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 September 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 October 31, 2006
---------------------------------------          -------------------------------
Common stock, par value $.007 per share                  14,007,583 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 and Six Months Ended September 30, 2006
           and 2005 (Unaudited)..........................................    2

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

           Condensed Consolidated Statements of Cash Flows
           For the Six Months Ended September 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 ....................................   10

Item 3.    Quantitative and Qualitative Disclosures about Market Risk....   14

Item 4.    Controls and Procedures.......................................   14



                           PART II - Other Information


Item 1:  Legal Proceedings...............................................   15

Item 2:  Changes in Securities...........................................   15

Item 3:  Defaults Upon Senior Securities.................................   15

Item 4:  Submission of Matters to a Vote of Security Holders.............   15

Item 5:  Other Information...............................................   15
             Merger Agreement............................................   20

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

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

                                       1
<PAGE>

PART I  -  Financial Information

       Item 1:  Financial Statements

<TABLE>
<CAPTION>
                                      WARRANTECH CORPORATION AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (Unaudited)

                                                       For the Three Months Ended       For the Six Months Ended
                                                              September 30,                   September 30,
                                                      ----------------------------    ----------------------------
                                                          2006            2005*           2006            2005*
                                                      ------------    ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>             <C>
Gross revenues                                        $ 35,314,330    $ 31,435,490    $ 65,424,534    $ 62,049,804
                                                      ------------    ------------    ------------    ------------
   Revenues deferred to future periods                 (32,462,146)    (28,256,927)    (60,522,756)    (56,919,821)

   Deferred revenues earned                             26,281,490      25,302,763      51,359,806      49,658,039
                                                      ------------    ------------    ------------    ------------
Net (increase) decrease in deferred revenues            (6,180,656)     (2,954,164)     (9,162,950)     (7,261,782)
                                                      ------------    ------------    ------------    ------------
Net revenues                                            29,133,674      28,481,326      56,261,584      54,788,022


Direct costs                                            23,211,879      22,455,769      45,335,997      42,833,517
                                                      ------------    ------------    ------------    ------------
Gross Profit                                             5,921,795       6,025,557      11,264,597      11,954,505
                                                      ------------    ------------    ------------    ------------
Operating expenses
   Service, selling, and general and administrative      6,707,155       6,332,031      14,263,707      12,117,655

   Provision for bad debt expense                               --              --              --              --

   Depreciation and amortization                           350,162         478,005         692,034       1,006,869
                                                      ------------    ------------    ------------    ------------

Total costs and expenses                                 7,057,317       6,810,036      14,955,741      13,124,524
                                                      ------------    ------------    ------------    ------------


(Loss) from continuing operations                       (1,135,522)       (784,479)     (3,691,144)     (1,170,019)

Other (income) expense                                    (139,425)       (286,486)        131,308        (424,864)
                                                      ------------    ------------    ------------    ------------
(Loss) from continuing operations before
provision (benefit) for income tax                        (996,097)       (497,993)     (3,822,452)       (745,155)

Provision (benefit) for income taxes                      (343,867)        (31,780)     (1,304,686)         (2,356)
                                                      ------------    ------------    ------------    ------------
(Loss) from continuing operations                         (652,230)       (466,213)     (2,517,766)       (742,799)
Income (Loss) from Discontinued Operations,
net of taxes                                                68,812        (248,393)        325,276        (507,865)
                                                      ------------    ------------    ------------    ------------
Net (Loss)                                            $   (583,418)   $   (714,606)   $ (2,192,490)   $ (1,250,664)
                                                      ============    ============    ============    ============

Basic Earnings (loss) per share:
(Loss) from continuing operations                     $      (0.04)   $      (0.03)   $      (0.18)   $      (0.05)
                                                      ============    ============    ============    ============
(Loss) from discontinued operations                   $         --    $      (0.02)   $       0.02    $      (0.03)
                                                      ============    ============    ============    ============
Net (loss)                                            $      (0.04)   $      (0.05)   $      (0.16)   $      (0.08)
                                                      ============    ============    ============    ============
Diluted Earnings (loss) per share:
(Loss) from continuing operations                     $      (0.04)   $      (0.03)   $      (0.18)   $      (0.05)
                                                      ============    ============    ============    ============
(Loss) from discontinued operations                   $         --    $      (0.02)   $       0.02    $      (0.03)
                                                      ============    ============    ============    ============
Net (loss)                                            $      (0.04)   $      (0.05)   $      (0.16)   $      (0.08)
                                                      ============    ============    ============    ============

