| Kansas                                                    | 48-0201080                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|                                                           |                                 |
| 401 Cottage StreetAbilene, Kansas                         |   67410-2832               |
| (Address of principal executive offices)                       | (Zip Code)                           |

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| TABLE OF CONTENTS |
|-------------------|
|              |   |   |   |
| PART I            | FINANCIAL INFORMATION |   |
|              | Item 1. | Financial Statements | 3 |
|              | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 |
|              | Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 15 |
|              | Item 4. | Controls and Procedures | 15 |
|              |   |   |   |
| PART II           | OTHER INFORMATION |   |
|              | Item 1. | Legal Proceedings | 15 |
|              | Item 1A. | Risk Factors | 16 |
|              | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
|              | Item 3. | Defaults Upon Senior Securities | 16 |
|              | Item 4. | Submission of Matters to a Vote of Security Holders | 16 |
|              | Item 5. | Other Information | 16 |
|              | Item 6. | Exhibits | 16 |
|              |   |   |   |
| Signature         |   |   | 18 |

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FINANCIAL INFORMATION

FINANCIAL STATEMENTS

| Duckwall-ALCO Stores, Inc. and Subsidiaries                                                            |   |
|--------------------------------------------------------------------------------------------------------|--------|
| Consolidated Balance Sheets                                                                            |   |
| (dollars in thousands, except share amounts)                                                           |   |
|                                                                                                   |   |   |   |   |   |   |
| Assets                                                                                                 |   |
|                                                                                                   |   | August 2, |   |   | February 1, |   |
|                                                                                                   |   | 2009 |   |   | 2009 |   |
|                                                                                                   |   | (Unaudited) |   |   |   |   |
| Current assets:                                                                                        |   |   |   |   |   |   |
|    Cash and cash equivalents                                                            |   | $ | 5,446 |   |   |   | 4,744 |   |
|    Receivables                                                                          |   |   | 5,656 |   |   |   | 5,142 |   |
|    Prepaid income taxes                                                                 |   |   | 423 |   |   |   | 5,753 |   |
|    Inventories                                                                          |   |   | 148,499 |   |   |   | 146,620 |   |
|    Prepaid expenses                                                                     |   |   | 4,067 |   |   |   | 4,143 |   |
|    Deferred income taxes                                                                |   |   | 5,345 |   |   |   | 5,348 |   |
|   Assets held for sale                                                                       |   |   | 1,539 |   |   |   | 1,505 |   |
|           Total current assets                       |   |   | 170,975 |   |   |   | 173,255 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Property and equipment, at cost:                                                                       |   |   |   |   |   |   |   |   |
|    Land and land improvements                                                           |   |   | 1,421 |   |   |   | 1,420 |   |
|    Buildings and building improvements                                                  |   |   | 11,461 |   |   |   | 11,369 |   |
|    Furniture, fixtures and equipment                                                    |   |   | 70,318 |   |   |   | 69,019 |   |
|    Transportation equipment                                                             |   |   | 1,364 |   |   |   | 1,322 |   |
|    Leasehold improvements                                                               |   |   | 14,359 |   |   |   | 13,974 |   |
|    Construction work in progress                                                        |   |   | 1,838 |   |   |   | 745 |   |
|           Total property and equipment               |   |   | 100,761 |   |   |   | 97,849 |   |
|    Less accumulated depreciation                                                        |   |   | 69,230 |   |   |   | 65,591 |   |
|           Net property and equipment                 |   |   | 31,531 |   |   |   | 32,258 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Property under capital leases                                                                          |   |   | 11,015 |   |   |   | 11,015 |   |
|    Less accumulated amortization                                                        |   |   | 8,784 |   |   |   | 7,958 |   |
|           Net property under capital leases          |   |   | 2,231 |   |   |   | 3,057 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Other non-current assets                                                                               |   |   | 164 |   |   |   | 205 |   |
|           Total assets                               |   | $ | 204,901 |   |   |   | 208,775 |   |
|                                                                                                   |   |
| Liabilities and Stockholders' Equity                                                                   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Current liabilities:                                                                                   |   |   |   |   |   |   |   |   |
|    Current maturities of long-term debt                                                 |   | $ | 1,406 |   |   |   | 1,362 |   |
|    Current maturities of capital lease obligations                                      |   |   | 1,903 |   |   |   | 1,853 |   |
|    Accounts payable                                                                     |   |   | 25,682 |   |   |   | 30,233 |   |
|    Accrued salaries and commissions                                                     |   |   | 4,632 |   |   |   | 5,375 |   |
|    Accrued taxes other than income                                                      |   |   | 4,792 |   |   |   | 4,941 |   |
|    Self-insurance claim reserves                                                        |   |   | 4,841 |   |   |   | 5,309 |   |
|    Other current liabilities                                                            |   |   | 4,548 |   |   |   | 4,676 |   |
|           Total current liabilities                  |   |   | 47,804 |   |   |   | 53,749 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Long term debt, less current maturities                                                                |   |   | 2,151 |   |   |   | 2,865 |   |
| Notes payable under revolving loan agreement                                                           |   |   | 41,308 |   |   |   | 40,714 |   |
| Capital lease obligations - less current maturities                                                    |   |   | 2,034 |   |   |   | 3,047 |   |
| Deferred gain on leases                                                                                |   |   | 4,405 |   |   |   | 4,598 |   |
| Deferred income taxes, net                                                                             |   |   | 129 |   |   |   | 138 |   |
| Other noncurrent liabilities                                                                           |   |   | 1,662 |   |   |   | 1,624 |   |
|           Total liabilities                          |   |   | 99,493 |   |   |   | 106,735 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Stockholders' equity:                                                                                  |   |   |   |   |   |   |   |   |
|   Common stock, $.0001 par value, authorized 20,000,000 shares; issued and outstanding       |   |   |   |   |   |   |   |   |
|     3,797,947 shares and 3,797,947 shares, respectively                            |   |   | 1 |   |   |   | 1 |   |
|    Additional paid-in capital                                                           |   |   | 39,002 |   |   |   | 38,615 |   |
|    Retained earnings                                                                    |   |   | 66,405 |   |   |   | 63,424 |   |
|           Total stockholders' equity                 |   |   | 105,408 |   |   |   | 102,040 |   |
|           Total liabilities and stockholders' equity |   | $ | 204,901 |   |   |   | 208,775 |   |
| See accompanying notes to unaudited consolidated financial statements.                                 |   |

