UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549-1004
                           ---------------------------


(Mark One)
[X]                                 FORM 10-Q
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the Quarterly Period Ended June 30, 2006
                                                 -------------
                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

      For the Transition Period from _____________ to _______________

      Commission File Number     0-13084
                            ----------------------------------------------------

                             WARRANTECH CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                     Nevada                            13-3178732
--------------------------------------------------------------------------------
         (State or other jurisdiction of           (I.R.S. Employer
         incorporation or organization)            Identification No.)

          2200 Highway 121, Suite 100, Bedford, TX            76021
--------------------------------------------------------------------------------
          (Address of principal executive offices)         (Zip Code)

      Registrant's telephone number, including area code     (800) 544-9510
                                                        ------------------------


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

         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 [X] No [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [X]

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

               Class                                Outstanding at July 31, 2006
---------------------------------------             ----------------------------
Common stock, par value $.007 per share                   14,007,586 shares
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES


                                    I N D E X
                                    ---------


                                                                        Page No.
                                                                        --------
                         PART I - Financial Information


Item 1:  Financial Statements

      Condensed Consolidated Statements of Operations -
               For the Three Months Ended June 30, 2006
               and 2005 (Unaudited)..................................        2

      Condensed Consolidated Balance Sheets at June 30, 2006
               (Unaudited) and March 31, 2006........................        3

      Condensed Consolidated Statements of Cash Flows
               For the Three Months Ended June 30, 2006
               and 2005(Unaudited)...................................        5

      Notes to Condensed Consolidated Financial Statements...........        6

Item 2:  Management's Discussion and Analysis of
         Financial Condition and Results of Operations ..............       12

Item 3.  Quantitative and Qualitative Disclosures About Market Risk..       19

Item 4.  Controls and Procedures.....................................       19



                           PART II - Other Information


Item 1:  Legal Proceedings...........................................       20

Item 2:  Changes in Securities.......................................       22

Item 3:  Defaults Upon Senior Securities.............................       22

Item 4:  Submission of Matters to a Vote of Security Holders.........       22

Item 5:  Other Information...........................................       22

Item 6:  Exhibits and Reports on Form 8-K............................       22

Signature ...........................................................       23

<PAGE>

PART I  -  Financial Information


         Item 1: Financial Statements

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    For the Three Months Ended
                                                                             June 30,
                                                                   ----------------------------
                                                                       2006            2005*
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Gross revenues                                                     $ 30,110,204    $ 30,614,313
Net (increase) decrease in deferred revenues                         (2,982,294)     (4,307,618)
                                                                   ------------    ------------
Net revenues                                                         27,127,910      26,306,695

Direct costs                                                         21,785,107      20,377,748
                                                                   ------------    ------------
Gross Profit                                                          5,342,803       5,928,947
                                                                   ------------    ------------
Operating expenses
   Service, selling, and general and administrative                   7,556,552       5,785,623
   Provision for bad debt expense                                            --              --
   Depreciation and amortization                                        341,872         528,864
                                                                   ------------    ------------
Total costs and expenses                                              7,898,424       6,314,487
                                                                   ------------    ------------

Income (loss) from operations                                        (2,555,621)       (385,540)
Other (income) Expense                                                  271,093        (138,378)
                                                                   ------------    ------------
Income  (loss) from continuing operations before
   Provision for income tax                                          (2,826,714)       (247,162)
Provision (benefit) for income taxes                                   (960,941)         29,424
                                                                   ------------    ------------
Income (loss) from continuing operations                             (1,865,773)       (276,586)
Income (loss) from discontinued Operations, net of related taxes        256,464        (259,473)
                                                                   ------------    ------------
Net income (loss)                                                  $ (1,609,309)   $   (536,059)
                                                                   ============    ============

Basic earnings (loss) per share:
    Income (loss) from continuing operations                       $      (0.13)   $      (0.02)
                                                                   ============    ============
    Income (loss) from discontinuing operations                    $       0.02    $      (0.02)
                                                                   ============    ============

Diluted earnings (loss() per share:
    Income (loss) from continuing operations                       $      (0.13)   $      (0.02)
                                                                   ============    ============
    Income (loss) from discontinuing operations                    $       0.02    $      (0.02)
                                                                   ============    ============

Weighted average number of shares outstanding:
   Basic                                                             14,007,586      15,398,677
                                                                   ============    ============
   Diluted                                                           14,024,620      15,398,677
                                                                   ============    ============
</TABLE>

* Reclassified for comparability


     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              June 30,       March 31,
                                                                2006           2006
                                                            (Unaudited)
                                                            ------------   ------------
A S S E T S
-----------
<S>                                                         <C>            <C>
Current assets:
   Cash and cash equivalents                                $  1,256,133   $  3,899,361
   Investments in marketable securities                        1,067,108        808,399
   Accounts receivable, (net of allowances of
       prepaid taxes $539,635 and $577,746, respectively)     25,330,319     25,020,997
   Other receivables, (net of allowances of
       prepaid taxes $3,718,954, respectively)                 3,175,945      1,969,008
   Employee receivables                                           59,167         47,962
   Deferred income taxes                                       6,776,971      6,982,019
   Prepaid taxes                                                  25,590             --
   Prepaid expenses and other current assets                     719,737        804,550
                                                            ------------   ------------
      Total current assets                                    38,414,970     39,532,296
                                                            ------------   ------------

Property and equipment, net                                    3,171,836      3,393,438
                                                            ------------   ------------

Other assets:
   Excess of cost over fair value of assets acquired           1,637,290      1,637,290
      (net of accumulated amortization of $5,825,405)
   Deferred income taxes                                      18,522,875     17,394,190
   Deferred direct costs                                     205,710,103    202,285,711
   Investments in marketable securities                          687,183        923,665
   Restricted cash                                               800,000        800,000
   Split dollar life insurance policies                          900,145        900,145
   Other assets                                                   32,435         19,166
                                                            ------------   ------------
          Total other assets                                 228,290,030    223,960,167

                                                            ------------   ------------
                    Total Assets                            $269,876,836   $266,885,901
                                                            ============   ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            June 30,         March 31,
                                                                              2006             2006
                                                                           (Unaudited)
                                                                          -------------    -------------
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
------------------------------------------------
<S>                                                                       <C>              <C>
Current liabilities:
     Current maturities of long-term debt and capital lease obligations   $     426,315    $     420,294
     Insurance premiums payable                                              22,453,555       39,597,509
     Income taxes payable                                                            --           28,082
     Accounts and commissions payable                                         9,400,409        9,675,496
     Claims Liability - Reliance                                              1,292,574        1,563,951
     Accrued expenses and other current liabilities                           2,966,474        5,314,439
                                                                          -------------    -------------
          Total current liabilities                                          36,539,327       56,599,771
                                                                          -------------    -------------

Deferred revenues                                                           239,555,428      237,345,559
Claims Liability - Reliance                                                   2,154,291        2,307,633
Note payable - H.I.G                                                         20,000,000               --
Long-term debt and capital lease obligations                                  3,284,740          673,034
Deferred rent payable                                                           463,765          458,906
                                                                          -------------    -------------
      Total Non-current liabilities                                         265,458,224      240,785,132
                                                                          -------------    -------------

                                                                          -------------    -------------
       Total Liabilities                                                    301,997,551      297,384,903

