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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-QSB

[Mark One]

   [X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934

                For the quarterly period ended September 30, 2005

                                       OR

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

          For the transition period from ____________ to ______________

                         Commission file number 0-13311


                             CityFed Financial Corp.
                             -----------------------
        (Exact name of small business issuer as specified in its charter)

           Delaware                                       22-2527684
           --------                                       ----------
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)


                        PO Box 3126, Nantucket, MA 02584
                    (Address of principal executive offices)


                                 (508) 228-2366
                           (Issuer's telephone number)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of September 30, 2005, the number
of shares of outstanding common stock was 28,716,134.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
================================================================================
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CITYFED FINANCIAL CORP.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
September 30, 2005
(Dollars in Thousands)
(Unaudited)
                                                                   September 30,
                                                                       2005
                                                                   ------------
ASSETS
------

Cash                                                                $      426
Available for sale securities                                              110
Loan servicer receivable                                                   174
Loans receivable                                                         4,836
Other assets (net of accumulated depreciation of $18)                      179
                                                                    ----------
TOTAL ASSETS                                                        $    5,725
                                                                    ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------

LIABILITIES:
  Accrued expenses and other liabilities                            $       60
  Notes payable, Stockholders                                            5,703
                                                                    ----------
           Total liabilities                                             5,763
                                                                    ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY:
    Preferred stock, 30,000,000 shares authorized:
       $2.10 cumulative convertible, Series B, $25 par
          value, shares issued and outstanding: 2,538,550               63,464
       Series C Junior, cumulative, $.01 par value,
          liquidation preference $3.00 per share, shares
          issued and outstanding: 9,457,079                                 95
    Common stock, $.01 par value, 100,000,000 shares authorized,
        issued: 28,915,134, outstanding: 28,716,134                        288
    Additional paid-in capital                                         108,875
    Accumulated deficit                                               (171,760)
    Treasury stock (199,000 shares of common stock), at cost            (1,000)
                                                                    ----------
         Total stockholders' deficiency                                    (38)
                                                                    ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                      $    5,725
                                                                    ==========
See notes to consolidated financial statements.

                                        2
<PAGE>

CITYFED FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS Nine months ended September 30, 2005 and
2004 (Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE><CAPTION>
                                                           Three months ended              Nine months ended
                                                              September 30,                   September 30,
                                                          2005            2004            2005            2004
                                                      ------------    ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>             <C>
INTEREST INCOME:
     Interest on investments                          $          3    $         11    $         14    $         39
     Interest on loans                                         118             117             443             343
                                                      ------------    ------------    ------------    ------------
            Total interest income                              121             128             457             382
                                                      ------------    ------------    ------------    ------------

INTEREST EXPENSE:
     Secured borrowings                                       --                 3               3               5
     Interest on stockholder notes                              41            --               142            --
                                                      ------------    ------------    ------------    ------------
            Total interest expense                              41               3             145               5
                                                      ------------    ------------    ------------    ------------
            Net interest income                                 80             125             312             377
                                                      ------------    ------------    ------------    ------------

NON-INTEREST INCOME (LOSS):
     Loan fees                                                   2               1               7               9
     Loss on investment securities, net                         (4)           --               (72)           --
                                                      ------------    ------------    ------------    ------------
            Total non-interest income (loss)                    (2)              1             (65)              9
                                                      ------------    ------------    ------------    ------------

EXPENSES:
     Compensation and employee benefits                         26              46             104             118
     Other operating expenses                                    9              26              62              99
                                                      ------------    ------------    ------------    ------------
            Total expenses                                      35              72             166             217
                                                      ------------    ------------    ------------    ------------

INCOME BEFORE INCOME TAX EXPENSE                                43              54              81             169
                                                      ------------    ------------    ------------    ------------
     Income tax expense, current                                 2            --                10            --
                                                      ------------    ------------    ------------    ------------

NET INCOME                                                      41              54              71             169
                                                      ------------    ------------    ------------    ------------

OTHER COMPREHENSIVE INCOME (LOSS):
   Unrealized loss on available-for-sale securities           --                 3             (25)            (15)
   Unrealized gain on investment securities
     transferred to available-for-sale                        --              --                35            --
   Reclassification adjustment for gains and losses
     included in net income (loss)                            --              --               (60)           --
                                                      ------------    ------------    ------------    ------------
TOTAL OTHER COMPREHENSIVE (LOSS)                              --                 3             (50)            (15)
                                                      ------------    ------------    ------------    ------------

