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

                                   FORM 10-K/A
                                (AMENDMENT NO. 1)

(Mark One)

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended March 31, 2003

                                       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 No. 0-13084

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

         Delaware                                           13-3178732
-------------------------------                ---------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization

   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

          Securities registered pursuant to Section 12(b) of the Act:

     Title of Each Class               Name of Each Exchange on Which Registered
     -------------------               -----------------------------------------
 Common Stock $.007 par value                            None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.007 par value
--------------------------------------------------------------------------------
                                (Title of Class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-K/A or any  amendment to
this Form 10-K/A |X|.

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

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the  registrant  as of  September  30,  2002,  based upon the
closing  price of the  registrant's  common  stock  on  September  30,  2002 was
$13,784,270  (For  purposes  of  calculating  the  preceding  amount  only,  all
directors  and  executive   officers  of  the   registrant  are  assumed  to  be
affiliates.)

      The number of shares  outstanding of the  registrant's  common stock as of
May 30, 2003 was 15,280,634.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Definitive  Proxy  Statement  for its 2003 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended are incorporated by reference in
Part III.

                                   EXPLANATION

Set forth in this Form 10-K/A Amendment No. 1 are amendments  relating to Item 1
of Part I,  Items  6, 7 and 8 of  Part II and  Item 15 of Part IV of the  Annual
Report of  Warrantech  Corporation  on Form 10-K for the fiscal year ended March
31, 2003.  The amendments are in response to comments made by the Securities and
Exchange  Commission in the course of the Commission's review of the information
provided in the registrant's Form 10-K. In connection with these amendments, the
registrant  is also  amending the Exhibit  Index in Item 15(a)(3) to include the
certifications  required  by 18 U.S.C.,  Section  1350,  as adopted  pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.



                                       2
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                        PAGE NO.
                                                                                                        --------

                                     PART I
<S>        <C>
Item 1.    Business..............................................................................            1
                General..........................................................................            1
                Sales and Marketing..............................................................            5
                Significant Customers............................................................            5
                Competition......................................................................            6
                Insurance Coverage...............................................................            6
                Contract Obligors................................................................            7
                Federal and State Regulation.....................................................            8
                Intellectual Property............................................................            8
                Employees........................................................................            9

                                     PART II

Item 6.    Selected Financial Data...............................................................            10
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of ...........
           Operations............................................................................            11
               SEC Review of Company Filing .....................................................            11
               General...........................................................................            12
               Insurer in Liquidation............................................................            13
               Butler ...........................................................................            14
               Results of Operations.............................................................            15
               Agreements........................................................................            18
               Liquidity and Capital Resources...................................................            20
               Loans to Directors................................................................            21
               Outlook...........................................................................            22
               Critical Accounting Policies......................................................            24
Item 8.    Financial Statements and Supplementary Data...........................................            25

                                     PART IV

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................            56

Signatures      .................................................................................            60
Certifications of the CEO and CFO................................................................           62-64
Index to Consolidated Financial Statements.......................................................            24
Financial Statement Schedules....................................................................            25
</TABLE>

                                       1
<PAGE>


                                     PART I

ITEM 1.      BUSINESS

General

     Warrantech  Corporation,  a  Delaware  corporation,  and  its  subsidiaries
(collectively,  "Warrantech" or the "Company")  maintains  executive offices and
operating  facilities at 2200 Highway 121 Suite 100 Bedford,  Texas 76021, where
the telephone number is (800) 544-9510.

     Warrantech, through its wholly owned subsidiaries,  markets and administers
service contracts,  extended  warranties and replacement plans. The Company is a
third party administrator for a variety of dealer/clients in selected industries
and offers call center and  technical  computer  services.  The Company  assists
dealer/clients  in obtaining  insurance  policies from highly rated  independent
insurance  companies  for all  contracts  and programs  offered.  The  insurance
company is then  responsible  for the cost of repairs  or  replacements  for the
contracts administered by Warrantech.

     The Company's service contract programs benefit consumers by providing them
with expanded and/or extended  product  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 service contract
programs benefit the dealer/clients by providing enhanced value to the goods and
services  they offer and by providing  them with the  opportunity  for increased
revenue  and income  without  the costs and  responsibilities  of  operating  an
extended warranty program.

     The  service  contracts,  extended  warranties  and  replacement  contracts
generally  have terms ranging from three (3) to one hundred twenty (120) months.
Since the Company  acts solely as a third party  administrator  on behalf of the
dealer/clients and insurance  companies,  the actual repairs and/or replacements
required  under  the  agreements  are  performed  by  independent   third  party
authorized repair  facilities or dealers.  The cost of repairs is generally paid
for by the insurance  companies which have the ultimate  responsibility  for the
claims  or,  where  insurance  coverage  is  unavailable,  by  Butler  Financial
Solutions,  LLC ("Butler"),  if Reliance  Insurance Company  ("Reliance") or the
Company is the obligor.  The insurance  policy  indemnifies  the  dealer/clients
against losses resulting from service contract claims and protects  consumers by
ensuring  their claims will be paid.  See "Contract  Obligors"  and  "Insurance"
below.

     Essential  to the  Company's  success is its ability to capture,  maintain,
track and analyze all relevant information regarding its service contracts.  The
Company internally  developed and operates  proprietary software that allows the
tracking  for  millions of service  contracts  and  consists of custom  designed
relational  databases  with  interactive  capabilities,   which  provides  ample
capacity  and  processing  speed  for  its  current  and  future   requirements.
Additionally,  Warrantech's  web-enabled  applications  such as VSCOnline(R) and
WCPSOnline(R)  facilitate  information  exchange with outside businesses such as
dealers and service  centers.  These optimize the data  acquisition  and service
processing  functions.  The software  programs allow for the analysis of current
and historical  statistical data which the Company uses to monitor the Company's
service contract program performance and to support future growth.

     The Company operates in three major business segments: Automotive, Consumer
Products and International, discussed below.


                                       2
<PAGE>

Warrantech Automotive Segment

     The Company's  Automotive  segment markets and administers  vehicle service
contract ("VSC") programs, GAP insurance and other related automotive after-sale
products,  all of which enhance the  profitability  of the sale of  automobiles,
light trucks,  motorcycles,  recreational  vehicles and  automotive  components.
These products are sold principally by franchised and independent automobile and
motorcycle  dealers,  leasing  companies,  repair  facilities,   retail  stores,
financial institutions and other specialty marketers.

     Warrantech  Automotive has expanded its efforts in the automotive  field to
provide administrative  expertise and secure the placement of insurance coverage
to other parties requiring these services on either VSC's or similar products.

     Warrantech  Automotive employs sales personnel and utilizes the services of
independent  agents to call on dealers to solicit their use of the VSC programs.
At this time,  Warrantech  Automotive is represented by more than 100 agents and
sub-agents in 46 states and provinces in the United States and in Canada.

     The VSC is a contract between the  dealer/lessor or third party obligor and
the vehicle  purchaser/lessee  (and,  for the State of Florida only,  Warrantech
Automotive)  that  offers  coverage  for a term  ranging  from  three (3) to one
hundred twenty (120) months and/or 3,000 to 100,000 miles. Coverage is available
in the event of the failure of a broad range of mechanical  components occurring
during the term of the VSC,  other  than  failures  covered by a  manufacturer's
warranty.

     Warrantech  Automotive's  continuing success and ability to outdistance its
competitors,  relies on its high quality  products,  exceptional  service,  fair
product pricing along with its ability to immediately  react to client needs and
its ability to seize new market  opportunities as they arise. Under the programs
marketed and administered by Warrantech Automotive,  it provides services to the
dealer, such as development and distribution of marketing materials,  processing
dealer produced VSC's and  administering  and paying of claims filed by contract
holders under the terms of their VSC.

     Under  the  Warrantech  Automotive  VSC  programs,  liability  is  borne by
insurers who have issued insurance  policies  assuming this risk in exchange for
premiums and fees. Currently,  Great American Insurance Company ("GAIC") insures
the Warrantech Automotive's VSC programs. The Company also has an agreement with
Heritage  Insurance Risk Retention Group ("Heritage") and is reinsured by one of
North America's largest reinsurance companies on reinsurance programs offered to
large  automobile  dealerships.  Previously,  a portion  of the  Warrantech  VSC
programs  were insured by either  Reliance  (see  "Management's  Discussion  and
Analysis - Insurer in Liquidation"  below), the New Hampshire  Insurance Company
or other American International Group, Inc. companies.

       In 2003, 2002 and 2001 the Automotive segment received $9.7 million, $9.8
million and $7.5 million,  respectively  in gross revenues from one  significant
customer/agent, which accounted for 14%, 14% and 11% of the Automotive segment's
total gross  revenues,  respectively.  Additionally,  in 2003, 2002 and 2001 the
Automotive   segment  received  $13.6  million,   $0  million  and  $0  million,
respectively in gross revenues from a second significant  customer/agent,  which
accounted for 13%, 0% and 0% of the Automotive  segment's  total gross revenues,
respectively.


                                       3
<PAGE>

Warrantech Consumer Products Segment

     The Company's  Consumer Products segment develops,  markets and administers
extended  warranties  and product  replacement  plans on  household  appliances,
consumer electronics,  televisions,  computers and home office equipment,  which
are sold principally  through retailers,  distributors,  manufacturers,  utility
companies, financial institutions and other specialty marketers. Warrantech also
markets these  warranties and plans directly to the ultimate  consumer on behalf
of the retailer/dealer  and/or the manufacturer through telemarketing and direct
mail campaigns.  It also offers call center and technical computer services. The
extended  warranties and product  replacement  plans  administered by Warrantech
Consumer   Products  are  service   contracts  between  the  purchaser  and  the
retailer/dealer  and/or the insurance  company that  typically  offers  coverage
ranging from twelve (12) to sixty (60) months.

     The  Consumer  Products  segment  also  develops,  markets and  administers
service  contract  programs in the United States and Canada covering  mechanical
breakdowns  of the  working  systems and  components  in homes.  These  programs
protect  homeowners against the cost of repairs in case of a breakdown of one or
more of the major home systems including heating and air conditioning, plumbing,
electrical and built-in appliances.

     The programs  marketed and  administered  by Warrantech  Consumer  Products
require  that the selling  dealer,  distributor  or  manufacturer  enter into an
agreement outlining the duties of each party. Those duties specifically  assumed
by Warrantech  Consumer  Products  include the development  and  distribution of
marketing  materials,  sales and  motivational  training,  processing of service
contracts,  operating a call center and the adjustment and payment of claims. It
has also entered into service center  agreements with  independent  third party,
authorized  repair facilities  located  throughout the United States and Canada.
These service center agreements  identify the amount of reimbursement the repair
facility will receive from a repair claim.

     Effective  February 12, 2000,  the Company  entered into an agreement  with
GAIC  pursuant to which GAIC insures any new service  contracts  issued in North
America or Puerto Rico. Insurance for service contracts issued between August 1,
1997 until February 12, 2000 are covered by Cigna Insurance Company.

     In 2003, 2002 and 2001 the Consumer Products segment received $3.4 million,
$3.4  million  and  $3.9  million,   respectively,  in  gross  revenues  from  a
significant  customer which  accounted for 10%, 9% and 7% of the segment's gross
revenues,  respectively.  Additionally,  in 2003,  2002  and  2001 the  Consumer
Products  segment  received  from a  second  customer  gross  revenues  of $13.6
million, $13.9 million and $11.6 million, respectively, which accounted for 40%,
39%  and  20%  of  the  Consumer   Products   segment's  total  gross  revenues,
respectively.  Finally,  in 2003,  2002 and 2001 the Consumer  Products  segment
received from a third customer, gross revenues of $7.5 million, $7.6 million and
7.6 million, respectively,  which accounted for 22%, 21% and 13% of the Consumer
Products segment's total gross revenues,  respectively. The Company has extended
its contracts  with its three  significant  customers  through 2005 and 2006. In
2003,  2002 and 2001 gross  revenues from Staples were $0, $0 and $15.6 million,
respectively,  which  accounted  for  0%,  0% and 27% of the  Consumer  Products
segments total gross revenues, respectively.  Because Warrantech could not reach
an agreement with Staples to extend its agreement on terms which would not erode
the profitability of the program, the program expired on February 26, 2001.

Warrantech International Segment

     Warrantech  International  markets and  administers  the same  products and
services  outside the United States that  Warrantech  Automotive  and Warrantech
Consumer Products market and administer in the United States and Canada.

     Warrantech  International  conducts  its efforts on a direct  basis and has
developed relationships with retailers and distributors throughout the Caribbean
and Central and South  America.  It is currently  doing business in Puerto Rico,
Guatemala,  Chile and Peru. The Company believes its expansion in South American
markets  will  be  facilitated  by  its  strategic   alliance  with  Atento,   a
multi-national call center owned by Spain's Grupo Telefonica, which should allow
Warrantech  International to readily enter markets in Latin America where Atento
has existing call center operations.


                                       4
<PAGE>

     In 2003,  2002 and 2001 the  International  segment  received $1.6 million,
$0.4  million  and  $1.1  million,   respectively,  in  gross  revenues  from  a
significant  customer which  accounted for 10%, 9% and 7% of the segment's gross
revenues,  respectively.  Additionally, in 2003, 2002 and 2001 the International
segment  received from a second  customer gross  revenues of $0.4 million,  $0.1
million and $1.8 million, respectively,  which accounted for 40%, 39% and 20% of
the  International  segment's total gross revenues,  respectively.  Finally,  in
2003, 2002 and 2001 the  International  segment  received from a third customer,
gross  revenues of $0.7  million,  $0.1 million and 0.0  million,  respectively,
which accounted for 22%, 21% and 13% of the International  segment's total gross
revenues, respectively.

Sales and Marketing

     Warrantech's  sales and marketing  activities are managed by each segment's
own sales and  marketing  personnel.  In  certain  circumstances,  the  business
segments have entered into marketing  agreements with independent  organizations
that  solicit  dealers at their own  expense,  and receive a  commission  on all
service contracts sold by such dealers.

     The  Warrantech  business  segments  foster  awareness of their  respective
programs through cooperative  advertising programs,  which may be jointly funded
by Warrantech and the client/dealer or independent agent.

     Sales  training  and  motivational  programs  are a  primary  form  of  the
specialized   assistance   provided   by  the   Company  to   retailers/dealers,
distributors and  manufacturers  to assist them in increasing the  effectiveness
and  profitability of their service contract program sales efforts.  The Company
also develops materials and provides  educational  seminars.  These seminars are
conducted  either at the client's place of business,  an offsite  facility or at
the  Company's   state-of-the-art   training  facility  at  its  Bedford,  Texas
administrative  offices.  This  facility  features  the  latest  in  audio/video
technology designed to enhance the training and learning experience.

     Warrantech also markets directly to the ultimate  consumer on behalf of the
retailer/dealer and for manufacturer's programs through telemarketing and direct
mail campaigns. These direct marketing campaigns generate sales through renewals
of expiring  contracts and  second-effort  sales to customers who did not buy an
extended service contract at the time of purchase.

Significant Customers

     During the fiscal year ended March 31,  2003,  the Company did not have any
customers which accounted for more than 10% of the Company's  consolidated gross
revenues.  In 2003,  2002, and 2001 gross  revenues from a significant  customer
were  $13.6  million,  $13.9  million  and $11.6  million,  respectively,  which
accounted  for  9%,  12%  and  9%  of  the  Company's   total  gross   revenues,
respectively.  In 2003, 2002 and 2001 gross revenues from another  customer were
$0 million, $0 million and $15.6 million, respectively,  which accounted for 0%,
0%  and  12%  of the  Company's  total  gross  revenues,  respectively.  Because
Warrantech  could  not  reach an  agreement  with this  customer  to extend  its
agreement on terms which would not erode the  profitability of the program,  the
program expired on February 26, 2001.


                                       5
<PAGE>


Competition

     Warrantech  competes  with  a  number  of  independent  administrators  and
divisions of distributors and manufacturers,  as well as financial  institutions
and  insurance  companies.  The Company is not one of the largest  marketers and
administrator of service contracts and limited warranties,  and some competitors
may have greater operating  experience,  more employees and/or greater financial
resources.  Further,  many  manufacturers,  particularly  those  producing motor
vehicles,  market and  administer  their own service  contract  programs for and
through  their  dealers.  However,  the  Company  believes  that it  occupies  a
preeminent position among competitors in its field.

     Funding  to  cover  the  uninsured  claims  from  Reliance-insured  service
agreements  will be provided by a special  surcharge  payable on certain vehicle
service contracts administered by the Company and which were sold after November
19, 2001 by dealer/agents  through which the Reliance-insured  service contracts
were sold.  Butler will use these funds to pay the claims  which would have been
paid by Reliance.

Insurance Coverage

     Liability for performance  under the terms of service contracts and limited
warranties  administered  by  Warrantech  is assumed by an insurance  company in
return for agreed  upon  premiums.  This  coverage  provides  the  Company  with
indemnification  against loss  resulting from service  contract  claims and also
protects the consumers by ensuring that their claims will be paid.

     Currently, GAIC primarily insures Warrantech Automotive's VSC programs. The
Company also has an agreement  with Heritage  which is reinsured by one of North
America's largest reinsurance companies on reinsurance programs offered to large
automobile  dealerships.  Previously,  a portion of the  Warrantech VSC programs
were insured by either Reliance,  the New Hampshire  Insurance  Company or other
American  International  Group,  Inc.  ("AIG") member  companies (see "Item 7. -
Management's Discussion and Analysis - Insurer in Liquidation" below).

     GAIC also insures service contracts issued by Warrantech  Consumer Products
after February 12, 2000.  Insurance for service  contracts issued between August
1, 1997 and February 12, 2000 is provided by CIGNA Insurance Company.

     The current  insurance  protection is provided by highly rated  independent
insurance companies. As noted above, in the United States and Canada,  providers
include  GAIC which is rated A  (Excellent)  and  Heritage  and  reinsurance  is
provided by one of the largest reinsurance companies in North America,  which is
an A rated  carrier.  Other  programs have been or are currently  insured by New
Hampshire Insurance Company,  other AIG member companies and Tokio Marine & Fire
Insurance  Company  each of which is rated A++  (Superior)  and CIGNA  Insurance
Company owned by (ACE) which is rated A (Excellent). Internationally,  insurance
protection  is  provided  by Cruz del Sur in Chile,  La  Positiva  in Peru,  and
Universal Insurance Company in Puerto Rico, which is rated A - (Excellent).  All
ratings  for the United  States,  Canada and Puerto  Rico are made by A.M.  Best
Company.

     For each service contract or limited  warranty sold, a contractually  fixed
amount is remitted by the  retailer/dealer to Warrantech and the premium portion
is passed on to the  insurance  company.  The amount is based upon the insurance
company's  actuarial  analysis of claims data  collected and maintained for each
type of coverage  and  contract  term.  Neither the  customer nor the Company is
obligated to the insurer if claims under a policy  exceed the premiums  remitted
for it.

     Additionally,  agreements  between the Company and the insurers may contain
profit-sharing features that permit the Company to share in underwriting profits
earned by the service contract programs. The amounts to be received, if any, are
determined in accordance with certain specified  formulae by the type of program
and by policy year. Certain of these agreements require interim calculations and
distributions  for  various  programs,  with  final  calculations  being made as
contracts  expire by term.  The  Company  recognized  $71,784 in profit  sharing
through its  International  segment in the fiscal year ended March 31, 2003.  No
profit sharing was recognized for the fiscal years ended March 31, 2002 or 2001.


                                       6
<PAGE>

Contract Obligors

     There  is,  under  each  service  contract,  a party  which  is  ultimately
responsible as obligor,  for the payment for repairs if the insurance company is
unable to. At times,  in the past,  the Company and its dealers were the obligor
under some of the agreements.  Since April 1, 2000,  Butler, a company unrelated
to  Warrantech,  but included in the Company's  financial  results for financial
reporting  purposes  only,  serves as the obligor  under all  service  contracts
administered  by the  Company,  in  exchange  for a fee  payable by the  dealers
("Butler obligor contracts").

     Butler  also has agreed to assume  certain  obligations  under the  service
contracts  insured  by  Reliance  in which the  Company  and its  obligors  were
formerly the obligor.  In all  circumstances,  regardless of which entity is the
named obligor,  the  obligations  under the service  contracts are insured by an
A-rated  licensed  insurance  company.  The  insurance  policy  indemnifies  the
dealer/clients  against  losses  resulting  from  service  contract  claims  and
protects  the  consumers by ensuring  their claims will be paid.  If the insurer
honors its  obligations,  it will pay all claims and  neither  the  Company  nor
Butler will have any responsibility  under the Company's service contracts.  If,
the insurer  fails to make a payment for the repair,  the named  obligor will be
responsible for the payment.

     Some of the service contracts under which Butler,  the  retailer/dealer  or
the Company were the named obligor were insured by Reliance.  As a result of the
claims made under its policies  subsequent to September  11, 2001,  Reliance was
liquidated  which  eliminated  insurance  coverage under those  Reliance-insured
contracts.  As the named obligor under some of the service contracts  previously
insured by  Reliance,  Warrantech  Automotive  was the  obligor,  as well as the
administrator.  Prior  to its  liquidation,  Reliance  covered  the  cost of the
repairs  under the  agreements it insured.  Because of  Reliance's  liquidation,
insurance  coverage for the Company's  obligations under those service contracts
ceased to exist.  As the obligor,  Warrantech  Automotive  would  ultimately  be
responsible for paying for the repairs under those service contracts

     For  financial  reporting purposes only, for the reasons stated in Footnote
3 of the Financial  Statements annexed to this Report, the Company has adopted a
policy to treat the Butler obligor  contracts as if they were contracts in which
Warrantech was the legal obligor.  As a result, the Company recognizes  revenues
under such contracts  pursuant to FASB Technical Bulletin 90-1. The Company also
includes,  as its  own  liabilities,  liabilities  of  Butler  relating  to such
contracts.  Additionally,  because the Company is  treating  the Butler  obligor
contracts as Warrantech  obligor contracts for financial  purposes,  the Company
excludes from its financial  statements the transactions  between Warrantech and
Butler. Adopting these policies for accounting 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.


