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, 2004

[_]  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, 5420 Lyndon B. Johnson Freeway, Suite 1600
                               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-25  of  the  Exchange  Act).  Yes  [_]  No  [X]

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 12, 2004

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,  2004
                                TABLE  OF  CONTENTS

<S>         <C>                                                    <C>
PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements

              Balance  Sheets
                as  of  September  30,  2004  (unaudited)  and
                December  31,  2003                                 3

              Unaudited  Statements  of  Operations
                for  the  three  and  nine  months  ended
                September  30,  2004  and  2003                     4

              Unaudited  Statements  of  Cash  Flows
                for  the  nine  months  ended
                September  30,  2004  and  2003                     5

              Notes  to  Unaudited  Interim  Financial  Statements  6

Item  2.    Management's  Discussion  and  Analysis  or  Plan
                of  Operation                                      13

Item  3.    Controls  and  Procedures                              28

PART  II.   OTHER  INFORMATION

Item  1.    Legal  Proceedings                                     29

Item  2.    Unregistered Sales of Equity Securities, Use of
              Proceeds and Issuer Repurchases                      30

Item  3.    Defaults  Upon  Senior  Securities                     30

Item  6.    Exhibits                                               30

Signatures                                                         31
</TABLE>


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

Item 1. Financial Statements

                                CT HOLDINGS, INC.
                                 BALANCE SHEETS

                                                   SEPTEMBER 30,
                                                       2004         DECEMBER 31,
                                                    (unaudited)         2003
                                                  ---------------  --------------
<S>                                               <C>              <C>

                                 ASSETS
                                 ------

CURRENT ASSETS
  Cash                                            $       19,168   $           -
                                                  ---------------  --------------
TOTAL ASSETS                                      $       19,168   $           -
                                                  ===============  ==============

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

CURRENT LIABILITIES
  Accounts payable and accrued expenses           $      547,252   $     501,330
  Convertible secured note payable to
    related party, net of deferred debt
    discount of $165,000                                  35,000               -
  Demand note payable to Citadel                         225,000         225,000
  Payable to Citadel                                     527,500         410,000
  Note payable to shareholders                             9,000           9,000
  Accrual for litigation                               3,000,000         207,000
                                                  ---------------  --------------
Total current liabilities                              4,343,752       1,352,330

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      57,190,601
  Accumulated deficit                                (62,900,645)    (59,728,391)
                                                  ---------------  --------------
  Total stockholders' deficit                         (4,324,584)     (1,352,330)
                                                  ---------------  --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT       $       19,168   $           -
                                                  ===============  ==============
<FN>

The accompanying notes are an integral part of these financial statements.
</TABLE>


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

                                                   THREE MONTHS ENDED         NINE MONTHS ENDED
                                                       SEPTEMBER 30,            SEPTEMBER 30,
                                                   2004          2003          2004          2003
                                               ------------  ------------  ------------  ------------
<S>                                            <C>           <C>           <C>           <C>

Revenue                                        $         -   $         -   $         -   $         -

General and administrative expense                  40,011        86,527       181,785       300,576
Litigation accrual                                       -       202,000     3,000,000       202,000
Reversal of litigation accrual                           -             -       (42,000)     (560,000)
Reversal of reserve for note receivable
  from related party                                     -             -       (55,000)            -
Gain on settlement of liabilities with stock             -      (132,164)            -      (142,883)
Interest income                                          -             -        (5,500)
Interest expense                                    36,614        32,034        62,969        88,140
Write-off of affiliate shares acquired
  through exercise of warrants                           -             -        30,000             -
                                               ------------  ------------  ------------  ------------
Net income (loss)                              $   (76,625)  $  (188,397)  $(3,172,254)  $   112,167
                                               ============  ============  ============  ============

Net income (loss) per share -
  basic and diluted                            $     (0.00)  $     (0.00)  $     (0.05)  $      0.00
                                               ============  ============  ============  ============

Weighted average shares outstanding
  - basic and diluted                           67,245,928    57,970,928    65,997,753    57,700,507
                                               ============  ============  ============  ============
<FN>

The accompanying notes are an integral part of these financial statements.
</TABLE>


