**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM 10-K**


**(Mark
      One)**


**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934**


**For
      the fiscal year ended April 30, 2007**


**OR**


**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934**


**For
      the transition period
      from             to**


**Commission
      file number 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)
            (IRS
                Employer Identification Number)**802
                Southeast Plaza Avenue, Suite 200**
              **Bentonville,
                Arkansas**
            **72712**(Address
                of principal executive offices)
            (Zip
                Code)




**(479) 464-9944**


(Registrant’s
      telephone number, including area code)





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


**NONE**




Securities
      registered pursuant to section 12(g) of the Act:


**Common
      Stock, $.01 par value**


(Title
      of
      Class)




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes  o  No  x


Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes  o  No  x


Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. Yes x No o


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


Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
      (Check one):


oLarge
      accelerated
      filer           Accelerated
      filer x          Non-accelerated
      filer   o


Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yes  o  No  x


The
      aggregate market value of the registrant’s common stock held by non-affiliates
      on October 31, 2006 was $154,068,451 (10,312,480 shares), based on the closing
      price of the registrant’s common stock of $14.94.


There
      were 11,878,110 shares of the registrant’s common stock outstanding as
      of July 13, 2007.




**DOCUMENTS
      INCORPORATED BY REFERENCE**


Portions
      of the registrant’s Proxy Statement to be furnished to stockholders in
      connection with its 2007 Annual Meeting of Stockholders are incorporated by
      reference in response to Part III of this report.





**PART
      I**





**Forward-Looking
      Statements**





This
      Annual Report on Form 10-K contains numerous “forward-looking statements” within
      the meaning of the Private Securities Litigation Reform Act of
      1995.  These forward-looking statements address the Company’s future
      objectives, plans and goals, as well as the Company’s intent, beliefs and
      current expectations regarding future operating performance, and can generally
      be identified by words such as “may,” “will,” “should,” “believe,” “expect,”
“anticipate,” “intend,” “plan,” “foresee,” and other similar words or
      phrases.  Specific events addressed by these forward-looking
      statements include, but are not limited to:





•
            new
                store openings;





•
            same
                store revenue growth;





•
            future
                revenue growth;





•
            receivables
                growth greater than revenue growth;





•
            future
                credit losses;





•
            the
                Company’s business and growth
                strategies;





•
            financing
                the majority of growth from profits;
                and





•
            having
                adequate liquidity to satisfy its capital
                needs.





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





•
            the
                availability of credit facilities to support the Company’s
                business;





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





•
            competition;





•
            dependence
                on existing management;





•
            changes
                in lending laws or regulations; and





•
            general
                economic conditions in the markets in which the Company operates,
                including fluctuations in employment
                levels.





The
      Company undertakes no obligation to update or revise any forward-looking
      statements, whether as a result of new information, future events or
      otherwise.  You are cautioned not to place undue reliance on these
      forward-looking statements, which speak only as of the dates on which they
      are
      made.










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





**Business
      and Organization**





America’s
      Car-Mart, Inc., a Texas corporation (the “Company”), is the largest publicly
      held automotive retailer in the United States focused exclusively on the “Buy
      Here/Pay Here” segment of the used car market.  References to the
      Company typically include the Company’s consolidated
      subsidiaries.  The Company’s operations are principally conducted
      through its two operating subsidiaries, America’s Car-Mart, Inc, an Arkansas
      corporation, (“Car-Mart of Arkansas”) and Colonial Auto Finance, Inc., an
      Arkansas corporation, (“Colonial”).  Collectively, Car-Mart of
      Arkansas and Colonial are referred to herein as “Car-Mart.”  The
      Company primarily sells older model used vehicles and provides financing for
      substantially all of its customers. Many of the Company’s customers have limited
      financial resources and would not qualify for conventional financing as a result
      of limited credit histories or past credit problems.  As of April 30,
      2007, the Company operated 92 stores located primarily in small cities
      throughout the South-Central United States.





In
      October 2001, the Company made the decision to sell all of its operating
      subsidiaries except Car-Mart, and relocate its corporate headquarters to
      Bentonville, Arkansas where Car-Mart is based.  As a result of this
      decision, all of the Company’s other operating subsidiaries were
      sold.  The Company sold its last remaining discontinued operation in
      July 2002.





**Business
      Strategy**





In
      general, it is the Company’s objective to continue to expand its Buy Here/Pay
      Here used car operation using the same business model that has been developed
      by
      Car-Mart over the last 26 years.  This business strategy focuses
      on:





·
            **Collecting
                Customer Accounts.**  Collecting customer accounts is
                perhaps the single most important aspect of operating a Buy Here/Pay
                Here
                used car business and is a focal point for store level and corporate
                office personnel on a daily basis.  Periodically, the Company
                measures and monitors the collection results of its stores using
                internally developed delinquency and account loss
                standards.  Substantially all associate incentive compensation
                is tied directly or indirectly to collection results.  Over the
                last five years, Car-Mart’s annual credit losses as a percentage of sales
                have ranged from a low of 18.5% in 2003 to a high of 29.1% in 2007
                (average of 22.1%).  The Company believes that it can continue
                to be successful provided it maintains its credit losses within or
                below
                its historical credit loss range.





·
            **Maintaining
                a Decentralized Operation.**  The Company’s dealerships
                will continue to operate on a decentralized basis.  Each store
                is responsible for buying (with the assistance of a corporate office
                purchasing agent) and selling its own vehicles, making credit decisions
                and collecting the loans it originates in accordance with established
                policies and procedures.  Most customers make their payments in
                person at one of the Company’s dealerships.  This decentralized
                structure is complemented by the oversight and involvement of corporate
                office management and the maintenance of centralized financial controls,
                including establishing standards for down-payments and contract terms
                as
                well as an internal compliance
                function.





2


·
            **Expanding
                Through Controlled Organic Growth.**  The Company plans
                to continue to expand its operations by increasing revenues at existing
                dealerships and opening new dealerships.  The Company has
                decided to curtail its new store openings until operational initiatives
                have shown positive results. The focus will be on improving performance
                of
                existing dealerships prior to opening significant numbers of new
                stores.
                The Company acquired one existing Buy Here/Pay Here dealership in
                March
                2006 and another in May 2006 and may consider acquiring additional
                existing dealerships if conditions and terms are favorable. However,
                the
                Company will continue to view organic growth as its primary source
                for
                growth.





·
            **Selling
                Basic Transportation.**  The Company will continue to
                focus on selling basic and affordable transportation to its
                customers.  The Company generally does not sell luxury cars or
                sports cars.  The average retail sales price was $8,125 in
                fiscal 2007.  By selling vehicles at this price point, the
                Company is able to keep the terms of its installment sales contracts
                relatively short (overall portfolio average of 27.1 months), while
                requiring relatively low payments.





·
            **Operating
                in Smaller Communities.**  The majority of the Company’s
                dealerships are located in cities and towns with a population of
                50,000 or
                less.  The Company believes that by operating in smaller
                communities it experiences better collection results.  Further,
                the Company believes that operating costs, such as salaries, rent
                and
                advertising, are lower in smaller communities than in major metropolitan
                areas.





·
            **Enhance
                Management including Promoting from Within.**  It has
                been the Company’s practice to try to hire honest and hardworking
                individuals to fill entry level positions, nurture and develop these
                associates, and attempt to fill the vast majority of its managerial
                positions from within the Company.  By promoting from within,
                the Company believes it is better able to train its associates in
                the
                Car-Mart way of doing business, maintain the Company’s unique culture and
                develop the loyalty of its associates. Additionally, the Company
                looks
                outside for associates possessing requisite skills who share the
                values
                and appreciate the Company’s unique culture developed over the
                years.





·
            **Cultivating
                Customer Relationships.**  The Company believes that
                developing and maintaining a relationship with its customers are
                critical
                to the success of the Company.  A large percentage of sales at
                mature stores are made to repeat customers, and the Company estimates
                an
                additional 10% to 15% of sales result from customer
                referrals.  By developing a personal relationship with its
                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 the customer experience financial difficulty during the term
                of his
                or her installment loan with the Company.  The Company is able
                to cultivate these relationships as the majority of its customers
                make
                their payments in person at one of the Company’s dealerships on a weekly
                or bi-weekly basis.





**Business
      Strengths**





The
      Company believes it possesses a number of strengths or advantages that
      distinguish it from most of its competitors.  These business strengths
      include:





·
            **Experienced
                and Motivated Management.**The Company’s executive
                operating officers have an average tenure of approximately 17
                years.  Several of Car-Mart’s store managers have been with the
                Company for more than 10 years.  Each store manager is
                compensated, at least in part (some entirely), based upon the net
                income
                of his or her store.  A significant portion of the compensation
                of Car-Mart senior management is incentive
                based.





3


·
            **Proven
                Business Practices.**  The Company’s operations are
                highly structured.  While stores are operated on a decentralized
                basis, the Company has established policies, procedures and business
                practices for virtually every aspect of a store’s
                operations.  Detailed operating manuals are available to assist
                the store manager and office, sales and collections personnel in
                performing their daily tasks.  As a result, each store is
                operated in a uniform manner.  Further, corporate office
                personnel monitor the stores’ operations through weekly visits and a
                number of daily, weekly and monthly communications and
                reports.





·
            **Low
                Cost Operator.**  The Company has structured its store
                and corporate office operations to minimize operating
                costs.  The number of associates employed at the store level is
                dictated by the number of active customer accounts each store
                services.  Associate compensation is standardized for each store
                position.  Other operating costs are closely monitored and
                scrutinized.  Technology is utilized to maximize
                efficiency.  The Company believes its operating costs as a
                percentage of revenues, or per unit sold, are among the lowest in
                the
                industry.





·
            **Well
                Capitalized / Limited External Capital Required for
                Growth.**  As of April 30, 2007, the Company’s debt to
                equity ratio was 0.33 to 1.0, which the Company believes is lower
                than the
                majority of its competitors.  Further, the Company believes it
                can fund a significant amount of its planned growth from net income
                generated from operations.  Of the external capital that will be
                needed to fund growth, the Company plans to draw on its existing
                credit
                facilities, or renewals or replacements of those
                facilities.





·
            **Significant
                Expansion Opportunities.**The Company generally targets
                smaller communities to locate its dealerships (i.e., populations
                from
                20,000 to 50,000), but has had success in larger cities such as Tulsa,
                Oklahoma and Little Rock, Arkansas.  The Company believes there
                are numerous suitable communities within the nine states and other
                contiguous states in which the Company currently operates to satisfy
                any
                anticipated store growth for the next several years.  However,
                the Company does not currently plan to add locations in fiscal 2008
                until
                the operational initiatives which are underway have proven successful.
                Additionally, existing lots will be analyzed to ensure that they
                are
                producing desired results and have potential to provide adequate
                returns
                on invested capital.





**Operations**





·
            **Store
                Organization.**  Stores are operated on a decentralized
                basis.  Each store is responsible for buying (with the
                assistance of a corporate office buyer) and selling vehicles, making
                credit decisions, and servicing and collecting the installment loans
                it
                originates.  Stores also maintain their own records and make
                daily deposits.  Store-level financial statements are prepared
                by the corporate office on a monthly basis.  Depending on the
                number of active customer accounts, a store may have as few as two
                or as
                many as 25 full-time associates employed at that
                location.  Associate positions at a large store may include a
                store manager, assistant store manager, manager trainee, office manager,
                assistant office manager, service manager, buyer, collections personnel,
                salesmen and lot attendants.  Stores are open Monday through
                Saturday from 9:00 a.m. to 6:00 p.m.  The Company has both
                regular and satellite stores.  Satellite stores are similar to
                regular stores, except that they tend to be smaller, sell fewer vehicles
                and their financial performance is not captured in a stand alone
                financial
                statement, but rather is included in the financial results of the
                sponsoring regular store.





4





·
            **Store
                Locations and Facilities.**Below is a summary of stores opened
                during the fiscal years ended April 30, 2007, 2006 and
                2005:





Years
                Ended April 30,2007
            
            2006
            
            2005Stores
                at beginning of year
            85
            
            76
            
            70New
                stores opened/acquired
            7
            
            10
            
            6Stores
                closed
            -
            
            (1)
            
            -Stores
                at end of year
            92
            
            85
            
            76





Below
      is
      a summary of store locations by state as of April 30, 2007, 2006 and
      2005:





As
                of April 30,Stores
                by State
            
            2007
            
            2006
            
            2005Arkansas
            34
            
            34
            
            34Oklahoma
            17
            
            15
            
            13Texas
            16
            
            16
            
            14Kentucky
            9
            
            8
            
            7Missouri
            10
            
            9
            
            6Kansas
            1
            
            1
            
            1Indiana
            1
            
            1
            
            1Tennessee
            1
            
            1
            
            -Alabama
            3
            
            -
            
            -Total
            92
            
            85
            
            76





Stores
      are typically located in smaller communities.  As of April 30, 2007,
      approximately 74% of the Company’s stores were located in cities with
      populations of less than 50,000.  Stores are located on leased or
      owned property between one and three acres in size.  When opening a
      new store the Company will typically use an existing structure on the property
      to conduct business, or purchase a modular facility while business at the new
      location develops.  Store facilities typically range in size from
      1,500 to 5,000 square feet.





·
            **Purchasing.**  The
                Company purchases vehicles primarily through wholesalers, new car
                dealers
                and from auctions.  The majority of vehicle purchasing is
                performed by the Company’s buyers, although certain store managers are
                authorized to purchase vehicles.  On average, a buyer will
                purchase vehicles for three stores.  Buyers report to the store
                manager, or managers, for whom they make purchases, and to a regional
                purchasing director.  The regional purchasing directors monitor
                the quantity and quality of vehicles purchased and compare the cost
                of
                similar vehicles purchased among different
                buyers.





Generally,
      the Company’s buyers purchase vehicles between three and 10 years of age with
      80,000 to 120,000 miles, and pay between $3,000 and $6,000 per
      vehicle.  The Company focuses on providing basic transportation to its
      customers.  The Company generally does not purchase sports cars or
      luxury cars.  Some of the more popular vehicles the Company sells
      include the Ford Taurus and Escort, Chevrolet Lumina and Cavalier, Dodge Neon,
      Pontiac Grand Am and Oldsmobile Cutlass.  The Company also sells a
      number of trucks and sport utility vehicles.  Buyers inspect and
      test-drive almost every vehicle they purchase.  Buyers attempt to
      purchase vehicles that require little or no repair as the Company has limited
      facilities to repair or recondition vehicles.





·
            **Selling,
                Marketing and Advertising.**  Stores generally maintain
                an inventory of 15 to 75 vehicles depending on the maturity of the
                dealership.  Inventory turns over approximately 10 to 12 times
                each year.  Selling is done principally by the store manager,
                assistant manager, manager trainee or sales associate.  Sales
                associates are paid a commission 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 five month or 5,500 mile
                service contract for $395 which covers certain vehicle components
                and
                assemblies.  For covered components and assemblies, the Company
                coordinates service with third party service centers with which the
                Company typically has previously negotiated labor rates and mark-up
                percentages on parts.  The majority of the Company’s customers
                elect to purchase a service contract when purchasing a
                vehicle.





5


The
      Company’s objective is to offer its customers basic transportation at a fair
      price and treat each customer in such a manner as to earn his or her repeat
      business.  The Company attempts to build a positive reputation in each
      community where it operates and generate new business from such reputation
      as
      well as from customer referrals.  The Company estimates that
      approximately 10% to 15% of the Company’s sales result from customer
      referrals.  The Company recognizes repeat customers with silver, gold
      and platinum plaques representing the purchase of 5, 10 and 15 vehicles,
      respectively.  These plaques are prominently displayed at the
      dealership where the vehicles were purchased.  For mature dealerships,
      a large percentage of sales are to repeat customers.





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





·
            **Underwriting
                and Finance.**  The Company provides financing to
                substantially all of its customers who purchase a vehicle at one
                of its
                stores.  The Company only provides financing to its customers
                for the purchase of its vehicles, and the Company does not provide
                any
                type of financing to non-customers.  The Company’s installment
                sales contracts typically include down payments ranging from 0% to
                17%
                (average of 7%), terms ranging from 12 months to 36 months (average
                of
                27.1 months), and annual interest charges ranging from 6% to 19%
                (average
                of 13.6 % at April 30, 2007). 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 by his or her employer.  Upon the
                customer and the Company reaching a preliminary agreement as to financing
                terms, the Company obtains a credit application from the customer
                which
                includes information regarding employment, residence and credit history,
                personal references and a detailed budget itemizing the customer’s monthly
                income and expenses.  Certain information is then verified by
                Company personnel.  After the verification process, the store
                manager makes the decision to accept, reject or modify (perhaps obtain
                a
                greater down payment or require an acceptable co-buyer or suggest
                a lower
                priced vehicle) the proposed transaction.  In general, the store
                manager attempts to assess the stability and character of the
                applicant.  The store manager who makes the credit decision is
                ultimately responsible for collecting the loan, and his or her
                compensation is directly related to the collection results of his
                or her
                store.





·
            **Collections.**  All
                of the Company’s retail installment contracts are serviced by Company
                personnel at the store level.  The majority of the Company’s
                customers make their payments in person at the store where they purchased
                their vehicle, although some customers send their payments through
                the
                mail.  Each store closely monitors its customer accounts using
                the Company’s proprietary receivables and collections software that
                stratifies past due accounts by the number of days past
                due.  The Company believes that the timely response to past due
                accounts is critical to its collections
                success.





The
      Company has established standards with respect to the percentage of accounts
      one
      and two weeks past due, the percentage of accounts three or more weeks past
      due,
      and for larger stores, one and two weeks past due, 15 to 44 days past due and
      45-plus days past due (delinquency standards), and the percentage of accounts
      where the vehicle was repossessed or the account was charged off that month
      (account loss standard).





6


The
      Company works very hard to keep its delinquency percentages 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 are electronically
      maintained in the Company’s computer system.  If a customer becomes
      severely delinquent in his or her payments, and management determines that
      timely collection of future payments is not probable, the Company will take
      steps to repossess the vehicle.  The Company attempts to resolve
      payment delinquencies amicably prior to repossessing a
      vehicle.  Periodically, the Company enters into contract modifications
      with its customers to extend the payment terms.  The Company only
      enters into a contract modification or extension if it believes such action
      will
      increase the amount of monies the Company will ultimately realize on the
      customer’s account.  For those vehicles that are repossessed, the
      majority are returned or surrendered by the customer on a voluntary
      basis.  Other repossessions are performed by Company personnel or
      third party repossession agents.  Depending on the condition of a
      repossessed vehicle, it is either resold on a retail basis through a Company
      store, or sold for cash on a wholesale basis primarily through physical and/or
      on-line auctions.





·
            **New
                Store Openings.**  The Company plans to curtail new store
                openings until operational initiatives have shown positive results.
                Senior
                management, with the assistance of the corporate office staff, will
                make
                decisions with respect to the communities in which to locate a new
                store
                and the specific sites within those communities.  New stores
                have historically been located in the general proximity of existing
                stores
                to facilitate the corporate office’s oversight of the Company’s
                stores.





