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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q



|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006

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 001-11011

THE FINOVA GROUP INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 86-0695381                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)
|                                                               | 
|4800 North Scottsdale Road Scottsdale, AZ                      |  | 85251-7623                          
|(Address of principal executive offices)                       |  | (Zip code)                          

Registrants telephone number, including area code: 480-636-4800

N/A

(Former name, former address
and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

Yes  þ    No ̈

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈No  þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by the court.

Yes  þ    No ̈

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of July 31, 2006, approximately 122,041,000
shares of Common Stock ($0.01 par value) were outstanding.



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THE FINOVA GROUP INC.

TABLE OF CONTENTS



|           |  |                                                                                       |  |         
|---------- |  | ------------------------------------------------------------------------------------- |  | --------
|           |  |                                                                                       |  | Page No.
|           |  | PART I         FINANCIAL INFORMATION                                                  |  |         
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |  | 1       
|           |  | Condensed Consolidated Balance Sheets                                                 |  | 1       
|           |  | Condensed Statements of Consolidated Operations                                       |  | 2       
|           |  | Condensed Statements of Consolidated Cash Flows                                       |  | 3       
|           |  | Condensed Statements of Consolidated Stockholders Equity                             |  | 4       
|           |  | Notes to Interim Condensed Consolidated Financial Statements                          |  | 5       
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13      
|           |  | Special Note Regarding Forward-Looking Statements                                     |  | 24      
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 24      
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 25      
|           |  |                                                                                      
|           |  | PART II         OTHER INFORMATION                                                     |  |         
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 26      
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 26      
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 26      
|           | 
|Signatures |  | 27                                                                                   



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##### Table of Contents

PART I FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

THE FINOVA GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



|                                                                                           |  |                         |           |   |                           |   |           |  
|------------------------------------------------------------------------------------------ |  | ----------------------- | --------- | - | ------------------------- | - | --------- | -
|                                                                                           |  | June 30,2006(Unaudited) |           |   | December 31,2005(Audited) |  
|ASSETS                                                                                     |  |                         |           |   |                           |   |           |  
|Cash and cash equivalents                                                                  |  | $                       | 163,004   |   |                           | $ | 212,317   |  
|Restricted cash - impermissible restricted payments                                        |  |                         | 76,542    |   |                           |   | 67,169    |  
|Financing Assets:                                                                          |  |                         |           |   |                           |   |           |  
|Loans and other financing contracts, net                                                   |  |                         | 85,031    |   |                           |   | 177,887   |  
|Direct financing leases                                                                    |  |                         | 43,971    |   |                           |   | 77,948    |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|Total financing assets                                                                     |  |                         | 129,002   |   |                           |   | 255,835   |  
|Reserve for credit losses                                                                  |  |                         | (3,120    | ) |                           |   | (29,032   | )
|                                                                                           |  |                         |           |   |                           |   |           |  
|Net financing assets                                                                       |  |                         | 125,882   |   |                           |   | 226,803   |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|Other Financial Assets:                                                                    |  |                         |           |   |                           |   |           |  
|Operating leases                                                                           |  |                         | 43,018    |   |                           |   | 69,784    |  
|Investments                                                                                |  |                         | 17,085    |   |                           |   | 22,490    |  
|Assets held for sale                                                                       |  |                         | 3,154     |   |                           |   |           |  
|Assets held for production of income                                                       |  |                         | 1,698     |   |                           |   | 7,572     |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|Total other financial assets                                                               |  |                         | 64,955    |   |                           |   | 99,846    |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|Total Financial Assets                                                                     |  |                         | 190,837   |   |                           |   | 326,649   |  
|Other assets                                                                               |  |                         | 3,274     |   |                           |   | 5,016     |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|                                                                                           |  | $                       | 433,657   |   |                           | $ | 611,151   |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |                         |           |   |                           |   |           |  
|Liabilities:                                                                               |  |                         |           |   |                           |   |           |  
|Senior Notes, net (principal amount due of $1.5 billion and $1.7 billion, respectively)    |  | $                       | 989,116   |   |                           | $ | 1,151,491 |  
|Interest payable                                                                           |  |                         | 14,506    |   |                           |   | 16,215    |  
|Accounts payable and accrued expenses                                                      |  |                         | 35,162    |   |                           |   | 52,655    |  
|Deferred income taxes, net                                                                 |  |                         | 2,407     |   |                           |   | 2,521     |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|Total Liabilities                                                                          |  |                         | 1,041,191 |   |                           |   | 1,222,882 |  
|                                                                                           |  |                         |           |   |                           |   |           |  
|Stockholders Equity:                                                                      |  |                         |           |   |                           |   |           |  
|Common stock, $0.01 par value, 400,000,000 shares authorized and 125,873,000 shares issued |  |                         | 1,259     |   |                           |   | 1,259     |  
|Additional capital                                                                         |  |                         | 113,140   |   |                           |   | 113,140   |  
|Accumulated deficit                                                                        |  |                         | (721,397  | ) |                           |   | (727,149  | )
|Accumulated other comprehensive income                                                     |  |                         |           |   |                           |   | 1,555     |  
|Common stock in treasury, 3,832,000 shares                                                 |  |                         | (536      | ) |                           |   | (536      | )
|                                                                                           |  |                         |           |   |                           |   |           |  
|Total Stockholders Equity                                                                 |  |                         | (607,534  | ) |                           |   | (611,731  | )
|                                                                                           |  |                         |           |   |                           |   |           |  
|                                                                                           |  | $                       | 433,657   |   |                           | $ | 611,151   |  
|                                                                                           |  |                         |           |   |                           |   |           |  

See notes to interim condensed consolidated financial statements.



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THE FINOVA GROUP INC.

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)



|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|--------------------------------------- |  | ------------------------------- | ----------- | - | ------------------------------- | - | ----------- | ----------------------------- |  | - | ----------------------------- | - |  | - | ----------- | -
|                                        |  | Three MonthsEnded June 30, 2006 |             |   | Three MonthsEnded June 30, 2005 |   |             | Six MonthsEnded June 30, 2006 |  |   | Six MonthsEnded June 30, 2005 |  
|Revenues:                               |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Interest income                         |  | $                               | 944         |   |                                 | $ | 6,011       |                               |  | $ | 4,658                         |   |  | $ | 16,149      |  
|Rental income                           |  |                                 | 1,405       |   |                                 |   | 2,897       |                               |  |   | 2,886                         |   |  |   | 6,810       |  
|Operating lease income                  |  |                                 | 6,431       |   |                                 |   | 12,545      |                               |  |   | 14,820                        |   |  |   | 23,224      |  
|Fees and other income                   |  |                                 | 4,113       |   |                                 |   | 3,877       |                               |  |   | 9,435                         |   |  |   | 7,449       |  
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Total Revenues                          |  |                                 | 12,893      |   |                                 |   | 25,330      |                               |  |   | 31,799                        |   |  |   | 53,632      |  
|Interest expense                        |  |                                 | (37,492     | ) |                                 |   | (44,591     | )                             |  |   | (76,468                       | ) |  |   | (92,498     | )
|Operating lease depreciation            |  |                                 | (1,523      | ) |                                 |   | (1,918      | )                             |  |   | (3,181                        | ) |  |   | (4,387      | )
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Interest Margin                         |  |                                 | (26,122     | ) |                                 |   | (21,179     | )                             |  |   | (47,850                       | ) |  |   | (43,253     | )
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Other Revenues and (Expenses):          |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Reversal of provision for credit losses |  |                                 | 1,326       |   |                                 |   | 24,930      |                               |  |   | 22,429                        |   |  |   | 45,340      |  
|Net gain on financial assets            |  |                                 | 28,275      |   |                                 |   | 4,468       |                               |  |   | 57,058                        |   |  |   | 20,581      |  
|Portfolio expenses                      |  |                                 | (4,188      | ) |                                 |   | (8,194      | )                             |  |   | (9,672                        | ) |  |   | (10,532     | )
|General and administrative expenses     |  |                                 | (8,884      | ) |                                 |   | (11,535     | )                             |  |   | (16,213                       | ) |  |   | (24,162     | )
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Total Other Revenues and (Expenses)     |  |                                 | 16,529      |   |                                 |   | 9,669       |                               |  |   | 53,602                        |   |  |   | 31,227      |  
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Income (loss) before income taxes       |  |                                 | (9,593      | ) |                                 |   | (11,510     | )                             |  |   | 5,752                         |   |  |   | (12,026     | )
|Income tax expense                      |  |                                 |            |   |                                 |   |            |                               |  |   |                              |   |  |   |            |  
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Net (Loss) Income                       |  | $                               | (9,593      | ) |                                 | $ | (11,510     | )                             |  | $ | 5,752                         |   |  | $ | (12,026     | )
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Basic/diluted (loss) earnings per share |  | $                               | (0.08       | ) |                                 | $ | (0.09       | )                             |  | $ | 0.05                          |   |  | $ | (0.10       | )
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  
|Weighted average shares outstanding     |  |                                 | 122,041,000 |   |                                 |   | 122,041,000 |                               |  |   | 122,041,000                   |   |  |   | 122,041,000 |  
|                                        |  |                                 |             |   |                                 |   |             |                               |  |   |                               |   |  |   |             |  

See notes to interim condensed consolidated financial statements.



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THE FINOVA GROUP INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in thousands)

(Unaudited)



|                                                                                     |  |                          |          |   |      |   |          |  
|------------------------------------------------------------------------------------ |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                     |  | Six Months EndedJune 30, |         
|                                                                                     |  | 2006                     |          |   | 2005 |  
|Operating Activities:                                                                |  |                          |          |   |      |   |          |  
|Net income (loss)                                                                    |  | $                        | 5,752    |   |      | $ | (12,026  | )
|Adjustments to reconcile net income (loss) to net cash used by operating activities: |  |                          |          |   |      |   |          |  
|Reversal of provision for credit losses                                              |  |                          | (22,429  | ) |      |   | (45,340  | )
|Net cash gain on disposal of financial assets                                        |  |                          | (52,315  | ) |      |   | (21,105  | )
|Net non-cash (gain) charge-off on financial assets                                   |  |                          | (4,743   | ) |      |   | 524      |  
|Depreciation and amortization                                                        |  |                          | 3,944    |   |      |   | 4,784    |  
|Deferred income taxes, net                                                           |  |                          | (114     | ) |      |   | (252     | )
|Fresh-start accretion - assets                                                       |  |                          | (579     | ) |      |   | (1,254   | )
|Fresh-start discount amortization - Senior Notes                                     |  |                          | 15,702   |   |      |   | 20,870   |  
|Change in assets and liabilities:                                                    |  |                          |          |   |      |   |          |  
|Decrease (increase) in other assets                                                  |  |                          | 979      |   |      |   | (2,450   | )
|Decrease in accounts payable and accrued expenses                                    |  |                          | (15,600  | ) |      |   | (13,559  | )
|Decrease in interest payable                                                         |  |                          | (1,709   | ) |      |   | (3,392   | )
|                                                                                     |  |                          |          |   |      |   |          |  
|Net Cash Used by Operating Activities                                                |  |                          | (71,112  | ) |      |   | (73,200  | )
|                                                                                     |  |                          |          |   |      |   |          |  
|Investing Activities:                                                                |  |                          |          |   |      |   |          |  
|Proceeds from disposals of leases and other owned assets                             |  |                          | 53,470   |   |      |   | 26,784   |  
|Proceeds from sales of investments                                                   |  |                          | 4,932    |   |      |   | 3,087    |  
|Proceeds from sales of loans and financing leases                                    |  |                          | 99,959   |   |      |   | 27,041   |  
|Collections and prepayments from financial assets                                    |  |                          | 52,585   |   |      |   | 161,423  |  
|Fundings under existing customer commitments                                         |  |                          | (5,194   | ) |      |   | (7,741   | )
|Deposit of impermissible restricted payments into restricted cash account            |  |                          | (9,373   | ) |      |   | (18,745  | )
|Recoveries of loans previously written off                                           |  |                          | 3,497    |   |      |   | 6,291    |  
|                                                                                     |  |                          |          |   |      |   |          |  
|Net Cash Provided by Investing Activities                                            |  |                          | 199,876  |   |      |   | 198,140  |  
|                                                                                     |  |                          |          |   |      |   |          |  
|Financing Activities:                                                                |  |                          |          |   |      |   |          |  
|Principal prepayments of Senior Notes                                                |  |                          | (178,077 | ) |      |   | (356,154 | )
|                                                                                     |  |                          |          |   |      |   |          |  
|Net Cash Used by Financing Activities                                                |  |                          | (178,077 | ) |      |   | (356,154 | )
|                                                                                     |  |                          |          |   |      |   |          |  
|Decrease in Cash and Cash Equivalents                                                |  |                          | (49,313  | ) |      |   | (231,214 | )
|Cash and Cash Equivalents, beginning of year                                         |  |                          | 212,317  |   |      |   | 480,485  |  
|                                                                                     |  |                          |          |   |      |   |          |  
|Cash and Cash Equivalents, end of period                                             |  | $                        | 163,004  |   |      | $ | 249,271  |  
|                                                                                     |  |                          |          |   |      |   |          |  

See notes to interim condensed consolidated financial statements.



