. For reasons noted above, during
the year ended December 31, 2002 the Company wrote down its investment in River
Logic in the amount of $2,703,975.

In October 2002 the shareholders of Encore sold its assets and liquidated the
entity. The Company received approximately $2,000 of liquidating proceeds.
Accordingly, the Company wrote off approximately $30,000 of the excess carrying
value in Encore during the year ended December 31, 2002. The investment in
Parago was written down to zero in years prior to those presented through equity
accounted losses.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and exceeds its fair value. 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 its fair value typically
represented by the future discounted cash flow associated with the asset. At
December 31, 2003 and 2002 the Company had no long lived assets.

INCOME TAXES

Deferred income taxes are recognized using the asset and liability method.
Deferred income taxes 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.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" as amended
by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123".  Under APB Opinion No. 25,
compensation expense for employees is based on the excess, if any, on the date
of grant, between the fair value of the Company's stock over the exercise price.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and SFAS No. 148 and Emerging
Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."  All transactions in which goods or services are
the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more reliably measurable.  The
measurement date of the fair value of the equity instrument issued is the
earlier of the date on which the counterparty's performance is complete or the
date on which it is probable that performance will occur.


                                      F-10
<PAGE>
If the Company had recognized compensation expense, in accordance with SFAS No.
123 and 148, based upon the fair value at the grant date for options granted to
employees, officers and directors during the years ended December 31, 2003 and
2002, the pro forma effect on net income (loss) and net income (loss) per share
would have been as follows:

<TABLE>
<CAPTION>
                                                           2003           2002
                                                       -------------  ------------
<S>                                                    <C>            <C>
Net income (loss) attributable
  to common stockholders
  as reported                                         $   1,210,517   $(7,060,490)

Add: Stock-based employee
  compensation expense included
  in reported net loss                                            -             -

Deduct: Stock-based employee
  compensation expense
  determined under fair value
  based method                                                    -      (383,625)
                                                       -------------  ------------
Pro forma net income (loss)                            $  1,210,517   $(7,444,115)
                                                       =============  ============

Net loss per common share - basic and diluted
  As reported                                          $       0.02   $     (0.13)
                                                       =============  ============
  Pro forma                                            $       0.02   $     (0.14)
                                                       =============  ============
</TABLE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including accounts payable, advances and
notes payable are carried at cost, which approximates fair value due to the
short maturity of these instruments.

NET INCOME AND LOSS PER COMMON SHARE

Net income per common share and net loss per common share are computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Included in the weighted average number of
common shares outstanding for the year ended December 31, 2003 are 2,700,000
shares that would have been issued when a shareholder exercised his right to
convert a note payable to common stock if the Company had the available
authorized shares. These shares have been included in the computation from the
date that they would have been issued. Basic income (loss) per share excludes
any dilutive effects of options and warrants. Stock options and warrants to
purchase 2,917,500 shares of common stock at December 31, 2003 and 6,307,451
shares of common stock at December 31, 2002, respectively, have been excluded
from the computation of diluted income (loss) per share, as the effect would be
anti-dilutive. At December 31, 2003, the Company does not have any outstanding
stock options or warrants that have an exercise price below market value.

RECLASSIFICATIONS

Certain 2002 amounts have been reclassified to conform to 2003 presentations.


                                      F-11
<PAGE>
NOTE B - DISCONTINUED OPERATIONS

In January 2002 Citadel filed a registration statement with the SEC to be spun
off as a pro rata dividend distribution to the shareholders of CT Holdings. (See
the "Citadel Distribution")  The operating results for the period January 1,
2002 through May 17, 2002 (Distribution Date) are as follows:

<TABLE>
<CAPTION>
                                                                  Period
                                                             January 1, 2002
                                                                 Through
                                                               May 17, 2002
                                                             ---------------
<S>                                                          <C>
Revenue                                                      $      130,519

Costs of revenue                                                      3,045
Software amortization                                                17,511
                                                             ---------------
  Total costs of revenue                                             20,556

