**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, 2006****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. x


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, 2005 was $167,719,824
      (10,378,702 shares), based on
      the closing price of the registrant’s common stock of $16.16.


There
      were 11,915,524 shares of the registrant’s common stock outstanding as
      of July 13, 2006.




**DOCUMENTS
      INCORPORATED BY REFERENCE**


Portions
      of the registrant’s Proxy Statement to be furnished to stockholders in
      connection with its 2006 Annual Meeting of Stockholders are incorporated by
      reference into 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:





•
            opening
                new stores at the rate of 8% to 14% per
                year;





•
            the
                continuation of same store revenue
                growth;





•
            revenue
                growth of approximately 10% to 14% in fiscal
                2007;





•
            receivables
                growth greater than revenue growth;





•
            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 for the Company’s
                business;





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





•
            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 publicly 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. (“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, 2006, the Company operated
      85
      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 and their operating
      results have been included in discontinued operations. The Company sold its
      last
      remaining discontinued operation in July 2002. Discontinued operations are
      described in Note O to the accompanying consolidated financial
      statements.





**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 25 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 been
                relatively stable ranging from a low of 18.5% to a high of 21.4%
                (average
                of 20.1%). 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 buyer) 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 an internal compliance
                staff.





·
            **Expanding
                Through Controlled Organic Growth.**The Company will continue to expand its operations by increasing
                revenues
                at existing dealerships and opening new dealerships. The Company
                expects
                to open new stores at the rate of 8% to 14% per annum for the foreseeable
                future. The Company acquired an existing Buy Here/Pay Here dealership
                in
                March 2006 (and





2





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. Approximately 80% of vehicles are sold
                at
                prices ranging between $6,000 and $9,500, with an average of $7,494
                in
                fiscal 2006. By selling vehicles in this price range, the Company
                is able
                to keep the terms of its installment sales contracts relatively short
                (average of 27.25 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
                as its customers are more stable in their employment and place of
                residence, and are easier to locate in the event their loans become
                delinquent. Further, the Company believes that operating costs, such
                as
                salaries, rent and advertising, are lower in smaller communities
                than in
                major metropolitan areas.





·
            **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.





·
            **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 16 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.





·
            **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 and collections personnel in performing their
                daily





3





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, 2006, the Company’s debt to equity ratio was 0.37 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 in which the Company currently operates to satisfy anticipated
                store growth for the next several years. During fiscal 2007, the
                Company
                plans to add locations principally in Alabama and Missouri as well
                as
                fill-in additions in a few other existing
                states.





**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 20
                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.





·
            **Store
                Locations and Facilities.**Below
                is a summary of stores opened during the fiscal years ended April
                30,
                2006, 2005 and 2004:





Years
                Ended April 30,2006
            
            2005
            
            2004Stores
                at beginning of year
            76
            
            70
            
            64New
                stores opened
            10
            
            6
            
            7Stores
                closed
            (1)
            
            -
            
            (1)Stores
                at end of year
            85
            
            76
            
            70








4








Below
      is
      a summary of store locations by state as of April 30, 2006, 2005 and
      2004:





As
                of April 30,Stores
                by State
            
            2006
            
            2005
            
            2004Arkansas
            34
            
            34
            
            32Oklahoma
            15
            
            13
            
            13Texas
            16
            
            14
            
            10Kentucky
            8
            
            7
            
            7Missouri
            9
            
            6
            
            6Kansas
            1
            
            1
            
            1Indiana
            1
            
            1
            
            1Tennessee
            1
            
            -
            
            -Total
            85
            
            76
            
            70





Stores
      are typically located in smaller communities. As of April 30, 2006,
      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
      60,000 to 120,000 miles, and pay between $2,500 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. 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
                12 to
                14 times each year. Approximately 80% of vehicles are sold at prices
                ranging between $6,000 and $9,500, with an average of $7,494 in fiscal
                2006. 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
                four month or 4,000 mile service contract for $345 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
      five, 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 6%), terms ranging from 12 months
                to 36
                months (average of 27.25 months), and annual interest charges ranging
                from
                6% to 19% (average of 12.9% at April 30, 2005). The Company requires
                that
                payments be made on a weekly, bi-weekly, semi-monthly or monthly
                basis to
                coincide with the day the customer is paid 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) 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).





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
      amicably resolve payment delinquencies prior to repossessing a





6





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.





·
            **New
                Store Openings.**The Company plans to add stores at the rate of 8% to 14% per year.
                Senior
                management, with the assistance of the corporate office staff, makes
                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 is 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 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.





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
      strong sales growth. Sales growth at new stores can exceed 20% per year for
      a
      number of years. Mature stores typically experience annual sales growth, but
      at
      a lower percentage than new stores.





New
      stores are generally provided with approximately $500,000 to $600,000 in capital
      from the corporate office during the first 12 to 18 months of operation. These
      funds are used principally to fund receivables growth. After this 12 to 18
      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 a few months 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.





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. In addition to financial





7





results,
      the corporate office uses delinquency and account loss standards and a point
      system to evaluate a store’s performance.





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 collection efforts.





**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.





8








**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 collection 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, 2006, the Company, including its consolidated subsidiaries, employed
      approximately 779 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**





Our
      website is located at www.car-mart.com. We make available on this website,
      free
      of charge, access to our annual report on Form 10-K, quarterly reports on Form
      10-Q, current reports on Form 8-K and all amendments to those reports, as well
      as proxy statements and other information we file with, or furnish to, the
      Securities and Exchange Commission (“SEC”) as soon as reasonably practicable
      after we electronically submit this material to the SEC. The information
      contained on our website or available by hyperlink from our website is not
      incorporated into this Annual Report on Form 10-K or other documents we file
      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
            
            57
            
            Chairman
                of the Board, Chief Executive Officer, General Counsel and
                DirectorWilliam
                H. Henderson
            
            42
            
            Vice
                Chairman of the Board, President and DirectorEddie
                L. Hight
            
            43
            
            Chief
                Operating OfficerJeffrey
                A. Williams
            
            43
            
            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
      the
      business and its 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 credit worthiness 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 would 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, 2006, approximately 59% 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 collection 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 retailing 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. 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,
      i f
      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.*




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.





*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.





12










**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 58% 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, as Car-Mart opens 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 effectively manage its sales, inventory,
      consumer financing, and customer information. 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.




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.





13







*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. The
      Company expects to open new stores at the rate of 8% to 14% per year for the
      foreseeable future. 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.





*An
      unfavorable determination by the Internal Revenue Service in connection with
      a
      pending tax audit could have a material adverse effect on the Company’s
      financial results and condition.*





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.





Currently,
      the Internal Revenue Service (“IRS”) is examining the Company’s tax returns for
      fiscal 2002 and certain items in subsequent years, and in particular is focusing
      on whether or not the Company satisfies 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. The Company is unable to
      determine at this time the amount of adjustments, if any, that may result from
      this examination. The assessment of a tax deficiency by the IRS could have
      a
      material adverse effect on the Company’s results of operations and financial
      condition, at least in the near term, if the Company were ultimately
      unsuccessful in contesting any such deficiency.





**Item
      1B.   Unresolved Staff Comments**





Not
      applicable.





14





**Item
      2.   Properties**





As
      of
      April 30, 2006, the Company leased approximately 75% 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
      February 2001 and May 2002, the Company was added as a defendant in two similar
      actions which were originally filed in December 1998 against approximately
      20
      defendants (the “Defendants”) by Astoria Entertainment, Inc. (“Astoria”). One
      action was filed in the Civil District Court for the Parish of Orleans,
      Louisiana (the “State Claims”) and the other was filed in the United States
      District Court for the Eastern District of Louisiana (the “Federal Claims”). In
      these actions, Astoria alleges the Defendants conspired to eliminate Astoria
      from receiving one of the 15 riverboat gaming licenses that were awarded by
      the
      State of Louisiana in 1993 and 1994, at a time when a former subsidiary of
      the
      Company was involved in riverboat gaming in Louisiana. Astoria was seeking
      unspecified damages including lost profits. In August 2001, the Federal court
      dismissed all of the Federal Claims with prejudice. In September 2004, the
      state
      court of appeals dismissed all the State Claims. In January 2005, the Louisiana
      Supreme Court reversed the state court of appeals’ dismissal of the case. The
      parties reached an out-of-court settlement in February 2006. The expense for
      this settlement is included in selling, general and administrative expenses
      in
      fiscal 2006. The settlement amount was not material to the consolidated
      financial statements.





In
      addition to the foregoing case, 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.





