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 September 30, 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 by check mark whether the registrant is a shell company (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                 15,467,008 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 Six Months Ended
           September 30, 2005 and 2004 (Unaudited) .....................      2

         Condensed Consolidated Balance Sheets at
           September 30, 2005 (Unaudited) and March 31, 2005............      3

         Condensed Consolidated Statements of Cash Flows
           For the Six Months Ended
           September 30, 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.....     19

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


                           PART II - Other Information


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

Item 2:  Changes in Securities and Use of Proceeds and Issuer
            Purchases of Equity Securities..............................     21

Item 3:  Defaults Upon Senior Securities................................     21

Item 4:  Submission of Matters to a Vote of Security Holders............     21

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

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

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

                                       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 Six Months Ended
                                                              September 30,                   September 30,
                                                      ----------------------------    ----------------------------
                                                          2005            2004            2005            2004
                                                      ------------    ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>             <C>
Gross revenues                                        $ 32,523,478    $ 23,567,267    $ 64,143,317    $ 56,562,203
                                                      ------------    ------------    ------------    ------------
     Net (increase) decrease in deferred revenues       (3,395,626)      1,249,823      (8,156,120)     (7,883,622)
                                                      ------------    ------------    ------------    ------------
Net revenues                                            29,127,852      24,817,090      55,987,197      48,678,581

Direct costs                                            22,760,337      19,138,847      43,399,513      36,538,921
                                                      ------------    ------------    ------------    ------------
Gross profit                                             6,367,515       5,678,243      12,587,684      12,139,660
                                                      ------------    ------------    ------------    ------------
Operating expenses
   Service, selling, and general and administrative      6,992,014       6,671,319      13,325,049      13,636,526
   Provision for bad debt expense                               --         111,278              --         242,557
   Depreciation and amortization                           481,055         722,187       1,013,202       1,450,676
                                                      ------------    ------------    ------------    ------------
Total costs and expenses                                 7,473,069       7,504,784      14,338,251      15,329,759
                                                      ------------    ------------    ------------    ------------

Income (loss) from operations                           (1,105,554)     (1,826,541)     (1,750,567)     (3,190,099)
Other income                                               310,568         328,589         448,947         507,230
                                                      ------------    ------------    ------------    ------------

Income (loss) before provision for income taxes           (794,986)     (1,497,952)     (1,301,620)     (2,682,869)
Provision (benefit) for income taxes                       (80,380)         96,086         (50,956)       (329,292)
                                                      ------------    ------------    ------------    ------------

Net income (loss)                                     $   (714,606)   $ (1,594,038)   $ (1,250,664)   $ (2,353,577)
                                                      ============    ============    ============    ============

Earnings (loss) per share:
    Basic                                             ($      0.05)   ($      0.10)   ($      0.08)   ($      0.15)
                                                      ============    ============    ============    ============
    Diluted                                           ($      0.05)   ($      0.10)   ($      0.08)   ($      0.15)
                                                      ============    ============    ============    ============

Weighted average number of shares outstanding:
    Basic                                               15,406,992      15,389,412      15,402,857      15,394,020
                                                      ============    ============    ============    ============
    Diluted                                             15,427,992      15,732,312      15,423,857      15,672,932
                                                      ============    ============    ============    ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         September 30,
                                                             2005         March 31,
                                                          (Unaudited)       2005 *
                                                         ------------   ------------
                   ASSETS
                   ------
<S>                                                      <C>            <C>
Current assets:
  Cash and cash equivalents                              $  6,294,356   $  4,591,746
  Investments in marketable securities                      1,428,892      1,438,346
  Accounts receivable, (net of allowances of $566,395      20,904,431     20,297,743
      and $576,832, respectively)
  Other receivables, (net of allowances of $3,718,954)      2,990,139      1,920,290
  Employee receivables                                         47,354         42,912
  Deferred income taxes                                     5,786,881      5,786,881
  Prepaid taxes                                                57,328         41,530
  Prepaid expenses and other current assets                   873,721        945,786
                                                         ------------   ------------
        Total current assets                               38,383,102     35,065,234
                                                         ------------   ------------

