| **UNITED STATES  SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549****FORM 10-Q**

  (X)**QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES        EXCHANGE ACT OF 1934**

  For the quarterly period ended July 29, 2001**OR     **

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

  Commission File Number 0-20269**DUCKWALL-ALCO STORES, INC.******(Exact  name of registrant as specified in its charter)

Kansas                                          48-0201080  (State or other jurisdiction of                (I.R.S. Employer  incorporation or organization)                 Identification No.)  401 Cottage Street                                                     Abilene, Kansas                                67410-2832(Address of principal executive offices)      (Zip  Code)             Registrant's telephone number including area code: (785) 263-3350

     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___

APPLICABLE ONLY TO CORPORATE ISSUERS:

   4,149,599 shares of  common stock, $.0001 par value (the issuer's only class of common stock),  were outstanding as of July 29, 2001. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Duckwall-ALCO Stores, Inc.**  |
|---------------------------------|
| **And Subsidiaries**            |
| **Consolidated Balance Sheets** |
| **(Dollars in Thousands)**      |
|                                 |
| Assets                          |
|                                 |  | July 29, |  | January 28, |
|                                 |  | 2001 |  | 2001 |
| Current assets:                 |  | (unaudited) |  |  |
| Cash and cash equivalents       |  | $3,436
$7,851

Receivables

1,727
2,197

Inventories

128,829
123,745

Prepaid expenses

954
553

     Total current assets

134,946
134,346

Property and equipment

77,471
75,594

Less accumulated depreciation

46,406
44,712

     Net property and equipment

31,065
30,882

Property under capital leases

20,407

20,407

Less accumulated amortization

15,926
15,626

     Net property under capital  leases

4,481
4,781

Other non-current assets

50
85

     Total assets

$170,542
$170,094

See accompanying notes to unaudited consolidated  financial statements.

**Duckwall-ALCO Stores, Inc.**

**And Subsidiaries**

**Consolidated Balance Sheets**

**(Dollars in Thousands)**

 

Liabilities  and Stockholders' Equity

 

July 29,

January 28,

2001

2001

Current  liabilities:   

(unaudited)

  Current maturities of:

 

 

 

    Long term debt

$473

 

$564

    Capital lease obligations

683

 

683

  Accounts payable

27,587

 

24,590

   Notes payable under revolving loan

25,411
0

  Income taxes payable 

1,034
 

706

  Accrued salaries and commissions

3,907
 

4,800

  Accrued taxes other than income

4,498
 

4,169

  Other current liabilities

2,056
 

2,711

  Deferred income taxes

2,069
 

2,122

     Total current liabilities

67,718
 

40,345

Notes payable under revolving loan

0

 

25,606

Long term debt - less current maturities

1,271
 

1,501

Capital lease obligations - less current maturities

6,457
 

6,799

Other noncurrent liabilities

1,988
 

1,993

Deferred revenue

716
 

716

Deferred income taxes

628

 

  628

     Total liabilities

78,778
 

77,588

Stockholders' equity:

 

 

 

  Common stock, $.0001 par value, authorized

 

 

 

    20,000,000 shares; issued and  outstanding

 

 

 

      4,149,599 shares and 4,419,599 shares  respectively

1

 

1

    Additional paid-in capital

47,609

 

49,263

    Retained earnings

44,208
 

43,242

  Accumulated other comprehensive income  (loss), net of income taxes

(54)
0

       Total stockholders' equity

91,764
 

92,506

       Total liabilities and  stockholders' equity

$170,542
 

$170,094

  See accompanying notes to unaudited  consolidated financial statements.

