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

                                  FORM 10-QSB

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

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

              FOR THE TRANSITION PERIOD FROM _________ TO _________

                        COMMISSION FILE NUMBER: 0-18718

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

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

         TWO LINCOLN CENTRE, SUITE 1600, 5420 LYNDON B. JOHNSON FREEWAY
                              DALLAS, TEXAS 75240
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (214) 520-9292
                          (ISSUER'S TELEPHONE NUMBER)

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

Indicate  by  check  mark  whether  the  registrant  is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes [ ]  No [X]

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes [X]  No [ ]

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

Class                                           Outstanding at November 14, 2005

Common Stock, Par value $.01 per share                     58,545,928


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


<PAGE>
<TABLE>
<CAPTION>
                                CT HOLDINGS, INC.
                                   FORM 10-QSB
                    QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S>                                                                         <C>
          Unaudited Balance  Sheets
            as of September 30, 2005 and December 31, 2004                    3

          Unaudited Statements of Operations
            For the three and nine months ended September 30, 2005 and 2004   4

          Unaudited Statements of Cash Flows
            For the nine months ended September 30, 2005 and 2004             5

          Notes to Unaudited Interim Financial Statements                     6

Item  2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                              14

Item  3.  Controls and Procedures                                            31


PART  II. OTHER INFORMATION

Item  1.  Legal Proceedings                                                  31

Item  3.  Defaults Upon Senior Securities                                    34

Item  6.  Exhibits                                                           34

Signatures                                                                   35
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                                CT HOLDINGS, INC.
                            UNAUDITED BALANCE SHEETS

                                                    SEPTEMBER 30,    DECEMBER 31,
                                                        2005            2004
                                                   --------------  --------------
<S>                                                <C>             <C>
                      ASSETS
                      ------
Cash                                               $         197   $       4,168
                                                   --------------  --------------
TOTAL ASSETS                                       $         197   $       4,168
                                                   ==============  ==============

       LIABILITIES AND STOCKHOLDERS' DEFICIT
       -------------------------------------

CURRENT LIABILITIES
  Accounts payable and accrued expenses            $     364,083   $     310,851
  Convertible secured note payable to related
    party, including accrued interest
    of $22,444 and $9,995 and net of deferred
    debt discount of $65,000 and $140,000                157,444          69,995
  Demand note payable to Citadel including
    accrued interest of $69,903 and $48,895              294,903         273,895
  Payable to Citadel                                     640,000         585,000
  Notes payable to officer                                16,000           5,000
  Note payable to shareholder including
    accrued interest of $5,715 and $4,454                 14,715          13,454
  Accrual for litigation including accrued
    interest of $1,334,508 and $1,125,738              4,334,508       4,125,738
                                                   --------------  --------------
  Total current liabilities                            5,821,653       5,383,933

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
  Preferred stock, $.01 par value per share;
    1,000,000 shares authorized; no shares issued
    or outstanding                                             -               -
  Common stock, $.01 par value per share;
    60,000,000 shares authorized;
    58,545,928 shares issued and outstanding             585,460         585,460
  Common stock pending issuance                          600,000         600,000
  Additional paid-in capital                          57,390,601      57,390,601
  Accumulated deficit                                (64,397,517)    (63,955,826)
                                                   --------------  --------------
  Total stockholders' deficit                         (5,821,456)     (5,379,765)
                                                   --------------  --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT        $         197   $       4,168
                                                   ==============  ==============
</TABLE>

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


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

                                             THREE MONTHS ENDED           NINE MONTHS ENDED
                                                SEPTEMBER 30,               SEPTEMBER 30,
                                             2005          2004          2005          2004
                                          ------------  ------------  ------------  ------------
<S>                                       <C>           <C>           <C>           <C>
Revenue                                   $         -   $         -   $         -   $         -

General and administrative expense             19,154        40,011       123,940       181,785
Legal settlement accrual                            -             -             -     3,000,000
Reversal of litigation accrual                      -             -             -       (42,000)
Reversal of reserve for note
  receivable from related party                     -             -             -       (55,000)
Interest income                                     -             -             -        (5,500)
Interest expense                              106,695        36,614       317,751        62,969
Write-off of affiliate shares
  acquired through the exercise
  of warrants                                       -             -             -        30,000
                                          ------------  ------------  ------------  ------------
Net loss                                  $  (125,849)  $   (76,625)  $  (441,691)  $(3,172,254)
                                          ============  ============  ============  ============

Net loss per share -
  basic and diluted                       $     (0.00)  $     (0.00)  $     (0.01)  $     (0.05)
                                          ============  ============  ============  ============
Weighted average shares outstanding
  - basic and diluted                      67,245,928    67,245,928    67,245,928    65,997,753
                                          ============  ============  ============  ============
</TABLE>