COMPREHENSIVE INCOME                                  $         41    $         57    $         21    $        154

NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS            $     (2,237)   $     (2,224)   $     (6,764)   $     (6,666)

BASIC AND DILUTED LOSS PER COMMON SHARE:              $      (0.08)   $      (0.08)   $      (0.24)   $      (0.23)

AVERAGE COMMON SHARES OUTSTANDING                       28,716,134      28,716,134      28,716,134      28,716,134

DIVIDENDS PER COMMON SHARE                                    --              --              --              --
</TABLE>

See notes to consolidated financial statements.

                                        3
<PAGE>

CITYFED FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2005 and 2004
--------------------------------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
                                                             Nine months ended
                                                               September 30,
                                                             2005        2004
                                                          ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Interest received                                    $    478    $    364
     Operating expenses                                       (143)       (201)
     Other income                                                7           9
     Cash paid for interest                                     (2)         (5)
     Increase in receivables                                  (525)       (765)
                                                          --------    --------
       Net cash used in operating activities                  (185)       (598)
                                                          --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Decrease in investment securities                         543         460
     Other - net                                               --         (180)
                                                          --------    --------
       Net cash provided by investing activities               543         280
                                                          --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Decrease in secured borrowings                            --         (162)
                                                          --------    --------
       Cash provided by used in financing activities           --         (162)
                                                          --------    --------

NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS
                                                               358        (156)
                                                          --------    --------

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                68         201
                                                          --------    --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                $    426    $     45
                                                          ========    ========

RECONCILIATION OF NET INCOME TO NET CASH
  USED IN OPERATING ACTIVITIES:
     Net income                                           $     71     $   169
     Adjustments to reconcile net income to net cash
     used in operating activities
       Depreciation                                              6           3
       Loss on investment securities, net                       72         --
       Increase in receivables                                (525)       (765)
       Decrease (Increase) in other assets                      16         (17)
       Increase in other liabilities                           175          12
                                                          --------     -------

NET CASH USED IN OPERATING ACTIVITIES                     $   (185)   $   (598)
                                                          ========    ========

Supplemental Schedule of Non-cash and Financing
  Activities:
     Interest accrued on notes to stockholders            $    142    $    --
     Recognition of guaranty on loan participation               5         --

See notes to consolidated financial statements.

                                        4
<PAGE>

CITYFED FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2005 (UNAUDITED)

1.   Since February 2002, CityFed Financial Corp. ("CityFed") has invested in
     real estate related assets through CFF Services Corp. ("Services"), a
     wholly-owned subsidiary of CityFed. The consolidated financial statements
     include the accounts and transactions of CityFed and Services (collectively
     referred to herein as CityFed or the Company) after elimination of all
     intercompany activity. At the end of September 30, 2005, Services held
     $5,010,000 of real estate-related assets.

     Services invests in first and junior mortgage loans, loans secured by real
     estate loans, and other real estate-related loans, including construction
     loans, and acquisition, development and construction loans. Some loans are
     purchased by assignment and serviced directly and some are purchased by
     participation certificates and the loans are serviced by the originator.
     The borrowers generally do not meet the conforming guidelines established
     by banking institutions because of higher loan-to-value ratios, the nature
     or absence of income documentation, limited credit histories, high levels
     of consumer debt, past credit difficulties, or other factors. However, an
     analysis of the underlying characteristics of the borrower, his business or
     employment, and/or the value of additional collateral to support the loan,
     provides support so that the loan is a reasonable risk and is priced
     accordingly. The normal location of the collateral is in the New England
     states with a concentration in Rhode Island and southeastern Massachusetts.

     Management periodically evaluates the adequacy of the allowance for loan
     losses based on past loan loss experience, known and inherent risks in the
     portfolio, adverse situations that might affect the borrower's ability to
     repay, the estimated value of any underlying collateral, and current
     economic conditions. While management uses information available in
     establishing the allowance for loan losses, evaluation assessments made by
     management are inherently subjective and future adjustments to the
     allowance may be necessary if economic conditions differ substantially from
     the assumptions used in making the evaluation. Management has determined
     that no allowance for loan losses was necessary at September 30, 2005
     since, based on its evaluation, no events causing loss or loan impairment
     have occurred. The allowance for loan losses is a material estimate that is
     particularly susceptible to significant change in the near term.