----

| Duckwall-ALCO Stores, Inc. and Subsidiaries                                                |   |
|--------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Operations                                                      |   |
| (dollars in thousands, except per share amounts)                                           |   |
| (Unaudited)                                                                                |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   | For the Thirteen Week |   |   | For the Twenty-Six Week |   |
|                                                                                       |   | Periods Ended |   |   | Periods Ended |   |
|                                                                                       |   | August 2, 2009 |   |   | August 3, 2008 |   |   | August 2, 2009 |   |   | August 3, 2008 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                                                  |   | $ | 125,291 |   |   |   | 129,186 |   |   |   | 240,695 |   |   |   | 234,813 |   |
| Cost of sales                                                                              |   |   | 82,880 |   |   |   | 85,868 |   |   |   | 159,748 |   |   |   | 159,771 |   |
| Gross margin                                                                               |   |   | 42,411 |   |   |   | 43,318 |   |   |   | 80,947 |   |   |   | 75,042 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative                                                        |   |   | 34,614 |   |   |   | 35,055 |   |   |   | 70,325 |   |   |   | 71,821 |   |
| Depreciation and amortization                                                              |   |   | 2,268 |   |   |   | 1,904 |   |   |   | 4,646 |   |   |   | 3,676 |   |
|            Total operating expenses |   |   | 36,882 |   |   |   | 36,959 |   |   |   | 74,971 |   |   |   | 75,497 |   |
| Operating income (loss) from continuing operations                                         |   |   | 5,529 |   |   |   | 6,359 |   |   |   | 5,976 |   |   |   | (455 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                      |   |   | 521 |   |   |   | 551 |   |   |   | 1,057 |   |   |   | 1,156 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations before income taxes                             |   |   | 5,008 |   |   |   | 5,808 |   |   |   | 4,919 |   |   |   | (1,611 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense (benefit)                                                               |   |   | 1,977 |   |   |   | 2,364 |   |   |   | 1,936 |   |   |   | (685 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations                                                 |   |   | 3,031 |   |   |   | 3,444 |   |   |   | 2,983 |   |   |   | (926 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations, net of income tax benefit                          |   |   | - |   |   |   | (188 | ) |   |   | (2 | ) |   |   | (1,670 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net earnings (loss)                                                                        |   | $ | 3,031 |   |   |   | 3,256 |   |   |   | 2,981 |   |   |   | (2,596 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Basic                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Continuing operations                |   | $  | 0.80 |   |   |   | 0.90 |   |   |   | 0.79 |   |   |   | (0.24 | ) |
|          Discontinued operations              |   |   | - |   |   |   | (0.05 | ) |   |   | - |   |   |   | (0.44 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Net earnings (loss) per share        |   | $  | 0.80 |   |   |   | 0.85 |   |   |   | 0.79 |   |   |   | (0.68 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Diluted                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Continuing operations                |   | $  | 0.78 |   |   |   | 0.90 |   |   |   | 0.77 |   |   |   | (0.24 | ) |
|          Discontinued operations              |   |   | - |   |   |   | (0.05 | ) |   |   | - |   |   |   | (0.44 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Net earnings (loss) per share        |   | $  | 0.78 |   |   |   | 0.85 |   |   |   | 0.77 |   |   |   | (0.68 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to unaudited consolidated financial statements.                     |   |   |   |   |   |   |   |   |   |   |   |   |   |