**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, 2006.




**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.





15







Fiscal
                2006
            
            Fiscal
                2005High
            
            Low
            
            High
            
            LowFirst
                quarter
            
            $
            23.37
            
            $
            19.96
            
            $
            21.04
            
            $
            16.95Second
                quarter
            
            
            21.72
            
            
            15.94
            
            
            23.04
            
            
            19.50Third
                quarter
            
            
            18.65
            
            
            14.29
            
            
            25.46
            
            
            22.33Fourth
                quarter
            
            
            22.06
            
            
            17.45
            
            
            25.23
            
            
            20.39









As
      of
      July 13, 2006, there were approximately 1,077 stockholders of record. This
      number excludes stockholders holding stock under nominee security position
      listings.





**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.





**Warrants**





In
      January 2003, the Company issued a warrant to purchase 7,500 shares of its
      common stock at an exercise price of $8.69 per share to Epoch Financial Group,
      Inc. (“Epoch”), a firm that provides investor relations services. In July 2003
      and April 2004, the Company issued warrants to purchase 15,000 and 3,750 shares
      of its common stock at exercise prices of $11.83 and $18.23 per share,
      respectively, to Epoch. During fiscal 2006, 2005 and 2004, the Company issued
      4,436, 8,943 and 15,975 shares of its common stock, respectively, pursuant
      to
      partial exercises of the warrants held by Epoch.





**Equity
      Compensation Plan Information**





The
      following table provides information as of April 30, 2006 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
              
              287,295
              
              $
                  10.38
              
              40,808Not
                  approved by security holders (1)
              
              45,000
              
              6.92
              
              -Total
              
              332,295
              
              $ 
                  9.91
              
              40,808
 _________________________________
 
 (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.





16




**Issuer
      Purchases of Equity Securities**





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





Period
            
            Total
                Number
              of
                Shares
              Purchased
            
            Average
                Price
              Paid
                per Share
            
            Total
                Number of
              Shares
                Purchased
              as
                part of Publicly
              Announced
                Plans
              or
                Programs (1)
            
            Maximum
                Number
              of
                Shares that may
              yet
                be Purchased
              under
                the Plans or
              Programs
                (1)February
                1, 2006 to February 28, 2006
            
            -
            
            -
            
            -
            
            955,200March
                1, 2006 to March 31, 2006
            
            -
            
            -
            
            -
            
            955,200April
                1, 2006 to April 30, 2006
            
            6,000
            
            $
                20.78
            
            6,000
            
            949,200


_________________________________





(1)
            In
                December 2005, the Company announced its latest amendment to its
                stock
                repurchase plan that was initially announced in July 1996. The plan,
                as
                amended, authorizes the purchase of up to 1,000,000 shares of the
                Company’s common stock and has no expiration date. As of April 30, 2006,
                the remaining number of shares that may be purchased under the plan
                was
                949,200.





**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, except per share amounts)2006
            
            2005
            
            2004
            
            2003
            
            2002
                (a)Revenues
            
            $
            234,207
            
            $
            204,788
            
            $
            176,184
            
            $
            154,885
            
            $
            127,924Income
                (loss) from continuing operations
            
            $
            16,705
            
            $
            17,976
            
            $
            15,639
            
            $
            13,569
            
            $
            (1,136
            )Net
                income (loss)
            
            $
            16,705
            
            $
            17,976
            
            $
            15,804
            
            $
            14,075
            
            $
            (14,306
            )Diluted
                earnings (loss) per share - continuing operations
            
            $
            1.39
            
            $
            1.49
            
            $
            1.31
            
            $
            1.16
            
            $
            (.11
            )Total
                assets
            
            $
            177,613
            
            $
            143,668
            
            $
            117,241
            
            $
            101,841
            
            $
            128,142Total
                debt
            
            $
            43,588
            
            $
            29,145
            
            $
            22,534
            
            $
            25,968
            
            $
            39,792Stockholders’
                equity
            
            $
            119,251
            
            $
            103,265
            
            $
            84,577
            
            $
            65,961
            
            $
            52,813Shares
                outstanding
            
            
            11,848
            
            
            11,844
            
            
            11,637
            
            
            10,812
            
            
            10,416


_________________________________





(a)
            Fiscal
                2002 includes after tax charges totaling $10.7 million pertaining
                to (i)
                non-cash stock option compensation ($6.3 million), (ii) the write-down
                of
                certain emerging technology/Internet investments and equipment ($2.6
                million), and (iii) severance and office closing costs in connection
                with
                the decision to relocate the Company’s corporate headquarters to
                Bentonville, Arkansas ($1.8 million) where Car-Mart is
                based.





17








**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. (“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, 2006, the Company operated
      85
      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 13%
      and
      21% per year over the last nine years. Historically, finance receivables have
      tended to grow slightly faster than revenues. In fiscal 2006 finance receivables
      grew 21.6% compared to revenue growth of 14.4%. The increase primarily relates
      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 principle reduction. Revenue growth results from same store revenue
      growth and the addition of new stores. Revenue growth in fiscal 2006 (14.4%)
      was
      slightly ahead of the Company’s growth expectations of 10% to 14%. Revenue
      growth in fiscal 2006 was assisted by a 4.6% increase in the average retail
      sales price and a 7.9% growth in retail unit sales. Typically, annual price
      increases are in the 3% to 5% range. Presently, the
      Company expects that its average retail sales price will increase in fiscal
      2007, but at a rate slightly lower than its historical average annual price
      increase. Unit
      sales are expected to increase at a faster rate than 2006 resulting from new
      store additions and same store revenue growth. As a result, revenue growth
      for
      fiscal 2007 is presently expected to be in the 10% to 14% range.





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 19% and 21% (average of 20.1%). For the last two fiscal
      years, credit losses as a percentage of sales have averaged 20.8%. Credit losses
      in fiscal 2006 (21.4%) were higher than the Company’s average over the last five
      years. 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 year 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.





18





In
      February 2004, the Company decided to substantially reduce its purchase and
      sale
      of lower-priced vehicles and began purchasing and selling slightly higher-priced
      vehicles. Historical data indicates that loans on lower-priced vehicles have
      higher charge-off experience than loans on higher-priced vehicles. Lower-priced
      vehicles tend to have more mechanical difficulties that often result in a higher
      level of repossessions. The effects of the Company’s February 2004 decision to
      reduce its purchase and sale of lower-priced vehicles is reflected in the lower
      provision for credit losses, as a percentage of sales, in fiscal 2005 (20.1%)
      when compared to fiscal 2004 (21.3%).





The
      Company’s gross margins as a percentage of sales have been fairly consistent
      from year to year. Over the last nine fiscal years, Car-Mart’s gross margins as
      a percentage of sales have ranged between approximately 44% and 48%. Gross
      margins as a percentage of sales for fiscal 2006 were 44.3% (43.2% for the
      fourth quarter). This is down from 46.3% for fiscal 2005 (45.5% 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 to a
      lesser extent by higher operating costs, mostly related to increased vehicle
      repair costs and higher fuel and transport costs. 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,
      have
      resulted in higher purchase costs for vehicles. 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 is sometimes 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. In fiscal 2005 and 2006, the Company added resources
      to train and develop personnel. The Company expects to continue to invest in
      the
      development of its workforce in fiscal 2007 and beyond.





19





**Consolidated
      Operations**


(Operating
      Statement Dollars in Thousands)






%
                Change2006
            
            2005Years
                Ended April 30,
            
            vs.
            
            vs.
            
            As
                a % of Sales**Operating
                Statement**:
            
            2006
            
            2005
            
            2004
            
            2005
            
            2004
            
            2006
            
            2005
            
            2004Revenues:Sales
            
            $
            214,482
            
            $
            189,343
            
            $
            163,589
            
            
            13.3
            %
            
            15.7
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Interest
                income and other
            
            
            19,725
            
            
            15,445
            
            
            12,595
            
            
            27.7
            
            
            22.6
            
            
            9.2
            
            
            8.2
            
            
            7.7Total
            
            
            234,207
            
            
            204,788
            
            
            176,184
            
            
            14.4
            
            
            16.2
            
            
            109.2
            
            
            108.2
            
            
            107.7Costs
                and expenses:Cost
                of sales
            
            
            119,433
            
            
            101,770
            
            
            85,510
            
            
            17.4
            
            
            19.0
            
            
            55.7
            
            
            53.7
            
            
            52.3Selling,
                gen and admin
            
            
            39,261
            
            
            34,789
            
            
            29,671
            
            
            12.9
            
            
            17.2
            
            
            18.3
            
            
            18.4
            
            
            18.1Provision
                for credit loss
            
            
            45,810
            
            
            38,094
            
            
            34,767
            
            
            20.3
            
            
            9.6
            
            
            21.4
            
            
            20.1
            
            
            21.3Interest
                expense
            
            
            2,458
            
            
            1,226
            
            
            1,114
            
            
            100.5
            
            
            10.1
            
            
            1.1
            
            
            .6
            
            
            .7Depreciation
                and amort
            
            
            724
            
            
            425
            
            
            321
            
            
            70.4
            
            
            32.4
            
            
            .3
            
            
            .2
            
            
            .2Total
            
            
            207,686
            
            
            176,304
            
            
            151,383
            
            
            17.8
            
            
            16.5
            
            
            96.8
            
            
            93.1
            
            
            92.5Pretax
                income
            
            $
            26,521
            
            $
            28,484
            
            $
            24,801
            
            
            (6.9
            )
            
