The following section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008 (the "2008 Form 10-K") and the Special Note Regarding Forward-Looking Statements included herein. Capitalized terms not defined herein are used as defined in the 2008 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 June 30, 2009, we had substantially completed the liquidation of our asset portfolio. Our attention 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. As of June 30, 2009, we have completed the withdrawal process for 45 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; however, as previously disclosed 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 occurred the week of August 10, 2009, and the motion regarding distributions to stockholders, which has been scheduled for oral argument on October 2, 2009. Refer above to Note G. "Litigation and Claims" for a further discussion of our outstanding legal matters.

Once the legal matters have been resolved, we believe we 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 currently assumes a liquidation period through November 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 are concerned about the continued delays in the legal process, particularly in regards to the litigations referred to in Note G. "Litigation and Claims", and how such delays continue to deplete assets available to settle our liabilities. We have evaluated and continue to consider alternatives to complete the wind-up process, including transferring to a liquidating trust any assets not sold or distributed (subject to outstanding liabilities), depending on the progress of the outstanding legal matters. We will continue to evaluate our progress in resolving the outstanding legal matters and re-evaluate our reserve for estimated costs.

If there is a further delay in the Thaxton Life Partners arbitration proceedings, it is possible that the matter may not be resolved prior to the maturity date of the Senior Notes, which is November 15, 2009. As previously disclosed, FINOVA does not have sufficient assets to fully repay the amounts due under the Senior Notes. We are not able to predict what course of action, if any, the noteholders will pursue in these circumstances.

If the Thaxton Life Partners arbitration results in a favorable ruling prior to the maturity date of the Senior Notes, we plan on moving forward with the final dissolution of the Company, whether or not the motion regarding distributions to stockholders has been resolved. Our intent is to complete the dissolution of the FINOVA entities under Delaware law and turn the restricted cash over to a liquidating trustee or other liquidation agent, pending resolution of the motion regarding distributions to FINOVA's stockholders.

Forever Insolvent. As of June 30, 2009, we have repaid $1.54 billion or approximately 52% of the principal on the Senior Notes. As previously disclosed, we will not make any future voluntary prepayments or the one remaining scheduled interest payment. Our remaining unrestricted cash is expected to be distributed in conjunction with the final wind-up of our affairs and the future dissolution of the Company, which is expected to occur by the end of November 2009, although there can be no assurance that we will be successful in meeting that schedule. 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 $141.7 million, which is a $2.2 million increase over our 2008 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 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 Delaware District Court's ruling to the United Stated Court of Appeals for the Third Circuit, and the Third Circuit has granted the equity committee's motion for stay pending appeal.

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 current 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 2008 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 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 June 30, 2009 and December 31, 2008.

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. 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: people costs (payroll and benefits), Leucadia management fees, professional services and litigation costs and corporate expenses (insurance, directors' fees and entity related expenses). Certain of 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 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.

CHANGES IN NET ASSETS IN LIQUIDATION

The following table summarizes the changes in net assets in liquidation for the
three and six months ended June 30, 2009 and 2008 (dollars in thousands):



                                                 Three Months Ended                 Six Months Ended
                                                      June 30,                          June 30,
                                               2009             2008             2009             2008
Net Assets in Liquidation, beginning of
period                                       $      -         $      -         $      -         $      -

Changes in net assets in liquidation:
Change in estimated net realizable value
of assets and other liabilities                  5,423               28            5,346              246
Interest earned on investment of cash
reserves and other operating activity              101            2,009              284            4,247
Change in estimated costs during the
liquidation period                              (3,429 )         (2,968 )         (3,396 )         (1,790 )
Interest accruing on the Senior Notes          (27,215 )        (26,703 )        (53,918 )        (53,406 )
Reduction in the estimated settlement of
the Senior Notes                                25,120           27,634           51,684           50,703

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 June 30, 2009 and 2008

During the three months ended June 30, 2009, the estimated net realizable value of our assets and liabilities increased a net $5.4 million; while during the same period of 2008, the estimated net realizable value was virtually unchanged. The increase during 2009 was primarily due to the full recovery of a claim plus interest against a former customer and a proposed settlement of another claim for slightly less than the full amount of the claim and interest. In August 2009, the proposed settlement was finalized and we collected $2.0 million. Neither of these claims had been previously included in the estimated net realizable value of our assets due to substantial doubt about their collection.

