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, 2002

[ ]  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.)

              8750 CENTRAL EXPRESSWAY, SUITE 100, DALLAS, TX 75231
                    (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 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 18, 2002

Common Stock, Par value $.01 per share                     57,545,928


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


<PAGE>
                                CT HOLDINGS, INC.
                                  FORM 10-QSB
                      QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
                                TABLE OF CONTENTS


                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

     Balance Sheets
       as of September 30, 2002 and December 31, 2001                          3

     Statements of Operations
       for the three and nine months ended September 30, 2002 and 2001         4

     Statements of Cash Flows
       for the nine months ended September 30, 2002 and 2001                   5

     Notes to Financial Statements                                             6

Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                               16

Item  3  Controls and Procedures                                              34

PART II.  OTHER INFORMATION


Item 1.      Legal Proceedings                                                35

Item 2.      Changes in Securities and Use of Proceeds                        35

Item 3.      Defaults Upon Senior Securities                                  36

Item 6.      Exhibits and Reports on Form 8-K                                 36

Signatures                                                                    37

Certifications                                                                38


                                        2
<PAGE>
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                   CT HOLDINGS, INC.
                                    BALANCE SHEETS


                                                        SEPTEMBER 30,
                                                            2002         DECEMBER 31,
                                                         (unaudited)         2001
                                                       ---------------  --------------
<S>                                                    <C>              <C>
                        ASSETS
                        ------

INVESTMENT IN UNCONSOLIDATED AFFILIATES                $      502,000   $   2,735,975

NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS                     -         241,767
                                                       ---------------  --------------
                                                       $      502,000   $   2,977,742
                                                       ===============  ==============

     LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
     ----------------------------------------------
CURRENT LIABILITIES
  Accounts payable and accrued expenses                $    1,362,126   $     911,333
  Payable to Citadel                                           90,000               -
  Advances and notes payable to related parties               533,796         540,330
  Convertible note payable to shareholder                     600,000               -
  Accrual for legal settlement                                785,000               -
  Net current liabilities of discontinued operations                -         935,693
                                                       ---------------  --------------
 Total current liabilities                                  3,370,922       2,387,356

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' (DEFICIT) EQUITY
  Preferred stock, $.01 par value per share;
   1,000,000 shares authorized; no shares issued
   at September 30, 2002 and December 31, 2001
  Common stock, $.01 par value per share;
   60,000,000 shares authorized; 57,545,928
   and 53,994,221 shares issued at
   September 30, 2002 and December 31, 2001                   575,459         539,943
  Additional paid-in capital                               56,950,602      56,429,100
  Accumulated deficit                                     (60,394,983)    (53,878,418)
  Treasury stock, at cost (4,164,613 shares)                        -      (2,500,239)
                                                       ---------------  --------------
  Total stockholders' (deficit) equity                     (2,868,922)        590,386
                                                       ---------------  --------------
                                                       $      502,000   $   2,977,742
                                                       ===============  ==============

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,
                                                 2002          2001          2002          2001
                                             ------------  ------------  ------------  ------------
<S>                                          <C>           <C>           <C>           <C>
Revenue                                      $         -   $         -   $         -   $         -

General and administrative expense               122,007       120,889       897,935       472,733
Common stock issued as compensation                    -             -     1,347,000             -
Reversal of legal settlement                           -             -             -    (1,912,500)
Accrual for litigation                            19,000             -       785,000             -
Writedown in investments of affiliates            30,000             -     2,233,975             -
Equity in loss of unconsolidated affiliate             -             -             -     2,099,211
Interest expense                                  20,752           408        94,334         8,287
Interest income                                        -       (27,353)            -       (57,936)
Other (income) expense                                 -       (34,240)       29,951       (40,254)
                                             ------------  ------------  ------------  ------------
Loss from continuing operations                 (189,759)      (59,704)   (5,388,195)     (569,541)
Costs incurred in connection with
  spin off of subsidiary                               -             -      (185,431)            -
Loss from discontinued operations                      -      (403,967)     (942,939)   (1,432,717)
                                             ------------  ------------  ------------  ------------
Net loss                                     $  (189,759)  $  (463,671)  $(6,516,565)  $(2,002,258)
                                             ============  ============  ============  ============

Net loss per share - basic and diluted
  Continuing operations                      $     (0.00)  $     (0.00)  $     (0.10)  $     (0.01)
  Discontinued operations                              -         (0.01)        (0.02)        (0.03)
                                             ------------  ------------  ------------  ------------
                                             $     (0.00)  $     (0.01)  $     (0.12)  $     (0.04)
                                             ============  ============  ============  ============

Weighted average shares outstanding -
  basic and diluted                           57,545,928    49,829,608    54,246,444    49,733,710
                                             ============  ============  ============  ============

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,
                                                             2002          2001
                                                         ------------  ------------
<S>                                                      <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                               $(6,516,565)   (2,002,258)
  Less net loss from discontinued operations                 942,939     1,432,717
  Adjustments to reconcile net loss to net cash
    used in operating activities:
     Provision for loss on accounts receivable
       from affiliate                                              -        40,000
     Common stock issued as compensation                   1,347,000             -
     Beneficial conversion feature of convertible debt
       recognized as interest expense                         51,300             -
     Writedown of investment in affiliate                  2,233,975             -
     Adjustment for participation in debt financing
       guarantee of affiliate                                      -     2,099,211
     Accrual for legal settlement                            785,000             -
     Reversal of accrual from legal settlement                     -    (1,912,500)
     Common stock and options issued in lieu of
       cash for services                                       4,148             -
     Other non cash expense                                   29,951             -
  Changes in operating assets and liabilities
     Accounts receivable                                           -        45,250
     Accounts receivable from affiliate                            -       (81,337)
     Accounts payable and accrued expenses                   613,918       463,932
     Payable to affiliate                                          -      (126,028)
     Payable to a related party                               90,000             -
                                                         ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES                       (418,334)      (41,013)

CASH FLOWS FROM INVESTING ACTIVITIES
  Notes receivable with related parties                            -       588,559
  Participation in Parago, Inc. guarantee                          -      (692,739)
  Notes receivable                                                 -       150,000
                                                         ------------  ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                          -        45,820

CASH FLOWS FROM FINANCING ACTIVITIES
  Payments on notes payable                                        -       (27,501)
  Proceeds from convertible note payable to shareholder      600,000             -
  Proceeds from advances and notes payable
    to related parties                                       526,500             -
  Payments on advances and notes payable
    to related parties                                      (533,034)            -
  Proceeds from sale of common stock                          25,000        47,292
  Proceeds from notes payable to related party                     -       692,482
                                                         ------------  ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                    618,466       712,273

Net cash provided by continuing operations                   200,132       717,080
Net cash used by discontinued operations                    (200,132)      717,080)
                                                         ------------  ------------
Net change in cash                                                 -             -
Cash and cash equivalents at the beginning
  of the period                                                    -             -
                                                         ------------  ------------
Cash and cash equivalents at the end
  of the period                                          $         -   $         -
                                                         ============  ============

SUPPLEMENTAL CASH FLOW ITEMS
   Stock issued in settlement of accounts payable        $   163,125   $         -

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


                                        5
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)


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

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated 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 "SEC" or the "Commission").  These
statements should be read together with the audited financial statements and
notes thereto for the years ended December 31, 2001 and the ten months ended
December 31, 2000, included in CT Holdings' Form 10-KSB for the year ended
December 31, 2001 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.

All material intercompany transactions with its consolidated subsidiary through
the date of the distribution, discussed below, and unconsolidated affiliates
have been eliminated pursuant to the applicable accounting principles for
consolidation and the equity method of accounting.  The balance sheet, results
of operations and the cash flows of Citadel Security Software Inc., formerly a
wholly owned subsidiary of the Company, are presented as discontinued operations
through the date of the Distribution discussed under Citadel Security Software
Distribution below.  Where appropriate, prior year amounts have been
reclassified to conform to the current period presentation.

NATURE OF BUSINESS

CT Holdings, Inc. (the "Company" or "CT Holdings") provides management expertise
including consulting on operations, marketing and strategic planning and a
source of capital to early stage technology companies.  The Company previously
operated under the name Citadel Technology Inc. and was incorporated in Delaware
in 1992.  At September 30, 2002 the Company held investments in Parago Inc.
("Parago"), River Logic Inc. ("River Logic") and Encore Telecommunications, Inc.
("Encore").  In October 2002, the Company received liquidating proceeds of
approximately $2,000 for its investment in Encore.  Accordingly, the Company
wrote down its investment in Encore to $2,000 at September 30, 2002.  In May
2002, the Company completed the spin-off distribution of Citadel Security
Software Inc. ("Citadel"), which was a wholly owned subsidiary, to the
shareholders of the Company.  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 primarily technology based businesses with
compelling valuations and strong business models.  The anticipated growth in
technology creates strong opportunities to increase shareholder value by
investing in early stage ventures well-positioned in their market or holding
unique technology.  The goal is to realize the value of these investments for
the Company's shareholders through a subsequent liquidity event such as a sale,
merger, spin-off or initial public offering of the investee companies.

In January 2002, Citadel filed a registration statement and in March and April
2002 filed amendments to the registration statement with the SEC related to the
spin off Citadel from CT Holdings as a separate public company in a pro rata
dividend distribution of the common stock of Citadel to CT Holdings'
shareholders. (See the Citadel Security Software Distribution below.)  The
distribution of the Citadel shares occurred on May 17, 2002 with 14,387,244
shares of Citadel common stock distributed to CT Holdings shareholders. While
Citadel operates its security software business as a stand-alone company, the
assets, liabilities, revenue and expense, previously consolidated with the
financial statements of the Company are presented in these financial statements
as discontinued operations through May 17, 2002, the date of the distribution.


