##### Table of Contents







UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2008

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.)
|                                                               | 
|8320 North Hayden Road, Suite C112 Scottsdale, AZ              |  | 85258                               
|(Address of principal executive offices)                       |  | (Zip code)                          

Registrants telephone number, including area code: 480-624-4988

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, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈ |  | Smaller reporting company  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 November 6, 2008, approximately 122,041,000 shares of Common Stock ($0.01 par value) were outstanding.









---

##### Table of Contents

THE FINOVA GROUP INC.

TABLE OF CONTENTS



|                             |  |                                                                                                                                                                  |  |         
|---------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                             |  |                                                                                                                                                                  |  | Page No.
|                            
|PART I FINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements                                                                                                                                             |  |         
|                             |  | Consolidated Statements of Net Assets in Liquidation (liquidation basis) at September 30, 2008 (unaudited) and December
 31, 2007                                |  | 1       
|                             |  | Consolidated Statements of Changes in Net Assets in Liquidation (liquidation basis) (unaudited) for the Three and Nine Months
 Ended September 30, 2008 and 2007 |  | 2       
|                             |  | Notes to Interim Condensed Consolidated Financial Statements (unaudited)                                                                                         |  | 3       
|                             |  |                                                                                                                                                                 
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                            |  | 10      
|                             |  | Special Note Regarding Forward-Looking Statements                                                                                                                |  | 17      
|                             |  |                                                                                                                                                                 
|Item 4T.                     |  | Controls and Procedures                                                                                                                                          |  | 18      
|                            
|PART II OTHER INFORMATION   
|                             |  |                                                                                                                                                                 
|Item 1.                      |  | Legal Proceedings                                                                                                                                                |  | 18      
|                             |  |                                                                                                                                                                 
|Item 1A.                     |  | Risk Factors                                                                                                                                                     |  | 18      
|                             |  |                                                                                                                                                                 
|Item 6.                      |  | Exhibits                                                                                                                                                         |  | 18      
|                             |  |                                                                                                                                                                 
|Signatures                   |  |                                                                                                                                                                  |  | 19      



---

##### Table of Contents

PART I FINANCIAL INFORMATION



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

THE FINOVA GROUP INC.

CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS)

(Dollars in thousands)



|                                                                                       |  |                   |         |                  |   |        
|-------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                                                       |  | September 30,2008 |         | December 31,2007
|                                                                                       |  | (Unaudited)       |         | (Audited)       
|ASSETS                                                                                 |  |                   |         |                  |   |        
|Cash and cash equivalents                                                              |  | $                 | 119,403 |                  | $ | 175,140
|Restricted cashimpermissible restricted payments                                      |  |                   | 81,228  |                  |   | 81,228 
|Liquidating portfolio                                                                  |  |                   | 1,271   |                  |   | 6,271  
|Other assets and deposits                                                              |  |                   | 1,087   |                  |   | 1,369  
|                                                                                       |  |                   |         |                  |   |        
|Total Assets                                                                           |  | $                 | 202,989 |                  | $ | 264,008
|                                                                                       |  |                   |         |                  |   |        
|LIABILITIES (excluding Senior Notes)                                                   |  |                   |         |                  |   |        
|Interest payable on the Senior Notes                                                   |  | $                 | 40,351  |                  | $ | 13,648 
|Accounts payable and other liabilities                                                 |  |                   |        |                  |   | 574    
|Reserve for estimated costs during the liquidation period                              |  |                   | 8,573   |                  |   | 15,791 
|                                                                                       |  |                   |         |                  |   |        
|Total Liabilities (excluding Senior Notes)                                             |  |                   | 48,924  |                  |   | 30,013 
|                                                                                       |  |                   |         |                  |   |        
|Net Assets Available for Settlement of Senior Notes                                    |  |                   | 154,065 |                  |   | 233,995
|Senior Notes with outstanding principal of $1.4 billion at estimated settlement amount |  |                   | 154,065 |                  |   | 233,995
|                                                                                       |  |                   |         |                  |   |        
|Net Assets in Liquidation                                                              |  | $                 |        |                  | $ |       
|                                                                                       |  |                   |         |                  |   |        

See notes to interim condensed consolidated financial statements.



1



---

##### Table of Contents

THE FINOVA GROUP INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS)

(Dollars in thousands)

(Unaudited)



|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                            |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                            |  | 2008                            |         |   | 2007                           |   |         | 2008 |  |   | 2007    |  
|Net Assets in Liquidation, beginning of period                              |  | $                               |        |   |                                | $ |        |      |  | $ |        |   |  | $ |        |  
|Changes in net assets in liquidation:                                       |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Change in estimated net realizable value of assets and other liabilities    |  |                                 | (389    | ) |                                |   | 429     |      |  |   | (143    | ) |  |   | (398    | )
|Interest earned on investment of cash reserves and other operating activity |  |                                 | 1,098   |   |                                |   | 3,603   |      |  |   | 5,345   |   |  |   | 11,813  |  
|Change in estimated costs during the liquidation period                     |  |                                 | (3,233  | ) |                                |   | (4,379  | )    |  |   | (5,023  | ) |  |   | (7,937  | )
|Interest accruing on the Senior Notes                                       |  |                                 | (26,703 | ) |                                |   | (26,703 | )    |  |   | (80,109 | ) |  |   | (81,762 | )
|Reduction in the estimated settlement of the Senior Notes                   |  |                                 | 29,227  |   |                                |   | 27,050  |      |  |   | 79,930  |   |  |   | 78,284  |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net Change in Net Assets in Liquidation                                     |  | $                               |        |   |                                | $ |        |      |  | $ |        |   |  | $ |        |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net Assets in Liquidation, end of period                                    |  | $                               |        |   |                                | $ |        |      |  | $ |        |   |  | $ |        |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  

See notes to interim condensed consolidated financial statements.



2



---

##### Table of Contents

THE FINOVA GROUP INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(Dollars in thousands in tables)

(Unaudited)



|A. | Nature of Operations and Plan of Liquidation
|-- | --------------------------------------------

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, 2007 (the 2007
Form 10-K). Capitalized terms not defined herein are used as defined in the 2007 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 was a financial services holding company. Through its
principal operating subsidiary, FINOVA Capital, the Company provided a broad range of financing and capital markets products, primarily to mid-size businesses. Throughout this document, we, us and our also refer
to The FINOVA Group Inc. and its subsidiaries.

Since emergence from chapter 11 bankruptcy proceedings in August 2001, our business activities have been
limited to maximizing the value of our portfolio through the orderly collection of our assets. These activities included collection efforts pursuant to underlying contractual terms, negotiation of prepayments and sales of assets or collateral. We
have substantially completed the liquidation of our portfolio and our focus has shifted to the continued wind down of our operations and future dissolution of our entities. We are prohibited by the Indenture (the Indenture) governing our
7.5% Senior Secured Notes (the Senior Notes) from engaging in any new lending activities or other business. Any funds generated in excess of cash reserves permitted by our debt agreements have been used to reduce obligations to our
creditors.

Because substantially all of our assets (including cash reserves) are pledged to secure obligations under the promissory notes of FINOVA
Capital issued to us in the aggregate principal amount of the Senior Notes (the Intercompany Notes), our ability to obtain additional or alternate financing is severely restricted. As a result of this and the substantial liquidation of
our portfolio, our only meaningful source of liquidity is cash reserves held by the Company.

