UNITED STATES
                                        SECURITIES AND EXCHANGE COMMISSION
                                              Washington, D.C. 20549
(Mark One)
[  X  ]                                               FORM 10-K/A
                          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF   THE  SECURITIES  EXCHANGE ACT OF 1934 [FEE  REQUIRED]
                           For the fiscal year ended March 31, 1998
                                                    OR
[    ]              TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                      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
incorporation or organization                                Identification No.)

                    300 Atlantic Street, Stamford, Connecticut      ___06901___
                     (Address of Principal Executive Offices)       (Zip Code)

Registrant's  telephone  number,  including area code (203) 975-1100  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           NASDAQ National Market

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

     Indicate by checkmark  whether the  Registrant (1) has filed all reports 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 or any amendment to this
form 10-K [ ].

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

The number of shares outstanding of the Registrant's  common stock is 13,359,380
as of June 17, 1998.

The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
Registrant is $57,133,798 as of June 17, 1998.

                     DOCUMENTS INCORPORATED BY REFERENCE

None.


Index to Exhibits is on page 55.
Document contains 61 pages.

                                      1
<PAGE>

                                                      PART I


     Warrantech Corporation  ("Warrantech" or the "Company") maintains executive
offices  at  300  Atlantic  Street,   Stamford,   Connecticut  06901,  operating
facilities  at 150  Westpark Way and 1441 West Airport  Freeway,  Euless,  Texas
76040, as well as other Texas  locations.  The telephone number of the executive
offices is (203) 975-1100.

Item 1.           Business

     Warrantech,  through its wholly-owned subsidiaries,  Warrantech Automotive,
Inc.,  Warrantech Consumer Product Services,  Inc.,  Warrantech Help Desk, Inc.,
Warrantech  Direct,  Inc.,   Warrantech  Home  Service  Company  and  Warrantech
International,  Inc.,  provides  outsourcing of business  services  through call
center  services and  technical  computer  services and markets and  administers
service  contract  programs for retailers,  distributors  and  manufacturers  of
automobiles,  homes, home appliances, home entertainment products, computers and
peripherals,  and  office and  communication  equipment,  in the United  States,
Puerto Rico, Mexico, Canada,  Caribbean,  South America, Central America and the
United Kingdom.  Additionally,  third-party administrative services are provided
to manufacturers of consumer and automotive products and other business entities
requiring  such   services.   The   predominant   terms  of  the  contracts  and
manufacturer's warranties range from twelve (12) to eighty-four (84) months.

     The Company assists  dealer-clients  in obtaining  insurance  coverage that
indemnifies  the clients against losses  resulting from service  contract claims
and  protects  the  consumer  by  ensuring  that  their  claims  will  be  paid.
Additionally,  the  Company  and  the  insurers  have  agreements  that  provide
eligibility for the Company to participate in the profits.

     Service contract programs benefit consumers with expanded and/or extensions
of 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  warranty(ies).  Such  coverage
generally provides for the repair or replacement of the product,  or a component
thereof, in the event of its failure.

     From a marketing  perspective,  the Company's products and services enhance
the  perceived  value  of  the  retailers',  distributors',   manufacturers'  or
financial institutions' products.

Warrantech Automotive, Inc.

     Warrantech  Automotive,   Inc.  ("WAI")  has  operated  as  a  wholly-owned
subsidiary since November 1989. Through this subsidiary, the Company markets and
administers  vehicle service  contract ("VSC")  programs,  credit life and other
related automotive  after-sale products,  all of which enhance the profitability
of the sale of  automobiles,  recreational  vehicles and automotive  components.
These  products  are sold by  franchised  and  independent  automobile  dealers,
leasing companies, repair facilities, retail stores, and financial institutions.

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


                                     2
<PAGE>

     The VSC is a contract  between the  dealer/lessor  (and in some states WAI)
and the vehicle  purchaser/lessee  that offers  coverage  that runs from (12) to
eighty-four  (84) months and/or 1,000 to 100,000 miles.  Coverage is afforded in
the event of the failure of a broad range of mechanical  components  that occurs
during the term of the VSC,  exclusive  of failures  covered by a  manufacturers
warranty.

     The programs marketed and administered by WAI require that the dealer enter
into an agreement  whereby WAI is the provider of services to the dealer.  Among
these  services is the  development  and  distribution  of marketing  materials,
processing  of dealer  produced  VSC's,  and the  administration  and payment of
claims filed by contract holders under the terms of their VSC.

     WAI  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 90  agents  in 46  states  as well as Puerto  Rico and
Canada.

     With  respect  to the VSC  programs  which  Warrantech  and WAI  market and
administer, liability is borne by insurers who have issued insurance policies to
assume this risk in exchange  for the payment of agreed upon  premiums and fees.
Effective  March 1, 1993,  insurance for the WAI VSC programs is provided by the
New Hampshire Insurance Company and other American International Group, Inc.
("AIG") member companies.

     Essential to the success of WAI is its ability to capture,  maintain, track
and analyze all relevant data  regarding a VSC. To support this  function,  this
subsidiary operates  proprietary software developed internally which consists of
custom  designed  relational  databases  with  interactive  capabilities.   This
configuration   provides  ample  capacity  and  processing   speed  for  current
requirements as well as the ability to support significant future growth in this
area.


Warrantech Consumer Product Services, Inc.

     Warrantech  Consumer  Product  Services,   Inc.  ("WCPS"),  a  wholly-owned
subsidiary,  was formed in 1990 and, at that time,  assumed the parent company's
efforts to develop,  market and administer  consumer  product  extended  service
contract programs.

     The  programs  marketed and  administered  by WCPS require that the selling
dealer,  distributor  or  manufacturer  enter into an  agreement  with WCPS that
outlines  the duties of each party.  Those duties  specifically  assumed by WCPS
include the  development  and  distribution  of marketing  materials,  sales and
motivational  training,  processing of service  contracts,  and  adjustment  and
payment of claims.  WCPS has also entered into service  center  agreements  with
consumer product repair centers located throughout North America, South America,
Mexico and the Caribbean.

     In exchange for agreed upon  premiums and fees from the insured,  liability
for claims  incurred by service  contracts  issued by a dealer,  distributor  or
manufacturer has been assumed by Cigna Insurance  Company.  At the present time,
in  addition to Cigna,  certain  programs  offered by WCPS are being  insured by
Houston General, and certain AIG member companies.

     It is also  essential  to the  success of WCPS that it be able to  capture,
maintain,  and analyze all relevant information about its service contracts.  To
support this function,  WCPS has internally developed  application programs that
allow the  tracking of a database of  millions of service  contracts.  This also
allows for the development of current and historical  statistical  data which is
used to  monitor  its  service  contract  program's  performance,  and also will
support significant growth of WCPS's business.

                                   3
<PAGE>

 Warrantech Help Desk, Inc.

     The  Company  formed  Warrantech  Help Desk,  Inc.  ("WHD") a  wholly-owned
subsidiary,  on March 25, 1997, to provide  information  technology  outsourcing
support services to large national and multi-national  corporations,  government
agencies and service organizations.  This subsidiary offers its services through
two business units:  (i) Call Center  Services,  which provides its clients with
inbound  telephone  support  for  their  computer  product  end-users  and  (ii)
Corporate  Computer  Services,   which  provides   corporations  with  technical
staffing.  The call center is staffed by Technical Service  Representatives with
extensive  technical  training in computers and peripherals.  Using  centralized
dispatch  capabilities,  WHD is able to  provide  "One Call  Service  Solutions"
during manufacturers' warranty period and beyond. Support services includes call
dispatch,  parts acquisition,  service call resolution and specialized reporting
back to our clients.  The WHD expanded service network includes national as well
as  international  coverage.  In  addition,  the service  expertise  of WHD will
enhance  the  programs  offered by certain  other  subsidiaries  of the  Company
through the expediting of  troubleshooting  and problem  solving over the phone.
This should result in  cost-savings  by reducing the number of on-site calls and
equipment returns.


Warrantech Direct, Inc.

     Warrantech  Direct,  Inc.  ("WDI") is uniquely  positioned to integrate the
customer,  service and product  resources of Warrantech,  its  subsidiaries  and
their retail dealers and  manufacturers,  in order to fully exploit new business
opportunities  in  merchandising  through  data-base  marketing  to the end-user
consumer.

     This  subsidiary,  which  was  formed  in 1992,  utilizes  state-of-the-art
telemarketing  and direct mail  equipment and techniques to obtain second effort
sales and renewals of service contracts.

     WDI's  efforts  are  conducted  on  behalf  of  (i)  the  dealer/retailers,
distributors  and  manufacturers  who  utilize  the  service  contract  programs
marketed and  administered by WAI, WHD, WCPS and WDI, and (ii) a growing list of
other  vendors who wish to utilize WDI  resources  to enhance  their own service
contract sales efforts.  Second effort marketing  consists of contacting product
purchasers who did not buy a service contract and offering them this opportunity
prior to the expiration of the manufacturer warranty. Renewal marketing consists
of the  effort  to  renew  service  contracts  on  eligible  products  upon  the
expiration of their current service contract coverage.

Warrantech Home Service Company

     In fiscal 1996, the Company commenced operations of Warrantech Home Service
Company ("WHSC"), a wholly-owned  subsidiary,  as the vehicle to develop, market
and  administer   service  contract  programs  in  the  United  States  covering
mechanical  breakdowns of the working systems and components in homes.  The core
program protects  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  Warrantech  Home Service
warranty is one of the first of its kind. It offers greater protection than what
has been available until now and it provides this security at a lower cost.

Warrantech International, Inc.

     In July 1993, the Company through  Warrantech  International,  Inc. ("WII")
and AIG formed a joint venture, Techmark Services Ltd. ("Techmark" or the "Joint
Venture") owned fifty-one  percent (51%) by AIG and forty-nine  percent (49%) by
the Company.

                                    4
<PAGE>

         In  conjunction  with the  foregoing  alliance,  in October  1993,  AIG
purchased,  for a price of $6,430,000,  options and a special issue of preferred
stock which was  convertible  into an issue of new shares of common stock which,
subsequent to its issuance,  would be equivalent to twenty  percent (20%) of the
Company's issued and outstanding  common stock.  Under the terms of the purchase
agreement,  AIG had the right to purchase an increased  interest in the Company,
to a maximum of thirty  percent  (30%) of the Company's  issued and  outstanding
common stock, if certain operating goals were achieved by the Company.

     In April 1996,  the Company and AIG agreed to terminate  the joint  venture
effective  January  1,  1996.  Under the terms of the  agreement,  AIG agreed to
purchase the Company's  forty-nine percent (49%) investment in the joint venture
for  approximately  $3.8  million and to sell back to the Company the  3,234,697
shares of convertible  preferred  stock held by AIG for its original  redemption
value of $6,430,000 and further  relinquish  their rights to other options under
the original  agreement.  The balance due AIG of  $2,395,960  for the  preferred
stock is in the form of a three year,  non-interest bearing note payable. In the
event of default by the Company with respect to this note  payable,  the Company
would be required to reissue to AIG preferred stock for the remaining amount due
at the default  date.  AIG also agreed to  continue to insure  certain  extended
warranty programs of the Company.

     In July 1995, WII,  acquired Home Guarantee  Corporation PLC  (subsequently
renamed  Warrantech  Europe Plc.), a British company which markets home warranty
products in the United  Kingdom  covering  mechanical  breakdowns of the working
systems  and  components  in homes  (e.g.,  furnaces,  electrical  and  plumbing
systems,  and  major  appliances).   In  addition  to  home  warranty  products,
Warrantech  Europe's  business  will  continue  to  expand to  include  extended
warranties  on  a  wide  range  of  products  including  automobiles,   business
equipment, office and home computers, mobile telephones, and major appliances as
well as credit card enhancement programs similar to those marketed in the United
States.  This  subsidiary  also provides full  database  management,  marketing,
training,  brokerage  services,  and  customer  care  service for clients in the
automotive,  financial,  manufacturing,  retail and  service  sectors to certain
other subsidiaries of the Company.

     WII conducts its efforts on a direct basis and has developed  relationships
with the retailers and  distributors  who will market and sell the programs.  In
addition,  WII has made contact with various  insurers in certain South American
countries to provide the  insurance for the programs  offered by such  retailers
and  distributors.  The Company  believes that its direct efforts will result in
greater penetration in the South American marketplace.

Sales and Marketing

     The sales and marketing  activities of the Warrantech  subsidiary companies
are managed by each subsidiary's own sales and marketing  personnel.  In certain
circumstances,  the  subsidiaries  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   subsidiary   companies   foster  awareness  of  their
respective  programs  through  cooperative  advertising  programs,  which may be
jointly funded by the subsidiary and the dealer or independent agent.

     Sales training and motivational  programs are a primary form of specialized
assistance provided by WAI, WHD and WCPS to retailers/dealers,  distributors and
manufacturers,  to assist them in increasing the effectiveness and profitability
of their service contract program sales efforts.  The Company develops materials
and conducts  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 Euless, Texas administrative offices.
This facility  features the latest in audio/video  technology  that enhances the
training and learning experience.

                                  5
<PAGE>

Significant Customers

     The Company has one  significant  customer,  CompUSA,  that  accounted  for
approximately  24% and 23% of  consolidated  gross  revenues for the years ended
March 31, 1998 and 1997. The Company had two significant customers,  CompUSA and
Tops, that accounted for  approximately  19% of consolidated  gross revenues for
the year ended March 31, 1996.

Competition

     The Warrantech  subsidiary  companies  compete with a number of independent
administrators,   divisions  of  distributors   and   manufacturers,   financial
institutions  and  insurance  companies.  While  the  Company  believes  that it
occupies a preeminent position among its competitors in its field, it may not be
the  largest  marketer  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.

Insurance Coverage

         Liability  for  performance  under the terms of service  contracts  and
limited warranties issued by dealers/retailers, distributors or manufacturers is
assumed by the insurer in return for the payment of the agreed-upon  premium for
the   assumption  of  the  risk  from  the  insured.   This  coverage   provides
indemnification against loss resulting from service contract claims and protects
the consumer by ensuring that their claim will be paid.

     The  insurance  protection  is  provided  for the WAI  programs  by the New
Hampshire Insurance Company, and other AIG member companies. These companies are
all rated A++ (Superior) by the A.M. Best Company. WCPS,WHDI and its clients are
protected by insurance  afforded by Cigna  Insurance  Company,  Houston  General
Insurance Company,  and certain AIG member companies.  Cigna and Houston General
are rated A (Excellent). WHSC and its clients are protected by insurance through
Zurich American Insurance  Company,  an A+ (Superior) rated carrier by A.M. Best
Company.

     In accordance with the insurance  arrangements with these insurers, a fixed
amount is remitted  for each  service  contract or limited  warranty  sold.  The
amount is based upon  actuarial  analysis of data  collected and  maintained for
each type of coverage and contract term. In no event is the insured, the Company
or its  subsidiaries  obligated  to the  insurer if claims  exceed  the  premium
remitted.

     Additionally,  agreements  between the Company  and the  insurers,  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  formulas 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  did not accrue or  receive  any profit
sharing advances during the 1998 or 1997 fiscal years.


                                       6
<PAGE>

Federal and State Regulation

     The service  contract  programs  developed  and  marketed by the  Company's
subsidiaries,  and their related operations with regard to service contracts and
limited  warranties,  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 new programs that are developed by the Company.

     Generally  speaking,  these statutes  concern the scope of service contract
coverage and content of the service  contract or limited warranty  document.  In
such instances, the state statute will require that specific wording be included
in the service  contract or limited  warranty  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 and its subsidiaries do not believe that they are
insurers and have no intention of filing the  documents  and meeting the capital
and surplus requirements that are necessary to obtain such a license.

     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 any
regulatory bodies that its methods of doing business were not in compliance with
state regulation, the Company has taken the steps necessary to comply.

     If the Company's right to operate in any state is challenged  successfully,
the Company may be required to cease operations in the state and the state might
also impose financial sanctions against the Company. These actions,  should they
occur, could have materially adverse consequences and could affect the Company's
ability to continue operating.  However, within the framework of currently known
statutes, the Company does not feel that this is a present concern.

Trademarks

     The Company holds numerous  registered United States  trademarks,  the most
important of which are the "WARRANTECH" and its stylized "W" logo service marks.
The  registration  for all service marks are kept current by the Company and its
trademark counsel.  Additional service marks are registered  covering subsidiary
names and product names and descriptions.

Employees

     The  Company  and  its  subsidiaries  currently  employ  approximately  700
individuals,  an increase of  approximately  200 over the preceding fiscal year.
The increase is directly  attributable to the expansion of customer  service and
claims  representatives to meet the needs of the Company's  expanding  business.
None  of  the  Company's  employees  are  covered  by  a  collective  bargaining
agreement. The Company considers its relations with its employees to be good.



                                          7
<PAGE>

Item 2.           Properties

     The  Company's  executive  offices  are  located in leased  premises at 300
Atlantic Street, Stamford Connecticut.  The premises,  which are leased pursuant
to a lease agreement (the  "Leases"),  consists of  approximately  14,317 square
feet for space A and 6,683 square feet for space B. The Lease, which was renewed
effective on April 1, 1998 and expires on March 31, 2005,  provide for remaining
annual base rent payments ranging from $207,173 to $472,461 respectively.

     The operating facilities of WCPS and WHSC are located in leased premises at
150 Westpark  Way,  Euless,  Texas.  The premises,  consisting of  approximately
25,505 square feet, are leased pursuant to a lease agreement (the "Texas Lease")
which  was  favorably  renegotiated  effective  on  March 1,  1993  and  amended
effective  on  March  1,  1996 to add an  additional  1,448  square  feet to the
original  24,057.  The Texas  Lease  expires on July 31, 2003 and  provides  for
remaining annual base rent payments ranging from $291,182 to $352,819.

     Effective  April 15, 1996, the Company  leased an additional  36,814 square
feet at 1441 West Airport Freeway,  Euless,  Texas to accommodate the operations
of WAI and WHD which moved June 1, 1996 from the  Westpark  Way  facility due to
the expansion of the WCPS operations and the start-up of WHSC operations at that
location.  These  premises,  are being leased pursuant to a lease agreement that
expires March 31, 2004. The lease provides for annual base rent payments ranging
from $404,954 to $441,768 during the term of the lease.

     Additional  facilities  that support the  operations  of WDI are located at
1441 West Airport Freeway,  Euless,  Texas  (approximately  12,901 square feet),
7630-7632 Pebble Drive,  Building #28, Fort Worth,  Texas  (approximately  6,000
square feet) and  2701/2705  Brown Trails,  Bedford,  Texas (4,915 square feet).
These  premises are leased under the terms of leases (the "Other  Leases")  that
were  effective  on  December  1, 1994,  March 1,  1996,  and  December  1, 1997
respectively  expiring  March 31, 2004,  February 28, 2001 and November 30, 1998
respectively.  The Other Leases  provide for annual base rent  payments  ranging
from $249,172 to $177,162.

     The operating  facilities of Warrantech  Europe,  plc are located in leased
premises at 248A Marylebone Road, London.  These premises are leased pursuant to
a lease agreement which expires June 23, 2010 and provides for remaining  annual
base rent payments ranging from L94,050 to L108,450.

     Warrantech  International's  Puerto Rico  operations  are located in leased
premises at 1225 Ponce de Leon Avenue, Santurce, Puerto Rico pursuant to a lease
agreement which expires March 31, 2003. The remaining  annual base rent payments
ranging from $52,353 to $54,928.

