-
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549-1004
                                    FORM 10-K

(Mark One)
|X|               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended March 31, 2002

                                       OR

|_|         TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                for the transition period from _______ to _______

                           Commission File No. 0-13084

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

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

     150 Westpark Way Euless, Texas                         76040
(Address of Principal Executive Offices)                  (Zip Code)

        Registrant's telephone number, including area code (800) 544-9510
          Securities registered pursuant to Section 12(b) of the Act:

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

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

      Indicate by 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 |X|.

      The number of shares outstanding of the Registrant's common stock is
15,313,165 as of May 29, 2002.

      The aggregate market value of the voting stock held by non-affiliates of
the Registrant is $10,106,689 as of May 29, 2002.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Definitive Proxy Statement for its 2002 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended are incorporated by reference in
Part III.

Index to Exhibits is on page 46
Document contains 50 pages


                                       1
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES

                                TABLE OF CONTENTS

                                                                        Page No.

                                     PART I

Item 1.  Business......................................................    3
Item 2.  Properties....................................................    8
Item 3.  Legal Proceedings.............................................    8
Item 4.  Submission of Matters to a Vote of Security Holders...........    8

                                     PART II

Item 5.  Market of the Registrant's Common Equity and Related
         Stockholder Matters ..........................................    9
Item 6.  Selected Financial Data.......................................    10
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.....................................    11
Item 7A. Qualitative and Quantitative Disclosures About Market Risk....    19
Item 8.  Financial Statements and Supplementary Data...................    20
Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosures..........................    45

                                    PART III

Item 10. Directors and Executive Officers of the Registrant ...........    45
Item 11. Executive Compensation........................................    45
Item 12. Security Ownership of Certain Beneficial Owners
         and Management................................................    45
Item 13. Certain Relationships and Related Transactions................    45

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and
         Reports on Form 8-K...........................................    46
Signatures ............................................................    49


                                       2
<PAGE>

                                     PART I

Warrantech Corporation (a Delaware corporation) and its subsidiaries
(collectively, "Warrantech" or the "Company") maintain executive offices and
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 (800) 544-9510.

Item 1. Business

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

The Company's service contract programs benefit consumers by providing them with
expanded and/or extended product coverage for a specified period of time (and/or
mileage in the case of automobiles and recreational vehicles), similar to that
provided by manufacturers under the terms of their product warranties. Such
coverage generally provides for the repair or replacement of the product, or a
component thereof, in the event of its failure. The Company's service contract
programs benefit the dealer/clients by providing enhanced value to the goods and
services they offer and by providing them with the opportunity for increased
revenue and income while outsourcing the costs and responsibilities of operating
an extended warranty program.

The service contracts, extended warranties and replacement contracts generally
have terms ranging from three (3) to eighty-four (84) months. Since the Company
acts solely as a third party administrator on behalf of the dealer/clients and
insurance companies, the actual repairs and/or replacements required under the
agreements are performed by independent third party authorized repair facilities
or dealers. The cost of these repairs is generally paid for by the insurance
companies which have the ultimate responsibility for the claims or by Butler
Financial Solutions, LLC ("Butler"), if Reliance Insurance Company ("Reliance")
or the Company is the obligor. The insurance policy indemnifies the
dealer/clients against losses resulting from service contract claims and
protects the consumer by ensuring their claims will be paid.

Essential to Warrantech's success is its ability to capture, maintain, track and
analyze all relevant information regarding its service contracts. To support
this function, Warrantech operates proprietary software developed internally
that allows the tracking for millions of service contracts and consists of
custom designed relational databases with interactive capabilities. This
configuration provides ample capacity and processing speed for current
requirements. The software programs allows for the development of current and
historical statistical data, which are used to monitor its service contract
program performances and support the significant future growth.

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

Warrantech Automotive Segment

The Company's Automotive segment 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,
light trucks, motorcycles, recreational vehicles and automotive components.
These products are sold principally by franchised and independent automobile and
motorcycle dealers, leasing companies, repair facilities, retail stores,
financial institutions and other specialty marketers.


                                       3
<PAGE>

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

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

The VSC is a contract between the dealer/lessor or third party obligor and the
vehicle purchaser/lessee (and, for the State of Florida only, Warrantech
Automotive) that offers coverage for a term ranging from three (3) to
eighty-four (84) months and/or 3,000 to 100,000 miles. Coverage is available in
the event of the failure of a broad range of mechanical components occurring
during the term of the VSC, exclusive of failures covered by a manufacturers
warranty.

Under the programs marketed and administered by Warrantech Automotive, it
provides services to the dealer, such as developing and distribution of
marketing materials, processing dealer produced VSC's and administering and
paying of claims filed by contract holders under the terms of their VSC.

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

Warrantech Consumer Products Segment

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

The Warrantech Consumer Products segment also develops, markets and administers
service contract programs in the United States and Canada covering mechanical
breakdowns of the working systems and components in homes. 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 was previously
available and it provides this security at a lower cost.

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


                                       4
<PAGE>

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

During the two fiscal years ended March 31, 2001 and 2000, the Consumer Products
segment had one significant customer, Staples the Office Superstore ("Staples"),
which accounted for approximately 23% of gross revenue of this business segment
in each of those fiscal years. Because Warrantech could not reach an agreement
with Staples to extend its agreement on terms which would not erode
profitability of the program, the program expired on February 26, 2001.

Warrantech International Segment

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

Warrantech International also conducts its efforts on a direct basis and has
developed relationships with retailers and distributors throughout the Caribbean
and Central and South America. The Company is currently doing business in Puerto
Rico, Guatemala, Chile and Peru and from July 1995 until September 2000 in the
United Kingdom. The Company's expansion in South American markets will be
facilitated by it's strategic alliance with Atento, a multi-national call center
owned by Spain's Grupo Telefonica, which should allow the Company to readily
enter markets in Latin America where Atento has existing call center operations.

Sales and Marketing

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

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

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

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

Significant Customers

During the two fiscal years ended March 31, 2001 and 2000, the Company had one
significant customer, Staples, which accounted for approximately 10% of
consolidated gross revenues in each of those years. Because Warrantech could not
reach an agreement with Staples to extend its agreement on terms which would not
erode the profitability of the program, the program expired on February 26,
2001.


                                       5
<PAGE>

Competition

Warrantech competes with a number of independent administrators and divisions of
distributors and manufacturers, as well as financial institutions and insurance
companies. The Company 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. However, the Company believes that it occupies a preeminent position
among competitors in its field.

Contract Obligor

In April 2000, the Company formed a relationship with Butler Financial
Solutions, LLC ("Butler"), whereby Butler would assume obligations for all
service contracts where the dealer is not the obligor, including certain
contacts where the Company may have been the obligor. For each of such service
contracts Butler receives fees for its services.

Insurance Coverage

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

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

In accordance with the arrangements with these insurers, a fixed amount is
remitted by the retailer/dealer to Warrantech and passed on to the carrier for
each service contract or limited warranty sold. The amount is contractually
agreed upon and is based upon actuarial analysis of data collected and
maintained for each type of coverage and contract term. The insured or the
Company is not obligated to the insurer if claims exceed the premiums remitted.

Additionally, agreements between the Company and the insurers may contain
profit-sharing features that permit the Company to share in underwriting profits
earned by the service contract programs. The amounts to be received, if any, are
determined in accordance with certain specified formulae by the type of program
and by policy year. Certain of these agreements require interim calculations and
distributions for various programs, with final calculations being made as
contracts expire by term. The Company did not accrue or receive any profit
sharing amounts during the 2002, 2001 or 2000 fiscal years. The Company
anticipates that, beginning in fiscal year 2003, the Company will receive profit
sharing as a result of its new agreement with its current carrier.

Federal and State Regulation

The service contract and limited warranty programs developed and marketed by the
Company's subsidiaries and their related operations are regulated by federal law
and the statutes of a significant number of states. The Company continually
reviews all existing and proposed statutes and regulations to


                                       6
<PAGE>

ascertain their applicability to its existing operations, as well as to new
programs that the Company is developing.

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

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

If the Company's right to operate in 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 an adverse consequence to the Company's operations. However,
within the framework of currently known statutes, the Company does not believe
that this is a present concern.

Intellectual Properties

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

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

Employees

The Company and its subsidiaries employed approximately 381 individuals as of
March 31, 2002, a decrease of approximately 75 employees over the preceding
fiscal year. The decrease is attributable to the consolidation and cost
reduction initiatives instituted by the Company. As of May 25, 2002, the Company
had approximately 363 employees. None of the Company's employees are covered by
a collective bargaining agreement. The Company considers its relations with its
employees to be good.

Financial information about foreign and domestic operations

Refer to Item 8 - Consolidated Financial Statements and Supplementary Data, in
this Annual Report, Footnote 17 in the Notes to Consolidated Financial
Statements, for financial information related to the Company's foreign and
domestic operations. Such information is hereby incorporated by reference.


                                       7
<PAGE>

Item 2. Properties

The Company's executive offices are located in leased premises at 150 Westpark
Way, Euless, Texas. The premises, consisting of approximately 29,531 square
feet, are leased pursuant to three separate lease agreements. These leases
expire in July 31, 2003 and provide for remaining annual base rent payments
ranging of $415,350 in fiscal year 2003 and $143,598 in fiscal year 2004. These
premises also accommodate the Company's Home Services and Direct Marketing
operations.

The Company also leases an additional 48,053 square feet at 1441 West Airport
Freeway, Euless, Texas. These premises are being leased pursuant to lease
agreements expiring March 31, 2004 and provide for annual base rent of $570,185.
These premises accommodate the Company's Automotive and Consumer Products
operations.

RepairMaster Canada's operations are located in leased premises at 3011 Viking
Way, Suite 215 Richmond BC, Canada pursuant to a lease that expires February 28,
2003. The lease provides for annual base rent of $10,200 for 820 square feet.

Warrantech International's Puerto Rico operations are located in leased premises
at 1225 Ponce de Leon Avenue, Santurce, Puerto Rico pursuant to a lease that
expires March 31, 2003. The lease provides for annual base rent of $54,928 for
3,433 square feet.

Warrantech International's Chile operations are located in leased premises at
Avenida 11 de Septembre No. 1881 Officia No. 1619 Providencia, Santiago, Chile.
This office supports the operations in Chile, and is displayed as the Company's
flagship operation to pursue and help implement the Company's international
expansion strategies throughout South America. The lease provides for monthly
base rent payments of $1,750 for 145 square meters.

The Company is currently negotiating a lease for premises located at 121 Airport
Centre II, Bedford, Texas to replace the office space at 150 Westpark Way and
1441 West Airport Freeway, Euless Texas. The premises consist of 56,696 square
feet. It is anticipated that the lease will provide for annual base rent of
$1,054,545 and will have a term of 10 years.

Item 3. Legal Proceedings

Information regarding legal proceedings is set forth in Note 12 of the Notes to
Consolidated Financial Statements under the subheading "Litigation," which is
hereby incorporated by reference.

Item 4. Submission of Matters to Vote of Security Holders

No matters were submitted to a vote of the Company's Stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year ended March 31, 2002.


                                       8
<PAGE>

                                     PART II

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

The Company's common stock, $.007 par value per share (the "Common Stock")
trades under the symbol "WTEC." Trades are reported on the Over-The-Counter
("OTC") electronic quotation service of the National Association of Securities
Dealers Market Makers. It is the Company's intention to seek to be listed on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or the American Stock Exchange if and when the Company satisfies the
requirements for listing.

As of May 29, 2002, there were 15,313,165 shares of outstanding Common Stock and
approximately 971 stockholders of record. On that date, the closing bid price
for the Common Stock, as reported on the OTC was $0.66.

Following is a summary of the price range of the Company's Common Stock during
fiscal years 2002 and 2001:

Common Stock

                               Fiscal 2002                 Fiscal 2001
                               -----------                 -----------
           Quarter           High & Low Bid               High & Low Bid
           -------           --------------               --------------
           First         $ 0.89        $   0.50       $ 2.00        $   0.69
           Second        $ 0.69        $   0.32       $ 1.63        $   0.53
           Third         $ 0.91        $   0.32       $ 1.02        $   0.38
           Fourth        $ 0.85        $   0.57       $ 0.88        $   0.53

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.


