**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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** **

**FORM 10-K**

 

**ý****                                ****ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 
| **For the fiscal year ended:** | ** ** | **Commission file number:** |
|--------------------------------|------------|-----------------------------|
| **April 30, 2005**        | ** ** | **0-14939**                 |

 

**AMERICA’S CAR-MART, INC.**

(Exact name of registrant as specified in its charter)

 
| **Texas**                                                       | ** ** | **63-0851141**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

**1501 Southeast Walton Blvd., Suite 213,Bentonville, Arkansas**

(Address of principal executive offices)

 

**72712**

(Zip Code)

 

**(479) 464-9944**

(Registrant’s telephone number, including area code)

 

Securities registeredpursuant to Section 12(b) of the Act: **None**

 

Securities registeredpursuant to Section 12(g) of the Act:  **Common Stock, par value$.01 per share**

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.     Yes ý    No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

 

Indicateby check mark whether the Registrant is an accelerated filer (as defined in ExchangeAct Rule 12b-2).   Yes ý  No o

 

As of thelast business day of the registrant’s most recently completed second fiscalquarter (October 29, 2004), the aggregate market value of the registrant’scommon stock (based upon a closing price of $23.02) held by non-affiliates (allpersons other than executive officers, directors and holder’s of 10% or more ofthe Registrant’s common stock) (9,525,023 shares) was $219,266,030.

 

As of July 13,2005 there were 11,846,074 shares of the Registrant’s common stock outstanding.

 

**DocumentsIncorporated by Reference:**

 

Portions of theRegistrant’s definitive Proxy Statement for its Annual Meeting of Stockholdersto be held in 2005 are incorporated by reference into Part III of thisreport, with the exception of information regarding executive officers requiredunder Item 10 of Part III, which information is included in Part I,Item 1.

 

** **

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**PART I**

 

## **Forward-LookingStatements**

## ** **

ThisAnnual Report on Form 10-K contains numerous “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of1995.  These forward-looking statementsaddress the Company’s future objectives, plans and goals, as well as theCompany’s intent, beliefs and current expectations regarding future operatingperformance, and can generally be identified by words such as “may,” “will,” “should,”“believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” and othersimilar words or phrases.  Specific eventsaddressed by these forward-looking statements include, but are not limited to:

 

•                                          openingnew stores at the rate of 8% to 13% per year;

 

•                                          thecontinuation of same store revenue growth;

 

•                                          revenuegrowth of approximately 10% to 14% in fiscal 2006;

 

•                                          receivablesgrowth slightly greater than revenue growth;

 

•                                          theCompany’s business and growth strategies;

 

•                                          financingthe majority of growth from profits; and

 

•                                          havingadequate liquidity to satisfy its capital needs.

 

Theseforward-looking statements are based on the Company’s current estimates andassumptions and involve various risks and uncertainties.  As a result, you are cautioned that theseforward-looking statements are not guarantees of future performance, and thatactual results could differ materially from those projected in these forward-lookingstatements.  Factors that may causeactual results to differ materially from the Company’s projections includethose risks described elsewhere in this report, as well as:

 

•                                          theavailability of credit facilities for the Company’s business;

 

•                                          theCompany’s ability to effectively underwrite and collect its loans;

 

•                                          competition;

 

•                                          dependenceon existing management;

 

•                                          changesin lending laws or regulations; and

 

•                                          generaleconomic conditions in the markets in which the Company operates, includingfluctuations in employment levels.

 

TheCompany undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.  You are cautionednot to place undue reliance on these forward-looking statements, which speakonly as of the dates on which they are made.

 

**Item 1.**  **Business**

 

## **Business andOrganization**

## ** **

America’s Car-Mart, Inc., a Texas corporation(the “Company”), is the largest publicly held automotive retailer in the UnitedStates focused exclusively on the “Buy Here/Pay Here” segment of the used carmarket.  References to the Companytypically include the Company’s consolidated subsidiaries.  The Company’s operations are principallyconducted through its two operating subsidiaries, America’s Car-Mart, Inc.,an Arkansas corporation, (“Car-Mart of Arkansas”) and Colonial Auto Finance, Inc.(“Colonial”).  Collectively, Car-Mart ofArkansas and Colonial are referred to herein as “Car-Mart.”  The Company primarily sells older model usedvehicles and provides financing for substantially all of its customers. Many ofthe Company’s customers have limited financial resources and would not qualifyfor conventional financing as a result of limited credit histories or pastcredit problems.  As of April 30,2005, the Company operated 76 stores located primarily in small citiesthroughout the South-Central United States.

 

In October 2001, the Company made the decisionto sell all of its operating subsidiaries except Car-Mart, and relocate itscorporate headquarters to Bentonville, Arkansas where Car-Mart is based.  As a result of this decision, all of theCompany’s other operating subsidiaries were sold and their operating resultshave been included in discontinued operations. The Company sold its last remaining discontinued operation in July 2002.  Discontinued operations are described in NoteO in the accompanying consolidated financial statements.

 

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## **Business Strategy**

## ** **

Ingeneral, it is the Company’s objective to continue to expand its Buy Here/PayHere used car operation using the same business model that has been developedby Car-Mart over the last 24 years.  Thisbusiness strategy focuses on:

 

•                  **Collecting Customer Accounts.**  Collecting customer accounts is perhaps thesingle most important aspect of operating a Buy Here/Pay Here used car businessand is a focal point for store level and corporate office personnel on a dailybasis.  Periodically, the Company measuresand monitors the collection results of its stores using internally developeddelinquency and account loss standards. Substantially all associate incentive compensation is tied directly orindirectly to collection results.  Overthe last eight years, Car-Mart’s annual credit losses as a percentage of saleshave been relatively stable ranging from a low of 17.0% to a high of 21.3%.  The Company believes that it can continue tobe successful provided it maintains its credit losses within or below its historicalcredit loss range.

 

•                  **Maintaining a Decentralized Operation.**  The Company’s dealerships will continue tooperate on a decentralized basis.  Eachstore is responsible for buying (with the assistance of a corporate officebuyer) and selling its own vehicles, making credit decisions and collecting theloans it originates in accordance with established policies andprocedures.  Most customers make theirpayments in person at one of the Company’s dealerships.  This decentralized structure is complementedby the oversight and involvement of corporate office management and themaintenance of centralized financial controls, including an internal compliancestaff.

 

•                  **Expanding Through Controlled Organic Growth.**  The Company will continue to expand its operationsby increasing revenues at existing dealerships and opening newdealerships.  The Company expects to opennew stores at the rate of 8% to 13% per annum for the foreseeable future.  The Company currently has no plans to acquireexisting dealerships of other Buy Here/Pay Here operators.

 

•                  **Selling Basic Transportation.**  The Company will continue to focus on sellingbasic and affordable transportation to its customers.  The Company generally does not sell luxurycars or sports cars.  Approximately 80%of vehicles are sold at prices ranging between $5,000 and $9,000, with anaverage of $7,163 in fiscal 2005.  Byselling vehicles in this price range the Company is able to keep the terms ofits installment sales contracts short (average of 26 months), while requiringrelatively low payments.

 

•                  **Operating in Smaller Communities.**  The majority of the Company’s dealerships arelocated in cities and towns with a population of 50,000 or less.  The Company believes that by operating insmaller communities it experiences better collection results as its customersare more stable in their employment and place of residence, and are easier tolocate in the event their loans become delinquent.  Further, the Company believes that operatingcosts, such as salaries, rent and advertising, are lower in smaller communitiesthan in major metropolitan areas.

 

•                  **Promoting from Within.** It has been the Company’s practice to attempt to hire honest andhardworking individuals to fill entry level positions, nurture and developthese associates, and attempt to fill the vast majority of its managerialpositions from within the Company.  By promotingfrom within, the Company believes it is better able to train its associates inthe Car-Mart way of doing business, maintain the Company’s unique culture and developthe loyalty of its associates.

 

•                  **Cultivating Customer Relationships.**  The Company believes that developing andmaintaining a relationship with its customers is critical to the success of theCompany.  A large percentage of sales atmature stores are made to repeat customers, and the Company estimates anadditional 10% to 15% of sales result from customer referrals.  By developing a personal relationship withits customers the Company believes it is in a better position to assist a customer,and the customer is more likely to cooperate with the Company, should thecustomer experience financial difficulty during the term of his or herinstallment loan with the Company.  TheCompany is able to cultivate these relationships as the majority of itscustomers make their payments in person at one of the Company’s dealerships ona weekly or bi-weekly basis.

 

## **Business Strengths**

## ** **

TheCompany believes it possesses a number of strengths or advantages thatdistinguish it from most of its competitors. These business strengths include:

 

•                  **Experienced and Motivated Management. **The Company’s executive officers have an average tenure of approximately15 years.  Several of Car-Mart’s storemanagers have been with the Company for more than ten years.  Each store manager is compensated, at leastin part (some entirely), based upon the net income of his or her store.  A significant portion of the compensation ofCar-Mart senior management is incentive based.

 

•                  **Proven Business Practices.** The Company’s operations are highly structured.  While stores are operated on a decentralizedbasis, the Company has established policies, procedures and business practicesfor virtually every aspect of a store’s operation.  Detailed operating manuals are available toassist the store manager and office and collections personnel in performingtheir daily tasks.  As a result, eachstore is operated in a uniform manner. Further, corporate office personnel monitor the stores’ operationsthrough weekly visits and a number of daily, weekly and monthly communicationsand reports.

 

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•                  **Low Cost Operator.** The Company has structured its store and corporate office operations tominimize operating costs.  The number ofassociates employed at the store level is dictated by the number of active customeraccounts each store services.  Associatecompensation is standardized for each store position.  Other operating costs are closely monitoredand scrutinized.  Technology is utilizedto maximize efficiency.  The Companybelieves its operating costs as a percentage of revenues, or per unit sold, isamong the lowest in the industry.

 

•                  **Well Capitalized / Limited External Capital Required for Growth.**  As of April 30, 2005, the Company’s debtto equity ratio was 0.28 to 1.0, which the Company believes is lower than themajority of its competitors.  Further, theCompany believes it can fund the majority of its planned growth from net incomegenerated from operations.  Of the externalcapital that may be needed to fund growth, the Company plans to draw on itsexisting revolving credit facilities, or renewals or replacements of thosefacilities.

 

•                  **Significant Expansion Opportunities.**  The Company generally targets smallercommunities to locate its dealerships (i.e., populations from 20,000 to50,000), but has had success in larger cities such as Tulsa, Oklahoma andLittle Rock, Arkansas.  The Companybelieves there are numerous suitable communities within the eight states inwhich the Company currently operates to satisfy anticipated store growth for thenext several years.  During fiscal 2006,the Company plans to add locations principally in Texas, Missouri and Tennessee.

 

## **Operations**

## ** **

•                  **Store Organization.** Stores are operated on a decentralized basis.  Each store is responsible for the buying (withthe assistance of a corporate office buyer) and selling of vehicles, makingcredit decisions, and servicing and collecting the installment loans itoriginates.  Stores also maintain their ownrecords and make daily deposits.  Store-levelfinancial statements are prepared by the corporate office on a monthlybasis.  Depending on the number of activecustomer accounts, a store may have as few as two or as many as 20 associatesemployed at that location.  Associatepositions at a large store may include a store manager, assistant storemanager, manager trainee, office manager, assistant office manager, servicemanager, buyer, collections personnel, salesmen and lot attendants.  Stores are open Monday through Saturday from9:00 a.m. to 6:00 p.m.  TheCompany has both regular and satellite stores. Satellite stores are similar to regular stores, except that they tend tobe smaller, sell fewer vehicles and their financial performance is not capturedin a stand alone financial statement, but rather is included in the financialresults of the sponsoring regular store.

 

•                  **Store Locations and Facilities.** Below is a summary of stores opened during thefiscal years ended April 30, 2005, 2004 and 2003:

 
| ** **                   | ** ** | **Years Ended April 30,** | ** ** |
|------------------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Stores at  beginning of year |       | 70                             |       | 64 |   | 55 |   |
| New stores  opened           |       | 6                              |       | 7 |   | 9 |   |
| Stores closed                |       |                           |       | (1 | ) |   |   |
|                         |       |                           |       |   |   |   |   |
| Stores at end of  year       |       | 76                             |       | 70 |   | 64 |   |

 

Belowis a summary of store locations by state as of April 30, 2005, 2004 and2003:

 
| ** **          | ** ** | **As of April 30,** | ** ** |
|---------------------|------------|--------------------------|------------|
| **Stores by State** | ** ** | **2005**                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| Arkansas            |       | 34                       |       | 32 |   | 33 |   |
| Oklahoma            |       | 13                       |       | 13 |   | 13 |   |
| Texas               |       | 14                       |       | 10 |   | 4 |   |
| Kentucky            |       | 7                        |       | 7 |   | 7 |   |
| Missouri            |       | 6                        |       | 6 |   | 5 |   |
| Kansas              |       | 1                        |       | 1 |   | 1 |   |
| Indiana             |       | 1                        |       | 1 |   | 1 |   |
|                |       |                     |       |   |   |   |   |
| Total               |       | 76                       |       | 70 |   | 64 |   |

 

Stores are typically located in smallercommunities.  As of April 30, 2005,approximately 75% of the Company’s stores were located in cities withpopulations of less than 50,000.  Storesare located on leased or owned property between one and three acres insize.  When opening a new store theCompany will typically use an existing structure on the property to conductbusiness, or purchase a modular facility while business at the new locationdevelops.  Store facilities typicallyrange in size from 1,500 to 5,000 square feet.

 

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•                  **Purchasing.**  TheCompany purchases vehicles primarily through wholesalers and new cardealers.  Occasionally the Company willpurchase vehicles from auctions.  Themajority of vehicle purchasing is performed by the Company’s buyers, althoughcertain store managers are authorized to purchase vehicles.  On average, a buyer will purchase vehiclesfor three stores.  Buyers report to thestore manager, or managers, for whom they buy and to a regional purchasingdirector.  The regional purchasingdirectors monitor the quantity and quality of vehicles purchased and comparethe cost of similar vehicles purchased among different buyers.

 

Generally, the Company’s buyers purchase vehiclesbetween three and ten years of age with 60,000 to 120,000 miles, and paybetween $2,500 and $6,000 per vehicle. The Company focuses on providing basic transportation to itscustomers.  The Company generally doesnot purchase sports cars or luxury cars. Some of the more popular vehicles the Company sells include the FordTaurus and Escort, Chevrolet Lumina and Cavalier, Dodge Neon, Pontiac Grand Amand Oldsmobile Cutlass.  The Company alsosells a number of trucks.  Buyers inspectand test-drive almost every vehicle they purchase.  Buyers attempt to purchase vehicles thatrequire little or no repair as the Company has limited facilities to repair orrecondition vehicles.

 

•                  **Selling, Marketing and Advertising.**  Stores generally maintain an inventory of 15to 75 vehicles depending on the maturity of the dealership.  Inventory turns over approximately 12 to 14times each year.  Approximately 80% of vehiclesare sold at prices ranging between $5,000 and $9,000, with an average of $7,163in fiscal 2005.  Selling is doneprincipally by the store manager, assistant manager, manager trainee or salesassociate.  Sales associates are paid acommission for sales that they make in addition to an hourly wage.  Sales are made on an “as is” basis; however,customers are given an option to purchase a four month or 4,000 mile servicecontract for $345 which covers certain vehicle components and assemblies.  For covered components and assemblies, theCompany coordinates service with third party service centers with which theCompany typically has previously negotiated labor rates and mark-up percentageson parts.  The majority of the Company’scustomers elect to purchase a service contract when purchasing a vehicle.

 

The Company’s objective is to offer its customersbasic transportation at a fair price and treat each customer in such a manneras to earn his or her repeat business. The Company attempts to build a positive reputation in each communitywhere it operates and generate new business from such reputation as well as fromcustomer referrals.  The Companyestimates that approximately 10% to 15% of the Company’s sales result fromcustomer referrals.  The Companyrecognizes repeat customers with silver, gold and platinum plaques representingthe purchase of five, ten and 15 vehicles, respectively.  These plaques are prominently displayed atthe dealership where the vehicles were purchased.  For mature dealerships, a large percentage ofsales are to repeat customers.

 

The Company primarily advertises in local newspapers,on the radio and on television.  Inaddition, periodically the Company conducts promotional sales campaigns inorder to increase sales.

 

•                  **Underwriting and Finance.** The Company provides financing to substantially all of its customers whopurchase a vehicle at one of its stores. The Company only provides financing to its customers for the purchase ofits vehicles, and the Company does not provide any type of financing tonon-customers.  The Company’s installmentsales contracts typically include down payments ranging from 0% to 17% (averageof 6%), terms ranging from 12 months to 36 months (average of 26 months), andannual interest charges ranging from 6% to 19% (average of 12% at April 30,2005). The Company requires that payments be made on a weekly, bi-weekly,semi-monthly or monthly basis to coincide with the day the customer is paid byhis or her employer.  Upon the customerand the Company reaching a preliminary agreement as to financing terms, theCompany obtains a credit application from the customer which includesinformation regarding employment, residence and credit history, personalreferences and a detailed budget itemizing the customer’s monthly income andexpenses.  Certain information is thenverified by Company personnel.  After theverification process, the store manager makes the decision to accept, reject ormodify (perhaps obtain a greater down payment or require an acceptableco-buyer) the proposed transaction.  Ingeneral, the store manager attempts to assess the stability and character ofthe applicant.  The store manager whomakes the credit decision is ultimately responsible for collecting the loan,and his or her compensation is directly related to the collection results ofhis or her store.

 

•                  **Collections.**  All ofthe Company’s retail installment contracts are serviced by Company personnel atthe store level.  The majority of theCompany’s customers make their payments in person at the store where theypurchased their vehicle, although some customers send their payments throughthe mail.  Each store closely monitorsits customer accounts using the Company’s proprietary receivables andcollections software that stratifies past due accounts by the number of dayspast due.  The Company believes that thetimely response to past due accounts is critical to its collections success.

 

The Company has established standards with respect tothe percentage of accounts one and two weeks past due, the percentage ofaccounts three or more weeks past due, and for larger stores, one and two weekspast due, 15 to 44 days past due and 45-plus days past due (delinquencystandards), and the percentage of accounts where the vehicle was repossessed orthe account was charged off that month (account loss standard).  Store personnel are paid a monthly bonusbased upon reaching a budgeted unit sales target at their store for the month.  This bonus is paid only if the store has met itsdelinquency and account loss standards for the month.

 

The Company works very hard to keep its delinquencypercentages low, and not to repossess vehicles. Accounts one day late are sent a notice in the mail.  Accounts three days late are contacted by telephone.  Notes from each telephone contact areelectronically maintained in the Company’s computer system.  If a customer becomes severely delinquent inhis or her payments, and management determines that timely collection of futurepayments is not probable, the Company will take steps to repossess thevehicle.  The Company attempts toamicably resolve payment delinquencies prior to repossessing a vehicle.