                                       7
<PAGE>

Federal and State Regulation

     The service contract and limited warranty  programs  developed and marketed
by the  Company's  subsidiaries  and their related  operations  are regulated by
federal law and the  statutes  of a  significant  number of states.  The Company
continually  reviews all  existing  and proposed  statutes  and  regulations  to
ascertain  their  applicability  to its existing  operations,  as well as to new
programs that the Company is developing.

     Generally,  these statutes apply to the scope of service contract  coverage
and  content of the  service  contract or limited  warranty  document.  Statutes
typically  require that specific wording expressly stating the consumer's rights
in  the  event  of a  claim,  how  the  service  contract  may be  canceled  and
identification   of  the  insurance   company  that   indemnifies  the  dealers,
distributors or  manufacturers  against loss for performance  under the terms of
the service contract.

     Insurance  departments in some states have sought to interpret the consumer
product service contract, or certain items covered under the contract, as a form
of  insurance  requiring  that  the  issuer  be a duly  licensed  and  chartered
insurance  company.  The  Company  does  not  believe  that  it or  any  of  its
subsidiaries  is an insurer and has no  intention  of filing the  documents  and
meeting  the capital and surplus  requirements  that are  necessary  to obtain a
license as an insurance company.

     There are instances where the  applicability of statutes and regulations to
programs  marketed and  administered  by the Company and  compliance  therewith,
involve  issues of  interpretation.  The Company uses its best efforts to comply
with  applicable  statutes  and  regulations  but  it  cannot  assure  that  its
interpretations,  if challenged,  would be upheld by a court or regulatory body.
In any  situation  in which the  Company  has been  specifically  notified  by a
regulatory  body that its methods of doing business were not in compliance  with
state regulations, the Company has taken the steps necessary to comply.

     If the Company's  right to operate in a state is  challenged  successfully,
the Company may be required to cease  operations  there and the state might also
impose  financial  sanctions  against the Company.  These  actions,  should they
occur, could have an adverse consequence on the Company's  operations.  However,
within the framework of currently known  statutes,  the Company does not believe
that this is a present concern.

     The Company has begun a reorganization  of its subsidiaries  structure,  in
order to reduce its state  franchise tax  obligation,  involving the transfer of
some  of  the  Company's   operations   from   corporate   entities  to  limited
partnerships.  The only effect of this  reorganization  should be a reduction of
the Company's franchise tax obligation.

Intellectual Property

     The Company holds numerous  registered United States  trademarks,  the most
important of which are the "Warrantech" and its stylized "W" logo service marks.
Additional  service marks are registered  covering  subsidiary names and product
names and descriptions,  such as "Repairmaster(R),"  "RepairGuard(R),"  "Xchange
Card(R)"  and  "VSCOnline(R)."  The  Company  has kept,  and intends to keep the
registration for all service marks current.


                                       8
<PAGE>

     The Company developed proprietary software that consists of custom designed
relational databases with interactive capabilities.  Essential to the success of
Warrantech  Automotive  and  Warrantech  Consumer  Products is their  ability to
capture,  maintain,  track and analyze all relevant data regarding the contracts
they administer.  Development  costs  associated with this proprietary  software
have been  capitalized  and are being amortized over the expected useful life of
the software.

Employees

     As of March 31, 2003 the Company and its subsidiaries had approximately 372
employees,  a decrease of approximately nine employees from the preceding fiscal
year. As of May 30, 2003, the Company had approximately  382 employees.  None of
the Company's employees are covered by a collective  bargaining  agreement.  The
Company considers its relations with its employees to be good.


                                       9
<PAGE>

                                     PART II

ITEM 6.       SELECTED FINANCIAL DATA

     The  Selected  Financial  Data  should  be read  in  conjunction  with  the
consolidated  financial  statements  and  related  notes as of and for the years
ended March 31,  2003,  2002 and 2001.  The Selected  Financial  Data for fiscal
2003,  2002,  2001 and  2000  have  been  restated.  See Item 7. -  Management's
Discussion  and Analysis and Note 3 to the notes to the  consolidated  financial
statements.

<TABLE>
<CAPTION>
                                                                          FOR THE YEARS ENDED MARCH 31,
                                              ------------------------------------------------------------------------------------
                                                2003                 2002             2001               2000             1999
                                              RESTATED             RESTATED         RESTATED           RESTATED
                                              -------------     -------------     -------------     -------------    -------------
<S>                                           <C>               <C>               <C>               <C>              <C>
Gross Revenues                                $ 146,754,611     $ 118,137,862     $ 130,504,455     $ 160,340,480    $ 148,868,791
Net (increase) decrease in deferred
revenues                                        (48,517,264)      (23,379,415)      (32,982,493)       17,826,321      (30,640,470)
Net revenues                                  $  98,237,347     $  94,758,447     $  97,521,962     $ 178,166,801    $ 118,228,321
                                              =============     =============     =============     =============    =============
Profit (loss) from operations                 $   1,079,235     ($ 25,785,314)    ($ 18,924,065)    ($  7,545,959)   ($ 12,232,124)
                                              =============     =============     =============     =============    =============
Net income (loss)                             $   1,466,894     ($ 16,513,704)    ($ 11,908,073)    ($  5,368,872)   ($  7,639,725)
                                              =============     =============     =============     =============    =============
    Basic earnings (loss) per common share    $        0.10     ($       1.08)    ($       0.78)    ($       0.35)   ($       0.51)
                                              =============     =============     =============     =============    =============
    Diluted earnings (loss) per common
      share                                   $        0.10     ($       1.08)    ($       0.78)    ($       0.35)   ($       0.51)
                                              =============     =============     =============     =============    =============
    Cash dividend declared                             None              None              None              None             None
                                              -------------     -------------     -------------     -------------    -------------
Total assets                                  $ 260,245,878     $ 209,631,605     $ 163,454,040     $ 149,153,101    $ 186,910,270
                                              =============     =============     =============     =============    =============

Long-term debt and capital lease
obligations                                   $   1,218,670     $     957,159     $   1,209,853     $   1,668,478    $   2,420,967
                                              =============     =============     =============     =============    =============

Common stockholders' equity (deficit)         ($ 25,471,901)    ($ 26,460,501)    ($  9,715,827)    $   2,519,870    $  10,400,002
                                              =============     =============     =============     =============    =============
</TABLE>


                                       10
<PAGE>


                     WARRANTECH CORPORATION AND SUBSIDIARIES

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND   ANALYSIS  OF  FINANCIAL  CONDITION  AND
         RESULTS  OF  OPERATIONS   CAUTIONARY   STATEMENT  REGARDING  RISKS  AND
         UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

      Except  for the  historical  information  contained  herein,  the  matters
discussed  below or elsewhere  in this Annual  Report on Form 10-K/A 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 Annual Report on Form 10-K/A,  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,  (a)
prevailing  economic  conditions which may  significantly  deteriorate,  thereby
reducing the demand for the Company's products and services, (b) availability of
technical  support  personnel  or  increases  in the  rate of  turnover  of such
personnel,  resulting from increased  demand for such qualified  personnel,  (c)
changes in the terms or  availability  of insurance  coverage for the  Company's
programs,  (d) regulatory or legal changes affecting the Company's business, (e)
loss of business from, or significant  change in  relationships  with, any major
customer,  (f) the ability to  successfully  identify  and contract new business
opportunities, both domestically and internationally,  (g) the ability to secure
necessary  capital for general  operating or expansion  purposes,(h) the adverse
outcomes of litigation,(i)  the non-payment of notes due from an officer and two
directors  of the Company in 2007,  (j) the  inability  of any of the  insurance
companies which insure the service  contracts  marketed and  administered by the
Company to pay the claims under the service contracts and (k) the termination of
extended credit terms being provided by the Company's current insurance company.
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 or the
Company's  financial  condition  may vary  materially  from  those  anticipated,
estimated  or expected  and there could be a  materially  adverse  effect on the
Company's business.

SEC REVIEW OF THE COMPANY'S FILINGS

      In March of 2003, the staff of the Division of Corporation  Finance of the
Securities and Exchange  Commission  selected the Company's periodic reports for
review.  The reports reviewed were the Annual Report on Form 10-K for the fiscal
year ended March 31, 2002 and the Quarterly Reports on Form 10-Q for the periods
ended June 30, 2002,  September  30, 2002 and  December 31, 2002.  The SEC Staff
informed the Company that the purpose of the review was to assist the Company in
its  compliance  with  applicable  disclosure  requirements  and to enhance  the
overall  disclosure in the Company's  reports.  In the course of its review, the
SEC Staff requested  clarification  of certain of the Company's  disclosures and
items in its financial statements. Additionally, as a result of discussions with
the SEC's Division of Corporation, the Company requested guidance from the SEC's
Office of Chief  Accountant  concerning,  among other  things,  the  appropriate
revenue  recognition  policy which should be applied by the Company with respect
to the Butler obligor  contracts.  After  considering the guidance received from
the SEC Staff, the Company is restating its financial  statements for the fiscal
years ending on March 31,  2001,  2002 and 2003 in order to change the method of
recognizing  revenue from service contracts in which Butler is the named obligor
and to give  effect  to  certain  transactions  which  relate  to  such  service
contracts. These changes are reflected in Footnote 3 to the Financial Statements
in this Report and in the following respects.


                                       11
<PAGE>

            o The Company has recognized revenues from contracts in which Butler
was the obligor on a straight-line basis over the life of the service contracts.

            o The Company has set up a loss  reserve for the  estimated  cost of
all claims under service contracts previously insured by Reliance.

            o The Company has eliminated any  contractual  obligations  recorded
with Butler.

            o  Additionally,  the  Company  now  presents  line  items for Gross
Revenue, Direct Costs and Gross Profit in its financial statements.  Previously,
the Company had only recognized revenue on a net basis.

      The Company, with the concurrence of its outside auditors,  had previously
accounted for the  Butler-related  transactions based upon the legal obligations
of  the  parties  and  the   regulatory   requirements   which  applied  to  the
transactions. The changes which the Company has adopted are solely for financial
reporting  purposes.  Butler will remain  responsible  for the same  obligations
under the  service  contracts  which  existed  prior to the change in  financial
presentation.  The obligations of Butler under all service  contracts sold after
July 25, 2000 were, and continue to be, assumed by an A-rated  insurance carrier
which is a subsidiary of a New York Stock Exchange Company with over $19 billion
in assets.  Butler also remains the licensed  entity which is  recognized as the
obligor under the service  contracts  regulated by the insurance  departments in
all the states in which Butler does business.

      These accounting  changes do not have an impact on Warrantech's cash flows
or its cash  balances  which the  Company  believes  drives  its  business.  The
deferral of  revenues  from prior  periods  resulted  in a  significant  current
negative  net worth  and a  corresponding  increase  in  deferred  income on the
Balance Sheet. However, the revenue recognition accounting change will also have
a positive effect on the results for future periods.

GENERAL

      Warrantech, through its wholly owned subsidiaries, markets and administers
service contracts,  extended  warranties and replacement plans. The Company is a
third party administrator for a variety of dealer/clients in selected industries
and offers call center and  technical  computer  services.  The Company  assists
dealer/clients  in obtaining  insurance  policies from highly rated  independent
insurance  companies  for all  contracts  and programs  offered.  The  insurance
company is then  responsible  for the cost of repairs  or  replacements  for the
contracts administered by Warrantech.

      The  Company  operates  in  three  major  business  segments:  Automotive,
Consumer  Products  and  International.   The  Automotive  segment  markets  and
administers  extended  warranties on  automobiles,  light  trucks,  motorcycles,
recreational  vehicles and  automotive  components.  These  warranties  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  home
appliances, consumer electronics,  televisions, computers, home office equipment
and homes which are sold principally by retailers, distributors,  manufacturers,
utility  companies and  financial  institutions.  Warrantech  also markets these
warranties   and  plans   directly  to  the  ultimate   consumer  on  behalf  of
retailers/dealers  and for  manufacturing  programs  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.


                                       12
<PAGE>

      The Company's  service contract  programs  benefit  consumers by providing
them with expanded and/or extended  product  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
service contract programs benefit the dealer/clients by providing enhanced value
to the goods and services they offer and by providing them with the  opportunity
for  increased  revenue  and income  without the costs and  responsibilities  of
operating an extended warranty program.

      The service  contracts,  extended  warranties  and  replacement  contracts
generally  have terms ranging from three (3) to one hundred twenty (120) months.
Since the Company  acts solely as a third party  administrator  on behalf of the
dealer/clients and insurance  companies,  the actual repairs and/or replacements
required  under  the  agreements  are  performed  by  independent   third  party
authorized repair facilities or dealers.  There is, under each service contract,
a party who is ultimately  responsible,  as obligor,  for the payment of amounts
necessary to pay for repairs,  if the insurance company is unable to. Under most
of the service contracts administered by the Company, either the retailer/dealer
("dealer obligor contracts") or Butler ("Butler obligor contracts") is the named
obligor. The Company is the named obligor for service contracts  ("administrator
obligor  contracts") only where required by the local  jurisdiction in which the
service contracts are sold.  Although Butler is an independently  owned company,
for financial  reporting  purposes,  for the reasons stated in Footnote 3 of the
Financial Statements annexed to this Report, the Company has adopted a policy to
treat the Butler obligor contracts as if they were contracts in which Warrantech
was the legal obligor. This accounting treatment does not affect Butler's or the
Company's  legal  obligations  and Butler  remains the legal  obligor  under the
service contracts in which it is the named obligor.

INSURER IN LIQUIDATION

      During  the second  fiscal  quarter of 2002,  the  Pennsylvania  Insurance
Commissioner  informed  the Company  that  Reliance,  which  previously  insured
service  contracts  administered  by the Company,  would be liquidated and cease
making payments on claims. The Pennsylvania  Insurance  Commissioner  determined
that  Reliance was not likely to be able to satisfy all of the claims that would
be submitted to it due to the  circumstances  arising out of the  September  11,
2001  terrorist  attacks  on  the  World  Trade  Center.   Reliance   underwrote
approximately  48% of  the  service  contracts  that  were  sold  by  Warrantech
Automotive  during the  approximately  one and one-half years ending in November
2001.  Approximately 52% of the automotive  service contracts sold by Warrantech
Automotive  during that period are not  affected  by the  Reliance  liquidation.
Service  contracts  sold before and after that period are not  affected  because
they are underwritten by other insurance companies.

      Warrantech Automotive was the named obligor, as well as the administrator,
under some of the vehicle service contracts insured by Reliance. As the obligor,
Warrantech Automotive would ultimately be responsible for paying for the repairs
under such  contracts.  Additionally,  for financial  reporting  purposes  only,
Warrantech is treated as the obligor under the service contracts in which Butler
is the named obligor. While Warrantech is not obligated to pay claims under such
service  contracts,  it has  treated  the  claims  obligations  under the Butler
obligor  contracts,  including  the  service  contracts  which  were  insured by
Reliance,  as obligations of the Company for financial  reporting purposes only.
Prior to Reliance's liquidation,  Reliance covered the cost of the repairs under
the insurance policies it provided. Because of Reliance's liquidation, insurance
coverage for the Company's  obligations  under those service contracts ceased to
exist. However, a non-insurance affiliate of Reliance, Reliance Warranty Company
(RWC), which was not placed in liquidation, held premiums totaling approximately
$15,892,635 relating to a portion of the service contracts in which Butler, the
retailer/dealers and Warrantech Automotive were the named obligors.


                                       13
<PAGE>

      To  mitigate  its  claims  liability  expense  resulting  from  Reliance's
liquidation, the Company is attempting to ascertain if any recovery is available
from the  Pennsylvania  Insurance  Department  Insurance  Funds and/or any other
state  guaranty funds or if any Federal  subsidies to the insurance  industry in
general or  Reliance  specifically,  will be made  available  as a result of the
terrorist  attacks to pay vehicle service contract claims. If such subsidies are
available, it could take years before recovery, if any, is obtained.

      The Company is aware that significant  financial  pressures were placed on
insurance  companies,  due to the terrorist attacks on the World Trade Center on
September  11,  2001;  however,  the  Company is not aware  that Great  American
Insurance Company, which insures most of the obligations under the other service
contracts marketed and administered by the Company,  is under any such financial
pressures.  If for any reason,  an insurance company is not able to cover claims
under the service contracts  marketed and administered by the Company due to its
financial insolvency or other reasons,  there could be a material adverse effect
on the Company's future business.

BUTLER

      Since  April 1, 2000,  Butler,  a company  unrelated  to  Warrantech,  but
included in the Company's financial results for the reasons stated in Footnote 3
of the financial statements annexed to this report,  serves as the obligor under
all service contracts administered by the Company, in exchange for a fee payable
by the dealers.  ("Butler obligor  contacts").  Butler also has agreed to assume
certain  obligations under the service  contracts insured by Reliance,  in which
the Company and its obligors were formerly the obligors.

      In all circumstances, regardless of which entity is the named obligor, the
obligations  under the  service  contracts  are  insured by an A-rated  licensed
insurance company.  The insurance policy indemnifies the dealer/clients  against
losses resulting from service contract claims and protects consumers by ensuring
their claims will be paid. If the insurer  honors its  obligations,  it will pay
all claims and neither the Company nor Butler will have any responsibility under
the  Company's  service  contracts.  If,  however,  the insurer  fails to make a
payment for a repair, the named obligor will be responsible for the payment

      Some of the service contracts under which Butler,  the  retailer/dealer or
the Company were the named obligor were insured by Reliance.  As a result of the
claims made under its policies  subsequent to September  11, 2001,  Reliance was
liquidated  which  eliminated  insurance  coverage under those  Reliance-insured
contracts.  As the named obligor under some of the service contracts  previously
insured by  Reliance,  Warrantech  Automotive  was the  obligor,  as well as the
administrator.  Prior  to its  liquidation,  Reliance  covered  the  cost of the
repairs  under the  agreements it insured.  Because of  Reliance's  liquidation,
insurance  coverage for the Company's  obligations under those service contracts
ceased to exist.  As the obligor,  Warrantech  Automotive  would  ultimately  be
responsible for paying for the repairs under those service contracts.

      Funding  to cover  the  uninsured  claims  from  Reliance-insured  service
agreements  will be provided by a special  surcharge  payable on certain vehicle
service contracts administered by the Company and which were sold after November
19, 2001 by dealer/agents  through which the Reliance-insured  service contracts
were sold.  Butler will use these funds to pay the claims  which would have been
paid by  Reliance.  The Company  received  $15,892,635  from  Reliance  Warranty
Company ("RWC") during the fourth quarter of fiscal 2004 as part of a settlement
for claims  paid by the  Company on behalf of RWC.  As a result of the  expected
settlement,  Butler recorded a claims liability  expense for $19,591,713  during
fiscal 2002, net of the $15,892,635 receivable from RWC.


                                       14
<PAGE>

RESULTS OF OPERATIONS

      The  following   information  should  be  read  in  conjunction  with  the
information  contained in the  Consolidated  Financial  Statements and the Notes
thereto included in "Item 8 - Financial  Statements and  Supplementary  Data" of
this Annual Report.

                                 GROSS REVENUES

                                       FOR THE YEARS ENDED MARCH 31,
                           ---------------------------------------------------
                               2003               2002              2001
                             RESTATED           RESTATED          RESTATED
                           --------------    ---------------   ---------------
      Gross revenues        $146,754,611       $118,137,862      $130,504,455
                           ==============    ===============   ===============


                                       15
<PAGE>


      Gross revenues for the year ended March 31, 2003 increased  $28,616,749 or
24% over 2002. The  Automotive and  International  segments  reported  increased
gross  revenues of 38%, and 19%  respectively,  in the year ended March 31, 2003
over 2002, while the Consumer  Products segment reported a slight 6% decrease in
gross revenues  during the same period.  Gross revenues for the year ended March
31, 2002  decreased  $12,366,593  or 9% from the year ended March 31, 2001.  The
Automotive  segment reported  increased gross revenues of 14%, in the year ended
March 31, 2002 compared to 2001, while the Consumer  Products and  International
segments reported decreased gross revenues of 38% and 6%, respectively. The loss
of the  contract  with  a  customer  which  represented  10%  of  the  Company's
consolidated  gross  revenues and 27% of the  Consumer  Products  segment  gross
revenues  during fiscal year 2001, had an adverse impact on both the Company and
its Consumer Products segment during the years ended March 31, 2002 and 2001.

                                  DIRECT COSTS

                                    FOR THE YEARS ENDED MARCH 31,
                            ----------------------------------------------
                                2003            2002             2001
                            -------------   -------------    -------------
Direct costs                 $62,549,340     $67,023,904      $70,615,386
                            =============   =============    =============

      Direct  costs are those  costs  directly  related  to the  production  and
acquisition  of service  contracts.  These costs consist  primarily of insurance
premiums and commission  expenses.  Direct costs for the fiscal year ended March
31, 2003 were $62,549,340 as compared with $67,023,904 for the fiscal year ended
March 31,  2003,  a decrease of 7%.  Direct  costs as a percent of net  revenues
decreased from 71% in 2002 to 64%. This favorable  change is attributable to the
increase  in the  Automotive  segment  which  has a higher  gross  margin  and a
decrease in the Consumer Products segment which has a lower gross margin. Direct
costs for the fiscal year ended March 31, 2002  decreased  $3,519,482  (5%) from
$70,615,386  for the fiscal year ended March 31, 2003.  These  reduced costs are
directly  related to the reduced  revenues  in 2002 as  compared  to 2001.  As a
percent of net revenues,  direct costs remained  constant.  Direct costs for the
fiscal year ended March 31, 2002 were  $67,023,904 as compared with  $70,615,386
for the fiscal year ended March 31, 2003.

