UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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 June 30, 2000

                                       OR

[ ]               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 0-13311

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


               Delaware                                      22-2527684
               --------                                      ----------

(State or other jurisdiction of incorporation      (IRS Employer Identification
               or organization)                                No.)

                        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 June 30, 2000, the number of
shares of outstanding common stock was 18,715,609.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]








<PAGE>



                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

CITYFED FINANCIAL CORP.

STATEMENTS OF FINANCIAL  CONDITION
June 30, 2000 and December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                            June 30, 2000      December 31,
                                                                            -------------      ------------
                                                                              (Unaudited)         1999
                                                                              -----------         ----
<S>                                                                         <C>                <C>


ASSETS
------
Cash                                                                        $         86       $       63
Investment securities at amortized cost
    (Market value $6,312 in 2000 and $9,430 in 1999)                               6,317            9,444
Other assets                                                                         147              145
                                                                            ------------       ----------

TOTAL ASSETS                                                                $      6,550       $    9,652
                                                                            ============       ==========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------

LIABILITIES:
  Contingency reserve                                                       $      4,193       $    6,353
  Other liabilities                                                                4,523            4,504
                                                                            ------------       ----------

           Total liabilities                                                       8,716           10,857
                                                                            ------------       ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY:
    Preferred stock, 30,000,000 shares authorized:
       $2.10 cumulative convertible, Series B, $25 par value,
             issued and outstanding: 2,538,850 in 2000 and 1999                   63,471           63,471
       Series C Junior, cumulative, $.01 par value, liquidation
             preference $3.00 per share, shares issued and
             outstanding: 8,257,079 in 2000 and 1999                                  82               82
    Common stock, $.01 par value, 100,000,000 shares authorized,
        issued: 18,914,609 in 2000 and 1999, outstanding:
        18,715,609 in 2000 and 1999                                                  188              188
    Additional paid-in capital                                                   108,868          108,868
    Accumulated deficit                                                         (173,775)        (172,814)
    Treasury stock (199,000 shares of common stock)                               (1,000)          (1,000)
                                                                            ------------       ----------

         Total stockholders' deficiency                                           (2,166)          (1,205)
                                                                            ------------       ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                              $      6,550       $    9,652
                                                                            ============       ==========

See notes to financial statements.
</TABLE>



                                       2
<PAGE>


CITYFED FINANCIAL CORP.

STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2000 and 1999
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
                                                    Three Months Ended                         Six Months Ended
                                                    ------------------                         ----------------
                                                         June 30,                                 June 30,
                                                         --------                                 --------
                                                 2000                1999                 2000                1999
                                                 ----                ----                 ----                ----
<S>                                      <C>                   <C>                 <C>                 <C>

INCOME:
   Interest on investments               $         123         $        114        $         255       $         227
   Other income                                     -                    -                    24                  -
                                                ------               ------               ------              ------

     Total income                                  123                  114                  279                 227
                                                ------               ------               ------              ------

EXPENSES:
   Compensation and employee benefits               51                   29                   86                  64
   Other operating expenses                         73                   29                  117                  58
                                                ------               ------               ------              ------

     Total expenses                                124                   58                  203                 122
                                                ------               ------               ------              ------

(LOSS) INCOME FROM CONTINUING OPERATIONS
                                                    (1)                  56                   76                 105

LOSS FROM DISCONTINUED OPERATIONS                   -                    -                (1,037)                 -
                                                ------               ------               ------              ------

NET (LOSS) INCOME                        $    (      1)        $         56        $     (   961)      $         105
                                             =========             ========             ========            ========

NET LOSS AVAILABLE FOR COMMON
 STOCKHOLDERS                            $      (2,160)        $     (2,103)       $     ( 5,278)      $      (4,212)

BASIC LOSS PER SHARE:
   From continuing operations            $       (0.12)        $      (0.11)       $       (0.23)      $       (0.23)
   From discontinued operations          $          -          $         -         $       (0.05)      $          -
   Net loss                              $       (0.12)        $      (0.11)       $       (0.28)      $       (0.23)

AVERAGE SHARES OUTSTANDING                  18,715,609           18,715,609           18,715,609          18,715,609

DIVIDENDS PER COMMON SHARE                          -                    -                   -                    -

See notes to financial statements.
</TABLE>




                                       3
<PAGE>




CITYFED FINANCIAL CORP.

STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2000 and 1999
(Dollars in Thousands)
(Unaudited)


                                                          2000            1999
                                                          ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
     Interest received                                  $   407          $  239
     Operating expenses                                    (214)           (174)
     Settlement payment                                  (3,169)              -
     Other income                                            24               -
                                                        -------         -------

       Net cash (used in) provided by
         operating activities                            (2,952)             65
                                                        -------         -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     (Decrease) increase in investment securities        (2,975)             76
                                                        -------         -------

       Net cash used in investing activities             (2,975)             76
                                                        -------         -------

NET INCREASE (DECREASE) IN CASH                              23             (11)

CASH AT BEGINNING OF PERIOD                                  63              48
                                                        -------         -------

CASH AT END OF PERIOD                                   $    86          $   37
                                                        =======         =======

RECONCILIATION OF NET (LOSS) INCOME TO NET CASH
     PROVIDED BY OPERATING
     ACTIVITIES:
     Net (loss) income                                  $  (961)         $  105
     Loss from discontinued operations                    1,037              -
     Settlement payment                                  (3,169)
     Contingency reserve payments                            (7)            (31)
     Decrease in accrued income and expense, net            148              (9)
                                                        -------         -------

NET CASH (USED IN) PROVIDED BY OPERATING                $(2,952)         $   65
    ACTIVITIES                                          =======         =======


See notes to financial statements.



                                       4
<PAGE>



CITYFED FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 (UNAUDITED)

1.       Until  December 8, 1989,  CityFed  Financial  Corp.  (the  "Company" or
         "CityFed")  was  a  unitary  savings  and  loan  holding  company  that
         conducted its business  primarily through its ownership of City Federal
         Savings  Bank ("City  Federal")  and its  subsidiaries.  On December 7,
         1989,  the Office of Thrift  Supervision  ("OTS") of the United  States
         Department of the Treasury declared City Federal insolvent,  ordered it
         closed  and  appointed  the  Resolution  Trust  Corporation  ("RTC") as
         receiver of City  Federal.  A new federal  mutual  savings  bank,  City
         Savings Bank, F.S.B. ("City Savings"),  was created, which acquired all
         deposits and  substantially  all of the assets and  liabilities of City
         Federal.  CityFed no longer  controls  City  Federal and has no control
         over City Savings.

         As a result  of the  receivership  of City  Federal,  the  Company  has
         undergone  material  changes  in the nature of its  business  and is no
         longer  operating  as a savings and loan holding  company.  At June 30,
         2000,  the  Company's  business   activities   consisted  primarily  of
         attempting to resolve  outstanding  indemnification  claims against the
         Company and the management of investments.

