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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 March 31, 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 May 9, 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 |  | 12      
|           |  | Special Note Regarding Forward-Looking Statements                                     |  | 22      
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 22      
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 22      
|           |  |                                                                                      
|           |  | PART II    OTHER INFORMATION                                                          |  |         
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 23      
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 23      
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 23      
|           |  |                                                                                      
|Signatures |  |                                                                                       |  | 24      



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PART I FINANCIAL INFORMATION



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

THE FINOVA GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



|                                                                                           |  |                |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------ |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                           |  | March 31, 2006 |           |   | December 31, 2005 |  
|                                                                                           |  | (Unaudited)    |           |   | (Audited)         |  
|ASSETS                                                                                     |  |                |           |   |                   |   |           |  
|Cash and cash equivalents                                                                  |  | $              | 238,320   |   |                   | $ | 212,317   |  
|Restricted cash - impermissible restricted payments                                        |  |                | 70,294    |   |                   |   | 67,169    |  
|Financing Assets:                                                                          |  |                |           |   |                   |   |           |  
|Loans and other financing contracts, net                                                   |  |                | 85,249    |   |                   |   | 177,887   |  
|Direct financing leases                                                                    |  |                | 44,617    |   |                   |   | 77,948    |  
|                                                                                           |  |                |           |   |                   |   |           |  
|Total financing assets                                                                     |  |                | 129,866   |   |                   |   | 255,835   |  
|Reserve for credit losses                                                                  |  |                | (3,010    | ) |                   |   | (29,032   | )
|                                                                                           |  |                |           |   |                   |   |           |  
|Net financing assets                                                                       |  |                | 126,856   |   |                   |   | 226,803   |  
|                                                                                           |  |                |           |   |                   |   |           |  
|Other Financial Assets:                                                                    |  |                |           |   |                   |   |           |  
|Assets held for sale                                                                       |  |                | 65,616    |   |                   |   |           |  
|Operating leases                                                                           |  |                | 63,565    |   |                   |   | 69,784    |  
|Investments                                                                                |  |                | 21,030    |   |                   |   | 22,490    |  
|Assets held for production of income                                                       |  |                | 2,931     |   |                   |   | 7,572     |  
|                                                                                           |  |                |           |   |                   |   |           |  
|Total other financial assets                                                               |  |                | 153,142   |   |                   |   | 99,846    |  
|                                                                                           |  |                |           |   |                   |   |           |  
|Total Financial Assets                                                                     |  |                | 279,998   |   |                   |   | 326,649   |  
|Other assets                                                                               |  |                | 4,390     |   |                   |   | 5,016     |  
|                                                                                           |  |                |           |   |                   |   |           |  
|                                                                                           |  | $              | 593,002   |   |                   | $ | 611,151   |  
|                                                                                           |  |                |           |   |                   |   |           |  
|                                                                                           |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |                |           |   |                   |   |           |  
|Liabilities:                                                                               |  |                |           |   |                   |   |           |  
|Senior Notes, net (principal amount due of $1.6 billion and $1.7 billion, respectively)    |  | $              | 1,100,160 |   |                   | $ | 1,151,491 |  
|Interest payable                                                                           |  |                | 46,251    |   |                   |   | 16,215    |  
|Accounts payable and accrued expenses                                                      |  |                | 42,220    |   |                   |   | 52,655    |  
|Deferred income taxes, net                                                                 |  |                | 2,395     |   |                   |   | 2,521     |  
|                                                                                           |  |                |           |   |                   |   |           |  
|Total Liabilities                                                                          |  |                | 1,191,026 |   |                   |   | 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                                                                        |  |                | (711,804  | ) |                   |   | (727,149  | )
|Accumulated other comprehensive (loss) income                                              |  |                | (83       | ) |                   |   | 1,555     |  
|Common stock in treasury, 3,832,000 shares                                                 |  |                | (536      | ) |                   |   | (536      | )
|                                                                                           |  |                |           |   |                   |   |           |  
|Total Stockholders Equity                                                                 |  |                | (598,024  | ) |                   |   | (611,731  | )
|                                                                                           |  |                |           |   |                   |   |           |  
|                                                                                           |  | $              | 593,002   |   |                   | $ | 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 Months Ended March 31, |            
|                                        |  | 2006                         |             |   | 2005 |  
|Revenues:                               |  |                              |             |   |      |   |             |  
|Interest income                         |  | $                            | 3,714       |   |      | $ | 10,138      |  
|Rental income                           |  |                              | 1,481       |   |      |   | 3,913       |  
|Operating lease income                  |  |                              | 8,389       |   |      |   | 10,679      |  
|Fees and other income                   |  |                              | 5,322       |   |      |   | 3,572       |  
|                                        |  |                              |             |   |      |   |             |  
|Total Revenues                          |  |                              | 18,906      |   |      |   | 28,302      |  
|                                        |  |                             
|Interest expense                        |  |                              | (38,976     | ) |      |   | (47,907     | )
|Operating lease depreciation            |  |                              | (1,658      | ) |      |   | (2,469      | )
|                                        |  |                              |             |   |      |   |             |  
|Interest Margin                         |  |                              | (21,728     | ) |      |   | (22,074     | )
|                                        |  |                              |             |   |      |   |             |  
|                                        |  |                             
|Other Revenues and (Expenses):          |  |                              |             |   |      |   |             |  
|Reversal of provision for credit losses |  |                              | 21,103      |   |      |   | 20,410      |  
|Net gain on financial assets            |  |                              | 28,783      |   |      |   | 16,113      |  
|Portfolio expenses                      |  |                              | (5,484      | ) |      |   | (2,338      | )
|General and administrative expenses     |  |                              | (7,329      | ) |      |   | (12,627     | )
|                                        |  |                              |             |   |      |   |             |  
|Total Other Revenues and (Expenses)     |  |                              | 37,073      |   |      |   | 21,558      |  
|                                        |  |                              |             |   |      |   |             |  
|Income (loss) before income taxes       |  |                              | 15,345      |   |      |   | (516        | )
|Income tax expense                      |  |                              |            |   |      |   |            |  
|                                        |  |                              |             |   |      |   |             |  
|Net Income (Loss)                       |  | $                            | 15,345      |   |      | $ | (516        | )
|                                        |  |                              |             |   |      |   |             |  
|Basic/diluted earnings (loss) per share |  | $                            | 0.13        |   |      | $ | (0.00       | )
|                                        |  |                              |             |   |      |   |             |  
|Weighted average shares outstanding     |  |                              | 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)



