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

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


                For the Quarterly Period Ended December 31, 2005
                                               -----------------

                                       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, Texas                      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 November 1, 2005
---------------------------------------         -------------------------------
Common stock, par value $.007 per share                15,474,511 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 and Nine Months Ended
           December 31, 2005 and 2004 (Unaudited) ......................     2

         Condensed Consolidated Balance Sheets at
           December 31, 2005 (Unaudited) and March 31, 2005.............     3

         Condensed Consolidated Statements of Cash Flows
           For the Nine Months Ended
           December 31, 2005 and 2004 (Unaudited).......................     4

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

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

Item 3:  Quantitative and Qualitative Disclosures About Market Risk.....    20

Item 4:  Controls and Procedures........................................    20


                           PART II - Other Information


Item 1:  Legal Proceedings..............................................    21

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds ...    22

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

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

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

Item 6:  Exhibits.......................................................    23

Signature ..............................................................    24

                                       1
<PAGE>

PART I  -  Financial Information


         Item 1:  Financial Statements
                  --------------------

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

<TABLE>
<CAPTION>
                                                      For the Three Months Ended      For the Nine Months Ended
                                                             December 31,                    December 31,
                                                      ---------------------------    ----------------------------
                                                          2005           2004            2005            2004
                                                      ------------   ------------    ------------    ------------
<S>                                                   <C>            <C>             <C>             <C>
Gross revenues                                        $ 29,802,061   $ 33,276,929    $ 93,945,378    $ 89,839,132
   Net (increase) decrease in deferred revenues          2,946,120     (4,350,970)     (5,210,000)    (12,234,592)
                                                      ------------   ------------    ------------    ------------
Net revenues                                            32,748,181     28,925,959      88,735,378      77,604,540

Direct costs                                            25,732,440     22,088,120      69,131,953      58,627,041
                                                      ------------   ------------    ------------    ------------
Gross profit                                             7,015,741      6,837,839      19,603,425      18,977,499
                                                      ------------   ------------    ------------    ------------
Operating expenses
   Service, selling, and general and administrative      6,370,045      6,258,560      19,695,094      19,895,086
   Provision for bad debt expense                               --         53,760              --         296,317
   Depreciation and amortization                           328,201        527,378       1,341,403       1,978,054
                                                      ------------   ------------    ------------    ------------
Total costs and expenses                                 6,698,246      6,839,698      21,036,497      22,169,457
                                                      ------------   ------------    ------------    ------------

Income (loss) from operations                              317,495         (1,859)     (1,433,072)     (3,191,958)
Other income                                                 1,350        274,488         450,297         781,720
                                                      ------------   ------------    ------------    ------------

Income (loss) before provision for income taxes            318,845        272,629        (982,775)     (2,410,238)
Provision (benefit) for income taxes                       253,813        296,733         202,857         (32,559)
                                                      ------------   ------------    ------------    ------------

Net income (loss)                                     $     65,032   $    (24,104)   $ (1,185,632)   $ (2,377,679)
                                                      ============   ============    ============    ============

Earnings (loss) per share:
    Basic                                             $       0.00   $      (0.00)   ($      0.08)   $      (0.15)
                                                      ============   ============    ============    ============
    Diluted                                           $       0.00   $      (0.00)   ($      0.08)   $      (0.15)
                                                      ============   ============    ============    ============

Weighted average number of shares outstanding:
    Basic                                               15,479,810     15,398,677      15,464,092      15,395,576
                                                      ============   ============    ============    ============
    Diluted                                             15,500,810     15,398,677      15,485,092      15,395,576
                                                      ============   ============    ============    ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         December 31,
                                                             2005         March 31,
                                                         (Unaudited)        2005 *
                                                         ------------   ------------
                     ASSETS
                     ------
<S>                                                      <C>            <C>
Current assets:
  Cash and cash equivalents                              $  5,168,547   $  4,591,746
  Investments in marketable securities                      1,367,001      1,438,346
  Accounts receivable, (net of allowances of $567,307      21,443,356     20,297,743
      and $576,832, respectively)
  Other receivables, (net of allowances of $3,718,954)      2,186,411      1,106,720
  Employee receivables                                         51,713         42,912
  Deferred income taxes                                     5,786,881      5,786,881
  Prepaid taxes                                                36,968         41,530
  Prepaid expenses and other current assets                   822,358        945,786
                                                         ------------   ------------
        Total current assets                               36,863,235     34,251,664
                                                         ------------   ------------

Property and equipment, net                                 3,565,365      4,356,537
                                                         ------------   ------------

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                                    17,760,224     17,639,485
  Deferred direct costs                                   204,196,419    198,333,403
  Investments in marketable securities                        742,929        605,412
  Restricted cash                                             800,000        800,000
  Split dollar life insurance policies                        900,145        900,145
  Other assets                                                 19,166         34,830
                                                         ------------   ------------
          Total other assets                              226,056,173    219,950,565

                                                         ------------   ------------
                    Total Assets                         $266,484,773   $258,558,766
                                                         ============   ============
</TABLE>

*Reclassified for comparability.