Stockholders' Capital Deficiency:
   Preferred stock - $.0007 par value authorized - 15,000,000 Shares
        issued - none at June 30, 2006 and March 31, 2006                            --               --
   Common stock - $.007 par value authorized - 30,000,000 Shares
        issued - 16,714,617 shares at June 30, 2006 and 16,674,617
        shares at March 31, 2006                                                117,004          116,724

   Additional paid-in capital                                                23,869,515       23,852,085
   Loans to directors and officers                                           (7,792,381)      (7,755,292)
   Accumulated other comprehensive income, net of taxes                         308,130          301,157
   Accumulated Deficit                                                      (43,273,817)     (41,664,508)
                                                                          -------------    -------------
                                                                            (26,771,547)     (25,149,834)
Treasury stock - at cost, 2,707,031 shares at June 30, 2006 and
   March 31, 2006                                                            (5,349,168)      (5,349,168)
                                                                          -------------    -------------
        Total Stockholders' Capital Deficiency                              (32,120,715)     (30,499,002)
                                                                          -------------    -------------

                                                                          -------------    -------------
           Total Liabilities and Stockholders' Capital Deficiency         $ 269,876,836    $ 266,885,901
                                                                          =============    =============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             The Three Months Ended June 30,
                                                                             --------------------------------
                                                                                  2006              2005*
                                                                             --------------    --------------
<S>                                                                          <C>               <C>
Cash flows from operating activities:
Net loss from continuing operating activities                                ($   1,865,773)   ($     276,586)
Net income (loss) from discontinued operating activities                            256,464          (259,473)
                                                                             --------------    --------------
                                                                                 (1,609,309)         (536,059)

Adjustments to reconcile net income to net cash
    provided by operating activities                                            (20,996,577)        1,804,785
                                                                             --------------    --------------
Net Cash Flows provided (used) by continuing operating activities               (22,862,350)        1,528,199
Net Cash Flows provided (used) by Discontinued operating activities                 299,040          (162,191)
                                                                             --------------    --------------
Net cash used in operating activities                                           (22,563,310)        1,366,008
                                                                             --------------    --------------

Cash flows from investing activities:
Property and equipment purchased                                                    (70,726)         (138,293)
Purchase of marketable securities                                                  (299,000)          (25,000)
Proceeds from sales of marketable securities                                        396,000            20,000
                                                                             --------------    --------------
Net cash provided (used)by continuing investing activities                           26,274          (143,293)

Net cash provided (used)by discontinued investing activities                             --                --
                                                                             --------------    --------------
Net cash used in investing activities from continuing operations                     26,274          (143,293)

Cash flows from financing activities:
Repayments, notes, and capital leases                                              (106,193)         (171,241)

Proceeds from notes payable                                                      20,000,000                --
                                                                             --------------    --------------
Net cash used in financing activities from continuing operating activities       19,893,807          (171,241)
                                                                             --------------    --------------

Net decrease in cash and cash equivalents                                        (2,643,229)        1,051,474

Cash and equivalents at beginning of period                                       3,899,361         4,591,746
                                                                             --------------    --------------
Cash and equivalents at end of period                                        $    1,256,132    $    5,643,220
                                                                             ==============    ==============


Supplemental Cash Flow Information:
Cash payments (receipts) for:
   Interest                                                                  $      271,093    $       43,845
                                                                             --------------    --------------
   Income taxes, net                                                         $       29,332    $      104,551
                                                                             --------------    --------------
Discontinued Operations:
   Income Taxes                                                              $           --    $       27,100
                                                                             --------------    --------------

Non-Cash Investing and financing activities:
Property & Equipment finance through capital leases                          $       53,461    $      186,942
                                                                             --------------    --------------
Increase in loans to officers and directors                                  $      (37,089)   $      (70,954)
                                                                             --------------    --------------
Issuance of common stock for services rendered                               $       17,710    $           --
                                                                             ==============    ==============
</TABLE>

*Reclassified for comparability


     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2006
                                   (Unaudited)

1.  THE COMPANY
    -----------

    Warrantech, through its wholly owned subsidiaries, designs, develops,
    markets and acts as a third party administrator for programs ("Programs")
    for service contracts, limited warranties and replacement plans
    (collectively, "Plans"). The Company provides these services to a variety of
    clients in selected industries. On a Program by Program basis in the
    Automotive and Consumer Products segments, the Company contracts with highly
    rated independent insurance companies or risk retention groups to provide
    coverage for the Plans to be sold or issued under the Programs. This
    coverage obligates the insurer to pay the cost of repairs or replacements of
    the products covered by the Plans. In the Home segment, the Company is self
    insured.

    Plans issued under the Company's Programs provide consumers with expanded
    and/or extended product breakdown coverage for a specified period of time
    (and/or mileage in the case of automobiles and recreational vehicles),
    similar to that provided by manufacturers under the terms of their product
    warranties. Coverage generally provides for the repair or replacement of the
    product, or a component thereof, in the event of its failure. The Company's
    Programs provide clients with the opportunity for increased revenue and
    income without incurring the costs and responsibilities of operating their
    own programs.

    The Plans for the Automotive and Consumer Products segments generally have
    terms extending up to one hundred twenty (120) months or, in the case of
    mileage based Plans, up to one hundred fifty thousand (150,000) miles. All
    repairs and/or replacements required under these Plans are performed by
    independent third party repair facilities or dealers. The cost of any repair
    or replacement under these plans is generally paid by the insurance company
    or retention group with which the Company has contracted to provide coverage
    for the Plan. Plans for the Home segment are generally for twelve months.
    The cost of any repair or replacement for plans in the Home segment is paid
    for by the Company.

2.  BASIS OF PRESENTATION
    ---------------------

    The accompanying consolidated financial statements have been prepared in
    accordance with accounting principles generally accepted in the United
    States of America ("GAAP"). These consolidated financial statements include
    the accounts of Warrantech Corporation, its subsidiaries, all of which are
    wholly owned, and certain transactions involving Butler Financial Solutions,
    LLC ("Butler") due to its related interest with the Company. All
    intercompany accounts and transactions have been eliminated in
    consolidation. In the opinion of management, all adjustments (consisting of
    normal recurring accruals) considered necessary for a fair presentation of
    the financial position and operating results of the Company for the interim
    period have been included. Operating results for the three months ended June
    30, 2006 are not necessarily indicative of the results that may be expected
    for the fiscal year ending March 31, 2007. For further information, refer to
    the consolidated financial statements and footnotes thereto included in the
    Company's Annual Report on Form 10-K for the year ended March 31, 2006.

3.  ACCOUNTS RECEIVABLE
    -------------------

    Significant Customer In Bankruptcy - On January 11, 2005, Ultimate
    Electronics, Inc. and six of its subsidiaries ("Ultimate") filed individual
    voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in
    the United States Bankruptcy Court for the District of Delaware. Sales to
    Ultimate represented 10% and 32% of the Company's and its Consumer Products

                                       6
<PAGE>

    segment's total gross revenues during fiscal 2005. Pursuant to the
    provisions of Chapter 11, Warrantech was obligated to honor its existing
    contract with Ultimate and Ultimate continued to sell service contracts
    during this period of reorganization. Ultimate has made all its payments to
    Warrantech with respect to sales subsequent to January 11, 2005
    ("post-petition sales)." At the time of filing, however, Warrantech believes
    that Ultimate owed it approximately $3.27 million for sales up to January
    11, 2005 ("pre-petition sales") and Warrantech has filed a "proof of claim"
    in this amount with the Court. At this time, although Warrantech's proof of
    claim has been reviewed and approved, Warrantech does not know what it will
    recover on its claim. No provision for bad debts has been recorded as of
    December 31, 2005, as there are offsetting liabilities and reserves. The
    Plan of Reorganization has been approved by the Bankruptcy Court and
    Ultimate's creditors. Ultimate and its advisors have reviewed filed claims
    and have made initial determinations regarding preference payments and other
    amounts that may be recoverable from creditors. They are now contacting
    those creditors who appear to have the largest potential obligations to the
    bankruptcy estate in an effort to negotiate settlements. These discussions
    are expected to continue for a number of months. The first distributions to
    creditors could occur as early as the 3rd quarter of 2006 although they are
    more likely to begin during the 4th quarter.

