| 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 | 15 |
|                   | Item      1A. | Risk      Factors | 15 |
|                   | Item      2. | Unregistered Sales of      Equity Securities and Use of Proceeds | 15 |
|                   | Item      3. | Defaults Upon Senior      Securities | 15 |
|                   | Item      4. | Submissions of Matters to a      Vote of Security Holders | 15 |
|                   | Item      5. | Other      Information | 15 |
|                   | Item      6. | Exhibits | 15 |
|                   |   |   |   |
| Signature              |   |   | 17 |

----

PART I – FINANCIAL INFORMATION

FINANCIAL STATEMENTS

| Duckwall-ALCO      Stores, Inc. and Subsidiaries                                                                  |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated      Balance Sheets                                                                                  |   |
| (dollars      in thousands, except share amounts)                                                                 |   |
|                                                                                                              |   |   |   |   |   |   |
| Assets                                                                                                            |   |
|                                                                                                              |   | May      3, |   |   | February      1, |   |
|                                                                                                              |   | 2009 |   |   | 2009 |   |
|                                                                                                              |   | (Unaudited) |   |   |   |   |
| Current      assets:                                                                                              |   |   |   |   |   |   |
|    Cash      and cash equivalents                                                                  |   | $ | 8,208 |   |   |   | 4,744 |   |
|    Receivables                                                                                     |   |   | 5,104 |   |   |   | 5,142 |   |
|    Prepaid      income taxes                                                                       |   |   | 5,710 |   |   |   | 5,753 |   |
|    Inventories                                                                                     |   |   | 159,994 |   |   |   | 146,620 |   |
|    Prepaid      expenses                                                                           |   |   | 3,445 |   |   |   | 4,143 |   |
|    Deferred      income taxes                                                                      |   |   | 5,345 |   |   |   | 5,348 |   |
|   Assets      held for sale                                                                             |   |   | 1,539 |   |   |   | 1,505 |   |
|           Total      current assets                             |   |   | 189,345 |   |   |   | 173,255 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Property      and equipment, at cost:                                                                             |   |   |   |   |   |   |   |   |
|    Land      and land improvements                                                                 |   |   | 1,420 |   |   |   | 1,420 |   |
|    Buildings      and building improvements                                                        |   |   | 11,372 |   |   |   | 11,369 |   |
|    Furniture,      fixtures and equipment                                                          |   |   | 69,641 |   |   |   | 69,019 |   |
|    Transportation      equipment                                                                   |   |   | 1,345 |   |   |   | 1,322 |   |
|    Leasehold      improvements                                                                     |   |   | 14,166 |   |   |   | 13,974 |   |
|    Construction      work in progress                                                              |   |   | 431 |   |   |   | 745 |   |
|           Total      property and equipment                     |   |   | 98,375 |   |   |   | 97,849 |   |
|    Less      accumulated depreciation                                                              |   |   | 67,442 |   |   |   | 65,591 |   |
|           Net      property and equipment                       |   |   | 30,933 |   |   |   | 32,258 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Property      under capital leases                                                                                |   |   | 11,015 |   |   |   | 11,015 |   |
|    Less      accumulated amortization                                                              |   |   | 8,414 |   |   |   | 7,958 |   |
|           Net      property under capital leases                |   |   | 2,601 |   |   |   | 3,057 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Other      non-current assets                                                                                     |   |   | 185 |   |   |   | 205 |   |
|           Total      assets                                     |   | $ | 223,064 |   |   |   | 208,775 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Liabilities      and Stockholders' Equity                                                                         |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Current      liabilities:                                                                                         |   |   |   |   |   |   |   |   |
|    Current      maturities of long-term debt                                                       |   | $ | 1,384 |   |   |   | 1,362 |   |
|    Current      maturities of capital lease obligations                                            |   |   | 1,878 |   |   |   | 1,853 |   |
|    Accounts      payable                                                                           |   |   | 35,128 |   |   |   | 30,233 |   |
|    Accrued      salaries and commissions                                                           |   |   | 5,408 |   |   |   | 5,375 |   |
|    Accrued      taxes other than income                                                            |   |   | 4,235 |   |   |   | 4,941 |   |
|    Self-insurance      claim reserves                                                              |   |   | 5,266 |   |   |   | 5,309 |   |
|    Other      current liabilities                                                                  |   |   | 3,661 |   |   |   | 4,676 |   |
|           Total      current liabilities                        |   |   | 56,960 |   |   |   | 53,749 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Long      term debt, less current maturities                                                                      |   |   | 2,511 |   |   |   | 2,865 |   |
| Notes      payable under revolving loan                                                                           |   |   | 52,634 |   |   |   | 40,714 |   |
| Capital      lease obligations - less current maturities                                                          |   |   | 2,539 |   |   |   | 3,047 |   |
| Deferred      gain on leases                                                                                      |   |   | 4,502 |   |   |   | 4,598 |   |
| Deferred      income taxes                                                                                        |   |   | 160 |   |   |   | 138 |   |
| Other      noncurrent liabilities                                                                                 |   |   | 1,642 |   |   |   | 1,624 |   |
|           Total      liabilities                                |   |   | 120,948 |   |   |   | 106,735 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |
| Stockholders'      equity:                                                                                        |   |   |   |   |   |   |   |   |
|          Common stock, $.0001 par value, authorized 20,000,000 shares; issued and      outstanding |   |   |   |   |   |   |   |   |
|                3,797,947 shares and 3,797,947 shares, respectively   |   |   | 1 |   |   |   | 1 |   |
|    Additional      paid-in capital                                                                 |   |   | 38,741 |   |   |   | 38,615 |   |
|    Retained      earnings                                                                          |   |   | 63,374 |   |   |   | 63,424 |   |
|           Total      stockholders' equity                       |   |   | 102,116 |   |   |   | 102,040 |   |
|           Total      liabilities and stockholders' equity       |   | $ | 223,064 |   |   |   | 208,775 |   |
| See      accompanying notes to unaudited consolidated financial      statements.                                  |   |