Plan of Liquidation

On November 1, 2006, our Board of Directors (the Board) approved the Plan of Complete Liquidation and Dissolution (the Plan of Liquidation)
and the filing of a motion (the Motion) in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court). On December 4, 2006, the Bankruptcy Court granted our Motion and approved (i) the
previously announced settlement of various litigations associated with The Thaxton Group, Inc. (the Thaxton Settlement), (ii) the ongoing sale of our remaining assets, the orderly windup of our operations and our future dissolution,
(iii) our sale of all or substantially all of our assets without stockholder approval and our future dissolution without stockholder approval at such time as our Board deems to be appropriate and (iv) channeling to the Bankruptcy Court any
claims against us that the holders of our Senior Notes or the indenture trustee for the Senior Notes may have arising from or in any way related to our joint chapter 11 plan, the ongoing liquidation of FINOVA, the senior secured notes, or the windup
of our operations.

We have continued with efforts to wind-up our affairs in a timely manner; however, as previously noted we cannot control the timing of
resolving legal matters. Certain legal matters continue to take longer than anticipated to resolve, including the Thaxton Life Partners arbitration hearing described below, which has been rescheduled for mid-January 2009. Once the legal matters have
been resolved, FINOVA believes it will still need a short period of time to complete the final wind-up of our affairs. As a result, the reserve for estimated costs reflected in our Statement of Net Assets in Liquidation was adjusted to assume a
liquidation period through the first quarter of 2009. There can be no assurance we will complete our liquidation in this time period, and the resolution of the various legal matters may extend for a longer period of time. We will continue to
evaluate our progress in resolving the outstanding legal matters on at least a quarterly basis and re-evaluate our reserve for estimated costs. Refer below to Note G. Litigation and Claims for the status of our outstanding legal matters.

We will continue to operate as a public company throughout the liquidation period under a Management Services Agreement with Leucadia National Corporation
(Leucadia) that expires in 2011. Pursuant to that agreement, Leucadia has designated



3



---

##### Table of Contents

its employees to act as Chairman of the Board (Ian M. Cumming), President (Joseph S. Steinberg) and Chief Executive Officer (Thomas E. Mara). In accordance
with the Indenture, we currently maintain cash reserves to pay our operating expenses as they come due.



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

The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires us to use estimates and assumptions that affect reported amounts of assets and 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. Significant estimates include anticipated amounts and timing of future cash flows used in the calculation of net realizable value, reserve
for future costs and settlement amounts. Actual results could differ from those estimated.

Interim Reporting

The interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The interim consolidated financial
information is unaudited. In the opinion of management, all adjustments consisting of normal recurring items necessary to present fairly our net assets in liquidation as of September 30, 2008 and the changes in net assets presented herein have
been included in our consolidated financial statements.

For a complete listing of our significant accounting policies, see Note B. Significant
Accounting Policies in our 2007 Form 10-K. The policies related to the liquidation basis of accounting were the only policies presented herein. With the adoption of the liquidation basis of accounting, all anticipated improvements or
deterioration in the portfolio are fully reflected in our financial statements as facts and assumptions change.

Liquidation Basis of Accounting

As a result of the approval of our Plan of Liquidation by the Bankruptcy Court, we took steps to initiate our complete liquidation and as such, the
information provided in this Report on Form 10-Q reflects our adoption of the liquidation basis of accounting effective the close of business on December 4, 2006 in accordance with accounting principles generally accepted in the United States.
A Statement of Net Assets in Liquidation and a Statement of Changes in Net Assets in Liquidation are the principal financial statements presented under the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated
at their estimated net realizable value, which is the non-discounted amount of cash, or its equivalent, into which an asset is expected to be converted in the due course of business less direct costs, while liabilities are reported at their
estimated net settlement amount, which is the non-discounted amounts of cash, or its equivalent, expected to be paid to liquidate an obligation in the due course of business, including direct costs. Additionally, under the liquidation basis of
accounting, we are required to establish a reserve for all future estimated general and administrative expenses and other costs expected to be incurred during the liquidation (exclusive of interest expense). These estimates will be periodically
reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution. The valuation
of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the
Plan of Liquidation based on the assumptions set forth below. The actual values and costs associated with carrying out the Plan of Liquidation are expected to differ from amounts reflected in the accompanying financial statements because of the
plans inherent uncertainty. These differences may be material. In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan of Liquidation. Accordingly, it is not possible to predict with certainty
the timing or aggregate amount which will ultimately be distributed to note holders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying Statements of Net Assets in Liquidation or the
price at which our Senior Notes have traded or are expected to trade in the future.

The following are the significant assumptions utilized by management
in assessing the value of our liquidating portfolio and the expected settlement amount of liabilities included in the Statements of Net Assets in Liquidation at September 30, 2008 and December 31, 2007.

Liquidating Portfolio.The remaining liquidating portfolio is primarily comprised of judgments and claims against former customers and non-marketable private
equity and other securities. All assets were adjusted to their estimated net realizable values, which represented all future undiscounted cash flows expected to be collected from each of these transactions



4



---

##### Table of Contents

including sales and settlement proceeds, principal collections, scheduled rental payments and interest. Cash flow estimates for these assets are based on
current information obtained from trustees and others, collection efforts, customer collateral and the financial condition of these former customers. Certain investments are reported at their fair value, based on published information or quotes by
registered securities brokers. 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, net realizable values.

Reserve for Estimated Costs during the Liquidation Period. Under the liquidation basis of accounting, we are required to estimate and accrue for costs associated
with implementing and completing the Plan of Liquidation. The reserve for estimated costs includes four primary areas of accruals including people costs (payroll and benefits), Leucadia management fees, professional services and litigation costs and
corporate expenses (insurance, directors fees and entity related expenses). These amounts can vary significantly due to, among other things, the timing of asset sales, the timing and amounts associated with discharging known and contingent
liabilities and claims, the costs associated with cessation of our operations including an estimate of costs subsequent to that date (which would include reserve contingencies for the appropriate statutory periods) and the costs of retaining
knowledgeable personnel and others to oversee the liquidation. As a result, we have accrued the projected costs including corporate overhead and specific liquidation costs of performance bonuses, professional fees and various other wind-up costs
expected to be incurred during the projected period to complete the liquidation and dissolution. These expense accruals will be periodically reviewed for adequacy and adjusted from time to time as projections and assumptions change. Changes to the
accruals will be recorded as adjustments to net assets in liquidation in future periods.



|C. | Changes in Net Assets in Liquidation
|-- | ------------------------------------

During the nine months ended
September 30, 2008, the estimated net realizable value of our assets and liabilities decreased a net $0.1 million; while during the same period of 2007, the estimated net realizable value decreased $0.4 million. The decrease during 2008 was
primarily due to a decline in the value of certain cash investments, partially offset by higher than previously anticipated recoveries of cash amounts posted to secure potential obligations and liquidation distributions received from trustees of
former customers; the decrease during 2007 was primarily attributed to a decline in the value of certain aviation assets. Additionally, during the nine months ended September 30, 2008 and 2007, we accrued $80.1 million and $81.8 million,
respectively, of additional interest on the Senior Notes and earned interest income on cash investments and other operating activity of $5.3 million and $11.8 million, respectively. All cash received on the portfolio is applied against its estimated
net realizable value, which took into consideration all expected interest and rental payments. Any cash received in excess of an individual assets estimated net realizable value is shown as a change in net assets in the period of collection.
Amounts received during 2008 and 2007 were not considered to be significant.

The net realizable value of our assets does not take into consideration all
future interest to be earned on cash and cash equivalents. Interest earned on the investment of cash reserves is shown separately as a change in net assets. As of September 30, 2008, our short-term investments are primarily comprised of lower
risk money markets, U.S. Treasuries and certificates of deposit. In late 2007, we decided that we would forego some yield to ensure maximum principal preservation. The aggregate yield we are currently receiving on our cash investments is not
sufficient to fully offset the costs of the liquidation process.