Property and equipment, net                                 3,746,046      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                                    17,928,706     17,639,485
  Deferred direct costs                                   206,471,984    198,333,403
  Investments in marketable securities                        497,976        605,412
  Restricted cash                                             800,000        800,000
  Split dollar life insurance policies                        900,145        900,145
  Other assets                                                 20,230         34,830
                                                         ------------   ------------
          Total other assets                              228,256,331    219,950,565

                                                         ------------   ------------
                    Total Assets                         $270,385,479   $259,372,336
                                                         ============   ============
</TABLE>

*reclassified for comparability.

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                          WARRANTECH CORPORATION AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           September 30,
                                                                               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    $     455,914    $     541,626
     Insurance premiums payable (net of insurance carrier receivables of
            $4,534,850 at September 30, 2005 and $4,291,503
             at March 30, 2005)                                               38,844,067       34,429,822
     Accounts and commissions payable                                          8,379,143        7,952,621
     Claims liability - Reliance                                               2,129,165        2,930,559
     Accrued expenses and other current liabilities                            4,780,000        4,341,754
                                                                           -------------    -------------
          Total current liabilities                                           54,588,289       50,196,382
                                                                           -------------    -------------

Deferred revenues                                                            243,744,921      235,588,801
Claims liability - Reliance                                                    1,675,306        1,833,385
Long-term debt and capital lease obligations                                     888,754          923,984
Deferred rent payable                                                            449,187          439,468
                                                                           -------------    -------------
   Total liabilities                                                         301,346,457      288,982,020
                                                                           -------------    -------------

Commitments and contingencies                                                         --               --

Stockholders' equity (Capital deficiency):
   Preferred stock - $.0007 par value authorized - 15,000,000                         --               --
      Shares issued  - none at September 30, 2005 and March 31, 2005
   Common stock - $.007 par value authorized - 30,000,000
       Shares issued  - 16,654,614 shares at                                     116,106          116,106
       September 30, 2005 and 16,586,283 at March 31, 2005
   Additional paid-in capital                                                 23,800,228       23,800,228
   Loans to directors and officers                                           (11,174,753)     (11,032,065)
   Accumulated other comprehensive income, net of taxes                          274,514          232,456
   Retained earnings (deficit)                                               (39,789,516)     (38,538,852)
                                                                           -------------    -------------
                                                                             (26,773,421)     (25,422,127)

   Treasury stock - at cost, 1,187,606 shares at
       September 30, 2005 and March 31, 2005                                  (4,187,557)      (4,187,557)
                                                                           -------------    -------------
        Total Stockholders' Equity (Capital Deficiency)                      (30,960,978)     (29,609,684)
                                                                           -------------    -------------

                                                                           -------------    -------------
        Total Liabilities and Stockholders' Equity (Capital Deficiency)    $ 270,385,479    $ 259,372,336
                                                                           =============    =============
</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 Six Months Ended
                                                                     September 30,
                                                             ----------------------------
                                                                 2005            2004
                                                             ------------    ------------
<S>                                                          <C>             <C>
Cash flows from operating activities:
  Net loss                                                   $ (1,250,664)   $ (2,353,577)
  Total adjustments to reconcile net income to net cash
     Provided by operating activities:                          3,556,316         870,808
                                                             ------------    ------------
Net cash flows provided (used) in operating activities          2,305,652      (1,482,769)
                                                             ------------    ------------

Cash flows from investing activities:
  Property and equipment purchased                               (176,755)       (292,394)
  Purchase of marketable securities                              (395,000)       (855,000)
  Proceeds from sales of marketable securities                    295,000         950,000
                                                             ------------    ------------
Net cash used in investing activities                            (276,755)       (197,394)
                                                             ------------    ------------

Cash flows from financing activities:
    Purchase of treasury stock                                         --         (23,960)
    Repayments, notes and capital leases                         (326,287)       (350,475)
                                                             ------------    ------------
Net cash used in financing activities                            (326,287)       (374,435)
                                                             ------------    ------------