                                       9
<PAGE>

Item 6. Selected Financial Data

The Selected Financial Data should be read in conjunction with the consolidated
financial statements and related notes as of and for the years ended March 31,
2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                      For The Years Ended March 31,
                                                 ----------------------------------------------------------------------
                                                      2002          2001          2000           1999        1998 (a)
                                                 ------------  ------------  ------------   ------------   ------------
      <S>                                        <C>           <C>           <C>            <C>            <C>
      Net earned administrative fee              $ 37,327,306  $ 49,700,944  $ 43,319,781   $ 50,727,313   $ 62,686,102
                                                 ============  ============  ============   ============   ============
      Profit (loss) from operations              $  2,902,856  $  2,463,492  ($11,874,287)  ($12,232,124)  $  8,513,036
                                                 ============  ============  ============   ============   ============
      Net income (loss)                          $  2,256,273  $  1,866,924  ($ 8,206,183)  ($ 7,639,725)  $  5,619,823
                                                 ============  ============  ============   ============   ============

      Basic earnings (loss) per common share     $       0.15  $       0.12  ($      0.54)  ($      0.51)  $       0.42
                                                 ============  ============  ============   ============   ============
      Diluted earnings (loss) per common share   $       0.15  $       0.12  ($      0.54)  ($      0.51)  $       0.36
                                                 ============  ============  ============   ============   ============
      Cash dividend declared                         None          None          None           None           None
                                                 ------------  ------------  ------------   ------------   ------------
      Total assets                               $ 77,551,229  $ 97,117,173  $146,921,154   $186,910,270   $152,811,266
                                                 ============  ============  ============   ============   ============
      Long-term debt and
                                                 ------------  ------------  ------------   ------------   ------------
         capital lease obligations               $    957,159  $  1,209,853  $  1,668,478   $  2,420,967   $  2,153,286
                                                 ============  ============  ============   ============   ============
      Common stockholders' equity                $  5,443,247  $  3,417,944  $  1,878,642   $ 10,400,002   $ 21,533,883
                                                 ============  ============  ============   ============   ============
</TABLE>

(a) The financial information for the fiscal year ended March 31, 1998 has been
restated to effect the change in accounting policy adopted in the fiscal year
ended March 31, 1999 for the recognition of revenue on service contracts.


                                       10
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES

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

                                     General

Except for the historical information contained herein, the matters discussed
below or elsewhere in this annual report may contain forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from those contemplated by the forward-looking statements. The
Company makes such forward-looking statements under the provisions of the "safe
harbor" section of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements reflect the Company's views and assumptions, based on
information currently available to management. Such views and assumptions are
based on, among other things, the Company's operating and financial performance
over recent years and its expectations about its business for the current and
future fiscal years. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions, including, but not
limited to, (a) prevailing economic conditions which may significantly
deteriorate, thereby reducing the demand for the Company's products and
services, (b) availability of technical support personnel or increases in the
rate of turnover of such personnel, resulting from increased demand for such
qualified personnel, (c) changes in the terms or availability of insurance
coverage for the Company's programs, (d) regulatory or legal changes affecting
the Company's business, (e) loss of business from or significant change in
relationships with, any major customer of the Company, (f) the ability to
successfully identify and contract new business opportunities, both domestically
and internationally, (g) the ability to secure necessary capital for general
operating or expansion purposes, (h) the ability of Butler Financial Solutions,
LLC ("Butler") to pay claims under the service contacts insured by Reliance
Insurance Company ("Reliance") or (i) adverse outcomes of litigation, (j)
additionally, if any of the insurance companies which insure the service
contracts marketed and administered by the Company were unable to pay the claims
under the service contracts, it could have a materially adverse effect on the
Company's business. Should one or more of these or any other risks or
uncertainties materialize or develop in a manner adverse to the Company, or
should the Company's underlying assumptions prove incorrect, actual results of
operations, cash flows or the Company's financial condition may vary materially
from those anticipated, estimated or expected.

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

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


                                       11
<PAGE>

The Company's service contract programs benefit consumers by providing them with
expanded and/or extended product coverage for a specified period of time (and/or
mileage in the case of automobiles and recreational vehicles), similar to that
provided by manufacturers under the terms of their product warranties. Such
coverage generally provides for the repair or replacement of the product, or a
component thereof, in the event of its failure. The Company's service contract
programs benefit the dealer/clients by providing enhanced value to the goods and
services they offer and by providing them with the opportunity for increased
revenue and income while outsourcing the costs and responsibilities of operating
an extended warranty program.

The service contracts, extended warranties and replacement contracts generally
have terms ranging from three (3) to eighty-four (84) months. Since the Company
acts solely as a third party administrator on behalf of the dealer/clients and
insurance companies, the actual repairs and/or replacements required under the
agreements are performed by independent third party authorized repair facilities
or dealers. The cost of these repairs is generally paid for by the insurance
companies which have the ultimate responsibility for the claims or by Butler, if
Reliance or the Company is the obligor. The insurance policy indemnifies the
dealer/clients against losses resulting from service contract claims and
protects the consumer by ensuring their claims will be paid.

Dealer/third party obligor service contracts are sales in which the
retailer/dealer or a third party is designated as the obligor. For these service
contract sales, using the proportional performance method, the Company
recognizes revenues in direct proportion to the costs incurred in providing the
service contract programs to the Company's clients. Revenues in amounts
sufficient to meet future administrative costs and a reasonable gross profit
thereon are deferred. Beginning April 1, 2000, substantially all of the
Company's service contract sales are dealer/third party obligor service
contracts.

Revenue for administrative obligor contracts is recognized in accordance with
Financial Accounting Standards Board Technical Bulletin 90-1 ("TB 90-1"),
Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts, and Statement of Financial Accounting Standards No. 60 ("SFAS 60"),
Accounting and Reporting by Insurance Enterprises. These accounting standards
require the recognition of revenue over the life of the contract on a
straight-line basis, unless sufficient, company-specific, historical evidence
indicates that the cost of performing services under these contracts are
incurred on other than a straight-line basis. The Company is recognizing revenue
on administrative obligor contracts based on company specific historical claims
experience over the life of the contract. In addition, the Company has adopted
Statement of Financial Accounting Standards No. 113 ("SFAS 113"), Accounting and
Reporting for Reinsurance of Short-Duration and Long Duration Contracts. This
requires that insurance premium costs be ratably expensed over the life of the
service contract. However, effective March 31, 2000 the Company has
substantially ceased selling administrative obligor contracts.

Significant Events

Loss of Significant Customers - During the two fiscal years ended March 31, 2001
and 2000, the Company had one significant customer, Staples, which accounted for
approximately 10% of consolidated gross revenues and 23% of the Consumer
Products segment's gross revenues in each of those years. Because Warrantech
could not reach an agreement with Staples to extend its agreement on terms which
would not erode the profitability of the program, the program expired on
February 26, 2001.

Closing of United Kingdom operations - Effective September 30, 2000, the Company
ceased operations in the United Kingdom. The closing was a result of
unprofitable operations.

Results of Operations

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


                                       12
<PAGE>

Fiscal Year Ended March 31, 2002 Compared to the Fiscal Year Ended March 31,
2001

Net earned administrative fees for the year ended March 31, 2002 decreased to
$37,327,306 as compared with $49,700,944 for the year ended March 31, 2001, a
decrease of $12,373,638 or 25%. The change was primarily due to the loss of
Staples as a customer in February 2001 and decreased deferred revenue from prior
periods recognized this year versus last year. Excluding the loss of Staples,
the Company experienced an appreciable increase in net earned administrative
fees from its existing and new dealers.

The foregoing Results of Operations include net earned administrative fees of
$6,557,263 from the contract with Staples for the fiscal year ended March 31,
2001. The loss of the Staples contract, which represented 10% of the Company's
consolidated gross revenues and 23% of the Consumer Products segment gross
revenues during fiscal year 2001, had an adverse impact on both the Company and
its Consumer Products segment's net earned administrative fee during the year
ended March 31, 2001 and 2002.

The Automotive segment's net earned administrative fees increased $3,013,299 or
19% to $19,019,558 for the fiscal year end March 31, 2002 from $16,006,259 in
the same period last year, primarily resulting from higher sales volumes and a
$1,060,274 increase in deferred revenue from prior periods recognized in the
current year.

The Consumer Products segment's net earned administrative fees decreased
$15,875,758 or 49% to $16,364,702 from $32,240,460 for same period last year.
The change was primarily attributed to the loss of Staples as a customer and a
decrease in deferred revenue from prior periods recognized this year versus last
year.

The International segment's net earned administrative fees increased $537,791 or
30% to $2,353,491 for the fiscal year ended March 31, 2002 from $1,815,700 for
the same period a year ago. The South American market contributed higher volumes
from new customers in Peru and Chile and increased market penetration from
existing customers in Chile.

Service, selling and general and administrative ("SG&A") expenses for the fiscal
year ended March 31, 2002, including the legal settlement, were reduced by
$9,831,531 or 25% to $29,944,008 as compared to $39,775,539 for the fiscal year
ended March 31, 2001. The decrease reflects the Company's improved call center
technologies, cost containment measures and the closing of the United Kingdom
operations. Total employee and payroll related expenses were down $3,767,040 or
17% from $22,356,260 for the fiscal year ended March 31, 2001 to $18,589,220 for
the fiscal year ended March 31, 2002. Additionally, the decrease in SG&A
expenses reflects the reimbursement by AIG of $824,332 in August 2001 for legal
fees associated with its lawsuit against the Company. Outside services,
including consulting and legal fees, were down $3,639,514 or 56% from $6,479,217
in the fiscal year ended March 31, 2001 to $2,839,703 in the fiscal year ended
March 31, 2002, primarily due to the settlement with AIG and a reduction in
computer system development. Rent expense for the fiscal year ended March 31,
2002 decreased $988,387 from the same period last year, primarily as result of
the Company's relocation of its headquarters to Texas and to a lesser degree,
the closing of the United Kingdom offices.

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

Depreciation and amortization expenses were reduced by $1,936,673 or 30% to
$4,480,442 for the fiscal year ended March 31, 2002 as compared to $6,417,115
for the same period last year as a result of the early adoption of SFAS 142,
which allowed the Company to elect not to amortize its remaining goodwill and
the maturing of the Company's net property and equipment. Additionally,
depreciation was lower in the current twelve months versus the prior year as a
result of the closing of the United Kingdom operations.


                                       13
<PAGE>

Income from operations for the fiscal year ended March 31, 2002 was $2,902,856
as compared to $2,463,492 for the fiscal year ended March 31, 2001. Despite net
earned administrative fee decreases as a result of the loss of the Staples
account and decreased deferred revenue from prior periods recognized this year
versus last year, the increase in income from operations resulted from reduction
in losses from the United Kingdom operations, the benefit from the legal
settlement with AIG, lower SG&A expenses and lower depreciation and
amortization.

The Automotive segment's income from operations for fiscal year ended March 31,
2002 was $12,183,739 or $3,793,723 higher than the prior fiscal year. This was
primarily the result of higher sales volume, higher amortization of deferred net
earned administrative fee ($1,060,274), lower SG&A costs ($347,638) and lower
depreciation ($432,787).

The Consumer Products segment's loss from operations for fiscal year ended March
31, 2002 was $1,531,102 compared to the segment's income of $11,672,546 for the
fiscal year ended 2001. This decrease is the result of the loss of Staples as a
customer and a reduction of $5,604,332 in deferred revenue recognized in the
current fiscal year versus fiscal year 2001. Substantially lower SG&A, caused
primarily from decreases in the number of employees and payroll related costs
($1,853,171) and a reduction in telephone expenses ($749,638) helped to
partially reduce the segment's losses.

The International segment's loss from operations for the fiscal year ended March
31, 2002 was $578,137 or $1,528,722 lower than the $2,106,859 operating loss in
fiscal year ended March 31, 2001. This reduction results entirely from the
closing of the Company's operations in the United Kingdom. South American net
earned administrative fees increased 89% in fiscal year 2002 to $1,432,683 from
$758,250 in fiscal 2001, while increases in SG&A expenses offset almost all of
the net earned administrative fee improvement. Puerto Rico net earned
administrative fees increased 10%, while SG&A expense also increased slightly to
offset the improvement.

The net deferred tax asset as of March 31, 2002 and 2001 contains a benefit of
$594,599 and $280,625, respectively, related to foreign losses. Management
expects to realize this tax benefit, which has an indefinite carry-forward
period, against future foreign income.

Net income for the fiscal year ended March 31, 2002 was $2,256,273 or $0.15 per
basic share compared to $1,866,924 or $0.12 per basic share for the fiscal year
ended March 31, 2001. This increase is the result of all the other factors
listed above.

Fiscal Year Ended March 31, 2001 Compared to the Fiscal Year Ended March 31,
2000

Net earned administrative fees for the year ended March 31, 2001 increased to
$49,700,944 as compared to $43,319,781 for the year ended March 31, 2000. This
was an increase of $6,381,163 or 15%. The change is due to an increase of
deferred net earned administrative fees of $2,171,703, primarily in the
Automotive segment and an increase in Consumer Products business.

The foregoing Results of Operations include net earned administrative fees of
$6,557,263 and $6,926,959 from the contract with Staples for the fiscal years
ended March 31, 2001 and 2000, respectively. The loss of the Staples contract,
which represented 10% of the Company's consolidated gross revenues and 23% of
the Consumer Products segment gross revenues during fiscal year 2001, will have
a significant impact on both the Company and its Consumer Products segment's net
earned administrative fee in future periods.

SG&A expenses for the fiscal year ended March 31, 2001 were reduced by
$9,389,405 or 19% to $39,775,539 as compared to $49,164,944 for the fiscal year
ended March 31, 2000. This decrease in SG&A expenses reflected the Company's
improved technologies and cost-cutting measures. Decreases in the number of
employees and payroll related costs, reduction in outside provided services and
telephone expenses, and the closing of the United Kingdom operations as of
September 30, 2000 contributed to the lower SG&A expenses. United Kingdom SG&A
expenses were


                                       14
<PAGE>

$1,563,234 for fiscal year ended March 31, 2001 compared to $4,694,107 for
fiscal year ended March 31, 2000.