            14.9
            
            
            12.4
            
            
            15.0
            
            
            15.2**Operating
                Data:**Retail
                units sold
            
            
            27,415
            
            
            25,399
            
            
            24,281
            
            
            7.9
            %
            
            4.6
            %Average
                stores in operation
            
            
            81.5
            
            
            74.5
            
            
            67.0
            
            
            9.4
            
            
            11.2Average
                units sold per store
            
            
            336
            
            
            341
            
            
            362
            
            
            (1.5
            )
            
            (5.9
            )Average
                retail sales price
            
            $
            7,494
            
            $
            7,163
            
            $
            6,506
            
            
            4.6
            
            
            10.1Same
                store revenue growth
            
            
            9.8
            %
            
            11.8
            %
            
            9.8
            %Receivables
                average yield
            
            
            11.6
            %
            
            10.8
            %
            
            10.3
            %










**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. As discussed in “Overview” above, 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. Presently, the Company expects that its average retail sales price
      will increase in fiscal 2007, 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 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





20





during
      the final three quarters brought on by Hurricanes Katrina and Rita and by the
      slow down in domestic new car sales, have resulted in higher purchase costs
      for
      vehicles.





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. (See Note K to the
      consolidated financial statements), 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.





**2005
      Compared to 2004**





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





Revenues
      increased 16.2% in fiscal 2005 as compared to revenue growth of 13.8% in fiscal
      2004. The increase in revenue growth is attributable to a much larger increase
      in the average retail sales price in fiscal 2005 (10.1%) as compared to fiscal
      2004 (1.9%). As discussed in “Overview” above, 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 1.4% to 53.7% in fiscal 2005 from
      52.3% in fiscal 2004. The increase was principally the result of the Company’s
      decision to (i) substantially reduce the purchase and sale of lower-priced
      vehicles which carry higher gross profit margin percentages, (ii) purchase
      slightly higher-priced vehicles for sale which carry lower gross profit margin
      percentages, (iii) perform repairs of more vehicles in inventory without passing
      on the added cost, and (iv) assist in the repair of more customers’
vehicles.





Selling,
      general and administrative expense, as a percentage of sales, increased .3%
      to
      18.4% in fiscal 2005 from 18.1% in fiscal 2004. The percentage increase is
      attributable to external costs related to compliance with Section 404 of the
      Sarbanes-Oxley Act of 2002, which costs amounted to approximately $.8 million
      in
      fiscal 2005, or .4% of sales, with no corresponding amount in the prior fiscal
      year. As a





21





percentage
      of sales, compensation costs decreased slightly in fiscal 2005 as compared
      to
      fiscal 2004. The decrease is partially the result of selling higher-priced
      vehicles. Selling higher-priced vehicles increases sales without necessarily
      increasing compensation expense.





Provision
      for credit losses, as a percentage of sales, decreased 1.2% to 20.1% in fiscal
      2005 from 21.3% in fiscal 2004. The decrease was primarily the result of lower
      charge-offs as a percentage of sales. As discussed in “Overview” above, the
      Company believes it experienced the positive effects on credit losses of its
      February 2004 decision to reduce the purchase and sale of lower-priced vehicles.
      Historically, loans on lower-priced vehicles have had higher charge-off
      experience than loans on higher-priced vehicles. Also, in comparison to the
      prior fiscal year, the Company believes that it became more selective in
      approving credit in connection with the sale of its vehicles.





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





**Financial
      Condition**





The
      following table sets forth the major balance sheet accounts of the Company
      at
      April 30, 2006, 2005 and 2004 (in thousands):





April
                30,2006
            
            2005
            
            2004Assets:Finance
                receivables, net
            
            $
            149,379
            
            $
            123,099
            
            $
            103,684Inventory
            
            
            10,923
            
            
            7,985
            
            
            5,975Property
                and equipment, net
            
            
            15,436
            
            
            11,305
            
            
            5,557Liabilities:Accounts
                payable and accrued liabilities
            
            
            11,838
            
            
            8,819
            
            
            7,668Revolving
                credit facilities
            
            
            43,588
            
            
            29,145
            
            
            22,534





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 2006,
      finance receivables, net grew 21.6% as compared to revenue growth of 14.4%.
      In
      fiscal 2005, finance receivables, net grew 18.7% as compared to revenue growth
      of 16.2%. The percentage increase in finance receivables as compared to revenues
      during 2006 was greater than the historical average due to several factors,
      including an increase in the average note term. The average note term at April
      30, 2006 was 27.25 months, which is up from 26 months at April 30, 2005 and
      25
      months at April 30, 2004. Additionally, higher interest rates on finance
      receivables during 2006 resulted in a higher percentage of customer payments
      going to interest as opposed to principle reduction. Also, our 30-day plus
      past
      due amounts were higher in fiscal 2006 than 2005 (3.7% compared to 3.0%) and
      the
      Company had an increase in past due dollars in the less than 30 day category
      based on the timing of customer payments, particularly at year-end. Also,
      finance receivables were up due to the acquisition of Dan’s Auto Sales in
      Lexington, Kentucky in mid-March 2006.





The
      Company expects the historical relationship between net finance receivable
      growth and revenue growth to continue in the future but in an expected range
      between the 2005 and 2006 experience.





In
      fiscal
      2006, inventory grew by 37% as compared to revenue growth of 14.4%. Inventory
      grew at a faster pace than revenues as a result of the Company’s decision to (i)
      increase the level of inventory it carries at many of its stores to facilitate
      sales growth, and (ii) increase the average inventory cost per
      unit.





22





In
      fiscal
      2006, the average retail sales price increased 4.61% over fiscal 2005. Inventory
      increased $2.9 million during fiscal 2006 as the Company made the decision
      to
      carry more inventories per store.





Property
      and equipment, net increased $4.1 million in fiscal 2006 as the Company
      purchased real estate for a number of new stores and relocated some existing
      stores to purchased property. The Company also refurbished and expanded a number
      of existing stores to facilitate revenue growth.





As
      a
      percentage of total assets, accounts payable and accrued liabilities have been
      fairly consistent from year to year.





Borrowings
      on the Company’s revolving credit facilities fluctuate primarily based upon a
      number of factors including (i) net income, (ii) finance receivables growth,
      (iii) capital expenditures, and (iv) common stock repurchases. Historically,
      income from continuing operations, as well as borrowings on the revolving credit
      facility, 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 30,2006
            
            2005
            
            2004Operating
                activities:Income
                from continuing operations
            
            $
            16,705
            
            $
            17,976
            
            $
            15,639Provision
                for credit losses
            
            
            45,810
            
            
            38,094
            
            
            34,766Finance
                receivable originations
            
            
            (196,190
            )
            
            (173,446
            )
            
            (151,380
            )Finance
                receivable collections
            
            
            111,315
            
            
            105,973
            
            
            97,367Inventory
            
            
            10,692
            
            
            7,954
            
            
            5,003Income
                Taxes
            
            
            611
            
            
            280
            
            
            3,013Other
                receivables
            
            
            (294
            )
            
            (14
            )
            
            300Accounts
                payable and accrued liabilities
            
            
            3,018
            
            
            1,151
            
            
            (1,081
            )Other
            
            
            572
            
            
            518
            
            
            363Total
            
            
            (7,761
            )
            
            (1,514
            )
            
            3,990Investing
                activities:Purchase
                of property and equipment
            
            
            (5,011
            )
            
            (6,174
            )
            
            (1,399
            )Proceeds
                from sale of property and equipment
            
            
            157
            
            
            -
            
            
            -Payment
                for business acquired
            
            
            (1,200
            )
            
            -
            
            
            -Total
            
            
            (6,054
            )
            
            (6,174
            )
            
            (1,399
            )Financing
                activities:Revolving
                credit facility, net
            
            
            14,443
            
            
            6,611
            
            
            (3,434
            )Purchase
                of common stock
            
            
            (1,312
            )
            
            (531
            )
            
            (1,646
            )Exercise
                of stock options and warrants
            
            
            480
            
            
            939
            
            
            2,584Total
            
            
            13,611
            
            
            7,019
            
            
            (2,496
            )Cash
                provided by (used in) continuing operations
            
            $
            (204
            )
            $
            (669
            )
            $
            95





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





The
      Company has had a tendency to lease the majority of the properties where its
      stores are located. As of April 30, 2006, the Company leased approximately
      75%
      of its store properties. The Company expects to continue to lease the majority
      of the properties where its stores are located.