 

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Periodically,the Company enters into contract modifications with its customers to extend thepayment terms.  The Company only entersinto a contract modification or extension if it believes such action willincrease the amount of monies the Company will ultimately realize on thecustomer’s account.  For those vehicles thatare repossessed, the majority are returned or surrendered by the customer on avoluntary basis.  Other repossessions areperformed by Company personnel or third party repossession agents.  Depending on the condition of a repossessedvehicle, it is either resold on a retail basis through a Company store, or soldfor cash to a wholesaler.

 

•                  **New Store Openings.** The Company plans to add stores at the rate of 8% to 13% per year.  Senior management, with the assistance of thecorporate office staff, makes decisions with respect to the communities inwhich to locate a new store and the specific sites within those communities.  New stores are typically located in thegeneral proximity of existing stores to facilitate the corporate office’soversight of the Company’s stores.

 

The Company’s approach with respect to new storeopenings is one of gradual development. The manager in charge of a new store is normally a recently promotedassociate who was an assistant manager at a larger store or a manager trainee.  The facility may be of a modular nature or anexisting structure.  New stores operatewith a low level of inventory and personnel. As a result of the modest staffing level, the new store manager performsa variety of duties (i.e., selling, collecting and administrative tasks) duringthe early stages of his or her store’s operations.  As the store develops and the customer basegrows, additional staff is hired.

 

Monthly sales levels at new stores are substantiallyless than sales levels at mature stores. Over time new stores gain recognition in their communities, and acombination of customer referrals and repeat business generally facilitatestrong sales growth.  Sales growth at newstores can exceed 20% per year for a number of years.  Mature stores typically experience annualsales growth, but at a lower percentage than new stores.

 

New stores are generally provided with $350,000 incapital from the corporate office during the first six to eight months ofoperation.  These funds are usedprincipally to fund receivables growth. After this six to eight month start-up period, new stores typicallybecome cash flow positive.  That is,receivables growth is funded from store profits rather than additional capitalfrom the corporate office.  Thislimitation of capital to new, as well as existing, stores serves as animportant operating discipline. Essentially, stores must be profitable in order to grow.  Typically, new stores are profitable within afew months of opening.

 

•                  **Corporate Office Oversight and Management.**  The corporate office, based in Bentonville,Arkansas, consists of area operations managers, regional vice presidents, regionalpurchasing directors, a vice president of purchasing, compliance auditors, associateand management development personnel, accounting and management informationsystems personnel, administrative personnel and senior management.  The corporate office monitors and overseesstore operations.  The Company’s storestransmit and submit operating and financial information and reports to thecorporate office on a daily, weekly and monthly basis.  This information includes cash receipts anddisbursements, inventory and receivables levels, receivables agings and salesand account loss data.  The corporateoffice uses this information to compile Company-wide reports, plan store visitsand prepare monthly financial statements.

 

Periodically, area operations managers, regional vicepresidents, compliance auditors and senior management visit the Company’sstores to inspect, review and comment on operations.  Often, the corporate office assists intraining new managers and other store level associates.  In addition to financial results, thecorporate office uses delinquency and account loss standards and a point systemto evaluate a store’s performance.

 

The Company’s store managers meet monthly on an area,regional or Company-wide basis.  At thesemeetings, corporate office personnel provide training and recognizeachievements of store managers.  Near theend of every fiscal year the respective area operations manager, regional vicepresident and senior management conduct “projection” meetings with each storemanager.  At these meetings the year’sresults are reviewed and ranked relative to other stores, and both quantitativeand qualitative goals are established for the upcoming year.  The qualitative goals may focus on staff development,effective delegation and leadership and organization skills.  Quantitatively, the Company establishes unitsales goals and, depending on the circumstances, may establish delinquency,account loss or expense goals.

 

The corporate office is also responsible forestablishing policy, maintaining the Company’s management information system,conducting compliance audits, orchestrating new store openings and setting the strategicdirection for the Company.

 

# ***Industry***

# * *

•                  **Used Car Sales.** The market for used car sales in the United States is significant.  Used car retail sales typically occur throughfranchised new car dealerships that sell used cars or independent used cardealerships.  The Company operates in theBuy Here/Pay Here segment of the independent used car sales and finance market.  Buy Here/Pay Here dealers sell and financeused cars to individuals with limited credit histories or past credit problems.  Buy Here/Pay Here dealers typically offertheir customers certain advantages over more traditional financing sources,such as broader and more flexible underwriting guidelines, flexible paymentterms (including scheduling payments on a weekly or bi-weekly basis to coincidewith a customer’s payday), and the ability to make payments in person, animportant feature to individuals who may not have a checking account.

 

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•                  **Used Car Financing.** The used automobile financing industry is served by traditional lendingsources such as banks, savings and loans, and captive finance subsidiaries ofautomobile manufacturers, as well as by independent finance companies and BuyHere/Pay Here dealers.  Despitesignificant opportunities, many of the traditional lending sources do notconsistently provide financing to individuals with limited credit histories orpast credit problems.  Managementbelieves traditional lenders avoid this market because of its high credit riskand the associated collection efforts.

 

**Competition**

 

The used automotive retailing industry is highlycompetitive and fragmented.  The Companycompetes principally with other independent Buy Here/Pay Here dealers, and to alesser degree with (i) the used vehicle retail operations of franchisedautomobile dealerships, (ii) independent used vehicle dealers, and (iii) individualswho sell used vehicles in private transactions. The Company competes for both the purchase and resale of used vehicles.

 

Managementbelieves the principal competitive factors in the sale of its used vehiclesinclude (i) the availability of financing to consumers with limited credithistories or past credit problems, (ii) the breadth and quality of vehicleselection, (iii) pricing, (iv) the convenience of a dealership’slocation, (v) the option to purchase a service contract, and (vi) customerservice.  Management believes that itsdealerships are competitive in each of these areas.

 

**Regulation and Licensing**

 

The Company’s operations are subject to variousfederal, state and local laws, ordinances and regulations pertaining to thesale and financing of vehicles.  Undervarious state laws, the Company’s dealerships must obtain a license in order tooperate or relocate.  These laws alsoregulate advertising and sales practices. The Company’s financing activities are subject to federaltruth-in-lending and equal credit opportunity regulations as well as state andlocal motor vehicle finance laws, installment finance laws, usury laws andother installment sales laws.  Amongother things, these laws require that the Company limit or prescribe terms ofthe contracts it originates, require specified disclosures to customers,restrict collection practices, limit the Company’s right to repossess and sellcollateral, and prohibit discrimination against customers on the basis ofcertain characteristics including age, race, gender and marital status.

 

Thestates in which the Company operates impose limits on interest rates theCompany can charge on its loans. These limits are generally based on either (i) aspecified margin above the federal primary credit rate, (ii) the age ofthe vehicle, or (iii) a fixed rate. Management believes the Company is in compliance in all materialrespects with all applicable federal, state and local laws, ordinances andregulations.  However, the adoption ofadditional laws, changes in the interpretation of existing laws, or the Company’sentrance into jurisdictions with more stringent regulatory requirements couldhave a material adverse effect on the Company’s used vehicle sales and financebusiness.

 

## **Employees**

## ** **

As of April 30, 2005,the Company, including its consolidated subsidiaries, employed approximately 715persons full time. None of the Company’s employees are covered by a collectivebargaining agreement and the Company believes that its relations with itsemployees are good.

 

## **Available Information**

## ** **

Our website is located at www.car-mart.com.  We make available on this website, free ofcharge, access to our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and all amendments to those reports, as wellas proxy statements and other information we file with, or furnish to, theSecurities and Exchange Commission (“SEC”) as soon as reasonably practicableafter we electronically submit this material to the SEC.  The information contained on our website oravailable by hyperlink from our website is not incorporated into this AnnualReport on Form 10-K or other documents we file with, or furnish to, theSEC.

 

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## **Executive Officers ofthe Registrant**

## ** **

The executive officersof the Company are as follows:

 
| **Name**                     | ** ** | **Age** | ** ** | **Position with the Company**                                                 |
|------------------------------|------------|---------|------------|-------------------------------------------------------------------------------|
|                         |       |    |       |                                                                          |
| Tilman J.  Falgout, III |       | 56      |       | Chairman of the  Board, Chief Executive Officer, General Counsel and Director |
|                         |       |    |       |                                                                          |
| William H.  Henderson        |       | 41      |       | Vice Chairman of  the Board, President and Director                           |
|                         |       |    |       |                                                                          |
| Mark D. Slusser              |       | 47      |       | Chief Financial  Officer, Vice President Finance and Secretary                |
|                         |       |    |       |                                                                          |
| Eddie L. Hight               |       | 42      |       | Chief Operating  Officer                                                      |

 

**Tilman J.Falgout, III** has served as Chairman of the Board since May 2004,Chief Executive Officer of the Company since May 2002, General Counselsince 1995 and a director of the Company since 1992.  From 1995 until May 2002, Mr. Falgoutalso served as Executive Vice President of the Company.  From 1978 through June 1995, Mr. Falgoutwas a partner in the law firm of Stumpf & Falgout, Houston, Texas.

 

**WilliamH. Henderson** has served as Vice Chairman of the Board since May 2004and as President of the Company since May 2002.  From 1999 until May 2002, Mr. Hendersonserved as Chief Operating Officer of Car-Mart. From 1992 through 1998, Mr. Henderson served as General Manager ofCar-Mart.  From 1987 to 1992, Mr. Hendersonprimarily held the positions of District Manager and Regional Manager atCar-Mart.

 

**Mark D.Slusser** has served as Chief Financial Officer of the Companysince 1989 and as Secretary since 1990. From 1981 until joining the Company, Mr. Slusser held variouspositions with Ernst & Young LLP including Senior Manager.

 

**Eddie L.Hight**has served as Chief Operating Officer of the Companysince May 2002.  From 1984 until May 2002,Mr. Hight held a number of positions at Car-Mart including Store Managerand Regional Manager.

 

## **Item 2.  Properties**

## ** **

## **As of April 30, 2005, the Company leased approximately75% of its facilities, including dealerships and the Company’s corporateoffices.  These facilities are locatedprincipally in the states of Arkansas, Oklahoma, Texas, Kentucky andMissouri.  The Company’s corporate officesare located in approximately 8,000 square feet of leased space in Bentonville,Arkansas.  In July 2005, the Companyplans to relocate its corporate offices to approximately 12,000 square feet ofleased office space in Bentonville, Arkansas. For additional information regarding the Company’s properties, see “ContractualPayment Obligations” and “Off-Balance Sheet Arrangements” under Item 7 of Part II.**

## ** **

## **Item 3.  Legal Proceedings**

## ** **

In February 2001 and May 2002, the Companywas added as a defendant in two similar actions which were originally filed in December 1998against approximately 20 defendants (the “Defendants”) by Astoria Entertainment, Inc.(“Astoria”).  One action was filed in theCivil District Court for the Parish of Orleans, Louisiana (the “State Claims”)and the other was filed in the United States District Court for the EasternDistrict of Louisiana (the “Federal Claims”). In these actions, Astoria alleges the Defendants conspired to eliminateAstoria from receiving one of the 15 riverboat gaming licenses that wereawarded by the State of Louisiana in 1993 and 1994, at a time when a formersubsidiary of the Company was involved in riverboat gaming in Louisiana.  Astoria seeks unspecified damages includinglost profits.  In August 2001, theFederal court dismissed all of the Federal Claims with prejudice.  In September 2004, the state court ofappeals dismissed all the State Claims. In January 2005, the Louisiana Supreme Court reversed the statecourt of appeals’ dismissal of the case. The case is currently pending in the Civil District Court for the Parishof Orleans, Louisiana.  The Companybelieves the State Claims are without merit and intends to vigorously contestliability in this matter.

 

In addition to the foregoing case, in the ordinarycourse of business, the Company has become a defendant in various types ofother legal proceedings.  The Companydoes not expect the final outcome of any of these actions, individually or inthe aggregate, to have a material adverse effect on the Company’s financialposition, annual results of operations or cash flows.  However, the results of legal proceedingscannot be predicted with certainty, and an unfavorable resolution of one ormore of these legal proceedings could have a material adverse effect on theCompany’s financial position, annual results of operations or cash flows.

 

8

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## **Item 4.  Submission of Matters to a Vote of SecurityHolders**

## ** **

No matters weresubmitted to a vote of security holders of the Company during the fourthquarter ended April 30, 2005.

 

##### ***PART II***

##### * *

## **Item 5.  Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities**

## ** **

**General**

 

TheCompany’s common stock is traded on the NASDAQ National Market under the symbolCRMT.  The following table sets forth, byfiscal quarter, the high and low closing sales prices reported by NASDAQ forthe Company’s common stock for the periods indicated.

 
| ** **     | ** ** | **Fiscal 2005** | ** ** | **Fiscal 2004** | ** ** |
|----------------|------------|-----------------|------------|-----------------|------------|
| ** **     | ** ** | **High**        | ** ** | **Low**         | ** ** | **High** | ** ** | **Low** | ** ** |
|           |       |            |       |            |       |   |   |   |   |
| First quarter  |       | $               | 21.04      |            | $          | 16.95 |   | $ | 12.67 |   | $ | 9.92 |   |
| Second quarter |       | 23.04           |       | 19.50           |       | 22.53 |   | 12.81 |   |
| Third quarter  |       | 25.46           |       | 22.33           |       | 24.92 |   | 16.17 |   |
| Fourth quarter |       | 25.23           |       | 20.39           |       | 22.86 |   | 16.70 |   |
|                |            |                 |            |                 |            |  |  |  |  |  |  |  |  |

 

Asof July 11, 2005, there were approximately 1,117 stockholders of record.  This number excludes stockholders holdingstock under nominee security position listings.

 

**DividendPolicy**

 

Sinceits inception the Company has paid no cash dividends on its common stock.  The Company currently intends to follow apolicy of retaining earnings to finance future growth.  Payment of cash dividends in the future willbe determined by the Company’s Board of Directors and will depend upon, amongother things, the Company’s future earnings, operations, capital requirementsand surplus, general financial condition, contractual restrictions that may exist,and such other factors as the Board of Directors may deem relevant. Colonial’s revolving credit facilityprohibits dividends to the Company and Car-Mart of Arkansas’s revolving creditfacility limits dividends to the Company to 75% of Car-Mart of Arkansas’s netincome.  Thus, the Company is limited inthe amount of cash dividends or other distributions it can make to itsshareholders.

 

**Stock Split**

 

In March 2005, the Company’s Board of Directorsdeclared a three-for-two common stock split, effected in the form of a 50% stockdividend, that was paid in April 2005.  All share and per share numbersand amounts in this Form 10-K have been retroactively adjusted to reflectthe three-for-two common stock split.

 

**Warrants**

 

In January 2003, the Company issued a warrant topurchase 7,500 shares of its common stock at an exercise price of $8.69 pershare to Epoch Financial Group, Inc. (“Epoch”), a firm that providesinvestor relations services.  In July 2003and April 2004, the Company issued warrants to purchase 15,000 and 3,750shares of its common stock at exercise prices of $11.83 and $18.23 per share,respectively, to Epoch.  During fiscal 2005,2004 and 2003, the Company issued 8,943, 15,975 and 18,496 shares of its commonstock, respectively, pursuant to partial exercises of the warrants held by Epoch.

 

9

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**Equity Compensation Plan Information**

 

Thefollowing table provides information as of April 30, 2005 with respect tothe Company’s equity compensation plans:

 
| **Plan Category**                      | ** ** | **Number of Securities to  be Issued upon Exercise  of Outstanding Options,  Warrants and Rights (a)** | ** ** | **Weighted-Average  Exercise Price of  Outstanding Options,  Warrants and Rights (b)** | ** ** | **Number of Securities  Remaining Available for  Future Issuance under  Equity Compensation  Plans (excluding securities  reflected in column (a)) (c)** | ** ** |
|----------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans:            |       |                                                                                                   |       |                                                                                   |       |                                                                                                                                                     |       |
| Approved by  security holders          |       | 370,220                                                                                                |       | $                                                                                      | 9.68       |                                                                                                                                                     | 30,533     |   |
| Not approved by  security  holders (1) |       | 52,500                                                                                                 |       | 7.18                                                                                   |       | —                                                                                                                                                   |       |
|                                   |       |                                                                                                   |       |                                                                                   |       |                                                                                                                                                     |       |
| Total                                  |       | 422,720                                                                                                |       | $                                                                                      | 9.37       |                                                                                                                                                     | 30,533     |   |

 

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(1)                 For adescription of equity compensation plans not approved by security holders, see “Warrants”in Note J to the Company’s financial statements included elsewhere herein.

 

**Issuer Purchases of EquitySecurities**

 

The following table sets forthinformation with respect to purchases made by or on behalf of the Company ofshares of the Company’s common stock during the periods indicated:

 
| **Period**                                       | ** ** | **(a)  Total Number  of Shares  Purchased** | ** ** | **(b)  Average Price  Paid per Share** | ** ** | **(c)  Total Number of  Shares Purchased  as part of Publicly  Announced Plans  or Programs (1)** | ** ** | **(d)  Maximum Number  of Shares that may  yet be Purchased  under the Plans or  Programs (1)** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
|                                             |       |                                        |       |                                   |       |                                                                                              |       |                                                                                            |       |
| February 1,  2005 to February 28, 2005 |       | 3,450                                       |       | $                                      | 23.31      |                                                                                              | 3,450      |                                                                                            | 369,807    |   |
| March 1,  2005 to March 31, 2005       |       | —                                      |       | —                                 |       | —                                                                                            |       | 369,807                                                                                         |       |
| April 1,  2005 to April 30, 2005       |       | 8,450                                       |       | $                                      | 22.03      |                                                                                              | 8,450      |                                                                                            | 361,357    |   |

 

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(1)                    In July 2000,the Company announced its latest amendment to its stock repurchase plan thatwas initially announced in July 1996. The plan, as amended, authorizes the purchase of up to 9,000,000 sharesof the Company’s common stock and has no expiration date.  As of April 30, 2005, the remainingnumber of shares that may be purchased under the plan was 361,357.