The
      Company’s approach with respect to new store openings has been one of gradual
      development.  The manager in charge of a new store is normally a
      recently promoted associate who was an assistant manager at a larger store
      or a
      manager trainee.  The corporate office provides significant resources
      and support with pre-opening and initial operations of new dealerships. The
      facility may be of a modular nature or an existing structure.  New
      stores operate with a low level of inventory and personnel.  As a
      result of the modest staffing level, the new store manager performs a variety
      of
      duties (i.e., selling, collecting and administrative tasks) during the early
      stages of his or her store’s operations.  As the store develops and
      the customer base grows, additional staff is hired.





Typically,
      monthly sales levels at new stores are substantially less than sales levels
      at
      mature stores.  Over time new stores gain recognition in their
      communities, and a combination of customer referrals and repeat business
      generally facilitate sales growth.  Sales growth at new stores can
      exceed 20% per year for a number of years.  Historically, mature
      stores typically experience annual sales growth, but at a lower percentage
      than
      new stores. However, in 2007 the Company experienced a decrease in sales at
      mature stores as it focused on improving the quality of sales in the face of
      increased credit losses.





New
      stores are generally provided with approximately $500,000 to $750,000 in capital
      from the corporate office during the first 12 to 24 months of
      operation.  These funds are used principally to fund receivables
      growth.  After this 12 to 24 month start-up period, new stores
      typically become cash flow positive.  That is, receivables growth is
      funded from store profits rather than additional capital from the corporate
      office.  This limitation of capital to new, as well as existing,
      stores serves as an important operating discipline.  Essentially,
      stores must be profitable in order to grow.  Typically, new stores are
      profitable within the first year of opening.





·
            **Corporate
                Office Oversight and Management.**  The corporate office,
                based in Bentonville, Arkansas, consists of area operations managers,
                regional vice presidents, regional purchasing directors, a vice president
                of purchasing, compliance auditors, associate and management development
                personnel, accounting and management information systems personnel,
                administrative personnel and senior management.  The corporate
                office monitors and oversees store operations.  The Company’s
                stores transmit and submit operating and financial information and
                reports
                to the corporate office on a daily, weekly and monthly
                basis.  This information includes cash receipts and
                disbursements, inventory and receivables levels, receivables agings
                and
                sales and account loss data.  The corporate office uses this
                information to compile Company-wide reports, plan store visits and
                prepare
                monthly financial statements.





7


Periodically,
      area operations managers, regional vice presidents, compliance auditors and
      senior management visit the Company’s stores to inspect, review and comment on
      operations.  Often, the corporate office assists in training new
      managers and other store level associates.  Compliance auditors visit
      lots quarterly to ensure policies and procedures are being followed and that
      the
      Company’s assets are being safe-guarded. In addition to financial results, the
      corporate office uses delinquency and account loss standards and a point system
      to evaluate a store’s performance. Also, bankrupt and legal action accounts and
      other accounts that have been written off at dealerships are handled corporately
      in an effort to allow store personnel time to focus on more current
      accounts.





The
      Company’s store managers meet monthly on an area, regional or Company-wide
      basis.  At these meetings, corporate office personnel provide training
      and recognize achievements of store managers.  Near the end of every
      fiscal year, the respective area operations manager, regional vice president
      and
      senior management conduct “projection” meetings with each store
      manager.  At these meetings, the year’s results are reviewed and
      ranked relative to other stores, and both quantitative and 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 unit sales goals and,
      depending on the circumstances, may establish delinquency, account loss or
      expense goals.





The
      corporate office is also responsible for establishing policy, maintaining the
      Company’s management information systems, conducting compliance audits,
      orchestrating new store openings and setting the strategic direction 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
                through franchised new car dealerships that sell used cars or independent
                used car dealerships.  The Company operates in the Buy Here/Pay
                Here segment of the independent used car sales and finance
                market.  Buy Here/Pay Here dealers sell and finance used cars to
                individuals with limited credit histories or past credit
                problems.  Buy Here/Pay Here dealers typically offer their
                customers certain advantages over more traditional financing sources,
                such
                as broader and more flexible underwriting guidelines, flexible payment
                terms (including scheduling payments on a weekly or bi-weekly basis
                to
                coincide with a customer’s payday), and the ability to make payments in
                person, an important feature to individuals who may not have a checking
                account.





·
            **Used
                Car Financing.**  The used automobile financing industry
                is served by traditional lending sources such as banks, savings and
                loans,
                and captive finance subsidiaries of automobile manufacturers, as
                well as
                by independent finance companies and Buy Here/Pay Here
                dealers.  Despite significant opportunities, many of the
                traditional lending sources do not consistently provide financing
                to
                individuals with limited credit histories or past credit
                problems.  Management believes traditional lenders avoid this
                market because of its high credit risk and the associated collections
                efforts.





8


**Competition**





The
      used
      automotive retail industry is highly competitive and fragmented.  The
      Company competes principally with other independent Buy Here/Pay Here dealers,
      and to a lesser degree with (i) the used vehicle retail operations of franchised
      automobile dealerships, (ii) independent used vehicle dealers, and (iii)
      individuals who sell used vehicles in private transactions.  The
      Company competes for both the purchase and resale of used vehicles.





Management
      believes the principal competitive factors in the sale of its used vehicles
      include (i) the availability of financing to consumers with limited credit
      histories or past credit problems, (ii) the breadth and quality of vehicle
      selection, (iii) pricing, (iv) the convenience of a dealership’s location, (v)
      the option to purchase a service contract, and (vi) customer
      service.  Management believes that its dealerships are competitive in
      each of these areas.





**Regulation
      and Licensing**





The
      Company’s operations are subject to various federal, state and local laws,
      ordinances and regulations pertaining to the sale and financing of
      vehicles.  Under various state laws, the Company’s dealerships must
      obtain a license in order to operate or relocate.  These laws also
      regulate advertising and sales practices.  The Company’s financing
      activities are subject to federal truth-in-lending and equal credit opportunity
      regulations as well as state and local motor vehicle finance laws, installment
      finance laws, usury laws and other installment sales laws.  Among
      other things, these laws require that the Company limit or prescribe terms
      of
      the contracts it originates, require specified disclosures to customers,
      restrict collections practices, limit the Company’s right to repossess and sell
      collateral, and prohibit discrimination against customers on the basis of
      certain characteristics including age, race, gender and marital
      status.





The
      states in which the Company operates impose limits on interest rates the Company
      can charge on its loans. These limits are generally based on either (i) a
      specified margin above the federal primary credit rate, (ii) the age of the
      vehicle, or (iii) a fixed rate.  Management believes the Company is in
      compliance in all material respects with all applicable federal, state and
      local
      laws, ordinances and regulations.  However, the adoption of additional
      laws, changes in the interpretation of existing laws, or the Company’s entrance
      into jurisdictions with more stringent regulatory requirements could have a
      material adverse effect on the Company’s used vehicle sales and finance
      business.





**Employees**





As
      of
      April 30, 2007, the Company, including its consolidated subsidiaries, employed
      approximately 800 persons full time. None of the Company's employees are covered
      by a collective bargaining agreement and the Company believes that its relations
      with its employees are good.





**Available
      Information**





The
      Company’s website is located at www.car-mart.com.  The Company makes
      available on this website, free of charge, access to the 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 well as proxy statements and other information
      the Company files with, or furnishes to, the Securities and Exchange Commission
      (“SEC”) as soon as reasonably practicable after the Company electronically
      submits this material to the SEC.  The information contained on the
      website or available by hyperlink from the website is not incorporated into
      this
      Annual Report on Form 10-K or other documents the Company files with, or furnish
      to, the SEC.





9





**Executive
      Officers**





The
      executive officers of the Company are as follows:





Name
            Age
            
            Position
                with the CompanyTilman
                J. Falgout, III
            58
            
            Chairman
                of the Board, Chief Executive Officer,
              General
                Counsel and DirectorWilliam
                H. Henderson
            43
            
            Vice
                Chairman of the Board, President and DirectorEddie
                L. Hight
            44
            
            Chief
                Operating OfficerJeffrey
                A. Williams
            44
            
            Chief
                Financial Officer, Vice President Finance and
                Secretary





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





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





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





**Jeffrey
      A. Williams** has served as Chief Financial Officer, Vice President
      Finance and Secretary of the Company since October 1, 2005. From October 2004
      until his employment by the Company, he served as the Chief Financial Officer
      of
      Budgetext Corporation, a distributor of new and used textbooks. From February
      2004 to October 2004, Mr. Williams was the President and founder of Clearview
      Enterprises, LLC, a regional distributor of animal health products. From January
      1999 to January 2004, Mr. Williams was Chief Financial Officer and Vice
      President of Operations of Wynco, LLC, a nationwide distributor of animal health
      products.





**Item
      1A.  Risk Factors**





Car-Mart
      is subject to various risks, including the
      risks described below. Car-Mart’s business, operating results, and financial
      condition could be materially and adversely affected by any of these risks.
      Additional risks not presently known to the Company or that Car-Mart currently
      deems immaterial may also impair its business and operations.





10


**Risks
      Related to the Used Automotive Retail and Finance Industry**




*The
      Company may have a higher risk of delinquency and default than traditional
      lenders because it loans money to credit-impaired borrowers.*




Substantially
      all of Car-Mart’s
      automobile contracts involve loans made to individuals with impaired or limited
      credit histories, or higher debt-to-income ratios than permitted by traditional
      lenders.  Loans made to borrowers who are restricted in their ability
      to obtain financing from traditional lenders generally entail a higher risk
      of
      delinquency, default and repossession, and higher losses than loans made to
      borrowers with better credit.  Delinquency interrupts the flow of
      projected interest income and repayment of principal from a loan, and a default
      can ultimately lead to a loss if the net realizable value of the automobile
      securing the loan is insufficient to cover the principal and interest due on
      the
      loan or the vehicle cannot be recovered.  Car-Mart’s profitability
      depends, in part, upon its ability to properly evaluate the creditworthiness
      of
      non-prime borrowers and efficiently service such loans.  Although the
      Company believes that its underwriting criteria and collection methods enable
      it
      to manage the higher risks inherent in loans made to non-prime borrowers, no
      assurance can be given that such criteria or methods will afford adequate
      protection against such risks.  If the Company experiences higher
      losses than anticipated, its financial condition, results of operations and
      business prospects could be materially and adversely affected.




*A
      decrease in market interest rates would likely have an adverse effect on the
      Company’s profitability.*




The
      Company’s earnings are impacted by
      its net interest income, which is the difference between the income earned
      on
      interest-bearing assets and the interest paid on interest-bearing notes
      payable.  The Company’s finance receivables generally bear interest at
      fixed rates ranging from 6% to 19%, while its revolving notes payable contain
      variable interest rates that fluctuate with market interest
      rates.  However, interest rates charged on finance receivables
      originated in the State of Arkansas are limited to the federal primary credit
      rate plus 5%.  Typically, the Company charges interest on its Arkansas
      loans at or near the maximum rate allowed by law.  Thus, while the
      interest rates charged on the Company’s loans do not fluctuate once established,
      new loans originated in Arkansas are set at a spread above the federal primary
      credit rate which does fluctuate.  At April 30, 2007, approximately
      57% of the Company’s finance receivables were originated in
      Arkansas.  Assuming that this percentage is held constant for future
      loan originations, the long-term effect of decreases in the federal primary
      credit rate would generally have a negative effect on the profitability of
      the
      Company because the amount of interest income lost on Arkansas originated loans
      would likely exceed the amount of interest expense saved on the Company’s
      variable rate borrowings.




*The
      Company’s allowance for credit losses may not be sufficient to cover actual
      credit losses, which could adversely affect its financial condition and
      operating results.*




From
      time
      to time, the Company has to recognize losses resulting from the inability of
      certain borrowers to repay loans and the insufficient realizable value of the
      collateral securing loans.  The Company maintains an allowance for
      credit losses in an attempt to cover credit losses inherent in its loan
      portfolio.  Additional credit losses will likely occur in the future
      and may occur at a rate greater than the Company has experienced to
      date.  The allowance for credit losses is based primarily upon
      historical credit loss experience, with consideration given to delinquency
      levels, collateral values, economic conditions and underwriting and collections
      practices. This evaluation is inherently subjective as it requires estimates
      of
      material factors that may be susceptible to significant change.  If
      the Company’s assumptions and judgments prove to be incorrect, its current
      allowance may not be sufficient and adjustments may be necessary to allow for
      different economic conditions or adverse developments in its loan
      portfolio.




11


*A
      reduction in the availability or access to sources of inventory would adversely
      affect the Company’s business by increasing the costs of vehicles
      purchased.*




Car-Mart
      acquires vehicles primarily through wholesalers, new car dealers and from
      auctions.  There can be no assurance that sufficient inventory will
      continue to be available to the Company or will be available at comparable
      costs.  Any reduction in the availability of inventory or increases in
      the cost of vehicles would adversely affect gross profit percentages as the
      Company focuses on keeping payments affordable to its customer
      base.  The Company could have to absorb cost increases.




*The
      used automotive retail industry is highly competitive and fragmented, which
      could result in increased costs to the Company for vehicles and adverse price
      competition.*




The
      Company competes principally with other independent Buy Here/Pay Here dealers,
      and to a lesser degree with (i) the used vehicle retail operations of franchised
      automobile dealerships, (ii) independent used vehicle dealers, and (iii)
      individuals who sell used vehicles in private transactions.  The
      Company competes for both the purchase and resale of used vehicles. The
      Company’s competitors may sell the same or similar makes of vehicles that
      Car-Mart offers in the same or similar markets at competitive
      prices.  Increased competition in the market, including new entrants
      to the market, could result in increased wholesale costs for used vehicles
      and
      lower-than-expected vehicle sales and margins.  Further, if any of
      Car-Mart’s competitors seek to gain or retain market share by reducing prices
      for used vehicles, the Company would likely reduce its prices in order to remain
      competitive, which may result in a decrease in its sales and profitability
      and
      require a change in its operating strategies.




*An
      economic slowdown will have adverse consequences for the used automotive
      industry and may have greater consequences for the non-prime segment of the
      industry.*




In
      the
      normal course of business, the used automotive retail industry is subject to
      changes in regional U.S. economic conditions, including, but not limited to,
      interest rates, gasoline prices, inflation, personal discretionary spending
      levels, and consumer sentiment about the economy in general. Any significant
      changes in economic conditions could adversely affect consumer demand and/or
      increase costs, resulting in lower profitability for the
      Company.   Due to the Company’s focus on non-prime borrowers, its
      actual rate of delinquencies, repossessions and credit losses on loans could
      be
      higher under adverse economic conditions than those experienced in the
      automotive retail finance industry in general.





*The
      used automotive industry operates in a highly regulated environment with
      significant attendant compliance costs and penalties for
      non-compliance.*




The
      used
      automotive industry is subject to a wide range of federal, state, and local
      laws
      and regulations, such as local licensing requirements and laws regarding
      advertising, vehicle sales, financing, and employment
      practices.  Facilities and operations are also subject to federal,
      state, and local laws and regulations relating to environmental protection
      and
      human health and safety. The violation of these laws and regulations could
      result in administrative, civil, or criminal penalties against the Company,
      or
      in a cease and desist order.  As a result, the Company has incurred,
      and will continue to incur, capital and operating expenditures, and other costs
      in complying with these laws and regulations. Further, over the past several
      years, private plaintiffs and federal, state, and local regulatory and law
      enforcement authorities have increased their scrutiny of advertising, sales,
      and
      finance and insurance activities in the sale of motor vehicles.





12


*Inclement
      weather can adversely impact the Company’s operating results.*




The
      occurrence of weather events, such as rain, snow, wind, storms, hurricanes,
      or
      other natural disasters, adversely affecting consumer traffic at Car-Mart’s
      automotive dealerships, could negatively impact the Company’s operating
      results.





**Risks
      Related to the Company**




*The
      Company’s business is geographically concentrated; therefore, the Company’s
      results of operations may be adversely affected by unfavorable conditions in
      its
      local markets.*




The
      Company’s performance is subject to local economic, competitive, and other
      conditions prevailing in the nine states where Car-Mart operates. The Company
      provides financing in connection with the sale of substantially all of its
      vehicles.  These sales are made primarily to customers residing in
      Arkansas, Oklahoma, Texas, Kentucky and Missouri, with approximately 54% of
      revenues resulting from sales to Arkansas customers.  The Company’s
      current results of operations depend substantially on general economic
      conditions and consumer spending habits in these local markets.




*Car-Mart’s
      success depends upon the continued contributions of its management
      teams.*




The
      Company is dependent upon the continued contributions of its management teams
      and other key employees.  Since the Company maintains a decentralized
      operation in which each store is responsible for buying and selling its own
      vehicles, making credit decisions and collecting loans it originates, the key
      employees at each store are important factors in the Company’s ability to
      implement its business strategy.  Consequently, the loss of the
      services of key employees could have a material adverse effect on the Company’s
      results of operations. In addition, when Car-Mart decides to open new lots,
      the
      Company will need to hire additional personnel. The market for qualified
      employees in the industry and in the regions in which Car-Mart operates is
      highly competitive and may subject the Company to increased labor costs during
      periods of low unemployment.




*The
      Company’s business is dependent upon the efficient operation of its information
      systems.*




Car-Mart
      relies on its information systems to manage its sales, inventory, consumer
      financing, and customer information effectively. The failure of the
      Company’s information systems to perform as designed, or the failure to maintain
      and continually enhance or protect the integrity of these systems, could disrupt
      the Company’s business, impact sales and profitability, or expose the Company to
      customer or third-party claims.




*Changes
      in the availability or cost of capital and working capital financing could
      adversely affect the Company’s growth and business strategies.*




The
      Company generates cash from income from continuing operations.  The
      cash is primarily used to fund finance receivables growth, which have
      historically grown slightly faster than revenues.  To the extent
      finance receivables growth exceeds income from continuing operations, generally
      the Company increases its borrowings under its revolving credit facilities
      to
      provide the cash necessary to make loans.  On a long-term basis, the
      Company expects its principal sources of liquidity to consist of income from
      continuing operations and borrowings under revolving credit facilities and/or
      fixed interest term loans.  Any adverse changes in
      the  Company’s ability to borrow under revolving credit facilities or
      fixed interest term loans, or any increase in the cost of such borrowings,
      would
      likely have a negative impact on the Company’s ability to finance receivables
      growth which would adversely affect the Company’s growth and business
      strategies.




13


Further,
      Car-Mart’s current credit facilities contain various reporting and performance
      covenants. Any failure by the Company to comply with these covenants could
      have
      a material adverse effect on the Company’s ability to implement its business
      strategy.




*The
      Company’s growth is dependent upon the availability of suitable lot
      sites.*




The
      Company leases a majority of the properties where its stores are
      located.  If and when the Company decides to open new stores, the
      inability to acquire suitable real estate, either through lease or purchase,
      at
      favorable terms could limit the expansion of the Company’s lot base and could
      have a material adverse effect on the Company’s expansion strategy and future
      operating results.




*Car-Mart’s
      business is subject to seasonal fluctuations.*




The
      Company’s third fiscal quarter (November through January) is historically the
      slowest period for car and truck sales. Conversely, the Company’s first and
      fourth fiscal quarters (May through July and February through April) are
      historically the busiest times for car and truck sales. Therefore, Car-Mart
      generally realizes a higher proportion of its revenue and operating profit
      during the first and fourth fiscal quarters. If conditions arise that impair
      vehicle sales during the first or fourth fiscal quarters, the adverse effect
      on
      the Company’s revenues and operating profit for the year could be
      disproportionately large.