 
 
**Duckwall-ALCO Stores, Inc.**And Subsidiary**Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
For the Thirteen Week Periods
For the Twenty-Six Week Periods
July 29, 2001

July 30, 2000
July 29, 2001
July 30, 2000
Net sales
$101,763
$99,558
$193,557
$190,649
Cost of sales
68,590
66,273
130,729
127,038
Gross margin
33,173
33,285
62,828
63,611
Selling, general and administrative
29,341
27,812
56,683
54,775
Depreciation and amortization
1,572
1,560
3,115
3,108
Provision for asset impairment and store closure
0
23
(8)
114
     Total operating expenses
30,913
29,395
59,790
57,997
Income from operations
2,260
3,890
3,038
5,614
Interest expense
737
765
1,478
1,547
Earnings before income taxes and
1,523
3,125
1,560
4,067
cumulative effect of accounting change
Income tax expense
580
1,219
594
1,587
Earnings before cumulative effect of
accounting change
943
1,906
966
2,480
Cumulative effect of accounting
change (net of tax)
0
0
0
(173)
Net earnings
$943
$1,906
$966
$2,307
Earnings per share - basic
Earnings before cumulative effect of
accounting change
$0.23
$0.43
$0.23
$0.54
Cumulative effect of accounting change
0.00
0.00
0.00
(0.04)
Net earnings
$0.23
$0.43
$0.23
$0.50
Earnings per share - diluted
Earnings before cumulative effect of
accounting change
$0.23
$0.43
$0.23
$0.54
Cumulative effect of accounting change
0.00
0.00
0.00
(0.04)
Net earnings
$0.23
$0.43
$0.23
$0.50
See accompanying notes to unaudited consolidated financial      statements.
 

**Duckwall-ALCO Stores Inc,**

**And Subsidiaries**

**Consolidated Statements of Cash Flow**

Dollars in  Thousands

(Unaudited)

For The Twenty-Six Week

Periods  Ended

  Cash flows from operating activities:

July 29, 2001

July 30,  2000

Net earnings

$966

$2,307
  Adjustments to reconcile net earnings to net cash

    provided by (used in) operating activities

            Amortization  of debt financing costs

35
59
            Depreciation  and amortization

3,115
3,108
           Loss on  disposal and impairment of assets

88
279
            LIFO expense

0
175

            Increase in  inventories

(5,084)
(7,562)
            Increase in  accounts payable

2,997
1,800
            Decrease in  receivables

470
789
       Increase in prepaid expenses

(401)
(116)
            Increase in  accrued taxes other than income

329
106
            Decrease in  accrued salaries and commissions

(893)

(575)
            Increase (decrease) in income  taxes payable

328
(643)
            Decrease in  other liabilities

(767)
(423)
  Net cash provided by (used in) operating activities

1,183
(696)
  Cash flow from investing activities:

            Capital expenditures

(3,807)
(2,998)       Proceeds from sale of property and equipment
721
0
  Net cash used in investing activities

(3,086)
(2,998)
  Cash flow from financing activities:

      Increase (decrease) in revolving loan

(195)
235
      Principal payments on long term notes

(321)
(674)     Principal  payments on capital leases
(342)
(304)
      Common stock redemption

(1,654)
(2,877)
Net cash  used in financing activities

(2,512)
(3,620)
Net  decrease in cash 

(4,415)
(7,314)
Cash at beginning of period

7,851
  14,002

Cash at end of period

$3,436
$6,688
  See accompanying notes to unaudited  consolidated financial statements

**Duckwall-ALCO  Stores, Inc.**

**And  Subsidiaries**

**Notes  to Unaudited Consolidated Financial Statements**

 

(1) Basis of Presentation

     The accompanying unaudited  consolidated financial statements are for interim periods and, consequently,  do not include all disclosures required by generally accepted accounting  principles for annual financial statements. It is suggested that the  accompanying unaudited consolidated financial statements be read in conjunction  with the consolidated financial statements included in the Company's fiscal  2001 Annual Report. In the opinion of management of Duckwall-ALCO Stores,  Inc., the accompanying unaudited consolidated financial statements reflect  all adjustments (consisting of normal recurring accruals) necessary to  present fairly the financial position of the Company and the results of its  operations and cash flows for the interim periods. 

(2) Principles of Consolidation

     The consolidated financial  statements include the accounts of Duckwall-ALCO Stores, Inc. and its  wholly-owned subsidiaries. All significant intercompany transactions and  balances have been eliminated in consolidation.

(3) Adoption of New Accounting Policy (dollars  in thousands)

     Effective January 29, 2001,  the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Investments and  Hedging Activities."  SFAS No. 133  requires that all derivative instruments be recorded on the balance sheet at  fair value.  The accounting for  changes in the fair value of a derivative depends on its designation and  effectiveness.  For derivatives that  qualify as effective hedges, the change in fair value has no net impact on  earnings until the hedged transaction affects earnings.    For derivatives that are not designated as  hedging instruments, or for the ineffective portion of a hedging instrument,  the change in fair value is recognized in current period earnings.  