----

| Duckwall-ALCO      Stores, Inc. and Subsidiaries                                                 |   |
|--------------------------------------------------------------------------------------------------|--------|
| Consolidated      Statements of Operations                                                       |   |
| (dollars      in thousands, except per share amounts)                                            |   |
| (Unaudited)                                                                                      |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   | For      the Thirteen Week |   |
|                                                                                             |   | Periods      Ended |   |
|                                                                                             |   | May      3, 2009 |   |   | May      4, 2008 |   |
|                                                                                             |   |   |   |   |   |   |
| Net      sales                                                                                   |   | $ | 115,466 |   |   |   | 105,688 |   |
| Cost      of sales                                                                               |   |   | 76,914 |   |   |   | 73,952 |   |
| Gross      margin                                                                                |   |   | 38,552 |   |   |   | 31,736 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Selling,      general and administrative                                                         |   |   | 35,737 |   |   |   | 36,793 |   |
| Depreciation      and amortization                                                               |   |   | 2,377 |   |   |   | 1,773 |   |
|            Total      operating expenses  |   |   | 38,114 |   |   |   | 38,566 |   |
| Operating      income (loss) from continuing operations                                          |   |   | 438 |   |   |   | (6,830 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| Interest      expense, net                                                                       |   |   | 537 |   |   |   | 605 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Loss      from continuing operations before income taxes                                         |   |   | (99 | ) |   |   | (7,435 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Income      tax benefit                                                                          |   |   | (45 | ) |   |   | (3,054 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| Loss      from continuing operations                                                             |   |   | (54 | ) |   |   | (4,381 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Earnings (loss)      from discontinued operations, net of income tax expense      (benefit) |   |   | 4 |   |   |   | (1,472 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| Net loss                                                                                    |   |  $ | (50 | ) |   |   | (5,853 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| Loss      per share                                                                              |   |   |   |   |   |   |   |   |
|      Basic                                                              |   |   |   |   |   |   |   |   |
|          Continuing      operations                 |   |  $ | (0.01 | ) |   |   | (1.15 | ) |
|          Discontinued      operations               |   |   | - |   |   |   | (0.39 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
|          Net loss      per share               |   |  $ | (0.01 | ) |   |   | (1.54 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| Loss      per share                                                                              |   |   |   |   |   |   |   |   |
|      Diluted                                                            |   |   |   |   |   |   |   |   |
|          Continuing      operations                 |   |  $ | (0.01 | ) |   |   | (1.15 | ) |
|          Discontinued      operations               |   |   | - |   |   |   | (0.39 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
|          Net loss      per share               |   |  $ | (0.01 | ) |   |   | (1.54 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| 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 Thirteen Week |   |
|                                                                                            |   | Periods      Ended |   |
|                                                                                            |   | May      3, 2009 |   |   | May      4, 2008 |   |
|                                                                                            |   |   |   |   |   |   |