 

10

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## **Item 6.  Selected Financial Data**

## ** **

Thefinancial data set forth below was derived from the audited consolidatedfinancial statements of the Company and should be read in conjunction with theconsolidated financial statements and related notes thereto, and Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained elsewhere herein.

 
| ** **                                                      | ** ** | **Years Ended April 30,  (In thousands, except per share amounts)** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2005**                                                                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002 (a)** | ** ** | **2001** | ** ** |
|                                                            |       |                                                                     |       |   |   |   |   |   |   |   |   |
| Revenues                                                        |       | $                                                                        | 204,788    |   | $ | 176,184 |   | $ | 154,885 |   | $ | 127,924 |   | $ | 106,754 |   |
|                                                            |       |                                                                     |       |   |   |   |   |   |   |   |   |
| Income (loss)  from continuing operations                       |       | $                                                                        | 17,976     |   | $ | 15,639 |   | $ | 13,569 |   | $ | (1,136 | ) | $ | 7,362 |   |
|                                                            |       |                                                                     |       |   |   |   |   |   |   |   |   |
| Net income  (loss)                                              |       | $                                                                        | 17,976     |   | $ | 15,804 |   | $ | 14,075 |   | $ | (14,306 | ) | $ | 5,963 |   |
|                                                            |       |                                                                     |       |   |   |   |   |   |   |   |   |
| Diluted earnings  (loss) per share – continuing operations |       | $                                                                        | 1.49       |   | $ | 1.31 |   | $ | 1.16 |   | $ | (.11 | ) | $ | .61 |   |
|                                                            |       |                                                                     |       |   |   |   |   |   |   |   |   |
| Total assets                                                    |       | $                                                                        | 143,668    |   | $ | 117,241 |   | $ | 101,841 |   | $ | 128,142 |   | $ | 302,520 |   |
| Total debt                                                      |       | $                                                                        | 29,145     |   | $ | 22,534 |   | $ | 25,968 |   | $ | 39,792 |   | $ | 41,584 |   |
| Stockholders’  equity                                      |       | $                                                                        | 103,265    |   | $ | 84,577 |   | $ | 65,961 |   | $ | 52,813 |   | $ | 58,932 |   |
| Shares  outstanding                                             |       | 11,844                                                                   |       | 11,637 |   | 10,812 |   | 10,416 |   | 10,471 |   |

 

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(a)                Fiscal2002 includes after tax charges totaling $10.7 million pertaining to (i) non-cashstock option compensation ($6.3 million), (ii) the write-down of certainemerging technology/Internet investments and equipment ($2.6 million), and (iii) severanceand office closing costs in connection with the decision to relocate theCompany’s corporate headquarters to Bentonville, Arkansas ($1.8 million) whereCar-Mart is based.

 

11

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## **Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

## ** **

The following discussionshould be read in conjunction with the Company’s consolidated financialstatements appearing elsewhere in this annual report.

 

**Overview**

 

America’s Car-Mart, Inc., a Texas corporation(the “Company”), is the largest publicly held automotive retailer in the UnitedStates focused exclusively on the “Buy Here/Pay Here” segment of the used carmarket.  References to the Companytypically include the Company’s consolidated subsidiaries.  The Company’s operations are principallyconducted through its two operating subsidiaries, America’s Car-Mart, Inc.,an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc.(“Colonial”).  Collectively, Car-Mart ofArkansas and Colonial are referred to herein as “Car-Mart.”  The Company primarily sells older model usedvehicles and provides financing for substantially all of its customers. Many ofthe Company’s customers have limited financial resources and would not qualifyfor conventional financing as a result of limited credit histories or pastcredit problems.  As of April 30,2005, the Company operated 76 stores located primarily in small citiesthroughout the South-Central United States.

 

Car-Marthas been operating since 1981.  Car-Marthas grown its revenues between 13% and 21% per year over the last eightyears.  Finance receivables tend to growslightly faster than revenues.  Growthresults from same store revenue growth and the addition of new stores.  Revenue growth in fiscal 2005 (16.2%) was inline with the Company’s growth expectations of 16% to 17%.  Revenue growth in fiscal 2005 was assisted bya 10.1% increase in the average retail sales price.  Typically, annual price increases are in the3% to 5% range.  As discussed below, themore significant increase in the average retail sales price in fiscal 2005stems from a decision in late fiscal 2004 to substantially reduce the sale oflower-priced vehicles and begin selling slightly higher-priced vehicles.  Presently, the Company expects that itsaverage retail sales price will increase in fiscal 2006, but at a rate closerto its historical average annual price increase.  As a result, revenue growth for fiscal 2006is presently expected to be in the 10% to 14% range.

 

TheCompany’s primary focus is on collections. Each store is responsible for its own collections with supervisoryinvolvement of the corporate office. Over the last eight fiscal years, Car-Mart’s credit losses as apercentage of sales have ranged between approximately 17% and 21% (average of19.3%).  Credit losses in fiscal 2005(20.1%) were slightly higher than the Company’s average over the last eightyears.  The Company believes the highercredit losses in fiscal 2005 were the result of the continuing effects ofselling more lower-priced vehicles through January 2004.  In the beginning of the prior fiscal year (May 2003),the Company made the decision to sell more lower-priced vehicles as they havehigher gross margin percentages and are more affordable to the Company’s customers.  However, historical data indicates that loanson lower-priced vehicles have higher charge-off experience than loans onhigher-priced vehicles.  Lower-pricedvehicles tend to have more mechanical difficulties that often result in ahigher level of repossessions.  As aresult of higher than normal charge-off experience and slower revenue growthfrom selling lower-priced vehicles, in February 2004 the Company decidedto substantially reduce its purchase and sale of lower-priced vehicles andbegan purchasing and selling slightly higher-priced vehicles.  The effects of the Company’s February 2004decision to reduce its purchase and sale of lower-priced vehicles is reflectedin the lower provision for credit losses, as a percentage of sales, in fiscal2005 (20.1%) when compared to fiscal 2004 (21.3%).

 

TheCompany’s gross margins as a percentage of sales have been fairly consistentfrom year to year.  Over the last eightyears Car-Mart’s gross margins, as a percentage of sales, have ranged betweenapproximately 44% and 48%.  Gross marginsas a percentage of sales in fiscal 2005 were 46.3%, down from 47.7% in fiscal2004.  The Company’s gross margins areset based upon the cost of the vehicle purchased with lower-priced vehicleshaving higher gross margin percentages. As a result of the Company’s decision in February 2004 to shiftaway from the sale of lower-priced vehicles to slightly higher-priced vehicles,the Company’s gross margins, as a percentage of sales, decreased in fiscal 2005as compared to fiscal 2004.

 

Hiring,training and retaining qualified associates are critical to the Company’ssuccess.  The rate at which the Companyadds new stores is sometimes limited by the number of trained managers theCompany has at its disposal.  Excessiveturnover, particularly at the Store Manager level, could impact the Company’sability to add new stores.  In fiscal2005, the Company added resources to train and develop personnel.  The Company expects to continue to invest inthe development of its workforce in fiscal 2006 and beyond.

 

12

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**Consolidated Operations**

(Operating StatementDollars in Thousands)

 
| ** **                    | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | **% Change**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|---------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | **2005**            | ** ** | **2004**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Years Ended April 30,** | ** ** | **vs.**    | ** ** | **vs.**    | ** ** | **As a % of Sales** | ** ** |
| ** **                    | ** ** | **2005**                       | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2004**            | ** ** | **2003**   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003** | ** ** |
| **Operating  Statement:**     | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                     |       |                           |       |       |       |       |       |                |       |       |       |       |       |       |       |   |   |
| Sales                         |       | $                              | 189,343    |       | $          | 163,589    |       | $                   | 145,014    |       | 15.7       | %          | 12.8       | %          | 100.0      | % | 100.0 | % | 100.0 | % |
| Interest income  and other    |       | 15,445                         |       | 12,595     |       | 9,871      |       | 22.6                |       | 27.6       |       | 8.2        |       | 7.7        |       | 6.8 |   |
| Total                         |       | 204,788                        |       | 176,184    |       | 154,885    |       | 16.2                |       | 13.8       |       | 108.2      |       | 107.7      |       | 106.8 |   |
|                          |       |                           |       |       |       |       |       |                |       |       |       |       |       |       |       |   |   |
| Costs and  expenses:          |       |                           |       |       |       |       |       |                |       |       |       |       |       |       |       |   |   |
| Cost of sales                 |       | 101,770                        |       | 85,510     |       | 77,073     |       | 19.0                |       | 10.9       |       | 53.7       |       | 52.3       |       | 53.1 |   |
| Selling, gen and  admin       |       | 34,789                         |       | 29,671     |       | 27,417     |       | 17.2                |       | 8.2        |       | 18.4       |       | 18.1       |       | 18.9 |   |
| Provision for  credit loss    |       | 38,094                         |       | 34,767     |       | 26,897     |       | 9.6                 |       | 29.3       |       | 20.1       |       | 21.3       |       | 18.5 |   |
| Interest expense              |       | 1,226                          |       | 1,114      |       | 1,686      |       | 10.1                |       | (33.9      | )          | .6         |       | .7         |       | 1.2 |   |
| Depreciation and  amort       |       | 425                            |       | 321        |       | 299        |       | 32.4                |       | 7.4        |       | .2         |       | .2         |       | .2 |   |
| Total                         |       | 176,304                        |       | 151,383    |       | 133,372    |       | 16.5                |       | 13.5       |       | 93.1       |       | 92.5       |       | 92.0 |   |
|                          |       |                           |       |       |       |       |       |                |       |       |       |       |       |       |       |   |   |
| Pretax income                 |       | $                              | 28,484     |       | $          | 24,801     |       | $                   | 21,513     |       | 14.9       |       | 15.3       |       | 15.0       |   | 15.2 |   | 14.8 |   |
|                          |       |                           |       |       |       |       |       |                |       |       |       |       |       |       |       |   |   |
| **Operating  Data:**          |       |                           |       |       |       |       |       |                |       |       |       |       |       |       |       |   |   |
| Retail units  sold            |       | 25,399                         |       | 24,281     |       | 22,022     |       | 4.6                 | %          | 10.3       |       |       |       |       |       |   |   |
| Average stores  in operation  |       | 74.5                           |       | 67.0       |       | 61.2       |       | 11.2                |       | 9.5        |       |       |       |       |       |   |   |
| Average units  sold per store |       | 341                            |       | 362        |       | 360        |       | (5.9                | )          | .7         |       |       |       |       |       |   |   |
| Average retail  sales price   |       | $                              | 7,163      |       | $          | 6,506      |       | $                   | 6,386      |       | 10.1       |       | 1.9        |       |       |   |   |   |   |   |
| Same store  revenue growth    |       | 11.8                           | %          | 9.8        | %          | 15.5       | %          |                |       |       |       |       |       |       |       |   |   |
| Receivables  average yield    |       | 10.8                           | %          | 10.3       | %          | 9.4        | %          |                |       |       |       |       |       |       |       |   |   |

 

**2005 Compared to 2004**

 

Revenues increased $28.6 million, or 16.2%, in fiscal2005 as compared to fiscal 2004, principally as a result of (i) revenuegrowth from stores that operated a full twelve months in both periods ($19.3million, or 11.8%), (ii) revenue growth from stores opened during fiscal2004 or stores that opened or closed a satellite location during fiscal 2005 orfiscal 2004 ($4.9 million), and (iii) revenues from stores opened duringfiscal 2005 ($4.4 million).

 

Revenues increased 16.2% in fiscal 2005 as comparedto 13.8% in fiscal 2004.  The increase inrevenue growth is attributable to a much larger increase in the average retailsales price in fiscal 2005 (10.1%) as compared to fiscal 2004 (1.9%).  As discussed in the Overview above, in February 2004the Company made the decision to substantially reduce its purchase and sale oflower-priced vehicles and began purchasing and selling slightly higher-pricedvehicles.  The Company expects that itsaverage retail sales price will increase in fiscal 2006, but at a rate closerto its historical average annual price increase of 3% to 5%.

 

Cost of sales, as a percentage of sales, increased1.4% to 53.7% in fiscal 2005 from 52.3% in fiscal 2004.  The increase was principally the result ofthe Company’s decision to (i) substantially reduce the purchase and saleof lower-priced vehicles which carry higher gross profit margin percentages, (ii) purchaseslightly higher-priced vehicles for sale which carry lower gross profit marginpercentages, (iii) perform repairs of more vehicles in inventory withoutpassing on the added cost, and (iv) assist in the repair of more customers’vehicles.

 

Selling, general and administrative expense, as apercentage of sales, increased .3% to 18.4% in fiscal 2005 from 18.1% in fiscal2004.  The percentage increase isattributable to external costs related to compliance with Section 404 ofthe Sarbanes-Oxley Act of 2002, which costs amounted to approximately $.8million in fiscal 2005, or .4% of sales, with no corresponding amount in theprior fiscal year.  Presently, theCompany expects these costs to decrease in fiscal 2006.  As a percentage of sales, compensation costsdecreased slightly in fiscal 2005 as compared to fiscal 2004.  The decrease is partially the result ofselling higher-priced vehicles.  Sellinghigher-priced vehicles increases sales without necessarily increasingcompensation expense.  The Company doesexpect to incur more costs in its Information Technology Department in fiscal2006 to strengthen its controls and improve the efficiency of the Company’soperations.

 

Provision for credit losses, as a percentage of sales,decreased 1.2% to 20.1% in fiscal 2005 from 21.3% in fiscal 2004.  The decrease was primarily the result oflower charge-offs as a percentage of sales. As discussed in the Overview section above, the Company believes itis experiencing the positive effects on credit losses of its February 2004decision to reduce the purchase and sale of lower-priced vehicles.  Historically, loans on lower-priced vehicleshave had higher charge-off experience than loans on higher-pricedvehicles.  Also, in comparison to theprior fiscal year, the Company believes that it has become more selective inapproving credit in connection with the sale of its vehicles.

 

13

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TheCompany believes the slightly tighter credit standard could be a factor inreducing credit losses as a percentage of sales in the future.

 

Interest expense, as a percentage of sales, decreased..1% to .6% in fiscal 2005 from .7% in fiscal 2004.  The decrease was principally the result of alower level of borrowings relative to the sales volume of the Company.

 

**2004 Compared to 2003**

 

Revenues increased $21.3 million, or 13.8%, in fiscal2004 as compared to fiscal 2003 principally as a result of (i) revenuegrowth from stores that operated a full twelve months in both periods ($12.3million, or 9.8%), (ii) revenue growth from stores opened during fiscal2003 or stores that opened or closed a satellite location during fiscal 2004 orfiscal 2003 ($5.1 million), and (iii) revenues from stores opened duringfiscal 2004 ($3.9 million).

 

Same store revenue growth slowed to 9.8% in fiscal2004 from 15.5% in fiscal 2003 principally as a result of a smaller increase inthe average retail sales price in fiscal 2004 (1.9%) as compared to fiscal 2003(4.2%), and more conservative underwriting practices beginning in the fourthquarter of fiscal 2004.  The slowing ofgrowth in the average retail sales price stems from a decision at the beginningof fiscal 2004 to sell a higher percentage of lower-priced vehicles.  Although lower-priced vehicles have highergross margin percentages, and are more affordable than higher-priced vehicles,selling lower-priced vehicles has a negative impact on revenue growth, and, asdiscussed below, loans on lower-priced vehicles have higher charge-offexperience than loans on higher-priced vehicles.  As a result of the negative impact on revenuegrowth and the higher charge-off experience, during the fourth quarter offiscal 2004 the Company decided to substantially reduce its purchase and saleof lower-priced vehicles and began purchasing and selling slightlyhigher-priced vehicles.

 

Revenue growth slowed to 13.8% in fiscal 2004 ascompared to 21.1% in fiscal 2003 principally as a result of (i) the lowersame store revenue growth discussed above, (ii) fewer new lot openings infiscal 2004 (seven new lots opened, one satellite lot closed) as compared tofiscal 2003 (nine new lots opened), and (iii) the timing of new lotopenings in fiscal 2004 as compared to fiscal 2003 (lot openings in fiscal 2004occurred later in the year as compared to fiscal 2003).

 

Cost of sales, as a percentage of sales, decreased to52.3% in fiscal 2004 as compared to 53.1% in fiscal 2003.  The decrease was principally the result of (i) sellinga higher percentage of lower-priced vehicles during the first nine months offiscal 2004 (lower-priced vehicles have higher gross margin percentages thanhigher-priced vehicles), (ii) the Company’s decision in late December 2003to raise prices by about $200, or 3%, on most of the vehicles it sells, and (iii) encouragingstore managers to more closely adhere to the Company’s pricing matrix and not touse their discretionary authority to discount the sales price of vehicles.

 

Selling, general and administrative expense, as apercentage of sales, decreased to 18.1% in fiscal 2004 as compared to 18.9% in fiscal2003.  The decrease was principally theresult of (i) lower compensation expense at its Irving, Texas office inconnection with the relocation of the Company’s principal headquarters fromIrving, Texas to Bentonville, Arkansas during fiscal 2003, and (ii) lowercompensation expense in connection with a change in the senior management bonusprogram, partially offset by higher insurance and advertising costs.

 

Provision for credit losses, as a percentage of sales,increased to 21.3% in fiscal 2004 as compared to 18.5% in fiscal 2003.  The increase was primarily the result ofhigher charge-offs as a percentage of sales and an increase of the Company’sallowance for credit losses as a percentage of finance receivable principalbalances.  As discussed above, theCompany believes the increase in charge-offs was partially attributable to adecision at the beginning of fiscal 2004 to sell a higher percentage of lower-pricedvehicles.  Lower-priced vehicles havehigher margins on a percentage basis and are more affordable to the Company’scustomers.  However, historical dataindicates that loans on lower-priced vehicles have higher charge-off experiencethan loans on higher-priced vehicles.  Asa result of the negative impact on revenue growth (as discussed above) andhigher than normal charge-off experience, during the fourth quarter of fiscal2004, the Company decided to substantially reduce its purchase and sale oflower-priced vehicles and began purchasing and selling slightly higher-pricedvehicles.

 

In February 2004, the Company formally adoptedadditional delinquency standards for its larger stores.  The additional delinquency standardsprescribe the percentage of accounts at larger stores that can be 21 to 30 dayspast due, 31 to 60 days past due and over 60 days past due.  Previously, the Company only had delinquencystandards for accounts one and two weeks past due and three or more weeks pastdue.  As a result of the tightening ofits delinquency standards, at April 30, 2004, the percentage of accountsover 30 days past due had been reduced to 3.0%, from 3.9% at April 30,2003.  The Company believes that in thelong run the adoption of the additional delinquency standards will assist theCompany in reducing charge-offs, as well as maintaining the percentage ofaccounts over 30 days past due at historically lower levels.  With the additional delinquency standards,store managers and collection personnel are motivated (monthly store teambonuses are tied to meeting delinquency and account loss standards) to address severely past dueaccounts on a more timely basis, which management believes will result in feweraccounts being charged-off.

 

As a result of the higher charge-offs discussedabove, the Company determined it was necessary to increase its overallallowance for credit losses.  Duringfiscal 2004, the Company increased its allowance for credit losses by 120 basispoints, from 18.25% of finance receivable principal balances at April 30,2003, to 19.45% of finance receivable principal balances at April 30,2004.

 

14

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Interest expense, as a percentage of sales, decreasedto .7% in fiscal 2004 as compared to 1.2% in fiscal 2003.  The decrease was principally the result of (i) adecrease in the rate charged on the Company’s revolving credit facility (therate was reduced by 50 basis points in November 2003), and (ii) alower level of borrowings relative to the sales volume of the Company.