Depreciation and amortization amounted to $6,417,115 for the fiscal year ended
March 31, 2001 compared to $5,997,648 for the fiscal year ended March 31, 2000.
The increase compared to the previous year reflects a higher level of Corporate
and Consumer Products depreciation during the year, partially offset by lower
International depreciation due to the closing of the United Kingdom operations.
The higher level of Corporate and Consumer Products depreciation resulted from
additional assets being placed in service during the current and prior fiscal
years. The increase in assets was directly attributable to (i) the continued
development of the Company's information systems and (ii) the purchase of
additional computer equipment to accommodate efficiency of operations.

The Automotive segment's income from operations for fiscal year 2001 was
$8,390,016 or $6,441,217 higher than the prior fiscal year. This was primarily
the result of higher amortization of deferred net earned administrative fee
($5,568,505) and lower employee related costs ($944,757). Excluding the
amortization of deferred net earned administrative fees, net earned
administrative fee was flat from fiscal year 2001 to fiscal year 2000.

The Consumer Products segment's income from operations for fiscal year 2001 was
$11,672,546 or $5,409,764 higher than fiscal year 2000. This increase was the
result of substantially lower SG&A, caused primarily from decreases in the
number of employees and payroll related costs ($2,038,601), lower outside
services ($624,956) and a reduction in telephone expenses ($536,247).
Additionally, the Consumer Products segment's net earned administrative fee was
slightly higher in fiscal year 2001. Lower net revenues during fiscal year 2001
were mostly offset by higher amortization of prior year deferred earned
administrative fee.

The International segment's loss from operations for the fiscal year ended March
31, 2001 was $2,106,859 or $3,612,517 lower than the $5,719,376 operating loss
in fiscal year ended March 31, 2000. This reduction in operating loss was
primarily the result of an improvement in United Kingdom operating results from
a loss of $4,513,077 in fiscal year 2000 to an operating profit of $513,300 in
fiscal year 2001. United Kingdom operations benefited from reduced SG&A expenses
($3,204,428), primarily related to lower employee costs resulting from the
closing of the operation on September 30, 2000. South American net earned
administrative fees increased 76% in fiscal year 2001 to $758,250 from $430,470
in fiscal 2000, while SG&A expense were reduced by $208,901. Puerto Rico net
earned administrative fees remained flat, while SG&A expense increased slightly.

The provision (benefit) for income taxes was based on the Company's projection
of its estimated effective tax rate for the fiscal year. The income tax
provisions for the fiscal years ended March 31, 2001 and 2000 differed from the
statutory rate primarily due to state and local taxes, the non-deductibility of
goodwill amortization and the loss on abandonment of approximately $1,029,731 of
net assets from its United Kingdom operations. The net deferred tax asset as of
March 31, 2001 and 2000 contained a benefit of $280,625 and $2,097,349,
respectively, related to foreign losses. Management expects to realize this tax
benefit, which has an indefinite carry-forward period, against future foreign
income.

Net income for the fiscal year ended March 31, 2001 was $1,866,924 or $0.12 per
basic share compared to net loss of ($8,206,183) or ($0.54) per basic share for
the fiscal year ended March 31, 2000. This change is primarily the result of the
amortization of prior period deferred revenues and deferred costs being
recognized in the current year and the other factors listed above.

Liquidity and Capital Resources

Significant insurer in liquidation

During the second fiscal quarter 2002, the Pennsylvania Insurance Commissioner
informed the Company that Reliance would be liquidated and cease making payments
on claims. The Pennsylvania Insurance


                                       15
<PAGE>

Commissioner determined that Reliance was not likely to be able to satisfy all
of the claims that will be submitted to it due to the circumstances arising out
of the September 11, 2001 terrorist attacks on the World Trade Center. Reliance
underwrote approximately 48% of the automotive service contracts that were sold
by Warrantech Automotive during a period of approximately one and one-half years
ending in November 2001. Approximately 52% of the automotive service contracts
sold by Warrantech Automotive during that time period are not affected by the
Reliance liquidation. Service contracts sold before and after that period are
not affected because they are underwritten by other carriers.

Warrantech Automotive was the obligor, as well as the administrator, under some
of the vehicle service contracts that were insured by Reliance. As the obligor,
Warrantech Automotive would ultimately be responsible for paying for the repairs
under the service contracts. Prior to Reliance's liquidation, Reliance covered
the cost of the repairs under the insurance policies it provided. In light of
the liquidation of Reliance, insurance coverage for the Company's obligations
under those service contracts was no longer available. If Warrantech Automotive
were to be required to begin paying claims under these contracts, such payments
could have a material adverse impact on the Company's liquidity and earnings.
Consequently, the Company has taken steps, described below, to arrange for
coverage of the cost of the claims which were previously covered by Reliance
(see "Agreements" below).

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

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

Agreements

In exchange for a fee, Butler Financial Solutions, LLC ("Butler") serves as the
ultimate obligor under all service contracts administered by the Company. Some
of the service contracts under which Butler is the obligor were insured by
Reliance, and the liquidation of Reliance has eliminated this insurance
coverage.

In order to assist Butler in addressing its potential obligations under the
service contacts previously insured by Reliance for which Butler is or
Warrantech was the obligor, Warrantech Automotive has made an initial $1 million
loan to Butler. The Company has and will make further loans to Butler, as
required, for claim obligations in excess of Butler's fee revenues. All of
Warrantech's loans to Butler bear or will bear interest at the rate of prime
plus 2% per annum and will begin to be paid down once Butler's fee revenues
exceed the claims obligations.

Additionally, funding will be provided by a special surcharge that will be paid
on all vehicle service contracts administered by the Company that are or were
sold after November 21, 2001. The surcharge is paid by agents through whom
Reliance insured service contracts were sold. This funding will be utilized by
Butler to pay the claims previously insured by Reliance and will also be
available to repay Butler's loans from Warrantech.


                                       16
<PAGE>

During fiscal year ended March 31, 2002, Warrantech loaned or advanced Butler
$5,435,646. Reliance Warranty Corporations ("RWC"), which is not part of the
Reliance liquidation, is obligated to pay $2,754,691 of that amount, which the
Company expects to receive in the second quarter of fiscal 2003 and is reflected
as "Other Receivables" on the Consolidated Balance Sheet. The remaining amount
representing the loans to Butler of $2,680,955 is reflected as "Notes
Receivable" on the Consolidated Balance Sheet. The Company anticipates the
cumulative loan(s) to Butler to increase to $3.9 million, including interest
during the next fiscal year.

In order to provide capital to the Company to make loans under its agreement
with Butler, the Company executed a letter of understanding with GAIC, by which
GAIC agreed to provide funding by extending a favorable change of its credit
terms to the Company. A definitve agreement is excepted to be finalized during
the second fiscal quarter 2003. As a result of the more favorable credit terms,
the Company's insurance premium payable increased $3.9 million. GAIC also agreed
to extend a separate line of credit to the Company for an amount up to $3
million, subject to certain adjustments, to fund unanticipated working capital
requirements. Interest will be paid on monies made available for the line of
credit at an annual rate of prime plus 2%.

As part of the agreement that is being negotiated, GAIC will receive options to
purchase up to 1,650,000 shares of Warrantech's common stock at an exercise
price of $2.00 per share subject to certain adjustments. In the event that GAIC
exercises all of these options, it would own approximately 10.8% of the
Company's outstanding shares.

The Company believes that the arrangements with Butler and GAIC described above
provide a mechanism to cover the claims under all of the service contracts in
which the Company was the obligor and will also provide Butler with funds
necessary to repay its loan from the Company. If, however, Butler, for any
reason, becomes unable to pay any such claims, which were previously insured by
Reliance, or if GAIC ceases to provide credit to the Company in order to fund
any shortfalls required by Butler, Warrantech Automotive may ultimately be
required to honor the claims under those contracts in which it was the obligor.
The total amount of the Company's potential obligations with respect to such
claims is not known since it is subject to a number of uncertainties. However,
it is unlikely that the Company would be able to honor such claims without
finding other sources of capital. There is also no assurance that Butler will
have the funds to repay its loan from the Company.

Liquidity and Capital Resources

As of March 31, 2002, total cash and short-term investments totaled $9,364,720,
up from $6,292,254 at fiscal year end March 31, 2001. During the fiscal year
ended March 31, 2002, the Company's operations provided $7,322,896 of net cash
compared to a net use of cash from operations of ($7,135,812) for the fiscal
year ended March 31, 2001. The positive change in net cash from operations,
primarily relates to favorable changes in its working capital from negative
$2,807,496 at March 31, 2001 to a negative $1,656,179 at March 31, 2002. The
change in working capital primarily resulted from advances made by the Company
to the claims payment fund described in the agreements. During fiscal year 2002,
the Company decreased its other accounts receivable by $2.3 million and its
income tax receivable by $4.3 million, while increasing its insurance premium
payable $7.3 million and accounts receivable by $6.3 million, thereby generating
a $7.6 million net source of cash for the fiscal year. The decrease in deferred
revenue and deferred direct costs reflects the continued amortization of prior
year net earned administrative fees.

The Company believes that internally generated funds, reimbursement of claims
paid by RWC and the $3 million line of credit from GAIC, will be sufficient to
finance its current operations for at least the next twelve months. The Company
is aggressively pursuing new business both domestically and internationally to
fund future working capital. The Company plans to continue to contain its SG&A
costs and utilize technologies for operational efficiencies to further enhance
both its operating income and cash flows from operating activities.


                                       17
<PAGE>

During the fiscal year ended March 31, 2002, the Company used $49,311 in cash
from investing activities compared to $1.5 million provided from investing
activities in the prior year. During the current fiscal year, the Company spent
less on computer development and equipment purchases than in the prior year and
purchased fewer marketable securities. The Company has ongoing relationships
with equipment financing companies and intends to continue financing certain
future equipment needs through leasing transactions. The total amount financed
through leasing transactions during the fiscal year ended March 31, 2002
amounted to $443,232 compared to $519,369 during the fiscal year ended March 31,
2001. At fiscal year end 2002, the Company had $1,758,947 in debt from capital
lease obligations compared to $2,011,118 at fiscal year-end 2001.

During the fiscal year ended March 31, 2002, the Company used $3.2 million in
cash from financing activities compared to $1.4 million in fiscal year 2001. The
variance was primarily due to a $2,680,955 increase in notes receivable and
partially offset by a reduction in repayment of capital leases during fiscal
2002 versus fiscal year 2001. The increase in notes receivable is mostly the
result of loans to Butler described above.

During the fiscal year ended March 31, 2002, the Company did not repurchase any
of its stock. During the fiscal year ended March 31, 2001, the Company
repurchased 450,000 shares of its common stock for treasury purposes. The
aggregate amount of these purchases totaled $308,920. The Board of Directors has
authorized the repurchase of up to $1,500,000 of additional shares of Warrantech
Corporation common stock as part of its stock repurchase program. The repurchase
program does not obligate the Company to acquire a specific number of shares and
may be discontinued at any time.

Loans to Directors

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

In February 2000, the Company agreed to restructure the loans to Mr. Tweed and
Mr. White by capitalizing the interest due on the loans and making the loans
payable over five (5) years. Interest on the restructured loans accrues annually
at the applicable federal rate (approximately 6.2%), but will first become
payable on the third anniversary of the restructured loans and will be payable
annually thereafter.

In February 2000, the Company also agreed to restructure the loan to Mr. San
Antonio. The initial terms of these restructured loan provided for a conversion
of the two original loans into a one-year loan without interest. Prior to the
execution of the documents concerning this restructuring, Mr. San Antonio and
the Company agreed to revise the new loan terms to provide that the new combined
note (the "New Note") would become due on January 31, 2005. Interest due on the
New Note accrues annually at 5.2% and will be forgiven, and charged to Mr. San
Antonio as additional compensation, as long as Mr. San Antonio continues to be
employed by the Company. The $330,631 interest which accrued on the note during
fiscal year 2002 was forgiven in the current fiscal year, the $230,460 of
interest which accrued from February 1, 2001 through March 31, 2002, was
forgiven in fiscal year 2001. The interest was charged to operations as
additional compensation in the respective fiscal years the interest income was
accrued.

The total amount of the restructured loans to Mr. Tweed, Mr. White and Mr. San
Antonio, including the capitalized interest, is $10,163,875.


                                       18
<PAGE>

Outlook

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

The Company continues to improve customer service and technology with the
introduction in fiscal 2002 of its innovative web-based platform for its
Consumer Products Services segment. WCPS Online will provide real-time
capabilities that meet the needs of dealers, service providers and consumers. It
is designed to reduce paperwork and cut the time and costs of administering
warranties for dealers and service providers, while providing a better
experience and faster service for their customers. The future profitability of
this segment of the Company is dependent on its ability to provide technology
and customer service and on acquiring new business. The Company is currently
negotiating with prospective new customers which are projected to begin programs
in fiscal year 2003. Until such events develop, this segment may continue to
incur losses.