Operating costs:
  Selling, general and administrative expenses                      949,541
  Product development expense                                        83,303
  Depreciation expense                                               20,058
                                                             ---------------
     Total operating expenses                                     1,052,902
                                                             ---------------
   Operating loss                                                  (942,939)

Provision for income taxes                                                -
                                                             ---------------
Net loss                                                     $     (942,939)
                                                             ===============
</TABLE>

NOTE C - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                            December 31,
                                                         2003          2002
                                                     ------------  ------------
<S>                                                  <C>           <C>
Deferred tax assets
  Net operating loss carryforwards                   $10,793,000   $11,097,000
  Reserve on investments                               1,059,000     1,059,000
  Accounts payable and accrued expenses                  111,000       311,000
                                                     ------------  ------------
Total deferred tax assets, net                        11,963,000    12,467,000
Valuation allowance                                  (11,963,000)  (12,467,000)
                                                     ------------  ------------
Total deferred tax assets, net                       $         -   $         -
                                                     ============  ============
</TABLE>

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
are as follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                            2003          2002
                                                        ------------  ------------
<S>                                                     <C>           <C>
Provision (benefit) computed at federal statutory rate  $   412,000   $(2,401,000)
Increase (decrease) in valuation allowance                 (500,000)    1,919,000
Other                                                        88,000       482,000
                                                        ------------  ------------
                                                        $         -   $         -
                                                        ============  ============
</TABLE>

For federal income tax purposes, at December 31, 2003 the Company had a net
operating loss carryforward of approximately $32,000,000, which is subject to
annual limitations as prescribed by the Internal Revenue Code, is available to
offset future taxable income and expires at various dates through 2022.  A
valuation allowance has been recorded for the entire amount of the net deferred
tax asset due to uncertainty of realization.


                                      F-12
<PAGE>
NOTE D - STOCK OPTIONS AND WARRANTS


The Company has issued stock options to purchase common stock to directors,
employees and consultants.  Options are granted at no less than fair value at
the date of grant.  Generally, the options vest over no more than three years.
Following is a summary of option transactions for the years ended December 31,
2003 and 2002:

<TABLE>
<CAPTION>
                                                        Weighted
                                                         average
                                                         exercise
                                                        price per
                                            Shares        share
                                         ------------  -----------
<S>                                      <C>           <C>
Outstanding at December 31, 2001          10,678,350   $      0.51

Granted                                      250,000   $      0.22
Exercised                                 (6,647,500)  $      0.20
Expired or cancelled                        (325,000)  $      0.38
                                         ------------
Outstanding at December 31, 2002           3,955,850   $      0.93

Granted                                            -   $      0.00
Exercised                                          -   $      0.00
Expired or cancelled                      (1,038,350)  $      2.86
                                         ------------
Outstanding at December 31, 2003           2,917,500   $      0.24
                                         ============

Exercisable at December 31, 2003           2,917,500   $      0.24
Exercisable at December 31, 2002           3,040,428   $      1.48
</TABLE>

The following table summarizes other information regarding stock options at
December 31, 2003:

<TABLE>
<CAPTION>
                                  Weighted-average  Weighted-
                    Outstanding/      Remaining      average
Range of exercise   Exercisable   contractual life   exercise
Prices                 Shares       (in years)         price
------------------  -----------  ----------------  -----------
<S>                 <C>          <C>               <C>

0.20 - $0.26         2,397,500          7.25       $     0.20
0.27 - $0.40           500,000          7.14       $     0.38
0.41 - $2.00             5,000          5.64       $     1.75
2.01 - $5.00            15,000          1.44       $     2.00
                     ---------
                     2,917,500                     $     0.24
                     =========
</TABLE>

No options were granted during the year ended December 31, 2003, therefore no
fair value estimate has been presented. The fair value of the options granted
during the year ended December 31, 2002 was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:

                                     Year
                                     Ended
                               December 31, 2002
                                --------------
Expected volatility                   147%
Risk-free interest rates%             4.79%
Dividend yield                        0.0%
Expected option lives               5 years


                                      F-13
<PAGE>
The following summarizes the activity of warrants to purchase common stock for
the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                         Weighted
                                                          average
                                                         exercise
                                             Shares        price
                                          ------------  -----------
<S>                                       <C>           <C>