         As a  result  of  the  receivership  of  City  Federal,  the  financial
         statements  of CityFed at December 31,  1989,  for the year then ended,
         and for subsequent periods,  reflect CityFed's interest in City Federal
         as discontinued operations. The financial statements have been prepared
         assuming the Company  will  continue as a going  concern.  As discussed
         above and in Note 4, substantially all of the operations of the Company
         have  been  discontinued  and the  Company  is  subject  to a number of
         contingencies  that  raise  substantial  doubt  about  its  ability  to
         continue  as a going  concern.  Except  as  indicated  in  Note 4,  the
         financial  statements do not include any adjustments  that might result
         from the  outcome  of these  uncertainties.  Currently,  CityFed is not
         conducting an operating business.  At the present time,  management has
         invested,  and  intends to  invest,  CityFed's  assets on a  short-term
         basis.

2.       The  financial  statements  should  be read  in  conjunction  with  the
         financial  statements and notes thereto  included in the Company's Form
         10-KSB for the year ended December 31, 1999 ("1999 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, the Company's Board of Directors suspended the payment of
         dividends on all three  currently  outstanding  series of the Company's
         stock.  These include the Company's  common stock,  $0.01 par value per
         share ("Common Stock"),  on which the Company 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,  $25.00  par value per share
         ("Series  B Stock"),  with a  quarterly  dividend  of $0.525 per share.
         Dividends  on  both  series  of  the  Company's   preferred  stock  are
         cumulative.  At June 30, 2000,  dividends in arrears were $58.6 million
         and  $36.3  million  on the  Company's  Series  B and  Series  C Stock,
         respectively.


                                       5
<PAGE>

4.       COMMITMENTS AND CONTINGENCIES

         INDEMNIFICATION  CLAIMS - The Bylaws of CityFed,  INTER ALIA,  obligate
         CityFed to indemnify,  to the fullest extent authorized by the Delaware
         General  Corporation  Law, any person who is made or  threatened  to be
         made a party to or becomes  involved in an action by reason of the fact
         that  he or  she  is or  was  an  employee  of  CityFed  or  one of its
         subsidiaries,  and to pay on his or her  behalf  expenses  incurred  in
         defending such an action prior to the final disposition of such action;
         provided that  expenses  incurred by an officer or director may be paid
         in advance only if such person  delivers an  undertaking  to CityFed to
         repay such amounts if it ultimately  is  determined  that the person is
         not entitled to be indemnified  under CityFed's Bylaws and the Delaware
         General  Corporation Law. These undertakings are generally not secured.
         Consequently,  CityFed may become  obligated to indemnify  such persons
         for their expenses  incurred in connection  with any such action and to
         advance  legal  expenses  incurred by such  persons  prior to the final
         disposition  of any such  action.  In addition  to any amounts  paid on
         behalf of such person for expenses  incurred in connection with such an
         action, CityFed may also have further indemnification  responsibilities
         to the  extent  damages  are  assessed  against  such a person  and for
         settlement amounts.

         As  described  below,  CityFed  and  several  former  directors  and/or
         officers of City Federal have been named as defendants  or  respondents
         in the First and Second RTC  Actions  and in the Notice of Charges  (as
         such terms are defined below).  Many of these former  directors  and/or
         officers of City Federal have  requested  CityFed to indemnify them and
         to advance expenses to them in connection with these matters. A special
         committee of CityFed's  Board of Directors,  comprised of directors who
         have not been named in the First or Second RTC Actions, was established
         to  consider  this  request  for  indemnification  and  advancement  of
         expenses  with  respect  to the First and Second  RTC  Actions.  On the
         advice of counsel to the special committee, CityFed advanced reasonable
         defense costs to such former directors and officers in such Actions.

         In addition to the First and Second RTC Actions,  the Notice of Charges
         and the  "Indemnification  Claims  Relating  to  Deferred  Compensation
         Plans" (described  below),  CityFed is currently aware of several other
         legal  actions  and  matters  with  respect to which  current or former
         officers,  directors or employees of CityFed or its former subsidiaries
         have requested that CityFed advance expenses and indemnify them. Except
         for the  indemnification  requests  relating  to the  Notice of Charges
         (which  CityFed's Board of Directors has not yet  considered),  CityFed
         had  generally  agreed to advance  expenses  in  connection  with these
         requests,   except  where  certain  preconditions  to  advancement  and
         indemnification   have  not  been   met  or   where   advancement   and
         indemnification may not be warranted under applicable law.

         CityFed is not continuing to advance expenses in connection with any of
         the indemnification and advancement requests referred to above. CityFed
         may be required to make payments of legal fees and expenses  (including
         settlement amounts) to the individuals who have settled with the RTC or
         Federal Deposit Insurance Corporation ("FDIC") in the Second RTC Action
         or  to  make   payments   to  the  RTC  or  FDIC  in   respect  of  the
         indemnification  claims  assigned  to the  RTC or  FDIC  by some of the
         individuals who have settled with the RTC or FDIC. For more information

                                       6
<PAGE>

         regarding these settlements and assignments of indemnification  rights,
         see "Second RTC Action" below.

         CityFed  received a letter dated June 21,  1995,  from  Skadden,  Arps,
         Slate,  Meagher & Flom ("Skadden"),  which is counsel for Gordon Allen,
         Marshall  Criser,  Edwin Halkyard,  Peter Kellogg,  William Liffers and
         Victor Pelson ("Outside Directors"),  who are or were parties to one or
         more of the following  matters  (collectively,  the  "Cases"):  (1) the
         Second RTC Action; (2) the efforts to set aside the Temporary Order (as
         defined below);  (3) the Supreme Court Case (as defined below); and (4)
         the  administrative  enforcement  proceeding brought by the OTS against
         CityFed  and the  Individual  Respondents  (as defined  below).  In the
         letter,  the Outside  Directors  demanded  that,  pursuant to CityFed's
         Bylaws and  Restated  Certificate  of  Incorporation,  CityFed  pay all
         outstanding  invoices from Skadden for legal  services  rendered to the
         Outside Directors in connection with the Cases. The letter states that,
         if CityFed refuses to make the payments demanded, the Outside Directors
         will consider taking  appropriate legal action to enforce their rights.
         CityFed  received a similar  letter  from  Venable,  Baetjer,  Howard &
         Civiletti,  counsel  for John  Kean,  who was a party to the Second RTC
         Action,  as well as from Alfred J.  Hedden,  Gilbert G.  Roessner,  and
         Gordon  Allen,  who were or are  parties  to the  Cases.  CityFed  also
         received  similar letters in connection with the deferred  compensation
         matters  described  below.  See  "Indemnification  Claims  Relating  to
         Deferred  Compensation  Plans."  CityFed is considering  what action to
         take in response to these letters.  CityFed expects that it may receive
         other,  similar letters  demanding payment from other current or former
         directors  and  officers  who were or are parties to one or more of the
         Cases.

         Through June 30, 2000, CityFed received but has not paid bills totaling
         $4,356,800 in the aggregate for legal services and expenses rendered in
         connection  with the  defense  of  current  and  former  directors  and
         officers of CityFed in the Cases.

