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, 2003

[ ]  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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-25 of the Exchange Act).   Yes  [ ]   No  [X]

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

Class                                           Outstanding at November 13, 2003

Common Stock, Par value $.01 per share                     57,970,928


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


<PAGE>
                                CT HOLDINGS, INC.
                                  FORM 10-QSB
                      QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
                                TABLE OF CONTENTS



                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

     Balance Sheets
          as of September 30, 2003 (unaudited) and December 31, 2002          3

     Unaudited Statements of Operations
          for the three and nine months ended September 30, 2003 and 2002     4

     Unaudited Statements of Cash Flows
          for the nine months ended September 30, 2003 and 2002               5

     Notes to Unaudited Interim Financial Statements                          6

Item  2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                              13

Item 3.   Controls and Procedures                                            26

PART II.  OTHER INFORMATION


Item 1.      Legal Proceedings                                               26

Item 2.      Recent Sales of Unregistered Securities                         27

Item 3.      Defaults Upon Senior Securities                                 28

Item 6.      Exhibits and Reports on Form 8-K                                28

Signatures                                                                   29


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

Item 1. Financial Statements

                                   CT HOLDINGS, INC.
                                    BALANCE SHEETS

                                                      SEPTEMBER 30,
                                                         2003          DECEMBER 31,
                                                      (unaudited)         2002
                                                     --------------  --------------
<S>                                                  <C>             <C>

                                 ASSETS
                                 ------
TOTAL ASSETS                                         $          -    $           -
                                                     =============   ==============

     LIABILITIES AND STOCKHOLDERS' DEFICIT
     -------------------------------------
CURRENT LIABILITIES
  Accounts payable and accrued expenses              $   1,283,634   $   1,344,051
  Demand note payable to Citadel                           225,000               -
  Payable to Citadel                                       350,000         150,000
  Advances and notes payable to related parties            524,796         524,796
  Notes payable to shareholders                              9,000         609,000
  Accrual for legal settlement                             202,000         785,000
                                                     --------------  --------------
 Total current liabilities                               2,594,430       3,412,847

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
  Preferred stock, $.01 par value per share;
   1,000,000 shares authorized; no shares issued
   or outstanding
  Common stock, $.01 par value per share;
   60,000,000 shares authorized;
   57,970,928 and 57,545,928 shares issued
     and outstanding                                       579,710         575,460
  Common stock pending issuance                            600,000               -
  Additional paid-in capital                            57,052,601      56,950,601
  Accumulated deficit                                  (60,826,741)    (60,938,908)
                                                     --------------  --------------
  Total stockholders' deficit                           (2,594,430)     (3,412,847)
                                                     --------------  --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT          $          -    $           -
                                                     ==============  ==============

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,
                                                 2003            2002         2003           2002
                                             ------------  -------------  ------------  --------------
<S>                                          <C>           <C>            <C>            <C>
Revenue                                      $        -    $          -   $         -     $         -

General and administrative expense                86,527        122,007       300,576         897,935
Common stock issued as compensation                   -              -              -       1,347,000
Accrual for litigation                           202,000         19,000       202,000         785,000
Reversal of litigation accrual                        -              -       (560,000)              -
Writedown in investment of affiliate                  -          30,000             -       2,233,975
Gain on settlement of liabilities with stock    (132,164)            -       (142,883)         (8,501)
Interest expense                                  32,034         20,752        88,140          94,334
Other expense                                         -              -              -          38,452
                                             ------------  -------------  ------------  --------------
Income (loss) from continuing operations        (188,397)      (191,759)      112,167      (5,388,195)
Costs incurred in connection with
  spin off of subsidiary                              -              -              -        (185,431)
Loss from discontinued operations                     -              -              -        (942,939)
                                             ------------  -------------  ------------  --------------
Net income (loss)                            $  (188,397)  $   (191,759)  $   112,167    $ (6,516,565)
                                             ============  =============  ============  ==============

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

Weighted average shares outstanding
  - basic and diluted                         57,970,928     57,545,928    57,700,507      54,246,444
                                             ============  =============  ============  ==============

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,
                                                                2003          2002
                                                            ------------  ------------
<S>                                                         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                         $   112,167   $(6,516,565)
  Less net loss from discontinued operations                         -        942,939
  Adjustments to reconcile net loss to net cash
    used in operating activities:
     Common stock issued as compensation                             -      1,347,000
     Beneficial conversion feature of convertible debt
       recognized as interest expense                                -         51,300
     Writedown of investment in affiliates                           -      2,233,975
     Accrual for litigation                                     202,000       785,000
     Reversal of accrual for litigation                        (560,000)            -
     Common stock and options issued in lieu of
        cash for services                                            -          4,148
     Gain on settlement of liability in exchange for
        shares of common stock                                 (142,883)            -
     Fair value of conversion right                                  -         29,951
  Changes in operating assets and liabilities
     Accounts payable and accrued expenses                      188,716       613,918
     Payable to Citadel                                         200,000        90,000
     Accrual for legal settlement                              (225,000)            -
                                                            ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES                          (225,000)     (418,334)

NET CASH FROM INVESTING ACTIVITIES                                   -              -

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from convertible note payable to shareholder              -        600,000
  Proceeds from advances and notes payable
    to related parties                                          225,000       526,500
  Payments on advances and notes payable
    to related parties                                               -       (533,034)
  Proceeds from sale of common stock                                 -         25,000
                                                            ------------  ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                       225,000       618,466

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

SUPPLEMENTAL CASH FLOW ITEMS
   Fair value of stock issued in settlement
     of accounts payable                                    $   106,250   $   163,125
                                                            ============  ============

   Conversion of note payable to equity                     $   600,000   $        -
                                                            ============  ============

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


                                        5
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

NOTE A - NATURE OF BUSINESS AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements reflect, in the opinion
of management, all adjustments (consisting of normal, recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows of CT Holdings. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles in the United States ("GAAP") have been condensed or
omitted pursuant to rules and regulations promulgated by the Securities and
Exchange Commission (the "Commission"). These statements should be read together
with the audited financial statements and notes thereto for the years ended
December 31, 2002 and 2001, included in CT Holdings' Form 10-KSB for the fiscal
year ended December 31, 2002 on file with the Commission. The results of
operations for the interim periods shown herein are not necessarily indicative
of the results to be expected for any future interim period or for the entire
year.

NATURE OF BUSINESS

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

At September 30, 2003 the Company held an investment in Parago Inc. ("Parago"),
however there was no carrying value recorded for the investment in Parago on the
balance sheets at September 30, 2003 and December 31, 2002. Parago was formed in
1999 as an application service provider ("ASP") and Internet based business
process outsourcer that provides an online suite of offerings designed to
increase sales, reduce costs, retain customers and increase client
profitability. These services include online promotional management, online
rebate processing, proactive email, online surveys, and customer data
warehousing, analysis and reporting. Parago's comprehensive integrated suite of
outsourced customer care solutions are marketed across multiple industry lines.