During the fiscal year, the Company signed a three-year agreement with BoatU.S.,
the nation's largest recreational boating Association, to offer the Warrantech
Xchange Product Replacement Program to its 530,000 member base. BoatU.S. is the
Company's first client in the boating industry and represents the third new
market Warrantech has penetrated during the last twelve months, in addition to
the motorcycles and golf cart markets. The Company has also focused on expanding
its presence in the Canadian market and opened a sales office in Canada in
January 2002.

The Company announced in fiscal 2002 that an agreement had been reached with AIG
to provide marketing services for reinsurance programs for large automobile
dealerships. The terms of the contract allowed Warrantech Automotive to begin
marketing a new reinsurance program to the nation's larger automobile
dealerships on January 1, 2002. This program along with other new programs in
the Automotive segment is allowing the Company to experience an increase in
automotive contracts sold and which is expected to continue into fiscal year
2003.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2002, the Company did not have any derivatives, debt or hedges
outstanding. Therefore, the Company was not subject to interest rate risk. In
addition, the risk of foreign currency fluctuation was and is not material to
the Company's financial position or results of operations.


                                       19
<PAGE>

Item 8. Financial Statements and Supplementary Data

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES

                                                                        Page No.

Report of Independent Auditors.........................................    21

Consolidated Financial Statements:
              Statements of Operations and Comprehensive Income
         For the Fiscal Years Ended March 31, 2002, 2001 and 2000......    22

         Balance Sheets as of March 31, 2002 and 2000..................    23-24

         Statements of Common Stockholders' Equity
         For the Fiscal Years Ended March 31, 2002, 2001 and 2000......    25

         Statements of Cash Flows
         For the Fiscal Years Ended March 31, 2002, 2001 and 2000......    26

Notes to Consolidated Financial Statements.............................    27

Consolidated Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts......................    44

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


                                       20
<PAGE>

[LOGO] WSL WEINICK
                  -------------------------------------------------------------
           SANDERS                                         1515 BROADWAY
           LEVENTHAL & CO., LLP                       NEW YORK, N.Y. 10036-5788
           CERTIFIED PUBLIC ACCOUNTANTS
                                                                    212-869-3333
                                                                FAX 212-764-3060
                                                                   WWW.WSLCO.COM

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Warrantech Corporation

      We have audited the accompanying consolidated balance sheets of Warrantech
Corporation and subsidiaries as of March 31, 2002 and 2001, and the related
consolidated statements of operations and comprehensive income, common
stockholders' equity and cash flows for the fiscal years ended March 31, 2002,
2001 and 2000. Our audits also included the financial statement schedules listed
in the index. These consolidated financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.

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

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Warrantech Corporation and subsidiaries at March 31, 2002 and 2001, and the
consolidated results of their operations and comprehensive income and their cash
flows for the years ended March 31, 2002, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related consolidated financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.


                                         /s/Weinick Sanders Leventhal & Co., LLP

New York, NY
May 24, 2002


                                       21
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                         For the Years Ended March 31,
                                                  ------------------------------------------
                                                       2002            2001          2000
                                                  ------------    ------------  ------------
<S>                                               <C>             <C>           <C>
Earned Administrative Fee                         $ 37,327,306    $ 49,700,944  $ 43,319,781
                                                  ------------    ------------  ------------
    (Net of amortization of deferred costs)

Costs and expenses
   Service, selling, and general and
     administrative                                 30,768,340      39,775,539    49,164,944
   Legal Settlement                                   (824,332)             --            --
   Provision for bad debt expense                           --          15,067        31,476
   Depreciation and amortization                     4,480,442       6,417,115     5,997,648
   Loss on abandonment of assets                            --       1,029,731            --
                                                  ------------    ------------  ------------
Total costs and expenses                            34,424,450      47,237,452    55,194,068
                                                  ------------    ------------  ------------

Income (loss) from operations                        2,902,856       2,463,492   (11,874,287)

Other income (expense)                                 857,466       1,022,512       906,288
                                                  ------------    ------------  ------------

Income (loss) before provision for income taxes      3,760,322       3,486,004   (10,967,999)
Provision (benefit) for income taxes                 1,504,049       1,619,080    (2,761,816)
                                                  ------------    ------------  ------------

Net income (loss)                                 $  2,256,273    $  1,866,924   ($8,206,183)
                                                  ============    ============  ============
Earnings (loss) per share:
Basic                                             $       0.15    $       0.12        ($0.54)
                                                  ============    ============  ============
Diluted                                           $       0.15    $       0.12        ($0.54)
                                                  ============    ============  ============

Weighted average number of shares outstanding:
Basic                                               15,259,437      15,265,114    15,231,146
                                                  ============    ============  ============
Diluted                                             15,261,444      15,271,218    15,231,146
                                                  ============    ============  ============
<CAPTION>

                                                         For the Years Ended March 31,
                                                  ------------------------------------------
Comprehensive Income (Loss)                           2002            2001          2000
                                                  ------------    ------------  ------------
<S>                                               <C>             <C>           <C>
Net income (loss)                                 $  2,256,273    $  1,866,924   ($8,206,183)
Other comprehensive income, net of tax:
   Foreign currency translation adjustments            (11,143)         82,182       (26,414)
   Unrealized gain (loss) on investments                (8,936)         30,001       (24,184)
                                                  ------------    ------------  ------------
Comprehensive income (loss)                       $  2,236,194    $  1,979,107   ($8,256,781)
                                                  ============    ============  ============
</TABLE>

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


                                       22
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                    ASSETS

<TABLE>
<CAPTION>
                                                                            March 31,
                                                                   ----------------------------
                                                                       2002            2001
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Current assets:
Cash and cash equivalents                                          $  7,033,448    $  3,001,924

Investments in marketable securities                                    954,653         196,154
Accounts receivable, (net of allowances of
 $256,019 and $1,079,946, respectively)                              18,442,135      12,152,515
Other receivables, net                                                4,931,749       7,065,531
Income tax receivable                                                 1,129,076       5,378,648
Deferred income taxes                                                 2,653,000         571,182
Prepaid expenses and other current assets                               600,944         964,929
                                                                   ------------    ------------
   Total current assets                                              35,745,005      29,330,883
                                                                   ------------    ------------

Property and equipment, net                                           9,299,713      11,898,890

Other assets:
Excess of cost over fair value of assets acquired
(net of accumulated amortization of $5,825,405)                       1,637,290       1,637,290
Deferred income taxes                                                 2,329,315       2,724,096
Deferred direct costs                                                22,570,930      46,258,971
Investments in marketable securities                                  1,376,619       3,094,176
Restricted cash                                                         825,000         800,000
Split dollar life insurance policies                                    904,172         708,262
Notes receivable                                                      2,818,639         599,796
Other assets                                                             44,546          64,809
                                                                   ------------    ------------
          Total other assets                                         32,506,511      55,887,400
                                                                   ------------    ------------

                                                                   ------------    ------------
                    Total Assets                                   $ 77,551,229    $ 97,117,173
                                                                   ============    ============

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


                                       23
<PAGE>

<CAPTION>

                          LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                             March 31,
                                                                   ----------------------------
                                                                        2002            2001
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Current liabilities:
Current maturities of long-term debt and capital lease
  obligations                                                      $    801,788    $    801,265
Insurance premiums payable                                           26,470,265      19,100,164
Accounts and commissions payable                                      6,960,465       6,346,872
Accrued expenses and other current liabilities                        3,168,666       5,890,078
                                                                   ------------    ------------
   Total current liabilities                                         37,401,184      32,138,379
                                                                   ------------    ------------

Deferred revenues                                                    33,559,379      60,057,704

Long-term debt and capital lease obligations                            957,159       1,209,853

Deferred rent payable                                                   190,260         293,293
                                                                   ------------    ------------
   Total liabilities                                                 72,107,982      93,699,229
                                                                   ------------    ------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock - $.0007 par value authorized - 15,000,000
       Shares issued - none at March 31, 2002 and March 31, 2001             --              --
   Common stock - $.007 par value authorized - 30,000,000 Shares
       issued  - 16,525,324 shares at March 31, 2002 and
       16,514,228 shares at March 31, 2001                              115,679         115,580
   Additional paid-in capital                                        23,745,944      23,742,868
   Loans to directors and officers                                  (10,163,875)     (9,833,244)
   Accumulated other comprehensive income, net of taxes                 (52,028)        (31,949)
   Retained earnings (deficit)                                       (3,977,832)     (6,234,105)
                                                                   ------------    ------------
                                                                      9,667,888       7,759,150
Treasury stock - at cost, 1,212,159 shares at March 31, 2002
 and 1,415,171 shares at March 31, 2001                              (4,224,641)     (4,341,206)
                                                                   ------------    ------------
        Total stockholders' equity                                    5,443,247       3,417,944
                                                                   ------------    ------------

                                                                   ------------    ------------
        Total Liabilities and Stockholders' Equity                 $ 77,551,229    $ 97,117,173
                                                                   ============    ============
</TABLE>

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


                                       24
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                       For the Years Ended March 31,
                                                --------------------------------------------
                                                    2002            2001            2000
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
Common stock outstanding (shares)
Balance, beginning of year                        16,514,228      16,505,911      16,501,786
Exercise of common stock options                          --              --              --
Issuance of common stock                              11,096           8,317           4,125
                                                ------------    ------------    ------------
Balance, end of year                              16,525,324      16,514,228      16,505,911
                                                ============    ============    ============
Common stock
Balance, beginning of year                      $    115,580    $    115,541    $    115,513
Exercise of unrestricted common stock options             --              --              --
Exercise of restricted stock options                      --              --              --
Issuance of common stock                                  99              39              28
                                                ------------    ------------    ------------
Balance, end of year                            $    115,679    $    115,580    $    115,541
                                                ============    ============    ============
Additional paid-in capital
Balance, beginning of year                      $ 23,742,868    $ 23,737,835    $ 23,728,881
Exercise of unrestricted common stock options             --              --              --
Exercise of restricted common stock options               --              --              --
Issuance of common stock                               3,076           5,033           8,954
                                                ------------    ------------    ------------
Balance, end of year                            $ 23,745,944    $ 23,742,868    $ 23,737,835
                                                ============    ============    ============
Loans to directors and officers
Balance, beginning of year                       ($9,833,244)    ($9,505,406)    ($9,006,699)
Loans for exercise of restricted common stock
  options and accrued interest                      (330,631)       (327,838)       (498,707)
                                                ------------    ------------    ------------
Balance, end of year                            ($10,163,875)    ($9,833,244)    ($9,505,406)
                                                ============    ============    ============
Accumulated other comprehensive income
Balance, beginning of year                          ($31,949)      ($144,132)       ($93,534)
Foreign currency translation adjustments             (11,143)         82,182         (26,414)
Unrealized gain (loss) on investments                 (8,936)         30,001         (24,184)
                                                ------------    ------------    ------------
Balance, end of year                                ($52,028)       ($31,949)      ($144,132)
                                                ============    ============    ============
Retained earnings (deficit)
Balance, beginning of year                       ($6,234,105)    ($8,101,029)   $    105,154
Net income (loss)                                  2,256,273       1,866,924      (8,206,183)
                                                ------------    ------------    ------------
Balance, end of year                             ($3,977,832)    ($6,234,105)    ($8,101,029)
                                                ============    ============    ============
Common stock in treasury (shares)
Balance, beginning of year                        (1,415,171)     (1,211,024)     (1,280,300)
Purchase of treasury shares                               --        (450,000)       (100,000)
Issuance of treasury shares                          203,012         245,853         169,276
                                                ------------    ------------    ------------
Balance, end of year                              (1,212,159)     (1,415,171)     (1,211,024)
                                                ============    ============    ============
Common stock in treasury (amount)
Balance, beginning of year                       ($4,341,206)    ($4,224,167)    ($4,449,313)
Purchase of treasury shares                               --        (308,920)        (74,383)
Issuance of treasury shares                          116,565         191,881         299,529
                                                ------------    ------------    ------------
Balance, end of year                             ($4,224,641)    ($4,341,206)    ($4,224,167)
                                                ============    ============    ============

                                                ------------    ------------    ------------
Total Stockholders' Equity                      $  5,443,247    $  3,417,944    $  1,878,642
                                                ============    ============    ============
</TABLE>

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


                                       25
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    For the Years Ended March 31,
                                                             --------------------------------------------
                                                                  2002            2001            2000
                                                             ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                          $  2,256,273    $  1,866,924     ($8,206,183)
                                                             ------------    ------------    ------------
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Depreciation and amortization                              4,480,442       6,417,115       5,997,648
     Provision for bad debt expense                                    --          15,067          31,476
     Deferred revenues                                        (26,498,325)    (44,970,721)    (13,469,139)
     Deferred direct costs                                     23,688,041      34,538,228       5,310,497
     Deferred income taxes                                     (1,687,037)      5,910,686       1,817,167
     Deferred rent payable                                       (103,033)        (91,208)        (92,389)
     Other                                                       (357,818)        (66,450)        274,986
     Increase (decrease) in cash flows as a result of
        changes in asset and liability balances:
        Accounts receivable                                    (6,289,620)       (293,862)     27,416,751
        Other receivables                                       2,133,782      (4,649,283)      3,508,084
        Income taxes receivable                                 4,249,572      (1,343,302)     (2,888,022)
        Prepaid expenses and other current assets                 363,985         273,122         299,582
        Split dollar life insurance policies                     (195,910)        119,000         542,748
        Other assets                                               20,263         311,846           1,227
        Insurance premiums payable                              7,370,101         938,807     (18,424,563)
        Accounts and commissions payable                          613,593      (2,510,684)        333,516
        Legal settlements payable                                      --              --        (100,000)
        Accrued expenses and other current liabilities         (2,721,412)     (3,601,097)      1,144,735
                                                             ------------    ------------    ------------
  Total adjustments                                             5,066,624      (9,002,736)     11,704,304
                                                             ------------    ------------    ------------
Net cash provided by (used in) by operating activities          7,322,897      (7,135,812)      3,498,121
                                                             ------------    ------------    ------------