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THE FINOVA GROUP INC.

CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY

(Dollars in thousands)

(Unaudited)



|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|----------------------------------------------- |  | ----------- | ----- | ----------------- | - | ------------------ |  | - | ------------------------------------------ | - |  | ---------------------- | ------- | - | ------------------------ | - | ---- | - |  | - | -------- | -
|                                                |  | CommonStock |       | AdditionalCapital |   | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | CommonStock inTreasury |         |   | TotalStockholdersEquity |  
|Balance, January 1, 2005                        |  | $           | 1,259 |                   | $ | 113,140            |  | $ | (632,702                                   | ) |  | $                      | (15,838 | ) |                          | $ | (536 | ) |  | $ | (534,677 | )
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Comprehensive loss:                             |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Net loss                                        |  |             |       |                   |   |                    |  |   | (94,447                                    | ) |  |                        |         |   |                          |   |      |   |  |   | (94,447  | )
|Minimum pension liability adjustment            |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | 16,494  |   |                          |   |      |   |  |   | 16,494   |  
|Net change in unrealized holding gains (losses) |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | 787     |   |                          |   |      |   |  |   | 787      |  
|Net change in foreign currency translation      |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | 112     |   |                          |   |      |   |  |   | 112      |  
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Comprehensive loss                              |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   | (77,054  | )
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Balance, December 31, 2005                      |  |             | 1,259 |                   |   | 113,140            |  |   | (727,149                                   | ) |  |                        | 1,555   |   |                          |   | (536 | ) |  |   | (611,731 | )
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Comprehensive income:                           |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Net income                                      |  |             |       |                   |   |                    |  |   | 5,752                                      |   |  |                        |         |   |                          |   |      |   |  |   | 5,752    |  
|Net change in unrealized holding gains (losses) |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | (2,002  | ) |                          |   |      |   |  |   | (2,002   | )
|Net change in foreign currency translation      |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | 447     |   |                          |   |      |   |  |   | 447      |  
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Comprehensive income                            |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   | 4,197    |  
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Balance, June 30, 2006                          |  | $           | 1,259 |                   | $ | 113,140            |  | $ | (721,397                                   | ) |  | $                      |        |   |                          | $ | (536 | ) |  | $ | (607,534 | )
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  

See notes to interim condensed consolidated financial statements.



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THE FINOVA GROUP INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006

(Dollars in thousands
in tables)

(Unaudited)



|A. | Nature of Operations
|-- | --------------------

The accompanying financial statements and
notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005. Capitalized terms not defined herein are
used as defined in the Form 10-K.

The notes to the financial statements relate to The FINOVA Group Inc. and its subsidiaries (collectively
FINOVA or the Company), including FINOVA Capital Corporation and its subsidiaries (FINOVA Capital). FINOVA is a financial services holding company. Through its principal operating subsidiary, FINOVA Capital, the
Company has provided a broad range of financing and capital markets products, primarily to mid-size businesses.

The Companys business activities are
limited to maximizing the value of its portfolio through the orderly collection of its assets. These activities include collection efforts pursuant to underlying contractual terms, negotiation of prepayments and sales of assets or collateral. The
Company has sold substantial portions of its asset portfolio and will consider future sales of any asset if buyers can be found at acceptable prices; however, there can be no assurance that the Company will be successful in its efforts to sell
additional assets. The Company is currently offering to sell its remaining assets both by portfolio and individual asset. The Company is prohibited by the Indenture governing its 7.5% Senior Secured Notes (the Senior Notes) from engaging
in any new lending activities or other business, except to honor existing customer commitments and in certain instances, to restructure financing relationships to maximize value. Any funds generated in excess of cash reserves permitted by the
Companys debt agreements have been used to reduce FINOVAs obligations to its creditors.

Because substantially all of the Companys assets
(except for a few assets that could not be pledged because those assets already secured other obligations) are pledged to secure its obligations under the promissory notes of FINOVA Capital issued to FINOVA in the aggregate principal amount of the
Senior Notes (the Intercompany Notes), FINOVAs ability to obtain additional or alternate financing is severely restricted. Accordingly, FINOVA intends to rely on internally generated cash flows from the liquidation of its assets as
its only meaningful source of liquidity.

FINOVAs business continues to be operated under a Management Services Agreement with Leucadia National
Corporation (Leucadia) that expires in 2011. Pursuant to that agreement, Leucadia has designated its employees to act as Chairman of the Board (Ian M. Cumming), President (Joseph S. Steinberg) and Chief Executive Officer (Thomas E.
Mara).

Going Concern

As of June 30, 2006,
the Company has a substantial negative net worth. While FINOVA continues to pay its obligations as they become due, the ability of the Company to continue as a going concern is dependent upon many factors, particularly the ability of its borrowers
to repay their obligations to FINOVA and the Companys ability to realize the value of its portfolio. Even if the Company is able to recover the book value of its assets, and there can be no assurance of the Companys ability to do so, the
Company would not be able to repay the Senior Notes in their entirety at maturity in November 2009. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Companys independent registered public accountants have qualified their report on the Companys financial
statements since 2001 due to concerns regarding the Companys ability to continue as a going concern.



|B. | Significant Accounting Policies
|-- | -------------------------------

The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires FINOVA to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities.
Those estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the financial statements. Significant estimates include anticipated



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amounts and timing of future cash flows used in the calculation of the reserve for credit losses and measurement of impairment. Other estimates include
selection of appropriate risk adjusted discount rates used in net present value calculations, determination of fair values of certain financial assets for which there is not an active market, residual assumptions for leasing transactions and the
determination of appropriate valuation allowances against deferred tax assets. Actual results could differ from those estimated.

For a listing of the
Companys significant accounting policies, see Note B. Significant Accounting Policies in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.

Consolidation of Interim Reporting

The interim condensed consolidated financial statements present the
financial position, results of operations and cash flows of FINOVA and its subsidiaries, including FINOVA Capital. These financial statements have been prepared in accordance with U.S. generally accepted accounting principles. All intercompany
balances have been eliminated in consolidation.

The interim condensed consolidated financial information is unaudited. In the opinion of management, all
adjustments consisting of normal recurring items necessary to present fairly the financial position as of June 30, 2006 and the results of operations and cash flows presented herein have been included in the condensed consolidated financial
statements. Interim results are not necessarily indicative of results of operations for a full year.



|C. | Total Financial Assets
|-- | ----------------------

Total financial assets represent the
Companys portfolio of investment activities, which primarily consist of secured financing contracts (such as loans and direct financing leases). In addition to its financing contracts, the Company has other financial assets, including assets
held for sale, owned assets (such as operating leases and assets held for the production of income) and investments. As of June 30, 2006 and December 31, 2005, the carrying amount of total financial assets (before reserves) was $194.0
million and $355.7 million, respectively.

The following table details the composition and carrying amounts of FINOVAs total financial assets at
June 30, 2006:



|                          |  |                       |  |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |  
|------------------------- |  | --------------------- |  | ----------------------- | - | ------------------------ |  | ------------------------ | ------ | ------------------------ | - | -------------------- |  | - | ------ |  | - | ------- | -
|                          |  | RevenueAccruingAssets |  | RevenueAccruingImpaired |   | NonaccruingImpairedLoans |  | NonaccruingLeases &Other |        | OwnedAssets &Investments |   | TotalFinancialAssets | 
|Total financial assets    |  | $                     |  |                         | $ | 57,103                   |  | $                        | 71,899 |                          | $ | 3,154                |  | $ | 61,801 |  | $ | 193,957 |  
|Reserve for credit losses |  |                       |  |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   | (3,120  | )
|                          |  |                       |  |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |  
|Total                     |  |                       |  |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  | $ | 190,837 |  
|                          |  |                       |  |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |  

Since FINOVAs total financial assets are primarily concentrated in specialized industries, the Company is
subject to both general economic risk and the additional risk of economic downturns within individual sectors of the economy, particularly those impacting the aviation industry. The Company has also completed multiple financial transactions with
individual borrowers and their affiliates, resulting in a greater total exposure to those borrowers beyond the typical transaction size and increased concentration risk to economic events affecting the industries (including transportation) of those
borrowers and their affiliates.

At June 30, 2006, the carrying value of the Companys top 10 aggregate exposures to borrowers and their
affiliates totaled approximately $151.9 million and represented 83.4% of the Companys total financial assets (before reserves and excluding the severance and bonus trusts of $11.8 million), as compared to the top 10 exposures at
December 31, 2005 of $220.3 million, which represented 64.6% of total financial assets (before reserves and excluding the severance and bonus trusts of $14.4 million). The top 10 exposures at June 30, 2006, were primarily concentrated in
transportation accounts and the loan to The Thaxton Group, which is the Companys largest exposure. Refer to Note H. Litigation and Claims for a further discussion of the Thaxton proceedings. As of the date of this report, four of
the top 10 exposures, with a carrying value of approximately $51.4 million were under letters of intent to sell or the customer had notified FINOVA of its intent to negotiate a prepayment of its obligation.



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At June 30, 2006, the Companys transportation portfolio consisted of the following aircraft:



|                                                  |  |                   |  |           |  |       |  |                                 
|------------------------------------------------- |  | ----------------- |  | --------- |  | ----- |  | --------------------------------
|Aircraft Type                                     |  | Number ofAircraft |  | Passenger |  | Cargo |  | ApproximateAverage Age(in years)
|Airbus 300                                        |  | 1                 |  |           |  | 1     |  | 23                              
|Boeing 727                                        |  | 8                 |  | 3         |  | 5     |  | 27                              
|Boeing 737                                        |  | 10                |  | 10        |  |       |  | 20                              
|Boeing 757                                        |  | 2                 |  | 2         |  |       |  | 10                              
|McDonnell Douglas DC8 and DC9                     |  | 4                 |  | 4         |  |       |  | 34                              
|McDonnell Douglas DC10                            |  | 9                 |  | 1         |  | 8     |  | 28                              
|McDonnell Douglas MD-80 Series                    |  | 12                |  | 12        |  |       |  | 21                              
|Regional jets, corporate aircraft and turbo props |  | 23                |  | 23        |  |       |  | 14                              
|                                                  |  |                   |  |           |  |       |  |                                 
|Total                                             |  | 69                |  | 55        |  | 14    |  | 21                              
|                                                  |  |                   |  |           |  |       |  |                                 

At June 30, 2006, 27 aircraft were operated by domestic carriers, while 37 aircraft were operated by foreign
carriers. Additionally, 5 aircraft were off-lease, classified as assets held for the production of income and parked at various storage facilities in the United States. The Companys transportation portfolio also includes aircraft engines and
other transportation equipment. As of the date of this report, the Company had 30 aircraft with a total carrying value of approximately $57.4 million under letters of intent to sell. No assurance can be given that the letters of intent will result
in actual sales, but the Company anticipates the majority of these committed assets will be sold during the third quarter of 2006 for proceeds in excess of FINOVAs carrying value at June 30, 2006.