 

**Financial Condition**

 

The following table sets forth the majorbalance sheet accounts of the Company at April 30, 2005, 2004 and 2003 (inthousands):

 
| ** **                                | ** ** | **April 30,** | ** ** |
|-------------------------------------------|------------|--------------------|------------|
| ** **                                | ** ** | **2005**           | ** ** | **2004** | ** ** | **2003** | ** ** |
| Assets:                                   |       |               |       |   |   |   |   |
| Finance  receivables, net                 |       | $                  | 123,099    |   | $ | 103,684 |   | $ | 91,359 |   |
| Inventory                                 |       | 7,985              |       | 5,975 |   | 4,056 |   |
| Property and  equipment, net              |       | 11,305             |       | 5,557 |   | 4,479 |   |
|                                      |       |               |       |   |   |   |   |
| Liabilities:                              |       |               |       |   |   |   |   |
| Accounts payable  and accrued liabilities |       | 8,819              |       | 7,668 |   | 8,749 |   |
| Revolving credit  facilities              |       | 29,145             |       | 22,534 |   | 25,968 |   |
|                                           |            |                    |            |  |  |  |  |  |  |  |

 

Historically, finance receivables tend togrow slightly faster than revenue growth. This is due to a gradually increasing average term necessitated byincreases in the average retail sales price. In fiscal 2005, finance receivables, net grew 18.7% as compared torevenue growth of 16.2%.  In fiscal 2004,finance receivables, net grew 13.5% as compared to revenue growth of13.8%.  The Company expects thehistorical relationship between net finance receivable growth and revenuegrowth to continue in the future.

 

In fiscal 2005, inventory grew by 33.6%as compared to revenue growth of 16.2%. Inventory grew at a faster pace than revenues as a result of the Company’sdecision to (i) increase the level of inventory it carries at many of itsstores to facilitate sales growth, and (ii) increase the average inventorycost per unit in a conscious effort to sell a slightly higher-pricedvehicle.  In fiscal 2005, the averageretail sales price increased 10.1% over fiscal 2004.  Inventory increased $1.9 million duringfiscal 2004 as the Company made the decision to carry more inventories perstore, and late in fiscal 2004 the Company made the decision to begin sellingslightly higher-priced vehicles.

 

Property and equipment, net increased $5.7million in fiscal 2005 as the Company purchased real estate for a number of newstores and relocated some existing stores to purchased property.  The Company also refurbished and expanded anumber of existing stores to facilitate revenue growth.  In fiscal 2004, property and equipment, netonly increased by $1.1 million as many new store openings were located onleased property.

 

Accounts payable and accrued liabilitieshave been fairly consistent from year to year.

 

Borrowings on the Company’s revolvingcredit facilities fluctuate primarily based upon a number of factors including (i) netincome, (ii) finance receivables growth, and (iii) capitalexpenditures.  Historically, income fromcontinuing operations has funded the majority of finance receivables growth andborrowings from its credit facilities have been used to purchase capitalassets.  The level of stock repurchasesalso affects the Company’s borrowings under its revolving credit facilities.

 

15

----

 

**Liquidity and Capital Resources**

 

Thefollowing table sets forth certain historical information with respect to theCompany’s statements of cash flows (in thousands):

 
| ** **                                        | ** ** | **Years Ended April 30,** | ** ** |
|---------------------------------------------------|------------|--------------------------------|------------|
| ** **                                        | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Operating  activities:                            |       |                           |       |   |   |   |   |
| Income from  continuing operations                |       | $                              | 17,976     |   | $ | 15,639 |   | $ | 13,569 |   |
| Provision for credit losses                       |       | 38,094                         |       | 34,766 |   | 26,897 |   |
| Finance  receivable originations                  |       | (173,446                       | )          | (151,380 | ) | (131,447 | ) |
| Finance  receivable collections                   |       | 105,973                        |       | 97,367 |   | 82,646 |   |
| Inventory                                         |       | 7,954                          |       | 5,003 |   | 5,110 |   |
| Income tax and  other receivables                 |       | (14                            | )          | 300 |   | 8,845 |   |
| Other                                             |       | 1,949                          |       | 2,295 |   | 2,243 |   |
| Total                                             |       | (1,514                         | )          | 3,990 |   | 7,863 |   |
|                                              |       |                           |       |   |   |   |   |
| Investing  activities:                            |       |                           |       |   |   |   |   |
| Purchase of  property and equipment               |       | (6,174                         | )          | (1,399 | ) | (2,168 | ) |
| Note collections  from discontinued operations    |       |                           |       |   |   | 2,079 |   |
| Sale of  discontinued operations                  |       |                           |       |   |   | 6,795 |   |
| Total                                             |       | (6,174                         | )          | (1,399 | ) | 6,706 |   |
|                                              |       |                           |       |   |   |   |   |
| Financing  activities:                            |       |                           |       |   |   |   |   |
| Revolving credit  facility, net                   |       | 6,611                          |       | (3,434 | ) | (6,323 | ) |
| Repayment of  other debt                          |       |                           |       |   |   | (7,500 | ) |
| Purchase of  common stock                         |       | (531                           | )          | (1,646 | ) | (2,689 | ) |
| Exercise of  stock options and warrants           |       | 939                            |       | 2,584 |   | 1,497 |   |
| Total                                             |       | 7,019                          |       | (2,496 | ) | (15,015 | ) |
|                                              |       |                           |       |   |   |   |   |
| Cash provided by  (used in) continuing operations |       | $                              | (669       | ) | $ | 95 |   | $ | (446 | ) |

 

The Company generates cash flow from income fromcontinuing operations.  Most or all ofthis cash is used to fund finance receivables growth.  To the extent finance receivables growthexceeds income from continuing operations, generally the Company increases itsborrowings under its revolving credit facilities.  The majority of the Company’s growth isself-funded.

 

The Company has had a tendency to lease the majorityof the properties where its stores are located. As of April 30, 2005, the Company leased approximately 75%of its store properties.  The Companyexpects to continue to lease the majority of the properties where its storesare located.

 

Car-Mart’s revolving credit facilities limitdistributions from Car-Mart to the Company beyond (i) the repayment of anintercompany loan ($10.0 million at April 30, 2005), and (ii) dividendsequal to 75% of Car-Mart of Arkansas’ net income.  At April 30, 2005, the Company’s assets(excluding its $90.4 million equity investment in Car-Mart) consisted of $.1million in cash, $3.2 million in other assets and a $10.0 million receivablefrom Car-Mart.  Thus, the Company islimited in the amount of dividends or other distributions it can make to itsshareholders without the consent of Car-Mart’s lender.  Beginning in February 2003, Car-Martassumed substantially all of the operating costs of the Company.

 

At April 30, 2005, the Company had $.5 millionof cash on hand and an additional $10.4 million of availability under itsrevolving credit facilities.  On ashort-term basis, the Company’s principal sources of liquidity include incomefrom continuing operations and borrowings from its revolving credit facilities.  On a longer-term basis, the Company expectsits principal sources of liquidity to consist of income from continuingoperations and borrowings from revolving credit facilities.  Further, while the Company has no presentplans to issue debt or equity securities, the Company believes, if necessary,it could raise additional capital through the issuance of such securities.

 

The Company expects to use cash to (i) grow itsfinance receivables portfolio by a percentage that is slightly larger than thepercentage that its revenues grow, (ii) purchase property and equipment ofapproximately $3 to $5 million in the next twelve months in connection withopening new stores and refurbishing existing stores, and (iii) to theextent excess cash is available, reduce debt. In addition, from time to time the Company may use cash to repurchaseits common stock.

 

The Company’s revolving credit facilities mature in April 2006.  The Company expects that it will be able torenew or refinance its revolving credit facilities on or before the date they mature.  The Company believes it will have adequateliquidity to satisfy its capital needs for the foreseeable future.

 

16

----

 

**Contractual Payment Obligations**

 

The following is a summary of the Company’scontractual obligations as of April 30, 2005, including renewal periodsunder operating leases that are reasonably assured (in thousands):

 
| ** **                  | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------|------------|----------------------------|------------|
| **Contractual Obligations** | ** ** | **Total**                  | ** ** | **Less Than  1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More Than  5 Years** | ** ** |
|                        |       |                       |       |   |   |   |   |   |   |   |   |
| Debt                        |       | $                          | 29,145     |   | $ | — |   | $ | 29,145 |   | $ | — |   | $ | — |   |
| Operating leases            |       | 23,020                     |       | 2,081 |   | 3,779 |   | 3,556 |   | 13,604 |   |
|                        |       |                       |       |   |   |   |   |   |   |   |   |
| Total                       |       | $                          | 52,165     |   | $ | 2,081 |   | $ | 32,924 |   | $ | 3,556 |   | $ | 13,604 |   |

 

The $23.0 million of lease commitments includes $7.3million of non-cancelable lease commitments under the primary lease terms, and$15.7 million of lease commitments for renewal periods at the Company’s optionthat are reasonably assured.

 

**Off-Balance Sheet Arrangements**

 

The Company has enteredinto operating leases for approximately 75% of its store and officefacilities.  Generally these leases arefor periods of three to five years and usually contain multiple renewaloptions.  The Company uses leasingarrangements to maintain flexibility in its store locations and to preservecapital.  The Company expects to continueto lease the majority of its store and office facilities under arrangementssubstantially consistent with the past.  Forthe years ended April 30, 2005, 2004 and 2003 rent expense for alloperating leases amounted to approximately $2.1 million, $1.9 million and $1.8million, respectively.

 

Other than its operatingleases, the Company is not a party to any off-balance sheet arrangement thatmanagement believes is reasonably likely to have a current or future effect onthe Company’s financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources that is material toinvestors.

 

**Critical Accounting Policies**

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States of America requires the Company to makeestimates and assumptions in determining the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from the Company’s estimates.  The Company believes the most significantestimate made in the preparation of the accompanying consolidated financialstatements relates to the determination of its allowance for credit losses,which is discussed below.  The Company’saccounting policies are discussed in Note B in the accompanying consolidatedfinancial statements.

 

The Company maintains anallowance for credit losses on an aggregate basis at a level it considerssufficient to cover estimated losses in the collection of its financereceivables.  The allowance for creditlosses is based primarily upon historical credit loss experience, withconsideration given to recent credit loss trends and changes in loancharacteristics (i.e., average amount financed and term), delinquency levels,collateral values, economic conditions and underwriting and collectionpractices.  The allowance for creditlosses is periodically reviewed by management with any changes reflected incurrent operations.  Although it is atleast reasonably possible that events or circumstances could occur in thefuture that are not presently foreseen which could cause actual credit lossesto be materially different from the recorded allowance for credit losses, theCompany believes that it has given appropriate consideration to all relevantfactors and has made reasonable assumptions in determining the allowance forcredit losses.

 

# ***Recent Accounting Pronouncement***

# * *

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards123R, “Share-Based Payment” (“SFAS 123R”), which is a revision of SFAS123.  SFAS 123R supersedes APB Opinion No. 25.  Generally, the approach in SFAS 123R issimilar to the approach described in SFAS 123, except that SFAS 123R requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer analternative under SFAS 123R.  SFAS 123Rwas originally issued with implementation required for interim and annualperiods beginning after June 15, 2005. On April 15, 2005, the Securities and Exchange Commission delayedthe required effective date of SFAS 123R to the beginning of the first fiscalyear that begins after June 15, 2005.

 

17

----

 

The Company is evaluating the requirements of SFAS123R.  The Company has not yet determinedthe method of adoption or the effect of adopting SFAS 123R, and it has notdetermined whether the adoption will result in amounts that are similar to thecurrent pro forma disclosures under SFAS 123. The Company expects to adopt SFAS 123R on May 1, 2006.

 

**Seasonality**

 

The Company’s automobilesales and finance business is seasonal in nature.  The Company’s third fiscal quarter (November throughJanuary) is historically the slowest period for car and truck sales.  Many of the Company’s operating expenses suchas administrative personnel, rent and insurance are fixed and cannot be reducedduring periods of decreased sales. Conversely, the Company’s fourth fiscal quarter (February throughApril) is historically the busiest time for car and truck sales as many of theCompany’s customers use income tax refunds as a down payment on the purchase ofa vehicle.  Further, the Companyexperiences seasonal fluctuations in its finance receivable credit losses.  As a percentage of sales, the Company’s firstand fourth fiscal quarters tend to have lower credit losses (averaging 18.1%over the last eight years), while its second and third fiscal quarters tend tohave higher credit losses (averaging 19.9% over the last eight years).

 

**Impact of Inflation**

 

Inflation has not historically been a significantfactor impacting the Company’s results.

 

18

----

 

**Item7A.  Quantitative and QualitativeDisclosures about Market Risk**

 

The Company is exposedto market risk on its financial instruments from changes in interestrates.  In particular, the Company hasexposure to changes in the federal primary credit rate and the prime interestrate of its lender.  The Company does notuse financial instruments for trading purposes or to manage interest raterisk.  The Company’s earnings areimpacted by its net interest income, which is the difference between the incomeearned on interest-bearing assets and the interest paid on interest-bearingnotes payable.  As described below, adecrease in market interest rates would generally have an adverse effect on theCompany’s profitability.

 

The Company’s financialinstruments consist of fixed rate finance receivables and variable rate notespayable.  The Company’s financereceivables generally bear interest at fixed rates ranging from 6% to 19%.  These finance receivables generally haveremaining maturities from one to 36 months. The Company’s borrowings contain variable interest rates that fluctuatewith market interest rates (i.e., the rate charged on the Company’s revolvingcredit facility fluctuates with the prime interest rate of its lender).  However, interest rates charged on financereceivables originated in the State of Arkansas are limited to the federalprimary credit rate (3.75% at April 30, 2005) plus 5.0%.  Typically, the Company charges interest onits Arkansas loans at or near the maximum rate allowed by law.  Thus, while the interest rates charged on theCompany’s loans do not fluctuate once established, new loans originated inArkansas are set at a spread above the federal primary credit rate which doesfluctuate.  At April 30, 2005,approximately 62% of the Company’s finance receivables were originated inArkansas.  Assuming that this percentageis held constant for future loan originations, the long-term effect ofdecreases in the federal primary credit rate would generally have a negativeeffect on the profitability of the Company. This is the case because the amount of interest income lost on Arkansasoriginated loans would likely exceed the amount of interest expense saved onthe Company’s variable rate borrowings (assuming the prime interest rate of itslender decreases by the same percentage as the decrease in the federal primarycredit rate).  The initial impact onprofitability resulting from a decrease in the federal primary credit rate andthe rate charged on its variable interest rate borrowings would be positive, asthe immediate interest expense savings would outweigh the loss of interestincome on new loan originations. However, as the amount of new loans originated at the lower interestrate increases to an amount in excess of the amount of variable interest rateborrowings, the effect on profitability would become negative.

 

The table belowillustrates the estimated impact that hypothetical changes in the federalprimary credit rate would have on the Company’s continuing pretaxearnings.  The calculations assume (i) theincrease or decrease in the federal primary credit rate remains in effect fortwo years, (ii) the increase or decrease in the federal primary creditrate results in a like increase or decrease in the rate charged on the Company’svariable rate borrowings, (iii) the principal amount of financereceivables ($152.4 million) and variable interest rate borrowings ($29.1million), and the percentage of Arkansas originated finance receivables (62%),remain constant during the periods, and (iv) the Company’s historicalcollection and charge-off experience continues throughout the periods.

 

| ** **              | ** ** | **Year 1**              | ** ** | **Year 2**              | ** ** |
|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Increase (Decrease)** | ** ** | **Increase (Decrease)** | ** ** | **Increase (Decrease)** | ** ** |
| **in Interest Rates**   | ** ** | **in Pretax Earnings**  | ** ** | **in Pretax Earnings**  | ** ** |
| ** **              | ** ** | **(in thousands)**      | ** ** | **(in thousands)**      | ** ** |
| +200 basis points       |       | $                       | 370        |                    | $          | 1,214 |   |
| +100 basis points       |       | 185                     |       | 607                     |       |
| -100 basis points       |       | (185                    | )          | (607                    | )          |
| -200 basis points       |       | (370                    | )          | (1,214                  | )          |
|                         |            |                         |            |                         |            |  |  |

 

A similar calculation andtable was prepared at April 30, 2004. The calculation and table were materially consistent with theinformation provided above.

 

## **Item 8.  Financial Statements and Supplementary Data**

 

The following financialstatements and accountant’s report are included in Item 8 of this report:

 
|   | Report of Independent  Registered Public Accounting Firm                                                     |
|--------|--------------------------------------------------------------------------------------------------------------|
|   |                                                                                                         |
|   | Consolidated Balance Sheets as of April 30,  2005 and 2004                                              |
|   |                                                                                                         |
|   | Consolidated Statements of Operations for the years  ended April 30, 2005, 2004 and 2003                |
|   |                                                                                                         |
|   | Consolidated Statements of Cash Flows for the years  ended April 30, 2005, 2004 and 2003                |
|   |                                                                                                         |
|   | Consolidated Statements of Stockholders’ Equity  for the years ended April 30, 2005, 2004 and 2003 |
|   |                                                                                                         |
|   | Notes to Consolidated Financial Statements                                                                   |

 

19

----

 

**Report ofIndependent Registered Public Accounting Firm**

 

Stockholders and Board of Directors

America’s Car-Mart, Inc.

 

Wehave audited the accompanying consolidated balance sheets of America’s Car-Mart, Inc.(a Texas corporation) as of April 30, 2005 and 2004, and the relatedconsolidated statements of operations, stockholders’ equity and cash flows for eachof the three years in the period ended April 30, 2005.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  Our auditsincluded examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofAmerica’s Car-Mart, Inc. as of April 30, 2005 and 2004, and theresults of its consolidated operations and its consolidated cash flows for thethree years then ended in conformity with accounting principles generallyaccepted in the United States of America.