Under the liquidation basis of accounting, we were also required to establish and
maintain a reserve for all future general and administrative expenses and other costs expected to be incurred during the liquidation (exclusive of interest expense). The following is a summary of and changes to the reserve for estimated costs for
the nine months ended September 30, 2008:



|                                                                |  |                  |        |                            |   |        |                   |  |   |      
|--------------------------------------------------------------- |  | ---------------- | ------ | -------------------------- | - | ------ | ----------------- |  | - | -----
|                                                                |  | December 31,2007 |        | NetAdjustmentsand Payments |   |        | September 30,2008
|People costs (payroll and benefits)                             |  | $                | 3,319  |                            | $ | (2,042 | )                 |  | $ | 1,277
|Leucadia management fees                                        |  |                  | 6,000  |                            |   | (2,000 | )                 |  |   | 4,000
|Professional services and litigation costs                      |  |                  | 4,955  |                            |   | (1,996 | )                 |  |   | 2,959
|General corporate expenses                                      |  |                  | 1,517  |                            |   | (1,180 | )                 |  |   | 337  
|                                                                |  |                  |        |                            |   |        |                   |  |   |      
|Total reserve for estimated costs during the liquidation period |  | $                | 15,791 |                            | $ | (7,218 | )                 |  | $ | 8,573
|                                                                |  |                  |        |                            |   |        |                   |  |   |      

During the nine months ended September 30, 2008, the reserve declined by $7.2 million due to the payment of
expenses of $12.2 million and a reduction in our estimate as a result of certain actual and future expenses being lower than originally



5



---

##### Table of Contents

anticipated, partially offset by a $5.0 million net increase in our estimate due to the extension of the estimated liquidation period through the first
quarter of 2009.

We have continued with efforts to wind-up our affairs in a timely manner; however, as previously noted we cannot control the timing of
resolving legal matters. Certain legal matters continue to take longer than anticipated to resolve, including the Thaxton Life Partners arbitration hearing described below, which has been rescheduled for mid-January 2009. Once the legal matters have
been resolved, FINOVA believes it will still need a short period of time to complete the final wind-up of our affairs. As a result, the reserve for estimated costs reflected in our Statement of Net Assets in Liquidation was adjusted to assume a
liquidation period through the first quarter of 2009. There can be no assurance we will complete our liquidation in this time period, and the resolution of the various legal matters may extend for a longer period of time. We will continue to
evaluate our progress in resolving the outstanding legal matters on at least a quarterly basis and re-evaluate our reserve for estimated costs. Refer below to Note G. Litigation and Claims for the status of our outstanding legal matters.

Due to the fact that we do not have sufficient assets to fully satisfy all obligations to our creditors, any change to the estimated net realizable value
of our assets and liabilities results in a corresponding adjustment to the estimated settlement amount of the Senior Notes. During the nine months ended September 30, 2008, the estimated settlement amount of the Senior Notes (principal only)
was reduced by $79.9 million to a balance of $154.1 million; however, we currently estimate the Senior Note holders will receive total liquidation distributions (principal and interest) of approximately $194.4 million, which when combined with $53.4
million of interest already distributed during 2008, is a $0.2 million increase over our 2007 year-end estimate.



|D. | Liquidating Portfolio
|-- | ---------------------

Our liquidating portfolio is recorded at its
estimated net realizable value, which incorporates all future cash flows, including earnings expected to be collected.

The following table presents the
activity in our liquidating portfolio for the nine months ended September 30, 2008:



|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Liquidating Portfolio at December 31, 2007  |  | $ | 6,271  |  
|Cash activity                               |  |   | (5,144 | )
|Non-cash activity                           |  |   | 144    |  
|                                            |  |   |        |  
|Liquidating Portfolio at September 30, 2008 |  | $ | 1,271  |  
|                                            |  |   |        |  

As of September 30, 2008, we have substantially completed the liquidation of our portfolio, which declined to
$1.3 million. Cash activity primarily represented collections and proceeds from the liquidation of our investments in the severance and bonus trusts and recoveries on accounts and claims previously not anticipated, while the non-cash activity
primarily represented an increase in the estimated net realizable value of certain assets due to higher than previously anticipated recovery of claims against former customers, partially offset by a decline in the value and reclassification of
certain maturing investments to cash equivalents.

As of September 30, 2008, the remaining portfolio value is primarily comprised of a number of
judgments and claims against former customers (net realizable value of $1.2 million) and a few non-marketable private equity and other securities. In the majority of these instances, we did not attribute any net realizable value to these assets due
to our inability to predict the collection of any cash flows from the transactions with even a remote level of confidence. Most of these transactions were previously included in due diligence materials in an attempt to sell the assets, but were
excluded on multiple occasions by prospective buyers because of costs of collection and potential liability concerns of the buyers. Prospective buyers that specialize in these types of residual assets and claims performed due diligence, but were not
interested in making an offer. We continue to monitor these accounts for changes in facts and circumstances that would allow us to attribute value to these assets or events that would resolve their ultimate disposition. As a result, there is the
possibility that some net realizable value will be attributed to these assets in the future. An increase in the estimated net realizable value of these assets, if any, will be reflected as a change in net assets in liquidation in future filings.
Additionally, we continue to occasionally receive proceeds from trustees and liquidators for assets that in certain cases were written off years ago. These cash flows are typically immaterial and are reflected as a change in net assets in
liquidation as they are received. We expect certain of these assets



6



---

##### Table of Contents

will out last the Company. In connection with or prior to the final dissolution of our entities, we anticipate assigning or transferring the rights to
collection of these assets to a trustee or receiver for the benefit of the Senior Note holders.



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

A summary of our total debt outstanding on a liquidation
basis was as follows:



|                                                                |  |                   |            |   |                  |   |            |  
|--------------------------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                |  | September 30,2008 |            |   | December 31,2007 |  
|Senior Notes:                                                   |  |                   |            |   |                  |   |            |  
|Principal                                                       |  | $                 | 1,424,166  |   |                  | $ | 1,424,166  |  
|Principal of Senior Notes estimated to not be settled or repaid |  |                   | (1,270,101 | ) |                  |   | (1,190,171 | )
|                                                                |  |                   |            |   |                  |   |            |  
|Senior Notes                                                    |  | $                 | 154,065    |   |                  | $ | 233,995    |  
|                                                                |  |                   |            |   |                  |   |            |  

During the nine months ended September 30, 2008, we made one interest payment of $53.4 million and no
principal prepayments on the Senior Notes. Cumulative prepayments through September 30, 2008 totaled $1.54 billion, which reduced the outstanding principal to $1.4 billion and represented approximately 52% of the principal being repaid. Based
on the valuation of our assets at their estimated net realizable value and liabilities at estimated settlement amount, we currently estimate the Senior Note holders will receive additional liquidation distributions (principal and interest) of
approximately $194.4 million, which when combined with $53.4 million of interest already distributed during 2008, is a $0.2 million increase over our 2007 year-end estimate, but considerably less than the total principal and interest due of
approximately $1.5 billion. The estimated settlement amount was determined solely based on the net assets available for settlement of the Senior Notes and is subject to change due to changes in the estimated net realizable value of our net assets.
We clearly do not have sufficient assets to fully repay the Senior Note obligation.

While the Senior Notes have a first priority security interest in
substantially all of our remaining assets, the Indenture requires us to first use any cash and cash equivalents to pay or fund operating expenses, taxes and reasonable reserves for commitments and general corporate purposes. In accordance with the
terms of the Indenture, we are 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 our option, which we
have previously elected to make from time to time; however, due to the uncertainty of cash requirements associated with the wind-up of our affairs and resolution of matters related to the TLP Action, discussed below in Note G. Litigation and
Claims, we anticipate maintaining cash reserves to cover these potential and uncertain expenditures, which could limit our ability to make future voluntary prepayments.