                                        6
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)


Citadel develops, markets and licenses a line of desktop and network security
software products that address security inside the firewall, a growing segment
within the software industry.  Citadel's security software products are
generally licensed for perpetual use on standalone personal computers or on
single or multiple networks, across single or multiple customer computing sites.
Citadel's software products, Hercules, Secure PC and NetOFF, provide the
flexibility and scalability that security administrators require for automating
the remediation of security vulnerabilities and for managing security policies
within their computing environments.  These security software tools operate
inside the firewall and are designed to secure computers and networks against
unauthorized configuration changes, unapproved software installations, insecure
and other causes of security vulnerabilities in computing systems.

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.

During 2001 the Company's percentage ownership in Parago was reduced to
approximately 1% as a result of an additional private equity financing by Parago
begun in December 2001 and completed in February 2002 in which the Company chose
not to participate.  The Company's investment in Parago had been accounted for
using the equity method through December 12, 2001, the date of the first closing
of the financing.  Subsequent to this financing, the Company's investment has
been accounted for using the cost method.

In May 2000, CT Holdings acquired a minority interest in River Logic, Inc. a
software developer of enterprise optimization technologies and decision support
applications.  River Logic creates strategic-level, process modeling tools and
approaches for helping senior business managers theorize, evaluate, and
understand the impact of strategic business decisions on the overall
profitability of their organizations.  Using a technology developed by River
Logic known as 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 holds approximately
12% of River Logic and accounts for its investment in River Logic using the cost
method.

CITADEL SECURITY SOFTWARE DISTRIBUTION

In November 2001, the board of directors of CT Holdings approved the spin-off of
Citadel through the declaration of a pro rata dividend distribution to the
holders of record of the outstanding shares of CT Holdings common stock (the
"Distribution"). The Distribution consisted of one (1) share of Citadel common
stock for every four (4) shares of CT Holdings (the "Distribution Ratio") held
by CT Holdings shareholders as of May 6, 2002 (the "Record Date). Following the
Distribution on May 17, 2002 (the "Distribution Date"), Citadel became an
independent company and CT Holdings retains no ownership interest in Citadel.
The Distribution is intended to be a tax free distribution for U.S. federal tax
purposes. On the Distribution Date, CT Holdings and Citadel entered into a
series of agreements including a distribution agreement, a transition services
agreement, an indemnity agreement and a tax disaffiliation agreement which
provide for, among other things, the principal corporate transactions required
to effect the Distribution, to provide for an orderly transition to the status
of two independent companies and to define the continuing relationship between
Citadel and CT Holdings after the Distribution. The net effect of the
Distribution was the recording of the transfer of approximately $1.4 million in
net liabilities from CT Holdings to Citadel with a resulting increase in paid-in
capital.


                                        7
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

LIQUIDITY

The Company has incurred recurring operating losses and has a significant
working capital deficiency at September 30, 2002 of $3.4 million and a
stockholders' deficit of $2.9 million.  Cash used in operations was
approximately $419,000 during the nine months ended September 30, 2002.  The
Company had no cash balance at September 30, 2002.  Immediate funding needs of
the business are expected to be provided by financings through advances,
short-term notes payable and additional investments from related parties.

The Company has been and continues to be dependent upon outside financing to
perform its business development activities, make investments in new technology
companies and to fund operations.  During the nine months ended September 30,
2002, related parties provided substantially all of this financing.  The
financings during the nine months ended September 30, 2002 included proceeds of
$600,000 from the issuance of a convertible note to a shareholder described
further in Note C and advances and proceeds of notes payable from the Company's
CEO, directors and other related parties.  Future cash may come from the
realization of the value of our investments in Parago, River Logic and Encore,
although there can be no assurance that any value will ever be realized from
these investments.

The Company's strategy of continuing to support and expand its business
development activities will not generate positive cash flow in the foreseeable
future. The complete implementation of this element of our strategy requires the
Company to obtain additional capital. Achieving positive cash flow is highly
dependent upon obtaining liquidity from the Company's investments in
unconsolidated affiliates. The Company estimates it will need to raise $1.5
million to $3.8 million to settle liabilities and support its incubator and
business development activities through the next twelve months.  At September
30, 2002 the Company is in default on approximately $534,000 of notes and
advances payable.  Historically, the Company has obtained short-term bridge
funding from its Chief Executive Officer or Directors of the Company. While this
may occur in the future there can be no assurance that such financing will be
available or if available with terms that the Company would be willing to
accept.

The Company has made investments in entities that it believes may provide
liquidity to the Company in the long term.  The Company believes that its
investment in Parago has been successful with Parago having had no revenue at
the time of the Company's initial $50,000 equity investment, growing revenue to
approximately $26 million during the year ended December 31, 2001.  As expected
in an early stage company, Parago has not been profitable and has experienced
cash flow deficiencies as it implements its business plan.  During 2001, the
Company's percentage ownership in Parago was reduced to approximately 1% as a
result of an additional equity financing raised by Parago in December 2001 in
which the Company chose not to participate.  The Company believes, however, that
its investment of 20,000 common shares of Parago (following a 1-for-1000 reverse
stock split) and warrants to purchase 28.8749 shares of Series A-3 preferred
stock (convertible into 2,887 shares of common stock) may ultimately provide an
appropriate return.

Similarly, the Company believes its investment in River Logic has also been
successful.  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.  In addition,
during April, 2001 River Logic obtained a strategic investment from the Intel 64
Fund, Cardinal Investments, eMed Ventures, and Mercury Ventures.  Similar to the
investments in Parago, the Company recognized that this investment would be
initially illiquid.  However, during the nine months ended September 30, 2002
general economic conditions worsened, stock market valuations declined from the
values at December 31, 2001 and raising capital at previous historical
valuations became difficult.  Management considered


                                        8
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

all the facts and circumstances of River Logic's business, marketplace and cost
of new capital and based on an this consideration determined that the fair
market value of the Company's investment in River Logic had declined to
approximately $500,000 and accordingly wrote down the investment by $2,203,975
during the quarter ended June 30, 2002.  The investment in River Logic is
accounted for using the cost method of accounting for investments in common
stock therefore no proportionate share of equity in income or loss is recorded.

In October 2002 the Company's investment in Encore was liquidated for
approximately $2,000 in proceeds and accordingly the Company wrote down the
investment by $30,000 during the quarter ended September 30, 2002.

While the Company is pleased with the performance of its investee companies to
date, there can be no assurance that the Company will ever achieve liquidity for
its investments. In addition there can be no assurance that management's plans
will be successful or what other actions may become necessary.  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 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 may require
the Company to sell assets or reduce the level of its operations.  Such actions
could have a material adverse effect on the Company's business and operations
and result in charges that could be material to the Company's business and
results of operations.

USE OF ESTIMATES

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

EQUITY INVESTMENTS IN AFFILIATED COMPANIES

At September 30, 2002 the Company held investments in three affiliated
companies, Parago, River Logic, and Encore.  The Company used the cost method of
accounting for these investments and presents its investments in affiliated
companies on its balance sheets as Investment in Unconsolidated Affiliates.
Affiliates in which the Company's direct or indirect ownership is more than 50%
of the outstanding securities or those where the Company has effective control
are generally accounted for under the consolidation method of accounting.  Under
this method, an affiliate's accounts are consolidated within the Company's
financial statements. Participation of other unrelated stockholders in the
earnings or losses of a consolidated affiliate would be reflected as a minority
interest in consolidated financial statements. Minority interest adjusts the
Company's consolidated net results of operations to reflect only the Company's
proportionate share of the earnings or losses of the consolidated affiliate
company. All significant intercompany accounts and transactions are eliminated
in consolidation. The Company had no affiliated companies qualified for the
consolidation method of accounting at September 30, 2002.

Affiliated companies whose results are not consolidated, but over whom the
Company exercises significant influence, are generally accounted for under the
equity method of accounting.  Whether or not the Company exercises significant
influence with respect to an affiliated company depends on an evaluation of
several factors including, among others, representation on the affiliated
company's board of directors and percentage ownership level, which is generally
a 20% to 50% interest in the securities of the affiliated company, including
holdings in common, preferred and other convertible instruments in the
affiliated company where the Company has voting rights.


                                        9
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

Under the equity method of accounting, an affiliated company's accounts are not
reflected within the Company's financial statements; however, the Company's
proportionate share of the earnings or losses of the affiliated company is
reflected in our statements of operations.  All significant intercompany
accounts and transactions are eliminated prior to such recognition.  If the
carrying value of the Company's net investment falls below zero, the Company
discontinues the recognition of its proportionate share of net income or loss in
its statement of operations until the carrying value of the net investment rises
above zero.  In the event the Company's ownership percentage exceeds 20%, and
the Company's proportionate share of cumulative net income causes the carrying
value of the Company's investment to rise above zero, the Company will resume
applying the equity method or the consolidation method as applicable.

Equity investments in affiliated companies not accounted for under either the
consolidation or the equity method of accounting are accounted for under the
cost method of accounting.  This method is generally applied when the ownership
percentage is below 20% of the affiliate's outstanding securities.  Under this
method, the carrying value of the investment is recorded at the lower of cost or
fair market value and the Company's share of the earnings or losses of these
companies is not included in the statements of operations.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and exceeds its fair value. If conditions indicate an asset might be
impaired, the Company estimates the future cash flows expected to result from
the use of the asset and its eventual disposition. The impairment would be
measured by the amount by which the asset exceeds its fair value typically
represented by the future discounted cash flow associated with the asset.

STOCK-BASED COMPENSATION

The Company has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations.  Accordingly, compensation cost for stock options is measured
as the excess, if any, of the fair market value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 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.

NET LOSS PER COMMON SHARE

Basic loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. Basic
loss per share excludes any dilutive effects of options.  Stock options and
warrants to purchase shares of common stock have been excluded from the
computation of diluted loss per share, as the effect would be anti-dilutive.