         On May 19,  2000,  CityFed  finalized  with  the  OTS  and  the  FDIC a
         settlement  ("Settlement"),  which settled the action  described  below
         under "In the Matter of CityFed Financial Corporation." Pursuant to the
         Settlement, the Temporary Order was dissolved, and the Escrow Agreement
         (as described below) was terminated.  Following the Settlement, CityFed
         may undergo reorganization,  perhaps involving a bankruptcy proceeding.
         It is anticipated that these  indemnification  claims will be addressed
         as part of any such reorganization.

         CityFed does not know whether all current or former officers, directors
         or  employees  of CityFed or its  former  subsidiaries  who are or were
         involved in actions or proceedings will request  advancement or payment
         of legal expenses and  indemnification  or, if requested,  whether they
         will be entitled to advancement of expenses or indemnification. CityFed
         also does not know whether the RTC or FDIC will request  payment on the
         indemnification  claims  assigned to it by individuals who have settled
         with the RTC or FDIC in the  Second RTC  Action,  as  described  above.
         Thus,  it is not possible for CityFed to estimate with any accuracy the
         probable amount or range of liability  relating to current or potential
         indemnification  claims  pursuant to  CityFed's  Bylaws,  although  the
         amount of such claims could be material.

         Certain  insurance   policies  may  provide  coverage  to  CityFed  for
         indemnification  payments made by CityFed.  These policies,  subject to
         certain  exclusions,  limitations  and loss  participation  provisions,
         provide coverage to CityFed for amounts that it may be obligated to pay
         to indemnify its current and former directors and officers, and in some

                                       7
<PAGE>

         cases also provide  coverage to the  directors  and officers of CityFed
         directly  for  covered  losses   resulting  from  claims  made  against
         CityFed's  directors and officers for certain  wrongful acts. Under the
         insurance policies,  CityFed would be required, prior to any payment by
         the insurers to it, to absorb a retention  amount equal to the first $4
         million of each  covered loss unless it is unable to do so by reason of
         insolvency.

         The  insurers  have  denied  coverage  with  respect to the claims made
         against the directors and officers in the First and Second RTC Actions.
         Consequently,  CityFed may not be  reimbursed  by the  insurers for any
         expenses advanced or indemnification payments made to these individuals
         in the First and Second RTC Actions.

         IN THE MATTER OF CITYFED FINANCIAL CORPORATION,  OTS Order No. AP 94-26
         (June 2,  1994).  On June 2,  1994,  the  Office of Thrift  Supervision
         issued a Notice of Charges ("OTS  Action")  against  CityFed  Financial
         Corp.  ("CityFed") and against Gordon E. Allen, John W. Atherton,  Jr.,
         Edwin M.  Halkyard,  Alfred J.  Hedden,  Peter R.  Kellogg,  William A.
         Liffers and Gilbert G.  Roessner  ("Individual  Respondents"),  who are
         current or former  directors  or officers  of CityFed and of  CityFed's
         former subsidiary, City Federal.

         The OTS charged that  CityFed  failed to maintain the net worth of City
         Federal  at levels  required  by  applicable  capital  requirements  in
         violation of a Stipulation dated December 4, 1984. CityFed had provided
         the Stipulation to the Federal  Savings and Loan Insurance  Corporation
         in connection  with the approval by the Federal Home Loan Bank Board of
         CityFed's  acquisition of City Federal in December  1984.  Federal Home
         Loan Bank Board  ("FHLBB")  Resolution No.  84-664,  dated November 21,
         1984,  approved CityFed's  acquisition of City Federal on the condition
         that,  among  other  things,  CityFed  provide the  Stipulation  to the
         Federal  Savings  and  Loan  Insurance  Corporation.   The  Stipulation
         provided  that, as long as CityFed  controlled  City  Federal,  CityFed
         would cause the net worth of City Federal to be  maintained  at a level
         consistent   with  that  required  by  regulations   and  would  infuse
         sufficient  additional  equity capital,  in a form  satisfactory to the
         regulators, to effect compliance with the capital requirement.

         The Notice of  Charges  sought  restitution  in an amount not less than
         $118.4  million,  which the OTS  alleged to be the  regulatory  capital
         deficiency reported by City Federal in the Fall of 1989.

         The OTS also  sought  a civil  money  penalty  against  CityFed  on the
         grounds  that  CityFed  allegedly  "knowingly"  committed  the  alleged
         violations  described  above and  allegedly  "knowingly  or  recklessly
         caused a  substantial  loss to City  Federal."  The amount of the civil
         money  penalty  assessed  against  CityFed in the Notice of Charges was
         $2,649,600.

         The Crime Control Act of 1990 provides that commitments to maintain the
         capital of  federally  insured  depository  institutions,  such as City
         Federal,  are  afforded a priority  over  other  unsecured  claims in a
         bankrupt  corporation's  estate  to the  extent  provided  in 11 U.S.C.
         Section  507(a).  Thus,  if CityFed  was held  liable for the amount of
         capital that would have been required to cause City Federal to meet its
         regulatory capital requirements,  a claim based on such liability would
         have priority over other unsecured  claims against  CityFed's estate in
         bankruptcy to the extent provided in such section.

                                       8
<PAGE>

         The OTS charged  that the  individual  Respondents  had an  affirmative
         obligation to see that CityFed complied with its net worth maintenance.
         OTS alleged  that some of the  Respondents  (Messrs.  Allen,  Atherton,
         Hedden,  Kellogg and Roessner) were unjustly enriched through CityFed's
         payment of their legal expenses with CityFed assets, an allegation that
         refers to the  advancement by CityFed,  pursuant to its  obligations in
         its Bylaws and Restated  Certificate  of  Incorporation,  of litigation
         expenses to those  Respondents  in the RTC action in the United  States
         District  Court  for  the  District  of New  Jersey,  RESOLUTION  TRUST
         CORPORATION V. ATHERTON, ET AL., Civil Action No. 93-1811 (consolidated
         with RESOLUTION TRUST CORPORATION V. SIMMONS,  ET AL., Civil Action No.
         92-5261-B). The Notice of Charges requested that an order be entered by
         the Director of the OTS requiring the Respondents to make  restitution,
         reimburse, indemnify or guarantee the OTS against loss in an amount not
         less  than  $400,000,  which  OTS  alleged  to be the  amount  of legal
         expenses CityFed paid on their behalf from April to December 1993.

         In the Notice of Charges,  the OTS also  assessed a civil money penalty
         against the  individual  Respondents on the grounds that they allegedly
         "violated a condition  imposed in writing and/or a written  agreement."
         The amount of civil money  penalties  assessed  against the Respondents
         was $51,750 each.

         Also on June 2,  1994,  the OTS issued a  Temporary  Order to Cease and
         Desist ("Temporary Order") against CityFed.  The Temporary Order sought
         to "freeze"  CityFed's assets by placing them in various respects under
         the control of OTS.  CityFed and several of the individual  Respondents
         attempted  to have the  Temporary  Order set  aside in court,  but that
         attempt was unsuccessful.