The timing and amount of distributions to Senior Note holders will primarily depend on the resolution of legal matters, the extent to which reserves for current or future liabilities are required, the length of time
required to settle all of our matters and to a lesser extent, the timing and amounts we receive for our remaining assets. Refer below to Note G. Litigation and Claims for the status of our outstanding legal matters and a discussion of
the equity committees appeals of the Bankruptcy Courts and Delaware District Courts orders, which will enable us to use the funds in the restricted cash account for general corporate purposes, including payment to Senior Note
holders.

Stockholders should not expect any payments or distributions. The Indenture contemplates that as principal payments are made on the Senior Notes,
our stockholders may 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 may be used to
make 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 us 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.

In conjunction with the prepayments of the Senior Notes noted above, we have retained a total of $81.2 million as of
September 30, 2008. Retained amounts have been segregated and reflected as restricted cash in our financial statements, pending their final disposition. We anticipate that the retained amounts will eventually be paid to our creditors,
not our stockholders. If the funds were to be paid to our stockholders, affiliates of Berkadia (jointly owned by Leucadia and Berkshire



7



---

##### Table of Contents

Hathaway), which owns 50% of our common stock, would receive half of the retained amounts. Berkadia has advised us that it does not believe that stockholders
are entitled to the retained amounts since we cannot fully satisfy our creditor obligations.

As previously reported, in June 2007 the Bankruptcy Court
determined that (1) we no longer need to direct funds into a restricted account, and (2) we may use those funds for general corporate purposes. On August 26, 2008, the Delaware District Court upheld the Bankruptcy Court ruling, but on
September 23, 2008, the equity committee filed another appeal to the United Stated Court of Appeals for the Third Circuit. For a further discussion of the appeal and its status, see Note G. Litigation and Claims.



|F. | Income Taxes
|-- | ------------

Our federal net operating loss carryforwards of $1.6
billion have remained relatively unchanged since year end. No income tax expense or benefit was recorded during the nine months ended September 30, 2008 and 2007. Any 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 concerns regarding our ability to utilize income tax benefits generated from losses in prior periods. We do 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 we file tax returns and uncertainty regarding the timing of the reversal of
deferred tax liabilities.



|G. | Litigation and Claims
|-- | ---------------------

Legal Proceedings

We are 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 our attempts to enforce our 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 us. Other than the matters described below, we believe that any resulting liability from our legal proceedings should not materially affect our net assets in
liquidation or cash flows. The following matters could have a material adverse impact on our net assets in liquidation or cash flows.

Historically, it was
our policy to accrue for loss contingencies, including litigation, only when the losses were probable and estimable. The determination of when losses became probable and estimable was inherently subjective and required significant judgment. Under
the liquidation basis of accounting, liabilities for loss contingencies and claims are reported at their estimated net settlement amount, which is the non-discounted amount of cash expected to be paid to liquidate or settle an obligation in the due
course of business.

If any legal proceedings were to result in a significant adverse judgment against us, it is possible that we would not be able to
satisfy that liability due to our financial condition. As previously noted, due to our financial condition, we do not expect that we can satisfy all of our secured debt obligations at maturity.

Thaxton Life Partners Litigation

On September 29, 2006,
a group of noteholders of Thaxton Life Partners, Inc. (TLP) filed suit against the Company and FINOVA Capital (the TLP Action), unrelated to the previously settled litigation involving The Thaxton Group, Inc. The Company and
FINOVA Capital were served with the TLP Action in February of 2007. The TLP Action purports to be a class action filed on behalf of approximately 150 TLP note holders with claims related to approximately $20 million in TLP notes. The TLP Action
alleges that, in connection with TLPs sale of its notes, the Company, FINOVA Capital, and several other defendants participated in a civil conspiracy, violated the South Carolina Unfair Trade Practices Act, violated the civil RICO statute, and
were unjustly enriched. In its various counts, the TLP Action seeks actual, treble, and/or punitive damages.

The TLP Action was filed in the South
Carolina Court of Common Pleas of Lancaster County, Sixth Judicial Circuit, and was removed on February 6, 2007 to the United States District Court for the District of South Carolina (the South Carolina District Court). We believe
that all claims against both us and FINOVA Capital are without merit, and that, under the terms of the TLP notes, the TLP Action must move forward in arbitration. Upon motion by the Company and FINOVA Capital to the South Carolina District Court
seeking an order compelling such arbitration, the South Carolina District Court granted the relief sought



8



---

##### Table of Contents

and entered an order dismissing the action on May 30, 2007. On June 19, 2007, the TLP plaintiffs appealed such order to the United States Court of
Appeals for the Fourth Circuit (the Fourth Circuit). Further, on June 29, 2007, the TLP plaintiffs filed an arbitration demand with the American Arbitration Association. On August 16, 2007, the Company and FINOVA Capital filed
a response to the arbitration demand denying any liability. On December 20, 2007, the TLP plaintiffs appeal was denied by the Fourth Circuit. On January 23, 2008, a petition for rehearing by the TLP plaintiffs was also denied by the
Fourth Circuit. The Company and FINOVA Capital intend to vigorously defend against the TLP note holders claims asserted against the Company and FINOVA Capital in the pending arbitration.

During the third quarter of 2008, FINOVA received notification that one of the members of the arbitration panel that was scheduled to hear the TLP suit had a scheduling
conflict with the September 24, 2008 arbitration hearing date. As a result, a hearing on the merits of the TLP Action has been rescheduled for mid-January 2009.

Motion Regarding Distributions to Stockholders

As discussed more fully in Note E. Debt, the
Indenture contemplates that as principal payments are made on the Senior Notes, our stockholders may receive a distribution equal to 5.263% of each principal prepayment. However, the Indenture prohibits distribution of those amounts due to our
financial condition. Those amounts have been held in a restricted account, and totaled $81.2 million as of September 30, 2008. Because we will not be able to repay the Senior Notes in full, on April 1, 2005, we filed a motion in the
Bankruptcy Court seeking an order (1) to cease directing funds into the restricted account and (2) to allow us to use those funds for general corporate purposes.

On June 26, 2007, the Bankruptcy Court issued a final order (the Final Clarification Order) finding, among other things, that FINOVA is presently and will be forever insolvent, and lifted the
requirement that FINOVA segregate the funds into a restricted account enabling FINOVA to use these funds for general corporate purposes. The equity committee subsequently filed an appeal (on July 6, 2007) of the Final Clarification Order to the
United States District Court for the District of Delaware (the Delaware District Court) and a motion with the Delaware District Court requesting a stay (on August 31, 2007) pending final resolution of any appeal. On October 31,
2007, the Delaware District Court granted a stay pending appeal of the Bankruptcy Courts Final Clarification Order.

Through December 31, 2007,
we had been required to pay fees and expenses incurred by the equity committees professionals up to an aggregate limit of $388,000. Subsequent to year end, the equity committee was seeking a further increase in the aggregate limit placed on
the amount of fees and expenses. A hearing was held on this matter on January 10, 2008 and the Bankruptcy Court ordered that the aggregate limit placed on the amount of fees and expenses that the equity committee and its professionals were
authorized to incur in objecting to, and addressing the issues raised in connection with, the clarification motion be increased to $473,751. The increase granted by the Bankruptcy Court represented one-half of the equity committees requested
amount. The Bankruptcy Court also ordered that the equity committee shall not submit any further motions or requests for fees and expenses unless they prevailed in the appeal of the Final Clarification Order.

On July 16, 2007, FINOVA filed a notice of cross-appeal with the Delaware District Court contesting the Bankruptcy Courts order that re-formed the equity
committee and the three fee cap orders. In December 2007, the equity committee filed a motion to strike our cross-appeal on the basis that the cross-appeal was untimely.