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


                                        4
<PAGE>
<TABLE>
<CAPTION>
                                 CT HOLDINGS, INC.
                         UNAUDITED STATEMENTS OF CASH FLOWS

                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              2005         2004
                                                          ------------  ------------
<S>                                                       <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                $  (441,691)  $(3,172,254)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Amortization of deferred debt discount                   75,000        35,000
      Accrual for litigation and related interest
        expense                                               208,770     3,000,000
      Reversal of accrual for litigation                            -       (42,000)
      Reversal of reserve for collectibility
        of related party note receivable                            -       (55,000)
      Write-off of affiliate shares acquired through
        the exercise of warrants                                    -        30,000
  Changes in operating assets and liabilities:
      Accounts payable and accrued expenses                    87,950        45,922
      Payable to Citadel                                       55,000       117,500
      Payment of litigation liability                              -       (165,000)
                                                          ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES                         (14,971)     (205,832)

CASH FROM INVESTING ACTIVITIES
  Exercise of warrants to acquire affiliate's
    Series A-3 preferred stock                                      -       (30,000)
  Payment on notes receivable from related party                    -        55,000
                                                          ------------  ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                           -        25,000

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from advances and notes payable
    to related parties                                         11,000       200,000
                                                          ------------  ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                      11,000       200,000
                                                          ------------  ------------
Net change in cash                                             (3,971)       19,168
Cash and cash equivalents at the beginning
  of the period                                                 4,168             -
                                                          ------------  ------------
Cash and cash equivalents at the end
  of the period                                           $       197   $    19,168
                                                          ============  ============
</TABLE>

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


                                        5
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

NOTE A - NATURE OF BUSINESS AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements reflect, in the opinion
of management, all adjustments (consisting of normal, recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows of CT Holdings. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles in the United States ("GAAP") have been condensed or
omitted pursuant to rules and regulations promulgated by the Securities and
Exchange Commission (the "Commission"). These statements should be read together
with the audited financial statements and notes thereto for the years ended
December 31, 2004 and 2003, included in CT Holdings' Form 10-KSB for the fiscal
year ended December 31, 2004 on file with the Commission. The results of
operations for the interim periods shown herein are not necessarily indicative
of the results to be expected for any future interim period or for the entire
year.

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 September 30, 2005 the Company held investments in two companies, Parago,
Inc. ("Parago") and River Logic, Inc. ("River Logic"). The Company owns 25,000
shares of Parago common stock and 28.8749 shares of Series A-3 convertible
preferred stock (convertible into 2,887 shares or Parago common stock) and
approximately 8% of River Logic. Should Parago or River Logic raise additional
funds through an equity financing, it is expected that CT Holdings will not
participate in that financing due to its lack of access to investment capital
and as a result, the ownership percentage in Parago or River Logic is expected
to be further diluted.

Parago is a marketing services company that brings transaction processing
capabilities together with information-based marketing


                                        6
<PAGE>
in a way that transforms the way companies interact with customers. Through
web-enabled products, processes and resources, Parago creates solutions that
meet their client's marketing objectives. Parago provides a proprietary,
promotional marketing technology platform that helps their clients reduce
promotional program costs, increase sales, and enhance customer relationships.
The Company accounts for the investment in Parago using the cost method of
accounting. In prior periods due to continuing operating losses and other
factors the Company wrote down the carrying value of the investment in Parago to
zero. The investment has no carrying value at September 30, 2005 and December
31, 2004.

In May 2000, CT Holdings acquired a minority interest in River Logic which
develops decision-support applications for industry. River Logic's applications
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 by manipulating graphical icons that model their enterprise. The
Company accounts for the investment in River Logic using the cost method of
accounting. In prior periods due to continuing operating losses and other
factors the Company wrote down the carrying value of the investment in River
Logic to zero. The investment has no carrying value at September 30, 2005 and
December 31, 2004.

LIQUIDITY

The Company has incurred recurring operating losses and has a significant
working capital and stockholders' deficiency at September 30, 2005 of
approximately $5.8 million. There is a cash balance of $197 at September 30,
2005 and current liabilities total approximately $5.8 million. The Company has
limited access to capital at September 30, 2005, no plans to raise capital, and
management has not identified sources of capital at September 30, 2005.

The Company has made investments in entities that it believes may provide
liquidity to the Company in the long term and management believes that Parago
and River Logic may ultimately be successful. Both Parago and River Logic are
privately held companies and because the Company holds minority interests in
these companies, the Company has received only limited information regarding
their results of operations and financial condition. The Company has not
participated in the additional capital infusions since the initial investments
and as a result, the ownership percentage in both investee companies has been
significantly diluted. The Company's ownership in Parago consists of 25,000
shares of common stock and 28.8749 shares of Series A-3 convertible preferred
stock (convertible to 2,887 shares of Parago common stock), and approximately 8%
of River Logic.