         On  October  26,  1994,  CityFed  and the OTS  entered  into an  Escrow
         Agreement with  CoreStates  Bank,  N.A. (now First Union National Bank)
         pursuant to which CityFed  transferred  substantially all of its assets
         to First  Union Bank for  deposit  into an escrow  account.  The Escrow
         Agreement  provided  CityFed with $15,000 per month for normal business
         expenses  and allowed  CityFed to sell and purchase  securities  in the
         escrow account. Although the Escrow Agreement was terminated, CityFed's
         assets  continue  to be  invested in money  market  instruments  with a
         maturity of one year or less and money market mutual funds.

         The terms of the Settlement generally include the following:

                o  CityFed  paid to the  FDIC,  as  receiver  for City  Federal,
                   $3,169,115;

                o  CityFed assigned to the FDIC all of CityFed's interest in its
                   goodwill claim (see "Supervisory Goodwill Action" below);

                o  CityFed  conveyed to the FDIC its ownership  interest in City
                   Federal  and  gave up any  claims  against  its  receivership
                   estate;

                o  The OTS dismissed with prejudice the OTS Action,  and the OTS
                   and the FDIC gave full and  complete  releases to CityFed and
                   the Individual Respondents;

                o  CityFed and the Individual Respondents gave full and complete
                   releases to the OTS and the FDIC; and


                                       9
<PAGE>

                o  The OTS dissolved the Temporary  Order and  authorized  First
                   Union Bank to release to CityFed all of its assets  remaining
                   in the escrow  account  following  payment of the  settlement
                   proceeds.

         Under the terms of the Settlement,  the Settlement may be declared null
         and void if bankruptcy proceedings are instituted by or against CityFed
         before August 23, 2000. If the  Settlement  becomes null and void,  the
         OTS and the FDIC would have the right to reinstate  all claims  against
         CityFed and the Individual Respondents and could seek to litigate those
         claims in the  bankruptcy  court or elsewhere.  As noted above,  claims
         based on  commitments  to  maintain  the capital of  federally  insured
         depository  institutions  are afforded a priority over other  unsecured
         claims in a bankrupt  corporation's estate to the extent provided in 11
         U.S.C. Section 507(a).

         For  further  information  regarding  the  Stipulation,  see "First RTC
         Action" below.

         FIRST RTC ACTION - On  December  7, 1992,  the RTC in its  capacity  as
         receiver for City Savings, and the RTC in its corporate capacity, filed
         the First RTC Action in the N.J. Court against  CityFed and against two
         former  officers of City  Federal.  In its  complaint  in the First RTC
         Action,  the RTC, in its  corporate  capacity,  sought,  INTER ALIA, to
         recover damages in excess of $12 million against CityFed resulting from
         CityFed's  alleged  violation  of the  Stipulation  to maintain the net
         worth of City Federal.

         In connection with the First RTC Action, the RTC filed an Order to Show
         Cause with Temporary  Restraints  Freezing Assets of Defendant  CityFed
         Financial Corp.  ("Order to Show Cause") seeking an order from the N.J.
         Court placing all assets of CityFed under the control of the N.J. Court
         and related  relief pending a hearing on a preliminary  injunction.  On
         January  5,  1993,  CityFed  and  the  RTC  entered  into  the  Expense
         Agreement, effective as of December 14, 1992, whereby the RTC agreed to
         refrain from seeking the relief  sought in its Order to Show Cause.  In
         the Expense  Agreement,  the RTC further agreed that CityFed could make
         payments  of  ordinary  and  reasonable  business  expenses,  including
         aggregate  compensation and employee  benefits in amounts not to exceed
         those paid in 1991 for John W. Atherton,  Jr., as President of CityFed,
         and for CityFed's corporate  secretary,  directors' fees and reasonable
         expenses in connection  with  attendance at meetings of CityFed's Board
         of  Directors,  reasonable  and  necessary  fees for  outside  auditing
         services,  taxes,  transfer  fees, and rent and utilities for CityFed's
         offices in Florida and Massachusetts,  reasonable corporate legal fees,
         and reasonable defense costs,  attorneys' fees and/or  disbursements in
         connection with the First RTC Action and,  relating only to the defense
         of CityFed,  with respect to the action  originally filed in the United
         States District Court for the Northern District of California captioned
         RIDDER,  ET AL. V. CITYFED  FINANCIAL  CORP.,  C92-4649-BAC,  which was
         dismissed  without  prejudice and refiled in the N.J.  Court  captioned
         RIDDER,  ET AL. V. CITYFED  FINANCIAL  CORP.,  (Case No. 93-1676) (HLS)
         ("Ridder  Action").  (The Ridder Action has been settled.)  Pursuant to
         the Expense Agreement,  CityFed had been giving a monthly accounting of
         such expenditures to the RTC, and the RTC had the right to apply to the
         N.J. Court in the First RTC Action for an appropriate Order to prohibit
         such expenditures.

         CityFed agreed in the Expense  Agreement to give the RTC written notice
         prior to making any  payment  of  extraordinary  expenses  of more than


                                       10
<PAGE>

         $5,000 and of any payment on behalf of CityFed (other than with respect
         to the First RTC Action and the Ridder  Action) and/or on behalf of any
         individual  or  individuals  with  respect to whom CityFed is obligated
         under its Bylaws to make such  payment  for defense  costs,  attorneys'
         fees and/or  disbursements  with respect to any other  then-pending  or
         threatened,   or  subsequently   initiated  or  threatened,   civil  or
         administrative  investigation,  action or  proceeding.  The RTC had the
         right to make an  application to the N.J. Court to prohibit the payment
         of such  extraordinary  expenses of more than  $5,000 and such  defense
         costs, attorneys' fees and/or disbursements.

         By its terms, the Expense  Agreement  remained in full force and effect
         until (a) it was terminated by mutual  agreement of CityFed and the RTC
         in writing,  (b) it was terminated by an order of the N.J. Court or (c)
         the N.J.  Court  entered a final order with  respect to the RTC's claim
         against CityFed in the First RTC Action regarding the Stipulation.

         On  September  30,  1993,  CityFed  was  advised  by OTS staff  that it
         intended  to  recommend   that  the  OTS  initiate  an   administrative
         enforcement  proceeding  against CityFed.  The OTS staff reaffirmed its
         intention to  recommend  that the OTS  initiate  such a  proceeding  in
         meetings  between  OTS staff and  representatives  of  CityFed in April
         1994. In light of this, and at the request of the RTC and CityFed,  the
         N.J.  Court entered  several  successive  orders  staying the First RTC
         Action from  October 1993  through  June 1994.  The Orders  staying the
         First RTC Action did not affect the Expense Agreement,  except that the
         Orders  provided that the Expense  Agreement  would  terminate upon the
         effective  date of any order issued by the OTS, or of any consent order
         or agreement  between the OTS and CityFed,  that  addressed the subject
         matter of the Expense  Agreement.  In light of the filing by the OTS of
         the Notice of Charges on June 2, 1994,  the RTC and  CityFed  agreed to
         (1)  a  Consent  Order  Dismissing  Claims  Against  Defendant  CityFed
         Financial  Corp.  Without  Prejudice,  which provides for the dismissal
         without  prejudice of the RTC's claim against  CityFed in the First RTC
         Action, and which was entered as an Order of the N.J. Court on July 19,
         1994;  and (2) a  Tolling  Agreement,  effective  as of July 11,  1994,
         pursuant to which  CityFed  and the RTC agreed (a) to toll,  during the
         pendency of the OTS'  proceeding  against  CityFed,  the running of the
         statute of limitations  with respect to the claims the RTC had asserted
         against  CityFed  in the First  RTC  Action  and (b) that,  if the OTS'
         proceeding   against  CityFed  results  in  a  determination  that  the
         Stipulation was void and/or  unenforceable  as a matter of law, or that
         CityFed did not violate the Stipulation, the RTC would be bound by such
         determination.