|                                                                                     |  |                              |         |   |      |   |          |  
|------------------------------------------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                     |  | Three Months Ended March 31, |        
|                                                                                     |  | 2006                         |         |   | 2005 |  
|Operating Activities:                                                                |  |                              |         |   |      |   |          |  
|Net income (loss)                                                                    |  | $                            | 15,345  |   |      | $ | (516     | )
|Adjustments to reconcile net income (loss) to net cash used by operating activities: |  |                              |         |   |      |   |          |  
|Reversal of provision for credit losses                                              |  |                              | (21,103 | ) |      |   | (20,410  | )
|Net cash gain on disposal of financial assets                                        |  |                              | (27,820 | ) |      |   | (14,283  | )
|Net non-cash gain on financial assets                                                |  |                              | (963    | ) |      |   | (1,830   | )
|Depreciation and amortization                                                        |  |                              | 1,849   |   |      |   | 2,668    |  
|Deferred income taxes, net                                                           |  |                              | (126    | ) |      |   | (315     | )
|Fresh-start accretion - assets                                                       |  |                              | (289    | ) |      |   | (636     | )
|Fresh-start discount amortization - Senior Notes                                     |  |                              | 8,028   |   |      |   | 10,763   |  
|Change in assets and liabilities:                                                    |  |                              |         |   |      |   |          |  
|Decrease in other assets                                                             |  |                              | 435     |   |      |   | 831      |  
|Decrease in accounts payable and accrued expenses                                    |  |                              | (9,748  | ) |      |   | (16,182  | )
|Increase in interest payable                                                         |  |                              | 30,036  |   |      |   | 32,215   |  
|                                                                                     |  |                              |         |   |      |   |          |  
|Net Cash Used by Operating Activities                                                |  |                              | (4,356  | ) |      |   | (7,695   | )
|                                                                                     |  |                              |         |   |      |   |          |  
|                                                                                     |  |                             
|Investing Activities:                                                                |  |                              |         |   |      |   |          |  
|Proceeds from disposals of leases and other owned assets                             |  |                              | 26,431  |   |      |   | 11,471   |  
|Proceeds from sales of investments                                                   |  |                              | 1,809   |   |      |   | 1,860    |  
|Proceeds from sales of loans and financing leases                                    |  |                              | 34,078  |   |      |   | 1,895    |  
|Collections and prepayments from financial assets                                    |  |                              | 32,658  |   |      |   | 99,920   |  
|Fundings under existing customer commitments                                         |  |                              | (3,636  | ) |      |   | (3,671   | )
|Deposit of impermissible restricted payments into restricted cash account            |  |                              | (3,125  | ) |      |   | (15,621  | )
|Recoveries of loans previously written off                                           |  |                              | 1,503   |   |      |   | 5,073    |  
|                                                                                     |  |                              |         |   |      |   |          |  
|Net Cash Provided by Investing Activities                                            |  |                              | 89,718  |   |      |   | 100,927  |  
|                                                                                     |  |                              |         |   |      |   |          |  
|                                                                                     |  |                             
|Financing Activities:                                                                |  |                              |         |   |      |   |          |  
|Principal prepayments of Senior Notes                                                |  |                              | (59,359 | ) |      |   | (296,795 | )
|                                                                                     |  |                              |         |   |      |   |          |  
|Net Cash Used by Financing Activities                                                |  |                              | (59,359 | ) |      |   | (296,795 | )
|                                                                                     |  |                              |         |   |      |   |          |  
|Increase (Decrease) in Cash and Cash Equivalents                                     |  |                              | 26,003  |   |      |   | (203,563 | )
|Cash and Cash Equivalents, beginning of year                                         |  |                              | 212,317 |   |      |   | 480,485  |  
|                                                                                     |  |                              |         |   |      |   |          |  
|Cash and Cash Equivalents, end of period                                             |  | $                            | 238,320 |   |      | $ | 276,922  |  
|                                                                                     |  |                              |         |   |      |   |          |  