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


                                                           NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                           2004         2003
                                                       ------------  -----------
<S>                                                    <C>           <C>

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                    $(3,172,254)  $  112,167
  Adjustments to reconcile net loss to net cash
    used in operating activities:
     Amortization of deferred debt discount                 35,000            -
     Accrual for litigation                              3,000,000      202,000
     Reversal of accrual for litigation                    (42,000)    (560,000)
     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            -
     Gain on settlement of liability in exchange for
       shares of common stock                                    -     (142,883)
  Changes in operating assets and liabilities
     Accounts payable and accrued expenses                  45,922      188,716
     Payable to Citadel                                    117,500      200,000
     Payment of litigation                                (165,000)    (225,000)
                                                       ------------  -----------
NET CASH USED IN OPERATING ACTIVITIES                     (205,832)    (225,000)

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

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from advances and notes payable
    to related parties                                     200,000      225,000
                                                       ------------  -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                  200,000      225,000
                                                       ------------  -----------
Net change in cash                                          19,168            -
Cash and cash equivalents at the beginning
  of the period                                                  -            -
                                                       ------------  -----------

Cash and cash equivalents at the end
  of the period                                        $    19,168   $        -
                                                       ============  ===========


SUPPLEMENTAL CASH FLOW ITEMS
   Fair value of stock issued in settlement
     of accounts payable                               $         -   $  106,250
                                                       ============  ===========
   Conversion of note payable to equity                $         -   $  600,000
                                                       ============  ===========
<FN>

The accompanying notes are an integral part of these financial statements.
</TABLE>


                                        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, 2003 and 2002, included in CT Holdings' Form 10-KSB for the fiscal
year ended December 31, 2003 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 has been 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, 2004 the Company held investments in two companies,
Parago, Inc. ("Parago") and River Logic, Inc. ("River Logic"). The Company owns
approximately 1% of Parago and approximately 8% of River Logic at September 30,
2004. 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. The Company accounts for its investment in Parago using
the cost method of accounting. As an early stage company, Parago, until recently
has had a history of operating losses and due to uncertainty of future earnings
capacity as well as lack of marketability of the common and preferred stock, the
carrying value of the investment was written down in prior periods and the
investment has no carrying value at September 30, 2004 and December 31, 2003.

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 accounts for its investment in
River Logic using the cost method of accounting. As an early stage company,
River Logic has had a history of operating losses and due to uncertainty of


                                        6
<PAGE>
future earnings capacity as well as lack of marketability of the common stock,
the carrying value of the investment was written down in prior periods and the
investment has no carrying value at September 30, 2004 and December 31, 2003.

LIQUIDITY

The Company received a report from its' independent auditors for the year ended
December 31, 2003 containing an explanatory paragraph that describes the
uncertainty regarding its ability to continue as a going concern due to
recurring operating losses and a significant working capital deficiency. The
Company has incurred recurring operating losses and has a significant working
capital and stockholders' deficiency at September 30, 2004 of approximately $4.3
million. The Company had a cash balance of approximately $19,000 at September
30, 2004 and current liabilities total approximately $4.3 million. 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. Immediate funding needs of the business are expected to
be provided by financings through short-term notes payable and additional
investments from related parties although there can be no assurance that such
funds will be available. In addition, the Company's current financial condition
and limited investment opportunities have limited its' ability to raise funds.
During the nine months ended September 30, 2004 the Company received $200,000
from the proceeds of a convertible secured note payable issued to a related
party (See Note - B) and received full payment of a note receivable of $55,000
plus interest of $5,500 from a related party. Of the amounts received, $165,000
was used to pay a legal settlement and $30,000 was used to acquire shares in
Parago from the exercise of warrants. In addition, the Company accrued $3.0
million for potential liabilities from litigation. (See Note - F)

The Company's strategy of continuing to support and expand its business
development activities requires the Company to obtain additional capital.
Achieving positive cash flow is currently highly dependent upon obtaining
liquidity from the Company's investments in unconsolidated affiliates. The
complete implementation of this element of the Company's strategy will not
generate positive cash flow in the foreseeable future. The Company estimates it
will need to raise $4.3 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 related
parties. 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; and even though Parago has reported an
unaudited net income for the year ended December 31, 2003, 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. The Company's percentage ownership in Parago is approximately 1%.
The Company believes, however, that the investment of 20,000 common shares of
Parago (following a 1-for-1000 reverse stock split), 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.


