The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto appearing elsewhere in this report.

Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "believe," "expect," "anticipate," "estimate," "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements. Such forward-looking statements are based upon management's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. As a consequence, actual results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company as a result of various factors. Uncertainties and risks related to such forward-looking statements include, but are not limited to, those relating to the continued availability of lines of credit for the Company's business, the Company's ability to underwrite and collect its finance receivables effectively, assumptions relating to unit sales and gross margins, changes in interest rates, competition, dependence on existing management, adverse economic conditions (particularly in the State of Arkansas), changes in tax laws or the administration of such laws and changes in lending laws or regulations. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Overview

America's Car-Mart, Inc., a Texas corporation (the "Company"), is the largest publicly held automotive retailer in the United States focused exclusively on the "Buy Here/Pay Here" segment of the used car market. References to the Company typically include the Company's consolidated subsidiaries. The Company's operations are principally conducted through its two operating subsidiaries, America's Car-Mart, Inc., an Arkansas corporation ("Car-Mart of Arkansas"), and Colonial Auto Finance, Inc., an Arkansas corporation ("Colonial"). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as "Car-Mart". The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of July 31, 2009, the Company operated 95 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 3% and 21% per year over the last ten fiscal years (average 15%). Growth results from same store revenue growth and the addition of new stores. Revenue increased during the first quarter of fiscal 2010 by 10.7% compared to the first quarter of fiscal 2009 due to an 11.3% increase in retail units sold, a 1.0% increase in average retail sales price, a 4.8% increase in interest income, offset by a 10.6% decrease in wholesale sales.

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 full fiscal years, the Company's credit losses as a percentage of sales have ranged between approximately 20.1% in 2005 and 29.1% in 2007 (average of 22.8%). Credit losses in fiscal 2007 (29.1%) were higher than the Company's average over the last five years. Credit losses in fiscal 2007 were negatively affected by higher losses experienced during the Company's second through fourth quarters (31.4%). The 2007 credit losses included an approximate $5 million pre-tax charge (2.3%) to increase the allowance for credit losses to 22% of the finance receivables principal balance from 19.2%. Credit losses were higher due to several factors and included higher losses experienced in most of the dealerships, including mature dealerships, as the Company saw weakness in the performance of its portfolio as customers had difficulty making payments under the terms of their loans. Additionally, the Company's rapid growth put stress on its infrastructure leading to operational difficulties resulting in higher losses. Credit losses in fiscal 2008 returned to a more historical level at 22% of sales as the Company continued to focus on its operational initiatives, including credit and collections efforts. In fiscal 2009, the Company continued to benefit from operational improvements despite negative macro-economic factors and experienced a reduction in credit losses to 21.5% of sales. Improvements in credit losses have continued into fiscal 2010 as the provision for credit losses was 19.5% of sales for the three months ended July 31, 2009 compared to 20.9% for the same period in fiscal 2009.

The primary reason for the improvement in credit losses in recent periods relates to improvements the Company has made to its business practices, including better underwriting and better collection procedures. These improvements in business practices have

led to better collection results. Negative macro-economic issues do not always lead to higher credit loss results for the Company because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers. The Company has installed a proprietary credit scoring system which enables the Company to monitor the quality of loans on the front end. Corporate office personnel monitor scores and work with stores when the distribution of scores fall outside of prescribed thresholds. Additionally, the Company has increased its investment in the corporate infrastructure within the collection area, including the hiring of a Director of Collection Practices and Review, which is also having a positive effect on results by providing more and more timely oversight and providing for more accountability on a consistent basis. In addition, turnover at the store level for collection positions is down between years, which is having a positive effect on results. The Company believes that the proper execution of its business practices is the single most important determinate of credit loss experience.

The Company's gross margins as a percentage of sales have been fairly consistent from year to year. Over the last five full fiscal years, the Company's gross margins as a percentage of sales have ranged between approximately 42% and 46%. Gross margin as a percentage of sales for fiscal 2009 was 43.0% and 44.1% for the first quarter of fiscal 2010. The Company's gross margins are based upon the cost of the vehicle purchased, with lower-priced vehicles typically having higher gross margin percentages. In recent years, the Company's gross margins have been negatively affected by the increase in the average retail sales price (a function of a higher purchase price) and higher operating costs, mostly related to increased vehicle repair costs and higher fuel costs. Additionally, the percentage of wholesale sales to retail sales, which relate for the most part to repossessed vehicles sold at or near cost, was higher in fiscal 2007 and during the first quarter of fiscal 2008 due to the increased level of repossession activity coupled with relatively flat retail sales levels. The Company expects that its gross margin percentage will not change significantly in the near term from its current level.