Item 3.           Legal Proceedings

     Intercontinental  Brokerage,  Incorporated  ("IBI") v. Warrantech  Consumer
Product Services, Inc. and Warrantech Corporation (collectively, "Warrantech").

     This suit was filed in the 67th District Court,  Tarrant  County,  Texas on
October 10, 1997. IBI had provided various  insurance  services to and on behalf
of  Warrantech  over a period of years.  Warrantech  asserts,  however,  that it
terminated its relationship with IBI in 1996 and has not requested or used IBI's
services  since the date of  termination.  IBI  alleges in this  action  that it
continued to perform services for Warrantech though June 30, 1997 and that it is
entitled  to be  compensated  for  these  services  under  several  theories  of
liability.  IBI is seeking specified damages of up to $1,330,000 as well as such
other sums as the Court may find it is entitled to recover.

                                    8
<PAGE>


     Both parties are actively  engaged in the  discovery  process and the first
depositions  have  been  noticed.  No trial  date  has  been  set at this  time.
Warrantech  denies all  allegations  and is pursuing all of the legal rights and
remedies available to it.


       Item 4.             Submission of Matters to Vote of Security Holders

                  No  matters  were   submitted  to  a  vote  of  the  Company's
shareholders,  through  the  solicitation  of proxies or  otherwise,  during the
fourth quarter of the Company's fiscal year ended March 31, 1998.

                                   9

<PAGE>



                                                      PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

         The   Company's   Common  Stock  has  been  reported  in  the  National
Association of Securities  Dealers Automated  Quotation System  ("NASDAQ"),  and
currently is reported on NASDAQ's  National  Market  System  ("NMS"),  under the
trading symbol "WTEC".

     As of June 17, 1998 there were  13,359,380  Common Shares  outstanding.  On
that date, the closing bid price for the Company's  common stock, as reported by
NASDAQ was $6.50.

Following is a summary of the price range of the  Company's  Common Stock during
its 1998 and 1997 fiscal years:

Common Stock

Quarter of Fiscal 1998
                                                   High & Low Bid
First                                          $12.38           $ 8.88
Second                                         $12.81           $ 9.25
Third                                          $13.25           $ 7.88
Fourth                                         $10.69           $ 5.19


Quarter of Fiscal 1997                            High & Low Bid

First                                         $  5.38          $  3.81
Second                                        $ 10.13          $  3.63
Third                                         $ 15.38          $  8.13
Fourth                                        $ 12.13          $  8.50


The number of  shareholders  of record of the Company's  Common Stock as of June
17, 1998 was 987.

Dividends

     No cash dividends have been paid to holders of Common Stock since inception
of the  Company.  The  Company  anticipates  that,  in the  foreseeable  future,
earnings,  if  any,  will  be  retained  for use in the  business  or for  other
corporate  purposes and it is not anticipated  that cash dividends will be paid.

                                   10
<PAGE>


Item 6 - Selected Financial Data.
The Selected  Financial Data should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this filing.

<TABLE>

                                                               FOR THE YEARS ENDED MARCH 31,
  

     <C>                         <S>                   <S>                 <S>                    <S>                   <S>  
                                          -----                 ------                ------                ------
                        --------------------   -------------------   -------------------   --------------------   -----------------
                               1998                  1997                  1996                   1995                  1994
                        --------------------   -------------------   -------------------   --------------------   -----------------
Gross revenue             $201,724,332          $161,044,135          $110,246,219            $71,239,070           $46,970,763
Net increase in 
deferred revenue            (1,985,798)           (1,381,271)           (1,165,495)              (699,745)             (316,290)
                        --------------------   -------------------   -------------------   --------------------   -----------------
Net revenue                199,738,534           159,662,864           109,080,724             70,539,325            46,654,473
                        --------------------   -------------------   -------------------   --------------------   -----------------
Net income                  $5,261,037            $4,794,715            $2,394,862             $2,895,788              $703,591
                        ====================   ===================   ===================   ====================   =================
Basic Earnings Per Share

Net income                     $0.40                 $0.37                 $0.18                  $0.22                 $0.05
                        ====================   ===================   ===================   ====================   =================
Cash dividend declared         NONE                  NONE                  NONE                   NONE                  NONE
                        ====================   ===================   ===================   ====================   =================
Total assets               $81,917,288           $66,124,255           $56,613,710            $41,858,546           $33,828,572
                        ====================   ===================   ===================   ====================   =================
Long-term debt and
 capital lease
 Obligations                $2,153,286            $2,491,786            $1,124,015               $293,648              $476,875
                       ====================   ===================   ===================   ====================   ==================

Convertible Exchangeable
   preferred stock          -                      -                    $6,420,363             $6,396,795            $6,343,614
                       ====================   ===================   ===================   ====================   ==================

Common stockholders'
   equity                  $31,764,955           $25,281,941           $19,656,931            $17,443,763           $14,300,322
                    
                       ====================   ===================   ===================   ====================   ==================
Working capital            $16,048,262           $13,602,168           $13,221,212            $11,067,983            $9,768,580
                       ====================   ===================   ===================   ====================   ==================


</TABLE>

                                            11
<PAGE>


Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

                               General

     The  Company,  through its WAI,  WCPS,  WDI,  WHSC,  and WII  subsidiaries,
provides  marketing  and  administrative   services  to  over  3,000  retailers,
distributors and manufacturers of automobiles, recreational vehicles, automotive
components,  homes, home appliances, home entertainment products,  computers and
peripherals,  office and communications  equipment. The Company's administrative
services pertain primarily to extended service contracts and limited warranties,
issued by the retailer,  distributor or manufacturer to the  purchaser/lessee of
the  consumer  product.   Additionally,  the  Company  maintains  administrative
facilities for, and provides administrative services to, insurance companies and
financial institutions for other types of insurance products such as credit card
enhancement programs like "purchase protection" and "unemployment" coverages.

                       Results of Operations

Gross Revenues

         Fiscal 1998 vs. 1997

     Gross  revenues  for the fiscal  years  ended  March 31, 1998 and 1997 were
$201,724,332 and $161,044,135,  respectively, representing an increase of 25% in
the current fiscal year. The increase is the result of the Company's  efforts in
expanding its market  penetration in the personal  computer  industry as well as
continued market  penetration in the consumer  products and automotive  products
and international market segments.  The gross revenues  attributable to consumer
product , personal computer and automotive programs increased approximately $ 41
million as a direct result of approximately  $18 million related to new business
and  approximately  $23  million  related  to  volume  increases  with  existing
customers.

         Fiscal 1997 vs. 1996

     Gross  revenues  for the fiscal  years  ended  March 31, 1997 and 1996 were
$161,044,135 and $110,246,219,  respectively, representing an increase of 46% in
the current fiscal year. The increase is the result of the Company's  efforts in
expanding its market  penetration in the personal  computer  industry as well as
continued  market  penetration  in the other  consumer  products and  automotive
products market  segments.  The gross revenues  attributable to consumer product
and automotive  programs increased  approximately $50 million as a direct result
of  approximately  $27 million  related to new  business and  approximately  $23
million related to volume  increases with existing  customers.  This increase in
business  includes the result of increased  efforts with respect to renewals and
second effort sales, and revenues of Warrantech Europe of $1,318,186.


Net Increase in Deferred Revenues

     The Company recognizes  revenues in direct proportion to the costs incurred
in providing the service contract programs to its clients. Revenues in an amount
sufficient  to meet future  administrative  costs and a reasonable  gross profit
thereon are  deferred.  The amounts of gross  revenues  deferred and earned from
period to period are effected by (i) the mix of automotive and consumer  product
and personal computer contract volumes,  (ii) the relationship of gross contract
revenues  generated by shorter term  extended  service  contracts to total gross
revenues, and (iii) administration contract revenues which are recognized over a
short term period.

                                     12
<PAGE>

         Fiscal 1998 vs. 1997

     The net  increase  in deferred  revenues  for the year ended March 31, 1998
amounted to $1,985,798 as compared  with  $1,381,271  for the same period a year
ago.  These  increases  are directly  attributable  to the  increased  number of
service  contracts  sold with a service  period greater than one year during the
current year offset in part by the amounts earned on expiring  contracts  during
the same periods.

         Fiscal 1997 vs. 1996

     The net  increase  in deferred  revenues  for the year ended March 31, 1997
amounted to $1,381,271 as compared  with  $1,165,495  for the same period a year
ago.  These  increases  are directly  attributable  to the  increased  number of
service  contracts  sold with a service  period greater than one year during the
current year.

Direct Costs

     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.

         Fiscal 1998 vs. 1997

     Direct costs for the fiscal year ended March 31, 1998 were  $137,789,893 as
compared  with  $112,161,400  for the fiscal  year ended March 31,  1997.  These
increases  in direct  costs are  principally  the result of volume  increases in
contracts sold. These increases were partially offset by the reduction of direct
costs to recognize  approximately  $3.1 million of over remittances of insurance
premiums made in prior years.

         Fiscal 1997 vs. 1996

     Direct costs for the fiscal year ended March 31, 1997 were  $112,161,400 as
compared  with  $74,013,324  for the fiscal  year ended  March 31,  1996.  These
increases  in direct  costs are  principally  the result of volume  increases in
contracts  sold and to a lesser extent a higher level of premium on WAI programs
which reflect improved coverages.



Service, Selling and General and Administrative Expenses

         Fiscal 1998 vs. 1997

     Service,  selling and general and  administrative  expenses  for the fiscal
year ended March 31, 1998 were  $49,505,178 as compared to  $36,320,524  for the
fiscal year ended March 31,  1997.  The  increase  is directly  attributable  to
increases  in sales  related  costs,  communication  costs,  payroll and payroll
related  costs  arising  from  the  service  requirements  associated  with  the
increased number of service contracts being sold.

         Fiscal 1997 vs. 1996

     Service,  selling and general and  administrative  expenses  for the fiscal
year ended March 31, 1997 were  $36,320,524 as compared to  $27,362,214  for the
fiscal year ended  March 31,  1996.  The  relative  dollar  increase in both the
current fiscal year is directly attributable to increases in sales related costs
and payroll and payroll  related costs arising from continued  increases in head
count to meet the service  requirements  associated with the increased number of
service  contracts  being sold.  As a  percentage  of gross  revenues,  service,
selling and general and administrative expenses have decreased 2% in the current

                                     13
<PAGE>

fiscal year which is  indicative  of the  improved functional expense controls
implemented by management during fiscal 1997.

Provision for Bad Debt Expense

     For all years  presented,  the provision for bad debt expense  results from
the allowance for accounts considered to be uncollectible.

Depreciation and Amortization

         Fiscal 1998 vs. 1997

     Depreciation  and  amortization  amounted to $3,758,213 for the fiscal year
ended March 31, 1998 as  compared  to  $2,619,981  for the same period in fiscal
1997.  The  increases  over a year ago  reflect a higher  level of  depreciation
during the year resulting from additional  assets being placed in service during
the current fiscal year. This increase in assets is directly attributable to (i)
the  continued  development  of the Company's  information  systems and (ii) the
purchase of additional  computer  equipment to accommodate  personnel growth and
efficiency of operations.

         Fiscal 1997 vs. 1996

     Depreciation  and  amortization  amounted to $2,619,981 for the fiscal year
ended March 31, 1997,  as compared to  $1,700,285  for the same period in fiscal
1996,  respectively.  The  increases  over a year ago reflect a higher  level of
depreciation  during the year resulting from additional assets placed in service
during the current fiscal year. This increase in assets is directly attributable
to (i) the continued  development of the Company's  information systems and (ii)
the purchase of additional  computer  equipment to accommodate  personnel growth
and efficiency of operations.

Operations of Equity Joint Venture

     In April 1996, the Company and its joint venture  partner,  AIG,  agreed to
terminate the joint venture,  Techmark Services Ltd,  effective January 1, 1996.
Under  the  terms  of the  agreement,  AIG  agreed  to  purchase  the  Company's
forty-nine  percent (49%) investment in the joint venture for $3,762,154.  As of
March  31,1996,  the Company's  carrying  value of the joint venture  investment
amounted to $1,885,674 which resulted in a gain on the sale of the investment of
$1,876,480  recognized  in the first  quarter  of  fiscal  1997.  The  losses in
operations  of the equity  joint  venture  amounting to $957,748  represent  the
Company's  share of the joint  venture  losses from the beginning of fiscal year
1996 through the effective date of the transaction, January 1, 1996.

Other Income(Expense)

     For fiscal 1998 and 1997, Other Income (Expense) primarily reflects net
interest .

Income Taxes 

     The income tax  provision  for fiscal 1998,  1997 and 1996 differs from the
statutory rate primarily due to state and local taxes and the  non-deductibility
of goodwill amortization.  The net deferred tax asset as of March 31, 1998, 1997
and 1996 contains a benefit of $465,919, $635,213 and $1,111,804,  respectively,
related to foreign losses. Management expects to realize this tax benefit, which
has an indefinite carryforward period, against future foreign income.

                                     14
<PAGE>



Net Income

          Fiscal 1998 vs. 1997

     Net income for the fiscal year ended March 31, 1998  amounted to $5,261,037
or $.40 per basic share as compared  to  $4,794,715  or $.37 per basic share for
the  comparable  period in fiscal 1997. The increase in net income and per share
amounts  for the fiscal  year is directly  attributable  to the  increase in new
business and volume increases for existing customers.

         Fiscal 1997 vs. 1996

     Net income for the fiscal year ended March 31, 1998  amounted to $4,794,715
or $.37 per basic  share,  compared  to  $2,394,862  or $.18 for the  comparable
period in fiscal 1996.  The increase in net income and per share amounts for the
fiscal year is  directly  attributable  to the gain on the sale of the  Techmark
Joint  Venture,  the increase in new business and volume  increases for existing
customers.
 
Liquidity and Capital Resources

     The primary source of liquidity  during the current year was cash generated
by operations.  Funds were utilized for working capital expenditures and capital
expenditures relating to the development of the Company's information systems.

     The Company has an ongoing relationship with an equipment financing company
and intends to continue financing certain future equipment needs through leasing
transactions.  The total amount  financed  through leasing  transactions  during
fiscal 1998 amounted to  $2,047,136.  In addition,  on June 30, 1996 the Company
completed an agreement to extend its line of credit with a bank for $10 million,
$6.5  million  committed  and  $3.5  million  standby.  The  line of  credit  is
collateralized  by certain accounts  receivable and expires on July 31, 1998. At
March  31,  1998,  the  Company  did not have any  borrowings  under the line of
credit.

     In connection with the sale of the Company's joint venture interest to AIG,
the Company agreed to repurchase  3,234,697  shares of convertible  exchangeable
preferred stock held by AIG at their redemption value of $6,430,000. This amount
will be offset by the amount  due the  Company  for the sale of its  investment,
with  the  net  amount  due  AIG  of  $2,395,960  resulting  in  a  three  year,
non-interest  bearing note  payable.  The note is payable in 11 equal  quarterly
installments of $205,000  commencing June 30, 1996, with a final  installment of
$140,960 due March 1999. As of March 31, 1998,  $960,960 was outstanding.  Also,
as part of the agreement,  AIG agreed to pay the Company  $1,480,000  related to
amounts due the Company under its profit sharing arrangement. In connection with
this payment, the Company issued an irrevocable letter of credit for the benefit
of AIG through  December 31, 2002 which can be drawn against by AIG in the event
that the ultimate  profit sharing amount due the Company is less than the amount
paid.  It is  anticipated  that no amounts  will be due AIG under this letter of
credit.

     The Company believes that internally  generated funds will be sufficient to
finance its current operation for at least the next twelve months.

     Management  believes that there are  significant  opportunities  for growth
through  acquisitions in the business services  industry.  While there can be no
assurance that any  transactions  will  materialize,  to the extent that capital
resources are required in connection with any proposed transaction,  the Company
believes  that  it will be able to meet  its  needs  through  a  combination  of
available cash on hand,  borrowings  against its available bank credit line, and
additional third-party  financing.  Based on discussions with third parties, the
Company  believes  such  funding  will be  available to the Company if needed on
acceptable terms, although such availability cannot be assured.

                                    15
<PAGE>

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

New Accounting Pronouncements

     The Company adopted  Statement of Financial  Accounting  Standards No. 128,
Earnings  per Share,  which  modifies  the  calculation  of  earnings  per share
("EPS").  This Statement replaces the previous presentation of primary and fully
diluted  EPS to basic and  diluted  EPS.  Basic  EPS  excludes  dilution  and 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 APB Opinion 15. All prior  periods  presented  have been
restated to reflect this adoption.

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards No. 130, Reporting  Comprehensive  Income ("FAS 130"). FAS
130 is  effective  for fiscal years  beginning  after  December  15, 1997.  This
Statement  requires  that all items that are  required  to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  FAS 130 will have no impact on the Company's  results of
operations, financial condition or liquidity.

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards No. 131,  Disclosures  about Segments of an Enterprise and
Related  Information ("FAS 131"). FAS 131 is effective for financial  statements
for periods  beginning after December 15, 1997.  This Statement  requires that a
public business  enterprise  report financial and descriptive  information about
its  reportable  operating  segments.  Operating  segments are  components of an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate   resources  and  in  assessing   performance.   Generally,   financial
information  is required to be reported on the basis that it is used  internally
for evaluating  segment  performance  and deciding how to allocate  resources to
segments.  FAS 131 will have no impact on the Company's  results of  operations,
financial condition or liquidity.
 
     In March of 1998, The American  Institute of Certified  Public  Accountants
issued a  Statement  of  Position  98-1  Accounting  for the  Costs of  Computer
Software Developed or Obtained for Internal Use ("SOP 98-1"),  This SOP provides
guidance on accounting for the costs of computer software  developed or obtained
for internal use which includes:
 
                  Definition of computer software costs
                  Accounting for various stages of development
                  Accounting for internal and external costs
                  Need to assess impairment under SFAS 121
                  Amortization method and period to be utilized
 
     This SOP is effective for fiscal years  beginning  after  December 15, 1998
and restatement of previously incurred costs is not permitted
 
     The Company  believes its current  accounting  policies are consistent with
those  prescribed by SOP 98-1 and does not believe the adoption of this SOP will
have any impact on its results of operations, financial condition or liquidity.
 
Readiness For Year 2000

     The Company is subject to the Year 2000 computer  program  issue.  That is,
certain of the computer systems, software products or other business systems may
not accept, input, store or output dates in the years 1999, 2000 and there after
without error or interruption. If such a deficiency is not

                                  16
<PAGE>

corrected,  it is  possible  that some  applications  could  fail or create
erroneous results by or at the Year 2000.

     The Company has taken  actions to  understand  the nature and extent of the
work  required  to make its  systems,  products  and  infrastructure  Year  2000
compliant.  Warrantech  has  formed a task  force to  identify  the extent of an
effort  to  prepare  its   products   and   financial   information   and  other
computer-based  systems for the Year 2000. The Company continues to evaluate the
estimated  costs  associated  with these  efforts and expenses them as incurred.
Based on available  information,  the Company believes,  that it will be able to
manage its Year 2000  transition  without  any  material  adverse  impact on its
results of operations, financial condition or liquidity.