                                        7
<PAGE>
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. The Company's ownership
percentage is approximately 8%. River Logic also has a history of operating
losses as well as a limited access to capital. The Company recognized that its
investment in River Logic would be illiquid in the early stages of its business
and accordingly carries the investment at zero on its balance sheet.

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.
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. 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


                                        8
<PAGE>
employees,  officers  and  directors  during  the  three  and  nine months ended
September  30,  2004 and 2003, the pro forma effect on net income (loss) and net
income  (loss)  per  share  would  have  been  as  follows:

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED        NINE MONTHS ENDED
                                             SEPTEMBER 30,            SEPTEMBER 30,
                                          2004         2003          2004         2003
                                       ----------  ------------  ------------  ----------
<S>                                    <C>         <C>           <C>           <C>

Net income (loss)                      $ (76,625)  $  (188,397)  $(3,172,254)  $  112,167

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

Deduct: Stock-based employee
   compensation expense
   determined under fair value
   based method                                -             -             -            -

                                       ----------  ------------  ------------  ----------
Pro forma net income (loss)            $ (76,625)  $  (188,397)  $(3,172,254)  $  112,167
                                       ==========  ============  ============  ==========


Net income (loss) per common share
   - basic and diluted
       As reported                     $   (0.00)  $     (0.00)  $     (0.05)  $     0.00
                                       ==========  ============  ============  ==========

       Pro forma                       $   (0.00)  $     (0.00)  $     (0.05)  $     0.00
                                       ==========  ============  ============  ==========
</TABLE>

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is 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 three and nine months ended September 30, 2004 and 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.

In addition, the weighted average number of shares outstanding for the three and
nine months ended September 30, 2004 includes 6,000,000 shares that would have
been issued when the CEO exercised his right to exchange 5,000,000 (5,000 after
a 1:1000 reverse stock split) shares of Parago 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 loss per share excludes any dilutive effects of options and warrants.
Stock options and warrants to purchase 4,917,500 and 6,307,451 shares of common
stock at September 30, 2004 and 2003, respectively, have been excluded from the
computation of diluted loss per share, as the effect would be anti-dilutive.

The inclusion of the shareholder's 2,700,000 common stock shares and the CEO's
6,000,000 common stock shares in the weighted average shares outstanding for the
three and nine months ended September 30, 2004, as discussed above, produces a
weighted average shares outstanding for the loss per share computation exceeding


                                        9
<PAGE>
the currently authorized shares of 60,000,000 common stock shares. Both the
shareholder and the CEO have waived their rights to receive their respective
shares until such time as the shares become authorized.

NOTE B - CONVERTIBLE SECURED NOTE PAYABLE TO RELATED PARTY

On May 24, 2004, CT Holdings and CITN Investment, Inc., a Texas corporation
("CII") entered into a Loan and Security Agreement (the "Loan Agreement"). The
Loan Agreement provides for advances by CII to the Company of up to $600,000,
such advances to be made in the sole discretion of CII. In the event the entire
$600,000 is advanced to the Company, the loans would be convertible, at the
option of CII, into 71,000,000 shares of the Company's common stock,
representing 51% of the Company's common stock. The loans are also secured by a
pledge of all of the Company's assets.

On May 24, 2004, CII advanced $200,000 to the Company pursuant to the Loan
Agreement, 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
upon 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. Accrued interest payable
at September 30, 2004 was approximately $5,000. The conversion price of
approximately $0.00845 per share was below the fair value per share of the
common stock at the date the note was issued. Accordingly, the Company recorded
the fair value of the beneficial conversion feature of the note payable of
$200,000 as debt discount. The debt discount is being amortized over the two
year life of the Note and charges totaling $25,000 and $35,000, respectively,
were recorded as interest expense during the three and nine months ended
September 30, 2004.