Net increase (decrease) in cash and cash equivalents            1,702,610      (2,054,598)

Cash and cash equivalents at beginning of period                4,591,746       5,229,773
                                                             ------------    ------------
Cash and cash equivalents at end of period                   $  6,294,356    $  3,175,175
                                                             ============    ============

Supplemental Cash Flow Information:
Cash payments made during the period:
   Interest                                                  $     85,648    $     76,736
                                                             ============    ============
   Income taxes                                              $    375,647    $    370,276
                                                             ============    ============

Non-cash investing and financing activities:
    Property and equipment financed through capital leases   $    205,345    $    251,884
    Increase in loans to officers and directors              $   (142,688)   $   (142,687)
    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
                               September 30, 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 three months ended
     June 30, 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. At present, Ultimate is current in
     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. Final Bankruptcy Court settlements
     are expected to take place during the third fiscal 2006 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 and extended to
     November 15, 2005, to decide if it wants to assume Ultimate's contract with
     Warrantech. On November 1, 2005, Acquisition notified Warrantech it has
     elected not to continue selling warranties administered by Warrantech
     effective November 15, 2005.

     The Company has filed a proof of claim for $3.27 million with the
     bankruptcy court. No provision for bad debts has been recorded as of
     September 30, 2005, as there are offsetting liabilities and reserves
     totaling $2.4 million.

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

     The nature and amounts of Other Receivables as of September 30, 2005 and
     March 31, 2005 are as follows:

<TABLE>
<CAPTION>
                                                                        ------------    ------------
                                                                         September        March 31,
                                                                            2005            2005 *
                                                                        ------------    ------------
<S>                                                                     <C>                <C>
        Other receivables, net
           Due from insurance companies                                 $  1,780,819    $  1,043,118
           Due from insurance companies - reimbursement of legal fees   $  3,954,575       3,718,954
           Due from insurance companies - profit sharing                $     41,920          41,920
           Due from dealers                                                  327,211         384,304
                                                                        ------------    ------------
                Due from insurance companies/dealers                       6,104,525       5,188,296
           Agent advances                                                     54,132          61,787
           Other                                                             550,436         389,161
                                                                        ------------    ------------
                                                                           6,709,093       5,639,244
        Allowance for doubtful accounts                                   (3,718,954)     (3,718,954)
                                                                        ------------    ------------
        Total other receivables, net                                    $  2,990,139    $  1,920,290
                                                                        ============    ============
</TABLE>

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

     The following table sets forth the carrying amounts and fair values of the
     Company's other receivables at September 30, 2005.

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                     Expected Maturity Date
                             ---------------------------------------------------------------------------
                                2005         2006         2007         2008         2009      Thereafter      Total     Fair  Value
                             ----------   ----------   ----------   ----------   ----------   ----------   ----------   -----------

<S>                          <C>                  <C>          <C>          <C>          <C>          <C>  <C>          <C>
    Other receivables, net   $2,990,139           --           --           --           --           --   $2,990,139   $2,990,139
</TABLE>


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

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

<TABLE>
<CAPTION>
                                                 For the Three Months Ended       For the Six Months Ended
                                                       September 30,                    September 30,
                                                ----------------------------    ----------------------------
                                                    2005            2004            2005            2004
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Net income (loss)                               $   (714,606)   $ (1,594,038)   $ (1,250,664)   $ (2,353,577)
Other comprehensive income (loss), net of tax
   Unrealized gain (loss) on investments              (1,968)          3,139             140          (7,984)
   Foreign currency translation adjustments           47,584           7,294          41,918         (45,962)
                                                ------------    ------------    ------------    ------------
Comprehensive income (loss)                     $   (668,990)   $ (1,583,605)   $ (1,208,606)   $ (2,407,523)
                                                ============    ============    ============    ============

Comprehensive income (loss) per share:          $      (0.04)   $      (0.10)   $      (0.08)   $      (0.16)
                                                ============    ============    ============    ============
</TABLE>

     The components of accumulated comprehensive income, net of related tax, as
     of the periods ended September 30, 2005 and March 31, 2005, are as follows:

                                               September 30,   September 30,
                                                   2005            2004
                                               ------------    ------------
Unrealized gain/ (loss) on investments         $     (4,151)   $     (4,291)
Accumulated translation adjustments                 278,665         236,747
                                               ------------    ------------
Accumulated other comprehensive income         $    274,514    $    232,456
                                               ============    ============


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

     The following table sets forth the calculation of earnings per share for
     the three months and six months ended September 30, 2004 and 2004.