Common European Currency
 
     On January 1, 1999,  certain of the member nations of the European Economic
and  Monetary  Union  (EMU) will  adopt a common  currency,  the Euro.  Once the
national  currencies  are phased out,  the Euro will be the sole legal tender of
each of these nations.  During the transition period,  commerce of these nations
will be transacted in the Euro or in the currently  existing national  currency.
The  Company  is aware  of the  issues  with  respect  to the  phase in and will
consider its impact on WII as its business  expands.  Any costs  associated with
the  adoption of the Euro will be expensed as incurred  and the Company does not
expect these to be material to its results of operations, financial condition or
liquidity.


                                  17
<PAGE>

Item 8.   Financial Statements and Supplementary Data


                                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                       Page No.

Report of Independent Accountants.........................................19

Consolidated Financial Statements:
         Balance Sheets as of March 31, 1998 and 1997.....................20

         Statements of Operations
         For the Years Ended March 31, 1998, 1997 and 1996................21

         Statements of Common Stockholders' Equity
         For the Years Ended March 31, 1998, 1997 and 1996................22

         Statements of Cash Flows
         For the Years Ended March 31, 1998, 1997 and 1996  ............. 23-24

Notes to Consolidated Financial Statements............................... 25-40

Consolidated Financial Statement Schedule
         Schedule VIII - Valuation and Qualifying Accounts................41

                                18
<PAGE>

                                     REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
Warrantech Corporation:


     We have audited the  consolidated  financial  statements  and the financial
statement  schedule of Warrantech  Corporation and Subsidiaries  (the "Company")
listed in the  accompanying  index on page 18. These  financial  statements  and
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is to express an opinion on these financial  statements and
financial statement schedule based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  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 financial statements referred to above present fairly,
in all material  respects,  the  consolidated  financial  position of Warrantech
Corporation and Subsidiaries as of March 31, 1998 and 1997, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended March 31, 1998 in conformity with generally accepted accounting
principles.  In  addition,  in our opinion,  the  financial  statement  schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole,  presents fairly,  in all material  respects,  the information
required to be included therein.


                                                   COOPERS & LYBRAND L.L.P.

Stamford, Connecticut
June 25, 1998


                                 19
<PAGE>


<TABLE>

                        WARRANTECH CORPORATION AND SUBSIDIARIES
                               CONSOLIDATED BALANCE SHEETS

                                                                                               LIABILITIES, PREFERRED STOCK
                                A S S E T S                                                    AND COMMON STOCKHOLDERS' EQUITY
                                                     March 31,                                                      March 31,
                                          -------------------------------                                   ------------------------
                                                1998             1997                                          1998         1997
                                         ----------------  --------------                                   -----------   ----------
      <S>                                    <C>             <C>          <C>                                 <C>          <C>     

Current assets:                                                           Current liabilities:
Cash and cash equivalents                    $24,062,052     $17,031,925  Current maturities of long-term    $2,371,662   $1,997,835
                                                                          debt and capital lease obligations
Investments in marketable securities             537,924         286,099  Insurance premiums payable         22,269,589   19,602,290
                                                                          Income taxes payable                1,850,999           -
Accounts receivable, (net of allowances of                                Accounts and commissions payable    7,698,948    5,261,867
 $1,223,173 and  $300,328, respectively)      27,878,335      23,290,035  Legal settlements payable             200,000    1,635,000
                                                                          Accrued expenses and other          6,011,572    4,132,113
                                                                          current liabilities              ------------  -----------
Other receivables, net                         2,197,405       3,874,451   Total current liabilities         40,402,770   32,629,105

Income tax receivable                           -                115,064
Prepaid expenses and other current assets      1,775,316       1,633,699  Deferred revenues                   6,987,541    5,019,190
                                          ---------------  --------------   
   Total current assets                       56,451,032      46,231,273
                                         ----------------  -------------  Long-term debt and
                                                                           capital lease obligations          2,153,286    2,491,786

                                                                          Deferred rent payable                 608,736      702,233
                                                                                                           ------------  -----------

                                                                          Total Liabilities                  50,152,333   40,842,314
                                                                                                           ------------  -----------
                                                                          Commitments and contingencies
                                                                           (See Note 9) 
Property and equipment net                   13,639,921      10,111,193   

Other assets:                                                              
Excess of cost over fair value of                                         Stockholders' equity:
 assets acquired (net of                                                   Common stock - $.007 par value 
 accumulated amortization of                                                authorized - 30,000,000
 $4,212,956 and $3,637,233, respectively)     3,945,577       3,651,400     issued  - 13,449,382 shares
                                                                            at March 31, 1998 and 13,261,636
Deferred income taxes                         3,085,311       2,009,941     shares at March 31, 1997             94,146       90,911
Investments in marketable securities          1,967,817       2,041,001    Additional paid-in capital        14,124,700   13,033,185
Restricted cash                                 800,000         800,000    Unrealized gain (loss) on
                                                                            investments, net of taxes             7,055      (1,563)
Split dollar life insurance policies          1,054,045         865,542    Accumulated translation 
                                                                            adjustments                          78,553       16,544
                                                                           Retained earnings                 17,975,951   12,714,914
                                                                                                           ------------  -----------
Notes receivable                                654,068          42,076                                      32,280,405   25,853,991
Collateral security fund                        199,389         199,389   Less: Deferred compensation          (21,631)     (78,231)
Other assets                                    120,128         172,440   Treasury stock - at cost, 
                                          -------------  --------------    100,000 shares at March 31,
     Total other assets                      11,826,335       9,781,789    1998 and March 31, 1997            (493,819)    (493,819)
                                         --------------  --------------                                    ------------  -----------

                                                                               Total 
                                                                                 Stockholders' Equity        31,764,955   25,281,941
                                                                                                           ------------  -----------

                                                                                Total Liabilities
                                                                                 and Stockholders'
                    Total Assets            $81,917,288     $66,124,255          Equity                     $81,917,288  $66,124,255
                                         ==============   =============                                   =============  ===========

</TABLE>
See accompanying notes to consolidated financial statements.

                                20
<PAGE>



                                       WARRANTECH CORPORATION AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
                                                                    For the Years Ended March 31,
                                                                     ------                  -----
       
      <C>                                                   <S>                     <S>                  <S>                 
                                                 --------------------    --------------------   --------------------
                                                          1998                    1997                   1996
                                                  --------------------    --------------------   --------------------
Gross revenues                                           $201,724,332            $161,044,135           $110,246,219
Revenues deferred to future periods                       (2,798,417)             (1,852,237)            (1,553,853)
Deferred revenues earned                                      812,619                 470,966                388,358
                                                  --------------------    --------------------   --------------------
Net revenues                                              199,738,534             159,662,864            109,080,724

Costs and expenses:
   Direct costs                                           137,789,893             112,161,400             74,013,324
   Service, selling, and general and administrative        49,504,178              36,320,524             27,362,214
   Provision for bad debt expense                             910,675                 733,119                363,179
   Depreciation and amortization                            3,758,213               2,619,981              1,700,285
                                                  --------------------    --------------------   --------------------
Total costs and expenses                                  191,962,959             151,835,024            103,439,002
                                                  --------------------    --------------------   --------------------

Income from operations                                      7,775,575               7,827,840              5,641,722
                                                  --------------------    --------------------   --------------------

Legal settlements                                           -                     (2,274,170)              -
Gain on sale of equity joint venture                        -                       1,876,480              -
Equity in operations of joint venture                       -                       -                      (957,748)
Other income(expense)                                         819,732                 324,585              (651,620)
                                                  --------------------    --------------------   --------------------

Income before provision for income taxes                    8,595,307               7,754,735              4,032,354
Provision for income taxes                                  3,334,270               2,960,020              1,637,492
                                                  --------------------    --------------------   --------------------

Net income                                                 $5,261,037              $4,794,715             $2,394,862
                                                  ====================    ====================   ====================

Earnings per share:
Basic                                                           $0.40                   $0.37                  $0.18
                                                  ====================    ====================   ====================
Diluted                                                         $0.34                   $0.31                  $0.15
                                                  ====================    ====================   ====================

Weighted average number of shares outstanding:
Basic                                                      13,259,964              13,054,611             12,988,547
                                                  ====================    ====================   ====================
Diluted                                                    15,617,350              15,394,869             16,465,833
                                                  ====================    ====================   ====================


</TABLE>
                                       21
<PAGE>

                                WARRANTECH CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS EQUITY
<TABLE>
<S>                                       <C>            <C>           <C>           <C>             <C>               <C>      
                                                                                     Unrealized                                   
                                                                      Additional       Loss on      Accumulated                    
                                              Common     Stock         Paid-In       Investments,   Translation       Retained     
                                       ----------------------------    Capital           Net        Adjustments       Earnings   
                                           Shares        Par Value        
Balance at March 31, 1995                 13,045,302       $89,117    $12,097,507       ($42,370)    $      -         $5,472,039   
Issuance of common stock through
Exercise of common stock options              25,000           175         62,325                                                  
Issuance of common stock                      11,879            83         52,809                                                 
Change in unrealized loss on investments,                                                  27,339                                  
 net of  taxes of $18,301
Translation adjustments                                                                                 (10,520)                   
Amortization of deferred compensation                                                                                              
Purchase of treasury shares                                                                                                        
Issuance of treasury shares                                                                                                        
Imputed interest on preferred stock                                                                                     (23,569)   
Net income                                                                                                             2,394,862   
                                       --------------   ----------- --------------  -------------- --------------  -------------- 
Balance at March 31, 1996                 13,082,181        89,375     12,212,641        (15,031)       (10,520)       7,843,332  
Issuance of common stock through
Exercise of common stock options             175,251         1,227        709,653                                                 
Issuance of common stock                       4,204           309        110,891                                                 
Change in unrealized loss on investments,                                                  13,468                                 
net of taxes of $7,983
Translation adjustments                                                                                   27,064                  
Amortization of deferred compensation                                                                                             
Purchase of treasury shares                                                                                                        
Imputed interest on preferred stock                                                                                       76,867   
Net income                                                                                                             4,794,715   
                                       --------------   ----------- --------------  -------------- --------------  -------------- 
Balance at March 31, 1997                 13,261,636        90,911     13,033,185         (1,563)         16,544      12,714,914  
Issuance of common stock through
Exercise of common stock options             142,262           996        697,355                                                  
Issuance of common stock                      45,484         2,239        394,160                                                  
Change in unrealized loss on investments,                                                   8,618                                  
net of taxes  of  $5,853
Translation adjustments                                                                                   62,009                   
Amortization of deferred compensation                                                                                              

Net income                                                                                                             5,261,037   
                                       --------------   ----------- --------------  -------------- --------------  -------------- 
Balance at March 31, 1998                 13,449,382       $94,146    $14,124,700          $7,055        $78,553     $17,975,951   
                                       ==============   =========== ==============  ============== ==============  ============== 
</TABLE>
<TABLE>
<S>                                      <C>              <C>            <C>        <C>    
                                                                                      Total Common
                                        Deferred            Treasury Stock            Stockholders
                                        Compensation     -------------------------    Equity
                                                            Shares       Amount     
Balance at March 31, 1995                    ($23,438)     (41,000)    ($149,092)    $17,443,763
Issuance of common stock through
Exercise of common stock options                                                          62,500
Issuance of common stock                      (42,142)                                    10,750
Change in unrealized loss on investments,                                                 27,339
 net of  taxes of $18,301
Translation adjustments                                                                  (10,520)
Amortization of deferred compensation          12,344                                     12,344
Purchase of treasury shares                                (56,000)     (260,538)       (260,538)
Issuance of treasury shares                   (16,880)       4,000        16,880              -
Imputed interest on preferred stock                                                      (23,569)
Net income                                                                             2,394,862
                                         --------------  ----------- ------------- --------------
Balance at March 31, 1996                     (70,116)     (93,000)     (392,750)     19,656,931
Issuance of common stock through
Exercise of common stock options                                                         710,880
Issuance of common stock                      (47,197)                                    64,003
Change in unrealized loss on investments,                                                 13,468
net of taxes of $7,983
Translation adjustments                                                                   27,064
Amortization of deferred compensation          39,082                                     39,082
Purchase of treasury shares                                 (7,000)     (101,069)       (101,069)
Imputed interest on preferred stock                                                       76,867
Net income                                                                             4,794,715
                                         --------------  ----------- ------------- --------------
Balance at March 31, 1997                     (78,231)    (100,000)     (493,819)     25,281,941
Issuance of common stock through
Exercise of common stock options                                                         698,351
Issuance of common stock                                                                 396,399
Change in unrealized loss on investments,                                                  8,618
net of taxes  of  $5,853
Translation adjustments                                                                   62,009
Amortization of deferred compensation          56,600                                     56,600

Net income                                                                             5,261,037
                                         --------------  ----------- ------------- --------------
Balance at March 31, 1998                    ($21,631)    (100,000)    ($493,819)    $31,764,955
                                         ==============  =========== ============= ==============

See accompanying notes to consolidated financial statements.
</TABLE>
                                            22
<PAGE>

                                                      
                                      WARRANTECH CORPORATION AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                    For the Years Ended March 31,
                                                            ---------------------------------------------------------------------
             <C>                                                     <S>                       <S>                      <S>
                                                                   1998                     1997                     1996
                                                            -------------------      -------------------      -------------------
Cash flows from operating activities:
  Net income                                                        $5,261,037               $4,794,715               $2,394,862
                                                            -------------------      -------------------      -------------------
  Adjustments  to  reconcile  net  income  to net cash  
   provided  by  (used  in) operating activities:
     Depreciation and amortization                                   3,758,213                2,619,981                1,712,431
     Provision for bad debt                                            910,675                  733,119                  363,179
     Deferred revenues                                               1,985,798                1,381,271                1,165,495
     Deferred income taxes                                         (1,073,680)                   21,805              (1,002,452)
     Gain on sale of investment in joint venture                     -                      (1,876,480)                -
     Loss from equity joint venture                                  -                        -                          957,748
     Other                                                              81,900                 (79,049)                   16,028
     Increase (decrease) in cash  flows as a result 
      of changes in asset and liability balances:
        Accounts receivable                                        (5,511,145)              (7,862,945)              (3,813,267)
        Other receivables                                            1,677,046                4,736,468                    5,090
        Income tax receivable                                          115,064                (115,064)                -
        Prepaid expenses and other current assets                    (141,617)                (644,763)                   97,536
        Split dollar life insurance policies                         (188,503)                (181,649)                   14,445
        Other assets                                                    52,312                   24,431                  681,981
        Insurance premiums payable                                   2,667,299                3,355,043                7,016,870
        Income taxes payable                                         1,850,999              (1,795,018)                  784,140
        Accounts and commissions payable                             2,437,081                  452,340                2,102,284
        Legal settlements payable                                  (1,435,000)                1,635,000                -
        Accrued expenses and other current liabilities               1,879,459                2,409,568                 (18,002)
        Deferred rent payable                                         (93,497)                  167,613                   94,375
                                                            -------------------      -------------------      -------------------
  Total adjustments                                                  8,972,404                4,981,671               10,177,881
                                                            -------------------      -------------------      -------------------
Net cash provided by operating activities                           14,233,441                9,776,386               12,572,743
                                                            -------------------      -------------------      -------------------
Cash flows from investing activities:
  Property and equipment purchased                                 (4,609,623)              (3,379,104)              (3,489,974)
  Net cash paid for acquired business                                (888,541)                -                        (735,984)
  Purchase of marketable securities                                  (360,324)              (1,313,356)                (948,602)
  Proceeds from sales of Marketable securities                         184,225                1,055,934                1,730,612
  Investment in and advances to joint venture                        -                        -                           37,499
                                                            -------------------      -------------------      -------------------
Net cash used in investing activities                             ($5,674,263)             ($3,636,526)             ($3,406,449)
                                                            -------------------      -------------------      -------------------


See accompanying notes to consolidated financial statements.

</TABLE>

                                        23
<PAGE>




                                      WARRANTECH CORPORATION AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     Continued

<TABLE>

             <C>                                                     <S>                     <S>                        <S>
                                                                   1998                     1997                     1996
                                                            -------------------      -------------------      -------------------
Cash flows from financing activities:
    (Increase) decrease in notes receivable                         ($611,992)                  $45,684                 $202,365
    Proceeds from exercise of common stock options                   1,094,750                  822,080                   62,500
    Purchase treasury stock                                                -                  (101,069)                (243,658)
    Repayments, notes and capital leases                           (2,011,809)              (1,734,117)                (367,375)
                                                            -------------------      -------------------      -------------------
    Net cash (used in) financing activities                        (1,529,051)                (967,422)                (346,168)
                                                            -------------------      -------------------      -------------------

Net increase in cash and cash equivalents                            7,030,127                5,172,438                8,820,126

Cash and cash equivalents at beginning of year                      17,031,925               11,859,487                3,039,361
                                                            -------------------      -------------------      -------------------

Cash and cash equivalents at end of year                           $24,062,052              $17,031,925              $11,859,487
                                                            -------------------      -------------------      -------------------

Supplemental Cash Flow Information:

Cash payments for:
   Interest                                                           $378,812                 $410,109                 $127,616
                                                            -------------------      -------------------      -------------------
   Income taxes                                                     $2,426,098               $4,879,377               $1,644,950
                                                            -------------------      -------------------      -------------------

Non-Cash Investing and financing activities:
    Purchase of preferred stock                                      -                       $6,420,363                -
    Note issued in connection with purchase of preferred stock       -                        2,395,960                -
    Property and equipment financed through capital leases     $     2,047,136          $     1,989,136          $     1,640,060





See accompanying notes to consolidated financial statements.

</TABLE>
                               24
<PAGE>



                WARRANTECH CORPORATION AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


          Nature of  Business  -  Warrantech  Corporation  ("Warrantech"  or the
          "Company"),   through  its   wholly-owned   subsidiaries,   Warrantech
          Automotive,   Inc.,   Warrantech  Consumer  Product  Services,   Inc.,
          Warrantech Help Desk, Inc.,  Warrantech Direct, Inc.,  Warrantech Home
          Service  Company  and  Warrantech  International,  Inc.,  markets  and
          administers service contract programs for retailers,  distributors and
          manufacturers  of  automobiles,   recreational  vehicles,   automotive
          components,  homes,  home  appliances,  home  entertainment  products,
          computers  and  peripherals,  office and  communication  equipment and
          operates call center services and technical  computer  services in the
          United States,  Puerto Rico, Mexico,  Canada,  Caribbean,  Central and
          South  America  and  the  United  Kingdom.  Additionally,  third-party
          administrative  services  pertaining  primarily  to  extended  service
          contracts  and limited  warranties  are provided to  manufacturers  of
          consumer and automotive products and other business entities requiring
          such services.  The actual repair service under such extended  service
          contracts  and limited  warranties  is provided by third party  repair
          facilities  and the  cost of such  repair  services  is  borne  by the
          insurance  companies.  The  predominant  terms  of the  contracts  and
          manufacturers'  warranties  range from twelve (12) to eighty-four (84)
          months.

          Basis  of   Presentation   and  Principles  of   Consolidation  -  The
          accompanying  consolidated  financial statements have been prepared on
          the basis of generally accepted accounting principles ("GAAP").  These
          consolidated  financial  statements include the accounts of Warrantech
          Corporation  and  its  wholly-owned  subsidiaries.   All  intercompany
          accounts and transactions have been eliminated in consolidation.

          Amounts   representing  the  Company's   percentage  interest  in  the
          underlying net assets of less than majority-owned  companies, in which
          a  significant  equity  ownership  interest is held,  were included in
          Investment in and advances to joint  venture.  The Company's  share of
          the  results of  operations  of these  companies  is  included  in the
          Consolidated  Statement of Operations  caption Equity in operations of
          joint venture.