CII is owned 50% by Steven B. Solomon, the Company's Chief Executive Officer and
Chairman of the Board, and 50% by Lawrence Lacerte, a shareholder and former
director of the Company. Prior to the loans, Mr. Solomon beneficially owned
14,285,993 shares of the Company's common stock, and Mr. Lacerte beneficially
owned 5,450,000 shares of the Company's common stock. As a result of his stock
ownership in CII, Mr. Solomon is deemed the beneficial owner of the shares of
common stock owned by CII. Therefore, on May 24, 2004, Mr. Solomon and CII
beneficially owned a total of 39,952,660 shares of the Company's common stock
(if the Note were converted into shares of our common stock), or more than 50%
of the Company's common stock outstanding on that date, giving him potential
control of the Company through the voting power over a majority of the shares of
our outstanding common stock.

The Company does not have a sufficient number of authorized shares of common
stock available to permit the conversion of the Note at this time. The Company
has agreed to obtain shareholder approval to (a) increase the number of
authorized shares of common stock to a number sufficient to permit conversion,
or (b) to effect a reverse stock split to reduce the number of currently
outstanding shares of common stock to a number small enough to permit the
conversion of the Note.

NOTE C - 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


                                       10
<PAGE>
payable at September 30, 2004, was approximately $42,000 and approximately
$21,000 at December 31, 2003.

Pursuant to the amended terms of the transition services agreement with Citadel,
the Company has agreed to pay Citadel a monthly fee of $7,500 per month (reduced
in May 2004 from $20,000 per month) for the services of its CEO, CFO and
accounting and information management staff, as well as its pro rata share of
office rent and indirect overhead expenses. The Company has a liability recorded
for $527,500 and $410,000 for amounts payable to Citadel under this agreement at
September 30, 2004 and December 31, 2003, respectively. The transition services
agreement between Citadel and CT Holdings has been amended and extended to May
2005 by approval of the independent members of each company's board of
directors.

NOTE D - NOTES PAYABLE TO SHAREHOLDER

At September 30, 2004 and December 31, 2003, the principal balance of a $9,000,
8% note payable to a shareholder originally due June 30, 2002 was in default and
continues to bear interest at 8% per annum. Accrued interest payable of
approximately $4,000 and $2,800 related to this note is included in accounts
payable and accrued expenses at September 30, 2004 and December 31, 2003,
respectively.

NOTE E - RELATED PARTY TRANSACTIONS

During February 2004, the CEO exercised his conversion right to exchange
5,000,000 (pre 1:1000 reverse stock split) shares of Parago common stock for
6,000,000 shares of common stock of the Company. This exchange right was granted
during June 2001 as consideration for the CEO funding the Company's
participation in a Parago bridge loan. 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. When the Company is
able to issue the shares, it will record a $60,000 (par value) increase to
common stock and an offsetting reduction to additional paid in capital.

In February 2004, our CEO loaned the Company $30,000 in order for the Company to
exercise the Company's warrants to purchase 28.8749 shares of Series A-3
convertible preferred stock. The promissory note to our CEO was secured by a
pledge of the Parago Series A-3 preferred stock and was repaid in May 2004.

In May 2004 the Company received $55,000 for payment of note receivable from an
officer plus interest of $5,500. The note receivable was issued upon the
exercise of stock options by the officer and had been fully reserved.
Accordingly the Company reversed the $55,000 reserve and recognized $5,500 of
interest income.

During the quarter ended June 30, 2004, the Company entered into the Loan
Agreement with CITN Investment Inc. discussed in Note B above.

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


                                       11
<PAGE>
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. In June 2004, the court granted Roan Meyers' motion
for partial summary judgment, granting Roan Meyers $3,000,000, without interest,
upon execution of a release of claims against CT Holdings. Roan Meyers filed a
Motion to Amend or Correct order or for Reargument, contending that the Court
should have granted prejudgment interest to Roan Meyers in addition to the
$3,000,000 judgment. To date, the Court has not ruled on Roan Meyers' motion. In
July 2004, CT Holdings filed a Notice of Appeal with the Court and the Company
intends to vigorously defend this case, whether Roan Meyers' motion is granted
or upon appeal. During the three months ended June 30, 2004, the Company
recorded a liability for this litigation totaling $3,000,000 which remains
outstanding at September 30, 2004.

