**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**OR**

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

**DUCKWALL-ALCO      STORES, INC.**

| 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)                           |

----

| **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 |   |   | **8** |   |
|                                 | Item                3.                   | Quantitative                and Qualitative Disclosure About Market Risk |   |   | **14** |   |
|                                 | Item                4.                   | Controls                and Procedures |   |   | **14** |   |
|                                 |                                     |   |   |   |   |   |
| **PART                II**           | **OTHER                INFORMATION**     |   |   |   |   |
|                                 | Item                1.                   | Legal                Proceedings |   |   | **16** |   |
|                                 | 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.                   | Submissions                of Matters to a Vote of Security Holders |   |   | **16** |   |
|                                 | Item                5.                   | Other                Information |   |   | **16** |   |
|                                 | Item                6.                   | Exhibits |   |   | **17** |   |
|                                 |                                     |   |   |   |   |   |
| Signature                            |                                     |   |   |   | **17** |   |

----

**PART      I – FINANCIAL INFORMATION**

**ITEM      1.  FINANCIAL STATEMENTS**

| **Duckwall-ALCO                Stores, Inc. and Subsidiaries**                                                        |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|
| **Consolidated                Balance Sheets**                                                                        |   |
| (in                thousands, except share amounts)                                                                   |   |
|                                                                                                                  |   |   |   |   |   |   |
| **Assets**                                                                                                            |   |
|                                                                                                                  |   | October                28, |   |   | January                28, |   |
|                                                                                                                  |   | 2007 |   |   | 2007 |   |
|                                                                                                                  |   | (Unaudited) |   |   |   |   |
| Current                assets:                                                                                        |   |   |   |   |   |   |
|    Cash                and cash equivalents                                                            |   | $ | 4,525 |   |   | $ | 2,983 |   |
|    Receivables                                                                                         |   |   | 4,530 |   |   |   | 3,059 |   |
|    Prepaid                expenses                                                                     |   |   | 3,353 |   |   |   | 1,561 |   |
|    Prepaid                income taxes                                                                 |   |   | 2,590 |   |   |   | - |   |
|    Inventories                                                                                         |   |   | 178,311 |   |   |   | 151,406 |   |
|    Deferred                income taxes                                                                |   |   | 3,037 |   |   |   | 3,037 |   |
|           Total                current assets                       |   |   | 196,346 |   |   |   | 162,046 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| Property                and equipment, at cost:                                                                       |   |   |   |   |   |   |   |   |
|    Land                and land improvements                                                           |   |   | 1,734 |   |   |   | 1,719 |   |
|    Buildings                and building improvements                                                  |   |   | 11,950 |   |   |   | 12,023 |   |
|    Furniture,                fixtures and equipment                                                    |   |   | 60,768 |   |   |   | 56,703 |   |
|    Transportation                equipment                                                             |   |   | 1,484 |   |   |   | 1,491 |   |
|    Leasehold                improvements                                                               |   |   | 16,615 |   |   |   | 15,410 |   |
|    Construction                work in progress                                                        |   |   | 3,382 |   |   |   | 138 |   |
|           Total                property and equipment               |   |   | 95,933 |   |   |   | 87,484 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
|    Less                accumulated depreciation                                                        |   |   | 67,699 |   |   |   | 64,451 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
|           Net                property and equipment                 |   |   | 28,234 |   |   |   | 23,033 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| Property                under capital leases                                                                          |   |   | 24,571 |   |   |   | 24,571 |   |
|    Less                accumulated amortization                                                        |   |   | 19,136 |   |   |   | 17,618 |   |
|           Net                property under capital leases          |   |   | 5,435 |   |   |   | 6,953 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| Other                non-current assets                                                                               |   |   | 150 |   |   |   | 44 |   |
| Deferred                income taxes                                                                                  |   |   | 5,736 |   |   |   | 3,344 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
|           Total                assets                               |   | $ | 235,901 |   |   | $ | 195,420 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| Current                liabilities:                                                                                   |   |   |   |   |   |   |   |   |
|    Current                maturities of capital lease obligations                                      |   | $ | 1,922 |   |   | $ | 2,128 |   |
|    Accounts                payable                                                                     |   |   | 47,646 |   |   |   | 35,263 |   |
|    Income                taxes payable                                                                 |   |   | - |   |   |   | 1,915 |   |
|    Accrued                salaries and commissions                                                     |   |   | 4,007 |   |   |   | 4,180 |   |
|    Accrued                taxes other than income                                                      |   |   | 5,889 |   |   |   | 4,242 |   |
|    Self-insurance                claim reserves                                                        |   |   | 5,319 |   |   |   | 4,322 |   |
|    Other                current liabilities                                                            |   |   | 3,683 |   |   |   | 3,634 |   |
|           Total                current liabilities                  |   |   | 68,466 |   |   |   | 55,684 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| Notes                payable under revolving loan                                                                     |   |   | 48,461 |   |   |   | 21,077 |   |
| Capital                lease obligations - less current maturities                                                    |   |   | 5,376 |   |   |   | 6,783 |   |
| Deferred                gain on leases                                                                                |   |   | 5,082 |   |   |   | 5,372 |   |
| Other                non-current liabilities                                                                          |   |   | 2,653 |   |   |   | 444 |   |
|           Total                liabilities                          |   |   | 130,038 |   |   |   | 89,360 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| Stockholders'                equity:                                                                                  |   |   |   |   |   |   |   |   |
|   Common                stock, $.0001 par value, authorized 20,000,000 shares; issued                and    |   |   |   |   |   |   |   |   |
|   outstanding                3,809,841 shares and 3,794,303 shares respectively                             |   |   | 1 |   |   |   | 1 |   |
|   Additional                paid-in capital                                                                 |   |   | 38,506 |   |   |   | 37,315 |   |
|   Retained                earnings                                                                          |   |   | 67,356 |   |   |   | 68,744 |   |
|           Total                stockholders' equity                 |   |   | 105,863 |   |   |   | 106,060 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
|           Total                liabilities and stockholders' equity |   | $ | 235,901 |   |   | $ | 195,420 |   |
|                                                                                                                  |   |   |   |   |   |   |   |   |
| 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 Thirty-Nine Week |   |
|                                                                                                                                |   | Periods                  Ended |   |   | Periods                  End |   |
|                                                                                                                                |   | October                  28, 2007 |   |   | October                  29, 2006 |   |   | October                  28, 2007 |   |   | October                  29, 2006 |   |
| Net                  sales                                                                                                          |   | $ | 114,314 |   |   | $ | 108,830 |   |   | $ | 348,267 |   |   | $ | 335,143 |   |
| Cost                  of sales                                                                                                      |   |   | 77,504 |   |   |   | 74,985 |   |   |   | 237,030 |   |   |   | 233,601 |   |
| Gross                  margin                                                                                                       |   |   | 36,810 |   |   |   | 33,845 |   |   |   | 111,237 |   |   |   | 101,542 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative                                                                                |   |   | 37,002 |   |   |   | 32,608 |   |   |   | 105,213 |   |   |   | 92,979 |   |