Prior to December 2001, the investment in Parago had been accounted for under
the equity method of accounting. The carrying value of the investment in Parago
was reduced to zero due to the recognition of the proportionate share of equity
in Parago's losses under the equity method of accounting. In December 2001
Parago entered into an equity financing arrangement for which the Company
declined to participate and as a result the Company's ownership percentage fell
to less than 1%. Since December 2001 the investment has been accounted for using
the cost method of accounting.

At September 30, 2003 the Company holds an investment in River Logic, Inc.
("River Logic") which also has no carrying value recorded on the balance sheets
at September 30, 2003 and December 31, 2002. In May 2000, CT Holdings acquired a
minority interest in River Logic which develops decision-support applications
for corporations across many industries. Using COR Technology, a
rapid-application development system, developers at River Logic create
applications that enable industry professionals to model complex enterprises and
explore financial relationships on a desktop computer or laptop. Embedded
analytics allow end-users to understand the financial implications of critical
business decisions easily by manipulating graphical icons that model their
enterprise. The Company accounted for its investment in River Logic using the
cost method. Due to the economic conditions affecting information technology
spending in 2002 and River Logic's results of operations in 2002 the Company
wrote down the carrying value of the investment in River Logic to zero during
the year ended December 31, 2002.

CITADEL DISTRIBUTION

On May 17, 2002 CT Holdings completed the spin-off of Citadel Security Software
Inc. ("Citadel") through the declaration of a pro rata dividend distribution to
CT Holdings shareholders (the "Distribution"). The Distribution consisted of one
(1) share of Citadel common stock for every four (4) shares of CT Holdings (the
Distribution Ratio) held by CT Holdings shareholders as of a May 6,


                                        6
<PAGE>
2002, the Record Date. Following the Distribution on May 17, 2002, Citadel
became an independent company and CT Holdings retained no ownership interest in
Citadel. The Distribution is intended to be a tax free distribution for U.S.
federal tax purposes. The results of operations and the cash flows for the
period from January 1, 2002 through May 17, 2002 of Citadel are presented as
discontinued operations.

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

LIQUIDITY

The Company received a report from our independent auditors for our year ended
December 31, 2002 containing an explanatory paragraph that describes the
uncertainty regarding our ability to continue as a going concern due to our
recurring operating losses and a significant working capital deficiency. The
Company has incurred recurring operating losses and has a significant working
capital and stockholders' deficiency at September 30, 2003 of approximately
$2,600,000. The Company had no cash balance or current assets at September 30,
2003 and current liabilities total approximately $2,600,000. Immediate funding
needs of the business are expected to be provided by financings through
short-term notes payable and additional investments from related parties
although there can be no assurance that such funds will be available. The
Company has been and continues to be dependent upon outside financing to perform
its business development activities, make investments in new technology
companies and to fund operations. However current economic conditions and
limited investment opportunities have limited the Company's ability to raise
funds. At September 30, 2003 the Company had no plans to raise capital nor had
sources of capital been identified.

During the nine months ended September 30, 2003 there were $225,000 of funds
used in operating activities to settle a litigation claim. Net cash provided
from financing activities of $225,000 came from the proceeds of a 12% demand
note receivable with Citadel. Future cash may come from the realization of the
value of the investments in Parago and River Logic however there can be no
assurance that any value will ever be realized from these investments.

The Company's strategy of continuing to support and expand its business
development activities is limited due to its current lack of access to near term
capital. The implementation of the Company's strategy will not generate positive
cash flow in the foreseeable future. Achieving positive cash flow is currently
highly dependent upon obtaining liquidity from the Company's investments in
unconsolidated affiliates. The Company has no plans at September 30, 2003 to
raise additional capital to invest in new business opportunities. The Company
estimates it will need to raise up to $2.6 million to settle liabilities after
which it may then support its incubator and business development activities.
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.

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

BASIS OF PRESENTATION

The accompanying financial statements of CT Holdings have been prepared in
accordance with accounting principles generally accepted in the United States.
Accordingly, all material intercompany transactions, if any, with its
unconsolidated affiliates have been eliminated pursuant to the applicable
accounting principles for consolidation and the equity method of accounting.


                                        7
<PAGE>
Where appropriate, prior year amounts have been reclassified to conform to the
current period presentation.

USE OF ESTIMATES

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

STOCK-BASED COMPENSATION

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

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

If the Company had recognized compensation expense, in accordance with SFAS Nos.
123 and 148, based upon the fair value at the grant date for options granted to
employees, officers and directors during the three and nine months ended
September 30, 2003 and 2002, the pro forma effect on net income or loss and net
income or loss per share would have been as follows:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED          NINE MONTHS ENDED
                                               SEPTEMBER 30,               SEPTEMBER 30,
                                            2003            2002        2003           2002
                                        ------------  ------------  ------------  ------------
<S>                                     <C>           <C>           <C>           <C>
Net income (loss) attributable
   to common stockholders
   as reported                          $  (188,397)  $  (191,759)  $   112,167  $ (6,516,565)

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

Deduct: Stock-based employee
   compensation expense
   determined under fair value
   based method                                   -             -             -       (50,000)
                                        ------------  ------------  ------------  ------------
Pro forma net income (loss)             $  (188,397)  $  (191,759)  $   112,167  $ (6,566,565)
                                        ============  ============  ============  ============

Net earnings (loss) per common share - basic and diluted
   As reported
    Continuing operations               $     (0.00)  $     (0.00)  $      0.00  $      (0.10)
    Discontinued operations                       -             -             -         (0.02)
                                        ------------  ------------  ------------  ------------
                                        $     (0.00)  $     (0.00)  $      0.00  $      (0.12)
                                        ============  ============  ============  ============
   Pro forma
    Continuing operations               $     (0.00)  $     (0.00)  $      0.00  $      (0.10)
    Discontinued operations                       -             -             -         (0.02)
                                        ------------  ------------  ------------  ------------
                                        $     (0.00)  $     (0.00)  $      0.00  $      (0.12)
                                        ============  ============  ============  ============
</TABLE>


                                        8
<PAGE>
NET INCOME (LOSS) PER COMMON SHARE

Basic earnings per share is computed by dividing the net income by the weighted
average number of shares common stock outstanding during the period. Total
weighted average stock options outstanding of 3,955,850 and warrants outstanding
of 2,351,601 for the three and nine month periods ended September 30, 2003 have
been excluded from the computation of diluted earnings per share because the
exercise price of the options and warrants exceeds the market price of the
underlying shares. Therefore basic and diluted earnings per shares are the same.

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 and warrants. Total
weighted average stock options and warrants outstanding of 3,960,850 and
2,351,601, respectively, have been excluded from the computation of diluted loss
per share for the three months ended September 30, 2002, as the effect would be
anti-dilutive. Total weighted average stock options and warrants outstanding of
6,976,381 and 2,351,601, respectively, have been excluded from the computation
of diluted loss per share for the nine months ended September 30, 2002, as the
effect would be anti-dilutive.