Weighted average number of shares outstanding:
Basic                                                   14,007,583      15,406,992      14,007,583      15,402,857
                                                      ============    ============    ============    ============
Diluted                                                 14,024,620      15,427,992      14,024,620      15,423,857
                                                      ============    ============    ============    ============
   * Reclassified for comparability
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                            September 30,    March 31,
                                                                2006           2006
                                                            (Unaudited)
                                                            ------------   ------------
                                  ASSETS
                                  ------
<S>                                                         <C>            <C>
Current assets:
  Cash and cash equivalents                                 $  4,042,194   $  3,899,361
  Investments in marketable securities                         1,087,839        808,399
  Accounts receivable, (net of allowances of $576,832 and
      $577,746, respectively)                                 23,650,866     25,020,997
  Other receivables, (net of allowances of
  $3,718,954 )                                                 4,243,553      1,969,008
  Employee receivables                                            65,290         47,962
  Deferred income taxes                                        6,982,019      6,982,019
  Prepaid expenses and other current assets                      891,546        804,550
                                                            ------------   ------------
       Total current assets                                   40,963,307     39,532,296
                                                            ------------   ------------

Property and equipment, net                                    3,360,181      3,393,438
                                                            ------------   ------------

Other assets:
  Excess of cost over fair value of assets acquired
    (net of accumulated amortization of $5,825,405)            1,637,290      1,637,290
  Deferred income taxes                                       18,648,421     17,394,190
  Deferred direct costs                                      212,150,323    202,285,711
  Investments in marketable securities                           388,282        923,665
  Restricted cash                                                826,000        800,000
  Split dollar life insurance policies                           899,143        900,145
  Other assets                                                    30,574         19,166
                                                            ------------   ------------
       Total other assets                                    234,580,033    223,960,167
                                                            ------------   ------------

                    Total Assets                            $278,903,521   $266,885,901
                                                            ============   ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                 WARRANTECH CORPORATION AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                          September 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   $     472,648    $     420,294
     Insurance premiums payable                                              28,146,408       39,597,509
     Income taxes payable                                                            --           28,082
     Accounts and commissions payable                                         8,315,788        9,675,496
     Notes Payable HIG                                                       20,000,000               --
     Claims Liability - Reliance                                              1,078,858        1,563,951
     Accrued expenses and other current liabilities                           5,537,860        5,314,439
                                                                          -------------    -------------
          Total current liabilities                                          63,551,562       56,599,771
                                                                          -------------    -------------

Deferred revenues                                                           245,088,255      237,345,559
Claims Liability - Reliance                                                   1,792,638        2,307,633
Long-term debt and capital lease obligations                                    632,283          673,034
Deferred rent payable                                                           468,624          458,906
                                                                          -------------    -------------
   Total non current liabilities                                            247,981,800      240,785,132
                                                                          -------------    -------------
TOTAL LIABILITIES                                                           311,533,362      297,384,903
                                                                          -------------    -------------

Stockholders' Capital Deficiency
--------------------------------
   Preferred stock - $.0007 par value authorized - 15,000,000 Shares
     issued  - none at September 30, 2006 and March 31, 2006                         --               --
   Common stock - $.007 par value authorized - 30,000,000 Shares
    issued - 16,714,614 shares at September 30, 2006 and
    16,674,617 March 31, 2006                                                   117,004          116,664
   Additional paid-in capital                                                23,869,515       23,852,145
   Loans to directors and officers                                           (7,829,877)      (7,755,292)
   Accumulated other comprehensive income, net of taxes                         303,051          301,157
   Retained earnings (deficit)                                              (43,740,366)     (41,664,508)
                                                                          -------------    -------------
                                                                            (27,280,673)     (25,149,834)
                                                                          -------------    -------------

Treasury stock - at cost, 2,707,031 shares at March 31, 2006 and
September 30, 2006                                                           (5,349,168)      (5,349,168)
                                                                          -------------    -------------
        Total Stockholders' (Capital Deficiency)                            (32,629,841)     (30,499,002)
                                                                          -------------    -------------

        Total Liabilities and Stockholders' (Capital Deficiency)          $ 278,903,521    $ 266,885,901
                                                                          =============    =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

<TABLE>
<CAPTION>
                               WARRANTECH CORPORATION AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (Unaudited)

                                                                 ------------------------------------
                                                                  The Six Months Ended September 30,
                                                                 ------------------------------------
                                                                       2006                2005*
                                                                 ----------------    ----------------
<S>                                                              <C>                 <C>
Cash flows from operating activities:
Net Loss                                                         $     (2,192,490)   $     (1,250,664)
(Income) loss from discontinued operations                               (325,276)            507,866
                                                                 ----------------    ----------------
Net Loss from continuing operations                                    (2,517,766)           (742,798)

Other adjustments to reconcile net loss to net cash
     provided by (used in) operating activities                         3,099,289           3,688,609
                                                                 ----------------    ----------------