Cash flows from investing activities:
  Property and equipment purchased-net of retirements          (1,496,747)     (1,930,448)     (4,133,870)
  Purchase of marketable securities                              (430,000)       (715,000)     (5,805,000)
  (Increase) decrease in notes receivable                         462,112         567,929        (689,958)
  Proceeds from sales of marketable securities                  1,415,304       3,600,000       3,935,000
                                                             ------------    ------------    ------------
Net cash provided by (used in) investing activities               (49,331)      1,522,481      (6,693,828)
                                                             ------------    ------------    ------------

Cash flows from financing activities:
    Exercise of common stock options and stock grants                  --           5,072           8,982
    Purchase treasury stock                                            --        (308,920)        (74,383)
    Issuance of treasury stock                                         --         191,881              --
    Increase in notes receivable                               (2,680,955)             --              --
    Repayments of notes and capital leases                       (561,087)     (1,307,781)     (1,736,362)
                                                             ------------    ------------    ------------
Net cash (used in) financing activities                        (3,242,042)     (1,419,748)     (1,801,763)
                                                             ------------    ------------    ------------

Net (decrease) in cash and cash equivalents                     4,031,524      (7,033,079)     (4,997,470)

Cash and cash equivalents at beginning of year                  3,001,924      10,035,003      15,032,473
                                                             ------------    ------------    ------------
Cash and cash equivalents at end of year                     $  7,033,448    $  3,001,924    $ 10,035,003
                                                             ============    ============    ============

Supplemental Cash Flow Information:
Cash payments made (recovered) during the year for:
   Interest                                                  $    217,072    $    234,102    $    344,969
                                                             ============    ============    ============
   Income taxes                                               ($1,107,494)   $    259,224    $     93,638
                                                             ============    ============    ============

Non-Cash Investing and financing activities:
    Property and equipment financed through capital leases   $    443,232    $    519,369    $    537,293
    Increase in loans to officers and directors                  (330,631)       (327,838)       (498,707)
    Issuance of treasury stock                                    116,565         191,881         299,529
   Capital leases refinanced                                      151,565              --         339,153
</TABLE>

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


                                       26
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

      The Company's service contract programs benefit consumers by providing
      them with expanded and/or extended product coverage for a specified period
      of time (and/or mileage in the case of automobiles and recreational
      vehicles), similar to that provided by manufacturers under the terms of
      their product warranties. Such coverage generally provides for the repair
      or replacement of the product, or a component thereof, in the event of its
      failure. The Company's service contract programs benefit the
      dealer/clients by providing enhanced value to the goods and services they
      offer and by providing them with the opportunity for increased revenue and
      income while outsourcing the costs and responsibilities of operating an
      extended warranty program.

      The terms of the service contracts, extended warranties and replacement
      contracts generally have terms ranging from three (3) to eighty-four (84)
      months. Since the Company acts solely as a third party administrator on
      behalf of the dealer/clients and insurance companies, the actual repairs
      and/or replacements required under the agreements are performed by
      independent third party authorized repair facilities or dealers. The cost
      of these repairs is generally paid for by the insurance companies which
      have the ultimate responsibility for the claims or by Butler Financial
      Solutions, LLC ("Butler"), where Reliance Insurance Company ("Reliance")
      or the Company are the obligor. The insurance policy indemnifies the
      dealer/clients against losses resulting from service contract claims and
      protects the consumer by ensuring their claims will be paid.

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

      Risks and Uncertainties - The preparation of financial statements in
      conformity with accounting principles generally accepted in the United
      States of America requires management to make estimates and assumptions
      which affect the reporting of assets and liabilities as of the dates of
      the financial statements and revenues and expenses during the reporting
      period. Actual results could differ from these estimates.

      Revenue Recognition Policy - The Company's revenue recognition policy is
      segregated into two distinct methods depending on whether the Company, a
      third party or the retailer/dealer is designated as the obligor on the
      service contract sale. In either case, a highly rated independent
      insurance company assumes all claims liabilities of the service contracts
      administered by the Company.

      Dealer/third party obligor service contracts are sales in which the
      retailer/dealer or a third party is designated as the obligor. For these
      service contract sales, using the proportional performance method, the
      Company recognizes revenues in direct proportion to the costs incurred in
      providing


                                       27
<PAGE>

      the service contract programs to the Company's clients. Revenues in
      amounts sufficient to meet future administrative costs and a reasonable
      gross profit thereon are deferred. Sales of dealer/third party obligor
      service contracts are reflected in gross revenues net of premiums paid to
      insurance companies.

      Administrator obligor service contracts are sales in which Warrantech is
      designated as the obligor. For these service contract sales, the Company
      recognizes revenues in accordance with Financial Accounting Standards
      Board Technical Bulletin 90-1 ("TB 90-1"), Accounting for Separately
      Priced Extended Warranty and Product Maintenance Contracts, and Statement
      of Financial Accounting Standards No. 60 ("SFAS 60"), Accounting and
      Reporting by Insurance Enterprises. These accounting standards require the
      recognition of revenue over the life of the contract on a straight-line
      basis, unless sufficient, company-specific, historical evidence indicates
      that the cost of performing services under these contracts are incurred on
      other than a straight-line basis. The Company is recognizing revenue on
      administrative obligor contracts based on company specific historical
      claims experience over the life of the contract.

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

      Profit Sharing Arrangement - Pursuant to certain agreements with its
      insurers, the Company may be eligible to share a portion of the insurers'
      profits on the Company's service contract programs. The amounts to be
      received, if any, are determined based upon the residual value of the
      premiums set aside by the insurer to pay losses (the "Loss Fund"). The
      residual value is comprised of underwriting profits and investment income
      earned on the monies in the Loss Fund. Subsequent adjustments to original
      estimates are solely changes in estimates based upon current information,
      affording the Company better determination of ultimate profit sharing
      revenues and are reflected in income when known. The Company did not
      accrue or receive any profit sharing amounts in the fiscal years ended
      March 31, 2002, 2001 or 2000.

      Provision for Bad Debt Expense - The Company's policy is to establish an
      allowance for doubtful accounts when receivables are determined to be
      uncollectible.

      Earnings Per Share - The Company has adopted Statement of Financial
      Accounting Standards No. 128, "Earnings per Share", which modified the
      calculation of earnings per share ("EPS"). This Statement replaced the
      previous presentation of primary and fully diluted EPS to basic and
      diluted EPS. Basic EPS is computed by dividing income available to common
      stockholders by the weighted average number of common shares outstanding
      for the period. Diluted EPS includes the dilution of common stock
      equivalents, and is computed similarly to fully diluted EPS pursuant to
      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,
      2002 and 2001.

      The Company had on deposit $6,659,178 and $1,451,416 of cash in excess of
      federally insured limits at March 31, 2002 and 2001, 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 accumulated other comprehensive income, net of
      tax.


                                       28
<PAGE>

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

      Advertising Costs -The Company expenses advertising costs as incurred.
      Advertising expenses for the years ended March 31, 2002, 2001 and 2000
      were $388,085, $473,553 and $463,937, respectively.

      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. Prior to the early adoption of Statement of Financial
      standards No. 142 "Goodwill and Intangible Assets" on April 1, 2001 (See
      Note 2), the excess of cost over fair value of assets acquired was being
      amortized on a straight-line basis over 15, 10 and 4.5 years,
      respectively. As a result of the Company closing its offices in Europe
      during 2001, the excess of Cost over Fair Value of Assets acquired from
      Home Guarantee Corporation, PLC was fully amortized. Amortization expense
      charged to operations for the years ended March 31, 2002, 2001 and 2000
      amounted to $0, $970,382 and $668,852, respectively.

      Stock Based Compensation - The Company applies Accounting Principles Board
      Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
      related interpretations in accounting for its stock-based compensation
      plans. Under APB 25, compensation expense for stock option and award plans
      is recognized as the difference between the fair value of the stock at the
      date of the grant less the amount, if any, the employee or director is
      required to pay. Certain operating officers have been issued shares of the
      Company's common stock as part of their compensation under their
      employment agreements. 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 to purchase stock in lieu
      of compensation. The intrinsic value of these options at the time of grant
      has been charged to expense.

      Income Taxes - Deferred 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 ("SFAS") No. 52 "Foreign
      Currency Translation". The functional currency for the Company's United
      Kingdom operations was the British pound. The functional currency for the
      Company's Chilean and Peruvian operations are their respective local
      currencies. Transaction gains and losses are reflected in operations,
      while translation gains and losses are reflected as a separate component
      of accumulated other comprehensive income, net of tax.

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


                                       29
<PAGE>

2.    NEW ACCOUNTING STANDARD

      On June 29, 2001, the Financial Accounting Standards Board (FASB) approved
      for issuance SFAS No. 142, "Goodwill and Intangible Assets," which is
      effective for fiscal years beginning after March 15, 2001. SFAS 142
      provides that goodwill and intangible assets with indefinite lives not be
      amortized, and instead, be tested for impairment annually and whenever
      there is an impairment indicator. Early adoption of SFAS 142 is permitted
      for companies with fiscal years beginning after March 15, 2001 but only if
      they have not issued their first quarter financial statements prior to
      adoption. The Company adopted SFAS 142 effective April 1, 2001 and ceased
      amortization of its goodwill. The following table presents pro forma
      condensed consolidated statements of operations of the Company for the
      twelve months ended March 31, 2002 and 2001, as though SFAS 142 had not
      been adopted. The pro forma condensed consolidated statements of
      operations reflects $599,268 of amortization of goodwill in the twelve
      months ended March 31, 2002 which would have been reflected in the
      statements of operations prior to the adoption of SFAS 142.

<TABLE>
<CAPTION>
                                                                       For the Twelve Months Ended
                                                                                 March 31,
                                                                      ------------------------------
                                                                          2002              2001
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
Earned Administrative Fee (net of amortization of deferred costs)     $ 37,327,306      $ 49,700,944
                                                                      ------------      ------------
Costs and expenses
   Service, selling, and general and administrative                     30,768,340        39,775,539
   Provision for Bad Debt                                                       --            15,067
   Legal settlement                                                       (824,332)               --
   Depreciation and amortization                                         5,079,710         6,417,115
   Loss on abandonment of assets                                                --         1,029,731
                                                                      ------------      ------------
Total costs and expenses                                                35,023,718        47,237,452
                                                                      ------------      ------------
Income from operations                                                   2,303,588         2,463,492
Other income (expense)                                                     857,466         1,022,512
                                                                      ------------      ------------
Income before provision for income taxes                                 3,161,054         3,486,004
Provision (benefit) for income taxes                                     1,504,049         1,619,080
                                                                      ------------      ------------
Net income                                                            $  1,657,005      $  1,866,924
                                                                      ============      ============
Earnings per share:
Basic & Diluted                                                       $       0.11      $       0.12
                                                                      ============      ============
</TABLE>

3.    LOSS ON ABANDONMENT OF ASSETS

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


                                       30
<PAGE>

4.    RESTRICTED CASH

      At March 31, 2002 and 2001 cash in the amount of $825,000 and $800,000,
      respectively is on deposit with Florida and Ohio regulatory agencies to
      comply with their state insurance laws.

5.    INVESTMENTS IN MARKETABLE SECURITIES

      At March 31, 2002, investments in marketable securities were comprised of
      the following:

<TABLE>
<CAPTION>
                                                   Gross Unrealized          Aggregate          Carrying Amount
                               Amortized           ----------------            Fair             ---------------
                                  Cost          Gains           (Losses)       Value        Short Term     Long Term
                               ----------     --------------------------     ----------     -------------------------
<S>                            <C>            <C>               <C>          <C>            <C>            <C>
Municipal Bonds                $2,309,454     $   24,373        ($2,555)     $2,331,272     $  954,653     $1,376,619
                               ----------     --------------------------     ----------     -------------------------
Total Investments in
     Marketable Securities     $2,309,454     $   24,373        ($2,555)     $2,331,272     $  954,653     $1,376,619
                               ==========     ==========================     ==========     =========================
</TABLE>

      At March 31, 2001, investments in marketable securities are comprised of
      the following:

<TABLE>
<CAPTION>
                                                 Gross Unrealized           Aggregate          Carrying Amount
                               Amortized         ----------------             Fair             ---------------
                                  Cost          Gains         (Losses)        Value         Short Term     Long Term
                               ----------     -------------------------     ----------     -------------------------
<S>                            <C>            <C>                <C>        <C>            <C>            <C>
Municipal Bonds                $3,254,411     $   36,825         ($906)     $3,290,330     $  196,154     $3,094,176
                               ----------     -------------------------     ----------     -------------------------
Total Investments in
     Marketable Securities     $3,254,411     $   36,825         ($906)     $3,290,330     $  196,154     $3,094,176
                               ==========     =========================     ==========     =========================
</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 accumulated other
      comprehensive income.