 

We also have audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theeffectiveness of America’s Car-Mart, Inc.’s internal control overfinancial reporting as of April 30, 2005, based on criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO)*,*and our report dated July 12, 2005 (included in Item 9A),expressed an unqualified opinion with respect to management’s assessment ofinternal control and an adverse opinion with respect to the Company’s effectiveoperation of internal control over financial reporting as of April 30,2005.

 
| /s/ Grant Thornton LLP |   |
|------------------------|--------|
|                   |
|                   |
| Dallas, Texas          |
| July 12, 2005     |

 

20

----

 
| **Consolidated Balance Sheets** | ** ** | **America’s Car-Mart, Inc.** |
|---------------------------------|------------|----------------------------------------|

 
| ** **                                                                                                                                    | ** ** | **April 30, 2005** | ** **  | **April 30, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|-------------|-------------------------|------------|
| Assets:                                                                                                                                       |       |                    |        |                    |       |
| Cash and cash equivalents                                                                                                                     |       | $                       | 459,177     |                    | $          | 1,128,349 |   |
| Other receivables                                                                                                                             |       | 524,046                 |        | 509,752                 |       |
| Finance receivables, net                                                                                                                      |       | 123,098,966             |        | 103,683,660             |       |
| Inventory                                                                                                                                     |       | 7,985,959               |        | 5,975,292               |       |
| Prepaid expenses and other assets                                                                                                             |       | 295,452                 |        | 387,641                 |       |
| Property and equipment, net                                                                                                                   |       | 11,304,658              |        | 5,556,757               |       |
|                                                                                                                                          |       |                    |        |                    |       |
|                                                                                                                                          |       | $                       | 143,668,258 |                    | $          | 117,241,451 |   |
|                                                                                                                                          |       |                    |        |                    |       |
| Liabilities and stockholders’ equity:                                                                                                    |       |                    |        |                    |       |
| Accounts payable                                                                                                                              |       | $                       | 2,796,086   |                    | $          | 2,122,927 |   |
| Accrued liabilities                                                                                                                           |       | 6,023,291               |        | 5,544,988               |       |
| Income taxes payable                                                                                                                          |       | 451,714                 |        | 845,044                 |       |
| Deferred tax liabilities, net                                                                                                                 |       | 1,986,696               |        | 1,616,896               |       |
| Revolving credit facilities                                                                                                                   |       | 29,145,090              |        | 22,534,120              |       |
| Total liabilities                                                                                                                             |       | 40,402,877              |        | 32,663,975              |       |
|                                                                                                                                          |       |                    |        |                    |       |
| Commitments and contingencies                                                                                                                 |       |                    |        |                    |       |
|                                                                                                                                          |       |                    |        |                    |       |
| Stockholders’ equity:                                                                                                                    |       |                    |        |                    |       |
| Preferred stock, par value $.01 per share, 1,000,000  shares authorized; none issued or outstanding                                           |       |                    |        |                    |       |
| Common stock, par value $.01 per share, 50,000,000  shares authorized; 11,843,738 issued and outstanding (11,636,762 at April 30,  2004) |       | 118,437                 |        | 116,368                 |       |
| Additional paid-in capital                                                                                                                    |       | 33,809,445              |        | 33,099,975              |       |
| Retained earnings                                                                                                                             |       | 69,337,499              |        | 51,361,133              |       |
| Total stockholders’ equity                                                                                                               |       | 103,265,381             |        | 84,577,476              |       |
|                                                                                                                                          |       |                    |        |                    |       |
|                                                                                                                                          |       | $                       | 143,668,258 |                    | $          | 117,241,451 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

21

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| **Consolidated Statements of Operations** | ** ** | **America’s Car-Mart, Inc.** |
|-------------------------------------------|------------|----------------------------------------|

 
| ** **                                                                | ** ** | **Years Ended April 30,** | ** **  |
|---------------------------------------------------------------------------|------------|--------------------------------|-------------|
| ** **                                                                | ** ** | **2005**                       | ** **  | **2004** | ** ** | **2003** | ** ** |
| Revenues:                                                                 |       |                           |        |   |   |   |   |
| Sales                                                                     |       | $                              | 189,343,473 |   | $ | 163,589,076 |   | $ | 145,014,142 |   |
| Interest and other income                                                 |       | 15,444,975                     |        | 12,594,611 |   | 9,870,805 |   |
|                                                                      |       | 204,788,448                    |        | 176,183,687 |   | 154,884,947 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Costs and expenses:                                                       |       |                           |        |   |   |   |   |
| Cost of sales                                                             |       | 101,769,671                    |        | 85,510,497 |   | 77,073,294 |   |
| Selling, general and administrative                                       |       | 34,788,123                     |        | 29,670,849 |   | 27,417,225 |   |
| Provision for credit losses                                               |       | 38,093,729                     |        | 34,766,496 |   | 26,896,608 |   |
| Interest expense                                                          |       | 1,226,957                      |        | 1,113,840 |   | 1,685,774 |   |
| Depreciation and amortization                                             |       | 425,624                        |        | 321,053 |   | 299,203 |   |
|                                                                      |       | 176,304,104                    |        | 151,382,735 |   | 133,372,104 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Income from continuing operations before taxes                            |       | 28,484,344                     |        | 24,800,952 |   | 21,512,843 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Provision for income taxes                                                |       | 10,507,978                     |        | 9,161,506 |   | 7,944,100 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Income from continuing operations                                         |       | 17,976,366                     |        | 15,639,446 |   | 13,568,743 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Discontinued operations:                                                  |       |                           |        |   |   |   |   |
| Income from discontinued operations, net of taxes  and minority interests |       |                           |        | 165,000 |   | 375,318 |   |
| Gain on sale of discontinued operations, net of  taxes                    |       |                           |        |   |   | 130,868 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Income from discontinued operations                                       |       |                           |        | 165,000 |   | 506,186 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Net income                                                                |       | $                              | 17,976,366  |   | $ | 15,804,446 |   | $ | 14,074,929 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Basic earnings per share:                                                 |       |                           |        |   |   |   |   |
| Continuing operations                                                     |       | $                              | 1.53        |   | $ | 1.38 |   | $ | 1.29 |   |
| Discontinued operations                                                   |       |                           |        | .02 |   | .05 |   |
| Total                                                                     |       | $                              | 1.53        |   | $ | 1.40 |   | $ | 1.34 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Diluted earnings per share:                                               |       |                           |        |   |   |   |   |
| Continuing operations                                                     |       | $                              | 1.49        |   | $ | 1.31 |   | $ | 1.16 |   |
| Discontinued operations                                                   |       |                           |        | .01 |   | .04 |   |
| Total                                                                     |       | $                              | 1.49        |   | $ | 1.32 |   | $ | 1.20 |   |
|                                                                      |       |                           |        |   |   |   |   |
| Weighted average number of shares outstanding:                            |       |                           |        |   |   |   |   |
| Basic                                                                     |       | 11,737,398                     |        | 11,318,946 |   | 10,523,988 |   |
| Diluted                                                                   |       | 12,026,745                     |        | 11,945,139 |   | 11,743,116 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

22

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| **Consolidated Statements of Cash Flows** | ** ** | **America’s Car-Mart, Inc.** |
|-------------------------------------------|------------|----------------------------------------|

 
| ** **                                                                                                          | ** ** | **Years Ended April 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                          | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Operating activities:                                                                                               |       |                           |       |   |   |   |   |
| Net income                                                                                                          |       | $                              | 17,976,366 |   | $ | 15,804,446 |   | $ | 14,074,929 |   |
| Less: Income from discontinued operations                                                                           |       |                           |       | 165,000 |   | 506,186 |   |
| Income from continuing operations                                                                                   |       | 17,976,366                     |       | 15,639,446 |   | 13,568,743 |   |
|                                                                                                                |       |                           |       |   |   |   |   |
| Adjustments to reconcile income from continuing  operations to net cash provided by (used in) operating activities: |       |                           |       |   |   |   |   |
| Provision for credit losses                                                                                         |       | 38,093,729                     |       | 34,766,496 |   | 26,896,608 |   |
| Depreciation and amortization                                                                                       |       | 425,624                        |       | 321,053 |   | 299,203 |   |
| Deferred income taxes                                                                                               |       | 369,800                        |       | 454,192 |   | 1,281,756 |   |
| Changes in operating assets and liabilities:                                                                        |       |                           |       |   |   |   |   |
| Finance receivable originations                                                                                     |       | (173,446,050                   | )          | (151,379,959 | ) | (131,447,487 | ) |
| Finance receivable collections                                                                                      |       | 105,972,843                    |       | 97,366,670 |   | 82,645,614 |   |
| Income tax and other receivables                                                                                    |       | (14,294                        | )          | 299,936 |   | 8,844,959 |   |
| Inventory                                                                                                           |       | 7,953,505                      |       | 5,002,803 |   | 5,110,444 |   |
| Prepaid expenses and other assets                                                                                   |       | 92,189                         |       | 41,373 |   | 182,250 |   |
| Accounts payable and accrued liabilities                                                                            |       | 1,151,462                      |       | (1,080,870 | ) | 481,228 |   |
| Income taxes payable                                                                                                |       | (89,330                        | )          | 2,559,044 |   |   |   |
| Net cash provided by (used in) operating activities                                                                 |       | (1,514,156                     | )          | 3,990,184 |   | 7,863,318 |   |
|                                                                                                                |       |                           |       |   |   |   |   |
| Investing activities:                                                                                               |       |                           |       |   |   |   |   |
| Purchase of property and equipment                                                                                  |       | (6,173,525                     | )          | (1,398,678 | ) | (2,167,703 | ) |
| Note collections from discontinued operations                                                                       |       |                           |       |   |   | 2,078,661 |   |
| Sale of discontinued operations                                                                                     |       |                           |       |   |   | 6,795,000 |   |
| Net cash provided by (used in) investing activities                                                                 |       | (6,173,525                     | )          | (1,398,678 | ) | 6,705,958 |   |
|                                                                                                                |       |                           |       |   |   |   |   |
| Financing activities:                                                                                               |       |                           |       |   |   |   |   |
| Exercise of stock options and warrants                                                                              |       | 939,175                        |       | 2,583,517 |   | 1,497,119 |   |
| Purchase of common stock                                                                                            |       | (531,636                       | )          | (1,646,360 | ) | (2,688,792 | ) |
| Proceeds from (repayments of) revolving credit  facility, net                                                       |       | 6,610,970                      |       | (3,434,100 | ) | (6,323,737 | ) |
| Repayments of other debt                                                                                            |       |                           |       |   |   | (7,500,000 | ) |
| Net cash provided by (used in) financing activities                                                                 |       | 7,018,509                      |       | (2,496,943 | ) | (15,015,410 | ) |
|                                                                                                                |       |                           |       |   |   |   |   |
| Cash provided by (used in) continuing operations                                                                    |       | (669,172                       | )          | 94,563 |   | (446,134 | ) |
| Cash provided by (used in) discontinued operations                                                                  |       |                           |       | 250,000 |   | (2,520,506 | ) |
|                                                                                                                |       |                           |       |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                                                    |       | (669,172                       | )          | 344,563 |   | (2,966,640 | ) |
| Cash and cash equivalents at:  Beginning  of period                                                       |       | 1,128,349                      |       | 783,786 |   | 3,750,426 |   |
|                                                                                                                |       |                           |       |   |   |   |   |
| End of period                                                                                                       |       | $                              | 459,177    |   | $ | 1,128,349 |   | $ | 783,786 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

23

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| **Consolidated Statements of Stockholders’ Equity** | ** ** | **America’s Car-Mart, Inc.** |
|----------------------------------------------------------|------------|----------------------------------------|

 
| ** **                       | ** ** | **For the Years Ended April 30,  2005, 2004 and 2003** | ** ** |
|----------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                       | ** ** | ** **                                                  | ** ** | ** ** | ** ** | **Additional** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **Common Stock**                                            | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Stockholders’** | ** ** |
| ** **                       | ** ** | **Shares**                                                  | ** ** | **Amount** | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Equity** | ** ** |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Balance at April 30, 2002   |       | 10,416,488                                                  |       | $ | 104,165 |   | $ | 31,227,264 |   | $ | 21,481,758 |   | $ | 52,813,187 |   |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Stock options/warrants exercised |       | 735,600                                                     |       | 7,356 |   | 1,489,763 |   |   |   | 1,497,119 |   |
| Stock warrant issued             |       |                                                        |       |   |   | 15,000 |   |   |   | 15,000 |   |
| Purchase of common stock         |       | (340,143                                                    | )          | (3,402 | ) | (2,685,390 | ) |   |   | (2,688,792 | ) |
| Tax benefit of options exercised |       |                                                        |       |   |   | 249,430 |   |   |   | 249,430 |   |
| Net income                       |       |                                                        |       |   |   |   |   | 14,074,929 |   | 14,074,929 |   |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Balance at April 30, 2003   |       | 10,811,945                                                  |       | 108,119 |   | 30,296,067 |   | 35,556,687 |   | 65,960,873 |   |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Stock options/warrants exercised |       | 927,717                                                     |       | 9,278 |   | 2,574,239 |   |   |   | 2,583,517 |   |
| Stock warrants issued            |       |                                                        |       |   |   | 76,000 |   |   |   | 76,000 |   |
| Purchase of common stock         |       | (102,900                                                    | )          | (1,029 | ) | (1,645,331 | ) |   |   | (1,646,360 | ) |
| Tax benefit of options exercised |       |                                                        |       |   |   | 1,799,000 |   |   |   | 1,799,000 |   |
| Net income                       |       |                                                        |       |   |   |   |   | 15,804,446 |   | 15,804,446 |   |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Balance at April 30, 2004   |       | 11,636,762                                                  |       | 116,368 |   | 33,099,975 |   | 51,361,133 |   | 84,577,476 |   |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Stock options/warrants exercised |       | 233,199                                                     |       | 2,332 |   | 936,843 |   |   |   | 939,175 |   |
| Purchase of common stock         |       | (26,223                                                     | )          | (263 | ) | (531,373 | ) |   |   | (531,636 | ) |
| Tax benefit of options exercised |       |                                                        |       |   |   | 304,000 |   |   |   | 304,000 |   |
| Net income                       |       |                                                        |       |   |   |   |   | 17,976,366 |   | 17,976,366 |   |
|                             |       |                                                        |       |   |   |   |   |   |   |   |   |
| Balance at April 30, 2005   |       | 11,843,738                                                  |       | $ | 118,437 |   | $ | 33,809,445 |   | $ | 69,337,499 |   | $ | 103,265,381 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

24

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| **Notes to Consolidated Financial  Statements** | ** ** | **America’s Car-Mart, Inc.** |
|-------------------------------------------------|------------|----------------------------------------|

 

## **A - Organization and Business**

 

America’s Car-Mart, Inc., a Texas corporation(the “Company”), is the largest publicly held automotive retailer in the UnitedStates focused exclusively on the “Buy Here/Pay Here” segment of the used carmarket.  References to the Companytypically include the Company’s consolidated subsidiaries.  The Company’s operations are principallyconducted through its two operating subsidiaries, America’s Car-Mart, Inc.,an Arkansas corporation, (“Car-Mart of Arkansas”) and Colonial Auto Finance, Inc.(“Colonial”).  Collectively, Car-Mart ofArkansas and Colonial are referred to herein as “Car-Mart.”  The Company primarily sells older model usedvehicles and provides financing for substantially all of its customers. Many ofthe Company’s customers have limited financial resources and would not qualifyfor conventional financing as a result of limited credit histories or pastcredit problems.  As of April 30,2005, the Company operated 76 stores located primarily in small citiesthroughout the South-Central United States.

 

InOctober 2001, the Company made the decision to sell all of its operating subsidiariesexcept Car-Mart, and relocate its corporate headquarters to Bentonville,Arkansas where Car-Mart is based.  As aresult of this decision, all of the Company’s other operating subsidiaries weresold and their operating results have been included in discontinued operations.  The Company sold its last remainingdiscontinued operation in July 2002. Discontinued operations are described in Note O.

 

## **B - Summary of Significant Accounting Policies**

 

*Principlesof Consolidation*

The consolidatedfinancial statements include the accounts of America’s Car-Mart, Inc. andall of its subsidiaries.  All significantintercompany accounts and transactions have been eliminated.

 

*Adjustmentsto Reflect Stock Split*

All references to the number of shares of commonstock, stock options and warrants, earnings per share amounts, exercise pricesof stock options and warrants, common stock prices, and other share and pershare data or amounts in this Annual Report on Form 10-K have beenadjusted, as necessary, to retroactively reflect the three-for-two common stocksplit effected in the form of a 50% stock dividend in April 2005.

# * *

*Use ofEstimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amount of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenues and expenses during theperiod.  Actual results could differ fromthose estimates.

 

*Concentrationof Risk*

TheCompany provides financing in connection with the sale of substantially all ofits vehicles.  These sales are madeprimarily to customers residing in Arkansas, Oklahoma, Texas, Kentucky andMissouri, with approximately 60% of revenues resulting from sales to Arkansascustomers.  Periodically, the Companymaintains cash in financial institutions in excess of the amounts insured bythe federal government.  Car-Mart’srevolving credit facilities mature in April 2006.  The Company expects that these creditfacilities will be renewed or refinanced on or before the scheduled maturitydates.

 

*Restrictionson Subsidiary Distributions/Dividends*

Car-Mart’s revolving credit facilities limit distributionsfrom Car-Mart to the Company beyond (i) the repayment of an intercompanyloan ($10.0 million at April 30, 2005), and (ii) dividends equal to75% of Car-Mart of Arkansas’ net income. At April 30, 2005, the Company’s assets (excluding its $90.4 millionequity investment in Car-Mart) consisted of $.1 million in cash, $3.2 millionin other assets and a $10.0 million receivable from Car-Mart.  Thus, the Company is limited in the amount ofdividends or other distributions it can make to its shareholders without theconsent of Car-Mart’s lender.  Beginningin February 2003, Car-Mart assumed substantially all of the operatingcosts of the Company.

* *

*CashEquivalents*

TheCompany considers all highly liquid debt instruments purchased with maturitiesof three months or less to be cash equivalents.

 

*FinanceReceivables, Repossessions and Charge-offs and Allowance for Credit Losses*

TheCompany originates installment sale contracts from the sale of used vehicles atits dealerships.  Finance receivables arecollateralized by vehicles sold and consist of contractually scheduled paymentsfrom installment contracts net of unearned finance charges and an allowance forcredit losses.  Unearned finance chargesrepresent the balance of interest income remaining from the total interest tobe earned over the term of the related installment contract.  An account is considered delinquent when acontractually scheduled payment has not been received by the scheduled paymentdate.  At April 30, 2005 and 2004,3.0% of the Company’s finance receivable balances were 30 days or more pastdue.

 

TheCompany takes steps to repossess a vehicle when the customer becomes severelydelinquent in his or her payments, and management determines that timelycollection of future payments is not probable. Accounts are charged-off after the expiration of a statutory noticeperiod for repossessed accounts, or when management determines that the timelycollection of future payments is not probable for accounts where the Companyhas been unable to repossess the vehicle.

 

25

----

 

For accounts that thevehicle was repossessed, the fair value of the repossessed vehicle is chargedas a reduction of the gross finance receivable balance charged-off.  On average, accounts are approximately 57days past due at the time of charge-off. For previously charged-off accounts that are subsequently recovered, theamount of such recovery is credited to the allowance for credit losses.

 

The Company maintains anallowance for credit losses on an aggregate basis at a level it considerssufficient to cover estimated losses in the collection of its financereceivables.  The allowance for creditlosses is based primarily upon historical credit loss experience, withconsideration given to recent credit loss trends and changes in loancharacteristics (i.e., average amount financed and term), delinquency levels,collateral values, economic conditions and underwriting and collectionpractices.  The allowance for creditlosses is periodically reviewed by management with any changes reflected incurrent operations.  Although it is atleast reasonably possible that events or circumstances could occur in thefuture that are not presently foreseen which could cause actual credit lossesto be materially different from the recorded allowance for credit losses, theCompany believes that it has given appropriate consideration to all relevantfactors and has made reasonable assumptions in determining the allowance forcredit losses.

 

*Inventory*

Inventory consists ofused vehicles and is valued at the lower of cost or market on a specificidentification basis.  Vehiclereconditioning costs are capitalized as a component of inventory.  Repossessed vehicles are recorded at fairvalue, which approximates wholesale value. The cost of used vehicles sold is determined using the specificidentification method.

 

*Investments*

Included in Prepaid Expenses and Other at April 30,2005 and 2004 are investments in high technology/Internet based companies ofapproximately $231,000 and $294,000, respectively.  These investments were acquired between 1998and 2000 and are carried at their estimated fair values.