NOTE  B  -  DISCONTINUED OPERATIONS

On May 17, 2002 CT Holdings completed the spin-off of Citadel through the
declaration of a pro rata dividend distribution to CT Holdings shareholders
Citadel. The unaudited results of operations for Citadel for the period from
January 1, 2002 through May 17, 2002 are presented as discontinued operations
and are as follows:

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

Costs of revenue
    Shipping, supplies and other                           3,045
    Software amortization                                 17,511
                                                 ----------------
    Total costs of revenue                                20,556

Operating expenses
    Selling, general and administrative expense          949,541
    Product development expense                           83,303
    Depreciation expense                                  20,058
                                                 ----------------
    Total operating expenses                           1,052,902
                                                 ----------------
    Operating loss                                      (942,939)
Provision for income taxes                                     -
                                                 ----------------
Net loss                                         $      (942,939)
                                                 ================
</TABLE>

NOTE  C  -  ADVANCES AND NOTES TO RELATED PARTIES

At September 30, 2003 and December 31, 2002 the Company held a $250,000, 8% note
payable to a former director that was due April 30, 2002, and is currently in
default and bearing interest at 18% per annum. Accrued interest payable of
$80,863 related to this note is included in accounts payable and accrued
expenses at September 30, 2003.

At December 31, 2001, the Company had a liability of approximately $290,000 for
cash advances received from its CEO. During the nine months ended September 30,
2002 the Company received cash advances of $267,500 from its CEO to fund
operations and repaid approximately $327,500 of those and prior advances to its
CEO. In May 2002 all outstanding advances owed the Company's CEO of $225,796


                                        9
<PAGE>
were converted into a 5% note payable due July 1, 2002. At September 30, 2003
and December 31, 2002 this note payable was in default and bearing interest at
18% per annum. Accrued interest payable of $53,981 related to this note is
included in accounts payable and accrued expenses at September 30, 2003.

During the nine months ended September 30, 2002 an entity related to an employee
of the Company advanced $199,000 to the Company and the Company repaid $150,000
of the advances with the remaining $49,000 converted into an 8% note payable due
June 30, 2002. At September 30, 2003 and December 31, 2002 the Company was in
default on this note and is accruing interest at 18% per annum. Accrued interest
payable of $12,415 related to this note is included in accounts payable and
accrued expenses at September 30, 2003.


NOTE D - NOTES PAYABLE TO SHAREHOLDERS

During the nine months ended September 30, 2002 a shareholder advanced the
Company $600,000 and the Company entered into a $600,000 non-interest bearing
convertible note payable due April 1, 2003. The note payable was convertible, at
the option of the shareholder, into a maximum of 2,700,000 shares of CT Holdings
common stock and 675,000 shares of Citadel common stock at a below market
conversion price. Interest expense of $51,300 representing the beneficial
conversion feature was recorded with an offset to paid-in-capital during the
nine months ended September 30, 2002. During the nine months ended September 30,
2003 the shareholder exercised the conversion feature of the note and because
the issuance of all 2,700,000 shares would cause the number of shares
outstanding to exceed the number of authorized shares of 60,000,000, the
shareholder waived his right to receive these shares until such time as the
shares become authorized. As a result of this obligation to issue these shares
the Company recorded this conversion as a separate item in stockholders'
deficit, in the accompanying balance sheet, labeled common shares pending
issuance.

During the nine months ended September 30, 2002 the Company received advances of
$20,000 from a shareholder which were later converted into an 8% note payable
due September 30, 2002. At September 30, 2003 and December 31, 2002, a principal
balance of $9,000 remains outstanding, was in default and continues to bear
interest at 8% per annum. Accrued interest payable of $2,355 related to this
note is included in accounts payable and accrued expenses at September 30, 2003.

NOTE E - RELATED PARTY TRANSACTIONS

Pursuant to the terms of the transition services agreement with Citadel,
effective January 2002 the Company 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. At September 30, 2003 the Company has an outstanding balance of
$350,000 payable to Citadel for $330,000 of these services plus other expenses
of $20,000.

In April 2003 the Company settled a lawsuit for $225,000 payable in cash.
Citadel loaned the Company $225,000 which is represented by a demand note
payable bearing interest at 12% per year.  Accrued interest payable of $13,907
related to this note is included in accounts payable and accrued expenses at
September 30, 2003.

NOTE F - COMMITMENTS AND CONTINGENCIES

In October 2001, Roan-Meyers Associates (formerly Janssen Meyers Associates
L.P.) filed suit in the Supreme Court of the State of New York, County of New
York against CT Holdings, Inc. to enforce a settlement term sheet arising out of
a prior lawsuit alleging breach of a Placement Agency Agreement. This case is
styled Roan Meyers Associates v. CT Holdings, Inc. In August 1998,
Janssen-Meyers Associates L.P. ("JMA") filed a lawsuit against CT Holdings
arising out of an alleged 1995 contract with CT Holdings' 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 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. CT Holdings 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. CT Holdings removed the case to federal court


                                       10
<PAGE>
in the Southern District of New York. Following mediation in July 2000, CT
Holdings and JMA entered into a settlement term sheet to attempt to resolve the
disputes between it and JMA, pursuant to which CT Holdings and JMA agreed in
principle to settle the lawsuit for an aggregate of $3 million, in a combination
of $1.5 million in cash and 300,000 shares of common stock with a guaranteed
value of $5 per share as of January, April and October 2001 (with respect to
100,000 of the shares for each period). The settlement was subject to execution
of definitive settlement documents and approval of the boards of directors of
the companies. CT Holdings and JMA were unable to negotiate the final definitive
settlement agreement and, as a result, the matter was 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 CT Holdings filed a 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 settlement term sheet. The case was filed in Supreme Court of New
York, that state's trial court, in a case styled Roan Meyers v. CT Holdings. CT
Holdings intends to vigorously defend against this lawsuit and has filed a
counterclaim to, among other things, recover excess amounts charged by JMA in
connection with related bridge loans. Trial has not been set on this matter. At
a status conference held November 10, 2003 the plaintiff was given a 30 day
extension to file the note of issue, which is due December 5, 2003. The court
also ordered CT Holdings to produce additional discovery materials. The Company
anticipates that the plaintiff will receive a trial date for sometime in early
2004. The Company cannot reasonably estimate the ultimate liability, if any, and
therefore no liability has been recorded in association with this lawsuit. Given
these events, including the dismissal of the 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
$1,912,500 nonrecurring charge that the Company had previously recorded related
to the settlement of the lawsuit.

In June 2000, CT Holdings was served with a lawsuit filed in the 157th State
District Court in Houston, Texas by Michael and Patricia Ferguson for breach of
contract, breach of fiduciary duty, tortious interference, violation of the
Texas Deceptive Trade Practices Act and negligence. The case was styled Michael
and Patricia Ferguson v. CT Holdings, Inc. Specifically, the 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. In July,
2002, the plaintiffs were awarded damages of $575,510, pre-judgment interest of
$86,748, attorneys' fees of $103,818, post-judgment interest at  10% per year,
and costs at which time the Company recorded a liability of $785,000. CT
Holdings appealed the judgment in a case styled CT Holdings Inc. v. Michael and
Patricia Ferguson in the Fourteenth Court of Appeals in Houston, Texas. In
January 2003, the plaintiffs filed a motion to have the District Court appoint a
receiver to sell assets to satisfy the judgment. In April 2003 the parties
settled the lawsuit for $225,000 payable in cash, all of which was advanced from
Citadel to the Company and is represented by a demand note payable bearing
interest at 12% per year. Accordingly, the Company recognized a reversal of the
accrued litigation liability of $560,000 in the Statements of Operations during
the quarter ended June 30, 2003.