| Depreciation                  and amortization                                                                                      |   |   | 1,905 |   |   |   | 1,636 |   |   |   | 5,637 |   |   |   | 4,890 |   |
|      Total                  operating expenses                                                             |   |   | 38,907 |   |   |   | 34,244 |   |   |   | 110,850 |   |   |   | 97,869 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  income (loss) from continuing operations                                                                 |   |   | (2,097 | ) |   |   | (399 | ) |   |   | 387 |   |   |   | 3,673 |   |
| Interest                  expense                                                                                                   |   |   | 929 |   |   |   | 809 |   |   |   | 2,526 |   |   |   | 2,010 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  (loss) from continuing operations before income taxes                                                     |   |   | (3,026 | ) |   |   | (1,208 | ) |   |   | (2,139 | ) |   |   | 1,663 |   |
| Income                  tax expense (benefit)                                                                                       |   |   | (1,254 | ) |   |   | (597 | ) |   |   | (901 | ) |   |   | 583 |   |
| Earnings                  (loss) from continuing operations                                                                         |   |   | (1,772 | ) |   |   | (611 | ) |   |   | (1,238 | ) |   |   | 1,080 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  (loss) from discontinued operations, net of income taxes                                                  |   |   | 137 |   |   |   | (37 | ) |   |   | (35 | ) |   |   | 230 |   |
| Net                  earnings (loss)                                                                                                |   | $ | (1,635 | ) |   | $ | (648 | ) |   | $ | (1,273 | ) |   | $ | 1,310 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  (loss) per share                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Continuing                  operations                                                                |   | $ | (0.47 | ) |   | $ | (0.16 | ) |   | $ | (0.33 | ) |   | $ | 0.28 |   |
|      Discontinued                  operations                                                              |   |   | 0.04 |   |   |   | (0.01 | ) |   |   | (0.01 | ) |   |   | 0.06 |   |
|      Net                  earnings (loss) per share                                                        |   |   | (0.43 | ) |   |   | (0.17 | ) |   |   | (0.34 | ) |   |   | 0.34 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Continuing                  operations                                                                |   |   | (0.47 | ) |   |   | (0.16 | ) |   |   | (0.33 | ) |   |   | 0.28 |   |
|      Discontinued                  operations                                                              |   |   | 0.04 |   |   |   | (0.01 | ) |   |   | (0.01 | ) |   |   | 0.06 |   |
|      Net                  earnings (loss) per share                                                        |   | $ | (0.43 | ) |   | $ | (0.17 | ) |   | $ | (0.34 | ) |   | $ | 0.34 |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                  accompanying notes to unaudited consolidated financial                  statements.                            |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **Duckwall-ALCO                Stores, Inc. and Subsidiaries**                                                            |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|
| **Consolidated                Statements of Cash Flows**                                                                  |   |
| (dollars                in thousands)                                                                                     |   |
| (Unaudited)                                                                                                               |   |
|                                                                                                                      |   |   |   |   |   |   |
|                                                                                                                      |   | For                the Thirty-Nine Week |   |
|                                                                                                                      |   | Periods                Ended |   |
|                                                                                                                      |   | October                28, 2007 |   |   | October                29, 2006 |   |
|                                                                                                                      |   |   |   |   |   |   |
| Cash                flows from operating activities:                                                                      |   |   |   |   |   |   |
| Net earnings                (loss)                                                                                   |   | $ | (1,273 | ) |   | $ | 1,310 |   |
| Adjustments                to reconcile net earnings (loss) to net cash used in operating                activities: |   |   |   |   |   |   |   |   |
| Depreciation                and amortization                                                                              |   |   | 5,652 |   |   |   | 4,919 |   |
| Amortization                of debt financing costs and lease costs                                                       |   |   | 31 |   |   |   | 61 |   |
| Amortization                of deferred gain on sale-leaseback                                                            |   |   | (296 | ) |   |   | (172 | ) |
| Gain                on sale of assets                                                                                     |   |   | (118 | ) |   |   | (335 | ) |
| Shared                based compensation                                                                                  |   |   | 893 |   |   |   | 541 |   |
| Tax                benefit of stock options exercised                                                                     |   |   | 11 |   |   |   | 14 |   |
| Changes                in:                                                                                                |   |   |   |   |   |   |   |   |
|    Receivables                                                                                             |   |   | (1,471 | ) |   |   | (1,010 | ) |
|    Prepaid                expenses                                                                         |   |   | (1,792 | ) |   |   | (259 | ) |
|    Inventories                                                                                             |   |   | (26,905 | ) |   |   | (29,544 | ) |
|    Accounts                payable                                                                         |   |   | 7,732 |   |   |   | 8,588 |   |
|    Income                taxes payable                                                                     |   |   | (4,382 | ) |   |   | (4,136 | ) |
|    Accrued                salaries and commissions                                                         |   |   | (173 | ) |   |   | (2,011 | ) |
|    Accrued                taxes other than income                                                          |   |   | 1,647 |   |   |   | 342 |   |
|    Self-insurance                claim reserves                                                            |   |   | 997 |   |   |   | 498 |   |
|    Deferred                income taxes                                                                    |   |   | (231 | ) |   |   | (863 | ) |
|    Other                assets and liabilities                                                             |   |   | (272 | ) |   |   | (1,752 | ) |
| Net                cash used in operating activities                                                                      |   |   | (19,950 | ) |   |   | (23,809 | ) |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| Cash                flows from investing activities:                                                                      |   |   |   |   |   |   |   |   |
| Proceeds                from the sale of assets                                                                           |   |   | 637 |   |   |   | 12,925 |   |
| Acquisition                of property and equipment                                                                      |   |   | (9,854 | ) |   |   | (5,625 | ) |
| Net                cash (used in) provided by investing activities                                                        |   |   | (9,217 | ) |   |   | 7,300 |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                      |   |   |   |   |   |   |   |   |
| Net                borrowings under revolving loan                                                                        |   |   | 27,384 |   |   |   | 15,602 |   |
| Bank                overdraft                                                                                             |   |   | 4,651 |   |   |   | 6,605 |   |
| Proceeds                from exercise of outstanding stock options                                                        |   |   | 276 |   |   |   | 125 |   |
| Excess                tax benefit on stock options exercised                                                              |   |   | 11 |   |   |   | 35 |   |
| Principal                payments under capital lease obligations                                                         |   |   | (1,613 | ) |   |   | (1,483 | ) |
| Net                cash provided by financing activities                                                                  |   |   | 30,709 |   |   |   | 20,884 |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| Net                increase in cash and cash equivalents                                                                  |   |   | 1,542 |   |   |   | 4,375 |   |
| Cash                and cash equivalents at beginning of period                                                           |   |   | 2,983 |   |   |   | 472 |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of period                                                                 |   | $ | 4,525 |   |   | $ | 4,847 |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| Cash                paid during the period for:                                                                           |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| Interest                                                                                                                  |   | $ | 2,385 |   |   | $ | 1,829 |   |
| Income                taxes                                                                                               |   | $ | 3,784 |   |   | $ | 3,548 |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| See                accompanying notes to unaudited consolidated financial                statements.                      |   |   |   |   |   |   |   |   |