         Pursuant to the Settlement,  the FDIC released  CityFed from all claims
         in the First RTC Action.

         The RTC also  sought,  in its  complaint  in the First RTC  Action,  to
         recover  damages in excess of $130 million from two former  officers of
         City Federal resulting from their alleged negligence, gross negligence,
         breach of  fiduciary  duty and other  duties  and  other  wrongful  and
         improper   conduct  while  serving  as  officers  of  City  Federal  in
         connection  with  the  approval,  funding,  management,  oversight  and
         workout of two large  acquisition,  development and construction  loans
         for two projects located in Florida,  Grand Harbor ("Grand Harbor") and
         Woodfield Country Club Estates ("Woodfield"). On February 9, 1993, upon
         motion of CityFed in the First RTC Action,  the N.J.  Court  entered an
         order severing the RTC's claims  against  CityFed from the RTC's claims
         against the two former officers of City Federal.



                                       11
<PAGE>

         SECOND RTC ACTION - On April 26,  1993,  the RTC,  in its  capacity  as
         receiver  for City  Savings,  filed the  Second  RTC Action in the N.J.
         Court against John W. Atherton, Jr., Gordon E. Allen, Alfred J. Hedden,
         Peter R. Kellogg, John Kean, Gilbert G. Roessner,  George E. Mikula and
         James  P.  McTernan,  all  former  directors  and/or  officers  of City
         Federal.  In its initial  complaint  in the Second RTC Action,  the RTC
         sought  to  recover  damages  in  excess of $130  million  for  alleged
         negligence,  gross  negligence  and breach of  fiduciary  duties by the
         defendants  in connection  with the Grand Harbor and  Woodfield  loans.
         Although the Second RTC Action was filed  separately from the First RTC
         Action,  the N.J. Court consolidated the two actions for administrative
         purposes.

         On June 17,  1993,  the RTC  filed a First  Amended  Complaint  ("First
         Amended  Complaint")  in the Second RTC Action that named as additional
         defendants  in the Second RTC Action  Victor A. Pelson and  Marshall M.
         Criser, two former directors of City Federal. With the exception of the
         addition of Messrs.  Pelson and Criser as defendants,  the substance of
         the First Amended  Complaint is identical to the complaint filed by the
         RTC on April 26, 1993.

         On November 15, 1993,  the N.J. Court granted the motions of several of
         the  defendants  to dismiss the RTC's First  Amended  Complaint  to the
         extent it alleged a cause of action for simple negligence.  On December
         15, 1993, the RTC filed a Second  Amended  Complaint  ("Second  Amended
         Complaint")  in the Second RTC Action,  alleging  gross  negligence and
         breach of duty against the defendants named in the Second RTC Action in
         connection  with the Grand  Harbor  and  Woodfield  loans,  and also in
         connection  with the Port Liberte loan ("Port  Liberte"),  a large real
         estate  development  loan in New Jersey that had not been  mentioned in
         the First RTC Action or in the initial  complaint or the First  Amended
         Complaint in the Second RTC Action. The Second Amended Complaint,  with
         the addition of allegations  regarding  Port Liberte,  seeks damages in
         excess  of $200  million  (as  compared  to $130  million  in the First
         Amended Complaint).

         The RTC filed an  interlocutory  appeal with the United States Court of
         Appeals for the Third Circuit ("Third  Circuit") from the N.J.  Court's
         November  15, 1993 Orders in the Second RTC Action that  dismissed  the
         RTC's  First  Amended  Complaint  to the  extent it  alleged a cause of
         action for  simple  negligence.  On June 23,  1995,  the Third  Circuit
         reversed the N.J.  Court's  November  15, 1993  Orders.  On January 14,
         1997,  in the case  captioned  ATHERTON V.  FEDERAL  DEPOSIT  INSURANCE
         CORPORATION,  117 S. Ct. 666 (1997) ("Supreme Court Case"), the Supreme
         Court of the United  States  vacated the Third  Circuit's  judgment and
         remanded the case.

         On January 2, 1996, the FDIC, as statutory  successor to the RTC, filed
         a Third Amended Complaint ("Third Amended Complaint") in the Second RTC
         Action.  The Third Amended Complaint alleged that the defendants in the
         Second  RTC  Action  were  liable  for  negligence  as  well  as  gross
         negligence  and breach of fiduciary  duty under federal  common law. In
         all other  respects,  the Third Amended  Complaint was identical to the
         Second Amended Complaint.  On February 14, 1996, some of the defendants
         in the Second RTC Action  filed a motion to dismiss  the Third  Amended
         Complaint.

         CityFed  is aware that all of the  defendants  in the Second RTC Action
         have settled with the RTC or FDIC. The settlement  agreement for Victor

                                       12
<PAGE>

         Pelson  includes a waiver by him of his  indemnification  claim against
         CityFed for legal fees and  expenses  and the amount of his  settlement
         payment  in the Second  RTC  Action,  which  occurred  pursuant  to the
         Settlement.  Mr.  Pelson  agreed to pay the RTC  $650,000 to settle the
         Second RTC Action.  The settlement  agreements for John Kean,  Marshall
         Criser, Alfred Hedden and Gilbert Roessner include (1) an assignment by
         them  to the RTC or FDIC of  their  respective  indemnification  claims
         against CityFed for settlement payments they make to the RTC or FDIC to
         settle  the  Second  RTC  Action,  and (2)  retention  by them of their
         respective  indemnification  claims against  CityFed for legal fees and
         expenses  incurred in the Second RTC Action.  The  settlement  payments
         agreed to be made by Messrs.  Kean, Criser,  Hedden and Roessner to the
         RTC or FDIC, and thus the amount of  indemnification  claim assigned by
         them to the RTC or FDIC, are $1,200,000 for Mr. Kean,  $400,000 for Mr.
         Criser,  $250,000 for Mr. Hedden and $335,000 for Mr. Roessner. The RTC
         agreed to allow a $70,000  credit  toward  the amount to be paid by Mr.
         Roessner as a means of resolving Mr.  Roessner's  claim against the RTC
         for lost earnings on deferred  compensation amounts Mr. Roessner claims
         were withheld from him by the RTC. In their  settlements with the FDIC,
         Gordon  Allen  and  Peter  Kellogg   retained   their  rights  to  seek
         indemnification  from CityFed for settlement  payments they made to the
         FDIC as well as for legal  fees and  expenses  incurred  by them in the
         Second RTC  Action.  Mr.  Allen  agreed to pay  $250,000  to settle the
         Second RTC Action,  and Mr. Kellogg agreed to pay  $3,000,000.  CityFed
         understands  also that the FDIC has settled with George  Mikula,  James
         McTernan,  John W. Atherton, Jr., Richard Simmons and Michael DeFreytas
         for  $5,000  each and they  each  have  retained  their  rights to seek
         indemnification from CityFed for their settlement payments.