**Item
      1B.  Unresolved Staff Comments**





Not
      applicable.





**Item
      2.  Properties**





As
      of
      April 30, 2007, the Company leased approximately 78% of its facilities,
      including dealerships and the Company’s corporate offices.  These
      facilities are located principally in the states of Arkansas, Oklahoma, Texas,
      Kentucky and Missouri.  The Company’s corporate offices are located in
      approximately 12,000 square feet of leased space in Bentonville,
      Arkansas.  For additional information regarding the Company’s
      properties, see “Contractual Payment Obligations” and “Off-Balance Sheet
      Arrangements” under Item 7 of Part II.





**Item
      3.  Legal Proceedings**





In
      the
      ordinary course of business, the Company has become a defendant in various
      types
      of legal proceedings.  The Company does not expect the final outcome
      of any of these actions, individually or in the aggregate, to have a material
      adverse effect on the Company’s financial position, annual results of operations
      or cash flows.  However, the results of legal proceedings cannot be
      predicted with certainty, and an unfavorable resolution of one or more of these
      legal proceedings could have a material adverse effect on the Company’s
      financial position, annual results of operations or cash flows.





**Item
      4.  Submission of Matters to a Vote of Security
      Holders**





No
      matters were submitted to a vote of security holders of the Company during
      the
      fourth quarter ended April 30, 2007.


14


**PART
      II**





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




**General**





The
      Company's common stock is traded on the NASDAQ National Market under the symbol
      CRMT.  The following table sets forth, by fiscal quarter, the high and
      low closing sales prices reported by NASDAQ for the Company's common stock
      for
      the periods indicated.




Fiscal
                2007
            
            
            Fiscal
                2006High
            
            
            Low
            
            
            High
            
            
            LowFirst
                quarter
            
            $
            20.58
            
            
            $
            15.04
            
            
            $
            23.37
            
            
            $
            19.96Second
                quarter
            
            
            17.01
            
            
            
            13.90
            
            
            
            21.72
            
            
            
            15.94Third
                quarter
            
            
            15.08
            
            
            
            10.41
            
            
            
            18.65
            
            
            
            14.29Fourth
                quarter
            
            
            13.84
            
            
            
            10.56
            
            
            
            22.06
            
            
            
            17.45





As
      of
      July 13, 2007, there were approximately 1,054 stockholders of
      record.  This number excludes stockholders holding stock under nominee
      security position listings.




**Stockholder
      Return Performance Graph**





Set
      forth
      below is a line graph comparing the fiscal year end percentage change in the
      cumulative total stockholder return on the Company’s common stock to (i) the
      cumulative total return of the NASDAQ Market Index (U.S. companies), and (ii)
      the Hemscott Group 744 Index – Auto Dealerships (“Automobile Index”), for the
      period of five fiscal years commencing on May 1, 2002 and ending on April 30,
      2007.  The graph assumes that the value of the investment in the
      Company’s common stock and each index was $100 on May 1, 2002.




15







The
      dollar value at April 30, 2007 of $100 invested in the Company’s common stock on
      May 1, 2002 was $143.44, compared to $137.22 for the Automobile Index described
      above and $159.29 for the NASDAQ Market Index (U.S. Companies ).





**Dividend
      Policy**





Since
      its
      inception the Company has paid no cash dividends on its common
      stock.  The Company currently intends to follow a policy of retaining
      earnings to finance future growth.  Payment of cash dividends in the
      future will be determined by the Company's Board of Directors and will depend
      upon, among other things, the Company's future earnings, operations, capital
      requirements and 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 facility prohibits dividends to the
      Company and Car-Mart of Arkansas’s revolving credit facility limits dividends to
      the Company to 75% of Car-Mart of Arkansas’s net income.  Thus, the
      Company is limited in the amount of cash dividends or other distributions it
      can
      make to its shareholders.





**Stock
      Split**





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





16





**Equity
      Compensation Plan Information**





The
      following table provides information as of April 30, 2007 with respect to the
      Company’s equity compensation plans:





Plan
                Category
            
            Number
                of Securities to be Issued upon
              Exercise
                of Outstanding Options, Warrants and Rights
            
            
            Weighted-Average
                Exercise Price of Outstanding Options, Warrants and
                Rights
            
            
            Number
                of Securities Remaining Available for Future Issuance under Equity
                Compensation PlansEquity
                compensation plans:Approved
                by security holders
            
            
            274,545
            
            
            
            $
                10.59
            
            
            
            28,558Not
                approved by security holders (1)
            
            
            18,750
            
            
            
            13.11
            
            
            
            -Total
            
            
            293,295
            
            
            
            $
                10.75
            
            
            
            28,558


_________________________________





(1)
            For
                a description 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 Equity Securities**





TheCompany
      is authorized to
      repurchase up to 1 million shares of its common stock under the common stock
      repurchase program last amended and approved by the Board of Directors and
      announced on December 2, 2005. During the quarter ended April 30, 2007, the
      Company did not repurchase any shares of the common stock under the stock
      repurchase program. As of April 30, 2007, the remaining number of shares that
      may be purchased under the plan was 888,750.


17





**Item
      6.  Selected Financial Data**





The
      financial data set forth below was derived from the audited consolidated
      financial statements of the Company and should be read in conjunction with
      the
      consolidated financial statements and related notes thereto, and Management's
      Discussion and Analysis of Financial Condition and Results of Operations
      contained elsewhere herein.




Years
                Ended April 30,(In
                thousands)2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Revenues
            
            $
            240,334
            
            
            $
            234,207
            
            
            $
            204,788
            
            
            $
            176,184
            
            
            $
            154,885Income
                from operations
            
            $
            4,232
            
            
            $
            16,705
            
            
            $
            17,976
            
            
            $
            15,639
            
            
            $
            13,569Net
                income
            
            $
            4,232
            
            
            $
            16,705
            
            
            $
            17,976
            
            
            $
            15,804
            
            
            $
            14,075Diluted
                earnings per share
            
            $
            0.35
            
            
            $
            1.39
            
            
            $
            1.49
            
            
            $
            1.31
            
            
            $
            1.16





Total
                assets
            
            $
            173,598
            
            
            $
            177,613
            
            
            $
            143,668
            
            
            $
            117,241
            
            
            $
            101,841Total
                debt
            
            $
            40,829
            
            
            $
            43,588
            
            
            $
            29,145
            
            
            $
            22,534
            
            
            $
            25,968Stockholders’
                equity
            
            $
            123,728
            
            
            $
            119,251
            
            
            $
            103,265
            
            
            $
            84,577
            
            
            $
            65,961Shares
                outstanding
            
            
            11,875
            
            
            
            11,848
            
            
            
            11,844
            
            
            
            11,637
            
            
            
            10,812


_________________________________





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





The
      following discussion should be read in conjunction with the Company's
      consolidated financial statements 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 United States focused exclusively on the “Buy
      Here/Pay Here” segment of the used car market.  References to the
      Company typically include the Company’s consolidated
      subsidiaries.  The Company’s operations are principally conducted
      through its two operating subsidiaries, America’s Car-Mart, Inc, an Arkansas
      corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an
      Arkansas corporation (“Colonial”).  Collectively, Car-Mart of Arkansas
      and Colonial are referred to herein as “Car-Mart.”  The Company
      primarily sells older model used vehicles and provides financing for
      substantially all of its customers. Many of the Company’s customers have limited
      financial resources and would not qualify for conventional financing as a result
      of limited credit histories or past credit problems.  As of April 30,
      2007, the Company operated 92 stores located primarily in small cities
      throughout the South-Central United States.





Car-Mart
      has been operating since 1981.  Car-Mart has grown its revenues
      between approximately 3% and 21% per year over the last ten
      years.  Historically, finance receivables have tended to grow slightly
      faster than revenues. In fiscal 2007, revenues increased 2.6% while finance
      receivables decreased 3.6% due to higher charge offs experienced for the year.
      In fiscal 2006, finance receivables grew 21.6% compared to revenue growth of
      14.4%. The increase in 2006 primarily related to 1) an increase in the average
      term for installment sales contracts (to 27.25 months), 2) the timing of
      customer payments, particularly at year-end, 3) the purchase of finance
      receivables from Dan’s Auto Sales in Lexington, KY in March 2006, 4) the
      increase in the percentage of 30-day plus past due amounts at year-end (to
      3.7%), and 5) an increase in the average interest rate charged resulting in
      a
      higher percentage of customer payments going to interest as opposed to principal
      reduction. Revenue growth results from same store revenue growth and the
      addition of new stores.  Going forward, it is anticipated that the
      historical experience of finance receivables growing slightly faster than
      revenues will again be the trend.





18


The
      Company’s primary focus is on collections.  Each store is responsible
      for its own collections with supervisory involvement of the corporate
      office.  Over the last five fiscal years, Car-Mart’s credit losses as
      a percentage of sales have ranged between approximately 18.5% in 2003 and 29.1%
      in 2007 (average of 22.1%).  For the last two fiscal years, credit
      losses as a percentage of sales have averaged 25.2%. Credit losses in fiscal
      2007 (29.1%) were higher than the Company’s average over the last five years.
      Credit losses in fiscal 2007 were negatively affected by higher losses
      experienced during the Company’s second through fourth quarters (31.4%). The
      2007 credit losses included an approximate $5 million pre-tax charge (2.3%)
      to
      increase the allowance for credit losses to 22% of the finance receivables
      principal balance from 19.2%. Credit losses were higher due to several factors
      and included higher losses experienced in most of the dealerships, including
      mature dealerships, as the Company saw weakness in the performance of its
      portfolio as customers had difficulty making payments under the terms of their
      loans. Additionally, significant negative external economic issues, including
      higher fuel prices, were prevalent throughout fiscal 2007.





The
      Company’s gross margins as a percentage of sales have been fairly consistent
      from year to year. Over the last ten fiscal years, Car-Mart’s gross margins as a
      percentage of sales have ranged between approximately 42% and 48%. Gross margins
      as a percentage of sales for fiscal 2007 were 42.3% (41.5% for the fourth
      quarter). This is down from 44.3% for fiscal 2006 (43.2% for the fourth
      quarter). The Company’s gross margins are set based upon the cost of the vehicle
      purchased, with lower-priced vehicles having higher gross margin percentages.
      The Company’s gross margins have been negatively affected by the increase in the
      average retail sales price (a function of a higher purchase price) and higher
      operating costs, mostly related to increased vehicle repair costs and higher
      fuel costs. Additionally, the percentage of wholesale sales to retail sales,
      which relate for the most part to repossessed vehicles sold at or near cost,
      was
      higher in fiscal 2007 due to the increased level of repossession activity
      coupled with relatively flat retail sales levels. The Company expects that
      its
      gross margin percentage will not change significantly in the future from its
      current level.





Hiring,
      training and retaining qualified associates are critical to the Company’s
      success.  The rate at which the Company adds new stores and is able to
      implement operating initiatives is limited by the number of trained managers
      the
      Company has at its disposal.  Excessive turnover, particularly at the
      Store Manager level, could impact the Company’s ability to add new stores and to
      meet operational initiatives.  In fiscal 2005 through 2007, the
      Company added resources to recruit, train and develop personnel.  The
      Company expects to continue to invest in the development of its workforce in
      fiscal 2008 and beyond.


19


**Consolidated
      Operations**


(Operating
      Statement Dollars in Thousands)


%
                Change2007
            
            
            2006Years
                Ended April 30,
            
            
            vs.
            
            
            vs.
            
            
            As
                a % of Sales**Operating
                Statement**:
            
            2007
            
            
            2006
            
            
            2005
            
            
            2006
            
            
            2005
            
            
            2007
            
            
            2006
            
            
            2005Revenues:Sales
            
            $
            216,898
            
            
            $
            214,482
            
            
            $
            189,343
            
            
            
            1.1
            %
            
            
            13.3
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Interest
                income and other
            
            
            23,436
            
            
            
            19,725
            
            
            
            15,445
            
            
            
            18.8
            
            
            
            27.7
            
            
            
            10.8
            
            
            
            9.2
            
            
            
            8.2Total
            
            
            240,334
            
            
            
            234,207
            
            
            
            204,788
            
            
            
            2.6
            
            
            
            14.4
            
            
            
            110.8
            
            
            
            109.2
            
            
            
            108.2Costs
                and expenses:Cost
                of sales
            
            
            125,073
            
            
            
            119,433
            
            
            
            101,769
            
            
            
            4.7
            
            
            
            17.4
            
            
            
            57.7
            
            
            
            55.7
            
            
            
            53.7Selling,
                gen and admin
            
            
            41,778
            
            
            
            39,261
            
            
            
            34,788
            
            
            
            6.4
            
            
            
            12.9
            
            
            
            19.3
            
            
            
            18.3
            
            
            
            18.4Provision
                for credit loss
            
            
            63,077
            
            
            
            45,810
            
            
            
            38,094
            
            
            
            37.7
            
            
            
            20.3
            
            
            
            29.1
            
            
            
            21.4
            
            
            
            20.1Interest
                expense
            
            
            3,728
            
            
            
            2,458
            
            
            
            1,227
            
            
            
            51.7
            
            
            
            100.3
            
            
            
            1.7
            
            
            
            1.1
            
            
            
            .6Depreciation
                and amort
            
            
            994
            
            
            
            724
            
            
            
            426
            
            
            
            37.3
            
            
            
            70.0
            
            
            
            .5
            
            
            
            .3
            
            
            
            .2Total
            
            
            234,650
            
            
            
            207,686
            
            
            
            176,304
            
            
            
            13.0
            
            
            
            17.8
            
            
            
            108.2
            
            
            
            96.8
            
            
            
            93.1Pretax
                income
            
            $
            5,684
            
            
            $
            26,521
            
            
            $
            28,484
            
            
            
            (78.6
            )
            
            
            (6.9
            )
            
            
            2.6
            
            
            
            12.4
            
            
            
            15.0





**Operating
                Data:**Retail
                units sold
            
            
            25,199
            
            
            
            27,415
            
            
            
            25,399
            
            
            
            (8.1
            %)
            
            
            7.9
            %Average
                stores in operation
            
            
            89.7
            
            
            
            81.5
            
            
            
            74.5
            
            
            
            10.1
            
            
            
            9.4Average
                units sold per store
            
            
            281
            
            
            
            336
            
            
            
            341
            
            
            
            (16.4
            )
            
            
            (1.5
            )Average
                retail sales price
            
            $
            8,125
            
            
            $
            7,494
            
            
            $
            7,163
            
            
            
            8.4
            
            
            
            4.6Same
                store revenue growth
            
            
            (3.2
            %)
            
            
            9.8
            %
            
            
            11.8
            %Receivables
                average yield
            
            
            12.5
            %
            
            
            11.6
            %
            
            
            10.8
            %





**2007
      Compared to 2006**





Revenues
      increased $6.1 million, or 2.6%, in fiscal 2007 as compared to fiscal 2006,
      principally as a result of (i) revenue growth from stores opened during fiscal
      2006 or stores that opened or closed a satellite location during fiscal 2007
      or
      fiscal 2006 ($7.4 million), (ii) revenues from stores opened during fiscal
      2007
      ($5.9 million), (iii) offset by a $7.2 million decrease in revenues for stores
      that operated a full 12 months in both periods.





Revenues
      increased 2.6% in fiscal 2007 as compared to revenue growth of 14.4% in fiscal
      2006.  The decrease in revenue growth year over year is attributable
      to (i) a decrease in retail unit volumes in 2007 offset by an 8.4% increase
      in
      the average unit sales price, (ii) a lower growth rate for interest and other
      income, offset by (iii) increased wholesale sales during
      2007.  Presently, the Company expects that its average retail sales
      price will increase in fiscal 2008, but at a rate slightly lower than its
      historical average annual price increase of 3% to 5%.





Cost
      of
      sales, as a percentage of sales, increased 2.0% to 57.7% in fiscal 2007 from
      55.7% in fiscal 2006. The Company’s gross margins are set based upon the cost of
      the vehicle purchased, with lower-priced vehicles having higher gross margin
      percentages. The Company’s gross margins have been negatively affected by the
      increase in the average retail sales price (a function of a higher purchase
      price) and higher operating costs, mostly related to increased vehicle repair
      costs and higher fuel costs. Additionally, the percentage of wholesale sales
      was
      higher in 2007 versus 2006 which had a negative effect on gross margins.
      Consumer demand for the primary vehicles the Company acquires for its stores
      remains high and has been exacerbated by the slow down in domestic new car
      sales, resulting in higher purchase costs for vehicles.





20


Selling,
      general and administrative expense, as a percentage of sales, increased 1.0%
      to
      19.3% in fiscal 2007 from 18.3% in fiscal 2006.  The percentage
      increase was principally the result of an increase in advertising and payroll
      costs and additional lot level expenditures associated with the opening of
      new
      dealerships. Included in payroll costs for 2007 is approximately $533,000 in
      stock based compensation associated with the adoption of SFAS 123R on May 1,
      2006. Also, the percentage was negatively affected by the lower sales level
      increase.  Had sales levels been at planned volumes, selling, general
      and administrative expense, as a percentage of sales, would have been lower.
      Additionally, the Company incurred increased costs associated with strengthening
      controls and enhancing the corporate infrastructure to improve efficiencies
      and
      allow for future growth.





Provision
      for credit losses, as a percentage of sales, increased 7.7% to 29.1% in fiscal
      2007 from 21.4% in fiscal 2006.Credit losses in fiscal 2007
      were negatively affected by higher losses experienced during the Company’s
      second through fourth quarters (31.4%). The 2007 credit losses included an
      approximate $5 million pre-tax charge (2.3%) to increase the allowance for
      credit losses to 22% of the finance receivable principal balance from 19.2%.
      Credit losses were higher due to several factors and included higher losses
      experienced in most of the dealerships, including mature dealerships, as the
      Company saw weakness in the performance of its portfolio as customers had
      difficulty making payments under the terms of their loans. Additionally,
      significant negative external economic issues, including higher fuel prices,
      were prevalent throughout fiscal year 2007.





Interest
      expense, as a percentage of sales, increased .6% to 1.7% in fiscal 2007 from
      1.1% in fiscal 2006.  The increase was principally the result of
      higher average borrowing levels and higher average interest rates on the credit
      facility during fiscal 2007.





The
      effective income tax rate in 2007 was 26%. This lower tax rate resulted
      primarily from the elimination of tax reserves established in prior years
      related to Internal Revenue Service (“IRS”) examinations of the Company’s 2002
      tax returns and certain items in subsequent years. The reserves were eliminated
      based on notification received from the IRS that the Company would not be
      assessed any additional taxes, penalties or interest related to the
      examinations. Going forward, the Company expects its effective tax rate to
      be
      closer to historical rates.





**2006
      Compared to 2005**





Revenues
      increased $29.4 million, or 14.4%, in fiscal 2006 as compared to fiscal 2005,
      principally as a result of (i) revenue growth from stores that operated a full
      12 months in both periods ($19.5 million, or 9.8%), (ii) revenue growth from
      stores opened during fiscal 2005 or stores that opened or closed a satellite
      location during fiscal 2006 or fiscal 2005 ($2.5 million), and (iii) revenues
      from stores opened during fiscal 2006 ($7.4 million).