As of the date of this filing, the Company completed the previously announced sale of substantially all of its non-aviation assets, other than its loan to The Thaxton
Group. The sale was completed pursuant to a series of definitive agreements, primarily with the same buyer, although certain individual assets were sold to other third parties who had rights of first refusal. The sale of these non-aviation assets
generated approximately $75 million of gross proceeds, representing approximately $20 million of proceeds in excess of FINOVAs December 31, 2005 carrying value. One asset that was originally contemplated in this transaction for a purchase
price of $0.8 million remains subject to a right of first refusal.

In addition to the Thaxton loan, the Company excluded from this portfolio sale, a
number of assets that were committed to individual asset sales or were awaiting customer prepayments. The majority of these excluded assets have been liquidated as of the date of this filing.

As of June 30, 2006, total financial assets also included the Companys $11.8 million investment in two grantor trusts to secure severance and bonus
obligations to its employees. These assets are held primarily for the benefit of the employees, but are recorded as investments due to the Companys retained interest in any excess assets.



|D. | Reserve For Credit Losses
|-- | -------------------------

The following table presents the
balances and changes to the reserve for credit losses:



|                                        |  |                          |         |   |      |   |         |  
|--------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                        |  | Six Months EndedJune 30, |        
|                                        |  | 2006                     |         |   | 2005 |  
|Balance, beginning of year              |  | $                        | 29,032  |   |      | $ | 101,270 |  
|Reversal of provision for credit losses |  |                          | (22,429 | ) |      |   | (45,340 | )
|Write-offs                              |  |                          | (6,980  | ) |      |   | (14,611 | )
|Recoveries                              |  |                          | 3,497   |   |      |   | 6,291   |  
|                                        |  |                          |         |   |      |   |         |  
|Balance, end of period                  |  | $                        | 3,120   |   |      | $ | 47,610  |  
|                                        |  |                          |         |   |      |   |         |  

For the six months ended June 30, 2006, the Company recorded a $22.4 million reversal of provision for credit
losses to reduce its reserve for credit losses. The reserve reduction was primarily due to proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), recoveries of amounts previously written off and the



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Companys detailed assessment of estimated inherent losses in the portfolio. The largest event impacting the reserve during 2006 was a $14.7 million
reduction in the reserve for credit losses due to the sale of the Companys non-aviation assets for proceeds in excess of their carrying amount (net of reserves).

A summary of the reserve for credit losses by impaired and other assets was as follows:



|                            |  |              |       |                  |   |       
|--------------------------- |  | ------------ | ----- | ---------------- | - | ------
|                            |  | June 30,2006 |       | December 31,2005
|Reserves on impaired assets |  | $            | 3,120 |                  | $ | 28,288
|Other reserves              |  |              |       |                  |   | 744   
|                            |  |              |       |                  |   |       
|Reserve for credit losses   |  | $            | 3,120 |                  | $ | 29,032
|                            |  |              |       |                  |   |       

At June 30, 2006, the total carrying amount of impaired loans and leases was $132.2 million, of which $57.1
million were revenue accruing. The Company has established impairment reserves of $3.1 million related to $7.3 million of impaired assets. At December 31, 2005, the total carrying amount of impaired loans and leases was $241.1 million, of which
$109.1 million were revenue accruing. Impairment reserves at December 31, 2005 totaled $28.3 million related to $85.4 million of impaired assets.

During the first six months of 2006, reserves on impaired assets decreased due primarily to write-offs and proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), partially offset by
additional reserves recorded on certain existing impaired assets.

Accounts classified as nonaccruing were $75.1 million or 38.7% of total financial assets
(before reserves) at June 30, 2006 as compared to $131.9 million or 37.1% at December 31, 2005. The decline in nonaccruing assets was primarily attributed to collections and asset sales of $51.1 million and write-offs and net valuation
markdowns of $1.8 million.



|E. | Debt
|-- | ----

A summary of the Companys total debt outstanding was as
follows:



|                     |  |              |           |   |                  |   |           |  
|-------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                     |  | June 30,2006 |           |   | December 31,2005 |  
|Senior Notes:        |  |              |           |   |                  |   |           |  
|Principal            |  | $            | 1,513,654 |   |                  | $ | 1,691,731 |  
|Fresh-start discount |  |              | (524,538  | ) |                  |   | (540,240  | )
|                     |  |              |           |   |                  |   |           |  
|Senior Notes, net    |  | $            | 989,116   |   |                  | $ | 1,151,491 |  
|                     |  |              |           |   |                  |   |           |  

During the second quarter of 2006, the Company made two partial principal prepayments on the Senior Notes totaling
$118.7 million, which reduced the outstanding principal to $1.5 billion. Cumulative prepayments through the second quarter of 2006 totaled $1.5 billion or 49% of the face amount ($2.97 billion) of the Senior Notes.

In accordance with the terms of the Indenture, the Company is required to use any excess cash as defined in the Indenture, to make semi-annual interest and principal
payments on the Senior Notes. Additionally, the Indenture permits voluntary prepayments at the Companys option, which FINOVA has previously elected to make from time to time; however, due to the uncertainty of cash requirements associated with
the potential wind-up of the Companys affairs and the Thaxton litigation, discussed below in Note H. Litigation and Claims, the Company anticipates maintaining a higher cash reserve to cover these potential and uncertain
expenditures, which will limit its ability to make future voluntary prepayments. As a result, the Company does not expect to make any voluntary prepayments during the remainder of 2006.

The Company does not believe that it has sufficient assets to fully repay the Senior Notes, and the Indenture prohibits the Company from engaging in new business. Therefore, FINOVA intends to rely on the liquidation
of its remaining assets as its only meaningful source of liquidity.



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At June 30, 2006, the Senior Notes are reflected on the Companys balance sheet net of a remaining $524.5
million unamortized fresh-start discount. The book value of the Senior Notes is scheduled to increase over time through the partial amortization of the discount as interest expense. Discount amortization was accelerated following each of the
principal prepayments, which occurred earlier than originally anticipated when fresh-start guidelines were applied upon emergence. Discount amortization is expected to be further adjusted as principal prepayments are made.

Stockholders should not expect any payments or distributions from FINOVA. The Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA
stockholders will receive a distribution equal to 5.263% (i.e., 5%/95%) of each principal prepayment. Ninety-five percent (95%) of the remaining available cash after establishment of cash reserves as defined in the Indenture will be used to
make semi-annual prepayments of principal on the Senior Notes and five percent (5%) is identified for distributions to and/or repurchases of stock from common stockholders. However, the Indenture prohibits FINOVA from making distributions to
and/or repurchases from stockholders if the payments would render the Company insolvent, would be a fraudulent conveyance or would not be permitted to be made under applicable law. Any such distribution and/or repurchase would be considered an
impermissible restricted payment under the Indenture. Given the Companys significant negative net worth and its belief that the Senior Notes will not be fully repaid, FINOVA is required to retain impermissible restricted payments until such
time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to satisfy its debt obligations.

In conjunction with the prepayments of Senior Notes noted above, the Company has retained a total of $76.5 million as of June 30, 2006. Retained amounts are being segregated and reflected as restricted cash on
the balance sheet, pending their final disposition. The Company anticipates that the retained amounts will eventually be paid to the creditors, not to the stockholders. If the funds were to be paid to the stockholders, affiliates of Berkadia
(jointly owned by Leucadia and Berkshire Hathaway), which owns 50% of FINOVAs common stock, would receive half of the retained amounts. Berkadia has advised the Company that it does not believe that stockholders are entitled to the retained
amounts since FINOVA cannot fully satisfy its creditor obligations.

As previously reported, FINOVA filed a motion in the United States Bankruptcy Court
for the District of Delaware seeking an order that (1) FINOVA no longer needs to direct funds into a restricted account, and (2) FINOVA may use the funds in the restricted account to satisfy its obligations to creditors. For a further
discussion of the motion and its status, see Note H. Litigation and Claims.



|F. | Costs Associated with Exit or Disposal Activities
|-- | -------------------------------------------------



|                           |  |                     |        |   |                          |   |       |  
|-------------------------- |  | ------------------- | ------ | - | ------------------------ | - | ----- | -
|                           |  | TerminationBenefits |        |   | ContractTerminationCosts |  
|Balance, beginning of year |  | $                   | 4,261  |   |                          | $ | 3,699 |  
|Payments                   |  |                     | (1,699 | ) |                          |   | (27   | )
|Net additions (reductions) |  |                     | 2,591  |   |                          |   | (250  | )
|                           |  |                     |        |   |                          |   |       |  
|Balance, end of period     |  | $                   | 5,153  |   |                          | $ | 3,422 |  
|                           |  |                     |        |   |                          |   |       |  

As of June 30, 2006, FINOVA had accrued a liability for termination benefits (including severance) of $5.2
million related to 49 individuals at various levels within the Company and certain former employees that have not yet been paid their termination benefits. During the six months ended June 30, 2006, the Company paid termination benefits of $1.7
million and recorded a net charge of $2.6 million to partially accrue for employees notified of their pending termination.

As a result of the sale of the
non-aviation assets and the continued liquidation and wind down of FINOVAs operations, the Company reduced its workforce to 44 employees at June 30, 2006, down from 60 at December 31, 2005. The Company does not anticipate any
significant further reductions in its workforce until its transportation assets have been liquidated.

As of June 30, 2006, the Company had a total
liability for terminated leases and office space it has ceased using of $3.4 million. The decrease since December 31, 2005 was due to the payment of scheduled lease rentals (net of sublease income) and a $250 thousand reduction in estimated
lease termination costs.



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|G. | Income Taxes
|-- | ------------

The Company had federal net operating loss
carryforwards of $1.3 billion as of June 30, 2006 and $1.2 billion as of December 31, 2005. No income tax expense or benefit was recorded during the six months ended June 30, 2006 and 2005. Any pre-tax book income or loss has been
entirely offset by a decrease or increase in valuation allowances against deferred tax assets, which were previously established due to the Companys concern regarding its ability to utilize income tax benefits generated from losses in prior
periods. The Company does not expect to be able to utilize all the deferred tax assets due to uncertainty about the amount of future earnings, a variety of loss or other tax attribute carryover limitations in the various jurisdictions in which the
Company files tax returns and uncertainty regarding the timing of the reversal of deferred tax liabilities.



|H. | Litigation and Claims
|-- | ---------------------

Legal Proceedings

FINOVA is party either as plaintiff or defendant to various actions, proceedings and pending claims, including legal actions, some of which involve claims for
compensatory, punitive or other damages in significant amounts. Litigation often results from FINOVAs attempts to enforce its lending agreements against borrowers and other parties to those transactions. Litigation is subject to many
uncertainties. It is possible that some of the legal actions, proceedings or claims could be decided against FINOVA. Other than the matters described below, FINOVA believes that any resulting liability from its legal proceedings should not
materially affect FINOVAs financial position, results of operations or cash flows. The following matters could have a material adverse impact on FINOVAs financial position, results of operations or cash flows.

It is the Companys policy to accrue for loss contingencies, including litigation, only when the losses are probable and estimable. The determination of when losses
become probable and estimable is inherently subjective and requires significant judgment which may change, including in response to factors which are outside the Companys control.

If any legal proceedings result in a significant adverse judgment against the Company, it is unlikely that FINOVA would be able to satisfy that liability due to its financial condition. As previously noted, due to the
Companys financial condition, it does not expect that it can satisfy all of its secured debt obligations at maturity. Attempts to collect on those judgments could lead to future reorganization proceedings of either a voluntary or involuntary
nature.

Litigation Related to Loans to The Thaxton Group Inc. and Related Companies

Between October 17, 2003 and January 13, 2004, FINOVA Capital Corporation (FINOVA Capital) was served with and named as a defendant (with other
parties) in five lawsuits that relate to its loan to The Thaxton Group Inc. and several related entities (collectively the Thaxton Entities). Under its loan agreement, FINOVA Capital has a senior secured loan to the Thaxton Entities with
an unpaid principal balance of approximately $108 million at June 30, 2006. The Thaxton Entities were declared in default under their loan agreement with FINOVA Capital after they advised FINOVA Capital that they would have to restate earnings
for the first two fiscal quarters of 2003, and had suspended payments on their subordinated notes. As a result of the default, FINOVA Capital exercised its rights under the loan agreement, and accelerated the indebtedness. The Thaxton Entities then
filed a petition for bankruptcy protection under chapter 11 of the federal bankruptcy code in the United States Bankruptcy Court for the District of Delaware on October 17, 2003, listing assets of approximately $206 million and debts of $242
million. The Thaxton Group had approximately 6,800 holders of its subordinated notes that were issued in several states, with a total subordinated indebtedness of approximately $122 million.