     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                               2005           March 31,
                                                                            (Unaudited)         2005 *
                                                                           -------------    -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
---------------------------------------------------------
<S>                                                                        <C>              <C>
Current liabilities:
     Current maturities of long-term debt and capital lease obligations    $     437,315    $     541,626
     Insurance premiums payable (net of insurance carrier receivables of
            $6,078,829 at December 31, 2005 and $5,105,073
             at March 30, 2005                                                37,805,768       33,616,252
     Accounts and commissions payable                                          8,518,704        7,952,621
     Claims liability - Reliance                                               1,840,628        2,930,559
     Accrued expenses and other current liabilities                            5,118,251        4,341,754
                                                                           -------------    -------------
          Total current liabilities                                           53,720,666       49,382,812

Deferred revenues                                                            240,798,801      235,588,801
Claims liability - Reliance                                                    1,592,890        1,833,385
Long-term debt and capital lease obligations                                     786,789          923,984
Deferred rent payable                                                            454,046          439,468
                                                                           -------------    -------------
   Total liabilities                                                         297,353,192      286,518,450
                                                                           -------------    -------------

Commitments and contingencies                                                         --               --

Stockholders' equity (Capital deficiency):
   Preferred stock - $.0007 par value authorized - 15,000,000
      Shares issued  - none at December 31, 2005 and March 31, 2005                   --               --
   Common stock - $.007 par value authorized - 30,000,000
       Shares issued  - 16,674,617shares at                                      116,724          116,106
       December 31, 2005 and 16,586,283 at March 31, 2005
   Additional paid-in capital                                                 23,835,465       23,800,228
   Loans to directors and officers                                           (11,246,486)     (11,032,065)
   Accumulated other comprehensive income, net of taxes                          337,335          232,456
   Retained earnings (deficit)                                               (39,723,900)     (38,538,852)
                                                                           -------------    -------------
                                                                             (26,680,862)     (25,422,127)

   Treasury stock - at cost, 1,187,606 shares at
       December 31, 2005 and March 31, 2005                                   (4,187,557)      (4,187,557)
                                                                           -------------    -------------
        Total Stockholders' Equity (Capital Deficiency)                      (30,868,419)     (29,609,684)
                                                                           -------------    -------------

                                                                           -------------    -------------
        Total Liabilities and Stockholders' Equity (Capital Deficiency)    $ 266,484,773    $ 258,558,766
                                                                           =============    =============
</TABLE>

*Reclassified for comparability.


     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                               For the Nine Months Ended
                                                                     December 31,
                                                             ----------------------------
                                                                 2005            2004
                                                             ------------    ------------
<S>                                                          <C>             <C>
Cash flows from operating activities:
  Net loss                                                   $ (1,185,632)   $ (2,377,679)
  Total adjustments to reconcile net income to net cash
     Provided by operating activities:                          2,315,486       2,581,754
                                                             ------------    ------------
Net cash flows provided (used) in operating activities          1,129,854         204,075
                                                             ------------    ------------

Cash flows from investing activities:
  Property and equipment purchased                               (345,202)       (463,397)
  Purchase of marketable securities                            (1,000,000)     (1,110,000)
  Proceeds from sales of marketable securities                  1,239,000       1,405,000
                                                             ------------    ------------
Net cash used in investing activities                            (106,202)       (168,397)
                                                             ------------    ------------

Cash flows from financing activities:
    Purchase of treasury stock                                         --         (23,960)
    Repayments, notes and capital leases                         (446,851)       (533,466)
                                                             ------------    ------------
Net cash used in financing activities                            (446,851)       (557,426)
                                                             ------------    ------------

Net increase (decrease) in cash and cash equivalents              576,801        (521,748)

Cash and cash equivalents at beginning of period                4,591,746       5,229,773
                                                             ------------    ------------
Cash and cash equivalents at end of period                   $  5,168,547    $  4,708,025
                                                             ============    ============

Supplemental Cash Flow Information:
Cash payments made during the period:
   Interest                                                  $    117,735    $    109,740
                                                             ============    ============
   Income taxes                                              $    328,287    $    370,276
                                                             ============    ============

Non-cash investing and financing activities:
    Property and equipment financed through capital leases   $    205,345    $    383,959
    Increase in loans to officers and directors              $   (214,421)   $   (214,421)
    Issuance of treasury stock                               $         --    $     23,628
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005
                                   (Unaudited)

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

General Information

       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, Consumer Products, International and Direct 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, Consumer Products, International and Direct
       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 nine months ended December 31, 2005 are not necessarily indicative
        of the results that may be expected for the fiscal year ending March 31,
        2006. 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, 2005.

                                       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 believes that Ultimate owed it approximately $3.27 million for
       sales up to January 11, 2005 ("pre-petition sales") and Warrantech has
       filed a "proof of claim" in this amount with the Court. At this time,
       Warrantech does not know what it will recover on its claim. No provision
       for bad debts has been recorded as of December 31, 2005, as there are
       offsetting liabilities and reserves The Plan of Reorganization has been
       approved by the Bankruptcy Court and Ultimate's creditors. Ultimate and
       its advisors are now reviewing filed claims and possible preference
       actions in contemplation of making initial distributions to creditors.
       The first distributions to creditors could occur as early as the 2nd
       quarter of 2006 although they are more likely to begin during the 3rd
       quarter.

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

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

       The nature and amounts of Other Receivables as of December 31, 2005 and
       March 31, 2005 are as follows:

<TABLE>
<CAPTION>
                                                                         ----------------------------
                                                                           December        March 31,
                                                                             2005            2005 *
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
         Other receivables, net
            Due from insurance companies                                 $    551,200    $    229,548
            Due from insurance companies - reimbursement of legal fees   $  4,255,050       3,718,954
            Due from insurance companies - profit sharing                $     41,920          41,920
            Due from dealers                                                  302,259         384,304
                                                                         ------------    ------------
                 Due from insurance companies/dealers                       5,150,429       4,374,726
            Agent advances                                                     39,298          61,787
            Other                                                             715,638         389,161
                                                                         ------------    ------------
                                                                            5,905,365       4,825,674
         Allowance for doubtful accounts                                   (3,718,954)     (3,718,954)
                                                                         ------------    ------------
         Total other receivables, net                                    $  2,186,411    $  1,106,720
                                                                         ============    ============
</TABLE>

* Reclassified for insurance carrier receivables to conform with current period
  presentation.