----

**Duckwall-ALCO      Stores, Inc. and Subsidiaries**

**Notes      to Unaudited Consolidated Financial Statements**

*Share-Based Payment*

*Stock      Incentive Plan*

*Black-Scholes*

|                                           |   |                            |    |   | For                the Thirteen Week |   |   | For                the Thirty-Nine Week |   |
|------------------------------------------------|--------|---------------------------------|---------|--------|--------------------------------------|--------|--------|-----------------------------------------|--------|
|                                           |   |                            |    |   | Periods                Ended         |   |   | Periods                Ended            |   |
|                                           |   | January                28, 2007 |    |   | October                28, 2007      |   |   | October                29, 2006         |   |   | October                28, 2007 |   |   | October                29, 2006 |   |
| Stock                options granted           |   |                            | 392,000 |   |                                 |   | 25,000 |                                    |   |   | - |   |   |   | 88,000 |   |   |   | 377,000 |   |
| Weighted                average exercise price |   | $                               | 30.35   |   |                                 | $      | 39.67  |                                    |   | $ | - |   |   | $ | 39.02 |   |   | $ | 30.01 |   |
| Weighted                average fair value     |   | $                               | 10.59   |   |                                 | $      | 10.72  |                                    |   | $ | - |   |   | $ | 10.93 |   |   | $ | 9.95 |   |