The first lawsuit, a complaint captioned Earle B. Gregory, et al, v. FINOVA Capital Corporation, James T. Garrett, et al., (the Gregory action) was
filed in the Court of Common Pleas of Lancaster County, South Carolina, case no. 2003-CP-29-967, and was served on FINOVA Capital on October 17, 2003. An amended complaint was served on November 5, 2003, prior to the deadline for FINOVA
Capital to answer, plead, or otherwise respond to the original complaint. The Gregory action was properly removed to the United States District Court for the District of South Carolina on November 17, 2003, pursuant to 28 U.S.C. §§
1334 and 1452. The plaintiffs filed a motion to remand the case to state court, but the United States District Court denied this motion in an order dated December 18, 2003.

The second Thaxton-related complaint, captioned Tom Moore, Anna Nunnery, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no.
8:03-372413 (Moore), was filed in the United States District Court for the District of South Carolina on November 25, 2003, and was served on December 2, 2003. The third complaint, captioned Sam Jones Wood and Kathy Annette
Wood, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, (Wood) was filed in the Superior Court for Gwinnett County, Georgia, case no. 03-A13343-B, and was served on
FINOVA on December 9, 2003. FINOVA Capital properly removed the Wood action to the United States District Court for the Northern District of Georgia (Atlanta Division) on January 5, 2004. The fourth complaint, captioned Grant



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Hall and Ruth Ann Hall, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no.
03CVS20572, (Hall) was filed in the Mecklenberg County, North Carolina, Superior Court, and was also served on FINOVA Capital on December 9, 2003. FINOVA Capital properly removed the Hall action to the United States District Court
for the Western District of North Carolina (Charlotte Division) on January 5, 2004. The fifth complaint, captioned Charles Shope, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland
LLP, case no. C204022 (Shope), was filed in the United States District Court for the Southern District of Ohio, Eastern Division, and was served on FINOVA Capital on January 13, 2004.

Each of the five Thaxton-related lawsuits was originally styled as a class action, purportedly brought on behalf of certain defined classes of people who had purchased
subordinated notes from the Thaxton Entities. The complaints by the subordinated note holders allege claims of fraud, securities fraud, and various other civil conspiracy and business torts in the sale of the subordinated notes. Each of the
complaints seeks an unspecified amount of damages, among other remedies.

Upon motion by FINOVA Capital to the United States Judicial Panel for
MultiDistrict Litigation (Docket 1612), all five Thaxton-related actions were transferred on June 18, 2004 to the United States District Court for the District of South Carolina, Anderson Division, for coordinated pre-trial proceedings (the
MDL Litigation). In June 2005, the South Carolina District Court certified the MDL Litigation as a class action (collectively, the Class Action).

On March 14, 2006, the United States Court of Appeals for the Fourth Circuit issued a ruling, reversing the South Carolina District Courts class certification, stating, that in light of the Adversary
Proceeding addressed below, class certification is not the superior method for the fair and efficient adjudication of the controversy.

In addition to the
MDL Litigation, Thaxtons unsecured creditors committee (the Thaxton Committee) has an action against FINOVA Capital in the bankruptcy proceedings of the Thaxton Entities (the Adversary Proceeding) seeking on various
grounds, among other things to avoid and/or equitably subordinate the liens and claims of FINOVA Capital against the Thaxton Entities and to recover payments previously collected due to alleged securities fraud, violations of banking regulations,
preference payments and similar claims. The Adversary Proceeding was filed in the United States Bankruptcy Court for the District of Delaware and was consolidated with the MDL Litigation for pre-trial proceedings.

The Company was notified on September 21, 2005, that the South Carolina District Court had denied the Companys motion to transfer the Adversary Proceeding
back to the United States District Court for the District of Delaware, denied the Companys motion for partial summary judgment on certain claims in the Adversary Proceeding, and granted the Thaxton Committees motion for partial summary
judgment on the Committees claim for equitable subordination. The District Courts opinion and order granting the Thaxton Committees motion for partial summary judgment was entered on March 20, 2006. The District Court found,
among other things, that FINOVA Capital engaged in fraudulent conduct by purposefully structuring its loan agreement in a way that allowed Thaxton to report to all its creditors, and particularly prospective note purchasers, that an $8 million
equity investment had been made, when in fact that $8 million continued to be debt, and that this enabled Thaxton to violate federal banking law. FINOVA Capital has appealed the equitable subordination order to the Fourth Circuit.

On May 19, 2006, the South Carolina District Court scheduled a trial date of August 28, 2006 for 26 actions involving South Carolina plaintiffs that are
proceeding as a result of the Fourth Circuits ruling decertifying class status. The Company filed an emergency motion in the Fourth Circuit requesting that the Fourth Circuit enjoin this trial in light of its ruling stating that the Adversary
Proceeding is the superior method for adjudicating this controversy. The Fourth Circuit denied this motion without opinion on August 1, 2006.

If the
Fourth Circuit does not overturn or modify the District Courts equitable subordination ruling, the Companys ability to recover on its claims in the Thaxton Entities bankruptcy cases may be materially and negatively affected,
depending upon the exact nature of any Fourth Circuit ruling, as well as the results of other rulings in this litigation that may substantially limit the effect and importance of the South Carolina courts equitable subordination ruling. Among
the other rulings that could affect the Companys ability to recover its claims, either positively or negatively, is the Delaware bankruptcy courts ruling on the Thaxton Committees pending request seeking substantive consolidation
of the Thaxton Entities. The Delaware bankruptcy court held a hearing on that issue, but has not yet ruled on the matter.

If the South Carolina trial
results in a verdict adverse to the Company, the Companys ability to recover on its claims in the Thaxton Entities bankruptcy cases and its ability to defend claims that have been asserted against it in the Adversary Proceeding as well
as other possible cases resulting from the class decertification, may be materially and negatively affected, depending on the exact nature of any such verdict.



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A material and negative impact on the Companys ability to recover on its claims in the Thaxton Entities
bankruptcy cases for any reason would have a material adverse impact on the Companys financial position, results of operations and/or cash flow. Furthermore, if any of these proceedings results in a significant adverse final determination
against the Company, it is unlikely that the Company would be able to satisfy that liability due to its financial condition. As previously disclosed, due to the Companys financial condition, it does not expect that it can satisfy all of its
secured debt obligations at maturity. Attempts to collect on those judgments could lead to future reorganization proceedings of either a voluntary or involuntary nature.

The Thaxton Entities litigation is legally and procedurally highly complex. The Company believes that all of the claims against it are without merit. The Company continues to review alternatives to resolve the Thaxton
Entities litigation. If this litigation can not be resolved on terms consistent with the Companys view of the merits and litigation risks, the Company intends to vigorously defend, by whatever substantive and procedural methods it deems
advisable, the claims asserted against it in connection with the Thaxton Entities, whether in the MDL Litigation, the Adversary Proceedings or the South Carolina trials, and to defend its senior secured position in the bankruptcy proceedings for the
Thaxton Entities, including without limitation, with respect to the pending substantive consolidation motion.

Reserve Accounts relating to the
Adversary Proceeding

At June 30, 2006, approximately $72.7 million has been deposited into a reserve account in the name of FINOVA and the Thaxton
Entities bankruptcy estates rather than being paid to FINOVA Capital in respect of FINOVA Capitals outstanding loan. Additionally, at June 30, 2006, an aggregate of $6.8 million is on deposit in two other reserve accounts, each in the
name of FINOVA Capital and the Thaxton Entities bankruptcy estates relating to interest payments and legal expense reimbursement that FINOVA Capital alleges are due to it. These reserve accounts are expected to be maintained until the Adversary
Proceeding is resolved. These amounts are not reflected in FINOVA Capitals balance sheet.

New Thaxton Action  June 8, 2006

On June 8, 2006, approximately 1,590 individual purchasers of Thaxton Group, Inc., subordinated notes filed, in one consolidated case, a
lawsuit in the United States District Court for the District of South Carolina, Anderson Division, against FINOVA Capital Corporation, Inc.; FINOVA Group, Inc.; Berkshire Hathaway, Inc.; Leucadia National Corporation; Thomas Mara; Berkadia, LLC;
Berkadia II LLC; Berkadia Equity Holdings LLC; and Berkadia Management LLC. As described above, The Thaxton Group, Inc. defaulted on its outstanding subordinated notes, including the approximately $84 million of Thaxton Notes (including interest)
held by the plaintiffs in this case, when it went into bankruptcy in October 2003. The plaintiffs claims are brought under various statutory and common law theories and substantially rely upon a control theory of lender liability, assert civil
conspiracy, securities, unfair trade practices act, and civil racketeering claims against the defendants and seek civil, punitive and treble damages. On July 13, 2006, the South Carolina District Court issued an order requiring that instead of
a consolidated action, each of the approximate 1,590 plaintiffs file individual complaints against the Company and the other defendants, by September 11, 2006. FINOVA Capital and FINOVA Group believe that all of the claims against them are
without merit and intend to vigorously defend the claims asserted against them in this litigation.

Motion Regarding Distributions to Stockholders

As discussed more fully in the Notes to the Consolidated Financial Statements, Note E. Debt, the Indenture contemplates that as
principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to 5.263% of each principal prepayment. The Indenture prohibits distribution of those amounts due to FINOVAs financial condition. Those
amounts are held in a restricted account, and totaled $76.5 million as of June 30, 2006. Because FINOVA will not be able to repay the Senior Notes in full, on April 1, 2005, it filed a motion in the United States Bankruptcy Court for the
District of Delaware seeking an order (1) to cease directing funds into a restricted account and (2) to allow FINOVA to use the funds in the restricted account to satisfy its obligations to creditors.

On February 1, 2006, the Bankruptcy Court issued its Order approving FINOVAs April 1, 2005 motion to the extent that FINOVA will be forever insolvent.
The Bankruptcy Court did not find that FINOVA is presently or will be forever insolvent. As a result, FINOVA will continue to direct funds into a restricted account until such time that FINOVA is deemed to be forever insolvent and the funds will
then be distributed to FINOVAs creditors. On February 10, 2006, the Equity Committee filed a Notice of Appeal of the Bankruptcy Court Order to the United States District Court for the District of Delaware. On April 13,



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2006, the Delaware District Court issued its order denying the appeal of the Equity Committee on the grounds that the February 1, 2006 order of the
Bankruptcy Court was not a final appealable order.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following section should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2005 and the Special Note Regarding Forward-Looking Statements included
herein. Capitalized terms not defined herein are used as defined in the Form 10-K. The following discussion relates to The FINOVA Group Inc. and its subsidiaries (collectively FINOVA or the Company), including its principal
operating subsidiary, FINOVA Capital Corporation and its subsidiaries (FINOVA Capital).

OVERVIEW

During 2006, the Company has continued to make significant progress in the orderly collection and liquidation of its portfolio. The Company reduced the size of the
portfolio since year-end 2005 by approximately 45%, resulting in total financial assets before reserves of just under $194 million at June 30, 2006.

As of June 30, 2006, the Company has repaid 49% of the face amount of the Senior Notes and owes approximately $1.5 billion of principal to the Senior Note holders, while only $434 million of assets remained, including cash reserves and
restricted cash. The Company would have to liquidate its remaining financial assets by almost seven times their carrying values, which is significantly more than past experience would indicate can be achieved, to generate sufficient funds to fully
repay the Senior Notes. The Company does not believe there is any chance of this occurring. Although FINOVA will not be able to repay the full amount due under the Senior Notes, the Company will continue to seek to maximize the value of its
remaining assets for the benefit of the Note holders.

