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Warrantech Reports Second Quarter Fiscal 2005 Results

BEDFORD, Texas--Nov. 1, 20047, 2004--Warrantech Corporation (OTC:WTEC), a leading independent provider of service contracts and after-market warranties, today announced that it has filed its Form 10-Q for the second quarter ended Sept. 30, 2004 of fiscal year 2005.

For the first six months of fiscal 2005, the company reported a net loss of ($2.4) million or ($0.15) per diluted share compared to net income of $53,151 or $0.00 per diluted share for the comparable six month period in fiscal 2004.

"Focus brings growth," said Joel San Antonio, Warrantech chairman and chief executive officer. "Between complex accounting requirements and a tough operating environment, the past few years have been challenging for Warrantech. Nevertheless, we have survived the worst and with that behind us we have a committed management team that is working hard to improve existing programs, while developing new ones. We believe that with most of our distractions behind us, our dedication and determination will reap positive rewards for shareholders and customers alike."

Gross Revenues

Gross revenues for the second quarter of fiscal 2005 ended Sept. 30, 2004, were $23.6 million, down $17.8 million or 43 percent compared to $41.4 million in the second quarter of fiscal 2004. Gross revenues in the Consumer Products segment rose 6 percent due to increased sales by several major customers and new business during the second quarter 2005 to $10.0 million, up $0.5 million from $9.5 million in the comparable 2004 quarter. The International segment reported gross revenues of $1.9 million during the second quarter fiscal 2005, down 29 percent or $0.8 million from $2.6 million in the same quarter the previous year resulting from the discontinuance of auto warranty sales in Puerto Rico. The Automotive segment had gross revenues of $12.0 million during the second quarter fiscal 2005, down $17.7 million or 60 percent from $29.7 million in the same quarter in fiscal 2004 due to the downturn in sales of new cars and a reduction in volume arising from premium rate increases.

Gross revenues for the first six months of fiscal 2005 ended Sept. 30, 2004, were $56.6 million, down 30 percent or $24.0 million compared to $80.6 million in the same period in fiscal 2004. Gross revenues in the Consumer Products segment rose 4 percent during the first six months of fiscal 2005 to $19.4 million, up $0.8 million from $18.6 million in the comparable 2004 period due to increased sales by several major customers and new business. The International segment reported gross revenues of $3.9 million during the first six months of fiscal 2005, down 12 percent or $0.5 million from $4.5 million in the same period the previous year resulting from the discontinuance of auto warranty sales in Puerto Rico. The Automotive segment had gross revenues of $33.8 million during the first six months of fiscal 2005, down $24.2 million or 42 percent from $58.0 million in the same period in fiscal 2004 due to the downturn in sales of new cars and a reduction in volume arising from premium rate increases..

Gross Profit

Gross profit for the second quarter fiscal 2005 was $5.7 million, down $3.3 million or 37 percent compared to $9.0 million in the same quarter in fiscal 2004. The Automotive segment gross profit was $2.1 million, down $0.5 million or 20 percent during the second quarter fiscal 2005 compared to $2.6 million in the same quarter in fiscal 2004. The Consumer Products segment gross profit was $3.8 million, down $0.3 million or 7 percent during the second quarter fiscal 2005 compared to $4.1 million in the same quarter in fiscal 2004. International segment gross profit (loss) was ($0.2) million, down $2.1 million or 111 percent during the second quarter fiscal 2005 compared to $1.9 million the same quarter in fiscal 2004.

Gross profit for the first six months of fiscal 2005 was $12.1 million, down $4.2 million or 26 percent compared to $16.3 million in the same period in fiscal 2004. The Automotive segment gross profit was $3.9 million, down $0.2 million or 6 percent during the first six months of fiscal 2005 compared to $4.1 million in the same period in fiscal 2004. The Consumer Products segment gross profit was $7.1 million, down $0.8 million or 10 percent during the first six months of fiscal 2005 compared to $7.9 million in the same period in fiscal 2004. International segment gross profit was $1.0 million, down $2.0 million or 67 percent during the first six months of fiscal 2005 compared to $3.0 million the same period in fiscal 2004.