Net cash provided by (used in) operating activities from
     continuing operations                                                581,523           2,945,811
                                                                 ----------------    ----------------

Net cash flows from investing activities:
Property and equipment purchased                                         (661,908)           (176,755)
Purchase of marketable securities                                        (714,000)           (395,000)
Proceeds from sales of marketable securities                            1,093,000             295,000
                                                                 ----------------    ----------------

Net cash provided by (used in) investing activities                      (282,908)           (276,755)
                                                                 ----------------    ----------------

Net cash flows from financing activities:
Repayments under notes, and capital leases                               (217,576)           (326,287)

                                                                 ----------------    ----------------

Net cash provided by (used in) financing activities                      (217,576)           (326,287)
                                                                 ----------------    ----------------

Net increase (decrease) in cash and cash equivalents                       81,039           2,342,769
                                                                 ----------------    ----------------

Cash provided by discontinued operations:
     Cash provided by (used in) discontinued operations                    61,794            (640,159)
                                                                 ----------------    ----------------

        Net cash provided by (used in) discontinued operations             61,794            (640,159)
                                                                 ----------------    ----------------

Cash and equivalents at beginning of period                             3,899,361           4,591,746
                                                                 ----------------    ----------------
Cash and equivalents at end of period                            $      4,042,194    $      6,294,356
                                                                 ================    ================

Supplemental Cash Flow Information:
Cash payments (receipts) for:
   Interest                                                      $         62,396    $         85,648
                                                                 ================    ================
   Income taxes, net                                             $         29,322    $        317,466
                                                                 ================    ================
Discontinued Operations:
   Income Taxes                                                  $         30,000    $         58,181
                                                                 ================    ================

Non-cash investing and financing activities:
     Note payable - HIG                                          $     20,000,000    $              0
     Property and equipment financed through capital leases      $        229,179    $        205,345
                                                                 ================    ================
     Increase in loans to officers and directors                 $        (74,585)   $       (142,688)
                                                                 ================    ================
*Reclassified for comparability
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 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 and six months
     ended September 30, 2006 are not necessarily indicative of the results that
     may be expected for the fiscal year ending March 31, 2007. The March 31,
     2006 information was derived from the audited financial statements for the
     year ended March 31, 2006 included in the Company's Financial Report on
     Form 10-K. 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.

                                       6
<PAGE>

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
     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
     believed 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 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
     and possible lawsuits are expected to continue for a number of months. At
     this time, it is unlikely that any distributions will be made from the
     estate before the first quarter of 2007.

     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"). 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, 2006 and September 30, 2006, 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 March 31,
     2006 and September 30, 2006.

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

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

<TABLE>
<CAPTION>
                                                                     ----------------------------
                                                                     September 30,    March 31,
                                                                         2006            2006
                                                                      (Unaudited)
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
     Other receivables, net
        Due from insurance companies                                 $  1,436,424    $    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                                                1,503,658         302,569
                                                                     ------------    ------------
             Due from insurance companies/dealers                       6,700,956       4,417,276
        Agent advances                                                    104,577         108,565
        Due from Financial Institutions (rebate)                          420,000         790,000
        Other                                                             736,974         372,121
                                                                     ------------    ------------
                                                                        7,962,507       5,687,962
     Allowance for doubtful accounts                                   (3,718,954)     (3,718,954)
                                                                     ------------    ------------
     Total other receivables, net                                    $  4,243,553    $  1,969,009
                                                                     ============    ============
</TABLE>

                                       7
<PAGE>

     The following table sets forth the carrying amounts and fair values of the
     Company's other receivables at September 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   $4,243,553           --           --           --           --           --                $4,243,553


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

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

<CAPTION>
                                                 For the Three Months Ended       For the Six Months Ended
                                                        September 30,                   September 30,
                                                ----------------------------    ----------------------------
                                                    2006            2005            2006            2005
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Net (loss)                                      $   (583,418)   $   (714,606)   $ (2,192,490)   $ (1,250,664)
Other Comprehensive income (loss), net of tax
    Unrealized gain (loss) on investments              1,133          (1,968)            108             140
    Foreign currency translation adjustments          (6,212)         47,584           1,786          41,918
                                                ------------    ------------    ------------    ------------
Comprehensive (loss)                            $   (588,497)   $   (668,990)   $ (2,190,596)   $ (1,208,606)
                                                ============    ============    ============    ============

Comprehensive (loss) per share:                 $      (0.04)   $      (0.04)   $      (0.16)   $      (0.08)
                                                ============    ============    ============    ============
</TABLE>

     The components of accumulated other comprehensive income are as follows:

                                              September 30,  September 30,
                                                  2006           2005
                                              ------------   ------------
      Unrealized gain (loss) on investments   $        306   $     (4,151)
      Accumulated translation adjustments          302,745        278,665
                                              ------------   ------------
                                              $    303,051   $    274,514
                                              ============   ============


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

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

<TABLE>
<CAPTION>
                                              For the Three Months Ended           For the Six Months Ended
                                                     September 30,                       September 30,
                                           --------------------------------    --------------------------------
                                                2006              2005              2006              2005
                                           --------------    --------------    --------------    --------------
<S>                                        <C>               <C>               <C>               <C>
Numerator:
  Net (loss) applicable to common stock    $     (583,418)   $     (714,606)   $   (2,192,490)   $   (1,250,664)
                                           ==============    ==============    ==============    ==============

Denominator:
  Average outstanding shares used in the
     computation of per share earnings:
  Common stock issued - Basic shares           14,007,583        15,406,992        14,007,583        15,402,857
                                           ==============    ==============    ==============    ==============
                                               14,024,620        15,427,992        14,024,620        15,423,857
                                           ==============    ==============    ==============    ==============

Earnings (loss) per common share:
    Basic                                  $        (0.04)   $        (0.05)   $        (0.16)   $        (0.08)
                                           ==============    ==============    ==============    ==============
    Diluted                                $        (0.04)   $        (0.05)   $        (0.16)   $        (0.08)
                                           ==============    ==============    ==============    ==============
</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       For the Six Months Ended
                                                      September 30,                    September 30,
                                              ----------------------------    ----------------------------
                                                  2006            2005            2006            2005
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
Net loss as reported                          $    583,418    $   (714,606)   $ (2,192,490)   $ (1,250,644)

Stock based employee compensation
  expense included in reported net loss,
  net of related tax effects                         4,919                           9,838

Total stock based employee compensation
  expense determined under fair value based
  method for all awards, net of related tax
  effects                                           (4,919)        (23,808)         (9,838)        (50,350)
                                              ------------    ------------    ------------    ------------


Net loss pro forma                                 583,418        (738,414)     (2,192,490)     (1,301,014)
                                              ============    ============    ============    ============


Shares - basic                                  14,007,583      15,406,992      14,007,583      15,402,857
                                              ============    ============    ============    ============

Basic (loss) per share as reported            $      (0.04)   $      (0.05)   $      (0.16)   $      (0.08)
                                              ============    ============    ============    ============

Basic (loss) per share proforma               $      (0.04)   $      (0.05)   $      (0.16)   $      (0.08)
                                              ============    ============    ============    ============

     The weighted average fair value of stock options at date of grant,
     calculated using the Black-Scholes option-pricing model, during the six
     months ended September 30, 2006 and 2005 was $0.38 and $0.42, respectively.

     Presented below is a summary of the status of the stock options in the plan
     and the related transactions for the six months ended September 30, 2006
     and 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   $       1.06      1,514,803    $       1.35
        Granted                                                    --             --        300,000           0.605
        Canceled/Surrendered                                       --             --       (307,358)           1.31
        Exercised                                                  --             --             --              --
        Forfeited                                                  --             --             --              --
                                                         ----------------------------------------------------------
        Options outstanding at end of period                1,473,003   $       1.06      1,507,445    $       1.16
                                                         ==========================================================

                                                         ----------------------------------------------------------
        Options exercisable at end of period                  992,443   $       1.25        868,619    $      1.268
                                                         ==========================================================
</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 six months ended September 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 September 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 September 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 the proposed merger of an affiliate of H.I.G. Capital with Warrantech
     (the "Merger"), Holdings acquired from GAIC and its affiliates ("GAIC") $20
     million of Warrantech's debt to GAIC.

9.   STOCKHOLDERS' CAPITAL DEFICIENCY
     --------------------------------

     The Company's directors received 40,000 shares of the Company's common
     stock as compensation for services rendered. The fair value of the shares
     aggregated $17,710, as determined by the average of the shares bid and ask
     prices on the date of issue, was charged to operations. The loan receivable
     from a stockholder increased $74,585 for the interest income earned during
     the period.

                                       10
<PAGE>

10.  SEGMENTS
     --------

     The Company operates in four major business segments: Automotive, Consumer
     Products, Direct 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. The Direct segment 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. Other includes intersegment eliminations of revenues and
     receivables and net unallocated Corporate expenses and Butler.