                                        7
<PAGE>
While management believes that the performance of the investee companies to date
has been as expected, there can be no assurance that the Company will ever
achieve liquidity from these investments. In addition, there can be no assurance
that the Company's plans will be successful or what other actions may become
necessary in the future. Until the Company is able to create liquidity from the
investments through sale to a strategic investor, an initial public offering or
some other liquidity transaction, the Company will continue to require working
capital to fund operating expenses. Although the Company has 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 the Company's
business and results of operations. At September 30, 2005 the Company has not
identified sources of capital nor does the Company have any plans to raise
sufficient amounts of capital to settle liabilities or to fund business
development activities.

BASIS OF PRESENTATION

The accompanying financial statements of CT Holdings have been prepared in
accordance with accounting principles generally accepted in the United States.
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.

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, of 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.


                                        8
<PAGE>
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.

If the Company had recognized compensation expense, in accordance with SFAS Nos.
123 and 148, based upon the fair value at the grant date for options granted to
employees, officers and directors during the three and nine months ended
September 30, 2005 and 2004, the pro forma effect on net loss would not have
differed from reported net loss.

NET LOSS PER COMMON SHARE

Net loss per share is computed by dividing net 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 three and nine
months ended September 30, 2005 and 2004 are 2,700,000 shares that would have
been issued when a shareholder exercised his right to convert a note payable to
common stock and 6,000,000 shares that would have been issued to the Company's
CEO when he exercised his right to exchange Parago shares for CT Holdings shares
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 loss per share excludes any dilutive effects of stock options. Stock
options to purchase 2,917,500 shares of common stock at September 30, 2005 and
2004, have been excluded from the computation of diluted loss per share, as the
effect would be anti-dilutive. At September 30, 2005, the Company does not have
any outstanding stock options or warrants that have an exercise price below
market value.

RECENT ACCOUNTING PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123R"),
which is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123R is similar to the approach described in
SFAS No. 123. However, SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income


                                        9
<PAGE>
statement based on their fair values. Pro forma disclosure is no longer an
alternative. The Company expects to adopt SFAS No. 123R on January 1, 2006 using
the modified prospective method.

The Company is evaluating the impact of adopting SFAS 123R and expects that it
may record non-cash stock compensation expenses. The adoption of SFAS 123R is
not expected to have a significant effect on the Company's financial condition
or cash flows but may have a significant effect on the Company's results of
operations. The future impact of the adoption of SFAS 123R cannot be predicted
at this time because it will depend on the levels of share-based payments
granted by the Company in the future. However, had the Company adopted SFAS 123R
in prior periods, the impact of the standard would not have been material.

NOTE B - DEMAND NOTE PAYABLE TO CITADEL

During 2003, CT Holdings received an advance of $225,000 from Citadel Security
Software Inc. ("Citadel"), the Company's formerly wholly-owned subsidiary, to
pay a legal settlement in return 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 September 30, 2005, was approximately $70,000 and approximately
$49,000 at December 31, 2004.

NOTE C - PAYABLE TO CITADEL

Pursuant to the terms of the transition services agreement with Citadel, the
Company has agreed to pay Citadel $10,000 per quarter (reduced in July 2005 from
$7,500 per month) for the services of its CEO, CFO and accounting and
information management staff, as well as office rent and indirect overhead
expenses. The Company has a liability recorded for $640,000 and $585,000 for
amounts payable to Citadel under this agreement at September 30, 2005 and
December 31, 2004, respectively. The transition services agreement was extended
to May 2006 by approval of the independent members of each company's board of
directors.

NOTE D - NOTE PAYABLE TO SHAREHOLDER

At September 30, 2005 and December 31, 2004, the principal balance of a $9,000,
8% note payable to a shareholder was in default and continues to bear interest
at 8% per annum. Accrued interest payable of approximately $5,700 and $4,500
related to this note is accrued at September 30, 2005 and December 31, 2004,
respectively.


                                       10
<PAGE>
NOTE E - RELATED PARTY TRANSACTIONS

On May 24, 2004, the Company was advanced $200,000 by CITN Investment Inc.
("CII") pursuant to the Loan Agreement and evidenced by a Secured Convertible
Promissory Note (the "Note"). The note accrues interest at 8% per annum and is
due the earlier of May 24, 2006 or on demand by CII. This Note is convertible in
whole or in part, at the option of CII, into up to 23,666,667 shares of the
Company's common stock (approximately 25% of the Company's common stock on a
fully diluted basis), and is secured by a pledge of all of the Company's assets.
The note is presented on the accompanying unaudited balance sheets net of
deferred debt discount of $65,000 and $140,000 at September 30, 2005 and
December 31, 2004, respectively. Accrued interest on the note was approximately
$22,000 at September 30, 2005 and approximately $10,000 at December 31, 2004.