      The amortized cost and estimated fair value of marketable securities, by
      contractual maturity date as of March 31, 2002, 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.

                                                                 Aggregate
                                                  Amortized         Fair
                                                     Cost          Value
                                                  ----------     ----------
    Investments available for sale:
        Due in one year or less                   $  948,327     $  954,653
        Due after one year through five years      1,361,127      1,376,619
                                                  ----------     ----------
                                                  $2,309,454     $2,331,272
                                                  ==========     ==========

6.    OTHER RECEIVABLES, NET

      The nature and amounts of other receivables, net as of March 31, 2002 and
      2001 are as follows:

                                                          March 31,
                                                  --------------------------
                                                     2002            2001
                                                  ----------     -----------
       Due from Reliance Warranty Corporation     $2,754,691              --
       Due from insurance companies/dealers        1,795,972     $ 5,500,806
       Employee/agent advances                       334,198         788,611
       Other                                          46,888         821,614
                                                  ----------     -----------
                                                   4,931,749       7,111,031
       Allowance for doubtful accounts                    --         (45,500)
                                                  ----------     -----------
       Total Other Receivables, net               $4,931,749     $ 7,065,531
                                                  ==========     ===========


                                       31
<PAGE>

During the current fiscal year, the Company advanced money on claims for which
Reliance Warranty Corporation ("RWC") is obligated to pay. As of the end of the
fiscal year ended March 31, 2002, $2,754,691 of such claims had been paid. The
Company expects to receive funds from RWC during fiscal year 2003 which would
reimburse the Company for claims paid out on RWC's behalf.

7.    PROPERTY AND EQUIPMENT

                                                              March 31,
                                                    ---------------------------
                                                        2002            2001
                                                    -----------     -----------
Automobiles                                         $    61,280     $    33,179
Equipment, furniture and fixtures                     9,981,999       9,729,706
Leasehold improvements                                1,384,322       1,377,338
Software development costs                           14,665,867      13,573,771
                                                    -----------     -----------
                                                     26,093,468      24,713,994
Less: Accumulated depreciation and amortization      18,392,289      15,044,711
                                                    -----------     -----------
                                                      7,701,179       9,669,283
                                                    -----------     -----------
Assets under capital leases:
  Cost                                                9,010,339       9,304,479
  Less: Accumulated amortization                      7,411,805       7,074,872
                                                    -----------     -----------
                                                      1,598,534       2,229,607
                                                    -----------     -----------

                                                    -----------     -----------
Total Property and Equipment, net                   $ 9,299,713     $11,898,890
                                                    ===========     ===========

      Amortization expense on assets under capital leases for the years ended
      March 31, 2002, 2001 and 2000 was $1,955,798, $1,399,860 and $1,616,808,
      respectively. Depreciation expense on property and equipment other than
      under capital leases for the years ended March 31, 2002, 2001 and 2000 was
      $2,524,644, $4,046,873 and $3,711,988, respectively.

      The Company capitalized $954,657 and $2,245,478 for the fiscal years ended
      March 31, 2002 and 2001, 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.

8.    LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

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

                                                                March 31,
                                                       -------------------------
                                                          2002           2001
                                                       ----------     ----------
Capital lease obligations - for property and
   equipment payable monthly with interest
   rates ranging from 8.572% to 19.998% through 2007   $1,726,793     $2,011,118
Less: Current maturities                                  769,634        801,265
                                                       ----------     ----------
Long-term portion                                      $  957,159     $1,209,853
                                                       ==========     ==========


                                       32
<PAGE>

      The aggregate amounts of maturities at March 31, 2002 are as follows:

                                                    Minimum Future
                Fiscal Year                         Lease Payments
                                                    --------------
                2003                                  $  893,684
                2004                                     593,224
                2005                                     276,734
                2006                                      69,873
                2007 and thereafter                       93,056
                                                      ----------
                                                       1,926,571
                Less amount representing interest        199,778
                                                      ----------
                Net                                   $1,726,793
                                                      ==========

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

9.    SPLIT DOLLAR LIFE INSURANCE POLICIES

      Through March 31, 2002 and 2001, the Company made payments on split dollar
      insurance policies on the lives of seven and eight officers of the
      Company, respectively. The cash surrender value of these policies is
      $904,172 and $708,262 as of March 31, 2002 and 2001, respectively. The
      Company will receive a refund of all split-dollar premiums advanced. The
      Company is the beneficiary of any proceeds from the policies up to the
      amount of premiums paid.

10.   NOTES RECEIVABLE

      Butler Financial Solutions LLC serves as the ultimate obligor under all
      service contracts administered by the Company in exchange for a fee. Some
      of the service contracts under which Butler is the obligor were insured by
      Reliance Insurance Company, and the liquidation of Reliance has eliminated
      the insurance coverage to Butler under those contracts.

      In order to assist Butler in addressing its potential obligations under
      the service contacts previously insured by Reliance for which Butler is or
      Warrantech was the obligor, Warrantech Automotive has made a $1 million
      loan to Butler. The Company has and will make further loans to Butler, as
      required, for claim obligations in excess of Butler's fee revenues. All of
      Warrantech's loans to Butler bear or will bear interest at the rate of
      prime plus 2% per annum and will begin to be paid down once Butler's fee
      revenues exceed the claims obligations.

      Additionally, funding will be provided by a special surcharge, which will
      be paid on all vehicle service contracts administered by the Company that
      are sold after November 19, 2001. The surcharge will be paid by agents
      through whom Reliance insured service contracts were sold. This funding
      will be utilized by Butler to pay the claims previously insured by
      Reliance and will also be available to repay Butler's loans from
      Warrantech.

      During fiscal year ended March 31, 2002, Warrantech has loaned Butler
      $5,435,646. RWC, which is not part of the Reliance liquidation, is
      obligated to pay $2,754,691 of that amount, which the Company expects to
      receive in the second quarter of fiscal 2003 and is reflected as "Other
      Receivables" on the Consolidated Balance Sheet. The remaining amount
      representing the loans due from Butler of $2,680,955 is reflected as
      "Notes Receivable" on the Consolidated Balance Sheet.


                                       33
<PAGE>

11.   INCOME TAXES

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

<TABLE>
<CAPTION>
                                                      For the Years Ended March 31,
                               --------------------------------------------------------------------------------
                                         2002                       2001                          2000
                               ---------------------      -----------------------       -----------------------
<S>                            <C>              <C>       <C>                <C>        <C>                <C>
Federal statutory rate         $1,278,509       34.0%     $ 1,185,241        34.0%      ($3,729,118)       34.0%
State tax effect                   87,089        2.3%         300,442         8.6%          111,381        (1.0)%
Goodwill                               --         --          281,370         8.1%          178,850        (1.6)%
Non-deductible items               34,179        0.9%              --          --                --          --
Other                             104,272        2.8%        (147,973)       (4.2)%         677,071        (6.2)%
                               ---------------------      -----------------------       -----------------------
Provision for income taxes     $1,504,049       40.0%     $ 1,619,080        46.5%      ($2,761,816)       25.2%
                               =====================      =======================       =======================
<CAPTION>

                                                                         Provision
For the Year Ended March 31, 2002       Current         Deferred         (Benefit)
---------------------------------     -----------      -----------      -----------
<S>                                   <C>              <C>              <C>
Federal                               $ 3,025,722      ($1,718,189)     $ 1,307,533
State                                     176,629          (44,676)         131,953
Foreign                                   100,573          (36,010)          64,563
                                      -----------      -----------      -----------
Total                                 $ 3,302,924      ($1,798,875)     $ 1,504,049
                                      ===========      ===========      ===========

For the Year Ended March 31, 2001
---------------------------------
Federal                               ($4,207,054)     $ 3,968,279      ($  238,775)
State                                      92,579           16,504          109,083
Foreign                                  (109,440)       1,858,212        1,748,772
                                      -----------      -----------      -----------
Total                                 ($4,223,915)     $ 5,842,995      $ 1,619,080
                                      ===========      ===========      ===========

For the Year Ended March 31, 2000
---------------------------------
Federal                               ($4,714,450)     $ 3,247,050      ($1,467,400)
State                                     120,773          418,144          538,917
Foreign                                    14,694       (1,848,027)      (1,833,333)
                                      -----------      -----------      -----------
Total                                 ($4,578,983)     $ 1,817,167      ($2,761,816)
                                      ===========      ===========      ===========
</TABLE>

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

                                                   March 31,
                                         ------------------------------
                                             2002              2001
                                         ------------      ------------
Deferred Tax Assets:
     Deferred revenue                    $ 11,754,497      $ 21,169,928
     Deferred rent                             68,151           103,410
     Provision for doubtful accounts           88,152           405,112
     Accrued bonus                            260,123           166,070
     Foreign loss benefit                     594,599           280,625
     Net operating loss                     2,310,365                --
     Net state benefit                         32,955           132,949
     Tax vs. book depreciation                 14,024                --
     Other                                      3,588            16,476
                                         ------------      ------------
          Total assets                     15,126,454        22,274,570

Deferred Tax Liabilities:
     Deferred Direct Costs                 (7,932,968)      (16,381,144)
    Tax vs. book depreciation                      --          (606,964)
     Section 174 expense                   (1,633,366)       (1,796,916)
                                         ------------      ------------
          Total liabilities                (9,566,334)      (18,785,024)

                                         ------------      ------------
                                            5,560,120         3,489,546
  Less:  Valuation Allowance                 (577,805)         (194,268)
                                         ------------      ------------
     Net deferred tax asset              $  4,982,315      $  3,295,278
                                         ============      ============


                                       34
<PAGE>

      Management believes that it is not likely the deferred tax asset
      attributable to certain foreign operations will be realized and,
      accordingly, has reflected a valuation allowance of $577,805 and $194,268
      at March 31, 2002 and 2001. Section 174 expense represents research and
      experimental expenses related to the development of a proprietary
      relational database and interactive software.

12.   COMMITMENTS AND CONTINGENCIES

      Operating Lease Commitments - The Company leases office and warehouse
      space under noncancellable operating leases expiring in 2004. 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, net of sub-lease income, charged
      to operations for the years ended March 31, 2002, 2001 and 2000 was
      $1,389,764, $2,403,489 and $2,758,830, respectively. Sub-lease income will
      be $31,675 through the term of the lease, expiring July 2003.

      Future minimum commitments under these leases that have initial or
      remaining lease terms in excess of one year at March 31, 2002, are as
      follows:

                          Fiscal Year
                          -----------
               2003                                    $1,161,852
               2004                                       733,616
                                                       ----------
               Total future minimum lease payments     $1,895,468
                                                       ==========

      Employment Contracts - The Company has employment contracts with its
      officers and certain key employees. These employment contracts, expiring
      on various dates through 2004, provide for aggregate minimum annual base
      compensation of $2,230,337. Certain agreements call for (i) annual
      increases, (ii) cost of living increases, (iii) automobile allowances and
      (iv) additional compensation, if certain defined performance levels are
      attained. This additional compensation is to be paid in the form of cash
      and/or Company common stock. The Company also agreed to forgive interest
      which has accrued annually on a note between the Company and its CEO, for
      as long as the CEO remains in the Company's employ.

      Line of Credit - The Company executed a Letter of Understanding with Great
      American Insurance Company ("GAIC"), whereby, GAIC agreed to provide
      funding by extending a favorable change of its credit terms to the
      Company. GAIC has also agreed to extend a separate line of credit for an
      amount up to $3 million to the Company, subject to certain adjustments, to
      fund unanticipated working capital requirements. Interest will be paid on
      monies made available for the line of credit at an annual rate of prime
      plus 2%.

      Equipment Financing - The Company has ongoing relationships with equipment
      financing companies and intends to continue financing certain future
      equipment needs through leasing transactions. The total amount financed
      through leasing transactions during the fiscal year ended March 31, 2002
      amounted to $443,232 for new leases and $151,565 for leases refinanced.

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

      Staples the Office Superstore, Inc.

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

      In accordance with a Service Contract Administration Agreement, Warrantech
      administered a service contract program for Staples. For a period of time,
      that program was underwritten by ACE Property and Casualty Insurance
      Company (f/k/a CIGNA Property and Casualty Insurance


                                       35
<PAGE>

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

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

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

      ACE Property and Casualty Insurance Company

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

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

      ACE provided Warrantech with its Preliminary Statement, an arbitration
      panel was appointed and an arbitration schedule was agreed upon. Minimal
      discovery has been commenced and all parties have significant discovery
      work to complete. Preliminary discussions have been held but, at this
      stage of the discussions, it is impossible to predict whether or not such
      discussions will be successful.