Outstanding at December 31, 2001.           4,525,505   $      2.68

Terminated and cancelled                   (2,005,000)  $      3.36

Exercised                                    (168,904)  $      0.28
                                          ------------
Outstanding at December 31, 2002.           2,351,601   $      3.95

Terminated and cancelled                   (2,351,601)         3.95

Exercised                                           -            -
                                          ------------
Outstanding at December 31, 2003                    -
                                          ============
</TABLE>

NOTE E - INVESTMENT IN UNCONSOLIDATED AFFILIATES

PARAGO INVESTMENT

From January 1, 2001 through December 12, 2001, the Company accounted for its
investment in Parago under the equity method of accounting.  On December 12,
2001 Parago closed approximately $13.6 million of a $15 million Series E
Preferred Stock issuance (the "Series E Financing").  The additional amount of
approximately $1.4 million was closed in February 2002.  The Company did not
participate in the Series E Financing and as a result, the Company's ownership
percentage in Parago was reduced to less than 1% of the capital stock
outstanding.  Following the Series E Financing the Company accounted for its
investment in Parago under the cost method of accounting.

In May 2001, Parago obtained a term loan from a bank with a principal amount of
$8.0 million. The funds from the term loan were necessary to enable Parago to
continue operations, as Parago's cash resources were depleted. As a condition to
the extension of the term loan, the bank required a guarantee of Parago's
obligations under the term loan from certain affiliates of Parago including the
Company. The Company's share of the guarantee was $2,099,211. The Company was
advanced $692,739 the CEO of the Company and signed a guaranty for the remaining
$1,406,472. The CEO personally guaranteed the guaranty provided by the Company.
The guarantee was recorded as an adjustment to equity in losses of $2,099,211 in
the quarter ended June 30, 2001. Parago repaid the term loan with proceeds from
the sale of shares of the Series E Financing and the Company's guarantee was
released. Accordingly the adjustment to equity in losses of $2,099,211 was
reversed in the fourth quarter of 2001. In addition, the Company paid the CEO
the money advanced and released their guaranty. In consideration of certain of
its directors' funding of the Company's participation in the Parago bridge loan,
the Company has agreed to permit the CEO to exchange up to 5,000,000 (pre 1:1000
reverse stock split) Parago shares into up to 6,000,000 shares of the Company's
common stock. During February 2004, the director exercised his exchange rights.
The CEO agreed to waive his right to receive the physical stock certificates
until authorized shares of CT Holdings become available.

At December 31, 2003 and 2002 after consideration of the effect to a 1 for 1,000
reverse stock split in 2001, the Company held 21,240 shares of common stock of
Parago and warrants to purchase 28.8749 shares of Series A-3 preferred stock
(convertible into 2,887 shares of common stock). In addition, after
consideration of the effect of the 1 for 1000 reverse stock split, the Company
holds warrants to purchase 28.8749 shares of Series A-3 Preferred Stock,
convertible into 2,887.49 shares of Parago common stock, issued in connection
with the guarantee participation. The warrants expire on the earlier of the
filing of a registration statement for an initial public offering or after
January 9, 2004, which date was extended until February 2004. The warrants were
exercised in February 2004 by the Company, which received the funds to exercise
the warrants from our CEO secured by a pledge of the shares of series A-3
Convertible Preferred Stock.

The Company has also agreed to convert shares of Parago common stock issued in
connection with a 1999 acquisition by Parago into up to 500,000 of the Company's
common shares at the option of the acquired entity's shareholders. In May 2002,


                                      F-14
<PAGE>
139,806 shares of the Company's common stock were exchanged for 1,200 shares of
Parago common stock. 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 and in May 2002, 16,000 shares of the Company's common stock were
exchanged for 40 shares of Parago common stock. These two stock issuances
totaling 155,806 shares were recorded as other expense at the fair value of the
stock issued of $38,951.