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                                      |  |             |       |                   |   |                    |  |   | 15,345                                     |   |  |                        |         |   |                          |   |      |   |  |   | 15,345   |  
|Net change in unrealized holding gains (losses) |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | (1,775  | ) |                          |   |      |   |  |   | (1,775   | )
|Net change in foreign currency translation      |  |             |       |                   |   |                    |  |   |                                            |   |  |                        | 137     |   |                          |   |      |   |  |   | 137      |  
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Comprehensive income                            |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   | 13,707   |  
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  
|Balance, March 31, 2006                         |  | $           | 1,259 |                   | $ | 113,140            |  | $ | (711,804                                   | ) |  | $                      | (83     | ) |                          | $ | (536 | ) |  | $ | (598,024 | )
|                                                |  |             |       |                   |   |                    |  |   |                                            |   |  |                        |         |   |                          |   |      |   |  |   |          |  

See notes to interim condensed consolidated financial statements.



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THE FINOVA GROUP INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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, sales of assets or collateral and may
include efforts to retain certain customer relationships and restructure or terminate other relationships. The Company has sold substantial portions of asset portfolios 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 efforts to sell additional assets. The Company is 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, 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 are used to reduce FINOVAs obligations to its creditors.

Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Companys assets 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 March 31, 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



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materially impact the amounts reported and disclosed in the financial statements. Significant estimates include anticipated 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 March 31, 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 March 31, 2006 and December 31, 2005, the carrying amount of total financial assets (before reserves) was $283.0
million and $355.7 million, respectively.

The following table details the composition and carrying amounts of FINOVAs total financial assets at
March 31, 2006:



|                          |  |                       |        |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |   |  |      
|------------------------- |  | --------------------- | ------ | ----------------------- | - | ------------------------ |  | ------------------------ | ------ | ------------------------ | - | -------------------- |  | - | ------ |  | - | ------- | - |  | -----
|                          |  | RevenueAccruingAssets |        | RevenueAccruingImpaired |   | NonaccruingImpairedLoans |  | NonaccruingLeases &Other |        | OwnedAssets &Investments |   | TotalFinancialAssets |  |   | %     
|Transportation            |  | $                     |        |                         | $ | 52,364                   |  | $                        | 2,690  |                          | $ |                      |  | $ | 66,473 |  | $ | 121,527 |   |  | 42.9 
|All other portfolios      |  |                       | 13,863 |                         |   | 38,509                   |  |                          | 85,881 |                          |   | 2,175                |  |   | 21,053 |  |   | 161,481 |   |  | 57.1 
|                          |  |                       |        |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |   |  |      
|Total financial assets    |  | $                     | 13,863 |                         | $ | 90,873                   |  | $                        | 88,571 |                          | $ | 2,175                |  | $ | 87,526 |  | $ | 283,008 |   |  | 100.0
|Reserve for credit losses |  |                       |        |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   | (3,010  | ) |  |      
|                          |  |                       |        |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |   |  |      
|Total                     |  |                       |        |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  | $ | 279,998 |   |  |      
|                          |  |                       |        |                         |   |                          |  |                          |        |                          |   |                      |  |   |        |  |   |         |   |  |      

Since FINOVAs total financial assets are 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. 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 March 31, 2006, the
carrying value of the Companys top 10 aggregate exposures to borrowers and their affiliates totaled approximately $181.6 million and represented 64.1% of the Companys total financial assets (before reserves), as compared to the top 10
exposures at December 31, 2005 of $220.3 million, which represented 61.9% of total financial assets (before reserves). The top 10 exposures at March 31, 2006, were concentrated in seven transportation accounts and three accounts from the
all other portfolios.

As of the date of this report, four of the top 10 exposures, with a carrying value of approximately $75 million have been sold or
are committed to sales transactions. The top 10 exposures also include the Companys carrying value of its loan to The Thaxton Group. Refer to Note H. Litigation and Claims for a further discussion of the Thaxton proceedings.



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##### Table of Contents

At March 31, 2006, the Companys transportation portfolio consisted of the following aircraft:



|                                                  |  |                   |  |           |  |       |  |                                 
|------------------------------------------------- |  | ----------------- |  | --------- |  | ----- |  | --------------------------------
|Aircraft Type                                     |  | Number ofAircraft |  | Passenger |  | Cargo |  | ApproximateAverage Age(in years)
|Airbus 300                                        |  | 3                 |  |           |  | 3     |  | 24                              
|Boeing 727                                        |  | 9                 |  | 4         |  | 5     |  | 26                              
|Boeing 737                                        |  | 11                |  | 11        |  |       |  | 20                              
|Boeing 757                                        |  | 3                 |  | 3         |  |       |  | 12                              
|McDonnell Douglas DC8 and DC9                     |  | 4                 |  | 4         |  |       |  | 34                              
|McDonnell Douglas DC10                            |  | 9                 |  | 1         |  | 8     |  | 28                              
|McDonnell Douglas MD Series                       |  | 13                |  | 13        |  |       |  | 21                              
|Regional jets, corporate aircraft and turbo props |  | 27                |  | 27        |  |       |  | 13                              
|                                                  |  |                   |  |           |  |       |  |                                 
|Total                                             |  | 79                |  | 63        |  | 16    |  | 20                              
|                                                  |  |                   |  |           |  |       |  |                                 