| Cash      flows from operating activities:                                                      |   |   |   |   |   |   |
| Net loss                                                                                   |   | $ | (50 | ) |   |   | (5,853 | ) |
| Adjustments      to reconcile net loss to net cash used in operating      activities: |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                              |   |   | 2,343 |   |   |   | 1,819 |   |
| Gain      on sale of assets                                                                     |   |   | (1 | ) |   |   | (33 | ) |
| Share-based      compensation                                                                   |   |   | 185 |   |   |   | (329 | ) |
| Deferred      income tax expense, net                                                           |   |   | (34 | ) |   |   | 372 |   |
| Changes      in:                                                                                |   |   |   |   |   |   |   |   |
|    Receivables                                                                   |   |   | 38 |   |   |   | 1,007 |   |
|         Prepaid income taxes                                                          |   |   | 43 |   |   |   | (4,187 | )  |
|         Inventories                                                                   |   |   | (13,374 | )  |   |   | (16,578 | )  |
|    Prepaid      expenses                                                         |   |   | 698 |   |   |   | (162 | ) |
|    Accounts      payable                                                         |   |   | 4,895 |   |   |   | 16,889 |   |
|    Accrued      salaries and commissions                                         |   |   | 33 |   |   |   | 2,352 |   |
|    Accrued      taxes other than income                                          |   |   | (706 | ) |   |   | (747 | ) |
|    Self-insurance      claim reserves                                            |   |   | (43 | ) |   |   | 122 |   |
|    Other      assets and liabilities                                             |   |   | (1,073 | ) |   |   | (1,043 | ) |
|       Net      cash used in operating activities                  |   |   | (7,046 | ) |   |   | (6,371 | ) |
|                                                                                            |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                      |   |   |   |   |   |   |   |   |
| Proceeds      from the sale of assets                                                           |   |   | 1 |   |   |   | 134 |   |
| Acquisition      of property and equipment                                                      |   |   | (596 | ) |   |   | (2,354 | ) |
|       Net      cash used in investing activities                  |   |   | (595 | ) |   |   | (2,220 | ) |
|                                                                                            |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                      |   |   |   |   |   |   |   |   |
| Net      borrowings under revolving loan credit agreement                                       |   |   | 11,920 |   |   |   | 8,956 |   |
| Principal payments under      term loan                                               |   |   | (332 | ) |   |   | (312 | ) |
| Principal      payments under capital lease obligations                                         |   |   | (483 | ) |   |   | (577 | ) |
|       Net      cash provided by financing activities              |   |   | 11,105 |   |   |   | 8,067 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
|       Net      increase (decrease) in cash and cash equivalents   |   |   | 3,464 |   |   |   | (524 | ) |
| Cash      and cash equivalents at beginning of period                                           |   |   | 4,744 |   |   |   | 5,501 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                                 |   | $ | 8,208 |   |   |   | 4,977 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| Supplemental      disclosures of cash flow information:                                         |   |   |   |   |   |   |   |   |
| Cash      paid during the period for:                                                           |   |   |   |   |   |   |   |   |
| Interest                                                                                        |   | $ | 537 |   |   |   | 539 |   |
| Income      taxes                                                                               |   | $ | 126 |   |   |   | 9 |   |
|                                                                                            |   |   |   |   |   |   |   |   |
| See      accompanying notes to unaudited consolidated financial      statements.                |   |   |   |   |   |   |   |   |