Hiring, training and retaining qualified associates are critical to the Company's success. The rate at which the Company adds new stores and is able to implement operating initiatives is limited by the number of trained managers and support personnel the Company has at its disposal. Excessive turnover, particularly at the store manager level, could impact the Company's ability to add new stores and to meet operational initiatives. The Company has added resources to recruit, train and develop personnel, especially personnel targeted to fill store manager positions. The Company expects to continue to invest in the development of its workforce in fiscal 2010 and beyond.

                            Consolidated Operations
                   (Operating Statement Dollars in Thousands)

                                                                      % Change          As a % of Sales
                                          Three Months Ended           2009            Three Months Ended
                                                July 31,                vs.                 July 31,
                                           2009          2008          2008            2009           2008

Revenues:
 Sales                                 $    77,012     $ 69,226            11.2 %        100.0 %       100.0 %
 Interest income                             6,743        6,435             4.8            8.8           9.3
   Total                                    83,755       75,661            10.7          108.8         109.3

Costs and expenses:
 Cost of sales, excluding
depreciation shown below                    43,082       39,027            10.4           55.9          56.4
 Selling, general and administrative        13,924       12,808             8.7           18.1          18.5
 Provision for credit losses                15,051       14,490             3.9           19.5          20.9
 Interest expense                              247          693           (64.4 )          0.3           1.0
 Depreciation and amortization                 392          319            22.9             .5            .5
   Total                                    72,696       67,337             8.0           97.3          97.3

   Pretax income                       $    11,059     $  8,324            32.9           14.4          12.0

Operating Data:
 Retail units sold                           8,182        7,353
 Average stores in operation                    95           91
 Average units sold per store per
month                                         28.7         26.9
 Average retail sales price            $     9,041     $  8,952
 Same store revenue change                     8.5 %       28.5 %

Period End Data:
 Stores open                                    95           91
 Accounts over 30 days past due                3.5 %        3.6 %

Three Months Ended July 31, 2009 vs. Three Months Ended July 31, 2008

Revenues increased by $8.1 million, or 10.7%, for the three months ended July 31, 2009 as compared to the same period in the prior fiscal year. The increase was principally the result of (i) revenue growth from stores that operated a full three months in both periods ($6.2 million, or 8.5%), (ii) revenue growth from stores opened during the three months ended July 31, 2008 or stores that opened or closed a satellite location after July 31, 2008 ($.4 million), and
(iii) revenue growth from stores opened after July 31, 2008 ($1.5 million).

Cost of sales as a percentage of sales decreased .5% to 55.9% for the three months ended July 31, 2009 from 56.4% in the same period of the prior fiscal year. The improvement from the prior year period relates primarily to higher retail sales volumes and lower wholesale volumes and lower operating expenses, namely gasoline. Wholesale sales are generally sales of repossessed vehicles or trade-ins at break-even. The Company will continue to focus efforts on holding down purchase costs and expects to see gross margin percentages in the 43% range on a going-forward basis. Higher top line sales and lower wholesale volumes, resulting from improvements in the Company's credit loss experience, could have a positive effect on gross profit percentages in future quarters.

Selling, general and administrative expense as a percentage of sales was 18.1% for the three months ended July 31, 2009, a decrease of .4% from the same period of the prior fiscal year. The overall dollar increase of $1.1 million between the three months ended July 31, 2009 and the same period of the prior fiscal year for selling, general, and administrative expense related primarily to higher payroll costs. At the corporate level, the higher payroll costs are concentrated in our Human Resources, Information Technology and Credit and Collections areas. Within Human Resources is the Manager in Training Program where the Company has significantly increased its investment in recent months to have a sufficient level of qualified associates in this program to support growth and cover attrition needs. At the lot level, market-based pay adjustments for certain positions have been made to reduce turn-over and to attract qualified associates. Additionally, many of the Company's compensation arrangements are tied to financial performance and as such, more payroll costs are incurred during periods of improved financial results.