----

|                                                    |   |                            |   |   | For                the Thirteen Week |   |   | For                the Thirty-Nine Week |   |
|---------------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------------|--------|--------|-----------------------------------------|--------|
|                                                    |   |                            |   |   | Periods                Ended         |   |   | Periods                Ended            |   |
|                                                    |   | January                28, 2007 |   |   | October                28, 2007      |   |   | October                29, 2006         |   |   | October                28, 2007 |   |   | October                29, 2006 |   |
| Expected                price volatility                |   |                            | 37.40  | %      |                                 |   | 25.3   | %                                       |   |   | 37.4 | % |   |   | 25.6 | % |   |   | 37.4 | % |
| Risk-free                interest rate                  |   |                            | 5.00   | %      |                                 |   | 4.8    | %                                       |   |   | 5.0 | % |   |   | 4.8 | % |   |   | 5.0 | % |
| Weighted                average expected lives in years |   |                            | 3.8    |   |                                 |   | 3.8    |                                    |   |   | 3.8 |   |   |   | 3.8 |   |   |   | 3.8 |   |
| Dividend                yield                           |   |                            | 0.00   | %      |                                 |   | 0.00   | %                                       |   |   | 0.00 | % |   |   | 0.00 | % |   |   | 0.00 | % |

*Accounting for Uncertainty in      Income Taxes – an interpretation of FASB Statement No. 109, *

| The                average number of shares used in computing earnings (loss) per share                was as follows: |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                        |   |   |   |   |   |   |
| Thirteen                Weeks Ended                                                                                         |   | Basic |   |   | Diluted |   |
|                                                                                                                        |   |   |   |   |   |   |
| October                28, 2007                                                                                             |   |   | 3,809,363 |   |   |   | 3,809,363 |   |
| October                29, 2006                                                                                             |   |   | 3,793,252 |   |   |   | 3,793,252 |   |
|                                                                                                                        |   |   |   |   |   |   |   |   |
| Thirty-Nine                Weeks Ended                                                                                      |   | Basic |   |   | Diluted |   |
|                                                                                                                        |   |   |   |   |   |   |   |   |
| October                28, 2007                                                                                             |   |   | 3,805,795 |   |   |   | 3,805,795 |   |
| October                29, 2006                                                                                             |   |   | 3,791,579 |   |   |   | 3,831,533 |   |

*Fair Value Measurement*

----

*The Fair Value Option for Financial      Assets and Financial Liabilities - Including an Amendment of SFAS 115*

**ITEM      2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL      CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands Except Per Share      Amounts)**

***CAUTIONARY      STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT      FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR      BUSINESS***

***OVERVIEW***

*Operations*

*Strategy.*

*Company      Initiatives.*

-  IT          initiative:  In fiscal 2006, the Company began a company wide IT          initiative.  This included updating the hardware and software          applications at the General Office and store locations.  This initiative          required the Company to invest capital in addition to committing the Company          to future SG&A expenses.   
-  Growth          initiative:  In fiscal 2007, the          Company opened seven stores.  In fiscal 2008, the Company plans to open          18 stores.  This initiative required the Company to invest capital in          addition to committing the Company to future SG&A expenses.            
-  Material          weaknesses          remediation initiative:  The Company created its Internal Audit          Department in the fourth quarter of fiscal 2007.  The Company is          aggressively strengthening its control environment via the Internal Audit          Department and using the assistance of third party consultants to aid in          the          remediation of the existing material weaknesses.   

*Recent      Events*

| ·   | Net                sales increased 5.0% to $114,314.  Same store sales increased                2.2% compared to the prior year third quarter.                                                                                                                           |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Gross                margin percentage increased to 32.2% of sales, when compared to 31.1%                in                the prior year third quarter.                                                                                                                          |
| ·   | Net                  loss per share was $(0.43) in                  the third quarter of fiscal 2008 compared to $(0.17) per share                  in the                  prior year third quarter.                                                                              |
| ·   | The                  Company’s earnings before                  interest, taxes, depreciation and amortization and share-based                  compensation expense (“EBITDA”) from continuing operations for the third                  quarter 2008 was $125. |
| ·   | The                Company’s return on average equity (“ROE”) for the third quarter 2008 was                (1.5)%.                                                                                                                                              |