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 judgment. PWC obtained a garnishment of the Company's bank accounts and
sought to obtain post judgment discovery. The Company has reached a settlement
and in May 2004 paid an amount less than the amount that had been accrued and
the excess amount accrued was written off during the three months ended June 30,
2004.


                                       12
<PAGE>
In January 2003, R.R Donnelly asserted claims against the Company and Steve B.
Solomon alleging non-payment for services provided to CT Holdings by the
plaintiff. The plaintiff was 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 September 30, 2004 and December 31, 2003 for
the services preformed by the vendor. The case was settled for $35,000 in the
third quarter of 2004. The settlement was assumed by Citadel and paid in October
2004.

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 alleged damages in
the amount of $91,290. The case was settled for $35,000 in September 2004, which
the Company had previously accrued approximately $54,000 in accounts payable for
settlement. The Company paid $15,000 in September 2004. The Company paid the
remaining $20,000 of the settlement in October 2004 by obtaining a $5,000 90-day
note, bearing interest at 5% per year, from the CEO of the Company.

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 G - CERTAIN TRANSACTIONS

At September 30, 2004, 50,000 shares of CT Holdings' common stock, and 12,500
pro rata dividend shares of Citadel were reserved and available to settle
liabilities of approximately $32,000. The Company believes 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 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.


                                       13
<PAGE>
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 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 September 30, 2004 of approximately $4.3 million. We had a cash
balance of approximately $19,000 at September 30, 2004 and current liabilities
total approximately $4.3 million. We have limited access to capital at September
30, 2004, no plans to raise capital and we have not 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 September 30, 2004 to raise
additional capital to invest in new business opportunities. We estimate that we
will need to raise up to $4.3 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


                                       14
<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 for
its year ended December 31, 2003. 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 approximately 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 September 30, 2004 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 CITN Investment Inc. ("CII"), an entity by CII is owned 50% by Steven
B. Solomon, our Chief Executive Officer 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. In the event the entire $600,000 is advanced under the
Agreement (in the sole discretion of CII), the notes would be convertible into
51% of our common stock. We have also agreed to use our best efforts to amend
our certificate 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 Notes must be paid before common stockholders
would receive funds in the event of a liquidation or sale. In addition, the
Notes are due and payable on the earlier to occur of May 24, 2006 or demand by
CII. In the event of a default by 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


                                       15
<PAGE>
most likely be worthless. These terms and conditions could have a material
adverse effect on us and our financial condition and results of operations.

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 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, 2004 and 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 September 30, 2004 and December 31,
2003, due to information technology market conditions, as well as historical
operating performance of the investee companies that have created uncertainty as
to achievement of sustainable earnings and cash flow. During 2003 and through
September 30, 2004 we have 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.

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.

                                       16
<PAGE>
     -    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"). 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.

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


                                       17
<PAGE>
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 is 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

In May 2002, CT Holdings effected a pro rata distribution of the commons stock
of Citadel Security Software Inc. ("Citadel") to Stockholders of CT Holdings in
a ratio of one(1) share of Citadel common stock for every four(4) shares of CT
Holdings common stock(the "Distribution"). 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


                                       18
<PAGE>
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.

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


                                       19
<PAGE>
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. In addition, the shares of Parago are pledged to secure our
obligation under the CII Note and Agreement, which would prevent the
distribution of the Parago shares until the indebtedness is repaid.

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 reported its first unaudited full year profit for the year ended
December 31, 2003 and River Logic has never reported a profit. Both investees
could incur substantial losses in the future, and 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
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.


                                       20
<PAGE>
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.


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

You should read the following discussion in conjunction with our audited
financial statements for the years ended December 31, 2003 and 2002 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. At September 30, 2004 and December 31, 2003 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,
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 lawsuits, including without limitation those disclosed
in Part I, Item 3 - Legal Proceedings.

OUR INVESTEE COMPANIES

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. We account for
our investment in Parago using the cost method, due to the Company's ownership
percentage of approximately 1% of the fully diluted shares outstanding. Due to
Parago's history of operating losses and inherent risks associated with an early
stage companies, the carrying amount of our investment is zero.