<TABLE>
<CAPTION>
                                                   For the Three Months Ended       For the Six Months Ended
                                                          September 30,                   September 30,
                                                  ----------------------------    ----------------------------
                                                      2005            2004            2005            2004
                                                  ------------    ------------    ------------    ------------
<S>                                               <C>             <C>             <C>             <C>
Numerator:
   Net income (loss) applicable to common stock   ($   714,606)   $ (1,594,038)   ($ 1,250,664)   $ (2,353,577)
                                                  ============    ============    ============    ============
Denominator:
    Average outstanding shares used in the
    Computation of per share earnings:
      Common Stock issued-Basic shares              15,406,992      15,389,412      15,402,857      15,394,020
      Stock Options (treasury method)                   21,000         342,900          21,000         278,912
                                                  ------------    ------------    ------------    ------------
      Diluted shares                                15,427,992      15,732,312      15,423,857      15,672,932
                                                  ============    ============    ============    ============
Earnings (loss) Per Common Share:
   Basic                                          $      (0.05)   $      (0.10)   $      (0.08)   $      (0.15)
                                                  ============    ============    ============    ============
   Diluted                                        $      (0.05)   $      (0.10)   $      (0.08)   $      (0.15)
                                                  ============    ============    ============    ============
</TABLE>

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 a 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.

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                For the Six Months
                                                                Ended September 30,
                                                           ----------------------------
                                                               2005            2004
                                                           ------------    ------------
<S>                                                        <C>             <C>
        Net income (loss) as reported                      $ (1,250,664)   $ (2,353,577)
        Net income (loss) pro forma                        $ (1,301,014)   $ (2,401,445)
        Shares - Basic                                       15,402,857      15,426,520
        Basic earnings (loss) per share as reported        ($      0.08)   ($      0.15)
        Basic earnings (loss) per share pro forma          ($      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 six months ended September 30, 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.

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

     Presented below is a summary of the status of the stock options in the plan
     and the related transactions for the six months ended September 30, 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   $       1.23
     Granted                                               300,000          0.605        308,826           0.68
     Canceled/Surrendered                                 (307,358)            --             --             --
     Exercised                                                  --             --             --             --
     Forfeited                                                  --             --             --             --
                                                      ---------------------------------------------------------
     Options outstanding at end of period                1,507,445   $      1.150      1,641,615   $       1.12
                                                      =========================================================

                                                      ---------------------------------------------------------
     Options exercisable at end of period                  868,619   $      1.268        914,408   $       1.31
                                                      =========================================================
</TABLE>

     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 September 30, 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.

                                       9
<PAGE>

     The following table summarizes the status of all Warrantech's stock options
     outstanding and exercisable at September 30, 2005.

<TABLE>
<CAPTION>
                                               Stock Options                 Stock Options
                                                Outstanding                   Exercisable
                                        ---------------------------   ---------------------------
                                                         Weighted                      Weighted
                                                         Average                       Average
                                                         Exercise                      Exercise
          Range Of Exercise Prices         Shares         Price           Price         Shares
          ---------------------------   ------------   ------------   ------------   ------------
<S>                                        <C>         <C>               <C>         <C>
          $0.42 to $0.94                     998,017   $       0.72        478,015   $       0.80
          $1.00 to $1.02                   1,728,432   $       1.00      1,669,608   $       1.00
          $1.26 to $1.595                    337,207   $       1.45        277,207   $       1.42
          $3.25 to $3.375                     93,790   $       3.25         93,790   $       3.25
                                        ------------   ------------   ------------   ------------
          Total at September 30, 2005      3,157,446   $       1.03      2,518,620   $       1.09
                                        ============   ============   ============   ============
</TABLE>