Looking Ahead / Company Direction. The Company has successfully liquidated over 97% of its
portfolio, which was approximately $7.6 billion when it emerged from bankruptcy in August 2001. At June 30, 2006, the carrying value of FINOVAs portfolio had declined to less than $200 million of financial assets, and it is becoming
increasingly more difficult to offset the incremental costs of collecting those assets in an orderly fashion.

During the first quarter of 2006, to
maximize the value of its assets, the Company began altering it course of action by offering its remaining portfolios for bulk sale. The first step in this process focused on the non-aviation assets (other than the loan to The Thaxton Group), which
were substantially liquidated during the second quarter of 2006. Refer below to Results of Operations for a further discussion of these assets.

The
remaining portfolio as of June 30, 2006 is primarily comprised of aviation assets and the loan to The Thaxton Group. Throughout the second quarter of 2006, the Company continued to market its transportation portfolio by individual asset and has
seen a high level of interest and activity. As of the date of this report, the Company had 30 aircraft with a total carrying value of approximately $57.4 million under letters of intent to sell. No assurance can be given that the letters of intent
will result in actual sales, but the Company anticipates the majority of these committed assets will be sold during the third quarter of 2006. The Company believes its individual sales efforts to date have generated substantially more cash than what
would have been received in a bulk portfolio sale. However, the size of the transportation portfolio has been rapidly declining and many of the more attractive assets in this portfolio have already been sold or currently are under letters of intent
to sell during 2006. Additionally, the Company is becoming increasingly concerned with world events that could adversely impact the price of oil and the potential value FINOVA could receive for its remaining aircraft. As a result of this and the
incremental costs of collection mentioned earlier, the Company is currently offering the remaining aviation assets not committed to individual sales for bulk sale in order to maximize the value of the remaining aviation assets. The Company is
soliciting interest from over 50 prospective buyers that specialize in aviation assets. The Company will evaluate the level of interest in this sale during the third quarter of 2006 to ascertain if buyers can be found at acceptable prices; however,
there can be no assurance that the Company will be successful in its efforts to sell these assets.

The Company anticipates that when all or substantially
all of its assets have been liquidated, the affairs of FINOVA will need to be wound-up. The Company continues to analyze potential alternatives of wind-up and would like to commit to a final plan of liquidation during 2006; however, this will be
contingent on obtaining acceptable prices for its remaining assets. Additionally, in considering its wind-up alternatives, the Company intends to take into consideration the restricted cash related to



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impermissible restricted payments to stockholders, the Thaxton litigation and other outstanding bankruptcy claims. A final plan of liquidation may involve
appointment of a receiver or trustee for assets not liquidated, transfer of such assets to a liquidating trust or some other proceeding, any of which may or may not be in conjunction with bankruptcy or state law liquidation proceedings. The Company
cannot predict with certainty the timing or nature of that final wind-up at this point in time, but is working towards accomplishing that end in a prudent manner to maximize the return on the remaining assets.

The Company will continue to retain sufficient cash to fund its expenses, including the costs associated with the potential wind-up of the Companys affairs and the
Thaxton litigation. As a result, the Company anticipates maintaining a higher cash reserve to cover these potential and uncertain expenditures, which will limit its ability to make future voluntary principal prepayments. Additionally, the Company
does not expect to make any voluntary prepayments during the remainder of 2006.

No Stockholder Payments / Bankruptcy Court Motion.While the
Indenture governing the Senior Notes contemplated that FINOVA would make payments to its stockholders as the Senior Notes were repaid, the Company has not made those payments. Those stockholder distributions are prohibited due to the Companys
present financial condition. Stockholders should not expect any payments or return on their common stock. Those funds are currently being held in a segregated account pending their final disposition. However, the Company anticipates that those funds
will eventually be paid to its creditors, not to the stockholders. If the funds were to be paid to the stockholders, affiliates of Berkadia (which are owned by Berkshire Hathaway and Leucadia), as owner of 50% of FINOVAs stock, would
receive half of those payments.

As discussed in Note H. Litigation and Claims, FINOVA filed a motion in the United States Bankruptcy Court for
the District of Delaware (the court in which the FINOVA reorganization proceedings have taken place), seeking an order that (1) FINOVA no longer needs to direct funds into the restricted account, and (2) FINOVA may use the funds in the
restricted account to satisfy its obligations to creditors. The Bankruptcy Court subsequently issued an order approving FINOVAs motion to the extent that FINOVA will be forever insolvent, which the Company believes is clearly the case.
Representatives of FINOVAs shareholders appealed the Bankruptcy Courts ruling, and in April 2006, the appeal was denied on the grounds that the Bankruptcy Courts order was not a final appealable order.

No Restructuring Plan Contemplated.On numerous occasions, FINOVA has been asked whether there is some plan to save the Company and its net operating loss
carryforwards (NOL). As FINOVA has noted for some time, the Board remains willing to consider legitimate proposals presented by Note holders or others, but is not currently formulating a restructuring plan intended to enable FINOVA to
emerge as a healthy company.

Many obstacles exist to creation of a viable restructuring plan. A restructuring presumes a sensible business plan emerging
from that process. In light of FINOVAs dwindling asset base, the composition of its remaining assets and the competitive environment, the Company believes it would be difficult, if not futile, in these circumstances to develop a business model
that can produce returns to the creditors and/or new investors greater than that expected from the present course. Absent that, or a substantial new investment in FINOVA, the Company believes it would be difficult to obtain the requisite approval to
restructure the present debt obligations. The task becomes more difficult as the portfolio continues to shrink. FINOVA cautions investors to carefully evaluate applicable tax regulations, which restrict the ability to transfer or use NOLs in a
variety of circumstances. FINOVAs financial statements do not anticipate using the NOLs for those and other reasons.

HIGH INVESTMENT RISK OF
SECURITIES. As previously stated, FINOVA believes that it will be unable to fully repay its Senior Notes and that it is unlikely that it will be able to make any distributions to its stockholders, absent a court order. Consequently, investing in the
Senior Notes and common stock involves a high level of risk.

CRITICAL ACCOUNTING POLICIES

The Companys consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial
statements requires FINOVA to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities. These estimates are subject to known and unknown risks, uncertainties
and other factors that could materially impact the amounts reported and disclosed in the financial statements. The Company believes the following to be among the most critical judgment areas in the application of its accounting policies.



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Significant Use of Estimates

Several of the Companys accounting policies pertain to the ongoing determination of impairment reserves on financing assets and the carrying amount valuation of other financial assets. Determination of
impairment reserves and carrying amounts rely, to a great extent, on the estimation and timing of future cash flows. FINOVAs cash flow estimates assume that its assets are collected in an orderly fashion over time.

FINOVAs process of determining impairment reserves and carrying amounts includes a periodic assessment of the assets in its portfolio on a
transaction-by-transaction basis. Cash flow estimates are based on current information and numerous assumptions concerning general economic conditions and trends, specific market segments, the financial condition of the Companys customers and
FINOVAs collateral. In addition, assumptions are sometimes necessary concerning the customers ability to obtain full refinancing of balloon obligations or residuals at maturity. As a result, the Companys cash flow estimates assume
FINOVA incurs refinancing discounts for certain transactions.

Changes in facts and assumptions have resulted in, and may in the future result in,
significant positive or negative changes to estimated cash flows and therefore, impairment reserves and carrying amounts.

Impairment of financing assets
(subsequent to implementation of fresh-start reporting) is recorded through the Companys reserve for credit losses, and accounting rules permit the reserve for credit losses to be increased or decreased as the facts and assumptions change.
However, certain financing assets were previously marked down for impairments that existed at the time fresh-start reporting was implemented. These marked-down values became the Companys cost basis in those assets, and accounting rules do not
permit the carrying value of these assets to be increased above that fresh-start cost basis if subsequent facts and assumptions result in a projected increase in value. Recoveries of amounts in excess of the fresh-start cost basis are recorded
through operations when collected.

Impairment of other financial assets is marked down directly against the assets carrying amount. Accounting rules
permit further markdown if changes in facts and assumptions result in additional impairment; however, most of these assets (except certain investments and assets held for sale, which may be marked up for subsequent events) may not be marked up if
subsequent facts and assumptions result in a projected increase in value. Recoveries of previous markdowns are recorded through operations when collected.

Because of these accounting restrictions, FINOVA is not permitted to fully reflect some estimated improvements in the portfolio until they are actually realized.

The carrying amounts and reserve for credit losses recorded on FINOVAs financial statements reflect the Companys expectation of collecting less than the full contractual amounts owed by some of its
customers and recovering less than its original investment in certain owned assets. The Company continues to pursue collection of the full contractual amounts and original investments, where appropriate, in an effort to maximize the value of its
asset portfolio.

Reserve for Credit Losses. The reserve for credit losses represents FINOVAs estimate of losses inherent in the portfolio and
includes reserves on impaired assets and on assets that are not impaired. Impairment reserves are created if the carrying amount of an asset exceeds its estimated recovery, which is measured by estimating the present value of expected future cash
flows (discounted at contractual rates), market value or the fair value of collateral. These methodologies include the use of significant estimates and assumptions regarding future customer performance (which are inherently dependent upon
assumptions about general economic conditions and those affecting the customers business), amount and timing of future cash flows and collateral value. Reserves on assets that are not impaired are based upon assumptions including general
economic conditions, overall portfolio performance, including loss experience, delinquencies and other inherent portfolio characteristics. Actual results have in the past and could in the future, differ from these estimates, resulting in an increase
or reversal of reserves. As of June 30, 2006 and December 31, 2005, the reserve for credit losses totaled $3.1 million and $29.0 million, respectively.

Owned Assets. Assets held for the production of income and operating leases are carried at amortized cost with impairment adjustments, if any, recorded as permanent markdowns through operations. An owned asset is considered impaired
if anticipated undiscounted cash flows are less than the carrying amount of the asset. Once the asset has been deemed impaired, accounting rules allow for several acceptable methods for measuring the amount of the impairment. FINOVAs typical
method of measuring impairment is based on the comparison of the carrying amount of those assets to the present



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value of estimated future cash flows, using risk adjusted discount rates. These estimates include assumptions regarding lessee performance, the amount and
timing of future cash flows, selection of risk-adjusted discount rates for net present value calculations and residual value assumptions for leases. If future portfolio assessments indicate additional impairment, additional markdowns may be
necessary. Recoveries of previous markdowns are recorded through operations when collected. As of June 30, 2006 and December 31, 2005, owned assets totaled $44.7 million and $77.4 million, or 23.1% and 21.7% of total financial assets
(before reserves), respectively.

Assets Held for Sale. Assets held for sale are comprised of assets previously classified as financing transactions
and other financial assets that management does not have the intent and/or the expected ability to hold to maturity. These assets are revalued quarterly and are carried at the lower of cost or market less anticipated selling expenses, with
adjustment to estimated market value, if any, recorded as a gain or loss on financial assets. Market value is often determined by the estimation of anticipated future cash flows discounted at risk adjusted market rates to determine net present
value. Valuation of assets held for sale includes estimates regarding market conditions and ultimate sales prices. Actual sales prices could differ from estimates, impacting results from operations. As of June 30, 2006, assets held for sale
totaled $3.2 million or 1.6% of total financial assets (before reserves), while as of December 31, 2005, there were no assets held for sale considered to be of value to the Company.

Nonaccruing Assets. Accounts are generally classified as nonaccruing and recognition of income is suspended when a customer becomes 90 days past due on the payment of principal or interest, or earlier, if in
the opinion of management, full recovery of contractual income and principal becomes doubtful. The decision to classify accounts as nonaccruing on the basis of criteria other than delinquency, is based on certain assumptions and estimates including
current and future general economic conditions, industry specific economic conditions, customer financial performance, the ability of customers to obtain full refinancing of balloons or residuals due to FINOVA at maturity and FINOVAs ability
or willingness to provide such refinancing. In certain instances, accounts may be returned to accruing status if sustained contractual performance is demonstrated. Changes in borrower performance, assumptions or estimates could result in a material
change in nonaccruing account classification and income recognition. As of June 30, 2006 and December 31, 2005, $75.1 million and $131.9 million, or 38.7% and 37.1% of total financial assets (before reserves), were classified as
nonaccruing, respectively.