----

***RESULTS      OF OPERATIONS***

**Thirteen      Weeks Ended October 28, 2007 Compared to Thirteen Weeks Ended October 29,      2006.**

***Net      Sales***

***Gross      Margin***

***SG&A***

|                                                                                                          |       | For                  the Thirteen Weeks |       |
|---------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
|                                                                                                          |       | Ended                                   |       |
|                                                                                                          |       | October                  28, 2007       |       |   | October                  29, 2006 |   |   | Variance |   |
|                                                                                                          |       |                                    |       |   |   |   |   |   |   |
| Final                  SG&A as reported                                                                   |       | $                                       | 37,002     |   |   | $ | 32,608 |   |   | $ | 4,394 |   |
| Less:                  significant fluctuations                                                               |       |                                    |       |   |   |   |   |   |   |   |   |   |
| **IT                  initiative costs (System & POS)**                                                   |       |                                    | (637       | ) |   |   | (277 | ) |   |   | (360 | ) |
|                                                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |
| **Growth                  initiative**                                                                        |       |                                    |       |   |   |   |   |   |   |   |   |   |
| Non                  comparable store expenses                                                                |       |                                    | (1,745     | ) |   |   | (639 | ) |   |   | (1,106 | ) |
| Non                  comparable preopening expenses                                                           |       |                                    | (1,164     | ) |   |   | (276 | ) |   |   | (888 | ) |
| Increased                  expenses for Growth - New Store Development and other                  departments |       |                                    | (1,216     | ) |   |   | (890 | ) |   |   | (326 | ) |
| Total                  growth initiative                                                                      |       |                                    | (4,125     | ) |   |   | (1,805 | ) |   |   | (2,320 | ) |
|                                                                                                          | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Material                  weaknesses remediation initiative**                                               |       |                                    | (467       | ) |   |   | (362 | ) |   |   | (105 | ) |
|                                                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |
| **Timing                  variances**                                                                         |       |                                    |       |   |   |   |   |   |   |   |   |   |
| CO-OP                  income                                                                                 |       |                                    | 1,191      |   |   |   | 2,000 |   |   |   | (809 | ) |
| Vacation                  and sick leave accrual                                                              |       |                                    | (227       | ) |   |   | 132 |   |   |   | (359 | ) |
| Inventory                  service fees                                                                       |       |                                    | (401       | ) |   |   | (562 | ) |   |   | 161 |   |
| Total                  timing variances                                                                       |       |                                    | 563        |   |   |   | 1,570 |   |   |   | (1,007 | ) |
|                                                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |
| **Other**                                                                                                     |       |                                    |       |   |   |   |   |   |   |   |   |   |
| Planned                  increased store maintenance expenses                                                 |       |                                    | (1,090     | ) |   |   | (697 | ) |   |   | (393 | ) |
| Professional                  services                                                                        |       |                                    | (509       | ) |   |   | (274 | ) |   |   | (235 | ) |
| Share                  based compensation                                                                     |       |                                    | (317       | ) |   |   | (268 | ) |   |   | (49 | ) |
| Total                  other                                                                                  |       |                                    | (1,916     | ) |   |   | (1,239 | ) |   |   | (677 | ) |
|                                                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |
| Subtotal                  of significant fluctuations                                                         |       |                                    | (6,582     | ) |   |   | (2,113 | ) |   |   | (4,469 | ) |
| SG&A,                  excluding significant fluctuations                                                 |       | $                                       | 30,420     |   |   | $ | 30,495 |   |   | $ | (75 | ) |

***Depreciation        and Amortization        Expense***

***Interest      Expense***

----

***Income      Taxes***

***Earnings      (Loss) from Discontinued Operations***

**Thirty-Nine      Weeks Ended October 28, 2007 Compared to Thirty-Nine Weeks Ended October 29,      2006.**

***Net      Sales***

***Gross      Margin***

***SG&A***

|                                                                                                          |   | For                  the Thirty-Nine Week           |    |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|---------|
|                                                                                                          |   | Periods                  Ended       |    |
|                                                                                                          |   | October                  28, 2007                                  |    |   | October                  29, 2006 |   |   | Variance |   |
|                                                                                                          |   |                                                               |    |   |   |   |   |   |   |
| Final                  SG&A as reported                                                                   |   | $                                                                  | 105,213 |   |   | $ | 92,979 |   |   | $ | 12,234 |   |
| Less:                  significant fluctuations                                                               |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| **IT                  initiative costs (System & POS)**                                                   |   |                                                               | (1,909  | ) |   |   | (627 | ) |   |   | (1,282 | ) |
|                                                                                                          |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| **Growth                  initiative**                                                                        |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| Non                  comparable store expenses                                                                |   |                                                               | (4,083  | ) |   |   | (1,401 | ) |   |   | (2,682 | ) |
| Non                  comparable preopening expenses                                                           |   |                                                               | (1,516  | ) |   |   | (620 | ) |   |   | (896 | ) |
| Increased                  expenses for Growth - New Store Development and other                  departments |   |                                                               | (3,529  | ) |   |   | (2,569 | ) |   |   | (960 | ) |
| Total                  growth initiative                                                                      |   |                                                               | (9,128  | ) |   |   | (4,590 | ) |   |   | (4,538 | ) |
|                                                                                                          |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| **Material                  weaknesses remediation initiative**                                               |   |                                                               | (1,294  | ) |   |   | (565 | ) |   |   | (729 | ) |
|                                                                                                          |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| **Timing                  variances**                                                                         |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| CO-OP                  income                                                                                 |   |                                                               | 4,065   |   |   |   | 5,911 |   |   |   | (1,846 | ) |
| Vacation                  and sick leave accrual                                                              |   |                                                               | (207    | ) |   |   | 21 |   |   |   | (228 | ) |
| Inventory                  service fees                                                                       |   |                                                               | (1,101  | ) |   |   | (698 | ) |   |   | (403 | ) |
| Total                  timing variances                                                                       |   |                                                               | 2,757   |   |   |   | 5,234 |   |   |   | (2,477 | ) |
|                                                                                                          |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| **Other**                                                                                                     |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| Planned                  increased store maintenance expenses                                                 |   |                                                               | (3,307  | ) |   |   | (2,087 | ) |   |   | (1,220 | ) |
| Professional                  services                                                                        |   |                                                               | (1,630  | ) |   |   | (1,371 | ) |   |   | (259 | ) |
| Share                  based compensation                                                                     |   |                                                               | (893    | ) |   |   | (541 | ) |   |   | (352 | ) |
| Total                  other                                                                                  |   |                                                               | (5,830  | ) |   |   | (3,999 | ) |   |   | (1,831 | ) |
|                                                                                                          |   |                                                               |    |   |   |   |   |   |   |   |   |   |
| Subtotal                  of significant fluctuations                                                         |   |                                                               | (15,404 | ) |   |   | (4,547 | ) |   |   | (10,857 | ) |
| SG&A,                  excluding significant fluctuations                                                 |   | $                                                                  | 89,809  |   |   | $ | 88,432 |   |   | $ | 1,377 |   |