Revenues
      increased 14.4% in fiscal 2006 as compared to revenue growth of 16.2% in fiscal
      2005.  The decrease in revenue growth year over year is attributable
      to a  larger increase in the average retail sales price in fiscal 2005
      (10.1%) as compared to fiscal 2006 (4.6%) offset by an increase in retail units
      sold and an increase in interest income and other.  In February 2004,
      the Company made the decision to substantially reduce its purchase and sale
      of
      lower-priced vehicles and began purchasing and selling slightly higher-priced
      vehicles.





Cost
      of
      sales, as a percentage of sales, increased 2.0% to 55.7% in fiscal 2006 from
      53.7% in fiscal 2005. The Company’s gross margins are set based upon the cost of
      the vehicle purchased, with lower-priced vehicles having higher gross margin
      percentages. The Company’s gross margins have been negatively affected by the
      increase in the average retail sales price (a function of a higher purchase
      price) and to a lesser extent by higher operating costs, mostly related to
      increased vehicle repair costs and higher fuel and transport costs.
      Additionally, the percentage of wholesale sales was higher in 2006 versus 2005
      which had a negative effect on gross margins. Short-term supply issues during
      fiscal 2006, most prevalent during the final three quarters brought on by
      Hurricanes Katrina and Rita and by the slow down in domestic new car sales,
      resulted in higher purchase costs for vehicles.





21


Selling,
      general and administrative expense, as a percentage of sales, decreased .1%
      to
      18.3% in fiscal 2006 from 18.4% in fiscal 2005.  The percentage
      decrease was principally the result of a decrease, as a percentage of sales,
      in
      compensation expense. The decrease in compensation expense, as a percentage
      of
      sales, is partially the result of selling higher-priced vehicles. Selling
      higher-priced vehicles increases sales without necessarily increasing
      compensation expense. The decrease in compensation expense was offset, to an
      extent, by other expense increases including 1) utility and travel costs which
      increased as a result of the increase in fuel prices during the year, 2) charges
      associated with the legal settlement with Astoria Entertainment, Inc., and
      3) increased costs in the Information Technology Department and other corporate
      infrastructure areas to strengthen controls, improve efficiencies and allow
      for
      continued growth.





Provision
      for credit losses, as a percentage of sales, increased 1.3% to 21.4% in fiscal
      2006 from 20.1% in fiscal 2005.  Credit losses in fiscal 2006 were
      negatively affected by higher losses experienced during the Company’s second
      quarter (24.6%). Significant negative external economic issues, including higher
      fuel prices, were prevalent during fiscal 2006, concentrated to a large extent
      in the second quarter.  Also during the second quarter, significant
      efforts were made by store management to identify, clean-up and write off
      uncollectible accounts. Credit losses were 20.9%, 20.6% and 19.6% for the first,
      third and fourth quarters of fiscal 2006.





Interest
      expense, as a percentage of sales, increased .5% to 1.1% in fiscal 2006 from
      .6%
      in fiscal 2005.  The increase was principally the result of higher
      average borrowing levels and higher average interest rates on the credit
      facility during fiscal 2006.





**Financial
      Condition**





The
      following table sets forth the major balance sheet accounts of the Company
      at
      April 30, 2007, 2006 and 2005 (in thousands):





April
                30,2007
            
            
            2006
            
            
            2005Assets:Finance
                receivables, net
            
            $
            139,194
            
            
            $
            149,379
            
            
            $
            123,099Inventory
            
            
            13,682
            
            
            
            10,923
            
            
            
            7,985Property
                and equipment, net
            
            
            16,883
            
            
            
            15,436
            
            
            
            11,305Liabilities:Accounts
                payable and accrued liabilities
            
            
            8,706
            
            
            
            11,838
            
            
            
            8,819Revolving
                credit facilities
            
            
            40,829
            
            
            
            43,588
            
            
            
            29,145





Historically,
      finance receivables have tended to grow slightly faster than revenue
      growth.  This has historically been due, to a large extent, to an
      increasing average term necessitated by increases in the average retail sales
      price.In fiscal 2007, revenues increased 2.6% while finance
      receivables decreased 3.6% due to higher charge offs experienced for the year.
      In fiscal 2006, finance receivables grew 21.6% compared to revenue growth of
      14.4%. The increase in 2006 primarily related to 1) an increase in the average
      term for installment sales contracts (to 27.25 months), 2) the timing of
      customer payments, particularly at year-end, 3) the purchase of finance
      receivables from Dan’s Auto Sales in Lexington, KY in March 2006, 4) the
      increase in the percentage of 30-day plus past due amounts at year-end (to
      3.7%), and 5) an increase in the average interest rate charged resulting in
      a
      higher percentage of customer payments going to interest as opposed to principal
      reduction. It is anticipated that the historical experience of finance
      receivables growing slightly faster than revenues will again be the trend into
      the future.





22


In
      fiscal
      2007, inventory grew by 25% ($2.8 million) as compared to revenue growth of
      2.6%.  Inventory grew at a faster pace than revenues as a result of
      (i) an increase in the level of inventory at many stores to provide an adequate
      mix of vehicles and to facilitate sales growth, (ii) an increase in the average
      inventory cost per unit and (iii) lower sales levels, particularly toward fiscal
      year end resulting in additional vehicles at dealerships.  In fiscal
      2007, the average retail sales price increased 8.4% over fiscal
      2006.





Property
      and equipment, net increased $1.4 million in fiscal 2007 as the Company
      purchased real estate for stores and incurred expenditures to refurbish and
      expand a number of existing locations.





Accounts
      payable and accrued liabilities decreased in fiscal 2007 due to the
      significantly lower sales volume, most pronounced toward the end of fiscal
      2007.
      Unit sales were 17% lower in the fourth quarter of 2007 versus the fourth
      quarter of 2006.





Borrowings
      on the Company’s revolving credit facilities fluctuate primarily based upon a
      number of factors including (i) net income, (ii) finance receivables changes,
      (iii) capital expenditures, and (iv) common stock
      repurchases.  Historically, income from continuing operations, as well
      as borrowings on the revolving credit facilities, have funded the finance
      receivables growth and capital asset purchases.





**Liquidity
      and Capital Resources**





The
      following table sets forth certain historical information with respect to the
      Company’s statements of cash flows (in thousands):




Years
                Ended April 30,2007
            
            
            2006
            
            
            2005Operating
                activities:Net
                income
            
            $
            4,232
            
            
            $
            16,705
            
            
            $
            17,976Provision
                for credit losses
            
            
            63,077
            
            
            
            45,810
            
            
            
            38,094Finance
                receivable originations
            
            
            (196,200
            )
            
            
            (196,190
            )
            
            
            (173,446
            )Finance
                receivable collections
            
            
            124,092
            
            
            
            111,315
            
            
            
            105,973Inventory
            
            
            16,811
            
            
            
            10,692
            
            
            
            7,954Income
                Taxes
            
            
            (3,695
            )
            
            
            1,509
            
            
            
            (89
            )Other
                receivables
            
            
            124
            
            
            
            (294
            )
            
            
            (14
            )Accounts
                payable and accrued liabilities
            
            
            (692
            )
            
            
            1,389
            
            
            
            1,482Other
            
            
            560
            
            
            
            (440
            )
            
            
            584Total
            
            
            8,309
            
            
            
            (9,504
            )
            
            
            (1,486
            )Investing
                activities:Purchase
                of property and equipment
            
            
            (2,716
            )
            
            
            (5,011
            )
            
            
            (6,174
            )Proceeds
                from sale of property and equipment
            
            
            357
            
            
            
            157
            
            
            
            -Payment
                for business acquired
            
            
            (460
            )
            
            
            (1,200
            )
            
            
            -Total
            
            
            (2,819
            )
            
            
            (6,054
            )
            
            
            (6,174
            )Financing
                activities:Debt
                facilities, net
            
            
            (2,759
            )
            
            
            14,444
            
            
            
            6,610Change
                in cash overdrafts
            
            
            (2,441
            )
            
            
            1,629
            
            
            
            (331
            )Purchase
                of common stock
            
            
            (454
            )
            
            
            (1,312
            )
            
            
            (531
            )Exercise
                of stock options and warrants, includingtax
                benefits
            
            
            166
            
            
            
            593
            
            
            
            1,243Total
            
            
            (5,488
            )
            
            
            15,354
            
            
            
            6,991Cash
                provided by (used in) continuing operations
            
            $
            2
            
            
            $
            (204
            )
            
            $
            (669
            )





23


The
      Company generates cash flow from income from
      operations.  Historically, most or all of this cash is used to fund
      finance receivables growth.  To the extent finance receivables growth
      exceeds income from operations, generally the Company increases its borrowings
      under its revolving credit facilities.  The majority of the Company’s
      growth has been self-funded.





The
      Company has had a tendency to lease the majority of the properties where its
      stores are located.  As of April 30, 2007, the Company leased
      approximately 78% of its store properties.  The Company expects to
      continue to lease the majority of the properties where its stores are
      located.





Car-Mart’s
      revolving credit facilities limit distributions from Car-Mart to the Company
      beyond (i) the repayment of an intercompany loan ($10.0 million at April 30,
      2007), and (ii) dividends equal to 75% of Car-Mart of Arkansas’ net
      income.  At April 30, 2007, the Company’s assets (excluding its $110
      million equity investment in Car-Mart) consisted of $25,000 in cash, $3.0
      million in other assets and a $10.0 million receivable from
      Car-Mart.  Thus, the Company is limited in the amount of dividends or
      other distributions it can make to its shareholders without the consent of
      Car-Mart’s lender.  Beginning in February 2003, Car-Mart assumed
      substantially all of the operating costs of the Company.





At
      April
      30, 2007, the Company had $.3 million of cash on hand and an additional $10.2
      million of availability under its revolving credit facilities (see Note F to
      the
      consolidated financial statements).  On a short-term basis, the
      Company’s principal sources of liquidity include income from operations and
      borrowings under its revolving credit facilities.  On a longer-term
      basis, the Company expects its principal sources of liquidity to consist of
      income from operations and borrowings under revolving credit facilities and/or
      fixed interest term loans.  Further, while the Company has no specific
      plans 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 its finance receivables portfolio by
      a
      percentage that is larger than the percentage that its revenues grow, (ii)
      purchase property and equipment of approximately $2 million in the next 12
      months in connection with refurbishing existing stores, and (iii) reduce debt,
      to the extent excess cash is available, if any.  In addition, from
      time to time the Company may use cash to repurchase its common
      stock.





The
      Company’s revolving credit facilities mature in April 2009.  The
      Company expects that it will be able to renew or refinance its revolving credit
      facilities on or before the date they mature.  The Company believes it
      will have adequate liquidity to satisfy its capital needs for the foreseeable
      future.





**Contractual
      Payment Obligations**





The
      following is a summary of the Company’s contractual obligations as of April 30,
      2007, including renewal periods under operating leases that are reasonably
      assured (in thousands):





Payments
                Due by PeriodContractual
                Obligations
            
            Total
            
            
            Less
                Than
              1
                Year
            
            
            1-3
                Years
            
            
            3-5
                Years
            
            
            More
                Than
              5
                YearsRevolving
                line of credit
            
            $
            30,311
            
            
            $
            -
            
            
            $
            30,311
            
            
            $
            -
            
            
            $
            -Notes
                payable
            
            
            10,518
            
            
            
            751
            
            
            
            1,693
            
            
            
            1,986
            
            
            
            6,088Interest
                payments
            
            
            4,598
            
            
            
            809
            
            
            
            1,427
            
            
            
            1,135
            
            
            
            1,227Operating
                leases
            
            
            27,151
            
            
            
            2,685
            
            
            
            5,224
            
            
            
            4,779
            
            
            
            14,463Total
            
            $
            72,578
            
            
            $
            4,245
            
            
            $
            38,655
            
            
            $
            7,900
            
            
            $
            21,778





24


We
      calculated estimated interest payments for the long term debt using the
      applicable rates and payment dates.  We typically expect to settle
      such interest payments with cash flows from operations and short-term
      borrowings.





The
      above
      excludes estimated interest payments on the Company’s revolving line of
      credit.  The Company paid $2.9 million in interest payments on the
      revolving line of credit debt in fiscal 2007.





The
      $27.2
      million of lease commitments includes $6.7 million of non-cancelable lease
      commitments under the primary lease terms, and $20.5 million of lease
      commitments for renewal periods at the Company’s option that are reasonably
      assured.





**Off-Balance
      Sheet Arrangements**





The
      Company has entered into operating leases for approximately 78% of its store
      and
      office facilities.  Generally these leases are for periods of three to
      five years and usually contain multiple renewal options.  The Company
      uses leasing arrangements to maintain flexibility in its store locations and
      to
      preserve capital.  The Company expects to continue to lease the
      majority of its store and office facilities under arrangements substantially
      consistent with the past.  For the years ended April 30, 2007, 2006
      and 2005, rent expense for all operating leases amounted to approximately $2.8
      million, $2.4 million and $2.1 million, respectively.





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





**Related
      Finance Company Contingency**





Car-Mart
      of Arkansas and Colonial do not meet the affiliation standard for filing
      consolidated income tax returns, and as such they file separate federal and
      state income tax returns.  Car-Mart of Arkansas routinely sells its
      finance receivables to Colonial at what the Company believes to be fair market
      value and is able to take a tax deduction at the time of sale for the difference
      between the tax basis of the receivables sold and the sales
      price.  These types of transactions, based upon facts and
      circumstances, have been permissible under the provisions of the Internal
      Revenue Code (“IRC”) as described in the Treasury Regulations.  For
      financial accounting purposes, these transactions are eliminated in
      consolidation, and a deferred tax liability has been recorded for this timing
      difference.   The sale of finance receivables from Car-Mart of
      Arkansas to Colonial provides certain legal protection for the Company’s finance
      receivables and, principally because of certain state apportionment
      characteristics of Colonial, also has the effect of reducing the Company’s
      overall effective state income tax rate by approximately 240 basis
      points.  The actual interpretation of the Regulations is in part a
      facts and circumstances matter.  The Company believes it satisfies the
      material provisions of the Regulations.  Failure to satisfy those
      provisions could result in the loss of a tax deduction at the time the
      receivables are sold, and have the effect of increasing the Company’s overall
      effective income tax rate as well as the timing of required tax
      payments.





The
      Internal Revenue Service (“IRS”) has not yet formally concluded the previously
      disclosed examinations of the Company’s tax returns for fiscal 2002 and certain
      items in subsequent years. However, on May 8, 2007, the Company received
      notification from the IRS that the Company would not be assessed any additional
      taxes, penalties or interest related to the examinations. The formal
      notification of the examination results are expected in the near future. The
      examinations focused on whether or not the Company satisfied the provisions
      of
      the Treasury Regulations which would entitle Car-Mart of Arkansas to a tax
      deduction at the time it sells its finance receivables to
      Colonial.  Based upon the favorable notification, the Company
      recognized $500,000 of net income in the fourth quarter of fiscal 2007 for
      the
      elimination of associated tax reserves.





25


**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires the Company
      to
      make estimates and assumptions in determining the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period.  Actual results could differ from the
      Company’s estimates.  The Company believes the most significant
      estimate made in the preparation of the accompanying consolidated financial
      statements relates to the determination of its allowance for credit losses,
      which is discussed below.  The Company’s accounting policies are
      discussed in Note B to the accompanying consolidated financial
      statements.





The
      Company maintains an allowance for credit losses on an aggregate basis at a
      level it considers sufficient to cover estimated losses in the collection of
      its
      finance receivables.  The allowance for credit losses is based
      primarily upon historical credit loss experience, with consideration given
      to
      recent credit loss trends and changes in loan characteristics (i.e., average
      amount financed and term), delinquency levels, collateral values, economic
      conditions and underwriting and collection practices.  The allowance
      for credit losses is periodically reviewed by management with any changes
      reflected in current operations.  Although it is at least reasonably
      possible that events or circumstances could occur in the future that are not
      presently foreseen which could cause actual credit losses to be materially
      different from the recorded allowance for credit losses, the Company believes
      that it has given appropriate consideration to all relevant factors and has
      made
      reasonable assumptions in determining the allowance for credit
      losses.





At
      October 31, 2006 (the end of the Company’s second quarter), management increased
      the allowance for credit loss percentage from 19.2% to 22% due to recent higher
      credit loss experience and trends.  A change in accounting estimate
      was recognized to reflect the decision to increase the allowance for credit
      losses, resulting in a pretax, non-cash charge of $5,271,000 for the Company’s
      second quarter of fiscal 2007.  No such charge was required in the
      third or fourth quarters of fiscal 2007.





**Recent
      Accounting Pronouncements**





On
      May 1,
      2006, the Company adopted the provisions of Statement of Financial Accounting
      Standards 123R, “Share Based Payment” (“SFAS 123R”), which revises Statement
      123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25,
“Accounting for Stock Issued to Employees.”  SFAS 123R requires the
      Company to recognize expense related to the fair value of stock-based
      compensation awards, including employee stock options.





Prior
      to
      the adoption of SFAS 123R, the Company accounted for stock-based compensation
      awards using the intrinsic value method of Opinion 25.  Accordingly,
      the Company did not recognize compensation expense in the statement of
      operations for options granted that had an exercise price equal to the market
      value of the underlying common stock on the date of grant.  As
      required by Statement 123, the Company also provided certain pro forma
      disclosures for stock-based awards as if the fair-value-based approach of
      Statement 123 had been applied.





26


The
      Company has elected to use the modified prospective transition method as
      permitted by SFAS 123R and therefore has not restated financial results for
      prior periods.  Under this transition method, the Company will apply
      the provisions of SFAS 123R to new awards and to awards modified, repurchased,
      or cancelled after May 1, 2006.  All stock options and warrants
      outstanding at May 1, 2006 were fully vested.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”), which will require companies to assess each income tax
      position taken using a two-step process.  A determination is first
      made as to whether it is more likely than not that the position will be
      sustained, based upon the technical merits, upon examination by the taxing
      authorities.  If the tax position is expected to meet the more likely
      than not criteria, the benefit recorded for the tax position equals the largest
      amount that is greater than 50% likely to be realized upon ultimate settlement
      of the respective tax position.  The interpretation applies to income
      tax expense as well as any related interest and penalty expense.




FIN
      48
      requires that changes in tax positions recorded in a company’s financial
      statements prior to the adoption of this interpretation be recorded as an
      adjustment to the opening balance of retained earnings for the period of
      adoption.  FIN 48 will generally be effective for public companies for
      the first fiscal year beginning after December 15, 2006.  The Company
      will adopt the provisions of this interpretation during the first quarter of
      fiscal 2008.  No determination has yet been made regarding the
      materiality of the potential impact of this interpretation on the Company’s
      financial statement.




FASB
      Statement No. 154, “Accounting Changes and Error Corrections – a replacement of
      APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”) was issued in May
      2005.  SFAS No. 154 changes the requirements for the accounting for
      and reporting of a change in accounting principle.  SFAS No 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005.  The adoption of this new
      pronouncement in fiscal 2007 did not impact the Company’s financial condition,
      results of operations or cash flows.