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| Duckwall-ALCO Stores, Inc. and Subsidiaries                                                     |   |
|-------------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Cash Flows                                                           |   |
| (dollars in thousands)                                                                          |   |
| (Unaudited)                                                                                     |   |
|                                                                                            |   | For the Twenty-Six Week |   |
|                                                                                            |   | Periods Ended |   |
|                                                                                            |   | August 2, 2009 |   |   | August 3, 2008 |   |
|                                                                                            |   |   |   |   |   |   |
| Cash flows from operating activities:                                                           |   |   |   |   |   |   |
| Net earnings (loss)                                                                             |   | $ | 2,981 |   |   |   | (2,596 | ) |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                   |   |   | 4,606 |   |   |   | 3,725 |   |
| Gain on sale of assets                                                                          |   |   | (1 | ) |   |   | (60 | ) |
| Share-based compensation                                                                        |   |   | 446 |   |   |   | (135 | ) |
| Deferred income tax (benefit) expense, net                                                      |   |   | (65 | ) |   |   | 304 |   |
| Changes in:                                                                                     |   |   |   |   |   |   |   |   |
|    Receivables                                                                   |   |   | (514 | ) |   |   | 1,162 |   |
|    Prepaid income taxes                                                          |   |   | 5,330 |   |   |   | (1,655 | ) |
|    Inventories                                                                   |   |   | (1,879 | ) |   |   | (17,113 | ) |
|    Prepaid expenses                                                              |   |   | 76 |   |   |   | (1,005 | ) |
|    Accounts payable                                                              |   |   | (4,551 | ) |   |   | 16,745 |   |
|    Accrued salaries and commissions                                              |   |   | (743 | ) |   |   | 1,381 |   |
|    Accrued taxes other than income                                               |   |   | (149 | ) |   |   | 37 |   |
|    Self-insurance claim reserves                                                 |   |   | (468 | ) |   |   | (366 | ) |
|    Other assets and liabilities                                                  |   |   | (242 | ) |   |   | (406 | ) |
|       Net cash provided by operating activities                   |   |   | 4,827 |   |   |   | 18 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                                           |   |   |   |   |   |   |   |   |
| Proceeds from the sale of assets                                                                |   |   | 3 |   |   |   | 164 |   |
| Acquisition of property and equipment                                                           |   |   | (3,089 | ) |   |   | (5,070 | ) |
|       Net cash used in investing activities                       |   |   | (3,086 | ) |   |   | (4,906 | ) |
|                                                                                            |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                                           |   |   |   |   |   |   |   |   |
| Net borrowings under revolving loan agreement                                              |   |   | 594 |   |   |   | 5,542 |   |
| Proceeds from stock sale                                                                        |   |   | - |   |   |   | 90 |   |
| Principal payments under term loan                                                         |   |   | (670 | ) |   |   | (629 | ) |
| Principal payments under capital lease obligations                                              |   |   | (963 | ) |   |   | (963 | ) |
|       Net cash (used in) provided by financing activities         |   |   | (1,039 | ) |   |   | 4,040 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
|       Net increase (decrease) in cash and cash equivalents        |   |   | 702 |   |   |   | (848 | ) |
| Cash and cash equivalents at beginning of period                                                |   |   | 4,744 |   |   |   | 5,501 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at end of period                                                      |   | $ | 5,446 |   |   |   | 4,653 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Supplemental disclosures of cash flow information:                                              |   |   |   |   |   |   |   |   |
| Cash paid during the period for:                                                                |   |   |   |   |   |   |   |   |
| Interest                                                                                        |   | $ | 1,064 |   |   |   | 1,151 |   |
| Income taxes                                                                                    |   |   | 278 |   |   |   | (230 | ) |
|                                                                                            |   |   |   |   |   |   |   |   |
| See accompanying notes to unaudited consolidated financial statements.                          |   |   |   |   |   |   |   |   |