At March 31, 2006, 29 aircraft with a carrying value of $73.2 million were operated by domestic carriers and
41 aircraft with a carrying value of $37.5 million were operated by foreign carriers. Additionally, 9 aircraft with a carrying value of $2.5 million were off-lease, classified as assets held for the production of income and parked at various storage
facilities in the United States and Europe.

The Companys transportation portfolio also includes aircraft engines and other transportation equipment.
The carrying value of this equipment was $8.3 million at March 31, 2006.

In April 2006, the Company entered into a non-binding letter of intent to
sell, subject to execution of definitive agreements and certain required approvals and consents, substantially all of its non-aviation assets, with the exception of the loan to The Thaxton Group. The sale of these assets is expected to generate
total gross proceeds of up to $76.2 million and will be completed pursuant to a series of definitive agreements with the same buyer. On May 1, 2006, FINOVA entered into the first of these definitive agreements to sell its non-aviation assets
for a total purchase price of $72.0 million. In an initial closing under this agreement, FINOVA received total gross proceeds of $68.5 million. Completion of the sale with respect to certain other assets will require the receipt of third party
approvals and consents. If these approvals and consents are obtained, FINOVA will receive up to $3.5 million of additional gross proceeds. No assurance can be given that the required approvals and consents will be obtained. The Company anticipates
entering into additional agreements to sell the remainder of the non-aviation assets during the second quarter of 2006. The total portfolio sale is expected to generate cash in excess of FINOVAs carrying value as of March 31, 2006. In
addition to the Thaxton loan, the Company excluded from this portfolio sale, a number of assets that are committed to individual asset sales or are awaiting customer prepayments. The Company anticipates that the Thaxton loan will be the only
non-aviation asset of any significance remaining after completing these agreements. The carrying value of the all other portfolios also includes the Companys $13.4 million investment in two grantor trusts to secure severance and bonus
obligations to the remaining employees as of March 31, 2006. 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:



|                                        |  |                              |         |   |      |   |         |  
|--------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                        |  | Three Months Ended March 31, |        
|                                        |  | 2006                         |         |   | 2005 |  
|Balance, beginning of year              |  | $                            | 29,032  |   |      | $ | 101,270 |  
|Reversal of provision for credit losses |  |                              | (21,103 | ) |      |   | (20,410 | )
|Write-offs                              |  |                              | (6,422  | ) |      |   | (4,461  | )
|Recoveries                              |  |                              | 1,503   |   |      |   | 5,073   |  
|                                        |  |                              |         |   |      |   |         |  
|Balance, end of period                  |  | $                            | 3,010   |   |      | $ | 81,472  |  
|                                        |  |                              |         |   |      |   |         |  



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For the three months ended March 31, 2006, the Company recorded a $21.1 million reversal of provision for credit
losses to reduce its reserve for credit losses. The reserve reduction was primarily due to write-offs, proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), recoveries of amounts previously written
off and the Companys detailed assessment of estimated inherent losses in the portfolio. Additionally, the Company reduced the reserve for credit losses $14.7 million during the first quarter of 2006 in conjunction with the revaluation and
reversal of reserves associated with the classification of the non-aviation assets discussed above, as assets held for sale.

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



|                            |  |               |       |                  |   |       
|--------------------------- |  | ------------- | ----- | ---------------- | - | ------
|                            |  | March 31,2006 |       | December 31,2005
|Reserves on impaired assets |  | $             | 3,010 |                  | $ | 28,288
|Other reserves              |  |               |       |                  |   | 744   
|                            |  |               |       |                  |   |       
|Reserve for credit losses   |  | $             | 3,010 |                  | $ | 29,032
|                            |  |               |       |                  |   |       

At March 31, 2006, the total carrying amount of impaired loans and leases was $181.6 million, of which $90.9
million were revenue accruing. The Company has established impairment reserves of $3.0 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 to write-offs, proceeds received and anticipated to be received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves) and the Companys application of cash
received on nonaccruing assets, thus reducing the impairment reserves required on those assets.

Accounts classified as nonaccruing were $90.7 million or
32.1% of total financial assets (before reserves) at March 31, 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 $34.6 million and
write-offs and net valuation markdowns of $1.3 million.