    In separate orders dated April 19, 2005, the Court approved actions to close
    thirty (30) of Ultimate's stores and retain a liquidator to dispose of
    existing inventory. The liquidator was authorized by the Court to sell
    Warrantech service contracts during the liquidation period in accordance
    with the terms of the existing Ultimate contract. The liquidation period has
    been completed. The remaining stores were purchased by Mark Wattles, the
    principal shareholder of Ultimate, through an entity named Ultimate
    Acquisition Partners, L.P. ("Acquisition"). As part of the Purchase
    Agreement, Acquisition was given until August 31, 2005, to decide if it
    wanted to assume Ultimate's contract with Warrantech. On November 1, 2005,
    Acquisition notified Warrantech that it had elected not to continue selling
    warranties administered by Warrantech effective November 15, 2005.
    Acquisition has made all of its payments to Warrantech with respect to its
    sales.

    At March 31, 2005, the Company was owed $3.7 million by Ultimate, in which
    the Company has filed a proof of claim for $3.27 million with the bankruptcy
    court. The remaining balance has subsequently been paid. No provision for
    bad debts has been recorded as of the fiscal year ended March 31, 2005.

4.  OTHER RECEIVABLES
    -----------------

    The nature and amounts of Other Receivables as of June 30, 2006 and March
    31, 2006 are as follows:

<TABLE>
<CAPTION>
                                                                      ----------------------------
                                                                        June 30,        March 31,
                                                                          2006            2006
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
      Other receivables, net
         Due from insurance companies                                 $    978,326    $    353,833
         Due from insurance companies - reimbursement of legal fees      3,718,954       3,718,954
         Due from insurance companies - profit sharing                      41,920          41,920
         Due from dealers                                                1,062,558         302,569
                                                                      ------------    ------------
              Due from insurance companies/dealers                       5,801,758       4,417,276
         Agent advances                                                    146,934         108,565
         Due from Financial Institutions (rebate)                          420,000         790,000
         Other                                                             526,207         372,121
                                                                      ------------    ------------
                                                                         6,894,899       5,687,962
      Allowance for doubtful accounts                                   (3,718,954)     (3,718,954)
                                                                      ------------    ------------
      Total other receivables, net                                    $  3,175,945    $  1,969,009
                                                                      ============    ============
</TABLE>

                                       7
<PAGE>

         The following table sets forth the carrying amounts and fair values of
the Company's other receivables at June 30, 2006.

<TABLE>
<CAPTION>
                                                  Expected Maturity Date
                         ---------------------------------------------------------------------------
                            2006         2007         2008         2009         2010      Thereafter     Total      Fair Value
                         ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
<S>                      <C>                  <C>          <C>          <C>          <C>          <C>  <C>          <C>
Other receivables, net   $3,175,945           --           --           --           --           --   $3,175,945   $3,175,945


5.  COMPREHENSIVE INCOME (LOSS)
    ---------------------------

    The components of comprehensive income (loss) are as follows:

<CAPTION>
                                                            For the Three Months Ended
                                                                     June 30,
                                                         --------------------------------
                                                              2006              2005
                                                         --------------    --------------
<S>                                                      <C>               <C>
         Net income (loss)                               $   (1,609,309)   $     (536,059)
         Other comprehensive income (loss), net of tax
            Unrealized gain (loss) on investments                (1,025)            2,108
            Foreign currency translation adjustments              7,998            (5,666)
                                                         --------------    --------------
         Comprehensive income (loss)                     $   (1,602,336)   $     (539,616)
                                                         ==============    ==============

         Comprehensive income (loss) per share:          $        (0.11)   $        (0.04)
                                                         ==============    ==============


    The components of accumulated comprehensive income are as follows:

<CAPTION>
                                                           June 30,       June 30,
                                                             2006           2005
                                                         ------------   ------------
<S>                                                      <C>            <C>
         Unrealized gain (loss) on investments           $      5,598   $        198
         Accumulated translation adjustments                  302,532        300,969
                                                         ------------   ------------
                                                         $    308,130   $    301,157
                                                         ============   ============


6.  EARNINGS PER SHARE
    ------------------

    The following table sets forth the calculation of earnings per share for the
    three months ended June 30, 2006 and 2005.

<CAPTION>
                                                                   For the Three Months Ended
                                                                            June 30,
                                                                --------------------------------
                                                                     2006              2005
                                                                --------------    --------------
<S>                                                             <C>               <C>
         Numerator:
            Net income (loss) applicable to common stock        $   (1,609,309)   $     (536,059)
                                                                ==============    ==============
         Denominator:
             Average outstanding shares used in the
                   computation of per share earnings:
              Common stock issued - Basic shares                    14,007,586        15,398,677
                                                                ==============    ==============
                                  - Diluted shares                  14,024,620        15,398,677
                                                                ==============    ==============
         Earnings (loss) per common share:
            Basic                                               $        (0.11)   $        (0.03)
                                                                ==============    ==============
            Diluted                                             $        (0.11)   $        (0.03)
                                                                ==============    ==============
</TABLE>

    The per share amounts for total operations was calculated using the average
    basic shares outstanding since using the average diluted shares would be
    antidilutive.

                                       8
<PAGE>

7.  STOCK OPTION PLAN
    -----------------

    In December 2004, the FASB issued Statement 123(R), "Share-Based Payment,"
    to be effective, in the case of Warrantech, for interim periods beginning
    after December 15, 2005; thereby, becoming effective for Warrantech in the
    fourth quarter of fiscal 2006. Statement 123(R) requires all share-based
    payments to employees, including grants of employee stock options, to be
    recognized as an operating expense in the income statement. The cost is
    recognized over the requisite service period based on fair values measured
    on grant dates. The new standard may be adopted using either the modified
    prospective transition method or the modified retrospective method. The
    Company is currently evaluating its share-based employee compensation
    programs, the potential impact of this statement on the consolidated
    financial position and results of operations. Effective January 1, 2006, the
    company had adopted the modified prospective method for its options issued
    and recognizes compensation expense under their requisite vesting periods.

<TABLE>
<CAPTION>
                                                                                      For the Three Months
                                                                                          Ended June 30,
                                                                                   ----------------------------
                                                                                       2006            2005
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
    Net loss as reported                                                           $ (1,609,309)   $   (536,059)

    Stock based employee compensation expense included in reported
              net loss, net of related tax effects                                        4,919              --

    Total stock based employee compensation expense determined under
              fair value based method for all awards, net of related tax effects         (4,919)        (26,542)
                                                                                   ------------    ------------

    Net loss pro forma                                                             $ (1,609,309)   $   (562,511)
                                                                                   ============    ============

    Shares - basic                                                                   14,007,586      15,398,677

    Basic earnings per share as reported                                           $      (0.10)   $      (0.03)

    Basic earnings per share pro forma                                             $      (0.10)   $      (0.03)


    The weighted average fair value of stock options at date of grant,
    calculated using the Black-Scholes option-pricing model, during the three
    months ended March 31, 2006 and 2005 was $0.38 and $0.38, respectively.