----

----

|                                        |   |                         |    |   | For      the Thirteen Week |   |
|---------------------------------------------|--------|------------------------------|---------|--------|----------------------------|--------|
|                                        |   |  Fiscal      2009 Ended |    |   | Periods      Ended         |   |
|                                        |   | February      1, 2009        |    |   | May      3, 2009           |   |   | May      4, 2008 |   |
| Stock      options granted                  |   |                         | 414,500 |   |                       |   | 15,000 |   |   |   | 62,500 |   |
| Weighted      average exercise price        |   | $                            | 12.26   |   |                       |   | 9.25 |   |   |   | 13.50 |   |
| Weighted      average grant date fair value |   | $                            | 4.16    |   |                       |   | 3.88 |   |   |   | 4.03 |   |

|                                          |   |                         |   |   | For      the Thirteen Week |   |
|-----------------------------------------------|--------|------------------------------|--------|--------|----------------------------|--------|
|                                          |   |  Fiscal      2009 Ended |   |   | Periods      Ended         |   |
|                                          |   | February      1, 2009        |   |   | May      3, 2009           |   |   | May      4, 2008 |   |
| Expected      price volatility                |   |                         | 36.6   | %      |                       |   | 48.1 | % |   |   | 34.4 | % |
| Risk-free      interest rate                  |   |                         | 2.5    | %      |                       |   | 1.4 | % |   |   | 2.2 | % |
| Weighted      average expected lives in years |   |                         | 4.5    |   |                       |   | 4.8 |   |   |   | 4.0 |   |
| Dividend      yield                           |   |                         | 0.00   | %      |                       |   | 0.00 | % |   |   | 0.00 | % |

| The      average number of shares used in computing earnings per share was as      follows: |   |   |      |   |    |   |
|---------------------------------------------------------------------------------------------|--------|--------|-----------|--------|---------|--------|
|                                                                                        |   |   |      |   |    |   |
| Thirteen      Weeks Ended                                                                   |   | Basic  |      |   | Diluted |   |
|                                                                                        |   |   |      |   |    |   |
| May      3, 2009                                                                            |   |   | 3,797,947 |   |    |   | 3,797,947 |   |
| May      4, 2008                                                                            |   |   | 3,810,591 |   |    |   | 3,810,591 |   |

----

| Beginning      balances as of February 1, 2009 |   | $      | 263 |   |
|------------------------------------------------|--------|--------|-----|--------|
| Net      lease payments made                   |   |   | (83 | )      |
| Ending      balance as of May 3, 2009          |   | $      | 180 |   |

ITEM 2.     MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

----

| · | James      G. Hyde left the Board of Directors on June 4, 2009.                                                                          |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|
| · | James      V. Worth was elected to the Board of Directors on June 4,      2009.                                                |
| · | The      employment agreement for Larry J. Zigerelli, President - Chief Executive      Officer was amended on June 3, 2009.              |
| · | The      employment agreement for Jane F. Gilmartin, Executive Vice President -      Chief Operating Officer was amended on June 3,2009. |