          Risks and  Uncertainties - The preparation of financial  statements in
          conformity  with generally  accepted  accounting  principles  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 - The Company's revenue recognition policy
          is based  on the  proportional  performance  method  which  recognizes
          revenues in direct  proportion to the costs  incurred in providing the
          service contract programs to the Company's  clients.  Only revenues in
          an  amount  sufficient  to  meet  future  administrative  costs  and a
          reasonable  gross profit  thereon are  deferred.  The Company does not
          generate  revenue  or incur  costs  from  separately  priced  extended
          warranty or product maintenance contracts.

          Direct Costs - Direct  costs,  which  consists  primarily of insurance
          premiums  and  commissions,  are those costs  directly  related to the
          production and acquisition of service contracts.  The Company does not
          generate  revenue  or incur  costs  from  separately  priced  extended
          warranty or product maintenance contracts.

 
          Profit Sharing Arrangement - Pursuant to agreements with its insurers,
          the Company is eligible to share a portion of the insurers' profits on
          the Company's service contract programs. The amounts

                               25
<PAGE>

          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,  in the fourth quarter of fiscal 1996,
          renegotiated   these   agreements.   The  principal  effect  of  these
          modifications  was to change  the  nature of  profit  sharing  to more
          long-term  and  eliminate  interim  payments.   As  a  result  of  the
          renegotiation and a significant number of new products covered and new
          coverages  provided  by the  extended  service  contracts  and limited
          warranties administered by the Company,  sufficient historical data to
          reliably  estimate  the amount of profit  sharing  revenues  earned in
          fiscal 1998 and 1997 was not available.  Accordingly,  the Company did
          not record any profit sharing amounts in fiscal 1998 or 1997.

          Provision  for  Bad  Debts  Expense  - The  Company  has a  policy  to
          establish an allowance  for doubtful  accounts  when  receivables  are
          determined to be uncollectible.

          Earnings  Per  Share  -The  Company  adopted  Statement  of  Financial
          Accounting  Standards No. 128, Earnings per Share,  which modifies the
          calculation of earnings per share ("EPS"). This Statement replaces the
          previous  presentation  of primary and fully  diluted EPS to basic and
          diluted EPS.  Basic EPS excludes  dilution and 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 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, 1998 and 1997.

          The  Company had on deposit  $22,245,565  and  $16,028,940  of cash in
          excess of  federally  secured  limits  as of March 31,  1998 and 1997,
          respectively.

          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 Common Stockholders'  Equity, net
          of tax.

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

          Excess of Cost Over Fair Value of Assets Acquired - The excess of cost
          over fair value of the assets acquired 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 and is being  amortized on a  straight-line
          basis over 15, 10 and 4.5 years,  respectively.  Amortization  expense
          charged to  operations  for the years ended March 31,  1998,  1997 and
          1996 amounted to $594,364, $467,144 and $458,728, respectively.

          Stock Based Compensation - Certain operating officers have been issued
          shares of the  Company's  common  stock as part of their  compensation
          under their employment  agreements.  Such 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


                                    26
<PAGE>


          to purchase  stock in lieu of  compensation.  The  intrinsic  value of
          these options at the time of grant has been charged to expense.

          In October  1995,  the  Financial  Accounting  Standards  Board issued
          Statement of Financial  Accounting  Standards No. 123,  Accounting for
          Stock-Based  Compensation ("FAS 123"). This Statement  establishes new
          financial  accounting and reporting standards for stock-based employee
          compensation  plans,  including stock option and stock purchase plans.
          Compensation resulting from the award of stock-based compensation must
          be  determined  based on the fair value of  consideration  received or
          fair value of the equity instrument issued, whichever is more reliably
          measurable.  Such  compensation  expense,  net of income taxes, may be
          recognized in the Statement of Operations  over the service  period of
          the employee (generally the vesting period). In lieu of recording such
          compensation expense, entities are permitted to disclose its pro-forma
          impact,  net of income taxes,  on reported net income and earnings per
          share.  Entities  choosing  such  disclosure  will continue to measure
          compensation expense from stock-based compensation in the Statement of
          Operations   based  on  the  intrinsic  value  method   prescribed  in
          Accounting  Principles  Board No. 25,  Accounting  for Stock Issued to
          Employee ("APB 25").

          The Company continues to account for its stock-based compensation plan
          under APB 25.

          Income  Taxes -  Deferred  taxes 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 U.S.  dollars in accordance
          with  Statement  of  Financial  Accounting  Standards  No. 52  Foreign
          Currency Translation. The functional currency for the Company's United
          Kingdom operations is the British pound.  Transaction gains and losses
          are reflected in operations,  while  translation  gains and losses are
          reflected as a separate component of equity.

          Capital  Structure  -  In  February  1997,  the  Financial  Accounting
          Standards  Board  issued  Statement of  Financial  Accounting  No. 129
          Disclosure of Information About Capital Structure ("FAS 129"). FAS 129
          is  effective  for  financial  statements  for  periods  ending  after
          December  15,  1997.  This  Statement  requires  disclosure  about  an
          entity's capital structure  including a brief discussion of rights and
          privileges  for  securities  outstanding,   dividend  and  liquidation
          preferences,  participation  rights,  exercise  prices  or  rates  and
          pertinent  dates,  significant  terms of contracts to issue additional
          shares and other similar items.  The Company believes that its current
          disclosures are in compliance with FAS 129.

          In addition to common stock, the Company has convertible  exchangeable
          preferred  stock  with par value of $.0007.  As of March 31,  1998 and
          1997,  15,000,000  shares were authorized and no shares were issued or
          outstanding.
 
          New Accounting  Pronouncements  - The Financial  Accounting  Standards
          Board  issued  Statement of Financial  Accounting  Standards  No. 130,
          Reporting  Comprehensive  Income ("FAS 130"). FAS 130 is effective for
          fiscal  years  beginning  after  December  15,  1997.  This  Statement
          requires  that all items  that are  required  to be  recognized  under
          accounting standards as components of comprehensive income be reported
          in a financial statement that is displayed with the same prominence as
          other  financial  statements.  FAS  130  will  have no  impact  on the
          Company's results of operations, financial condition or liquidity.

          The Financial Accounting Standards Board issued Statement of Financial
          Accounting  Standards  No.  131,  Disclosures  about  Segments  of  an
          Enterprise and Related  Information  ("FAS 131").


                                 27
<PAGE>


          FAS 131 is effective for financial  statements  for periods  beginning
          after  December  15,  1997.  This  Statement  requires  that a  public
          business enterprise report financial and descriptive information about
          its reportable  operating segments.  Operating segments are components
          of  an  enterprise  about  which  separate  financial  information  is
          available that is evaluated  regularly by the chief operating decision
          maker  in  deciding  how  to  allocate   resources  and  in  assessing
          performance.  Generally,  financial  information  is  required  to  be
          reported  on the  basis  that it is  used  internally  for  evaluating
          segment   performance  and  deciding  how  to  allocate  resources  to
          segments.  FAS 131 will  have no impact on the  Company's  results  of
          operations, financial condition or liquidity.
 
          In  March  of  1998,  The  American   Institute  of  Certified  Public
          Accountants  issued a Statement of Position  98-1  Accounting  for the
          Costs of Computer  Software  Developed  or Obtained  for  Internal Use
          ("SOP 98-1"),  This SOP provides  guidance on accounting for the costs
          of computer  software  developed  or obtained  for  internal use which
          includes:
 
                  Definition of computer software costs
                  Accounting for various stages of development
                  Accounting for internal and external costs
                  Need to assess impairment under SFAS 121
                  Amortization method and period to be utilized
 
          This SOP is effective for fiscal years  beginning  after  December 15,
          1998 and restatement of previously incurred costs is not permitted
 
          The Company  believes its current  accounting  policies are consistent
          with those prescribed by SOP 98-1 and does not believe the adoption of
          this SOP will have any impact on its results of operations,  financial
          condition or liquidity.
 
          Reclassification  - Certain  amounts  from the prior  years  have been
          reclassified to conform with the current year's presentation.

                                 28
<PAGE>

2.      RESTRICTED CASH

     At March 31,  1998 and 1997 cash in the  amount of  $800,000  is on deposit
with a Florida regulatory agency to comply with its state insurance laws.

3.      INVESTMENTS IN MARKETABLE SECURITIES

     At March 31, 1998,  investments  in marketable  securities are comprised of
the following:

<TABLE>
                       Amortized               Gross Unrealized              Aggregate Fair             Carrying Amount

                          Cost           Gains            (Losses)                  Value            Short Term         Long Term

     <C>                  <S>             <S>                <S>                     <S>                 <S>                 <S>   
Municipal Bonds       $2,156,472       $13,919             $(1,816)               $2,168,575         $  200,758         $1,967,817
Money Market             337,166          -                   -                      337,166            337,166              -
                   --------------- -----------------   ------------------    ------------------    ------------------ -------------
Total Investment
 in Marketable                                                                                                                     
  Securities          $2,493,638       $13,919             $(1,816)               $2,505,741           $537,924         $1,967,817
                   =============== ==================  ==================    =================     ==================  ============


</TABLE>
        At March 31, 1997, investments in marketable securities are comprised of
the following:

<TABLE>
                         Amortized               Gross Unrealized             Aggregate Fair               Carrying Amount

                           Cost               Gains             (Losses)             Value             Short Term       Long Term

      <C>                <S>                  <S>                <S>               <S>                   <S>               <S>
Municipal Bonds       $2,057,133            $1,787            $(17,919)         $2,041,001           $     -           $2,041,001
Common Stock             272,335            13,764                -                286,099             286,099              -
                  ----------------    -------------------    ----------------   ----------------    ---------------- -------------
Total Investment
 in Marketable                                               
  Securities          $2,329,468           $15,551            $(17,919)         $2,327,100            $286,099         $2,041,001

</TABLE>
     All of the above  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 Common Stockholders' Equity.

     The amortized  cost and estimated fair value of marketable  securities,  by
contractual maturity date, are listed below. Expected maturities may differ from
contracted  maturities  because  borrowers  may have the right to call or prepay
obligations with or without penalties.



                                            Amortized              Aggregate
                                               Cost                Fair Value
                                       -------------------     ----------------
Investments available for sale:
    Due in one year or less                   $  200,950        $   200,758
    Due after one year through five years       -                       -
    Due after five years through ten years     1,955,522          1,967,817
    Due after ten years                         -                       -
    Money Market                                 337,166            337,166
                                       -------------------    ------------------
                                              $2,493,638          $2,505,741
                                       ===================    ==================

                                  29
<PAGE>

4.  OTHER RECEIVABLES, NET

     The nature and amounts of other  receivables,  net as of March 31, 1998 and
1997 is as follows:

<TABLE>
<C>                              <S>                         <S>
                                              March 31,
                               ---------------------------------------------
                                      1998                       1997
                               -------------------    ----------------------
Due from Insurance companies     $  1,540,895                   $  3,150,554
Profit sharing                         -                             106,008
Employee/Agent Advances               305,945                        422,868
Other                                 350,565                        195,021
                               -------------------   -----------------------
                                  $ 2,197,405                   $  3,874,451
                               ===================    ======================
</TABLE>

5.      PROPERTY AND EQUIPMENT

         Property and equipment is summarized as follows:

<TABLE>                                                                
                                                                                March 31,
                                                                  1998                        1997
                                                         -----------------------     -----------------------
      <C>                                                                  <S>                       <S>
Automobiles                                                           $ 304,693                    $ 65,273
Equipment, furniture and fixtures                                     7,618,978                   5,759,459
Leasehold improvements                                                  978,557                     854,466
Construction in progress                                                    -                       986,328
Software development costs                                            7,604,440                   4,237,233
                                                         -----------------------     -----------------------
                                                                     16,506,668                  11,902,759
Less:  Accumulated depreciation
  and amortization                                                    6,792,809                   4,852,951
                                                         -----------------------     -----------------------
                                                                      9,713,859                   7,049,808
                                                         -----------------------     -----------------------
Assets under capital leases:
  Cost                                                                7,408,056                   5,355,206
  Less:  Accumulated amortization                                     3,481,994                   2,293,821
                                                         -----------------------     -----------------------
                                                                      3,926,062                   3,061,385
                                                         -----------------------     -----------------------

Total Property and Equipment, net                                  $ 13,639,921                $ 10,111,193
                                                         =======================     =======================

</TABLE>
     Amortization  expense on assets  under  capital  leases for the years ended
     March 31, 1998,  1997 and 1996 was  $1,188,173,  $764,263,  and  $334,866,
     respectively.  Depreciation  expense on property and  equipment  other than
     under capital leases for the years ended March 31, 1998,  1997 and 1996 was
     $1,939,858, $1,361,559, and $911,112, respectively.

     The Company  capitalized  $2,380,879  and  $1,209,395  for the fiscal years
     ended March 31, 1998 and 1997, respectively, of costs consisting of amounts
     paid  to  independent   consultants   related  to  the  implementation  and
     enhancement  of  its  proprietary   relational   database  and  interactive
     operating  software.  The Company is  amortizing  the cost of this software
     over its estimated useful life not to exceed five years.

                                             30
<PAGE>




6.      COLLATERAL SECURITY FUND

     At March 31, 1998 and 1997, a former insurance  carrier of the Company,  is
holding  $199,389 in escrow  accounts as collateral  for the  performance of the
administrative runoff of outstanding  contracts.  Such amounts are returnable to
the Company when the contracts expire under this policy.

7.      SPLIT DOLLAR LIFE INSURANCE POLICIES

     As of March 31, 1998 and 1997,  the Company  made  payments on split dollar
insurance  policies  on the  lives  of ten  and  six  officers  of the  Company,
respectively.  The cash  surrender  value of these  policies is  $1,054,045  and
$865,542, as of March 31, 1998 and 1997 respectively. The Company will receive a
refund of all split-dollar premiums advanced.  The Company is the beneficiary of
any proceeds of the policies up to the amount of premiums paid.

8.      LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
    Long-term debt and capital lease obligations consists of the following:

<TABLE>
                                                                               March 31,
                                                                    ---------------------------------------------

                    <C>                                                       <S>                       <S>       
                                                                             1998                     1997
Capital lease obligations - for property and
   equipment  payable monthly with interest
   rates ranging from 6.9% to 15.3% through 2002                               $3,563,988              $2,913,661
Installment note - AIG, effective interest rate of 8.25%                          960,960               1,575,960
                                                                    ----------------------    --------------------
                                                                                4,524,948               4,489,621
Less: Current maturities                                                        2,371,662               1,997,835
                                                                    ----------------------    --------------------


Long-term portion                                                              $2,153,286              $2,491,786
                                                                    ======================    ====================

    The aggregate amounts of maturities at March 31, 1998 were as follows:

Fiscal Year                             Installment Note                 Minimum Future
                                                                         Lease Payments
1998                                                $960,960                $ 1,908,240
1999                                                -                         1,357,770
2000                                                -                           739,210
2001                                                -                           162,686
2002                                                -                           -
Thereafter                                          -                           -
                                      -----------------------------    ------------------------------
                                                     960,960                  4,167,906
Less amount representing
  interest                                          -                           603,918
                                      -----------------------------    ------------------------------
Net                                                 $960,960                 $3,563,988
                                      =============================    ==============================


</TABLE>
         The capital lease  obligations are  collateralized  by the property and
equipment related to the underlying leases.

                                 31
<PAGE>


9.      INCOME TAXES

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

                                                                      March    31,
-----------------------------------------------------------------------------------------------------------------
                                            1998                   1997                    1996
-----------------------------------------------------------------------------------------------------------------
     <C>                           <S>           <S>        <S>           <S>

Federal statutory rate           $ 2,922,404     34.0%    $ 2,636,610     34.0%     $ 1,411,324     35.0%
State and local  income
  taxes net of federal tax
  benefit                            206,503      2.4         156,092      2.0          123,728      3.0
Amortization of excess cost
  over net assets acquired           202,084      2.4         158,829      2.0          155,967      3.9

Other                                  3,279       -            8,489       .2          (53,527)    (1.3)
                               --------------   ------   -------------   ------    -------------   ------

Provision for income taxes       $ 3,334,270     38.8%    $ 2,960,020     38.2%      $1,637,492     40.6%
                               ==============   ======   =============   ======    =============   ======

</TABLE>
The components of tax expense are as follows:

<TABLE>
     <C>                            <S>                      <S>                       <S>
For the Year Ended 3/31/98:

                                   Current                 Deferred                 Provision
                             -------------------    ----------------------     --------------------

Federal                           $ 4,094,150             $ (1,224,787)             $ 2,869,363
State                                 313,800                   15,459                  329,259
Foreign                                                        135,648                  135,648
                             -------------------    ----------------------     --------------------
Total                             $ 4,407,950             $ (1,073,680)             $ 3,334,270
                             ===================    ======================     ====================


         For the Year Ended 3/31/97:

                                   Current                 Deferred                 Provision
                             -------------------    ----------------------     --------------------

Federal                           $ 2,701,712               $  72,627               $ 2,774,339
State                                 236,503                 172,405                   408,908
Foreign                                    -                 (223,227)                 (223,227)
                             -------------------    ----------------------     --------------------

Total                             $ 2,938,215                $ 21,805               $ 2,960,020
                             ===================    ======================     ====================


        For the Year Ended 3/31/96:

                                   Current                  Deferred                 Provision
                              -------------------    ----------------------    ---------------------

Federal                           $ 2,516,216           $    (550,246)             $  1,965,970
State                                 123,728                ( 40,220)                   83,508
Foreign                                       -              (411,986)                 (411,986)
                             --------------------    ----------------------    ---------------------

Total                             $ 2,639,944          $  (1,002,452)              $  1,637,492
                             ====================    ======================    =====================


</TABLE>
                                      32
<PAGE>




     Deferred income tax assets and liabilities  reflect the impact of temporary
differences  between  values  recorded as assets and  liabilities  for financial
reporting  purposes and values utilized for remeasurement in accordance with tax
laws. The components of the net deferred tax asset are as follows:

                                                        March 31,
                                                1998                1997
                                          -----------------   -----------------
Deferred Tax Assets:
     Deferred revenue                        $2,478,977          $1,819,694
     Deferred rent                              215,652             226,855
     Provision for doubtful accounts            431,869             109,453
     Reserve for customer refunds                70,050              41,105
     Unrealized loss on securities                1,363                 211
     Foreign loss benefit                       466,457             635,213
     Excess of Book over tax depreciation        63,414            -
     Other                                       75,104              51,124
                                          ----------------   -----------------
          Total assets                        3,802,886           2,883,655

Deferred Tax Liabilities:
  Excess of tax over book depreciation         -                     11,577
  Section 174 expense                           717,575             862,137
                                         -----------------   -----------------
          Total liabilities                     717,575             873,714

     Net deferred tax asset                  $3,085,311          $2,009,941
                                        =================   =================



     Management  believes  that it is more likely than not that the net deferred
tax asset will be realized and  therefore no valuation  allowance is  considered
necessary.  Management expects to realize the foreign loss benefit, which has an
indefinite  carryforward  period,  against  future foreign  income.  Section 174
expense represents research and experimental expenses related to the development
of a proprietary relational database and interactive software.