In October 2004, the Company entered into a $5,000 90-day note, bearing interest
at 5% per year, from the CEO of the Company. This note is outstanding at
September 30, 2005 and December 31, 2004. This note is past due and is currently
due on demand.

In April 2005, the CEO loaned the Company $11,000. This note is an interest free
demand note and was outstanding at September 30, 2005.

NOTE F - 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


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<PAGE>
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 on June 9, 2004 the court entered judgment in favor of
Roan-Meyers in the amount of $3,000,000 and granted interest at the rate of 9%
from October 31, 2000 through the date of final judgment, and thereafter at the
statutory rate allowed by law. The amount for the judgment as well as the
interest from October 2000 through September 30, 2005 of $1,334,508 has been
accrued. The Company has appealed the final judgment. The Company intends to
vigorously defend this case.

On April 8, 2005, Meyers Associates, L.P. f/k/a Roan/Meyers Associates, L.P. and
f/k/a Janssen-Meyers Associates, L.P. ("Meyers") filed a lawsuit in the Court of
Chancery of the State of Delaware, in New Castle County, against the Company,
Citadel Security Software, Inc. (Citadel) including Steven B. Solomon, the Chief
Executive and a Director of the Company, Chris A. Economou, a Director of the
Company, Lawrence Lacerte, a former Director of the Company, and Phillip J.
Romano, a former Director of the Company (the "Individual Defendants"). The suit
alleges that in connection with an action filed in the Supreme Court of New
York, New York County, to enforce a Settlement Term Sheet executed on July 7,
2000 by Meyers and CT Holdings, Meyers was awarded a judgment against CT
Holdings in the amount of $3 million plus interest on the judgment at the rate
of 9% from October 31, 2000 until the date of entry of that judgment and


                                       12
<PAGE>
thereafter at the statutory rate (the "Judgment"). CT Holdings has appealed the
Judgment and that appeal is pending. The suit alleges that CT Holdings' May 2002
spin-off of its interests in Citadel to CT Holdings' shareholders rendered CT
Holdings insolvent and constituted a fraudulent conveyance to defraud CT
Holdings' creditors, including Meyers. The suit asserts fraudulent conveyance
claims against Citadel and CT Holdings pursuant to Delaware statutory and common
law. The suit also asserts a claim against Citadel for successor liability as
the alleged successor in interest or alter ego of CT Holdings. The suit alleges
that the Individual Defendants who were officers and/or directors of CT Holdings
at the time of the spin-off breached fiduciary duties allegedly owed to
creditors of CT Holdings, including Meyers, by approving and allowing the
spin-off transaction. The suit seeks to void the spin-off transaction or
alternatively to hold Citadel liable for the Judgment including interest, to
recover damages against the Individual Defendants in an amount not less than the
Judgment including interest, plus an unspecified amount of punitive,
consequential and incidental damages, as well as attorneys' fees and costs. The
Company believes that this suit is without merit and intends to vigorously
defend this action. The ultimate outcome is not currently predictable. Currently
the Company is unable to estimate the ultimate liability, if any, related to
this suit, and therefore has not recorded a liability for this suit at September
30, 2005.

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 our business.


                                       13
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 other 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 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


                                       14
<PAGE>
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 INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, HAVE A HISTORY OF NET LOSSES AND WILL NEED ADDITIONAL FINANCING
TO CONTINUE AS A GOING CONCERN.

We received a report from our independent registered public accounting firm for
our year ended December 31, 2004 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 September 30, 2005 of approximately $5.8
million. We had a cash balance of $197 at September 30, 2005 and current
liabilities total approximately $5.8 million. We have limited access to capital
at September 30, 2005, no plans to raise capital, and we have not identified
sources of capital at September 30, 2005. During the year ended December 31,
2004, we received $200,000 from CITN Investment Inc. ("CII") as part of an
interest bearing Promissory Note. CII is an entity owned 50% by our CEO and 50%
by a shareholder. 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 CEO and CII, however there can be no assurance
that such funds will be available from these related parties in the future. 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.

We have made investments in entities that we believe may provide liquidity to
the Company in the long term and we believe that Parago and River Logic may
ultimately be successful. Both Parago and River Logic are privately held
companies and because we hold minority interests in these companies, we have
received only limited information regarding their results of operations and
financial condition. 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 significantly diluted. Our
ownership in Parago consists of 25,000 shares of common stock and 28.8749 shares
of Series A-3 convertible preferred stock (convertible to 2,887 shares of Parago
common stock), and approximately 8% of River Logic. There is no carrying value
in these investments on the balance sheet.