----

***Depreciation      and Amortization***

***Interest      Expense***

***Income      Taxes***

***Earnings      (Loss) from Discontinued Operations***

***SG&A      Detail; Certain Financial Measures***

----

|                                                                                                                                                                                                                                                         |   | For                  the Thirteen Week    |    |   | For                  the Thirty-Nine Week    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|--------|-------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                         |   | Periods                  Ended            |    |   | Periods                  Ended               |   |
| **SG&A                  Expenses Breakout**                                                                                                                                                                                                              |   | October                  28, 2007                        |    |   | October                  29, 2006                           |   |   | October                  28, 2007 |   |   | October                  29, 2006 |   |
| General                  office                                                                                                                                                                                                                              |   | $                                                        | 5,291   |   |                                                        | $      | 4,224 |   |   | $ | 16,404 |   |   | $ | 13,271 |   |
| Distribution                  center                                                                                                                                                                                                                         |   |                                                     | 2,332   |   |                                                        |   | 2,411 |   |   |   | 6,256 |   |   |   | 6,368 |   |
| 401(K)                  expense                                                                                                                                                                                                                              |   |                                                     | 118     |   |                                                        |   | 124 |   |   |   | 356 |   |   |   | 358 |   |
| Comparable                  stores SG&A                                                                                                                                                                                                                  |   |                                                     | 26,035  |   |                                                        |   | 24,666 |   |   |   | 75,705 |   |   |   | 70,420 |   |
| Non                  comparable stores SG&A (1)                                                                                                                                                                                                          |   |                                                     | 2,909   |   |                                                        |   | 915 |   |   |   | 5,599 |   |   |   | 2,021 |   |
| Shared                  based compensation expense                                                                                                                                                                                                           |   |                                                     | 317     |   |                                                        |   | 268 |   |   |   | 893 |   |   |   | 541 |   |
| Final                  SG&A as reported                                                                                                                                                                                                                  |   | $                                                        | 37,002  |   |                                                        | $      | 32,608 |   |   | $ | 105,213 |   |   | $ | 92,979 |   |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| ROE                  (2)                                                                                                                                                                                                                                     |   |                                                     | -1.5    | %      |                                                        |   | -0.6 | % |   |   | -1.2 | % |   |   | 1.3 | % |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Net                  sales                                                                                                                                                                                                                                   |   | $                                                        | 114,314 |   |                                                        | $      | 108,830 |   |   | $ | 348,267 |   |   | $ | 335,143 |   |
| SG&A                  as % of sales                                                                                                                                                                                                                      |   |                                                     | 32.4    | %      |                                                        |   | 30.0 | % |   |   | 30.2 | % |   |   | 27.7 | % |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| SG&A                  per average selling square foot                                                                                                                                                                                                    |   | $                                                        | 8.61    |   |                                                        | $      | 7.80 |   |   | $ | 24.47 |   |   | $ | 22.22 |   |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA                  (3)                                                                                                                                                                                                                                  |   | $                                                        | 125     |   |                                                        | $      | 1,505 |   |   | $ | 6,917 |   |   | $ | 9,104 |   |
| EBITDA                  per average selling square foot (4)                                                                                                                                                                                                  |   | $                                                        | 0.03    |   |                                                        | $      | 0.36 |   |   | $ | 1.61 |   |   | $ | 2.18 |   |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Sales                  per average selling square feet (5)                                                                                                                                                                                                   |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| ALCO                                                                                                                                                                                                                                                         |   | $                                                        | 27.29   |   |                                                        | $      | 26.75 |   |   | $ | 83.09 |   |   | $ | 82.35 |   |
| Duckwall                                                                                                                                                                                                                                                     |   | $                                                        | 18.44   |   |                                                        | $      | 18.35 |   |   | $ | 57.34 |   |   | $ | 56.52 |   |
| Total                                                                                                                                                                                                                                                        |   | $                                                        | 26.59   |   |                                                        | $      | 26.02 |   |   | $ | 80.99 |   |   | $ | 80.10 |   |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Average                  inventory per average selling square feet (5)(6)                                                                                                                                                                                    |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| ALCO                  (7)                                                                                                                                                                                                                                    |   | $                                                        | 31.91   |   |                                                        | $      | 30.47 |   |   | $ | 31.60 |   |   | $ | 29.60 |   |
| Duckwall                                                                                                                                                                                                                                                     |   | $                                                        | 23.74   |   |                                                        | $      | 22.68 |   |   | $ | 23.59 |   |   | $ | 22.85 |   |
| Total                  (7)                                                                                                                                                                                                                                   |   | $                                                        | 31.27   |   |                                                        | $      | 29.79 |   |   | $ | 30.94 |   |   | $ | 29.01 |   |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Average                  selling square feet (5)                                                                                                                                                                                                             |   |                                                     | 4,299   |   |                                                        |   | 4,182 |   |   |   | 4,300 |   |   |   | 4,184 |   |
| Average                  square feet % change                                                                                                                                                                                                                |   |                                                     | 2.8     | %      |                                                        |   | 6.2 | % |   |   | 2.8 | % |   |   | 6.9 | % |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Total                  stores operating beginning of period                                                                                                                                                                                                  |   |                                                     | 255     |   |                                                        |   | 254 |   |   |   | 256 |   |   |   | 251 |   |
| Total                  stores operating end of period                                                                                                                                                                                                        |   |                                                     | 256     |   |                                                        |   | 253 |   |   |   | 256 |   |   |   | 253 |   |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental                  Data:                                                                                                                                                                                                                          |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Same                  store sales change                                                                                                                                                                                                                     |   |                                                     | 2.2     | %      |                                                        |   | 5.0 | % |   |   | 1.8 | % |   |   | 6.4 | % |
| Total                  customer count change                                                                                                                                                                                                                 |   |                                                     | -0.6    | %      |                                                        |   | 1.4 | % |   |   | -1.5 | % |   |   | 3.3 | % |
| Average                  sale per ticket change                                                                                                                                                                                                              |   |                                                     | 3.3     | %      |                                                        |   | 7.1 | % |   |   | 3.5 | % |   |   | 7.0 | % |
|                                                                                                                                                                                                                                                         |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |
| (1)                  Non Comparable Stores are those stores opened in Fiscal 2008 & Fiscal                  2007.                                                                                                                                        |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |
| (2)                  Return on average equity (ROE) is calculated as net earnings (loss)                  divided by average stockholders' equity.                                                                                                           |   |                                                     |    |   |                                                        |   |   |   |   |
| Average                  Stockholders' Equity is calculated as (beginning of period stockholders'                  equity plus end of period stockholders' equity) divided by                  2                                                             |   |                                                     |    |   |                                                        |
| (3)                  Adjusted EBITDA is a non-GAAP financial measure and is calculated                  as earnings (loss) from continuing operations before interest, taxes,                  depreciation and amortization, and stock option expense. |   |                                                     |    |   |                                                        |
| (4)                  Adjusted EBITDA per selling square foot is a non-GAAP financial                  measure                  and is calculated as EBITDA divided by selling square                  feet.                                                  |   |                                                     |    |   |                                                        |
| (5)                  Average selling square feet is (beginning square feet plus ending                  square                  feet) divided by 2.                                                                                                          |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |
| (6)                  Average inventory is (beginning inventory plus ending inventory)                  divided                  by 2. This includes only the merchandise inventory at store                  level.                                     |   |                                                     |    |   |                                                        |
| (7)                  Excludes inventory from unopened stores.                                                                                                                                                                                                |   |                                                     |    |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |

***Fiscal      2008 Compared to Fiscal 2007***

-  increased          professional fees of $872 
-  increased          travel expenses of $278 
-  increased          relocation expenses of $270 
-  expenses          associated with additional departments and personnel for growth           initiative of $1,124 
-  reclassification          of capital lease rent credit of $957 to comparable store 

----

-  increased          inventory service fees $403 
-  increased          services related to planned store maintenance expense $1,220 
-  increased          expenses associated with the Company's IT initiative $1,234 
-  reduced          CO-OP advertising income $1,846 
-  reclassification            of capital lease rent credit of $957 from general            office 

***Reconciliation      and Explanation of Non-GAAP Financial Measures***

|                                                                               |   | For                    the Thirteen Week    |   |   | For                    the Thirty-Nine Week    |   |
|------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|
|                                                                               |   | Periods                    Ended            |   |   | Periods                    Ended               |   |
|                                                                               |   | October                    28, 2007                        |   |   | October                    29, 2006                           |   |   | October                    28, 2007 |   |   | October                    29, 2006 |   |
|                                                                               |   |                                                       |   |   |                                                          |   |   |   |   |   |   |   |
| Earnings                    (loss) from continuing operations                 |   | $                                                          | (1,772 | )      |                                                          | $      | (611 | ) |   | $ | (1,238 | ) |   | $ | 1,080 |   |
| Plus                    interest                                                   |   |                                                       | 929    |   |                                                          |   | 809 |   |   |   | 2,526 |   |   |   | 2,010 |   |
| Plus                    taxes                                                      |   |                                                       | (1,254 | )      |                                                          |   | (597 | ) |   |   | (901 | ) |   |   | 583 |   |
| Plus                    depreciation and amortization                              |   |                                                       | 1,905  |   |                                                          |   | 1,636 |   |   |   | 5,637 |   |   |   | 4,890 |   |
| Plus                    share based compensation expense                           |   |                                                       | 317    |   |                                                          |   | 268 |   |   |   | 893 |   |   |   | 541 |   |
|  =EBITDA                                                                      |   | $                                                          | 125    |   |                                                          | $      | 1,505 |   |   | $ | 6,917 |   |   | $ | 9,104 |   |
|                                                                               |   |                                                       |   |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                                                       |   |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                    (loss) from continuing operations per square foot |   | $                                                          | (0.41  | )      |                                                          | $      | (0.15 | ) |   | $ | (0.29 | ) |   | $ | 0.26 |   |
| Plus                    interest per square foot                                   |   |                                                       | 0.22   |   |                                                          |   | 0.19 |   |   |   | 0.59 |   |   |   | 0.48 |   |
| Plus                    taxes per square foot                                      |   |                                                       | (0.29  | )      |                                                          |   | (0.14 | ) |   |   | (0.21 | ) |   |   | 0.14 |   |
| Plus                    depreciation and amortization per square foot              |   |                                                       | 0.44   |   |                                                          |   | 0.39 |   |   |   | 1.31 |   |   |   | 1.17 |   |
| Plus                    stock option expense per square foot                       |   |                                                       | 0.07   |   |                                                          |   | 0.06 |   |   |   | 0.21 |   |   |   | 0.13 |   |
|  =EBITDA                    per selling square foot                           |   | $                                                          | 0.03   |   |                                                          | $      | 0.36 |   |   | $ | 1.61 |   |   | $ | 2.18 |   |