                                      33
<PAGE>


10.     COMMITMENTS AND CONTINGENCIES

          Operating Lease  Commitments - The Company leases office and warehouse
          space under  noncancellable  operating  leases.  These leases  include
          scheduled rent increases over their  respective  terms. In some cases,
          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  charged to operations
          for the years  ended  March 31,  1998,  1997 and 1996 was  $2,187,174,
          $1,907,694, and $1,371,446, respectively.

Future minimum lease commitments as at March 31, 1998 are as follows:

1999                                                      $1,812,712
2000                                                       1,814,864
2001                                                       1,719,024
2002                                                       1,659,250
2003                                                       1,669,877
2004 and Thereafter                                        2,095,153
                                                    -----------------
                                                         $10,770,880
                                                    =================

          Employment  Contracts - Employment contracts exist between the Company
          and its officers and certain key  employees  which  provide for annual
          base  compensation  of  $2,775,258.  Certain  agreements  call for (i)
          annual increases (ii) cost of living  increases,  and (iii) additional
          compensation,  but only if  certain  defined  performance  levels  are
          attained.  This  additional  compensation is to be paid in the form of
          cash and/or Company common stock.
 
          Profit Sharing  Arrangement - For the fiscal year ended March 31, 1996
          the  Company   charged  expense  for  profit  sharing  in  the  amount
          ($865,000).  Such amount is included in the  financial  statements  in
          other income(expense).

          The Company has not accrued for or expensed any profit sharing for the
          fiscal years ended March 31, 1998 and 1997.

          Bank Line of Credit - The  Company has a  revolving  credit  agreement
          with a bank which  provides  for a maximum  aggregate  borrowing up to
          $10,000,000  with  interest at the bank's prime rate or LIBOR plus 2%.
          As of March 31, 1998 the Company had no outstanding  borrowings  under
          this agreement.

                                    34
<PAGE>



Litigation -

     (i)  The  Oak  Agency,   Inc.  and  The  Oak   Financial   Services,   Inc.
          (collectively,  "Oak")  v.  Warrantech  Dealer  Based  Services,  Inc.
          ("WDBS").

          Final  judgment in this matter was entered on November 12, 1997.  WDBS
          was directed to pay Oak (i) $1,243,359  which  represents  commissions
          earned by Oak for the period July 1, 1991 through May 31,  1997,  (ii)
          $28,500 which represents  costs of the action  recoverable by Oak, and
          (iii) future  commissions  earned on vehicle service contracts sold on
          or after  June 1, 1997 by a  specified  group of  automobile  dealers.
          Furthermore,  Oak was directed to pay  Warrantech  Corporation  $7,500
          which represents  Warrantech's  recoverable costs of a separate action
          which previously had been dismissed by the Court with prejudice.

          WDBS has made all payments described in clauses (i) and (ii) above and
          continues to make those periodic  payments  described in clause (iii).
          No further legal action is anticipated  and WDBS considers this matter
          closed.

     (ii) Intercontinental   Brokerage,   Incorporated   ("IBI")  v.  Warrantech
          Consumer   Product   Services,   Inc.   and   Warrantech   Corporation
          (collectively, "Warrantech").

          This suit was filed in the 67th District Court,  Tarrant County, Texas
          on October 10, 1997. IBI had provided  various  insurance  services to
          and on  behalf  of  Warrantech  over a  period  of  years.  Warrantech
          asserts, however, that it terminated its relationship with IBI in 1996
          and has not  requested  or  used  IBI's  services  since  the  date of
          termination.  IBI alleges in this action that it  continued to perform
          services for  Warrantech  though June 30, 1997 and that it is entitled
          to be  compensated  for  these  services  under  several  theories  of
          liability.  IBI is seeking  specified  damages of up to  $1,330,000 as
          well as such  other  sums as the  Court  may  find it is  entitled  to
          recover.

          Both parties are  actively  engaged in the  discovery  process and the
          first  depositions  have been  noticed.  No trial date has been set at
          this time.  Warrantech  denies all  allegations and is pursuing all of
          the legal  rights and remedies  available to it. The Company  believes
          that any  outcome  should  not have a material  adverse  impact on its
          results of operations, financial condition or liquidity.



                                 35
<PAGE>

11.     STOCK OPTION PLAN

At March 31, 1998,  Warrantech  has one stock  option  plan,  which is described
below. The Company applies APB 25 and related  interpretations in accounting for
its plan.  Accordingly,  no compensation  cost has been recognized for its fixed
stock  option  plan,  except for stock  options  granted to  non-employees.  The
compensation cost that has been charged against income for non-employees awarded
stock options, was $92,400 for fiscal 1998, $64,000 for fiscal 1997 and none for
fiscal year 1996. 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 FAS 123, the Company's net income
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated below.


<TABLE> 
                                                                              Twelve Months Ended March 31,
                                                   ---------------------------------------------------------------------------
                                                           1998                      1997                       1996
                                                   --------------------     -----------------------    -----------------------
          <C>                                               <S>                      <S>                         <S>           
Net Income As Reported                               $   5,261,037             $  4,794,715               $  2,394,862
Pro Forma net income                                     4,921,485                4,424,684                  2,384 386

Basic Earnings Per Share As Reported                          .40                           .37                       .18
Basic Pro Forma EPS                                           .37                           .34                       .18


</TABLE>  
The fair value of Warrantech  stock options used to compute pro forma net income
and earnings per share  disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing model with the following weighted average
assumptions  for  1998,  1997  and  1996:  expected  dividends  of 0%;  expected
volatility  of 50%; a risk free  interest  rate of 6.5%;  and expected life of 5
years.

Stock Options and Stock Option Plan - Under the Employee  Incentive Stock Option
Plan (the "Plan"),  there are options for up to 600,000  shares of the Company's
common  stock  reserved  for  issuance to  employees  (including  officers).  On
November 25,1996 the stockholders authorized for issuance an increase of 300,000
shares,  to the  current  aggregate  of 600,000  shares.  The  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 Plan will terminate in November
1998 unless sooner terminated by the Board of Directors.

On April 16, 1992 the Company's  Board of Directors and  subsequently on October
22, 1992 the  shareholders of the Company at the annual meeting voted to approve
stock options to three  directors  (two of whom are officers and one is a former
officer of the  Company).  The stock  options  entitle  the three  Directors  to
purchase an aggregate of 3,000,000  shares of the  Company's  common stock at an
exercise price of $2.6875 per share,  the market price at the date of grant. The
term of the  options  is five (5)  years  from the  date on  which  they  become
exercisable or thirty days after  termination of  employment,  whichever  occurs
earlier.  Of the total  options  granted,  fifty  percent (50%) may be exercised
beginning one year following  October 22, 1992 in increments of 10% per year for
a  five-year  period.  The  portions  of the  options  that are  based  upon the
Company's  earnings,  consisting  of fifty  percent  (50%) of the total  options
granted, became exercisable on October 22, 1995.

The  Company's  Board  of  Directors  approved  the  issuance  of  options  to a
non-employee in lieu of compensation for the purchase of 60,000 shares of common
stock at an exercise price of $5.00.  Half of the options were exercisable upon
issuance and the  remaining  half  exercisable  one year later.  The term of the
options is two years from the date exercisable.


                                     36
<PAGE>



Presented  below  is a  summary  of the  status  of the  stock  options  held by
Warrantech's employees, and the related transactions for the twelve months ended
March 31, 1998, 1997 and 1996.

<TABLE> 
                                                                                        March 31,
                                              -------------------------------------------------------------------------------------
                                                            1998                           1997                           1996
                                              -------------------------------------------------------------------------------------
       
            <C>                              <S>              <S>         <S>                <S>          <S>            <S>
                                                          Weighted                        Weighted                       Weighted
                                                           Average                        Average                        Average
                                                           Exercise                       Exercise                       Exercise
                                          Shares           Price          Shares          Price           Shares         Price
                                        -------------------------------------------------------------------------------------------
Options outstanding at beginning of year  3,484,553          $3.06      3,218,024            $2.88      3,233,500          $2.87
Granted                                      92,147           7.27        369,129             5.06          9,524           5.25
Canceled                                   (138,904)         (5.40)        (7,600)           (6.70)       -                  -
Exercised                                  (142,262)         (4.91)       (95,000)           (4.44)       (25,000)         (2.50)
Forfeited                                       -                -             -                -             -               -
                                        -------------------------------------------------------------------------------------------
Options outstanding at end of year        3,295,534          $3.00      3,484,553            $3.06      3,218,024          $2.88
                                        ===========================================================================================

                                        -------------------------------------------------------------------------------------------
Options exerciseable at end of year       3,132,374          $2.84      3,193,024            $2.89      3,218,024          $2.89
                                        ===========================================================================================

</TABLE>

     The  weighted  average  fair  value  of  stock  options  at date of  grant,
calculated  using the  Black-Scholes  option-pricing  model,  granted during the
twelve months ended March 31, 1998,  March 31, 1997 and March 31, 1996 is $3.08,
$2.08 and $2.31 respectively.

         The Company  recognized  costs of $56,599,  $39,082 and $12,344 for the
years  ended  March 31,  1998,  1997 and  1996,  respectively,  for  stock-based
compensation to employees..

         The following table summarizes the status of Warrantech's stock options
outstanding and exercisable at March 31,1998.

<TABLE>
                                                               Stock Options                          Stock Options
                                                                Outstanding                            Exercisiable
                                              -------------------------------------------------------------------------------
       
         <C>                                         <S>               <S>         <S>             <S>                 

                                                    Weighted       Weighted                        Weighted
                                                    Average        Average                         Average
                                                   Remaining       Exercise                        Exercise
Range Of Exercise Prices                            Shares       Life(Yrs)        Price           Shares           Price
                                              -------------------------------------------------------------------------------
$  1.63 to $4.56                                  3,123,328            2.6          $2.81        3,047,374          $2.77
$  5.00 to $6.38                                    139,762            2.8           5.25           85,000           5.40
$9.87 To $11.75                                      32,444            4.7          11.46             -               -
                                              -------------------------------------------------------------------------------
Total                                             3,295,534            2.6          $3.00        3,132,374          $2.84
                                              ===============================================================================


</TABLE>
                                  37


<PAGE>

12.     OTHER INCOME(EXPENSE)

         Other income(expense) is comprised of the following:

<TABLE>

                                                                                March 31,

     <S>                                                     <C>                   <C>                       <C>  

                                                       ------------------        ---------------           ----------
                                                               1998                   1997                   1996
                                                       ------------------        ---------------           ----------

                                                       ------------------        ---------------           ----------
Interest and dividend income                                $1,120,701              $722,560               $622,873
Interest expense                                              (378,812)             (433,990)              (182,523)
Profit sharing                                                  -                      -                   (865,000)
Write-off note receivable                                       -                      -                   (222,845)
Miscellaneous                                                   77,843                36,015                 (4,125)
                                                       ------------------        ---------------           -----------

                                                              $819,732              $324,585              $(651,620)
                                                       ==================        ===============           ===========

</TABLE>

13.      JOINT VENTURE AGREEMENT AND SALE

          In July,  1993,  the Company  and  American  International  Group Inc.
          ("AIG")  formed a corporate  joint  venture,  Techmark  Services  Ltd.
          ("Techmark" or the "Joint  Venture") owned fifty-one  percent (51%) by
          AIG and forty-nine percent (49%) by the Company.

          In  conjunction  with the foregoing  alliance,  in October,  1993, AIG
          purchased,  for a price of $6,430,000,  options and a special issue of
          preferred stock which was  convertible  into an issue of new shares of
          common stock which, subsequent to its issuance, would be equivalent to
          twenty percent (20%) of the Company's  issued and  outstanding  common
          stock. Under the terms of the purchase agreement, AIG had the right to
          purchase an increased interest in the Company,  to a maximum of thirty
          percent (30%) of the Company's issued and outstanding common stock, if
          certain operating goals were achieved by the Company.

          On April 18, 1996,  the Company and AIG  consummated  an agreement for
          the termination of the Techmark Joint Venture (the "Agreement"). Under
          the terms of the  Agreement,  AIG  agreed to  purchase  the  Company's
          forty-nine (49%) interest in the joint venture for approximately  $3.8
          million  and for the Company to  repurchase  the  3,234,697  shares of
          convertible  preferred  stock held by AIG for its original  redemption
          value of  $6,430,000  and  further  relinquish  their  rights to other
          options under the original agreement. As a result of this transaction,
          the Company no longer has any  investment in or liability to the Joint
          Venture and will no longer record any equity in the  operations of the
          Joint Venture.  The redemption  value will be offset by the amount due
          the Company from the sale of its  investment,  with the net amount due
          AIG of $2,395,960 resulting in a three year, non-interest bearing note
          payable in 11 equal quarterly installments of $205,000 commencing June
          30,  1996 with a final  installment  of $140,960  due March 1999.  The
          effective interest rate of this note is 8.25%. In the event of default
          by the Company under the note  payable,  the Company would be required
          to reissue to AIG preferred stock for the remaining  amount due at the
          default date.

          At March 31, 1996,  the  Company's  carrying  value of its  investment
          amounted  to  $1,885,674  which  resulted in a gain on the sale of the
          investment  of  $1,876,480,  for the excess of the  proceeds  over the
          carrying  value,  which was  recognized in the first quarter of fiscal
          1997.

          Also,  as part of the  agreement,  AIG  paid  the  Company  $1,480,000
          related to amounts  due the  Company as of March 31,  1996,  under its
          profit  sharing  arrangement.  In connection  with this  payment,  the
          Company issued an  irrevocable  letter of credit to the benefit of AIG
          through

                            38
<PAGE>

          December 2002 which can be drawn upon by AIG in the event the ultimate
          profit  sharing  amount  due the  Company  is  less  than  the  amount
          previously  paid.  It is  anticipated  that no amounts will be due AIG
          under the letter of credit.

          14.      ACQUISITION

          In  July  of  1995,  Warrantech  International,  Inc.,  acquired  Home
          Guarantee  Corporation Plc  (subsequently  renamed  Warrantech  Europe
          Plc.) a British Company, which markets home warranty products, as well
          as, other warranty  products  similar to those marketed by the Company
          in the United States.  The acquisition was accounted for as a purchase
          and the resultant  goodwill  amounting to $695,800 is being  amortized
          over a 10 year period.  In October 1997, the Company  acquired certain
          assets of  Distributors  & Dealers  Service Co., Inc. for $888,541 and
          the resulting goodwill is being amortized over 4.5 years.

          15.      SIGNIFICANT CUSTOMERS
 
          The Company has one significant customer,  CompUSA, that accounted for
          approximately 24% and 23% of consolidated gross revenues for the years
          ended  March  31,  1998 and  1997.  The  Company  had two  significant
          customers,  CompUSA and Tops, that accounted for  approximately 19% of
          consolidated gross revenues for the year ended March 31, 1996.
 
          16.      RELATED PARTY TRANSACTIONS
 
          During the years ended March 31, 1997 and 1996 the Company  recognized
          net insurance expense of $43,559,423 and $27,774,163, respectively for
          insurance  coverage  provided  by AIG  for  certain  service  contract
          programs.  At March 31,  1997 and 1996 the  company  had an  insurance
          premium  payable to AIG for $5,172,790 and  $5,982,086,  respectively.
          The Company had a receivable  for accrued  profit  sharing from AIG of
          $1,480,000 at March 31, 1996.
 
          17.      EARNINGS PER SHARE
 
          The computation of earnings per share at March 31,  1998,1997 and 1996
          was as follows:
 <TABLE>
<S>                                               <C>                 <C>                <C>

                                                    For the Years Ended March 31,
                                                -------------------------------------    ----------------
                                                      1998                1997                 1996
                                                ----------------    -----------------    ----------------
Numerator:
   Net income applicable to common stock         $  5,261,037        $   4,794,715       $   2,394,862
                                                ================    =================    ================

Denominator
    Average outstanding shares  used in the
    computation of per share earnings:
      Common Stock issued-Basic shares             13,259,964           13,054,611          12,988,547
      Stock Options (treasury method)               2,357,386            2,340,258           3,477,286
                                                ----------------    -----------------    ----------------
      Diluted shares                               15,617,350           15,394,869          16,465,833
                                                ================    =================    ================

Earnings Per Common Share:
   Basic                                              $.40                $.37                 $.18
                                                ================    =================    ================
   Diluted                                            $.34                $.31                 $.15
                                                ================    =================    ================
</TABLE> 
  
                                 39
<PAGE>


          18.    Quarterly Financial Data (Unaudited)

          The following fiscal 1998 and 1997 quarterly financial information for
          each of the three month periods ended June 30,  September 30, December
          31, 1997 and 1996 and March 31, 1998 and 1997 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>
     <C>                          <S>         <S>          <S>         <S>          <S>         <S>         <S>           <S>

                               Quarter Ended             Quarter Ended             Quarter Ended             Quarter Ended 
                                June 30,                  September 30,             December 31,              March 31, 
                               1997         1996         1997         1996         1997         1996         1998         1997


Net revenues              $52,917,871  $35,632,324  $49,790,199  $38,409,126  $52,596,230  $41,795,061  $44,434,234  $43,826,353

Income from                 1,932,055    1,577,186    2,375,079    1,900,562    1,392,368    3,134,489    2,076,073    1,215,603
    operations

Income (loss)
 before provision for 
 income taxes               2,129,434    3,466,445    2,573,611    1,932,842    1,646,223    3,001,979    2,246,039(1)  (646,531)(2)


Net income (loss)          $1,327,204   $2,119,235   $1,569,680   $1,315,080   $1,012,324   $1,832,053   $1,351,829    ($471,653)

Earnings (loss) per Share

Basic                           $0.10        $0.16        $0.12        $0.10        $0.08        $0.14       $0.10        ($0.04)
Diluted                         $0.08        $0.15        $0.10        $0.09        $0.06        $0.12       $0.09        ($0.04)




</TABLE>

     (1) Direct costs were reduced by  approximately  $5.3 million in the fourth
quarter of fiscal 1998 to recognize the over remittance of insurance premiums in
prior periods.

     (2) As a result of the  culmination of litigation,  the Company  recorded a
charge for legal  settlements of $1,700,000 plus legal  expenses,  in the fourth
quarter of fiscal 1997.

                               40


<PAGE>

<TABLE>

               WARRANTECH   CORPORATION  AND  SUBSIDIARIES  FINANCIAL 
                                   STATEMENT  SCHEDULE
                    SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
<C>                                                <S>         <S>              <S>                    <S>            <S>
-----------------------------------------------------------------------------------------------------------------------------------
              Column                            Column                      Column                       Column          Column
                A                                 B                           C                            D              E
-----------------------------------------------------------------------------------------------------------------------------------
                                             Balance at                    Additions                   Deductions-     Balance at
                                                                   -------------------------------------------
Description                                  Beginning     Charged to Costs  Charged to Other                            End of
                                             of Year       and Expense (a)   Accounts-Describe        Describe (b)        Year
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1998 Allowance
          for doubtful accounts:
              Trade A/R                      $300,328        $1,085,675            -                   $162,830     $1,223,173
              Other A/R                       -               -                    -                   -               -
              Profit Sharing                  -               -                    -                   -               -

Year Ended March 31, 1997 Allowance
          for doubtful accounts:
              Trade A/R                       450,092            28,000            -                    177,764        300,328
              Other A/R                       242,112         -                    -                    242,112       -
              Profit Sharing                1,720,000         -                    -                  1,720,000       -

Year Ended March 31, 1996 Allowance
          for doubtful accounts:
             Trade A/R                        126,115           363,179            -                     39,202        450,092
             Other A/R                        -                 242,112            -                   -               242,112
             Profit Sharing                   870,000           850,000            -                   -             1,720,000

</TABLE>

(a) Bad debt expense charged directly to operations  pertaining to accounts
receivable was $705,119 for the year ended March 31, 1997.