     At January 29, 2001,  the Company held one derivative instrument, an interest rate swap agreement  entered into in December, 2000 with a notional principal amount of $10,000  whereby the Company pays a fixed rate of interest and receives interest based  on LIBOR for the period from April 15, 2001 to April 15, 2002.    The purpose of the interest rate swap  agreement is to mitigate the Company's interest rate risk under its revolving  credit facility.  

     Prior to January 29,  2001, the Company had accounted for the interest rate swap agreement as a  cash flow hedge.  Upon adoption of  SFAS No. 133, the Company elected to not use hedge accounting for the  interest rate swap agreement.  Accordingly, a cumulative-effect-type adjustment was made to  Accumulated Other Comprehensive Income in the amount of $76, which represents  the fair value of the interest rate swap at the date of adoption of SFAS No.  133 ($123) net of income tax effect ($47).  The cumulative effect adjustment will be amortized to earnings over  the period from April 15, 2001 to April 15, 2002 (approximately $61 of the  $76 in accumulated other comprehensive income will be recognized in earnings  during the fiscal year ended February 3, 2002).  During the 13 and 26 week  periods ended July 29, 2001, the Company recorded  interest expense of $31 ($19 net of tax), and $36 ($22 net of tax),  respectively,  to amortize the transition adjustment.    Subsequent to the adoption of SFAS No. 133,  the Company recorded interest expense of $6 and $64 for the 13 and 26 week  periods ended July 29, 2001, respectively, to reflect the change in fair value of the interest  rate swap agreement.  

 

The components of comprehensive income are as        follows:
Thirteen Weeks        Ended

Twenty-Six Weeks Ended
July 29,2001
July 29, 2001
Net earnings    
$943
$966
Cumulative effect adjustment  
upon adoption of SFAS No. 133, net of tax  
0
(76)
Other comprehensive income -  
amortization of cumulative effect adjustment  
19
22
Comprehensive        income                         
$962
$912
A summary of changes in accumulated other        comprehensive income (loss) for the 13 and 26 week periods ended July        29, 2001 is as follows:
Accumulated other comprehensive income (loss) at        beginning of period
($73)
$0
Cumulative effect adjustment upon adoption of SFAS        No. 133, net of tax
0
(76)
Amortization of accumulated other comprehensive        income
$19
$22
Accumulated other comprehensive income (loss)
($54)
($54)
(4) Earnings Per Share
Basic net earnings per share is computed by dividing        net earnings by the weighted average number of shares outstanding.        Diluted net earnings per share reflects the potential dilution that        could occur if contracts to issue securities (such as stock options)        were exercised.
The average number of shares used in computing        earnings per share was as follows:
Thirteen Weeks        Ending
Basic
Diluted
               July 29, 2001
4,149,599
4,149,599
               July 30, 2000
4,444,186
4,480,956
Twenty-Six        Weeks Ending
Basic
Diluted
               July 29, 2001
4,235,643
4,235,643
               July 30, 2000
4,543,975
4,567,530
 
**ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS*(Dollars in thousands)*
        The thirteen  weeks ended July 29, 2001 and July 30, 2000 are referred to herein as the  second quarter of fiscal 2002 and 2001, respectively.

        As used below  the term "competitive market" refers to any market wherein there is  one or more national or regional full-line discount stores located in the  market served by the Company. The term "non-competitive market"  refers to any market where there is no national or regional full-line discount  store located in the market served by the Company. Even in a non-competitive  market, the Company faces competition from a variety of sources.
***RESULTS OF OPERATIONS***
Thirteen Weeks Ended July 29, 2001 Compared to Thirteen  Weeks Ended July 30, 2000.