    The following table summarizes the status of all Warrantech's stock options
    outstanding and exercisable at June 30, 2006.

    Presented below is a summary of the status of the stock options in the plan
    and the related transactions for the three months ended June 30, 2006 and
    June 30, 2005.

<CAPTION>
                                                                      2006                         2005
                                                           --------------------------------------------------------
                                                                            Weighted                     Weighted
                                                                            Average                      Average
                                                                            Exercise                     Exercise
                                                              Shares         Price          Shares        Price
                                                           --------------------------------------------------------
<S>                                                          <C>         <C>               <C>         <C>
         Options outstanding at beginning of the period      1,473,003   $       1.16      1,514,803   $       1.16
         Granted                                                    --             --             --             --
         Canceled/Surrendered                                       --             --          4,000           1.31
         Exercised                                                  --             --             --             --
         Forfeited                                                  --             --             --             --
                                                           --------------------------------------------------------
         Options outstanding at end of period                1,473,033   $       1.16      1,510,803   $       1.16
                                                           ========================================================

                                                           --------------------------------------------------------
         Options exercisable at end of period                  992,443   $       1.25        899,096   $       0.78
                                                           ========================================================
</TABLE>

                                       9
<PAGE>

    The fair value of Warrantech stock options used to compute pro forma net
    income and earnings per share disclosures is the estimated value at grant
    date using the Black-Scholes option-pricing model with the following
    weighted average assumptions for the three months ended June 30, 2006 and
    2005, respectively: expected dividend yield of 0%; expected volatility of
    30% - 50%; a risk free interest rate of 4.0% - 5.0%; and expected option
    life of 3 to 10 years.

    Other Stock Options - The Company may issue options to purchase the
    Company's common stock to officers, non-employees, non-employee directors or
    others as part of settlements in disputes and/or incentives to perform
    services for the Company. The Company accounts for stock options issued to
    vendors and non-employees of the Company under SFAS No. 123 "Accounting for
    Stock-based Compensation." The fair value of each option grant is estimated
    on the date of grant, using the Black-Scholes option-pricing model, is
    charged to operations utilizing weighted average assumptions identical to
    those used for options granted to employees.

    The following table summarizes the status of all Warrantech's stock options
    outstanding and exercisable at June 30, 2006.

<TABLE>
<CAPTION>
                                                         Stock Options                  Stock Options
                                                         Outstanding                     Exercisable
                                               -------------------------------  ------------------------------
                                                                   Weighted                          Weighted
                                                                   Average                           Average
                                                                   Exercise                          Exercise
         Range Of Exercise Prices                   Shares          Price            Shares           Price
         -----------------------------------   ---------------  -------------   ---------------  -------------
<S>                                                  <C>                <C>             <C>              <C>
         $0.42 to $0.94                                963,605          $0.72           541,838          $0.79
         $1.00 to $1.02                                 78,432          $1.02            19,608          $1.02
         $1.26 to $1.595                               337,207          $1.45           337,207          $1.45
         $3.25 to $3.375                                93,790          $3.25            93,790          $3.25
                                               ---------------  -------------   ---------------  -------------
         Total at June 30, 2006                      1,473,033          $1.06           992,443          $1.25
                                               ---------------  -------------   ---------------  -------------
</TABLE>

8.  HIG DEBT
    --------

    On June 7, 2006 as part of Warrantech's Loan transaction with Wtech Holdings
    LLC, ("Holdings") an affiliate of H.I.G. Capital in conjunction with its
    proposed Merger with Warrantech and GAIC Holdings acquired from GAIC $20
    million of Warrantech's debt to GAIC.


9.  SEGMENTS
    --------

    The Company operates in three major business segments: Automotive, Consumer
    Products and International. The Automotive segment markets and administers
    extended warranties on automobiles, light trucks, motorcycles, recreational
    vehicles and automotive components, which are sold principally by franchised
    and independent automobile and motorcycle dealers, leasing companies, repair
    facilities, retail stores, financial institutions and other specialty
    marketers. The Consumer Products segment develops, markets and administers
    extended warranties and product replacement plans on household appliances,
    consumer electronics, televisions, computers, home office equipment and
    homes which are sold principally through retailers, distributors,
    manufacturers, utility companies, financial institutions and other specialty
    marketers. Warrantech also markets these warranties and plans directly to
    the ultimate consumer on behalf of the retailer/dealer and/or the
    manufacturer through telemarketing and direct mail campaigns. The
    International segment markets and administers outside the United States and
    Canada predominately the same products and services of the other business
    segments. The International segment is currently operating in Central and
    South America, Puerto Rico and the Caribbean. The Company has ceased doing
    business in Chile and Peru, but is in the process of expanding into Mexico.

                                       10
<PAGE>

    Other includes intersegment eliminations of revenues and receivables and net
    unallocated Corporate expenses and Butler.

<TABLE>
<CAPTION>
                                             Consumer                                     Reportable
Three Months Ended           Automotive      Products        Direct      International*    Segments        Other          Total
                           -------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>             <C>            <C>           <C>             <C>           <C>
June 30, 2006
-------------
Revenues                     20,456,933      6,956,724      2,482,845        213,703      30,110,205             --     30,110,205
Intercompany revenues           548,475        449,275          9,545         42,957       1,050,252     (1,050,252)            --
Profit (loss) from
   operations                   (64,769)      (692,290)       316,448       (317,146)       (757,757)    (1,797,864)    (2,555,621)
Pretax income (loss)         (1,314,192)    (1,676,465)       296,792        (60,682)     (2,754,547)       184,207     (2,570,340)
Net interest income
   (expense)                   (360,004)      (111,441)                                     (471,445)        64,446       (406,999)
Depreciation/amortization        81,240         88,120         24,145          8,015         201,520        140,353        341,873
Total assets                198,159,572     65,590,510      2,129,227      8,725,892     274,605,201     (4,728,365)   269,876,836

June 30, 2005
-------------
Revenues                     19,079,502      8,341,276      3,024,645        168,890      30,614,313             --     30,614,313
Intercompany revenues           896,798        431,195         11,016        111,933       1,450,942     (1,450,942)            --
Profit (loss) from
   operations                   209,004        853,343        357,435        (28,193)      1,391,589     (1,763,880)      (372,291)
Pretax income (loss)           (691,153)       207,025          9,208       (287,666)       (762,586)       255,952       (506,634)
Net interest income
   (expense)                    (82,370)       (40,836)                       12,752        (110,454)        90,087        (20,367)
Depreciation/amortization        66,467        119,525         19,117         16,115         221,224        307,640        528,864
Total assets                186,959,309     66,902,595      3,881,790     10,096,893     267,840,587      5,851,776    273,692,363
</TABLE>
        *2005 Reclassified for comparability

                                       11
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES

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

Except for the historical information contained herein, the matters discussed
below or elsewhere in this Quarterly Report on Form 10-K may contain
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those contemplated by the
forward-looking statements. The Company makes such forward-looking statements
under the provisions of the "safe harbor" section of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements reflect the Company's
views and assumptions, based on information currently available to management,
including, among other things, the Company's operating and financial performance
over recent years and its expectations about its business for the current and
future fiscal years. When used in this Quarterly Report on Form 10-Q, the words
"believes," "estimates," "plans," "expects," and "anticipates" and similar
expressions as they relate to the Company or its management are intended to
identify forward-looking statements.

Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it can give no assurance that its
expectations will prove to be correct. These statements are subject to certain
risks, uncertainties and assumptions, including, but not limited to,

     o    prevailing economic conditions which may significantly deteriorate,
          thereby reducing the demand for the Company's products and services,
     o    availability of technical support personnel or increases in the rate
          of turnover of such personnel, resulting from increased demand for
          such qualified personnel,
     o    changes in the terms or availability of insurance coverage for the
          Company's programs,
     o    regulatory or legal changes affecting the Company's business,
     o    loss of business from, or significant change in relationships with,
          any major customer,
     o    the Company's ability to replace lost revenues in its Automotive
          segment,
     o    the ability to successfully identify and contract new business
          opportunities, both domestically and internationally,
     o    the ability to secure necessary capital for general operating or
          expansion purposes,
     o    the adverse outcomes of litigation,
     o    the non-payment of notes due from an officer and two directors of the
          Company in 2007, which would result in a charge against earnings in
          the period in which the event occurred,
     o    the inability of any of the insurance companies which insure the
          service contracts marketed and administered by the Company to pay
          claims under the service contracts,
     o    the termination of extended credit terms being provided by the
          Company's current insurance company, and the illiquidity of the
          Company's stock.
     o    the merger with HIG is not completed,
     o    the Company's ability to obtain insurance coverage for the service
          contracts which it markets and administers.

Should one or more of these or any other risks or uncertainties materialize or
develop in a manner adverse to the Company, or should the Company's underlying
assumptions prove incorrect, actual results of operations, cash flows and/or the
Company's financial condition may vary materially from those anticipated,
estimated or expected.

                                       12
<PAGE>

Significant Customer Bankruptcy
-------------------------------

On January 11, 2005, Ultimate Electronics, Inc. and six of its subsidiaries
("Ultimate") filed individual voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. Sales to Ultimate represented 10% and 32% of the Company's and its
Consumer Products segment's total gross revenues during fiscal 2005. Pursuant to
the provisions of Chapter 11, Warrantech was obligated to honor its existing
contract with Ultimate and Ultimate continued to sell service contracts during
this period of reorganization. Ultimate has made all of its payments to
Warrantech with respect to sales subsequent to January 11, 2005 ("post-petition
sales)." At the time of filing, however, Warrantech believes that Ultimate owed
it approximately $3.27 million for sales up to January 11, 2005 ("pre-petition
sales") and Warrantech has filed a "proof of claim" in this amount with the
Court. At this time, although Warrantech's proof of claim has been reviewed and
approved, Warrantech does not know what it will recover on its claim. No
provision for bad debts has been recorded as of December 31, 2005, as there are
offsetting liabilities and reserves. The Plan of Reorganization has been
approved by the Bankruptcy Court and Ultimate's creditors. Ultimate and its
advisors have reviewed filed claims and have made initial determinations
regarding preference payments and other amounts that may be recoverable from
creditors. They are now contacting those creditors who appear to have the
largest potential obligations to the bankruptcy estate in an effort to negotiate
settlements. These discussions are expected to continue for a number of months.
The first distributions to creditors could occur as early as the 3rd quarter of
2006 although they are more likely to begin during the 4th quarter.

In separate orders dated April 19, 2005, the Court approved actions to close
thirty (30) of Ultimate's stores and retain a liquidator to dispose of existing
inventory. The liquidator was authorized by the Court to sell Warrantech service
contracts during the liquidation period in accordance with the terms of the
existing Ultimate contract. The liquidation period has been completed. The
remaining stores were purchased by Mark Wattles, the principal shareholder of
Ultimate, through an entity named Ultimate Acquisition Partners, L.P.
("Acquisition"). As part of the Purchase Agreement, Acquisition was given until
August 31, 2005, to decide if it wanted to assume Ultimate's contract with
Warrantech. On November 1, 2005, Acquisition notified Warrantech that it had
elected not to continue selling warranties administered by Warrantech effective
November 15, 2005. Acquisition has made all of its payments to Warrantech with
respect to its "post petition" sales.

At March 31, 2005, the Company was owed $3.7 million by Ultimate, in which the
Company has filed a proof of claim for $3.27 million with the bankruptcy court.
The remaining balance has subsequently been paid. No provision for bad debts has
been recorded as of the fiscal year ended March 31, 2005.

Insurance Relationships
-----------------------

As of November 1, 2005, Great American Insurance Company ("GAIC") and Warrantech
mutually agreed to modify their current arrangement to provide for an extension
of the administration agreement through November 27, 2005. Under this extension,
Great American agreed to continue to write new business for existing clients
through December 31, 2006. In light of certain changes in Great American's
strategic direction, Warrantech believes it is in its best interest to establish
new insurance relationships. On June 7, 2006 as part of Warrantech's Loan
transaction with Wtech Holdings LLC, ("Holdings") an affiliate of H.I.G. Capital
in conjunction with its proposed Merger with Warrantech and GAIC Holdings
acquired from GAIC $20 million of Warrantech's debt to GAIC.

Effective June 1, 2006 the Company entered into an agreement on consumer
products with Amtrust North America, Inc pursuant to which Amtrust will insure
any new consumer service contract. Warrantech is also in active discussions with
a number of other A-rated carriers regarding risk diversification on its future
business on auto and consumer product programs.

                                       13
<PAGE>

Results of Operations
---------------------

                                 Gross Revenues

                                       For the Three Months June 30,
                                      -------------------------------
                                           2006             2005*
                                      --------------   --------------
          Automotive Segment          $   20,456,933   $   19,079,502
          Consumer Products Segment        6,956,724        8,341,276
          Direct Sales Segment             2,482,845        3,024,645
          International segment              213,703          168,890
                                      --------------   --------------
             Total gross revenues     $   30,110,205   $   30,614,313
                                      ==============   ==============
           * Reclassified for comparability

Gross revenues for the period ended June 30, 2006 decreased $504,108, or 1%,
over the same period in 2005. The Automotive segment reported increased revenues
of $1,377,431 or 7% over the same period in 2005 because of increased volumes
from existing clients and the contribution from new clients. The Consumer
Products segment reported decreased gross revenues of $1,384,552 or 17% in the
period ended June 30, 2006 over 2005 from the loss of business from the
expiration of its agreement with Ultimate Electronics as of August 31, 2005
which was partially offset by the growth of its business in the Home segment.
The direct segment reported decreased revenues of $541,800 or 18% resulting from
the impact of rising prices of gasoline on our prospective buyers discretionary
income. The International segment reported an increase of $ 44,813 over the
prior year on a restated basis which compares only the Puerto Rico operations
and International Administration for the period end June 30, 2006 and June 30,
2005.

                                  Gross Profit

                                       For the Three Months June 30,
                                      -------------------------------
                                           2006             2005*
                                      --------------   --------------
          Automotive segment          $    1,669,369   $    1,775,529
          Consumer Products segment        2,227,803        2,549,929
          Direct Sales Segment             1,233,694        1,342,204
          International segment               85,760          120,900
          Other                              126,177          140,385
                                      --------------   --------------
             Total gross profit       $    5,342,803   $    5,928,947
                                      ==============   ==============

Gross Profit for the quarter ended June 30, 2006 decreased $586,144 or 10% over
the same period in 2005. The Automotive segment gross profit decreased $106,160
or 6% during the fiscal period ended June 30, 2006 compared to 2005 as a result
of a shift in its business mix. The Consumer Products segment gross profit
decreased $322,126 or .13% during the fiscal period ended June 30, 2006 compared
to the same period in 2005 as a result of client composition. The Direct segment
gross profit decreased $108,510 due to the decrease on gross revenue. The
International segment gross profit decreased $14,208 during the period ended
June 30, 2006 compared to the same period in 2005 resulting from premium eroding
its gross profit.