                                       10
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)


NOTE B - DISCONTINUED OPERATIONS

On May 17, 2002 the Company completed the spin off distribution of Citadel
Security Software Inc. and as a result the balance sheet and statement of
operations for Citadel are presented as discontinued operations through May 17,
2002.  The unaudited results of operations for the period January 1, 2002
through May 17, 2002, and the three and nine months ended September 30, 2001 for
Citadel are as follows:

<TABLE>
<CAPTION>
                                                      PERIOD         THREE MONTHS      NINE MONTHS
                                                  JANUARY 1, 2002        ENDED            ENDED
                                                      THROUGH        SEPTEMBER 30,    SEPTEMBER 30,
                                                   MAY 17, 2002          2001             2001
                                                 -----------------  ---------------  ---------------
<S>                                              <C>                <C>              <C>
Revenue                                          $        130,519   $      141,029   $      322,447

Costs of revenue
    Software amortization                                  17,511          134,389          498,127
    Customer support costs                                      -                -                -
    Shipping, supplies and other                            3,045            1,329            3,786
                                                 -----------------  ---------------  ---------------
    Total costs of revenue                                 20,556          135,718          501,913

Operating expenses
    Selling, general and administrative expense           949,541          388,927        1,177,273
    Product development expense                            83,303                -                -
    Depreciation expense                                   20,058           20,351           75,978
                                                 -----------------  ---------------  ---------------
    Total operating expenses                            1,052,902          409,278        1,253,251
                                                 -----------------  ---------------  ---------------
    Operating loss                                       (942,939)        (403,967)      (1,432,717)
                                                 -----------------  ---------------  ---------------
Provision for income taxes                                      -                -                -
                                                 -----------------  ---------------  ---------------
Net loss                                         $       (942,939)  $     (403,967)  $   (1,432,717)
                                                 =================  ===============  ===============
</TABLE>

At December 31, 2001 the net current liabilities and the net long-term assets of
Citadel were as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                             2001
<S>                                                      <C>
CURRENT ASSETS
  Cash and cash equivalents                              $      75,030
  Accounts receivable, net                                      24,222
  Prepaid expenses                                              72,702
                                                         -------------
     Total current assets                                      171,954

Current liabilities
  Accounts payable and accrued expenses                        862,262
  Payroll tax obligations                                      245,385
  Deferred revenue                                                   -
                                                         -------------
  Total current liabilities                                  1,107,647
                                                         -------------
     Net current liabilities of discontinued operations  $     935,693
                                                         =============

  Property and equipment, net                            $      43,006
  Capitalized software development costs, net                  174,110
  Other assets                                                  24,651
                                                         -------------
     Net long-term assets of discontinued operations     $     241,767
                                                         =============
</TABLE>


                                       11
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)


NOTE C - RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2002 the Company borrowed $600,000
from a stockholder. The non-interest bearing note matures on April 1, 2003 and
is convertible into 2,700,000 shares of CT Holdings common stock plus 675,000
shares of Citadel common stock at a conversion price below the fair market value
of the stock at the dates of issuance of the proceeds to the Company. Pursuant
to EITF 98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" interest expense of
$51,300 representing the beneficial conversion feature associated with the
principal outstanding at September 30, 2002 has been recorded during the nine
months ended September 30, 2002 with an offset to paid-in-capital.

During the nine months ended September 30, 2002 an entity related to an employee
of the Company advanced $239,000 to the Company and the Company repaid $190,000
of the advances.  At September 30, 2002 the Company had an 8% note payable due
June 30, 2002 for the remaining $49,000 outstanding and is currently in default.

Pursuant to the terms of the transition services agreement with Citadel, the
Company has agreed to pay Citadel a monthly fee of $20,000 per month for the
services of its CEO, CFO and accounting and information management staff, as
well as office rent and indirect overhead expenses. During the nine months ended
September 30, 2002 the Company recorded $180,000 of expense related to this
agreement. In addition the Company has a liability recorded for $90,000 for
amounts payable to Citadel at September 30, 2002.

The Company holds a $250,000, 8% note payable to a director that was due April
30, 2002 and is currently in default. In May 2002 the director exercised stock
options for 2,250,000 shares of the Company's common stock with an aggregate
exercise price of $450,000 and entered into a note receivable secured by the
shares and recorded stock compensation expense of $450,000 to fully reserve this
receivable.  The shares of common stock issued pursuant to the exercise of the
stock options are unregistered shares subject to the requirements of Rule 144.
See additional disclosure in Note E.

At December 31, 2001 the Company had a liability recorded of approximately
$290,000 for cash advances received from its CEO. During the nine months ended
September 30, 2002 the Company received $267,500 of additional advances from the
CEO, repaid $322,500 of the total advances and offset approximately $9,500 of
the CEO's business expenses against the net amount due the CEO. The remaining
amount due the CEO of approximately $226,000 was converted into a 5% note
payable due July 1, 2002 and is currently in default and accruing interest at
18%.  In addition, stock options for 3,000,000 shares of the Company's common
stock were exercised for an aggregate exercise price of $600,000 in exchange for
a note. The note receivable was reserved and $600,000 was recorded as stock
compensation expense.  The shares of common stock received pursuant to the
exercise of the stock options are unregistered shares subject to the
requirements of Rule 144.  See additional disclosure in Note E.

During the three and nine months ended September 30, 2002 the Company incurred
$13,050 and $139,719, respectively, of legal fees to an attorney who is a former
employee and a relative of the Company's CEO.  Part of these fees were settled
through the issuance of 250,000 shares of common a stock with a fair value at
the time of issuance of $62,500 and the remainder is an outstanding liability at
September 30, 2002.  The shares of common stock issued to the attorney are
unregistered shares subject to the requirements of Rule 144.  During the nine
months ended September 30, 2001 approximately $36,000 of legal fees were
expensed and outstanding at September 30, 2001 to this attorney.

Another shareholder received 250,000 shares of the Company's common stock for
consulting with the Company in the first quarter of 2002.  These services were
valued at $62,500.  In addition the Company incurred fees of $36,250 related to
services performed by a consultant in the first quarter of 2002


                                       12
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

prior to becoming employed as the Company's Chief Financial Officer.  Of this
amount $11,250 was settled through the issuance of 25,000 shares of common stock
of the Company and the remainder of $25,000 in cash of which $15,000 remains
outstanding at September 30, 2002.  The shares of common stock issued to the
shareholder and the CFO are unregistered shares subject to the requirements of
Rule 144.  See additional disclosure in Note E.

In connection with an acquisition by Parago in 1999 the Company agreed to
exchange up to 500,000 shares of the Company's common stock for shares of Parago
common stock at the option of the stockholders of the company acquired by
Parago. In May 2002 the Company exchanged 139,806 shares of the Company's common
stock for 1,240 shares of common stock of Parago as a result of this conversion
feature. The fair market value of the stock issued in these transactions of
$34,952 was recorded as other expenses. All the shares of common stock issued in
these transactions are unregistered shares subject to the requirements of Rule
144.

Pursuant to subscription agreements between Parago and some of its stockholders,
the Company may be required at the option of such stockholders, to issue up to
414,000 shares of the Company's common stock. In May 2002 one such stockholder
was issued 16,000 restricted shares of common stock of the Company.

NOTE D - COMMITMENTS AND CONTINGENCIES

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

Following mediation in July 2000, the Company entered into a settlement term
sheet, to attempt to resolve the disputes between it and JMA, pursuant to which
the Company and JMA agreed in principle to settle the lawsuit for an aggregate
of $3 million, in a combination of $1.5 million in cash and 300,000 shares of
the Company's common stock with a guaranteed value of $5 per share as of
January, April and October 2001 (with respect to 100,000 of the shares for each
period). The settlement was subject to execution of definitive settlement
documents and approval of the boards of directors of both parties. As a result,
the Company recorded approximately $1,912,500 ($1.5 million in cash and 300,000
shares of the Company's Common Stock at the market price of $1.375 per share) as
a nonrecurring charge related to the settlement of the litigation in the ten
months ended December 31, 2000.

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. Given these
events, including the dismissal of the


                                       13
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

lawsuit and the failure of the plaintiffs to refile a lawsuit for more than one
year after the date of the dismissal, the Company, in the year ended December
31, 2001, reversed the nonrecurring charge that the Company had previously
recorded related to the settlement of the lawsuit.   There was no change to the
status of this lawsuit during the nine months ended September 30, 2002.

In June 2000, CT Holdings was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, tortious
interference and negligence. Specifically, the Fergusons claim that they were
damaged when they attempted to exercise warrants during a time when CT Holdings'
related registration statement could not be used and asserted damages between
$300,000 and $1,500,000. CT Holdings believes that the claims asserted by the
Fergusons are without merit and will vigorously defend the claims. The trial in
the case was heard in late April and early May 2002 and the Company received the
court's decision in July 2002. The trial court awarded the Fergusons
approximately $766,000 in damages, interest and legal fees.  Interest on the
judgment accrues at a rate of 10% per annum and accordingly the Company has
recorded an additional $19,000 of interest expense during the three months ended
September 30, 2002.  CT Holdings intends to appeal the decision of the trial
court.  As a result of the judgment during the quarter ended September 30, 2002,
the Company has recorded approximately $785,000 as a nonrecurring charge related
to the litigation pending appeal.