23








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,
      2006), and (ii) dividends equal to 75% of Car-Mart of Arkansas’ net income. At
      April 30, 2006, the Company’s assets (excluding its $107 million equity
      investment in Car-Mart) consisted of $44,000 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, 2006, the Company had $.3 million of cash on hand and an additional $6.4
      million of availability under its revolving credit facilities ($16.4 million
      upon the funding of the $10 million term loan in May 2006 - see Note F to the
      consolidated financial statements). On a short-term basis, the Company’s
      principal sources of liquidity include income from continuing 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
      continuing 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 to $3 million in the next
      12
      months in connection with opening new stores and refurbishing existing stores,
      and (iii) reduce debt, to the extent excess cash is available. 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,
      2006, 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
                YearsDebt
            
            $
            43,588
            
            $
            -
            
            $
            43,588
            
            $
            -
            
            $
            -Operating
                leases
            
            
            28,761
            
            
            2,556
            
            
            5,012
            
            
            4,585
            
            
            16,608Total
            
            $
            72,349
            
            $
            2,556
            
            $
            48,600
            
            $
            4,585
            
            $
            16,608





The
      $28.8
      million of lease commitments includes $7.9 million of non-cancelable lease
      commitments under the primary lease terms, and $20.9 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 75% 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





24





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, 2006, 2005 and 2004 rent expense for all
      operating leases amounted to approximately $2.4 million, $2.1 million and $1.9
      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, 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.





Currently,
      the Internal Revenue Service (“IRS”) is examining the Company’s tax returns for
      fiscal 2002 and certain items in subsequent years, and in particular is focusing
      on whether or not the Company satisfies 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. The Company is unable to
      determine at this time the amount of adjustments, if any, that may result from
      this examination. The assessment of a tax deficiency by the IRS could have
      a
      material adverse effect on the Company’s results of operations and financial
      condition, at least in the near term, if the Company were ultimately
      unsuccessful in contesting any such deficiency.





**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.





25








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.





**Recent
      Accounting Pronouncement**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards 123R, “Share-Based Payment” (“SFAS
      123R”), which is a revision of SFAS 123. SFAS 123R supersedes APB Opinion No.
      25. Generally, the approach in SFAS 123R is similar to the approach described
      in
      SFAS 123, except that SFAS 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the income
      statement based on their fair values. Pro forma disclosure is no longer an
      alternative under SFAS 123R. SFAS 123R was originally issued with implementation
      required for interim and annual periods beginning after June 15, 2005. On April
      15, 2005, the Securities and Exchange Commission delayed the required effective
      date of SFAS 123R to the beginning of the first fiscal year that begins after
      June 15, 2005.





SFAS
      123R
      became effective for the Company on May 1, 2006. SFAS 123R permits public
      companies to adopt its requirements using one of two methods: a
“modified-prospective” method or a “modified-retrospective” method. The Company
      plans to adopt SFAS 123R using the modified-prospective method under which
      it
      will record compensation expense for all share-based awards granted after the
      effective date. The Company has no unvested awards granted prior to May 1,
      2006.





As
      permitted by SFAS 123, the Company currently accounts for share-based payments
      to employees using APB 25’s intrinsic value method and, as such, generally
      recognizes no compensation cost for the fair value of employee stock options.
      Accordingly, the adoption of SFAS 123R’s fair value method could
      potentially have a significant impact on the Company’s results of operations,
      although it is not expected to impact the Company’s overall financial position.
      The total impact of adoption of SFAS 123R cannot be predicted at this time
      because it will depend on levels of share-based payments granted in the future.
      SFAS 123R will also require the Company to estimate forfeitures of share-based
      payments upon grant. Historically, forfeitures have not been significant.





SFAS
      123R
      also requires the benefits of tax deductions in excess of recognized
      compensation cost to be reported as a financing cash flow, rather than as an
      operating cash flow as required under current literature. This requirement
      will
      reduce net operating cash flows and increase net financing cash flows in periods
      after adoption. The Company cannot estimate what those amounts will be in the
      future because they depend on, among other things, when employees exercise
      stock
      options.





**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





26





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. Further, the Company experiences seasonal
      fluctuations in its finance receivable credit losses. As a percentage of sales,
      the Company’s first and fourth fiscal quarters tend to have lower credit losses
      (averaging 19.1% over the last five years), while its second and third fiscal
      quarters tend to have higher credit losses (averaging 21.2% over the last five
      years).





**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 (5.75% at April 30, 2006) 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, 2006,
      approximately 59% of the Company’s finance receivables were originated in
      Arkansas. The remaining loan portfolio carries interest rates approximating
      19%.
      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.





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





27





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 ($185.3 million)
      and variable interest rate borrowings ($33.6 million), and the percentage of
      Arkansas originated finance receivables (59%), 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
            
            $       
                164
            
            $      
                 1,223+100
                basis points
            
            82
            
            611-100
                basis points
            
            (82)
            
            (611)-200
                basis points
            
            (164)
            
            (1,223)








**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, 2006 and 2005





Consolidated
      Statements of Operations for the years ended April 30, 2006, 2005 and
      2004





Consolidated
      Statements of Cash Flows for the years ended April 30, 2006, 2005 and
      2004





Consolidated
      Statements of Stockholders' Equity for the years ended April 30, 2006, 2005
      and
      2004





Notes
      to
      Consolidated Financial Statements








28





**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, 2006 and 2005, and the
      related consolidated statements of operations, cash flows and stockholders’
equity for each of the three years in the period ended April 30, 2006. 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. Our audits included examining,
      on
      a test basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of America’s
      Car-Mart, Inc. and subsidiaries as of April 30, 2006 and 2005, and the results
      of their consolidated operations and their consolidated cash flows for each
      of
      the three years in the period ended April 30, 2006, in conformity with
      accounting principles generally accepted in the United States of
      America.





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,
      2006, 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, 2006, (included in item 9A) expressed an unqualified
      opinion on both management’s assessment of America’s Car-Mart Inc., and
      subsidiaries' internal control over financial reporting and on the effectiveness
      of America’s Car-Mart Inc., and subsidiaries' internal control over financial
      reporting.








/s/
      GRANT
      THORNTON LLP




Dallas,
      Texas


July
      13,
      2006














29





**Consolidated
      Balance Sheets**


**America’s
      Car-Mart, Inc.**











April
                30, 2006
            
            April
                30, 2005Assets:Cash
                and cash equivalents
            
            $
            254,824
            
            $
            459,177Accrued
                interest on finance receivables
            
            
            818,029
            
            
            524,046Finance
                receivables, net
            
            
            149,379,024
            
            
            123,098,966Inventory
            
            
            10,923,200
            
            
            7,985,959Prepaid
                expenses and other assets
            
            
            802,274
            
            
            295,452Property
                and equipment, net
            
            
            15,435,852
            
            
            11,304,658$
            177,613,203
            
            $
            143,668,258







Liabilities
                and stockholders’ equity:Accounts
                payable
            
            $
            3,094,825
            
            $
            2,796,086Accrued
                liabilities
            
            
            8,742,918
            
            
            6,023,291Income
                taxes payable
            
            
            1,846,943
            
            
            451,714Deferred
                tax liabilities, net
            
            
            1,088,641
            
            
            1,986,696Revolving
                credit facilities
            
            
            43,588,443
            
            
            29,145,090Total
                liabilities
            
            
            58,361,770
            
            
            40,402,877Commitments
                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;11,929,274
                  issued and outstanding (11,852,188 at April 30,
                  2005)
            
            
            119,293
            
            
            118,522Additional
                paid-in capital
            
            
            33,090,886
            
            
            33,809,445Retained
                earnings
            
            
            86,042,067
            
            
            69,337,499Treasury
                stock, at cost (81,250 and 8,450 shares at April 30, 2006 and
                2005)
            
            
            (1,498,343
            )
            