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|                                   |   | Fiscal 2009 Ended |    |   | For the Thirteen Week Periods Ended |   |   | For the Twenty-Six Week Periods Ended |   |
|----------------------------------------|--------|-------------------|---------|--------|-------------------------------------|--------|--------|---------------------------------------|--------|
|                                   |   | February 1, 2009  |    |   | August 2, 2009                      |   |   | August 3, 2008                        |   |   | August 2, 2009 |   |   | August 3, 2008 |   |
| Stock options granted                  |   |              | 414,500 |   |                                |   | 20,000 |                                  |   |   | 312,000 |   |   |   | 35,000 |   |   |   | 374,500 |   |
| Weighted average exercise price        |   | $                 | 12.26   |   |                                |   | 15.50  |                                  |   |   | 12.17 |   |   |   | 12.82 |   |   |   | 12.39 |   |
| Weighted average grant date fair value |   | $                 | 4.16    |   |                                |   | 6.55   |                                  |   |   | 4.17 |   |   |   | 5.40 |   |   |   | 4.15 |   |

|                                     |   | Fiscal 2009 Ended |   |   | For the Thirteen Week Periods Ended |   |   | For the Twenty-Six Week Periods Ended |   |
|------------------------------------------|--------|-------------------|--------|--------|-------------------------------------|--------|--------|---------------------------------------|--------|
|                                     |   | February 1, 2009  |   |   | August 2, 2009                      |   |   | August 3, 2008                        |   |   | August 2, 2009 |   |   | August 3, 2008 |   |
| Expected price volatility                |   |              | 36.6   | %      |                                |   | 54.3   | %                                     |   |   | 36.4 | % |   |   | 51.6 | % |   |   | 36.1 | % |
| Risk-free interest rate                  |   |              | 2.5    | %      |                                |   | 1.4    | %                                     |   |   | 2.7 | % |   |   | 1.4 | % |   |   | 2.6 | % |
| Weighted average expected lives in years |   |              | 4.5    |   |                                |   | 3.8    |                                  |   |   | 4.6 |   |   |   | 4.2 |   |   |   | 4.5 |   |
| Dividend yield                           |   |              | 0.0    | %      |                                |   | 0.0    | %                                     |   |   | 0.0 | % |   |   | 0.0 | % |   |   | 0.0 | % |

----

| The average number of shares used in computing earnings per share was as follows: |   |   |      |   |    |   |
|-----------------------------------------------------------------------------------|--------|--------|-----------|--------|---------|--------|
|                                                                              |   |   |      |   |    |   |
| Thirteen Weeks Ended                                                              |   | Basic  |      |   | Diluted |   |
|                                                                              |   |   |      |   |    |   |
| August 2, 2009                                                                    |   |   | 3,797,947 |   |    |   | 3,901,920 |   |
| August 3, 2008                                                                    |   |   | 3,814,217 |   |    |   | 3,824,668 |   |
|                                                                              |   |   |      |   |    |   |   |   |
|                                                                              |   |   |      |   |    |   |   |   |
| Twenty-Six Weeks Ended                                                            |   | Basic  |      |   | Diluted |   |
|                                                                              |   |   |      |   |    |   |   |   |
| August 2, 2009                                                                    |   |   | 3,797,947 |   |    |   | 3,856,596 |   |
| August 3, 2008                                                                    |   |   | 3,812,404 |   |    |   | 3,812,404 |   |

| Beginning balances as of May 3, 2009 |   | $      | 180 |   |
|--------------------------------------|--------|--------|-----|--------|
| Net lease payments made              |   |   | (75 | )      |
| Ending balance as of August 2, 2009  |   | $      | 105 |   |

----

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| · | Net sales decreased 3.0% to $125.3 million.  Same-store sales decreased 3.0% compared to the prior year second quarter.                                                                                                                                                                                                                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gross margin percentage increased to 33.8% of sales, compared to 33.5% in the prior year second quarter.                                                                                                                                                                                                                                                                                                                            |
| · | Net earnings per diluted share was $0.78 in the second quarter of fiscal 2010 compared to net earnings of $0.85 per diluted share in the prior year second quarter.                                                                                                                                                                                                                                                                 |
| · | The Company’s earnings from continuing operations before interest, taxes, depreciation and amortization, share-based compensation, preopening store costs, inventory review initiative and executive, staff severance and store transformation project costs (“Adjusted EBITDA”) for the second quarter2010 was $8.8 million compared to the prior year second quarter of $9.2 million.  |