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 $101,048. 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 abated the lawsuit
pending arbitration. The arbitration was held in 2002, and in January 2003, the
arbitrator entered a judgment of $71,655 against CT Holdings in favor of Tech
Data, together with pre-judgment interest at the applicable rate under Florida
law for the period from January 2, 2000 to January 10, 2003, attorneys' fees of
$3,500, and interest on these amounts in the amount of 10% per year from
February 10, 2003 until the amounts are paid. In March 2003, Tech Data filed a
motion to revive the abated lawsuit for purposes of entering the arbitration
award as a judgment in the case and judgment was entered.  Tech Data has filed a
motion to appoint a receiver for the Company that is set for November 21, 2003.
As part of the Distribution, Citadel assumed responsibility for this lawsuit;


                                       11
<PAGE>
and has recorded a liability of approximately $101,000, although there can be no
assurance that CT Holdings will be released from the lawsuit.

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

In August 2002, PriceWaterhouseCoopers, LLP ("PWC") filed a lawsuit against CT
Holdings seeking payment of $131,816 for services performed pursuant to a
contract with CT Holdings related to the JMA lawsuit described above. The court
ordered that mediation be held by July 2003.  The case is styled
PriceWaterhouseCoopers, LLP v. CT Holdings, and was filed in the 192nd District
Court, Dallas County, Texas.  In July 2003, PWC obtained a summary judgment
against the Company for damages of $131,816 plus pre-judgment interest of
$57,615, post-judgment interest at 10% and attorneys' fees in the amount of
$8,605.  During the three months ended September 30, 2003 the Company recorded
an accrual for legal settlement of $202,000 in association with this judgment.

In April 2003, Harte Hanks, Inc. filed a lawsuit styled "Harte Hanks, Inc. v. CT
Holdings Inc. dba Citadel Computer" seeking payment of $12,513 for services
performed. In July 2003, the plaintiffs filed a motion for receivership held on
alternatively to compel discovery in the lawsuit. At a hearing on the matter
held September 5, 2003 in the County Court of Law No. 3 of Dallas County, Texas,
the court ordered the Company to provide additional discovery by October 20,
2003, which the Company failed to produce. As part of the Distribution, Citadel
assumed responsibility for this liability, and has recorded a liability of
approximately $12,500. CT Holdings believes that Citadel will ultimately settle
this liability, although there can be no assurance that CT Holdings will be
released from the lawsuit.

In June 2003, a vendor asserted claims against Citadel for liabilities properly
due from CT Holdings. The lawsuit against Citadel was set aside however, the
Company anticipates that a lawsuit may be filed against CT Holdings related to
liabilities for services provided to CT Holdings by the vendor during the nine
months ended September 30, 2002. The Company had a liability of approximately
$50,000 recorded at December 31, 2002 and at September 30, 2003 for the services
performed by the vendor and will vigorously defend the claims.

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.

NOTE G - 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.

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. As of September
30, 2002 a gain of approximately $9,000 on the extinguishment of approximately
$163,000 of these liabilities was recorded in 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.


                                       12
<PAGE>
During the nine months ended September 30, 2003 the Company completed
negotiations to settle approximately $249,000 of liabilities that had been
outstanding prior to the Distribution by issuing 425,000 shares of CT Holdings
common stock along with 106,250 pro rata dividend shares of Citadel common stock
that had been reserved for issuance at the Distribution Date.  The difference
between the fair value of the shares and the recorded liabilities of
approximately $143,000 was recognized as a gain in the statement of operations
during the nine months ended September 30, 2003.  At September 30, 2003 there
remains approximately $448,000 of operating liabilities under negotiation for
settlement with shares of the Company's common stock including all dividends and
distributions. Approximately 625,000 shares of common stock, are reserved for
issuance upon final settlement of these liabilities (See additional discussion
in Note H). 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.

NOTE H - SUBSEQUENT EVENT

In October 2003, the Company agreed to settle approximately $416,000 of
operating liabilities outstanding prior to the Distribution by issuing 575,000
shares of CT Holdings common stock along with 143,750 pro rata dividend shares
of Citadel common stock that had been reserved for issuance at the Distribution
Date.  The Company continues to reserve 50,000 shares of common stock and 12,500
pro rata dividend shares of Citadel to settle the remaining liabilities of
approximately $32,000 that have been under negotiation since May 1, 2002.


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 other things, those risk factors set forth in this
section and elsewhere in this report. We identify forward-looking statements by
words such as may, 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.


                                       13
<PAGE>
                                  GENERAL RISKS

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

We received a report from our independent auditors for our year ended December
31, 2002 containing an explanatory paragraph that describes the uncertainty
regarding our ability to continue as a going concern due to our recurring
operating losses and a significant working capital deficiency. Historically, we
have incurred recurring operating losses and have a significant stockholders'
deficit at September 30, 2003 of approximately $2,600,000. We had no cash
balance or current assets at September 30, 2003 and current liabilities total
approximately $2,600,000. We have no access to capital at September 30, 2003 and
we have no plans to raise capital nor have we identified sources of capital. In
the past our funding needs of the business have been provided by financings
through short-term notes payable and additional investments from related
parties, including our Chief Executive Officer, however there can be no
assurance that such funds will be available from these related parties. The
Company has been and continues to be dependent upon outside financing to perform
its business development activities, make investments in new technology
companies and to fund operations.

Our plans to continue to support and expand our business development activities
are limited due to a lack of identification of near term capital. As a result,
it is unlikely that the implementation of the Company's business strategy will
generate positive cash flow in the foreseeable future. Achieving positive cash
flow is currently highly dependent upon obtaining liquidity from our investments
in unconsolidated affiliates. We have no plans at September 30, 2003 to raise
additional capital to invest in new business opportunities. To do so we estimate
that we will need to raise up to $2.6 million to settle liabilities after which
we may then support our incubator and business development activities.
Historically, we have obtained short-term 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 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 and we believe that our investments in Parago and
River Logic have been successful. Parago has recently attained profitability. As
is expected in early stage companies, River Logic has not been profitable and
has had to scale back operations. Historically both companies have experienced
cash flow deficiencies. The current private equity and venture capital market
conditions have limited the availability of investment capital for investment in
early stage private companies. In addition we did not participate in the
additional capital infusions made in 2001 and 2002 and as a result, our
ownership percentage in both investee companies has been diluted. Our ownership
percentage in Parago is less than 1% and approximately 8% in River Logic and the
carrying values of both investments have been written down to zero.