                                       14
<PAGE>

                                      SG&A

                                                For the Three Months June 30,
                                               -------------------------------
                                                    2006             2005*
                                               --------------   --------------

 Service, selling and general administrative   $    7,556,552   $    5,785,623
                                               ==============   ==============

Service, selling and general and administrative ("SG&A") for the quarter ended
June 30, 2006 increased $1,770,929, or 31%, compared to the same quarter in the
prior year. 50% of the increase was due to legal fees increasing $906,001
resulting from the Lloyds litigation and employee costs increased $277,413
primarily resulting from the increased sales staff required to support the
growth in its Home segment.

                          Depreciation and amortization

                                         For the Three Months June 30,
                                        -------------------------------
                                             2006             2005*
                                        --------------   --------------

        Depreciation and amortization   $      341,872   $      528,864
                                        ==============   ==============


Depreciation and amortization expenses were reduced by $186,992, or 35%, during
the period ended June 30, 2006 compared to the same period for 2005. This
decrease is the result of the Company's efficient use of its assets maturing and
a reduced requirement for capital expenditures.

                             Provision for bad debts

                                    For the Three Months June 30,
                                    -----------------------------
                                        2006             2005
                                    ------------     ------------

                 Bad Debt Expense   $         --     $         --
                                    ============     ============


         There was no provision for bad debts during period ended June 30, 2006
compared to the same period for 2005. The Company believes it has adequately
reserved for anticipated future bad debts.

                                  Other Income

                                            For the Three Months June 30,
                                          --------------------------------
                                               2006              2005*
                                          --------------    --------------

     Interest and dividend income         $      110,433    $      151,612
     Interest expense                           (517,432)         (184,731)
     Credit card usage rebate                    135,906           171,000
     Miscellaneous income                                              197
                                          --------------    --------------
           Total other income (expense)   ($     271,093)   $      138,378
                                          ==============    ==============

         Other Income decreased due to the increase of interest expense from
$184,731 to 517,432 for the 2006 quarter resulting primarily from the 2006
interest on a $20,000,000 Note Payable to an affiliate of its Merger partner
HIG.

                          Income Tax Expense (Benefit)

                                          For the Three Months June 30,
                                        --------------------------------
                                             2006              2005
                                        --------------    --------------

       Income taxes expense (benefit)   $     (960,941)   $       29,424
                                        ==============    ==============

                                       15
<PAGE>

For the period ended June 30, 2006, income taxes were a benefit of $960,941
compared to an expense of $29,424 in the period ended June 30, 2005. Taxes paid
for the quarter ended June 30, 2006 were $30,295, and a refund was received for
$963.

Liquidity and Financial Resources
---------------------------------

In connection with the Merger, the outstanding indebtedness of the Company and
its subsidiaries to Great American Insurance Company, GAI Warranty Company, GAI
Warranty Company of Florida and GAI Warranty Company of Canada (collectively
"GAI") through March 1, 2006 was consolidated under a single term promissory
note between GAI, the Company and such subsidiaries (the "Term Note"), which is
secured by a first priority, continuing security interest in and to all of the
tangible and intangible assets of the Company and its subsidiaries granted to
GAI under the terms of a security agreement by and between GAI, the Company and
its subsidiaries (the "Security Agreement"). All principal and interest under
the Term Note is due and payable on October 5, 2006. The Term Note is in full
novation of any and all other debt instruments and obligations to repay
indebtedness between GAI and the Company and its subsidiaries through March 1,
2006. The Term Note and Security Agreement contain customary representations and
warranties, affirmative and negative covenants and events of default.

Contemporaneously with the execution of the Merger Agreement, GAI sold to Wtech
Holdings, LLC ("Wtech"), an affiliate of Parent, all of its rights and
obligations under the Term Note and Security agreement, whereupon Wtech became
the primary secured lender to, and creditor of, the Company and its
subsidiaries. The Company is not a party to the agreement providing for the sale
and transfer of GAI's rights under the Term Note and the Security Agreement,
although the Company granted its consent with respect thereto.

During the three months ended June 30, 2006, the Company had a reduction in cash
and cash equivalents of $2,643,229 resulting primarily from its operating loss.
Working capital was a negative $16.7 million at March 31, 2006 compared to a
positive $1.8 million at June 30, 2006 resulting from the term note.

The Company believes that internally generated funds and extended terms, will be
sufficient to finance its current operations for at least the next twelve
months. The Company together with H.I.G Capital is actively seeking additional
lines of credit to fund working capital. The Company is aggressively pursuing
new business both domestically and internationally to further fund future
working capital. The Company plans to continue to contain its SG&A costs and
utilize technologies for operational efficiencies to further enhance both its
operating income and cash flows from operating activities.

The effect of inflation has not been significant to the Company.

Commitments
-----------

The Company has ongoing relationships with equipment financing companies and
intends to continue financing certain future equipment needs through
lease/purchase transactions. The total amount financed through these
transactions during the three months ended June 30, 2006 amounted to $53,461
compared to $186,942 during the three months ended June 30, 2005.

                                       16
<PAGE>

Set forth below is information about the Company's commitments outstanding at
June 30, 2006.

<TABLE>
<CAPTION>
                                                        Payments due by period
                               ------------------------------------------------------------------------
                                               Less than        1 - 3          3 - 5        More than
      Commitment Type              Total         1 year         Years          Years         5 years
------------------------------ ------------   ------------   ------------   ------------   ------------
<S>                            <C>            <C>            <C>            <C>            <C>
Capital lease obligations      $  1,232,515   $    434,771   $    686,656   $    111,088   $         --
   Operating Property leases      8,942,707      1,297,622      3,887,225      3,757,860             --
   Employment agreements          4,321,458      2,088,333      2,233,125             --             --
   Claims loss liability          5,745,533      2,585,148      3,096,299         18,442         45,644
                               ------------------------------------------------------------------------
      Total commitments        $ 20,242,213   $  6,405,874   $  9,903,305   $  3,887,390   $     45,644
                               ========================================================================
</TABLE>

Critical Accounting Policies
----------------------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Note 1 to the Company's Consolidated Financial
Statements set forth in the "Item 8. - Financial Statements and Supplementary
Data," in the Company's Annual Report on Form 10-K for the year ended March 31,
2006, describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. The following lists some
of the Company's critical accounting policies affected by judgments, assumptions
and estimates.


Revenue Recognition Policy

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Note 1 to the Company's Consolidated
Financial Statements set forth in the "Item 8. - Financial Statements and
Supplementary Data," describes the significant accounting policies and methods
used in the preparation of the Consolidated Financial Statements. The following
lists some of the Company's critical accounting policies affected by judgments,
assumptions and estimates.

     Revenue from administrator-obligor contracts is recognized in accordance
with Financial Accounting Standards Board Technical Bulletin 90-1, Accounting
for Separately Priced Extended Warranty and Product Maintenance Contracts, ("TB
90-1"). The Company recognizes such revenue over the life of the contract on a
straight-line basis. In addition the Company charges the costs of contracts to
operations over the life of the contracts on a straight-line basis.