While we believe that the performance of the investee companies to date has been
as expected, there can be no assurance that we


                                       15
<PAGE>
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 operations and result in
charges that could be material to the Company's business and results of
operations. At September 30, 2005 we have not identified sources of capital nor
do we have any plans to raise sufficient amounts of capital to settle
liabilities or to fund business development activities.

OUR CONVERTIBLE NOTE MAY ADVERSELY IMPACT THE COMPANY AND OUR COMMON
STOCKHOLDERS OR HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY.

We have issued a $200,000 convertible secured promissory note (the "Note")
payable to CII, an entity owned 50% by Steven B. Solomon, our CEO and Chairman
of the Board, and 50% by Lawrence Lacerte, a shareholder and former director of
our Company. Pursuant to the terms of the note and the related Loan and Security
Agreement (the "Agreement"), the Note is secured by a pledge of all of our
assets and the Note is convertible into approximately 23.7 million shares of our
common stock, at the option of CII. CT Holdings has the option to borrow up to
$600,000 under the Agreement (at the sole discretion of CII). In the event the
entire $600,000 is advanced, the notes would be convertible into 51% of our
common stock. We have also agreed to use our best efforts to amend our
certificate of incorporation or undertake a reverse stock split to permit
conversion if CII elects to convert the notes. The terms of the Note and the
Agreement will make it more difficult or impossible for us to raise additional
funds in the future and may have a material adverse effect on us and our
financial condition and results of operations. The Note is senior to our common
stock on any liquidation or sale of our Company, so the Note must be paid before
common stockholders would receive funds in the event of a liquidation or sale.
In addition, the Note is due and payable on the earlier to occur of May 24, 2006
or demand by CII. In the event of a default to CT Holdings under the Note or
Agreement or demand for payment by CII, CII could foreclose on the loans and
obtain all of our assets or force us into bankruptcy, in which case our common
stock would most likely be worthless. These terms and conditions could have a
material adverse effect on us and our financial condition and results of
operations.


                                       16
<PAGE>
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 which 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. Our business strategy seeks 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 of Citadel Security Software
Inc. ("Citadel") into a standalone company through the pro-rata dividend
distribution of Citadel common stock to shareholders of CT Holdings. At the time
of the spin-off, which was first considered in November 2001, Citadel was losing
substantial amounts of money and the investee assets of CT Holdings were more
valuable than the assets in Citadel. At September 30, 2005 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 September 30, 2005 and
December 31, 2004. The lack of availability of private and public capital
available to us has prevented us from making any additional investments and
there can be no assurance that the availability of capital will improve so that
the Company can execute its business plan.

We have a limited 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 emerging
          companies.


                                       17
<PAGE>
     -    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 may increase as we build the infrastructure necessary to
          implement this model.

     -    We face competition from other 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"). 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 may
materially and adversely affect each of our investee companies. These investee
companies have had losses in the past and may have substantial losses in the
future. To continue in business, the investee companies may need to raise
capital and may not be able to do so on reasonable terms or at all. In addition,
if the investee companies are able to raise capital, our ownership stake in
these companies would be diluted. Our investee companies may also never be able
to complete an initial public offering of stock, or successfully close a sale,
merger or other liquidity event whereby we would realize a return on our
investment.

WE HAVE LIMITED ACCESS TO FINANCIAL AND OPERATING REPORTS OF OUR INVESTEE
COMPANIES.

Both Parago and River Logic are privately held entities and as such are not
required to provide financial information to its minority shareholders.
Consequently we have limited access to financial operating reports on
performance measures. As a result, we cannot measure or estimate the long-term
prospects of these


                                       18
<PAGE>
investments and while we believe that both Parago and River Logic have been
successful, we cannot assure you that because of the limited financial reporting
that they may be successful in the future or that they will provide an
appropriate return on our investment.

CT HOLDINGS DOES NOT HAVE ACCESS TO THE CASH FLOW OR ASSETS OF ITS INVESTEE
COMPANIES AND HAS BEEN UNABLE TO OPERATE PROFITABLY.

Historically, businesses and technologies in which we have invested are not
controlled by us and as such we have been unable to rely on the investee company
businesses for a source of cash flow, earnings, assets or capital. 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.

Although we have yet to make any investments in the investment securities of
companies other than Parago and River Logic, such investments, if and when made,
could fluctuate in value, which may cause the value of such securities to exceed
40% of our total assets. Unless an exclusion or safe harbor were available to
us, we would have to attempt to reduce our investment securities as a percentage
of our total assets. This reduction could be accomplished in a number of ways,
including the disposition of


                                       19
<PAGE>
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 II Item 1. 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.