While the performance of the investee companies to date has been as expected,
there can be no assurance that we will ever achieve liquidity 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. Such actions could have a material adverse effect
on our business and operations and result in charges that could be material to
the Company's business and results of operations.  At September 30, 2003 we have
not identified sources of capital nor have plans to raise capital to settle
liabilities or to fund business development activities.

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

Our business model is designed to enable the companies in whom we invest or
acquire to become market leaders in their industries. Our strategy over the
years has led to the development, acquisition and operation of technology based
businesses with strong business models and compelling valuations. We believe
that the anticipated growth in technology creates strong opportunities for us to
increase shareholder value by investing in early stage ventures well positioned
for growth in their respective marketplace. We will attempt to increase the
value of each investee by providing


                                       14
<PAGE>
management, marketing and financial expertise along with financial capital and
then realize this new value through a subsequent liquidity event such as a sale,
merger or initial public offering of the investee companies.

In May 2002, we were successful in spinning off Citadel into a standalone
company through the pro-rata dividend distribution of Citadel common stock to
shareholders of CT Holdings. At September 30, 2003 we held investments in two
companies, Parago and River Logic. However the investments have no carrying
value on the balance sheet of the Company at September 30, 2003 and December 31,
2002 due to general economic and information technology market conditions, as
well as historical performance of the investee companies. During 2002 and 2003
we looked for businesses and technologies in which to invest but economic and
stock market conditions along with a general decline in the availability of
private and public capital prevented us from making any additional investments
and there can be no assurance that these factors will improve so that the
Company can continue to execute its business plan.

Other than our formation and development of Citadel, Parago and River Logic, we
have a brief history in executing our business strategy. As a consequence, our
prior operating history may not provide a meaningful guide to our prospects in
emerging markets. Moreover, our business model and prospects must be considered
in light of the risk, expense and difficulties frequently encountered by
companies in early stages of development, particularly companies in new and
rapidly evolving markets. We may be unable to execute our strategy of developing
our business due to numerous risks, including the following:

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

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

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

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

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

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

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

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

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

Historically, since prior to the Distribution the businesses that comprise each
of Citadel and CT Holdings have been under one ultimate parent, they were able
to rely, to some degree, on the earnings, assets and cash flow of each other for
capital requirements. After the Distribution, CT Holdings has not been able to
rely on the security software business for such requirements. Following the
Distribution, CT Holdings continues to maintain its own credit and banking


                                       15
<PAGE>
relationships and perform its own financial and investor relations functions.
Because a significant number of key employees of CT Holdings have been employed
by Citadel following the Distribution, there can be no assurance that CT
Holdings will be able to successfully put in place the financial, administrative
and managerial structure necessary to continue to operate as an independent
public company, or that the development of such structure will not require a
significant amount of management's time and other resources.

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

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

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

OUR STOCK IS TRADED IN THE OVER THE COUNTER MARKET.

Our common stock was de-listed from the NASDAQ SmallCap Market on May 17, 2001,
because we did not meet the NASDAQ's requirements for continued listing. Our
common stock now trades on the OTC Bulletin Board 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 PART II Item 1. Legal
Proceedings and from time to time, we may be subject to other legal proceedings,
including but not limited to claims that we have infringed the intellectual
property rights of others, product liability claims, or other claims incidental
to our business. While we intend to defend such lawsuits, adverse decisions or
settlements, and the costs of defending such suits, could have a material
adverse effect on our business.

OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.

Due to the factors noted in this Report, our earnings and stock price have been
and may continue to be subject to significant volatility, particularly on a
quarterly basis. We have experienced no revenue or earnings which have had an
immediate and significant adverse effect on the trading price of our common
stock. This may occur again in the future.


                                       16
<PAGE>
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, merger, sale or other liquidity event. The failure to complete
an offering or other liquidity event such as an acquisition by a third party
could have a material adverse effect on our stock price. You cannot be assured
that an initial public offering or other liquidity event will occur in the near
future or ever at all. In addition, we have agreed to convert the shares of
Parago common stock issued in connection with the acquisition of 2-Lane Media by
Parago into up to 500,000 of our shares at the option of the 2-Lane Media
shareholders, and in May 2002 we exchanged 1,200 Parago shares held by some of
the 2-Lane Media shareholders into 139,806 shares of our common stock. Pursuant
to the terms of the subscription agreements between Parago and some of its
stockholders, we may be required to issue up to 414,000 shares of our common
stock based on a conversion price of $3.75 per share (above the fair market
value on the dates of issuance) at the option of such stockholders. In May 2002,
the Company exchanged 16,000 shares of the Company's common stock for 40 shares
of Parago common stock with one of these shareholders. These provisions could
have the effect of diluting our stockholders if the market price for our stock
is above that price at the time of conversion.

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

We previously announced that we intend to distribute shares of Parago common
stock to our shareholders upon compliance with the Securities and Exchange
Commission (SEC) requirements


                                       17
<PAGE>
applicable in connection with the proposed distribution and upon the expiration
of a 180 day lockup agreement between the underwriters of Parago's previously
proposed initial public offering and us. If there are problems associated with
compliance with SEC requirements or state law, then the distribution of Parago
shares may be delayed or may not occur. There can be no assurance that we will
complete the distribution on the proposed terms or at all.

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

Our investees are early stage companies, and therefore each investee has only a
limited operating history on which one can base an investment decision. You
should consider their prospects in light of the uncertainties and difficulties
frequently encountered by companies in their early stages of development.

In addition, each investee's business model is new, unproven and evolving. We
cannot assure that our investees' business models will be commercially
successful, or that their solutions will be accepted by businesses or consumers.
If our investees are unable to establish pricing and service models acceptable
to manufacturers, retailers and service providers and attractive to their
customers, their solutions may not be commercially successful.

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

Each investee had unaudited net losses for the year ended December 31, 2002, 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
investees' common stock is likely to be highly volatile and could be subject to
wide fluctuations in response to factors that are beyond its control. A decline
in their stock price will adversely affect our stock price.

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


                                       18
<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 years ended December 31, 2002 and the related notes
in the Company's Form 10-KSB. Our year ends on December 31, and each of our
quarters end on the final day of a calendar quarter (each March 31, June 30 and
September 30). The following discussion contains forward-looking statements.
Please see Forward-Looking Statements for a discussion of uncertainties, risks
and assumptions associated with these statements.

OVERVIEW

CT Holdings, Inc. provides management expertise and capital to early stage
companies. At September 30, 2003 and December 31, 2002 we held investments in
Parago and River Logic. We were 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 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.

Recent geopolitical, economic and stock market conditions along with lack of
available capital have limited our ability to invest in additional companies and
technologies that could offer us and our shareholders a reasonable rate of
return on their investment in the foreseeable future. These factors have also
affected the businesses of our investee companies and as a result, the carrying
values of our investments in Parago and River Logic have been written down to
zero. We expect that if and when economic conditions improve that capital may be
available to support additional investments in companies that fit into our
strategy. Until such time the Company's business activities will be limited to
reviewing investment opportunities, filing of compliance documents and defending
the lawsuits disclosed in Part II, Item 1 - Legal Proceedings.