        The Company  continues to execute its basic strategy of opening stores in under-served  markets that have no competition from national or regional full-line discount  retailers. During the second quarter of fiscal 2002 the Company opened one  ALCO store, which was in a new, non-competitive market and closed one Duckwall  store, resulting in a quarter end total of 264 stores. For the twenty-six week  period ending July 29, 2001, the Company opened two stores and closed five  stores. As of July 29, 2001, over 80% of the stores were located in  non-competitive markets. Through the second quarter, the Company has completed  the remodel of 19 of the planned 32 ALCO stores targeted for completion in the  current fiscal year.

        Net sales for  the second quarter of fiscal 2002 increased $2,205 or 2.2% to $101,763  compared to $99,558 for the second quarter of fiscal 2001. Net sales for the  prototype Class 18 ALCO stores open the full period in both the second quarter  of fiscal 2002 and fiscal 2001 (comparable stores) increased $1,087 or 2.4%.  The Duckwall variety stores produced an increase of $187 or 2.2% compared to  the second quarter of the prior fiscal year. Net sales for all stores open the  full period increased $1,858 or 2.0% compared to the second quarter of the  prior fiscal year. The 19 remodeled stores have, on average, experienced  double digit increases in sales in the current fiscal year since their  remodel. Feature items and everyday values are emphasized. In addition to the  remodel program, the Company continues to benefit from exciting marketing and  merchandising initiatives that are contributing to improved sales. These  include opportunistic buys in various departments, feature programs, expansion  of consumables and more emphasis on opening price point merchandise. These  programs are designed to increase purchases by our customers while they are  shopping.

        Net sales for  the twenty-six week period ending July 29, 2001 increased $2,908 or 1.5% to  $193,557 compared to $190,649 in the comparable twenty-six week period of the  prior fiscal year. Net sales of comparable class 18 ALCO stores increased by  $1,375 or 1.6% for the twenty-six week period ending July 29, 2001 compared to  the twenty-six week period of the prior fiscal year. Net sales for all stores  open the full period increased $1,607 or 0.9% for the twenty-six week period  ending July 29, 2001 compared to the twenty-six week period of the prior  fiscal year.

        Gross margin for  the second quarter of fiscal 2002 decreased $112 or 0.3% to $33,173 compared  to $33,285 in the second quarter of fiscal 2001. Gross margin was negatively  impacted by higher transportation costs, as well as the mix of sales that  included more lower margin items. Gross margin as a percentage of sales was  32.6% for the second quarter of fiscal 2002 compared to 33.4% in the second  quarter of fiscal 2001.

        Gross margin for  the twenty-six week period ended July 29, 2001 was $62,828, which was $783 or  1.2% lower than last year's twenty-six week gross margin of $63,611. As a  percent of net sales, gross margin for the twenty-six week period ended July  29, 2001 was 32.5% compared to 33.4% in the twenty-six week period of the  prior fiscal year. The reduction in gross margin percentage was attributable  to higher transportation costs, as well as the mix of sales that included more  lower margin items.

        Selling, general and  administrative expense increased $1,529 or 5.5% to $29,341 in the second  quarter of fiscal 2002 compared to $27,812 in the second quarter of fiscal  2001. As a percentage of net sales, selling, general and administrative  expenses in the second quarter of fiscal 2002 was 28.8%, compared to 27.9% in  the second quarter of fiscal 2001. The increase in the selling, general and  administrative expense was due to higher than normal inflationary increases in  utilities and insurance costs, and expenses which increased with the  implementation of the Company's store remodel program and other marketing,  merchandising and operations initiatives.

        Selling, general and  administrative expenses increased $1,908 or 3.5% to $56,683 for the twenty-six  week period ended July 29, 2001 compared to $54,775 for the comparable  twenty-six week period of the prior fiscal year. Selling, general and  administrative expense as a percent of net sales was 29.3% for the twenty-six  week period ending July 29, 2001, compared to 28.7% for the twenty-six week  period ended July 30, 2000. The remodel and merchandising initiatives  described above also contributed to the increased selling, general and  administrative expenses.

        Provision for asset impairment  and store closure was $0 in the second quarter of fiscal 2002 compared to $23  in the second quarter of fiscal 2001.

        Provision for asset impairment  and store closure was ($8) for the twenty-six week period ended July 29, 2001  compared to $114 for the comparable twenty-six week period of the prior fiscal  year. The store closing expense for the stores closed in the current fiscal  year was accrued in the prior fiscal year. The resulting $8 of income was the  excess of the accrual for closing over the actual expenses incurred to close  the stores.