In June 2000, Tech Data Corporation filed suit against CT Holdings, alleging a
breach of a Software Distribution Agreement ("the Agreement") with CT Holdings.
The lawsuit is styled Tech Data Corporation v. Citadel Technology, Inc. (now
known as CT Holdings), and was filed in Dallas County Court at Law No. 2.
Because CT Holdings was not properly served, Tech Data obtained a default
judgment for $101,049.  When CT Holdings discovered the default judgment, it
filed and won a motion to set aside this judgment. In June 2001, Tech Data
properly served CT Holdings.  CT Holdings answered and demanded binding
arbitration pursuant to the agreement.  The parties filed a Joint Motion to
Arbitrate in December 2001.  The judge granted this motion, and CT Holdings
expects that this matter will be referred to binding arbitration in the fourth
quarter of 2002.  The Company has recorded a liability of $101,049 at December
31, 2001 and 2000 related to this lawsuit.  As part of the Distribution, Citadel
assumed responsibility for this lawsuit, although there can be no assurance that
we will be released from the lawsuit.

On November 11, 2002, CT Holdings was served with a lawsuit filed in the 192nd
District Court in Dallas, Texas by PriceWaterhouseCoopers LLP for breach of
contract and sworn account. The plaintiff claims that it is owed approximately
$132,000 plus interest and attorneys' fees related to services in connection
with the lawsuit filed by Janssen-Meyers described in the Report. Since CT
Holdings has only just received the lawsuit it has not yet engaged legal counsel
to review this lawsuit and accordingly has been unable to assess the merits of
the claims or the amount of liability, if any, at this time. No trial has been
set for the lawsuit.

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

The Company is also involved in other litigation, however the Company does not
believe the outcome of such litigation will be material to the Company's
financial condition or results of operations.

The Company may become involved in litigation on various matters which are
routine in conducting its business. The Company believes that none of these
actions, individually or in the aggregate, will have a material adverse effect
on its 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 operations.

NOTE E - CERTAIN TRANSACTIONS

During the nine months ended September 30, 2002 the Company issued 1,397,500
shares of common stock to employees and directors of the Company pursuant to the
exercise of stock options.  The aggregate exercise price of these stock options
was approximately $297,000 all of which has been recorded as stock compensation
expense.  The shares of common stock issued pursuant to the exercise of the
stock options are unregistered shares subject to the requirements of Rule 144.

In May 2002, prior to the record date of the Distribution, the Company entered
into negotiations to settle approximately $860,000 of operating liabilities in
exchange for 1,662,500 shares of common stock of the Company.


                                       14
<PAGE>
                                CT HOLDINGS, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

As of September 30, 2002 a gain of approximately $9,000 on the extinguishment of
approximately $163,000 of these liabilities was recorded in other income on the
statement of operations as a result of issuing 612,500 shares of common stock
including 100,000 shares for services provided by an independent consultant,
25,000 shares to a consultant for services performed prior to employment as the
Company's Chief Financial Officer, 250,000 shares to a shareholder for
consulting services, and 250,000 shares to an attorney who is also related to
the Company's CEO, for the performance of professional services to the Company.
For the purposes of calculating the gain the fair value of the Company's common
stock was determined as the closing price ($0.25) on May 1, 2002, the day before
the Citadel ex-dividend date, the last day the Company's common stock was traded
and quoted with the value of the distribution dividend included in the value of
the Company's stock.

At September 30, 2002 approximately $697,000 of operating liabilities were under
negotiation for settlement with shares of the Company's common stock including
all dividends and distributions.  Approximately 1,050,000 shares of common
stock, plus 262,500 shares of common stock of Citadel Security Software Inc.
are reserved for issuance upon final settlement of these liabilities.  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.  If such shares are finally issued to settle the associated
liabilities a gain of approximately $400,000 will be recognized.

During the nine months ended September 30, 2002 a shareholder advanced $20,000
to the Company and entered into an 8% note due June 30, 2002. At September 30,
2002 the outstanding balance of this note was $9,000 and is currently in
default.

During May 2002 the Company sold 100,000 unregistered shares of common stock for
$25,000.

During the nine months ended September 30, 2002 approximately 4 million shares
of the Company's common stock held in treasury were determined to be cancelled.


                                       15
<PAGE>
ITEM 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

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

In addition to the other information in this Report, the following factors
should be considered carefully in evaluating the Company and its business. This
disclosure is for the purpose of qualifying for the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. It contains factors 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

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.

At September 30, 2002 the Company held investments in three companies, Parago,
River Logic and Encore. Other than our formation and development of these
companies, 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:


                                       16
<PAGE>
     -    We may be unable to identify or develop relationships with attractive
          emerging companies.

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

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

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

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

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


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

We have developed and/or invested in Parago, River Logic and Encore (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
affect each of our investee companies. A significant portion of our assets is
comprised of ownership interests in our investee companies. If our investee
companies do not succeed, the value of our assets will decline.

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

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


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

We may incur significant costs to avoid investment company status and may suffer
other adverse consequences if we are deemed to be an investment company under
the Investment Company Act of 1940. Some of our contemplated equity investments


                                       17
<PAGE>
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, River Logic and Encore, such investments, if and
when made, could fluctuate in value, which may cause the value of such
securities to exceed 40% of our total assets. Unless an exclusion or safe harbor
were available to us, we would have to attempt to reduce our investment
securities as a percentage of our total assets. This reduction could be
accomplished in a number of ways, including the disposition of investment
securities and the acquisition of non-investment security assets. If we were
required to sell investment securities, we may sell them sooner than we may
otherwise have preferred. These sales may be at depressed prices and we might
never realize anticipated benefits from, and may incur losses on, these
investments. Some investments may not be sold due to contractual or legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax liabilities when we sell assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not be
able to identify and acquire suitable assets and businesses.

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

We have incurred recurring operating losses and have a significant working
capital deficiency and a significant stockholders' deficit. Cash used in
continuing operations was approximately $419,000 during the nine months ended
September 30, 2002.  We have no cash balance at September 30, 2002 and current
liabilities exceed current assets by approximately $3.4 million.  We and our
investee companies continue to be dependent upon external financing to perform
our business development activities, invest in unconsolidated affiliates and
provide for ongoing working capital requirements.  During the nine months ended
September 30, 2002 and the year ended December 31, 2001, substantially all of
this financing has been provided by related parties.

Our strategy of continuing to support and expand our business development
activities requires us to obtain additional capital.  The complete
implementation of this element of our strategy will not generate positive cash
flow in the foreseeable future.  Achieving positive cash flow is currently
highly dependent upon obtaining liquidity from our investments in unconsolidated
affiliates.  We estimate we will need to raise additional funds of $1.5 million
to $3.8 million to support the incubator and business development activities of
the Company through the next twelve months and substantially greater amounts if
we expect to continue to acquire investments or if amounts become due to settle
contingent liabilities.  Historically, we have obtained short-term bridge
funding from our Chief Executive Officer or Directors of the Company.  While
this may occur in the future there can be no assurance that such financing will
be available, or if available on terms that we would be willing to accept.

We received a report from our independent auditors for its year ended December
31, 2001 containing an explanatory paragraph that describes the uncertainty
regarding our ability to continue as a going concern due to historical negative
cash flows and because, as of the date they rendered their opinion, we did not
have access to sufficient committed capital to meet our projected operating
needs for at least the next 12 months.  Until we are able to create liquidity


                                       18
<PAGE>
from our investments through a sale to a strategic investor, an initial public
offering or some other liquidity transaction, we will continue to require
working capital to fund our own operating expenses.

There can be no assurance that management's plans will be successful or what
other actions may become necessary.  Although we have been successful raising
capital in the past, any inability to raise capital may require us to sell
assets or reduce the level of our operations.  In addition, we may suffer
dilution of our equity ownership in our investee companies if they require
additional financing and we elect not to participate in those additional
financings.  Such actions could have a material adverse effect on our business
and operations and result in charges that could be material to our business and
results of operations.

OUR STOCK IS TRADED IN THE OVER THE COUNTER MARKET.

Our common stock now trades on the OTC Bulletin Board maintained by the National
Quotation Bureau, Inc. 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 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. In addition, in July 2002, the court in a
lawsuit filed by Michael and Patricia Ferguson awarded approximately $766,000 in
damages, legal fees and interest.  Interest on the judgment accrues at a rate
of 10% per annum and accordingly the Company has recorded an additional $19,000
of interest expense during the three months ended September 30, 2002.  While the
Company will appeal this decision, there can be no assurance that the Company
will be successful in its appeal.  They could have a material adverse effect on
the Company and its financial condition.


OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.

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

         RISKS RELATED TO THE DISTRIBUTION OF CITADEL SECURITY SOFTWARE

MEMBERS OF CITADEL'S BOARD OF DIRECTORS AND MANAGEMENT MAY HAVE CONFLICTS OF
INTEREST AFTER THE DISTRIBUTION.

Members of the board of directors and management of Citadel will own shares of
both Citadel and CT Holdings common stock after the Distribution because of
their prior relationship and, in some cases, continuing relationships as
directors or executive officers with CT Holdings. In addition, two of the five
initial directors of Citadel will also be directors of CT Holdings, and the
Chief Executive Officer and Chief Financial Officer of Citadel will also
continue to serve as Chief Executive Officer and Chief Financial Officer of CT
Holdings. These relationships could create, or appear to create, potential
conflicts of interest when Citadel's directors and management are faced with
decisions that could have different implications for Citadel and CT Holdings.
Examples of these types of decisions might include the resolution of disputes
arising out of the agreements governing the relationship between CT Holdings and
Citadel following the Distribution. Also, the appearance of conflicts, even if
such conflicts do not materialize, might adversely affect the public's
perception of Citadel following the Distribution.


                                       19
<PAGE>
WE MAY INCUR INCREASED EXPENSES IF THE TRANSITION SERVICES AGREEMENT WITH
CITADEL IS TERMINATED.