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 consisted of one (1) share of Citadel common
stock for every four (4) shares of CT Holdings (the Distribution Ratio) held by
CT Holdings shareholders as of May 6, 2002 (the "Record Date). Following the
Distribution on May 17, 2002 (the "Distribution Date"), Citadel became an
independent company and CT Holdings has no continuing ownership interest in
Citadel. The Distribution is intended to be a tax free distribution for U.S.
federal tax purposes although neither we nor Citadel have requested or obtained
any opinions as to the tax treatment of the Distribution. On the Distribution
Date, CT Holdings and Citadel entered into a series of agreements including a
distribution agreement, a transition services agreement 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 up to 33% of
the officers' time could be spent on work related to CT Holdings. All employees
of CT Holdings became employees of Citadel following the Distribution. Under the
transition services agreement Citadel will provide accounting, 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 for the period from January 1, 2002 through the
Distribution Date of May 17, 2002. Summary financial information with respect to
Citadel is provided below:


                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                        Period
                                                    January 1, 2002
                                                        through
                                                     May 17, 2002
                                                    ---------------
<S>                                                 <C>
            Results of operations:
               Revenue                               $     130,519
               Net Loss                                   (942,939)
</TABLE>

OVERVIEW OF PARAGO

In January 1999 we formed Parago, an application service provider and Internet
based business process outsourcer that provides a suite of technology offerings
(including PromoCenter, ClickChoice and KnowledgeCenter) designed to increase
sales, reduce costs, and retain customers for retailers, manufacturers and
service organizations. Parago's continuous customer interaction services include
online promotional management (including online rebate processing), proactive
email, online surveys, and customer data analysis and reporting.

In connection with an acquisition by Parago in March 1999, we agreed to convert
the Parago shares of common stock issued in connection with the merger into a
maximum of 500,000 of our shares at the option of the shareholders of the
Company acquired by Parago. In May 2002 the Company exchanged 139,806 shares of
the Company's common stock for 1,200 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 December 31,
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 less than 1%. Our
investment in Parago for the period from January 1, 2001 through December 12,
2001 was accounted for under the equity method of accounting for investments and
accordingly as a result of our ownership falling below 20%, has been accounted
for using the cost method of accounting since December 13, 2001. Under the cost
method of accounting, the Company's share of the income or loss from Parago is
not included in operations. Under the equity method of accounting, the Company's
share of the investee's income or losses is included in the statements of
operations. If the carrying value of the Company's net investment falls below
zero, the Company discontinues applying the equity method until the carrying
value of the net investment rises above zero. In addition, in the event the
Company's ownership percentage exceeds 20% and the value of the Company's equity
investment rises above zero, the Company will resume applying the equity method
and will recognize an investment in Parago after the Company's share of net
losses not recognized is recovered through our proportionate share of net income
if Parago turns profitable. We believe that our $50,000 investment in Parago
represented by 20,000 shares of Parago's common stock (plus 1,240 shares to be
received from the exchanges in May 2002) 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, 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


                                       20
<PAGE>
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).

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 year ended December 31, 2002 general economic conditions
worsened, stock market valuations declined from the values at December 31, 2001
and raising capital at previous historical valuations became difficult. We
considered all the facts and circumstances of River Logic's business,
marketplace and cost of new capital and based on these considerations we
determined that the fair market value of the Company's investment in River Logic
had been impaired and that our investment in River Logic may never be realized.
Accordingly we wrote down the carrying value of our investment in River Logic by
$2,203,975 during the three months ended September 30, 2002 to its net
realizable value at September 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
ongoing basis, we evaluate our estimates, including those related to our
investments in our investee companies and commitments and contingencies. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different assumptions or
conditions.

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

IMPAIRMENT CHARGES

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

COMMITMENTS AND CONTINGENCIES

From time to time, we are a defendant or plaintiff in various legal actions,
which arise in the normal course of business. We are also a guarantor of various
third-party obligations and commitments. We are required to assess the
likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of reserves
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.


                                       21
<PAGE>
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 September 30,
2003 and December 31, 2002, we had no investee company qualified for this
accounting method.

EQUITY METHOD: Investee companies whose results we do not consolidate, but over
whom we exercise significant influence, are generally accounted for under the
equity method of accounting. Whether or not we exercise significant influence
with respect to an investee company depends on an evaluation of several factors
including, among others, representation on the investee company's board of
directors and percentage ownership level, which is generally a 20% to 50%
interest in the securities of the investee company, including our holdings in
common, preferred and other convertible instruments in the investee company
where we may have voting rights. Under the equity method of accounting, an
investee company's accounts are not reflected within our financial statements;
however, our share of the earnings or losses of the investee company is
reflected in our statements of operations. At September 30, 2003 and December
31, 2002, we had no investee company qualified for this accounting method.

COST METHOD: Investee companies not accounted for under either the consolidation
or the equity method of accounting are accounted for under the cost method of
accounting. Under this method, our share of the earnings or losses of these
companies is not included in our statements of operations. Our investments in
Parago and River Logic were accounted for using this method of accounting at
September 30, 2003 and December 31, 2002.

RESULTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2002

Our continuing operations consist of costs and expenses for providing services
to our investee companies and the activities to identify additional technologies
and companies in which we might invest. We do not generate any direct revenue
and because our investee companies are not consolidated, we do not report
revenue from investee businesses. Due to the spin-off of Citadel on May 17, 2002
the results of operations of Citadel are presented as discontinued operations in
all periods presented prior to the distribution date. Citadel's loss from
operations from January 1, 2002 through May 17, 2002 is presented as loss from
discontinued operations in the statements of operations. For the periods prior
to the distribution date, costs and expenses related to the Citadel business
have been allocated to Citadel based on an estimate of the proportion of amounts
allocable to Citadel utilizing such factors as revenues, number of employees,
and other relevant factors.

GENERAL AND ADMINISTRATIVE EXPENSES

We had general and administrative expenses for the three months ended September
30, 2003 and 2002 of $86,527 and $122,007, respectively, a decrease of $35,480
or 29%. The decrease in general and administrative expense is primarily a result
of the decrease in consulting fees, legal expenses, accounting fees and other
professional fees due to the decrease in business development activities in the
third quarter of 2003 versus the third quarter of 2002.


                                       22
<PAGE>
During the nine months ended September 30, 2003 general and administrative
expenses were $300,576 representing a decrease of $597,359 or 67% from the
$897,935 of general and administrative expenses recorded for the nine months
ended September 30, 2002. The decrease is primarily due to lower legal,
accounting, consulting and other professional fees and expenses resulting from
the lower business development activities during the nine months ended September
30, 2003 versus the similar period of 2002.

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.

LITIGATION ACCRUAL AND REVERSAL

In June 2000, CT Holdings was served with a lawsuit filed in state court in
Houston, Texas by Michael and Patricia Ferguson for breach of contract, 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. The trial in this case was
held from April 22, 2002 until May 1, 2002, and the Company received the
judgment from the trial court in July 2002. The trial court awarded the
Fergusons approximately $766,000 in damages, interest and legal fees. As a
result of the judgment, the Company recorded approximately $766,000 as a
nonrecurring charge related to the litigation. An additional accrual for
interest expense of $19,000 was recorded at December 31, 2002 increasing the
accrued liability to $785,000 at December 31, 2002.