2.   The consolidated financial statements should be read in conjunction with
     the consolidated financial statements and notes thereto included in
     CityFed's Form 10-KSB for the year ended December 31, 2004 ("2004 Form
     10-KSB"). The interim statements reflect all adjustments of a normal
     recurring nature that are, in the opinion of management, necessary for a
     fair presentation of the results and financial position for the periods
     presented.

3.   In July 1989, CityFed's Board of Directors suspended the payment of
     dividends on all three currently outstanding series of CityFed's stock.
     These include CityFed's common stock, $0.01 par value per share ("Common
     Stock"), on which CityFed had been paying quarterly dividends of one cent
     per share; the Series C, Junior Preferred Stock, Cumulative, $0.01 par
     value per share ("Series C Stock"), with a quarterly dividend of ten cents
     per share; and the $2.10 Cumulative Convertible Preferred Stock, Series B,

                                        5
<PAGE>

     $25.00 par value per share ("Series B Stock"), with a quarterly dividend of
     $0.525 per share. Dividends on both series of CityFed's preferred stock are
     cumulative. At September 30, 2005, dividends in arrears were $86.6 million
     and $54.5 million on CityFed's Series B and Series C Stock, respectively.

4.   In accordance with Statement of Financial Accounting Standards (SFAS) No.
     115, "Accounting for Certain Investments in Debt and Equity Securities,"
     the Company classifies debt and equity securities, at acquisition, into one
     of three categories: held to maturity, available for sale, or trading.
     Available for sale securities are carried at fair value, based principally
     on quoted market prices. Securities for which sale is restricted have been
     categorized as non-marketable equity securities and have been valued at
     cost. Unrealized holding gains and losses resulting from changes in fair
     value generally are reported in other comprehensive income. Securities sold
     are identified using the specific identification method.

     In the first quarter of 2005, the remaining 229,118 shares of i2 Telecom
     International Inc. ("i2 Telecom").stock became available-for-sale and the
     unrealized gain when transferred from cost to fair value was $35,000.
     During the second quarter of 2005, management determined that the
     impairment in value of its interest in i2 Telecom represented an other than
     temporary impairment, and consequently, reclassified $38,000 of unrealized
     gain previously recorded as a component of other comprehensive income.
     CityFed recognized a loss on investment securities totaling $4,000 and
     $79,000 as component of net income for the three and nine months periods
     respectively ended September 30, 2005. At September 30, 2005, all the
     issued shares are recorded at the quoted market price of $0.30 per share.
     Subsequent reductions in fair value deemed other than temporary will be
     charged to income. At May 30, 2006, the quoted market price of i2 shares
     was $0.09 per share.

5.   Loan servicer receivable are funds due from a party which is servicing
     loans in which Services holds a participating interest and are
     uncollateralized. The funds were collected on October 4, 2005.

6.   Notes payable, Stockholders at September 30, 2005 include the principal
     balance of $4,750,000, which is payable at maturity on December 31, 2007
     (see Note 12). The balance also includes interest payable at maturity of
     $953,000, which is comprised of $421,000 computed at the prime rate as it
     existed from time to time through September 30, 2005 and the balance of
     $533,000 computed at 6.75% (the prime rate at September 30, 2005) through
     May 31, 2007, the original maturity date. The interest is due at the
     maturity of the notes and, when actually paid, will be computed at the
     prime rate as it will exist from time to time until maturity. During the
     three month period ended September 30, 2005, the prime rate increased,
     resulting in an increase in the amount of interest expected to be paid at
     the original maturity of May 31, 2007 in excess of the amount previously
     recorded, which has been recognized by a charge to interest expense of
     $41,000 and $142,000 during the three and nine month period ended September
     30, 2005. Any increase of the amount recorded as a liability resulting from
     increases in interest rates after September 30, 2005 through May 31, 2007
     will be charged as an expense to operating income. Interest accruing during
     the maturity date extension (June 1, 2007 thru December 31, 2007) period
     will be charged as an expense during that same period.