In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      SFAS 157 does not require any new fair value measurements, but provides guidance
      on how to measure fair value by providing a fair value hierarchy used to
      classify the source of the information. The Company will be required to adopt
      this standard in the first quarter of the fiscal year ending April 30,
      2009. The Company is in the process of evaluating the anticipated effect of
      SFAS
      157 on its consolidated financial statements and is not currently in a position
      to determine such effects.




In
      September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108, “Financial
      Statements - Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements.”  SAB
      108 requires quantification of the impact of all prior year misstatements from
      both an income statement and a balance sheet perspective to determine if the
      misstatements are material.  SAB 108 is effective for the Company’s
      fiscal year ending April 30, 2007.  The adoption of this new
      pronouncement in fiscal 2007 did not impact the Company’s financial condition,
      results of operations or cash flows.




In
      February 2007, the FASB issued Statement 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities – Including an Amendment of FASB
      Statement 115”. The statement permits entities to choose to measure certain
      financial instruments and other items at fair value. The objective is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. Unrealized gains and losses on any items for which Car-Mart elects
      the fair value measurement option would be reported in earnings. Statement
      159
      is effective for fiscal years beginning after November 15, 2007. However,
      early adoption is permitted for fiscal years beginning on or before
      November 15, 2007, provided Car-Mart also elects to apply the provisions of
      Statement 157, “Fair Value Measurements”, at the same time. Car-Mart is
      currently assessing the effect, if any, the adoption of Statement 159 will
      have
      on its financial statements and related disclosures.




27





**Seasonality**





The
      Company’s automobile sales and finance business is seasonal in
      nature.  The Company’s third fiscal quarter (November through January)
      is historically the slowest period for car and truck sales.  Many of
      the Company’s operating expenses such as administrative personnel, rent and
      insurance are fixed and cannot be reduced during periods of decreased
      sales.  Conversely, the Company’s fourth fiscal quarter (February
      through April) is historically the busiest time for car and truck sales, as
      many
      of the Company’s customers use income tax refunds as a down payment on the
      purchase of a vehicle.





**Impact
      of Inflation**





Inflation
      has not historically been a significant factor impacting the Company’s results.
      Recent purchase price increases for vehicles coupled with higher interest rates
      on finance receivables, however, have had a negative effect on the Company’s
      gross profit percentages as the Company focuses on keeping payments affordable
      to its customer base.





**Item
      7A.  Quantitative and Qualitative Disclosures about Market
      Risk**





The
      Company is exposed to market risk on its financial instruments from changes
      in
      interest rates.  In particular, the Company has exposure to changes in
      the federal primary credit rate and the prime interest rate of its
      lender.  The Company does not use financial instruments for trading
      purposes or to manage interest rate risk.  The Company’s earnings are
      impacted by its net interest income, which is the difference between the income
      earned on interest-bearing assets and the interest paid on interest-bearing
      notes payable.  As described below, a decrease in market interest
      rates would generally have an adverse effect on the Company’s
      profitability.





The
      Company’s financial instruments consist of fixed rate finance receivables,
      variable rate revolving notes payable and a $10 million fixed rate term loan
      (funded in May 2006 – see note F to the consolidated financial statements). The
      Company’s finance receivables generally bear interest at fixed rates ranging
      from 6% to 19%.  These finance receivables generally have remaining
      maturities from one to 36 months.  The Company’s revolving notes
      payable contain variable interest rates that fluctuate with market interest
      rates (i.e., the rate charged on the Company’s revolving credit facility
      fluctuates with the prime interest rate of its lender).  However,
      interest rates charged on finance receivables originated in the State of
      Arkansas are limited to the federal primary credit rate (6.25% at April 30,
      2007) plus 5.0%.  Typically, the Company charges interest on its
      Arkansas loans at or near the maximum rate allowed by law.  Thus,
      while the interest rates charged on the Company’s loans do not fluctuate once
      established, new loans originated in Arkansas are set at a spread above the
      federal primary credit rate which does fluctuate.  At April 30, 2007,
      approximately 57% of the Company’s finance receivables were originated in
      Arkansas.  The remaining loan portfolio carries interest rates
      approximating 17%. Assuming that these percentages are held constant for future
      loan originations, the long-term effect of decreases in the federal primary
      credit rate would generally have a negative effect on the profitability of
      the
      Company.  This is the case because the amount of interest income lost
      on Arkansas originated loans would likely exceed the amount of interest expense
      saved on the Company’s variable rate borrowings (assuming the prime interest
      rate of its lender decreases by the same percentage as the decrease in the
      federal primary credit rate).  The initial impact within the first few
      months on profitability resulting from a decrease in the federal primary credit
      rate and the rate charged on its variable interest rate borrowings would be
      positive, as the immediate interest expense savings would outweigh the loss
      of
      interest income on new loan originations.  However, as the amount of
      new loans originated at the lower interest rate increases to an amount in excess
      of the amount of variable interest rate borrowings, the effect on profitability
      would become negative.





28


The
      table
      below illustrates the estimated impact that hypothetical changes in the federal
      primary credit rate would have on the Company’s continuing pretax
      earnings.  The calculations assume (i) the increase or decrease in the
      federal primary credit rate remains in effect for two years, (ii) the increase
      or decrease in the federal primary credit rate results in a like increase or
      decrease in the rate charged on the Company’s variable rate borrowings, (iii)
      the principal amount of finance receivables ($178.5 million) and variable
      interest rate borrowings ($30.3 million), and the percentage of Arkansas
      originated finance receivables (57%), remain constant during the periods, and
      (iv) the Company’s historical collection and charge-off experience continues
      throughout the periods.





Year
                1
            
            
            Year
                2Increase
                (Decrease)
            
            Increase
                (Decrease)
            
            
            Increase
                (Decrease)in
                Interest Rates
            
            in
                Pretax Earnings
            
            
            in
                Pretax Earnings(in
                thousands)
            
            
            (in
                thousands)+200
                basis points
            
            $
            187
            
            
            
            $
            1,177+100
                basis points
            
            
            93
            
            
            
            
            589-100
                basis points
            
            
            (93
            )
            
            
            
            (589
            )-200
                basis points
            
            
            (187
            )
            
            
            
            (1,177
            )




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





The
      following financial statements 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, 2007 and 2006





Consolidated
      Statements of Operations for the years ended April 30, 2007, 2006 and
      2005





Consolidated
      Statements of Cash Flows for the years ended April 30, 2007, 2006 and
      2005





Consolidated
      Statements of Stockholders' Equity for the years ended April 30, 2007, 2006
      and
      2005





Notes
      to
      Consolidated Financial Statements


29


**Report
      of Independent Registered Public Accounting Firm**








Stockholders
      and Board of Directors


America’s
      Car-Mart, Inc.





We
      have
      audited the accompanying consolidated balance sheets of America’s Car-Mart, Inc.
      (a Texas Corporation) and subsidiaries as of April 30, 2007 and 2006, and the
      related consolidated statements of operations, cash flows and stockholders’
equity for each of the three years in the period ended April 30, 2007. These
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of America’s Car-Mart, Inc. and
      subsidiaries as of April 30, 2007 and 2006, and the results of their operations
      and their cash flows for each of the three years in the period ended April
      30,
      2007 in conformity with accounting principles generally accepted in the United
      States of America.





As
      discussed in Note B to the consolidated financial statements, the Company
      adopted the provisions of Statement of Financial Accounting Standards No.
      123(R), *Share-Based Payment*effective May 1,
      2006.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of America’s Car-Mart, Inc.
      and subsidiaries’ internal control over financial reporting as of
      April  30, 2007, based on criteria established in*Internal
      Control—Integrated Framework* issued by the Committee of Sponsoring
      Organizations of the Treadway Commission and our report dated July 13,
      2007  (included in item 9 A) expressed unqualified opinions on the
      effectiveness of internal control over financial reporting and management’s
      evaluation thereof.







Tulsa,
      Oklahoma


July
      13,
      2007


30


**Consolidated
      Balance Sheets**


**America’s
      Car-Mart, Inc.**


(Dollars
      in thousands)





April
                30, 2007
            
            
            April
                30, 2006Assets:Cash
                and cash equivalents
            
            $
            257
            
            
            $
            255Accrued
                interest on finance receivables
            
            
            694
            
            
            
            818Finance
                receivables, net
            
            
            139,194
            
            
            
            149,379Inventory
            
            
            13,682
            
            
            
            10,923Prepaid
                expenses and other assets
            
            
            600
            
            
            
            447Income
                tax receivable
            
            
            1,933
            
            
            
            -Goodwill
            
            
            355
            
            
            
            355Property
                and equipment, net
            
            
            16,883
            
            
            
            15,436$
            173,598
            
            
            $
            177,613




Liabilities
                and stockholders’ equity:Accounts
                payable
            
            $
            2,473
            
            
            $
            3,095Accrued
                liabilities
            
            
            6,233
            
            
            
            8,743Income
                taxes payable
            
            
            -
            
            
            
            1,847Deferred
                tax liabilities, net
            
            
            335
            
            
            
            1,089Revolving
                credit facilities and notes payable
            
            
            40,829
            
            
            
            43,588Total
                liabilities
            
            
            49,870
            
            
            
            58,362Commitments
                and contingencies




Stockholders’
                equity:Preferred
                stock, par value $.01 per share, 1,000,000 sharesauthorized;
                none issued or outstanding
            
            
            -
            
            
            
            -Common
                stock, par value $.01 per share, 50,000,000 shares
                authorized;11,985,958
                issued (11,929,274 at April 30, 2006)
            
            
            120
            
            
            
            119Additional
                paid-in capital
            
            
            35,286
            
            
            
            34,588Retained
                earnings
            
            
            90,274
            
            
            
            86,042Treasury
                stock, at cost (111,250 and 81,250 shares at April 30, 2007 and
                2006)
            
            
            (1,952
            )
            
            
            (1,498
            )Total
                stockholders’ equity
            
            
            123,728
            
            
            
            119,251$
            173,598
            
            
            $
            177,613




The
      accompanying notes are an integral part of these consolidated financial
      statements.


31


**Consolidated
      Statements of Operations**


**America’s
      Car-Mart, Inc.**


(Dollars
      in thousands)





Years
                Ended April 30,2007
            
            
            2006
            
            
            2005Revenues:Sales
            
            $
            216,898
            
            
            $
            214,482
            
            
            $
            189,343Interest
                and other income
            
            
            23,436
            
            
            
            19,725
            
            
            
            15,445240,334
            
            
            
            234,207
            
            
            
            204,788Costs
                and expenses:Cost
                of sales
            
            
            125,073
            
            
            
            119,433
            
            
            
            101,769Selling,
                general and administrative
            
            
            41,778
            
            
            
            39,261
            
            
            
            34,788Provision
                for credit losses
            
            
            63,077
            
            
            
            45,810
            
            
            
            38,094Interest
                expense
            
            
            3,728
            
            
            
            2,458
            
            
            
            1,227Depreciation
                and amortization
            
            
            994
            
            
            
            724
            
            
            
            426234,650
            
            
            
            207,686
            
            
            
            176,304Income
                before taxes
            
            
            5,684
            
            
            
            26,521
            
            
            
            28,484Provision
                for income taxes
            
            
            1,452
            
            
            
            9,816
            
            
            
            10,508Net
                income
            
            $
            4,232
            
            
            $
            16,705
            
            
            $
            17,976Earnings
                per share:Basic
            
            $
            .36
            
            
            $
            1.41
            
            
            $
            1.53Diluted
            
            $
            .35
            
            
            $
            1.39
            
            
            $
            1.49Weighted
                average number of shares outstanding:Basic
            
            
            11,850,247
            
            
            
            11,852,804
            
            
            
            11,737,398Diluted
            
            
            11,953,987
            
            
            
            12,018,541
            
            
            
            12,026,745







The
      accompanying notes are an integral part of these consolidated financial
      statements.




32





**Consolidated
      Statements of Cash Flows**


**America’s
      Car-Mart, Inc.**


(In
      thousands)





Years
                Ended April 30,2007
            
            
            2006
            
            
            2005Operating
                activities:Net
                income
            
            $
            4,232
            
            
            $
            16,705
            
            
            $
            17,976Adjustments
                to reconcile income from operationsto
                net cash provided by (used in) operating activities:Provision
                for credit losses
            
            
            63,077
            
            
            
            45,810
            
            
            
            38,094Depreciation
                and amortization
            
            
            994
            
            
            
            709
            
            
            
            426Loss
                (gain) on sale of property and equipment
            
            
            (82
            )
            
            
            15
            
            
            
            -Share
                based compensation
            
            
            533
            
            
            
            -
            
            
            
            -Deferred
                income taxes
            
            
            (754
            )
            
            
            (898
            )
            
            
            370Changes
                in operating assets and liabilities:Finance
                receivable originations
            
            
            (196,200
            )
            
            
            (196,190
            )
            
            
            (173,446
            )Finance
                receivable collections
            
            
            124,092
            
            
            
            111,315
            
            
            
            105,973Accrued
                interest on finance receivables
            
            
            124
            
            
            
            (294
            )
            
            
            (14
            )Inventory
            
            
            16,811
            
            
            
            10,692
            
            
            
            7,954Prepaid
                expenses and other assets
            
            
            (46
            )
            
            
            (152
            )
            
            
            92Accounts
                payable and accrued liabilities
            
            
            (692
            )
            
            
            1,389
            
            
            
            1,482Income
                taxes payable
            
            
            (3,695
            )
            
            
            1,509
            
            
            
            (89
            )Excess
                tax benefit from share-based payments
            
            
            (85
            )
            
            
            (114
            )
            
            
            (304
            )Net
                cash provided by (used in) operating activities
            
            
            8,309
            
            
            
            (9,504
            )
            
            
            (1,486
            )Investing
                activities:Purchase
                of property and equipment
            
            
            (2,716
            )
            
            
            (5,011
            )
            
            
            (6,174
            )Proceeds
                from sale of property and equipment
            
            
            357
            
            
            
            157
            
            
            
            -Payment
                for business acquired
            
            
            (460
            )
            
            
            (1,200
            )
            
            
            -Net
                cash used in investing activities
            
            
            (2,819
            )
            
            
            (6,054
            )
            
            
            (6,174
            )Financing
                activities:Exercise
                of stock options and warrants
            
            
            81
            
            
            
            479
            
            
            
            939Excess
                tax benefits from share based compensation
            
            
            85
            
            
            
            114
            
            
            
            304Purchase
                of common stock
            
            
            (454
            )
            
            
            (1,312
            )
            
            
            (531
            )Change
                in cash overdrafts
            
            
            (2,441
            )
            
            
            1,629
            
            
            
            (331
            )Proceeds
                from notes payable
            
            
            11,200
            
            
            
            -
            
            
            
            -Principal
                payments on notes payable
            
            
            (682
            )
            
            
            -
            
            
            
            -Proceeds
                from revolving credit facilities
            
            
            68,456
            
            
            
            121,025
            
            
            
            65,796Payments
                on revolving credit facilities
            
            
            (81,733
            )
            
            
            (106,581
            )
            
            
            (59,186
            )Net
                cash provided by (used in) financing activities
            
            
            (5,488
            )
            
            
            15,354
            
            
            
            6,991Increase
                (decrease) in cash and cash equivalents
            
            
            2
            
            
            
            (204
            )
            
            
            (669
            )Cash
                and cash equivalents at:   Beginning of
                period
            
            
            255
            
            
            
            459
            
            
            
            1,128End
                of period
            
            $
            257
            
            
            $
            255
            
            
            $
            459




The
      accompanying notes are an integral part of these consolidated financial
      statements.


33


**Consolidated
      Statements of Stockholders’ Equity**


**America’s
      Car-Mart, Inc*.***


(Dollars
      in thousands)





For
                the Years Ended April 30, 2007, 2006 and 2005Additional
            
            
            
            
            
            
            
            
            TotalCommon
                Stock
            
            
            Paid-In
            
            
            Retained
            
            
            Treasury
            
            
            Stockholders’Shares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            Stock
            
            
            EquityBalance
                at April 30, 2004
            
            
            11,636,762
            
            
            $
            116
            
            
            $
            33,100
            
            
            $
            51,361
            
            
            $
            0
            
            
            $
            84,577Stock
                options/warrants exercised
            
            
            233,199
            
            
            
            2
            
            
            
            937
            
            
            
            
            
            
            
            
            
            
            
            939Purchase
                of common stock
            
            
            (17,773
            )
            
            
            -
            
            
            
            (345
            )
            
            
            
            
            
            
            
            
            
            
            (345
            )Purchase
                of  8,450 treasury shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (186
            )
            
            
            (186
            )Tax
                benefit of options exercised
            
            
            
            
            
            
            
            
            
            
            304
            
            
            
            
            
            
            
            
            
            
            
            304Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,976
            
            
            
            
            
            
            
            17,976Balance
                at April 30, 2005
            
            
            11,852,188
            
            
            
            118
            
            
            
            33,996
            
            
            
            69,337
            
            
            
            (186
            )
            
            
            103,265Stock
                options/warrants exercised
            
            
            77,086
            
            
            
            1
            
            
            
            478
            
            
            
            
            
            
            
            
            
            
            
            479Purchase
                of  72,800 treasury shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,312
            )
            
            
            (1,312
            )Tax
                benefit of options exercised
            
            
            
            
            
            
            
            
            
            
            114
            
            
            
            
            
            
            
            
            
            
            
            114Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            16,705
            
            
            
            
            
            
            
            16,705Balance
                at April 30, 2006
            
            
            11,929,274
            
            
            $
            119
            
            
            $
            34,588
            
            
            $
            86,042
            
            
            $
            (1,498
            )
            
            $
            119,251Stock
                options/warrants exercised
            
            
            13,750
            
            
            
            -
            
            
            
            81
            
            
            
            
            
            
            
            
            
            
            
            81Purchase
                of 30,000 treasury shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (454
            )
            
            
            (454
            )Tax
                benefit of options exercised
            
            
            22,329
            
            
            
            -
            
            
            
            85
            
            
            
            
            
            
            
            
            
            
            
            85Stock
                based compensation
            
            
            20,605
            
            
            
            1
            
            
            
            532
            
            
            
            
            
            
            
            
            
            
            
            533Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,232
            
            
            
            
            
            
            
            4,232Balance
                at April 30, 2007
            
            
            11,985,958
            
            
            $
            120
            
            
            $
            35,286
            
            
            $
            90,274
            
            
            $
            (1,952
            )
            
            $
            123,728





The
      accompanying notes are an integral part of these consolidated financial
      statements.


34


**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 United States focused exclusively on the “Buy
      Here/Pay Here” segment of the used car market.  References to the
      Company typically include the Company’s consolidated
      subsidiaries.  The Company’s operations are principally conducted
      through its two operating subsidiaries, America’s Car-Mart, Inc, an Arkansas
      corporation (“Car-Mart of Arkansas”) and Colonial Auto Finance, Inc., an
      Arkansas corporation (“Colonial”).  Collectively, Car-Mart of Arkansas
      and Colonial are referred to herein as “Car-Mart.”  The Company
      primarily sells older model used vehicles and provides financing for
      substantially all of its customers. Many of the Company’s customers have limited
      financial resources and would not qualify for conventional financing as a result
      of limited credit histories or past credit problems.  As of April 30,
      2007, the Company operated 92 stores located primarily in small cities
      throughout the South-Central United States.