----

----

----

|                                                                                                                                                |   | For the Thirteen Week Periods Ended |   |   | For the Twenty-Six Week Periods Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|---------------------------------------|--------|
| SG&A Expenses Breakout                                                                                                                          |   | August 2, 2009                      |   |   | August 3, 2008                        |   |   | August 2, 2009 |   |   | August 3, 2008 |   |
| Store support center (1)                                                                                                                            |   | $                                   | 5,599  |   |                                  |   | 4,719 |   |   |   | 12,117 |   |   |   | 12,768 |   |
| Distribution center                                                                                                                                 |   |                                | 2,041  |   |                                  |   | 2,241 |   |   |   | 4,232 |   |   |   | 4,578 |   |
| 401K expense                                                                                                                                        |   |                                | 86     |   |                                  |   | 119 |   |   |   | 196 |   |   |   | 244 |   |
| Same-store SG&A                                                                                                                                 |   |                                | 25,414 |   |                                  |   | 26,417 |   |   |   | 50,116 |   |   |   | 51,870 |   |
| Non same-store SG&A (2)                                                                                                                         |   |                                | 1,213  |   |                                  |   | 1,365 |   |   |   | 3,218 |   |   |   | 2,496 |   |
| Share-based compensation                                                                                                                            |   |                                | 261    |   |                                  |   | 194 |   |   |   | 446 |   |   |   | (135 | ) |
| SG&A as reported                                                                                                                                |   |                                | 34,614 |   |                                  |   | 35,055 |   |   |   | 70,325 |   |   |   | 71,821 |   |
| Less:                                                                                                                                               |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Share-based compensation                                                                                                                            |   |                                | (261   | )      |                                  |   | (194 | ) |   |   | (446 | ) |   |   | 135 |   |
| Preopening store costs (2)                                                                                                                          |   |                                | -      |   |                                  |   | (773 | ) |   |   | - |   |   |   | (1,495 | ) |
| Executive and staff severance (1)                                                                                                                   |   |                                | -      |   |                                  |   | - |   |   |   | - |   |   |   | (1,942 | ) |
| Store transformation project costs (1)                                                                                                              |   |                                | (718   | )      |                                  |   | - |   |   |   | (2,096 | ) |   |   | - |   |
| Adjusted SG&A                                                                                                                                   |   | $                                   | 33,635 |   |                                  |   | 34,088 |   |   |   | 67,783 |   |   |   | 68,519 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted SG&A as % of sales                                                                                                                     |   |                                | 26.8   | %      |                                  |   | 26.4 | % |   |   | 28.2 | % |   |   | 29.2 | % |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Sales per average selling square foot (3)                                                                                                           |   | $                                   | 27.65  |   |                                  |   | 29.47 |   |   |   | 53.11 |   |   |   | 54.24 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted Gross Margin dollars per average selling square feet (3)(4)                                                                                |   | $                                   | 9.36   |   |                                  |   | 9.88 |   |   |   | 17.86 |   |   |   | 17.65 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted SG&A per average selling square foot (3)                                                                                               |   | $                                   | 7.42   |   |                                  |   | 7.78 |   |   |   | 14.96 |   |   |   | 15.83 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted EBITDA per average selling square foot (3)(5)                                                                                              |   | $                                   | 1.94   |   |                                  |   | 2.10 |   |   |   | 2.90 |   |   |   | 1.82 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Average inventory per average selling square feet (3)(6)(7)                                                                                         |   | $                                   | 28.55  |   |                                  |   | 28.03 |   |   |   | 27.11 |   |   |   | 26.44 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Average selling square feet (3)                                                                                                                     |   |                                | 4,532  |   |                                  |   | 4,383 |   |   |   | 4,532 |   |   |   | 4,329 |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total stores operating beginning of period                                                                                                          |   |                                | 258    |   |                                  |   | 251 |   |   |   | 258 |   |   |   | 262 |   |
| Total stores operating end of period                                                                                                                |   |                                | 257    |   |                                  |   | 257 |   |   |   | 257 |   |   |   | 257 |   |
| Total stores less than twelve months old                                                                                                            |   |                                |   |   |                                  |   |   |   |   |   | 3 |   |   |   |   |   |
| Total non same-stores                                                                                                                               |   |                                |   |   |                                  |   |   |   |   |   | 3 |   |   |   |   |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Data:                                                                                                                                  |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Same-store gross margin dollar change                                                                                                               |   |                                | 3.9    | %      |                                  |   | 2.6 | % |   |   | 6.7 | % |   |   | 1.2 | % |
| Same-store SG&A dollar change                                                                                                                   |   |                                | (3.8   | )%     |                                  |   | 5.0 | % |   |   | (3.4 | )% |   |   | 4.4 | % |
| Same-store total customer count change                                                                                                              |   |                                | (2.3   | )%     |                                  |   | (2.7 | )% |   |   | (0.5 | )% |   |   | (3.3 | )% |
| Same-store average sale per ticket change                                                                                                           |   |                                | (2.3   | )%     |                                  |   | 6.8 | % |   |   | 0.1 | % |   |   | 4.6 | % |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| (1) Includes executive and staff severance for first quarter fiscal 2009 and store transformation project costs for first quarter fiscal 2010       |   |