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<PAGE>
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.
We account for our investment in River Logic using the cost method, due to the
Company's ownership percentage of approximately 8% of the fully diluted shares
outstanding. Due to River Logic's history of operating losses and inherent risks
associated with an early stage companies, the carrying amount of our investment
is zero.

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 amount of reserves


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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,
2004 and December 31, 2003 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, 2004 and December
31, 2003 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
September 30, 2004 and December 31, 2003.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AS COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2003

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, as well as addressing outstanding
liabilities and maintaining our reporting status as a public company. We do not


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generate any direct revenue and because our investee companies are not
consolidated, we do not report revenue from investee businesses.

GENERAL AND ADMINISTRATIVE EXPENSES

During the three months ended September 30, 2004 general and administrative
expenses were approximately $40,000, down approximately $47,000 or 54% from the
approximately $87,000 of general and administrative expenses recorded for the
three months ended September 30, 2003. For the nine months ended September 30,
2004 general and administrative expenses were approximately $182,000, down
approximately $119,000 or 40% from the approximately $301,000 of general and
administrative expense for the nine months ended September 30, 2003. The
decreases are primarily due to lower legal, accounting, consulting and other
professional fees and expenses resulting from the lower Company activities
during the three and nine months ended September 30, 2004 versus the similar
periods of 2003.

LITIGATION ACCRUAL

During the nine months ended September 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 lawsuit. See additional discussion
in Note F to the financial statements.

REVERSAL OF LITIGATION ACCRUALS

During the three months ended September 30, 2003 the Company recorded an accrual
for legal settlement of $207,000 including accrued interest in association with
the judgment received related to PriceWaterhouseCoopers, LLP. During the nine
months ended September 30, 2004 we settled the lawsuit and reversed $42,000 of
the litigation accrual in excess of the settlement. In April 2003 we settled a
lawsuit and reversed $560,000 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.

GAIN ON SETTLEMENT OF LIABILITIES WITH STOCK

During the nine months ended September 30, 2003 we completed negotiations to
settle approximately $249,000 of liabilities that had been outstanding prior to
the Citadel Distribution by issuing 425,000 shares of CT Holdings common stock
along with 106,250 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 $143,000
was recognized as a gain in the statement of operations. Approximately $132,000
of this amount was recorded as a gain in the statement of operations for the
three months ended September 30, 2003.

INTEREST EXPENSE

Interest expense for the three and nine months ended September 30, 2004 was
approximately $37,000 and $63,000, respectively, representing interest expense


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on 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 CII note
which totaled $25,000 during the third quarter of 2004 and $35,000 for the nine
months ended September 30, 2004. Interest expense for the three and nine months
ended September 30, 2003 was approximately $32,000 and $88,000, respectively.
The increase in interest expense for the three months ended September 2004
versus the same period in 2003 is due to the amortization of the beneficial
conversion feature associated with the CII note as well as the interest expense
for the CII note. The decrease for the nine months is due to lower average
balances of interest bearing debt outstanding during the nine months ended
September 30, 2004 versus the same periods of 2003.

WRITE-OFF OF AFFILIATES SHARES ACQUIRED THROUGH EXERCISE OF WARRANT

The $30,000 write off of investment in affiliates during the nine months ending
September 30, 2004 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 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 September 30, 2004 of approximately $4.3 million. We had a cash
balance of approximately $19,000 at September 30, 2004 and current liabilities
total approximately $4.3 million. We have limited access to capital at September
30, 2004 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 and settle obligations.

PLAN OF 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, 2004 to raise additional capital to invest in new business
opportunities. We estimate that we will need to raise up to $4.3 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 we will ever
achieve liquidity for our 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


                                       26
<PAGE>
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 Flows From Operating Activities

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.

The net cash used in operating activities was $225,000 for the nine months ended
September 30, 2003. This is the result of net income of approximately $112,000
for the nine months ended September 30, 2003 and an accrual for a legal
settlement of $202,000, offset by the reversal of litigation accrual of $560,000
resulting from the settlement of a legal claim, a gain of approximately $143,000
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 $164,000.