        Depreciation and amortization  expense increased $12 or 0.8% to $1,572 in the second quarter of fiscal 2002  compared to $1,560 in the second quarter of fiscal 2001.

        Income from operations decreased  $1,630 or 41.9% to $2,260 in the second quarter of fiscal 2002 compared to  $3,890 in the second quarter of fiscal 2001. Income from operations as a  percentage of net sales was 2.2% in the second quarter of fiscal 2002 compared  to 3.9% in the second quarter of fiscal 2001.

        Income from operations decreased  $2,576 or 45.9% to $3,038 for the twenty-six week period ended July 29, 2001  compared to $5,614 in the comparable twenty-six week period of the prior  fiscal year.

        Interest expense decreased $28  or 3.7% in the second quarter of fiscal 2002 compared to the second quarter of  fiscal 2001.

        Net earnings for the second  quarter of fiscal 2002 were $943, a decrease of $963 or 50.5% over the net  earnings of $1,906 for the second quarter of fiscal 2001.
***LIQUIDITY AND CAPITAL RESOURCES***
        The Company's primary sources of  funds are cash flow from operations, borrowings under its revolving loan  credit facility and vendor trade credit financing (increases in accounts  payable).

        At July 29, 2001 working capital  (defined as current assets less current liabilities) was $67,228 compared to  $94,001 at the end of fiscal 2001. The decrease in working capital was due to  the classification of the revolving loan as a current liability as it becomes  due in April 2002. While no commitments are in place, management expects to  renew or replace the revolving loan prior to April 2002.

        Operating activities in the  twenty-six week period of fiscal 2002 generated cash in the amount of $1,183  and used cash in the amount of $696 in the twenty-six week period of fiscal  2001. The increase in the amount of cash generated by operating activities in  the twenty-six week period of fiscal 2002 compared to the twenty-six week  period of fiscal 2001 was primarily due to a larger increase in accounts  payable as well as a smaller increase in inventory.

        The Company used cash from  financing activities in the twenty-six week period of fiscal 2002 in the  amount of $2,512 and $3,620 in the twenty-six week period of fiscal 2001. Cash  was used for stock redemption, as well as to make principal payments on long  term notes and capital leases.

        Cash used in investing  activities in the twenty-six week period of fiscal 2002 and 2001 totaled  $3,086 and $2,998 respectively. Total anticipated cash payments for  acquisition of property and equipment in fiscal 2002, principally for store  buildings and store and warehouse fixtures and equipment, are $8,200.
*** 

BUSINESS OPERATIONS AND SEGMENT INFORMATION***
        The Company's business  activities include operation of ALCO discount stores in towns with populations  which are typically less than 5,000 not served by other regional or national  full-line discount chains and Duckwall variety stores that offer a more  limited selection of merchandise which are primarily located in communities of  less than 2,500 residents.

        For financial reporting  purposes, the Company has established two operating segments: "ALCO  Discount Stores", and "All Other", which includes the Duckwall  variety stores and other business activities, such as general office,  warehouse and distribution activities.

 

  For The Thirteen Week

For  The Twenty-Six Week

  Periods Ended

  Periods Ended

July  29,

July 30,
July  29,
July 30,
  2001

  2000

  2001

  2000

Segment  Information

Net  Sales:

   ALCO Discount Stores

$92,976
$90,639
$176,918
$173,343
   All Other

     External

8,787
8,919
16,639
17,306
     Intercompany

49,947
47,376
109,013
105,803
$151,710
$146,934
$302,570
$296,452
Depreciation  and Amortization

   ALCO Discount Stores

$1,018
$1,032
$2,023
$2,039
   All Other

554
528
1,092
1,069
$1,572
$1,560
$3,115
$3,108
Income  (loss) from Operations:

   ALCO Discount Stores

$7,461
$8,408
$13,369
$14,892
   All Other

(5,222)
(4,520)
(10,373)
(9,108)
$2,239
$3,888
$2,996
$5,784
Capital  Expenditures:

   ALCO Discount Stores

$1,841
$1,036
$2,971
$2,445
   All Other

389
404
836
553
$2,230
$1,440
$3,807
$2,998
Identifiable  Assets:

   ALCO Discount Stores

$131,097
$133,057
$131,097
$133,057
  All Other

38,441
43,369
38,441
43,369
$169,538
$176,426
$169,538
$176,426
Income from operations as reflected in the above  segment information has been determined differently than income from  operations in the accompanying consolidated statements of operations as  follows:

*Intercompany  Sales*

Intercompany sales  represent transfers of merchandise from the warehouse to ALCO discount stores  and Duckwall variety stores.