      Michael A. Basone

      Mr. Basone is a former Executive Vice President and Chief Operating
      Officer of Warrantech, having resigned in February 2000. Several months
      after resigning, Mr. Basone contacted the Company through his attorney and
      claimed that the Company's conduct was such that he was forced to resign.
      For this alleged "constructive termination" without cause, Mr. Basone
      seeks an amount equal to what he would have received had he completed the
      term of his employment


                                       36
<PAGE>

      agreement. The Company believes this assertion is completely without merit
      and has rejected Mr. Basone's demand for payment. Mr. Basone has filed a
      Demand for Arbitration with the American Arbitration Association that
      seeks damages in the amount of $300,000. An arbitration hearing was held
      on May 13 - 14, 2002. The arbitrator's decision is expected in July or
      August 2002.

      Although the Company believes that the actions described above are without
      merit, it is not able to estimate its potential liability in any of them,
      and accordingly, no reserves for potential liabilities have been provided
      for any of these actions.

      Insurance liability - As a consequence of the September 11, 2001
      tragedies, one of the Company's former insurance carriers, Reliance,
      incurred potential claim losses that were greatly in excess of its ability
      to pay them. Consequently, the Pennsylvania Insurance Commissioner placed
      Reliance in receivership in October 2001. Reliance had been an insurer of
      the Company's automotive contracts until August 2000. The Company was the
      obligor under approximately 20% of the outstanding Reliance - insured
      contracts. As disclosed in Note 10 of this Report on Form 10-K, Butler has
      assumed the obligation of the Company. The Company has agreed to make
      loans to Butler to fund the required claims payments it assumed. The
      Company believes that the arrangements with Butler and GAIC provide a
      mechanism to cover the claims under all of the service contracts in which
      the Company was the obligor. If, however, Butler, for any reason, becomes
      unable to pay such claims, which were previously insured by Reliance, or
      if GAIC ceases to provide credit to the Company in order to fund any
      shortfalls required by Butler, the Company may ultimately be required to
      honor the claims, if any, under those contracts in which it was the
      obligor. Management, as well as the carrier, is not able to determine the
      Company's potential claims liability, if any, and as such, the
      accompanying financial statements do not reflect any estimate for claims
      losses.

13.   STOCK OPTION AND OTHER BENEFIT PLANS

      At March 31, 2002, the Company had one stock option plan, which is
      described below. SFAS No. 123, "Accounting for Stock-based Compensation,"
      defines a fair value method of accounting for an employee stock option.
      SFAS No. 123 allows a company to continue to measure compensation costs
      for theses plans using APB No. 25 and related interpretations. The Company
      has elected to continue using APB No. 25 for accounting for its employee
      stock compensation plan. Accordingly, no compensation cost has been
      recognized for its fixed stock option plan, except for stock options
      granted to non-employees. No compensation cost has been incurred or
      charged against income for non-employees awarded stock options for the
      fiscal years ended March 31, 2002, 2001 and 2000. If Warrantech had
      determined compensation cost for its stock option plan based on the fair
      value at the grant dates for awards under the plan, consistent with the
      method prescribed by SFAS 123, the Company's net income and earnings per
      share would have been reduced to the pro forma amounts as follows:

<TABLE>
<CAPTION>
                                                 For the Years Ended March 31,
                                         ----------------------------------------------
                                             2002             2001             2000
                                         ------------     ------------     ------------
<S>                                      <C>              <C>              <C>
Net Income (loss) as reported            $  2,256,273     $  1,866,924      ($8,206,183)
Net income (loss) Pro Forma              $  2,014,877     $  1,044,140      ($8,638,433)
Shares - Basic                             15,259,437       15,265,114       15,231,146
Basic Earnings Per Share as reported     $       0.15     $       0.12           ($0.54)
Basic Earnings Per Share Pro Forma       $       0.13     $       0.07           ($0.57)
</TABLE>

      The fair value of Warrantech stock options used to compute pro forma net
      income and earnings per share disclosures is the estimated value at grant
      date using the Black-Scholes option-pricing model with the following
      weighted average assumptions for years ended March 31, 2002, 2001 and 2000
      respectively: expected dividend yield of 0%; expected volatility of 50%; a
      risk free interest rate of 5.0%; and expected option life of 5 years.


                                       37
<PAGE>

      Stock Incentive Plans - Under the 1998 Employee Incentive Stock Option
      Plan, which was adopted by the Company's Board of Directors on August 25,
      1998 and approved by the Company's shareholders on October 27, 1998 (the
      "1998 Plan"), to 1,041,987 shares of the Company's common stock reserved
      for issuance to employees (including officers) upon exercise of options
      granted under the 1998 Plan. On September 25, 2001, the Company's
      shareholders approved an amendment to the 1998 Plan increasing the number
      of shares issuable by 600,000 shares (the "1998 Amended Plan"). As a
      result, a total of 1,641,987 shares are issuable under the 1998 Amended
      Plan. 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 1998 Amended Plan will terminate in
      August 2008 unless sooner terminated by the Board of Directors.

      Presented below is a summary of the status of the stock options in the
      plan and the related transactions for the years ended March 31, 2002, 2001
      and 2000.

<TABLE>
<CAPTION>
                                                       2002                         2001                         2000
                                              -----------------------------------------------------------------------------------
                                                             Weighted                      Weighted                      Weighted
                                                             Average                       Average                       Average
                                                             Exercise                      Exercise                      Exercise
                                               Shares         Price          Shares         Price          Shares         Price
                                              -----------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>            <C>            <C>
Options outstanding at beginning of year      1,185,748      $   2.18         582,090      $   3.51       1,014,225      $   4.36
Granted                                         361,253          0.89         671,301          1.23              --            --
Canceled/Surrendered                            (70,108)        (1.32)             --            --        (432,135)         5.51
Exercised                                            --            --              --            --              --            --
Forfeited                                       (60,610)        (1.35)        (67,643)        (4.24)             --            --
                                              -----------------------------------------------------------------------------------
Options outstanding at end of year            1,416,283      $   1.93       1,185,748      $   2.18         582,090      $   3.51
                                              ===================================================================================

                                              -----------------------------------------------------------------------------------
Options exercisable at end of year              531,261      $   1.54         164,912      $   2.18          81,663      $   4.47
                                              ===================================================================================
</TABLE>

      The weighted average fair value of stock options at date of grant,
      calculated using the Black-Scholes option-pricing model, granted during
      the years ended March 31, 2002, 2001 and 2000 is $1.22, $0.84 and $0.00,
      respectively.

      The Company recognized costs of $75,416, $0.00 and $0.00 for the years
      ended March 31, 2002, 2001 and 2000, respectively, for stock-based
      compensation to employees.

      The following table summarizes the status of all Warrantech's stock
      options outstanding and exercisable at March 31, 2002.

<TABLE>
<CAPTION>

                                         Stock Options                     Stock Options
                                          Outstanding                       Exercisable
                             -----------------------------------------------------------------
                                           Weighted      Weighted                    Weighted
                                            Average       Average                     Average
                                           Remaining     Exercise                    Exercise
Range Of Exercise Prices      Shares       Life (Yrs)      Price        Shares         Price
                             -----------------------------------------------------------------
<S>                          <C>                <C>        <C>        <C>           <C>
$0.67 to $0.87                 377,696          9.10       $0.74        176,886     $    0.72
$1.3125 to $1.50               510,353          6.91       $1.33        241,137     $    1.33
$2.00                        2,000,000          4.50       $2.00      2,000,000     $    2.00
$3.25 to $3.375                528,234          2.60       $3.35        113,234     $    3.27
                             -----------------------------------------------------------------
Total                        3,416,283          5.02       $1.97      2,531,257     $    1.90
                             =================================================================
</TABLE>


                                       38
<PAGE>


      Stock Awards

      Restricted common stock of the Company may be awarded to officers, key
      employees, non-employee directors and certain other non-employees. Shares
      granted are subject to certain restrictions on ownership and
      transferability. Such restrictions on current restricted stock awards
      typically lapse one to three years after the award. The deferred
      compensation expense related to restricted stock grants is amortized to
      expense on a straight-line basis over the period of time of the
      restrictions are in place. Restricted common stock awards to employees
      reduce stock options otherwise available for future grants. Approximately
      207,137 restricted shares were awarded to directors, employees and
      non-employees during the year ended March 31, 2002. Common stock awards
      totaling 251,353 shares were granted to directors, employees and
      non-employees during the fiscal year ended March 31, 2001.

      Other Stock Options

      The Company may issue options to purchase the Company's common stock to
      officers, non-employees, non-employee directors or others as part of
      settlements in disputes and/or incentives to perform services for the
      Company. In addition to the options described below, the Company issued
      options to purchase 10,000 shares of common stock to vendors during the
      fiscal year ended March 31, 2002 at a weighted average exercise price of
      $0.675 per option and options to purchase 100,000 shares of common stock
      to non-employee board of directors at a exercise price of $1.3125 during
      the fiscal year ended March 31, 2001.

      As part of the Letter of Understanding between the Company and GAIC to
      provide extended credit terms, GAIC will receive options to purchase up to
      1,650,000 shares of Warrantech's common stock at an exercise price of
      $2.00 per share (the "GAIC Options"). If GAIC exercises all of these
      options, it would own approximately 10.8% of the Company's outstanding
      shares.

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

      On August 24, 2001, simultaneously with the settlement of the litigation
      among Service Guard Insurance Agency, Inc., American International Group,
      Inc. ("AIG") and related entities, the Company granted AIG options to
      purchase two (2) million shares of Warrantech's common stock at an
      exercise price of $2.00 per share (the "AIG Options"). If AIG exercises
      all of the options, it would own approximately 12% of the Company's
      outstanding common shares.

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

      In 1992, options 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 were granted to three directors, Joel
      San Antonio, William Tweed and Jeff J. White (two of whom were officers
      and one a former officer of the Company). Of the total options granted,
      fifty percent (50%) became exercisable beginning one year following
      October 22, 1992 in increments of 10% per year for a five-year period. The
      remaining fifty percent (50%) of


                                       39
<PAGE>

      the total options granted, which were based upon the Company's earnings,
      became exercisable on October 22, 1995.

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

      In February 2000, the Company agreed to restructure the loans to Mr. Tweed
      and Mr. White by capitalizing the interest due on the loans and making the
      loans payable over five (5) years. Interest on these restructured loans
      accrues annually at the applicable federal rate (approximately 6.2%), but
      will first become payable on the third anniversary of the restructured
      loans and will be payable annually thereafter.

      In February 2000, the Company also agreed to restructure the loan to Mr.
      San Antonio. The initial terms of the restructured loan provided for a
      conversion of the two original loans into a one-year loan without
      interest. Prior to the execution of the documents concerning this
      restructuring, Mr. San Antonio and the Company agreed to revise the new
      loan terms to provide that the new combined note (the "New Note") would
      become due on January 31, 2005. Interest due on the New Note accrues
      annually at 5.4% and will be forgiven, and charged to Mr. San Antonio as
      additional compensation, as long as Mr. San Antonio continues to be
      employed by the Company. The $330,631 interest which accrued on the note
      during fiscal year 2002 was forgiven in the current fiscal year, the
      $230,460 of interest which accrued from February 1, 2001 through March 31,
      2002, was forgiven in fiscal year 2001. The interest was charged to
      operations as additional compensation in the respective fiscal years the
      interest income was accrued.

      The total amount of the restructured loans to Mr. Tweed, Mr. White and Mr.
      San Antonio, including the capitalized interest, is $10,163,875.

      Savings and Retirement Plan

      The Company and its qualified employees also participate in a Savings and
      Retirement Plan also known as the 401(k) Plan (the "Plan"). All of the
      Company's domestic employees who have completed one year of service with
      the Company are eligible to participate in the Plan. The Company
      contributes 33% of an eligible employee's contribution to the Plan, up to
      4% of the employee's contribution. The Company's contribution vests after
      an employee has been employed by the Company for three years. The Company
      contributed $88,762 and $101,959 to the Plan during the fiscal years ended
      March 31, 2002 and 2001, respectively.

14.   OTHER INCOME (EXPENSE)

      Other income (expense) consists of the following:

<TABLE>
<CAPTION>
                                                For the Years Ended March 31,
                                        ---------------------------------------------
                                            2002             2001             2000
                                        -----------      -----------      -----------
     <S>                                <C>              <C>              <C>
     Interest and dividend income       $   855,877      $ 1,292,335      $ 1,325,638
     Interest expense                      (217,072)        (234,102)        (344,969)
     Gain (loss) on sale of assets          (45,018)         (23,258)         (63,350)
     Miscellaneous Income (expense)         263,679          (12,463)         (11,031)
                                        -----------      -----------      -----------
        Total Other Income              $   857,466      $ 1,022,512      $   906,288
                                        ===========      ===========      ===========
</TABLE>

15.   SIGNIFICANT CUSTOMERS

      During the two fiscal years ended March 31, 2001 and 2000, the Company had
      one significant customer, Staples, which accounted for approximately 10%
      of consolidated gross revenues and 23% of the Consumer Products segment's
      gross revenues in each of those years. Because


                                       40
<PAGE>

      Warrantech could not reach an agreement with Staples to extend its
      agreement on terms which would not erode the profitability of the program,
      the program expired on February 26, 2001.