                           CLAIMS EXPENSE - RELIANCE

                                      FOR THE YEARS ENDED MARCH 31,
                              ----------------------------------------------
                                  2003            2002             2001
                              -------------   -------------    -------------
Claims expense - Reliance                -     $19,591,713                -
                              =============   =============    =============

Because of the  Reliance  liquidation,  insurance  coverage  for  certain of the
Company's  obligations under service contracts insured by Reliance was no longer
available. Although Butler is the legal obligor, the Company, in accordance with
SEC guidance  recorded a $19,591,713  estimated claims liability for current and
future  claims  related  to  the  Reliance  insurance  obligations,  net  of the
$15,892,632  receivable  from RWC.  The Company  received  $15,892,635  from RWC
during the fourth quarter of fiscal 2004 as part of a settlement for claims paid
by the Company on behalf of RWC.

                          LOSS ON ABANDONMENT OF ASSETS

      Effective  September 30, 2000, the Company ceased operations in the United
Kingdom as a result of the  unprofitably  of the operations and recorded a loss.
The loss on abandonment of assets was $1,029,731 for the fiscal year ended March
31, 2001.

                                      SG&A

                                         FOR THE YEARS ENDED MARCH 31,
                                 ----------------------------------------------
                                     2003            2002             2001
                                   RESTATED        RESTATED         RESTATED
                                 -------------   --------------   -------------
Legal settlement                            -       ($824,332)               -
Service, selling and general
administrative                    $30,573,275      $30,272,034     $38,368,728
                                 =============   ==============   =============


                                       16
<PAGE>

      Service, selling and general and administrative expenses ("SG&A") for 2003
increased  $301,241 or 4%  compared  to 2002,  which did not include an $824,332
legal  settlement  the  Company  received  in  2002.  Legal  expenses  increased
$1,656,377 for the year ended March 31, 2003 compared to 2002,  primarily due to
litigation  expenses related to several lawsuits that were settled during fiscal
year 2003 which were offset by lower employee  costs and telephone  costs during
2003.  Reflecting the Company's  continued cost containment  measures,  employee
costs were down  $780,565,  or 4%, from  $18,280,522 in the year ended March 31,
2002 to $17,499,957,  while telephone expenses were reduced 39% or $951,446 from
$2,418,892  in the year ended March 31, 2002 as  compared to  $1,467,446  in the
year ended March 31, 2003.  Rent expense  increased from $1,415,104 for the year
ended March 31, 2002 to $1,862,654 for the year ended March 31, 2003, reflecting
the Company's move to its new corporate headquarters in Bedford, Texas.

      SG&A expenses for 2002,  excluding the legal  settlement,  were reduced by
$8,096,694,  or 21%,  compared to 2001.  The decrease  reflected  the  Company's
improved call center technologies,  cost containment measures and the closing of
its United Kingdom operations.  Total employee and payroll related expenses were
down  $3,767,040,  or 17%, from  $22,266,688 for the fiscal year ended March 31,
2001 to $18,280,522 for the fiscal year ended March 31, 2002. Additionally,  the
decrease in SG&A  expenses  reflected  the  reimbursement  by AIG of $824,332 in
August  2001 for legal fees  associated  with its lawsuit  against the  Company.
Outside  services,  including  consulting and legal fees were down $3,631,641 or
56% from $6,479,205 in the fiscal year ended March 31, 2001 to $2,847,564 in the
fiscal year ended March 31, 2002, primarily due to the settlement with AIG and a
reduction in computer system development. Rent expense for the fiscal year ended
March 31, 2002 decreased  $1,013,725 from the prior year, primarily as result of
the Company's  relocation of its  headquarters  to Texas and to a lesser degree,
the closing of its United Kingdom offices.


                                       17
<PAGE>


                          DEPRECIATION AND AMORTIZATION

                                   FOR THE YEARS ENDED MARCH 31,
                        ---------------------------------------------------
                             2003              2002               2001
                        --------------   ---------------    ---------------
   Depreciation and
     amortization          $3,885,054        $4,480,442         $6,417,115
                        ==============   ===============    ===============


      Depreciation and amortization  expenses were reduced by $595,388,  or 13%,
during 2003 compared to 2002. The decrease in depreciation  and  amortization is
the result of the Company's  assets maturing and continued  reduction of capital
expenditures for the past few years. Depreciation and amortization expenses were
reduced by  $1,936,673,  or 30%,  during 2002 compared to 2001. The decrease was
partially  the  result of the early  adoption  of SFAS 142,  which  allowed  the
Company to elect not to amortize its remaining  goodwill and the maturing of the
Company's net property and equipment.  Amortization  of $919,466 in goodwill was
charged  to  operations  in 2001 with no  amortization  in  subsequent  periods.
Additionally,  depreciation was lower in during 2002 versus 2001, as a result of
the Company closing its United Kingdom operations.


                                  OTHER INCOME

<TABLE>
<CAPTION>
                                                          FOR THE YEARS ENDED MARCH 31,
                                             ----------------------------------------------------------
                                                  2003                2002                  2001
                                                RESTATED            RESTATED              RESTATED
                                             --------------- -- ------------------ -- -----------------
<S>                                                <C>                   <C>               <C>
Interest and dividend income                      $647,372              $855,877           $1,292,335
Interest expense                                  (275,185)             (217,072)            (234,102)
Gain (loss) on sale of assets                      (70,463)              (45,018)             (23,258)
Credit card usage rebate                           453,760               147,735                   --
Miscellaneous income (expense)                      18,790               115,944              (12,463)
                                             --------------- -- ------------------ -- -----------------
    Total other income (expense)                  $774,274              $857,466           $1,022,512
                                             =============== == ================== == =================
</TABLE>

      Other  income  for  2003  decreased  $83,192,  or 10%,  compared  to 2002,
primarily  due to a decrease in interest and dividend  income and an increase in
interest  expense,  which was offset by an increase in the amount of rebates the
Company received from a credit card company. Other income decreased $165,045, or
16%, during 2002, primarily as a result of lower interest and dividend income as
the Company decreased its amount of investments in marketable  securities during
2002 from 2001.


                               INCOME TAX EXPENSE

                                FOR THE YEARS ENDED MARCH 31,
                      -----------------------------------------------------
                             2003              2002              2001
                           RESTATED          RESTATED           RESTATED
                      -----------------------------------------------------
Income taxes
  expense (benefit)       $386,616         ($8,414,144)       ($5,993,480)
                      =====================================================


      The net deferred tax asset as of March 31, 2003, 2002 and 2001 contained a
benefit of $205,470,  $594,599 and  $280,625,  respectively,  related to foreign
losses.  Management expects to realize a portion of this tax benefit,  which has
an indefinite  carry-forward period,  against future foreign income.  Management
has reserved the amount of this benefit, which it presently believes is not more
likely than not to be realized.


                                       18
<PAGE>

                              COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                          FOR THE YEARS ENDED MARCH 31,
                                               ----------------------------------------------------
                                                   2003              2002                2001
                                                 RESTATED          RESTATED            RESTATED
                                               -------------    ----------------    ---------------
<S>                                              <C>              <C>                  <C>
Net income (loss)                                $1,466,894       ($16,513,704)        (11,908,073)
Other Comprehensive Income (loss), net of tax
   Unrealized gain (loss) on investments             13,713             (8,936)             30,001
   Foreign currency translation adjustments       (158,659)            (11,143)             82,182
                                               -------------    ----------------    ---------------
Comprehensive income (loss)                      $1,321,948       ($16,533,783)        (11,795,890)
                                               =============    ================    ===============

Comprehensive income (loss) per share:                $0.09             ($1.08)            ($0.77)
                                               =============    ================    ===============
</TABLE>


      Losses from foreign  currency  translation  adjustments for the year ended
March 31, 2003 increased $147,516 compared to 2002 primarily due to increased to
Peru and Chile foreign currency translation losses. Losses from foreign currency
translation  adjustments  for the year  ended  March  31,  2002 were $ 11,143 as
compared to a gain of $82,182 in 2001  primarily due to increased Peru and Chile
foreign currency translation losses.

AGREEMENTS

      The Company  entered into  agreements  with Butler and GAIC to arrange for
the coverage of claims filed under the service contracts  previously  insured by
Reliance. Under these agreements, Butler agreed to assume all the obligations to
pay the claims  under the service  contracts  which were covered by the premiums
being held by RWC. The Company executed an agreement with GAIC that provides the
Company  with  extended  payment  terms and a $3 million  line of credit  ("GAIC
Agreement").  All of the  Company's  obligations  to GAIC  pursuant  to the GAIC
Agreement are secured by all of the Company's accounts receivable. Further, GAIC
received options to purchase up to 1,650,000 shares of Warrantech's common stock
at an exercise price of $2.00 per share subject to certain  adjustments.  In the
event that GAIC exercises all of these options, it would own approximately 10.8%
of the Company's outstanding shares.

      Under an agreement between Butler and RWC that was concluded in the fourth
quarter of 2004,  $15,892,635  of funds held by RWC were remitted to the Company
in  repayment  of the money  which the  Company  had  advanced  to pay claims on
certain service  contracts that had been insured by Reliance and its affiliates.
The $15,892,635 is reflected as "Receivable  from Reliance" on the  consolidated
balance sheet at March 31, 2003 and 2002. The Company agreed,  as a condition of
RWC remitting the $15,892,635,  to guarantee certain indemnification obligations
of Butler under its agreement with Reliance.

      The following table sets forth the carrying amounts and fair values of the
Company's notes receivable and other receivables at March 31, 2003.

<TABLE>
<CAPTION>
                                                          EXPECTED MATURITY DATE
                                 ------------------------------------------------------------------------
                                     2004         2005      2006         2007         2008     THEREAFTER   TOTAL     FAIR VALUE
                                 -------------------------------------------------------------------------------------------------
<S>                              <C>             <C>      <C>          <C>           <C>       <C>      <C>          <C>
Receivable from RWC              $15,892,635       --        --           --           --           --  $15,892,635  $15,892,635
Other receivable - 0%  interest    5,299,887       --        --           --           --           --    5,299,887    5,299,887
</TABLE>


      The following table sets forth the carrying amounts and fair values of the
Company's notes receivable at March 31, 2002.


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                          EXPECTED MATURITY DATE
                                 ------------------------------------------------------------------------
                                     2003         2004         2005      2006        2007      THEREAFTER  TOTAL      FAIR VALUE
                                 -------------------------------------------------------------------------------------------------
<S>                             <C>           <C>            <C>       <C>         <C>         <C>      <C>          <C>
Note receivable - other         $   137,683           --        --        --           --           --  $   137,683  $   137,683
 Receivable from RWC                     --   15,892,635        --        --           --           --   15,892,635   15,892,635
Other receivable - 0% interest    2,149,667           --        --        --           --           --    2,149,667    2,149,667
</TABLE>

      Funding for the claims loss  liability is provided by a special  surcharge
payable on certain  vehicle  service  contracts  administered by the Company and
sold after  November 21, 2001.  The surcharge is paid by agents through whom the
Reliance-insured  service  contracts were sold. The Company will use these funds
to pay the claims previously insured by Reliance.

      During  the  years  ended  March  31,  2003 and  2002,  the  Company  paid
$10,959,364  and  $5,770,999,   respectively,  in  claims  related  to  Reliance
obligations. Remaining amounts are expected to be paid out at March 31, 2003 are
set forth in the following table.

<TABLE>
<CAPTION>
                                                            EXPECTED PAYMENT DATE
                                 -----------------------------------------------------------------------------
                                      2004         2005         2006             2007        2008    THEREAFTER      TOTAL
                                 ---------------------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>               <C>          <C>      <C>          <C>
Claims loss liability            $ 9,262,407  $ 5,608,893  $ 3,882,685           --          --     $    --      $18,753,985
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

      As of March  31,  2003,  total  cash and  short-term  investments  totaled
$7,266,510,  a decrease of $1,387,420 or 16% from  $8,653,930 at March 31, 2002.
During the fiscal year ended March 31, 2003, the Company's  operations  provided
$1,248,341  of net cash compared to cash from  operations of $4,838,329  for the
fiscal year ended March 31, 2002. The change in net cash from operations is from
the cash used to pay Reliance claims net of the surcharges received from dealers
in the current  period.  The  favorable  changes in its working  capital  from a
negative  $14,704,405  at March 31, 2002 to a negative  $4,011,145  at March 31,
2003 resulted  primarily from a $15.9 million  current  receivable from Reliance
that had been classified as an other asset at March 31, 2002. During fiscal year
2003,  the Company  increased  its other  accounts  receivables  by $3.6 million
resulting from extended terms on a portion of its new automotive  business.  The
Company offset the use of those funds with an increase in its insurance  premium
payable of $9.6  million,  primarily  due to  extended  terms from its  insurer,
thereby  generating  a source of cash for the  fiscal  year.  The  Company  also
generated a source of cash with a reduction in the income tax receivable.

      The Company  believes that internally  generated  funds, the collection of
the  $15,892,635  receivable  from Reliance  Warranty  which  occurred in fourth
quarter  fiscal year 2004 and the $3 million  line of credit from GAIC,  will be
sufficient  to  finance  its  current  operations  for at least the next  twelve
months. 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.

      During the fiscal year ended March 31, 2003,  the Company used  $1,525,541
in cash in  investing  activities  compared  to the use of $49,330 in  investing
activities  in the prior year.  This  increase in use of funds of  $1,476,211 is
primarily  due to an  increase  capital  spending  and a  reduction  in the  net
proceeds from the sale and purchase of marketable securities. During the current
fiscal year, the Company spent less on computer development but more on property
and  equipment  purchases  than in the  prior  year,  as the  Company  increased
spending to furnish its new headquarters.  The Company has ongoing relationships
with equipment  financing  companies and intends to continue  financing  certain
future equipment needs through leasing  transactions.  The total amount financed
through  leasing  transactions  during the  fiscal  year  ended  March 31,  2003
amounted to $1,120,273  compared to $594,797  during the fiscal year ended March
31,  2002.  At fiscal year end 2003,  the Company  had  $2,020,740  in debt from
capital lease obligations compared to $1,758,793 at fiscal year-end 2002.


                                       20
<PAGE>

      During the fiscal year ended March 31, 2003,  the Company used $999,548 in
cash from  financing  activities  compared to $561,087 in fiscal year 2002.  The
variance was primarily due an increase in the Company's  capital  leases and the
purchase of treasury stock.

      During the fiscal  year ended  March 31,  2003,  the  Company  repurchased
259,753  shares of its common  stock for  treasury  purposes for an aggregate of
$155,774.  During the fiscal  year ended  March 31,  2002,  the  Company did not
repurchase any of its stock.

LOANS TO DIRECTORS

      On July 6,  1998,  Joel  San  Antonio,  Warrantech's  Chairman  and  Chief
Executive Officer,  and William Tweed and Jeff J. White, members of Warrantech's
Board of Directors,  exercised an aggregate of 3,000,000 of their vested options
to purchase  Warrantech common stock.  Promissory notes totaling $8,062,500 were
signed  with  interest  payable  over three  years at an annual  rate of 6%. The
promissory notes, which were with recourse and secured by the stock certificates
issued,  matured July 5, 2001. On March 22, 1999, Joel San Antonio  delivered an
additional  promissory note for $595,634,  payable to the Company,  representing
the amounts  funded by the Company for the payroll taxes payable by him upon for
the  exercise of these  options.  The  exercise  of these stock  options and the
anticipated  tax benefit from this  transaction  represented  approximately  $10
million.  These  amounts are  recorded as a  contra-equity  account,  which is a
reduction of stockholders' equity.

      In February 2000, the Company agreed to restructure the loans to Mr. Tweed
and Mr. White by  capitalizing  the interest due and extending the loan maturity
from July 5, 2001 until  January 31, 2005.  Interest on the  restructured  loans
accrued   annually  at  the   applicable   federal  rate  of  6.2%.   Under  the
restructuring,  interest  first became  payable on the third  anniversary of the
restructuring  and was payable  annually  thereafter.  In July 2002, the Company
extended the loan maturity dates until February 1, 2007 (the "loan  extension").
The interest,  which accrued on the notes up to the time of the loan  extension,
was added to the principal of the notes. The new principal amount of Mr. Tweed's
note became  $3,189,675 and the new principal  amount of Mr. White's note became
$2,912,430. The applicable federal interest rate on the notes following the loan
extension is 4.6%.  Under the loan extension,  interest on the notes will accrue
until February 1, 2005 and, at that time, the accrued  interest will be added to
the  principal of the notes.  Interest on the new principal  amounts  thereafter
become payable annually until maturity.

      In February 2000, the Company also agreed to restructure  the two existing
loans to Mr. San Antonio (as restructured,  the "Combined  Loan").  The Combined
Loan,  finalized in March 2001, was due on January 31, 2005 and accrued interest
annually at 5.2%.  In July 2002,  the Company  extended the loan  maturity  date
until February 1, 2007 and the interest rate was changed to the then  applicable
federal rate of 4.6%.  The  principal  amount of Mr. San  Antonio's  note became
$4,165,062. Interest will be forgiven as long as Mr. San Antonio continues to be
employed by the Company.  The $200,506 and $330,631 of interest which accrued on
the note during fiscal years 2003 and 2002 has been  forgiven.  The interest was
charged to operations as additional  compensation in the respective fiscal years
the interest income was accrued.

      The total amount of the restructured loans to Mr. Tweed, Mr. White and Mr.
San Antonio,  including the capitalized interest of $194,827, was $10,462,094 at
March 31, 2003


                                       21
<PAGE>


OUTLOOK

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

      The Company  continued to improve customer service and technology with the
introduction  in  fiscal  2002  of its  innovative  web-based  platform  for its
Consumer Products segment. WCPS Online provides real-time capabilities that meet
the needs of dealers,  service providers and consumers. It is designed to reduce
paperwork and cut the time and costs of administering warranties for dealers and
service  providers,  while providing a better  experience and faster service for
their  customers.  The future  profitability  of this  segment of the Company is
dependent  on its  ability to provide  technology  and  customer  service and to
acquire new business.  The Company is currently negotiating with prospective new
customers  which are projected to begin  programs in fiscal year 2004.  Based on
these events developing, the segment should not incur losses this fiscal year.

      During the previous  fiscal  year,  the Company  signed an agreement  with
MARTA  Cooperative  of America,  one of the largest  member-owned  retail buying
cooperative in the U.S. consumer  electronics and appliance.  In April 2003, the
Company announced that it had signed agreements with more than 10% of the buying
cooperatives consumer electronics and appliance retailers.

      The Company  announced in fiscal 2002 that an  agreement  had been reached
with AIG "  Automotive  Investment  Group" to  provide  marketing  services  for
reinsurance programs for large automobile dealerships. The terms of the contract
allowed  Warrantech  Automotive to begin marketing a new reinsurance  program to
the nation's  larger  automobile  dealerships  on January 1, 2002.  This program
along with other new programs in the Automotive segment should allow the Company
to experience an increase in automotive  contracts sold  continuing  into fiscal
year 2004.

      The Company was notified that its major insurer will  implement an average
15%  increase  in  premium.  This  increase  will be passed onto the dealers and
agents.  As a result,  gross revenues and gross premium  expense will be higher,
but the premium  increase is expected to have a minimal  effect on the Company's
gross profit.

CRITICAL ACCOUNTING POLICIES

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

REVENUE RECOGNITION POLICY

      Revenue for  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 revenue on administrator  obligor contracts 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.

      Revenue  for  dealer  obligor  service  contracts  are  sales in which the
retailer/dealer is designated as the obligor.  For these service contract sales,
using the proportional  performance  method, the Company recognizes  revenues 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 thereon are deferred.


                                       22
<PAGE>

      Based upon  discussions  with the SEC's  Division of  Corporation  Finance
following that office's review of the Company's  periodic  reports,  the Company
requested guidance from the SEC's Office of Chief Accountant  concerning,  among
other things, the appropriate revenue recognition policy which should be applied
by the Company with respect to the Butler obligor  contracts.  After considering
the  guidance  received  from  the SEC  Staff,  Butler  was  determined  to be a
nominally  capitalized  entity,  and accordingly,  all  transactions  concerning
Butler  should be  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,
therefore, will treat the Butler obligor contracts as if they were administrator
obligor contracts and will recognize  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 from its financial  statements the transactions  between
Warrantech and Butler.

      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.

DIRECT COSTS

      Direct  costs,   which  consist   primarily  of  insurance   premiums  and
commissions,  are those costs directly related to the production and acquisition
of  service  contracts  for  administrative   obligor  service  contracts.   For
administrative  obligor service  contracts,  the Company  recognizes direct cost
according to Statement of Financial  Accounting  Standards No. 113 ("SFAS 113"),
"Accounting  and Reporting for Reinsurance of  Short-Duration  and Long Duration
Contracts".  This requires that insurance premium costs be ratably expensed over
the life of the service contract.