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

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



|                     |  |               |           |   |                  |   |           |  
|-------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                     |  | March 31,2006 |           |   | December 31,2005 |  
|Senior Notes:        |  |               |           |   |                  |   |           |  
|Principal            |  | $             | 1,632,372 |   |                  | $ | 1,691,731 |  
|Fresh-start discount |  |               | (532,212  | ) |                  |   | (540,240  | )
|                     |  |               |           |   |                  |   |           |  
|Senior Notes, net    |  | $             | 1,100,160 |   |                  | $ | 1,151,491 |  
|                     |  |               |           |   |                  |   |           |  

During the first quarter of 2006, the Company made partial principal prepayments on the Senior Notes totaling
$59.4 million, which reduced the outstanding principal to $1.6 billion. FINOVA announced two additional partial prepayments totaling $118.7 million that will be paid in the second quarter of 2006. Following these prepayments, cumulative prepayments
through the second quarter of 2006 will total $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.

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 March 31, 2006, the Senior Notes are reflected on the Companys balance sheet net of a remaining $532.2
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 will
have retained a total of $76.5 million as of June 15, 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 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                   |  |                     | (110  | ) |                          |   | (13   | )
|Net additions (reductions) |  |                     | 810   |   |                          |   | (250  | )
|                           |  |                     |       |   |                          |   |       |  
|Balance, end of period     |  | $                   | 4,961 |   |                          | $ | 3,436 |  
|                           |  |                     |       |   |                          |   |       |  

As of March 31, 2006, FINOVA had accrued a liability for termination benefits (including severance) of $5.0
million related to 59 individuals at various levels within the Company. During the three months ended March 31, 2006, the Company paid termination benefits of $0.1 million and recorded a net charge of $0.8 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 anticipates reducing its workforce to approximately 41 employees by mid-2006, down from 56 and 60 employees at March 31, 2006 and December 31, 2005, respectively. The termination benefits, including
severance costs, for these staffing reductions are expected to cost approximately $2.7 million, $1.8 million of which had been accrued by the Company as of March 31, 2006. The total costs are an acceleration of anticipated termination benefits
that are scheduled to be paid under FINOVAs existing severance arrangements. Funds to pay those termination benefits are held by a trust established by the Company to secure its obligations to its employees.

As of March 31, 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 carry
forwards of $1.2 billion as of March 31, 2006 and December 31, 2005. No income tax expense or benefit was recorded during the three months ended March 31, 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.

If any legal proceedings result in a significant adverse judgment against the Company, which is not anticipated, 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 of approximately $108 million at March 31, 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



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District Court for the Northern District of Georgia (Atlanta Division) on January 5, 2004. The fourth complaint, captioned Grant 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 are styled as
class actions, 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 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 filed a notice of appeal of the equitable subordination order with the Fourth Circuit, as well as a motion to stay the District Courts March 20, 2006 order.

If the Fourth Circuit does not reverse the South Carolina District Court and overturn or modify the District Courts equitable subordination ruling, FINOVA Capitals ability to recover on its claim in the
Thaxton Entities bankruptcy cases may be materially and negatively affected, depending on the results of other rulings in this litigation that may substantially limit the effect and importance of the equitable subordination ruling.

As Thaxton has liquidated assets, portions of the payments collected by Thaxton have been deposited into a reserve account (approximately $72.7 million at March 31,
2006) 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. During the third quarter of 2005, FINOVA Capital and Thaxton also agreed to
deposit future interest payments and legal expense reimbursement that FINOVA Capital alleges are due from Thaxton to FINOVA Capital into two additional reserve accounts (an aggregate of approximately $6.8 million at March 31, 2006), each in the
name of FINOVA Capital and the Thaxton Entities bankruptcy estates. 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. As a result
of these reserve accounts, the amount of cash flow being paid by the Thaxton Entities to FINOVA Capital has decreased from prior periods.



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If the South Carolina District Courts equitable subordination finding is not overturned or otherwise modified, 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 that ruling, as well as the results of other rulings in this litigation that may
substantially limit the effect and importance of the 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 a 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. A material and negative impact on the Companys ability to
recover on its claims in the Thaxton Entities bankruptcy cases would have a material adverse impact on the Companys financial position, results of operations and/or cash flow.

If the Adversary Proceeding or the MDL Litigation 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 Company believes all the claims against FINOVA Capital are without merit. FINOVA Capital
intends to vigorously defend the claims asserted against it in connection with the Thaxton Entities, whether in the MDL Litigation, or in the Adversary Proceeding, and to protect its senior secured position in the bankruptcy proceedings for the
Thaxton Entities, including without limitation with respect to the pending substantive consolidation motion.

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 $70.3 million as of March 31, 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, 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 the first quarter of 2006, the Company 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 20%, resulting in total financial assets before reserves of just over $283 million at March 31, 2006. Additionally, in April 2006, the Company entered into a non-binding letter of
intent to sell, subject to execution of definitive agreements and certain required approvals and consents, substantially all of its non-aviation assets, with the exception of the loan to The Thaxton Group. Refer below to Financial Condition,
Liquidity and Capital Resources for a further discussion of this sale.



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As of March 31, 2006, the Company has repaid 45% of the face amount of the Senior Notes. The Company has also
announced two additional prepayments totaling $118.7 million, that will be paid during the second quarter of 2006, which will increase cumulative principal prepayments to 49%.