Provision for credit losses as a percentage of sales decreased 1.4% to 19.5% for the three months ended July 31, 2009 from 20.9% in the same period of the prior fiscal year. The decrease is largely attributable to lower losses experienced for most of the store locations during the quarter. The Company intends to continue to focus store management on credit quality and collections, particularly at those stores under six years of age. Several factors are contributing to the improved credit loss results as seen in the first quarter of fiscal 2010. The Company believes that its competitive position in its markets has improved in recent months, which has had a positive effect on collection results. Credit constrictions are affecting vehicle consumers and competitors as evidenced by significantly lower in-direct loan volumes in the sub-prime asset-backed securities (ABS) market as well as credit tightening related to inventory lines of credit for many, if not all, of the Company's competitors. The Company's low leverage ratios (total debt to finance receivables of 12.5% and total debt to equity of 18.6%) give it flexibility to continue to improve vehicle selection, quantity, quality and service levels and to pick up market share which has had a direct positive effect on collection results. In addition, even though unemployment levels in the Company's markets have increased recently, the rates are below national levels. Most existing customers are receiving new Federal income tax credits as well as benefitting from lower withholding rates when compared to the same period in the prior fiscal year. Additionally, gasoline prices are significantly below levels seen during the same period in the prior fiscal year which is resulting in more take home pay for customers, which in turn has had a positive effect on collection results. Furthermore, the Company continues to make significant investments in operational improvements within the collections area. The Company has installed a proprietary credit scoring system which enables the Company to monitor the quality of loans on the front end. Corporate office personnel monitor scores and work with stores when the distribution of scores falls outside of prescribed thresholds. Additionally, the Company has increased its investment in the corporate infrastructure within the collections area, including the hiring of a Director of Collection Practices and Review, which is also having a positive effect on results by providing more and more timely oversight and providing for more accountability on a consistent basis. In addition, turnover at the store level for collection positions is down between years, which is having a positive effect on collection results. The Company believes that the proper execution of its business practices is the single most important determinate of credit loss experience. Negative macro-economic issues do not always lead to higher credit loss results for the Company, because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers. Historically, credit losses, on a percentage basis, tend to be higher at new and developing stores than at mature stores. Generally, this is the case because the store management at new and developing stores tends to be less experienced (in making credit decisions and collecting customer accounts) and the customer base is less seasoned. Normally, older stores have more repeat customers and on average, repeat customers are a better credit risk than non-repeat customers. The Company does believe that higher energy and fuel costs, general inflation and potentially lower personal discretionary spending levels affecting customers can have a negative impact on collection results.

Interest expense (excluding the non-cash charge related to the change in fair value of the Company's interest rate swap agreement) as a percentage of sales decreased .3% to .7% for the three months ended July 31, 2009 from 1.0% for the same period of the prior fiscal year. The decrease was attributable to lower average borrowings during the three months ended July 31, 2009 ($30.0 million compared to $43.4 million in the prior year), offset by an increase in the average interest rate.

The Company has an interest rate swap agreement (the "Agreement") which is not designated as a hedge by Company management; therefore, the gain (loss) of the Agreement is reported as a component of interest expense in earnings. The non-cash charge related to the Agreement was caused by a number of factors, including changes in interest rates, amount of notional debt outstanding, and number of months until maturity. Since the Company intends to hold the interest rate swap until maturity (May 2013), the cumulative charge, which resulted from changes in fair value, will reverse by the maturity date.

The net gain for the Agreement reported in earnings as negative interest expense was $319,000 for the three months ended July 31, 2009. The fair value of the Agreement is included in Accrued liabilities on the Company's Condensed Consolidated Balance Sheet at July 31, 2009 at $1.2 million. The interest on the credit facilities, the net settlements under the interest rate swap, and the changes in the fair value of the Agreement, are all reflected in Interest expense on the Company's Condensed Consolidated Statement of Operations. Notwithstanding the Company's intention to hold the swap until maturity, pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," changes in fair value will continue to be recognized quarterly as non-cash charges or gains, as the case may be.

Financial Condition

The following table sets forth the major balance sheet accounts of the Company
as of the dates specified (in thousands):

                                             July 31,      April 30,
                                               2009           2009
Assets:
  Finance receivables, net                   $ 192,580     $  182,041
  Inventory                                     16,447         15,476
  Property and equipment, net                   19,985         19,346

Liabilities:
  Accounts payable and accrued liabilities      15,194         16,270
  Deferred payment protection plan revenue       7,822          7,353
  Income taxes payable, net                      3,093            308
  Deferred tax liabilities, net                  9,565          8,377
   Debt facilities                              30,584         29,839

Historically, finance receivables have tended to grow slightly faster than revenue growth. This has historically been due, to a large extent, to an increasing weighted average term necessitated by increases in the average retail sales price. In fiscal 2007, revenues increased 2.6% while finance receivables decreased 3.6% due to higher charge offs experienced during that year. In fiscal 2008, revenues increased 14.3% and finance receivables principal increased 16.6%. After subtracting deferred revenue associated with the payment protection plan product, finance receivables increased 14% during fiscal 2008. In fiscal 2009, revenues increased 8.9% and finance receivables principal increased 11.1%. After subtracting deferred revenue associated with the payment protection plan product, finance receivables increased 9.8% during fiscal 2009. The difference for 2009 relates to lower net charge-offs and a slightly longer weighted average loan term due mostly to an increase in the average retail sales price. The average term for installment sales contracts at July 31, 2009 was relatively flat as compared to July 31, 2008 (27.6 months vs. 27.5 months). Revenue growth results from same store revenue growth and the addition of new stores. Going forward, it is anticipated that the historical experience of finance receivables growing slightly faster than revenues will continue.