Additionally, during the three months ended June 30, 2009 and 2008, we accrued $27.2 million and $26.7 million, respectively, of additional interest on the Senior Notes and earned interest income on cash investments and other operating activity of $0.1 million and $2.0 million, respectively. 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.

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 June 30, 2009, our short-term investments are primarily comprised of lower risk money markets, including money markets backed by U.S. Treasuries and other government sponsored securities. 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 June 30, 2009, the reserve declined by $0.3 million primarily due to the payment of expenses ($3.7 million), partially offset by a $3.4 million net increase in our estimate due to the extension of the estimated liquidation period through November of 2009. During the three months ended June 30, 2008, the reserve for estimated costs declined by $0.8 million due to the payment of expenses ($3.8 million), partially offset by a $3.0 million net increase in our estimate due to the extension of the estimate liquidation period.

We have continued with efforts to wind-up our affairs; however, as previously disclosed 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 occurred the week of August 10, 2009, and the motion regarding distributions to stockholders, which has been scheduled for oral argument on October 2, 2009. Refer above to Note G. "Litigation and Claims" for a further discussion of our outstanding legal matters.

Once the legal matters have been resolved, we believe we 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 currently assumes a liquidation period through November 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.

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 June 30, 2009, the estimated settlement amount of the Senior Notes (principal only) was reduced by $25.1 million to a balance of $74.2 million; however, we currently estimate the Senior Note holders will receive total liquidation distributions (principal and interest) of approximately $141.7 million, which is a $2.2 million increase over our 2008 year-end estimate.

Changes in Net Assets in Liquidation for the six months ended June 30, 2009 and 2008

During the six months ended June 30, 2009, the estimated net realizable value of our assets and liabilities increased a net $5.3 million; while during the same period of 2008, the estimated net realizable value increased $0.2 million. The increase during 2009 was primarily due to the full recovery of a claim plus interest against a former customer and a proposed settlement of another claim for slightly less than the full amount of the claim and interest, which was subsequently received in August. In August 2009, the proposed settlement was finalized and we collected $2.0 million. Neither of these claims had been previously included in the estimated net realizable value of our assets due to substantial doubt about their collection. The increase during 2008 was primarily attributed to higher than previously anticipated recoveries of cash amounts posted to secure potential obligations, partially offset by a decline in the value of certain cash investments.

Additionally, during the six months ended June 30, 2009 and 2008, we accrued $53.9 million and $53.4 million, respectively, of additional interest on the Senior Notes and earned interest income on cash investments and other operating activity of $0.3 million and $4.2 million, respectively. 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.

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 six months ended June 30, 2009, the reserve declined by $3.6 million due to the payment of expenses of $7.0 million, partially offset by a $3.4 million net increase in our estimate due to the extension of the estimated liquidation period through November of 2009. During the six months ended June 30, 2008, the reserve for estimated costs declined by $7.3 million due to the payment of expenses ($9.1 million) and a reduction in our estimate as a result of certain actual and future expenses being lower than previously estimated, partially offset by an increase in our estimate due to 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 six months ended June 30, 2009, the estimated settlement amount of the Senior Notes (principal only) was reduced by $51.7 million to a balance of $74.2 million; however, we currently estimate the Senior Note holders will receive total liquidation distributions (principal and interest) of approximately $141.7 million, which is a $2.2 million increase over our 2008 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.

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 subject to known and unknown risks, uncertainties, and other factors that could materially impact the amounts determined. 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. 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.

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. However, as previously disclosed, we will not make any future voluntary prepayments or the one remaining scheduled interest payment. Our remaining unrestricted cash is expected to be distributed in conjunction with the final wind-up of our affairs and the future dissolution of the Company, which is currently expected to occur by the end of November 2009, although there can be no assurance that we will be successful in meeting that schedule.

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 six months ended June 30, 2009, we made no principal payments and we did not make our scheduled May 15, 2009 interest payment on the Senior Notes. . . .