As of March 31, 2006, FINOVA owed approximately $1.6 billion of principal to the Senior Note holders, while only $593 million of assets remained, including cash reserves and restricted cash. The Company would
have to liquidate its remaining financial assets by almost five 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 95% of its portfolio, which was approximately $7.6 billion
when it emerged from bankruptcy in August 2001. At March 31, 2006, the carrying value of FINOVAs portfolio had less than $300 million of financial assets, and it is becoming increasingly more difficult to offset the incremental costs of
collecting those assets in an orderly fashion.

As a result, to maximize the value of its assets, the Company has altered its present course of action by
offering its remaining portfolios for bulk sale. The first step in this process focused on the non-aviation assets. As noted above, during the second quarter of 2006, the Company entered into a non-binding letter of intent to sell substantially all
of its non-aviation assets, with the exception of the loan to The Thaxton Group.

The Company has marketed 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 24 aircraft and approximately $54.3 million of carrying value of transportation assets under letters of intent to sell. No assurance can be given that
the letters of intent will result in actual sales. 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 are currently under letters of intent to sell during 2006. Additionally, the Company is becoming increasingly concerned with
world events that could 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 anticipates that during 2006, it will
offer transportation assets not committed to individual asset sales for bulk sale in order to maximize the value of the remaining aviation 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 is presently analyzing 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. 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 proceedings, 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.

As permitted, the Company will
continue to retain sufficient cash to fund operating expenses and certain other items such as interest payments and aircraft maintenance as FINOVA works toward its wind-up. The remainder, or excess cash, will be used to reduce principal
obligations to the Senior Note holders.

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 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 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



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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.

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.

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 asset portfolios are collected in an
orderly fashion over time.

FINOVAs process of determining impairment reserves and carrying amounts includes a periodic assessment of its portfolios
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.



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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 portfolios.

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 March 31, 2006 and December 31, 2005, the reserve for credit losses totaled $3.0 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 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 March 31, 2006 and December 31, 2005, owned assets totaled $66.5 million and $77.4 million, or 23.5% 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 March 31, 2006, assets held
for sale totaled $65.6 million or 23.2% of total financial assets (before reserves), while as of December 31, 2005, there were no assets held for sale with 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



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account classification and income recognition. As of March 31, 2006 and December 31, 2005, $90.7 million and $131.9 million, or 32.1% 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 March 31, |        
|                                        |  | 2006                         |         |   | 2005 |   |         | Change | 
|                                        |  | (Dollars in thousands)       |        
|Interest margin                         |  | $                            | (21,728 | ) |      | $ | (22,074 | )      |  | $ | 346    |  
|Reversal of provision for credit losses |  |                              | 21,103  |   |      |   | 20,410  |        |  |   | 693    |  
|Net gain on financial assets            |  |                              | 28,783  |   |      |   | 16,113  |        |  |   | 12,670 |  
|Portfolio expenses                      |  |                              | (5,484  | ) |      |   | (2,338  | )      |  |   | (3,146 | )
|General and administrative expenses     |  |                              | (7,329  | ) |      |   | (12,627 | )      |  |   | 5,298  |  
|                                        |  |                              |         |   |      |   |         |        |  |   |        |  
|Net income (loss)                       |  | $                            | 15,345  |   |      | $ | (516    | )      |  | $ | 15,861 |  
|                                        |  |                              |         |   |      |   |         |        |  |   |        |  

Three Months Ended March 31, 2006 and 2005

Net Income (Loss). In general, the increase in net income was primarily attributable to the three months ended March 31, 2006 containing a higher level of
asset realization in excess of recorded carrying amounts. 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 portfolios. 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. However, during the first quarter of 2006, the
aircraft-financing market displayed 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 first quarter of 2005 results. Additionally, results for the first quarter of 2006 were enhanced by the revaluation and reversal of reserves associated with the non-aviation assets classified as assets held for sale.

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 the
bankruptcy filings of Delta Airlines and Northwest Airlines. 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 ($104.7 million and
$243.9 million at March 31, 2006 and 2005, respectively) than the principal amount of outstanding debt ($1.6 billion and $1.9 billion at March 31, 2006 and 2005, respectively) and the Companys high aggregate cost of funds (aggregate
effective rate of 13.6% and 13.2% for the three months ended March 31, 2006 and 2005, respectively). The slight improvement in interest margin was due to the narrowing of the gap between debt and earning assets.



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Partially offsetting the negative interest margin was the recognition of previously suspended and deferred income ($1.5
million and $5.9 million for the three months ended March 31, 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 ($1.5 million and $5.1 million for the three months ended March 31, 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, in conjunction with the revaluation of the non-aviation assets
classified as assets held for sale during the first quarter of 2006, the Company reduced the reserve for credit losses $14.7 million by reversing provision for credit losses.

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.

The net gain during the first 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 $23.5 million of net gains realized from sales of aircraft and aircraft related notes and $2.2 million of net gains realized from the sale and valuation of private and public
investments.