RESULTS OF OPERATIONS

As a
result of the Companys continued asset liquidation and shrinking operations, the consolidated financial statements are not necessarily comparable from period to period. Trends during any given period may not be indicative of future trends;
however, the following discussion of results may provide useful information regarding the current status of the Company.



|                                        |  |                             |         |   |                           |   |         |        |  |   |         |   |  |      |         |   |        |   |         |   |  |   |         |  
|--------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | ------ |  | - | ------- | - |  | ---- | ------- | - | ------ | - | ------- | - |  | - | ------- | -
|                                        |  | Three Months Ended June 30, |         |   | Six Months Ended June 30, |  
|                                        |  | 2006                        |         |   | 2005                      |   |         | Change |  |   | 2006    |   |  | 2005 |         |   | Change |  
|                                        |  | (Dollars in thousands)      |         |   | (Dollars in thousands)    |  
|Interest margin                         |  | $                           | (26,122 | ) |                           | $ | (21,179 | )      |  | $ | (4,943  | ) |  | $    | (47,850 | ) |        | $ | (43,253 | ) |  | $ | (4,597  | )
|Reversal of provision for credit losses |  |                             | 1,326   |   |                           |   | 24,930  |        |  |   | (23,604 | ) |  |      | 22,429  |   |        |   | 45,340  |   |  |   | (22,911 | )
|Net gain on financial assets            |  |                             | 28,275  |   |                           |   | 4,468   |        |  |   | 23,807  |   |  |      | 57,058  |   |        |   | 20,581  |   |  |   | 36,477  |  
|Portfolio expenses                      |  |                             | (4,188  | ) |                           |   | (8,194  | )      |  |   | 4,006   |   |  |      | (9,672  | ) |        |   | (10,532 | ) |  |   | 860     |  
|General and administrative expenses     |  |                             | (8,884  | ) |                           |   | (11,535 | )      |  |   | 2,651   |   |  |      | (16,213 | ) |        |   | (24,162 | ) |  |   | 7,949   |  
|                                        |  |                             |         |   |                           |   |         |        |  |   |         |   |  |      |         |   |        |   |         |   |  |   |         |  
|Net income (loss)                       |  | $                           | (9,593  | ) |                           | $ | (11,510 | )      |  | $ | 1,917   |   |  | $    | 5,752   |   |        | $ | (12,026 | ) |  | $ | 17,778  |  
|                                        |  |                             |         |   |                           |   |         |        |  |   |         |   |  |      |         |   |        |   |         |   |  |   |         |  

Six Months Ended June 30, 2006 and 2005

Net Income (Loss). In general, the increase in net income was primarily attributable to the six months ended June 30, 2006 containing a higher level of asset
realization in excess of recorded carrying amounts and a lower level of operating expenses. Asset realization in excess of recorded carrying amounts is primarily reflected in the financial statements as reversals of excess reserve for credit losses,
net gains from sales of financial assets and the recognition of suspended income upon the payoff of assets.

The Company continues to experience better
than anticipated realization and performance of its asset portfolio. The Company has been cautioning investors that asset realization trends were not expected to continue at the same level as prior periods.



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Many of the Companys more desirable and marketable assets have been liquidated and the remaining portfolio is becoming more concentrated in
non-performing assets and used aircraft, both of which have been work intensive and difficult to liquidate at acceptable prices. However, during 2006, the aircraft-financing market continued to display a high level of activity and in certain
instances improved aircraft values. As a result, the Companys transportation portfolio continued to generate cash in excess of recorded carrying amounts and surpassed the results for the first six months of 2005. Additionally, results for 2006
were enhanced by the sale of substantially all of the Companys non-aviation assets (other than The Thaxton Group loan) for proceeds of approximately $20 million in excess of their December 31, 2005 carrying values.

The Company has seen an increase in demand for certain types of aircraft; however, this demand may decline due to continued uncertainty in the airline industry and
airline bankruptcy filings. Additionally, the Company is becoming increasingly concerned with world events that could adversely impact the price of oil and the potential value FINOVA could receive for its remaining aircraft. Many major domestic
carriers continue to post substantial losses due in part to high fuel costs coupled with a high cost structure. If the high fuel costs continue to exist for an extended period of time or airlines are not able to efficiently compete with low-cost
carriers, additional airlines may experience financial difficulties. A number of prominent domestic airlines are in bankruptcy and others threatening to file if certain cost reductions cannot be realized. As a result of the current status of the
industry and airline bankruptcies, FINOVA anticipates excess aircraft will be parked and forced into the market. FINOVAs ability to realize the recorded values of its aircraft portfolio will depend upon future aircraft lease rates and values,
both of which are greatly impacted by the instability of the airline industry.

Opportunities for recoveries in excess of recorded values continue to exist
and are expected to occur; however, the Company remains concerned about the fragile nature of the airline industry.

Interest Margin. The Company
continues to post a negative interest margin, which was significantly impacted by a lower level of earning assets ($57.1 million and $180.5 million at June 30, 2006 and 2005, respectively) than the principal amount of outstanding debt ($1.5
billion and $1.8 billion at June 30, 2006 and 2005, respectively) and the Companys high aggregate cost of funds (aggregate effective rate of 13.7% and 13.4% for the six months ended June 30, 2006 and 2005, respectively).

Partially offsetting the negative interest margin was the recognition of previously suspended and deferred income ($1.5 million and $9.6 million for the six months
ended June 30, 2006 and 2005, respectively), which was generated from payoffs of certain assets in excess of their carrying amounts and the return to earning status of certain assets following demonstration of sustained performance. The Company
believes that further instances where it will recognize suspended and deferred income may occur; however, any income recognition in future periods is not expected to reach 2005 levels.

Reversal of Provision for Credit Losses. The Company recorded reversals of provision for credit losses to reduce its overall reserve for credit losses. The reserve reductions were primarily due to recoveries
($3.5 million and $6.3 million for the six months ended June 30, 2006 and 2005, respectively) of amounts previously written off, proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), improved
collection experience and the Companys detailed assessment of estimated inherent losses in its portfolio. Additionally, the Company recorded a $14.7 million reversal of provision for credit losses in 2006 to reduce its reserves due to the sale
of the Companys non-aviation assets for proceeds in excess of their carrying amount (net of reserves).

Amounts collected from the portfolio have
often exceeded anticipated cash flows, resulting in a partial reversal of previously established reserves. The Company does not expect a significant reversal of provision for credit losses in future periods. The Company has already seen a
significant decline in realized recoveries of amounts previously written off and expects that declining trend to continue.

The measurement of credit
impairment and asset valuation is dependent upon the significant use of estimates and management discretion when predicting expected cash flows. These estimates are subject to known and unknown risks, uncertainties and other factors that could
materially impact the amounts reported and disclosed herein. See Item 1A. Risk Factors, Critical Accounting Policies and Special Note Regarding Forward-Looking Statements for a discussion of these and
additional factors impacting the use of estimates.

Net Gain on Financial Assets. Gains are sporadic in nature and not necessarily comparable from
one period to the next; however, the increase over the prior year was primarily attributable to an increase in the overall realization during 2006 from the Companys transportation portfolio.



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The net gain during 2006 was primarily attributable to sales of owned assets and financing contracts in excess of
carrying amounts, the most significant of which included $43.7 million of net gains realized from sales of aircraft and aircraft related notes, and the forfeiture by aircraft operators of security deposits and maintenance reserves, $4.5 million of
net gains realized from the previously announced sale of the Companys non-aviation assets (in addition to the reversal of reserves noted above), $3.4 million of net gains realized from the sale and valuation of private and public investments
and a $3.2 million gain from the valuation markup of the Companys remaining transportation leveraged leases with Northwest Airlines, which are classified as assets held for sale. In conjunction with Northwest Airlines bankruptcy filing
in late 2005, the Company previously fully wrote off the remaining book value of these leveraged leases because the senior outstanding debt exceeded the underlying aircraft values. During the second quarter of 2006, the senior debt holders
bankruptcy claims related to these leases traded at significantly higher values than anticipated, which resulted in a reduction of the outstanding senior debt to an amount below the fair value of the aircraft, thereby creating value for FINOVA.
During the third quarter of 2006, FINOVA entered into an agreement for FINOVA to pay off the remaining senior debt balance and then sell the aircraft to a third party, which is expected to generate the valuation gain noted above.

The net gain during 2005 was primarily attributable to $21.1 million of net gains realized from sales of aircraft and parts, and the forfeiture by aircraft operators of
security deposits and maintenance reserves, $2.8 million of net gains realized from the sale and valuation of private and public investments and $5.3 million of net gains from the valuation and sale of the Companys last two real estate
leveraged leases. Partially offsetting this gain activity were $8.0 million of net valuation markdowns to leveraged leases in the transportation portfolio.

The Company entered into a number of transactions to sell assets over the last couple of years and expects asset sales to continue. As of the date of this report, the Company had 30 aircraft with a total carrying value of $57.4 million
under letters of intent to sell. No assurance can be given that the letters of intent will result in actual sales, but the Company anticipates the majority of these committed assets will be sold during the third quarter of 2006 for proceeds in
excess of FINOVAs carrying value at June 30, 2006.

As of the date of this filing, the Company completed the previously announced sale of
substantially all of its non-aviation assets, other than its loan to The Thaxton Group. The sale was completed pursuant to a series of definitive agreements primarily with the same buyer, although certain individual assets were sold to other third
parities who had rights of first refusal. The sale of these non-aviation assets generated approximately $75 million of gross proceeds, representing approximately $20 million of proceeds in excess of FINOVAs December 31, 2005 carrying
value. One asset that was originally contemplated in this transaction for a purchase price of $0.8 million remains subject to a right of first refusal.

FINOVA will continue to consider future sales of the remaining portfolio or individual assets, if buyers can be found at acceptable prices; however, there can be no assurance that FINOVA will be successful in its efforts to sell additional
assets or that realization will reach prior period levels. In evaluating offers, FINOVA will generally compare offers against FINOVAs internal net present value of estimated future cash flows projected to be collected from those assets less
the net present value of FINOVAs operating costs to collect those assets.

Portfolio Expense. Portfolio expenses include all costs relating to
the maintenance and collection of both performing and non-performing financial transactions. In addition, within the transportation portfolio, portfolio costs include storage, maintenance and costs for potential return to service of aircraft.

The transportation portfolio continues to incur a significant portion of the Companys portfolio costs ($3.1 million and $6.9 million during the six
months ended June 30, 2006 and 2005, respectively). Portfolio costs within the transportation portfolio will fluctuate with the timing and number of maintenance reinvestment projects. The Company expects to continue to invest in aircraft
maintenance as long as there is commercial justification for such expenditures.

During the six months ended June 30, 2006 and 2005, the Company
incurred $1.3 million and $1.4 million, respectively, of legal costs associated with the Thaxton litigation. The Company anticipates that the Thaxton defense costs will increase with the level of legal activity and as a result of the additional
litigation filed against the Company and certain of its affiliates during the second quarter of 2006. Refer to Note H. Litigation and Claims for a further discussion of this matter.

In most cases, the Company experienced a decline in the level of expenses associated with problem accounts and workouts with the exception of increased costs associated
with the liquidation of a repossessed property. Additionally, the Company has seen a decline in the level of reimbursed portfolio expenses for the entire portfolio, which declined by $2.7 million.



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General and Administrative Expenses. The decrease in general and administrative expenses was primarily due to $5.2
million of cost savings resulting from staffing and office occupancy reductions (44 employees at June 30, 2006 compared to 75 at June 30, 2005) and lower severance accruals ($2.6 million). The dollar level of general and administrative
expenses has continued to decrease as portfolio and staffing levels decreased; however, general and administrative expenses as a percentage of assets or revenues has increased over time as a result of certain fixed costs, the costs of being a public
company and further costs associated with wind-up of the Companys affairs.

Income Tax Expense. No income tax expense or benefit was recorded
during the six months ended June 30, 2006 and 2005. Any pre-tax book income or loss has been entirely offset by a decrease or increase in valuation allowances against deferred tax assets, which were previously established due to the
Companys concern regarding its ability to utilize income tax benefits generated from losses in prior periods. The Company had federal net operating loss carryforwards of $1.3 billion and $1.2 billion as of June 30, 2006 and
December 31, 2005, respectively.