         Pursuant to the Settlement, the FDIC assigned any rights it acquired in
         the  settlements  described  above  to  CityFed.  See  "Indemnification
         Claims" above.

         SUPERVISORY  GOODWILL  ACTION - The United States Supreme Court held in
         the  WINSTAR  case  that  the  loss  by  a  financial   institution  of
         supervisory  goodwill  carried on its books as a consequence of earlier
         supervisory mergers, as a result of the Financial  Institutions Reform,
         Recovery and Enforcement Act of 1989,  constituted a breach of contract
         by the United  States.  On August 7, 1995,  CityFed,  acting in its own
         right and as shareholder  of City Federal,  filed a civil action in the
         United  States  Court of Federal  Claims  seeking  damages  for loss of
         supervisory  goodwill on its books as a result of various  acquisitions
         by City Federal of troubled depository institutions.  CITYFED FINANCIAL
         CORP.,  IN ITS OWN RIGHT AND IN ITS  CAPACITY  AS  SHAREHOLDER  OF CITY
         FEDERAL  SAVING  BANK,  BEDMINSTER,  NEW  JERSEY  V.  UNITED  STATES OF
         AMERICA, No. 95-508c.

         CityFed's  case is one of more than one  hundred  supervisory  goodwill
         cases currently  pending in the Court of Federal Claims.  The Court has
         adopted case management  procedures to govern the priority and handling
         of these  cases,  and  CityFed's  counsel is  participating  with other
         plaintiffs' counsel in coordinated prosecution of these cases.

         The FDIC has  intervened  as a plaintiff in each  supervisory  goodwill
         case  involving  closed  institutions  where  there is  claimed to be a
         deficit in the receivership estate.  CityFed's case is such a case, and
         the FDIC has  intervened  as a plaintiff  in CityFed's  case.  The FDIC
         claims  that,  as receiver,  it is the proper party to assert  goodwill
         claims,  since its  receivership  claim  likely  exceeds any  potential
         goodwill recovery. The Court has permitted the FDIC to participate in

                                       13
<PAGE>

         the  prosecution of such goodwill  claims,  but not to the exclusion of
         other  plaintiffs.  The Court has not yet  determined  whether the FDIC
         will be entitled to some or all of the recovery in such cases.

         CityFed's  supervisory  goodwill case remains  stayed,  pursuant to the
         Court's case management procedures, while the Court completes discovery
         and trials in other supervisory goodwill cases.

         Pursuant  to  the  Settlement,  CityFed  assigned  to the  FDIC  all of
         CityFed's  interest in its  supervisory  goodwill case,  ceased to be a
         party to that case,  and has no right to share in the  recovery in that
         case, should there be one.

         CLAIM  OF  A  FORMER  DIRECTOR  AND  OFFICER  -  As  a  result  of  the
         receivership  of City  Federal,  City Federal  failed to pay Gilbert G.
         Roessner, a former director and officer of CityFed, the amounts owed to
         him under various deferred  compensation  arrangements City Federal had
         with  him.  He claims  that  CityFed  is  responsible  for this  amount
         (approximately  $1.1 million as of November  1989).  On April 30, 1991,
         special  counsel to the  Compensation  Committee of CityFed's  Board of
         Directors recommended to the full Board that no payments be made to Mr.
         Roessner currently,  but that the Board keep Mr. Roessner's claim under
         advisement,  to be reconsidered in light of then existing circumstances
         and any additional  evidence provided by Mr. Roessner in support of his
         claim.  The full  Board of  Directors  received  the  report of special
         counsel to the Compensation Committee.

         Pursuant to Mr.  Roessner's  settlement with the RTC as discussed under
         "Second RTC Action"  above,  CityFed  believes Mr.  Roessner's  current
         deferred  compensation  claim  is in the  amount  of  $169,365.60  plus
         accrued interest thereon, if any.

         INDEMNIFICATION  CLAIMS  RELATING TO DEFERRED  COMPENSATION  PLANS - In
         September  1990,  the RTC, as receiver  for City  Federal  (and the new
         Federal  mutual savings bank created to acquire all of the deposits and
         substantially  all of the assets  and  indebtedness  of City  Federal),
         caused an action to be filed in the N.J.  Court  seeking  the return of
         approximately  $3.1 million (since reduced to $1.9 million) in deferred
         compensation  paid by City Federal to certain  officers,  directors and
         employees  of City  Federal,  some of whom are or were  also  officers,
         directors  or employees  of CityFed.  Pursuant to the Delaware  General
         Corporation Law and the Bylaws of CityFed, CityFed paid the defendants'
         legal fees in connection with their defense of the litigation.

         A  settlement  agreement,  under  which  the  defendants  were  to  pay
         $790,000,  was  entered  into by the  parties  in June  1993 (of  which
         $114,000  was in the  form of  promissory  notes  from  two  defendants
         payable over four years). This settlement agreement concluded the case.

         Several  defendants have requested that CityFed  reimburse them for the
         settlement  payments  made  by them  under  the  settlement  agreement.
         CityFed has not  responded  to the  request.  It is likely that CityFed
         will receive similar requests from the other parties to the settlement.
         CityFed's  liability  to  the  individuals  remains  to be  determined;
         however,  CityFed  has  included  in its  contingency  reserve the full
         settlement amount of $790,000.


                                       14
<PAGE>

         TAX LIABILITIES - CityFed's  liability for federal income taxes for tax
         years through 1990 was  calculated on the basis of CityFed's  inclusion
         in a  consolidated  group that  includes City Federal and the successor
         institutions  created by the OTS to acquire the assets and  liabilities
         of City  Federal.  Under  the  applicable  provisions  of the  Internal
         Revenue  Code  of  1986,  as  amended  ("Code"),  and  the  regulations
         thereunder,  all members of the consolidated group,  including CityFed,
         are  jointly  and  severally  liable for any  income  taxes owed by the
         group.  CityFed  has  not  included  City  Federal  and  the  successor
         institutions  in the Federal  income tax returns  CityFed filed for its
         tax  years  1991  through  1998.  CityFed's  position  is not free from
         challenge,  although  CityFed  believes that its position is reasonable
         under the current tax law.