 

*Propertyand Equipment*

Property and equipmentare stated at cost.  Expenditures foradditions, renewals and improvements are capitalized.  Costs of repairs and maintenance are expensedas incurred.  Leasehold improvements areamortized over the shorter of the estimated life of the improvement or thelease period.  The lease period includesthe primary lease term plus any extensions that are reasonably assured.  Depreciation is computed principally usingthe straight-line method generally over the following estimated useful lives:

 

| Furniture, fixtures and equipment |   | 3 to 7 years   |   |
|-----------------------------------|--------|----------------|--------|
| Leasehold improvements            |   | 5 to 15 years  |   |
| Buildings and improvements        |   | 18 to 39 years |   |

 

Property and equipmentare reviewed for impairment whenever events or changes in circumstancesindicate the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and usedis measured by a comparison of the carrying amount of an asset to futureundiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired,the impairment to be recognized is measured by the amount by which the carryingvalues of the impaired assets exceed the fair value of such assets.  Assets to be disposed of are reported at thelower of the carrying amount or fair value less costs to sell.

 

*Cash Overdraft*

The Company’s primary disbursement bank account is setup to operate with a fixed $100,000 cash balance.  As checks are presented for payment, moniesare automatically drawn against cash collections for the day and, if necessary,are drawn against one of its revolving credit facilities.  The cash overdraft balance principallyrepresents outstanding checks, net of any deposits in transit that as of thebalance sheet date had not yet been presented for payment.

 

*Deferred Sales Tax*

Deferred sales tax represents a sales tax liabilityof the Company for vehicles sold on an installment basis in the State ofTexas.  Under Texas law, for vehiclessold on an installment basis, the related sales tax is due as the payments arecollected from the customer, rather than at the time of sale.

* *

*Income Taxes*

Income taxes areaccounted for under the liability method. Under this method, deferred tax assets and liabilities are determinedbased on differences between financial reporting and tax bases of assets andliabilities and are measured using the enacted tax rates expected to apply inthe years in which these temporary differences are expected to be recovered orsettled.

 

From time to time, theCompany is audited by taxing authorities. These audits could result in proposed assessments of additionaltaxes.  The Company believes that its taxpositions comply in all material respects with applicable tax law.  However, tax law is subject tointerpretation, and interpretations by taxing authorities could be differentfrom those of the Company, which could result in the imposition of additionaltaxes.

 

*RevenueRecognition*

Revenuesare generated principally from the sale of used vehicles, which in most casesincludes a service contract, and interest income and late fees earned onfinance receivables.

 

Revenuesfrom the sale of used vehicles are recognized when the sales contract issigned, the customer has taken possession of the vehicle and, if applicable,financing has been approved.  Revenuesfrom the sale of service contracts are recognized ratably over the four monthservice contract period.  Servicecontract revenues are included in sales and the related expenses are includedin cost of sales.

 

26

----

 

Interest income isrecognized on all active finance receivable accounts using the interestmethod.  Active accounts include allaccounts except those that have been paid-off or charged-off.  At April 30, 2005 and 2004, financereceivables more than 90 days past due were approximately $181,000 and $26,000,respectively.  Late fees are recognizedwhen collected and are included in interest income.

 

*AdvertisingCosts*

Advertisingcosts are expensed as incurred and consist principally of radio, television andprint media marketing costs.  Advertisingcosts amounted to $2,006,000, $1,616,000 and $1,349,000 for the years ended April 30,2005, 2004 and 2003, respectively.

 

# *EmployeeBenefit Plans*

The Company has 401(k) plans for all of its employeesmeeting certain eligibility requirements. The plans provide for voluntary employee contributions and the Companymatches 50% of employee contributions up to a maximum of 2% of each employee’scompensation.  The Company contributedapproximately $103,000, $142,000, and $117,000 to the plans for the years endedApril 30, 2005, 2004 and 2003, respectively.

# * *

# *Earnings per Share*

Basic earnings per shareare computed by dividing net income by the average number of common sharesoutstanding during the period.  Dilutedearnings per share takes into consideration the potentially dilutive effect ofcommon stock equivalents, such as outstanding stock options and warrants, whichif exercised or converted into common stock would then share in the earnings ofthe Company.  In computing dilutedearnings per share, the Company utilizes the treasury stock method and anti-dilutivesecurities are excluded.

 

*StockOption Plans*

TheCompany accounts for its stock option plans in accordance with the provisionsof Accounting Principles Board (“APB”) Opinion No. 25, “Accounting forStock Issued to Employees,” and related interpretations.  Had the Company determined compensation coston the date of grant based upon the fair value of its stock options under SFAS No. 123,the Company’s pro forma net income and earnings per share would be as followsusing the Black-Scholes option-pricing model with the assumptions detailedbelow.  The estimated weighted averagefair value of options granted using the Black-Scholes option-pricing model was$9.94, $5.79 and $4.25 per share for the years ended April 30, 2005, 2004and 2003, respectively.

 

| ** **                                    | ** ** | **Years Ended April 30,** | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                          |       |                           |       |   |   |   |   |
| Reported net income                           |       | $                              | 17,976,366 |   | $ | 15,804,446 |   | $ | 14,074,929 |   |
| Less fair value compensation cost, net of tax |       | (624,447                       | )          | (42,966 | ) | (307,621 | ) |
| Pro forma net income                          |       | $                              | 17,351,919 |   | $ | 15,761,480 |   | $ | 13,767,308 |   |
|                                          |       |                           |       |   |   |   |   |
| Basic earnings per share:                     |       |                           |       |   |   |   |   |
| As reported                                   |       | $                              | 1.53       |   | $ | 1.40 |   | $ | 1.34 |   |
| Pro forma                                     |       | $                              | 1.48       |   | $ | 1.39 |   | $ | 1.31 |   |
|                                          |       |                           |       |   |   |   |   |
| Diluted earnings per share:                   |       |                           |       |   |   |   |   |
| As reported                                   |       | $                              | 1.49       |   | $ | 1.32 |   | $ | 1.20 |   |
| Pro forma                                     |       | $                              | 1.44       |   | $ | 1.32 |   | $ | 1.17 |   |
|                                          |       |                           |       |   |   |   |   |
| Assumptions:                                  |       |                           |       |   |   |   |   |
| Expected dividend yield                       |       | 0.0                            | %          | 0.0 | % | 0.0 | % |
| Risk-free interest rate                       |       | 4.9                            | %          | 4.3 | % | 4.5 | % |
| Expected volatility                           |       | 40.0                           | %          | 50.0 | % | 50.0 | % |
| Expected life                                 |       | 5 years                        |       | 5 years |   | 5 years |   |

 

# *RecentAccounting Pronouncement*

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards123R, “Share-Based Payment” (“SFAS 123R”), which is a revision of SFAS123.  SFAS 123R supersedes APB Opinion No. 25.  Generally, the approach in SFAS 123R issimilar to the approach described in SFAS 123, except that SFAS 123R requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer analternative under SFAS 123R.  SFAS 123Rwas originally issued with implementation required for interim and annualperiods beginning after June 15, 2005. On April 15, 2005, the Securities and Exchange Commission delayedthe required effective date of SFAS 123R to the beginning of the first fiscalyear that begins after June 15, 2005.

 

27

----

 

The Company is evaluating the requirements of SFAS123R.  The Company has not yet determinedthe method of adoption or the effect of adopting SFAS 123R, and it has notdetermined whether the adoption will result in amounts that are similar to thecurrent pro forma disclosures under SFAS 123 above.  The Company expects to adopt SFAS 123R on May 1,2006.

 

# *Reclassifications*

Certain prior yearamounts in the accompanying financial statements have been reclassified toconform to the fiscal 2005 presentation.

 

## **C - Finance Receivables, Net**

 

The Company originatesinstallment sale contracts from the sale of used vehicles at itsdealerships.  These installment salecontracts typically include interest rates ranging from 6% to 19% per annum,are collateralized by the vehicle sold and provide for payments over periodsranging from 12 to 36 months.  Thecomponents of finance receivables as of April 30, 2005 and 2004 are asfollows:

 
| ** **                       | ** ** | **April 30,** | ** **  |
|----------------------------------|------------|--------------------|-------------|
| ** **                       | ** ** | **2005**           | ** **  | **2004** | ** ** |
|                             |       |               |        |   |   |
| Gross contract amount            |       | $                  | 168,145,038 |   | $ | 140,169,258 |   |
| Less unearned finance charges    |       | (15,794,828        | )           | (11,449,631 | ) |
|                             |       |               |        |   |   |
| Principal balance                |       | 152,350,210        |        | 128,719,627 |   |
| Less allowance for credit losses |       | (29,251,244        | )           | (25,035,967 | ) |
|                             |       |               |        |   |   |
| Finance receivables, net         |       | $                  | 123,098,966 |   | $ | 103,683,660 |   |

 

Changes in the financereceivables, net balance for the years ended April 30, 2005, 2004 and 2003are as follows:

 
| ** **                         | ** ** | **Years Ended April 30,** | ** **  |
|------------------------------------|------------|--------------------------------|-------------|
| ** **                         | ** ** | **2005**                       | ** **  | **2004** | ** ** | **2003** | ** ** |
|                               |       |                           |        |   |   |   |   |
| Balance at beginning of year       |       | $                              | 103,683,660 |   | $ | 91,358,935 |   | $ | 75,079,603 |   |
| Finance receivable originations    |       | 173,446,050                    |        | 151,379,959 |   | 131,447,487 |   |
| Finance receivable collections     |       | (105,972,843                   | )           | (97,366,670 | ) | (82,645,614 | ) |
| Provision for credit losses        |       | (38,093,729                    | )           | (34,766,496 | ) | (26,896,608 | ) |
| Inventory acquired in repossession |       | (9,964,172                     | )           | (6,922,068 | ) | (5,625,933 | ) |
|                               |       |                           |        |   |   |   |   |
| Balance at end of year             |       | $                              | 123,098,966 |   | $ | 103,683,660 |   | $ | 91,358,935 |   |

 

Changes in the financereceivables allowance for credit losses for the years ended April 30, 2005,2004 and 2003 are as follows:

 
| ** **                               | ** ** | **Years Ended April 30,** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                     |       |                           |       |   |   |   |   |
| Balance at beginning of year             |       | $                              | 25,035,967 |   | $ | 20,395,095 |   | $ | 17,042,609 |   |
| Provision for credit losses              |       | 38,093,729                     |       | 34,766,496 |   | 26,896,608 |   |
| Charge-offs, net of recovered collateral |       | (33,878,452                    | )          | (30,125,624 | ) | (23,544,122 | ) |
|                                     |       |                           |       |   |   |   |   |
| Balance at end of year                   |       | $                              | 29,251,244 |   | $ | 25,035,967 |   | $ | 20,395,095 |   |

 

28

----

 

## **D - Property and Equipment**

 

A summary of propertyand equipment as of April 30, 2005 and 2004 is as follows:

 
| ** **                                     | ** ** | **April 30,** | ** ** |
|------------------------------------------------|------------|--------------------|------------|
| ** **                                     | ** ** | **2005**           | ** ** | **2004** | ** ** |
|                                           |       |               |       |   |   |
| Land                                           |       | $                  | 4,371,748  |   | $ | 2,002,927 |   |
| Buildings and improvements                     |       | 3,161,500          |       | 1,770,244 |   |
| Furniture, fixtures and equipment              |       | 2,356,385          |       | 707,818 |   |
| Leasehold improvements                         |       | 2,737,845          |       | 2,034,481 |   |
| Less accumulated depreciation and amortization |       | (1,322,820         | )          | (958,713 | ) |
|                                           |       |               |       |   |   |
|                                           |       | $                  | 11,304,658 |   | $ | 5,556,757 |   |

 

## **E - Accrued Liabilities**

 

A summary of accruedliabilities as of April 30, 2005 and 2004 is as follows:

 
| ** **                                         | ** ** | **April 30,** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|
| ** **                                         | ** ** | **2005**           | ** ** | **2004** | ** ** |
|                                               |       |               |       |   |   |
| Compensation                                       |       | $                  | 2,383,826  |   | $ | 2,196,977 |   |
| Cash overdraft (see Note B)                        |       | 736,820            |       | 1,068,743 |   |
| Deferred service contract revenue (see Note B)     |       | 1,526,943          |       | 1,312,509 |   |
| Deferred sales tax (see Note B)                    |       | 716,901            |       | 343,701 |   |
| Subsidiary redeemable preferred stock (see Note H) |       | 500,000            |       | 500,000 |   |
| Interest                                           |       | 136,036            |       | 87,770 |   |
| Other                                              |       | 22,765             |       | 35,288 |   |
|                                               |       |               |       |   |   |
|                                               |       | $                  | 6,023,291  |   | $ | 5,544,988 |   |

 

## **F – Revolving Credit Facilities**

 

Asummary of revolving credit facilities as of April 30, 2005 and 2004 is asfollows:

 

| **Revolving Credit Facilities** | ** ** |
|---------------------------------|------------|
| ** **                      | ** ** | **Aggregate** | ** ** | **Interest** | ** ** | ** ** | ** ** | **Balance at** | ** ** |
| **Primary Lender**              | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Maturity** | ** ** | **April 30, 2005** | ** ** | **April 30, 2004** | ** ** |
|                            |       |   |   |   |   |   |   |   |   |   |   |
| Bank of Oklahoma                |       | $ | 39.5 million |   | Prime |   | Apr 2006 |   | $ | 29,145,090 |   | $ | 22,534,120 |   |
|                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Car-Marthas two revolving credit facilities that aggregate $39.5 million and mature in April 2006. The facilities are collateralized by substantiallyall the assets of Car-Mart including finance receivables and inventory.  Interest is payable monthly under thefacilities at the bank’s prime lending rate per annum (5.75% at April 30, 2005and 4.00% at April 30, 2004).  The facilitiescontain various reporting and performance covenants including (i) maintenanceof certain financial ratios and tests, (ii) limitations on borrowings fromother sources, (iii) restrictions on certain operating activities, and (iv) limitationson the payment of dividends or distributions to the Company.  The amount available to be drawn under thefacilities is a function of eligible finance receivables and inventory.  Based upon eligible finance receivables andinventory at April 30, 2005, Car-Mart could have drawn an additional $10.4million under its facilities.

 

29

----

 

## **G - Income Taxes**

 

Theprovision for income taxes for the fiscal years ended April 30, 2005, 2004and 2003 was as follows:

 
| ** **                 | ** ** | **Years Ended April 30,** | ** ** |
|----------------------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Provision for income taxes |       |                           |       |   |   |   |   |
| Current                    |       | $                              | 10,138,178 |   | $ | 8,707,314 |   | $ | 6,662,344 |   |
| Deferred                   |       | 369,800                        |       | 454,192 |   | 1,281,756 |   |
|                       |       |                           |       |   |   |   |   |
|                       |       | $                              | 10,507,978 |   | $ | 9,161,506 |   | $ | 7,944,100 |   |
|                            |            |                                |            |  |  |  |  |  |  |  |  |

 

Theprovision for income taxes is different from the amount computed by applyingthe statutory federal income tax rate to income before income taxes for thefollowing reasons:

 
| ** **                          | ** ** | **Years Ended April 30,** | ** ** |
|-------------------------------------|------------|--------------------------------|------------|
| ** **                          | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                |       |                           |       |   |   |   |   |
| Tax provision at statutory rate     |       | $                              | 9,969,520  |   | $ | 8,680,333 |   | $ | 7,529,495 |   |
| State taxes, net of federal benefit |       | 751,116                        |       | 707,104 |   | 672,377 |   |
| Other, net                          |       | (212,658                       | )          | (225,931 | ) | (257,772 | ) |
|                                |       |                           |       |   |   |   |   |
|                                |       | $                              | 10,507,978 |   | $ | 9,161,506 |   | $ | 7,944,100 |   |
|                                     |            |                                |            |  |  |  |  |  |  |  |  |

 

Deferredincome taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. Significant components of the Company’s deferred tax assets andliabilities as of April 30, 2005 and 2004 were as follows:

 
| ** **                           | ** ** | ** ** | ** ** | **April 30,** | ** ** |
|--------------------------------------|------------|------------|------------|--------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | **2005**           | ** ** | **2004** | ** ** |
| Deferred tax liabilities related to: |       |       |       |               |       |   |   |
| Finance receivables                  |       |       |       | $                  | 3,269,338  |   | $ | 2,644,076 |   |
| Other                                |       |       |       |               |       | 21,377 |   |
| Total                                |       |       |       | 3,269,338          |       | 2,665,453 |   |
|                                 |       |       |       |               |       |   |   |
| Deferred tax assets related to:      |       |       |       |               |       |   |   |
| Liability reserves                   |       |       |       | 838,635            |       | 688,390 |   |
| Inventory                            |       |       |       | 307,676            |       | 148,217 |   |
| Other                                |       |       |       | 136,331            |       | 211,950 |   |
| Total                                |       |       |       | 1,282,642          |       | 1,048,557 |   |
|                                 |       |       |       |               |       |   |   |
| Deferred tax liabilities, net        |       |       |       | $                  | 1,986,696  |   | $ | 1,616,896 |   |

 

30

----

 

## **H - Capital Stock**

 

The Company isauthorized to issue up to one million shares of $.01 par value preferred stockin one or more series having such respective terms, rights and preferences as aredesignated by the Board of Directors.  TheCompany has not issued any preferred stock.

 

A subsidiary of theCompany has issued 500,000 shares of $1.00 par value preferred stock whichcarries a 6% cumulative dividend.  Accumulatedbut undeclared dividends at April 30, 2005 and 2004 were $30,000 and$6,000, respectively.  The Company’ssubsidiary can redeem the preferred stock at any time at par value plus anyunpaid dividends.  After April 30,2007, a holder of 400,000 shares of the subsidiary preferred stock can requirethe Company’s subsidiary to redeem such stock for $400,000 plus any unpaiddividends.  The subsidiary preferredstock is included in accrued liabilities.