RIVER LOGIC INVESTMENT

At December 31, 2003 the Company holds an investment in River Logic, a software
company that develops and markets decision support tools. The Company's
ownership percentage is less than 8% of the outstanding shares of River Logic
and is accounted for using the cost method of accounting for investments in
common stock. The original investment in River Logic came about through a series
of equity and asset transactions with total value of approximately $3,064,000.

River Logic is an early stage software company, has a history of operating
losses and requires additional funding to continue operations and to attain
profitability. Since the initial investment in May 2000, River Logic has raised
additional capital through the issuance of preferred stock and other equity
securities. During the year ended December 31, 2002 the Company evaluated the
carrying value of its ownership interests in its investee companies taking into
consideration, among other factors, the investee company's valuation following
recent infusions of capital during the year ended December 31, 2002. The Company
views the pricing of recent capital transactions with unrelated third parties as
a measure of the fair value of the investment in River Logic.

In June 2002 River Logic entered into an equity credit line financing
arrangement at a valuation substantially below the carrying value of the
investment in River Logic. In addition, the Company's potential return of any
proceeds was subordinate to the investors in the equity credit line financing
who first receive $3 million of any proceeds in a liquidity transaction. As a
result of the lower valuation, general information technology industry
conditions and lower operational performance by River Logic, the Company
believed that the net realizable value of the investment has been permanently
impaired, is now zero and accordingly, the Company wrote down its investment in
River Logic to zero at December 31, 2002.

NOTE F - NOTES PAYABLE TO SHAREHOLDERS

On April 1, 2002, the Company entered into a $600,000 non-interest bearing
convertible note payable due April 1, 2003 to a shareholder. The note payable
may be converted, at the option of the shareholder, into a maximum of 2,700,000
shares of CT Holdings common stock and 675,000 shares of Citadel common stock.
Interest expense of $51,300 representing the beneficial conversion feature
associated with the principal outstanding at December 31, 2002 has been recorded
during the year ended December 31, 2002 with an offset to paid-in-capital.
During 2003 the shareholder exercised the conversion right. Since the issuance
of all 2,700,000 would cause the number of shares outstanding to exceed the
number of authorized shares of 60,000,000, the shareholder waived his right to
receive these shares until such time as the shares become authorized.
Accordingly, $600,000 has been presented as "Common stock pending issuance" a
separate Component of Stockholder's Deficit at December 31, 2003.

In addition, the Company has recorded an 8% note payable due June 30, 2002 for
$9,000 to a shareholder which was in default at December 31, 2003 and continues
to bear interest at 8% per annum due to its default position.

NOTE G - RELATED PARTY TRANSACTIONS

In April 2003, CT Holdings obtained $225,000 from Citadel to pay a legal
settlement for an unsecured Note Payable to Citadel due on demand and bearing
interest at 12% per year. The accrued interest on the note payable at December
31, 2003, was approximately $21,000.

Pursuant to the terms of the transition services agreement with Citadel, the
Company has agreed to pay Citadel a monthly fee of $20,000 per month for the
services of its CEO, CFO and accounting and information management staff, as
well as office rent and indirect overhead expenses.  During the years ended
December 31, 2003 and 2002 the Company recorded $240,000 annually related to
this agreement.  In addition, Citadel invoiced the Company for $20,000 for


                                      F-15
<PAGE>
professional services paid by it for the Company's benefit.  Prior to the
Distribution Date $90,000 was allocated to the Company from Citadel for these
services as part of the allocation procedures used to carve out the Citadel
results of operations from the combined operations of both companies.  Following
the Distribution Date the Company has been invoiced by Citadel for these
services. The Company has a liability recorded for $410,000 and $150,000 for
amounts payable to Citadel at December 31, 2003 and 2002, respectively. The
transition services agreement expires in May 2004.

During 2003, as further discussed below, holders of notes payable of an
aggregate principal amount of approximately $525,000 and the Company agreed to
offset the principal of the notes plus accrued interest payable of approximately
$172,000 (as to which the Company was in default) against the principal amount
of notes receivable of $1,107,500 from the same parties. These notes receivable
had previously been fully reserved due to their uncertainty of collection. As a
result the Company has recorded a gain from offset of notes payable against
notes receivable of approximately $697,000.