                                       11
<PAGE>

<TABLE>
<CAPTION>
Three Months Ended                              Consumer                                   Reportable
September 30, 2006              Automotive      Products        Direct     International*   Segments       Other           Total
------------------             ------------   ------------   ------------  -------------  ------------  ------------   ------------
<S>                              <C>             <C>            <C>             <C>         <C>           <C>            <C>
Gross revenues                   25,142,173      7,493,458      2,412,082       266,617     35,314,330                   35,314,330
Intercompany revenues               548,476        165,308          9,545        42,957        766,286      (766,286)             0
Gross profit                      1,813,105      2,496,317      1,204,886       130,609      5,644,917       276,878      5,921,795
Profit (loss) from operations       295,959       (198,755)       324,586        40,949        462,739    (1,598,261)    (1,135,522)
Pretax income (loss)               (362,416)    (1,184,701)       331,396        40,949     (1,174,772)      178,675       (996,097)
Net interest income (expense)      (118,909)         7,900              0             0       (111,009)       66,622        (44,387)
Depreciation/amortization            80,709         90,889         24,145         8,032        203,775       146,388        350,163


September 30, 2005
------------------
Gross revenues                   20,797,372      7,508,294      2,920,500       209,324     31,435,490                   31,435,490
Intercompany revenues               731,603        423,132         10,318       186,072      1,351,125    (1,351,125)             0
Gross profit                      1,958,365      2,413,610      1,397,570       210,839      5,980,384        45,173      6,025,557
Profit (loss) from operations       210,038        570,808        361,477       (41,747)     1,100,576    (1,885,055)      (784,479)
Pretax Income (Loss)               (654,184)       (63,003)        15,793       (41,747)      (743,141)      245,148       (497,993)
Net interest income (expense)       (74,856)       (30,113)            --             0       (104,969)       82,796        (22,173)
Depreciation/Amortization            80,601        121,663         21,196        16,381        239,841       238,164        478,005


Six Months Ended                                Consumer                                   Reportable
September 30, 2006              Automotive      Products        Direct     International*   Segments       Other           Total
------------------             ------------   ------------   ------------  -------------  ------------  ------------   ------------

Gross revenues                   45,796,775     14,281,967      4,884,073       461,719     65,424,534                   65,424,534
Intercompany revenues               899,282        792,342         20,399       104,517      1,816,540    (1,816,540)             0
Gross profit                      3,482,474      4,724,120      2,438,580       216,369     10,861,543       403,054     11,264,597
Profit (loss) from operations       231,190       (891,046)       641,033      (276,197)      (295,020)   (3,396,124)    (3,691,144)
Pretax income (loss)             (1,676,606)    (2,861,166)       628,188      (276,197)    (4,185,781)      363,329     (3,822,452)
Net interest income (expense)      (478,912)      (103,542)             0             0       (582,454)      131,429       (451,025)
Depreciation/amortization           161,949        179,008         48,290        16,047        405,294       286,740        692,034
Total Assets                    203,905,761     66,111,180      1,695,204     8,034,151    279,746,296      (842,775)   278,903,521

September 30, 2005
------------------
Gross revenues                   39,876,872     15,838,554      5,945,146       389,230     62,049,802                   62,049,802
Intercompany revenues             1,628,402        865,343         21,334       286,989      2,802,068    (2,802,068)             0
Gross profit                      3,733,893      4,963,540      2,739,774       331,739     11,768,946       185,557     11,954,503
Profit (loss) from operations       419,042      1,424,151        718,912       (69,940)     2,492,165    (3,662,185)    (1,170,020)
Pretax income (loss)             (1,345,336)       144,022         25,000       (69,940)    (1,246,254)      501,100       (745,154)
Net interest income (expense)      (160,228)       (78,949)            --             0       (239,177)      163,134        (76,043)
Depreciation/amortization           147,068        241,188         40,313        32,496        461,065       545,804      1,006,869
Total Assets                    191,558,066     66,011,454      4,285,768    10,777,351    272,632,639    (2,247,160)   270,385,479
</TABLE>

* Restated for comparability

                                       12
<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 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 a former director 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 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.

                                       13
<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 believed 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 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 negotiating
with those creditors who appear to have the largest potential obligations to the
bankruptcy estate and making determinations regarding the use of legal remedies
in those instances where negotiation was not successful. These discussions and
possible lawsuits are expected to continue for a number of months. At this time,
it is unlikely that any distributions will be made from the estate before the
first quarter of 2007.

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"). 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, 2006 and September 30, 2006, 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.

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 and the explanation of insurance arrangements with Great
American on December 31, 2006, Warrantech is actively seeking 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 the proposed Merger with Warrantech, Holdings
acquired from GAIC and its affiliates ("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.