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

                                 41

<PAGE>




     Item 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosures

      N/A



                               42
<PAGE>



                                                  PART III

Item 10.  Directors and Executive Officers of the Registrant


     A Board of Directors consists of five directors.  All directors hold office
until the next annual  meeting and until their  successors  are duly elected and
qualified.


                                                                        Director
Name                    Age        Positions with Company                  Since

Joel San Antonio         45         Chairman of the Board,                  1983
                                    Chief Executive Officer 
                                    and Director

William Tweed            58         Director                                1983

Jeff J. White            47         Director                                1983

Lawrence Richenstein     45         Director                                1993

Gordon A. Paris          45         Director                                1998



     No family relationships exist among any of the Company's executive officers
or directors,  except that Randall San Antonio,  President of Warrantech Direct,
Inc., a subsidiary of the Company, is the brother of Joel San Antonio.

     The business experience of each of the Company's directors is as follows:

     Joel San Antonio, 45, one of the Company's founders, was a director,  Chief
Executive  Officer and  President  of the  Company  from  incorporation  through
February 1988.  Since  February 1988 Mr. San Antonio has been a director,  Chief
Executive Officer and Chairman of the Board of Directors and since October 1989,
he has also been Chairman and Chief Executive Officer of the Company's principal
operating subsidiaries. In 1975, Mr. San Antonio founded and, thereafter through
August 1982, served as President of Little Lorraine,  Ltd., a company engaged in
the  manufacturing of women's apparel.  Mr. San Antonio is currently a member of
the  Southwestern  Connecticut Area Commerce & Industry  Association,  the World
Forum,  the  Connecticut  Business and Industry  Association,  the  Metropolitan
Museum of Art, and the Young Presidents' Organization,  Inc. Mr. San Antonio has
been a director of Corniche Group Incorporated since May 1998.



                                   43

<PAGE>

     William  Tweed,  58, one of the Company's  founders,  was a director,  Vice
President and Secretary of the Company from incorporation through February 1988.
From February  1988 until April 1996,  Mr. Tweed was a director and President of
the  Company.  From April  1996 to March  1998,  Mr.  Tweed was  Executive  Vice
President of European  Operations for the Company.  Mr. Tweed  relinquished  his
title of Vice President on April 1, 1998. From July 1976 through August 1982, he
was Vice President of Little  Lorraine,  Ltd.  Mr. Tweed served as a director of
Nationwide Extended Warranty Service, Inc. from on or about October 1981 through
on or about January 1983.

     Jeff J. White,  47, one of the Company's  founders,  has been a director of
the Company from its inception. Mr. White was Vice President of the Company from
its  inception  until June 1988 and  Treasurer of the Company from its inception
until October 1990. In September 1982, Mr. White, with two partners, established
Marchon  Eyewear,  Inc. an  international  distributor  of eyewear and  sunwear,
including  such well known  collections  as Calvin  Klein,  Fendi,  Disney,  and
Flexon.   He  is  Co-President  of  Marchon  and  is  responsible  for  internal
operations,  information  systems,  and  interfacing  with  counsel  on  patent,
trademark,  and general legal matters. Mr. White is also an associate trustee of
the North Shore University Hospital Health System.
 
     Lawrence Richenstein, 45, has been a director of the Company since 1993. In
early  1997,  Mr.  Richenstein  formed  Laral  Group LLC, a computer  peripheral
company.  Laral has signed a licensing agreement with Nintendo to provide a wide
range of  product  peripherals.  Laral  Group  also  markets a line of  wireless
audio/video and computer  accessories  under its Unwired brand. Mr.  Richenstein
has been President and Chief Executive Officer of Peak Ventures,  Inc. since May
1996. Peak Ventures,  Inc., located in Farmingdale,  New York, provides services
to the consumer electronics  industry.  Mr. Richenstein also has been a managing
member of Long Hall  Technologies,  L.L.C.  since 1994. Long Hall  Technologies,
L.L.C. is a consumer electronics company located in Farmingdale,  New York. From
1985 until July 1996, Mr.  Richenstein was President and Chief Executive Officer
of  Lonestar  Technologies,  Ltd.,  a consumer  electronics  company  located in
Hicksville,  New  York.  Lonestar  Technologies,   Ltd.  filed  for  Chapter  11
bankruptcy  protection  on January 22, 1996.  The  proceeding  was  subsequently
converted  to a Chapter 7  bankruptcy  liquidation  effective  July 2, 1996.  In
addition to having sales and marketing experience, Mr. Richenstein has also been
involved in product  development.  Mr.  Richenstein  is an attorney  admitted to
practice  in New York and has,  in the past,  served as a director of two public
companies, both of which were involved in the electronics industry.

     Gordon A. Paris,  45, has been a director of the Company  since April 1998.
Mr.  Paris was the Managing  Director and Group Head of high yield  origination,
capital  markets and mergers and  acquisitions  at TD  Securities  (USA) Inc., a
subsidiary  of The  Toronto-Dominion  Bank since March  1996.  From June 1994 to
March 1996,  Mr. Paris was a Managing  Director in the  leveraged  finance group
with CS First  Boston.  From March 1991 to June 1996,  Mr.  Paris was a Managing
Director at Lehman Brothers in charge of the high yield and restructuring group.


                                   44

<PAGE>


Other Executive Officers And Key Employees

 
     Michael  A.  Basone,  40,  has been Vice  President  and Chief  Information
Officer  since  joining the Company in August 1994 and Chief  Operating  Officer
since January 1997 and Executive Vice President  since April 1998.  From 1986 to
1994,   Mr.   Basone  held  various   management   positions   with   Pepsi-Cola
International, ultimately serving as Director of Management Information Systems.

     Desiree Kim Caban,  33, has been  Secretary of the Company  since July 1993
and in October 1996 became Vice President of Human  Resources.  Prior to October
1996 and since 1989, Ms. Caban served as the Executive Assistant to the Chairman
and the Office  Services  Manager for the Company.  She has been employed by the
Company  since  May  1986.  Ms.  Caban is  currently  a member  of the  National
Association for Female Executives and a member of the Society for Human Resource
Professionals.

     Jeanine Folz, 33, has been the Vice  President of Insurance  Services since
October 1995 and has been Assistant Secretary of the Company since January 1995.
Ms. Folz joined the Company in 1987.  From 1987 to 1995,  Ms. Folz held  various
positions  including  Director of Insurance  Services and other customer service
and  project  analyst  positions.  She is  currently  a  member  of the Risk and
Insurance Management Society and the National Association for Female Executives.

     Richard F. Gavino,  51, has been Chief Financial  Officer since April 1998.
From 1995 to March 1998,  Mr. Gavino was Chief  Financial  Officer at Maxon Auto
Group, one of the largest automobile retailers in New Jersey. From 1993 to 1995,
Mr. Gavino was a Turnaround Consultant. From 1984 to 1993, Mr. Gavino was Senior
Vice President and Chief  Financial  Officer of Tops Appliance  City, a publicly
traded consumer electronics and appliance superstore chain.

     Ronald  Glime,  53, has been  President of Warrantech  Automotive,  Inc., a
wholly owned subsidiary of the Company, since October 1992. Prior thereto he was
Regional Sales Manager for Warrantech Automotive, Inc. (then known as Warrantech
Dealer Based Services,  Inc.) from February 1991 through October 1992. From 1983
through February 1991, Mr. Glime was an independent  insurance agent for various
insurance companies.  From 1978 through 1982, Mr. Glime was employed by American
Warranty Corp., a company in the warranty  administration  business. He resigned
as its  President  in 1982.  Mr.  Glime has been a director  of  Corniche  Group
Incorporated since May 1998.

     Martin Hughes, 34, has been President of Warrantech International,  Inc., a
wholly owned  subsidiary of the Company,  since February 1998.  From May 1996 to
January 1998,  Mr. Hughes was Managing  Director for  Warrantech  Europe Plc., a
wholly owned  subsidiary  of the Company.  Prior  thereto,  Mr. Hughes served in
executive positions with American International Group and IMCO Group, Plc.

     James F.  Morganteen,  48, has been General  Counsel for the Company  since
April 1997 and Vice President since February 1998. Mr.  Morganteen most recently
served as a Vice President for Bankers Trust of New York with responsibility for
counseling  its OTC risk  management  operations.  From 1987 through  1994,  Mr.
Morganteen  served as Senior  Counsel to Xerox  Corporation  managing  the legal
function of Xerox  Credit  Corporation,  the  financial  services  unit of Xerox
Corporation.



                                   45

<PAGE>

     Richard  Rodriguez,  44, has been President of Warrantech  Consumer Product
Services, Inc., a wholly owned subsidiary of the Company, since April 1998. From
December  1996 until March  1998,  Mr.  Rodriguez  has been Vice  President  and
Managing Director of Warrantech  International,  Inc., a wholly owned subsidiary
of the Company.  From February 1992 until December 1996, Mr. Rodriguez served as
Chief Operating Officer of the Company's Texas operating  facilities.  From 1987
until  1992,  Mr.  Rodriguez  served in  various  executive  positions  with the
Company.  Prior to 1987, Mr. Rodriguez served as an executive and/or  consultant
to retailers and manufacturers of consumer electronic products.

     Randall San Antonio,  44, has been President of Warrantech Direct,  Inc., a
wholly owned  subsidiary  of the  Company,  since June 1996 and from May 1994 to
June 1996 served as that subsidiary's Vice President and General Manager.  Prior
thereto he was Vice  President of Finance of Castle Hill  Productions  Inc. from
June 1984.

     Judith M. Thomas,  44, has been  President of  Warrantech  Help Desk,  Inc.
("HDI"), a wholly owned subsidiary of the Company,  since April 1997. Ms. Thomas
has been President of Unlimited  Business  Services,  Inc., a consulting company
which  specialized  in the  improvement  of  operational,  financial and revenue
streams of major  retailers,  including the  development and  implementation  of
service  contract  programs  since  1993.  From 1970 until  1993 Ms.  Thomas was
employed by Highland  Superstores,  holding various positions during her tenure,
ending her employment with that Company as Corporate Vice President-Operations.

 


 Information Concerning Meetings of the Board of Directors

     During the fiscal year ended March 31, 1998,  the Board of  Directors  held
four meetings.  All such meetings were fully attended.  The Company has an Audit
Committee,  consisting of Messrs. Richenstein and White. Such committee met once
during  the  1998  fiscal  year.  The  Company  has  a  Compensation  Committee,
consisting of Messrs.  Richenstein and White. This committee did not meet during
the last fiscal year.
 


                                        46

<PAGE>



Item 11.  Executive Compensation.

                                            EXECUTIVE COMPENSATION

Summary Compensation Table

     The following  table provides  information for the fiscal years ended March
31, 1998, 1997 and 1996, concerning the annual and long-term compensation of the
Chief Executive Officer and the next four highest paid executive officers of the
Company for the fiscal year ended March 31, 1998.

<TABLE>

<S>                              <C>      <C>         <C>          <C>            <C>              <C>               <C>
                                                                                      Long Term Compensation
                                                      Annual Compensation                  Awards (1)
                                                -------------------------------   -------------------------------

                                                                  Other Annual   Restricted Stock  Stock Option    All Other
Name of Principal Positions      Year     Salary      Bonus   Compensation (2)        Awards       (Shares)Awards  Compensation (4)

Joel San Antonio                 1998    $557,865    $211,941         $28,104    $           -              -      $   1,070
Chairman of the Board            1997     507,150     193,089          26,525                -              -              -
and Chief Executive Officer      1996     450,000      96,994          20,389                -              -              -

Michael A. Basone                1998    $158,939     $43,277         $12,318    $           -              -      $   2,341
Executive Vice President and     1997     159,940      25,100          15,343                -         11,600              -
Chief Information Officer and    1996     143,443      22,948           4,800            8,440          9,524              -
Chief Operation Officer

Ronald Glime                     1998    $160,385    $110,903          $7,837    $           -              -      $   1,972
President of Warrantech          1997     137,404      60,500           4,034                -         27,749              -
Automotive, Inc.                 1996     129,443(3)   11,550          21,483                -              -              -

Richard Rodriguez                1998    $121,102      $1,000          $6,285    $           -          7,742      $   1,648
President of Warrantech Consumer 1997      98,135       6,900           5,383                -              -              -
Products Services, Inc.          1996      95,333      13,648           5,343                -              -              -

Judith M. Thomas                 1998    $150,000    $ 50,000         $30,230    $           -              -      $     455
President of Warrantech          1997           -           -               -                -              -              -
Help Desk, Inc.                  1996           -           -               -                -              -              -


</TABLE>
 
(1)       The 1988 Stock Option Plan is the Company's only  long-term  incentive
          plan. 

(2)       Included in Other Annual  Compensation  are auto  allowances  given to
          each officer in fiscal 1996,  1997 and 1998,  life insurance  premiums
          for the years 1996,  1997 and 1998,  living expenses paid Mr. Glime in
          fiscal 1996,  and  relocation  expenses paid Mr. Basone in fiscal 1997
          and Ms.  Thomas in fiscal  1998.  

(3)       Consisting  of $125,000 in base  salary and $4,443 of  commissions  in
          fiscal 1996.

(4)       Represents  amounts  contributed by the Company in accordance with the
          Company's 401(K) Plan.

                                       47

<PAGE>


Option Grants In Last Fiscal Year


     The following table sets forth certain  information with respect to options
to purchase  Common Stock granted during the fiscal year ended March 31, 1998 to
each of the named executive officers.
 
<TABLE>
<S>                    <C>            <C>               <C>               <C>                 <C>             <C>

                                                                                            Potential Realizable Value
                                                                                            At Assumed Annual Rates
                                                                                            Of Stock Price Appreciation
__________________________________Individual Grants__________________________________       ___For Option Term_(1)__

                     Number of      % of Total  
                     Securities     Options/SARs
                     Underlying     granted to        Exercise or
                     Options/SARs   Employees in      Base Price          Expiration
                     __Granted___   _Fiscal Year_     __Per Share__       ___Date___          ___5% ($)__    __10%($)___

Joel San Antonio              -              0.0%               -                 -                   -                -
Michael A. Basone             -              0.0%               -                 -                   -                -
Ronald Glime                  -              0.0%               -                 -                   -                -
Richard Rodriguez         7,742             40.2%          11.625          12/02/04              63,301           72,781
Judith M. Thomas              -              0.0%               -                 -                   -                -

</TABLE>

(1)  Computed based upon the Company's price per share of $7.063, as reported on
     NASDAQ National Market System on March 31, 1998.


                                   48

<PAGE>



Options Exercised and Holdings

     The following table sets forth  information with respect to the individuals
listed in the Summary Compensation Table above,  concerning  unexercised options
held as of the end of the 1998 fiscal year.

<TABLE>

<S>                     <C>                <C>            <C>               <C>               <C>                 <C>


                      Shares Acquired      ($)            Number of Unexercised Options at    Value of Unexercised In-the-Money
       Name           On Exercise       Value Realized           Fiscal Year-End (#)           Options at Fiscal Year-End ($)(1)
----------------------------------------------------------------------------------------------------------------------------------
                                                          Exercisable      Unexercisable      Exercisable        Unexercisable
                                                          ------------------------------------------------------------------------

Joel San Antonio              -                  -       1,204,080                 -         $ 5,268,452         $      -
Michael A. Basone         4,762             54,228          11,600             4,762              31,906            8,872
Ronald Glime                  -                  -          24,749                 -              61,947                -
Richard Rodriguez        15,357            179,433               -             7,742                   -                -
Judith M. Thomas              -                  -               -                 -                   -                -


</TABLE>
(1)  Based on the  closing  price of $ 7.063 of the  Company's  common  stock as
     reported on the NASDAQ National Market System on March 31, 1998.



                              49


<PAGE>



Employment Agreements

     Effective  April 1, 1995 the Company  entered into a three-year  employment
agreement  with Joel San  Antonio.  Under the terms of the  agreement,  Mr.  San
Antonio's initial base compensation was $450,000 per annum,  commencing with the
beginning of fiscal  1996,  subject to an increase of 10% per annum for the next
three  years.  Mr. San Antonio is entitled to be  reimbursed  for all  ordinary,
reasonable  and necessary  expenses  incurred by him in the  performance  of his
duties,  including an  automobile  allowance  of $12,000 per annum.  The Company
provides Mr. San Antonio with a comprehensive medical-dental insurance policy as
well as disability coverage and a life insurance-death  benefit policy in excess
of $1,000,000.  Mr. San Antonio is entitled to an incentive bonus equal to 4% of
the net after tax profits of the Company.  The agreement continues in full force
and effect for additional one year periods,  provided however, that either party
may terminate by giving ninety (90) days written  notice prior to the end of any
term or renewal term.

     Effective January 1, 1998 the Company entered into an employment  agreement
with Michael Basone to serve as the Company's  Executive Vice  President,  Chief
Information  Officer  and  Chief  Operating  Officer.  Under  the  terms of such
Agreement,  Mr.  Basone's  current  salary is  $200,000,  subject  to  automatic
increases of 5% after the first fifteen  months and annually  thereafter  during
the term of the  Agreement.  Mr. Basone was granted stock options in April 1998,
pursuant to the  Agreement,  to purchase  $200,000 of the Company's  stock which
vest  equally  over a three year  period.  In  addition  he will be  entitled to
receive  cash  bonuses  based upon the  Company and its  subsidiaries  achieving
certain  revenue and  operating  goals.  The Company  provides  Mr.  Basone with
medical and dental  insurance,  an automobile  allowance of $6,000 per annum and
life  insurance  benefits  similar to that provided by the Company to certain of
its other  executives.  The employment  agreement may not be terminated  without
cause.

     Effective  January  1, 1998  Warrantech  Automotive,  Inc.  entered  into a
five-year employment agreement with Ronald Glime, its President. Under the terms
of such  Agreement  Mr.  Glime is entitled  to an initial  annual base salary of
$200,000 subject to automatic increases of 5% after the first fifteen months and
annually  thereafter  during the term of the  Agreement.  Mr.  Glime was granted
stock options in April 1998, pursuant to the Agreement,  to purchase $250,000 of
the  Company's  stock which vest equally  over a five year period.  Mr. Glime is
entitled  to  receive  a cash  bonus  based  upon  a  percentage  of  Warrantech
Automotive,  Inc.'s operating  performance.  The Company provides Mr. Glime with
medical and dental  insurance,  an automobile  allowance of $6,000 per annum and
life  insurance  benefits  similar to that provided by the Company to certain of
its other executives.  During fiscal year 1997 the Company granted an additional
option in the amount of 24,749 shares to Mr. Glime.
 

                                   50

<PAGE>


     Effective April 1, 1998, Warrantech Consumer Product Services, Inc. entered
into an employment  agreement with Richard Rodriguez,  its President.  Under the
terms of such  Agreement  which  expires  December  31, 2001,  Mr.  Rodriguez is
entitled to an initial  annual base salary of $150,000  subject to  increases at
the option and sole discretion of the Company.  Mr. Rodriguez received a $25,000
bonus upon signing of the employment agreement.  Mr. Rodriguez was granted stock
options,  pursuant to the Agreement, to purchase $225,000 of the Company's stock
which vest  equally  over a three year  period.  Mr.  Rodriguez  is  entitled to
receive a cash bonus based upon a  percentage  of  Warrantech  Consumer  Product
Services, Inc. and Warrantech Home Service Company's operating performance.  The
Company provides Mr. Rodriguez with medical and dental insurance,  an automobile
allowance  of $6,000  per  annum and life  insurance  benefits  similar  to that
provided  by the  Company  to certain of its other  executives.  The  employment
agreement may be terminated by the employee,  at any time,  upon sixty (60) days
written notice. During fiscal year 1998 the Company granted stock options in the
amount of 7,742 shares to Mr. Rodriguez.