In April 2003 the Company settled the lawsuit for $225,000 payable in cash and
accordingly reversed $560,000 of the accrued liability. Citadel loaned the
Company $225,000 which is represented by a demand note payable bearing interest
at 12% per year.

In August 2002, PriceWaterhouseCoopers, LLP ("PWC") filed a lawsuit against CT
Holdings seeking payment of $131,816 for services performed pursuant to a
contract with CT Holdings related to the JMA lawsuit described above. The court
ordered that mediation be held by July 2003. The case is styled
PriceWaterhouseCoopers, LLP v. CT Holdings, and was filed in the 192nd District
Court, Dallas County, Texas. In July 2003, PWC obtained a summary judgment
against the Company for damages of $131,816 plus pre-judgment interest of
$57,615, post-judgment interest at 10% and attorneys' fees in the amount of
$8,605. During the three months ended September 30, 2003 the Company recorded an
accrual for legal settlement of $202,000 in association with this judgment.

WRITEDOWN OF INVESTMENT IN AFFILIATES

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 these and other facts and circumstances of River Logic's business,
marketplace and cost of new capital and based on an this consideration at June
30, 2002 we determined that the fair market value of the Company's investment in
River Logic had declined to approximately $500,000 and accordingly wrote down
the investment by $2,203,975. At December 31, 2002 we determined that the fair
value of our investment in River Logic had declined to zero and accordingly
wrote down the remaining carrying value to zero at December 31, 2002.

INTEREST EXPENSE

Interest expense for the three months ended September 30, 2003 was $32,034
representing interest expense on advances and notes payable to related parties,
notes payable to shareholders and the demand note payable to Citadel. Interest
expense for the three months ended September 30, 2002 was $20,752 related to
advances and notes payable to related parties and notes payable to shareholders.
The increase in interest expense is due to higher average balances of interest
bearing debt outstanding during the three months ended September 30, 2003 versus
the three month period ended September 30, 2002.


                                       23
<PAGE>
Interest expense for the nine months ended September 30, 2003 was $88,140
representing interest expense on advances and notes payable to related parties,
notes payable to shareholders and the demand note payable to Citadel. Interest
expense for the nine months ended September 30, 2002 was $94,334 and includes a
charge of $51,300 related to the beneficial conversion feature of $600,000 of
convertible debt issued in the first nine months of 2002 and $43,034 of interest
expense on advances and notes payable to related parties and notes payable to
shareholders. The increase in interest expense, excluding the charge for the
beneficial conversion feature, is due to higher average balances of interest
bearing debt outstanding during the nine months ended September 30, 2003 versus
the nine month period ended September 30, 2002.

GAIN ON SETTLEMENT OF LIABILITIES WITH STOCK

During the nine months ended September 30, 2003 we completed negotiations to
settle approximately $249,000 of liabilities that had been outstanding prior to
the Citadel Distribution by issuing 425,000 shares of CT Holdings common stock
along with 106,250 pro rata dividend shares of Citadel common stock that had
been reserved for issuance at the Distribution Date.  The difference between the
fair value of the shares and the recorded liabilities of approximately $143,000
was recognized as a gain in the statement of operations.  At September 30, 2003
there remained approximately $448,000 of operating liabilities under negotiation
for settlement with shares of the Company's common stock including all dividends
and distributions.  A gain on the settlement of a liability with stock of $8,501
was recognized in the nine months ended September 30, 2002.

In October 2003, we agreed to settle approximately $416,000 of the remaining
$448,000 of operating liabilities outstanding prior to the Citadel Distribution
by issuing 575,000 shares of CT Holdings common stock along with 143,750 pro
rata dividend shares of Citadel common stock that had been reserved for issuance
at the Distribution Date.  An additional gain of approximately $272,000 is
expected to be recognized in the results of operations for the quarter ending
December 31, 2003.

OTHER (INCOME) EXPENSE

Other expense for the nine months ended September 30, 2002 was $38,452
representing the fair market value of common stock issued for the exercise of
exchange rights granted by the Company.

NET INCOME (LOSS)

For the three months ended September 30, 2003 we reported a net loss from
continuing operations of $188,397 versus a loss from continuing operations of
$191,759 for the three months ended September 30, 2002.

For the nine months ended September 30, 2003 we reported a net income from
continuing operations of $112,167 versus a loss from continuing operations of
$5,388,195 for the nine months ended September 30, 2002. As a result of the
Distribution, the results of operations of Citadel for the nine months ended
September 30, 2002 are presented as discontinued operations. The loss from
discontinued operations related to Citadel for the nine months ended September
30, 2002 was $942,939. 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 and nine
months ended September 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

We received a report from our independent auditors for our year ended December
31, 2002 containing an explanatory paragraph that describes the uncertainty
regarding our ability to continue as a going concern due to our recurring
operating losses and a significant working capital deficiency. Historically, we
have incurred recurring operating losses and have a significant stockholders'
deficit at September 30, 2003 of approximately $2,600,000. We had no cash
balance or current assets at September 30, 2003 and current liabilities total
approximately $2,600,000. We have no access to capital at September 30, 2003 and
we have no plans to raise capital nor have we identified sources of capital. In
the past our funding needs of the business have been provided by financings
through short-term notes payable and additional investments from related
parties, including our Chief Executive Officer, however there can be no
assurance that such funds will be available from these related parties. The
Company has been and continues to be dependent upon outside financing to


                                       24
<PAGE>
perform its business development activities, make investments in new technology
companies and to fund operations.

Our plans to continue to support and expand our business development activities
are limited due to a lack of identification and availability of near term
capital. As a result, it is unlikely that the implementation of the Company's
business strategy will generate positive cash flow in the foreseeable future.
Achieving positive cash flow is currently highly dependent upon obtaining
liquidity from our investments in unconsolidated affiliates. We have no plans at
September 30, 2003 to raise additional capital to invest in new business
opportunities. To do so we estimate that we will need to raise up to $2.6
million to settle liabilities after which we may then support our incubator and
business development activities. Historically, we have obtained short-term
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 with terms that we would be willing to accept.

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

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

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
approximately $6,517,000 offset by a net loss from discontinued operations of
approximately $943,000, stock compensation expense of $1,347,000, a writedown of
our investment in affiliates of approximately $2,234,000, a legal settlement
accrual of $785,000 and the changes in operating assets and liabilities of
approximately $704,000.

There was no cash from investing activities for the nine months ended September
30, 2003 or 2002. Cash flows provided from financing activities for the nine
months ended September 30, 2003 includes $225,000 of proceeds from a note
payable to Citadel.  In April 2003 we settled a lawsuit for $225,000 payable in
cash.  Citadel loaned the Company $225,000 which is represented by a demand note
payable bearing interest at 12% per year. Cash flows provided by financing
activities was approximately $618,000 for the 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 approximately $526,000 offset by payments on notes payable to related
parties of approximately $533,000 and $25,000 in proceeds from the sale of
common stock.