                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Gross Revenues

                                                 For the Three Months           For the Six Months
     Gross Revenues                                  September 30,                 September 30,
     --------------                          ---------------------------   ---------------------------
                                                 2006           2005*          2006           2005*
                                             ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
     Automotive segment                      $ 25,142,174   $ 20,797,371   $ 45,796,776   $ 39,876,872
     Consumer Products segment                  7,493,458      7,508,294     14,281,967     15,838,554
     Direct                                     2,412,082      2,920,500      4,884,073      5,945,146
     *International segment                       266,616        209,325        461,718        389,232
     Other                                                             0                             0
                                             ------------   ------------   ------------   ------------
         Total Gross Revenues                $ 35,314,330   $ 31,435,490   $ 65,424,534   $ 62,049,804
                                             ============   ============   ============   ============
   * Reclassified for comparability

Gross revenues for the quarter ended September 30, 2006 increased $3,878,840
(12%) over the same period in 2005. YTD the increase was $3,374,730 (5%) over
the same period for 2005.The Automotive segment reported increased revenues of
$4,344,803 (21%) for the quarter and $5,919,904 (15%) YTD over the same period
in 2005 due to increased volumes from existing clients and the contribution from
new clients. The Consumer Products segment reported flat gross revenues of
$14,836 below 2005 for the quarter, and a decline of $1,556,587 YTD (-10%) 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 $508,418 (-17%) for the quarter and $1,061,073 (-18%) YTD resulting from the
impact of rising prices of gasoline on our prospective buyers discretionary
income. The International segment reported an increase of $57,291 for the
quarter and $72,486 YTD over the prior year on a restated basis which compares
only the Puerto Rico operations and International Administration for the periods
ending September 30, 2006 and September 30, 2005.

<CAPTION>
                                                        Gross Profit

     Gross Profit                   For the Three Months           For the Six Months
     ------------                       September 30,                 September 30,
                                 ---------------------------   ---------------------------
                                     2006           2005           2006           2005
                                 ------------   ------------   ------------   ------------
<S>                              <C>            <C>            <C>            <C>
     Automotive segment          $  1,813,105   $  1,958,365   $  3,482,474   $  3,733,893
     Consumer Products segment      2,496,317      2,413,610      4,724,120      4,963,540
     Direct                         1,204,886      1,397,570      2,438,580      2,739,774
     *International segment           130,609        210,839        216,369        331,739
     Other                            276,878         45,173        403,054        185,557
                                 ------------   ------------   ------------   ------------
         Total Gross Profit      $  5,921,795   $  6,025,557   $ 11,264,597   $ 11,954,503
                                 ============   ============   ============   ============
             * Reclassified for comparability
</TABLE>

Gross Profit for the quarter ended September 30, 2006 decreased $103,762 (-2%)
and $689,906 YTD (-6%) over the same period in 2005. The Automotive segment
gross profit decreased $145,260 (-7%) and $251,419 (-7%) YTD during the fiscal
period ended September 30, 2006 compared to 2005 as a result of a shift in its
business mix. The Consumer Products segment gross profit for the quarter
increased $82,707 (3%) due to higher volumes on smaller clients that have higher
gross margins, but decreased $239,420 (-5%) YTD for fiscal period ended
September 30, 2006 compared to the same period in 2005 as a result of higher
volumes on lower margin sku's. The Direct segment gross profit decreased
$192,684 (-14%) for the quarter and $301,194 (-11%) YTD compared to the same
periods in 2005 due to the decrease on gross revenue. The International segment
gross profit decreased $80,230 for the quarter and $115,370 YTD during the
period ended September 30, 2006 compared to the same period in 2005 as a result
of premium increases eroding its gross profit.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                           SG&A

     SG&A                           For the Three Months            For the Six Months
     ----                               September 30,                 September 30,
                                 ---------------------------   ---------------------------
                                     2006           2005           2006           2005
                                 ------------   ------------   ------------   ------------
<S>                              <C>            <C>            <C>            <C>
     Automotive segment          $  1,436,438   $  1,667,726   $  3,089,335   $  3,167,783
     Consumer Products segment      2,604,183      1,721,139      5,436,158      3,298,200
     Direct                           856,157      1,014,897      1,749,257      1,980,549
     *International segment            81,628        236,205        476,519        369,184
     Other                          1,728,749      1,692,064      3,512,438      3,301,939
                                 ------------   ------------   ------------   ------------
         Total Gross SG&A        $  6,707,155   $  6,332,031   $ 14,263,707   $ 12,117,655
                                 ============   ============   ============   ============
       * Reclassified for comparability

Service, selling and general and administrative ("SG&A") for the quarter ended
September 30, 2006 increased $375,124 (6%) for the quarter and $2,146,053 (18%)
YTD compared to the same periods in the prior year. The majority of the YTD
increase was due to legal fees which were $1,529,112 YTD or $1,120,607 higher
over the prior year as a result of the continuing Lloyds litigation. For the
quarter legal fees were $472,483 or $204,856 higher quarter over quarter. The
majority of the remaining variance over 2005 is attributable to Home Services
which were $780,174 higher over the same period last year. This increase is
primarily the result of the costs of acquiring the higher sales volumes
consisting of higher Employee Costs of $463,420 and an increase in sales
personnel Travel and Entertainment costs of $154,049.