                                       7
<PAGE>

       The following table sets forth the carrying amounts and fair values of
       the Company's other receivables at December 31, 2005.

<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   $2,186,411           --           --           --           --           --   $2,186,411   $2,186,411
</TABLE>


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

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

<TABLE>
<CAPTION>
                                                For the Three Months Ended       For the Nine Months Ended
                                                        December 31,                   December 31,
                                                ---------------------------    ----------------------------
                                                    2005           2004            2005            2004
                                                ------------   ------------    ------------    ------------
<S>                                             <C>            <C>             <C>             <C>
Net income (loss)                               $     65,032   $    (24,104)   $ (1,185,632)   $ (2,377,679)
Other comprehensive income (loss), net of tax
   Unrealized gain (loss) on investments              10,737         (7,015)         10,737         (14,672)
   Foreign currency translation adjustments           94,142        123,262          94,142          77,300
                                                ------------   ------------    ------------    ------------
Comprehensive income (loss)                     $    169,911   $     92,143    $ (1,080,753)   $ (2,315,051)
                                                ============   ============    ============    ============

Comprehensive income (loss) per share:          $       0.01   $       0.01    $      (0.07)   $      (0.15)
                                                ============   ============    ============    ============
</TABLE>

       The components of accumulated comprehensive income, net of related tax,
       as of the periods ended December 31, 2005 and March 31, 2005, are as
       follows:

                                                  December 31,     March 31,
                                                      2005           2005
                                                  ------------   ------------
Unrealized gain/ (loss) on investments            $      6,446   $     (4,291)
Accumulated translation adjustments                    330,889        236,747
                                                  ------------   ------------
Accumulated other comprehensive income            $    337,335   $    232,456
                                                  ============   ============


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

       The following table sets forth the calculation of earnings per share for
       the three months and nine months ended December 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                                  For the Three Months Ended     For the Nine Months Ended
                                                          December 31,                  December 31,
                                                  ---------------------------   ----------------------------
                                                      2005           2004           2005            2004
                                                  ------------   ------------   ------------    ------------
<S>                                               <C>            <C>            <C>             <C>
Numerator:
   Net income (loss) applicable to common stock   $     65,032   $    (24,104)  $ (1,185,632)   $ (2,377,679)
                                                  ============   ============   ============    ============
Denominator:
    Average outstanding shares used in the
    Computation of per share earnings:
      Common Stock issued-Basic shares              15,479,810     15,398,677     15,464,092      15,395,576
      Stock Options (treasury method)                   21,000             --         21,000              --
                                                  ------------   ------------   ------------    ------------
      Diluted shares                                15,500,810     15,398,677     15,485,092      15,395,576
                                                  ============   ============   ============    ============
Earnings (loss) Per Common Share:
   Basic                                          $       0.00   $       0.00   $      (0.08)   $      (0.15)
                                                  ============   ============   ============    ============
   Diluted                                        $       0.00   $       0.00   $      (0.08)   $      (0.15)
                                                  ============   ============   ============    ============
</TABLE>

                                       8
<PAGE>

7.  STOCK BASED COMPENSATION
    ------------------------

     As the exercise price of all options granted under the plan was equal to or
     above the market price of the underlying common stock on the grant date, no
     stock-based employee compensation is charged to operations. The following
     table illustrates the effect on net income and earnings per share if the
     Company had applied the fair value recognition provisions of SFAS No. 123,
     as amended, to options granted under the stock option plans and rights to
     acquire stock granted under the Company's Stock Participation Plan,
     collectively called "options." For purposes of this pro-forma disclosure,
     the value of the options is estimated using the Black-Scholes option
     pricing model and amortized ratably to expense over the options' vesting
     periods. Because the estimated value is determined as of the date of grant,
     the actual value ultimately realized by the employee may be significantly
     different.

<TABLE>
<CAPTION>
                                              For the Three Months Ended       For the Nine Months Ended
                                                       December                        December
                                              ---------------------------    ----------------------------
                                                  2005           2004            2005            2004
                                              ------------   ------------    ------------    ------------
<S>                                           <C>            <C>             <C>             <C>
Net income (loss) as reported                 $     65,032   $    (27,104)   $ (1,185,632)   $ (2,377,679)
Net income (loss) pro forma                   $     37,920   $    (77,658)   $ (1,263,094)   $ (2,450,733)
Shares - Basic                                  15,479,810     15,398,677      15,464,092      15,395,576
Basic earnings (loss) per share as reported   $       0.00   $      (0.00)   ($      0.08)   ($      0.15)
Basic earnings (loss) per share pro forma     $       0.00   $      (0.01)   ($      0.08)   ($      0.16)
</TABLE>

       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 nine months ended December 31, 2005
       and 2004, 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.

       On April 14, 2005, the SEC announced the adoption of a rule that defers
       the required effective date of FASB Statement No. 123 R, "Share Based
       Payment", to the beginning of the first fiscal year beginning after June
       15, 2005, instead of the first quarter (April 1, 2006 in the case of the
       Company). Furthermore, all public companies are required to apply the new
       standard on a modified prospective method to transition to the expensing
       of share-based compensation. Under this method, compensation of unvested
       awards is recognized over the remaining service period and any new and
       modified awards are expensed prospectively. In addition, Statement 123 R
       requires all share payments to employees, including grants of employee
       stock options, to be recognized as an expense based on fair values
       measured on award grant dates. No restatement of prior periods is
       required.