In connection with the Distribution, Citadel entered into a transition services
agreement with CT Holdings. This agreement provides that CT Holdings and Citadel
will provide each other services for a fee in such areas as information
management and technology, employee benefits administration, payroll, financial
accounting and reporting, claims administration and reporting, and other areas
where CT Holdings and Citadel may need transitional assistance and support
following the Distribution. The agreement will generally extend for one year
after the Distribution, but may be terminated earlier under certain
circumstances, including a default. If the agreement is terminated, we may be
required to obtain such services from a third party or increase our headcount to
provide such services. This could be more expensive than the fees which we will
be required to pay under the transition services agreement.

MANAGEMENT BELIEVES THAT THE DISTRIBUTION HAS CAUSED THE TRADING PRICE OF CT
HOLDINGS COMMON STOCK TO DECLINE.

Following the Distribution, our common stock continued to be listed and traded
on the Over The Counter Bulletin Board under the symbol CITN. There can be no
assurance that a trading market will continue for the shares of CT Holdings
common stock. Management believes that as a result of the Distribution, the
trading price of CT Holdings common stock immediately following the ex-dividend
date for the Distribution was substantially lower than the trading price of CT
Holdings common stock immediately prior to Distribution. Following the
Distribution, CT Holdings' operations will consist of the equity interests in
its incubation holdings, Parago and River Logic and CT Holdings' related
business development operations, including potential future acquisitions.
Further, the combined trading prices of CT Holdings common stock and the Citadel
Shares after the Distribution may be less than the trading price of CT Holdings
common stock immediately prior to the Distribution.

SUBSTANTIAL SALES OF CT HOLDINGS COMMON STOCK MAY HAVE AN ADVERSE IMPACT ON THE
TRADING PRICE OF THE CT HOLDINGS COMMON STOCK.

After the Distribution, some CT Holdings stockholders may decide that they do
not want shares in a company consisting of the incubation ventures and related
business development operations, and may sell their CT Holdings common stock
following the Distribution. If CT Holdings stockholders sell large numbers of
shares of CT Holdings common stock over a short period of time, or if investors
anticipate large sales of CT Holdings common stock over a short period of time,
this could adversely affect the trading price of the CT Holdings common stock.

THERE CAN BE NO ASSURANCE THAT AN ACTIVE TRADING MARKET FOR CT HOLDINGS COMMON
STOCK WILL RETURN.

Even though CT Holdings is currently a publicly held company, there can be no
assurance as to whether an active trading market for CT Holdings common stock
will be maintained after the Distribution or as to the prices at which the CT
Holdings common stock will trade. Some CT Holdings stockholders may decide that
they do not want shares in a company consisting of the incubation ventures and
related business development operations, and may sell their CT Holdings common
stock following the Distribution. These and other factors may delay or hinder
the return to an orderly trading market in the CT Holdings common stock
following the Distribution. Whether an active trading market for CT Holdings
common stock will be maintained after the Distribution and the prices for CT
Holdings common stock will be determined in the marketplace and may be


                                       20
<PAGE>
influenced by many factors, including the depth and liquidity of the market for
the shares, CT Holdings' results of operations, what investors think of CT
Holdings and the incubation ventures and business development industries,
changes in economic conditions in its industries and general economic and market
conditions. Market fluctuations could have a material adverse impact on the
trading price of the CT Holdings common stock.

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

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

If the Distribution does not qualify for tax-free treatment, a substantial
corporate tax would be payable by the consolidated group of which CT Holdings is
the common parent measured by the difference between (1) the aggregate fair
market value of the Citadel Shares on the Distribution Date and (2) CT Holdings'
adjusted tax basis in the Citadel Shares on the Distribution Date. The corporate
level tax would be payable by CT Holdings. However, Citadel has agreed under
certain circumstances to indemnify CT Holdings for all or a portion of this tax
liability. This indemnification obligation, if triggered, could have a material
adverse effect on the results of operations and financial position of Citadel.
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 receives 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.  This indemnification obligation would have a material adverse effect
on the results of operations and financial position of Citadel.

                         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 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. In addition, we have agreed to convert the shares of Parago


                                       21
<PAGE>
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.
During the quarter ended June 30, 2002 shareholders owning 1,200 of these
shares of Parago stock exercised their option to obtain 139,806 shares of CT
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.  During the quarter ended June 30, 2002 shareholders owning 40 of
these shares of Parago stock exercised their option to obtain 16,000 shares of
CT 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.

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 were formed recently, 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 EXPECTS TO CONTINUE TO INCUR
SUBSTANTIAL NET LOSSES IN THE FUTURE.

Each investee had an unaudited net losses for the year ended December 31, 2001
and we anticipate that each investee will incur additional losses for the
foreseeable future. If our investees' revenues do not grow as they anticipate,
our investees may never be profitable.

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

Our investees' ability to maintain and grow their businesses is dependent on
access to sufficient funds to support their working capital and capital
expenditure needs.  If our investees do not raise additional funds, 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.

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


                                       22
<PAGE>
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 our investees' common
stock, if it becomes publicly traded.

Sales of a substantial number of shares of our investees' common stock in the
public market after its 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.


                                       23
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


You should read the following discussion in conjunction with our audited
financial statements for the year ended December 31, 2001 and the ten month
period ended December 31, 2000 and the related notes in the Company's Form
10-KSB.  Our fiscal year ends on December 31, and each of our quarters end on
the final day of a calendar quarter (each March 31, September 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 capital to early stage
companies. At September 30, 2002 the Company held investments in Parago, River
Logic and Encore (which was liquidated subsequent to September 30, 2002). The
Company was incorporated in Delaware in 1992 and previously operated under the
name Citadel Technology Inc. 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 primarily 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.

In November 2001 the Company announced a plan to spin-off of its Citadel
subsidiary as a special dividend to shareholders of CT Holdings. (See "The
Citadel Security Software Distribution and Discontinued Operations" below). The
distribution of the Citadel shares closed on May 17, 2002, the Distribution
Date.  While Citadel continues to operate its security software business,
generally accepted accounting principles requires that the financial statements
of Citadel, previously consolidated with the financial statements of the
Company, be presented in these financial statements as discontinued operations
through the Distribution Date and accordingly are included in the statements of
operation for the three and nine months ended September 30, 2002 and 2001
respectively.

THE CITADEL SECURITY SOFTWARE DISTRIBUTION AND DISCONTINUED OPERATIONS

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

After the Distribution, two of five directors of CT Holdings were directors of
Citadel and the Chief Executive Officer and the Chief Financial Officer of CT
Holdings hold the same positions with Citadel.  It is expected that 20% to 33%
of the officers' time will be allocated to CT Holdings.  All other employees of
CT Holdings became employees of Citadel following the Distribution.  Under the
transition services agreement Citadel will provide accounting,


                                       24
<PAGE>
administrative, information management and other services, including the
services of the two officers, to CT Holdings in return for a payment of a
monthly administrative fee initially estimated at $20,000 per month. The fee may
be adjusted quarterly subject to a reallocation of the estimated time devoted to
each company.

As a result of the Distribution, the financial statements and the results of
operations of Citadel are presented as discontinued operations in CT Holdings'
financial statements.  Summary financial information with respect to Citadel is
provided below:

<TABLE>
<CAPTION>
               Period         Three Months      Nine Months
           January 1, 2002        Ended            Ended
               Through        September 30,    September 30,
            May 17, 2002          2001             2001
          -----------------  ---------------  ---------------
<S>       <C>                <C>              <C>
Revenue   $        130,519   $      141,029   $      322,447
Net loss          (942,939)        (403,967)      (1,432,717)
</TABLE>

At December 31, 2001 certain balance sheet data of Citadel were as follows:

<TABLE>
<CAPTION>
                                              December 31,
                                                  2001
                                             -------------
<S>                                          <C>
BALANCE SHEET DATA:
    Current assets                           $     171,954
    Current liabilities                          1,107,647
    Property and equipment                          43,006
    Capitalized software development costs         174,110
    Stockholder's (deficit)                       (693,926)
</TABLE>

OVERVIEW OF PARAGO

We began our business development activities in January 1999 with the formation
of Parago, Inc., an application service provider (ASP) and Internet based
business process outsourcer (BPO) that provides a suite of technology offerings
(including PromoCenter, ValueRewards and KnowledgeCenter) designed to increase
sales, reduce costs, and retain customers for retailers, manufacturers and
service organizations.  Parago's continuous customer interaction services
include online promotional management (including online rebate processing),
proactive email, online surveys, and customer data analysis and reporting.
Through December 2001, Parago had received approximately $96.3 million in
private equity financing from venture capital investors including TH Lee Putnam
Ventures, Dain Rauscher Wessels Investors, Watershed Capital and Seaboard
Ventures, as well as angel investors. CT Holdings continues to hold 20,000
shares of Parago common stock and warrants to purchase 28.8749 shares of
Parago's Series A-3 Preferred Stock (convertible into 2,887 shares of Parago's
common stock).

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


                                       25
<PAGE>
Parago's online solutions provide a vehicle for its clients to conduct targeted
marketing to customers with whom they have traditionally lost contact subsequent
to the point of purchase. Parago is developing proprietary software that will
provide an online mechanism for customers, many of whom have immediate
purchasing power in the form of promotional proceeds, to apply those proceeds
towards the purchase of additional products or services. Parago's solutions also
capture valuable customer information that can help its clients better
understand customer behavior. Parago plans to provide fee-based customer
specific or aggregated data analyses to assist clients in designing future
promotions. Parago's solutions also enable businesses to improve operating
efficiencies by allowing them to analyze the results of their promotions and
manage these promotions on a real time basis. Parago markets its solutions to
retailers, manufacturers and service providers across multiple industries.