            (186,154
            )Total
                stockholders’ equity
            
            
            119,251,433
            
            
            103,265,381$
            177,613,203
            
            $
            143,668,258














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





30





**Consolidated
      Statements of Operations**


**America’s
      Car-Mart, Inc.**








Years
                Ended April 30,2006
            
            2005
            
            2004Revenues:Sales
            
            $
            214,481,542
            
            $
            189,343,473
            
            $
            163,589,076Interest
                and other income
            
            
            19,725,476
            
            
            15,444,975
            
            
            12,594,611234,207,018
            
            
            204,788,448
            
            
            176,183,687Costs
                and expenses:Cost
                of sales
            
            
            119,433,054
            
            
            101,769,671
            
            
            85,510,497Selling,
                general and administrative
            
            
            39,261,202
            
            
            34,788,123
            
            
            29,670,849Provision
                for credit losses
            
            
            45,810,496
            
            
            38,093,729
            
            
            34,766,496Interest
                expense
            
            
            2,458,250
            
            
            1,226,957
            
            
            1,113,840Depreciation,
                amortization and loss on sale
            
            
            723,271
            
            
            425,624
            
            
            321,053207,686,273
            
            
            176,304,104
            
            
            151,382,735Income
                from continuing operations before taxes
            
            
            26,520,745
            
            
            28,484,344
            
            
            24,800,952Provision
                for income taxes
            
            
            9,816,177
            
            
            10,507,978
            
            
            9,161,506Income
                from continuing operations
            
            
            16,704,568
            
            
            17,976,366
            
            
            15,639,446Discontinued
                operations:Income
                  from discontinued operations,net
                  of taxes
            
            
            0
            
            
            0
            
            
            165,000Net
                income
            
            $
            16,704,568
            
            $
            17,976,366
            
            $
            15,804,446Basic
                earnings per share:Continuing
                operations
            
            $
            1.41
            
            $
            1.53
            
            $
            1.38Discontinued
                operations
            
            
            -
            
            
            -
            
            
            .02Total
            
            $
            1.41
            
            $
            1.53
            
            $
            1.40Diluted
                earnings per share:Continuing
                operations
            
            $
            1.39
            
            $
            1.49
            
            $
            1.31Discontinued
                operations
            
            
            -
            
            
            -
            
            
            .01Total
            
            $
            1.39
            
            $
            1.49
            
            $
            1.32Weighted
                average number of shares outstanding:Basic
            
            
            11,852,804
            
            
            11,737,398
            
            
            11,318,946Diluted
            
            
            12,018,541
            
            
            12,026,745
            
            
            11,945,139























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





31








**Consolidated
      Statements of Cash Flows**


**America’s
      Car-Mart, Inc.**








Years
                Ended April 30,2006
            
            2005
            
            2004Operating
                activities:Net
                income
            
            $
            16,704,568
            
            $
            17,976,366
            
            $
            15,804,446Less:
                Income from discontinued operations
            
            
            
            
            
            
            
            
            165,000Income
                from continuing operations
            
            
            16,704,568
            
            
            17,976,366
            
            
            15,639,446Adjustments
                  to reconcile income from continuing operationsto
                  net cash provided by (used in) operating activities:Provision
                for credit losses
            
            
            45,810,496
            
            
            38,093,729
            
            
            34,766,496Depreciation
                and amortization
            
            
            708,658
            
            
            425,624
            
            
            321,053Loss
                on sale of property and equipment
            
            
            14,613
            
            
            0
            
            
            0Deferred
                income taxes
            
            
            (898,055
            )
            
            369,800
            
            
            454,192Changes
                in operating assets and liabilities:Finance
                receivable originations
            
            
            (196,189,770
            )
            
            (173,446,050
            )
            
            (151,379,959
            )Finance
                receivable collections
            
            
            111,315,282
            
            
            105,972,843
            
            
            97,366,670Other
                receivables
            
            
            (293,983
            )
            
            (14,294
            )
            
            299,936Inventory
            
            
            10,692,003
            
            
            7,953,505
            
            
            5,002,803Prepaid
                expenses and other assets
            
            
            (152,132
            )
            
            92,189
            
            
            41,373Accounts
                payable and accrued liabilities
            
            
            3,018,366
            
            
            1,151,462
            
            
            (1,080,870
            )Income
                taxes payable
            
            
            1,508,931
            
            
            (89,330
            )
            
            2,559,044Discontinued
                operations
            
            
            -
            
            
            -
            
            
            250,000Net
                cash provided by (used in) operating activities
            
            
            (7,761,023
            )
            
            (1,514,156
            )
            
            4,240,184Investing
                activities:Purchase
                of property and equipment
            
            
            (5,011,459
            )
            
            (6,173,525
            )
            
            (1,398,678
            )Proceeds
                from sale of property and equipment
            
            
            156,994
            
            
            0
            
            
            0Payment
                for business acquired
            
            
            (1,200,000
            )
            
            0
            
            
            0Net
                cash used in investing activities
            
            
            (6,054,465
            )
            
            (6,173,525
            )
            
            (1,398,678
            )Financing
                activities:Exercise
                of stock options and warrants
            
            
            479,971
            
            
            939,175
            
            
            2,583,517Purchase
                of common stock
            
            
            (1,312,189
            )
            
            (531,636
            )
            
            (1,646,360
            )Proceeds
                from (repayments of) revolving credit facility, net
            
            
            14,443,353
            
            
            6,610,970
            
            
            (3,434,100
            )Net
                cash provided by (used in) financing activities
            
            
            13,611,135
            
            
            7,018,509
            
            
            (2,496,943
            )Increase
                (decrease) in cash and cash equivalents
            
            
            (204,353
            )
            
            (669,172
            )
            
            344,563Cash
                and cash equivalents at: Beginning of period
            
            
            459,177
            
            
            1,128,349
            
            
            783,786End
                of period
            
            $
            254,824
            
            $
            459,177
            
            $
            1,128,349


























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





32





**Consolidated
      Statements of Stockholders’ Equity**


**America’s
      Car-Mart, Inc** ***.***








For
                the Years Ended April 30, 2006, 2005 and 2004Additional
            
            
            
            
            
            TotalCommon
                Stock
            
            Paid-In
            
            Retained
            
            Treasury
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            Earnings
            
            Stock
            
            EquityBalance
                at April 30, 2003
            
            
            10,811,945
            
            $
            108,119
            
            $
            30,296,067
            
            $
            35,556,687
            
            $
            0
            
            $
            65,960,873Stock
                options/warrants exercised
            
            
            927,717
            
            
            9,278
            
            
            2,574,239
            
            
            
            
            
            
            
            
            2,583,517Stock
                warrant issued
            
            
            
            
            
            
            
            
            76,000
            
            
            
            
            
            
            
            
            76,000Purchase
                of common stock
            
            
            (102,900
            )
            
            (1,029
            )
            
            (1,645,331
            )
            
            
            
            
            
            
            
            (1,646,360
            )Tax
                benefit of options exercised
            
            
            
            
            
            
            
            
            1,799,000
            
            
            
            
            
            
            
            
            1,799,000Net
                income
            
            
            
            
            
            
            
            
            
            
            
            15,804,446
            
            
            
            
            
            15,804,446Balance
                at April 30, 2004
            
            
            11,636,762
            
            
            116,368
            
            
            33,099,975
            
            
            51,361,133
            
            
            0
            
            
            84,577,476Stock
                options/warrants exercised
            
            
            233,199
            
            
            2,332
            
            
            936,843
            
            
            
            
            
            
            
            
            939,175Purchase
                of common stock
            
            
            (17,773
            )
            
            (178
            )
            
            (345,304
            )
            
            
            
            
            
            
            
            (345,482
            )Purchase
                of 8,450 treasury shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (186,154
            )
            
            (186,154
            )Tax
                benefit of options exercised
            
            
            
            
            
            
            
            
            304,000
            
            
            
            
            
            
            
            
            304,000Net
                income
            
            
            
            
            
            
            
            
            
            
            
            17,976,366
            
            
            
            
            
            17,976,366Balance
                at April 30, 2005
            
            
            11,852,188
            
            
            118,522
            
            
            33,995,514
            
            
            69,337,499
            
            
            (186,154
            )
            
            103,265,381Stock
                options/warrants exercised
            
            
            77,086
            
            
            771
            
            
            479,200
            
            
            
            
            
            
            
            
            479,971Purchase
                of 72,800 treasury shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,312,189
            )
            
            (1,312,189
            )Tax
                benefit of options exercised
            
            
            
            
            
            
            
            
            113,702
            
            
            
            
            
            
            
            
            113,702Net
                income
            
            
            
            
            
            
            
            
            
            
            
            16,704,568
            
            
            
            
            
            16,704,568Balance
                at April 30, 2006
            
            
            11,929,274
            
            $
            119,293
            
            $
            34,588,416
            
            $
            86,042,067
            
            $
            (1,498,343
            )
            $
            119,251,433





























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








33





**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. (“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, 2006, the Company operated
      85
      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 and their operating
      results have been included in discontinued operations. The Company sold its
      last
      remaining discontinued operation in July 2002. Discontinued operations are
      described in Note O.




**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 58% of revenues
      resulting from sales to Arkansas customers. Periodically,







34





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.