During the year ended December 31, 2002 an entity related to an employee of the
Company advanced $239,000 to the Company and the Company repaid $190,000 of the
advances. At December 30, 2002 the Company had an 8% note payable due June 30,
2002 for the remaining $49,000 outstanding and is currently in default on this
note. Pursuant to an agreement with the Company and the entity related to an
employee dated December 31, 2003 the note payable and note receivable were
offset.

At December 31, 2002 the Company holds a $250,000, 8% note payable to a former
director that was due April 30, 2002 and is currently in default. Additionally,
in May 2002 the former director exercised stock options for 2,250,000 shares of
the Company's common stock with an aggregate exercise price of $450,000 and
entered into a note receivable secured by the shares and recorded stock
compensation expense of $450,000 to fully reserve this receivable as the
ultimate collection of the receivable is doubtful. Pursuant to an agreement
between the Company and the director dated December 31, 2003 the note payable
and note receivable were offset.

At December 31, 2001 the Company had a liability recorded of approximately
$290,000 for cash advances received from its CEO. During the year ended December
31, 2002 the Company received $267,500 of additional advances from the CEO,
repaid $322,500 of the total advances and offset approximately $9,500 of the
CEO's business expenses against the net amount due the CEO. The remaining amount
due the CEO of approximately $226,000 was converted into a 5% note payable due
July 1, 2002, is currently in default and accruing interest at 18%. In addition,
stock options for 3,000,000 shares of the Company's common stock were exercised
for an aggregate exercise price of $600,000 in exchange for a note receivable.
The principal balance of $600,000 note receivable was reserved and recorded as
stock compensation expense as the ultimate collection of the note receivable is
doubtful. Pursuant to an agreement between the Company and the CEO dated
December 31, 2003 the note payable and note receivable were offset.

During May 2002, the CEO exercise options for 3,000,000 shares of common stock;
a former director exercised options for 2,250,000 shares of common stock; and
officers, key employees and consultants to the Company exercised options for
1,250,000 shares of common stock in exchange for notes receivable in the
aggregate amount of $1,312,500. These notes were written off as stock
compensation expense. Pursuant to an agreement the Company agreed with holders
of notes payables to offset these notes receivable with notes payable and
accrued interest in the aggregate of approximately $697,000. Options for 147,500
shares of common stock were exercised by an officer and key employees of the
Company for which the aggregate exercise price of $34,500 was forgiven and
recorded as stock compensation expense.

During the year ended December 31, 2002, the Company incurred $134,000 of legal
fees to an attorney who is a former employee and a relative of the Company's
CEO. Part of these fees were settled through the issuance of 250,000 shares of
common a stock with a fair value at the time of issuance of $62,500 and the
remainder is an outstanding liability at December 31, 2003 and 2002.

Another shareholder received 250,000 shares of the Company's common stock for
consulting with the Company in the first quarter of 2002.  These services were
valued at $62,500.  In addition, the Company incurred fees of $36,250 related to
services performed by a consultant in the first quarter of 2002 prior to
becoming employed as the Company's Chief Financial Officer.  Of this amount
$11,250 was settled through the issuance of 25,000 shares of common stock of the
Company and the remainder of $25,000 in cash of which $15,000 remains
outstanding at December 31, 2002, and was assumed by Citadel and fully paid in
2003.

In connection with an acquisition by Parago in 1999 the Company agreed to
exchange up to 500,000 shares of the Company's common stock for shares of Parago
common stock at the option of the stockholders of the entity acquired by Parago.
In May 2002 the Company exchanged 139,806 shares of the Company's common stock
for 1,240 shares of common stock of Parago subject to this conversion feature.
The fair value of the stock issued of approximately $34,951 was recorded as
other expense with the offset to common stock and additional paid in capital.


                                      F-16
<PAGE>
Pursuant to 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. In May 2002 one such stockholder
was issued 16,000 restricted shares of common stock of the Company. The fair
value of the stock issued of approximately $4,000 was recorded as other expense
with the offset to common stock and additional paid in capital.