On August 26, 2008, the Delaware District Court issued a memorandum opinion and order (the August Order) affirming all six of the Bankruptcy Courts orders and denied the equity committees
motion to strike the Companys cross-appeal. The ruling by the Delaware District Court upheld the Bankruptcy Courts Final Clarification Order and lifted the requirement that FINOVA segregate funds into a restricted account, thereby
enabling FINOVA to use those funds for general corporate purposes. The ruling by the Delaware District Court also upheld the Bankruptcy Courts orders regarding the formation of the equity committee and the multiple fee cap orders, which were
being contested by FINOVA.

The equity committee subsequently filed a motion requesting a stay in the distribution of funds held in the restricted account
pending appeal of the Delaware District Courts August Order. On September 22, 2008, the Delaware District Court denied the equity committees motion to stay the Delaware District Courts August Order.

On September 23, 2008, the equity committee filed a notice of appeal to the United States Court of Appeals for the Third Circuit (the Third Circuit)
with respect to those portions of the August Order that upheld the lifting of the requirement that FINOVA segregate funds into a restricted account. On October 10, 2008, the equity committee filed a motion with the Third



9



---

##### Table of Contents

Circuit requesting a stay in the distribution of funds held in the restricted account pending the equity committees appeal to the Third Circuit. On
November 4, 2008, the Third Circuit granted the equity committees motion for a stay pending appeal. In light of the stay being granted, FINOVA is in the process of re-evaluating its estimated liquidation period, and it is possible that
the liquidation period may need to be extended.



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

The following section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007 (the 2007 Form 10-K) and the Special Note Regarding Forward-Looking
Statements included herein. Capitalized terms not defined herein are used as defined in the 2007 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

Plan of Liquidation.On November 1, 2006, our Board of Directors (the Board) approved the Plan of Complete Liquidation and Dissolution (the
Plan of Liquidation) and the filing of a motion (the Motion) in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court), which was approved by the Bankruptcy Court on
December 4, 2006. As a result of these approvals, we took steps to initiate our complete liquidation and as such, the information provided in this Report on Form 10-Q reflects our adoption of the liquidation basis of accounting effective the
close of business on December 4, 2006 in accordance with accounting principles generally accepted in the United States.

As of September 30,
2008, we had substantially completed the liquidation of our asset portfolio. Our attention is focused on the wind down of our operations, resolution of legal matters and the future dissolution of our entities. We are in the process of withdrawing
our authority to conduct business in the states that we no longer have active assets or legal requirements that necessitate our continued authorization to conduct business. As of September 30, 2008, we have completed the withdrawal process for
44 states, while others are pending. The timing and amount of distributions to Senior Note holders will primarily depend on the resolution of legal matters, the extent to which reserves for current or future liabilities are required, the length of
time required to settle all our matters and, to a lesser extent, the timing and amounts we receive for our remaining assets.

We have continued with
efforts to wind-up our affairs in a timely manner; however, as previously noted we cannot control the timing of resolving legal matters. Certain legal matters continue to take longer than anticipated to resolve, including the Thaxton Life Partners
arbitration hearing, which has been rescheduled for mid-January 2009. Once the legal matters have been resolved, FINOVA believes it will still need a short period of time to complete the final wind-up of our affairs. As a result, the reserve for
estimated costs reflected in our Statement of Net Assets in Liquidation was adjusted to assume a liquidation period through the first quarter of 2009. There can be no assurance we will complete our liquidation in this time period, and the resolution
of the various legal matters may extend for a longer period of time. We will continue to evaluate our progress in resolving the outstanding legal matters on at least a quarterly basis and re-evaluate our reserve for estimated costs. Refer above to
Note G. Litigation and Claims for the status of our outstanding legal matters.

We continue to retain cash reserves to fund our expenses,
including the costs associated with the wind-up of our affairs and matters related to the TLP Action, which could limit our ability to make and the timing of future voluntary principal prepayments.

Forever Insolvent. As of September 30, 2008, we have repaid $1.54 billion or approximately 52% of the principal on the Senior Notes. Based on the valuation
of our assets at their estimated net realizable value and liabilities at estimated settlement amount, we currently estimate the Senior Note holders will receive additional liquidation distributions (principal and interest) of approximately $194.4
million, which when combined with $53.4 million of interest already distributed during 2008, is a $0.2 million increase over our 2007 year-end estimate, but considerably less than the total principal and interest due of approximately $1.5 billion.
We clearly do not have sufficient assets to fully repay the Senior Note obligation. On June 26, 2007, the Bankruptcy Court issued a final order finding, among other things, that FINOVA is presently and will be forever insolvent.

No Stockholder Payments Anticipated.While the Indenture contemplated we would make payments to our stockholders as the Senior Notes were repaid, we have not made
those payments. Distributions to stockholders are prohibited due to our financial condition. Based on our liquidation basis financial statements, we will not be able to repay approximately $1.3 billion



10



---

##### Table of Contents

of the Senior Notes. As a result, stockholders should not expect any payments or return on their common stock. Funds related to the restricted distributions
have been held in a segregated account, pending their final disposition. We anticipate that those funds will eventually be paid to our creditors, not to our stockholders. If the funds were to be paid to our stockholders, affiliates of
Berkadia (which are owned by Berkshire Hathaway and Leucadia), as owner of 50% of our stock, would receive half of those payments.

As discussed in Note G.
Litigation and Claims, in June 2007, the Bankruptcy Court determined that (1) we no longer need to direct funds into a restricted account, and (2) we may use those funds for general corporate purposes. On August 26, 2008,
the Delaware District Court upheld the Bankruptcy Court ruling, but on September 23, 2008, the equity committee appealed the District Courts ruling to the United Stated Court of Appeals for the Third Circuit.

No Restructuring Plan Contemplated.On numerous occasions, we have been asked whether there is some plan to restructure the Company so as to be able to realize
value from our net operating loss carryforwards (NOL). We are not formulating a restructuring plan. However, as we have noted for some time, the Board remains willing to consider legitimate proposals presented by note holders or others.
Multiple groups have made proposals or presented us with concepts designed to save the NOLs. In each and every instance to date, the proposals and concepts were determined to not be viable under the applicable tax regulations and/or did not make
economic sense.

Many obstacles exist to creation of a viable restructuring plan. A restructuring presumes a sensible business plan emerging from that
process. In light of our dwindling asset base, lack of retained business knowledge and the competitive environment, we believe 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, we believe it would be difficult to obtain the requisite approval to restructure the present debt obligations.
The task has become more difficult due to the substantial liquidation of our portfolio, continuation of the wind-up process and general economic conditions. We caution investors to carefully evaluate applicable tax regulations, which restrict the
ability to transfer or use NOLs in a variety of circumstances. As previously disclosed, our financial statements do not anticipate using the NOLs. Upon final dissolution of our entities, the NOLs will be extinguished.

HIGH INVESTMENT RISK OF SECURITIES. As previously stated, we will not be able to fully repay the Senior Notes or to make any distributions to our stockholders, absent
a court order in connection with the appeal referred to above. Consequently, investing in our Senior Notes and common stock involves a high level of risk.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements continue to be prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires us to use estimates and assumptions that affect reported amounts of assets and 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. See Item 1A. Risk Factors and Special Note Regarding Forward-Looking Statements in our 2007 Form 10-K for more
information on these risks and uncertainties. We believe the following to be among the most critical judgment areas in the application of our accounting policies.