IMPAIRMENT OF LONG-LIVED ASSETS

      The Company assesses potential  impairment of its long-lived assets, which
include its property and  equipment  and its  identifiable  intangibles  such as
software development costs,  goodwill and deferred charges under the guidance of
SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived  Assets." Once
annually or as events or  circumstances  indicate that an asset may be impaired,
the Company assesses potential  impairment of its long-lived assets. The Company
determines  impairment by measuring the undiscounted  future cash flow generated
by the assets,  comparing the result to the assets  carrying value and adjusting
the asset to the lower of its carrying value or fair value and charging  current
operations for the measured  impairment.  At year ended March 31, 2003 and 2002,
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  March  31,  2003,  the  Company  had  deferred  tax  assets  of
$21,890,549 net of a valuation allowance of $256,434.


                                       23
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES

                                                                       Page No.

Report of Independent Auditors........................................    25

Consolidated Financial Statements:

         Statements of Operations and Comprehensive Income
         For the Fiscal Years Ended March 31, 2003, 2002 and 2001.....    26

         Balance Sheets as of March 31, 2003 and 2001.................  27-28

         Statements of Common Stockholders' Equity
         For the Fiscal Years Ended March 31, 2003, 2002 and 2001.....    29

         Statements of Cash Flows
         For the Fiscal Years Ended March 31, 2003, 2002 and 2001.....    30

Notes to Consolidated Financial Statements............................    31

Consolidated Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts.....................    55


All  other  schedules  for  which  provision  is made in  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related  instructions or are inapplicable and therefore have been omitted or the
information   is  presented  in  the   consolidated   financial   statements  or
accompanying notes.


                                       24
<PAGE>

              [LETTERHEAD OF WEINICK SANDERS LEVENTHAL & CO. LLP]

                                                                   1375 BROADWAY
                                                       NEW YORK, N.Y. 10018-7010
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS                                        212-869-3333
                                                              FAX:  212-764-3060
                                                                   WWW.WSLCO.COM


                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Warrantech Corporation

      We have audited the accompanying consolidated balance sheets of Warrantech
Corporation  and  Subsidiaries  as of March  31,  2003 and 2002 and its  related
consolidated   statements  of  operations  and  comprehensive   income,   common
stockholders'  equity and cash flows for the fiscal  years ended March 31, 2003,
2002 and 2001. Our audits also included the financial statement schedules listed
in the index.  These  consolidated  financial  statements  and schedules are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.

      We conducted our audits in accordance  with auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the consolidated financial position of
Warrantech  Corporation  and  Subsidiaries  at March  31,  2003 and 2002 and the
consolidated results of their operations and comprehensive income and their cash
flows for the years ended March 31,  2003,  2002 and 2001,  in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our opinion,  the related consolidated  financial statement  schedules,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present fairly, in all material respects, the information set forth therein.

      As  discussed  in  Note 3,  the  Company  has  restated  its  consolidated
financial statements for the years ended March 31, 2003, 2002 and 2001.


                                  /S/ WEINICK SANDERS LEVENTHAL & CO., LLP

New York, NY
June 13, 2003, except as to Note 3
  which date is June 4, 2004


                                       25
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                           FOR THE YEARS ENDED MARCH 31,
                                                        -------------------------------------------------------------------
                                                               2003                    2002                    2001
                                                            (RESTATED) *            (RESTATED) *            (RESTATED) *
                                                        -------------------     -------------------     -------------------
<S>                                                        <C>                     <C>                     <C>
Gross revenues                                                $146,754,611            $118,137,862            $130,504,455
    Revenues deferred to future periods                        (2,582,371)             (7,795,864)            (42,015,974)
    Deferred revenues earned                                  (45,934,893)            (15,583,551)               9,033,481
                                                        -------------------     -------------------     -------------------
    Net (increase) decrease in deferred revenues              (48,517,264)            (23,379,415)            (32,982,493)
                                                        -------------------     -------------------     -------------------
Net revenues                                                    98,237,347              94,758,447              97,521,962

Direct costs                                                    62,549,340              67,023,904              70,615,386
Claims expense - Reliance                                                -              19,591,713                       -
                                                        -------------------     -------------------     -------------------
Gross Profit                                                    35,688,007               8,142,830              26,906,576
                                                        -------------------     -------------------     -------------------

Operating expenses
   Service, selling, and general and administrative             30,573,275              30,272,034              38,368,728
   Legal settlement                                                      -               (824,332)                       -
   Provision for bad debt expense                                  150,444                       -                  15,067
   Depreciation and amortization                                 3,885,054               4,480,442               6,417,115
   Loss on abandonment of assets                                         -                       -               1,029,731
                                                        -------------------     -------------------     -------------------
Total operating expenses                                        34,608,773              33,928,144              45,830,641
                                                        -------------------     -------------------     -------------------

Income (loss)  from operations                                   1,079,234            (25,785,314)            (18,924,065)
Other income                                                       774,274                 857,466               1,022,512
                                                        -------------------     -------------------     -------------------

Income (loss) before provision for income taxes                  1,853,510            (24,927,848)            (17,901,553)
Provision (benefit) for income taxes                               386,616             (8,414,144)             (5,993,480)
                                                        -------------------     -------------------     -------------------

Net income (loss)                                               $1,466,894           ($16,513,704)           ($11,908,073)
                                                        ===================     ===================     ===================

Earnings (loss) per share:
   Basic                                                             $0.10                 ($1.08)                 ($0.78)
                                                        ===================     ===================     ===================
   Diluted                                                           $0.10                 ($1.08)                 ($0.78)
                                                        ===================     ===================     ===================

Weighted average number of shares outstanding:
   Basic                                                        15,317,881              15,259,437              15,265,114
                                                        ===================     ===================     ===================
   Diluted                                                      15,398,910              15,259,437              15,265,114
                                                        ===================     ===================     ===================
</TABLE>

<TABLE>
<CAPTION>
Comprehensive Income                                                      For the Years Ended March 31,
                                                        -------------------------------------------------------------------
                                                               2003                    2002                    2001
                                                            (RESTATED) *            (RESTATED) *            (RESTATED) *
                                                        -------------------     -------------------     -------------------
<S>                                                        <C>                    <C>                     <C>
Net income (loss)                                               $1,466,894           ($16,513,704)           ($11,908,073)
Other Comprehensive Income, net of tax
     Foreign currency translation adjustments                       13,713                 (8,936)                  30,001
     Unrealized gain (loss) on investments                       (158,659)                (11,143)                  82,182
                                                        -------------------     -------------------     -------------------
Comprehensive income (loss)                                     $1,321,948           ($16,533,783)           ($11,795,890)
                                                        ===================     ===================     ===================

Comprehensive income (loss) per share:
    Basic                                                            $0.09                 ($1.08)                 ($0.77)
                                                        ===================     ===================     ===================
    Diluted                                                          $0.09                 ($1.08)                 ($0.77)
                                                        ===================     ===================     ===================
</TABLE>

                            * Restated - See Note 3.

          See report of independent auditors and accompanying notes to
                       consolidated financial statements.

                                       26
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      MARCH 31,            MARCH 31,
                                                                        2003                 2002
                                                                    (RESTATED) *         (RESTATED) *
                                                                  -----------------    ------------------
<S>                                                               <C>                   <C>
   ASSETS
   Current assets:
      Cash and cash equivalents                                         $6,422,530            $7,699,277
      Investments in marketable securities                                 843,980               954,653
      Accounts receivable, (net of allowances of
               $230,064 and $256,019, respectively)                     22,008,608            18,442,135
      Other receivables, net                                             5,299,887             2,149,667
      Income tax receivable                                                      -             1,129,076
      Deferred income taxes                                              2,098,171             2,653,000
      Receivable from Reliance Warranty, Inc. (see note 4)              15,892,635                     -
      Employee receivables                                                  73,833                27,391
      Prepaid expenses and other current assets                          1,218,392               600,944
                                                                  -----------------    ------------------
           Total current assets                                         53,858,036            33,656,143
                                                                  -----------------    ------------------

   Property and equipment, net                                           8,296,313             9,299,713
                                                                  -----------------    ------------------

   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                                             19,792,378            19,585,647
      Deferred direct costs                                            173,557,349           126,272,157
      Investments in marketable securities                               1,355,263             1,376,619
      Restricted cash                                                      825,000               825,000
      Split dollar life insurance policies                                 877,126               904,172
      Receivable from Reliance Warranty, Inc. (see note 4)                       -            15,892,635
      Notes receivable                                                           -               137,683
      Other assets                                                          47,122                44,546
                                                                  -----------------    ------------------
             Total other assets                                        198,091,528           166,675,749
                                                                  -----------------    ------------------

                                                                  -----------------    ------------------
                       Total Assets                                   $260,245,877          $209,631,605
                                                                  =================    ==================
</TABLE>

                             * Restated- See Note 3.

          See report of independent auditors and accompanying notes to
                       consolidated financial statements.

                                       27
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      MARCH 31,            MARCH 31,
                                                                        2003                 2002
                                                                    (RESTATED) *         (RESTATED) *
                                                                   ----------------    ------------------
<S>                                                                <C>                 <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
   Current maturities of long-term debt and capital lease                 $802,070              $801,788
     obligations
   Insurance premiums payable                                           36,070,992            26,470,265
   Income taxes payable                                                     81,236                     -
   Accounts and commissions payable                                      8,118,371             6,960,465
   Claims loss liability (see note 4)                                    9,262,407            10,959,364
   Accrued expenses and other current liabilities                        3,534,106             3,168,666
                                                                   ----------------    ------------------
        Total current liabilities                                       57,869,182            48,360,548
                                                                   ----------------    ------------------

Deferred revenues                                                      216,720,628           167,830,154
Claims loss liability (see note 4)                                       9,491,578            18,753,985
Long-term debt and capital lease obligations                             1,218,670               957,159
Deferred rent payable                                                      417,720               190,260
                                                                   ----------------    ------------------
   Total liabilities                                                   285,717,778           236,092,106
                                                                   ----------------    ------------------

Commitments and contingencies                                                    -                     -
Stockholders' equity (deficiency)
     Preferred stock - $.0007 par value authorized - 15,000,000
        Shares issued  - none at March 31, 2003 and March 31, 2002               -                     -
     Common stock - $.007 par value authorized - 30,000,000
        Shares issued  - 16,530,324 shares at March 31, 2003 and
        16,525,324 shares at March 31, 2002                                115,714               115,679
     Additional paid-in capital                                         23,760,809            23,745,944
     Loans to directors and officers                                  (10,462,094)          (10,163,875)
     Accumulated other comprehensive income, net of taxes                (196,974)              (52,028)
     Retained earnings (accumulated deficit)                          (34,414,686)          (35,881,580)
                                                                   ----------------    ------------------
                                                                      (21,197,231)          (22,235,860)
Treasury stock - at cost, 1,249,690 shares at March 31, 2003
          and 1,212,159 shares  at March 31, 2002                      (4,274,670)           (4,224,641)
                                                                   ----------------    ------------------
        Total Stockholders' Equity (Deficiency)                       (25,471,901)          (26,460,501)
                                                                   ----------------    ------------------

                                                                   ----------------    ------------------
        Total Liabilities and Stockholders' Equity (Deficiency)       $260,245,877          $209,631,605
                                                                   ================    ==================
</TABLE>

                             * Restated- See Note 3.

          See report of independent auditors and accompanying notes to
                       consolidated financial statements.

                                       28
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFIECINCY)

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED MARCH 31,
                                                       -----------------------------------------------------
                                                            2003               2002               2001
                                                         (RESTATED) *       (RESTATED) *       (RESTATED) *
                                                       ---------------    ---------------    ---------------
<S>                                                    <C>                <C>                <C>
Common Stock Outstanding (shares)

Balance, beginning of year                                 16,525,324         16,514,228         16,505,911
Exercise of common stock options                                5,000                  -                  -
Issuance of common stock                                            -             11,096              8,317
                                                       ---------------    ---------------    ---------------
Balance, end of year                                       16,530,324         16,525,324         16,514,228
                                                       ===============    ===============    ===============

Common Stock

Balance, beginning of year                                   $115,679           $115,580           $115,541
Issuance of common stock                                           35                 99                 39
                                                       ---------------    ---------------    ---------------
Balance, end of year                                         $115,714           $115,679           $115,580
                                                       ===============    ===============    ===============
Additional paid-in capital

Balance, beginning of year                                $23,745,944        $23,742,868        $23,737,835
Exercise of common stock options                                2,065                  -                  -
Compensatory element of  common stock options                  12,800                  -                  -
Issuance of common stock                                            -              3,076              5,033
                                                       ---------------    ---------------    ---------------
Balance, end of year                                      $23,760,809        $23,745,944        $23,742,868
                                                       ===============    ===============    ===============

Loans to directors and officers

Balance, beginning of year                              ($10,163,875)       ($9,833,244)       ($9,505,406)
Loans for exercise of stock of stock options                (298,219)          (330,631)          (327,838)
                                                       ---------------    ---------------    ---------------
Balance, end of year                                    ($10,462,094)      ($10,163,875)       ($9,833,244)
                                                       ===============    ===============    ===============

Accumulated other comprehensive income

Balance, beginning of year                                  ($52,028)          ($31,949)         ($144,132)
Foreign currency translation adjustments                    (158,659)           (11,143)             82,182
Unrealized gain(loss) on investments                           13,713            (8,936)             30,001
                                                       ---------------    ---------------    ---------------
Balance, end of year                                       ($196,974)          ($52,028)          ($31,949)
                                                       ===============    ===============    ===============

Retained earnings (accumulated deficit)

Balance, beginning of year                              ($35,881,580)      ($19,367,876)       ($7,459,803)
Net income (loss)                                           1,466,894       (16,513,704)       (11,908,073)
                                                       ---------------    ---------------    ---------------
Balance, end of year                                    ($34,414,686)      ($35,881,580)      ($19,367,876)
                                                       ===============    ===============    ===============

Common stock in treasury (shares)

Balance, beginning of year                                (1,212,159)        (1,415,171)        (1,211,024)
Purchase of treasury shares                                 (259,753)                  -          (450,000)
Issuance of treasury shares                                   222,222            203,012            245,853
                                                       ---------------    ---------------    ---------------
Balance, end of year                                      (1,249,690)        (1,212,159)        (1,415,171)
                                                       ===============    ===============    ===============

Common stock in treasury (amount)

Balance, beginning of year                               ($4,224,641)       ($4,341,206)       ($4,224,167)
Purchase of treasury shares                                 (155,774)                  -          (308,920)
Issuance of treasury shares                                   105,745            116,565            191,881
                                                       ---------------    ---------------    ---------------
Balance, end of year                                     ($4,274,670)       ($4,224,641)       ($4,341,206)
                                                       ===============    ===============    ===============

                                                       ---------------    ---------------    ---------------
Total Stockholders' Equity (Capital Deficiency)         ($25,471,901)      ($26,460,501)       ($9,715,827)
                                                       ===============    ===============    ===============
</TABLE>

                            * Restated - See Note 3.

          See report of independent auditors and accompanying notes to
                       consolidated financial statements.

                                       29
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED MARCH 31,
                                                          ------------------------------------------------------
                                                              2003                2002                2001
                                                           (RESTATED) *        (RESTATED) *        (RESTATED) *
                                                          --------------     ---------------      --------------
<S>                                                          <C>              <C>                 <C>
Cash flows from operating activities:
  Net income (loss)                                          $1,466,894       ($16,513,704)       ($11,908,073)
                                                          --------------     ---------------      --------------
  Adjustments  to  reconcile  net  income  to
     net  cash  provided  by  operating
     activities:
     Depreciation and amortization                            3,885,054           4,480,442           6,417,115
     Compensatory element of stock options                       12,800                   -                    -
     Provision for bad debt expense                             150,444                   -              15,067
     Deferred revenues                                       48,890,474          28,301,812          32,909,198
     Deferred direct costs                                 (47,285,192)        (21,483,900)        (21,484,694)
     Deferred income taxes                                      348,098        (11,605,229)         (1,701,871)
     Deferred rent payable                                      227,460           (103,033)            (91,208)
     Other                                                    (513,040)           (357,818)             125,429
     Increase (decrease) in cash flows as a result of
        changes in asset and liability balances:
        Accounts receivable                                 (3,566,473)         (6,289,620)           (293,862)
        Other receivables                                   (3,150,220)           4,888,473         (4,649,283)
        Acct receivable - Reliance Warranty, Inc.                     -        (15,892,635)             -
        Income taxes                                          1,210,312           4,249,572         (1,343,302)
        Prepaid expenses and other current assets             (617,448)             363,985             273,122
        Split dollar life insurance policies                     27,046           (195,910)             119,000
        Other assets                                            (2,576)              20,263             311,846
        Insurance premiums payable                            9,600,727           7,370,101             938,807
        Accounts and commissions payable                      1,157,906             613,593         (2,510,684)
        Claims loss liability                              (10,959,364)          29,713,349                   -
        Accrued expenses and other current liabilities          365,440         (2,721,412)         (3,601,097)
                                                          --------------     ---------------      --------------

  Total adjustments to reconcile net income to net cash
        provided by operating activities:                     (218,552)          21,352,033           5,433,583
                                                          --------------     ---------------      --------------

Net cash flows provided (used) by operating activities        1,248,342           4,838,329         (6,474,490)

Cash flows from investing activities:
    Property and equipment purchased                        (1,818,224)         (1,496,747)         (1,930,448)
    Purchase of marketable securities                         (790,000)           (430,000)           (715,000)
    (Increase) decrease in notes receivable                     137,683             462,113             567,929
    Proceeds from sales of marketable securities                945,000           1,415,304           3,600,000
                                                          --------------     ---------------      --------------
Net cash provided (used) by investing activities            (1,525,541)            (49,330)           1,522,481
Cash flows from financing activities:                                                     -
    Exercise of common stock options and stock grants             2,100                   -               5,072
    Purchase treasury stock                                   (155,774)                   -           (308,920)
    Repayments, notes and capital leases                      (845,874)           (561,087)         (1,307,781)
                                                          --------------     ---------------      --------------

Net cash provided (used) by  financing activities             (999,548)           (561,087)         (1,611,629)
                                                          --------------     ---------------      --------------

Net decrease in cash and cash equivalents                   (1,276,747)           4,227,912         (6,563,638)

Cash and cash equivalents at beginning of period              7,699,277           3,471,365          10,035,003
                                                          --------------     ---------------      --------------

Cash and cash equivalents at end of period                   $6,422,530          $7,699,277          $3,471,365
                                                          --------------     ---------------      --------------

Supplemental Cash Flow Information:
Cash payments (receipts) for:
    Interest                                                   $275,185            $217,072            $234,102
                                                          --------------     ---------------      --------------
    Income taxes                                           ($1,218,916)        ($1,107,494)            $259,224
                                                          --------------     ---------------      --------------

Non-Cash Investing and financing activities:
    Property and equipment financed through capital          $1,120,273            $443,232            $519,369
      leases
    Capital leases refinanced                                         -             151,565                   -
    Increase in loans to officers and directors               (298,219)           (330,631)           (327,838)
    Issuance of treasury stock for services rendered            105,745             116,565             191,881
</TABLE>

                            * Restated - See Note 3.

          See report of independent auditors and accompanying notes to
                       consolidated financial statements.

                                       30
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS -  Warrantech,  through its wholly owned  subsidiaries,
      markets  and  administers  service  contracts,   extended  warranties  and
      replacement  plans.  The  Company  is a third  party  administrator  for a
      variety of  dealer/clients  in selected  industries and offers call center
      and technical  computer  services.  The Company assists  dealer/clients in
      obtaining  insurance  policies  from highly  rated  independent  insurance
      companies for all contracts and programs offered. The insurance company is
      then responsible for the cost of repairs or replacements for the contracts
      administered by Warrantech.

      The Company's  service contract  programs  benefit  consumers by providing
      them with expanded and/or extended product 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   service   contract   programs   benefit   the
      dealer/clients by providing  enhanced value to the goods and services they
      offer and by providing them with the opportunity for increased revenue and
      income  without the costs and  responsibilities  of  operating an extended
      warranty program.

      The service  contracts,  extended  warranties  and  replacement  contracts
      generally  have terms  ranging from three (3) to one hundred  twenty (120)
      months.  Since the Company acts solely as a third party  administrator  on
      behalf of the dealer/clients and insurance  companies,  the actual repairs
      and/or  replacements  required  under  the  agreements  are  performed  by
      independent third party authorized repair facilities or dealers.  The cost
      of repairs is generally paid for by the insurance companies which have the
      ultimate  responsibility  for the claims or, where  insurance  coverage is
      unavailable,  by Butler Financial Solutions,  LLC ("Butler"),  if Reliance
      Insurance  Company  ("Reliance")  or  the  Company  is  the  obligor.  The
      insurance policy indemnifies the  dealer/clients  against losses resulting
      from  service  contract  claims and protects  consumers by ensuring  their
      claims will be paid.

      BASIS OF PRESENTATION  AND PRINCIPLES OF  CONSOLIDATION - 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 due to its related interest to
      the  Company.  All  intercompany   accounts  and  transactions  have  been
      eliminated in consolidation.

      RISKS AND  UNCERTAINTIES  - 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
      which affect the  reporting of assets and  liabilities  as of the dates of
      the financial  statements  and revenues and expenses  during the reporting
      period. Actual results could differ from these estimates.

      REVENUE  RECOGNITION POLICY - Revenue for administrator  obligor contracts
      and Butler  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  revenue on  administrator  obligor
      contracts  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.


                                       31
<PAGE>

      Revenue  for  dealer  obligor  service  contracts  are  sales in which the
      retailer/dealer  is designated as the obligor.  For these service contract
      sales, using the proportional  performance  method, the Company recognizes
      revenues  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 thereon are deferred.