                                        6
<PAGE>

7.   Income tax expense for the three month period ended September 30, 2005 does
     not have a relationship to expected income tax expense computed at the
     expected statutory tax rates since it represents only income taxes payable
     to the state based on the taxable income of Services which is not allowable
     to be offset by the Company's available state net operating loss
     carryforwards. No provision for federal income taxes for the three and nine
     month periods ended September 30, 2005 and 2004 have been included in the
     accompanying consolidated financial statements since the Company has
     available net operating losses for federal income tax reporting purposes.
     At September 30, 2005 deferred tax assets have been fully reserved.

8.   The Company entered into an incentive compensation arrangement with its one
     employee, who is a director and shareholder of the Company. Incentive
     compensation included in expenses for the nine months ended September 30,
     2005 totaled approximately $4,000.

9.   Services is a guarantor of up to $70,000 under a loan participation
     agreement in a first mortgage loan. At September 30, 2005, the carrying
     value of the guarantee is $5,000. Before the guarantee is enforceable, the
     borrower must default under the terms of the underlying note. Services
     would be required to pay the participant for any loss suffered by the
     participant up to the amount of the guarantee.

10.  CityFed is party to financial instruments with off-balance sheet risk in
     the normal course of business to meet the financing needs of its customers.
     These financial instruments consist solely of commitments to extend credit
     and involve, to varying degrees, elements of credit risk in excess of the
     amount recognized in CityFed's consolidated statement of financial
     condition. The contract or notional amounts of such instruments reflect the
     extent of involvement CityFed has in the financial instruments. CityFed's
     exposure to credit loss in the event of nonperformance by the other party
     to the financial instrument for commitments to extend credit is represented
     by the contractual notional amount of those instruments. CityFed uses the
     same credit policies in making commitments as it does for on-balance sheet
     instruments. At September 30, 2005, the contractual notional amounts
     representing commitments to fund loans in the future total $761,000.

     At September 30, 2005, five loans comprise approximately 44.9% of total
     loans receivable and interest on loans during the three and nine month
     periods ended September 30, 2005 recognized on such loans totaled $37,000
     and $95,000 respectively. At September 30, 2005, loans past due for ninety
     days or more of $831,000 were not accruing interest. During the three month
     period ended September 30, 2005 there was no interest income recognized on
     loans which were previously on non-accrual status.


11.  The Company's reportable segments are legally separate entities that are
     managed separately, and whose operating results are reviewed by the chief
     operating decision maker to make decisions about resources and to assess
     performance. The Company has two reportable segments, Services which
     operates as a finance company and CityFed which invests in securities.
     CityFed and Services are managed separately since their businesses are run
     as separate entities, and the business of Services is run for the benefit
     of the Noteholders while the business of CityFed is run for the benefit of
     the stockholders of CityFed. Accounting policies applied to determine the
     segment information are the same as those described in the summary of
     significant accounting policies included in the 2004 Form 10-KSB.

                                        7
<PAGE>
<TABLE><CAPTION>

(Dollars in Thousands)      CFF Services          CityFed                               Consolidated
                            Nine months ended     Nine months ended                     Nine months ended
                            September 30, 2005    September 30, 2005    Eliminations    September 30, 2005
<S>                             <C>                   <C>                 <C>               <C>
Interest income, other           $    2                $   12                                $   14
Interest income from
   external business                443                                                         443
Interest expense (a)                143                     2                                   145
Net Interest income                 302                    10                                   312
Other income                         45                                    ($38)                  7
   Gain/Loss on securities                                (72)                                  (72)
Segment profit (loss)               226                  (145)                                   81
Income Tax Expense                   10                                                          10
Intersegment interest
   income (expense)(b)             (274)                  274
Segment assets:
    Investment in and
     advances to
     subsidiary                                         4,994            (4,994)
    Other                         5,331                   394                                 5,725
</TABLE>

The information below reports the comprehensive income available for the Common
Stockholders and the Noteholders after allocating segment income and losses as
reflected above. Such amounts are disclosed herein, rather than on the face of
the accompanying consolidated balance sheet, since such allocations are not
included within the terms of the equity securities.