 

## **I – Weighted Average Shares Outstanding**

 

Weighedaverage shares outstanding used in the calculation of basic and dilutedearnings per share was as follows for the years ended April 30, 2005, 2004and 2003:

 
| ** **                                | ** ** | **Years Ended April 30,** | ** ** |
|-------------------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                      |       |                           |       |   |   |   |   |
| Average shares outstanding – basic   |       | 11,737,398                     |       | 11,318,946 |   | 10,523,988 |   |
| Dilutive options and warrants             |       | 289,347                        |       | 626,193 |   | 1,219,128 |   |
|                                      |       |                           |       |   |   |   |   |
| Average shares outstanding – diluted |       | 12,026,745                     |       | 11,945,139 |   | 11,743,116 |   |
|                                      |       |                           |       |   |   |   |   |
| Antidilutive securities not included:     |       |                           |       |   |   |   |   |
| Options and warrants                      |       | 21,563                         |       | 6,563 |   | 67,500 |   |

 

31

----

 

## **J - Stock Options and Warrants**

 

*StockOptions*

Sinceinception, the shareholders of the Company have approved three stock optionplans including the 1986 Incentive Stock Option Plan (“1986 Plan”), the 1991Non-Qualified Stock Option Plan (“1991 Plan”) and the 1997 Stock Option Plan (“1997Plan”).  While previously granted optionsremain outstanding, no additional option grants may be made under the 1986 and1991 Plans.  The 1997 Plan sets aside 1,500,000shares of the Company’s common stock for grants to employees, directors andcertain advisors of the Company at a price not less than the fair market valueof the stock on the date of grant and for periods not to exceed ten years.  At April 30, 2005 and 2004, there were 30,533and 116,618 shares of common stock available for grant, respectively, under the1997 Plan.  Options granted under theCompany’s stock option plans expire in the calendar years 2008 through 2014.  The following is an aggregate summary of theactivity in the Company’s stock option plans from April 30, 2002 to April 30,2005:

 
| ** **                         | ** ** | **Number  of  Shares** | ** ** | **Exercise  Price  per Share** | ** ** | **Proceeds  on  Exercise** | ** ** | **Weighted Average  Exercise Price per  Share** | ** ** |
|------------------------------------|------------|------------------------|------------|--------------------------------|------------|----------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | ** **             | ** ** | ** **                     | ** ** | ** **                 | ** ** | ** **                                      | ** ** |
| Outstanding at April 30, 2002 |       | 2,042,520              |       | $                              | .27        | to                         | $          | 6.59                                            |       | $ | 5,764,317 |   | $ | 2.82 |   |
| Granted                            |       | 86,250                 |       |                           | 8.72       | to                         |       | 8.77                                            |       | 755,600 |   | 8.76 |   |
| Exercised                          |       | (713,250               | )          |                           | .27        | to                         |       | 6.59                                            |       | (1,497,119 | ) | 2.10 |   |
| Canceled                           |       | (4,987                 | )          |                           | 6.59       | to                         |       | 8.72                                            |       | (40,850 | ) | 8.19 |   |
|                               |       |                   |       |                           |       |                       |       |                                            |       |   |   |   |   |
| Outstanding at April 30, 2003 |       | 1,410,533              |       |                           | 1.63       | to                         |       | 8.77                                            |       | 4,981,948 |   | 3.53 |   |
| Granted                            |       | 11,250                 |       |                           |       |                       |       | 11.83                                           |       | 133,125 |   | 11.83 |   |
| Exercised                          |       | (911,742               | )          |                           | 1.63       | to                         |       | 8.77                                            |       | (2,583,517 | ) | 2.83 |   |
| Canceled                           |       | (1,650                 | )          |                           |       |                       |       | 6.59                                            |       | (10,869 | ) | 6.59 |   |
|                               |       |                   |       |                           |       |                       |       |                                            |       |   |   |   |   |
| Outstanding at April 30, 2004 |       | 508,391                |       |                           | 2.58       | to                         |       | 11.83                                           |       | 2,520,687 |   | 4.96 |   |
| Granted                            |       | 86,250                 |       |                           | 19.83      | to                         |       | 23.75                                           |       | 2,004,550 |   | 23.24 |   |
| Exercised                          |       | (224,256               | )          |                           | 2.58       | to                         |       | 6.59                                            |       | (939,175 | ) | 4.19 |   |
| Canceled                           |       | (165                   | )          |                           |       |                       |       | 6.59                                            |       | (1,087 | ) | 6.59 |   |
|                               |       |                   |       |                           |       |                       |       |                                            |       |   |   |   |   |
| Outstanding at April 30, 2005 |       | 370,220                |       | $                              | 3.67       | to                         | $          | 23.75                                           |       | $ | 3,584,975 |   | $ | 9.68 |   |

 

Asof April 30, 2005, all stock options were exercisable.  At April 30, 2004 and 2003, all stockoptions were exercisable with the exception of options to purchase 15,000 and 30,000shares, respectively, at $8.77 per share. A summary of stock options outstanding as of April 30, 2005 is asfollows:

 

| ** **          | ** ** | ** **    | ** ** | **Weighted Average** | ** ** | **Weighted**       | ** ** |
|---------------------|------------|---------------|------------|----------------------|------------|--------------------|------------|
| **Range of**        | ** ** | **Number**    | ** ** | **Remaining**        | ** ** | **Average**        | ** ** |
| **Exercise Prices** | ** ** | **of Shares** | ** ** | **Contractual Life** | ** ** | **Exercise Price** | ** ** |
|                |       |          |       |                 |       |               |       |
| $                   | 3.67       | to            | $          | 8.77                 |       | 272,720            |       | 4.86 years |   | $ | 5.31 |   |
|                | 11.83      | to            |       | 23.75                |       | 97,500             |       | 9.40          |   |   | 21.92 |   |
|                |       |          |       |                 |       |               |       |   |   |   |   |
|                |       |          |       |                 | 370,220    |               | 6.05 years |   | $ | 9.68 |   |

 

*Warrants*

As of April 30,2005, the Company had stock purchase warrants outstanding to purchase 52,500 sharesat prices ranging from $2.50 to $18.23 per share (weighted average exerciseprice of $7.18).  All of the warrants arepresently exercisable and expire between 2006 and 2009.  During the fiscal years ended April 30,2004 and 2003, the Company issued warrants to purchase 18,750 and 7,500 sharesof its common stock, which had weighted-average grant-date fair values of $4.05and $2.00 per share, respectively.

 

32

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## **K - Commitments and Contingencies**

 

# *FacilityLeases*

The Company leases certaindealership and office facilities under various non-cancelable operatingleases.  Dealership leases are generallyfor periods from three to five years and contain multiple renewal options.  As of April 30, 2005, the aggregaterentals due under such leases, including renewal options that are reasonablyassured, were as follows:

 

| **Years Ending**             | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| **April 30,**           | ** ** | **Amount** | ** ** |
|                         |       |       |       |
|     2006 |       | $          | 2,081,264  |   |
|     2007 |       | 1,943,091  |       |
|     2008 |       | 1,835,389  |       |
|     2009 |       | 1,824,602  |       |
|     2010 |       | 1,731,678  |       |
| Thereafter                   |       | 13,604,291 |       |
|                         |       |       |       |
|                         |       | $          | 23,020,315 |   |

 

The $23.0 million of leasecommitments includes $7.3 million of non-cancelable lease commitments under theprimary lease terms, and $15.7 million of lease commitments for renewal periodsat the Company’s option that are reasonably assured.  For the years ended April 30, 2005, 2004and 2003, rent expense for all operating leases amounted to approximately $2,114,000,$1,905,000 and $1,765,000, respectively.

 

# *Litigation*

In February 2001 and May 2002, the Companywas added as a defendant in two similar actions which were originally filed in December 1998against approximately 20 defendants (the “Defendants”) by Astoria Entertainment, Inc.(“Astoria”).  One action was filed in theCivil District Court for the Parish of Orleans, Louisiana (the “State Claims”)and the other was filed in the United States District Court for the EasternDistrict of Louisiana (the “Federal Claims”). In these actions, Astoria alleges the Defendants conspired to eliminateAstoria from receiving one of the 15 riverboat gaming licenses that wereawarded by the State of Louisiana in 1993 and 1994, at a time when a formersubsidiary of the Company was involved in riverboat gaming in Louisiana.  Astoria seeks unspecified damages includinglost profits.  In August 2001, theFederal court dismissed all of the Federal Claims with prejudice.  In September 2004, the state court ofappeals dismissed all the State Claims. In January 2005, the Louisiana Supreme Court reversed the statecourt of appeals’ dismissal of the case. The case is currently pending in the Civil District Court for the Parishof Orleans, Louisiana.  The Companybelieves the State Claims are without merit and intends to vigorously contestliability in this matter.

 

In addition to the foregoing case, in the ordinarycourse of business, the Company has become a defendant in various types ofother legal proceedings.  The Companydoes not expect the final outcome of any of these actions, individually or inthe aggregate, to have a material adverse effect on the Company’s financialposition, annual results of operations or cash flows.  However, the results of legal proceedingscannot be predicted with certainty, and an unfavorable resolution of one or moreof these legal proceedings could have a material adverse effect on the Company’sfinancial position, annual results of operations or cash flows.

 

*Related Finance Company*

Car-Martof Arkansas and Colonial do not meet the affiliation standard for filing consolidatedincome tax returns, as such they file separate federal and state income taxreturns.  Car-Mart of Arkansas routinelysells its finance receivables to Colonial at what the Company believes to be fairmarket value and is able to take a tax deduction at the time of sale for thedifference between the tax basis of the receivables sold and the salesprice.  For tax purposes, thesetransactions are permissible under the provisions of the Internal Revenue Code(“IRC”) as described in the Treasury Regulations.  For financial accounting purposes, thesetransactions are eliminated in consolidation. The sale of finance receivables from Car-Mart of Arkansas to Colonialprovides certain legal protection for the Company’s finance receivables and, principallybecause of certain state apportionment characteristics of Colonial, also hasthe effect of reducing the Company’s overall effective state income tax rate byapproximately 200 basis points.  Theactual interpretation of the Regulations is in part a facts and circumstancesmatter.  The Company believes itsatisfies the material provisions of the Regulations.  Failure to satisfy those provisions couldresult in the loss of a tax deduction at the time the receivables are sold, andhave the effect of increasing the Company’s overall effective income tax rate.

 

## **L - Related Party Transactions**

 

During fiscal 2004 and2003, the Company paid Dynamic Enterprises, Inc. (“Dynamic”) approximately$225,000 per year for the lease of six dealership locations.  During those periods an officer of Dynamicwas also a director of the Company.

 

33

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## **M - Fair Value of Financial Instruments**

 

The table belowsummarizes information about the fair value of financial instruments includedin the Company’s financial statements at April 30, 2005 and 2004:

 
| ** **                  | ** ** | **April 30, 2005** | ** ** | **April 30, 2004** | ** ** |
|-----------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **Carrying**            | ** ** | **Fair**                | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                  | ** ** | **Value**               | ** ** | **Value**               | ** ** | **Value** | ** ** | **Value** | ** ** |
|                        |       |                    |       |                    |       |   |   |   |   |
| Cash                        |       | $                       | 459,177    |                    | $          | 459,177 |   | $ | 1,128,349 |   | $ | 1,128,349 |   |
| Finance receivables, net    |       | 123,098,966             |       | 114,262,658             |       | 103,683,660 |   | 96,539,720 |   |
| Accounts payable            |       | 2,796,086               |       | 2,796,086               |       | 2,122,927 |   | 2,122,927 |   |
| Revolving credit facilities |       | 29,145,090              |       | 29,145,090              |       | 22,534,120 |   | 22,534,120 |   |
|                             |            |                         |            |                         |            |  |  |  |  |  |  |  |  |

 

Because no market existsfor certain of the Company’s financial instruments, fair value estimates arebased on judgments and estimates regarding yield expectations of investors, creditrisk and other risk characteristics, including interest rate and prepaymentrisk.  These estimates are subjective innature and involve uncertainties and matters of judgment and therefore cannotbe determined with precision.  Changes inassumptions could significantly affect these estimates.  The methodology and assumptions utilized toestimate the fair value of the Company’s financial instruments are as follows:

 
| **Financial  Instrument**   | ** ** | **Valuation Methodology**                                                                                                               |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                        |       |                                                                                                                                    |
| Cash                        |       | The carrying amount is considered to be  a reasonable estimate of fair value due to the short-term nature of the  financial instrument. |
|                        |       |                                                                                                                                    |
| Finance receivables, net    |       | The fair value was estimated based upon  discussions with third party purchasers of finance receivables.                                |
|                        |       |                                                                                                                                    |
| Accounts payable            |       | The carrying amount is considered to be  a reasonable estimate of fair value due to the short-term nature of the  financial instrument. |
|                        |       |                                                                                                                                    |
| Revolving credit facilities |       | The fair value approximates carrying  value due to the variable interest rates charged on the borrowings.                               |

 

**N -Supplemental Cash Flow Information**

 

Supplemental cash flowdisclosures for the years ended April 30, 2005, 2004 and 2003 are asfollows:

 
| ** **                         | ** ** | **Years Ended April 30,** | ** ** |
|------------------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| Supplemental disclosures:          |       |                           |       |   |   |   |   |
| Interest paid                      |       | $                              | 1,178,691  |   | $ | 1,101,715 |   | $ | 1,715,524 |   |
| Income taxes paid (refunded), net  |       | 10,227,393                     |       | 5,986,433 |   | (1,400,091 | ) |
|                               |       |                           |       |   |   |   |   |
| Non-cash transactions:             |       |                           |       |   |   |   |   |
| Inventory acquired in repossession |       | 9,964,172                      |       | 6,922,068 |   | 5,625,933 |   |
|                                    |            |                                |            |  |  |  |  |  |  |  |

 

34

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**O -Discontinued Operations**

 

In October 2001,the Company made the decision to sell all of its operating subsidiaries exceptCar-Mart, and relocate its corporate headquarters to Bentonville, Arkansaswhere Car-Mart is based.  As a result, inMay 2002 the Company sold its remaining 50% interest in Precision IBC, Inc.(“Precision”) for $3.8 million in cash, and in July 2002 sold its 80%interest in Concorde Acceptance Corporation (“Concorde”) for $3.0 million incash.  As a result of these two sales,the Company no longer operates any business other than Car-Mart.

 

As a result of theCompany’s decision, operating results from its non Car-Mart operating subsidiarieshave been reclassified to discontinued operations for all periodspresented.  Discontinued operationsinclude the operations of Concorde through June 2002.  Discontinued operations for the year ended April 30,2004 reflect a negotiated settlement of amounts due from a former subsidiary ofthe Company that had been previously written-off.  A summary of the Company’s discontinuedoperations for the years ended April 30, 2005, 2004 and 2003 is as follows(in thousands):

 
| ** **                                 | ** ** | **Years Ended April 30,** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                       |       |                           |       |   |   |   |   |
| Revenues                                   |       | $                              | —     |   | $ | — |   | $ | 3,058 |   |
| Operating expenses                         |       |                           |       |   |   | 2,306 |   |
| Other income                               |       |                           |       | 250 |   |   |   |
|                                       |       |                           |       |   |   |   |   |
| Income before taxes and minority interests |       |                           |       | 250 |   | 752 |   |
|                                       |       |                           |       |   |   |   |   |
| Provision for income taxes                 |       |                           |       | 85 |   | 283 |   |
| Minority interests                         |       |                           |       |   |   | 94 |   |
|                                       |       |                           |       |   |   |   |   |
| Income from discontinued operations        |       | $                              | —     |   | $ | 165 |   | $ | 375 |   |
|                                            |            |                                |            |  |  |  |  |  |  |  |  |

 

## **P - Quarterly Results of Operations (unaudited)**

 

A summary of the Company’squarterly results of operations for the years ended April 30, 2005 and2004 is as follows (in thousands, except per share information):

 
| ** **                        | ** ** | **Year Ended April 30, 2005** | ** ** |
|-----------------------------------|------------|------------------------------------|------------|
| ** **                        | ** ** | **First**                          | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Quarter**                        | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Total** | ** ** |
|                              |       |                               |       |   |   |   |   |   |   |   |   |
| Revenues                          |       | $                                  | 50,810     |   | $ | 50,515 |   | $ | 48,219 |   | $ | 55,244 |   | $ | 204,788 |   |
| Income from continuing operations |       | 4,933                              |       | 4,391 |   | 4,333 |   | 4,319 |   | 17,976 |   |
| Net income                        |       | 4,933                              |       | 4,391 |   | 4,333 |   | 4,319 |   | 17,976 |   |
| Continuing earnings per share:    |       |                               |       |   |   |   |   |   |   |   |   |
| Basic                             |       | .42                                |       | .37 |   | .37 |   | .37 |   | 1.53 |   |
| Diluted                           |       | .41                                |       | .37 |   | .36 |   | .36 |   | 1.49 |   |
|                                   |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **Year Ended April 30, 2004** | ** ** |
|-----------------------------------|------------|------------------------------------|------------|
| ** **                        | ** ** | **First**                          | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Quarter**                        | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Total** | ** ** |
|                              |       |                               |       |   |   |   |   |   |   |   |   |
| Revenues                          |       | $                                  | 43,310     |   | $ | 43,315 |   | $ | 41,853 |   | $ | 47,706 |   | $ | 176,184 |   |
| Income from continuing operations |       | 4,379                              |       | 3,815 |   | 2,810 |   | 4,635 |   | 15,639 |   |
| Net income                        |       | 4,544                              |       | 3,815 |   | 2,810 |   | 4,635 |   | 15,804 |   |
| Continuing earnings per share:    |       |                               |       |   |   |   |   |   |   |   |   |
| Basic                             |       | .40                                |       | .34 |   | .25 |   | .40 |   | 1.38 |   |
| Diluted                           |       | .37                                |       | .32 |   | .23 |   | .39 |   | 1.31 |   |
|                                   |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

35

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## ** **

## **Item 9.  Changes in and Disagreements with Accountantson Accounting and Financial Disclosure**

 

## **None**

 

**Item9A.  Control****s and Procedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the Company’s reports that it files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commission’s rules andforms, and that such information is accumulated and communicated to the Company’smanagement, including its Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this report,the Company carried out an evaluation, with the participation of management,including its Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the disclosure controls and procedures pursuant to theExchange Act Rule 13a-15(b). Based upon this evaluation, the Chief Executive Officer and Chief FinancialOfficer concluded that the Company’s disclosure controls and procedures werenot effective as of April 30, 2005 because of the material weaknesspertaining to information technology controls disclosed below in “Management’sReport on Internal Control over Financial Reporting.”

 

In light of the material weakness, the Companyperformed various procedures, analyses and reviews to ensure that itsconsolidated financial statements are presented fairly in all material respectsin accordance with generally accepted accounting principles in the UnitedStates.  Accordingly, management believesthat the consolidated financial statements included in this Form 10-Kfairly present in all material respects the Company’s financial position,results of operations and cash flows for the periods presented.

 

**Management’s Report on Internal Control over Financial Reporting**

 

Management is responsible for establishing andmaintaining adequate internal control over financial reporting as defined inExchange Act Rule 13a-15(f).  TheCompany’s internal controls over financial reporting are designed to providereasonable assurance concerning the reliability of financial data used in thepreparation of its financial statements.  All internal control systems, no matter howwell designed, have inherent limitations and may not prevent or detectmisstatements.  Controls considered to beoperating effectively in one period may become inadequate in future periodsbecause of changes in conditions or deterioration in the degree of compliancewith policies or procedures.

 

Management assessed the effectiveness of the Company’sinternal control over financial reporting as of April 30, 2005 using thecriteria described in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission.  As a result of this assessment, management hasidentified a material weakness in the Company’s information technology controls,as described below, and therefore has concluded that the Company’s internalcontrols over financial reporting were not effective as of April 30, 2005.

 

 A material weakness is defined within thePublic Company Accounting Oversight Board’s Auditing Standard No. 2 as acontrol deficiency or combination of control deficiencies that results in amore than remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected.