In May 2002, CT Holdings effected a pro rata distribution of the common stock of
Citadel to Stockholders of CT Holdings in a ratio of one (1) share of Citadel
common stock for every four (4)


                                       20
<PAGE>
shares of CT Holdings common stock. 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 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.


                                       21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OPERATIONS

You should read the following discussion in conjunction with our audited
financial statements for the years ended December 31, 2004 and 2003 and the
related notes in the Company's Form 10-KSB. Our year ends on December 31, and
each of our quarters end on the final day of a calendar quarter (each March 31,
June 30 and September 30). The following discussion contains forward-looking
statements. Please see Forward-Looking Statements for a discussion of
uncertainties, risks and assumptions associated with these statements.

OVERVIEW

CT Holdings, Inc. provides management expertise and sources of capital to early
stage companies. Our business model is designed to enable the companies in which
we invest or acquire to become market leaders in their industries. Our strategy
is expected to lead 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. At September 30,
2005 and 2004 we held investments in Parago and River Logic. We were
incorporated in Delaware in 1992.

At September 30, 2005 the lack of available capital has 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. We expect that if and when capital becomes
available to us, we may continue our business development and investment
activities, 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 II, Item 1 -
Legal Proceedings.

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 is a marketing services company that brings
transaction processing capabilities together with information-based marketing in
a way that transforms the way companies interact with customers. Through
web-enabled products, processes and resources, Parago creates solutions that
meet their client's marketing objectives.


                                       22
<PAGE>
Parago provides a proprietary, promotional marketing technology platform that
helps their clients reduce promotional program costs, increase sales, and
enhance customer relationships.

At September 30, 2005, the Company holds 25,000 shares of Parago common stock
and 28.8749 shares of Series A-3 convertible preferred stock (convertible into
2,887 shares of Parago common stock). In February 2004, our CEO loaned us
$30,000 in order for us to exercise our warrants to purchase the shares of
Series A-3 convertible preferred stock, pursuant to a promissory note secured by
a pledge of the preferred stock. Our CEO also elected to exercise an exchange
right whereby he exchanged 5,000,000 (before a 1:1000 reverse stock split that
occurred in 2001) shares of Parago, Inc. common stock for 6,000,000 shares of CT
Holdings common stock. Our CEO has waived his right to receive these shares
until such time as the shares become authorized. Our investment in Parago has no
carrying value on our balance sheet at September 30, 2005 and December 31, 2004
as a result of the write down of the carrying value to zero in prior periods. We
believe that our initial $50,000 investment along with the $30,000 to purchase
warrants 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 may ultimately provide an appropriate return
on our investment.

OVERVIEW OF RIVER LOGIC

In May 2000, CT Holdings acquired a 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 Company holds an ownership interest in River Logic of approximately 8% at
September 30, 2005. Since our initial investment in May 2000, River Logic has
raised additional capital through the issuance of preferred stock and other
equity securities. In a prior period, we wrote down the carrying value of our
investment in River Logic to zero. While we believe that our investment in River
Logic will be successful there can be no assurance that our investment in River
Logic may ultimately provide an appropriate return on our investment.


                                       23
<PAGE>
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.

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


                                       24
<PAGE>
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 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 September 30,
2005 and December 31, 2004 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 September 30, 2005 and December
31, 2004 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


                                       25
<PAGE>
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 September 30, 2005 and December 31, 2004.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2004

Our 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.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses in the three and nine month periods of 2005
and 2004 consists of legal and accounting costs associated with continuing
compliance with SEC filing requirements and legal defense costs. In addition,
general and administrative costs include $10,000 and $22,500 of fees related to
the transition services agreement for the three months ended September 30, 2005
and 2004, respectively. For the nine months ended September 30, 2005 and 2004
general and administrative expenses included fees associated with the
transitions services agreement of $55,000 and $117,500, respectively.

During the three months ended September 30, 2005 general and administrative
expenses were approximately $19,154 compared to approximately $40,011 for the
three months ended September 30, 2004 representing a decrease of approximately
20,857, or 52%. For the nine months ended September 30, 2005 general and
administrative expenses were approximately $123,940, down approximately $57,845
or 32% from approximately $181,785 of general and administrative expense for the
nine months ended September 30, 2004. The decreases are primarily due to
decreased business activities in 2005 versus 2004 and a lower management fee
being accrued for as part of the transition services agreement with Citadel
Security Software during the three and nine months ended September 30, 2005
versus the similar periods of 2004.