                                                    Nine months ended
                                                      September 30,
                                                          2005
                                                    -----------------
NET INCOME (LOSS) AVAILABLE FOR AND
     ALLOCATED TO:
     NOTEHOLDERS                                       $       216
     COMMON STOCKHOLDERS                                    (6,980)
                                                       -----------
     TOTAL                                             $    (6,764)
                                                       ===========

BASIC AND DILUTED INCOME (LOSS) PER
     COMMON SHARE ALLOCATED TO:
     NOTEHOLDERS                                       $      0.00
     COMMON STOCKHOLDERS                                     (0.24)
                                                       -----------
     TOTAL                                             $     (0.24)
                                                       ===========

AVERAGE COMMON SHARES OUTSTANDING                       28,716,134

DIVIDENDS PER COMMON SHARE                                    --

     (a) Interest expense related to the notes payable executed by and between
     CityFed and the Noteholders is allocated to Services since such interest
     expense is required to be borne by Services under the Agreement (see Note
     12).

     (b) The chief operating decision maker of each segment evaluates the
     performance of the segment prior to intersegment interest charges (computed
     at 9%) presented in internal reports which has been disclosed above.
     Intersegment interest is accounted for at an

                                        8
<PAGE>

     interest rate which management believes Services would be required to pay
     to an external party for a similar financing arrangement.

     As a result of the Agreement, the Company has presented segment information
     as required by FASB Statement No. 131, "Disclosure about Segments of an
     Enterprise and Related Information," and has presented information for the
     nine months ended September 30, 2005 as if the Agreement was in effect
     since January 1, 2005. The Company has not restated its disclosures to
     include segment information for the nine months ended September 30, 2004
     since the Company's chief operating decision maker did not allocate
     resources to separate segments and it is not practicable to develop
     separate information.

12.  On September 1, 2005, CityFed, Services, and the stockholders to whom
     CityFed issued notes ("the Noteholders") (see Note 6), entered into an
     agreement, which was effective as of June 1, 2005, ("the Agreement"). Among
     other provisions contained within the Agreement, the Noteholders extended
     the maturity dates of the notes from May 31, 2007 to December 31, 2007; the
     parties to the Agreement agreed to run the business of CityFed and Services
     as separate entities; the business of Services would be run for the benefit
     of the Noteholders; and the business of CityFed would be run for the
     benefit of the stockholders of CityFed. In accordance with FASB
     Interpretation No. 46R, "Consolidation of Variable Interest Entities",
     CityFed determined that it and its related parties had a variable interest
     in Services which required the continued consolidation of Services'
     accounts and transactions in the accompanying financial statements.

13.  At September 30, 2005, CityFed has a stockholders' deficiency of $38,000
     and cumulative unpaid dividends totaling approximately $141.1 million. No
     common or preferred dividends have been paid since the second quarter of
     1989. The holders of the Series B Stock are entitled to receive cash
     dividends when and as declared by the Board of Directors, and until all
     cumulative unpaid dividends on the Series B stock are paid, CityFed cannot
     declare or pay any dividends on common stock or other capital stock ranking
     junior to or in parity with the Series B stock. No dividends are expected
     to be declared or paid until CityFed's financial situation changes
     significantly. Management believes that CityFed will generate sufficient
     cash flows from operations to satisfy its operating requirements for, and
     its obligations due within, the next twelve months.

     The Agreement (see Note 12) added several events of defaults, including
     remedies available to the Noteholders as a result of an event of default,
     to the notes payable executed by and among CityFed and the Noteholders (the
     Notes). If an event of default, as defined, occurs the Noteholders may
     exercise their rights and may foreclose on the stock of Services. If
     CityFed does not effect a restructuring of its capital structure by
     September 30, 2006, then an event of default under the Notes is deemed to
     have occurred. It is not probable that a restructuring of CityFed's capital
     structure will be accomplished by September 30, 2006. Management does not
     know whether, upon the occurrence of an event of default, the Noteholders
     will exercise any of the remedies contained within the Notes. If an event
     of default relating to CityFed's inability to effect a restructuring of its
     capital structure occurs, management intends to request the Noteholders to
     waive its remedies as a result of the event of default and to amend the
     Agreement to provide CityFed with additional time to effect a restructuring
     of its capital structure.