| (2) Non same-stores are those stores opened in Fiscal 2009 which have not reached their fourteenth period of operation                              |   |
| (3) Average selling square feet is calculated as beginning square feet plus ending square feet divided by 2                                         |   |
| (4) Adjusted Gross Margin includes $1.3 million inventory review initiative charge added back in first quarter fiscal 2009                          |   |
| (5) Adjusted EBITDA per selling square foot is calculated as Adjusted EBITDA divided by selling square feet                                         |   |
| (6) Average store level merchandise inventory for fiscal 2010 and 2009 is calculated as beginning inventory plus ending inventory divided by 2 |   |
| (7) Excludes inventory for unopened stores                                                                                                          |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |        |   |   | For the Thirteen Week Periods Ended |   |   | Trailing Twelve Periods Ended |   |   | For the Thirteen Week Periods Ended |   |   | Trailing Twelve Periods Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|-------------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------------|--------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Fiscal 2009 |   |   | May 3, 2009                         |   |   | May 4, 2008                   |   |   | May 3, 2009                         |   |   | August 2, 2009                |   |   | August 3, 2008 |   |   | August 2, 2009 |   |
| Net earnings (loss) from continuing operations (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $           | (2,996 | )      |                                |   | (43    | )                             |   |   | (4,367                              | )      |   |                          | 1,328  |   |   |   | 3,031 |   |   |   | 3,444 |   |   |   | 915 |   |
| Plus:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |        |   |   |                                |   |   |                          |   |   |                                |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |        | 1,867  |   |                                |   | 537    |                          |   |   | 605                                 |   |   |                          | 1,799  |   |   |   | 521 |   |   |   | 551 |   |   |   | 1,769 |   |
| Taxes (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |        | (2,090 | )      |                                |   | (45    | )                             |   |   | (3,054                              | )      |   |                          | 919    |   |   |   | 1,977 |   |   |   | 2,364 |   |   |   | 532 |   |
| Depreciation and amortization (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |        | 9,302  |   |                                |   | 2,377  |                          |   |   | 1,773                               |   |   |                          | 9,906  |   |   |   | 2,268 |   |   |   | 1,904 |   |   |   | 10,270 |   |
| Share-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |        | 186    |   |                                |   | 185    |                          |   |   | (329                                | )      |   |                          | 700    |   |   |   | 261 |   |   |   | 194 |   |   |   | 767 |   |
| Preopening store costs (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |        | 1,846  |   |                                |   | -      |                          |   |   | 722                                 |   |   |                          | 1,124  |   |   |   | - |   |   |   | 773 |   |   |   | 351 |   |
| Inventory review initiative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |        | 1,345  |   |                                |   | -      |                          |   |   | 1,345                               |   |   |                          | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Executive and staff severance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        | 1,942  |   |                                |   | -      |                          |   |   | 1,942                               |   |   |                          | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Store transformation project costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        | 2,220  |   |                                |   | 1,378  |                          |   |   | -                                   |   |   |                          | 3,598  |   |   |   | 718 |   |   |   | - |   |   |   | 4,316 |   |
| =Adjusted EBITDA (1)(3)(4)(5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        | 13,622 |   |                                |   | 4,389  |                          |   |   | (1,363                              | )      |   |                          | 19,374 |   |   |   | 8,776 |   |   |   | 9,230 |   |   |   | 18,920 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |        |   |   |                                |   |   |                          |   |   |                                |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |        |   |   |                                |   |   |                          |   |   |                                |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |        | 4,744  |   |                                |   | 8,208  |                          |   |   | 4,977                               |   |   |                          | 8,208  |   |   |   | 5,446 |   |   |   | 4,653 |   |   |   | 5,446 |   |
| Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |        | 49,841 |   |                                |   | 60,946 |                          |   |   | 41,080                              |   |   |                          | 60,946 |   |   |   | 48,802 |   |   |   | 36,964 |   |   |   | 48,802 |   |
| Debt, net of cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $           | 45,097 |   |                                |   | 52,738 |                          |   |   | 36,103                              |   |   |                          | 52,738 |   |   |   | 43,356 |   |   |   | 32,311 |   |   |   | 43,356 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |        |   |   |                                |   |   |                          |   |   |                                |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) These amounts will not agree with the fiscal 2009 first quarter 10-Q filing due to the one store the Company closed in the third quarter of fiscal 2009. These amounts will not agree with the fiscal year end 2009 or fiscal 2010 first quarter 10-Q filing due to the one store the Company closed in the second quarter of fiscal2010. These stores are now shown in discontinued operations.                                                                                                                                                                                                                                                         |   |
| (2) These costs are not consistent quarter to quarter as the Company does not open the same number of stores in each quarter of each fiscal year. These costs are directly associated with the number of stores that have or will be opened and are incurred prior to the grand opening of each store.                                                                                                                                                                                                                                                                                                                                                  |   |
| (3) For the trailing twelve periods ended August 2, 2009 the average open weeks for the Company's three non same-stores is 49 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| (4) During fiscal year 2009, the Company made a change in its Executive Management team and Board of Directors resulting in several initiatives to reduce certain SG&A expenses. For the trailing twelve periods ended August 2, 2009, these initiatives resulted in approximately $5.9 million reduced SG&A expenses whencompared to the same prior year trailing twelve periods.  The initiatives include, but are not limited to, executive and staff reduction, reduced ALCO same-store hourly wages, advertising expenses, net of coop offset and floor care services along with reduced total Company insurance and travel expenses. |   |
| (5) In addition to continued efforts regarding the fiscal 2009 cost reduction initiatives, the Company has also implemented new initiatives for fiscal year 2010. The fiscal 2010 initiatives include, but are not limited to, reduced point-of-sale hardware lease expense, energy expense and accident reduction programs. Theseinitiatives achieved approximately $1.4 million in reduced SG&A savings for the twenty-six weeks of fiscal 2010 when compared to the prior year same period.                                                                                                                                                           |   |