Service, Selling, General and Administrative (SG&A)

SG&A expenses for the second quarter of fiscal 2005 were $6.7 million, down $1.1 million or 14 percent from $7.8 million in the second quarter fiscal of 2004. For the first six months of fiscal 2005, SG&A expenses were $13.6 million, down $1.5 million or 10 percent compared to $15.1 million in the same period in fiscal 2004. Lower employee costs were the primary reason for lower SG&A expenses during the second quarter and six month periods in fiscal 2005. Employee salary costs were lower at $4.0 million in the second quarter fiscal 2005, down $ .2 million or 4 percent compared to $4.6 million in the same quarter in fiscal 2004. For the first six months of fiscal 2005, employee costs were $ 8.3 million, down $ .7 million or 8 percent compared to $9.0 million in the same period in fiscal 2004.

Income from Operations

For the second quarter fiscal 2005, Warrantech had a loss from operations of $1.8 million compared to an operating income of $0.2 million in the same period last year. For the first six months of fiscal 2005, the company has a loss from operations of $3.2 million compared to an operating loss of $0.9 million for the same period in fiscal 2004. The change in income from operations was primarily due the lower volumes in the Automotive segment and to higher levels of revenue, which must be deferred to future periods.

About Warrantech:

Warrantech Corporation administers and markets service contracts and after-market warranties on automobiles, automotive components, recreational vehicles, appliances, jewelry, musical instruments, consumer electronics, homes, computer and computer peripherals for retailers, distributors and manufacturers. The company continues to expand its domestic and global penetration, and now provides its services in the United States, Canada, Puerto Rico and Latin America. For additional information on Warrantech, access http://www.warrantech.com/.

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

                  For the Three Months Ended  For the Six Months Ended
                         September 30,              September 30,
                      2004        2003(a)       2004         2003(a)

Gross revenues     $23,567,267  $41,416,828  $56,652,203  $80,586,985
 Revenues deferred
  to future
  periods          (22,788,173)  (2,961,567) (53,830,872) (12,582,153)
 Deferred revenues
  earned            24,037,996   (5,480,038)  45,947,250   (4,635,787)
Net (increase)
 decrease in
 deferred revenues   1,249,823   (8,441,605)  (7,883,622) (17,217,940)
Net revenues        24,817,090   32,975,223   48,678,581   63,369,045

Direct costs        19,138,847   23,973,097   36,538,921   47,071,625
Gross Profit         5,678,243    9,002,126   12,139,660   16,297,420

Operating expenses
  Service, selling,
   and general and
   administrative    6,671,319    7,752,032   13,636,526   15,102,799
  Provision for
   bad debt expense    111,278      165,000      242,557      260,000
  Depreciation and
   amortization        722,187      892,893    1,450,676    1,820,973
Total costs and
 expenses            7,504,784    8,809,925   15,329,759   17,183,772

Income (loss) from
 operations         (1,826,541)     192,201   (3,190,099)    (866,352)
Other income           328,589      515,663      507,230      719,985

Income (loss)
 before provision
 for income taxes   (1,497,952)     707,864   (2,682,869)    (166,367)
Provision
 (benefit) for
 income taxes           96,086      179,722     (329,292)    (219,518)

Net income (loss)  ($1,594,038)    $528,142  ($2,353,577)     $53,151
                   ============ ============ ============ ============

Earnings (loss)
 per share:
    Basic               ($0.10)       $0.03       ($0.15)       $0.00
                   ============ ============ ============ ============
    Diluted             ($0.10)       $0.03       ($0.15)       $0.00
                   ============ ============ ============ ============

Weighted average
 number of shares
 outstanding:
    Basic           15,389,412   15,352,718   15,394,020   15,319,117
                   ============ ============ ============ ============
    Diluted         15,389,412   16,178,600   15,394,020   16,153,599
                   ============ ============ ============ ============