Liquidation Basis of Accounting

As a result of the approval of our Plan of Liquidation by the Bankruptcy Court, we took steps to
initiate our complete liquidation and as such, the information provided in this Report on Form 10-Q reflects our adoption of the liquidation basis of accounting effective the close of business on December 4, 2006 in accordance with accounting
principles generally accepted in the United States. A Statement of Net Assets in Liquidation and a Statement of Changes in Net Assets in Liquidation are the principal financial statements presented under the liquidation basis of accounting. Under
the liquidation basis of accounting, assets are stated at their estimated net realizable value, which is the non-discounted amount of cash, or its equivalent, into which an asset is expected to be converted in the due course of business less direct
costs, while liabilities are reported at their estimated net settlement amount, which is the non-discounted amounts of cash, or its equivalent, expected to be paid to liquidate an obligation in the due course of business, including direct costs.
Additionally, under the liquidation basis of accounting, we are required to establish a reserve for all future estimated general and administrative expenses and other costs expected to be incurred during the liquidation (exclusive of interest
expense). These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should



11



---

##### Table of Contents

not be taken as an indication of the timing or amount of future distributions or our actual dissolution. The valuation of assets at their net realizable
value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation based on the
assumptions set forth below. The actual values and costs associated with carrying out the Plan of Liquidation are expected to differ from amounts reflected in the accompanying financial statements because of the plans inherent uncertainty.
These differences may be material. In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan of Liquidation. Accordingly, it is not possible to predict with certainty the timing or aggregate amount
which will ultimately be distributed to note holders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying Statements of Net Assets in Liquidation or the price at which our Senior Notes
have traded or are expected to trade in the future.

The following are the significant assumptions utilized by management in assessing the value of our
liquidating portfolio and the expected settlement amount of liabilities included in the Statements of Net Assets in Liquidation at September 30, 2008 and December 31, 2007.

Liquidating Portfolio.The remaining liquidating portfolio is primarily comprised of judgments and claims against former customers and non-marketable private equity and other securities. All assets were
adjusted to their estimated net realizable values, which represented all future undiscounted cash flows expected to be collected from each of these transactions including sales and settlement proceeds, principal collections, scheduled rental
payments and interest. Cash flow estimates for these assets are based on current information obtained from trustees and others, collection efforts, customer collateral and the financial condition of these former customers. Certain investments are
reported at their fair value, based on published information or quotes by registered securities brokers. 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, net realizable values.

Reserve for Estimated Costs during the Liquidation Period. Under the liquidation basis of accounting,
we are required to estimate and accrue for costs associated with implementing and completing the Plan of Liquidation. The reserve for estimated costs includes four primary areas of accruals including people costs (payroll and benefits), Leucadia
management fees, professional services and litigation costs and corporate expenses (insurance, directors fees and entity related expenses). These amounts can vary significantly due to, among other things, the timing of assets sales, the timing
and amounts associated with discharging known and contingent liabilities and claims, the costs associated with cessation of our operations including an estimate of costs subsequent to that date (which would include reserve contingencies for the
appropriate statutory periods) and the costs of retaining knowledgeable personnel and others to oversee the liquidation. As a result, we have accrued the projected costs including corporate overhead and specific liquidation costs of performance
bonuses, professional fees and various other wind-up costs expected to be incurred during the projected period to complete the liquidation and dissolution. These expense accruals will be periodically reviewed for adequacy and adjusted from time to
time as projections and assumptions change. Changes to the accruals will be recorded as adjustments to net assets in liquidation in future periods.

With
the adoption of the liquidation basis of accounting, all anticipated improvements or deterioration in the portfolio are fully reflected in our financial statements as facts and assumptions change.



12



---

##### Table of Contents

CHANGES IN NET ASSETS IN LIQUIDATION

The following table summarizes the changes in net assets in liquidation for the three and nine months ended September 30, 2008 and 2007 (dollars in thousands):



|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                            |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                            |  | 2008                            |         |   | 2007                           |   |         | 2008 |  |   | 2007    |  
|Net Assets in Liquidation, beginning of year                                |  | $                               |        |   |                                | $ |        |      |  | $ |        |   |  | $ |        |  
|Changes in net assets in liquidation:                                       |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Change in estimated net realizable value of assets and other liabilities    |  |                                 | (389    | ) |                                |   | 429     |      |  |   | (143    | ) |  |   | (398    | )
|Interest earned on investment of cash reserves and other operating activity |  |                                 | 1,098   |   |                                |   | 3,603   |      |  |   | 5,345   |   |  |   | 11,813  |  
|Change in estimated costs during the liquidation period                     |  |                                 | (3,233  | ) |                                |   | (4,379  | )    |  |   | (5,023  | ) |  |   | (7,937  | )
|Interest accruing on the Senior Notes                                       |  |                                 | (26,703 | ) |                                |   | (26,703 | )    |  |   | (80,109 | ) |  |   | (81,762 | )
|Reduction in the estimated settlement of the Senior Notes                   |  |                                 | 29,227  |   |                                |   | 27,050  |      |  |   | 79,930  |   |  |   | 78,284  |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net Change in Net Assets in Liquidation                                     |  | $                               |        |   |                                | $ |        |      |  | $ |        |   |  | $ |        |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net Assets in Liquidation, end of period                                    |  | $                               |        |   |                                | $ |        |      |  | $ |        |   |  | $ |        |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  

Changes in Net Assets in Liquidation for the three months ended September 30, 2008 and 2007

During the three months ended September 30, 2008, the estimated net realizable value of our assets and liabilities decreased $0.4 million; while
during the same period of 2007, the estimated net realizable value increased $0.4 million. During 2008, the decrease was primarily due to a decline in the value of certain cash investments; while the increase during 2007 was primarily attributed to
the realization of certain customer claims for amounts in excess of previous estimates. Additionally, during the three months ended September 30, 2008 and 2007, we accrued $26.7 million of additional interest on the Senior Notes and earned
interest income on cash investments and other operating activity of $1.1 million and $3.6 million, respectively.

The net realizable value of our assets
does not take into consideration all future interest to be earned on cash and cash equivalents. Interest earned on the investment of cash reserves is shown separately as a change in net assets. As of September 30, 2008, our short-term
investments are primarily comprised of lower risk money markets, U.S. Treasuries and certificates of deposit. In late 2007, we decided that we would forego some yield to ensure maximum principal preservation. The aggregate yield we are currently
receiving on our cash investments is not sufficient to fully offset the costs of the liquidation process.

As previously discussed, we established a
reserve for estimated costs during the liquidation period and all future expenditures for operating expenses are charged directly against the reserve. During the three months ended September 30, 2008, the reserve was virtually unchanged. During
2008, we paid $3.2 million of expenses, which was entirely offset by a $3.2 million net increase in our estimate due to the extension of the estimated liquidation period through the first quarter of 2009. During the three months ended
September 30, 2007, the reserve for estimated costs increased slightly due to the costs of extending the estimated liquidation period exceeding the payment of expenses and a reduction in our estimate as a result of certain actual expenses being
lower than originally anticipated.

We have continued with efforts to wind-up our affairs in a timely manner; however, as previously noted we cannot
control the timing of resolving legal matters. Certain legal matters continue to take longer than anticipated to resolve, including the Thaxton Life Partners arbitration hearing, which has been rescheduled for mid-January 2009. Once the legal
matters have been resolved, FINOVA believes it will still need a short period of time to complete the final wind-up of our affairs. As a result, the reserve for estimated costs reflected in our Statement of Net Assets in Liquidation was adjusted to
assume a liquidation period through the first quarter of 2009. There can be no assurance we will complete our liquidation in this time period, and the resolution of the various legal matters may extend for a longer period of time. We will continue
to evaluate our progress in resolving the outstanding legal matters on at least a quarterly basis and re-evaluate our reserve for estimated costs. Refer above to Note G. Litigation and Claims for the status of our outstanding legal
matters.