       Presented below is a summary of the status of the stock options in the
       plan and the related transactions for the nine months ended December 31,
       2005 and 2004.

<TABLE>
<CAPTION>
                                                             2005                          2004
                                                 -----------------------------------------------------------
                                                                   Weighted                       Weighted
                                                                   Average                        Average
                                                                   Exercise                       Exercise
                                                     Shares         Price           Shares         Price
                                                 -----------------------------------------------------------
<S>                                                 <C>          <C>               <C>          <C>
Options outstanding at beginning of the period      1,514,803    $      1.350      1,332,789    $       1.35
Granted                                               300,000           0.605        343,401            0.67
Canceled/Surrendered                                 (312,358)             --        (25,000)         1.3125
                                                 -----------------------------------------------------------
Options outstanding at end of period                1,502,445    $      1.056      1,651,190    $       1.12
                                                 ===========================================================

                                                 -----------------------------------------------------------
Options exercisable at end of period                  868,619    $      1.268        919,408    $       1.31
                                                 ===========================================================
</TABLE>

                                       9
<PAGE>

       The weighted average fair value of stock options at date of grant,
       calculated using the Black-Scholes option-pricing model, granted during
       the three months ended December 31, 2005 and 2004 was $0.42 and $0.39,
       respectively.

       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 December 31, 2005.

<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 $0.99                    993,017   $       0.72        483,015   $       0.80
            $1.00 to $1.25                     78,432   $       1.02         19,608   $       1.02
            $1.26 to $1.75                    337,207   $       1.45        277,207   $       1.42
            $3.25 to $3.375                    93,790   $       3.25         93,790   $       3.25
                                         ------------   ------------   ------------   ------------
            Total at December 31, 2005      1,502,446   $       1.06        873,620   $       1.26
                                         ============   ============   ============   ============
</TABLE>

8.  RELATED PARTY TRASACTION
    ------------------------

       Mr. Jeff White, a former director and one of the Company's founders
       passed away on November 30, 2005. Mr. White was also a beneficial owner
       of 1,494,381 shares or 9.67% of the Company's outstanding shares.
       Pursuant to a promissory note given by Mr. White to the Company in
       connection with his exercise of stock options, Mr. White's estate owed
       the Company $3,379,843 as of December 31, 2005. His death has triggered
       an acceleration provision of the promissory note, which provides that if
       the note is not paid within 90 days after his death (March 1, 2006), the
       Company is entitled to declare all amounts owed under the note due and
       payable. An interest payment of $117,597.29 was due by February 10, 2006
       however; the Company's Board of Directors has agreed to extend the due
       date of this interest payment to February 28, 2006. The Company is in
       discussion with representatives of Mr. White's estate regarding payment
       of the note obligation. There are no changes in the provision of the
       promissory notes to Joel San Antonio or Bill Tweed.

9.  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 Automotive and Consumer Products 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. Other
       includes intersegment eliminations of revenues and receivables and net
       unallocated Corporate expenses and Butler.

                                       10
<PAGE>

<TABLE>
<CAPTION>
Three Months Ended                        Consumer                                      Reportable
December 31, 2005        Automotive       Products *      Direct *     International     Segments        Other            Total
-----------------       -------------   -------------  -------------   -------------   -------------  -------------   -------------
<S>                     <C>             <C>            <C>             <C>             <C>            <C>             <C>
Gross revenues          $  17,692,943   $   9,030,019  $   2,519,099   $     630,000   $  29,802,061  $          --   $  29,802,061
                        -------------   -------------  -------------   -------------   -------------  -------------   -------------
Intercompany revenues         603,741         448,114         11,833          (4,968)      1,058,720     (1,058,720)             --
Gross profit (loss)         1,678,692       3,732,668      1,017,370         372,138       6,800,868        214,873       7,015,741
Profit (loss) from
  operations                   65,133       1,910,056        156,499        (271,528)      1,860,160     (1,542,665)        317,495
Pretax income (loss)         (807,130)      1,296,343       (143,453)       (264,563)         81,197        237,197         318,845
Net interest
  income/expense             (193,667)        (59,002)            --           8,206        (244,463)        95,045        (149,418)
Depreciation/
  amortization                 79,765          78,213         20,845          16,101         194,924        133,277         328,201

December 31, 2004
-----------------
Gross revenues          $  18,068,190   $  11,031,490  $   1,872,489   $   2,304,760   $  33,276,929             --   $  33,276,929
Intercompany revenues              --              --         14,496         360,528         375,024       (375,024)             --
Gross profit                2,168,077       2,813,847      1,370,016         619,575       6,971,515       (133,676)      6,837,839
Profit (loss) from
  operations                  621,845         966,298        458,377        (260,378)      1,786,142     (1,788,001)         (1,859)
Pretax income (loss)         (251,785)        369,518        134,456        (258,116)         (5,927)       278,556         272,629
Net interest
  income (expense)             63,964          55,977             --           2,025         121,966        (86,579)         35,387
Depreciation/
  amortization                 55,266         111,124         14,237          19,056         199,683        327,695         527,378