| · | Net      sales increased 9.3% to $115.5 million.  Same-store sales      increased 6.2% compared to the prior year firstquarter.                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gross      margin percentage increased to 33.4% of sales, when compared to 30.0% in      the prior year first quarter.                                                                                                                                                                                                                                                                                                                                                   |
| · | Net      loss per share was $0.01 in the first quarter of fiscal 2010 compared to      $1.54 net loss per share in the prior year first  quarter.                                                                                                                                                                                                                                                                                                                        |
| · | The      Company’s earnings from continuing operations before interest, taxes,      depreciation and amortization, share-based compensation, preopening      store costs, inventory review initiative and executive, staff      severance and store transformation project costs (“Adjusted      EBITDA”) for the first quarter 2010 was $4.4 million compared to the      prior year first quarter of ($1.4)  million.  |

----

----

|                                                                                                                                                                              |   |                                     |   |   |             |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------|------------------|--------|
|                                                                                                                                                                              |   | For      the Thirteen Week Periods Ended |   |
| SG&A      Expenses Breakout                                                                                                                                                   |   | May      3, 2009                         |   |   | May      4, 2008 |   |
| Store      support center (1)                                                                                                                                                     |   | $                                        | 6,519  |   |             |   | 8,049 |   |
| Distribution      center                                                                                                                                                          |   |                                     | 2,191  |   |             |   | 2,337 |   |
| 401K      expense                                                                                                                                                                 |   |                                     | 110    |   |             |   | 125 |   |
| Same-store      SG&A                                                                                                                                                          |   |                                     | 24,728 |   |             |   | 25,480 |   |
| Non      same-store SG&A (2)                                                                                                                                                  |   |                                     | 2,004  |   |             |   | 1,131 |   |
| Share-based      compensation                                                                                                                                                     |   |                                     | 185    |   |             |   | (329 | ) |
| Final      SG&A as reported                                                                                                                                                   |   |                                     | 35,737 |   |             |   | 36,793 |   |
| Less:                                                                                                                                                                             |   |                                     |   |   |             |   |   |   |
| Share-based      compensation                                                                                                                                                     |   |                                     | (185   | )      |             |   | 329 |   |
| Preopening      store costs (2)                                                                                                                                                   |   |                                     | -      |   |             |   | (722 | ) |
| Executive      and staff severance (1)                                                                                                                                            |   |                                     | -      |   |             |   | (1,942 | ) |
| Store      transformation project costs (1)                                                                                                                                       |   |                                     | (1,378 | )      |             |   | - |   |
| Adjusted      SG&A                                                                                                                                                            |   | $                                        | 34,174 |   |             |   | 34,458 |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Adjusted      SG&A as % of sales                                                                                                                                              |   |                                     | 29.6   | %      |             |   | 32.6 | % |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Sales      per average selling square foot (3)                                                                                                                                    |   | $                                        | 25.45  |   |             |   | 24.75 |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Adjusted      Gross Margin dollars per average selling square feet(3)(4)                                                                                                          |   | $                                        | 8.50   |   |             |   | 7.75 |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Adjusted      SG&A per average selling square foot (3)                                                                                                                        |   | $                                        | 7.54   |   |             |   | 8.07 |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Adjusted      EBITDA per average selling square foot (3)(5)                                                                                                                       |   | $                                        | 0.96   |   |             |   | (0.32 | ) |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Average      inventory per average selling square feet (3)(6)(7)                                                                                                                  |   | $                                        | 28.73  |   |             |   | 27.49 |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Average      selling square feet (3)                                                                                                                                              |   |                                     | 4,537  |   |             |   | 4,270 |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Total      stores operating beginning of period                                                                                                                                   |   |                                     | 258    |   |             |   | 262 |   |
| Total      stores operating end of period                                                                                                                                         |   |                                     | 258    |   |             |   | 251 |   |
| Total      stores less than twelve months old                                                                                                                                     |   |                                     | 9      |   |             |   |   |   |
| Total      non same-stores                                                                                                                                                        |   |                                     | 11     |   |             |   |   |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| Supplemental      Data:                                                                                                                                                           |   |                                     |   |   |             |   |   |   |
| Same-store      gross margin dollar change                                                                                                                                        |   |                                     | 9.9    | %      |             |   | (0.5 | )% |
| Same-store      SG&A dollar change                                                                                                                                            |   |                                     | (3.0   | )%     |             |   | 3.8 | % |
| Same-store      total customer count change                                                                                                                                       |   |                                     | 1.6    | %      |             |   | (3.9 | )% |
| Same-store      average sale per ticket change                                                                                                                                    |   |                                     | 2.9    | %      |             |   | 2.2 | % |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
|                                                                                                                                                                              |   |                                     |   |   |             |   |   |   |
| (1)      Store support center includes executive and staff severance in first      quarter fiscal 2009 and store transformation project costs for first      quarter fiscal 2010. |   |                                     |   |   |             |   |   |   |
| (2)      Non same-stores are those stores opened in Fiscal 2009 which have not      reached their fourteenth period of operation                                                  |   |
| (3)      Average selling square feet is (beginning square feet plus ending square      feet) divided by 2                                                                         |
| (4)      Adjusted Gross Margin includes $1.3 million inventory review initiative      charge added back in first quarter fiscal 2009                                              |   |
| (5)      Adjusted EBITDA per selling square foot is calculated as Adjusted      EBITDA divided by selling square feet                                                        |   |
| (6)      Average inventory is store level merchandise inventory for fiscal 2010 and      2009, respectively (beginning inventory plus ending inventory) divided by      2         |   |
| (7)      Excludes inventory for unopened stores                                                                                                                                   |   |