     Effective April 1, 1997, the Company and Warrantech Help Desk, Inc. entered
into a five year employment  agreement with Judith Thomas, its President.  Under
the terms of such  Agreement  Ms.  Thomas is entitled to an initial  annual base
salary of $150,000  subject to automatic  increases of 5% annually.  Ms.  Thomas
received a $50,000 bonus upon signing of the  employment  agreement.  Ms. Thomas
was granted stock options in April 1998, pursuant to the Agreement,  to purchase
$150,000 of the Company's stock which vest equally over a five year period.  Ms.
Thomas is entitled to receive a cash bonus equal to a percentage  of her current
base salary upon the  attainment  of certain  operating  goals  established  for
Warrantech  Help Desk,  Inc. The Company  provides  Ms.  Thomas with medical and
dental insurance,  relocation  benefits,  an automobile  allowance of $6,000 per
annum and life  insurance  benefits  similar to that  provided by the Company to
certain of its other executives.

Other Incentives and Compensation

     The Company provides executives  equity-based  long-term incentives through
its 1988 Employee  Incentive  Stock Option Plan, such which is designed to award
key  management  personnel  and other  employees of the Company with bonuses and
stock options based on the Company's and the employee's performance.

     The Company provides  executive officers with an incentive bonus plan which
provides cash and/or stock bonuses upon meeting certain performance criteria.

     The Company  provides an  incentive  bonus plan for all  employees  for the
referral  of  potential  new  employees  for  employment  by the Company who are
subsequently hired by the Company.  The amount of the bonus is predicated on the
skill and professional level of the new employee.

     Additionally, the Company provides an incentive bonus to existing employees
who  are  claims  adjusters  for  obtaining  and  maintaining  certification  as
professionals in their field.


                                   51


<PAGE>



Compliance With Section 16(a) of the Securities Exchange Act of 1934

     Section  16(a) of the  Securities  Exchange Act of 1934  requires  that the
Company's  executive officers and directors and persons who own more than 10% of
a registered class of the Company's equity  securities file reports of ownership
and changes in  ownership  with the  Securities  and  Exchange  Commission  (the
"Commission").  Officers,  directors  and  greater  than  10%  shareholders  are
required by  Commission  regulation  to furnish  the Company  with copies of all
Section  16(a)  forms they file.  Based on a review of the  reports,  during the
fiscal year ended March 31, 1998, all Section 16 filing requirements  applicable
to its officers,  directors and greater than 10% beneficial owners were complied
with,  except that Desiree Kim Caban filed one Form 4 late and Michael A. Basone
filed one Form 4 late.


Non-Management Directors' Compensation

     Effective  January 1, 1997,  each  non-employee  director  is  entitled  to
receive  compensation  of $2,500 plus 500 shares of Company  stock per  calendar
quarter of board  service.  Committee  service is  compensated  at $500 plus 125
shares of  Company  stock per  calendar  quarter.  Effective  January  1,  1998,
quarterly  stock  compensation  was changed to 250 shares for board  service and
62.5 shares for committee  service with the cash  components  unchanged.  During
fiscal 1998, the following fees were paid:

             Jeff J. White                                        $17,500
             Lawrence Richenstein                                  17,500
 
     No  directors'  fees are payable to  employees  of the Company who serve as
directors.



                              52

<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners and Management

     The  following  table sets forth  information  concerning  shares of Common
Stock,  par value $.007 per share, the Company's only voting  securities,  owned
beneficially  by each of the  Company's  directors and nominees for the Board of
Directors,  by each person who is known by the Company to own beneficially  more
than 5% of the outstanding voting securities of the Company and by the Company's
executive officers and directors as a group.

Name and Address of Beneficial Owner      Amount and Nature of           Percent
                                          Beneficial Ownership          of Class
 
Joel San Antonio                          3,194,880 shares(1)              19.6%
300 Atlantic Street
Stamford, Connecticut 06901

William Tweed                             2,001,975 shares(2)              12.3%
300 Atlantic Street
Stamford, Connecticut 06901

Jeff J. White                             1,746,160 shares(3)               8.8%
35 Hub Drive
Melville, New York 11747

Lawrence Richenstein                         11,625 shares                  0.0%
500 Eastern Parkway
Farmingdale, New York  11735

Gordon Paris                                    500 shares                  0.0%
31 West 52nd Street, 22nd floor
New York, New York  10019-6101

All directors and executive officers"
as a group ( 18 persons)                   7,145,860 shares(1,2,3,4)       43.5%

__________________  

(1)  Includes  5,000 shares held by Mr. San Antonio as  custodian  for two minor
     children.  Includes  10,800  shares owned by Mr. San  Antonio's  wife as to
     which he disclaims  beneficial  ownership.  Does not include  10,800 shares
     owned by Mr. San Antonio's brother and sister-in-law and 1,000 shares owned
     by his mother as to which he disclaims any beneficial interest. Includes an
     aggregate of 200,000  shares held in trusts for his children,  of which Mr.
     San  Antonio's  wife is a trustee  as to which Mr.  San  Antonio  disclaims
     beneficial ownership. Includes 1,204,080 shares purchased from the exercise
     of stock options. 

(2)  Includes  23,000 shares held by Mr. Tweed as custodian for one child.  Does
     not include an  aggregate of 7,500  shares held by  Mr. Tweed's  mother and
     sister.  Includes  1,500 shares held by Mr. Tweed's wife, and 25,000 shares
     held in trust for the benefit of Mr.  Tweed's  granddaughter,  of which Mr.
     Tweed's  wife is the  trustee,  as to which  he  disclaims  any  beneficial
     interest.  Includes  938,775  shares  purchased  from the exercise of stock
     options.  

(3)  Does not include an aggregate of 225,000 shares owned by Mr. White's mother
     and  sister as to which he  disclaims  any  beneficial  interest.  Includes
     857,145  shares  purchased  from the  exercise of stock  options.  

(4)  Includes  options held by executive  officers of the Company to purchase an
     aggregate of 109,409 shares which are presently exercisable.


                              53

<PAGE>


Item 13.  Certain Relationships and Related Transactions

Certain Relationships and Related Transactions

     On April 1, 1996 Michael  Salpeter,  former  President  and Director of the
Company,  and William  Tweed,  former  President of the Company  entered into an
Agreement  whereby  Mr.  Tweed  granted to Mr.  Salpeter  an option to  purchase
487,000 shares of common stock owned by Mr. Tweed.  The options are  exercisable
at various prices in whole or in part, and expire on October 22, 2000.

     On October 16, 1997 Ronald Glime, President of Warrantech Automotive,  Inc.
signed a Promissory  Note (bridge loan) with the Company for $300,000.  The Note
was fully paid on July 13, 1998.

     On April 24, 1998 Martin Hughes, President of Warrantech International, Inc
signed a  Promissory  Note with the  Company  for  $200,304.  The Note calls for
thirty six monthly payments with a maturity date of March 31, 2001.

     On July 6, 1998 Joel San Antonio,  Chairman and Chief Executive Officer and
Directors, William Tweed and Jeff White exercised all of their vested options to
purchase  Warrantech common stock. Each of them has agreed to execute Promissory
Notes in favor of the Company for the exercise  price of the options.  The Notes
call for the  principal to be paid at the end of three years with interest at 6%
due annually.  The principal  amounts are $3,235,965,  $2,522,957 and $2,303,578
respectively.

     Warrantech  Consumer Product Services Inc. and Warrantech Direct, Inc. have
made commission payments to Unlimited Business Services,  Inc. totaling $364,756
for the fiscal year 1998 pursuant to Representative  Agreements.  Judith Thomas,
President of Warrantech Help Desk,  Inc. is the President of Unlimited  Business
Services, Inc.


                                   54

<PAGE>



                                            PART IV


     Item 14. 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 21.

          (b)       Reports on Form 8-K during the last quarter: None.

          (c)       Exhibits

          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.

          (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.

          (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.

          (d)       - Certificate  of Designation of the Company 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.

          (e)       -  By-laws  of the  Company,  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.

          (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.

          (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.

          (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.

          (e)       - 1988 Employee Incentive Stock Option Plan of the Company.

          (f)       -  Employment  Agreement  dated  April 1, 1995,  between


                                55
<PAGE>

                    the Company and Joel San Antonio.

          (g)       - Insurance  policy between the Company and Houston  General
                    Insurance Company  pertaining to service contracts issued by
                    Inacom   Corporation.   Incorporated  by  reference  to  the
                    Company's  Report on Form  10-K for the  fiscal  year  ended
                    March 31, 1992, file no. 0-13084.

          (h)       - Insurance  policy between the Company and Houston  General
                    Insurance Company  pertaining to service contracts issued by
                    Damark  Inc.  Incorporated  by  reference  to the  Company's
                    Report  on Form 10-K for the  fiscal  year  ended  March 31,
                    1992, file no. 0-13084.

          (i)       - Insurance policy between the Company and Houston
                           General  Insurance  Company   pertaining  to  service
                           contracts written in all states except Florida.

          (j)       - Insurance  policy between the Company and Houston  General
                    Insurance Company  pertaining to service contracts issued by
                    CompUSA.

          (k)       - Insurance  policy between the Company and Houston  General
                    Insurance company pertaining to service contracts written by
                    WCPS of Florida, Inc. (excluding Inacom Corporation).

          (l)       - Insurance  policy between the Company and Houston  General
                    Insurance company pertaining to service contracts written by
                    WCPS of Florida, Inc. through CompUSA.

          (m)       - Settlement and Runoff Agreement  between the Company,  its
                    wholly owned subsidiaries  Warrantech Dealer Based Services,
                    Inc. and  Warrantech  Consumer  Product  Services,  Inc. and
                    American Hardware Mutual Insurance Company ("AHM") regarding
                    termination of insurance coverage by AHM. (This document has
                    been  omitted and  accorded  confidential  treatment  by the
                    Securities  and  Exchange  Commission  pursuant  to an Order
                    Granting  Application  Pursuant  to  Rule  24b-2  Under  the
                    Securities  Exchange  Act of 1934,  As  Amended,  Respecting
                    Confidential Treatment of Exhibits 10(v) and 10(w) Contained
                    in  Registrant's  Form 10-K for the fiscal  year ended March
                    31, 1992, issued by the Division of Corporation Finance.)

          (n)       - Revolving Loan  Agreement  between the Company and Peoples
                    Bank.

          (o)       -  Administrator  Agreement  -  Consumer  Products,  between
                    Houston General  Insurance  Company and Warrantech  Consumer
                    Product  Services,  Inc. (This document has been omitted and
                    has been filed  separately  with the Securities and Exchange
                    Commission pursuant to a confidential Treatment Request.)

          (p)       - General Agency Agreement  between  American  International
                    Group, Inc. and Warrantech  Automotive.  Inc. (This document
                    has been  omitted  and has been  filed  separately  with the
                    Securities   and   Exchange   Commission   pursuant   to   a
                    Confidential Treatment Request.)

                                 56
<PAGE>

          (q)       - Master  Agreement  between American  International  Group,
                    Inc. and the Company  (Section 1.6 of this document has been
                    omitted and has been filed  separately  with the  Securities
                    and Exchange Commission pursuant to a Confidential Treatment
                    Request.)


          11.       - Statements re: computation of per share earnings.

          21.       - Subsidiaries of the Company.

          27.       - Financial Data Schedule.

          28.       - Stipulation and Consent Order of Illinois. Incorporated by
                    reference to the Company's Quarterly Report on Form 10-Q for
                    the  fiscal  quarter  ended  December  31,  1988,  file  no.
                    0-13084.

          99(a)     - Complaint in Action entitled David Robertson v. Warrantech
                    Corporation  and  Warrantech   Automotive   Incorporated  by
                    reference to the Company's Quarterly Report on Form 10-Q for
                    the  fiscal  quarter  ended  December  31,  1993;  file  no.
                    0-13084.

          (b)-      Amended  Complaint in Action  entitled The Oak Agency,  Inc.
                    and The Oak Financial  Services,  Inc. vs. Warrantech Dealer
                    Based  Services,  Inc.,  Case  No.  91 C 6677,  filed in the
                    United States  District  Court for the Northern  District of
                    Illinois.  Incorporated by reference to the Company's Annual
                    Report  on Form 10-K for the  fiscal  year  ended  March 31,
                    1997, file 0-13084.

          (c)       - Complaint in Action entitled The Oak Agency,  Inc., et al.
                    v.  Warrantech,  Inc., et al., Case No. 96 C 1106,  filed in
                    the United States  District Court for the Northern  District
                    of Illinois.  Incorporated  by  reference  to the  Company's
                    Annual  Report on Form 10-K for the fiscal  year ended March
                    31, 1997, file 0-13084.


                                  57

<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 28, 1998                     By:   Joel San Antonio

                                                ------------------------------
                                                Joel San Antonio
                                                Chairman of The Board and
                                                Chief Executive Officer


Dated:        July 28, 1998                     By:  Harris Miller

                                                -------------------------------
                                                Harris Miller,
                                                Chief Financial Officer

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 and on the dates indicated.

<TABLE>
<C>                                                       <S>                                          <S>

Signature                                               Title                                         Date

Joel San Antonio                                        Chief Executive Officer,                     July 28, 1998
                                                        Chairman of the Board and
--------------------------------------------------      Director
(Joel San Antonio)

William Tweed                                           Director                                     July 28, 1998

--------------------------------------------------
(William Tweed)
                                                        Director                                     July 28, 1998
Gordon Paris

--------------------------------------------------
(Gordon Paris)

Jeffrey J. White                                        Director                                     July 28, 1998

--------------------------------------------------
(Jeffrey J. White)

Lawrence Richenstein                                    Director                                     July 28, 1998

--------------------------------------------------
(Lawrence Richenstein)
</TABLE>

                                  58

<PAGE>

                                           Exhibit List



          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.

          (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.

          (c)       - Certificate of Amendment of  Certificate of  Incorporation
                    dated  June  29,  987.  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.

          (d)       - Certificate  of Designation of the Company 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.

          (e)       -  By-laws  of the  Company,  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.

          (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.

          (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.

          (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.

          (e)       - 1988 Employee Incentive Stock Option Plan of the Company.

          (f)       -  Employment  Agreement  dated  April 1, 1995,  between the
                    Company and Joel San Antonio.

                                59
<PAGE>


          (g)       - Insurance  policy between the Company and Houston  General
                    Insurance Company  pertaining to service contracts issued by
                    Inacom   Corporation.   Incorporated  by  reference  to  the
                    Company's  Report on Form  10-K for the  fiscal  year  ended
                    March 31, 1992, file no. 0-13084.

          (h)       - Insurance  policy between the Company and Houston  General
                    Insurance Company  pertaining to service contracts issued by
                    Damark  Inc.  Incorporated  by  reference  to the  Company's
                    Report  on Form 10-K for the  fiscal  year  ended  March 31,
                    1992, file no. 0-13084

          (i)       - Insurance  policy between the Company and Houston  General
                    Insurance Company pertaining to service contracts written in
                    all states except Florida.

          (j)       - Insurance  policy between the Company and Houston  General
                    Insurance Company  pertaining to service contracts issued by
                    CompUSA.

          (k)       - Insurance  policy between the Company and Houston  General
                    Insurance company pertaining to service contracts written by
                    WCPS of Florida, Inc. (excluding Inacom Corporation).

          (l)       - Insurance  policy between the Company and Houston  General
                    Insurance company pertaining to service contracts written by
                    WCPS of Florida, Inc. through CompUSA.

          (m)       - Settlement and Runoff Agreement  between the Company,  its
                    wholly owned subsidiaries  Warrantech Dealer Based Services,
                    Inc. and  Warrantech  Consumer  Product  Services,  Inc. and
                    American Hardware Mutual Insurance Company ("AHM") regarding
                    termination of insurance coverage by AHM. (This document has
                    been  omitted and  accorded  confidential  treatment  by the
                    Securities  and  Exchange  Commission  pursuant  to an Order
                    Granting  Application  Pursuant  to  Rule  24b-2  Under  the
                    Securities  Exchange  Act of 1934,  As  Amended,  Respecting
                    Confidential Treatment of Exhibits 10(v) and 10(w) Contained
                    in  Registrant's  Form 10-K for the fiscal  year ended March
                    31, 1992, issued by the Division of Corporation Finance.)

          (n)       - Revolving Loan  Agreement  between the Company and Peoples
                    Bank.

          (o)       -  Administrator  Agreement  -  Consumer  Products,  between
                    Houston General  Insurance  Company and Warrantech  Consumer
                    Product  Services,  Inc. (This document has been omitted and
                    has been filed  separately  with the Securities and Exchange
                    Commission pursuant to a confidential Treatment Request.)

          (p)       - General Agency Agreement  between  American  International
                    Group,  Inc and Warrantech  Automotive.  Inc. (This document
                    has been  omitted  and 


                           60
<PAGE>

                    has been  filed  separately  with the  Securities  and  
                    Exchange Commission pursuant to a Confidential Treatment
                    Request.)

          (q)       - Master  Agreement  between American  International  Group,
                    Inc. and the Company  (Section 1.6 of this document has been
                    omitted and has been filed  separately  with the  Securities
                    and Exchange Commission pursuant to a Confidential Treatment
                    Request.)


          11.       - Statements re: computation of per share earnings.

          21.       - Subsidiaries of the Company.

          27.       - Financial Data Schedule.

          28.       - Stipulation and Consent Order of Illinois. Incorporated by
                    reference to the Company's Quarterly Report on Form 10-Q for
                    the  fiscal  quarter  ended  December  31,  1988,  file  no.
                    0-13084.

          99(a)     - Complaint in Action entitled David Robertson v. Warrantech
                    Corporation  and  Warrantech   Automotive   Incorporated  by
                    reference to the Company's Quarterly Report on Form 10-Q for
                    the  fiscal  quarter  ended  December  31,  1993;  file  no.
                    0-13084.

          (b)-      Amended  Complaint in Action  entitled The Oak Agency,  Inc.
                    and The Oak Financial  Services,  Inc. vs. Warrantech Dealer
                    Based  Services,  Inc.,  Case  No.  91 C 6677,  filed in the
                    United States  District  Court for the Northern  District of
                    Illinois.  Incorporated by reference to the Company's Annual
                    Report  on Form 10-K for the  fiscal  year  ended  March 31,
                    1997, file 0-13084.

          (c)       - Complaint in Action entitled The Oak Agency,  Inc., et al.
                    v.  Warrantech,  Inc., et al., Case No. 96 C 1106,  filed in
                    the United States  District Court for the Northern  District
                    of Illinois.  Incorporated  by  reference  to the  Company's
                    Annual  Report on Form 10-K for the fiscal  year ended March
                    31, 1997, file 0-13084.