      Based upon  discussions  with the SEC's  Division of  Corporation  Finance
      following  that office's  review of the Company's  periodic  reports,  the
      Company  requested  guidance  from the SEC's  Office  of Chief  Accountant
      ("OCA")   concerning,   among  other  things,   the  appropriate   revenue
      recognition  policy which should be applied by the Company with respect to
      the Butler obligor contracts. After considering the guidance received from
      the SEC Staff, Butler was determined to be a nominally capitalized entity,
      and accordingly, all transactions concerning Butler should be treated in a
      manner  similar  to  the  accounting  principles  contained  in  Financial
      Accounting  Standards  Board  Emerging  Issues Task Force Topic No.  D-14,
      Transactions  Involving   Special-Purpose  Entities  ("Topic  D-14").  The
      Company  therefore will treat the Butler obligor contracts as if they were
      administrator  obligor  contracts and will  recognize  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  purposes  only,  the  Company  eliminated  from  its  financial
      statements the transactions between Warrantech and Butler.

      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.

      DIRECT COSTS - Direct costs, which consist primarily of insurance premiums
      and  commissions,  are those costs directly  related to the production and
      acquisition  of  service  contracts  for  administrative  obligor  service
      contracts.  For  administrative  obligor  service  contracts,  the Company
      recognizes  direct cost  according to  Statement  of Financial  Accounting
      Standards No. 113 ("SFAS 113"),  "Accounting and Reporting for Reinsurance
      of  Short-Duration  and  Long  Duration  Contracts".  This  requires  that
      insurance  premium costs be ratably  expensed over the life of the service
      contract.

      PROFIT  SHARING  ARRANGEMENT  - Pursuant  to certain  agreements  with its
      insurers,  the Company may be eligible to share a portion of the insurers'
      profits on the  Company's  service  contract  programs.  The amounts to be
      received,  if any, are  determined  based upon the  residual  value of the
      premiums  set aside by the  insurer to pay losses (the "Loss  Fund").  The
      residual value is comprised of underwriting  profits and investment income
      earned on the monies in the Loss Fund. Subsequent  adjustments to original
      estimates are solely changes in estimates based upon current  information,
      affording the Company  better  determination  of ultimate  profit  sharing
      revenues and are  reflected in income when known.  The Company  recognized
      $71,784 in profit sharing on its International business in the fiscal year
      ended March 31, 2003 with no profit  sharing  recognized  for fiscal years
      ended March 31, 2002 or 2001.


                                       32
<PAGE>

      PROVISION FOR BAD DEBT EXPENSE - The  Company's  policy is to establish an
      allowance for doubtful  accounts  when  receivables  are  determined to be
      uncollectible.

      EARNINGS  PER SHARE - The  Company  has  adopted  Statement  of  Financial
      Accounting  Standards No. 128,  "Earnings per Share",  which  modified the
      calculation  of earnings per share  ("EPS".) This  Statement  replaced the
      previous  presentation  of  primary  and  fully  diluted  EPS to basic and
      diluted EPS. Basic EPS is computed by dividing income  available to common
      stockholders by the weighted  average number of common shares  outstanding
      for the  period.  Diluted  EPS  includes  the  dilution  of  common  stock
      equivalents,  and is computed  similarly to fully  diluted EPS pursuant to
      Accounting Principle Board ("APB") Opinion 15. All prior periods presented
      have been restated to reflect this adoption.

      CASH AND CASH  EQUIVALENTS - Cash and cash  equivalents for the purpose of
      reporting cash flows for all periods presented include cash on deposit and
      certificates of deposit. There were no other cash equivalents at March 31,
      2003 and 2002.

      At March 31, 2003 and 2002, respectively,  the Company had cash on deposit
      in excess of federally insured limits of $4,535,328 and $6,659,178.

      Included in the cash and cash equivalent balances as reported at March 31,
      2003 and 2002,  respectively,  is $944,435 and $665,829 of cash related to
      Butler.  Since  Butler is a private  company,  the Company has no means to
      determine  the  disposition  of  this  cash,  if  any,  and,   accordingly
      management  disclaims  any  knowledge  of the  existence  of this  cash or
      related assets, liabilities or expenses.

      INVESTMENTS  IN  MARKETABLE  SECURITIES - All  investments  in  marketable
      securities have been classified as  available-for-sale  and are carried at
      fair value with changes in unrealized  gains and losses being reflected as
      a separate  component of accumulated other  comprehensive  income,  net of
      tax.

      PROPERTY  AND  EQUIPMENT  -  Property  and  equipment  are stated at cost.
      Depreciation is provided using the straight-line method over the estimated
      useful lives of the related assets ranging between 3 and 7 years.

      CAPITALIZATION POLICY - In accordance with Statement of Position 98-1, the
      Company  capitalizes   purchased  software  or  software  development  and
      implementation   costs   incurred   internally   or  through   independent
      consultants  related  to  the  Company's  state  of  the  art  proprietary
      relational  database  and  interactive  operating  software  for  warranty
      tracking and sales. These systems are only available for internal uses and
      are  not   available   for  purchase  by  outside   parties.   All  direct
      implementation  costs and  purchase  software  costs are  capitalized  and
      amortized using the straight-line method over their estimated useful lives
      not to exceed a five-year  period. Of the $4,427,891 and $6,172,570 of net
      software  development  costs  at  March  31,  2003  and  March  31,  2002,
      respectively, the Company capitalized $779,665 and $954,657.

      Once annually or as events or circumstances  indicate that an asset may be
      impaired,  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.   The  Company   determines  such  impairment  by  measuring  the
      undiscounted  future  cash flow  generated  by the assets,  comparing  the
      result to the assets  carrying  value and adjusting the asset to the lower
      of its carrying  value or fair value and charging  current  operations for
      the  measured  impairment.  At years ended  March 31,  2003 and 2002,  the
      Company  found no  impairment  to its property and  equipment or its other
      identifiable intangibles.


                                       33
<PAGE>

      EXCESS OF COST OVER FAIR  VALUE OF ASSETS  ACQUIRED  - The  excess of cost
      over fair value of the  assets  acquired  ("Goodwill")  is a result of the
      purchases  of  Dealer  Based  Services,   Inc.  in  1989,  Home  Guarantee
      Corporation,  PLC in July  1995,  and  certain  assets of  Distributors  &
      Dealers Service Co., Inc. in October 1997.  Prior to the early adoption of
      Statement of Financial  standards No. 142 "Goodwill and Intangible Assets"
      on April 1, 2001,  the  excess of cost over fair value of assets  acquired
      was being  amortized on a  straight-line  basis over 15, 10 and 4.5 years,
      respectively.  As a result of the  Company  closing  its offices in Europe
      during 2001,  the excess of Cost over Fair Value of Assets  acquired  from
      Home Guarantee Corporation, PLC was charged to operations at that time.

      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,  which  include its property and  equipment  and its  identifiable
      intangibles  such as software  development  costs,  goodwill  and deferred
      charges.   The  Company   determines  such  impairment  by  measuring  the
      undiscounted  future  cash flow  generated  by the assets,  comparing  the
      result to the assets  carrying  value and adjusting the asset to the lower
      of its carrying  value or fair value and charging  current  operations for
      the measured impairment.

      ADVERTISING  COSTS - The Company expenses  advertising  costs as incurred.
      Advertising  expenses  for the years ended March 31,  2003,  2002 and 2001
      were $261,182, $388,085 and $473,553, respectively.

      STOCK BASED COMPENSATION - The Company applies Accounting Principles Board
      Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB 25") and
      related  interpretations  in accounting for its  stock-based  compensation
      plans. Under APB 25, compensation expense for stock option and award plans
      is  recognized as the  difference  between the fair values of the stock at
      the date of the grant less the amount, if any, the employee or director is
      required to pay. Certain operating officers have been issued shares of the
      Company's  common  stock  as  part  of  their   compensation  under  their
      employment  agreements.  This compensation is to be earned by the officers
      and  charged to  operations  over five years,  the term of the  employment
      agreements.  In addition,  certain  employees have been issued  restricted
      shares of the Company's common stock as compensation. Such compensation is
      amortized  over the  restriction  period,  which is  generally  two years.
      Certain  non-employees  have been issued options to purchase stock in lieu
      of compensation. The intrinsic value of these options at the time of grant
      has been charged to expense.

      INCOME TAXES - Deferred tax assets and  liabilities  are determined  under
      the  liability  method  whereby  deferred tax assets and  liabilities  are
      recognized  for the expected tax effect of temporary  differences  between
      the financial  statement  carrying  amount and the tax bases of assets and
      liabilities  using presently  enacted tax rates in effect for the years in
      which the differences are expected to reverse.

      FOREIGN CURRENCY  TRANSLATION - Financial  statement accounts expressed in
      foreign currencies are translated into United States dollars in accordance
      with Statement of Financial  Accounting Standards ("SFAS") No. 52 "Foreign
      Currency  Translation".  The functional  currency for the Company's United
      Kingdom operations was the British pound. The functional  currency for the
      Company's  Chilean and  Peruvian  operations  are their  respective  local
      currencies.  Transaction  gains and losses are  reflected  in  operations,
      while translation  gains and losses are reflected as a separate  component
      of accumulated other comprehensive income, net of tax.


                                       34
<PAGE>

      COMPREHENSIVE  INCOME - The Company has  adopted  SFAS No. 130  "Reporting
      Comprehensive  Income".  SFAS No. 130 establishes  rules for the reporting
      and  display of  comprehensive  income and its  components;  however,  the
      adoption of this  Statement had minimal impact on the Company's net income
      or stockholders'  equity. SFAS No. 130 requires unrealized gains or losses
      to be recorded on the Company's  available for sale securities and foreign
      currency  translation  adjustments,  which  prior  to  the  adoption  were
      reported  separately  in  stockholders'  equity,  to be  included in other
      comprehensive income.

      CONTINGENT  LIABILITY  POLICY - In  accordance  with SFAS 5 and  Financial
      Accounting  Standards  Interpretation  ("FIN")  14, the  Company  may have
      certain  contingent  liabilities  with  respect to  material  existing  or
      potential  claims,  lawsuits and other  proceedings.  The Company  accrues
      liabilities  when it is probable  that future  costs will be incurred  and
      such costs can be reasonably estimated and measured.

2.    NEW ACCOUNTING STANDARDS

      In June 2001, the Financial Accounting Standards Board (FASB) approved for
      issuance  SFAS  No.  142,  "Goodwill  and  Intangible  Assets,"  which  is
      effective  for fiscal  years  beginning  after  March 15,  2001.  SFAS 142
      provides that goodwill and intangible  assets with indefinite lives not be
      amortized,  and instead,  be tested for  impairment  annually and whenever
      there is an impairment indicator.  Early adoption of SFAS 142 is permitted
      for companies with fiscal years beginning after March 15, 2001 but only if
      they had not issued  their first  quarter  financial  statements  prior to
      adoption.  The Company adopted SFAS 142 effective April 1, 2001 and ceased
      amortization  of its goodwill.  The  following  table  discloses  goodwill
      amortization  expense  (net of tax  effects) and net income for the fiscal
      years ended March 31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>
                                         FOR THE FISCAL YEARS ENDED MARCH 31,
                                         ------------------------------------
                                     2003              2002                  2001
                                --------------     --------------      --------------
<S>                             <C>                <C>                 <C>
Goodwill amortization                       --                 --      ($     919,466)
                                --------------     --------------      --------------
Net income                      $    1,466,894     ($  16,513,704)     ($  10,988,607)
                                --------------     --------------      --------------
Earnings per share: Basic       $         0.10     ($        1.08)     ($        0.72)
                                ==============     ==============      ==============
Earnings per share: Diluted     $         0.10     ($        1.08)     ($        0.72)
                                ==============     ==============      ==============
</TABLE>


      Goodwill at March 31, 2003 and 2002 is as follows:

                                                        YEAR ENDED MARCH 31,
                                                        --------------------
                                                      2003              2002
                                                   -----------      -----------
Goodwill                                           $ 7,462,695      $ 7,462,695
Accumulated Goodwill Amortization                   (5,825,405)      (5,825,405)
                                                   -----------      -----------
       Total                                       $ 1,637,290      $ 1,637,290
                                                   ===========      ===========

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
      Stock-Based  Compensation  - Transition  and  Disclosure."  This statement
      amends SFAS 123,  "Accounting  for Stock-Based  Compensation",  to provide
      alternative  methods of transition for an entity that voluntarily  changes
      to the fair value based  method of  accounting  for  stock-based  employee
      compensation.  The Company has elected not to adopt the provisions of SFAS
      No. 148. However,  the Company will provide all newly required disclosures
      under SFAS No. 123.


                                       35
<PAGE>

3.    RESTATEMENT

      The Company is restating  its  financial  statements  for the fiscal years
      ending on March 31,  2001,  2002 and 2003 in order to change the method of
      recognizing  revenue  from  certain  of the  service  contracts  which  it
      administers and to give effect to certain collateral transactions relating
      to such service contracts.

      Under most of the service  contracts  administered by the Company,  either
      the  retailer/dealer  ("dealer  obligor  contracts")  or  Butler  ("Butler
      obligor contracts") is the named obligor. The Company is the named obligor
      for  service  contracts  ("administrator  obligor  contracts")  only where
      required  by the local  jurisdiction  in which the service  contracts  are
      sold.  In all  circumstances,  regardless  of which  entity  is the  named
      obligor,  the obligations  under the service contracts are insured by an A
      rated licensed insurance company.

      The Company recognizes revenues under dealer obligor contracts pursuant to
      the proportional  performance method whereby revenue is recorded in direct
      proportion  to the  costs  incurred  in  providing  the  service  contract
      programs to the Company's clients. Prior to adopting the change in revenue
      recognition  discussed  below, the Company  recognized  revenues under the
      Butler  obligor  contracts  in the same  manner.  The  Company  recognizes
      revenue  under the  administrator  obligor  contracts in  accordance  with
      Financial Accounting  Standards Board Technical Bulletin 90-1,  Accounting
      for Separately Priced Extended Warranty and Product Maintenance Contracts,
      ("TB  90-1").   Revenue  under  the  administrator  obligor  contracts  is
      recognized over the life of the contract on a straight-line basis, and the
      Company  charges the costs relating to such  contracts to operations  over
      the life of the contracts on a straight-line basis.

      Based upon  discussions  with the SEC's  Division of  Corporation  Finance
      following  that office's  review of the Company's  periodic  reports,  the
      Company  requested  guidance  from the SEC's  Office  of Chief  Accountant
      ("OCA")   concerning,   among  other  things,   the  appropriate   revenue
      recognition  policy which should be applied by the Company with respect to
      the Butler obligor contracts. After considering the guidance received from
      the SEC Staff, Butler was determined to be a nominally capitalized entity,
      and accordingly all transaction  concerning Butler, should be treated in a
      manner similar to accounting  principles discussed in Financial Accounting
      Standards  Board Emerging  Issues Task Force Topic No. D-14,  Transactions
      Involving Special-Purpose Entities ("Topic D-14"). The Company, therefore,
      will  treat the Butler  obligor  contracts  as if they were  administrator
      obligor  contracts  and  will  recognize  revenues  under  such  contracts
      pursuant  to TB 90-1.  These  accounting  changes  do not  alter the legal
      obligations  under the  applicable  agreements in which the Company is not
      responsible for, nor has it assumed the, obligations of Butler.

      The effect of restating the financial statements was:

      (i)   to reduce  revenues and increase  deferred  revenues by $64,767,911,
            $55,473,106   and   $75,495,106  in  fiscal  2003,  2002  and  2001,
            respectively,

      (ii)  to reduce direct costs and increase  deferred costs by  $62,819,671,
            $26,111,968 and $56,492, 363 in fiscal 2003, 2002 and 2001 and

      (iii) to reduce net income by  $3,142,911  in fiscal 2003,  $6,628,789  in
            fiscal 2002 and $12,530,294 in fiscal 2001.


                                       36
<PAGE>

      Additionally, because the Company is treating the Butler obligor contracts
      as Warrantech obligor contracts for fincancial  purposes only, the Company
      eliminated  from its financial  statements  the  transactions  between the
      Company and Butler.  These transactions include the reflection of Butler's
      revenues  earned as obligor of  $2,935,856  in fiscal  2003,  $531,740  in
      fiscal 2002 and $469,441 in fiscal 2001.  The  financial  statements  also
      reflect  a charge to  operations  in fiscal  2002 of  $19,591,733  for its
      estimated claims liability of contracts insured by RIC which was placed in
      receivership in May 2001.  This charge is net of a $15,892,635  receivable
      from Reliance Warranty Corporation ("RWC"), a non-insurance  subsidiary of
      RIC, which is reflected in the restated  financial  statements  along with
      the unpaid portion of the estimated claims liabilities.  The tax effect of
      recording  the Butler  transactions  in this  manner was to  increase  the
      deferred tax asset by $6,480,391 in fiscal 2002 and to reduce the deferred
      tax asset by $900,757  and  $159,610  in fiscal  2003 and 2001.  A further
      effect of  treating  the Butler  obligor  contracts  in this manner was to
      increase  the  Company's  net  income by  $1,548,528  in  fiscal  2003 and
      $309,831 in fiscal 2001 and to reduce net income by  $12,579,582 in fiscal
      2002.

      Reflecting these  transactions for accounting  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.

      As the amount of administrator  obligor  contracts in which the Company is
      the legal obligor is small, the Company had previously reported all of its
      revenues net of the costs of the contracts. These costs included insurance
      premiums,  commissions  and agents'  fees.  Since the Company  will now be
      treating  most  of  the  service   contracts   which  it   administers  as
      administrator  obligor  contracts  and  will be  applying  TB90-1  to such
      contracts, the Company will reflect, in the restatement, all administrator
      obligor contracts revenues as gross revenues and show the related costs as
      direct costs. The dealer obligor contract  revenues are not being restated
      and are reflected net of their related direct costs in gross revenues.


                                       37
<PAGE>

      The impact of the  restatement  for the three fiscal years ended March 31,
2003 is as follows:

<TABLE>
<CAPTION>
                                                   March 31, 2003               March 31, 2002                 March 31, 2001
                                                   --------------               --------------                 --------------
                                                 As                            As                            As
                                             Previously                    Previously                    Previously
                                              Reported       Restated       Reported       Restated       Reported       Restated
                                              --------       --------       --------       --------       --------       --------
<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS
 Gross revenues                            $          --  $ 146,754,611  $          --  $ 118,137,862  $          --    130,504,455
 Net revenues                                         --     98,237,347             --     94,758,447             --     97,521,962
 Direct costs                                         --     62,549,340             --     67,023,904             --     70,615,386
 Estimated claims loss                                --             --             --     19,591,713             --             --
 Gross profit                                 38,155,914     35,688,007     38,000,275      8,142,830     47,316,042     26,906,576
 SG & A                                       31,092,940     30,573,275     30,678,340     30,272,034     39,775,539     38,368,728
 Income (loss) from operations                 3,027,476      1,853,510      3,575,825    (25,785,314)        78,590    (18,924,065)
 Net income (loss)                             2,861,279      1,466,894      2,694,682    (16,513,704)       312,388    (11,908,073)
 Comprehensive net income (loss)           $   2,716,333  $   1,321,948  $   2,674,603  ($ 16,533,783) $     424,571  ($ 11,795,890)

 Earnings (loss) per share:
   Basic                                   $        0.19  $        0.10  $        0.18         ($1.08) $        0.02         ($0.78)
   Diluted                                 $        0.19  $        0.10  $        0.18         ($1.08) $        0.02         ($0.78)

 Comprehensive earnings per share:
   Basic                                   $        0.18  $        0.09  $        0.18         ($1.08) $        0.03         ($0.78)
   Diluted                                 $        0.18  $        0.09  $        0.18         ($1.08) $        0.03         ($0.78)

 BALANCE SHEET
 Cash                                      $   5,478,095  $   6,422,530  $   7,033,448  $   7,699,277  $   3,001,924  $   3,471,365
 Loan receivable Butler                       14,009,059             --      5,435,646             --             --             --
 Receivable - Reliance Warranty Corp.                 --     15,892,635             --     15,892,635             --             --
 Deferred direct costs                         9,972,309    173,557,349     22,570,930    126,272,157     46,258,971    104,788,257
 Deferred income tax asset                     2,898,577     21,890,549      4,087,104     22,238,647      2,634,627     10,633,418
 Total assets                                 74,856,128    260,245,877     76,656,018    209,631,605     96,456,522    163,454,040
 Claims loss liability                                --     18,753,985             --     29,713,349             --             --
 Deferred revenues                            15,065,547    216,720,628     30,942,984    167,830,154     58,114,278    139,528,342
 Total liabilities                            65,308,712    285,717,778     69,491,587    236,092,106     91,755,803    173,169,867
 Stockholders' equity (capital deficiency)     9,547,416    (25,471,901)     7,164,431    (26,460,501)     4,700,719     (9,715,827)
 Working capital                           ($  2,973,131) ($  4,011,146) ($  1,656,179) ($ 14,704,405) ($  2,807,496) ($  2,338,055)
</TABLE>

4.    CLAIMS LOSS LIABILITY

      During  the second  fiscal  quarter of 2002,  the  Pennsylvania  Insurance
Commissioner  informed the Company that Reliance  would be liquidated  and cease
making payments on claims. The Pennsylvania  Insurance  Commissioner  determined
that  Reliance was not likely to be able to satisfy all of the claims that would
be submitted to it due to the  circumstances  arising out of the  September  11,
2001  terrorist  attacks  on  the  World  Trade  Center.   Reliance   underwrote
approximately  48% of  the  automotive  service  contracts  that  were  sold  by
Warrantech  Automotive  during  approximately  one and one-half  years ending in
November 2001.  Approximately  52% of the automotive  service  contracts sold by
Warrantech  Automotive  during  that  period are not  affected  by the  Reliance
liquidation.  Service  contracts  sold  before  and after  that  period  are not
affected because they are underwritten by other insurance companies.