In
      October 2001, the Company made the decision to sell all of its operating
      subsidiaries except Car-Mart, and relocate its corporate headquarters to
      Bentonville, Arkansas where Car-Mart is based.  As a result of this
      decision, all of the Company’s other operating subsidiaries were
      sold.  The Company sold its last remaining discontinued operation in
      July 2002.




**B
      - Summary of Significant Accounting Policies**





*Principles
      of Consolidation*





The
      consolidated financial statements include the accounts of America’s Car-Mart,
      Inc. and its subsidiaries.  All intercompany accounts and transactions
      have been eliminated.




*Adjustments
      to Reflect Stock Split*





All
      references to the number of shares of common stock, stock options and warrants,
      earnings per share amounts, exercise prices of stock options and warrants,
      common stock prices, and other share and per share data or amounts have been
      adjusted, as necessary, to retroactively reflect the three-for-two common stock
      split effected in the form of a 50% stock dividend in April 2005.




*Use
      of Estimates*





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amount of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the period.  Actual results could differ from those
      estimates.




*Concentration
      of Risk*





The
      Company provides financing in connection with the sale of substantially all of
      its vehicles.  These sales are made primarily to customers residing in
      Arkansas, Oklahoma, Texas, Kentucky and Missouri, with approximately 54% of
      revenues resulting from sales to Arkansas customers.  Periodically,
      the Company maintains cash in financial institutions in excess of the amounts
      insured by the federal government.  Car-Mart’s revolving credit
      facilities mature in April 2009.  The Company expects that these
      credit facilities will be renewed or refinanced on or before the scheduled
      maturity dates.




35


*Restrictions
      on Subsidiary Distributions/Dividends*





Car-Mart’s
      revolving credit facilities limit distributions from Car-Mart to the Company
      beyond (i) the repayment of an intercompany loan ($10.0 million at April 30,
      2007), and (ii) dividends equal to 75% of Car-Mart of Arkansas’ net
      income.  At April 30, 2007, the Company’s assets (excluding its $110
      million equity investment in Car-Mart) consisted of $25,000 in cash, $3.0
      million in other assets and a $10.0 million receivable from
      Car-Mart.  Thus, the Company is limited in the amount of dividends or
      other distributions it can make to its shareholders without the consent of
      Car-Mart’s lender.  Beginning in February 2003, Car-Mart assumed
      substantially all of the operating costs of the Company.




*Cash
      Equivalents*





The
      Company considers all highly liquid instruments purchased with maturities of
      three months or less to be cash equivalents.




*Finance
      Receivables, Repossessions and Charge-offs and Allowance for Credit
      Losses*





The
      Company originates installment sale contracts from the sale of used vehicles
      at
      its dealerships.  Finance receivables are collateralized by vehicles
      sold and consist of contractually scheduled payments from installment contracts
      net of unearned finance charges and an allowance for credit
      losses.  Unearned finance charges represent the balance of interest
      income remaining from the total interest to be earned over the term of the
      related installment contract.  An account is considered delinquent
      when a contractually scheduled payment has not been received by the scheduled
      payment date.  At April 30, 2007 and 2006, respectively, 3.4% and 3.7%
      of the Company’s finance receivable balances were 30 days or more past
      due.




The
      Company takes steps to repossess a vehicle when the customer becomes delinquent
      in his or her payments, and management determines that timely collection of
      future payments is not probable.  Accounts are charged-off after the
      expiration of a statutory notice period for repossessed accounts, or when
      management determines that the timely collection of future payments is not
      probable for accounts where the Company has been unable to repossess the
      vehicle.  For accounts with respect to which the vehicle was
      repossessed, the fair value of the repossessed vehicle is charged as a reduction
      of the gross finance receivable balance charged-off.  On average,
      accounts are approximately 52 days past due at the time of
      charge-off.  For previously charged-off accounts that are subsequently
      recovered, the amount of such recovery is credited to the allowance for credit
      losses.




The
      Company maintains an allowance for credit losses on an aggregate basis at a
      level it considers sufficient to cover estimated losses in the collection of
      its
      finance receivables.  The allowance for credit losses is based
      primarily upon historical credit loss experience, with consideration given
      to
      recent credit loss trends and changes in loan characteristics (i.e., average
      amount financed and term), delinquency levels, collateral values, economic
      conditions and underwriting and collection practices.  The allowance
      for credit losses is periodically reviewed by management with any changes
      reflected in current operations.  Although it is at least reasonably
      possible that events or circumstances could occur in the future that are not
      presently foreseen which could cause actual credit losses to be materially
      different from the recorded allowance for credit losses, the Company believes
      that it has given appropriate consideration to all relevant factors and has
      made
      reasonable assumptions in determining the allowance for credit
      losses.




36


At
      October 31, 2006 (the end of the Company’s second quarter), management increased
      the allowance for credit loss percentage from 19.2% to 22% due to recent higher
      credit loss experience and trends.  A change in accounting estimate
      was recognized to reflect the decision to increase the allowance for credit
      losses, resulting in a pretax, non-cash charge of $5,271,000 for the Company’s
      second quarter of fiscal 2007.  No such charge was required in the
      third or fourth quarters of fiscal 2007.




*Inventory*





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




*Goodwill*





Goodwill
      reflects the excess of purchase price over the fair value of specifically
      identified net assets purchased. In accordance with Statement of Financial
      Accounting Standards No. 142, “Goodwill and Other Intangibles”
(“SFAS 142”), goodwill and intangible assets deemed to have indefinite
      lives are not amortized but are subject to annual impairment tests. The
      impairment tests are based on the comparison of the fair value of the reporting
      unit to the carrying value of such unit. If the fair value of the reporting
      unit
      falls below its carrying value, goodwill is deemed to be impaired and a
      write-down of goodwill would be recognized.  There was no impairment
      of goodwill during fiscal 2007 and 2006.




*Property
      and Equipment*





Property
      and equipment are stated at cost.  Expenditures for additions,
      renewals and improvements are capitalized.  Costs of repairs and
      maintenance are expensed as incurred.  Leasehold improvements are
      amortized over the shorter of the estimated life of the improvement or the
      lease
      period.  The lease period includes the primary lease term plus any
      extensions that are reasonably assured.  Depreciation is computed
      principally using the straight-line method generally over the following
      estimated useful lives:




Furniture,
                fixtures and equipment
            3
                to  7 yearsLeasehold
                improvements
            5
                to 15 yearsBuildings
                and improvements
            18
                to 39 years





Property
      and equipment are reviewed for impairment whenever events or changes in
      circumstances indicate the carrying amount of an asset may not be
      recoverable.  Recoverability of assets to be held and used is measured
      by a comparison of the carrying amount of an asset to future undiscounted 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 carrying values of the impaired assets exceed the fair
      value
      of such assets.  Assets to be disposed of are reported at the lower of
      the carrying amount or fair value less costs to sell.




*Cash
      Overdraft*





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





37


*Deferred
      Sales Tax*





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





*Income
      Taxes*





Income
      taxes are accounted for under the liability method.  Under this
      method, deferred tax assets and liabilities are determined based on differences
      between financial reporting and tax bases of assets and liabilities and are
      measured using the enacted tax rates expected to apply in the years in which
      these temporary differences are expected to be recovered or
      settled.





From
      time
      to time, the Company is audited by taxing authorities.  These audits
      could result in proposed assessments of additional taxes.  The Company
      believes that its tax positions comply in all material respects with applicable
      tax law.  However, tax law is subject to interpretation, and
      interpretations by taxing authorities could be different from those of the
      Company, which could result in the imposition of additional taxes.




*Revenue
      Recognition*





Revenues
      are generated principally from the sale of used vehicles, which in most cases
      includes a service contract, and interest income and late fees earned on finance
      receivables.  Revenues are net of taxes collected from customers and
      remitted to government agencies.




Revenues
      from the sale of used vehicles are recognized when the sales contract is signed,
      the customer has taken possession of the vehicle and, if applicable, financing
      has been approved.  Revenues from the sale of service contracts are
      recognized ratably over the five-month service contract
      period.  Service contract revenues are included in sales and the
      related expenses are included in cost of sales.  Interest income is
      recognized on all active finance receivable accounts using the interest
      method.  Active accounts include all accounts except those that have
      been paid-off or charged-off.  At April 30, 2007 and 2006, finance
      receivables more than 90 days past due were approximately $115,000 and $178,000,
      respectively.  Late fees are recognized when collected and are
      included in interest income.




*Advertising
      Costs*





Advertising
      costs are expensed as incurred and consist principally of radio, television
      and
      print media marketing costs.  Advertising costs amounted to
      $2,912,000, $2,326,000 and $2,006,000 for the years ended April 30, 2007, 2006
      and 2005, respectively.




*Employee
      Benefit Plans*





The
      Company has 401(k) plans for all of its employees meeting certain eligibility
      requirements.  The plans provide for voluntary employee contributions
      and the Company matches 50% of employee contributions up to a maximum of 2%
      of
      each employee’s compensation.  The Company contributed approximately
      $156,000, $155,000, and $103,000 to the plans for the years ended April 30,
      2007, 2006 and 2005, respectively.




Effective
      February 1, 2007, the Company began offering employees the right to purchase
      common shares at a 15% discount from market price under the 2006 Employee Stock
      Purchase Plan which was approved by shareholders in October 2006. The Company
      will take a charge to earnings for the 15% discount.  Amounts for
      fiscal 2007 were not material. A total of 200,000 shares have been registered
      and are available for issuance at April 30, 2007.




38


*Earnings
      per Share*





Basic
      earnings per share are computed by dividing net income by the average number
      of
      common shares outstanding during the period.  Diluted earnings per
      share takes into consideration the potentially dilutive effect of common stock
      equivalents, such as outstanding stock options and warrants, which if exercised
      or converted into common stock would then share in the earnings of the
      Company.  In computing diluted earnings per share, the Company
      utilizes the treasury stock method and anti-dilutive securities are
      excluded.




*Stock-based
      Compensation*





On
      May 1,
      2006, the Company adopted the provisions of Statement of Financial Accounting
      Standards 123R, “Share Based Payment” (“SFAS 123R”), which revises Statement
      123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25,
“Accounting for Stock Issued to Employees.”  SFAS 123R requires the
      Company to recognize expense related to the fair value of stock-based
      compensation awards, including employee stock options.




Prior
      to
      the adoption of SFAS 123R, the Company accounted for stock-based compensation
      awards using the intrinsic value method of Opinion 25.  Accordingly,
      the Company did not recognize compensation expense in the statement of
      operations for options granted that had an exercise price equal to the market
      value of the underlying common stock on the date of grant.  As
      required by Statement 123, the Company also provided certain pro forma
      disclosures for stock-based awards as if the fair-value-based approach of
      Statement 123 had been applied.




The
      Company has elected to use the modified prospective transition method as
      permitted by SFAS 123R and therefore has not restated financial results for
      prior periods.  Under this transition method, the Company applied the
      provisions of SFAS 123R to new awards and to awards modified, repurchased,
      or
      cancelled after May 1, 2006.  All stock options and warrants
      outstanding at May 1, 2006 were fully vested.




The
      Company recorded compensation cost for stock-based employee awards of $533,000
      ($336,000 after tax effects) during the year ended April 30,
      2007.  The pretax amount includes $397,000 for restricted shares
      issued on May 1, 2006 and $136,000 for stock options granted in fiscal
      2007.  The Company had not previously issued restricted
      shares.  Tax benefits were recognized for these costs at the Company’s
      overall expected effective tax rate.




As
      a
      result of the adoption of SFAS 123R, earnings were lower than under the previous
      accounting method for share-based compensation by the following
      amounts:





*(Dollars
                in thousands)*
            Year
              Ended
              April
                30, 2007Income
                before taxes
            $136Net
                income
            $
                85Basic
                and diluted net earnings per common share
            $
                .01




39


Prior
      to
      the adoption of SFAS 123R, the Company presented all tax benefits resulting
      from
      the exercise of non-qualified stock options and any disqualifying disposition
      of
      vested stock options as operating cash flows in the Consolidated Statement
      of
      Cash Flows.  During the years ended April 30, 2006 and 2005, tax
      benefits relating to stock options exercised in the amounts of $114,000 and
      $304,000, respectively, were included in operating cash flows.  SFAS
      123R requires that cash flows from the exercise of stock options resulting
      from
      tax benefits in excess of recognized cumulative compensation cost (excess tax
      benefits) be classified as financing cash flows.  For the year ended
      April 30, 2007, excess tax benefits relating to option and warrant exercises
      in
      the amount of $85,000 were included in financing cash flows.  The 2006
      and 2005 excess tax benefits have been reclassified as a financing cash flow
      to
      conform to the 2007 presentation.




The
      following table illustrates the effect on net income after tax and net income
      per common share as if the Company had applied the fair value recognition
      provisions of SFAS 123 to stock-based compensation for the years ended April
      30,
      2006 and 2005:




Years
                Ended April 30,*(Dollars
                in thousands)*
            2006
            
            2005Net
                income, as reported
            
            $
                16,705
            
            $
                17,976Deduct:
            Stock-based
                employee compensation expense determined under fair value-based method
                for
                all awards, net of related tax effects
            
            (100)
            
            (624)Pro
                forma net income
            
            $
                16,605
            
            $
                17,352Basic
                earnings per common share:As
                reported
            
            $     1.41
            
            $     1.53Pro
                forma
            
            $     1.40
            
            $     1.48Diluted
                earnings per common share:As
                reported
            
            $     1.39
            
            $     1.49Pro
                forma
            
            $     1.38
            
            $     1.44





The
      fair value of options granted is estimated on the date of grant using the
      Black-Scholes option pricing model based on the weighted average assumptions
      in
      the table below.




April
                30, 2007
            
            April
                30, 2006
            
            April
                30, 2005Expected
                term (years)
            4.8
            
            5.0
            
            5.0Risk-free
                interest rate
            5.14%
            
            4.5%
            
            4.9%Volatility
            62%
            
            45%
            
            40%Dividend
                yield
            —
            
            —
            
            —





The
      expected term of the options is based on evaluations of historical and expected
      future employee exercise behavior.  The risk-free interest rate is
      based on the U.S. Treasury rates at the date of grant with maturity dates
      approximately equal to the expected life at the grant
      date.  Volatility is based on historical volatility of the Company’s
      stock.  The Company has not historically issued any dividends and does
      not expect to do so in the foreseeable future.




Stock
      Options





The
      shareholders of the Company have approved three stock option plans, including
      the 1986 Incentive Stock Option Plan (“1986 Plan”), the 1991 Non-Qualified Stock
      Option Plan (“1991 Plan”) and the 1997 Stock Option Plan (“1997
      Plan”).  While previously granted options remain outstanding, no
      additional option grants may be made under the 1986 and 1991
      Plans.  The 1997 Plan set aside 1,500,000 shares of the Company’s
      common stock for grants to employees, directors and certain advisors of the
      Company at a price not less than the fair market value of the stock on the
      date
      of grant and for periods not to exceed ten years.  The options vest
      upon issuance.  At April 30, 2007, there were 28,558 shares of common
      stock available for grant under the 1997 Plan.  Options granted under
      the Company’s stock option plans expire in the calendar years 2008 through
      2016.




40





Plan1986
            1991
            1997Minimum
                exercise price as a percentage of fair market value at date of
                grant
            100%
            100%
            100%Last
                expiration date for outstanding options
            N/A
            N/A
            April
                30, 2016Shares
                available for grant at April 30, 2007
            0
            0
            28,558




The
      following is a summary of the changes in outstanding options for the year ended
      April 30, 2007:





WeightedWeighted
            AverageAverage
            RemainingExercise
            ContractualShares
            Price
            LifeOutstanding
                at beginning of period
            287,295
            $10.38
            61.2
                MonthsGranted
            12,250
            $19.75
            103.9
                MonthsExercised
            (13,750)
            $5.89
            --Canceled
            (11,250)
            $20.82
            --Outstanding
                at end of period
            274,545
            $10.59
            50.3
                Months





The
      grant-date fair value of options granted, net of tax, during fiscal 2007 and
      2006 was $85,000 and $100,000, respectively.  The total intrinsic
      value of options exercised during fiscal 2007 and 2006 was $155,621 and
      $754,257, respectively.  The aggregate intrinsic value of outstanding
      options at April 30, 2007 is $1,487,609.




The
      Company received cash from options exercised during fiscal 2007 of
      $81,030.  The impact of these cash receipts is included in financing
      activities in the accompanying Consolidated Statement of Cash
      Flows.




Warrants





As
      of
      April 30, 2007, the Company had outstanding stock purchase warrants issued
      in
      2004 to purchase 18,750 shares at prices ranging from $11.83 to $18.23 per
      share
      (weighted average exercise price of $13.11).  All of the warrants are
      presently exercisable and expire between 2008 and 2009.  The warrants
      have a weighted average remaining contractual life of 15.8 months at April
      30,
      2007.  There were 22,329 shares of stock purchased as the result of
      warrants exercised during the year ended April 30, 2007.  The
      intrinsic value of the warrants exercised was $374,000. The outstanding warrants
      at April 30, 2007 had an aggregate intrinsic value of $14,800.




41




Stock
      Incentive Plan





The
      Company has a Stock Incentive Plan wherein a total of 39,728 shares were
      available for award at April 30, 2007.  The associated compensation
      expense for grants of restricted stock is spread equally over the service
      periods established at award date and is subject to the employee’s continued
      employment by the Company.  During the first quarter of fiscal 2007,
      57,500 restricted shares were granted with a fair value of $20.07 per share,
      the
      market price of the Company’s stock on grant date.  These restricted
      shares had a weighted average vesting period of 3.3 years and began vesting
      on
      May 1, 2006.  In the second quarter of fiscal 2007, 2,522 restricted
      shares were issued as part of the executive bonus plan.  In the third
      quarter, 250 shares were issued to an employee as a service
      award.  These shares are fully vested.




The
      Company recorded a pre-tax expense of $397,000 related to the Stock Incentive
      Plan during the fiscal year ended April 30, 2007.




There
      have been no modifications to any of the Company’s outstanding share-based
      payment awards during fiscal 2007.




As
      of
      April 30, 2007, the Company has $796,000 of total unrecognized compensation
      cost
      related to unvested awards granted under the Company’s Stock Incentive Plan,
      which the Company expects to recognize over a weighted-average remaining period
      of 2.4 years.





*Treasury
      Stock*





The
      Company purchased 30,000 and 72,800 shares of its common stock to be held as
      treasury stock for a total cost of $454,029 and $1,312,189 during 2007 and
      2006,
      respectively. Treasury stock may be used for issuances under the Company’s stock
      option plan or for other general corporate purposes. All other common shares
      which have been purchased by the Company under its stock repurchase plan have
      been cancelled and retired.





*Recent
      Accounting Pronouncements*





From
      time
      to time, new accounting pronouncements are issued by the Financial Accounting
      Standards Board (“FASB”) or other standard setting bodies which the Company
      adopts as of the specified effective date. Unless otherwise discussed, the
      Company believes the impact of recently issued standards which are not yet
      effective will not have a material impact on our consolidated financial
      statements upon adoption.