Three Months Ended June 30, 2006 and 2005

Net Income (Loss). In general, the slight increase in net income was primarily attributable to a lower level of operating expenses, partially offset by a lower
level of asset realization in excess of recorded carrying amounts during the second quarter of 2006 as compared to the same period in 2005. The Company has benefited from continued staffing reductions as the portfolio has declined; however, it is
becoming increasingly more difficult to offset the incremental costs of collecting the remaining assets due to certain fixed costs and the costs of being a public company.

The Company continues to experience better than anticipated realization and performance of its asset portfolio. The Company has been cautioning investors that asset realization trends were not expected to continue at
the same level as prior periods. Many of the Companys more desirable and marketable assets have been liquidated and the remaining portfolio is becoming more concentrated in non-performing assets and used aircraft, both of which have been work
intensive and difficult to liquidate at acceptable prices.

Opportunities for recoveries in excess of recorded values continue to exist and are expected to
occur; however, the Company remains concerned about the fragile nature of the airline industry.

Interest Margin. The Company continues to post a
negative interest margin, which was significantly impacted by a lower level of earning assets ($57.1 million and $180.5 million at June 30, 2006 and 2005, respectively) than the principal amount of outstanding debt ($1.5 billion and $1.8
billion at June 30, 2006 and 2005, respectively) and the Companys high aggregate cost of funds (aggregate effective rate of 13.8% and 13.6% for the three months ended June 30, 2006 and 2005, respectively).

Partially offsetting the negative interest margin in 2005 was the recognition of previously suspended and deferred income ($3.7 million for the three months ended
June 30, 2005), which was generated from payoffs of certain assets in excess of their carrying amounts and the return to earning status of certain assets following demonstration of sustained performance. No previously suspended income was
recognized during the second quarter of 2006. The Company believes that further instances where it will recognize suspended and deferred income may occur; however, any income recognition in future periods is not expected to reach 2005 levels.

Reversal of Provision for Credit Losses. The Company recorded reversals of provision for credit losses to reduce its overall reserve for credit
losses. The reserve reductions were primarily due to recoveries ($2.0 million and $1.2 million for the three months ended June 30, 2006 and 2005, respectively) of amounts previously written off, proceeds received from prepayments and asset
sales exceeding recorded carrying amounts (net of reserves), improved collection experience and the Companys detailed assessment of estimated inherent losses in its portfolio, partially offset by a slight increase in specific reserves on
certain assets.

Amounts collected from the portfolio have often exceeded anticipated cash flows, resulting in a partial reversal of previously established
reserves. The Company does not expect a significant reversal of provision for credit losses in future periods. The Company has already seen a significant decline in realized recoveries of amounts previously written off and expects that declining
trend to continue.



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The measurement of credit impairment and asset valuation is dependent upon the significant use of estimates and
management discretion when predicting expected cash flows. These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed herein. See Item 1A. Risk
Factors, Critical Accounting Policies and Special Note Regarding Forward-Looking Statements for a discussion of these and additional factors impacting the use of estimates.

Net Gain on Financial Assets. Gains are sporadic in nature and not necessarily comparable from one period to the next; however, the increase over the prior year
was primarily attributable to an increase in the overall realization during 2006 from the Companys transportation portfolio.

The net gain during the
second quarter of 2006 was primarily attributable to sales of owned assets and financing contracts in excess of carrying amounts, the most significant of which included $20.2 million of net gains realized from sales of aircraft and aircraft related
notes, $4.5 million of net gains realized from the previously announced sale of the Companys non-aviation assets, $1.2 million of net gains realized from the sale and valuation of private and public investments and a $3.2 million gain from the
valuation markup of the Companys remaining transportation leveraged leases with Northwest Airlines, which are classified as assets held for sale.

The net gain during the second quarter of 2005 was primarily attributable to $9.5 million of net gains realized from sales of aircraft and parts, and the forfeiture by aircraft operators of security deposits and maintenance reserves,
partially offset by $3.6 million of net valuation markdowns within the transportation leveraged lease portfolio.

As of the date of this filing, the
Company completed the previously announced sale of substantially all of its non-aviation assets, other than its loan to The Thaxton Group. The sale was completed pursuant to a series of definitive agreements primarily with the same buyer, although
certain individual assets were sold to other third parties who had rights of first refusal. The sale of these non-aviation assets generated approximately $75 million of gross proceeds, representing approximately $20 million of proceeds in excess of
FINOVAs December 31, 2005 carrying value. One asset that was originally contemplated in this transaction for a purchase price of $0.8 million remains subject to a right of first refusal.

FINOVA will continue to consider future sales of the remaining portfolio or individual assets, if buyers can be found at acceptable prices; however, there can be no
assurance that FINOVA will be successful in its efforts to sell additional assets or that realization will reach prior period levels. In evaluating offers, FINOVA will generally compare offers against FINOVAs internal net present value of
estimated future cash flows projected to be collected from those assets less the net present value of FINOVAs operating costs to collect those assets.

Portfolio Expense. Portfolio expenses include all costs relating to the maintenance and collection of both performing and non-performing financial transactions. In addition, within the transportation portfolio, portfolio costs
include storage, maintenance and costs for potential return to service of aircraft.

The majority of the decline was primarily attributable to the
transportation portfolio, which decreased to $1.8 million for the second quarter of 2006 from $5.4 million during the second quarter of 2005. Portfolio costs within the transportation portfolio will fluctuate with the timing and number of
maintenance reinvestment projects. The Company expects to continue to invest in aircraft maintenance as long as there is commercial justification for such expenditures.

General and Administrative Expenses. The decrease in general and administrative expenses was primarily due to $2.0 million of cost savings resulting from staffing and office occupancy reductions (44 employees
at June 30, 2006 compared to 75 at June 30, 2005) and lower severance accruals ($0.8 million). The dollar level of general and administrative expenses has continued to decrease as portfolio and staffing levels decreased; however, general
and administrative expenses as a percentage of assets or revenues has increased over time as a result of certain fixed costs, the costs of being a public company and further costs associated with wind-up of the Companys affairs.

Income Tax Expense. No income tax expense or benefit was recorded during the three months ended June 30, 2006 and 2005. Any pre-tax book income or loss has
been entirely offset by a decrease or increase in valuation allowances against deferred tax assets, which were previously established due to the Companys concern regarding its ability to utilize income tax benefits generated from losses in
prior periods. The Company had federal net operating loss carryforwards of $1.3 billion and $1.2 billion as of June 30, 2006 and December 31, 2005, respectively.



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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Because substantially all of the Companys assets (except for a few assets that could not be pledged because those assets already secured other obligations) are pledged to secure its obligations under the
Intercompany Notes securing the Senior Notes, FINOVAs ability to obtain additional or alternate financing is severely restricted. Berkadia has no obligation to lend additional sums to or to further invest in the Company. Accordingly, FINOVA
intends to rely on internally generated cash flows from the liquidation of its assets as its only meaningful source of liquidity.

The terms of the
Indenture prohibit the Company from using available funds (after certain permitted uses) for any purpose other than to satisfy its obligations to creditors and to make limited payments to stockholders in certain circumstances. Under the terms of the
Indenture, the Company is permitted to establish a cash reserve in an amount not to exceed certain defined criteria. Due to the Companys limited sources of liquidity, the estimation of cash reserves is critical to the overall liquidity of the
Company. Cash reserve estimations are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts determined. Failure to adequately estimate a cash reserve in one period could result in insufficient
liquidity to meet obligations in that period, or in a subsequent period, if actual cash requirements exceed the cash reserve estimates. Generally speaking, cash reserves typically equal anticipated cash flows to cover operating costs (which includes
legal costs and professional services), tax payments, fundings under existing customer commitments, interest payments and any other necessary cash flows expected to occur during the next six month period. The Company has the discretion to, and has
from time to time, adjusted its cash reserve methodology.

In accordance with the terms of the Indenture, the Company is required to use any excess cash,
as defined in the Indenture, to make semi-annual interest and principal payments on the Senior Notes. Additionally, the Indenture permits voluntary prepayments at the Companys option, which FINOVA has previously elected to make from time to
time; however, due to the uncertainty of cash requirements associated with the potential wind-up of the Companys affairs and the defense of the Thaxton litigation, discussed in Note H. Litigation and Claims, the Company anticipates
maintaining a higher cash reserve to cover these potential and uncertain expenditures, which will limit its ability to make future voluntary prepayments. As a result, the Company does not expect to make any voluntary prepayments during the remainder
of 2006.

During the second quarter of 2006, the Company made two partial principal prepayments on the Senior Notes totaling $118.7 million, which reduced
the outstanding principal to $1.5 billion. Cumulative prepayments through the second quarter of 2006 totaled $1.5 billion or 49% of the face amount ($2.97 billion) of the Senior Notes.

The Company does not believe that it has sufficient assets to fully repay the Senior Notes, and the Indenture prohibits the Company from engaging in new business. Therefore, FINOVA intends to rely on the liquidation
of its remaining assets as its only meaningful source of liquidity. The Senior Notes have a first priority security interest in substantially all of FINOVAs remaining assets.

Stockholders should not expect any payments or distributions from FINOVA. The Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to
5.263% of each principal prepayment. However, the Indenture prohibits FINOVA from making distributions to and/or repurchases from stockholders if the payments would render the Company insolvent, would be a fraudulent conveyance or would not be
permitted to be made under applicable law. Any such distribution and/or repurchase would be considered an impermissible restricted payment under the Indenture. Given the Companys significant negative net worth and its belief that the Senior
Notes will not be fully repaid, FINOVA is required to retain impermissible restricted payments until such time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to
satisfy its debt obligations.

In conjunction with the prepayments of Senior Notes noted above, the Company has retained a total of $76.5 million as of
June 30, 2006. Retained amounts are segregated and reflected as restricted cash on the balance sheet, pending their final disposition. The Company anticipates that the retained amounts will eventually be paid to the creditors, not to the
stockholders. If the funds were to be paid to the stockholders, affiliates of Berkadia (jointly owned by Berkshire Hathaway and Leucadia), which own 50% of FINOVAs common stock, would receive half of the retained amounts. Berkadia has advised
the Company that it does not believe that stockholders are entitled to the retained amounts since FINOVA cannot fully satisfy its creditor obligations.



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In April 2005, FINOVA filed a motion in the United States Bankruptcy Court for the District of Delaware seeking an order
that (1) FINOVA no longer needs to direct funds into a restricted account, and (2) FINOVA may use the funds in the restricted account to satisfy its obligations to creditors. For a further discussion of the motion and its status, see Note
H. Litigation and Claims.

The Company has a negative net worth of $607.5 million as of June 30, 2006 ($1.1 billion if the Senior Notes
are considered at their principal amount due). Based on the Companys current financial condition (including having only $190.8 million of net financial assets), it is highly unlikely there will be funds available to fully repay the outstanding
principal on the Senior Notes at maturity or make any 5% distribution to common stockholders, absent a court order. As a result, there would not be a return to the Companys stockholders. Consequently, investing in the Senior Notes and common
stock involves a high level of risk.

Obligations and Commitments

For a detailed listing of FINOVAs significant contractual obligations and contingent commitments, refer to the Companys Annual Report on Form 10-K for the year ended December 31, 2005. There have not
been any material changes during the six months ended June 30, 2006, except for the Senior Note prepayments discussed throughout this document.

Collection of the Portfolio

As noted previously, the Companys current business activities are limited to maximizing the value
of its portfolio through the orderly collection of its assets. These activities include collection efforts pursuant to underlying contractual terms, negotiation of prepayments and sales of assets or collateral. The Company has sold substantial
portions of its asset portfolio and will consider future sales of any asset if buyers can be found at acceptable prices. The Company is offering to sell its remaining assets both by portfolio and individual asset. Due to restrictions contained in
the Indenture as well as its general inability to access capital in the public and private markets, the Companys only viable source of cash flow is from the collection of its portfolio.