      Warrantech Automotive was the named obligor, as well as the administrator,
under some of the vehicle service contracts insured by Reliance. As the obligor,
Warrantech Automotive would ultimately be responsible for paying for the repairs
under such  contracts.  Additionally,  for financial  reporting  purposes  only,
Warrantech is treated as the obligor under the service contracts in which Butler
is the named obligor. While Warrantech is not obligated to pay claims under such
service  contracts,  it has  treated  the  claims  obligations  under the Butler
obligor  contracts,  including  the  service  contracts  which  were  insured by
Reliance,  as  obligations  of the Company  for  accounting  purposes.  Prior to
Reliance's  liquidation,  Reliance  covered  the cost of the  repairs  under the
insurance  policies it provided.  Because of Reliance's  liquidation,  insurance
coverage for the Company's  obligations  under those service contracts ceased to
exist. However, a non-insurance affiliate of Reliance, Reliance Warranty Company
(RWC), which was not placed in liquidation, held premiums totaling approximately
$15,892,635  relating to a portion of the service contracts in which Butler, the
retailer/dealers and Warrantech Automotive were the named obligors.  The Company
received  $15,892,635 from RWC during the fourth quarter of fiscal 2004, as part
of a settlement  for claims paid by the Company on behalf of RWC. As a result of
the settlement,  the Company recorded a claims liability expense for $19,591,713
during fiscal 2002, net of the $15,892,635 receivable from RWC.


                                       38
<PAGE>

      To  mitigate  its  claims  liability  expense  resulting  from  Reliance's
liquidation, the Company is attempting to ascertain if any recovery is available
from the  Pennsylvania  Insurance  Department  Insurance  Funds and/or any other
state  guaranty funds or if any Federal  subsidies to the insurance  industry in
general or  Reliance  specifically,  will be made  available  as a result of the
terrorist  attacks to pay vehicle service contract claims. If such subsidies are
available, it could take years before recovery, if any, is obtained.

During the years ended March 31, 2003 and 2002, the Company paid $10,959,364 and
$5,770,999,  respectively, in claims related to Reliance obligations.  Remaining
amounts are expected to be paid out as set forth in the following table.

<TABLE>
<CAPTION>
                                           EXPECTED PAYMENT DATE
                      -----------------------------------------------------------------
                          2004             2005            2006        2007        2008   THEREAFTER    TOTAL
                      -------------------------------------------------------------------------------------------
<S>                    <C>              <C>             <C>           <C>         <C>     <C>         <C>
Claims loss liability   $9,262,407      $5,608,893      $3,882,685     $-          $-        $-       $18,753,985
</TABLE>

5.    LOSS ON ABANDONMENT OF ASSETS

      Effective  September 30, 2000, the Company ceased operations in the United
      Kingdom because of their unprofitable. As a result, the Company wrote down
      its  investment in the assets in its United  Kingdom assets and recorded a
      $1,029,731 loss on the abandonment of these assets.

6.    RESTRICTED CASH

      At March 31, 2003 and 2002,  cash in the amount of $825,000 was on deposit
      with  Florida  and Ohio  regulatory  agencies  to comply  with their state
      insurance laws.

7.    INVESTMENTS IN MARKETABLE SECURITIES

      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 March 31, 2003 of marketable
      securities were as follows:


                                       39
<PAGE>

<TABLE>
<CAPTION>
                                             EXPECTED MATURITY DATE
                         ------------------------------------------------------------
                         2004         2005       2006     2007      2008   THEREAFTER    TOTAL COSTS     FAIR VALUE
                         ------------------------------------------------------------------------------------------
<S>                  <C>            <C>         <C>       <C>       <C>    <C>           <C>            <C>
Available for sale
securities           $1,765,588     $360,573      $-       $-         $-     $37,550      $2,163,711      $2,199,243
Interest rate              4.93%        4.96%      -        -          -        5.50%
</TABLE>

       Principal amounts by expected maturity as of March 31, 2002 of marketable
securities were as follows:

<TABLE>
<CAPTION>
                                             EXPECTED MATURITY DATE
                         -------------------------------------------------------------------
                           2003        2004       2005       2006        2007     THEREAFTER   TOTAL COSTS   FAIR VALUE
                         -------------------------------------------------------------------------------------------------
<S>                  <C>            <C>         <C>         <C>       <C>          <C>         <C>          <C>
Available for sale
securities              $1,592,220   $398,907   $318,328     $  -      $    -       $    -     $ 2,309,455   $2,331,272
Interest rate                4.21%      5.25%      4.98%        -           -            -
</TABLE>

8.    OTHER RECEIVABLES

      The nature and amounts of Other  Receivables as of March 31, 2003 and 2002
      were as follows:

                                                            MARCH 31,
                                                   ---------------------------
                                                       2003           2002
                                                     RESTATED       RESTATED
                                                   ------------    -----------
Receivable from Reliance Warranty, Inc.
  (see note 4 above)                               $15,892,635     $15,892,635
                                                   ============    ===========

Other receivables, net
   Due from insurance companies                     $4,429,450     $1,407,549
   Due from dealers                                    348,229        388,423
   Agent advances                                      157,527        306,808
   Other                                               364,681         46,887
                                                   ------------    -----------
                                                     5,299,887      2,149,667

Allowance for doubtful accounts                              -              -
                                                   ------------    -----------
Total other receivables, net                        $5,299,887     $2,149,667
                                                   ============    ===========

      The following table sets forth the carrying amounts and fair values of the
      Company's other receivables at March 31, 2003.

<TABLE>
<CAPTION>
                                             EXPECTED MATURITY DATE
                           -------------------------------------------------------------
                                 2004      2005   2006     2007      2008    THEREAFTER      TOTAL      FAIR VALUE
                           -----------------------------------------------------------------------------------------
<S>                           <C>          <C>    <C>      <C>       <C>     <C>          <C>          <C>
     Receivable -
     Reliance Warranty,
     Inc.                    $15,892,635    $-     $-       $-        $-         $-       $15,892,635  $15,892,635
      Other receivable, net    5,299,887     -      -       -          -          -         5,299,887    5,299,887
</TABLE>

     The following table sets forth the carrying  amounts and fair values of the
     Company's loan and other receivable at March 31, 2002.

<TABLE>
<CAPTION>
                                        EXPECTED MATURITY DATE
                       ----------------------------------------------------------
                          2003       2004      2005    2006    2007   THEREAFTER       TOTAL     FAIR VALUE
                       -------------------------------------------------------------------------------------
<S>                    <C>        <C>          <C>     <C>     <C>    <C>           <C>          <C>
Receivable - Reliance
Warranty, Inc.             $-     $15,892,635   $-      $-      $-        $-        $15,892,635  $15,892,635
Other receivable, net   2,149,667      -         -      -        -         -          2,149,667    2,149,667
</TABLE>


                                       40
<PAGE>

9.    PROPERTY AND EQUIPMENT

                                                        MARCH 31,
                                           ------------------------------------
                                                2003                 2002
                                           ----------------     ---------------
  Automobiles                                      $67,701             $61,280
  Equipment, furniture and fixtures             10,486,659           9,981,999
  Leasehold improvements                         2,135,007           1,384,322
  Software development costs                    15,226,184          14,665,867
                                           ----------------     ---------------
                                                27,915,551          26,093,468
  Less:  Accumulated depreciation
         and amortization                       21,556,526          18,392,289
                                           ----------------     ---------------
                                                 6,359,025           7,701,179
                                           ----------------     ---------------
  Assets under capital leases:

    Cost                                         9,624,745           9,010,339
    Less:  Accumulated amortization              7,687,457           7,411,805
                                           ----------------     ---------------
                                                 1,937,288           1,598,534
                                           ----------------     ---------------

                                            ---------------     ---------------
  Total Property and Equipment, net             $8,296,313          $9,299,713
                                            ===============     ===============

      Amortization  expense on assets under  capital  leases for the years ended
      March 31, 2003,  2002 and 2001 was $662,715,  $1,053,797  and  $1,399,860,
      respectively.  Depreciation  expense on property and equipment  other than
      under capital leases for the years ended March 31, 2003, 2002 and 2001 was
      $3,222,339, $3,426,645 and $4,046,873, respectively.

10.   LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

      Long-term debt and capital lease obligations consisted of the following:

<TABLE>
<CAPTION>
                                                                             MARCH 31,
                                                                    ----------------------------
                                                                       2003            2002
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
           Capital lease obligations - for property and
              equipment payable monthly with interest
              rates ranging from 4.92% to 19.98% through  2008       $2,020,740      $1,726,793
           Sundry                                                             -          32,154
           Less: Current maturities                                     802,070         801,788
                                                                    ------------    ------------
           Long-term portion                                         $1,218,670        $957,159
                                                                    ============    ============
</TABLE>

      The aggregate amounts of maturities at March 31, 2003 were as follows:


                                                       MINIMUM FUTURE
       FISCAL YEAR                                     LEASE PAYMENTS
       -----------                                     --------------
       2004                                                $910,082
       2005                                                 635,744
       2006                                                 366,080
       2007                                                 244,834
       2008                                                 168,625
       2009 and thereafter                                        -
                                                       -------------
                                                          2,325,365

       Less amount representing interest                    304,624
                                                       -------------
       Net                                               $2,020,740
                                                       =============


      The  capital  lease  obligations  are  collateralized  by the  capitalized
      property and equipment related to the underlying leases.


                                       41
<PAGE>

11.   SPLIT DOLLAR LIFE INSURANCE POLICIES

      Through April 2003,  the Company made  payments on split dollar  insurance
      policies  on  the  lives  of  six  and  seven  officers  of  the  Company,
      respectively.  The  Company  suspended  payment of  premiums  under  these
      policies  until the  permissibility  of  making  such  payments  under the
      Sarbanes-Oxley Act of 2002 is clarified. The cash surrender value of these
      policies  was$877,126  and  $904,172  as  of  March  31,  2003  and  2002,
      respectively.  The Company is the  beneficiary  of any  proceeds  from the
      policies up to the amount of premiums paid.

12.   INCOME TAXES

      A reconciliation  of the income tax provision to the amount computed using
      the federal statutory rate is as follows:


<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED MARCH 31,

                                                   2003                       2002                         2001
                                                 RESTATED                   RESTATED                     RESTATED
                                            ----------------------     --------------------------     ------------------------
<S>                                         <C>                          <C>                          <C>
Income (loss) before income taxes               $1,853,510               ($24,927,847)                ($17,901,553)
Federal statutory rate                            $630,190   34.0%        ($8,475,464)      34.0%      ($6,086,529)      34.0%
State tax effect                                 (187,141)   10.1%            (77,130)       0.3%          (40,348)       0.2%
Goodwill                                                 -    0.0%                   -       0.0%           281,370      -1.6%
Non deductible items                                34,657    1.9%              34,179      -0.1%                 -       0.0%
Other                                             (91,090)   -4.9%             104,271      -0.4%         (147,973)       0.8%
                                            ---------------            ----------------               --------------
Provision (benefit) for income taxes              $386,616   20.9%        ($8,414,144)      33.8%      ($5,993,480)      33.4%
                                            ===============            ================               ==============
</TABLE>

<TABLE>
<CAPTION>
The components of tax expense are as follows:                                          PROVISION
For the Year Ended March 31, 2003                 CURRENT           DEFERRED           (BENEFIT)
                                               --------------    ----------------   ----------------
<S>                                            <C>               <C>                <C>
Federal                                              $32,791            $482,370           $515,161
State                                              (104,423)           (179,124)          (283,547)
Foreign                                              110,148              44,854            155,002
                                               --------------    ----------------   ----------------
Total                                                $38,516            $348,100           $386,616
                                               ==============    ================   ================

For the Year Ended March 31, 2002:                Current           Deferred           (Benefit)
                                               --------------    ----------------   ----------------
Federal                                           $3,025,721      ($11,387,564)        ($8,361,843)
State                                                176,629           (293,493)          (116,864)
Foreign                                              100,573            (36,010)             64,563
                                               --------------    ----------------   ----------------
Total                                             $3,302,923       ($11,717,067)       ($8,414,144)
                                               ==============    ================   ================

For the Year Ended March 31, 2001:                Current           Deferred           (Benefit)
                                               --------------    ----------------   ----------------
Federal                                         ($4,207,054)        ($3,127,934)       ($7,334,988)
State                                                 92,579           (499,843)          (407,264)
Foreign                                            (109,440)           1,858,212          1,748,772
                                               --------------    ----------------   ----------------
Total                                           ($4,223,915)        ($1,769,565)       ($5,993,480)
                                               ==============    ================   ================
</TABLE>

      Deferred  tax  assets  and  liabilities  reflect  the  net tax  effect  of
      temporary   differences   between  the  carrying  amounts  of  assets  and
      liabilities  for  financial  reporting  purposes  and the amounts used for
      income  taxes.  The  components  of the net  deferred  tax  asset  were as
      follows:

<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED MARCH 31,
                                                       -----------------------------------------
                                                              2003                  2002
                                                            RESTATED              RESTATED
                                                       -------------------    ------------------
<S>                                                    <C>                    <C>
    Deferred tax assets
         Deferred revenue                                     $73,649,047           $57,406,533
         Deferred rent                                            142,025                68,151
         Provision for doubtful accounts                           78,222                88,152
         Accrued bonus                                            149,447               260,123
         Foreign loss benefit                                     205,470               594,599
         Net operating loss                                     1,682,365             2,310,365
         Net state benefit                                        796,969               574,886
        Tax vs.  book depreciation                                 39,046                14,024
         Other                                                    113,284                 3,588
                                                       -------------------    ------------------
              Total assets                                     76,855,875            61,320,421
    Deferred tax liabilities
         Deferred direct costs                               (59,009,497)          (43,191,384)
         Section 174 expense                                  (1,119,419)           (1,633,366)
                                                       -------------------    ------------------
              Total liabilities                              (60,128,916)          (44,824,750)
                                                               16,726,959            16,495,671
      Less:  Valuation allowance                                (256,434)             (577,805)
                                                       -------------------    ------------------
                                                               16,470,525            15,917,866
    Plus:  Tax  effect  of Butler transaction                   5,420,024             6,320,781
                                                       -------------------    ------------------
         Net deferred tax asset                               $21,890,549           $22,238,647
                                                       ===================    ==================
</TABLE>


                                       42
<PAGE>

      As of March 31, 2003,  the Company had a United States net operating  loss
      carryforward of approximately $4.95 million,  which is available to reduce
      future regular federal taxable income.  If not used, the entire  carryover
      will expire in the year 2020. As of March 31, 2003, the Company also had a
      foreign net operating loss  carryforward of  approximately  $1.26 million.
      Due  to  the   uncertainty  of  the   realization  of  these  foreign  tax
      carryforwards, the Company established a valuation allowance against these
      carryforward benefits of approximately  $256,434 and $577,805 at March 31,
      2003 and 2002, respectively.

      Section 174 expense represents research and experimental  expenses related
      to the  development of a proprietary  relational  database and interactive
      software.

13.   COMMITMENTS AND CONTINGENCIES

      OPERATING  LEASE  COMMITMENTS  - The Company  leases  office and warehouse
      space under  noncancellable  operating leases expiring through 2012. These
      leases include  scheduled rent increases over their respective  terms. The
      accompanying consolidated statements of operations reflect rent expense on
      a  straight-line  basis over the lease  terms,  which differ from the cash
      payments  required.  Rent  expense,  net of sub-lease  income,  charged to
      operations  for the  years  ended  March  31,  2003,  2002  and  2001  was
      $1,837,314, $1,389,764 and $2,403,489, respectively.

      Future  minimum  commitments  under  these  leases  that have  initial  or
      remaining  lease  terms in excess of one year at March 31,  2003,  were as
      follows:

                                          FISCAL YEAR              AMOUNT
                                                 2004          $1,883,303
                                                 2005           1,153,777
                                                 2006           1,108,065
                                                 2007           1,087,189
                                                 2008           1,061,189
                              Thereafter through 2012           5,499,512
                                                            --------------
                  Total future minimum lease payments         $11,793,035
                                                            ==============


      EMPLOYMENT  CONTRACTS  - The  Company has  employment  contracts  with its
      officers and certain key employees.  These employment contracts,  expiring
      on various dates through 2004,  provide for aggregate  minimum annual base
      compensation  of $2,224,837.  Certain  agreements also call for (i) annual
      increases, (ii) cost of living increases,  (iii) automobile allowances and
      (iv) additional  compensation if certain  defined  performance  levels are
      attained.  This additional  compensation is to be paid in the form of cash
      and/or Company common stock.  The Company also agreed to forgive  interest
      which has accrued  annually on a note between the Company and its CEO, for
      as long as the CEO remains in the Company's employ.


                                       43
<PAGE>

      LINE OF CREDIT - The Company  executed an  agreement  with Great  American
      Insurance  Company  ("GAIC") on October 9, 2002,  whereby,  GAIC agreed to
      provide funding by extending a favorable change of its credit terms to the
      Company.

      GAIC also  agreed to extend a separate  line of credit for an amount up to
      $3  million  to the  Company,  subject  to  certain  adjustments,  to fund
      unanticipated working capital requirements.  Interest is charged on monies
      advanced  from the line of credit at an annual  rate of prime  plus 2%. No
      amounts have been drawn on the line of credit since its inception.

      EQUIPMENT FINANCING - The Company has ongoing relationships with equipment
      financing  companies  and intends to  continue  financing  certain  future
      equipment  needs through leasing  transactions.  The total amount financed
      through leasing  transactions  during the fiscal year ended March 31, 2003
      amounted to $1,120,273  compared to $594,797  during the fiscal year ended
      March 31, 2002.  At fiscal year end 2003,  the Company had  $2,020,740  in
      debt from  capital  lease  obligations  compared to  $1,758,947  at fiscal
      year-end 2002.

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

      STAPLES THE OFFICE SUPERSTORE, INC.

      Staples  the Office  Superstore,  Inc.  ("Staples")  v. ACE  Property  and
      Casualty Insurance Company, Warrantech Consumer Product Services, Inc. and
      Warrantech  Help Desk,  Inc.,  No.  2001-02277,  District  Court of Harris
      County, Texas.

      In accordance with a Service Contract Administration Agreement, Warrantech
      administered a service contract program for Staples. For a period of time,
      that program was  underwritten  by ACE  Property  and  Casualty  Insurance
      Company (f/k/a CIGNA Property and Casualty  Insurance  Company).  In March
      2001,  ACE informed  Warrantech  that it was  implementing  changes in the
      process  pursuant to which claims  underwritten by ACE were to be adjusted
      and paid.  Although  Warrantech  would  continue to take inbound calls and
      validate coverage,  ACE would now confirm diagnoses,  dispatch service and
      pay servicer  invoices.  Shortly after  implementation  of these  changes,
      Staples  reported that it had witnessed a material  increase in complaints
      from  customers  holding  service  contracts  underwritten  by ACE.  These
      complaints  were  primarily   focused  on  inordinate  delays  in  service
      delivery.  Although Staples discussed these problems with Warrantech,  ACE
      continued  to operate  under the new  claims  handling  procedures.  In an
      effort to satisfy customer complaints,  Staples stated that it had spent a
      substantial amount of its own funds to repair or replace covered products.

      This  action had two  distinct  components.  Initially,  Staples  sought a
      Temporary  Injunction  against ACE and Warrantech.  The motion,  as filed,
      asked that (i) Staples be given control of the toll free  telephone  lines
      on  which  customers  call  for  service  and  (ii)  ACE  be  required  to
      re-institute those claims handling  procedures that were in place prior to
      March 2001.  That motion was denied but the parties entered into an Agreed
      Order that governs the  administration of the Staples portfolio of service
      contracts.

      Staples  also  pursued  an  action  for  damages   against  both  ACE  and
      Warrantech.  It sought to recover  the  amounts  it spent to  satisfy  its
      customers and certain  unspecified  amounts  representing loss of business
      and damage to its reputation.  It claimed entitlement to these amounts was
      based on a variety of theories  including  breach of  contract,  fraud and
      tortuous  interference  with business.  Warrantech  believed the claims as
      asserted  against it were without merit.  Warrantech  also believed it had
      meritorious  claims  against ACE arising  out of these  allegations  which
      claims may be asserted in this litigation or in the  arbitration  referred
      to below.  Settlement  discussions  were  concluded and all parties to the
      litigation  executed a settlement  agreement  on June 11, 2002,  which the
      Court approved and subsequently dismissed the case.


                                       44
<PAGE>

      Simultaneously  with the  settlement of the litigation  with Staples,  the
      Company  granted  Staples  options to purchase  one (1) million  shares of
      Warrantech's  common  stock at an  exercise  price of $2.00 per share (the
      "Staples Options"). If Staples exercises all of the options, it would hold
      an equity  position in Warrantech of  approximately  6.5% of the Company's
      outstanding  shares.  Under the guidance of SFAS 123, the Company utilized
      the  Black-Scholes  option pricing model to estimate the fair value of the
      options granted under the settlement  agreement.  As it had no value under
      the  Black-Scholes  option  pricing  model,  no  compensation  expense was
      recorded in the Company's results of operations.