         CONTINGENCY  RESERVE - As noted  above,  the  Company  is  subject to a
         number  of loss  contingencies  for  which it is  currently  unable  to
         reasonably  assess the  probability or range of loss. At June 30, 2000,
         the  Company  had a $4.2  million  contingency  reserve  that  includes
         amounts for claims asserted for  indemnification of expenses in the OTS
         Action,  expenses  and  settlements  in the  Second  RTC Action and the
         claims  described  above  under  "Indemnification  Claims  Relating  to
         Deferred   Compensation  Plans."  The  reserve  also  includes  amounts
         representing  the  current  minimum  legal  expenses  estimated  to  be
         incurred related to these claims.  The charges for the six months ended
         June 30,  2000  include  $3,169,115  relating  to the  Settlement.  The
         following is an analysis of the Company's contingency reserve:

                   Balance - December 31, 1999              $6,353,000

                   Charges                                  (3,197,000)
                   Provision                                 1,037,000
                                                            ----------

                   Balance - June 30, 2000                  $4,193,000
                                                            ==========

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

General

         On December 7, 1989,  the Office of Thrift  Supervision  appointed  the
         Resolution  Trust  Corporation  ("RTC") as  receiver  for City  Federal
         Savings Bank ("City Federal"), the sole subsidiary of CityFed Financial
         Corp. ("CityFed" or the "Company").  A new federal mutual savings bank,
         City Savings Bank, F.S.B. ("City Savings"), was created, which acquired
         all deposits and  substantially  all of the assets and  liabilities  of
         City  Federal.  CityFed  no longer  controls  City  Federal  and has no
         control over City Savings.

         As a result of this  action,  the  financial  statements  of CityFed at
         December 31, 1989, for the year then ended, and for subsequent  periods
         reflect CityFed's interest in City Federal as discontinued operations.

         Because City Federal was placed in receivership,  CityFed's interest in
         City  Federal  was a claim  against  the  receivership  estate  for the
         proceeds,  if any,  of the  receivership  estate of City  Federal  that
         remain after all  creditors,  including the RTC, have been paid.  For a
         fuller  description  of the  receivership,  see Item 1.,  "Business" in
         CityFed's 1999 Form 10-KSB. In the Settlement relating to IN THE MATTER
         OF CITYFED FINANCIAL CORPORATION, OTS Order No. AP 94-26 (June 2, 1994)
         ("Settlement"),  CityFed conveyed its interest, if any, in City Federal
         to the  Federal  Deposit  Insurance  Corporation  and gave up any claim

                                       15
<PAGE>

         against  the  receivership  estate of City  Federal.  See Note 4 to the
         Notes to Financial Statements for the Six Months Ended June 30, 2000 in
         this Form  10-QSB  ("Notes")  under In the Matter of Cityfed  Financial
         Corporation for further information regarding the Settlement.

         Since the receivership of City Federal, CityFed has been, and currently
         is, in the  process  of  determining  its  liabilities,  including  its
         contingent  liabilities  described in Note 4 to the Notes.  To maintain
         the  principal  value of its  existing  assets  while  this  process is
         ongoing,  CityFed has invested  substantially  all of its funds in high
         grade money market  instruments with a maturity of one year or less and
         money market mutual funds. Since the receivership of City Federal,  the
         operating  expenses of CityFed  have  consisted  of the salaries of the
         employees of CityFed,  the expenses of the two small offices maintained
         by CityFed and the related office operating expenses, expenses relating
         to the audit of its financial  statements by its independent  auditors,
         and expenses of its outside legal counsel.  Currently,  CityFed has one
         full-time employee and one office.

         Due to the nature of its assets at and  subsequent to December 8, 1989,
         CityFed may be deemed to fall within the  definition of an  "investment
         company"  under the  Investment  Company Act of 1940, as amended ("1940
         Act"), from that date to the present. To resolve any question regarding
         its current status under the 1940 Act,  CityFed filed an application on
         October 19,  1990 with the  Division of  Investment  Management  of the
         Securities and Exchange  Commission  ("SEC") for an order  exempting it
         from  certain  provisions  of  the  1940  Act  and  certain  rules  and
         regulations  thereunder.  This application was amended on September 23,
         1993,  January 18, 1994 and March 1, 1994. The  application was granted
         under  Sections  6(c) and (e) of the 1940 Act on March 15, 1994.  Under
         the order granting the application ("1940 Act Order"),  CityFed was not
         required to register as an  investment  company.  However,  CityFed and
         other persons in their  transactions  and  relations  with CityFed are,
         under the terms of the 1940 Act Order,  subject to  Sections  9, 17(a),
         17(d),  17(e),  17(f), 36 through 45 and 47 through 51 of the 1940 Act,
         and the rules  thereunder,  as if CityFed were a registered  investment
         company,  except  insofar as permitted by the 1940 Act Order.  The 1940
         Act Order  exempted  CityFed  from having to register as an  investment
         company  until the  earlier  of March 15,  1995 or such time as CityFed
         would no longer be required to register as an  investment  company.  On
         February  28,  1995,  an  Order  was  issued  extending  the  requested
         exemption  until  February 28, 1996, on February 21, 1996, an order was
         issued  extending the requested  exemption  until February 21, 1997, on
         February  12,  1997,  an  Order  was  issued  extending  the  requested
         exemption  until  February 12, 1999, on February 12, 1999, an Order was
         issued extending the requested  exemption until February 12, 2000, and,
         on  February  9, 2000,  an order was  issued  extending  the  requested
         exemption until February 9, 2001.

Liquidity and Capital Resources

         At June 30, 2000, CityFed had approximately $6,550,000 in total assets,
         $8,716,000   in  total   liabilities   and   $2,166,000   in   negative
         stockholders'  equity. At December 31, 1999,  CityFed had approximately
         $9,652,000  in  total  assets,  $10,857,000  in total  liabilities  and
         $1,205,000 in negative  stockholders' equity.  However, as discussed in
         Note  4  to  the  Notes  and  under  Item  1.,  "Business  -  Potential
         Obligations  of CityFed" in  CityFed's  1999 Form  10-KSB,  a number of
         claims have been asserted against CityFed.  If the claimants under some

                                       16
<PAGE>

         or all of these claims are  successful,  their claims  against  CityFed
         could greatly exceed CityFed's assets.  Consequently,  CityFed's assets
         are currently being invested short term, and expenses have been reduced
         to a level that  management  believes is  commensurate  with  CityFed's
         current activities pending resolution of these claims.

         While  CityFed's  liquidity is expected to be  sufficient to meet legal
         and   administrative   expenses  over  the  next  twelve  months,   any
         substantial  indemnification  expense could reduce liquidity to a level
         that would jeopardize the continuation of the Company's activities.  As
         a result of additions to the contingency reserve, CityFed currently has
         a negative  net worth and it is unlikely  that  CityFed will be able to
         achieve a positive net worth in the foreseeable future.

         As discussed  above,  since the  receivership of City Federal,  CityFed
         initially  marshaled its assets and has been,  and currently is, in the
         process  of  determining  its  liabilities.  To  maintain  the value of
         CityFed's  existing  assets while this process is ongoing,  CityFed has
         invested in income  producing  instruments.  Funds are invested so that
         they are convertible into cash in a reasonably short time with minimal,
         if any, loss of principal.