The net gain during the first quarter of 2005 was primarily attributable to $11.5 million of net gains realized from sales of aircraft and
parts, and the forfeiture by aircraft operators of security deposits and maintenance reserves, $1.9 million of net gains realized from the sale and valuation of private and public investments and a $4.9 million gain from the net valuation markup of
the Companys last two real estate leveraged leases. Partially offsetting the gain activity was a $4.5 million valuation markdown of 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. However, barring continued strong
activity in the aircraft-financing market, the Company generally does not expect to maintain aggregate gain realization levels comparable to those years in future asset sales, due to the fact that many of its more attractive and marketable assets
within the portfolio have already been liquidated. In April 2006, the Company entered into a non-binding letter of intent to sell, subject to execution of definitive agreements and certain required approvals and consents, substantially all of its
non-aviation assets, with the exception of the loan to The Thaxton Group. The sale of these assets is expected to generate total gross proceeds of up to $76.2 million and will be completed pursuant to a series of definitive agreements with the same
buyer.

On May 1, 2006, FINOVA entered into the first of these definitive agreements to sell its non-aviation assets for a total purchase price of
$72.0 million. In an initial closing under this agreement, FINOVA received total gross proceeds of $68.5 million. Completion of the sale with respect to certain other assets will require the receipt of third party approvals and consents. If these
approvals and consents are obtained, FINOVA will receive up to $3.5 million of additional gross proceeds. No assurance can be given that the required approvals and consents will be obtained. The Company anticipates entering into



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additional agreements to sell the remainder of the non-aviation assets during the second quarter of 2006. The total portfolio sale is expected to generate
cash in excess of FINOVAs carrying value as of March 31, 2006.

The Companys remaining portfolio of assets will be concentrated in owned
aircraft and the loan to The Thaxton Group. As previously discussed, improvements within the aircraft-financing market have generated increased volume and realization from the Companys transportation portfolio, but the Company is skeptical
about whether this trend will be sustained and if so, for how long.

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 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 ($1.3 million and $1.5 million during the three months ended March 31, 2006 and 2005, respectively). In certain instances, the Company
believes it can achieve better returns in the current market of improved aircraft values by investing in the maintenance of certain types of aircraft and engines. As a result, portfolio expenses within the transportation portfolio have not declined
as fast as the decline in assets. 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 it
makes sense to do so.

In most cases, the Company experienced a decline in the level of problem account and workout expenses for the remainder of the
portfolio with the primary exception of legal costs associated with the Thaxton litigation, which increased $1.2 million over the first quarter of 2005.

Additionally, the Company has seen a decline in the level of reimbursed portfolio expenses for the entire portfolio, which declined by $1.6 million.

General and Administrative Expenses. The decrease in general and administrative expenses was primarily due to $3.2 million of cost savings resulting from staffing and office occupancy reductions (56 employees at March 31, 2006
compared to 96 at March 31, 2005) and lower severance accruals ($1.7 million). The remainder of the decrease was the result of an overall decline in general and administrative expenses caused by decreases in portfolio and staffing levels. The
Company expects the dollar level of general and administrative expenses to continue to decrease as portfolio and staffing levels decrease; however, general and administrative expenses as a percentage of assets or revenues will likely increase over
time as a result of certain fixed costs, the costs of being a public company and the high level of work intensive assets in the portfolio.

Income Tax
Expense. No income tax expense or benefit was recorded during the three months ended March 31, 2006 and 2006. 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 carry forwards of $1.2 billion as of
March 31, 2006 and December 31, 2005.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Companys assets 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



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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, 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.

During the first quarter of 2006, the Company made partial principal prepayments on the Senior Notes totaling $59.4 million, which
reduced the outstanding principal to $1.6 billion. FINOVA announced two additional partial prepayments totaling $118.7 million that will be made during the second quarter of 2006. Following these prepayments, cumulative prepayments through the
second quarter of 2006 will total $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 will have retained a total of $76.5 million by June 15, 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 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.

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 $598.0 million as of March 31, 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 $280.0 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.



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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 three months ended March 31, 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, sales of assets or collateral and may include efforts to retain certain
customer relationships and restructure or terminate other relationships. The Company has sold substantial portions of asset portfolios 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 three months ended March 31, 2006:



|                                               |  |   |         |  
|---------------------------------------------- |  | - | ------- | -
|(Dollars in thousands)                         |  |   |        
|Total financial assets at December 31, 2005    |  | $ | 326,649 |  
|                                               | 
|Cash activity:                                 |  |   |         |  
|Fundings under existing customer commitments   |  |   | 3,636   |  
|Collections and proceeds from financial assets |  |   | (68,659 | )
|                                               |  |   |         |  
|Net cash flows                                 |  |   | (65,023 | )
|                                               |  |   |         |  
|                                               | 
|Non-cash activity:                             |  |   |         |  
|Reversal of provision for credit losses        |  |   | 21,103  |  
|Net gain on financial assets                   |  |   | 276     |  
|Other non-cash activity                        |  |   | (3,007  | )
|                                               |  |   |         |  
|Net non-cash activity                          |  |   | 18,372  |  
|                                               |  |   |         |  
|Total financial assets at March 31, 2006       |  | $ | 279,998 |  
|                                               |  |   |         |  

Total financial assets, net of the reserve for credit losses, declined to $280.0 million at March 31, 2006,
down from $326.6 million at December 31, 2005. During 2006, net cash flows from the portfolio totaled $65.0 million, while non-cash activity resulted in an $18.4 million increase in net financial assets. Components of net cash flows included
$34.2 million of collections from financial assets (including recoveries) and $34.4 million from the sale of assets (excluding cash gains), offset by $3.6 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 $21.1 million reversal of reserves and a $0.3 million net increase related to the valuation of investments, partially offset by other non-cash
activity of $3.0 million.