16.   EARNINGS PER SHARE

      The computations of earnings per share for the years ended March 31, 2002,
      2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                For the Years Ended March 31,
                                                        ----------------------------------------------
                                                            2002             2001             2000
                                                        ------------     ------------     ------------
<S>                                                     <C>              <C>              <C>
    Numerator:
       Net income (loss) applicable to common stock     $  2,256,273     $  1,866,924      ($8,206,183)
                                                        ============     ============     ============
    Denominator:
        Average outstanding shares used in the
        computation of per share earnings:
          Common Stock issued-Basic shares                15,259,437       15,265,114       15,231,146
          Stock Options (treasury method)                         --            6,104               --
                                                        ------------     ------------     ------------
          Diluted shares                                  15,261,444       15,271,218       15,231,146
                                                        ============     ============     ============
    Earnings Per Common Share:
       Basic                                            $       0.15     $       0.12           ($0.54)
                                                        ============     ============     ============
       Diluted                                          $       0.15     $       0.12           ($0.54)
                                                        ============     ============     ============
</TABLE>

17.   ACCUMULATED OTHER COMPREHENSIVE INCOME

      The components of accumulated other comprehensive income, net of related
      tax, for the years ended March 31, 2002, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                        For the Years Ended March 31,
                                                    -------------------------------------
                                                      2002          2001           2000
                                                    --------      --------      ---------
         <S>                                        <C>           <C>            <C>
         Unrealized gain/(loss) on investments      $  4,333      $ 13,269       ($16,732)
         Accumulated translation adjustments         (56,361)      (45,218)      (127,400)
                                                    --------      --------      ---------
         Accumulated other comprehensive income     ($52,028)     ($31,949)     ($144,132)
                                                    ========      ========      =========
</TABLE>

18.   SEGMENT INFORMATION

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


                                       41
<PAGE>


<TABLE>
<CAPTION>
                                                   Consumer                         Reportable
Year Ended                       Automotive        Products       International      Segments           Other            Total
----------                       ----------        --------       -------------      --------           -----            -----
<S>                             <C>              <C>              <C>              <C>                <C>            <C>
March 31, 2002
--------------
Earned Administrative Fee       $  19,019,558    $  16,364,702    $   2,353,491    $  37,737,751        ($410,445)   $  37,327,306
Income (Loss) From Operations      12,183,739       (1,531,102)        (578,137)      10,074,500       (7,171,644)       2,902,856
Pretax Income (Loss)                7,729,176       (3,704,242)        (907,600)       3,117,334          642,988        3,760,322
Net Interest/Dividend Income           95,080           55,526           26,477          177,083          461,722          638,805
Depreciation/Amortization             398,229        1,674,238           79,999        2,152,466        2,327,976        4,480,442
Total Assets                       38,627,491       30,403,020        3,418,178       72,448,689        5,102,540       77,551,229

March 31, 2001
--------------
Earned Administrative Fee       $  16,006,259    $  32,240,460    $   1,815,700    $  50,062,419        ($361,475)   $  49,700,944
Income (Loss) From Operations       8,390,016       11,672,546       (2,106,859)      17,955,703      (15,492,211)       2,463,492
Pretax Income (Loss)                4,277,109        3,927,266        1,392,294        9,596,669       (6,110,665)       3,486,004
Net Interest/Dividend Income           68,219           52,383          (16,851)         103,751          954,482        1,058,233
Depreciation/Amortization             831,016        1,871,897          768,762        3,471,675        2,945,440        6,417,115
Total Assets                       45,339,353       41,495,701        2,879,066       89,714,120        7,403,053       97,117,173

March 31, 2000
-------------
Earned Administrative Fee       $  10,332,834    $  31,364,899    $   2,240,455    $  43,938,188        ($618,407)   $  43,319,781
Income (Loss) From Operations       1,948,799        6,262,782       (5,719,376)       2,492,205      (14,366,492)     (11,874,287)
Pretax Income (Loss)               (2,235,798)      (2,057,869)      (7,066,903)     (11,360,570)         392,571      (10,967,999)
Net Interest/Dividend Income           50,146           66,104            4,093          120,343          860,326          980,669
Depreciation/Amortization             777,101        1,601,833          893,666        3,272,600        2,725,048        5,997,648
Total Assets                       64,836,045       59,014,454        7,035,343      130,885,842       16,035,312      146,921,154
</TABLE>


                                       42
<PAGE>


                     WARRANTECH CORPORATION AND SUBSIDIARIES
                      SUPPLEMENTAL QUARTERLY FINANCIAL DATA
                                   (Unaudited)

      The following fiscal 2002 and 2001 quarterly financial information for
      each of the three month periods ended June 30, September 30, December 31,
      2001 and 2000 and March 31, 2002 and 2001 is unaudited. However, in the
      opinion of management, all adjustments (consisting of normal recurring
      adjustments) necessary to present fairly the results of operations for
      such periods have been made for a fair presentation of the results shown.

<TABLE>
<CAPTION>
                                     Quarter Ended            Quarter Ended            Quarter Ended            Quarter Ended
                                        June 30,              September 30,             December 31,               March 31,
                                        --------              -------------             ------------               ---------
                                   2001          2000        2001        2000         2001         2000        2002         2001
                                   ----          ----        ----        ----         ----         ----        ----         ----
<S>                            <C>           <C>          <C>         <C>          <C>         <C>          <C>          <C>
Net Earned Administrative
  Fees                         $ 9,227,622   $12,504,977  $9,265,963  $12,792,032  $8,549,955  $11,724,995  $10,283,766  $12,678,940
Income (Loss) from Operations      (72,366)      861,909     840,440      166,696     418,177    1,070,548    1,716,605      364,339
Income Before Provision
  For Income Taxes                 120,623     1,029,019     988,447      404,369     755,804    1,309,515    1,895,448      743,101
Net income                     $   131,223   $   240,600  $  548,247  $   692,383  $  491,204  $   909,927  $ 1,085,599  $    24,014

Earnings Per Share
Basic                          $      0.01   $      0.02  $     0.04  $      0.05  $     0.03  $      0.06  $      0.07  $      0.00
Fully Diluted                  $      0.01   $      0.02  $     0.04  $      0.05  $     0.03  $      0.06  $      0.07  $      0.00
</TABLE>


                                       43
<PAGE>

                     WARRANTECH CORPORATION AND SUBSIDIARIES
                          FINANCIAL STATEMENT SCHEDULE
                 SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                   Column                          Column                     Column                     Column            Column
                      A                               B                          C                          D                 E
-----------------------------------------------------------------------------------------------------------------------------------
                                                                             Additions                 Deductions-
                                                  Balance at    -----------------------------------                      Balance at
Description                                       Beginning     Charged to Costs  Charged to Other                         End of
                                                   of Year         and Expense    Accounts-Describe    Describe (a)         Year
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>                 <C>                <C>          <C>
Year Ended March 31, 2002
     Allowance for doubtful accounts:
         Trade A/R                                $1,079,946          (823,927)                                 --      $  256,019
         Other A/R                                    45,500           (45,500)                                 --              --

Year Ended March 31, 2001
     Allowance for doubtful accounts:
         Trade A/R                                $1,164,125           (84,179)                                 --      $1,079,946
         Other A/R                                 1,168,891        (1,123,391)                                 --          45,500

Year Ended March 31, 2000
     Allowance for doubtful accounts:
         Trade A/R                                 1,115,285           258,190                             209,350       1,164,125
         Other A/R                                 1,918,256          (226,714)                            522,651       1,168,891
</TABLE>

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

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


                                       44
<PAGE>

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

      None

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

See Security Ownership of Certain Beneficial Owners and Management, which is
incorporated herein by reference to the Company's Definitive Proxy Statement for
its 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A
promulgated under the Securities and Exchange Act of 1934, as amended (the
"Proxy Statement").

Item 11. Executive Compensation

See Compliance with Section 16(a) of the Securities Exchange Act of 1934 in the
Proxy Statement, which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

See Security Ownership of Certain Beneficial Owners and Management in the Proxy
Statement, which is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

See Certain Relationships and Related Transactions in the Proxy Statement, which
is incorporated herein by reference.


                                       45
<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 20.

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

            None

      (c)   Exhibits

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

 Exhibit List           Description of Exhibit
 ------------           ----------------------

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

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

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

         3(d)     -     Certificate of Designation of 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, file no. 0-13084.

         3(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.

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

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

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


                                       46
<PAGE>

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

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

         10(g)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts
                        written in all states except Florida. Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

         10(h)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts issued
                        by CompUSA. Incorporated by reference to the Company's
                        Report on Form 10-K for the fiscal year ended March 31,
                        1996, file no. 0-13084.

         10(i)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts
                        written by WCPS of Florida, Inc. (excluding Inacom
                        Corporation). Incorporated by reference to the Company's
                        Report on Form 10-K for the fiscal year ended March 31,
                        1996, file no. 0-13084.

         10(j)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts
                        written by WCPS of Florida, Inc. through CompUSA.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 1996, file
                        no. 0-13084.

         10(k)    -     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). Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

         10(l)    -     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). Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

         10(m)    -     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). Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

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

         10(o)    -     Promissory Note agreement and pledge dated March 15,
                        2002 between the Company and Joel San Antonio.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 2001, file
                        no. 0-13084.

         10(p)    -     Promissory Note agreement and pledge dated January 31,
                        2001 between the Company and Mr. William Tweed.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 2001, file
                        no. 0-13084.


                                       47
<PAGE>

         10(q)    -     Promissory Note agreement and pledge dated January 31,
                        2001 between the Company and Mr. Jeff J. White.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 2001, file
                        no. 0-13084.

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

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

         10(t)    -     Nonqualified stock option agreement dated August 22,
                        2001, by and between Warrantech Corporation, American
                        International Group, Inc., and others. Incorporated by
                        reference to the Company's Report on Form 10-Q for the
                        quarter ended December 31, 2001, file no. 0-13084.

        *10(u)    -     Obligor agreement between Butler Financial Solutions LLC
                        and the Company, dated April 1, 2000.

        *10(v)    -     Master Agreement between Butler Financial Solutions, LLC
                        and the Company, dated November 21, 2001.

        *10(w)    -     Employment Agreement dated April 1, 2000 between the
                        Company and Rick Rodriguez.

        *21       -     Subsidiaries of the Company.

         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 March 31, 1988, file
                        no. 0-13084.


                                       48
<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: June 20, 2002                           By: /s/ Joel San Antonio
                                               ------------------------------
                                               Joel San Antonio,
                                               Chairman of the Board and
                                               Chief Executive Officer


Dated: June 20, 2002                           By: /s/ Richard F. Gavino
                                               -------------------------------
                                               Richard F. Gavino,
                                               Executive Vice President and
                                                 Chief Financial Officer


                                       49
<PAGE>

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on June 20, 2002.

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

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

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

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

/s/ Gordon Paris            Director
-------------------------
Gordon Paris

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

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


                                       50
<PAGE>

 Exhibit List           Description of Exhibit
 ------------           ----------------------

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

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

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

          3(d)    -     Certificate of Designation of 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, file no. 0-13084.

          3(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.

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

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

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

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

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

         10(g)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts
                        written in all states except Florida. Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

         10(h)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts issued
                        by CompUSA. Incorporated by reference to the Company's
                        Report on Form 10-K for the fiscal year ended March 31,
                        1996, file no. 0-13084.

         10(i)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts
                        written by WCPS of Florida, Inc. (excluding Inacom
                        Corporation). Incorporated by reference to the Company's
                        Report on Form 10-K for the fiscal year ended March 31,
                        1996, file no. 0-13084.

         10(j)    -     Insurance policy between the Company and Houston General
                        Insurance Company pertaining to service contracts
                        written by WCPS of Florida, Inc. through CompUSA.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 1996, file
                        no. 0-13084.

         10(k)    -     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). Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

         10(l)    -     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). Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

         10(m)    -     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). Incorporated by
                        reference to the Company's Report on Form 10-K for the
                        fiscal year ended March 31, 1996, file no. 0-13084.

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

         10(o)    -     Promissory Note agreement and pledge dated March 15,
                        2002 between the Company and Joel San Antonio.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 2001, file
                        no. 0-13084.

         10(p)    -     Promissory Note agreement and pledge dated January 31,
                        2001 between the Company and Mr. William Tweed.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 2001, file
                        no. 0-13084.

         10(q)    -     Promissory Note agreement and pledge dated January 31,
                        2001 between the Company and Mr. Jeff J. White.
                        Incorporated by reference to the Company's Report on
                        Form 10-K for the fiscal year ended March 31, 2001, file
                        no. 0-13084.

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

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

         10(t)    -     Nonqualified stock option agreement dated August 22,
                        2001, by and between Warrantech Corporation, American
                        International Group, Inc., and others. Incorporated by
                        reference to the Company's Report on Form 10-Q for the
                        quarter ended December 31, 2001, file no. 0-13084.

        *10(u)    -     Obligor agreement between Butler Financial Solutions,
                        LLC and the Company, dated April 1, 2000.

        *10(v)    -     Master Agreement between Butler Financial Solutions, LLC
                        and the Company, dated November 21, 2001.

        *10(w)    -     Employment Agreement dated April 1, 2000 between the
                        Company and Rick Rodriguez.

        *21       -     Subsidiaries of the Company.

         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 March 31, 1988, file
                        no. 0-13084.


                                       51