In June 2001, the Company's CEO and a director funded and guaranteed CT
Holdings' participation in the Parago bridge loan. In consideration for this
funding and guarantees, CT Holdings has agreed to permit the CEO to exchange up
to 5,000,000 (pre 1:1000 reverse stock split) Parago shares into up to 6,000,000
shares of CT Holdings' common stock. The CEO exercised the exchange right in
February 2004. The CEO waived his right to receive the shares of CT Holdings
until the authorized shares become available.

Until March 31, 2002, the Company subleased a portion of its headquarters'
office space to Parago and remained fully obligated on such lease.
Approximately, $90,000 in the year ended December 31, 2002 was paid directly by
Parago to the Company's lessor based upon square footage utilized by Parago.

NOTE H - COMMITMENTS AND CONTINGENCIES

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 warrants to purchase 1.8 million
shares of CT Holdings common stock at an exercise price of $0.89 per share,
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. The Company 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, to attempt to resolve the disputes between it and JMA, 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 both parties.

However, the Company and JMA were unable to negotiate the final definitive
settlement agreement. The case was dismissed in August 2000 without any
resolution of this issue. On March 27, 2001, JMA attempted to reopen this
matter, but the Court hearing the JMA lawsuit issued a Summary Order denying
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. There was
no activity on the case from March 2001 through August 2001. On August 27, 2001
JMA refiled its lawsuit with a federal court in New York, and the Company filed
its motion to dismiss the case because the plaintiffs lacked the required
diversity jurisdiction to pursue the claims in federal court. On October 31,
2001 the case was dismissed in federal court. In December 2001, the plaintiffs
refiled the lawsuit in the state court seeking to enforce the proposed
settlement term sheet. The case was filed in Supreme Court of New York, that
state's trial court, in a case styled Roan Meyers v. CT Holdings. CT Holdings
has filed counter claims for breach of the terms sheet as well as breach of the
placement agency agreement. Cross motions for partial summary judgments have
been argued but the court has not ruled on the motions. No trial date has been
set at this time. The Company intends to vigorously defend this case.


                                      F-17
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In June 2000, CT Holdings was served with a lawsuit filed in the 157th State
District Court in Houston, Texas by Michael and Patricia Ferguson for breach of
contract, breach of fiduciary duty, tortuous interference, violation of the
Texas Deceptive Trade Practices Act and negligence.  The case was styled Michael
and Patricia Ferguson v. CT Holdings, Inc.  Specifically, the Ferguson's claim
that they were damaged when they attempted to exercise warrants during a time
when CT Holdings' related registration statement could not be used. In July,
2002, the plaintiffs were awarded damages of $575,510, pre-judgment interest of
$86,748, attorneys' fees of $103,818, post-judgment interest at 10% per year,
and costs. The Company had a liability of $785,000 recorded at December 31, 2002
for this judgment.

CT Holdings appealed the judgment in a case styled CT Holdings Inc. v. Michael
and Patricia Ferguson in the Fourteenth Court of Appeals in Houston, Texas.  In
January 2003, the plaintiffs filed a motion to have the District Court appoint a
receiver to sell assets to satisfy the judgment. In April 2003 the parties
settled the lawsuit and the company paid $225,000 in cash, which was obtained
from Citadel in exchange for a demand note payable bearing interest at 12% per
year. This settlement resulted in a $560,000 reversal of legal settlement during
2003.

In June 2000, Tech Data Corporation filed suit against CT Holdings, alleging a
breach of a Software Distribution Agreement with CT Holdings. The lawsuit is
styled Tech Data Corporation v. Citadel Technology, Inc. (now known as CT
Holdings), and was filed in Dallas County Court at Law No. 2. During 2003 the
parties reached a settlement whereby Tech Data has agreed to receive 12 monthly
payments of $8,000 per month for settlement of this liability. As part of the
Distribution, Citadel assumed payment responsibility for this lawsuit and has
begun making the payments.