In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”), which will require companies to assess each income tax
      position taken using a two-step process.  A determination is first
      made as to whether it is more likely than not that the position will be
      sustained, based upon the technical merits, upon examination by the taxing
      authorities.  If the tax position is expected to meet the more likely
      than not criteria, the benefit recorded for the tax position equals the largest
      amount that is greater than 50% likely to be realized upon ultimate settlement
      of the respective tax position.  The interpretation applies to income
      tax expense as well as any related interest and penalty expense.




42


FIN
      48
      requires that changes in tax positions recorded in a company’s financial
      statements prior to the adoption of this interpretation be recorded as an
      adjustment to the opening balance of retained earnings for the period of
      adoption.  FIN 48 will generally be effective for public companies for
      the first fiscal year beginning after December 15, 2006.  The Company
      will adopt the provisions of this interpretation during the first quarter of
      fiscal 2008.  No determination has yet been made regarding the
      materiality of the potential impact of this interpretation on the Company’s
      financial statements.




FASB
      Statement No. 154, “Accounting Changes and Error Corrections – a replacement of
      APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”) was issued in May
      2005.  SFAS No. 154 changes the requirements for the accounting for
      and reporting of a change in accounting principle.  SFAS No 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005.  The adoption of this new
      pronouncement in fiscal 2007 did not impact the Company’s financial condition,
      results of operations or cash flows.




In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      SFAS 157 does not require any new fair value measurements, but provides guidance
      on how to measure fair value by providing a fair value hierarchy used to
      classify the source of the information. The Company will be required to adopt
      this standard in the first quarter of the fiscal year ending April 30,
      2009. The Company is in the process of evaluating the anticipated effect of
      SFAS
      157 on its consolidated financial statements and is not currently in a position
      to determine such effects.




In
      September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108, “Financial
      Statements - Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements.”  SAB
      108 requires quantification of the impact of all prior year misstatements from
      both an income statement and a balance sheet perspective to determine if the
      misstatements are material.  SAB 108 is effective for the Company’s
      fiscal year ending April 30, 2007.  The adoption of this new
      pronouncement in fiscal 2007 did not impact the Company’s financial condition,
      results of operations or cash flows.




In
      February 2007, the FASB issued Statement 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities – Including an Amendment of FASB
      Statement 115”. The statement permits entities to choose to measure certain
      financial instruments and other items at fair value. The objective is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. Unrealized gains and losses on any items for which Car-mart elects
      the fair value measurement option would be reported in earnings. Statement
      159
      is effective for fiscal years beginning after November 15, 2007. However,
      early adoption is permitted for fiscal years beginning on or before
      November 15, 2007, provided Car-mart also elects to apply the provisions of
      Statement 157, “Fair Value Measurements”, at the same time. Car-mart is
      currently assessing the effect, if any, the adoption of Statement 159 will
      have
      on its financial statements and related disclosures.





*Reclassifications*





Certain
      prior year amounts in the accompanying financial statements have been
      reclassified to conform to the fiscal 2007 presentation.  Excess tax
      benefits related to equity instruments and cash overdrafts have been classified
      as financing cash flows.  Proceeds from and repayments of the
      revolving credit facility have been presented on a gross basis in the financing
      activities section of the statements of cash flows.




43




**C
      - Finance Receivables, Net**





The
      Company originates installment sale contracts from the sale of used vehicles
      at
      its dealerships.  These installment sale contracts typically include
      interest rates ranging from 6% to 19% per annum, are collateralized by the
      vehicle sold and provide for payments over periods ranging from 12 to 36
      months.  The components of finance receivables as of April 30, 2007
      and 2006 are as follows:





April
                30,*(In
                thousands)*
            
            2007
            
            
            2006Gross
                contract amount
            
            $
            199,677
            
            
            $
            207,378Less
                unearned finance charges
            
            
            (21,158
            )
            
            
            (22,135
            )Principal
                balance
            
            
            178,519
            
            
            
            185,243Less
                allowance for credit losses
            
            
            (39,325
            )
            
            
            (35,864
            )Finance
                receivables, net
            
            $
            139,194
            
            
            $
            149,379





Changes
      in the finance receivables, net balance for the years ended April 30, 2007,
      2006
      and 2005 are as follows:




Years
                Ended April 30,*(In
                thousands)*
            
            2007
            
            
            2006
            
            
            2005Balance
                at beginning of year
            
            $
            149,379
            
            
            $
            123,099
            
            
            $
            103,684Finance
                receivable originations
            
            
            196,200
            
            
            
            196,190
            
            
            
            173,446Finance
                receivables from acquisition of business
            
            
            354
            
            
            
            845
            
            
            
            0Finance
                receivable collections
            
            
            (124,092
            )
            
            
            (111,315
            )
            
            
            (105,973
            )Provision
                for credit losses
            
            
            (63,077
            )
            
            
            (45,810
            )
            
            
            (38,094
            )Inventory
                acquired in repossession
            
            
            (19,570
            )
            
            
            (13,630
            )
            
            
            (9,964
            )Balance
                at end of year
            
            $
            139,194
            
            
            $
            149,379
            
            
            $
            123,099





44





Changes
      in the finance receivables allowance for credit losses for the years ended
      April
      30, 2007, 2006 and 2005 are as follows:





Years
                Ended April 30,*(In
                thousands)*
            
            
            2007
            
            
            
            2006
            
            
            
            2005Balance
                at beginning of year
            
            $
            35,864
            
            
            $
            29,251
            
            
            $
            25,036Provision
                for credit losses
            
            
            63,077
            
            
            
            45,810
            
            
            
            38,094Allowance
                related to acquisition of business, net change
            
            
            (366
            )
            
            
            527
            
            
            
            0Charge-offs,
                net of recovered collateral
            
            
            (59,250
            )
            
            
            (39,724
            )
            
            
            (33,879
            )Balance
                at end of year
            
            $
            39,325
            
            
            $
            35,864
            
            
            $
            29,251





**D
      - Property and Equipment**





A
      summary
      of property and equipment as of April 30, 2007 and 2006 is as
      follows:





April
                30,*(In
                thousands)*
            
            2007
            
            2006Land
            
            $
            5,221
            
            
            $
            5,234Buildings
                and improvements
            
            
            5,890
            
            
            
            5,093Furniture,
                fixtures and equipment
            
            
            4,000
            
            
            
            3,673Leasehold
                improvements
            
            
            4,588
            
            
            
            3,292Less
                accumulated depreciation and amortization
            
            
            (2,816
            )
            
            
            (1,856
            )$
            16,883
            
            
            $
            15,436





**E
      - Accrued Liabilities**





A
      summary
      of accrued liabilities as of April 30, 2007 and 2006 is as follows:





April
                30,*(In
                thousands)*
            
            
            2007
            
            
            
            2006Compensation
            
            $
            1,970
            
            
            $
            2,594Cash
                overdraft (see Note B)
            
            
            -
            
            
            
            2,441Deferred
                service contract revenue (see Note B)
            
            
            1,812
            
            
            
            1,627Deferred
                sales tax (see Note B)
            
            
            928
            
            
            
            1,012Subsidiary
                redeemable preferred stock (see Note H)
            
            
            500
            
            
            
            500Interest
            
            
            286
            
            
            
            258Other
            
            
            737
            
            
            
            311$
            6,233
            
            
            $
            8,743





45




**F
      – Revolving Credit Facilities**





A
      summary
      of revolving credit facilities is as follows:




Revolving
                Credit FacilitiesAggregate
            
            Interest
            
            
            
            Balance
                atPrimary
                Lender
            
            Amount
            
            Rate
            
            Maturity
            
            April
                30, 2007
            
            April
                30, 2006Bank
                of Oklahoma
            
            $
            50.0
                million
            
            
            Prime
                +/-
            
            
            Apr
                2009
            
            $
            30,311,142
            
            $
            43,588,443





On
      April
      28, 2006, Car-Mart and its lenders amended the credit facilities. The amended
      facilities set total borrowings allowed on the revolving credit facilities
      at
      $50 million and established a new $10 million term loan. The term loan was
      funded in May 2006 and called for 120 consecutive and substantially equal
      installments beginning June 1, 2006. The interest rate on the term loan is
      fixed
      at 8.08%. The principal balance on the term loan was $9.4 million at April
      30,
      2007.  The interest rate on the term loan could decrease to as low as
      7.33% in the future if funded debt to EBITDA, as defined, is below 2.25 to
      1.00.  The combined total for the Company’s credit facilities is $60
      million. On March 12, 2007 (effective December 31, 2006) Car-Mart and its
      lenders again amended the credit facilities. The March 12, 2007 amendments
      served to change the Company’s financial covenant requirements and to and adjust
      the Company’s interest rate pricing grid on its revolving credit
      facilities.  The pricing grid is based on funded debt to EBITDA, as
      defined, and the interest rate on the revolving credit facilities can range
      from
      prime minus .25 or LIBOR plus 2.75 to prime plus 1.00 or LIBOR plus
      4.00.




The
      facilities are collateralized by substantially all the assets of Car-Mart
      including finance receivables and inventory.  Interest is payable
      monthly under the revolving credit facilities at the bank’s prime lending rate
      plus .75% per annum at April 30, 2007 (9.0%) and at the bank’s prime lending
      rate less .25% per annum at April 30, 2006 (7.50%).  The interest rate
      on the revolving credit facilities increased between years due to increases
      in
      the prime rate and to the Company’s financial performance.  The
      facilities contain various reporting and performance covenants including (i)
      maintenance of certain financial ratios and tests, (ii) limitations on
      borrowings from other sources, (iii) restrictions on certain operating
      activities, and (iv) limitations on the payment of dividends or distributions
      to
      the Company.  The Company was in compliance with the covenants at
      April 30, 2007. The amount available to be drawn under the facilities is a
      function of eligible finance receivables and inventory.  Based upon
      eligible finance receivables and inventory at April 30, 2007, Car-Mart could
      have drawn an additional $10.2 million under its facilities.




The
      Company also has a $1.2 million term loan secured by the corporate
      aircraft.  The term loan is payable over ten years and has a fixed
      interest rate of 6.87%.  The principal balance on this loan was $1.1
      million at April 30, 2007.




**G
      - Income Taxes**





The
      provision for income taxes for the fiscal years ended April 30, 2007, 2006
      and
      2005 was as follows:


Years
                Ended April 30,*(In
                thousands)*
            
            2007
            
            
            2006
            
            
            2005Provision
                for income taxesCurrent
            
            $
            2,206
            
            
            $
            10,714
            
            
            $
            10,138Deferred
            
            
            (754
            )
            
            
            (898
            )
            
            
            370$
            1,452
            
            
            $
            9,816
            
            
            $
            10,508





46


The
      provision for income taxes is different from the amount computed by applying
      the
      statutory federal income tax rate to income before income taxes for the
      following reasons:




Years
                Ended April 30,*(In
                thousands)*
            
            2007
            
            
            2006
            
            
            2005Tax
                provision at statutory rate
            
            $
            1,938
            
            
            $
            9,282
            
            
            $
            9,970State
                taxes, net of federal benefit
            
            
            13
            
            
            
            643
            
            
            
            751Reduction
                of tax reserves
            
            
            (500
            )
            
            
            -
            
            
            
            -Other,
                net
            
            
            1
            
            
            
            (109
            )
            
            
            (213
            )$
            1,452
            
            
            $
            9,816
            
            
            $
            10,508





The
      effective income tax rate in 2007 was 26%. This tax rate resulted primarily
      from
      the elimination of $500,000 of tax reserves established in prior years for
      potential issues from the Internal Revenue Service (“IRS”) examinations of the
      Company’s 2002 tax returns and certain items in subsequent years. The reserves
      were eliminated based on notification received from the IRS that the Company
      would not be assessed any additional taxes, penalties or interest related to
      the
      examinations. Also, the Company’s state income taxes for 2007 were lower due to
      the distribution of taxable income among the Company’s operating
      subsidiaries.





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes.  Significant components of
      the Company’s deferred tax assets and liabilities as of April 30, 2007 and 2006
      were as follows:




April
                30,*(In
                thousands)*
            
            2007
            
            
            2006Deferred
                tax liabilities related to:Finance
                receivables
            
            $
            1,671
            
            
            $
            2,520Property
                and equipment
            
            
            413
            
            
            
            259Total
            
            
            2,084
            
            
            
            2,779Deferred
                tax assets related to:Accrued
                liabilities
            
            
            1,112
            
            
            
            1,035Inventory
            
            
            586
            
            
            
            479Share
                based compensation
            
            
            51
            
            
            
            -Other
            
            
            -
            
            
            
            176Total
            
            
            1,749
            
            
            
            1,690Deferred
                tax liabilities, net
            
            $
            335
            
            
            $
            1,089





**H
      - Capital Stock**





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




A
      subsidiary of the Company has issued 500,000 shares of $1.00 par value preferred
      stock which carries a 6% cumulative dividend.  Accumulated but
      undeclared dividends at April 30, 2007 and 2006 were $30,000. The Company’s
      subsidiary can redeem the preferred stock at any time at par value plus any
      unpaid dividends.  After April 30, 2007, a holder of 400,000 shares of
      the subsidiary preferred stock can require the Company’s subsidiary to redeem
      such stock for $400,000 plus any unpaid dividends.  The subsidiary
      preferred stock is included in accrued liabilities.


47


**I
      – Weighted Average Shares Outstanding**





Weighted
      average shares outstanding used in the calculation of basic and diluted earnings
      per share were as follows for the years ended April 30, 2007, 2006 and
      2005:




Years
                Ended April 30,2007
            
            
            2006
            
            
            2005Average
                shares outstanding – basic
            
            
            11,850,247
            
            
            
            11,852,804
            
            
            
            11,737,398Dilutive
                options and warrants
            
            
            103,740
            
            
            
            165,737
            
            
            
            289,347Average
                shares outstanding – diluted
            
            
            11,953,987
            
            
            
            12,018,541
            
            
            
            12,026,745Antidilutive
                securities not included:Options
                and warrants
            
            
            88,500
            
            
            
            77,250
            
            
            
            21,563Restricted
                Stock
            
            
            39,667
            
            
            
            -
            
            
            
            -





**J
      - Stock Options and Warrants**





*Stock
      Options*





Since
      inception, the shareholders of the Company have approved three stock option
      plans including the 1986 Incentive Stock Option Plan ("1986 Plan"), the 1991
      Non-Qualified Stock Option Plan ("1991 Plan") and the 1997 Stock Option Plan
      (“1997 Plan”).  While previously granted options remain outstanding,
      no additional option grants may be made under the 1986 and 1991
      Plans.  The 1997 Plan sets aside 1,500,000 shares of the Company’s
      common stock for grants to employees, directors and certain advisors of the
      Company at a price not less than the fair market value of the stock on the
      date
      of grant and for periods not to exceed ten years.  At April 30, 2007
      and 2006, there were 28,558 and 40,808 shares of common stock available for
      grant, respectively, under the 1997 Plan.  Options granted under the
      Company’s stock option plans expire in the calendar years 2008 through
      2016.  The following is an aggregate summary of the activity in the
      Company’s stock option plans from April 30, 2004 to April 30, 2007:




Number
              of
              Shares
            
            
            Exercise
              Price
              per
                Share
            
            
            Proceeds
              on
              Exercise
            
            
            Weighted
                Average Exercise Price per ShareOutstanding
                at April 30, 2004
            
            
            508,391
            
            
            $
            2.58
                to 11.83
            
            
            
            2,520,687
            
            
            $
            4.96Granted
            
            
            86,250
            
            
            19.83
                to 23.75
            
            
            
            2,004,550
            
            
            
            23.24Exercised
            
            
            (224,256
            )
            
            2.58
                to 6.59
            
            
            
            (939,175
            )
            
            
            4.19Canceled
            
            
            (165
            )
            
            
            6.59
            
            
            
            (1,087
            )
            
            
            6.59Outstanding
                at April 30, 2005
            
            
            370,220
            
            
            $
            3.67
                to $23.75
            
            
            
            3,584,975
            
            
            $
            9.68Granted
            
            
            15,000
            
            
            
            22.17
            
            
            
            332,550
            
            
            
            22.17Exercised
            
            
            (72,650
            )
            
            3.67
                to 8.77
            
            
            
            (479,971
            )
            
            
            6.61Canceled
            
            
            (25,275
            )
            
            6.59
                to 23.75
            
            
            
            (456,715
            )
            
            
            18.07Outstanding
                at April 30, 2006
            
            
            287,295
            
            
            $
            3.67
                to $23.75
            
            
            
            2,980,839
            
            
            $
            10.38Granted
            
            
            12,250
            
            
            11.62
                to 20.47
            
            
            
            241,908
            
            
            
            19.75Exercised
            
            
            (13,750
            )
            
            3.67
                to 11.83
            
            
            
            (81,030
            )
            
            
            5.89Canceled
            
            
            (11,250
            )
            
            19.83
                to 22.17
            
            
            
            (234,250
            )
            
            
            20.82Outstanding
                at April 30, 2007
            
            
            274,545
            
            
            $
            3.67
                to $23.75
            
            
            $
            2,907,467
            
            
            $
            10.59





48


As
      of
      April 30, 2007, 2006 and 2005, all stock options were exercisable.  A
      summary of stock options outstanding as of April 30, 2007 is as
      follows:




Weighted
                Average
            
            
            WeightedRange
                of
            
            
            Number
            
            
            Remaining
            
            
            AverageExercise
                Prices
            
            
            of
                Shares
            
            
            Contractual
                Life
            
            
            Exercise
                Price$ 3.67
                to $ 8.77
            
            
            
            185,045
            
            
            
            
            2.52
            
            
            $
            4.8111.62 to 23.75
            
            
            
            89,500
            
            
            
            
            7.66
            
            
            
            22.55274,545
            
            
            
            
            4.19
            
            
            $
            10.59





*Warrants*





As
      of
      April 30, 2007, the Company had stock purchase warrants outstanding to purchase
      18,750 shares, issued during fiscal 2004 at a weighted average grant date fair
      value of $4.05, with prices ranging from $11.83 to $18.23 per share (weighted
      average exercise price of $13.11).  All of the warrants are presently
      exercisable and expire in fiscal year 2009.





**K
      - Commitments and Contingencies**





*Facility
      Leases*





The
      Company leases certain dealership and office facilities under various
      non-cancelable operating leases.  Dealership leases are generally for
      periods from three to five years and contain multiple renewal
      options.  As of April 30, 2007, the aggregate rentals due under such
      leases, including renewal options that are reasonably assured, were as
      follows:




Years
                Ending
            
            AmountApril
                30,
            
            *(In
                thousands)*2008
            
            $
            2,6852009
            
            
            2,6402010
            
            
            2,5842011
            
            
            2,4602012
            
            
            2,319Thereafter
            
            
            14,463$
            27,151





The
      $27.2
      million of lease commitments includes $6.7 million of non-cancelable lease
      commitments under the primary lease terms, and $20.5 million of lease
      commitments for renewal periods at the Company’s option that are reasonably
      assured.  For the years ended April 30, 2007, 2006 and 2005, rent
      expense for all operating leases amounted to approximately $2,757,000,
      $2,440,000 and $2,114,000, respectively.