      ACE PROPERTY AND CASUALTY INSURANCE COMPANY

      In the  Matter  of the  Arbitration  between  ACE  Property  and  Casualty
      Insurance  Company f/k/a CIGNA Property and Casualty  Insurance Company v.
      Warrantech Corporation,  Warrantech Consumer Product Services,  Inc., WCPS
      of Florida, Inc. and Warrantech Help Desk, Inc.

      In accordance with an  Administrative  Agreement between the various named
      Warrantech  entities  and CIGNA,  ACE made a demand for  arbitration  of a
      variety of claims that ACE asserted against  Warrantech.  These claims can
      be  divided  into  two  general   categories.   The  first  arose  out  of
      Warrantech's  administration  of its service contract program with CompUSA
      prior to and  immediately  following the  termination of the  relationship
      between   Warrantech  and  CompUSA.   The  remaining   claims  related  to
      Warrantech's general claims handling procedures.  Although all claims were
      not set forth with  specificity,  it was  evident  that ACE was seeking to
      recover  damages  in  an  amount  in  excess  of  twenty  million  dollars
      ($20,000,000).

      In March 2003, the parties entered into a Final  Settlement  Agreement and
      Release  ("Settlement").  Pursuant to this  Settlement,  ACE  released the
      Warrantech  entities  from any and all claims it now has or may acquire at
      any time in the future and the  Warrantech  entities gave ACE a comparable
      release.  In accordance  with this general  release,  the  arbitration was
      dismissed.  In addition,  the parties agreed upon a methodology to satisfy
      all  outstanding  invoices from the various  service centers that provided
      repair services during the time that ACE was the insurer.

      Neither ACE nor any of the  Warrantech  entities  incurred  any  financial
      liability as a direct  result of obtaining  this  Settlement.  The parties
      will incur  certain costs with respect to  satisfying  the service  center
      invoices but the amounts,  in the opinion of  management,  will not have a
      material  effect  on  the  Company's  results  of  operations,   financial
      condition or cash flows.

      Warrantech  Consumer Product Services,  Inc. et al.  ("Warrantech") v. ACE
      Property and Casualty Insurance Company and Does 1-10,  inclusive ("ACE"),
      Superior Court of the State of California, County of Los Angeles.

      In November 2002,  Warrantech filed suit against ACE for (i) insurance bad
      faith (aka breach of the implied  covenant of good faith and fair dealing)
      and (ii) breach of contract.  This  complaint  arose out of ACE's  alleged
      unreasonable  delay in  paying,  or failure to pay,  claims  submitted  by
      service providers under service contracts underwritten by ACE. In a number
      of  instances,  this delay  and/or  failure  had  resulted  in the service
      provider filing suit against  Warrantech to recover the relevant payments.
      Warrantech  sought  compensatory and punitive damages although no specific
      amount was specified.


                                       45
<PAGE>

      This  litigation  was included in the Settlement  described  above and the
      matter has been dismissed with prejudice.

      MICHAEL A. BASONE

      Mr.  Basone is a former  Executive  Vice  President  and  Chief  Operating
      Officer of Warrantech,  having  resigned in February 2000.  Several months
      after resigning, Mr. Basone contacted the Company through his attorney and
      claimed that the Company's  conduct was such that he was forced to resign.
      For this alleged  "constructive  termination"  without  cause,  Mr. Basone
      sought an amount equal to what he would have received had he completed the
      term of his employment  agreement.  The Company believes this assertion is
      completely without merit and has rejected Mr. Basone's demand for payment.
      Mr.  Basone  has  filed  a  Demand  for  Arbitration   with  the  American
      Arbitration  Association that seeks damages in the amount of $300,000.  An
      arbitration hearing was held on May 13 and 14, 2002 and, on July 31, 2002,
      the arbitrator issued his decision. The arbitrator has denied Mr. Basone's
      claim and has held that wages  withheld by Warrantech  shall be applied to
      offset  amounts owed to Warrantech by Mr. Basone  pursuant to a promissory
      note.  Each  party  is  responsible  for its own  attorney's  fees and for
      one-half of the costs of the arbitrator.

      MARKET WEST COMPUTER GROUP

      M.W.C.G., Inc., d/b/a/ Market West Computer Group, on behalf of itself and
      all others  similarly  situated v. ACE  Property  and  Casualty  Insurance
      Company, Warranty Corporation of America ("WaCA"),  Warrantech Corporation
      and Warrantech  Consumer Product Services,  Inc.  ("WCPS"),  United States
      District Court, Central District of California (Western Division).

      Market  West  is one of many  service  providers  used  by WCPS to  repair
      computer-related  equipment pursuant to its service contract program. When
      the   administration  of  service   contracts   underwritten  by  ACE  was
      transferred  from WCPS to WaCA,  many service  providers  like Market West
      complained  of  material  changes  in  claim  adjustment   procedures  and
      unreasonable  delays in claim  payment.  Market  West  filed suit in state
      court in California  against the named parties to recover monies it claims
      to be owed as a result of the repair work it has performed.

      The amount sought by Market West under its initial claim was approximately
      $225,000.   Warrantech   believed  that  if  the  claim  were  successful,
      substantially  all of the amount  that is awarded to Market  West would be
      owed by the insurers that underwrote the liability.  Following  removal of
      the lawsuit to federal  court,  Market West  attempted  to have a national
      class of plaintiffs certified. The class certification petition was denied
      by the court and Market West was directed to proceed  with its  individual
      claim.  A settlement  agreement  was  executed on October 28, 2003,  under
      which  Warrantech's  ultimate  liability was  substantially  less than the
      amount  originally  sought.  All  outstanding  claims have been processed,
      resulting in a $62,533 charge to operations during fiscal year ended March
      31, 2003, and the matter has been concluded.

      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. and

      Warrantech Help Desk, Inc., District Court of Tarrant County,  Texas, 17th
      Judicial District.

      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  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.


                                       46
<PAGE>

      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.  No specific demand for damages is contained
      in the complaint.  The parties are presently engaged in extensive document
      discovery  and,  in  particular,   the  review  of  electronic  files  and
      databases.

      Management  believes that this case is without merit;  however,  it is not
      able to predict the outcome of this  litigation.  The Company is unable at
      this time to determine the Company's potential  liability,  if any, and as
      such, the  accompanying  financial  statements do not reflect any estimate
      for losses.

      American Home Assurance  Co., et al, v.  Warrantech  Automotive,  Inc., 99
      Civ. 12040 (BSG)

      Service Guard Insurance Agency, Inc. v. Warrantech  Automotive,  Inc., New
      Hampshire Insurance Company,  Ronald Glime and Christopher Ford, Cause No.
      99-12650, 126th Judicial District Court of Travis County,

      Texas

      National Union Fire  Insurance  Company of  Pittsburgh,  PA v.  Warrantech
      Corporation and Warrantech

      Automotive, Inc., United States District Court (S.D.N.Y.)

      Each of the  matters  set forth  above was  settled  pursuant to a certain
      Settlement Agreement and Release of Claims,  effective as of July 25, 2001
      (the "Agreement"). As referenced in the title of the Agreement, each party
      released all other relevant parties from all claims asserted in any of the
      litigations  and all claims  that could have been  asserted in any of said
      litigations.  Furthermore,  releases  were  granted  with  respect  to all
      potential  future claims  arising out of the subject  matter of any of the
      litigations. As a result of the settlement, in August 2001, AIG reimbursed
      the Company for its legal fees  associated  with its lawsuit;  $824,332 of
      which is reflected in the financial  statements  ended March 31, 2002 as a
      legal settlement.

      Additionally,  AIG was granted 2,000,000 options to purchase the Company's
      common stock at $2.00 per share,  expiring in five years.  The fair market
      value of the option,  according to the Black-Scholes option pricing model,
      after tax, was zero.

      INSURANCE  LIABILITY  -  As  a  consequence  of  the  September  11,  2001
      tragedies,  one of the  Company's  former  insurance  carriers,  Reliance,
      incurred potential claim losses that were greatly in excess of its ability
      to pay them. Consequently,  the Pennsylvania Insurance Commissioner placed
      Reliance in receivership in October 2001.  Reliance had been an insurer of
      the Company's  automotive contracts until August 2000. The Company was the
      obligor  under  approximately  20%  of  the  outstanding  Reliance-insured
      contracts.  As  disclosed  in  Note  3 and 4  above,  Butler  assumed  the
      obligations  of the Company and the  estimated  claims loss was charged to
      operations in 2002.


                                       47
<PAGE>

14.   STOCK OPTION AND OTHER BENEFIT PLANS

      STOCK INCENTIVE PLANS - Under the Company's 1998 Employee  Incentive Stock
      Option Plan, as amended (the "1998 amended Plan"), 1,041,987 shares of the
      Company's  common stock are reserved for issuance to employees  (including
      officers)  upon  exercise of options  granted under the 1998 amended plan.
      Options are to be granted at an  exercise  price not less than 100% of the
      fair market  value of the  Company's  common  stock at date of grant.  The
      number of shares granted,  terms of exercise,  and expiration dates are to
      be decided at the date of grant of each option by the  Company's  Board of
      Directors.  The 1998  Amended  Plan will  terminate  in August 2008 unless
      sooner terminated by the Board of Directors.

      STOCK  AWARDS -  Restricted  common stock of the Company may be awarded to
      officers,   key  employees,   non-employee  directors  and  certain  other
      non-employees.  Shares  granted  are  subject to certain  restrictions  on
      ownership and  transferability.  Such  restrictions on current  restricted
      stock  awards  typically  lapse one to three  years  after the award.  The
      deferred  compensation  expense  related  to  restricted  stock  grants is
      amortized to expense on a  straight-line  basis over the period of time of
      the restrictions are in place. Restricted common stock awards to employees
      reduce stock options  otherwise  available for future  grants.  The common
      stock awards are valued based on the opening price of the Company's  stock
      on the date the award is  approved by the Board of  Directors.  During the
      year end March  31,  2003,  134,722  restricted  shares  were  awarded  to
      directors  and  employees  and 87,500  restricted  shares were  awarded to
      non-employees. Common stock awards totaling 155,912 shares were granted to
      directors  and  employees  and 51,225  restricted  shares were  awarded to
      non-employees during the fiscal year ended March 31, 2002.

      The Company  recognized  costs of  $126,505,  $75,416 and $0 for the years
      ended  March  31,  2003,  2002 and  2001,  respectively,  for  stock-based
      compensation to employees and directors.  The Company  recognized costs of
      $74,688, $49,997 and $118,717 for the years ended March 31, 2003, 2002 and
      2001, respectively, for stock-based compensation to non-employees.

      STOCK OPTION  PLANS - At March 31, 2003,  the Company had one stock option
      plan, which is described above. SFAS No. 123,  "Accounting for Stock-based
      Compensation,"  defines a fair value method of accounting  for an employee
      stock  option.  SFAS No.  123  allows a company  to  continue  to  measure
      compensation  costs  for  theses  plans  using  APB  No.  25  and  related
      interpretations.  The Company has elected to continue using APB No. 25 for
      accounting  for its employee  stock  compensation  plan.  Accordingly,  no
      compensation  cost has been recognized for its fixed stock option plan. If
      Warrantech  had  determined  compensation  cost for its stock  option plan
      based on the fair  value at the  grant  dates for  awards  under the plan,
      consistent  with the method  prescribed  by SFAS 123,  the  Company's  net
      income and  earnings  per share  would have been  reduced to the pro forma
      amounts as follows:

<TABLE>
<CAPTION>
                                                FOR THE YEARS ENDED MARCH 31,
                                        -----------------------------------------------
                                            2003            2002              2001
                                          RESTATED        RESTATED          RESTATED
                                        ------------  ----------------  ---------------
<S>                                      <C>            <C>              <C>
Net income (loss) as reported            $1,466,894     ($16,513,704)    ($11,908,073)
Net income (loss) pro forma              $1,399,608     ($16,755,106)    ($12,730,857)
Shares - Basic                           15,317,881        15,259,437       15,265,114
Basic earnings per share as reported          $0.10           ($1.08)         ($0.78)
Basic earnings per share pro forma            $0.09           ($1.10)          ($0.83)
</TABLE>


                                       48
<PAGE>


      Presented  below is a summary  of the  status of the stock  options in the
      plan and the related transactions for the years ended March 31, 2003, 2002
      and 2001.

<TABLE>
<CAPTION>
                                                2003                  2002                  2001
                                       ------------------------------------------------------------------
                                                   WEIGHTED              WEIGHTED              WEIGHTED
                                                   AVERAGE               AVERAGE               AVERAGE
                                                   EXERCISE              EXERCISE              EXERCISE
                                         SHARES     PRICE      SHARES     PRICE      SHARES     PRICE
                                       ------------------------------------------------------------------
<S>                                     <C>            <C>    <C>            <C>      <C>          <C>
Options outstanding at beginning of     1,416,283      $1.54  1,185,748      $2.18    582,090      $3.51
year
Granted                                   664,048       0.73    361,253       0.89    671,301       1.23
Canceled/Surrendered                    (687,284)     (2.13)   (70,108)     (1.32)          -          -
Exercised                                 (5,000)     (0.42)          -          -          -          -
Forfeited                                (81,667)     (0.92)   (60,610)     (1.35)   (67,643)     (4.24)
                                       ------------------------------------------------------------------
Options outstanding at end of year     1,306, 380      $1.10  1,416,283      $1.93  1,185,748      $2.18
                                       ==================================================================

                                       ------------------------------------------------------------------
Options exercisable at end of year        662,097      $1.33    531,261      $1.54    164,912      $2.18
                                       ==================================================================
</TABLE>

      The  weighted  average  fair  value of  stock  options  at date of  grant,
      calculated using the Black-Scholes  option-pricing  model,  granted during
      the years ended March 31, 2003, 2002 and 2001 was $0.48,  $1.22 and $0.84,
      respectively.

      The  following  table  summarizes  the  status of all  Warrantech's  stock
      options outstanding and exercisable at March 31, 2003.

<TABLE>
<CAPTION>
                                            STOCK OPTIONS                         STOCK OPTIONS
                                             OUTSTANDING                           EXERCISABLE
                             --------------------------------------------   ---------------------------
                                               WEIGHTED        WEIGHTED                      WEIGHTED
                                                AVERAGE        AVERAGE                       AVERAGE
                                               REMAINING       EXERCISE                      EXERCISE
RANGE OF EXERCISE PRICES        SHARES         LIFE (YRS)       PRICE          SHARES         PRICE
---------------------------  -------------   -------------   ------------   ------------   ------------
<S>                          <C>             <C>             <C>            <C>            <C>
$0.67 to $0.87                    909,082            7.90          $0.74        227,019          $0.72
$1.3125 to $1.50                  436,008            5.63          $1.33        380,713          $1.33
$2.00                           4,650,000            3.51          $2.00      3,000,000          $2.00
$3.25 to $3.375                   101,290            1.62          $3.35        101,290          $3.27
                             -------------   -------------   ------------   ------------   ------------
Total at March 31, 2003         6,096,380            4.52          $1.97      3,709,022          $1.89
                             =============   =============   ============   ============   ============
Total at March 31, 2002         3,416,283            5.02          $1.78      2,531,257          $1.90
                             =============   =============   ============   ============   ============
Total at March 31, 2001         1,185,748            6.64          $2.18        264,912          $2.18
                             =============   =============   ============   ============   ============
</TABLE>

      OTHER STOCK OPTIONS - The Company may issue options to purchase its 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."  In addition to the options  described  below,
      during  the year ended  March 31,  2003,  the  Company  issued  options to
      purchase  30,000  shares of common stock to vendors at a weighted  average
      exercise price of $0.73 per share and options to purchase 10,000 shares of
      common stock to  non-employee  vendors at an exercise  price of $0.675 per
      share during the fiscal year ended March 31, 2002.  The fair value of each
      option  grant is  estimated  on the date of grant using the  Black-Scholes
      option-pricing model with weighted average assumptions  identical to those
      used for options granted to employees.

      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 years ended March 31, 2003, 2002 and
      2001, respectively:  expected dividend yield of 0%; expected volatility of
      30% - 50%; a risk free interest rate of 4.5% - 5.0%;  and expected  option
      life of 3 to 5 years.


                                       49
<PAGE>

      On October 1, 2002, as part of the between the Company and GAIC to provide
      extended credit terms,  GAIC received  options to purchase up to 1,650,000
      shares of common stock at an exercise  price of $2.00 per share (the "GAIC
      Options").   If  GAIC  exercises  all  of  these  options,  it  would  own
      approximately  10.8% of the Company's  outstanding  shares. As the options
      had no value under the Black-Scholes option pricing model, no compensation
      expense was recorded in the Company's results of operations for the fiscal
      year ended March 31, 2003.

      On June 11, 2002,  simultaneously  with the  settlement of the  litigation
      with Staples,  the Company granted  Staples options to purchase  1,000,000
      shares  of common  stock at an  exercise  price of $2.00  per  share  (the
      "Staples Options"). If Staples exercises all of the options, it would hold
      an equity  position in Warrantech of  approximately  6.5% of the Company's
      outstanding shares.

      On August 24, 2001,  simultaneously  with the settlement of the litigation
      among Service Guard Insurance Agency, Inc., AIG and related entities,  the
      Company granted AIG options to purchase  2,000,000  shares of common stock
      at an  exercise  price of $2.00 per  share  (the  "AIG  Options").  If AIG
      exercises  all of the  options,  it  would  own  approximately  12% of the
      Company's  outstanding common shares. The fair value of the above options,
      as determined under the Black-Scholes  option pricing model, of $21,000 in
      fiscal 2003 and $0 in fiscal 2002 was charged to operations.

      The GAIC,  Staples and AIG Options  are each  exercisable  for a period of
      five years.  Warrantech  has the right to redeem these options at any time
      if its  shares  trade at a price of  $3.00  per  share or more on any five
      consecutive  trading  days.  The  redemption  price  is $.001  per  share.
      However, if Warrantech elects to redeem the options, GAIC, Staples and AIG
      will have the right to exercise their respective options immediately prior
      to the redemption.

      The GAIC options are exercisable no earlier than January 1, 2006 nor later
      than  December 31,  2006.  In the event that  Warrantech's  stock does not
      trade above $2 per share for ten consecutive trading days prior to January
      1, 2004, the exercise price of the option is  automatically  reduced to $1
      per share.

      On July 6,  1998,  Joel  San  Antonio,  Warrantech's  Chairman  and  Chief
      Executive  Officer,  and  William  Tweed  and Jeff J.  White,  members  of
      Warrantech's  Board of  Directors,  exercised an aggregate of 3,000,000 of
      their vested options to purchase Warrantech common stock. Promissory notes
      totaling  $8,062,500 were signed with interest payable over three years at
      an annual rate of 6%. The promissory  notes,  which were with recourse and
      secured by the stock certificates  issued,  matured July 5, 2001. On March
      22, 1999,  Joel San Antonio  delivered an additional  promissory  note for
      $595,634,  payable to the Company,  representing the amounts funded by the
      Company  for the  payroll  taxes  payable by him upon for the  exercise of
      these options. The exercise of these stock options and the anticipated tax
      benefit from this transaction represented approximately $10 million. These
      amounts are recorded as a contra-equity  account,  which is a reduction of
      stockholders' equity.

      In February 2000, the Company agreed to restructure the loans to Mr. Tweed
      and Mr. White by  capitalizing  the interest  due and  extending  the loan
      maturity  from  July 5, 2001  until  January  31,  2005.  Interest  on the
      restructured  loans  accrued  annually at the  applicable  federal rate of
      6.2%. Under the restructuring,  interest first became payable on the third
      anniversary of the restructuring and was payable annually  thereafter.  In
      July 2002, the Company  extended the loan maturity dates until February 1,
      2007 (the "loan extension").  The interest,  which accrued on the notes up
      to the time of the loan  extension,  was  added  to the  principal  of the
      notes.  The new principal  amount of Mr. Tweed's note is $3,189,675 and of
      Mr. White's note is $2,912,430.  The applicable  federal  interest rate on
      the notes following the loan extension is 4.6%.  Under the loan extension,
      interest  on the notes will  accrue  until  February  1, 2005 and, at that
      time,  the accrued  interest  will be added to the principal of the notes.
      Interest on the new principal  amounts  thereafter become payable annually
      until maturity.


                                       50
<PAGE>

      In February 2000, the Company also agreed to restructure  the two existing
      loans to Mr. San Antonio  (as  restructured,  the  "Combined  Loan").  The
      Combined  Loan,  finalized in March 2001,  was due on January 31, 2005 and
      accrued interest  annually at 5.2%. In July 2002, the Company extended the
      loan  maturity  date  until  February  1, 2007 and the  interest  rate was
      changed to the then applicable  federal rate of 4.6%. The principal amount
      of Mr. San Antonio's note is $4,165,062. Interest will be forgiven as long
      as Mr. San Antonio continues to be employed by the Company.  The $200,506,
      $330,631 and $230,460 of interest  which accrued on the note during fiscal
      years 2003, 2002 and 2001,  respectively  has been forgiven.  The interest
      was charged to  operations as additional  compensation  in the  respective
      fiscal years the interest income was accrued.

      The total amount of the restructured loans to Mr. Tweed, Mr. White and Mr.
      San Antonio, including the capitalized interest, is $10,462,094.

      SAVINGS AND RETIREMENT PLAN

      The Company and its qualified  employees also participate in a Savings and
      Retirement  Plan also known as the 401(k)  Plan (the  "Plan").  All of the
      Company's  domestic  employees who have completed one year of service with
      the  Company  are  eligible  to  participate  in  the  Plan.  The  Company
      contributed 33% of an eligible employee's contribution to the Plan, with a
      maximum up to 4% of the employee's  compensation or $4,000.  The Company's
      contribution for the benefit of the employee,  vests after an employee has
      been  employed  by the Company for three  years.  The Company  contributed
      $95,819 and  $88,762 to the Plan  during the fiscal  years ended March 31,
      2003 and 2002,  respectively.  Beginning in fiscal year 2004,  the Company
      will begin contributing 66% of an eligible employee's  contribution to the
      Plan, with a maximum up to 4% of the employee's compensation or $4,000.