Nine Months Ended                         Consumer                                      Reportable
December 31, 2005        Automotive       Products *      Direct *     International     Segments        Other            Total
-----------------       -------------   -------------  -------------   -------------   -------------  -------------   -------------
Gross revenues          $  57,499,816   $  24,868,572  $   8,464,245   $   3,112,745   $  93,945,378  $          --   $  93,945,378
Intercompany revenues       2,232,143       1,313,458         33,167         282,021       3,860,789     (3,860,789)             --
Gross profit                5,412,585       8,696,208      3,757,143       1,337,057      19,202,993        400,432      19,603,425
Profit (loss) from
  operations                  484,176       3,334,208        875,411        (922,016)      3,771,779     (5,204,851)     (1,433,072
Pretax income (loss)       (2,152,466)      1,440,364       (118,452)       (890,969)     (1,721,524)       738,750        (982,775)
Net interest
  income/expense             (353,895)       (137,950)            --          32,559        (459,287)       258,178        (201,108)
Depreciation/
  amortization                226,833         319,401         61,158          54,930         662,322        679,081       1,341,403
Total assets              191,684,496      65,465,439      4,153,949      10,322,165     271,626,049     (3,714,067)    267,911,980

December 31, 2004
-----------------
Gross revenues          $  51,892,042   $  27,141,141  $   5,100,394   $   5,705,555   $  89,939,132             --   $  89,839,132
Intercompany revenues                              --         43,501         902,355         945,856  $    (945,856)             --
Gross profit                6,032,056       7,774,062      3,519,890       1,590,079      18,916,087         61,412      18,977,499
Profit (loss) from
  operations                  677,795       2,080,671        732,995        (969,618)      2,521,843     (5,713,801)     (3,191,958)
Pretax income (loss)       (2,257,135)        264,722       (531,831)       (966,675)     (3,490,919)     1,080,681      (2,410,238)
Net interest
  income/expense             (113,207)        (51,748)            --           3,953        (161,002)       266,883         105,881
Depreciation/
  amortization                213,674         576,605         42,442          58,734         891,455      1,086,599       1,978,054
Total assets              182,825,298      67,899,432      5,323,966       9,014,639     265,063,335      2,716,684     267,780,019
</TABLE>

       * Prior year reclassified for comparability.

                                       11
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES

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

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

     o    prevailing economic conditions which may significantly deteriorate,
          thereby reducing the demand for the Company's products and services,
     o    availability of technical support personnel or increases in the rate
          of turnover of such personnel, resulting from increased demand for
          such qualified personnel,
     o    changes in the terms or availability of insurance coverage for the
          Company's programs,
     o    regulatory or legal changes affecting the Company's business,
     o    loss of business from, or significant change in relationships with,
          any major customer,
     o    the Company's ability to replace lost revenues in its Consumer
          Products or International segments,
     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 outcome of the bankruptcy proceedings involving Ultimate
          Electronics, Inc. (discussed below),
     o    the non-payment of notes due from an officer and two directors of the
          Company in 2007, which would result in a charge against earnings in
          the period in which the event occurred,
     o    the inability of any of the insurance companies which insure the
          service contracts marketed and administered by the Company to pay
          claims under the service contracts,
     o    the termination of extended credit terms being provided by the
          Company's current insurance company, and
     o    the illiquidity of the Company's stock.

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.

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 believes that Ultimate owed it

                                       12
<PAGE>

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, Warrantech does not know what it will recover on its claim.
No provision for bad debts has been recorded as of December 31, 2005, as there
are offsetting liabilities and reserves. The Plan of Reorganization has been
approved by the Bankruptcy Court and Ultimate's creditors. Ultimate and its
advisors are now reviewing filed claims and possible preference actions in
contemplation of making initial distributions to creditors. The first
distributions to creditors could occur as early as the 2nd quarter of 2006
although they are more likely to begin during the 3rd quarter.

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

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

As of November 1, 2005, Great American and Warrantech mutually agreed to modify
their current arrangement to provide for a final extension of the administration
agreement through November 27, 2005. Under this extension, Great American agreed
to continue writing new business for existing clients through December 31, 2005.
This mutual agreement was based on certain changes in Great American's strategic
direction and Warrantech's resulting belief that it would be in the best
interests of Warrantech and its customers to establish new insurance
relationships. Since entering into this agreement, both parties have
acknowledged that the required transitions have taken longer than originally
anticipated. Therefore, Great American and Warrantech have verbally agreed to
several extensions of the initial deadline to allow these transitions to occur
in an orderly manner. As of the date hereof, Great American has agreed to
continue writing business for existing clients through March 12, 2006. Although
no further extension has been agreed to, the parties remain in active discussion
regarding a mutually satisfactory completion of the transition process. Since
the original announcement, American Resources Insurance Company, Western
Insurance Company, Gramercy Insurance Company and a Lloyds syndicate have agreed
to underwrite certain Warrantech programs. Warrantech has also secured insurance
with several "A" rated carriers subject to final due diligence for its vehicle
service contracts and its brown and white goods contracts currently insured with
Great American. It is anticipated that after completion of final terms and
conditions these programs will have an effective date of May 1, 2006. Great
American remains willing to insure Warrantech's business as a fronting carrier
for acceptable new insurers until such time as an orderly transition can be
completed.