| LIQUIDITY AND CAPITAL RESOURCES |
|---------------------------------|

|   |
|--------|

----

|                                                                | For the Thirteen Week Periods Ended |   |   | For the Twenty-Six Week Periods Ended |   |
|---------------------------------------------------------------------|-------------------------------------|--------|--------|---------------------------------------|--------|
|                                                                | August 2, 2009                      |   |   | August 3, 2008                        |   |   | August 2, 2009 |   |   | August 3, 2008 |   |
| Merchandise Category:                                               |                                |   |   |                                  |   |   |   |   |   |   |   |
| Consumables and commodities                                         |                                | 27     | %      |                                  |   | 29 | % |   |   | 30 | % |   |   | 31 | % |
| Electronics, entertainment, sporting goods, toys and outdoor living |                                | 29     | %      |                                  |   | 29 | % |   |   | 27 | % |   |   | 27 | % |
| Apparel and accessories                                             |                                | 17     | %      |                                  |   | 19 | % |   |   | 16 | % |   |   | 19 | % |
| Home furnishings and décor                                     |                                | 16     | %      |                                  |   | 13 | % |   |   | 16 | % |   |   | 13 | % |
| Other                                                               |                                | 11     | %      |                                  |   | 10 | % |   |   | 11 | % |   |   | 10 | % |
|                                                                |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                               |                                | 100    | %      |                                  |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

CONTROLS AND PROCEDURES

OTHER INFORMATION

LEGAL PROCEEDINGS

----

RISK FACTORS

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

|                                        |   |            |   |   |               |   |   | Total Number          |   |   | Maximum Number        |   |
|---------------------------------------------|--------|-----------------|--------|--------|--------------------|--------|--------|-----------------------|--------|--------|-----------------------|--------|
|                                        |   |            |   |   |               |   |   | of Shares             |   |   | of Shares             |   |
|                                        |   | Total Number Of |   |   |               |   |   | Purchased as Part     |   |   | that May Yet          |   |
|                                        |   | Shares          |   |   | Average Price Paid |   |   | of Publicly Announced |   |   | Be Purchased Under    |   |
| Period                                      |   | Purchased       |   |   | per Share          |   |   | Plans or Programs     |   |   | the Plans or Programs |   |
| As of May 3, 2009                           |   |            | 25,534 |   |               | $      | 15.16  |                  |   |   | 25,534                |   |   |   | 174,466 |   |
|                                        |   |            |   |   |               |   |   |                  |   |   |                  |   |   |   |   |   |
| Second Quarter:                             |   |            |   |   |               |   |   |                  |   |   |                  |   |   |   |   |   |
|     05/04/09 - 05/31/09 |   |            | -      |   |               |   | -      |                  |   |   | -                     |   |   |   | 174,466 |   |
|     06/01/09 - 07/05/09 |   |            | -      |   |               |   | -      |                  |   |   | -                     |   |   |   | 174,466 |   |
|     07/06/09 - 08/02/09 |   |            | -      |   |               |   | -      |                  |   |   | -                     |   |   |   | 174,466 |   |
|                                        |   |            | -      |   |               |   |   |                  |   |   | -                     |   |   |   | 174,466 |   |
|                                        |   |            |   |   |               |   |   |                  |   |   |                  |   |   |   |   |   |
| As of August 2, 2009                        |   |            | 25,534 |   |               | $      | 15.16  |                  |   |   | 25,534                |   |   |   | 174,466 |   |