----

| Adjusted      EBITDA from net earnings (loss) from continuingoperations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |    |   |                                     |   |   |                               |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|---------|--------|------------------------------------------|--------|--------|------------------------------------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |    |   | For      the Thirteen Week Periods Ended |   |   | Trailing      Twelve Periods Ended |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Fiscal      2009 |    |   | May      3, 2009                         |   |   | May      4, 2008                   |   |   | May      3, 2009 |   |
| Net      earnings (loss) from continuing operations (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                | (3,021  | )      |                                     |   | (54    | )                                  |   |   | (4,381 | ) |   |   | 1,306 |   |
| Plus:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |    |   |                                     |   |   |                               |   |   |   |   |   |   |   |   |
| Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             | 1,867   |   |                                     |   | 537    |                               |   |   | 605 |   |   |   | 1,799 |   |
| Taxes      (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             | (2,090  | )      |                                     |   | (45    | )                                  |   |   | (3,054 | ) |   |   | 919 |   |
| Depreciation      and amortization (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             | 9,302   |   |                                     |   | 2,377  |                               |   |   | 1,773 |   |   |   | 9,906 |   |
| Share-based      compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             | 186     |   |                                     |   | 185    |                               |   |   | (329 | ) |   |   | 700 |   |
| Preopening      store costs (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |             | 1,846   |   |                                     |   | -      |                               |   |   | 722 |   |   |   | 1,124 |   |
| Inventory      review initiative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |             | 1,345   |   |                                     |   | -      |                               |   |   | 1,345 |   |   |   | - |   |
| Executive      and staff severance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             | 1,942   |   |                                     |   | -      |                               |   |   | 1,942 |   |   |   | - |   |
| Store      transformation project costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |             | 2,220   |   |                                     |   | 1,378  |                               |   |   | - |   |   |   | 3,598 |   |
| =Adjusted      EBITDA (1)(3)(4)(5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             | 13,597  |   |                                     |   | 4,378  |                               |   |   | (1,377 | ) |   |   | 19,352 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |    |   |                                     |   |   |                               |   |   |   |   |   |   |   |   |
| Adjusted      EBITDA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |    |   |                                     |   |   |                               |   |   |   |   |   |   |   |   |
| Same-stores                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |             | 44,090  |   |                                     |   | 11,526 |                               |   |   | 7,132 |   |   |   | 48,484 |   |
| Non      same-stores (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             | 2,216   |   |                                     |   | 294    |                               |   |   | 60 |   |   |   | 2,450 |   |
| Store      support center                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             | (23,054 | )      |                                     |   | (5,251 | )                                  |   |   | (6,232 | ) |   |   | (22,073 | ) |
| Warehouse                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             | (9,655  | )      |                                     |   | (2,191 | )                                  |   |   | (2,337 | ) |   |   | (9,509 | ) |
| Reconciled      Adjusted EBITDA (1)(3)(4)(5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             | 13,597  |   |                                     |   | 4,378  |                               |   |   | (1,377 | ) |   |   | 19,352 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |    |   |                                     |   |   |                               |   |   |   |   |   |   |   |   |
| Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             | 4,744   |   |                                     |   | 8,208  |                               |   |   | 4,977 |   |   |   | 8,208 |   |
| Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             | 49,841  |   |                                     |   | 60,946 |                               |   |   | 41,080 |   |   |   | 60,946 |   |
| Debt,      net of cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                | 45,097  |   |                                     |   | 52,738 |                               |   |   | 36,103 |   |   |   | 52,738 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |    |   |                                     |   |   |                               |   |   |   |   |   |   |   |   |
| (1)      These amounts will not agree with the fiscal 2009 first quarter 10-Q      filing due to the one store the Company closed in the third quarter of      fiscal 2009. This store is now shown in discontinued      operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| (2) These      costs are not consistent quarter to quarter as the Company does not open      the same number of stores in each quarter of each fiscal year. These      costs are directly associated with the number of stores that have or will      be opened and are incurred prior to the grand opening of each      store.                                                                                                                                                                                                                                                                                                                                                                    |   |
| (3) For      the trailing twelve periods ended May 3, 2009 the average open weeks for      the Company's 11 non same-stores is 46 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| (4) During      fiscal year 2009, the Company made a change in its Executive Management      team and Board of Directors resulting in several initiatives to reduce      certain SG&A expenses. For the trailing twelve periods ended May      3, 2009, these initiatives resulted in approximately $8.5 million reduced      SG&A expenses when compared to the same prior year trailing twelve      periods.  The initiatives include, but are not limited to, executive      and staff reduction, reduced ALCO same-store hourly wages,      advertising expenses, net of coop offset and floor care services along      with reduced total Company insurance and travel expenses. |   |
| (5) In      addition to continued efforts regarding the fiscal 2009 SG&A      initiatives, the Company has new initiatives for fiscal year 2010. The      fiscal 2010 initiatives include, but are not limited to, reduced      point-of-sale hardware lease expense, energy expense and accident      reduction programs. These initiatives achieved approximately $734 in      reduced SG&A savings for the first quarter of fiscal 2010 when      compared to the prior year same period.                                                                                                                                                                                               |   |

----

|                                                                     |   | For      the Thirteen Weeks |   |
|--------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                     |   | Ended                       |   |
|                                                                     |   | May      3, 2009            |   |   | May      4, 2008 |   |
| Merchandise      Category:                                               |   |                        |   |   |   |   |
| Consumables      and commodities                                         |   |                        | 32     | % |   |   | 33 | % |
| Electronics,      entertainment, sporting goods, toys and outdoor living |   |                        | 25     | % |   |   | 25 | % |
| Apparel      and accessories                                             |   |                        | 16     | % |   |   | 19 | % |
| Home      furnishings and décor                                     |   |                        | 16     | % |   |   | 13 | % |
| Other                                                                    |   |                        | 11     | % |   |   | 10 | % |
|                                                                     |   |                        |   |   |   |   |   |   |
| Total                                                                    |   |                        | 100    | % |   |   | 100 | % |