<CAPTION>
                                                Depreciation and amortization

     Depreciation                    For the Three Months           For the Six Months
     ------------                       September 30,                 September 30,
                                 ---------------------------   ---------------------------
                                     2006           2005           2006           2005
                                 ------------   ------------   ------------   ------------
<S>                              <C>            <C>            <C>            <C>
     Automotive segment          $     80,709   $     80,601   $    161,949   $    147,068
     Consumer Products segment         90,889        121,663        179,008        241,188
     Direct                            24,145         21,196         48,290         40,313
     *International segment             8,032         16,381         16,047         32,496
     Other                            146,388        238,164        286,740        545,804
                                 ------------   ------------   ------------   ------------
         Total Depreciation      $    350,163   $    478,005   $    692,034   $  1,006,869
                                 ============   ============   ============   ============
   * Reclassified for comparability
</TABLE>

Depreciation and amortization expenses were reduced by $127,843 for the quarter
and $314,835 YTD during the period ended September 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           For the Six Months
                                September 30                 September 30
                        --------------------------   --------------------------
                            2006          2005           2006          2005
                        ------------  ------------   ------------  ------------
     Bad Debt Expense   $          0  $          0   $          0  $          0
                        ============  ============   ============  ============

                                       16
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  Other Income

                                              For the Three Months             For the Six Months
                                                  September 30                    September 30
                                          ----------------------------    ----------------------------
                                              2006            2005            2006            2005
                                          ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>
     Interest and dividend income         $    110,911    $    106,990    $    221,705    $    276,709
     Interest (expense)                       (155,298)       (168,023)       (672,730)       (352,753)
     Credit card usage rebate                  183,811         329,908         319,717         479,826
     Miscellaneous income (expense)                  1          17,611              --          21,082
                                          ------------    ------------    ------------    ------------
           Total other income (expense)   $    139,425    $    286,486    $   (131,308)   $    424,864
                                          ============    ============    ============    ============

Total Other Income decreased $146,061 quarter over quarter resulting from a
positive adjustment as the actual credit card rebate was higher than estimated
in the September 30, 2005 quarter. YTD Total Other Income (Expense) increased
$556,172 resulting from the additional interest on the HIG Note effective June
7, 2006 and the adjustment in the credit card rebate in the September 30, 2005
period.

<CAPTION>
                                                      Income Tax Expense (Benefit)

                                        For the Three Months             For the Six Months
                                            September 30                    September 30
                                    ----------------------------    ----------------------------
                                        2006            2005            2006            2005
                                    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>
     Income Tax Expense (benefit)   $   (343,867)   $    (31,780)   $ (1,304,686)   $     (2,356)
                                    ============    ============    ============    ============
</TABLE>

For the three month period ended September 30, 2006, income taxes were a benefit
of $343,867 compared to a benefit of $31,780 in the period ended September 30,
2005. For the six month period ended September 30, 2006, income taxes were a
benefit of $1,304,686 compared to a benefit of $2,356 in the period ended
September 30, 2005.


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 was originally due and payable on October 5, 2006 but was extended
to November 28, 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 ("Holdings"), an affiliate of H.I.G. Capital, all of its rights
and obligations under the Term Note and Security agreement, whereupon Holdings
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.

                                       17
<PAGE>

For the period ended September 30, 2006 there was an increase of cash and cash
equivalents of $142,833 when compared with cash and equivalents at March 31,
2006 resulting primarily from higher liabilities because of increased sales
volumes. Working Capital was a negative $22,588,255 at September 30, 2006
compared to a negative $17,067,475 at March 31, 2006 due to higher liabilities
because of increased sales volumes.

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. Assuming the Merger is
completed in a timely fashion, 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. If the merger is not timely completed and
the Term Note is not further extended, the Company would be in default of the
Term Note which would have a material adverse effect on the Company.

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 six months ended September 30, 2006 amounted to $175,718
compared to $186,942 during the six months ended September 30, 2005.

Set forth below is information about the Company's commitments outstanding at
September 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   $  1,104,932   $    472,648   $    521,196   $    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          5,113,880      1,953,495      3,096,299         18,442   $     45,644
                               ------------   ------------   ------------   ------------   ------------
      Total commitments        $ 19,482,977   $  5,812,098   $  9,737,845   $  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

                                       18
<PAGE>

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 September 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
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.