14.  Certain prior year amounts have been reclassified to conform to the current
     year presentation.

                                        9
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

GENERAL

Since its determination in February 2003 to rely on Section 3(c)(5)(C) of the
Investment Company Act of 1940, as amended, CityFed has invested in money market
instruments, corporate securities, and pass-through certificates issued by
federally sponsored agencies in addition to its investment in Services and
Services' investments. The operating expenses of Services consist of the
compensation of its employee, interest expense on borrowings, the expenses of
its office, expenses relating to the audit of its financial statements by its
independent auditors, and expenses of its outside legal counsel. The operating
expenses of CityFed consist primarily of its administrative, legal and auditing
expenses. Currently, Services has one full-time employee and owns an office
condominium, purchased in September 2004, located at 37 Old South Road,
Nantucket, Massachusetts. CityFed has no employees.

CityFed has a management agreement with Services whereby Services provides
administrative services to CityFed annually for $50,000. For the three and nine
month periods ended September 30, 2005, CityFed has recognized $12,500 and
$37,500, respectively as a charge to operations. Services has recognized the
same amounts as income. All amounts are eliminated in consolidation.

CityFed believes that it can satisfy its cash requirements for its next twelve
months of operations from its existing assets or by utilizing borrowing
arrangements secured by its investments. During such period, CityFed does not
expect to purchase or sell plant or significant equipment, nor does CityFed
intend to significantly change its number of employees.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2005, CityFed had $5,725,000 in total assets, $5,763,000 in
total liabilities and a stockholders' deficiency of $38,000 compared to
$5,529,000 in total assets, $5,588,000 in total liabilities and a stockholders'
deficiency of $59,000 at December 31, 2004. CityFed expects to meet its
commitments to originate loans, borrowing commitments and its operating expenses
from cash generated from operations, from the sale of marketable securities or
from loan repayments.

CURRENT OPERATIONS

CityFed invests in pass-through certificates issued by federally sponsored
agencies, corporate debt and equity securities. Services operates as an
originator and investor in first and junior mortgage loans and other real
estate-related assets. Proceeds from CityFed's investment in and advances to
Services are used by Services to fund its investments in first and second
mortgage loans and other real estate assets.

Services invests in first and junior mortgage loans, loans secured by real
estate loans, and other real estate-related loans, including construction, and
acquisition, development and construction loans. Some loans are purchased by
assignment and serviced directly and some are purchased by participation
certificates and the loans are serviced by the originator. The borrowers
generally do not meet the conforming guidelines established by banking
institutions because of higher loan-

                                       10
<PAGE>

to-value ratios, the nature or absence of income documentation, limited credit
histories, high levels of consumer debt, past credit difficulties, or other
factors. However, an analysis of the underlying characteristics of the borrower,
his business or employment, and/or the value of additional collateral to support
the loan, provides support so that the loan is a reasonable risk and is priced
accordingly. The normal location of the collateral is in the New England states
with a concentration in Rhode Island and southeastern Massachusetts.

At September 30, 2005, CityFed held 368,638 shares of i2 Telecom. As part of the
original consideration, under certain conditions an additional 33,300 shares of
common stock may be issued to CityFed. i2 Telecom became a public company on
February 27, 2004 in a reverse merger. CityFed also holds a warrant to purchase
66,438 common shares of i2 Telecom at $0.903 per share until February 2006 and
at $1.20 per share for an additional twelve months. Pursuant to an agreement, in
October 2004 i2 Telecom registered 139,520 of CityFed's shares of i2 Telecom
stock and those shares were then recorded as available-for-sale. The remaining
229,118 shares of i2 Telecom became available-for-sale in the first quarter of
2005 and the unrealized gain when transferred from cost to fair value was
$35,000. During the second quarter of 2005, management determined that the
impairment in value of its interest in i2 Telecom represented an other than
temporary impairment, and consequently, reclassified $38,000 of unrealized gain
previously recorded as a component of other comprehensive income. CityFed
recognized a loss on investment securities totaling $4,000 and $79,000 as
component of net income for the three and nine month periods respectively ended
September 30, 2005. At September 30, 2005, all the issued shares are recorded at
the quoted market price of $0.30 per share.