Cash Flows From Investing Activities

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. There was no net cash result from investing activities during the nine
months ending September 30, 2003.

Cash Flows From Financing Activities

On May 24, 2004, we entered into a Loan and Security Agreement (the "Loan
Agreement") with CITN Investment, Inc., a Texas corporation ("CII"). The Loan
Agreement provides for advances by CII to the Company of up to $600,000, such
advances to be made in the sole discretion of CII. In the event the entire
$600,000 is advanced to the Company, the loans would be convertible, at the
option of CII, into 71,000,000 shares of the Company's common stock,
representing 51% of the Company's common stock. The loans are also secured by a
pledge of all of the Company's assets.

On May 24, 2004, we were advanced $200,000 by 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
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.


                                       27
<PAGE>
CII is owned 50% by Steven B. Solomon, the Company's Chief Executive Officer and
Chairman of the Board, and 50% by Lawrence Lacerte, a shareholder and former
director of the Company. Prior to the loans, Mr. Solomon beneficially owned
14,285,993 shares of the Company's common stock, and Mr. Lacerte beneficially
owned 5,450,000 shares of the Company's common stock. As a result of his stock
ownership in CII, Mr. Solomon is deemed the beneficial owner of the shares of
common stock owned by CII. Therefore, on May 24, 2004, Mr. Solomon and CII
beneficially owned a total of 39,952,660 shares of our common stock (if the Note
were converted into shares of our common stock), or more than 50% of our common
stock outstanding on that date, giving him potential control of the Company
through the voting power over a majority of the shares of our outstanding common
stock. The conversion price of approximately $0.00845 per share was below the
fair value per share of the common stock at the date the note was issued.
Accordingly, the Company recorded the fair value of the beneficial conversion
feature of the note payable of $200,000 as debt discount. The debt discount is
being amortized over the two year life of the Note and a $35,000 charge was
recorded as interest expense during the nine months ended September 30, 2004.

The Company does not have a sufficient number of authorized shares of common
stock available to permit the conversion of the Note at this time. The Company
has agreed to obtain shareholder approval to (a) increase the number of
authorized shares of common stock to a number sufficient to permit conversion,
or (b) to effect a reverse stock split to reduce the number of currently
outstanding shares of common stock to a number small enough to permit the
conversion of the Note.

Cash flows provided from financing activities for the nine months ended
September 30, 2003 includes $225,000 of proceeds from a note payable to Citadel.

CONTRACTUAL OBLIGATIONS

At September 30, 2004 we have a note payable to CII of $200,000 secured by all
the assets of the Company and $9,000 unsecured note payable to a shareholder
which is in default at September 30, 2004. There are no other long term debt
obligations, capital lease obligations, operating lease obligations or long term
capital purchase commitments. However at September 30, 2004 we have accrued 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 3. CONTROLS 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 end of the period
covered by this Quarterly Report on Form 10-QSB. 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 the
end of the period covered by this Quarterly Report on Form 10-QSB.

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.


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<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

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


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<PAGE>
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 judgment. PWC has obtained a garnishment of the Company's bank accounts and
is seeking to obtain post judgment discovery. The Company has reached a
settlement and in May 2004 paid an amount less than the amount that had been
accrued.

In January 2003, R.R Donnelly asserted claims against the Company and Steve B.
Solomon 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 September 30, 2004 and December 31, 2003 and 2002 for the services
preformed by the vendor. The case was settled for $35,000 in the third quarter
of 2004. The settlement was assumed by Citadel and paid in October 2004.

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 was settled for $35,000 in September 2004, which
the Company had previously accrued approximately $54,000 in accounts payable for
settlement. The Company paid $15,000 in September 2004. The Company paid the
remaining $20,000 of the settlement in October 2004 by obtaining a $5,000 90-day
note, bearing interest at 5% per year, from the CEO of the Company.

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.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSURER
REPURCHASES

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.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

At September 30, 2004, and 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 September 30, 2004 of approximately
$4,000.

ITEM 6 - EXHIBITS


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(a)  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

                                   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 15,  2004            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)


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