(1)	Basis of Presentation and Liquidity

The accompanying unaudited financial statements of ALCO Stores, Inc. (the “Company” or “we” or “us”) have been prepared on the basis of accounting principles applicable to a going concern, which contemplate the realization of assets and extinguishment of liabilities in the normal course of business, and are for interim periods and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited financial statements should be read in conjunction with the financial statements included in our fiscal 2014 Annual Report on Form 10-K. In the opinion of our management, the accompanying unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly our financial position and the results of our operations and cash flows for the interim periods. Because our business is moderately seasonal, the results from interim periods are not necessarily indicative of the results to be expected for the entire year.

We experienced losses for the twenty-six week period ended August 3, 2014, primarily attributed to a prolonged downturn in our business. Our ability to generate cash from operations depends in large part on the level of demand for our products and services. We continue to face an uncertain business environment and face a number of fundamental challenges in our business due to aggressive competition.

Given our negative cash flows from operations and in order to meet our expected cash needs for the very near term and over the longer term, we will be required to obtain additional liquidity sources, consolidate our store base and possibly restructure our debt and other obligations. We are exploring alternatives and anticipate engaging in discussions with third parties as well as our key financial stakeholders, including our existing lenders, stockholders and landlords, in an effort to create a long-term solution. Alternatives include the issuance and sale of debt or equity, the sale of our inventory or assets, as well as both in and out-of-court restructuring. We are evaluating all of our alternatives to restructure existing debt terms and other arrangements to provide additional liquidity. There can be no assurance that we will be able to successfully implement a long-term solution.

If acceptable terms of an out-of court transaction cannot be accomplished, we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. As a result, we may be required to seek to implement an in-court proceeding under the United States Bankruptcy Code (“Bankruptcy Code”). If we commence a voluntary reorganization under the Bankruptcy Code, we will attempt to arrange a “pre-packaged” or “pre-arranged” bankruptcy filing. In a “pre-packaged bankruptcy”, we would make arrangements with new and existing creditors for additional liquidity facilities and the restructuring of our existing debt terms, before presenting these arrangements to the bankruptcy court for approval. In the absence of a “pre-packaged” bankruptcy, we would consider a “pre-arranged” bankruptcy filing, in which we would reach agreement on the material terms of a plan of reorganization with key creditors prior to the commencement of the bankruptcy case. An in-court restructuring proceeding would cause a default on our debt with our current lenders. Our fiscal year ends on the Sunday nearest to January 31. Fiscal years 2015 and 2014 consist of 52 weeks, further consisting of four thirteen week periods, with each period referred to as a quarter. The thirteen week periods ended August 3, 2014 and August 4, 2013 are referred to herein as the second quarter of fiscal 2015 and 2014, respectively.

Same-stores are those stores which were open at the end of the reporting period, had reached their fourteenth month of operation, and include store locations, if any, that had experienced a remodel, an expansion, or relocation. Same-stores also include our transactional, or e-commerce, website.

Non same-stores are those stores which have not reached their fourteenth month of operation.

The depreciation and amortization amounts from the Statements of Operations may not agree to the related amounts in the Statements of Cash Flows due to the fact that a portion of the depreciation and amortization is included in loss from discontinued operations, net of income tax benefit in the Statements of Operations.