                                61
<PAGE>

                        EXHIBIT 10(f)


                          EMPLOYMENT AGREEMENT

     Agreement  made  as of the  1st  day of  April,  1995,  between  WARRANTECH
CORPORATION, (the "Company"), a Delaware corporation having its principal office
at 300 Atlantic Street,  Stamford,  Connecticut 06901, and Joel San Antonio (the
"Executive"),   an  individual  residing  at  1300  Rockrimmon  Road,  Stamford,
Connecticut 06902.

                              W I T N E S S E T H:
 
     WHEREAS,  the Executive has been  instrumental  in the  development  of the
Company since its inception in an executive capacity; and

     WHEREAS, the Company believes that Executive's  continued services would be
of great  value to it and  desires to retain his  services,  and  Executive  has
indicated  his  willingness  to  enter  into an  agreement  upon the  terms  and
conditions set forth; and

     WHEREAS,  the  execution  by the  Company of this  Agreement  has been duly
authorized and approved;

     IT IS, THEREFORE, AGREED AS FOLLOWS:

     1. Duties.

     The Company  hereby  employs the Executive as Chairman and Chief  Executive
Officer of the  Company.  Executive  shall have  responsibility  (subject to the
Board of Directors)  for the  management  and  operations of the Company and all
corporations  controlled by the Company,  now or hereafter acquired,  performing
all such services as shall be consistent  with his position.  If Executive shall
serve as an officer,  director or employee of any  affiliate of the Company,  he
shall not receive any additional compensation,  unless otherwise mutually agreed
upon.

     2. Salary and Other Compensation.

     A. The Company shall pay the Executive  during the term of this Agreement a
base salary at the annual  rate of  $450,000  during the first 12 months of this
Agreement,  which base  salary  shall  automatically  increase  by 10%  annually
thereafter during the term of this Agreement.  Such base  compensation  shall be
payable in  accordance  with the Company's  payroll  practices as in effect from
time to time.

     B. The  Executive  also shall  receive  an  incentive  bonus  equal to four
percent of net after tax income, the terms and conditions of which are set forth
in Exhibit A annexed  hereto.  C. The Company also shall  maintain in full force
and effect for the benefit of the  Executive  the split  dollar  life  insurance
policy annexed here as Exhibit B.


<PAGE>

     3. Expenses.

     It is  contemplated  that in performing  services  under this Agreement the
Executive  will be required to incur expenses on behalf of and in furtherance of
Company business.  The Executive is authorized to incur such reasonable expenses
in performing  his duties  including,  but not limited to,  expenses for travel,
transportation,  entertainment, gifts and similar items, which expenses shall be
paid by the Company. At the end of each month and upon submission of appropriate
bills or  vouchers,  the  Company  shall pay all such  expenses  incurred by the
Executive  during that month.  Such  payment may be made either  directly to the
payees named in such bills or vouchers or, to the extent paid by the  Executive,
by reimbursement  to him. The Executive  agrees to maintain  adequate records of
all expenses to be reimbursed by the Company.
 
     4. Automobile.

     It is contemplated  that to perform the services required by this Agreement
the Executive shall obtain and remain fully  responsible for the maintenance and
repair of an automobile,  for which the Company shall provide the Executive with
an expense allowance of $12,000 per year.

     5. Vacations.

     The  Executive  shall be entitled  to 5 weeks of vacation  time per year in
accordance  with such policies as are from time to time adopted by the Company's
Board of Directors.

     6. Disability.

     A. For purposes of this Agreement, disability shall mean physical or mental
illness  or  condition   rendering   the   Executive   incapable  of  performing
substantially all of his normal duties with the Company.

     B. In the event the Executive becomes disabled,  for a continuous period of
twelve months, the Company,  at its option and upon at least thirty days written
notice to the Executive or his personal representative (but before the Executive
has recovered from such disability), may terminate the Executive's employment.

     C. In the event of the Executive's disability hereunder,  and from the date
thereof,  the Company  shall  continue to pay the Executive his salary and other
compensation  (pursuant to paragraph 2) for a period not to exceed twelve months
at the rate provided for on the date of the commencement of such disability. The
Executive shall be entitled to annual  increases and cost of living  adjustments
pursuant to paragraph 2 if otherwise applicable. If the


                                                      -2-

<PAGE>

Executive shall receive any disability payments from any insurance company under
a Company  sponsored  disability plan, as provided for below, the salary payable
to the Executive under this sub-paragraph shall be reduced  accordingly,  dollar
for dollar.  Should the  Company's  obligation  to pay the disabled  Executive's
salary  expire as provided for herein for any reason  whatsoever,  the Executive
shall be  entitled to receive and retain all  disability  insurance  proceeds of
such disability plan.

     D. Subject to  insurability,  the Company shall purchase and maintain group
disability  insurance for its senior executives including the Executive pursuant
to the Disability Income Policy annexed hereto as Exhibit B.

     7. Additional Benefits.

     A. The Company  also shall be eligible to receive such  additional  bonuses
and awards as the Board of Directors or  Compensation  Committee of the Board of
Directors  may from time to time grant to him, and he also shall be eligible and
shall be entitled to participate in any stock option plan,  bonus  participation
or extra compensation plan, pension, group insurance or other benefits which the
Company may, in its sole discretion,  provide for its senior executive employees
generally.

     B. The Company  shall  obtain,  and  maintain  in full force and effect,  a
comprehensive major medical,  hospitalization  Blue Cross-Blue Shield group plan
(or the  equivalent)  with dental  coverage for the benefit of the Executive and
his immediate family.  The nature and scope of the coverage will be identical to
that provided to all other senior executives.

     8. Restrictive Covenants.

     A. The Executive shall devote his full time and efforts to the business and
affairs of the Company and shall use his best efforts to promote its interests.

     B. The Executive shall perform his duties on a full-time basis primarily at
either the Company's  offices in Stamford,  Connecticut or the Company's offices
in Euless, Texas.

     C.  During  the term of this  Agreement  and for two  years  following  its
termination  for any reason,  the Executive  shall not,  directly or indirectly,
participate in the ownership,  management, control, employ, or serve as an agent
or render any  services  to, any  company  which  competes  with any part of the
business of the  Company,  its  subsidiaries  or  affiliates,  without the prior
written consent of the Company's Board of Directors.


                                               -3-

<PAGE>

     D. During the term of this  Agreement and  thereafter,  Executive will not,
directly or indirectly,  disclose or use any confidential information,  records,
trade  secrets  or any  other  secret or  confidential  matter  relating  to the
clients,  employees,  business,  products or services of the Company, whether or
not it is identified  as secret or  confidential,  without  first  obtaining the
prior written consent of the Company. This covenant includes, but is not limited
to:  disclosing or using  information  concerning  Company  customers,  customer
requirements,  trade secrets,  markets,  costs,  products;  product development,
marketing and business  plans or  strategies;  divulging the identity of Company
clients or employees; or soliciting Company clients or employees.

     E.  Executive  agrees that this paragraph  constitutes  an independent  and
severable  covenant,  which shall be enforceable  notwithstanding  any rights or
remedies that the Company may have under any other  provision of this  Agreement
or  otherwise,  that the remedy at law for any breach  hereof will be inadequate
and that the Company  shall be entitled to temporary  and  permanent  injunctive
relief  without the  necessity of proving  damages.  Additionally,  if Executive
should breach these covenants, Executive agrees to indemnify the Company for any
loss, damage, or expense which the Company may incur,  including but not limited
to,  attorney's  fees  and  disbursements  resulting  from any  such  breach  by
Executive.

     F. If any of the covenants contained  hereinabove,  or any part thereof, is
hereafter  construed to be invalid or  unenforceable,  the same shall not affect
the  remainder of the covenant or  covenants,  which shall be given full effect,
without regard to the invalid portions.

     G. If any of the covenants contained  hereinabove,  or any part thereof, is
held to be  unenforceable  because of the duration of such provision or the area
covered  thereby,  the parties  agree that the court  making such  determination
shall have the power to reduce the duration  and/or area of such provisions and,
in its reduced form, said provision shall then be enforceable.

     9. Duration.

     This Agreement shall be in full force and effect for the period  commencing
as of April 1, 1995 and ending  March 31, 1998  (hereinafter  referred to as the
"term of this  Agreement").  Thereafter,  this Agreement  shall continue in full
force and effect for additional one year periods, provided, however, that either
party may terminate  this  Agreement by giving prior written  notice at least 90
days prior to the end of the term hereof or any renewal term. This Agreement may
be terminated before the end of its term by agreement of the parties or upon the
death or disability of the Executive, or in the event of termination as provided
in paragraphs 9 or 10 hereof. This Agreement also will


                                             -4-

<PAGE>

automatically  terminate upon execution of another Agreement between the parties
that explicitly supersedes this Agreement.

     10. Termination for Cause by the Company.

     The Company may terminate the Executive's employment at any time with cause
upon  thirty  (30)  days  prior  written  notice  to the  Executive.  Notice  of
termination for cause must specify with  particularity  the actions or inactions
constituting such cause.

     Cause shall exist upon the occurrence of any of the following:

          (i) the  Executive's  conviction  for any crime  involving the Company
          which constitutes a felony in the jurisdiction involved;

          (ii) the  Executive's  willful  failure or  refusal  to  substantially
          perform his duties as required by this Agreement;

          (iii) misappropriation of Company money or property or other dishonest
          act relating to the Company, its assets or operations;

          (iv) the material  breach by the  Executive of any of the covenants of
          this Agreement;

          (v) any other acts or omissions which  constitute cause under the laws
          of the State of New York.

     If  termination  under this section  occurs,  the Company  shall pay to the
Executive all amounts due under this Agreement which are then accrued but unpaid
within fifteen (15) days after date of the notice of termination.

     11. Termination Without Cause.

     A. The Company shall have no right to terminate  this  Agreement  except as
expressly  set forth  above.  Any other  termination  of this  Agreement  by the
Company shall constitute wrongful termination.  Except as provided below, in the
event of any wrongful termination, the Company shall pay the Executive an amount
equal to the lesser of $450,000 or the base salary payable hereunder through the
end of the term or any renewal  term.  Such payment shall be made within 30 days
of termination and shall be deemed  liquidated  damages for the Executive's loss
of salary but shall not preclude,  diminish or in any way affect the Executive's
right to  pursue  whatever  additional  remedies  may be  available  to him with
respect  to damages  suffered  other  than for loss of  salary.  The  liquidated
damages provided


                                           -5-

<PAGE>

above shall be payable  regardless of whether or not the Executive  mitigates or
attempts to mitigate his damages.
 
     B. If  within  two years  following  a Change In  Control  (as  hereinafter
defined) of the Company, the Company shall terminate the Executive's  employment
other than by reason of the Executive's  disability for cause (as defined above)
or the Executive  shall  terminate his employment by the Company for Good Reason
(as  hereinafter  defined)  then (1) on or before  the  Executive's  last day of
employment  with  the  Company,  the  Company  shall  pay  to the  Executive  as
compensation  for  services  rendered  to the  Company  a lump sum  cash  amount
(subject to applicable  payroll or other taxes required to be withheld  computed
at the rate for  supplemental  payments)  equal to three  times the  Executive's
actual base salary for the 12 month period preceding such termination  date, and
(2) the Company shall not recover its contributions  under the split dollar life
insurance  policy until the  expiration  of the term of this  Agreement  and the
Company  shall  be  required  to  continue  making  its   contributions  to  the
Executive's  split dollar life  insurance  policy and other  benefits  until the
expiration of the term of the Agreement.

     C. "Change In Control" means (1) the acquisition by any person, directly or
indirectly, of the beneficial ownership of securities of the Company entitled to
cast  40% or more or the  total  vote to  which  all the  Company's  outstanding
securities  are then  entitled to cast in the election of  directors  unless the
Executive  is such person or an  affiliate of such person or (2) a change in the
composition of the board of directors of the Company which results in a majority
of the members  thereof  being persons who were not elected by, or nominated for
election as directors  by, the board of directors of the Company as the same was
constituted, immediately prior to such change in the composition thereof.

     D. "Good Reason" shall mean any of the following  which occurs  following a
Change of Control:  a significant  reduction or  alteration  of the  Executive's
duties,  authority or responsibility;  removal of the Executive from the highest
corporate  office held by him prior to such Change In Control;  any modification
of the  compensation  terms of this  Agreement  adverse  to the  Executive;  any
material  reduction in perquisites,  benefits or support  facilities  previously
available  to the  Executive  in order to  perform  his  obligations  under this
Agreement.

     E. In the event Executive's  employment is terminated pursuant to Paragraph
10A or 10B, the Executive shall be entitled to immediate  vesting of any and all
stock options issued by the Company  pursuant to its incentive stock option plan
and to any and all other options,  warrants,  or shares under  substantially the
terms as to which the Executive was entitled before such termination.


                                                -6-

<PAGE>

     12. Assignment

     This  Agreement  shall  inure to the  benefit  of and be  binding  upon the
Company, its successors and assigns,  and the Executive,  his heirs and personal
representatives.  However,  the  Executive's  rights  under this  Agreement  are
personal and shall not be  voluntarily  or  involuntarily  assigned or otherwise
transferred.

     13. Notices.

     Any notice  required or permitted to be given under this Agreement shall be
in  writing  and  delivered  by hand or by  receipted  overnight  express to the
Executive at his  residence  set forth above or to the Company at its  principal
office set forth above.

     14. Arbitration.

     Any disagreement,  controversy or claim arising out of, or relating to this
Agreement,  or the  breach  thereof,  if not  involving  the need for  equitable
relief,   shall  be  settled  by  arbitration  in  Fairfield  County,  State  of
Connecticut  in  accordance  with  the  rules  then  obtaining  of the  American
Arbitration  Association and judgment upon the award rendered may be entered and
enforced in any court having  jurisdiction  thereof.  Nothing  contained  herein
shall prevent either party from seeking  equitable  relief from the  appropriate
court, if such relief would not be available in Arbitration.

     15. Attorney Fees.

     If any action or proceeding  whether at law, in equity,  or in arbitration,
is commenced to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees,  arbitrator's fees, costs
and necessary  disbursements  in addition to any other relief to which it may be
entitled.

     16. Governing Law.

     This  Agreement  shall be governed by and construed in accordance  with the
laws of the State of Connecticut.

     17. Entire Agreement.

     This instrument contains the entire agreement of the parties. It may not be
modified  orally;  it may ne modified only by an agreement in writing  signed by
the party against whom  enforcement of any waiver,  modification or discharge is
sought.


                                            -7-

<PAGE>

     IN  WITNESS  WHEREOF,  the  parties  have set their  hands and seal to this
Agreement on the day and year first above written.


Attest:                                     WARRANTECH CORPORATION

_____________                               By:__________________________



                                            __________________________
                                            JOEL SAN ANTONIO




                                   -8-


<PAGE>

                                       EXHIBIT A

                                 Terms of Incentive Bonus


     The Executive shall receive an annual incentive bonus equal to four percent
of the Company's net after tax income.  

     Distributions  and  calculations  of the amount of such bonus shall be made
quarterly and shall be cumulative within each fiscal year. If at any time during
a fiscal  year the bonus  award  previously  distributed  hereunder  exceed  the
amounts to which the  Executive  is  entitled,  as  calculated  on a  cumulative
year-to-date  basis,  the Company  shall  promptly  notify the  Executive of the
amount  of the  excess  distribution  and the  Executive  shall be  required  to
promptly repay such amount to the Company.

     In  calculating  net  after  tax  income  and   determining   distributions
hereunder,  the Company  shall rely upon the Company's  financial  statements as
prepared  by the  Company's  Independent  Certified  Public  Accountants,  which
financial  statements  shall be prepared in a manner  consistent  with generally
accepted accounting  principles.  Subject to the quarterly  adjustments provided
for above, such  calculations  when made shall be final,  conclusive and binding
upon the Company and the Executive.


                                       -9-

<PAGE>

                                 WARRANTECH CORPORATION AND SUBSIDIARIES
                                                EXHIBIT 11
                              STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                                               (UNAUDITED)

<TABLE>
<S>                                                     <C>                          <C>                      <C>

                                                     For the Years Ended March 31,
                                                   ----------------------------------------------------     ----------------------
                                                            1998                         1997                        1996
                                                   -----------------------     ------------------------     ----------------------
                                                      

Earnings:
   Net income                                        $  5,261,037                $    4,794,715               $   2,394,862
                                                   =======================     ========================     ======================

Weighted average shares outstanding:

Basic:

   Common shares                                       13,259,964                    13,054,611                  12,988,547
                                                   =======================     ========================     ======================

Fully diluted:

   Common shares                                       13,259,964                    13,054,611                  12,988,547
   Assumed exercise of stock options                    2,357,386                     2,340,258                   3,477,286
                                                   -----------------------     ------------------------     ----------------------
                                                       15,617,350                    15,394,869                  16,465,833
                                                   =======================     ========================     ======================
Earnings Per Common Share:

Basic:
   Net income                                               $.40                           $.37                        $.18
                                                   =======================     ========================     ======================
 
Fully diluted:
   Net income                                               $.34                           $.31                        $.15
                                                   =======================     ========================     ======================

</TABLE>

     (A) The treasury method was used in the calculation of primary earnings per
share for all periods presented.

     (B) The  modified  treasury  method  was used in the  calculation  of fully
diluted earnings per share for the years ended March 31, 1998, 1997 and 1996.


<PAGE>


                                                EXHIBIT 21
                              LIST OF SUBSIDIARIES OF WARRANTECH CORPORATION

         1.       WARRANTECH CONSUMER PRODUCT SERVICES, INC.
                           a Connecticut corporation

         2.       WCPS OF FLORIDA, INC.
                           a Florida corporation

         3.       WARRANTECH AUTOMOTIVE, INC.
                           a Connecticut corporation

         4.       WARRANTECH AUTOMOTIVE  OF CALIFORNIA, INC.
                           a California corporation

         5.       WARRANTECH AUTOMOTIVE RISK PURCHASING GROUP, INC.
                           a Michigan corporation

         6.       WARRANTECH AUTOMOTIVE OF FLORIDA, INC.
                           a Florida corporation

         7.       WARRANTECH DIRECT, INC.
                           a Texas corporation

         8.       WARRANTECH (UK) LIMITED
                            company incorporated in England

         9.       WARRANTECH OF PUERTO RICO, INC.
                           a Puerto Rico corporation

         10.      WARRANTECH INTERNATIONAL, INC.
                           a Delaware corporation

         11.      WCPS OF CANADA, INC.
                           a Connecticut corporation

         12.      WARRANTECH AUTOMOTIVE OF CANADA, INC.
                           a Connecticut corporation

         13.      WARRANTECH EUROPE PLC
                           a company incorporated in England

         14.      WARRANTECH REINSURANCE COMPANY, LTD
                           a company incorporated in the Cayman Islands

         15.      WARRANTECH ADDITIVE, INC.
                           a Texas corporation

         16.      WARRANTECH HOME SERVICE COMPANY
                           a Connecticut corporation

         17.      WARRANTECH DEL CARIBE, INC.
                           a Puerto Rico corporation

         18.      WARRANTECH HOME ASSURANCE COMPANY
                           a Florida corporation

         19.      WARRANTECH HELP DESK, INC.
                           a Delaware corporation

         20.      WCPS DIRECT, INC.
                           a Texas corporation

         21.      WHSC DIRECT, INC.
                           a Texas corporation

         22.      WARRANTECH HOME ASSURANCE COMPANY.
                           a Connecticut corporation

         23.      WARRANTECH INTERNATIONAL de CHILE.
                           a Chile corporation


<PAGE>