                                       19
<PAGE>

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 September 30, 2006 and 2005,
the Company found no impairment to its property and equipment or its other
identifiable intangibles.

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 September 30, 2006, the Company had deferred tax assets of
$25,630,440 net of a valuation allowance of $1,466,736.

Gain (Loss) From Discontinued Operations

     On April 1, 2006 management closed the Company's operations in Per and
Chile as several customers did not renew their agreements. These countries
showed net losses of $248,393 and $507,865 in the three and six months ended
September 30, 2005. During the current quarter and six months, the liquidation
of the net assets resulted in net income of $68,812 and $325,276, respectively.

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

As of September 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.

                                       20
<PAGE>

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

<TABLE>
<CAPTION>
                                           Expected Maturity Date as of September 30, 2006
                                      ----------------------------------------------------------
                                                                3       4       5
                                       1 year      2 years    years   years   years   Thereafter   Total Cost   Fair Value
                                      --------    --------   ------- ------- -------  ----------   ----------   ----------
<S>                                   <C>         <C>                                              <C>          <C>
Available for sale securities         $595,000    $490,000                                         $1,085,000   $1,087,839

Interest rate                             4.64%       3.18%
</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.
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.

                                       21
<PAGE>

                           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 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 the Court's opinion was filed on August 17, 2006. In summary, a
     majority concluded that the Court did not have jurisdiction to review the
     District Court's remand to state court and, therefore, the remand was
     upheld. They also ruled, however, that the District Court's dismissal of
     Warrantech's affirmative defenses of collateral estoppel and res judicata
     was not binding on the state court and that the District Court's dismissal
     of Warrantech's counterclaims must be vacated. While this decision was

                                       22
<PAGE>

     pending, the parties met in Orlando, Florida on July 20 and 21, 2006, to
     explore settlement possibilities. As a result of this meeting, the parties
     have reached an agreement in principle to resolve the litigation. At this
     time, the parties are negotiating the final documentation necessary to
     effectuate this resolution. During this period, all legal activities
     related to trial preparation have been suspended. If no settlement
     agreement is executed, trial preparation will resume and all pending
     motions will be ruled on.

     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 arbitration 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 arbitration combined with the arbitration in Puerto Rico. In
     response to that motion, Warrantech has moved to have both arbitrations
     conducted in Connecticut. In order to determine the proper location of
     these arbitrations, and to determine if they should be consolidated into a
     single proceeding, a hearing was held before a judge in Puerto Rico in
     September 2006. Both arbitrations have been stayed pending the judge's
     ruling which is expected in the coming weeks. It is anticipated that one or
     both arbitrations will commence promptly upon receipt of the ruling.

     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
         -----------------------------------------
         Not applicable

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

         Not applicable.

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

         Not applicable.

                                       23
<PAGE>

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

         On October 17, 2006, the Company, WT Acquisition Holdings, LLC, a
         Delaware limited liability company ("Parent"), and WT Acquisition
         Corp., a Nevada corporation and direct wholly-owned subsidiary of
         Parent ("Merger Sub"), amended the Agreement and Plan of Merger, dated
         as of June 7, 2006, by and among the Company, Parent and Merger Sub
         (the "Merger Agreement"). Pursuant to the terms of Amendment No. 1 to
         the Agreement and Plan of Merger, dated as of October 17, 2006 (the
         "Amendment"), the Company, Merger Sub and Parent agreed to extend the
         first date by which either party could terminate the Merger Agreement
         from October 29, 2006 until November 28, 2006. Parent has requested
         that certain items be resolved prior to effecting the merger of the
         Company with Merger Sub (the "Merger"). While the Company and the
         Parent continue to discuss when to schedule the special meeting of
         shareholders to approve the Merger Agreement and the Merger (the
         "Special Meeting"), the Company's current expectation is that the
         Special Meeting will be held in the fourth quarter of 2006, although
         there can be no assurance that the Special Meeting will occur at that
         time.

         Wtech Holdings, LLC ("Wtech"), an affiliate of Parent, has agreed with
         the Company and its subsidiaries to amend the single term promissory
         note issued by the Company and such subsidiaries on June 7, 2006 to and
         in favor of Wtech, as the successor to Great American Insurance
         Company, GAI Warranty Company, GAI Warranty Company of Florida and GAI
         Warranty Company of Canada thereunder (the "Term Note"). Subject to the
         terms of the Amended and Restated Term Note, dated as of October 17,
         2006 (the "Note Amendment"), Wtech, the Company and its subsidiaries
         agreed, among other things, to extend the Term Note in order to provide
         that all principal and interest under the Term Note is due and payable
         on November 28, 2006 in lieu of October 29, 2006.


Item 6.  (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.

                                       24
<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: November 9, 2006

                                       25