 

*Intercompany  Expense Allocations*

General and  administrative expenses incurred at the general office have not been  allocated to the ALCO Discount Stores for purposes of determining income from  operations for the segment information.

Warehousing and  distribution costs including freight applicable to merchandise purchases,  have been allocated to the ALCO Discount Stores segment based on the  Company's customary method of allocation for such costs (primarily as a  stipulated percentage of merchandise purchases).

*Inventories*

Inventories are based  on the FIFO method for segment information purposes and on the LIFO method  for the consolidated statements of operations.

 

*Leases*

All leases are  accounted for as operating leases for purposes of determining income from  operations for purposes of determining the segment information for the ALCO  Discount Stores whereas capital leases are accounted for as such in the  consolidated statements of operations.

  Identifiable assets as reflected in the above  segment information include cash and cash equivalents, receivables,  inventory, property and equipment, and property under capital leases.

  For The Thirteen Week

  For The Twenty-Six Week

  Periods Ended

  Periods Ended

July  29,

July 30,
July 29,
July 30,
  2001

  2000

  2001

  2000

Net  sales per above segment information

$151,710
$146,934
$302,570
$296,452
Intercompany  elimination

(49,947)
(47,376)
(109,013)

(105,803)
   Net sales per consolidated statements

   of operations

$101,763
$99,558
$193,557
$190,649
  Income from operations per above

$2,239
$3,888
$2,996
$5,784
   segment information

Inventory  method

  0

0
  0

  (175)

Leases

  21

2
42
5
   Income from operations per consolidated

   statements of operations

$2,260
$3,890
$3,038
$5,614
 **CHANGE IN ACCOUNTING PRINCIPLES**

         In December 1999, the Securities and Exchange  Commission issued Staff Accounting Bulletin No. 101 - "Revenue  Recognition in Financial Statements" (SAB 101). This SAB deals with  various revenue recognition issues. In the fourth quarter of fiscal 2001, the  company implemented a change in the way it recognizes revenues related to  layaway sales. The change was adopted retroactively to the beginning of the  year. The impact included a cumulative effect of an accounting change that  reduced diluted earnings per share by $0.04. 

         Effective January 29, 2001, the Company adopted  Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for  Derivative Investments and Hedging Activities."  See additional discussion in Note 3 to Unaudited Consolidated  Financial Statements.

**MARKET RISK DISCLOSURE**

         The revolving credit facility  has a floating interest rate that is  affected by changes in market interest rates.  The Company entered into an interest rate swap in December 2000  with a notional principal amount of $10,000 whereby the Company will pay a  fixed rate of interest and receive interest based on LIBOR for the period  April 15, 2001 to April 15, 2002 to mitigate a portion of its interest rate  risk under the revolving credit facility.  

****

**OTHER  INFORMATION**

 

**PART II**

 

**Item 1.** Legal Proceedings

No legal  proceedings except those covered by insurance occurred during the thirteen  week period ended July 29, 2001.

****

**Item 2.** Changes in Securities

  Not applicable

****

**Item 3.** Defaults Upon Senior Securities

  Not Applicable

****

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

  Not Applicable

****

**Item 5.** Other Information

  None

****

**Item 6.** Exhibits and Reports on Form 8-K

  (a) None

  (b) Reports on Form 8-K

        No reports filed

 

 

****

**SIGNATURES**

 

      Pursuant to the requirements 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.

 

**DUCKWALL-ALCO  STORES, INC.**

***(Registrant)***

Date, Sept 11,  2001           /s/Richard  A. Mansfield

  Richard A. Mansfield

  Vice President - Finance

  Chief Financial Officer

   

   

  Signing on behalf of the

  registrant and as principal

  financial officer******** |