 

The Company identified a number of deficienciespertaining to its information technology (“IT”) controls.  These deficiencies related to (i) passwords(existence of blank passwords and default system passwords, lack of encryption,minimum length of passwords, lack of a system requirement to require periodicpassword changes), (ii) access controls and security (inadequate firewalland anti-virus software, lack of encryption of telnet use, periodic networkvulnerability assessments, and access to sensitive data by unauthorizedpersons), (iii) change controls (inadequate documentation of programchanges, formalizing user approval on program changes, documenting theevaluation of test results prior to implementing program changes, limitingaccess to source code to programmers), (iv) physical security (storingback-up tapes off-site, periodic equipment capacity monitoring), and (v) organizationand management oversight (formalizing an IT strategic plan, developing an ITcompliance function, adequate communication and implementation of IT policiesand procedures).  When the abovedeficiencies were evaluated in the aggregate, it was determined they constituteda material weakness.

 

Management’s assessment of the effectiveness of theCompany’s internal control over financial reporting as of April 30, 2005has been audited by Grant Thornton LLP, an independent registered publicaccounting firm, as stated in their opinion, which appears below.

 

36

----

 

**Report ofIndependent Registered Public Accounting Firm**

 

Stockholdersand Board of Directors

America’sCar-Mart, Inc.

 

We have audited management’s assessment, included in theaccompanying Management’s Report on Internal Controls Over Financial Reporting,that America’s Car-Mart, Inc. did not maintain effective internal controlover financial reporting as of April 30, 2005, based on criteria established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).   America’s Car-Mart, Inc.’smanagement is responsible for maintaining effective internal control overfinancial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting.  Our responsibility is to express anopinion on management’s assessment, and an opinion on the effectiveness of theCompany’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects.  Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances.  We believe that our auditprovides a reasonable basis for our opinion.

 

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected.  We have identified the following material weakness that has also beenidentified as a material weakness in management’s assessment.  There are significant deficiencies related to(i) passwords (existence of blank passwords and default systempasswords, lack of encryption, minimum length of passwords, lack of a systemrequirement to require periodic password changes), (ii) access controlsand security (inadequate firewall and anti-virus software, lack of encryptionof telnet use, periodic network vulnerability assessments, and access tosensitive data by unauthorized persons), (iii) change controls (inadequatedocumentation of program changes, formalizing user approval on program changes,documenting the evaluation of test results prior to implementing programchanges, limiting access to source code to programmers), (iv) physicalsecurity (storing back-up tapes off-site, periodic equipment capacitymonitoring), and (v) organization and management oversight (formalizing anIT strategic plan, developing an IT compliance function, adequate communicationand implementation of IT policies and procedures).  Taken together, thesedeficiencies rise to the level of a material weakness in internal controls overfinancial reporting.  This materialweakness did not result in any adjustment to the annual or interim financialstatements, however; this material weakness could result in a material misstatementto future annual or interim financial statements that would not be prevented ordetected.  This material weakness wasconsidered in determining the nature, timing, and extent of audit tests appliedin our audit of the 2005 financial statements, and this report does not affectour report dated July 12, 2005, on those financial statements.

 

In our opinion, management’s assessment that America’sCar-Mart, Inc. did not maintain effective internal control over financialreporting as of April 30, 2005, is fairly stated, in all material respects,based on criteria established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).  Also in our opinion,because of the effect of the material weakness described above on the achievementof the objectives of the control criteria, America’s Car-Mart, Inc., hasnot maintained effective internal control over financial reporting as of April 30,2005, based on criteria established in*Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO)*.*

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of America’s Car-Mart, Inc. (a Texascorporation), as of April 30, 2005 and 2004, and the related consolidatedstatements of operations, stockholders’ equity, and cash flows for each of thethree years in the period ended April 30, 2005, and our report dated July 12,2005 contained elsewhere herein, expressed an unqualified opinion thereon.

 
| /s/ Grant Thornton LLP |   |
|------------------------|--------|
|                   |
| Dallas, Texas          |
| July 12, 2005     |

 

37

----

 

**Remediation Plans**

 

The Company is in the process of addressing the abovedeficiencies.  In June 2005, theCompany hired a seasoned Director of IT who is in the process of evaluating theCompany’s IT Department and proceeding to implement changes to improve thecontrols in the IT Department.  Further,the Company’s Audit Committee will be monitoring the progress of management’sremediation of the IT control deficiencies. The Company anticipates that most of the deficiencies will be properlyaddressed by the end of the second quarter of fiscal 2006 (October 31,2005).

 

**Changes in Internal Control over Financial Reporting**

 

During our last fiscal quarter, there were no changesin our internal control over financial reporting that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

**Item 9B.  Other Information**

 

None.

 

## **PART III**

 

Except as to informationwith respect to executive officers which is contained in a separate headingunder Part I, Item 1 to this Form 10-K, the informationrequired by Items 10 through 14 of this Form 10-K is, pursuant toGeneral Instruction G(3) of Form 10-K, incorporated byreference from the Company’s definitive proxy statement to be filed pursuant toRegulation 14A for the Company’s Annual Meeting of Stockholders to be held in2005 (the “Proxy Statement”).  TheCompany will, within 120 days of the end of its fiscal year, file with the SECa definitive proxy statement pursuant to Regulation 14A.

 

## **Item 10.  Directors and Executive Officers of theRegistrant**

 

The information requiredby this item is set forth in the Proxy Statement under the headings “Proposalsto be Voted on - Election of Directors,” “Ownership of Common Stock - Section 16(a) BeneficialOwnership Reporting Compliance” and “Corporate Governance and Board Matters -Code of Ethics” which information is incorporated herein by reference.  Information regarding the executive officersof the Company is set forth under the heading “Executive Officers” in Part I,Item 1 of this report.

 

## **Item 11.  Executive Compensation**

 

The information requiredby this item is set forth in the Proxy Statement under the heading “ExecutiveCompensation,” which information is incorporated herein by reference.

 

## **Item 12.  Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters**

 

The information requiredby this item is set forth in the Proxy Statement under the headings “Ownershipof Common Stock” and “Equity Compensation Plan Information,” which informationis incorporated herein by reference.

 

## **Item 13.  Certain Relationships and RelatedTransactions**

 

The information requiredby this item is set forth in the Proxy Statement under the heading “RelatedParty Transactions,” which information is incorporated herein by reference.

 

**Item14.  Principal Accountant Fees andServices**

 

The information requiredby this item is set forth in the Proxy Statement under the heading “PrincipalAccountant Fees and Services,” which information is incorporated herein byreference.

 

38

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**PART IV**

 

## **Item 15   Exhibits and Financial Statement Schedules**

 

(a)(1)                    **Financial Statements and Accountant’s Report**

 

Thefollowing financial statements and accountant’s report are included in Item 8of this report:

 
|   | Report of Independent  Registered Public Accounting Firm                                                     |
|--------|--------------------------------------------------------------------------------------------------------------|
|   |                                                                                                         |
|   | Consolidated Balance Sheets as of April 30,  2005 and 2004                                              |
|   |                                                                                                         |
|   | Consolidated Statements of Operations for the years  ended April 30, 2005, 2004 and 2003                |
|   |                                                                                                         |
|   | Consolidated Statements of Cash Flows for the years  ended April 30, 2005, 2004 and 2003                |
|   |                                                                                                         |
|   | Consolidated Statements of Stockholders’ Equity  for the years ended April 30, 2005, 2004 and 2003 |
|   |                                                                                                         |
|   | Notes to Consolidated Financial Statements                                                                   |

 

(a)(2)                    **Financial Statement Schedules**

 

The financial statement schedules are omitted sincethe required information is not present, or is not present in amountssufficient to require submission of the schedules, or because the informationrequired is included in the consolidated financial statements and notesthereto.

 

(a)(3)                    **Exhibits**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1                 |       | Articles of  Incorporation of the Company (formerly SKAI, Inc.). (3)                                                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1.1               |       | Articles of Merger of the Company and SKAI, Inc. filed with the  Secretary of State of the State of Alabama on September 29, 1989. (3)                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1.2               |       | Articles of Merger of the Company and SKAI, Inc. filed with the  Secretary of State of the State of Texas on October 10, 1989. (3)                                                                                                                                                                                                                                                                                                            |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1.3               |       | Articles of  Amendment filed with the Secretary of State of the State of Texas on October 7,  1993. (8)                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1.4               |       | Articles of  Amendment filed with the Secretary of State of the State of Texas on October 5,  1994. (8)                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1.5               |       | Articles of Amendment filed with the Secretary of State of the State  of Texas on October 2, 1997. (11)                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1.6               |       | Articles of Amendment filed with the Secretary of State of the State  of Texas on March 20, 2002. (12)                                                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2                 |       | By-Laws dated August 24,  1989. (4)                                                                                                                                                                                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1                 |       | Specimen stock  certificate. (9)                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2                 |       | Amended and Restated Agented Revolving Credit Agreement, dated June 23,  2005, among Colonial Auto Finance, Inc., as borrower, Bank of Arkansas,  N.A., Great Southern Bank, Arvest Bank, First State Bank, Bank of Oklahoma,  N.A., and Liberty Bank of Arkansas and one or more additional lenders to be  determined at a later date, Bank of Arkansas, N.A., as agent for the banks  and Bank of Oklahoma, N.A., as the paying agent. (15) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.3                 |       | Revolving Credit Agreement, dated June 23, 2005, among America’s  Car-Mart, Inc., an Arkansas corporation, and Texas Car-Mart, Inc.,  as borrowers, and Bank of Oklahoma, N.A., as lender. (15)                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1                |       | 1986 Incentive  Stock Option Plan. (2)                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

39

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| 10.1.1 |   | Amendment to  1986 Incentive Stock Option Plan adopted September 27, 1990. (5)                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                |
| 10.2   |   | 1991  Non-Qualified Stock Option Plan. (6)                                                                          |
|   |   |                                                                                                                |
| 10.3   |   | 1997 Stock  Option Plan. (10)                                                                                       |
|   |   |                                                                                                                |
| 10.4   |   | Form of  Indemnification Agreement between the Company and certain officers and  directors of the Company. (7) |
|   |   |                                                                                                                |
| 10.5   |   | Employment  agreement dated May 1, 2003 by and between the Company and William H.  Henderson. (13)             |
|   |   |                                                                                                                |
| 10.6   |   | Employment  agreement dated May 1, 2003 by and between the Company and Eddie Lee  Hight. (13)                  |
|   |   |                                                                                                                |
| 10.7.1 |   | Employment  arrangements with Tilman J. Falgout, III. (1)                                                      |
|   |   |                                                                                                                |
| 10.7.2 |   | Employment  arrangements with Mark D. Slusser. (1)                                                                  |
|   |   |                                                                                                                |
| 10.7.3 |   | Employment  arrangements with William H. Henderson. (1)                                                             |
|   |   |                                                                                                                |
| 10.7.4 |   | Employment  arrangements with Eddie Lee Hight. (1)                                                                  |
|   |   |                                                                                                                |
| 14.1   |   | Code of Business  Conduct and Ethics. (14)                                                                          |
|   |   |                                                                                                                |
| 21.1   |   | Subsidiaries of  America’s Car-Mart, Inc. (1)                                                             |
|   |   |                                                                                                                |
| 23.1   |   | Consent of Independent  Registered Public Accounting Firm. (1)                                                      |
|   |   |                                                                                                                |
| 24.1   |   | Power of  Attorney of William H. Henderson. (1)                                                                     |
|   |   |                                                                                                                |
| 24.2   |   | Power of  Attorney of Tilman J. Falgout, III. (1)                                                              |
|   |   |                                                                                                                |
| 24.3   |   | Power of  Attorney of J. David Simmons. (1)                                                                         |
|   |   |                                                                                                                |
| 24.4   |   | Power of  Attorney of Carl E. Baggett. (1)                                                                          |
|   |   |                                                                                                                |
| 24.5   |   | Power of  Attorney of William M. Sams. (1)                                                                          |
|   |   |                                                                                                                |
| 31.1   |   | Rule 13a-14(a) certification.  (1)                                                                        |
|   |   |                                                                                                                |
| 31.2   |   | Rule 13a-14(a) certification.  (1)                                                                        |
|   |   |                                                                                                                |
| 32.1   |   | Section 1350  certification. (1)                                                                               |

----

| (1)    |   | Filed herewith.                                                                                                                                                                                                                                              |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                         |
| (2)    |   | Previously filed  as an Exhibit to the Company’s Registration Statement on Form 10,  as amended, (No. 0-14939) and incorporated herein by reference.                                                                                     |
|   |   |                                                                                                                                                                                                                                                         |
| (3)    |   | Previously filed  as an Exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended October 31, 1989 and incorporated herein by  reference.                                                                            |
|   |   |                                                                                                                                                                                                                                                         |
| (4)    |   | Previously filed  as an Exhibit to the Company’s Annual Report on Form 10-K for  the year ended April 30, 1990 and incorporated herein by reference.                                                                                     |
|   |   |                                                                                                                                                                                                                                                         |
| (5)    |   | Previously filed  as an Exhibit to the Company’s Annual Report on Form 10-K for  the year ended April 30, 1991 and incorporated herein by reference.                                                                                     |
|   |   |                                                                                                                                                                                                                                                         |
| (6)    |   | Previously filed  as an Exhibit to the Company’s Annual Report on Form 10-K for  the year ended April 30, 1992 and incorporated herein by reference.                                                                                     |
|   |   |                                                                                                                                                                                                                                                         |
| (7)    |   | Previously filed  as an Exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended July 31, 1993 and incorporated herein by  reference.                                                                               |
|   |   |                                                                                                                                                                                                                                                         |
| (8)    |   | Previously filed as an Exhibit to the Company’s Registration  Statement on Form S-1, as amended, initially filed with the  Securities and Exchange Commission on May 31, 1994 (No. 33-79484)  and incorporated herein by reference. |
|   |   |                                                                                                                                                                                                                                                         |
| (9)    |   | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K  for the year ended April 30, 1994 and incorporated herein by reference.                                                                                      |

 

40

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| (10)   |   | Previously filed as an Exhibit to the Company’s Registration  Statement on Form S-8, as amended, initially filed with the  Securities and Exchange Commission on October 20, 1997 (No. 333-38475)  and incorporated herein by reference. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                              |
| (11)   |   | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K  for the year ended April 30, 1998 and incorporated herein by reference.                                                                                           |
|   |   |                                                                                                                                                                                                                                                              |
| (12)   |   | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K  for the year ended April 30, 2002 and incorporated herein by reference.                                                                                           |
|   |   |                                                                                                                                                                                                                                                              |
| (13)   |   | Previously filed  as an Exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended July 31, 2003 and incorporated herein by  reference.                                                                                    |
|   |   |                                                                                                                                                                                                                                                              |
| (14)   |   | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K  for the year ended April 30, 2004 and incorporated herein by reference.                                                                                           |
|   |   |                                                                                                                                                                                                                                                              |
| (15)   |   | Previously filed as an Exhibit to the Company’s Current Report on  Form 8-K initially filed with the Securities and Exchange  Commission on June 29, 2005 and incorporated herein by reference.                                               |
|   |   |                                                                                                                                                                                                                                                              |

(b)                                 Theexhibits are listed in Item 15(a)(3) above.

 

(c)                                  Referto Item 15(a)(2) above.

 

41

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|                                              |   | AMERICA’S CAR-MART, INC.                      |   |
|---------------------------------------------------|--------|----------------------------------------------------|--------|
|                                              |   |                                               |   |
| Dated:    July 14,  2005 | By:    | /s/ Tilman J.  Falgout, III                   |   |   |
|                                              |   | Tilman J. Falgout, III                        |   |
|                                              |   | Chief Executive Officer                            |   |
|                                              |   | (principal executive officer)                      |   |
|                                              |   |                                               |   |
|                                              |   |                                               |   |
| Dated:    July 14,  2005 | By:    | /s/ Mark D.  Slusser                               |   |   |
|                                              |   | Mark D. Slusser                                    |   |
|                                              |   | Vice President Finance and Chief Financial Officer |
|                                              |   | (principal financial and accounting officer)       |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| **Signature**                | ** ** | **Title**                               | ** ** | **Date**            |
|------------------------------|------------|-----------------------------------------|------------|---------------------|
|                         |       |                                    |       |                |
| *                            |       | Chairman of the  Board, Chief Executive |       | July 14,  2005 |
| Tilman J.  Falgout, III |       | Officer and  Director                   |       |                |
|                         |       |                                    |       |                |
| *                            |       | Vice Chairman of  the Board,            |       | July 14,  2005 |
| William H.  Henderson        |       | President and  Director                 |       |                |
|                         |       |                                    |       |                |
| *                            |       | Director                                |       | July 14,  2005 |
| J. David Simmons             |       |                                    |       |                |
|                         |       |                                    |       |                |
|                         |       | Director                                |       |                |
| Robert J. Kehl               |       |                                    |       |                |
|                         |       |                                    |       |                |
| *                            |       | Director                                |       | July 14,  2005 |
| Carl E. Baggett              |       |                                    |       |                |
|                         |       |                                    |       |                |
| *                            |       | Director                                |       | July 14,  2005 |
| William M. Sams              |       |                                    |       |                |

 

----

| * By   | /s/ Mark D. Slusser      |   |   |   |   |   |
|--------|--------------------------|--------|--------|--------|--------|--------|
|   | Mark D. Slusser          |   |   |   |   |   |
|   | As  Attorney-in-Fact     |   |   |   |   |   |
|   | Pursuant to  Powers of   |   |   |   |   |   |
|   | Attorney filed  herewith |   |   |   |   |   |

 

42

----

 

**EXHIBIT INDEX**

 
| **Exhibit** | ** ** | ** **                                                 |
|-------------|------------|------------------------------------------------------------|
| **Number**  | ** ** | **Description of Exhibit**                                 |
|        |       |                                                       |
| 10.7.1      |       | Employment arrangements with Tilman J.  Falgout, III. |
|        |       |                                                       |
| 10.7.2      |       | Employment arrangements with Mark D.  Slusser.             |
|        |       |                                                       |
| 10.7.3      |       | Employment arrangements with William H.  Henderson.        |
|        |       |                                                       |
| 10.7.4      |       | Employment arrangements with Eddie Lee  Hight.             |
|        |       |                                                       |
| 21.1        |       | Subsidiaries of America’s Car-Mart, Inc.         |
|        |       |                                                       |
| 23.1        |       | Consent of  Independent Registered Public Accounting Firm. |
|        |       |                                                       |
| 24.1        |       | Power of Attorney of William H.  Henderson.                |
|        |       |                                                       |
| 24.2        |       | Power of Attorney of Tilman J. Falgout, III.          |
|        |       |                                                       |
| 24.3        |       | Power of Attorney of J. David Simmons.                     |
|        |       |                                                       |
| 24.4        |       | Power of Attorney of Carl E. Baggett.                      |
|        |       |                                                       |
| 24.5        |       | Power of Attorney of William M. Sams.                      |
|        |       |                                                       |
| 31.1        |       | Rule 13a-14(a) certification.                    |
|        |       |                                                       |
| 31.2        |       | Rule 13a-14(a) certification.                    |
|        |       |                                                       |
| 32.1        |       | Section 1350  certification.                          |

 

43

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