RESULTS OF OPERATIONS

Nine months ended September 30:

     CityFed recorded a consolidated net income for the nine months ended
     September 30, 2005 of $71,000. This compares to a consolidated net income
     in the amount of $169,000 for the nine months ended September 30, 2004.
     Other comprehensive income includes a consolidated loss of $50,000 for the
     nine months ended September 30, 2005. There was an unrealized loss on
     available-for-sale securities for the nine months ended September 30, 2004
     of $15,000.

     Interest income on investments was $14,000 for the nine months ended
     September 30, 2005 compared to $39,000 for the nine months ended September
     30, 2004 due to a lower amount of funds invested in securities by CityFed
     in the 2005 period. Interest income on loans earned by Services for the
     nine months ended September 30, 2005 was $443,000. Included in interest
     income earned by Services for 2005 was $65,000 of additional interest on a
     loan that called for payment of a percent of the profit earned by the
     borrower on the sale of the collateral securing the loan. Interest income
     earned by Services on loans for the nine months ended September 30, 2004
     was $343,000 due primarily to the lower amount of average loans outstanding
     in the 2004 period and the absence of additional interest on loans based on
     profit earned by borrowers. Interest expense was $145,000 for the nine
     months ended September 30, 2005. Of the $145,000, $142,000 was due to the
     increase in the interest due on the Notes payable, Stockholders (see Note 6
     above).

     At September 30, 2005, loans past due for ninety days or more of $831,000
     were not accruing interest. There were no such delinquent loans at
     September 30, 2004.

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<PAGE>

     The loss on investment securities incurred by CityFed was $72,000 for the
     nine months ended September 30, 2005. No gain or loss was incurred in the
     nine months ended September 30, 2004. Total expenses of $166,000 for the
     nine months ended September 30, 2005 were less than the $217,000 for the
     same period in 2004, principally due to lower legal fees.

     The basic (and diluted) loss per common share of $0.24 for the nine months
     ended September 30, 2005 and $0.23 for the nine months ended September 30,
     2004 is after the deduction of unpaid preferred dividends of $6,835,000 in
     both periods. No preferred or common dividends have been paid since the
     second quarter of 1989 and none are expected to be declared or paid until
     CityFed's situation changes significantly.

Three months ended September 30:

     CityFed recorded a consolidated net income for the three months ended
     September 30, 2005 of $41,000. This compares to a consolidated net income
     in the amount of $54,000 for the three months ended September 30, 2004.
     CityFed recognized an unrealized gain on available-for-sale securities for
     the three months ended September 30, 2004 of $3,000.

     Interest income on investments earned by CityFed was $3,000 for the three
     months ended September 30, 2005 compared to $11,000 for the three months
     ended September 30, 2004 due to a lower amount of funds invested in
     securities in the 2005 period. Interest income on loans earned by Services
     for the three months ended September 30, 2005 was $118,000. Interest income
     earned by Services on loans for the three months ended September 30, 2004
     was $117,000. During the quarter ended September 30, 2005, there was no
     interest income recorded for loans that had been on non-accrual at the end
     of the previous quarter. Interest expense was $41,000 for the three months
     ended September 30, 2005. All of the $41,000 was due to the increase in the
     interest due on the Notes payable, Stockholders (see Note 6 above).
     Interest expense for the three months ended September 30, 2004 was $3,000.

     Total expenses of $35,000 for the three months ended September 30, 2005
     were less than the $72,000 for the same period in 2004, primarily due to
     lower compensation and legal expenses.

     The basic (and diluted) loss per common share of $0.08 for the three months
     ended September 30, 2005 and 2004 is after the deduction of unpaid
     preferred dividends of $2,278,000 in both years. No preferred or common
     dividends have been paid since the second quarter of 1989 and none are
     expected to be paid until CityFed's situation changes significantly.