In October 2002, S&S Public Relations Inc. filed a lawsuit against CT Holdings
and Steven B. Solomon, its CEO, alleging breach of contract and fraud, and
seeking damages in the amount of at least $25,215, along with exemplary damages,
attorneys' fees, court costs, and pre- and post-judgment interest. The case is
styled S&S Public Relations Inc. v. CT Holdings and Steven B. Solomon, and was
filed in the County Court at Law No. 4, Dallas County, Texas. The Company had a
liability accrued and in April 2003, the Company settled the liability and this
lawsuit by issuing 50,000 shares of CT Holdings common stock along with 12,500
pro rata dividend shares of Citadel common stock that had been reserved for
issuance at the Distribution Date.


                                      F-18
<PAGE>
In August 2002, PriceWaterhouseCoopers, LLP ("PWC") filed a lawsuit against CT
Holdings seeking payment of $131,816 for services performed pursuant to a
contract with CT Holdings related to the JMA lawsuit described above. The court
ordered that mediation be held by July 2003. The case is styled
PriceWaterhouseCoopers, LLP v. CT Holdings, and was filed in the 192nd District
Court, Dallas County, Texas. In July 2003, PWC obtained a summary judgment
against the Company for damages of $131,816 plus pre-judgment interest of
$57,615, post-judgment interest at 10% and attorneys' fees in the amount of
$8,605. During the year ended December 31, 2003 the Company recorded an accrual
for legal settlement of $207,000 including accrued interest in association with
this judgement. PWC has obtained a garnishment of the Company's bank accounts
and is seeking to obtain post judgment discovery. The Company is attempting to
negotiate a settlement of this case.

In January 2003, R.R Donnelly asserted claims against the Company and Steve B.
Soloman alleging non-payment for services provided to CT Holdings by the
plaintiff during the nine months ended September 30, 2002. The plaintiff is
seeking $16,872 from the Company for past due invoices as well as attorney's
fees in the amount of $24,000, court costs and post judgment interest at the
highest legal rate. The Company had a liability of approximately $50,000
recorded at December 31, 2003 and 2002 for the services preformed by the vendor.
The Company intends to vigorously defend this case.

In April 2003 MWW Group re-filed an old suit styled "MWW Group v. CT Holdings
et. Al" in the Superior Court of Bergen County, New Jersey which had been
dismissed for want of prosecution. On July 21, 2003, a default judgment was
entered against CT Holdings ad Steve Solomon. On December 9, 2003, the Court
signed an order vacating the default judgment. The plaintiff alleges damages in
the amount of $91,290. The case is in the discovery stage and is not yet
scheduled for trial. The Company intends to vigorously defend this case.

In April 2003, Harte Hanks, Inc. filed a lawsuit styled "Harte Hanks, Inc. v. CT
Holdings Inc. dba Citadel Computer" seeking payment of $12,513 for services
performed.  In July 2003, the plaintiffs filed a motion for receivership and
alternatively to compel discovery in the lawsuit.  At a hearing on the matter
held on September 5, 2003 in the County Court of Law Number Three of Dallas
County, Texas, the court ordered the Company to provide additional discovery by
October 20, 2003 which the Company failed to produce.  As part of the
Distribution, Citadel assumed responsibility for this liability, and has settled
this liability for a total payment of $8,000.

The Company may become involved from time to time in litigation on various
matters which are routine to the conduct of our business. The Company believes
that none of these actions, individually or in the aggregate, will have a
material adverse effect on our financial position or results of operations,
though any adverse decision in these cases or the costs of defending or settling
such claims could have a material adverse effect on the Company's business.


NOTE I -- GAIN ON SETTLEMENT OF LIABILITIES WITH STOCK

During the year ended December 31, 2003, the Company issued 1,000,000 shares of
CT Holding's common stock to settle approximately $665,000 of liabilities.

NOTE J - SUBSEQUENT EVENT

During February 2004, the CEO exercised his conversion right to exchange
5,000,000 (pre 1:1000 reverse split) shares of Parago common stock for 6,000,000
shares of common stock of the Company. Since the issuance of these shares would
exceed the number of authorized shares, the CEO has waived his right to receive
the shares until such time as the shares become authorized.


                                      F-19
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