*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,
      2006), and (ii) dividends equal to 75% of Car-Mart of Arkansas’ net income. At
      April 30, 2006, the Company’s assets (excluding its $107 million equity
      investment in Car-Mart) consisted of $44,000 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 debt 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, 2006 and 2005,
      respectively, 3.7% and 3.0% 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 that 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 60 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.







35










*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.




*Investments
      and Other Assets*





Included
      in Prepaid Expenses and Other at April 30, 2006 and 2005 are investments in
      high
      technology/Internet based companies of approximately $30,000 and $231,000,
      respectively. These investments were acquired between 1998 and 2000 and are
      carried at their estimated fair values.




*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. The Company’s goodwill is included
      in Prepaid Expenses and Other at April 30, 2006, at approximately
      $350,000.




*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.





36











*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
      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 four-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, 2006 and 2005, finance receivables
      more than 90 days past due were approximately $178,000 and $181,000,
      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 $2,326,000,
      $2,006,000 and $1,616,000 for the years ended April 30, 2006, 2005 and 2004,
      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 $155,000,
      $103,000, and $142,000 to the plans for the years ended April 30, 2006, 2005
      and
      2004, respectively.







37










*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
      Option Plans*





The
      Company accounts for its stock option plans in accordance with the provisions
      of
      Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
      to Employees,” and related interpretations. Had the Company determined
      compensation cost on the date of grant based upon the fair value of its stock
      options under SFAS No. 123, the Company’s pro forma net income and earnings per
      share would be as follows using the Black-Scholes option-pricing model with
      the
      assumptions detailed below. The estimated weighted average fair value of options
      granted using the Black-Scholes option-pricing model was $10.09, $9.94 and
      $5.79
      for the years ended April 30, 2006, 2005 and 2004, respectively.




Years
                Ended April 30,2006
            
            2005
            
            2004Reported
                net income
            
            $
            16,704,568
            
            $
            17,976,366
            
            $
            15,804,446Less
                fair value compensation cost, net of tax
            
            
            (99,891
            )
            
            (624,447
            )
            
            (42,966
            )Pro
                forma net income
            
            $
            16,604,677
            
            $
            17,351,919
            
            $
            15,761,480Basic
                earnings per share:As
                reported
            
            $
            1.41
            
            $
            1.53
            
            $
            1.40Pro
                forma
            
            $
            1.40
            
            $
            1.48
            
            $
            1.39Diluted
                earnings per share:As
                reported
            
            $
            1.39
            
            $
            1.49
            
            $
            1.32Pro
                forma
            
            $
            1.38
            
            $
            1.44
            
            $
            1.32Assumptions:Expected
                dividend yield
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Risk-free
                interest rate
            
            
            4.5
            %
            
            4.9
            %
            
            4.3
            %Expected
                volatility
            
            
            45.0
            %
            
            40.0
            %
            
            50.0
            %Expected
                life
            
            
            5
                years
            
            
            5
                years
            
            
            5
                years





*Treasury
      Stock*





The
      Company purchased 72,800 and 8,450 shares of its common stock to be held as
      treasury stock for a total cost of $1,312,189 and $186,154 during 2006 and
      2005,
      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.







38










*Recent
      Accounting Pronouncement*





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards 123R, “Share-Based Payment” (“SFAS
      123R”), which is a revision of SFAS 123. SFAS 123R supersedes APB Opinion No.
      25. Generally, the approach in SFAS 123R is similar to the approach described
      in
      SFAS 123, except that SFAS 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the income
      statement based on their fair values. Pro forma disclosure is no longer an
      alternative under SFAS 123R. SFAS 123R was originally issued with implementation
      required for interim and annual periods beginning after June 15, 2005. On April
      15, 2005, the Securities and Exchange Commission delayed the required effective
      date of SFAS 123R to the beginning of the first fiscal year that begins after
      June 15, 2005.




SFAS
      123R
      became effective for the Company on May 1, 2006. SFAS 123R permits public
      companies to adopt its requirements using one of two methods: a
“modified-prospective” method or a “modified-retrospective” method. The Company
      plans to adopt SFAS 123R using the modified-prospective method under which
      it
      will record compensation expense for all share-based awards granted after the
      effective date. The Company has no unvested awards granted prior to May 1,
      2006.




As
      permitted by SFAS 123, the Company currently accounts for share-based payments
      to employees using APB 25’s intrinsic value method and, as such, generally
      recognizes no compensation cost for the fair value of employee stock options.
      Accordingly, the adoption of SFAS 123R’s fair value method could
      potentially have a significant impact on the Company’s results of operations,
      although it is not expected to impact the Company’s overall financial position.
      The total impact of adoption of SFAS 123R cannot be predicted at this time
      because it will depend on levels of share-based payments granted in the future.
      SFAS 123R will also require the Company to estimate forfeitures of share-based
      payments upon grant. Historically, forfeitures have not been significant.




SFAS
      123R
      also requires the benefits of tax deductions in excess of recognized
      compensation cost to be reported as a financing cash flow, rather than as an
      operating cash flow as required under current literature. This requirement
      will
      reduce net operating cash flows and increase net financing cash flows in periods
      after adoption. The Company cannot estimate what those amounts will be in the
      future because they depend on, among other things, when employees exercise
      stock
      options.




*Reclassifications*





Certain
      prior year amounts in the accompanying financial statements have been
      reclassified to conform to the fiscal 2006 presentation. Cash provided by
      discontinued operations in 2004 has been classified as an operating cash flow.
      Treasury stock held at April 30, 2005, has been presented as a reduction to
      stockholders’ equity.







39





**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, 2006 and 2005 are as
      follows:







April
                30,2006
            
            2005Gross
                contract amount
            
            $
            207,377,976
            
            $
            168,145,038Less
                unearned finance charges
            
            
            (22,134,769
            )
            
            (15,794,828
            )Principal
                balance
            
            
            185,243,207
            
            
            152,350,210Less
                allowance for credit losses
            
            
            (35,864,183
            )
            
            (29,251,244
            )Finance
                receivables, net
            
            $
            149,379,024
            
            $
            123,098,966





Changes
      in the finance receivables, net balance for the years ended April 30, 2006,
      2005
      and 2004 are as follows:




Years
                Ended April 30,2006
            
            2005
            
            2004Balance
                at beginning of year
            
            $
            123,098,966
            
            $
            103,683,660
            
            $
            91,358,935Finance
                receivable originations
            
            
            196,189,770
            
            
            173,446,050
            
            
            151,379,959Finance
                receivables from acquisition of business
            
            
            845,310
            
            
            0
            
            
            0Finance
                receivable collections
            
            
            (111,315,282
            )
            
            (105,972,843
            )
            
            (97,366,670
            )Provision
                for credit losses
            
            
            (45,810,496
            )
            
            (38,093,729
            )
            
            (34,766,496
            )Inventory
                acquired in repossession
            
            
            (13,629,244
            )
            
            (9,964,172
            )
            
            (6,922,068
            )Balance
                at end of year
            
            $
            149,379,024
            
            $
            123,098,966
            
            $
            103,683,660





Changes
      in the finance receivables allowance for credit losses for the years ended
      April
      30, 2006, 2005 and 2004 are as follows:







Years
                Ended April 30,2006
            
            2005
            
            2004Balance
                at beginning of year
            
            $
            29,251,244
            
            $
            25,035,967
            
            $
            20,395,095Provision
                for credit losses
            
            
            45,810,496
            
            
            38,093,729
            
            
            34,766,496Allowance
                related to acquisition of business
            
            
            526,736
            
            
            0
            
            
            0Charge-offs,
                net of recovered collateral
            
            
            (39,724,293
            )
            
            (33,878,452
            )
            
            (30,125,624
            )Balance
                at end of year
            
            $
            35,864,183
            
            $
            29,251,244
            
            $
            25,035,967








40








**D
      - Property and Equipment**





A
      summary
      of property and equipment as of April 30, 2006 and 2005 is as
      follows:







April
                30,2006
            
            2005Land
            
            $
            5,233,716
            
            $
            4,371,748Buildings
                and improvements
            
            
            5,093,155
            
            
            3,161,500Furniture,
                fixtures and equipment
            
            
            3,673,122
            
            
            2,356,385Leasehold
                improvements
            
            
            3,291,608
            
            
            2,737,845Less
                accumulated depreciation and amortization
            
            
            (1,855,749
            )
            
            (1,322,820
            )$
            15,435,852
            
            $
            11,304,658





**E
      - Accrued Liabilities**





A
      summary
      of accrued liabilities as of April 30, 2006 and 2005 is as follows:





April
                30,2006
            
            2005Compensation
            
            $
            2,593,695
            
            $
            2,383,826Cash
                overdraft (see Note B)
            
            
            2,440,839
            
            
            736,820Deferred
                service contract revenue (see Note B)
            
            
            1,626,521
            
            
            1,526,943Deferred
                sales tax (see Note B)
            
            
            1,012,271
            
            
            716,901Subsidiary
                redeemable preferred stock (see Note H)
            
            
            500,000
            
            
            500,000Interest
            
            
            257,860
            
            
            136,036Other
            
            
            311,732
            
            
            22,765$
            8,742,918
            
            $
            6,023,291





**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, 2006
            
            April
                30, 2005Bank
                of Oklahoma
            
            $50.0
                million
            
            Prime
                less .25%
            
            Apr
                2009
            
            $
                43,588,443
            
            $
                29,145,090





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 calls for 120 consecutive and substantially equal
      installments beginning June 1, 2006. The interest rate on the term loan is
      fixed
      at 7.33%. The combined total for the Company’s credit facilities is $60 million.