In connection with an acquisition by Parago in March 1999, we agreed to convert
the Parago shares of common stock issued in connection with the merger into up
to 500,000 of our shares at the option of the shareholders of the Company
acquired by Parago.  In May 2002 the Company exchanged 139,806 shares of the
Company's common stock for 1,200 shares of Parago common stock with some of
these shareholders.  In addition, pursuant to the terms of the subscription
agreements between Parago and some of its stockholders, we may be required to
issue up to 414,000 shares of our common stock to such stockholders based upon a
conversion price of $3.75 per share.  In May 2002, the Company exchanged 16,000
shares of the Company's common stock for 40 shares of Parago common stock with
one of these shareholders.  These provisions could have the effect of diluting
our stockholders.

After a 1 for 1000 reverse stock split by Parago in connection with its Series E
preferred stock offering in December 2001 to February 2002, in which the Company
elected not to participate, the Company holds 20,000 shares of common stock of
Parago and warrants to purchase 28.8749 shares of Parago's Series A-3 Preferred
Stock (convertible into 2,887 shares of Parago's common stock) at September 30,
2002.  In December 2001 Parago completed the first closing ($13.6 million) of an
equity financing of approximately $15.0 million.  Approximately $1.4 million of
equity financing was closed in February 2002.  As a result of the equity
financing our ownership percentage in Parago was reduced to approximately 1%.
Our investment in Parago for the period from January 1, 2001 through December
12, 2001 and the ten months ended December 31, 2001 was accounted for under the
equity method of accounting for investments and accordingly as a result of our
ownership falling below 20%, has been accounted for using the cost method of
accounting since December 13, 2001.  Under the cost method of accounting, the
Company's share of the income or loss from Parago is not included in operations.
Under the equity method of accounting, the Company's share of the investee's
income or losses is included in the statements of operations. If the carrying
value of the Company's net investment falls below zero, the Company discontinues
applying the equity method until the carrying value of the net investment rises
above zero. In addition, in the event the Company's ownership percentage exceeds
20% and the value of the Company's equity investment rises above zero, the
Company will resume applying the equity method and will recognize an investment
in Parago after the Company's share of net losses not recognized is recovered
through our proportionate share of net income if Parago turns profitable.  While
Parago continues to incur operational losses we believe that our $50,000
investment in Parago represented by 20,000 shares of Parago's common stock (plus
1,240 shares to be received from the exchanges in May 2002) and warrants to
purchase 28.8749 shares of Series A-3 preferred stock (convertible into 2,887
shares of Parago common stock) may ultimately provide an appropriate return.

OVERVIEW OF RIVER LOGIC

In May 2000, we made an investment in River Logic by acquiring shares of common
stock of River Logic from several of its existing shareholders in exchange for
333,333 shares of our common stock. We also acquired shares of Series A
Convertible Preferred Stock ("Series A") from River Logic in exchange for the
contribution of assets acquired from a third party by the Company through
exchange of 666,667 shares of our common stock. In connection with the
investment in River Logic,


                                       26
<PAGE>
we also made two bridge loans totaling $600,000 to River Logic that were
convertible into shares of capital stock of River Logic.  Each of the bridge
loans (i) bears interest at a rate of 12% per annum through its first
anniversary and at one percent above the prime rate per annum thereafter, (ii)
is secured by certain assets of River Logic, (iii) is payable upon the Company's
demand and (iv) is repayable by River Logic commencing on its third anniversary
date. In addition, we also incurred cash expenses for professional fees related
to these transactions and we issued 50,000 shares of our common stock to a
consultant for identifying this investment.  After the closing of the
transaction the consultant became the Chief Operating Officer of River Logic and
we granted him 100,000 fully vested options to purchase our common stock at $5
per share (which was above the fair market value at the date of issuance).

In April 2001, River Logic received a strategic investment from the Intel 64
Fund, Cardinal Investment, Inc, eMed Ventures and Mercury Ventures, and the
Company converted $450,000 of the principal amount of the notes into shares of
the Series C Preferred Stock, and River Logic repaid the $216,000 balance of
these notes plus interest in April 2001.  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.  Similar to the investments in Parago, the Company recognized
that this investment would be initially illiquid.  However during the three
months ended September 30, 2002 general economic conditions worsened, stock
market valuations declined from the values at December 31, 2001 and raising
capital at previous historical valuations became difficult.  We considered all
the facts and circumstances of River Logic's business, marketplace and cost of
new capital and based on an this consideration we determined that the fair
market value of the Company's investment in River Logic had declined to
approximately $500,000 and accordingly wrote down the investment by $2,203,975
during the quarter ended June 30, 2002.  Our investment in River Logic is
accounted for using the cost method of accounting for investments in common
stock therefore no proportionate share of equity in income or loss is recorded.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities.  On an on
going 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.


                                       27
<PAGE>
If an indication of impairment exists with respect to the carrying value of an
investee company, we perform an evaluation by comparing the estimated fair value
of the asset with its carrying value. Fair value is determined by estimating the
cash flows related to the asset, including estimated proceeds on disposition, if
any.  If the fair value is less than the carrying value a loss is recorded.

COMMITMENTS AND CONTINGENCIES

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

EFFECT OF VARIOUS ACCOUNTING METHODS FOR EQUITY INVESTMENTS

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

CONSOLIDATION METHOD:  Investee companies in which we directly or indirectly own
more than 50% of the outstanding securities or those where we have effective
control are generally accounted for under the consolidation method of
accounting.  Under this method, an investee company's accounts are consolidated
within our financial statements.  Participation of other unrelated stockholders
in the earnings or losses of a consolidated investee company would be reflected
as a minority interest in consolidated financial statements.  Minority interest
adjusts our consolidated net results of operations to reflect only our share of
the earnings or losses of the consolidated investee company.  At December 31,
2001 and September 30, 2002, we had no investee company qualified for this
accounting method.

EQUITY METHOD:  Investee companies whose results we do not consolidate, but over
whom we exercise significant influence, are generally accounted for under the
equity method of accounting. Whether or not we exercise significant influence
with respect to an investee company depends on an evaluation of several factors
including, among others, representation on the investee company's board of
directors and percentage ownership level, which is generally a 20% to 50%
interest in the securities of the investee company, including our holdings in
common, preferred and other convertible instruments in the investee company
where we may have voting rights.  Under the equity method of accounting, an
investee company's accounts are not reflected within our financial statements;
however, our share of the earnings or losses of the investee company is
reflected in our statements of operations.

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.


                                       28
<PAGE>
RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2001

CT Holdings' continuing operations consists of costs and expenses for providing
services to our investee companies and the activities to identify additional
technologies and companies in which CT Holdings might invest.  Due to the
spin-out distribution of Citadel on May 17, 2002 the results of operations and
the balance sheet of Citadel are presented as discontinued operations in all
periods presented prior to the distribution date.  Citadel's loss from
operations through May 17, 2002 are included as loss from discontinued operation
for the three and nine months ended September 30, 2001.

Our investment in Parago prior to June 30, 2001 was accounted for using the
equity method of accounting.  In 2000 our investment in Parago was reduced to
zero as a result of our share of cumulative losses since our initial investment
was made in Parago.  An additional investment in Parago in December 2001 by
unrelated third parties has caused our ownership percentage to fall below the
20% ownership threshold required to account for the investment under the equity
method and accordingly we record our investment in Parago using the cost method.
Our investments in River Logic and Encore are recorded using the cost method.

Loss from continuing operations for the three and nine months ended September
30, 2002 includes legal and administrative costs and the costs of shared
personnel and office costs allocated from Citadel under the transition services
agreement entered into as a part of the Distribution.  Loss from continuing
operations for the three and nine months ended September 30, 2001 consists of
the costs and expenses of maintaining an office and legal and administrative
expenses.  For the periods prior to the distribution date costs and expenses
related to the Citadel security software business have been allocated to Citadel
based on an estimate of the proportion of amounts allocable to Citadel utilizing
such factors as revenues, number of employees, and other relevant factors.


GENERAL AND ADMINISTRATIVE EXPENSES

We had general and administrative expenses for the three months ended September
30, 2002 and 2001 of $122,007 and $120,889, respectively, an increase of $1,118
or 1%.  For the nine months ended September 30, 2002 and 2001 we incurred
general and administrative expenses of $897,935 and $472,733, respectively an
increase of $425,202, or 90%.  The increase in nine month periods are primarily
a result of legal fees associated with ongoing legal matters and defense costs
related to the various legal claims and consulting fees associated with business
development and incubator activities.

COMMON STOCK ISSUED AS COMPENSATION

During the nine months ended September 30, 2002 the Company issued 6,647,500
shares of common stock to employees and directors of the Company pursuant to the
exercise of stock options.  The aggregate exercise price of these stock options
was approximately $1,347,000.  Notes receivable for $1,312,500 were received for
the exercise price and subsequently fully reserved and expensed as stock
compensation expense.  An additional $34,500 was recorded as a stock bonus
expense.  The shares of common stock issued pursuant to the exercise of the
stock options are unregistered shares subject to the requirements of Rule 144.


                                       29
<PAGE>
ACCRUAL FOR LITIGATION

In September 2000, CT Holdings was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, tortious
interference and negligence. Specifically, the Fergusons claimed that they were
damaged when they attempted to exercise warrants during a time when CT Holdings'
related registration statement could not be used. CT Holdings continues to
believe that the claims asserted by the Fergusons are without merit and will
vigorously defend the claims. The trial in this case was held from April 22,
2002 until May 1, 2002, and the Company received the judgment from the trial
court in July 2002.  The trial court awarded the Fergusons approximately
$766,000 in damages, interest and legal fees.  CT Holdings intends to appeal the
decision of the trial court.  Interest on the judgment accrues at a rate of 10%
per annum and accordingly the Company has recorded an additional $19,000 of
interest expense during the three months ended September 30, 2002.  As a result
of the judgment, the Company has recorded approximately $785,000 as a
nonrecurring charge related to the litigation pending appeal.