The following table presents the activity in total financial assets, net of the reserve for credit losses for the six months ended June 30, 2006:



|                                               |  |   |          |  
|---------------------------------------------- |  | - | -------- | -
|(Dollars in thousands)                         |  |   |         
|Total financial assets at December 31, 2005    |  | $ | 326,649  |  
|                                               | 
|Cash activity:                                 |  |   |          |  
|Fundings under existing customer commitments   |  |   | 5,194    |  
|Collections and proceeds from financial assets |  |   | (162,128 | )
|                                               |  |   |          |  
|Net cash flows                                 |  |   | (156,934 | )
|                                               |  |   |          |  
|Non-cash activity:                             |  |   |          |  
|Reversal of provision for credit losses        |  |   | 22,429   |  
|Net gain on financial assets                   |  |   | 2,850    |  
|Other non-cash activity                        |  |   | (4,157   | )
|                                               |  |   |          |  
|Net non-cash activity                          |  |   | 21,122   |  
|                                               |  |   |          |  
|Total financial assets at June 30, 2006        |  | $ | 190,837  |  
|                                               |  |   |          |  

Total financial assets, net of the reserve for credit losses, declined to $190.8 million at June 30, 2006,
down from $326.6 million at December 31, 2005. During 2006, net cash flows from the portfolio totaled $156.9 million, while non-cash activity resulted in a $21.1 million increase in net financial assets. Components of net cash flows included
$56.1 million of collections from financial assets (including recoveries) and $106.0 million from the sale of assets (excluding cash gains), offset by $5.2 million of fundings under existing customer commitments. Collections from financial assets
include prepayments (customer payments in advance of scheduled due dates). Non-cash activity included a $22.4 million reversal of reserves and a $2.9 million net increase related to the valuation of assets, partially offset by other non-cash
activity of $4.2 million.



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The $135.8 million decline in the carrying value of the Companys portfolio was primarily attributable to asset
sales, prepayments, scheduled amortization and write-offs ($7.0 million). During 2006, the Company completed numerous asset sales with a total carrying amount of $106.0 million, while prepayment activity represented $23.0 million of carrying amount.
The remaining portfolio as of June 30, 2006 is primarily comprised of aviation assets and the loan to The Thaxton Group. Refer to Note H. Litigation and Claims for a further discussion of the Thaxton litigation.

The majority of the aviation assets are older vintage aircraft, often of class and configuration with limited demand in the aircraft market. While a market for many of
these aircraft may never fully return, the Company believes it has maximized the value of the transportation assets by waiting for opportune moments to sell individual assets. Throughout 2006, the Company continued to market its transportation
portfolio by individual asset and has seen a high level of interest and activity. As of the date of this report, the Company had 30 aircraft with a total carrying value of approximately $57.4 million under letters of intent to sell. No assurance can
be given that the letters of intent will result in actual sales, but the Company anticipates the majority of these committed assets will be sold during the third quarter of 2006 for proceeds in excess of FINOVAs carrying value at June 30,
2006. The Company believes the individual sales efforts to date have generated substantially more cash than the Company would have received in a bulk portfolio sale. However, the size of the transportation portfolio has been rapidly declining and
many of the more attractive assets in this portfolio have been sold or are currently under letters of intent to sell during 2006. Additionally, the Company is becoming increasingly concerned with world events that could adversely impact the price of
oil and the potential value FINOVA could receive for its remaining aircraft. As a result of this and the fact that it is becoming increasingly more difficult to offset the incremental costs of collecting those assets in an orderly fashion, the
Company is currently offering the remaining aviation assets not committed to individual sales for bulk sale in order to maximize the value of the remaining aviation assets. The Company is soliciting interest from over 50 prospective buyers that
specialize in aviation assets. The Company will evaluate the level of this interest during the third quarter of 2006 to ascertain if buyers can be found at acceptable prices; however, there can be no assurance that the Company will be successful in
its efforts to sell these assets.

As of the date of this filing, the Company completed the previously announced sale of substantially all of its
non-aviation assets, other than its loan to The Thaxton Group. The sale was completed pursuant to a series of definitive agreements primarily with the same buyer, although certain individual assets were sold to other third parties who had rights of
first refusal. The sale of these non-aviation assets generated approximately $75 million of gross proceeds, representing approximately $20 million of proceeds in excess of FINOVAs December 31, 2005 carrying value. One asset originally
contemplated in this transaction for a purchase price of $0.8 million remains subject to a right of first refusal.

In addition to the Thaxton loan, the
Company excluded from this portfolio sale, a number of assets that were committed to individual asset sales or were awaiting customer prepayments. The majority of these excluded assets have been liquidated as of the date of this filing.

As of June 30, 2006, total financial assets also included the Companys $11.8 million investment in two grantor trusts to secure severance and bonus
obligations to its employees. These assets are held primarily for the benefit of the employees, but are recorded as investments due to the Companys retained interest in any excess assets.

The Company anticipates that when all or substantially all of its assets have been liquidated, the affairs of FINOVA will need to be wound-up. The Company continues to
analyze potential alternatives of wind-up and would like to commit to a final plan of liquidation during 2006; however, this will be contingent on obtaining acceptable prices for its remaining assets. Additionally, in considering its wind-up
alternatives, the Company intends to take into consideration the restricted cash related to impermissible restricted payments to stockholders, the Thaxton litigation and other outstanding bankruptcy claims. A final plan of liquidation may involve
appointment of a receiver or trustee for assets not liquidated, transfer of such assets to a liquidating trust or some other proceeding, any of which may or may not be in conjunction with bankruptcy or state law liquidation proceedings. The Company
cannot predict with certainty the timing or nature of that final wind-up at this point in time, but is working towards accomplishing that end in a prudent manner to maximize the return on the remaining assets.

The Company will continue to retain sufficient cash to fund its expenses, including the costs associated with the potential wind-up of the Companys affairs and the
Thaxton litigation. As a result, the Company anticipates maintaining a higher cash reserve to cover these potential and uncertain expenditures, which will limit its ability to make future voluntary prepayments. As a result, the Company does not
expect to make any voluntary prepayments during the remainder of 2006.



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FINOVAs reserve for credit losses decreased to $3.1 million at June 30, 2006 from $29.0 million at
December 31, 2005. At June 30, 2006, the total carrying amount of impaired loans and leases was $132.2 million, of which $57.1 million were revenue accruing. The Company has established impairment reserves of $3.1 million related to $7.3
million of impaired assets. At December 31, 2005, the total carrying amount of impaired loans and leases was $241.1 million, of which $109.1 million were revenue accruing. Impairment reserves at December 31, 2005 totaled $28.3 million
related to $85.4 million of impaired assets.

Reserves on impaired assets decreased due primarily to write-offs and proceeds received from prepayments and
asset sales exceeding recorded carrying amounts (net of reserves), partially offset by additional reserves recorded on certain existing impaired assets.

Accounts classified as nonaccruing were $75.1 million or 38.7% of total financial assets (before reserves) at June 30, 2006 as compared to $131.9 million or 37.1% at December 31, 2005. The decline in nonaccruing assets was
primarily attributed to collections and asset sales of $51.1 million and write-offs and net valuation markdowns of $1.8 million.

The Company continues to
be concerned regarding its ability to fully collect principal and interest on certain nonaccruing assets that have significant balloon payments or residual values due to FINOVA at maturity, because those customers may not have the ability to obtain
refinancing at maturity for the full amount of these residual/balloon payments. FINOVAs ability or willingness to continue to extend credit to these borrowers may be affected by its own capital resources and its assessment of the costs and
benefits of doing so.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are forward-looking, in that
they do not discuss historical fact, but instead reflect future expectations, projections, intentions, or other items. Forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include assumptions, estimates and valuations implicit in the financial statements and related notes, as well as matters discussed throughout this report including but not limited to projections of revenues,
income or loss, plans for the continued liquidation of the Companys assets, and assumptions related to the foregoing. They are also made in documents incorporated in this report by reference, or in which this report may be incorporated.

Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this report,
the words estimate, expects, anticipates, believes, plans, intends and similar expressions are intended to identify forward-looking statements that involve known and unknown
risks and uncertainties. The risks, uncertainties and other factors that could cause FINOVAs actual results or performance to differ materially from those contemplated by the forward-looking statements include, but are not limited to, the
following: whether we will be successful in implementing our business strategy; the impact of general economic conditions and the performance of our borrowers; our ability to retain our employees; the instability and uncertainty in the airline
industry, which could adversely affect the value of our aircraft portfolio, lease rates and demand; the increasing difficulty in offsetting costs of collecting the remaining portfolio in view of our decreasing asset pool; our reliance on third
parties for information that may not be accurate; our increasing exposure to concentrations of credit risk; and current and future legal and administrative claims and proceedings against us that may result in increased costs and diversion of
managements attention. For additional information, see Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.

Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date of this report. FINOVA does not intend to update
forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. FINOVA cannot predict the risk from reliance on forward-looking statements in light of the many factors that could
affect their accuracy.



|Item 3. | Quantitative and Qualitative Disclosure About Market Risk
|------- | ---------------------------------------------------------

There
were no material changes from the information provided in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.



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##### Table of Contents

|Item 4. | Controls and Procedures
|------- | -----------------------



|(a) | The Companys management evaluated, with the participation of the Companys principal executive and principal financial officer, the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of June 30, 2006. Based on their evaluation, the Companys principal
executive and principal financial officer concluded that the Companys disclosure controls and procedures were effective as of June 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | There has been no change in the Companys internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during
the Companys fiscal quarter ended June 30, 2006, that has materially affected or is reasonably likely to materially affect, the Companys internal control over financial reporting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules issued thereunder, the Company is scheduled to include in its Annual
Report on Form 10-K for the year ending December 31, 2007 a report on managements assessment of the effectiveness of the Companys internal controls over financial reporting. The Companys independent registered public
accountants will also be required to attest to and report on managements assessment.

The process of complying with these requirements
includes a comprehensive evaluation and documentation of the Companys internal controls over financial reporting. In this regard, management is prepared to dedicate internal resources and adopt a detailed plan to (i) document the
Companys internal controls over financial reporting, (ii) assess the adequacy of the Companys internal controls over financial reporting, (iii) take steps to improve control processes where appropriate and (iv) validate
through testing that controls are functioning as documented. There can be no assurance that deficiencies or weaknesses in the design or operation of internal controls over financial reporting will not be found and, if found, that the Company will
have sufficient time to remediate any such deficiencies or weaknesses and perform testing procedures before the end of 2007.

The Company
believes that any system of internal accounting controls, no matter how well designed and operated, can provide only reasonable (and not absolute) assurance that all of its objectives will be met, including the detection of fraud. Furthermore, no
evaluation of internal accounting controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

The Company continues to reduce its workforce, consolidate its operations and outsource certain functions. Accordingly, responsibility for administration, management and review of many of the Companys assets has
transitioned among FINOVAs remaining personnel. Management has supervised these transitions and has implemented procedures it believes provide effective disclosure and internal controls over financial reporting. The Company is assessing the
efficacy of these procedures and will continue to do so in subsequent periods. FINOVA recognizes that a substantial unanticipated reduction in employees could increase internal control risk.



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##### Table of Contents

PART II OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

See Part I, Item 1, Note H.
Litigation and Claims for a discussion of certain legal proceedings.



|Item 1A. | Risk Factors
|-------- | ------------

There were no material changes from the information
provided in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.



|Item 6. | Exhibits
|------- | --------



| | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 32.1 | Certification of Chief Executive Officer pursuant to 18. U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 | Certification of Chief Financial Officer pursuant to 18. U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------



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THE FINOVA GROUP INC.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                     |  |  |  |                       |  |                     |  |                                                                                                           
|-------------------- |  |  |  | --------------------- |  | ------------------- |  | ----------------------------------------------------------------------------------------------------------
|                     |  |  |  | THE FINOVA GROUP INC.
|                     |  |  |  | (Registrant)         
|                     |  |  | 
|Date: August 1, 2006 |  |  |  | By:                   |  | /s/ Richard A. Ross
|                     |  |  |  |                       |  |                     |  | Richard A. Ross, Senior Vice President  Chief Financial Officer & Treasurer (principal financial officer)



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EXHIBIT INDEX



|              |  |                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                
|31.1          |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                        
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                        
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to 18. U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to 18. U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.