15.   OTHER INCOME (EXPENSE)

      Other income (expense) consists of the following:

<TABLE>
<CAPTION>
                                                          FOR THE YEARS ENDED MARCH 31,

                                                    2003              2002               2001
                                                   RESTATED         RESTATED           RESTATED
                                                 -----------       -----------      ---------------
<S>                                              <C>             <C>                <C>
               Interest and dividend income        $647,372          $855,877           $1,292,335
               Interest expense                   (275,185)         (217,072)            (234,102)
               Gain (loss) on sale of assets       (70,463)          (45,018)             (23,258)
               Credit card usage rebate             453,760           147,735                 -
               Miscellaneous income (expense)        18,790           115,944             (12,463)
                                                 -----------       -----------      ---------------
                   Total other income (expense)    $774,274          $857,466           $1,022,512
                                                 ===========       ===========      ===============
</TABLE>

16.   SIGNIFICANT CUSTOMERS

      During the fiscal year ended March 31, 2003,  the Company did not have any
      customers which accounted for more than 10% of the Company's  consolidated
      gross revenues.  In 2003, 2002, and 2001 gross revenues from a significant
      customer   were  $13.6   million,   $13.9   million  and  $11.6   million,
      respectively,  which  accounted for 9%, 12% and 9% of the Company's  total
      gross revenues,  respectively.  In 2003, 2002 and 2001 gross revenues from
      another   customer  were  $0  million,   $0  million  and  $15.6  million,
      respectively,  which  accounted for 0%, 0% and 12% of the Company's  total
      gross  revenues,  respectively.  Because  Warrantech  could  not  reach an
      agreement  with this customer to extend its agreement on terms which would
      not erode  the  profitability  of the  program,  the  program  expired  on
      February 26, 2001.


                                       51
<PAGE>

17.   EARNINGS PER SHARE

      The computations of earnings per share for the years ended March 31, 2003,
      2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                       FOR THE YEARS ENDED MARCH 31,
                                                        ---------------------------------------------------------
                                                             2003                 2002                 2001
                                                           RESTATED             RESTATED             RESTATED
                                                        ----------------    ------------------    ---------------
<S>                                                     <C>                 <C>                    <C>
Numerator:
    Net income (loss) applicable to common stock             $1,466,894         ($16,513,704)      ($11,908,073)
                                                        ================    ==================    ===============

Denominator:
    Average outstanding shares used in the
      computation of per share earnings:
        Common stock issued-basic shares                     15,317,881            15,259,437         15,265,114
        Stock options (treasury method)                          81,029                     -                  -
                                                        ----------------    ------------------    ---------------
        Diluted shares                                       15,398,910            15,259,437         15,265,114
                                                        ================    ==================    ===============
Earnings (loss) per common share:
     Basic                                                        $0.10               ($1.08)            ($0.78)
                                                        ================    ==================    ===============
     Diluted                                                      $0.10               ($1.08)            ($0.78)
                                                        ================    ==================    ===============
</TABLE>

18.   ACCUMULATED OTHER COMPREHENSIVE INCOME

      The components of accumulated other  comprehensive  income, net of related
      tax, for the years ended March 31, 2003, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED MARCH 31,
                                                   ----------------------------------------------------
                                                        2003               2002               2001
                                                   ---------------     --------------     -------------
<S>                                                <C>                 <C>                <C>
Unrealized gain/(loss) on investments                     $18,046             $4,333           $13,269
Accumulated translation adjustments                     (215,020)           (56,361)          (45,218)
                                                   ---------------     --------------     -------------
Accumulated other comprehensive income                 ($196,974)          ($52,028)         ($31,949)
                                                   ===============     ==============     =============
</TABLE>


19.   SEGMENT INFORMATION

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


                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                    CONSUMER                        REPORTABLE
YEAR ENDED                         AUTOMOTIVE      PRODUCTS      INTERNATIONAL      SEGMENTS         OTHER           TOTAL
-------------------------------------------------------------------------------------------------------------------------------

MARCH 31, 2003 RESTATED *
-------------------------
<S>                               <C>            <C>             <C>               <C>             <C>            <C>
Revenues                            108,025,461     33,681,861         5,359,710    147,067,032       (312,421)    146,754,611
Profit (loss) from operations         4,846,609        695,847            94,101      5,636,557     (4,557,323)      1,079,234
Pretax income (loss)                (1,393,253)      (344,476)            88,121    (1,649,608)       3,503,118      1,853,510
Net interest income (expense)          (47,769)          1,935             8,680       (37,153)         409,341        372,187
Depreciation/amortization               382,361      1,688,070            86,885      2,157,316       1,727,738      3,885,054
Total assets                        172,316,655     66,782,796         2,914,806    242,014,257      18,231,623    260,245,876

MARCH 31, 2002 RESTATED *
-------------------------

Revenues                             78,213,598     35,814,761         4,519,949    118,548,308       (410,446)    118,137,862
Profit (loss) from operations         5,276,711    (4,252,270)         (578,137)        446,304    (26,231,618)   (25,785,314)
Pretax income (loss)                    822,148    (6,425,410)         (907,600)    (6,510,862)    (18,416,986)   (24,927,848)
Net interest income                      95,081         55,526            26,477        177,083         461,722        638,805
Depreciation/amortization               398,229      1,674,238            79,999      2,152,466       2,327,976      4,480,442
Total assets                        110,943,805     71,657,078         3,168,070    185,768,953      23,862,652    209,631,605

MARCH 31, 2001 RESTATED *
-------------------------

Revenues                             68,487,236     57,569,802         4,808,891    130,865,929       (361,474)    130,504,455
Profit (loss) from operations         3,046,891    (4,841,326)       (2,106,859)    (3,901,294)    (15,022,771)   (18,924,065)
Pretax income (loss)                (1,066,016)   (12,586,606)         1,392,294   (12,260,328)     (5,641,225)   (17,901,553)
Loss on abandonment of assets                 -              -         1,029,731      1,029,731        -           (1,029,731)
Net interest income                     68,219          52,383          (16,851)        103,751         954,482     1,058,233
Depreciation/amortization               831,016      1,871,897           768,762      3,471,675       2,945,440      6,417,115
Total assets                         74,684,570     78,454,232         2,879,066    156,017,869       7,436,171    163,454,040
</TABLE>


                                       53
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      SUPPLEMENTAL QUARTERLY FINANCIAL DATA
                                   (UNAUDITED)

      The  following   fiscal  2003  and  2002  restated   quarterly   financial
      information  for each of the three month periods ended June 30,  September
      30,  December 31, 2002 and 2001 and March 31, 2003 and 2002 is  unaudited.
      However,  in the opinion of  management,  all  adjustments  (consisting of
      normal recurring  adjustments)  necessary to present fairly the results of
      operations for such periods have been made for a fair  presentation of the
      results shown.


<TABLE>
<CAPTION>
                                   QUARTER ENDED            QUARTER ENDED            QUARTER ENDED           QUARTER ENDED
                                      JUNE 30,              SEPTEMBER 30,             DECEMBER 31,              MARCH 31,
                                 2002        2001         2002        2001         2002        2001         2003         2002
                               Restated    Restated     Restated    Restated     Restated    Restated     Restated     Restated
                            --------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>         <C>         <C>          <C>         <C>          <C>          <C>
Net Revenues                  23,148,796  21,000,986   23,621,224  25,796,170   23,654,470  20,242,503   27,812,857   27,718,788
Gross Profit                   8,892,227   6,849,344    9,100,273   6,822,345    8,698,554   5,955,235    8,996,953  (11,484,094)
Income (loss)
  from operations                782,997  (2,324,443)     330,149  (1,480,627)     600,617  (2,053,153)    (634,529) (19,927,091)
Income (loss)
  before provision
  for income taxes             1,010,884  (2,131,454)     668,770  (1,330,552)     829,517  (1,695,525)    (655,661) (19,770,317)
Net income (loss)                774,511  (1,305,297)     418,533    (942,064)   1,468,749  (1,084,927)  (1,194,899) (13,181,416)

Earnings (loss) per share
   Basic                     $      0.05 ($     0.09) $      0.03 ($     0.06) $      0.10 ($     0.07) ($     0.07) ($     0.86)
   Fully Diluted             $      0.05 ($     0.09) $      0.03 ($     0.06) $      0.09 ($     0.07) ($     0.07) ($     0.86)
</TABLE>


                                       54
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                          FINANCIAL STATEMENT SCHEDULE

                 SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                   Column                          Column                     Column                     Column            Column
                      A                               B                          C                          D                 E
------------------------------------------------------------------------------------------------------------------------------------
                                                                             Additions
                                                 Balance at     ------------------------------------                     Balance at
Description                                       Beginning     Charged to Costs  Charged to Other    Deductions-          End of
                                                   of Year         and Expense    Accounts-Describe   Describe (a)          Year
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>               <C>                 <C>               <C>
Year Ended March 31, 2003
   Allowance for doubtful accounts:
              Trade A/R                                $256,019          $150,444                      $176,399          $230,064
              Other A/R                                       -                 -                             -                 -

Year Ended March 31, 2002
   Allowance for doubtful accounts:
              Trade A/R                              $1,079,946                 -                       823,927          $256,019
              Other A/R                                  45,500                 -                        45,500                 -

Year Ended March 31, 2001
   Allowance for doubtful accounts:
              Trade A/R                              $1,164,125            15,067                        99,246        $1,079,946
              Other A/R                               1,168,891                 -                     1,123,391            45,500
</TABLE>

(a)   Amount of receivables charged to the allowance during the year.

           See independent auditor's report and accompanying notes to
                       consolidated financial statements


                                       55
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

      (a)   1. and 2. Financial Statements and Financial Statement Schedule: see
            accompanying Index to Financial  Statements and Financial  Statement
            Schedule, page 25.

      (b)   Reports on Form 8-K during the last quarter:

            None.

      (c)   Exhibits

Exhibits not  incorporated  herein by reference to a prior filing are designated
by an asterisk (*) and are filed  herewith;  all exhibits not so designated  are
incorporated  herein  by  reference  as  indicated.   Management   contracts  or
compensatory  plans,  contracts or  arrangements  with  directors  and executive
officers of the Company appear in Exhibits 10(p) through 10(z).

EXHIBIT                             DESCRIPTION
-------                             -----------

3(a)            Certificate of Incorporation  filed June 22, 1983.  Incorporated
                by reference  to the  Company's  Registration  Statement on Form
                S-18, filed on November 23, 1983, Registration No. 2-88097-NY.

3(b)            Certificate of Amendment of Certificate of  Incorporation  filed
                October 24, 1983.  Incorporated  by  reference to the  Company's
                Registration Statement on Form S-18, filed on November 23, 1983,
                Registration No. 2-88097-NY.

3(c)            Certificate of Amendment of Certificate of  Incorporation  dated
                June 29, 1987. Incorporated by reference to the Company's Form 8
                Amendment to the  Company's  Annual  Report on Form 10-K for the
                fiscal year ended March 31, 1987, file no. 0-13084.

3(d)            Certificate  of  Designation  of  Warrantech   Corporation  with
                respect to the  Preferred  Stock as filed with the  Secretary of
                State of Delaware on October 12, 1993. Incorporated by reference
                to the  Company's  Report on Form 10-K for the fiscal year ended
                March 31, 1994, file no. 0-13084.

3(e)            By-laws of Warrantech Corporation,  as amended.  Incorporated by
                reference to the Company's Quarterly Report on Form 10-Q for the
                fiscal quarter ended September 10, 1988, file no. 0-13084.

10(a)           Form of Sales Distributor  Agreement.  Incorporated by reference
                to the Company's  Annual Report on Form 10-K for the fiscal year
                ended March 31, 1985, file no. 0-13084.

10(b)           Form of Service Center  Agreement.  Incorporated by reference to
                the  Company's  Annual  Report on Form 10-K for the fiscal  year
                ended March 31, 1985, file no. 0-13084.


                                       56
<PAGE>

10(c)           Form of  Dealer  Agreement.  Incorporated  by  reference  to the
                Company's  Annual  Report on Form 10-K for the fiscal year ended
                March 31, 1985, file no. 0-13084.

10(d)           Form of Sales Agent Agreement.  Incorporated by reference to the
                Company's Registration Statement on Form S-1, filed on September
                5, 1986, Registration No. 3-8517.

10(e)           General Agency Agreement between American  International  Group,
                Inc. and Warrantech  Automotive,  Inc. Incorporated by reference
                to Exhibit 10(o) to the Company's Annual Report on Form 10-K for
                the fiscal year ended March 31, 1996, file no. 0-13084.

10(f)           Master Agreement between American  International Group, Inc. and
                Warrantech  Corporation.  Incorporated  by  reference to Exhibit
                10(q) to the Company's Annual Report on Form 10-K for the fiscal
                year ended March 31, 1996, file no. 0-13084.

10(g)           Insurance  policy among Warrantech  Consumer  Product  Services,
                Inc. and Warrantech  Caribbean LTD and Great American  Insurance
                Company  pertaining to Service Plan  Agreement.  Incorporated by
                reference to Exhibit 10(u) to the Company's  Quarterly Report on
                Form 10-Q for the quarter  ended  December  31,  2001,  file no.
                0-13084.

10(h)           Schedule  10(h)  identifying  contracts  that are  substantially
                similar to Exhibit 10(g),  the Insurance policy among Warrantech
                Consumer Product Services, Inc. and Warrantech Caribbean LTD and
                Great  American  Insurance  Company  pertaining  to Service Plan
                Agreement,  in all  material  respects  except as to the parties
                thereto, the dates of execution, or other details.  Incorporated
                by reference to Exhibit 10(v) to the Company's  Quarterly Report
                on Form 10-Q for the quarter ended  December 31, 2001,  file no.
                0-13084.


                                       57
<PAGE>


10(i)           Obligor  Agreement between Butler Financial  Solutions,  LLC and
                Warrantech  Corporation  dated  April 1, 2000.  Incorporated  by
                reference to Exhibit  10(u) to the  Company's  Annual  Report on
                Form 10-K for the year ended March 31, 2002, file no. 0-13084.

10(j)           Master  Agreement  between Butler Financial  Solutions,  LLC and
                Warrantech Corporation dated November 21, 2001.  Incorporated by
                reference to Exhibit  10(v) to the  Company's  Annual  Report on
                Form 10-K for the year ended March 31, 2002, file no. 0-13084.

10(k)           Security  Agreement  between  Warrantech  Corporation  and Great
                American  Insurance Company dated October 1, 2002.  Incorporated
                by reference to Exhibit 10(e) to the Company's  Quarterly Report
                on Form 10-Q for the quarter ended  September 30, 2002, file no.
                0-13084.

10(l)           Support  Agreement  between  Warrantech  Corporation  and  Great
                American  Insurance Company dated October 1, 2002.  Incorporated
                by reference to Exhibit 10(f) to the Company's  Quarterly Report
                on Form 10-Q for the quarter ended  September 30, 2002, file no.
                0-13084.

10(m)           Summary of building lease dated July 10, 2002 between Warrantech
                Corporation  and 121  Airport  Centre  II, LP.  Incorporated  by
                reference to Exhibit 10(d) to the Company's  Quarterly Report on
                Form 10-Q for the quarter  ended  September  30, 2002,  file no.
                0-13084.

10(n)           Option  Agreement dated August 22, 2001, by and among Warrantech
                Corporation,  American  International  Group,  Inc.  and others.
                Incorporated  by  reference  to Exhibit  10(b) to the  Company's
                Quarterly Report on Form 10-Q for the quarter ended December 31,
                2001, file no. 0-13084.

10(o)           Stock  Option  Agreement  dated  June 4,  2002,  by and  between
                Warrantech   Corporation  and  Staples,   Inc.  Incorporated  by
                reference to Exhibit 10(a) to the Company's  Quarterly Report on
                Form 10-Q for the quarter ended June 30, 2002, file no. 0-13084.

10(p)           Warrantech  Corporation  1998  Employee  Incentive  Stock Option
                Plan,  as amended and  restated,  effective  September 25, 2001.
                Incorporated  by  reference  to Exhibit  10(a) to the  Company's
                Quarterly  Report on Form 10-Q for the quarter  ended  September
                30, 2001, file no. 0-13084.

10(q)           Amendment  No. 2,  dated  October  8,  2002,  to the  Warrantech
                Corporation  1998  Employee  Incentive  Stock  Option  Plan,  as
                amended and restated, effective September 25, 2001. Incorporated
                by reference to Exhibit 4(a) to the Company's  Quarterly  Report
                on Form 10-Q for the quarter ended  September 30, 2002, file no.
                0-13084.

10(r)           Employment  Agreement  dated  April 1, 1998  between  Warrantech
                Corporation  and Joel San Antonio.  Incorporated by reference to
                the  Company's  Annual  Report on Form 10-K for the fiscal  year
                ended March 31, 1999, file no. 0-13084.

10(s)           Employment  Agreement  dated April 16, 1998, as amended April 6,
                2002,  between  Warrantech  Corporation  and Richard F.  Gavino.
                Incorporated  by  reference  to Exhibit  10(n) to the  Company's
                Annual  Report on Form 10-K for the fiscal  year ended March 31,
                2001, file no. 0-13084.

10(t)           Employment Agreement between Warrantech Corporation and James F.
                Morganteen  dated January 1, 2002.  Incorporated by reference to
                Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for
                the quarter ended September 30, 2002, file no. 0-13084.


                                       58
<PAGE>

10(u)           Schedule  10(u)  identifying  contracts  that are  substantially
                similar to  Exhibit  10(t),  the  Employment  Agreement  between
                Warrantech Corporation and James F. Morganteen,  in all material
                respects  except  as  to  the  parties  thereto,  the  dates  of
                execution,  or  other  details,  incorporated  by  reference  to
                Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for
                the quarter ended September 30, 2002, file no. 0-13084.

10(v)           Employment  Agreement  dated  April 1, 2000  between  Warrantech
                Corporation and Richard Rodriguez.  Incorporated by reference to
                Exhibit  10(w) to the  Company's  Annual Report on Form 10-K for
                the year ended March 31, 2002, file no. 0-13084.

10(w)           Employment  Agreement  dated  April 1, 2003  between  Warrantech
                Corporation  and Randall San Antonio.  Incorporated by reference
                to Exhibit 10(w) to the Company's Annual Report on Form 10-K for
                the year ended March 31, 2003, file no. 0-13084.

10(x)           Promissory Note and Pledge Agreement,  as amended July 24, 2002,
                between Warrantech  Corporation and William Tweed,  incorporated
                by reference to Exhibit 10(a) to the Company's  Quarterly Report
                on Form 10-Q for the quarter ended  September 30, 2002, file no.
                0-13084.

10(y)           Promissory Note and Pledge Agreement, as amended, July 24, 2002,
                between   Warrantech   Corporation   and   Joel   San   Antonio,
                incorporated  by  reference  to Exhibit  10(b) to the  Company's
                Quarterly  Report on Form 10-Q for the quarter  ended  September
                30, 2002, file no. 0-13084.

10(z)           Promissory Note and Pledge Agreement,  as amended July 24, 2002,
                between Warrantech  Corporation and Jeff J. White.  Incorporated
                by reference to Exhibit 10(c) to the Company's  Quarterly Report
                on Form 10-Q for the quarter ended  September 30, 2002, file no.
                0-13084.

21              Subsidiaries  of  the  Company.  Incorporated  by  reference  to
                Exhibit 21 to the  Company's  Annual Report on Form 10-K for the
                year ended March 31, 2003, file no. 0-13084.

*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 Executive  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.


                                       59
<PAGE>

                                   SIGNATURES

      PURSUANT  TO THE  REQUIREMENTS  OF SECTION 13 OR 15 (D) OF THE  SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THERETO DULY AUTHORIZED.


                                         WARRANTECH CORPORATION

Dated: July 2, 2004                      By: Joel San Antonio

                                             /s/ Joel San Antonio
                                             --------------------------------
                                             Joel San Antonio,
                                             Chairman of the Board and
                                             Chief Executive Officer


Dated:        July 2, 2004               By: Richard F. Gavino
                                             --------------------------------
                                             /s/ Richard F. Gavino
                                             Richard F. Gavino,
                                             Executive Vice President and
                                             Chief Financial Officer



                                       60
<PAGE>


      PURSUANT TO THE REQUIREMENTS OF THE SECURITIES  EXCHANGE ACT OF 1934, THIS
REPORT  HAS  BEEN  SIGNED  BELOW  BY THE  FOLLOWING  PERSONS  ON  BEHALF  OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON JULY 2, 2004.


/s/ Joel San Antonio        Chairman, Chief Executive Officer and Director
-------------------------   (Principal Executive Officer)
Joel San Antonio


/s/ Richard F. Gavino       Executive Vice President and Chief Financial Officer
-------------------------   (Principal Accounting and Financial Officer)
Richard F. Gavino


/s/ William Tweed           Vice Chairman and Director
-------------------------
William Tweed


/s/ Lawrence Richenstein    Director
-------------------------
Lawrence Richenstein


/s/ Jeff J. White           Director
-------------------------
Jeff J. White


/s/ Ronald Glime            Director
-------------------------
Ronald Glime


/s/ Richard Rodriguez       Director
-------------------------
Richard Rodriquez



                                       61