     Historically, through June 30, 2003, the Company recognized revenues from
dealer-obligor service contracts, in which the retailer/dealer or a third party
is designated as the obligor, in direct proportion to the costs incurred in
providing the service contract programs to the Company's clients. Revenues in
amounts sufficient to meet future administrative costs and a reasonable gross
profit were deferred. With the issuance of EITF Abstracts Issue No. 00-21 (EITF
No. 00-21), "Revenue Arrangements with Multiple Deliverables", as of July 1,
2003, the Company recognizes revenue from these dealer-obligor contracts on a
straight-line basis over the life of the service contract, pursuant to Staff
Accounting Bulletin 101.

     Since Butler has been determined to be a nominally capitalized entity, all
transactions concerning Butler obligor-contracts are treated in a manner similar
to the accounting principles discussed in Financial Accounting Standards Board
Emerging Issues Task Force Topic No. D-14, "Transactions Involving
Special-Purpose Entities." The Company treats the Butler-obligor contracts as if

                                       17
<PAGE>

they were administrator-obligor contracts and recognizes revenues under such
contracts pursuant to TB 90-1. Additionally, because the Company is treating the
Butler-obligor contracts as Warrantech-obligor contracts for financial reporting
purposes only, the Company eliminated the transactions between Warrantech and
Butler from its financial statements.

     Reflecting these transactions for financial reporting purposes does not
alter the legal obligations under the applicable agreements in which the Company
is not responsible for, and has not assumed the obligations of Butler. Butler
remains legally obligated under such agreements and the service contracts in
which it is the named obligor. Butler is not deemed a "consolidated subsidiary"
of the Company, as that term is used in this Report, including, but not limited
to, the Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley
Act of 2002 which are annexed to this Report. Butler's income, expenses, assets
and liabilities have not been consolidated with those of the Company. Butler is
an independent entity owned by parties unrelated to the Company and, except for
the transactions between Butler and Warrantech as described in this Report,
Warrantech does not have knowledge of, or control over, Butler's affairs or
financial reporting. Warrantech also has no knowledge of, nor has it established
or evaluated, Butler's internal controls or disclosure controls or procedures.
Any reference to "consolidated subsidiary," internal controls or disclosure
controls and procedures in this Report, including, but not limited to, the
Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 which are annexed to this Report, do not pertain to Butler.

     Now that the Company is required to recognize revenues from all service
contracts over the life of the service contracts, the Company believes that it
is unlikely that the Company will be able to report operating profits until at
least 2008 when the Company expects that the revenues recognized from prior
periods will begin to equal the revenue being deferred to future periods.
However, there can be no assurance that the Company will be profitable at that
time. In the meantime, the revenue recognition policies adopted by the Company
do not have an impact on the Company's cash flows which are an important measure
of the Company's financial condition and are reflected in the Statements of Cash
Flows which are part of these financial statements.

Direct Costs

     Direct costs, consisting primarily of insurance premiums and commissions,
are costs directly related to the production and acquisition of service
contracts. Effective with the application of the revenue recognition policy(s)
described above on all service contracts, the Company recognizes direct costs
according to Statement of Financial Accounting Standards No. 113 ("SFAS 113"),
"Accounting and Reporting for Reinsurance of Short-Duration and Long Duration
Contracts" which requires that insurance premium costs be ratably expensed over
the life of the service contract.

Impairment of Long-Lived Assets

     The Company assesses potential impairment of its long-lived assets, which
include its property and equipment and its identifiable intangibles such as
software development costs, goodwill and deferred charges under the guidance of
SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Once
annually, or as events or circumstances indicate that an asset may be impaired,
the Company assesses potential impairment of its long-lived assets. The Company
determines impairment by measuring the undiscounted future cash flows generated
by the assets, comparing the result to the assets' carrying value and adjusting
the assets to the lower of their carrying value or fair value and charging
current operations for any measured impairment. At December 31, 2006 and 2005,
the Company found no impairment to its property and equipment or its other
identifiable intangibles.

                                       18
<PAGE>

Income Taxes

     Deferred tax assets and liabilities are determined using enacted tax rates
for the effects of net operating losses and temporary differences between the
book and tax bases of assets and liabilities. The Company records a valuation
allowance on deferred tax assets when appropriate to reflect the expected future
tax benefits to be realized. In determining the appropriate valuation allowance,
certain judgments are made relating to recoverability of deferred tax assets,
use of tax loss carryforwards, level of expected future taxable income and
available tax planning strategies. These judgments are routinely reviewed by
management. At June 30, 2006, the Company had deferred tax assets of $19,963,212
net of a valuation allowance of $1,444,379.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

     As of June 30, 2006, the Company did not have any derivatives, debt or
hedges outstanding except for the $20 million note to Wtec Holdings LLC.
Therefore, the Company was not subject to interest rate risk. In addition, the
risk of foreign currency fluctuation was and is not material to the Company's
financial position or results of operations.

     Short-term marketable securities and long-term investments are comprised of
municipal bonds which bear interest at fixed rates. Interest income from these
securities is generally affected by changes in the U.S. interest rates. The
following tables provide information about the Company's financial instruments
that are sensitive to changes in interest rates. The tables present principal
cash flows and weighted-average interest rates by expected maturity dates. All
of the investments are considered "available for sale." The resultant
differences between amortized cost and fair value, net of taxes, have been
reflected as a separate component of accumulated other comprehensive income.

     Principal amounts by expected maturity as of June 30, 2006 of marketable
securities are as follows:

<TABLE>
<CAPTION>
                                                 Expected Maturity Date as of June 30,
                              ---------------------------------------------------------------------------
                                 2006         2007         2008         2009         2010      Thereafter   Total Cost   Fair Value
                              ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
<S>                           <C>          <C>          <C>                  <C>          <C>          <C>  <C>          <C>
         Available for sale   $1,067,000   $  320,000   $  370,000           --           --           --   $1,757,000   $1,754,275
         securities
</TABLE>


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

Disclosure Controls and Procedures
The Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO)
are primarily responsible for the accuracy of the financial information that is
presented in this Quarterly Report on Form 10-Q. Each of them has, within 90
days of the filing date of this Quarterly Report, evaluated the Company's
disclosure controls and procedures, as defined under the rules of the SEC, and
have determined that such controls and procedures were effective in ensuring
that material information relating to the Company and its consolidated
subsidiaries was made known to them during the period covered by this Quarterly
Report.

Internal Controls
To meet their responsibility for financial reporting, the CEO and CFO have
established internal controls and procedures which they believe are adequate to
provide reasonable assurance that the Company's assets are protected from loss.
These internal controls are reviewed by the Company's independent accountants to
support their audit work. In addition, the Company's Audit Committee, which is
composed entirely of outside directors, meets regularly with management and the
independent accountants to review accounting, auditing and financial matters.

                                       19
<PAGE>

This Committee and the independent accountants have free access to each other,
with or without management being present.

THERE WERE NO SIGNIFICANT CHANGES IN COMPANY'S INTERNAL CONTROLS OR IN OTHER
FACTORS THAT COULD SIGNIFICANTLY AFFECT INTERNAL CONTROLS SUBSEQUENT TO THE DATE
OF THE CEO'S AND CFO'S MOST RECENT EVALUATION.

                           PART II. Other Information

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

         The Company is from time to time involved in litigation incidental to
         the conduct of its business.

         Lloyd's Underwriters
         --------------------
         Certain Underwriters at Lloyd's, London and Other Reinsurers
         Subscribing to Reinsurance Agreements F96/2992/00 and No. F97/2992/00
         v. Warrantech Corporation, Warrantech Consumer Product Services, Inc.,
         Warrantech Help Desk, Inc., and Joel San Antonio, United States
         District Court, Northern District of Texas, Fort Worth Division.