8.  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
September 30, 2005            Automotive     Products *      Direct *    International    Segments         Other          Total
------------------          -------------  -------------  -------------  -------------  -------------  -------------  -------------
<S>                         <C>            <C>            <C>            <C>            <C>            <C>            <C>
Gross revenues              $  20,797,371  $   7,508,294  $   2,920,500  $   1,297,313  $  32,523,478  $          --  $  32,523,478
Intercompany revenues             731,603        423,132         10,318        186,072      1,351,125   (1,351,1250)             --
Gross profit (loss)             1,958,365      2,413,610      1,397,570        552,798      6,322,343         45,172      6,367,515
Profit (loss) from
  operations                      210,038        570,808        361,477       (349,572)       792,751     (1,898,305)    (1,105,554)
Pretax income (loss)             (654,184)       (63,003)        15,793       (338,740)    (1,040,135)       245,150       (794,986)
Net interest income/expense       (74,856)       (30,113)            --         11,601        (93,368)        82,796        (10,572)
Depreciation/amortization          80,601        121,663         21,196         19,431        242,890        238,164        481,055

September 30, 2004
------------------
Gross revenues              $  11,995,763  $   8,440,877  $   1,553,385  $   1,577,241  $  23,567,266  $          --  $  23,567,267
Intercompany revenues                  --             --         15,806        283,038        298,844       (298,844)            --
Gross profit                    2,076,637      2,647,527      1,130,227       (212,017)     5,642,374         35,869      5,678,243
Profit (loss) from
  operations                      318,186        742,878        163,668       (806,032)       418,700     (2,245,241)    (1,826,541)
Pretax income (loss)             (891,240)       (56,813)      (244,636)      (804,532)    (1,997,222)       499,270     (1,497,952)
Net interest income/expense       (54,888)       (20,791)            --          5,308        (70,371)        51,800        (18,571)
Depreciation/amortization          76,570        232,791         14,137         19,747        343,245        378,942        722,187



Six Months Ended                             Consumer                                    Reportable
September 30, 2005            Automotive     Products *      Direct *    International    Segments         Other          Total
------------------          -------------  -------------  -------------  -------------  -------------  -------------  -------------
Gross revenues              $  39,876,872  $  15,838,554  $   5,945,146  $   2,482,745  $  64,143,317  $          --  $  64,143,317
Intercompany revenues           1,628,402        865,343         21,334        286,989      2,802,068     (2,802,068)            --
Gross profit                    3,733,893      4,963,540      2,739,774        964,920     12,402,127        185,557     12,587,684
Profit (loss) from
  operations                      419,042      1,424,151        718,912       (650,487)     1,911,618     (3,662,185)    (1,750,567)
Pretax income (loss)           (1,345,336)       144,022         25,000       (626,406)    (1,802,720)       501,100     (1,301,620)
Net interest income/expense      (160,228)       (78,949)            --         24,353       (214,824)       163,134        (51,690)
Depreciation/amortization         147,068        241,188         40,313         38,829        467,398        545,804      1,013,202
Total assets                  191,558,066     66,011,454      4,285,768     10,777,351    272,632,639      2,287,690    274,920,329

September 30, 2004
------------------
Gross revenues              $  33,823,852  $  16,109,651  $   3,227,905  $   3,400,795  $  56,562,203  $          --  $  56,562,203
Intercompany revenues                  --             --         29,005        541,827        570,832       (570,832)            --
Gross profit                    3,863,979      4,960,214      2,149,875        970,503     11,944,571        195,089     12,139,660
Profit (loss) from
  operations                       55,950      1,114,371        274,620       (709,240)       735,701     (3,925,800)    (3,190,099)
Pretax income (loss)           (2,005,350)      (104,794)      (666,288)      (708,559)    (3,484,991)       802,122     (2,682,869)
Net interest income/expense       (69,396)       (39,143)            --          1,927       (106,610)       177,104         70,494
Depreciation/amortization         158,409        465,481         28,204         39,678        691,772        758,904      1,450,676
Total assets                  178,563,336     63,520,879      5,165,560      6,128,904    253,378,679      4,240,267    257,618,947
</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 Automotive
          segment,
     o    the ability to successfully identify and contract new business
          opportunities, both domestically and internationally,
     o    the ability to secure necessary capital for general operating or
          expansion purposes,
     o    the adverse outcomes of litigation,
     o    the 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. At present, Ultimate is current in 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 "