*Litigation*





In
      the
      ordinary course of business, the Company has become a defendant in various
      types
      of other legal proceedings.  The Company does not expect the final
      outcome of any of these actions, individually or in the aggregate, to have
      a
      material adverse effect on the Company’s financial position, annual results of
      operations or cash flows.  However, the results of legal proceedings
      cannot be predicted with certainty, and an unfavorable resolution of one or
      more
      of these legal proceedings could have a material adverse effect on the Company’s
      financial position, annual results of operations or cash flows.




49


*Related
      Finance Company*





Car-Mart
      of Arkansas and Colonial do not meet the affiliation standard for filing
      consolidated income tax returns, as such they file separate federal and state
      income tax returns.  Car-Mart of Arkansas routinely sells its finance
      receivables to Colonial at what the Company believes to be fair market value
      and
      is able to take a tax deduction at the time of sale for the difference between
      the tax basis of the receivables sold and the sales price.  These
      types of transactions, based upon facts and circumstances, have been permissible
      under the provisions of the Internal Revenue Code (“IRC”) as described in the
      Treasury Regulations.  For financial accounting purposes, these
      transactions are eliminated in consolidation, and a deferred tax liability
      has
      been recorded for this timing difference.  The sale of finance
      receivables from Car-Mart of Arkansas to Colonial provides certain legal
      protection for the Company’s finance receivables and, principally because of
      certain state apportionment characteristics of Colonial, also has the effect
      of
      reducing the Company’s overall effective state income tax rate by approximately
      240 basis points.  The actual interpretation of the Regulations is in
      part a facts and circumstances matter.  The Company believes it
      satisfies the material provisions of the Regulations.  Failure to
      satisfy those provisions could result in the loss of a tax deduction at the
      time
      the receivables are sold, and have the effect of increasing the Company’s
      overall effective income tax rate as well as the timing of required tax
      payments.




The
      Internal Revenue Service (“IRS”) has not yet formally concluded its examinations
      of the Company’s tax returns for fiscal 2002 and certain items in subsequent
      years. However, on May 8, 2007, the Company received notification from the
      IRS
      that the Company would not be assessed any additional taxes, penalties or
      interest related to the examinations. The formal notification of the examination
      results are expected in the near future. The examinations focused on whether
      or
      not the Company satisfied the provisions of the Treasury Regulations which
      would
      entitle Car-Mart of Arkansas to a tax deduction at the time it sells its finance
      receivables to Colonial.  Based upon the favorable notification, the
      Company recognized $500,000 of net income in the fourth quarter of fiscal 2007
      for the elimination of associated tax reserves.


50


**L
      - Fair Value of Financial Instruments**





The
      table
      below summarizes information about the fair value of financial instruments
      included in the Company’s financial statements at April 30, 2007 and
      2006:




April
                30, 2007
            
            
            April
                30, 2006Carrying
            
            
            Fair
            
            
            Carrying
            
            
            Fair*(In
                thousands)*
            
            Value
            
            
            Value
            
            
            Value
            
            
            ValueCash
            
            $
            257
            
            
            $
            257
            
            
            $
            255
            
            
            $
            255Finance
                receivables, net
            
            
            139,194
            
            
            
            133,840
            
            
            
            149,379
            
            
            
            138,719Accounts
                payable
            
            
            2,473
            
            
            
            2,473
            
            
            
            3,095
            
            
            
            3,095Revolving
                credit facilities
            
            
            30,311
            
            
            
            30,311
            
            
            
            43,588
            
            
            
            43,588Notes
                payable
            
            
            10,518
            
            
            
            10,518
            
            
            
            -
            
            
            
            -





Because
      no market exists for certain of the Company’s financial instruments, fair value
      estimates are based on judgments and estimates regarding yield expectations
      of
      investors, credit risk and other risk characteristics, including interest rate
      and prepayment risk.  These estimates are subjective in nature and
      involve uncertainties and matters of judgment and therefore cannot be determined
      with precision.  Changes in assumptions could significantly affect
      these estimates.  The methodology and assumptions utilized to estimate
      the fair value of the Company’s financial instruments are as
      follows:




Financial
                Instrument
            Valuation
                MethodologyCash
            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.Notes
                payable
            The
                fair value approximates carrying value due to the nature of the collateral
                and the recent placement of the
                debt.





**M
      - Supplemental Cash Flow Information**





Supplemental
      cash flow disclosures for the years ended April 30, 2007, 2006 and 2005 are
      as
      follows:




Years
                Ended April 30,*(In
                thousands)*
            
            2007
            
            
            2006
            
            
            2005Supplemental
                disclosures:Interest
                paid
            
            $
            3,700
            
            
            $
            2,336
            
            
            $
            1,179Income
                taxes paid, net
            
            
            5,856
            
            
            
            9,204
            
            
            
            10,227Non-cash
                transactions:Inventory
                acquired in repossession
            
            
            19,570
            
            
            
            13,630
            
            
            
            9,964





51





**N
      - Quarterly Results of Operations (unaudited)**





A
      summary
      of the Company’s quarterly results of operations for the years ended April 30,
      2007 and 2006 is as follows (in thousands, except per share
      information):




Year
                Ended April 30, 2007First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            Quarter
            
            
            TotalRevenues
            
            $
            62,191
            
            
            $
            59,539
            
            
            $
            59,308
            
            
            $
            59,296
            
            
            $
            240,334Net
                income (loss)
            
            
            4,155
            
            
            
            (1,928
            )
            
            
            (50
            )
            
            
            2,055
            
            
            
            4,232Earnings
                per share:Basic
            
            
            .35
            
            
            
            (.16
            )
            
            
            -
            
            
            
            .17
            
            
            
            .36Diluted
            
            
            .35
            
            
            
            (.16
            )
            
            
            -
            
            
            
            .16
            
            
            
            .35





Year
                Ended April 30, 2006First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            Quarter
            
            
            TotalRevenues
            
            $
            58,179
            
            
            $
            55,329
            
            
            $
            58,248
            
            
            $
            62,451
            
            
            $
            234,207Net
                income
            
            
            4,887
            
            
            
            2,799
            
            
            
            4,465
            
            
            
            4,554
            
            
            
            16,705Earnings
                per share:Basic
            
            
            .41
            
            
            
            .24
            
            
            
            .38
            
            
            
            .38
            
            
            
            1.41Diluted
            
            
            .41
            
            
            
            .23
            
            
            
            .37
            
            
            
            .38
            
            
            
            1.39





52




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





None




**Item
      9A.  Controls and Procedures**





**Disclosure
      Controls and Procedures**





As
      of the
      end of the period covered by this report (April 30, 2007), the Company carried
      out an evaluation, under the supervision and with the participation of
      management, including its Chief Executive Officer and Chief Financial Officer,
      of the effectiveness of the Company’s disclosure controls and procedures (as
      defined in 13a-15(e) of the Exchange Act). Based on that evaluation, the
      Chief Executive Officer and Chief Financial Officer concluded that the Company’s
      disclosure controls and procedures are effective in timely alerting them to
      material information relating to the Company (including its consolidated
      subsidiaries) required to be included in this report.




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





Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and
      15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal
      control over financial reporting is designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Therefore, even those systems determined to
      be
      effective can provide only reasonable assurance with respect to financial
      statement preparation and presentation. Also, projections of any evaluation
      of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Management
      assessed the effectiveness of the Company’s internal control over financial
      reporting as of April 30, 2007. In making this assessment, management used
      the
      criteria set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO) in *Internal Control-Integrated
      Framework.*




Based
      on
      management’s assessment and those criteria, management believes that the Company
      maintained effective internal control over financial reporting as of April
      30,
      2007.




The
      Company’s independent auditors have issued an attestation report on management’s
      assessment of the Company’s internal control over financial reporting. That
      report appears below.


53


**Report
      of Independent Registered Public Accounting Firm**








Stockholders
      and Board of Directors


America’s
      Car-Mart, Inc.








We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control Over Financial Reporting, that America’s Car-Mart
      Inc. (a Texas Corporation) and subsidiaries maintained effective internal
      control over financial reporting as of April 30, 2007, 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.’s management is responsible for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial
      reporting.  Our responsibility is to express an opinion on
      management’s assessment and an opinion on the effectiveness of the Company’s
      internal control over financial reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      effective internal control over financial reporting was maintained in all
      material respects. Our audit included obtaining an understanding of internal
      control over financial reporting, evaluating management’s assessment, testing
      and evaluating the design and operating effectiveness of internal control,
      and
      performing such other procedures as we considered necessary in the
      circumstances.  We believe that our audit provides a reasonable basis
      for our opinions.





A
      company’s internal control over financial reporting is a
      process designed to provide reasonable assurance regarding the reliability
      of
      financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles.  A company’s internal control over financial reporting
      includes those policies and procedures that (1) pertain to the maintenance
      of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of the assets of the company; (2) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





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





In
      our
      opinion, management’s assessment that America’s Car-Mart Inc., and subsidiaries
      maintained effective internal control over financial reporting as of April
      30,
      2007, is fairly stated, in all material respects, based on criteria established
      in *Internal Control—Integrated Framework* issued by
      COSO.  Also in our opinion, America’s Car-Mart Inc., and subsidiaries
      maintained, in all material respects, effective internal control over financial
      reporting as of April 30, 2007, based on criteria established in *Internal
      Control—Integrated Framework* issued by COSO.


54





We
      also have audited, in accordance with the standards of the
      Public Company Accounting Oversight Board (United States), the consolidated
      balance sheets of America’s Car-Mart, Inc. and subsidiaries as of April 30, 2007
      and 2006, and the related consolidated statements of operations, stockholders’
equity and cash flows for each of the three years in the period ended April
      30,
      2007 and our report dated July 13, 2007 expressed an unqualified opinion on
      those financial statements.








Tulsa,
      Oklahoma


July
      13,
      2007





55





**Changes****in Internal Control****Over Financial
      Reporting**





There
      were no changes in the Company’s internal control over financial reporting (as
      defined in Rule 13a-15(f) under the Exchange Act) that occurred during
      the Company’s last fiscal quarter that have materially affected or are
      reasonably likely to materially affect the Company’s internal control over
      financial reporting.





**Item
      9A(T).  Controls and Procedures**





Not
      Applicable





**Item
      9B.  Other Information**





None.











56


**PART
      III**





Except
      as
      to information with respect to executive officers which is contained in a
      separate heading under Part I, Item 1 of this Form 10-K, the information
      required by Items 10 through 14 of this Form 10-K is, pursuant to General
      Instruction G(3) of Form 10-K, incorporated by reference herein from the
      Company's definitive proxy statement to be filed pursuant to Regulation 14A
      for
      the Company's Annual Meeting of Stockholders to be held in October 2007 (the
      “Proxy Statement”).  The Company will, within 120 days of the end of
      its fiscal year, file with the SEC a definitive proxy statement pursuant to
      Regulation 14A.





**Item
      10.  Directors, Executive Officers and Corporate
      Governance**





The
      information required by this item will be contained in the Proxy Statement
      and
      such information is incorporated herein by reference.  Information
      regarding the executive officers of the Company is set forth under the heading
      "Executive Officers" in Part I, Item 1 of this report.





**Item
      11.  Executive Compensation**





The
      information required by this item will be contained in the Proxy Statement
      and
      such information is incorporated herein by reference.





**Item
      12.  Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters**





The
      information required by this item will be contained in the Proxy Statement
      and
      such information is incorporated herein by reference.  See also
“Equity Compensation Plan Information” in Item 5 of this report in response to
      this item.





**Item
      13.  Certain Relationships and Related Transactions and Director
      Independence**





The
      information required by this item will be contained in the Proxy Statement
      and
      such information is incorporated herein by reference.





**Item
      14.  Principal Accountant Fees and Services**





The
      information required by this item is will be contained in the Proxy Statement
      and such information is incorporated herein by reference.





57


**PART
      IV**





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





(a)1.
            **Financial
                Statements and Accountant's
                Report**





The
      following financial statements 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, 2007 and 2006





Consolidated
      Statements of Operations for the years ended April 30, 2007, 2006 and
      2005





Consolidated
      Statements of Cash Flows for the years ended April 30, 2007, 2006 and
      2005





Consolidated
      Statements of Stockholders' Equity for the years ended April 30, 2007, 2006
      and
      2005





Notes
      to
      Consolidated Financial Statements





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





The
      financial statement schedules are omitted since the required information is
      not
      present, or is not present in amounts sufficient to require submission of the
      schedules, or because the information required is included in the consolidated
      financial statements and notes thereto.





(a)3.
            **Exhibits**





**Exhibit
                Number**
            
            **Description
                of Exhibit**





3.1
            
            Articles
                of Incorporation of the Company, as amended. (2)3.2
            
            Bylaws
                dated August 24, 1989.  (3)4.1
            
            Specimen
                stock certificate.  (4)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.
                (5)4.2.1
            
            First
                Amendment to the Amended and Restated Agented Revolving Credit Agreement,
                dated September 30, 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.  (6)




58


**Exhibit**
                **Number**
              
              **Description
                  of Exhibit**


4.2.2
            
            Third
                Amendment to the Amended and Restated Agented Revolving Credit Agreement,
                dated February 24, 2006, 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. (7)4.2.3
            
            Fourth
                Amendment to the Amended and Restated Agented Revolving Credit Agreement,
                dated April 28, 2006, 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.  (8)4.2.4
            
            Fifth
                Amendment to Amended and Restated Agented Revolving Credit Agreement,
                dated March 8, 2007 (effective December 31, 2006), among Colonial
                Auto
                Finance, Inc., as borrower, Bank of Arkansas, N.A., Great Southern
                Bank,
                First State Bank of Northwest Arkansas, Enterprise Bank and Trust,
                Sovereign Bank, Commerce Bank, N.A. and First State Bank.
                (16)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. (5)4.3.1
            
            Second
                Amendment to Revolving Credit Agreement, dated September 30, 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.
                (6)4.3.2
            
            Third
                Amendment to Revolving Credit Agreement, dated April 28, 2006, among
                America’s Car-Mart, Inc., an Arkansas corporation, and Texas Car-Mart,
                Inc., as borrowers, and Bank of Oklahoma, N.A., as
                lender.  (8)4.3.3
            
            Fourth
                Amendment to Revolving Credit Agreement, dated March 8, 2007 (effective
                December 31, 2006), among America’s Car-Mart, Inc. an Arkansas
                corporation, and Texas Car-Mart, Inc. as borrowers, and Bank of Arkansas,
                N.A., as lender. (16)4.3.4
            
            Guaranty
                Agreement dated March 8, 2007 (effective December 31, 2006), among
                America’s Car-Mart, Inc., an Arkansas corporation, and Bank of Arkansas,
                N.A., as lender. (16)10.1
            
            1986
                Incentive Stock Option Plan.  (9)10.1.1
            
            Amendment
                to 1986 Incentive Stock Option Plan adopted September 27, 1990.
                (10)10.2
            
            1991
                Non-Qualified Stock Option Plan. (11)10.3
            
            1997
                Stock Option Plan.  (12)10.4
            
            2005
                Restricted Stock
                Plan.  (15)




59


**Exhibit**
                **Number**
              
              **Description
                  of Exhibit**


10.4.1
            
            Amendment
                to 2005 Restricted Stock Plan (17)10.5
            
            Form
                of Indemnification Agreement between the Company and certain officers
                and
                directors of the Company.  (13)10.6
            
            Employment
                Agreement, dated May 1, 2006, between the Company and Tilman J. Falgout,
                III.  (18)10.7
            
            Employment
                arrangements with Jeffrey A. Williams. (18)10.8
            
            Employment
                Agreement, dated May 1, 2006, between the Company and William H.
                Henderson. (18)10.9
            
            Employment
                Agreement, dated May 1, 2006, between the Company and Eddie Lee
                Hight.  (18)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 William A. Swanston. (1)24.5
            
            Power
                of Attorney of William M. Sams. (1)24.6
            
            Power
                of Attorney of Daniel J. Englander. (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 Exhibits 4.1-4.8 to the Company's Registration Statement
                on Form
                S-8 initially filed with the Securities and Exchange Commission on
                November 16, 2005 (No. 333-129727) and incorporated herein by
                reference.(3)
            
            Previously
                filed as Exhibit 4.9 to the Company's Registration Statement on Form
                S-8
                initially filed with the Securities and Exchange Commission on November
                16, 2005 (No. 333-129727) 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, 1994 and incorporated herein by
                reference.(5)
            
            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.




60


(6)
            
            Previously
                filed as an Exhibit to the Company's Current Report on Form 8-K initially
                filed with the Securities and Exchange Commission on October 6, 2005
                and
                incorporated herein by reference.(7)
            
            Previously
                filed as an Exhibit to the Company's Current Report on Form 8-K initially
                filed with the Securities and Exchange Commission on February 27,
                2006 and
                incorporated herein by reference.(8)
            
            Previously
                filed as an Exhibit to the Company's Current Report on Form 8-K initially
                filed with the Securities and Exchange Commission on May 3, 2006
                and
                incorporated herein by reference.(9)
            
            Previously
                filed as an Exhibit to the Company's Registration Statement on Form
                10, as
                amended, (No. 0-14939) and incorporated herein by
                reference.(10)
            
            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.(11)
            
            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.(12)
            
            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.(13)
            
            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.(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 Appendix B to the Company's Proxy Statement on Schedule
                14A
                initially filed with the Securities and Exchange Commission on August
                29,
                2005 and incorporated herein by reference.(16)
            
            Previously
                filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the
                quarter ended January 31, 2007 and incorporated herein by
                reference.(17)
            
            Previously
                filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the
                quarter ended October 31, 2006 and incorporated herein by
                reference.(18)
            
            Previously
                filed as an Exhibit to the Company’s Annual Report on Form 10-K for the
                year ended April 30, 2006 and incorporated herein by
                reference.





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





(c)
            Refer
                to Item 15(a)2. above.


61


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




AMERICA’S
              CAR-MART,
              INC.Dated:  
July
                13,
                2007
            By:
            /s/ Tilman
              J. Falgout, IIITilman
                J. Falgout, III
              Chief
                Executive Officer
              (principal
                executive officer) Dated:  
July
                13,
                2007
            By:
            /s/ Jeffrey
              A.
              WilliamsJeffrey
                A. Williams
              Vice
                President Finance and Chief Financial Officer
              (principal
                financial and accounting officer)




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





Signature
            
            Title
            Date*
            
            Chairman
                of the Board, Chief Executive
            July
                13, 2007Tilman
                J. Falgout, III
            
            Officer
                and Director*
            
            Vice
                Chairman of the Board,
            July
                13, 2007William
                H. Henderson
            
            President
                and Director*
            
            Director
            July
                13, 2007J.
                David Simmons*
            
            Director
            July
                13, 2007Daniel
                J. Englander*
            
            Director
            July
                13, 2007William
                M. Sams*
            
            Director
            July
                13, 2007William
                A. Swanston







*
      By/s/ Jeffrey A. Williams


Jeffrey
      A. Williams


As
      Attorney-in-Fact


Pursuant
      to Powers of


Attorney
      filed herewith





62


**EXHIBIT
      INDEX**


****





**Exhibit**
              **Number**
            
            **Description
                of Exhibit**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 William A. Swanston.24.5
            
            Power
                of Attorney of William M. Sams.24.6
            
            Power
                of Attorney of Daniel J. Englander31.1
            
            Rule
                13a-14(a) certification.31.2
            
            Rule
                13a-14(a) certification.32.1
            
            Section
                1350 certification.






63