During the three months ended July 31, 2009, inventory increased 6.3% ($971,000) as compared to revenue growth of 10.7%. The increase resulted from increased sales volume and an expected increase in demand for the type of vehicle the Company purchases for resale as well as the Company's desire to offer a broad mix and sufficient quantities of vehicles to adequately serve its expanding customer base. The Company will continue to manage inventory levels in the future to ensure adequate supply, in volume and mix, and to meet sales demand.

Property and equipment, net increased $639,000 during the three months ended July 31, 2009 as the Company incurred expenditures related to new stores as well as to refurbish and expand existing locations.

Accounts payable and accrued liabilities decreased $1.1 million during the three months ended July 31, 2009. The decrease was due primarily to the timing of payroll periods and the decrease in the fair value of the Company's interest rate swap agreement. At July 31, 2009 this liability is reflected in Accrued liabilities on the Condensed Consolidated Balance Sheet. Also, the unearned portion of the payment protection plan product, which was introduced in the first quarter of fiscal 2008, was $7.8 million at July 31, 2009, up from $7.4 million at April 30, 2009. Deferred tax liabilities, net increased during the quarter due primarily to the increase in finance receivables. During the three months ended July 31, 2009, the Company benefitted from a $1.2 million increase in deferred income taxes and a $2.8 million increase in current income taxes, primarily related to the fact that the estimated tax payment for the first quarter of fiscal 2010 was due after the end of the quarter.

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

Liquidity and Capital Resources

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

                                                                  Three Months Ended July 31,
                                                                      2009               2008
Operating activities:
  Net income                                                      $       7,028       $    5,291
  Provision for credit losses                                            15,051           14,490
  Losses on claims for payment protection plan                            1,049              742
  Unrealized (gain) loss for change in fair value of interest
rate swap                                                                  (319 )             13
  Depreciation and amortization                                             392              319
  Stock based compensation                                                  505              682
  Finance receivable originations                                       (71,298 )        (65,793 )
  Finance receivable collections                                         39,546           35,345
  Inventory                                                               4,174            4,073
  Accounts payable and accrued liabilities                                 (276 )           (299 )
  Deferred payment protection plan revenue                                  469            2,048
  Income taxes payable                                                    2,785              251
  Deferred income taxes                                                   1,188            2,761
  Accrued interest on finance receivables                                   (32 )            (60 )
  Other                                                                     573             (792 )
     Total                                                                  835             (929 )

Investing activities:
  Purchase of property and equipment                                     (1,073 )           (647 )
  Proceeds from sale of property and equipment                                -               29
    Total                                                                (1,073 )           (618 )

Financing activities:
  Debt facilities                                                           746            2,291
  Change in cash overdrafts                                                (482 )         (1,021 )
  Dividend payments                                                         (10 )            (10 )
  Issuance of common stock                                                   54               69
  Exercise of stock options and warrants                                      -              147
  Excess tax benefit from share-based compensation                            -              185
    Total                                                                   308            1,661

    Increase in Cash                                              $          70       $      114

The primary drivers of operating profits and cash flows include (i) top line sales, (ii) interest rates on finance receivables, (iii) gross margin percentages on vehicle sales and (iv) credit losses. The Company generates cash flow from income from operations. Historically, most or all of this cash is used to fund finance receivables growth and capital expenditures. To the

extent finance receivables growth and capital expenditures exceeds income from operations, generally the Company increases its borrowings under its revolving credit facilities. The majority of the Company's growth has been self-funded.

Cash flows from operations for the three months ended July 31, 2009 were positively impacted by (i) higher sales volumes and higher gross margin percentages on those sales, (ii) lower credit losses as a percentage of sales,
(iii) improvements in current and deferred income taxes which resulted from the effect of the increase in finance receivables as well as the timing of estimated payments, offset by (iv) the net effect of other components of the change in finance receivables including originations, collections, inventory acquired in . . .