On November 11, 2002, CT Holdings was served with a lawsuit filed in the 192nd
District Court in Dallas, Texas by PriceWaterhouseCoopers LLP for breach of
contract and sworn account. The plaintiff claims that it is owed approximately
$132,000 plus interest and attorneys' fees related to services in connection
with the lawsuit filed by Janssen-Meyers described in the Report. Since CT
Holdings has only just received the lawsuit it has not yet engaged legal counsel
to review this lawsuit and accordingly has been unable to assess the merits of
the claims or the amount of liability, if any, at this time. No trial has been
set for the lawsuit.

REVERSAL OF LEGAL SETTLEMENT

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.
The suit alleged that this predecessor breached a letter of intent dated
September 1995 and/or a Placement Agency Agreement dated November 1995 between
JMA and the predecessor. As its damages, JMA claimed that it was entitled to,
among other things, the cash value of warrants to purchase of 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. We removed the case to federal court in the
Southern District of New York.

Following mediation in July 2000, the Company entered into a settlement term
sheet, 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 the companies. As a result,
the Company recorded approximately $1,912,500 as a nonrecurring charge related
to the proposed settlement of the litigation.

The Company and JMA were unable to negotiate the final definitive settlement
agreement and, as a result, the matter is still not settled.  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 proposed 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. Given these recent events, the Company is unable to estimate the
potential loss related to this matter and therefore has removed the previously
recorded accrual for legal settlement of $1,912,500.  The Company has also filed
a lawsuit against JMA to recover excess amounts charged by JMA in connection
with related bridge loans.


                                       30
<PAGE>
WRITEDOWN OF INVESTMENT IN AFFILIATE

During the nine months ended September 30, 2002 general economic conditions
worsened, stock market valuations declined from the values at December 31, 2001
and raising capital at previous historical valuations became difficult.  We
considered all the facts and circumstances of River Logic's business,
marketplace and cost of new capital and based on an this consideration we
determined that the fair market value of the Company's investment in River Logic
had declined to approximately $500,000 and accordingly wrote down the investment
by $2,203,975.  Our investment in River Logic is accounted for using the cost
method of accounting for investments in common stock therefore no proportionate
share of equity in income or loss is recorded.

In October 2002 our investment in Encore was liquidated for approximately $2,000
in proceeds and accordingly we wrote down the investment by $30,000 during the
quarter ended September 30, 2002.

EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE

In May 2001, Parago obtained a Term Loan from Comerica Bank--Texas (Comerica) in
the principal amount of $8.0 million. The funds from the Term Loan were
necessary to enable Parago to continue operations, as Parago's cash resources
were depleted. Parago repaid the Term Loan with proceeds from the sale of shares
of the Series E Stock preferred stock issued in December 2001. As a condition to
the extension of the Term Loan, Comerica required a guarantee of Parago's
obligations under the Term Loan from certain affiliates of TH Lee.Putnam
Internet Partners, L.P. (collectively, "TH Lee"), which own shares of Parago's
Series C Convertible Preferred Stock ("Series C Stock") and Series D Convertible
Preferred Stock ("Series D Stock"), common stock and certain warrants. TH Lee
executed the Guaranty in consideration of its receipt of 110,000 warrants to
purchase shares of Parago's Series A-3 Preferred Stock, convertible into
11,000,000 shares of Parago common stock, a new series of preferred stock that
was created in connection with the bridge loan and guaranty transaction, and, in
the event that TH Lee is called upon to make payment under the Guaranty, its
receipt of shares of Series A-1 Stock and Series A-2 Stock, two new series of
preferred stock the issuance of which could have the effect of substantially
diluting Parago's existing stockholders, including CT Holdings, in the event
such holders do not participate in the guaranty.

Parago security holders (including CT Holdings) who met the required suitability
criteria were offered the opportunity to participate in the Guaranty through a
Pro Rata Participation Interest. In the event that TH Lee was required to pay
all or a portion of the Term Loan under the Guaranty, those offerees who had
participated in the offering and paid their pro rata portion of the Guaranty
when it would have been due would maintain their percentage equity ownership in
Parago, while those offerees who did not participate in the offering, and those
participants who failed to make their Guaranty payments when due, would be
substantially diluted. If offerees holding a significant portion of Parago's
current equity ownership failed to make their Guaranty payments when due, had
they become due, then TH Lee would gain a controlling interest in Parago as a
result of the transactions. CT Holdings participated in this offering. Pursuant
to the participation in the Parago bridge loan guaranty the Company was required
under the equity method of accounting to recognize equity in losses equal to its
cash participation of $692,739 and the Company's share of the guaranty of
$1,406,472 in the three and nine months ended September 30, 2001.  The Company
borrowed the funds from two directors of the Company to meet the cash portion of
the guaranty.  Following the Parago equity financing in December 2001 the
$692,739 loan was repaid and the $1,406,472 loan guarantee was released.
Accordingly the adjustment to equity in losses of $2,099,211 was reversed in
December 2001.

INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME

Interest expense for the three and nine months ended September 30, 2002 was
$20,752 and $94,334, respectively.  This compares to $408 and $8,287 for the
similar periods of 2001.  The increase is due to higher average debt balances
outstanding during the three and nine month periods ended September 30, 2002 as
well as the recognition of $51,300 of interest expense in the nine months ended
September 30, 2002 associated with the beneficial conversion feature of the
$600,000 convertible note from a shareholder.  In addition the Company is in
default on notes and advances from related parties bearing default interest at
18% per annum.


                                       31
<PAGE>
No interest income was earned in the three months or nine months ended September
30, 2002.  Interest income in the three and nine month periods ended September
30, 2001 represented interest on notes receivable from affiliates.

Other expense for the nine months ended September 30, 2002 was $29,951 and is
net of a $9,000 gain resulting from the issuance of common stock to settle a
liability and $38,452 for the fair market value of common stock issued for the
exercise of exchange rights granted by the Company.  Other income of $34,240 and
$40,254 for the three and nine months ended September 30, 2001 represent
miscellaneous gains and receipts unrelated to operations.


NET LOSS

As a result of these factors, for the quarters ended September 30, 2002 and 2001
we reported a loss from continuing operations of $189,759 and $59,704. There was
no income or loss from discontinued operations in the three months ended
September 30, 2002 because the Citadel distribution was completed in May 2002.
The loss from discontinued operations related to Citadel for the quarter end
ended September 30, 2001 was $403,967.  For the nine months ended September 30,
2002 and 2001 the loss from continuing operations was $5,388,195 versus $569,541
respectively and the loss from discontinued operations was $942,939 and
$1,432,717, respectively. In addition to the loss from discontinued operations
we recorded transaction costs directly related to the spin-off transaction,
primarily, legal and accounting fees, of $185,431 for the nine months ended
September 30, 2002.  No transaction costs were recorded during the three months
ended September 30, 2002.


LIQUIDITY AND CAPITAL RESOURCES

We have incurred recurring operating losses and have a significant working
capital deficiency at September 30, 2002 of approximately $3.4 million and a
stockholders' deficit of approximately $2.8 million.  Cash used in operations
was approximately $418,000 during the nine months ended September 30, 2002.
There was no cash balance at September 30, 2002.  Immediate funding needs of the
business are expected to be provided by financings through advances, short-term
notes payable and additional investments from related parties.

We have been and continue to be dependent upon outside financing to perform our
business development activities, make investments in new technology companies
and to fund operations.  During the nine months ended September 30, 2002,
related parties provided substantially all of this financing.  The financings
during the nine months ended September 30, 2002 included proceeds of $600,000
from the issuance of a convertible note to a shareholder and advances and
proceeds of notes payable from the Company's CEO, directors and other related
parties.  Future cash may come from the realization of the value of our
investments in Parago and River Logic, although there can be no assurance that
any value will ever be realized from these investments.

Our strategy to support and expand business development activities will not
generate positive cash flow in the foreseeable future.  The complete
implementation of this element of our strategy requires us to obtain additional
capital.  Achieving positive cash flow is highly dependent upon obtaining
liquidity from the Company's investments in unconsolidated affiliates.  We
estimate that we will need to raise $1.5 million to $3.8 million to settle
liabilities and support our incubator and business development activities
through the next twelve months.  Historically, we have obtained short-term
bridge funding from our Chief Executive Officer and Directors of the Company.
While this may occur in the future there can be no assurance that such financing
will be available or if available with terms that 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.  We believe that our investment in Parago has been
successful with Parago having had no revenue at the time of our initial $50,000
equity investment, growing revenue to approximately $26 million during the year
ended December 31, 2001.  As expected in an early stage company, Parago has not
been profitable and has experienced cash flow deficiencies as it implements its
business plan.  During 2001 the our


                                       32
<PAGE>
percentage ownership in Parago was reduced to approximately 1% as a result of an
additional equity financing raised by Parago in December 2001 in which the
Company chose not to participate.  We believe, however, that our investment of
20,000 common shares of Parago (following a 1-for-1000 reverse stock split) and
warrants to purchase 28.8749 shares of Series A-3 preferred stock (convertible
into 2,887 shares of common stock) may ultimately provide an appropriate return.

Similarly, we believe that our investment in River Logic has also been
successful.  Since our 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.  In addition, during April,
2001 River Logic obtained a strategic investment from the Intel 64 Fund,
Cardinal Investments, eMed Ventures, and Mercury Ventures.  Similar to the
investments in Parago, we recognized that this investment would be initially
illiquid.  During the nine months ended September 30, 2002 general economic
conditions worsened, stock market valuations declined from the values at
December 31, 2001 and raising capital at previous historical valuations became
difficult.  We considered all the facts and circumstances of River Logic's
business, marketplace and cost of new capital and based on an this consideration
determined that the fair market value of the Company's investment in River Logic
had declined to approximately $500,000 and accordingly wrote down the investment
by $2,203,975.