         During the period that Houston General was the underwriter of certain
         of Warrantech's programs, it reinsured certain of the underwritten
         risks with one or more Lloyd's insurance syndicates. At some point
         thereafter, Houston General commenced an arbitration against the
         Lloyd's syndicates seeking to recover approximately $46,000,000 under
         the reinsurance treaties with respect to claims previously paid by
         Houston General on warranty claims submitted by customers under
         Warrantech programs. The Warrantech entities were not parties in the
         arbitration but were the subject of extensive discovery by each of
         Houston General and the Lloyd's syndicates. The arbitration concluded
         in August 2002 with an award of approximately $39,000,000 in favor of
         Houston General.

         The award supports the assertions of Houston General with respect to
         the validity of the claims that it paid. Warrantech was not involved in
         the selection of these re-insurers, has no contractual relationship
         with them, and has had no reporting or other obligation to them.
         Despite these facts, the Lloyd's syndicates now seek to recover some
         portion of the arbitration award from the Warrantech entities on two
         theories of liability. The first is that, at the time certain claims
         were presented to Houston General for payment, the Warrantech entities
         either fraudulently or negligently represented to Houston General that
         such claims were valid. The second is that the Warrantech entities
         intentionally failed to comply with their legal obligations to
         cooperate with the parties during the discovery process for the
         arbitration. The complaint seeks ordinary, punitive and exemplary
         damages although no specific amount is requested. On January 6, 2004,
         the plaintiff filed an amended complaint that added Joel San Antonio,
         Chairman and Chief Executive Officer of Warrantech Corporation, as a
         party defendant in his individual capacity.

         Warrantech has filed a counterclaim against Lloyd's arising out of the
         same set of facts that underlie the original litigation. Warrantech
         alleges fraud, unfair claim settlement practices and bad faith and is
         seeking damages of approximately $46 million. Warrantech is also asking
         that treble damages for $138 million be awarded as permitted under
         applicable Texas law.

         This case was originally brought in the District Court of Tarrant
         County, Texas, 17th Judicial District. On March 19, 2004, Defendant San
         Antonio filed a notice of removal to the United States District Court
         which motion was joined by all other defendants. Following removal,
         Lloyd's filed a motion to remand the case to state court. Although the

                                       20
<PAGE>

         motion was originally denied, the matter was subsequently returned to
         state court by Judge McBryde. Warrantech appealed this and several
         other rulings to the 5th Circuit Court of Appeals. Oral argument was
         heard on August 29, 2005 and, although a decision was expected before
         the end of 2005, the Court has yet to announce its decision. If the
         Court determines that jurisdiction properly lies with the federal
         courts, it will also rule on defendant's motions with respect to
         collateral estoppel and res judicata. A ruling favorable to the
         defendants on either of these issues could ultimately lead to a
         successful pre-trial resolution of the entire litigation. The Court is
         also considering the reinstatement of Warrantech's counterclaim against
         Lloyds for damages and attorneys' fees. As the parties await the ruling
         of the 5th Circuit they have continued with preparation for trial in
         state court, currently scheduled for October 9, 2006. On July 20 and
         21, 2006, the parties met in Orlando, Florida to explore settlement
         possibilities. Although no definitive agreement was reached, a
         potential framework for settlement was developed which requires further
         discussion and due diligence. The parties have agreed to complete this
         due diligence by August 15th with execution of a settlement agreement,
         assuming acceptable terms can be finalized, to occur by September 15th.
         During this period, all legal activities related to trial preparation
         have been suspended. Furthermore, the state court judge has agreed to
         withhold his rulings on pending summary judgment motions based on lack
         of jurisdiction and the running of the statute of limitations. If no
         settlement agreement is executed, trial preparation will resume and the
         judge will issue his rulings. As previously noted, a favorable ruling
         on either motion could also result in a successful pre-trial resolution
         of the entire litigation.

         Management continues to believe that the Lloyd's case is without merit.
         At this time, however, it is not able to predict the outcome of the
         litigation. For this reason, the Company is unable to determine its
         potential liability, if any, and as such, the accompanying financial
         statements do not reflect any estimate for losses.

         Universal Insurance Company
         ---------------------------
         In the Matter of Arbitration between Universal Insurance Company and
         Warrantech Consumer Product Services, Inc.; Jane Doe; and ABC
         Corporation

         Universal Insurance Company ("Universal") provided insurance for the
         vehicle service contracts marketed and administered by Warrantech
         International in Puerto Rico pursuant to an Administrative Agreement
         that was effective as of April 1, 1998. On October 16, 2003, Universal,
         claiming a material breach of the agreement by Warrantech, terminated
         the agreement and assumed responsibility for administering the
         applicable service contracts.

         Universal served Warrantech with a Demand for Arbitration, dated
         October 15, 2004, seeking to recover a portion of the fees Warrantech
         received to provide administrative services under the contracts,
         approximating $2,155,000, together with interest thereon from the
         effective date of termination. Subsequent to receipt of Universal's
         Demand for Arbitration, Warrantech commenced an action against
         Universal in the State of Connecticut to recover fees owed to
         Warrantech pursuant to the terms of a certain Fee Agreement. Although
         it is difficult at this time to determine the exact amount owed to
         Warrantech, it is believed that the amount will be in excess of
         $1,000,000. Universal has moved in local court to have the Connecticut
         action combined with the arbitration in Puerto Rico. In response to
         that motion, Warrantech has moved to have the Connecticut action
         remanded to federal court in Connecticut. The parties are currently
         contesting a number of procedural issues. A judicial hearing is
         presently scheduled to take place in Puerto Rico in early September to
         resolve these procedural matters so that the parties can proceed to a
         resolution of the underlying issues in a timely manner. As of yet, only
         minimal discovery has taken place.

                                       21
<PAGE>

         Management believes Universal's case is without merit. At this time,
         however, it is not able to predict the outcome of either the
         arbitration or the Connecticut action. For this reason, the Company is
         unable to determine its potential liability, if any, and as such, the
         accompanying financial statements do not reflect any estimate for
         losses.


Item 2.  Changes in Securities and Use of Proceeds
         -----------------------------------------


Item 3.  Defaults Upon Senior Securities
         -------------------------------

         Not applicable.

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

         Not applicable.

Item 5.  Other Information
         -----------------


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

         (a)    Exhibits
                --------

                   31.1    Certification by the Chief Executive Officer pursuant
                           to Rule 13a-14(a) of the Securities Exchange Act of
                           1934, as amended.

                   31.2    Certification by the Chief Financial Officer pursuant
                           to Rule 13a-14(a) of the Securities Exchange Act of
                           1934, as amended.

                   32.1    Statement by the Chief Executive Officer and the
                           Chief Financial Officer furnished pursuant to Rule
                           13a-14(b) of the Securities Exchange Act of 1934, as
                           amended.

                                       22
<PAGE>

                                    SIGNATURE
                                    ---------


         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.




                                       WARRANTECH CORPORATION
                                       -----------------------------------------
                                          (Registrant)



                                       /s/ RICHARD F. GAVINO
                                       -----------------------------------------
                                       Richard F. Gavino - Executive Vice
                                       President, Chief Financial Officer, Chief
                                       Accounting Officer and Treasurer
                                       (Chief Financial Officer and Duly
                                       Authorized Officer)


Dated: August 11, 2006

                                       23