41










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 less .25% per
      annum at April 30, 2006 (7.50%) and at the bank’s prime lending rate per annum
      at April 30, 2005 (5.75%). 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, 2006. 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, 2006, Car-Mart
      could have drawn an additional $6.4 million under its facilities ($16.4 million
      upon the funding of the term loan in May 2006).




**G
      - Income Taxes**





The
      provision for income taxes for the fiscal years ended April 30, 2006, 2005
      and
      2004 was as follows:






Years
                Ended April 30,2006
            
            2005
            
            2004Provision
                for income taxesCurrent
            
            $
            10,714,232
            
            $
            10,138,178
            
            $
            8,707,314Deferred
            
            
            (898,055
            )
            
            369,800
            
            
            454,192$
            9,816,177
            
            $
            10,507,978
            
            $
            9,161,506





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 30,2006
            
            2005
            
            2004Tax
                provision at statutory rate
            
            $
            9,282,261
            
            $
            9,969,520
            
            $
            8,680,333State
                taxes, net of federal benefit
            
            
            642,614
            
            
            751,116
            
            
            707,104Other,
                net
            
            
            (108,698
            )
            
            (212,658
            )
            
            (225,931
            )$
            9,816,177
            
            $
            10,507,978
            
            $
            9,161,506





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, 2006 and 2005 were
      as follows:






April
                30,2006
            
            2005Deferred
                tax liabilities related to:Finance
                receivables
            
            $
            2,519,957
            
            $
            3,269,338Property
                and equipment
            
            
            258,956
            
            
            0Total
            
            
            2,778,913
            
            
            3,269,338Deferred
                tax assets related to:Liability
                reserves
            
            
            1,034,617
            
            
            838,635Inventory
            
            
            479,372
            
            
            307,676Other
            
            
            176,283
            
            
            136,331Total
            
            
            1,690,272
            
            
            1,282,642Deferred
                tax liabilities, net
            
            $
            1,088,641
            
            $
            1,986,696








42








**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, 2006 and 2005 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.




**I
      - Weighted Average Shares Outstanding**





Weighed
      average shares outstanding used in the calculation of basic and diluted earnings
      per share was as follows for the years ended April 30, 2006, 2005 and
      2004:






Years
                Ended April 30,2006
            
            2005
            
            2004Average
                shares outstanding - basic
            
            
            11,852,804
            
            
            11,737,398
            
            
            11,318,946Dilutive
                options and warrants
            
            
            165,738
            
            
            289,347
            
            
            626,193Average
                shares outstanding - diluted
            
            
            12,018,541
            
            
            12,026,745
            
            
            11,945,139Antidilutive
                securities not included:Options
                and warrants
            
            
            77,250
            
            
            21,563
            
            
            6,563





**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, 2006 and 2005, there were 40,808 and 30,533
      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 2015. The
      following is an aggregate summary of the activity in the Company’s stock option
      plans from April 30, 2003 to April 30, 2006:







43







Number
              of
              Shares
            
            Exercise
              Price
              per
                Share
            
            Proceeds
              on
              Exercise
            
            Weighted
                Average Exercise Price per
              ShareOutstanding
                at April 30, 2003
            
            
            1,410,533
            
            $
            1.63
                to  $ 8.77
            
            $
            4,981,948
            
            $
            3.53Granted
            
            
            11,250
            
            
            11.83
            
            
            133,125
            
            
            11.83Exercised
            
            
            (911,742
            )
            
            1.63
                to   8.77
            
            
            (2,583,517
            )
            
            2.83Canceled
            
            
            (1,650
            )
            
            6.59
            
            
            (10,869
            )
            
            6.59Outstanding
                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
            
            $
            10.38





As
      of
      April 30, 2006 and 2005, all stock options were exercisable. At April 30, 2004
      and 2003, all stock options were exercisable with the exception of options
      to
      purchase 15,000 and 30,000 shares, respectively, at $8.77 per share. A summary
      of stock options outstanding as of April 30, 2006 is as follows:




Weighted
                Average
            
            WeightedRange
                of
            
            Number
            
            Remaining
            
            AverageExercise
                Prices
            
            of
                Shares
            
            Contractual
                Life
            
            Exercise
                Price$
                3.67 to $ 8.77
            
            
            195,045
            
            3.47
            
            $
            4.7511.83
                to 23.75
            
            
            92,250
            
            8.53
            
            
            22.27287,295
            
            5.10
            
            $
            10.38





*Warrants*





As
      of
      April 30, 2006, the Company had stock purchase warrants outstanding to purchase
      45,000 shares at prices ranging from $2.50 to $18.23 per share (weighted average
      exercise price of $6.92). All of the warrants are presently exercisable and
      expire between 2006 and 2009. During the fiscal years ended April 30, 2004
      and
      2003, the Company issued warrants to purchase 18,750 and 7,500 shares of its
      common stock, which had weighted-average grant-date fair values of $4.05 and
      $2.00 per share, respectively. During fiscal 2006, 2005 and 2004, the Company
      issued 4,436, 8,943 and 15,975 shares of its common stock, respectively,
      pursuant to partial exercises of the warrants held by Epoch.





**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,
      2006, the aggregate rentals due under such leases, including renewal options
      that are reasonably assured, were as follows:







44










Years
                EndingApril
                30,
            
            Amount2007
            
            $
            2,556,1282008
            
            
            2,540,2242009
            
            
            2,471,8512010
            
            
            2,364,8502011
            
            
            2,220,086Thereafter
            
            
            16,608,187$
            28,761,326





The
      $28.8
      million of lease commitments includes $7.9 million of non-cancelable lease
      commitments under the primary lease terms, and $20.9 million of lease
      commitments for renewal periods at the Company’s option that are reasonably
      assured. For the years ended April 30, 2006, 2005 and 2004, rent expense for
      all
      operating leases amounted to approximately $2,440,000, $2,114,000 and
      $1,905,000, respectively.




*Litigation*





In
      February 2001 and May 2002, the Company was added as a defendant in two similar
      actions which were originally filed in December 1998 against approximately
      20
      defendants (the “Defendants”) by Astoria Entertainment, Inc. (“Astoria”). One
      action was filed in the Civil District Court for the Parish of Orleans,
      Louisiana (the “State Claims”) and the other was filed in the United States
      District Court for the Eastern District of Louisiana (the “Federal Claims”). In
      these actions, Astoria alleged the Defendants conspired to eliminate Astoria
      from receiving one of the 15 riverboat gaming licenses that were awarded by
      the
      State of Louisiana in 1993 and 1994, at a time when a former subsidiary of
      the
      Company was involved in riverboat gaming in Louisiana. Astoria was seeking
      unspecified damages including lost profits. In August 2001, the Federal court
      dismissed all of the Federal Claims with prejudice. In September 2004, the
      state
      court of appeals dismissed all the State Claims. In January 2005, the Louisiana
      Supreme Court reversed the state court of appeals’ dismissal of the case. The
      parties reached an out-of-court settlement in February 2006. The expense for
      this settlement is included in selling, general and administrative expenses
      in
      fiscal 2006. The settlement amount was not material to the consolidated
      financial statements.




In
      addition to the foregoing case, 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.




*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







45





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.




Currently,
      the Internal Revenue Service (“IRS”) is examining the Company’s tax returns for
      fiscal 2002 and certain items in subsequent years, and in particular is focusing
      on whether or not the Company satisfies 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. The Company is unable to
      determine at this time the amount of adjustments, if any, that may result from
      this examination. The assessment of a tax deficiency by the IRS could have
      a
      material adverse effect on the Company’s results of operations and financial
      condition, at least in the near term, if the Company were ultimately
      unsuccessful in contesting any such deficiency.




**L
      - Related Party Transactions**





During
      fiscal 2004, the Company paid Dynamic Enterprises, Inc. (“Dynamic”)
      approximately $225,000 for the lease of six dealership locations. During this
      period an officer of Dynamic was also a director of the Company.