                                       12
<PAGE>

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. Final Bankruptcy Court settlements are expected to take place during
the third fiscal 2006 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 wants to assume Ultimate's contract with
Warrantech. On November 1, 2005, Acquisition notified Warrantech it has elected
not to continue selling warranties administered by Warrantech effective November
15, 2005.

The Company has filed a proof of claim for $3.27 million with the bankruptcy
court. No provision for bad debts has been recorded as of September 30, 2005, as
there are offsetting liabilities and reserves totaling $2.4 million.


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 will
continue to write new business for existing clients through December 31, 2005.
In light of certain changes in Great American's strategic direction, Warrantech
believes it is in its best interest to establish new insurance relationships.
American Resources Insurance Company, an A-rated carrier, has already agreed to
underwrite the future business of the Warrantech Direct segment and various auto
programs. Warrantech is also in active discussions with a number of other
A-rated carriers regarding the future business of its auto and consumer product
programs. Warrantech plans to begin writing with one or more of these carriers
as soon as transition agreements can be finalized. Until such time, Great
American has further agreed to insure Warrantech's business as a fronting
carrier for these 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 Six Months
                                            September 30,                 September 30,
                                     ---------------------------   ---------------------------
                                         2005           2004           2005           2004
                                     ------------   ------------   ------------   ------------
<S>                                  <C>            <C>            <C>            <C>
         Automotive segment          $ 20,797,371   $ 11,995,764   $ 39,876,872   $ 33,823,852
         Consumer Products segment      7,508,294      8,440,877     15,838,554     16,109,651
         Direct segment                 2,920,500      1,553,385      5,945,146      3,227,905
         International segment          1,297,313      1,577,241      2,482,745      3,400,795
                                     ------------   ------------   ------------   ------------
            Total gross revenues     $ 32,523,478   $ 23,567,267   $ 64,143,317   $ 56,562,203
                                     ============   ============   ============   ============
</TABLE>

Gross revenues for the three month period ended September 30, 2005 increased
$8,956,211, or 38%, from the same period in 2004. Gross revenues for the six
month period ended September 30, 2005 increased $7,581,114, or 13%, from the
same period in 2004.

The Automotive segment reported increased gross revenues of $8,801,607, or 73%,
respectively, in the three month period ended September 30, 2005 over 2004 and
$6,053,020, or 18%, in the six month period. The increase in gross revenues in
the Automotive segment 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 in gross revenues during the
six month period ended September 30, 2005, compared to the same period in 2004,
as a result of the loss of two major customers and Ultimate's reduced business
attributed to a reduction in the number of its stores operating after its
bankruptcy filing, mostly offset by new business and increases in volume from
its existing customers.


The Direct segment increased $1,367,115 and $2,717,241 for the three month and
six month periods ended September 30, 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 $279,928 or 18%,
and $918,050 or 27%, respectively, in the three month and six month periods
ended September 30, 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.

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                         Gross Profit

                                        For the Three Months            For the Six Months
                                            September 30,                  September 30,
                                     ---------------------------    ---------------------------
                                         2005           2004            2005           2004
                                     ------------   ------------    ------------   ------------
<S>                                  <C>            <C>             <C>            <C>
         Automotive segment          $  1,958,365   $  2,076,637    $  3,733,893   $  3,863,979
         Consumer Products segment      2,413,610      2,647,527       4,963,540      4,960,214
         Direct segment                 1,397,570      1,130,227       2,739,774      2,149,875
         International segment            552,798       (212,017)        964,920        970,503
         Other                             45,172         35,869         185,557        195,089
                                     ------------   ------------    ------------   ------------
            Total gross profit       $  6,367,515   $  5,678,243    $ 12,587,684   $ 12,139,660
                                     ============   ============    ============   ============
</TABLE>