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

<TABLE>
<CAPTION>
                                          Gross Revenues

                                        For the Three Months           For the Nine Months
                                            December 31,                   December 31,
                                     ---------------------------   ---------------------------
                                         2005           2004           2005           2004
                                     ------------   ------------   ------------   ------------
<S>                                  <C>            <C>            <C>            <C>
         Automotive segment          $ 17,622,943   $ 18,068,190   $ 57,499,816   $ 51,892,042
         Consumer Products segment      9,030,019     11,031,490     24,868,572     27,141,141
         Direct segment                 2,519,099      1,872,489      8,464,245      5,100,394
         International segment            630,000      2,304,760      3,112,745      5,705,555
                                     ------------   ------------   ------------   ------------
            Total gross revenues     $ 29,802,061   $ 33,276,929   $ 93,945,378   $ 89,839,132
                                     ============   ============   ============   ============
</TABLE>

                                       13
<PAGE>

Gross revenues for the three month period ended December 31, 2005 decreased
$3,474,868, or 10%, from the same period in 2004. Gross revenues for the nine
month period ended December 31, 2005 increased $4,106,246, or 5%, from the same
period in 2004.

The Automotive segment reported decreased gross revenues of $445,247, or 2%,
respectively, in the three month period ended December 31, 2005 over 2004 and an
increase of $5,607,774, or 11%, in the nine month period. The increase in gross
revenues in the Automotive segment for the nine month period was due to an
increase in volume from its business arising from stable premium rates and from
its expansion of warranties on used automobiles through new distribution
channels of online shopping services, direct marketing and financing source
clients.

The Consumer Products segment reported a decrease of $2,001,470 or 18% in gross
revenues during the three month period ended December 31, 2005, compared to the
same period in 2004, as a result of the loss of three major customers. The
Consumer Products segment reported a decrease in gross revenues of $2,272,519,
or 8% during the nine month period ended December 31, 2005, compared to the same
period in 2004, as a result of the loss of three major customers including
Ultimate's reduced business attributed to a reduction in the number of its
stores operating after its bankruptcy filing, partially offset by new business
and increases in volume from its existing customers.

The Direct segment reported an increase in gross revenues of $646,710 or 3% and
$3,363,851 or 65% for the three month and nine month periods ended December 31,
2005, respectively, due to the commencement of direct marketing programs for
automotive contracts that began in November 2004.

The International segment reported decreased gross revenues of $1,674,760 or
73%, and $2,592,810 or 45%, respectively, in the three month and nine month
periods ended December 31, 2005 over 2004. The decrease in gross revenues was
due to the loss of a customer in Chile and from lower sales volumes in Puerto
Rico due to the discontinuance of auto warranty sales.

<TABLE>
<CAPTION>
                                                   Gross Profit

                                        For the Three Months            For the Nine Months
                                            December 31,                    December 31,
                                     ---------------------------    ---------------------------
                                         2005           2004            2005           2004
                                     ------------   ------------    ------------   ------------
<S>                                  <C>            <C>             <C>            <C>
         Automotive segment          $  1,678,692   $  2,168,077    $  5,412,585   $  6,032,056
         Consumer Products segment      3,732,668      2,813,847       8,696,208      7,774,061
         Direct segment                 1,017,370      1,370,016       3,757,143      3,519,891
         International segment            372,138        619,575       1,337,057      1,590,079
         Other                            214,873       (133,676)        400,431         61,412
                                     ------------   ------------    ------------   ------------
            Total gross profit       $  7,015,741   $  6,837,839    $ 19,603,425   $ 18,977,499
                                     ============   ============    ============   ============
</TABLE>

Gross profit for the three months and nine months ended December 31, 2005
increased $177,902, or 3%, and $625,926, or 3%, over the same period in 2004.
Gross profit for the three month period decreased within the Direct segment by
$352,646, or 26%, and the International segment decreased by $247,437 or 40%
over the same period in 2004. The Automotive segment decreased by $489,385, or
23%, while the Consumer Products segment increased by $918,821, or 33% over the
same period in 2004.

Gross profit for the nine month period increased within the Direct segment by
$237,252, or 7% over the same period in 2004, while the Consumer Products
segment increased $922,147 or 12%. The Automotive segment decreased by $619,471,
or 10%, over 2004, while the International segments decreased $253,022 or 16%.

                                       14
<PAGE>

                                      SG&A

                         For the Three Months           For the Nine Months
                             December 31,                   December 31,
                      ---------------------------   ---------------------------
                          2004           2004           2005           2004
                      ------------   ------------   ------------   ------------
         Total SG&A   $  6,370,045   $  6,258,560   $ 19,695,094   $ 19,895,086
                      ============   ============   ============   ============

Service, selling and general and administrative expenses ("SG&A") for the three
months ended December 31, 2005 increased $111,485, or 2%, compared to the same
period in the prior year. Higher employee costs, travel & entertainment and
sales related costs during the three month period were partially offset by lower
legal expenses.

SG&A for the nine months ended December 31, 2005 decreased $109,992 or 1%,
compared to the same period in the prior year, due to a reduction in legal
expense.

<TABLE>
<CAPTION>
                         Provision for Bad Debts Expense

                                       For the Three Months          For the Nine Months
                                        Ended December 31,            Ended December 31,
                                   ---------------------------   ---------------------------
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
         Provision for bad debts   $         --   $     53,760   $         --   $    296,317
                                   ============   ============   ============   ============

Provision for bad debts decreased $53,760 and $296,317, respectively, during the
three month and nine month periods ended December 31, 2005 compared to the same
period for 2004, as a result of the Company being adequately reserved for
anticipated future bad debts.

<CAPTION>
                          Depreciation and amortization

                                                  For the Three Months           For the Nine Months
                                                      December 31,                   December 31,
                                               ---------------------------   ---------------------------
                                                   2005           2004           2005           2004
                                               ------------   ------------   ------------   ------------
<S>                                            <C>            <C>            <C>            <C>
         Total depreciation and amortization   $    328,201   $    527,378   $  1,341,403   $  1,978,054
                                               ============   ============   ============   ============

As a result of the maturation of the Company's assets and reduced capital
expenditures over the past several years, depreciation and amortization expenses
were reduced by $199,177, or 38%, and by $636,651, or 32%, respectively, during
the three months and nine months ended December 31, 2005 from the same periods
in 2004.