DEFAULTS UPON SENIOR SECURITIES

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

OTHER INFORMATION

EXHIBITS

----

| 3.1    | Articles of Incorporation of Duckwall-ALCO Stores, Inc., amended as of June 13, 1994 and restated solely for filing with the Securities and Exchange Commission (filed as Exhibit 3.1 to Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2004 and incorporated herein by reference). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                |
| 3.2    | Bylaws of Duckwall-ALCO Stores, Inc. (filed as Exhibit 3.2 to Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2004 and incorporated herein by reference).                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                |
| 4.1    | Specimen of Duckwall-ALCO Stores, Inc. Common Stock Certificate.  (filed as Exhibit 4.1 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 3, 2008 and incorporated herein by reference).                                                                               |

| 4.2    | Reference is made to the Amended and Restated Articles of Incorporation described under 3.1 above and Bylaws described under 3.2 above.                                                                      |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                         |
| 10.1   | Employment Agreement dated July 1, 2008 between the Company and Lawrence J. Zigerelli is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company dated July 3, 2008. |

| 10.2   | Stock Purchase Agreement dated July 1, 2008 between the Company and Lawrence J. Zigerelli is incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of the Company dated July 3, 2008.             |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                    |
| 10.3   | Non-Qualified Stock Option Agreement dated July 1, 2008 between the Company and Lawrence J. Zigerelli is incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of the Company dated July 3, 2008. |

| 10.4 | Employment Agreement dated July 24, 2008 between the Company and Jane F. Gilmartin is incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of the Company dated July 24, 2008. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.5   | Employment Agreement dated August 25, 2008 between the Company and Edmond C. Beaith is incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K of the Company dated August 25, 2008.                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6   | Separation Agreement and Release, dated as of August 1, 2008, between the Company and Anthony C. Corradi, including consulting agreement is incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K of the Company dated August 1, 2008.                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7   | Employment Agreement dated December 11, 2009 between the Company and Jim M. Spencer is incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K of the Company dated December 17, 2009.                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8   | Separation Agreement and Release, dated as of February 4, 2009, between the Company and Phillip D. Hixon is incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K of the Company dated February 4, 2009.                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.9   | Addendum to Employment Agreement effective as of May 31, 2009 between the Company and Mr. Zigerelli is incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K of the Company dated June 3, 2009.                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.10  | Addendum to Employment Agreement effective as of May 31, 2009 between the Company and Ms. Gilmartin is incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K of the Company dated June 3, 2009.                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1   | Certification of Chief Executive Officer of Duckwall-ALCO Stores, Inc. dated September 10, 2009, pursuant to Rule 13a-4(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2   | Certification of Chief Financial Officer of Duckwall-ALCO Stores, Inc. dated September 10, 2009, pursuant to Rule 13a-4(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.1   | Certification of Chief Executive Officer of Duckwall-ALCO Stores, Inc, dated September 10, 2009, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is furnished with this Quarterly Report on Form 10-Q for the quarter ended August 2, 2009 and is not treated as filed in reliance upon§ 601(b)(32) of Regulations S-K.  |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.2   | Certification of Chief Financial Officer of Duckwall-ALCO Stores, Inc., dated September 10, 2009, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is furnished with this Quarterly Report on Form 10-Q for the quarter ended August 2, 2009 and is not treated as filed in reliance upon§ 601(b)(32) of Regulations S-K. |

----

| Signature and Title                                | Date               |
|----------------------------------------------------|--------------------|
|                                               |               |
| /s/ Lawrence J. Zigerelli                          | September 10, 2009 |
| Lawrence J. Zigerelli                              |               |
| President and Chief Executive Officer              |               |
| (Principal Executive Officer)                      |               |
|                                               |               |
| /s/ Donny R. Johnson                               | September 10, 2009 |
| Donny R. Johnson                                   |               |
| Executive Vice President - Chief Financial Officer |               |
| (Principal Financial and Accounting Officer)       |               |
|                                               |               |
| /s/ Raymond A.D. French                            | September 10, 2009 |
| Raymond A.D. French                                |               |
| Director                                           |               |
|                                               |               |
| /s/ Dennis E. Logue                                | September 10, 2009 |
| Dennis E. Logue                                    |               |
| Director                                           |               |
|                                               |               |
| /s/ Lolan C. Mackey                                | September 10, 2009 |
| Lolan C. Mackey                                    |               |
| Director                                           |               |
|                                               |               |
| /s/ Royce L. Winsten                               | September 10, 2009 |
| Royce L. Winsten                                   |               |
| Director - Chairman of Board                       |               |
|                                               |               |
| /s/ James V. Worth                                 | September 10, 2009 |
| James V. Worth                                     |               |
| Director                                           |               |

----