     The Agreement (see Note 12) added several events of defaults, including
     remedies available to the Noteholders as a result of an event of default,
     to the notes payable executed by and among CityFed and the Noteholders (the
     Notes). If an event of default, as defined, occurs the Noteholders may
     exercise their rights and may foreclose on the stock of Services. If
     CityFed does not effect a restructuring of its capital structure by
     September 30, 2006, then an event of default under the Notes is deemed to
     have occurred. It is not probable that a restructuring of CityFed's capital
     structure will be accomplished by September 30, 2006. Management does not
     know whether, upon the occurrence of an event of default, the Noteholders
     will exercise any of the remedies contained within the Notes. If an event
     of default relating to CityFed's inability to effect a restructuring of its
     capital structure occurs, management intends to

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<PAGE>

     request the Noteholders to waive its remedies as a result of the event of
     default and to amend the Agreement to provide CityFed with additional time
     to effect a restructuring of its capital structure.

OFF-BALANCE SHEET ARRANGEMENTS

See Notes 9 and 10 to the financial statements above.

ITEM 3. CONTROLS AND PROCEDURES.

CityFed has adopted disclosure controls and procedures as required by Section
302 of the Sarbanes-Oxley Act and the Securities and Exchange Commission's rules
thereunder. CityFed's disclosure controls and procedures reflect the fact that
it currently has only one employee. CityFed's Vice President, Chief Financial
Officer and Treasurer has evaluated the effectiveness of these disclosure
controls and procedures as of the end of the quarterly period ended September
30, 2005. There have been no changes to CityFed's internal controls during the
third quarter of 2005 or from September 30, to June 20, 2006.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

At September 30, 2005 there are no suits or claims against CityFed. For a
description of the settlement of prior indemnification claims of current or
former officers and directors see the description under Settlement of Claims in
Part I Item 1-Description of Business in CityFed's 2004 Form 10-KSB.

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.

     (a) None.

     (b) None.

     (c) None.

     (d) Not applicable.

     (e) None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     (a)  None.

     (b)  CityFed's $2.10 Cumulative Convertible Preferred Stock, Series B, par
          value $25.00 per share ("Series B Stock"), is required to pay
          quarterly dividends at a rate of $0.525 per share on March 1, June 1,
          September 1 and December 1 of each year. CityFed's Series C, Junior
          Preferred Stock, Cumulative, par value $0.01 per share ("Series C
          Stock"), is required to pay quarterly dividends at a rate of $0.10 per
          share on March 15, June 15, September 15 and December 15 of each year.
          The

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<PAGE>

          dividends on both the Series B and the Series C Stock are cumulative.
          The Series C Stock is junior to the Series B Stock in the payment of
          dividends.

          Beginning with the payment due on September 1, 1989, CityFed has not
          paid any quarterly dividends on the Series B Stock. Beginning on
          September 15, 1989, CityFed also has not paid any quarterly dividends
          on the Series C Stock. Because CityFed has failed to pay at least six
          quarterly dividends on the Series B Stock, the holders of such stock
          have the exclusive right, voting separately as a class, to elect, and
          have elected, two directors of CityFed. Until the aggregate deficiency
          is declared and fully paid on the Series B Stock and the Series C
          Stock, CityFed may not declare any dividends or make any other
          distributions on or redeem the Common Stock. Until the aggregate
          deficiency is declared and fully paid on the Series B Stock, CityFed
          may not declare any dividends or make any other distributions on or
          redeem the Series C Stock. As of September 30, 2005, the aggregate
          deficiency on the Series B Stock was approximately $86.6 million and
          the aggregate deficiency on the Series C Stock was approximately $54.5
          million.

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

     None.

ITEM 5. OTHER INFORMATION.

     (a)  None

     (b)  None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits

          11. Statement Regarding the Computation of Per Share Loss.

          31. Rule 15d-14(a) Certification.

          32. Section 1350 Certification.

     (b)  Reports on Form 8-K.

          A report on Form 8-K was filed on August 12, 2005 reporting the
          resignation of director Richard N. Morash.

          A report on Form 8-K was filed on September 2, 2005 reporting the
          resignation of director Peter R. Kellogg.

          A report on Form 8-K was filed on October 17, 2005 reporting the
          entering into an Agreement among CityFed, CFF Services Corp. Peter R.
          Kellogg, John Kean and John W. Atherton, Jr.

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<PAGE>

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                        CITYFED FINANCIAL CORP.

                                        By: /s/ John W. Atherton, Jr.
                                            John W. Atherton, Jr.
                                            Vice President, and Treasurer
                                            (Principal Financial Officer)


Date: June 20, 2006





















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