**M
      - 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, 2006 and
      2005:




April
                30, 2006
            
            April
                30, 2005Carrying
            
            Fair
            
            Carrying
            
            FairValue
            
            Value
            
            Value
            
            ValueCash
            
            $
            254,824
            
            $
            254,824
            
            $
            459,177
            
            $
            459,177Finance
                receivables, net
            
            
            149,379,024
            
            
            138,718,515
            
            
            123,098,966
            
            
            114,262,658Accounts
                payable
            
            
            3,094,825
            
            
            3,094,825
            
            
            2,796,086
            
            
            2,796,086Revolving
                credit facilities
            
            
            43,588,443
            
            
            43,588,443
            
            
            29,145,090
            
            
            29,145,090





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.








46








**N
      - Supplemental Cash Flow Information**





Supplemental
      cash flow disclosures for the years ended April 30, 2006, 2005 and 2004 are
      as
      follows:






Years
                Ended April 30,2006
            
            2005
            
            2004Supplemental
                disclosures:Interest
                paid
            
            $
            2,336,426
            
            $
            1,178,691
            
            $
            1,101,715Income
                taxes paid, net
            
            
            9,204,392
            
            
            10,227,393
            
            
            5,986,433Non-cash
                transactions:Inventory
                acquired in repossession
            
            
            13,629,244
            
            
            9,964,172
            
            
            6,922,068





**O
      - Discontinued Operations**





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, in May 2002 the
      Company sold its remaining 50% interest in Precision IBC, Inc. (“Precision”) for
      $3.8 million in cash, and in July 2002 sold its 80% interest in Concorde
      Acceptance Corporation (“Concorde”) for $3.0 million in cash. As a result of
      these two sales, the Company no longer operates any business other than
      Car-Mart.




As
      a
      result of the Company’s decision, operating results from its non Car-Mart
      operating subsidiaries have been reclassified to discontinued operations.
      Discontinued operations for the year ended April 30, 2004 reflect a negotiated
      settlement of amounts due from a former subsidiary of the Company that had
      been
      previously written-off. A summary of the Company’s discontinued operations for
      the years ended April 30, 2006, 2005 and 2004 is as follows (in
      thousands):




Years
                Ended April 30,2006
            
            2005
            
            2004Revenues
            
            $
            -
            
            $
            -
            
            $
            -Operating
                expensesOther
                income
            
            
            -
            
            
            -
            
            
            250Income
                before taxes and minority interests
            
            
            -
            
            
            -
            
            
            250Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            85Income
                from discontinued operations
            
            $
            -
            
            $
            -
            
            $
            165





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





A
      summary
      of the Company’s quarterly results of operations for the years ended April 30,
      2006 and 2005 is as follows (in thousands, except per share
      information):







47










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





Year
                Ended April 30, 2005First
            
            Second
            
            Third
            
            FourthQuarter
            
            Quarter
            
            Quarter
            
            Quarter
            
            TotalRevenues
            $
            50,810
            
            $
            50,515
            
            $
            48,219
            
            $
            55,244
            
            $
            204,788Net
                income
            4,933
            
            4,391
            
            4,333
            
            4,319
            
            17,976Earnings
                per share:Basic
            .42
            
            .37
            
            .37
            
            .37
            
            1.53Diluted
            .41
            
            .37
            
            .36
            
            .36
            
            1.49








**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, 2006), 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.







48










Management
      assessed the effectiveness of the Company’s internal control over financial
      reporting as of April 30, 2006. 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,
      2006.




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.













49





**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. and subsidiaries (a Texas Corporation) maintained effective internal
      control over financial reporting as of April 30, 2006, 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,
      2006, 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, 2006, based on criteria established in*Internal
      Control—Integrated Framework*issued
      by COSO.





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, 2006 and 2005, and the related
      consolidated statements of operations, cash flows and stockholders’ equity for
      each of the three years in the period ended April 30, 2006, and our report
      dated
      July 13, 2006, expressed an unqualified opinion on those financial
      statements.





/s/
      GRANT
      THORNTON LLP




Dallas,
      Texas


July
      13,
      2006








50








**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
      9B. Other Information**





None .














51





**PART
      III**





Except
      as
      to information with respect to executive officers which is contained in a
      separate heading under Part I, Item 1 to 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 2006 (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 and Executive Officers of the Registrant**





The
      information required by this item is set forth in the Proxy Statement under
      the
      headings "Proposals to be Voted on - Election of Directors," "Ownership of
      Common Stock - Section 16(a) Beneficial Ownership Reporting Compliance" and
      “Corporate Governance and Board Matters - Code of Ethics” which 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 is set forth in the Proxy Statement under
      the
      heading "Executive Compensation," which 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 is set forth in the Proxy Statement under
      the
      headings "Ownership of Common Stock" and “Equity Compensation Plan Information,”
which information is incorporated herein by reference.





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





The
      information required by this item is set forth in the Proxy Statement under
      the
      heading "Related Party Transactions," which information is incorporated herein
      by reference.





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





The
      information required by this item is set forth in the Proxy Statement under
      the
      heading "Principal Accountant Fees and Services," which information is
      incorporated herein by reference.








52





**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, 2006 and 2005





Consolidated
      Statements of Operations for the years ended April 30, 2006, 2005 and
      2004





Consolidated
      Statements of Cash Flows for the years ended April 30, 2006, 2005 and
      2004





Consolidated
      Statements of Stockholders' Equity for the years ended April 30, 2006, 2005
      and
      2004





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)





53








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)4.3
            
            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)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)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. (1)10.7
            
            Employment
                arrangements with Jeffrey A. Williams. (1)10.8
            
            Employment
                Agreement, dated May 1, 2006, between the Company and William H.
                Henderson. (1)10.9
            
            Employment
                Agreement, dated May 1, 2006, between the Company and Eddie Lee Hight.
                (1)





54








14.1
            
            Code
                of Business Conduct and Ethics. (14)21.1
            
            Subsidiaries
                of America’s Car-Mart, Inc. (1)23.1
            
            Consent
                of Independent Registered Public Accounting Firm. (1)24.1
            
            Power
                of Attorney of William H. Henderson. (1)24.2
            
            Power
                of Attorney of Tilman J. Falgout, III. (1)24.3
            
            Power
                of Attorney of J. David Simmons. (1)24.4
            
            Power
                of Attorney of Carl E. Baggett. (1)24.5
            
            Power
                of Attorney of William M. Sams. (1)31.1
            
            Rule
                13a-14(a) certification. (1)31.2
            
            Rule
                13a-14(a) certification. (1)32.1
            
            Section
                1350 certification. (1)


___________________________


(1)
            
            Filed
                herewith.(2)
            
            Previously
                filed as 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.(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.





55








(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.





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





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





56





**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, 2006
            By:/s/
                Tilman J. Falgout,
                IIITilman J. Falgout, IIIChief Executive Officer(principal executive officer)Dated:   July
                13, 2006
            By:/s/
                Jeffrey A.
                WilliamsJeffrey A. WilliamsVice 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, 2006Tilman
                J. Falgout, III
            Officer
                and Director*
            Vice
                Chairman of the Board,
            July
                13, 2006William
                H. Henderson
            President
                and Director*
            Director
            July
                13, 2006J.
                David Simmons*
            Director
            July
                13, 2006Carl
                E. Baggett*
            Director
            July
                13, 2006William
                M. Sams*
                By/s/
                Jeffrey A.
                WilliamsJeffrey A. WilliamsAs Attorney-in-FactPursuant to Powers ofAttorney filed herewith








57





**EXHIBIT
      INDEX**








**Exhibit**
              **Number**
            
            **Description
                of Exhibit**10.6
            
            Employment
                Agreement, dated May 1, 2006, between the Company and Tilman J. Falgout,
                III.10.7
            
            Employment
                arrangements with Jeffrey A. Williams.10.8
            
            Employment
                Agreement, dated May 1, 2006, between the Company and William H.
                Henderson.10.9
            
            Employment
                Agreement, dated May 1, 2006, between the Company and Eddie Lee Hight.21.1
            
            Subsidiaries
                of America’s Car-Mart, Inc.23.1
            
            Consent
                of Independent Registered Public Accounting Firm.24.1
            
            Power
                of Attorney of William H. Henderson.24.2
            
            Power
                of Attorney of Tilman J. Falgout, III.24.3
            
            Power
                of Attorney of J. David Simmons.24.4
            
            Power
                of Attorney of Carl E. Baggett.24.5
            
            Power
                of Attorney of William M. Sams.31.1
            
            Rule
                13a-14(a) certification.31.2
            
            Rule
                13a-14(a) certification.32.1
            
            Section
                1350 certification.











58