Our minority position in Encore was liquidated in October 2002 for approximately
$2,000. Accordingly, we wrote down the investment by $30,000 at September 30,
2002.

While we are pleased with the performance of the investee companies to date,
there can be no assurance that we will ever achieve liquidity for 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 or to further reduce the level of
operations.  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.

CT Holdings has no cash at September 30, 2002.  The net cash used in operations
of approximately $418,000 for the nine months ended September 30, 2002 is
principally a result of the net loss of $6,516,565 offset by a net loss from
discontinued operations of $942,939, stock compensation expense of $1,347,000, a
writedown of our investment in affiliates of $2,233,975, a legal settlement
accrual of $786,000 and the changes in operating assets and liabilities of
$703,918.  In the nine months ended September 30, 2001 net cash used in
operating activities was $41,013 primarily consisting of the net loss from
continuing operations of $2,002,258 partially offset by a net loss from
discontinued operations of $1,432,717 and a $2,099,211 bank debt guaranty of an
affiliate partially offset by the reversal of a legal settlement accrual in the
amount of $1,912,500 and the changes in operating assets and liabilities of
$301,817.

There was no cash flow from investing activities in the nine months ended
September 30, 2002.  This compares to $45,820 of net cash provided from the
payments of notes receivable to related parties of $588,559, payments from non
related party notes receivable of $150,000 partially offset by $692,739 of cash
paid to guaranty the bank debt of an affiliate.  Cash flows provided by
financing activities was $618,466 for the nine months ended September 30, 2002,
primarily resulting from the proceeds of a convertible note from a shareholder
of $600,000, proceeds of notes and advances payable from related parties of
$526,500 offset by payments on notes payable to related parties of $533,034 and
$25,000 in proceed from the sale of common stock.  During the nine months ended
September 30, 2001 cash provided from financing activities was $712,273
primarily from the $692,482 of proceeds from notes payable and $47,292 from the
proceeds of sales of common stock.

As a result of the aforementioned factors, net cash provided by continuing
operations was $200,132 and $717,080 for the nine months ended September 30,
2002 and 2001 respectively.  The net contribution by CT Holdings to Citadel was
$200,132 and $717,080 for the same periods, respectively.  The net result was no
cash balance to the Company.


                                       33
<PAGE>
In the future, CT Holdings will incur expenses relating to corporate overhead
related to the execution of its business model and the operations of businesses
acquired. The Company will require cash from financing activities to fund the
deficits expected over the next year. The Company's operation requires the
Company to obtain additional capital. The Company will need to raise additional
capital to fund its incubator and business development activities through 2002
and the foreseeable future.

Historically, the Company obtained short-term bridge loans from its Chief
Executive Officer or Directors of the Company. The Company has been and
continues to be dependent upon related party financing to fund its business
development and incubator activities. During the nine months ended September 30,
2002 and year ended December 31, 2001, related parties have provided
substantially all financing and management will continue to rely on related
parties to fund future operations. We may need to rely on similar funding from
related parties for future funding needs. While this may occur in the future
there can be no assurance that such financing will be available or if available,
on terms the Company would be willing to accept. There can be no assurance that
management's plans for CT Holdings incubator business model will be successful
or what other actions may become necessary. Although the Company has been
successful raising capital in the past, the inability of the Company to raise
capital may require the Company to sell assets or reduce the level of its
operations. Such actions could have a material adverse effect on the Company's
investee companies, its business or operations and may result in charges that
could be material to the Company's business and results of operations. The
Company has no material purchase commitments for property and equipment at
September 30, 2002.


ITEM 3. CONTROLS AND PROCEDURES

Based on their evaluation, as of a date within 90 days of the filing date of
this Form 10-QSB, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
are effective.  There have been no significant changes in internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.


                                       34
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

In June 2000, CT Holdings was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, tortious
interference and negligence. Specifically, the Fergusons claimed that they were
damaged when they attempted to exercise warrants during a time when CT Holdings'
related registration statement could not be used. CT Holdings continues to
believe that the claims asserted by the Fergusons are without merit and will
vigorously defend the claims.  The trial in this case was held from April 22,
2002 until May 1, 2002, and the Company received the judgment from the trial
court in July 2002.  The trial court awarded the Fergusons approximately
$766,000 in damages, interest and legal fees.  CT Holdings intends to appeal the
decision of the trial court.  As a result of the judgment, the Company has
recorded approximately $785,000 as a nonrecurring charge related to the
litigation pending appeal. The Company accrues interest on the judgment at 10%
per annum.  This added $19,000 to the recorded liability during the there months
ended September 30, 2002.

In June 2000, Tech Data Corporation filed suit against CT Holdings, alleging a
breach of a Software Distribution Agreement ("the Agreement") with CT Holdings.
The lawsuit is styled Tech Data Corporation v. Citadel Technology, Inc. (now
known as CT Holdings), and was filed in Dallas County Court at Law No. 2.
Because CT Holdings was not properly served, Tech Data obtained a default
judgment for $101,049. When CT Holdings discovered the default judgment, it
filed and won a motion to set aside this judgment. In June 2001, Tech Data
properly served CT Holdings. CT Holdings answered and demanded binding
arbitration pursuant to the agreement. The parties filed a Joint Motion to
Arbitrate in December 2001. The judge granted this motion, and CT Holdings
expects that this matter will be referred to binding arbitration in the fourth
quarter of 2002. The Company has recorded a liability of $101,049 at December
31, 2001 related to this lawsuit. As part of the Distribution, Citadel assumed
responsibility for this lawsuit, although there can be no assurance that we will
be released from the lawsuit.

On November 11, 2002, CT Holdings was served with a lawsuit filed in the 192nd
District Court in Dallas, Texas by PriceWaterhouseCoopers LLP for breach of
contract and sworn account. The plaintiff claims that it is owed approximately
$132,000 plus interest and attorneys' fees related to services in connection
with the lawsuit filed by Janssen-Meyers described in the Report. Since CT
Holdings has only just received the lawsuit it has not yet engaged legal counsel
to review this lawsuit and accordingly has been unable to assess the merits of
the claims or the amount of liability, if any, at this time. No trial has been
set for the lawsuit.

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


ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

For all of the transactions listed below the shares were issued pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of
1933.

During May 2002 the Company sold 100,000 restricted shares of common stock for
$25,000 to an accredited investor.

In May 2002 a shareholder received 250,000 restricted shares of the Company's
common stock for consulting services to the Company in the first quarter of
2002. These services were valued at $62,500.

During the nine months ended September 30, 2002, 25,000 restricted shares of
common stock of the Company were issued to a consultant in lieu of cash
compensation.  The fair value of these services was $11,250. The consultant
later became the Company's Chief Financial Officer.

In May 2002 the Company issued 250,000 restricted shares of common stock for the
services of an attorney who is a former employee and a relative of the Company's
CEO. The fair value of these services was $62,500.


                                       35
<PAGE>
In connection with an acquisition by its former subsidiary Parago in 1999, the
Company agreed to exchange up to 500,000 shares of the Company's common stock
for shares of Parago common stock at the option of the stockholders of the
company acquired by Parago. In May 2002 the Company exchanged 139,806 restricted
shares of the Company's common stock for 1,240 shares of common stock of Parago
as a result of this conversion feature.

Pursuant to subscription agreements between Parago and some of its stockholders,
the Company may be required at the option of such stockholders, to issue up to
414,000 shares of the Company's common stock. In May 2002 one such stockholder
was issued 16,000 restricted shares of common stock of the Company.

In May 2002 a total of 6,647,500 restricted shares of the Company's common stock
were issued pursuant to the exercise of stock options. Officers, directors and
employees of the Company exercised stock Options for 6,500,000 restricted shares
of common stock for an aggregate exercise price of $1,313,000 in exchange for
notes which have been fully reserved and the charge recorded as stock
compensation expense. In addition an officer and two employees of the Company
exercised options for 147,500 restricted shares of common stock of the Company
with an aggregate exercise price of $34,500 and because no cash was exchanged,
the $34,500 was recorded as stock compensation expense.

In May 2002, the Company issued 100,000 restricted shares of common stock to an
independent consultant in the settlement of liability recorded for the
performance of consulting services. The Company recognized a gain of $9,000
resulting from this settlement.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

At November 14, 2002 the Company was in default on four notes payable from
shareholders and related parties in the total amount of $534,395. At September
30, 2002 the Company had an 8% note payable due September 30, 2002 to an entity
related to an employee of the Company for $49,000, an 8% note payable to a
shareholder for $9,000, an 8% note payable due April 30, 2002 to a director of
the Company for $250,000, and a 5% note payable due July 1, 2002 to the
Company's CEO for $226,395. Interest in arrears is approximately $36,000.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     99.1 Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section
     1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002

     99.2 Certification of Chief Financial Officer Pursuant To 18 U.S.C. Section
     1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002

(b)  On August 14, 2002, the Registrant filed a Current Report on Form 8-K which
reported the filing of sworn statements by its Principal Executive Officer and
its Principal Financial Officer with the Securities and Exchange
Commission.


                                       36
<PAGE>
                                   SIGNATURES


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

CT HOLDINGS, INC.

(REGISTRANT)

Date: November 18, 2002              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)


                                       37
<PAGE>
CERTIFICATIONS

I, Steven B. Solomon, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of CT Holdings, Inc. a
Delaware corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 18, 2002

/s/  Steven B. Solomon
---------------------------
Steven B. Solomon, Chief Executive Officer
Principal Executive Officer


                                       38
<PAGE>
I, Richard Connelly, Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of CT Holdings, Inc., a
Delaware corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 18, 2002

/s/  Richard Connelly
---------------------------
Richard Connelly, Chief Financial Officer
Principal Financial Officer


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