Gross profit for the three months and six months ended September 30, 2005
increased $689,272, or 12%, and $448,024, or 4%, over the same period in 2004.
Gross profit for the three month period increased within the Direct segment by
$267,343, or 23%, and the International segment increased by $764,815 over the
same period in 2004. The Automotive segment decreased by $118,272, or 6% and the
Consumer Products segment decreased by $130,086, or 3% over the same period in
2004.

Gross profit for the six month period increased within the Direct segment by
$589,899, or 27% over the same period in 2004. The Automotive segment decreased
by $130,086, or 3%, over 2004, while the Consumer Products and International
segments remained flat.

                                      SG&A

                         For the Three Months           For the Six Months
                             September 30,                 September 30,
                      ---------------------------   ---------------------------
                          2004           2004           2005            2004
                      ------------   ------------   ------------   ------------
         Total SG&A   $  6,992,014   $  6,671,319   $ 13,325,049   $ 13,636,526
                      ============   ============   ============   ============

Service, selling and general and administrative ("SG&A") for the three months
ended September 30, 2005 increased $320,695, or 5%, compared to the same period
in the prior year. Higher employee cost during the three month period was
partially offset by lower legal expense.

SG&A for the six months ended September 30, 2005 decreased $311,477 or 2%,
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 Six Months
                                        Ended September 30,          Ended September 30,
                                   ---------------------------   ---------------------------
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
         Provision for bad debts   $         --   $    111,278   $         --   $    242,557
                                   ============   ============   ============   ============
</TABLE>

Provision for bad debts decreased $111,278 and $242,557, during the three month
and six month periods ended September 30, 2005 compared to the same period for
2004, as a result of the Company being adequately reserved for anticipated
future bad debts.

<TABLE>
<CAPTION>
                          Depreciation and amortization

                                                   For the Three Months           For the Six Months
                                                      September 30,                 September 30,
                                               ---------------------------   ---------------------------
                                                   2005           2004           2005           2004
                                               ------------   ------------   ------------   ------------
<S>                                            <C>            <C>            <C>            <C>
         Total depreciation and amortization   $    481,055   $    722,187   $  1,013,202   $  1,450,676
                                               ============   ============   ============   ============
</TABLE>

                                       14
<PAGE>

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 $241,132, or 33%, and by $437,474, or 30%, respectively, during
the three months and six months ended September 30, 2005 from the same periods
in 2004.

<TABLE>
<CAPTION>
                                  Other Income

                                            For the Three Months             For the Six Months
                                               September 30,                   September 30,
                                        ----------------------------    ----------------------------
                                            2005            2004            2005            2004
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
         Interest and dividend income   $    149,451    $    137,936    $    301,063    $    288,573
         Interest expense                   (168,022)       (125,118)       (352,753)       (218,080)
         Credit card usage rebate            308,826         316,354         479,826         436,174
         Miscellaneous income                 20,313            (583)         20,811             563
                                        ------------    ------------    ------------    ------------
                  Total other income    $    310,568    $    328,589    $    448,947    $    507,230
                                        ============    ============    ============    ============
</TABLE>

Other income for three and six months ended September 30, 2005 decreased
compared to the three and six months ended September 30, 2004 as a result of
higher interest expense

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

                                                  For the Three Months            For the Six Months
                                                     September 30,                  September 30,
                                              ----------------------------   ----------------------------
                                                  2005            2004           2005            2004
                                              ------------    ------------   ------------    ------------
<S>                                           <C>             <C>            <C>             <C>
         Total income tax expense (benefit)   $    (80,380)   $     96,086   $    (50,956)   $   (329,292)
                                              ============    ============   ============    ============
</TABLE>

For the three month period ended September 30, 2005, there were income tax
benefits of $80,380 compared to an expense of $96,086 in the period ended
September 30, 2004, due to a decrease in the amount of tax withheld on foreign
distribution remunerated to the United States of $213,759. For the six month
period ended September 30, 2005, the income tax benefit was lower as compared to
the same period in the prior year, as a result of a reduction in the net loss
and foreign taxes withheld.