----

ITEM 3.  QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK

ITEM 4.  CONTROLS ANDPROCEDURES

----

PART II - OTHER INFORMATION

ITEM 1.  LEGALPROCEEDINGS

ITEM 1A.  RISKFACTORS

ITEM 2.  UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS

|                                             |   |                 |   |    |                    |   |   | Total      Number          |   |   | Maximum      Number        |    |
|--------------------------------------------------|--------|----------------------|--------|---------|-------------------------|--------|--------|----------------------------|--------|--------|----------------------------|---------|
|                                             |   |                 |   |    |                    |   |   | of      Shares             |   |   | of      Shares             |    |
|                                             |   | Total      Number Of |   |    |                    |   |   | Purchased      as Part     |   |   | that      May Yet          |    |
|                                             |   | Shares               |   |    | Average      Price Paid |   |   | of      Publicly Announced |   |   | Be      Purchased Under    |    |
| Period                                           |   | Purchased            |   |    | per      Share          |   |   | Plans      or Programs     |   |   | the      Plans or Programs |    |
| As      of February 1, 2009                      |   | 25,534               |   |  $ | 15.16                   |   |   | 25,534                     |   |   |                       | 174,466 |   |
|                                             |   |                 |   |    |                    |   |   |                       |   |   |                       |    |   |
| First      Quarter:                              |   |                 |   |    |                    |   |   |                       |   |   |                       |    |   |
|     02/02/09      - 03/01/09 |   |                 | -      |    |                    |   | -      |                       |   |   | -                          |    |   |   | 174,466 |   |
|     03/02/09      - 04/05/09 |   |                 | -      |    |                    |   | -      |                       |   |   | -                          |    |   |   | 174,466 |   |
|     04/06/09      - 05/03/09 |   |                 | -      |    |                    |   | -      |                       |   |   | -                          |    |   |   | 174,466 |   |
|                                             |   |                 | -      |    |                    |   |   |                       |   |   | -                          |    |   |   | 174,466 |   |
|                                             |   |                 |   |    |                    |   |   |                       |   |   |                       |    |   |   |   |   |
| As      of May 3, 2009                           |   |                 | 25,534 |    |  $                 |   | 15.16  |                       |   |   | 25,534                     |    |   |   | 174,466 |   |

ITEM 3.  DEFAULTS UPON SENIORSECURITIES

ITEM 4.  SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS

ITEM 5.  OTHERINFORMATION

----

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 3, 2008 and incorporated herein by      reference).                                                                                    |

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

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

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

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

----

| Signature      and Title                                | Date               |
|---------------------------------------------------------|--------------------|
|                                                    |               |
| /s/      Lawrence J. Zigerelli                          | June      11, 2009 |
| Lawrence      J. Zigerelli                              |               |
| President      and Chief Executive Officer              |               |
| (Principal      Executive Officer)                      |               |
|                                                    |               |
| /s/      Donny R. Johnson                               | June      11, 2009 |
| Donny      R. Johnson                                   |               |
| Executive      Vice President - Chief Financial Officer |               |
| (Principal      Financial and Accounting Officer)       |               |
|                                                    |               |
| /s/      Raymond A.D. French                            | June      11, 2009 |
| Raymond      A.D. French                                |               |
| Director                                                |               |
|                                                    |               |
| /s/      Dennis E. Logue                                | June      11, 2009 |
| Dennis      E. Logue                                    |               |
| Director                                                |               |
|                                                    |               |
| /s/      Lolan C. Mackey                                | June      11, 2009 |
| Lolan      C. Mackey                                    |               |
| Director                                                |               |
|                                                    |               |
| /s/      Royce L. Winsten                               | June      11, 2009 |
| Royce      L. Winsten                                   |               |
| Director      - Chairman of Board                       |               |
|                                                    |               |
| /s/      James V. Worth                                 | June      11, 2009 |
| James      V. Worth                                     |               |
| Director                                                |               |

----