The carrying amount of the Companys transportation portfolio declined $42.0 million since December 31, 2005 to $121.5
million at March 31, 2006, which represents 42.9% of the Companys total financial assets (before reserves). The decline was primarily attributable to asset sales, prepayments, scheduled amortization and write-offs ($5.1 million). During
the first quarter of 2006, the Company completed numerous asset sales with a total carrying amount of $8.5 million, while prepayment activity represented $17.8 million of carrying amount. The transportation portfolio is primarily comprised of older
vintage aircraft, often of class and configuration with limited demand in the aircraft market. The Companys portfolio of older aircraft generally is not as desirable to domestic commercial airlines and as a result, owned and off-lease aircraft
are primarily marketed in whole or part to carriers in developing countries. The potential for substantial recoveries on these accounts continues to be hampered by the uncertainty in the airline industry. 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. 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



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the more attractive assets in this portfolio have been sold or are currently under letters of intent to sell during 2006. As of the date of this report, the
Company had 24 aircraft and approximately $54.3 million of carrying value of transportation assets under letters of intent to sell. No assurance can be given that the letters of intent will result in actual sales. Additionally, the Company is
becoming increasingly concerned with world events that could 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 anticipates that during 2006, it will offer transportation assets not committed to individual asset sales for bulk sale in order to maximize the value of the
remaining aviation assets.

All other portfolios (carrying amount of $161.5 million at March 31, 2006), including the Companys remaining real
estate assets, is comprised of the remnants of former portfolios (commercial equipment, communications, corporate finance, franchise, healthcare, mezzanine, public, rediscount, resort and specialty real estate). The carrying amount of the portfolio
declined $30.7 million since year-end. The decline in the portfolio was primarily attributable to asset sales and, to a lesser extent, prepayments and scheduled amortization. This portfolio represents 57.1% of the Companys total financial
assets (before reserves) and generally contains assets that are more difficult and work intensive to liquidate. Approximately 78% of these assets are impaired or nonaccruing. Many of the borrowers have missed payments, including balloons
obligations, or are otherwise in default. In April 2006, the Company entered into a non-binding letter of intent to sell, subject to execution of definitive agreements and certain required approvals and consents, substantially all of its
non-aviation assets, with the exception of the loan to The Thaxton Group. The sale of these assets is expected to generate total gross proceeds of up to $76.2 million and will be completed pursuant to a series of definitive agreements with the same
buyer. On May 1, 2006, FINOVA entered into the first of these definitive agreements to sell its non-aviation assets for a total purchase price of $72.0 million. In an initial closing under this agreement, FINOVA received total gross proceeds of
$68.5 million. Completion of the sale with respect to certain other assets will require the receipt of third party approvals and consents. If these approvals and consents are obtained, FINOVA will receive up to $3.5 million of additional gross
proceeds. No assurance can be given that the required approvals and consents will be obtained. The Company anticipates entering into additional agreements to sell the remainder of the non-aviation assets during the second quarter of 2006. The total
portfolio sale is expected to generate cash in excess of FINOVAs carrying value as of March 31, 2006. In addition to the Thaxton loan, the Company excluded from this portfolio sale, a number of assets that are committed to individual
asset sales or are awaiting customer prepayments. The Company anticipates that the Thaxton loan will be the only non-aviation asset of any significance remaining after completing these agreements. The carrying value of the all other portfolios also
includes the Companys $13.4 million investment in two grantor trusts to secure severance and bonus obligations to the remaining employees as of March 31, 2006. 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 is presently analyzing 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. 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 proceedings, 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.

As permitted, the Company will continue to retain sufficient cash to fund operating
expenses and certain other items such as interest payments and aircraft maintenance as FINOVA works toward its wind-up. The remainder, or excess cash, will be used to reduce principal obligations to the Senior Note holders.

FINOVAs reserve for credit losses decreased to $3.0 million at March 31, 2006 from $29.0 million at December 31, 2005. At March 31, 2006, the
total carrying amount of impaired loans and leases was $181.6 million, of which $90.9 million were revenue accruing. The Company has established impairment reserves of $3.0 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 to write-offs, proceeds received and anticipated to be received from prepayments and asset sales exceeding
recorded carrying amounts (net of reserves) and the Companys application of cash received on nonaccruing assets, thus reducing the impairment reserves required on those assets.



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Accounts classified as nonaccruing were $90.7 million or 32.1% of total financial assets (before reserves) at
March 31, 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 $34.6 million and write-offs and net valuation markdowns of $1.3
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. In certain of these cases, FINOVA has classified transactions as nonaccruing even
though principal and interest payments are current.

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.



|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 March 31, 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 March 31, 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 March 31, 2006, that has materially affected or is reasonably likely to materially affect, the Companys internal control over financial reporting.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.

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: May 15, 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.



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