***LIQUIDITY      AND CAPITAL RESOURCES***

----

***BUSINESS      OPERATIONS***

|                                                                               |   |                                  |   |   |                                     |   |   |                            |   |   |                            |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|------------------------------------------|--------|--------|---------------------------------|--------|--------|---------------------------------|--------|
|                                                                               |   | For                the Thirteen Weeks |   |   | For                the Thirty-Nine Weeks |   |
|                                                                               |   | Ended                                 |   |   | Ended                                    |   |
|                                                                               |   | October                28, 2007       |   |   | October                29, 2006          |   |   | October                28, 2007 |   |   | October                29, 2006 |   |
| Merchandise                Category:                                               |   |                                  |   |   |                                     |   |   |                            |   |   |                            |   |
| Consumables                and commodities                                         |   |                                  | 32     | %      |                                     |   | 32     | %                               |   |   | 31                              | %      |   |   | 31 | % |
| Electronics,                entertainment, sporting goods, toys and outdoor living |   |                                  | 20     | %      |                                     |   | 19     | %                               |   |   | 24                              | %      |   |   | 24 | % |
| Apparel                and accessories                                             |   |                                  | 22     | %      |                                     |   | 22     | %                               |   |   | 20                              | %      |   |   | 20 | % |
| Home                furnishings and décor                                     |   |                                  | 14     | %      |                                     |   | 15     | %                               |   |   | 14                              | %      |   |   | 14 | % |
| Other                                                                              |   |                                  | 12     | %      |                                     |   | 12     | %                               |   |   | 11                              | %      |   |   | 11 | % |
| Total                                                                              |   |                                  | 100    | %      |                                     |   | 100    | %                               |   |   | 100                             | %      |   |   | 100 | % |

**NEW      ACCOUNTING PRONOUNCEMENTS**

*Fair Value Measurement*

*The Fair Value Option for Financial      Assets and Financial Liabilities - Including an Amendment of SFAS 115*

**ITEM      3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET      RISK**

***INSTRUMENTS      ENTERED INTO OTHER THAN FOR TRADING – INTEREST RATE      RISK***

**ITEM      4.  CONTROLS AND PROCEDURES**

----

*Internal Control - Integrated Framework *
* *

----

**PART      II - OTHER INFORMATION**

**ITEM      1.  LEGAL PROCEEDINGS**

**ITEM      1A.  RISK FACTORS**

**ITEM      2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS**

|                                                |   |                                 |   |   |                                   |   |   |                                     |   |   | **Maximum                Number**         |   |
|-----------------------------------------------------|--------|--------------------------------------|--------|--------|----------------------------------------|--------|--------|------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                |   |                                 |   |   |                                   |   |   | **Total                Number of**       |   |   | **(or                Approximate Dollar** |   |
|                                                |   |                                 |   |   |                                   |   |   | **shares                (or Units)**     |   |   | **Value)                of Shares (or**   |   |
|                                                |   | **Total                Number Of**   |   |   |                                   |   |   | **Purchased                as Part**     |   |   | **Units)                that May Yet**    |   |
|                                                |   | **Shares                (or Units)** |   |   | **Average                Price Paid**  |   |   | **of                Publicly Announced** |   |   | **Be                Purchased Under**     |   |
| **Period**                                          |   | **Purchased**                        |   |   | **per                Share (or Unit)** |   |   | **Plans                or Programs**     |   |   | **the                Plans or Programs**  |   |
| February                1 – February 28, 2007 |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| March                1 – March 31, 2007       |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| April                1 – April 30, 2007       |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| May                1 - May 31, 2007                 |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| June                1 - June 30, 2007               |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| July                1 - July 31, 2007               |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| August                1 - August 31, 2007           |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| September                1 - September 30, 2007     |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |
| October                1 - October 31, 2007         |   |                                 | 0      |   |                                   |   | 0      |                                     |   |   | 0                                         |   |   |   | 196,663 |   |

**ITEM      3.  DEFAULTS UPON SENIOR SECURITIES**

**ITEM      4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS**

**ITEM      5.  OTHER INFORMATION**

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**ITEM      6.  EXHIBITS**

**SIGNATURE**

**DUCKWALL-ALCO      STORES, INC.**

***(Registrant)***

*/s/      Donny R. Johnson*

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**EXHIBIT      INDEX**

| 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                1, 2004                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. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.1 | Certification                of Chief Executive                Officer of Duckwall-ALCO Stores, Inc. dated December 6, 2007,                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 December 6, 2007, 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 December 6, 2007, 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 October 28, 2007 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 December 6, 2007, 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 October 28, 2007 and is not treated                as                filed in reliance upon § 601(b)(32) of Regulations                S-K. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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