(a) Restated for comparability


                WARRANTECH CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEETS

                                           (Unaudited)
                                          September 30,     March 31,
                                              2004            2004
                                         --------------- -------------
A S S E T S
-----------
Current assets:
Cash and cash equivalents                    $3,175,175    $5,229,773
Investments in marketable securities          1,086,937     1,370,731
Accounts receivable, (net of allowances
 of $437,696 and $233,667, respectively)     15,680,453    23,369,612
Other receivables - net                       8,623,970     7,322,289
Deferred income taxes                         3,478,250     3,478,250
Employee receivables                             41,822        70,908
Prepaid expenses and other current
 assets                                         558,759       728,265
                                       ----------------- -------------
   Total current assets                      32,645,366    41,569,828
                                       ----------------- -------------

Property and equipment, net                   4,845,105     5,746,851
                                       ----------------- -------------

Other assets:
Excess of cost over fair value of
 assets acquired (net of accumulated
 amortization of $5,825,405)                  1,637,290     1,637,290
Deferred income taxes                        19,576,871    18,879,171
Deferred direct costs                       196,031,302   186,513,417
Investments in marketable securities          1,145,808     1,083,400
Restricted cash                                 800,000       825,000
Split dollar life insurance policies            900,145       900,145
Other assets                                     37,060        29,448
                                       ----------------- -------------
          Total other assets                220,128,476   209,867,871

                                       ----------------- -------------
                    Total Assets           $257,618,947  $257,184,550
                                       ================= =============


                WARRANTECH CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEETS

                                           (Unaudited)
                                          September 30,    March 31,
                                              2004           2004
                                         --------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
 (CAPITAL DEFICIENCY)
-----------------------------------------

Current liabilities:
   Current maturities of long-term debt
    and capital lease obligations              $573,520      $664,406
   Insurance premiums payable                30,115,922    31,613,047
   Income taxes payable                          31,154        48,099
   Accounts and commissions payable           5,903,469     7,083,459
   Claims liability - Reliance                3,419,587     5,608,893
   Accrued expenses and other current
    liabilities                               4,602,556     3,776,199
                                         --------------- -------------
      Total current liabilities              44,646,208    48,794,103
                                         --------------- -------------

Deferred revenues                           236,725,838   228,955,971
Claims liability - Reliance                   3,224,620     3,882,685
Long-term debt and capital lease
 obligations                                    938,699       980,903
Deferred rent payable                           433,075       369,839
                                         --------------- -------------
   Total liabilities                        285,968,440   282,983,501
                                         --------------- -------------

Commitments and contingencies                        --            --

Stockholders' equity (Capital
 Deficiency):
   Preferred stock - $.0007 par value
    authorized - 15,000,000
    Shares issued - none at September
    30, 2004 and March 31, 2004                      --            --
   Common stock - $.007 par value
    authorized - 30,000,000
      Shares issued - 16,586,283 shares
       at September 30, 2004 and
       March 31,2004                            116,106       116,106
   Additional paid-in capital                23,800,228    23,800,228
   Loans to directors and officers          (10,890,157)  (10,747,470)
   Accumulated other comprehensive
    income, net of taxes                         96,855       150,801
   Retained earnings (deficit)              (37,284,636)  (34,931,059)
                                         --------------- -------------
                                            (24,161,604)  (21,611,394)
   Treasury stock - at cost, 1,187,606
    shares at September 30, 2004 and
    March 31, 2004                           (4,187,889)   (4,187,557)
                                         --------------- -------------
           Total Stockholders' Equity
            (Capital Deficiency)            (28,349,493)  (25,798,951)
                                         --------------- -------------

                                         --------------- -------------
        Total Liabilities and
         Stockholders' Equity (Capital
         Deficiency)                       $257,618,947  $257,184,550
                                         =============== =============