13



---

##### Table of Contents

Due to the fact that we do not have sufficient assets to fully satisfy all obligations to our creditors, any change to
the estimated net realizable value of our assets and liabilities results in a corresponding adjustment to the estimated settlement amount of the Senior Notes. During the three months ended September 30, 2008, the estimated settlement amount of
the Senior Notes (principal only) was reduced by $29.2 million to a balance of $154.1 million; however, we currently estimate the Senior Note holders will receive total liquidation distributions (principal and interest) of approximately $194.4
million, which when combined with $53.4 million of interest already distributed during 2008, is a $0.2 million increase over our 2007 year-end estimate.

Changes in Net Assets in Liquidation for the nine months ended September 30, 2008 and 2007

During the nine months ended
September 30, 2008, the estimated net realizable value of our assets and liabilities decreased a net $0.1 million; while during the same period of 2007, the estimated net realizable value decreased $0.4 million. The decrease during 2008 was
primarily due to a decline in the value of certain cash investments, partially offset by higher than previously anticipated recoveries of cash amounts posted to secure potential obligations and liquidation distributions received from trustees of
former customers; the decrease during 2007 was primarily attributed to a decline in the value of certain aviation assets. Additionally, during the nine months ended September 30, 2008 and 2007, we accrued $80.1 million and $81.8 million,
respectively, of additional interest on the Senior Notes and earned interest income on cash investments and other operating activity of $5.3 million and $11.8 million, respectively. All cash received on the portfolio is applied against its estimated
net realizable value, which took into consideration all expected interest and rental payments. Any cash received in excess of an individual assets estimated net realizable value is shown as a change in net assets in the period of collection.
Amounts received during 2008 and 2007 were not considered to be significant.

Additionally, as previously discussed, we established a reserve for estimated
costs during the liquidation period and all future expenditures for operating expenses are charged directly against the reserve. During the nine months ended September 30, 2008, the reserve declined by $7.2 million due to the payment of
expenses of $12.2 million and a reduction in our estimate as a result of certain actual and future expenses being lower than originally anticipated, partially offset by a $5.0 million net increase in our estimate due to the extension of the
estimated liquidation period through the first quarter of 2009. During the nine months ended September 30, 2007, the reserve for estimated costs declined due to the payment of expenses ($15.4 million) and a reduction in our estimate as a result
of certain actual expenses being lower than originally anticipated, partially offset by a net increase to the reserve caused by the extension of the estimated liquidation period.

Due to the fact that we do not have sufficient assets to fully satisfy all obligations to our creditors, any change to the estimated net realizable value of our assets and liabilities results in a corresponding
adjustment to the estimated settlement amount of the Senior Notes. During the nine months ended September 30, 2008, the estimated settlement amount of the Senior Notes (principal only) was reduced by $79.9 million to a balance of $154.1
million; however, we currently estimate the Senior Note holders will receive total liquidation distributions (principal and interest) of approximately $194.4 million, which when combined with $53.4 million of interest already distributed during
2008, is a $0.2 million increase over our 2007 year-end estimate.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Since emergence from chapter 11 bankruptcy proceedings in August 2001, our business activities have been limited to maximizing the value of our portfolio through the
orderly collection of our assets. These activities included collection efforts pursuant to underlying contractual terms, negotiation of prepayments and sales of assets or collateral. We have substantially completed the liquidation of our portfolio
and our focus has shifted to the continued wind down of our operations and future dissolution of our entities. We are prohibited by the Indenture governing our 7.5% Senior Secured Notes from engaging in any new lending activities or other business.
Any funds generated in excess of cash reserves permitted by our debt agreements have been used to reduce obligations to our creditors.

Because
substantially all of our assets (including cash reserves) are pledged to secure obligations under the Intercompany Notes securing the Senior Notes, our ability to obtain additional or alternate financing is severely restricted. Berkadia has no
obligation to lend additional sums to or to further invest in FINOVA. As a result of these factors and the substantial liquidation of our portfolio, our only meaningful source of liquidity is cash reserves held by the Company.

The terms of the Indenture prohibit us from using available funds (after certain permitted uses) for any purpose other than to satisfy our obligations to creditors and
to make limited payments to stockholders in certain circumstances. Under the terms of the Indenture, we are permitted to establish a cash reserve in an amount not to exceed certain defined criteria. Due to our limited sources of liquidity, the
estimation of cash reserves is critical to our overall liquidity. Cash reserve estimations are



14



---

##### Table of Contents

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. Historically, cash reserves typically equaled 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. We have the discretion to and have from time to
time adjusted our cash reserve methodology. Due to the substantial liquidation of our portfolio, our incoming cash flows have significantly diminished and the estimation of cash reserves has become increasingly more critical to ensure we retain
funds to meet obligations (including, but not limited to, interest payments on the Senior Notes, settlement of known and unknown claims and normal operating expenses) as they become due throughout the liquidation process. Generally, our cash reserve
methodology has been altered to retain our maximum potential cash requirements. As a result, we are reserving cash for the full amount of legal claims even though we anticipate settling or resolving the matters for considerably less. Additionally,
our cash reserve methodology assumes a longer liquidation period than our reserve for estimated costs, as well as a contingency for unknown matters that may arise as we complete the wind-up process.

In accordance with the terms of the Indenture, we are 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 our option, which we have previously elected to make from time to time; however, due to the uncertainty of cash requirements associated with the wind-up of our affairs
and matters related to the TLP Action, discussed in Note G. Litigation and Claims, we anticipate maintaining cash reserves to cover these potential and uncertain expenditures, which could limit our ability to make future voluntary
prepayments.

The timing and amount of distributions to Senior Note holders will primarily depend on the resolution of legal matters, the extent to which
reserves for current or future liabilities are required, the length of time required to settle all of our matters and, to a lesser extent, the timing and amounts we receive for our remaining assets. Refer to Note G. Litigation and Claims
for the status of our outstanding legal matters.

During the nine months ended September 30, 2008, we made one interest payment of $53.4 million and
no principal prepayments on the Senior Notes. Cumulative prepayments through September 30, 2008 totaled $1.54 billion, which reduced the outstanding principal to $1.4 billion and represented approximately 52% of the principal being repaid.
Based on the valuation of our assets at their estimated net realizable value and liabilities at estimated settlement amount, we currently estimate the Senior Note holders will receive additional liquidation distributions (principal and interest) of
approximately $194.4 million, which when combined with $53.4 million of interest already distributed during 2008, is a $0.2 million increase over our 2007 year-end estimate, but considerably less than the total principal and interest due of
approximately $1.5 billion. The estimated settlement amount was determined solely based on the net assets available for settlement of the Senior Notes and is subject to change due to changes in the estimated net realizable value of our net assets.
We clearly do not have sufficient assets to fully repay the Senior Note obligation.

The Senior Notes have a first priority security interest in
substantially all of our remaining assets; however, as noted above, the Indenture requires us to first use any cash and cash equivalents to pay or to fund operating expenses, taxes and reasonable reserves for commitments and general corporate
purposes.

Stockholders should not expect any payments or distributions. The Indenture contemplates that as principal payments are made on the Senior
Notes, our stockholders may receive a distribution equal to 5.263% of each principal prepayment. However, the Indenture prohibits us 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.

In conjunction with the prepayments of the Senior Notes noted above, we have retained a total of $81.2 million as of September 30, 2008. Retained amounts have been
segregated and reflected as restricted cash in our financial statements, pending their final disposition. We anticipate that the retained amounts will eventually be paid to our creditors, not our stockholders. If the funds were to be paid to
our stockholders, affiliates of Berkadia (jointly owned by Leucadia and Berkshire Hathaway), which owns 50% of our common stock, would receive half of the retained amounts. Berkadia has advised us that it does not believe that stockholders are
entitled to the retained amounts since we cannot fully satisfy our creditor obligations.