<CAPTION>
                                  Other Income

                                            For the Three Months             For the Nine Months
                                                December 31,                    December 31,
                                        ----------------------------    ----------------------------
                                            2005            2004            2005            2004
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
         Interest and dividend income   $    154,877    $    161,923    $    455,940    $    450,497
         Interest expense                   (304,295)       (126,536)       (657,048)       (344,616)
         Credit card usage rebate            210,000         170,950         689,826         607,124
         Miscellaneous income                (59,232)         68,151         (38,421)         68,715
                                        ------------    ------------    ------------    ------------
                  Total other income    $      1,350    $    274,488    $    450,297    $    781,720
                                        ============    ============    ============    ============
</TABLE>

Other income for three and nine months ended December 31, 2005 decreased
compared to the three and nine months ended December 31, 2004, as a result of
higher interest expense from the extended credit terms from Great American
Insurance Company.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                          Income Tax Expense (Benefit)

                                                 For the Three Months           For the Nine Months
                                                     December 31,                   December 31,
                                              ---------------------------   ---------------------------
                                                  2005           2004           2005           2004
                                              ------------   ------------   ------------   ------------
<S>                                           <C>            <C>            <C>            <C>
         Total income tax expense (benefit)   $    253,813   $    296,733   $    202,857   $    (32,559)
                                              ============   ============   ============   ============
</TABLE>

For the three month period ended December 31, 2005, there was income tax expense
of $253,813 compared to $296,733 in the period ended December 31, 2004, due to a
decrease in the amount of tax withheld on foreign distribution repatriated to
the United States and a change in income before tax. For the nine month period
ended December 31, 2005, the income tax expense was $202,857 as compared to a
benefit the same period in the prior year of $32,599, due to a decrease in the
amount of tax withheld on foreign distribution repatriated to the United States
and a change in income before tax.

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

During the nine months ended December 31, 2005, the Company had a net increase
in cash and cash equivalents of $576,801, which was primarily generated by
operating activities to fund working capital. Working capital was a negative
$16.9 million at December 31, 2005 compared to a negative $11.8 million at
December 31, 2004, primarily due to the payments made on the Reliance claims
reserve.

The Company believes that it will have sufficient funds to finance its current
operations for at least the next twelve months from internally generated funds
and from extended terms and the $3 million line of credit from Great American
Insurance Company ("GAIC"). Additional potential sources of liquidity include
the possibility of a recovery against the state guaranty funds in the Reliance
matter and potential reduced litigation expenditures in the event of either a
successful appeal pending in the 5th circuit regarding the LLoyds Underwriters
litigation, described in the "legal Proceedings" section of this Report ("Lloyds
Matter") or a successful appeal also pending in the 5th circuit regarding
Steadfast Insurance Company's defense in the Lloyds Matter. The Company is
actively seeking additional lines of credit to fund working capital to
supplement or replace the line of credit offered from GAIC. The Company is
actively seeking additional lines of credit to fund working capital to
supplement or replace the line of credit offered from GAIC. The Company is
aggressively pursuing new business domestically to 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.

With the loss of several major customers in the Consumer Products segment and
several major customers in the International segments' Chile operations,
revenues in those areas are expected to continue to trend lower than the
previous year. The Consumer Products segment expects to replace a portion of its
business by the end of the fiscal year and continues to expand operations in its
Home warranty business. The International segment plans to restart its auto
warranty operations in Puerto Rico during the 4th fiscal quarter and
significantly reduce employee costs in South America with stringent cost
containment measures to offset the loss of revenues. Direct segment revenues are
expected to increase as it continues to expand its auto warranty sales direct to
the consumer. Automotive segment revenues are expected to continue to increase
due to the acquisition of new clients. Stable insurance premium costs have
allowed the Company's automotive warranties to be more competitive than in the
previous year and the Company has expanded into other distribution channels.

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 nine months ended December 31, 2005 amounted to $205,345
compared to $383,959 during the nine months ended December 31, 2004.

                                       16
<PAGE>

During the nine months ended December 31, 2005, the Company paid out $1,330,426
in claims related to Reliance compared to $3,870,788 in claims paid in the nine
months ended December 31, 2004.

Set forth below is information about the Company's commitments outstanding at
December 31, 2005.

<TABLE>
<CAPTION>
                                                          Payments due by period
                                 ------------------------------------------------------------------------
                                                  Less than        1 - 3          3 - 5        More than
                                     Total          1 year         Years          Years         5 years
                                 ------------------------------------------------------------------------
<S>                              <C>            <C>            <C>            <C>            <C>
Capital lease obligations        $  1,224,104   $    437,315   $    656,512   $    132,277   $         --
Operating leases                    9,601,782      1,307,236      2,604,073      2,576,818      3,113,655
Employment agreements               5,145,546      2,365,437      2,708,859         71,250             --
Reliance claims loss liability      3,433,518      1,840,628      1,572,313         20,577             --
                                 ------------------------------------------------------------------------
   Total                         $ 19,404,950   $  5,950,616   $  7,541,757   $  2,798,922   $  3,113,655
                                 ========================================================================
</TABLE>


Director's Loans
----------------

Mr. Jeff White, a former director and one of the Company's founders passed away
on November 30, 2005. Mr. White was also a beneficial owner of 1,494,381 shares
or 9.67% of the Company's outstanding shares. Pursuant to a promissory note
given by Mr. White to the Company in connection with his exercise of stock
options, Mr. White's estate owed the Company $3,379,843 as of December 31, 2005.
His death has triggered an acceleration provision of the promissory note, which
provides that if the note is not paid within 90 days after his death (March 1,
2006), the Company is entitled to declare all amounts owed under the note due
and payable. An interest payment of $117,597.29 was due by February 10, 2006
however, the Company's Board of Directors has agreed to extend the due date of
this interest payment to February 28, 2006. The Company is in discussion with
representatives of Mr. White's estate regarding payment of the note obligation.
There are no changes in the provision of the promissory notes to Joel San
Antonio or Bill Tweed.