LEGAL SETTLEMENT ACCRUAL

During the quarter ended June 30, 2004 the court in the Janssen-Meyers case
granted a motion for partial summary judgment for $3,000,000. Accordingly we
accrued a liability of $3,000,000 for this settlement. Interest expense of
approximately $70,000


                                       26
<PAGE>
and $208,000 was accrued related to the judgment during the three and nine
months ended September 30, 2005. See additional discussion in Note F to the
unaudited interim financial statements.

REVERSAL OF LITIGATION ACCRUALS

During the nine months ended September 30, 2004 we settled a lawsuit and
reversed $42,000 of the litigation accrual in excess of the settlement.

REVERSAL OF RESERVE FOR NOTE RECEIVABLE FROM RELATED PARTY AND RELATED INTEREST
INCOME

In May 2004 the Company received a payment of $55,000 plus interest of $5,500 on
a note receivable from a related party secured by shares of stock of the
Company. The note receivable had been previously reserved and accordingly the
Company reversed the reserve of $55,000 and recorded interest income of $5,500.

INTEREST EXPENSE

Interest expense for the three and nine months ended September 30, 2005 was
approximately $106,695 and $317,751, respectively, representing interest expense
on litigation accrual, advances and notes payable to shareholders, the demand
note payable to Citadel and the note payable to CITN Investment Inc. This amount
also includes amortization of the beneficial conversion feature associated with
the CITN note which totaled approximately $25,000 during the third quarter of
2005 and approximately $75,000 for the nine months ended September 30, 2005.
Interest expense for the three and nine months ended September 30, 2004 was
approximately $36,614 and $62,969, respectively. The increase in interest
expense is due to the accrual for interest on litigation and the beneficial
conversion feature associated with the CITN note during the three and nine
months ended September 30, 2005 versus the same periods of 2004.

WRITE-OFF OF AFFILIATES SHARES ACQUIRED THROUGH EXERCISE OF WARRANT

The $30,000 write off of investment in affiliates is related to the warrant
exercised by the Company to obtain shares of Parago's Series A-3 Preferred
Stock, which was determined by the Company to have no fair market value and was
immediately written off.

LIQUIDITY AND CAPITAL RESOURCES

We received a report from our independent registered public accounting firm for
our year ended December 31, 2005 containing an explanatory paragraph that
describes the uncertainty regarding


                                       27
<PAGE>
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
September 30, 2005 of approximately $5.8 million. We had a cash balance of $197
at September 30, 2005 and current liabilities total approximately $5.8 million.
We have limited access to capital at September 30, 2005, no plans to raise
capital, and we have not identified sources of capital at September 30, 2005.
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 CEO and CII, however there can be no assurance that such funds
will be available from these related parties in the future. 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
September 30, 2005 to raise additional capital to invest in new business
opportunities. To do so we estimate that we will need to raise up to $1.5
million to settle recorded liabilities at September 30, 2005, excluding the $4.3
million litigation judgment, plus interest, which is being vigorously contested,
after which we may then need to raise additional funds 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
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.

CASH FLOW ACTIVITIES

The net cash used in operating activities was approximately $15,000 for the nine
months ended September 30, 2005. This is the


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<PAGE>
result of a net loss of approximately $442,000 for the nine months ended
September 30, 2005 and non-cash adjustments for the amortization of debt
discount of approximately $75,000 recorded as interest expense and an accrual
for interest related to litigation of approximately $208,000. Increases in
accounts payable and accrued expenses of approximately $89,000 and approximately
$55,000 increase in the payable to Citadel partially offset the net loss in
addition to the non-cash adjustments noted above.

There was no cash from investing for the nine months ended September 30, 2005.

The net cash provided by financing activities for the nine months ended
September 30, 2005 was approximately $11,000. This represents proceeds from an
interest free demand note from the CEO of the Company for payment of audit fees.

The net cash used in operating activities for the nine months ended September
30, 2004 was approximately $206,000. This is the result of net loss of
approximately $3,172,000 for the nine months ended September 30, 2004 and
non-cash adjustments for the amortization of debt discount of $35,000, the
litigation accrual of $3,000,000, the reversal of an excess litigation accrual
of $42,000, the $55,000 reversal of a reserve for a note receivable from a
related party and the write-off of the $30,000 cost of shares in an affiliate
which were acquired through the exercise of warrants. In addition, the Company
paid a legal settlement of $165,000 in May 2004. An increase in accounts payable
of approximately $46,000 and a $117,500 increase in the payable to Citadel
partially offset the operating cash items previously noted above resulting in
net cash used in operating activities of approximately $206,000.

Net cash provided by investing activities included the payment of a note payable
to our CEO resulting from our exercise of warrants to acquire Parago Series A-3
preferred stock for $30,000. The note payable was paid in May 2004. Offsetting
this amount was a $55,000 payment received from a related party to settle a note
receivable. The net result was net cash provided by investing activities of
$25,000.