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

During the six months ended September 30, 2005, the Company had a net increase
in cash and cash equivalents of $1,702,610, which was primarily generated by
operating activities to fund working capital. Working capital was a negative
$16.2 million at September 30, 2005 compared to a negative $12.0 million at
September 30, 2004, primarily due to the payments made on the Reliance claims
reserve.

The Company believes that internally generated funds and extended terms,
combined with the $3 million line of credit from GAIC ("Great American Insurance
Company"), will be sufficient to finance its current operations for at least the
next twelve months. 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 both domestically and
internationally 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 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 3rd 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

                                       15
<PAGE>

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 six months ended September 30, 2005 amounted to $205,345
compared to $251,884 during the six months ended September 30, 2004.

During the six months ended September 30, 2005, the Company paid out $738,543 in
claims related to Reliance compared to $1,165,108 in claims paid in the six
months ended September 30, 2004.

Set forth below is information about the Company's commitments outstanding at
September 30, 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        $  1,344,668   $    455,913   $    722,350   $    166,405   $         --
Operating leases                    9,928,590      1,307,236      2,608,779      2,576,818      3,435,757
Employment agreements               5,947,489      2,518,937      3,286,052        142,500             --
Reliance claims loss liability      3,804,471      2,129,165      1,650,169         23,931          1,206
                                 ------------------------------------------------------------------------
   Total                         $ 21,025,218   $  6,411,251   $  8,267,350   $  2,909,654   $  3,436,963
                                 ========================================================================
</TABLE>

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

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

                                       16
<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.

                                       17
<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 September 30, 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 September 30, 2005, the Company had deferred tax assets of
$23,715,586, net of a valuation allowance of $1,361,973

                                       18
<PAGE>

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

As of September 30, 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 June 30, 2005 of marketable
securities are as follows:

<TABLE>
<CAPTION>
                                               Expected Maturity Date as of September 30,
                                -----------------------------------------------------------------------
                                  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   $1,425,000   $  495,000           --          --          --          --   $1,920,000   $1,926,868

Interest rate                          3.3%         3.1%          --          --          --          --
</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 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.

                                       19
<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 a decision is expected before the end of the year. 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. 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 entire litigation. The Court is also
     considering the reinstatement of Warrantech's counterclaim against Lloyds
     for damages and attorneys' fees.

                                       20
<PAGE>

     Management continues to believe that 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.  Changes in Securities and Use of Proceeds
         -----------------------------------------

         Not applicable.

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

         Not applicable.

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

(a) On October 11, 2005, the Annual Meeting of the Stockholders of the Company
was held in New York, New York for the purpose of electing a Board of Directors.
There were no solicitations in opposition to management's nominees for director
as listed in the proxy statement.

(c) Each of the directors nominated by the Board (which number constitutes the
entire Board of the Company) and listed in proxy statement was elected with the
votes as follows:

            Nominees                Votes For             Votes Withheld
            --------                ---------             --------------

         Joel San Antonio           11,718,000               188,590
         Richard Rodriguez          11,725,189               182,136
         Donald Senderowitz         11,728,024               179,391
         Robert M. Cohen            11,724,999               182,326
         Charles G. Stiene, Esq.    11,728,745               178,580

                                       21
<PAGE>

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

         Not applicable.

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

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

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

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

Date              Item Reported                       Financial Statements Filed
----              -------------                       --------------------------

July 21, 2005     Item 4.01 - Changes in              None
                  Registrant's Certifying Accountant
August 1, 2005    Item 4.01 - Changes in              None
                  Registrant's Certifying Accountant

                                       22
<PAGE>

                                    SIGNATURE
                                    ---------




         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                       WARRANTECH CORPORATION
                       (Registrant)



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


Dated: November 14, 2005

                                       23