         Since the  receivership of City Federal,  CityFed has invested and will
         continue to invest  substantially  all its funds in  securities  with a
         maturity  of one year or less.  These  consist  of U.S.  government  or
         agency  securities,  commercial  paper,  bank  certificates of deposit,
         money market mutual funds and corporate  debt  obligations.  Repurchase
         agreements may only be entered into using U.S. government securities as
         collateral.  Non-governmental  or agency investments are purchased only
         if  they  are  rated  in  one  of  the  two  highest  categories  by an
         established rating agency. Investments in the corporate debt securities
         of any one issuer are limited to $2,500,000.

         Under the terms of the 1940 Act  Order,  CityFed  may not  purchase  or
         otherwise acquire any additional  securities other than securities that
         are  rated  investment  grade  or  higher  by a  nationally  recognized
         statistical  rating  organization  or,  if  unrated,  deemed  to  be of
         comparable  quality  under  guidelines  approved by CityFed's  Board of
         Directors, subject to two exceptions:

                          (a) CityFed may make an equity  investment  in issuers
                  that are not  investment  companies as defined in Section 3(a)
                  of the 1940 Act  (including  issuers  that are not  investment
                  companies  because  they are  covered by a specific  exclusion
                  from the  definition of investment  company under Section 3(c)
                  of the 1940 Act other than  Sections  3(c)(1) and  3(c)(7)) in
                  connection  with  the  possible  acquisition  of an  operating
                  business as evidenced  by a  resolution  approved by CityFed's
                  Board of Directors; and

                          (b)  CityFed  may invest in one or more  money  market
                  mutual  funds  that  limit  their   investments  to  "Eligible
                  Securities" within the meaning of Rule 2a-7(a)(10) promulgated
                  under the 1940 Act.

         The financial  statements of CityFed at December 31, 1989, for the year
         then ended, and for subsequent periods reflect that CityFed maintains a
         contingency  reserve which,  at June 30, 2000,  was $4,193,000  and, at
         December 31, 1999, was $6,353,000.


                                       17
<PAGE>

         The  current   reserves   include   amounts  for  claims  asserted  for
         indemnification of expenses in the OTS Action, expenses and settlements
         in  the  Second  RTC  Action  and  the  claims  described  above  under
         "Indemnification  Claims Relating to Deferred  Compensation Plans." The
         reserve also includes  amounts  representing  the current minimum legal
         expenses  estimated to be incurred in connection  with the claims.  See
         Note 4 to the Notes, and Item 1., "Business - Potential  Obligations of
         CityFed" in CityFed's  1999 Form 10-KSB for a description  of the major
         claims that may give rise to expected future costs. Although management
         believes that  CityFed's  current  level of reserves are  sufficient to
         cover the costs of pending claims,  no assurances can be given that the
         reserves established will be adequate,  that any ultimate resolution of
         the claims will not result in  substantial  amounts  being  incurred or
         that further claims will not be asserted.

         On  October  26,  1994,  CityFed  and the OTS  entered  into an  Escrow
         Agreement  ("Escrow  Agreement")  with CoreStates Bank, N.A., now First
         Union Bank  ("First  Union"),  pursuant  to which  CityFed  transferred
         substantially  all of its  assets to First  Union for  deposit  into an
         escrow account to be maintained by First Union.  Under the  Settlement,
         CityFed is no longer subject to the terms of the Escrow Agreement.

         Results of Operations

         CityFed  recorded income from continuing  operations for the six months
         ended June 30, 2000 of $76,000. This compares to income from continuing
         operations  in the amount of $105,000 for the six months ended June 30,
         1999. No addition to the contingency  reserve was made during the three
         or six months ended June 30, 1999 while an addition of  $1,037,000  was
         made for the six months ended June 30, 2000.

         CityFed recorded a loss from continuing operations for the three months
         ended June 30, 2000 of $1,000.  This compares to income from continuing
         operations in the amount of $56,000 for the three months ended June 30,
         1999. No addition to the contingency  reserve was made during the three
         months ended June 30, 1999 or 2000.

         Interest on investments  was $255,000 for the six months ended June 30,
         2000  compared to $227,000  for the six months  ended June 30, 1999 due
         primarily  to the higher  level of interest  rates.  Total  expenses of
         $203,000  for the six months  ended June 30,  2000 were higher than the
         $122,000 for the same period in 1999 due to higher professional service
         fees.  In 2000,  CityFed  received a  distribution  of $24,000  from CX
         Partners, L.P. See Item 1.,  "Business-Boesky  Settlement" in CityFed's
         1999 Form 10-KSB.

         Interest on  investments  was  $123,000 for the three months ended June
         30, 2000, compared to $114,000 for the three months ended June 30, 1999
         due primarily to the higher level of interest  rates.  Total  operating
         expenses  of  $124,000  for the three  months  ended June 30, 2000 were
         higher  than the  $58,000 for the same period in 1999 due to the higher
         level of compensation and professional service fees.

         CityFed's  contingency  reserve was established in 1989 and is intended
         to include reserves for CityFed's legal and  indemnification  expenses.
         See Note 4 to the Notes to  Financial  Statements  in this Form 10-QSB,
         and Item 1., "Business - Potential Obligations of CityFed" in CityFed's
         1999 Form 10-KSB for a  description  of the major  claims that may give
         rise to expected  future costs.  An addition of $1,037,000  was made to
         the reserve for the six months ended June 30, 2000. Due to the addition
         to the reserve  less charges of $28,000 and the  settlement  payment in
         the OTS Action of  $3,169,115,  the  contingency  reserve was decreased
         from $6,353,000 at December 31, 1999 to $4,193,000 at June 30, 2000.

         The  basic  net loss per share of $0.12 and $0.28 for the three and six
         months ended June 30, 2000,  respectively,  compares to $0.11 and $0.23
         for the three and six months  ended June 30,  1999.  The basic net loss
         per share of $0.28 for the six months  ended June 30, 2000 is after the
         loss from  discontinued  operations of $0.05 per share. In all periods,
         the basic net loss per share is after the deduction of unpaid preferred
         dividends.  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.

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<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

         See  Note  4 to  the  Notes  for a  description  of  currently  pending
         litigation.

Item 2.  Changes in Securities.

         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  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  June  30,  2000,  the  aggregate
         deficiency  on the Series B Stock was  approximately  $58.6 million and
         the aggregate  deficiency on the Series C Stock was approximately $36.3
         million.

Item 4.  Submission of Matters to a Vote of Security Holders.

         None.

Item 5.  Other Information.

         None.

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

         (a)  Exhibits

         11.  Statement Regarding the Computation of Per Share Loss.

                                       19
<PAGE>

         27.  Financial Data Schedule

(b)   Reports on Form 8-K.

         A Report on Form 8-K,  dated May 19,  2000,  was filed on May 23, 2000,
         reporting,  under Item 5, the  Settlement  with the OTS and the FDIC as
         discussed in Note 4 to the  Financial  Statements  under Item 1 of this
         Form 10-QSB.


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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.
                                    President, Chief Executive Officer
                                       and Treasurer (Principal Executive
                                       and Financial Officer)

Date:  August 14, 2000




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