Net cash provided by financing activities included the loan of $200,000 in May
2004 from CITN Investment, Inc.

CONTRACTUAL OBLIGATIONS

At September 30, 2005 we have no long term debt obligations, capital lease
obligations, operating lease obligations or long term capital purchase
commitments. However at September 30, 2005 we have accrued obligations for
estimated payments of legal judgments against us and for payments to Citadel
under the


                                       29
<PAGE>
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.


                                       30
<PAGE>
ITEM  3.  CONTROLS AND PROCEDURES

As of the end of the fiscal quarter ended September 30, 2005, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer along with our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(b) of the Securities Exchange Act of 1934
Based upon that evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that the disclosure controls and procedures are effective
to ensure that information we are required to disclose in reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.

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

PART  II.  OTHER INFORMATION

ITEM  1.  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.


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<PAGE>
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 entered judgment in favor of Roan-Meyers in the amount
of $3,000,000 and granted interest at the rate of 9% from October 31, 2000
through the date of final judgment, and thereafter at the statutory rate allowed
by law. The amount for the judgment as well as the interest through September
30, 2005 has been accrued. The Company has appealed the final judgment. The
Company intends to vigorously defend this case.

On April 8, 2005, Meyers Associates, L.P. f/k/a Roan/Meyers Associates, L.P. and
f/k/a Janssen-Meyers Associates, L.P. ("Meyers") filed a lawsuit in the Court of
Chancery of the State of Delaware, in New Castle County, against the Company,
Citadel Security Software, Inc. (Citadel) and certain current and former
officers and directors of the Company and/or CT Holdings, including Steven B.
Solomon, the Chief Executive and a Director of the Company, Chris A. Economou, a
Director of the Company, Lawrence Lacerte, a former Director of the Company, and
Phillip


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<PAGE>
J. Romano, a former Director of the Company (the "Individual Defendants"). The
suit alleges that in connection with an action filed in the Supreme Court of New
York, New York County, to enforce a Settlement Term Sheet executed on July 7,
2000 by Meyers and CT Holdings, Meyers was awarded a judgment against CT
Holdings in the amount of $3 million plus interest on the judgment at the rate
of 9% from October 31, 2000 until the date of entry of that judgment and
thereafter at the statutory rate (the "Judgment"). CT Holdings has appealed the
Judgment and that appeal is pending. The suit alleges that CT Holdings' May 2002
spin-off of its interests in Citadel to CT Holdings' shareholders rendered CT
Holdings insolvent and constituted a fraudulent conveyance to defraud CT
Holdings' creditors, including Meyers. The suit asserts fraudulent conveyance
claims against Citadel and CT Holdings pursuant to Delaware statutory and common
law. The suit also asserts a claim against Citadel for successor liability as
the alleged successor in interest or alter ego of CT Holdings. The suit alleges
that the Individual Defendants who were officers and/or directors of CT Holdings
at the time of the spin-off breached fiduciary duties allegedly owed to
creditors of CT Holdings, including Meyers, by approving and allowing the
spin-off transaction. The suit seeks to void the spin-off transaction or
alternatively to hold Citadel liable for the Judgment including interest, to
recover damages against the Individual Defendants in an amount not less than the
Judgment including interest, plus an unspecified amount of punitive,
consequential and incidental damages, as well as attorneys' fees and costs. The
Company believes that this suit is without merit and intends to vigorously
defend this action. The ultimate outcome is not currently predictable.


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<PAGE>
ITEM  3  -  DEFAULTS UPON SENIOR SECURITIES

At September 30, 2005, and December 31, 2004 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 September 30, 2005 of
          approximately $5,700.

ITEM  6  -  EXHIBITS

Exhibits

     31.1 Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section
1350,  As  Adopted  Pursuant  To  Section  302 Of The Sarbanes-Oxley Act of 2002

     31.2 Certification of Chief Financial Officer Pursuant To 18 U.S.C. Section
1350,  As  Adopted  Pursuant  To  Section  302 Of The Sarbanes-Oxley Act of 2002

     32  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


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<PAGE>
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

CT Holdings, Inc.
(REGISTRANT)

Date: November 18, 2005               By: /s/ STEVEN B. SOLOMON
                                          --------------------------------
                                          Steven B. Solomon,
                                          President and Chief
                                          Executive Officer
                                          (Duly Authorized Signatory and
                                          Principal Executive Officer)


                                          /s/ RICHARD CONNELLY
                                          --------------------------------
                                          Richard Connelly,
                                          Chief Financial Officer
                                          (Duly Authorized Signatory and
                                          Principal Accounting and Financial
                                          Officer)


                                       35