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,
2005, describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. The following lists some
of the Company's critical accounting policies affected by judgments, assumptions
and estimates.

Revenue Recognition Policy

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

                                       17
<PAGE>

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

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

Since Butler has been determined to be a nominally capitalized entity, all
transactions concerning Butler obligor-contracts are treated in a manner similar
to the accounting principles discussed in Financial Accounting Standards Board
Emerging Issues Task Force Topic No. D-14, "Transactions Involving
Special-Purpose Entities." The Company treats the Butler-obligor contracts as if
they were administrator-obligor contracts and recognizes revenues under such
contracts pursuant to TB 90-1. Additionally, because the Company is treating the
Butler-obligor contracts as Warrantech-obligor contracts for financial reporting
purposes only, the Company eliminated the transactions between Warrantech and
Butler from its financial statements.

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

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

Direct Costs

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

                                       18
<PAGE>

Impairment of Long-Lived Assets

The Company assesses potential impairment of its long-lived assets, which
include its property and equipment and its identifiable intangibles such as
software development costs, goodwill and deferred charges under the guidance of
SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Once
annually, or as events or circumstances indicate that an asset may be impaired,
the Company assesses potential impairment of its long-lived assets. The Company
determines impairment by measuring the undiscounted future cash flows generated
by the assets, comparing the result to the assets' carrying value and adjusting
the assets to the lower of their carrying value or fair value and charging
current operations for any measured impairment. At December 31, 2005 and 2004,
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 December 31, 2005, the Company had deferred tax assets of
$18,359,898, net of a valuation allowance of $1,338,145.

                                       19
<PAGE>

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

As of December 31, 2005, the Company did not have any derivatives, debt or
hedges outstanding. Therefore, the Company was not subject to interest rate
risk. In addition, the risk of foreign currency fluctuation was and is not
material to the Company's financial position or results of operations.

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

Principal amounts by expected maturity as of December 31, 2005 of marketable
securities are as follows:

<TABLE>
<CAPTION>
                                                Expected Maturity Date as of December 31,
                                -------------------------------------------------------------------------
                                  1 year      2 years      3 years      4 years     5 years    Thereafter    Total Cost   Fair Value
                                ----------   ----------   ----------   ----------  ----------  ----------    ----------   ----------
<S>                             <C>          <C>             <C>               <C>         <C>    <C>        <C>          <C>
Available for sale securities   $1,364,000   $  495,000      100,000           --          --     150,000    $2,109,000   $2,109,930
Interest rate                        2.328%       1.763%       3.258%          --          --         2.2%
</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.

THERE WERE NO SIGNIFICANT CHANGES IN THE 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.

                                       20
<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, although a decision was expected before the end of 2005, the Court
       has yet to announce its decision. If the Court determines that remand to
       the state court was proper, the parties will proceed with scheduled
       depositions and related discovery in preparation for trial in 2006. The
       state court has announced a tentative trial date of July 24, 2006 and the
       parties are preparing for a scheduling conference in contemplation of
       this being the actual date of trial commencement. If, however, it
       determines that jurisdiction properly lies with the federal courts, it
       will also rule on defendant's motions with respect to collateral estoppel
       and res judicata. A ruling favorable to the defendants on either of these
       issues could ultimately lead to a successful pre-trial resolution of the

                                       21
<PAGE>

       entire litigation. The Court is also considering the reinstatement of
       Warrantech's counterclaim against Lloyds for damages and attorneys' fees.
       As the parties await the ruling of the 5th Circuit they are continuing
       with discovery.

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

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

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

       Universal served Warrantech with a Demand for Arbitration, dated October
       15, 2004, seeking to recover a portion of the fees Warrantech received to
       provide administrative services under the contracts, approximating
       $2,155,000, together with interest thereon from the effective date of
       termination. Subsequent to receipt of Universal's Demand for Arbitration,
       Warrantech commenced an action against Universal in the State of
       Connecticut to recover fees owed to Warrantech pursuant to the terms of a
       certain Fee Agreement. Although it is difficult at this time to determine
       the exact amount owed to Warrantech, it is believed that the amount will
       be in excess of $1,000,000. Universal has moved in local court to have
       the Connecticut action combined with the arbitration in Puerto Rico. In
       response to that motion, Warrantech has moved to have the Connecticut
       action remanded to federal court in Connecticut. The parties are
       currently contesting a number of procedural issues. No discovery has
       taken place as yet.

       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.  Unregistered Sales of Equity 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.

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

         Not applicable.

                                       22
<PAGE>

Item 6.  Exhibits
         --------

         (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.

         (b)   Reports on Form 8-K
               -------------------

         Not applicable.

                                       23
<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, Principal
                       Financial Officer, Chief Accounting Officer and Treasurer
                       (Chief Financial Officer and Duly Authorized Officer)


Dated: February 14, 2006

                                       24