As a result of the aforementioned factors, there were no net cash flows from
continuing operations in the nine months ended September 30, 2003. During the
nine months ended September 30, 2002 there were approximately $200,000 of net
cash flows provided by continuing operations and the net contribution by CT
Holdings to Citadel was approximately $200,000 for the same period. The net
result in both periods was no cash balance to the Company.


                                       25
<PAGE>
ITEM 3. CONTROLS AND PROCEDURES

The Company's management, including the Company's principal executive officer
and principal financial officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this Quarterly Report on Form 10-QSB. Based upon that evaluation, the
Company's principal executive officer and principal financial officer have
concluded that the disclosure controls and procedures were effective as of the
end of the period covered by this Quarterly Report on Form 10-QSB.

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In October 2001, Roan-Meyers Associates (formerly Janssen Meyers Associates
L.P.) filed suit in the Supreme Court of the State of New York, County of New
York against CT Holdings, Inc. to enforce a settlement term sheet arising out of
a prior lawsuit alleging breach of a Placement Agency Agreement. This case is
styled Roan Meyers Associates v. CT Holdings, Inc. In August 1998,
Janssen-Meyers Associates L.P. ("JMA") filed a lawsuit against CT Holdings
arising out of an alleged 1995 contract with CT Holdings' 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 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. CT Holdings 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. CT Holdings removed the case to federal court in the
Southern District of New York. Following mediation in July 2000, CT Holdings and
JMA entered into a settlement term sheet to attempt to resolve the disputes
between it and JMA, pursuant to which CT Holdings and JMA agreed in principle to
settle the lawsuit for an aggregate of $3 million, in a combination of $1.5
million in cash and 300,000 shares of common stock with a guaranteed value of $5
per share as of January, April and October 2001 (with respect to 100,000 of the
shares for each period). The settlement was subject to execution of definitive
settlement documents and approval of the boards of directors of the companies.
CT Holdings and JMA were unable to negotiate the final definitive settlement
agreement and, as a result, the matter was 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 CT Holdings filed a 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 settlement term sheet. The case was filed in Supreme Court of New
York, that state's trial court, in a case styled Roan Meyers v. CT Holdings. CT
Holdings intends to vigorously defend against this lawsuit and has filed a
counterclaim to, among other things, recover excess amounts charged by JMA in
connection with related bridge loans. Trial has not been set on this matter. At
a status conference held November 10, 2003 the plaintiff was given a 30 day
extension to file the note of issue, which is due December 5, 2003. The court
also ordered CT Holdings to produce additional discovery materials. The Company
anticipates that the plaintiff will receive a trial date for sometime in early
2004. The Company cannot reasonably estimate the ultimate liability, if any, and
therefore no liability has been recorded in association with this lawsuit. Given
these events, including the dismissal of the 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
$1,912,500 nonrecurring charge that the Company had previously recorded related
to the settlement of the lawsuit.


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<PAGE>
In June 2000, CT Holdings was served with a lawsuit filed in the 157th State
District Court in n 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 $101,048. 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 abated the
lawsuit pending arbitration. The arbitration was held in 2002, and in January
2003, the arbitrator entered a judgment of $71,655 against CT Holdings in favor
of Tech Data, together with pre-judgment interest at the applicable rate under
Florida law for the period from January 2, 2000 to January 10, 2003, attorneys'
fees of $3,500, and interest on these amounts in the amount of 10% per year from
February 10, 2003 until the amounts are paid. In March 2003, Tech Data filed a
motion to revive the abated lawsuit for purposes of entering the arbitration
award as a judgment in the case and judgment was entered.  Tech Data has filed a
motion to appoint a receiver for the Company that is set for November 21, 2003.
As part of the Distribution, Citadel assumed responsibility for this lawsuit;
and has recorded a liability of approximately $101,000, although there can be no
assurance that CT Holdings will be released from the lawsuit.

In August 2002, PriceWaterhouseCoopers, LLP ("PWC") filed a lawsuit against CT
Holdings seeking payment of $131,816 for services performed pursuant to a
contract with CT Holdings related to the JMA lawsuit described above. The court
ordered that mediation be held by July 2003.  The case is styled
PriceWaterhouseCoopers, LLP v. CT Holdings, and was filed in the 192nd District
Court, Dallas County, Texas.  In July 2003, PWC obtained a summary judgment
against the Company for damages of $131,816 plus pre-judgment interest of
$57,615, post-judgment interest at 10% and attorneys' fees in the amount of
$8,605.  During the three months ended September 30, 2003 the Company recorded
an accrual for legal settlement of $202,000 in association with this judgment.

In April 2003, Harte Hanks, Inc. filed a lawsuit styled "Harte Hanks, Inc. v. CT
Holdings Inc. dba Citadel Computer" seeking payment of $12,513 for services
performed. In July 2003, the plaintiffs filed a motion for receivership and
alternatively to compel discovery in the lawsuit. At a hearing on the matter
held on September 5, 2003 in the County Court of Law Number Three of Dallas
County, Texas, the court ordered the Company to provide additional discovery by
October 20, 2003 which the Company failed to produce. As part of the
Distribution, Citadel assumed responsibility for this liability, and has
recorded a liability of approximately $12,500. CT Holdings believes that Citadel
will ultimately settle this liability, although there can be no assurance that
CT Holdings will be released from 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 - RECENT SALES OF UNREGISTERED SECURITIES

In April 2003, the Company settled a liability of approximately $23,000 in
exchange for 50,000 shares of CT Holdings common stock and other consideration.

In July 2003, the Company completed negotiations to settle approximately
$226,000 of liabilities that had been outstanding prior to the Distribution by
issuing 375,000 shares of CT Holdings common stock.

In October 2003, the Company agreed to settle approximately $416,000 of
operating liabilities outstanding prior to the Distribution by issuing 575,000
shares of CT Holdings common stock.


                                       27
<PAGE>
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

At September 30, 2003 the Company was in default on the following indebtedness:

     -    $250,000, 8% note payable due April 30, 2002 to a former director. The
          note is accruing interest at 18% per year and accrued interest at
          September 30, 2003 is $80,863.

     -    $225,796, 5% note payable due July 1, 2002 to the Company's CEO. The
          note is accruing interest at 18% per year and accrued interest at
          September 30, 2003 is $53,981.

     -    $49,000, 8% note payable due September 30, 2002 to an entity related
          to an employee of the Company. The note is accruing interest at 18%
          per year and accrued interest at September 30, 2003 is $12,415.

     -    $9,000, an 8% note payable to a shareholder. The note continues to
          bear interest at 8% with accrued interest at September 30, 2003 of
          $2,355.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

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

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


(b)  Current Reports on Form 8-K

     None


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<PAGE>
                                   SIGNATURES

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

CT HOLDINGS, INC.

(REGISTRANT)

Date: November 14, 2003              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)


                                       29
<PAGE>