15



---

##### Table of Contents

As previously reported, in June 2007 the Bankruptcy Court determined that (1) we no longer need to direct funds into
a restricted account, and (2) we may use those funds for general corporate purposes. On August 26, 2008, the Delaware District Court upheld the Bankruptcy Court ruling, but on September 23, 2008, the equity committee appealed the
District Courts rulings in the United Stated Court of Appeals for the Third Circuit. For a further discussion of the appeal and its status, see Note G. Litigation and Claims.

Based on our financial condition, there will not be sufficient funds available to fully repay the outstanding principal on the Senior Notes or to make any 5%
distribution to common stockholders, absent a court order in connection with the appeal referred to above. As a result, there will not be a return to our stockholders. Consequently, investing in the Senior Notes and common stock involves a high
level of risk.

Obligations and Commitments

For a detailed listing of our significant contractual obligations and contingent commitments, refer to our 2007 Form 10-K. There has not been any material changes during the nine months ended September 30, 2008, except for payment of
our quarterly management fees ($6.0 million as of September 30, 2008) to Leucadia.

Collection of the Portfolio

As noted previously, our business activities have been limited to maximizing the value of our portfolio through the orderly collection of assets. These activities
included collection efforts pursuant to underlying contractual terms, negotiation of prepayments and sales of assets or collateral. As of September 30, 2008, we had substantially completed the liquidation of our asset portfolio.

The following table presents the activity in our liquidating portfolio for the nine months ended September 30, 2008:



|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Liquidating Portfolio at December 31, 2007  |  | $ | 6,271  |  
|Cash activity                               |  |   | (5,144 | )
|Non-cash activity                           |  |   | 144    |  
|                                            |  |   |        |  
|Liquidating Portfolio at September 30, 2008 |  | $ | 1,271  |  
|                                            |  |   |        |  

Our liquidating portfolio declined to $1.3 million at September 30, 2008. Cash activity primarily represented
collections and proceeds from the liquidation of our investments in the severance and bonus trusts and recoveries on accounts and claims previously not anticipated, while the non-cash activity primarily represented an increase in the estimated net
realizable value of certain assets due to higher than previously anticipated recovery of claims against former customers, partially offset by a decline in the value and reclassification of certain maturing investments to cash equivalents.

As of September 30, 2008, the remaining portfolio value is primarily comprised of a number of judgments and claims against former customers (net
realizable value of $1.2 million) and a few non-marketable private equity and other securities. In the majority of these instances, we did not attribute any net realizable value to these assets due to our inability to predict the collection of any
cash flows from the transactions with even a remote level of confidence. Most of these transactions were previously included in due diligence materials in an attempt to sell the assets, but were excluded on multiple occasions by prospective buyers
because of costs of collection and potential liability concerns of the buyers. Prospective buyers that specialize in these types of residual assets and claims performed due diligence, but were not interested in making an offer. We continue to
monitor these accounts for changes in facts and circumstances that would allow us to attribute value to these assets or events that would resolve their ultimate disposition. As a result, there is the possibility that some net realizable value will
be attributed to these assets in the future. An increase in the estimated net realizable value of these assets, if any, will be reflected as a change in net assets in liquidation in future filings. Additionally, we continue to occasionally receive
proceeds from trustees and liquidators for assets that in certain cases were written off years ago. These cash flows are typically immaterial and are reflected as a change in net assets in liquidation as they are received. We expect certain of these
assets will out last the Company. In connection with or prior to the final dissolution of our entities, we anticipate assigning or transferring the rights to collection of these assets to a trustee or receiver for the benefit of the Senior Note
holders.



16



---

##### Table of Contents

Liquidation Process

Due to the substantial liquidation of our portfolio, our incoming cash flows have significantly diminished and the estimation of cash reserves has become increasingly more critical to ensure we retain funds to meet obligations (including,
but not limited to, interest payments on the Senior Notes, settlement of known and unknown claims and normal operating expenses) as they become due throughout the liquidation process. Generally, our cash reserve methodology has been altered to
retain our maximum potential cash requirements. Due to the uncertainty of cash requirements associated with the wind-up of our affairs and resolution of matters related to the TLP Action, discussed in Note G. Litigation and Claims, we
anticipate maintaining cash reserves to cover these potential and uncertain expenditures, which could limit our ability to make future voluntary prepayments.

Our liquidation process is now focused on the wind down of our operations, resolution of legal matters and the future dissolution of our entities. We are in the process of withdrawing our authority to conduct business in the states that we
no longer have active assets or legal requirements that necessitate our continued authorization to conduct business. The estimated time required to withdraw our licenses will vary by state. Many states have only taken a month or two to complete,
while certain states have a more prolonged process that may take a number of months. Additionally, there are a handful of states such as Arizona and Delaware, among others, where we do not anticipate commencing the withdrawal process until all
outstanding claims and litigation have been resolved or active assets liquidated. As of September 30, 2008, we have completed the withdrawal process for 44 states, while others are pending.

We have continued with efforts to wind-up our affairs in a timely manner; however, as previously noted we cannot control the timing of resolving legal matters. Certain
legal matters continue to take longer than anticipated to resolve, including the Thaxton Life Partners arbitration hearing, which has been rescheduled for mid-January 2009. Once the legal matters have been resolved, FINOVA believes it will still
need a short period of time to complete the final wind-up of our affairs. As a result, the reserve for estimated costs reflected in our Statement of Net Assets in Liquidation was adjusted to assume a liquidation period through the first quarter of
2009. There can be no assurance we will complete our liquidation in this time period, and the resolution of the various legal matters may extend for a longer period of time. We will continue to evaluate our progress in resolving the outstanding
legal matters on at least a quarterly basis and re-evaluate our reserve for estimated costs. Refer above to Note G. Litigation and Claims for the status of our outstanding legal matters.

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, our Plan of Liquidation and the section captioned Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. 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 our 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 can assure Senior Note holders of the timing or amount of their liquidating distributions; whether potential
purchasers of our assets may try to take advantage of our liquidation process and offer less-than-optimal prices for our assets; the increasing difficulty in offsetting costs of collecting the remaining portfolio; our Board may abandon the Plan of
Liquidation; whether we transfer any assets to a liquidating trust; whether new securities lawsuits will be filed against us; our ability to sell the remaining assets; the impact of general economic conditions and the performance of our borrowers;
current and future legal and administrative claims and proceedings against us that may result in increased costs and diversion of managements attention; current and future obligations to creditors; our ability to meet obligations is impacted
by cash reserve estimations; cash investments are subject to credit exposure and interest rate fluctuations; our ability to retain our employees; our ability to utilize tax attributes; and our ability to be exempt from the registration requirements
of the Investment Company Act of 1940. For additional information, see Part I, Item 1A. Risk Factors in our 2007 Form 10-K.



17



---

##### Table of Contents

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



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



|(a) | Our management evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our 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 September 30, 2008. Based on their evaluation, our principal executive and principal financial officers concluded that
our disclosure controls and procedures were effective as of September 30, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | There has been no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal
quarter ended September 30, 2008, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PART II OTHER INFORMATION



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

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



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

There were no material changes from the information
provided in our Annual Report on Form 10-K for the year ended December 31, 2007.



|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.



18



---

##### Table of Contents

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: November 7, 2008 |  |  |  | By: |  | /s/ Richard A. Ross                                                         
|                       |  |  |  |     |  | Richard A. Ross, Senior Vice President  Chief Financial Officer & Treasurer
|                       |  |  |  |     |  | (principal financial officer)                                               



19



---

##### Table of Contents

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.