================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ----------------------
                                    FORM 10-K

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 for the fiscal year ended December 28, 2003

                                       OR

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

                         Commission File Number 0-24543

                                COST-U-LESS, INC.
             (Exact Name of Registrant as Specified in its Charter)

                    Washington                         91-1615590
           (State or Other Jurisdiction             (I.R.S. Employer
         of Incorporation or Organization)         Identification No.)

        8160 304(th) Ave. SE, Bldg. 3, Suite A, Preston, Washington 98050
              (Address of Principal Executive Offices): (Zip Code)

                                 (425) 222-5022
              (Registrant's Telephone Number, Including Area Code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock
                         Preferred Stock Purchase Rights

                             ----------------------

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes      No  X
                                                                   ---     ---

     The aggregate market value of the registrant's common stock held by
non-affiliates is approximately $6,051,724, based upon the last sale price
reported for the common stock of the registrant on the Nasdaq SmallCap Market on
June 27, 2003, being the last trading day of the registrant's most recently
completed second fiscal quarter. Shares of common stock of the registrant held
by each officer, director and holder of 5% or more of the outstanding common
stock have been excluded from this calculation in that such persons may be
deemed to be affiliates. Share ownership information of certain persons known by
the registrant to own greater than 5% of the outstanding common stock for
purposes of this calculation is based solely on information on Schedule 13D or
13G filed with the Securities and Exchange Commission and is as of June 27,
2003. The determination of affiliate status is not necessarily a conclusive
determination for other purposes.

The number of shares of the registrant's common stock outstanding at March 10,
2004 was 3,736,556.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this Report, to the extent not set
forth herein, is incorporated herein by reference from the registrant's
definitive proxy statement relating to the annual meeting of shareholders to be
held on May 12, 2004.

================================================================================
<PAGE>

                                COST-U-LESS, INC.

                               INDEX TO FORM 10-K

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>       <C>          <C>                                                                            <C>
PART I:
          Item 1.      Business......................................................................  3
          Item 2.      Properties.................................................................... 15
          Item 3.      Legal Proceedings............................................................. 16
          Item4.       Submission of Matters to a Vote of Security Holders........................... 16
PART II:
          Item 5.      Market for Company's Common Stock and Related Shareholder Matters............. 17
          Item 6.      Selected Financial Data....................................................... 18
          Item 7.      Management's Discussion and Analysis of Financial Condition and Results of
                       Operations.................................................................... 19
          Item 7A.     Quantitative and Qualitative Disclosures About Market Risk.................... 25
          Item 8.      Financial Statements and Supplementary Data................................... 26
          Item 9A.     Controls and Procedures....................................................... 46
PART III:
          Item 10.     Executive Officers and Directors of the Registrant............................ 47
          Item 11.     Executive Compensation........................................................ 47
          Item 12.     Security Ownership of Certain Beneficial Owners and Management................ 47
          Item 13.     Certain Relationships and Related Transactions................................ 47
          Item 14.     Principal Accountant Fees and Services........................................ 47
PART IV:
          Item 15.     Exhibits, Financial Statements, Schedules and Reports on Form 8-K............. 48

SIGNATURES........................................................................................... 51
</TABLE>

                                       2
<PAGE>

                                     PART I

     This annual report on Form 10-K contains forward-looking statements within
the meaning of the federal securities laws. These forward-looking statements
include without limitation statements regarding our expectations and beliefs
about the market and industry, our goals, plans, and expectations and beliefs
regarding our business strategy, attributes for successful stores, merchandising
and distribution, our beliefs regarding the future success of our stores and our
merchandising strategy, our expectations and beliefs regarding competition,
competitors, the basis of competition and our ability to compete, our beliefs
regarding our ability to hire and retain personnel and the labor costs
associated with island wages, our beliefs regarding period to period results of
operations, our expectations regarding future growth and financial performance
our expectations regarding international sales and our revenues, our
expectations and beliefs regarding revenue and revenue growth, our expectations
regarding our strategies, our expectations regarding fluctuations in revenues,
operating results and comparable store sales, our beliefs and expectations
regarding our existing facilities and the availability of additional space in
the future, our intent to use all available funds for the expansion and the
operation of our business and not to declare or pay any cash dividends, our
beliefs and expectations regarding our results of operation and financial
position, our intentions and expectations regarding utilization of tax benefits
and credits, our beliefs and expectations regarding liquidity and capital
resources and that amounts available under our various credit facilities,
existing cash available for working capital purposes and cash flow from
operations will be sufficient to meet our cash requirements, and our
expectations regarding the impact of recent accounting pronouncements and
revenue recognition matters. These statements are subject to risks and
uncertainties that could cause actual results and events to differ materially
from those anticipated. These risks and uncertainties include without limitation
those identified in the section of this annual report on Form 10-K entitled
"Risk Factors That May Affect Future Results" below. We undertake no obligation
to update forward-looking statements to reflect events or circumstances
occurring after the date of this annual report on Form 10-K.

     As used in this annual report on Form 10-K, unless the context otherwise
requires, the terms "we," "us," "our," "the Company," and "Cost-U-Less" refer to
Cost-U-Less, Inc., a Washington corporation, and its subsidiaries.

Item 1.   Business

     Cost-U-Less operates mid-sized warehouse club-style stores in the United
States Territories ("U.S. Territories"), foreign island countries in the Pacific
and the Caribbean, the Hawaiian Islands and Sonora, California. Our primary
strategy is to operate in island markets, offering predominately U.S. branded
goods. We currently operate eleven retail stores as follows: two stores in each
of Hawaii and Guam, and one store in each of St. Thomas, St. Croix, American
Samoa, Fiji, Curacao, St. Maarten and Sonora, California.

     On December 8, 2002, our two stores on the island of Guam suffered damage
from Supertyphoon Pongsona, resulting in the immediate closure of both stores.
Our Tamuning store lost its generator in the storm, but reopened shortly
thereafter on December 12th. Our Dededo store, however, suffered more
significant damage, and had to be closed for reconstruction. The store was
rebuilt and it reopened for business on October 3, 2003.

     We are continuing our focus on our core island store operations by
reviewing our merchandising strategies, both those that apply to all stores and
those specific to each store in light of the different conditions in each
market. Currently, we have no plans to open new stores during 2004, but we are
in the process of exploring expansion opportunities in selected markets and
relocation opportunities for existing stores with leases expiring in the next
one to two years. While we believe these actions can improve profitability,
there can be no assurance that these actions will be successful.

      We also continue to explore other ways to maximize long-term value for our
shareholders, including focusing our efforts to increase earnings, responding to
competition, improving same store sales and gross margins, monitoring new
merchandising offerings and improving inventory turns. We believe the number of
new island markets with the attributes for our existing growth strategy is
limited as a result of, among other things, changing market conditions. We are
currently evaluating alternative methods of implementing future expansion.


                                       3
<PAGE>

Industry Overview

     Traditional warehouse clubs such as Costco Wholesale Corporation., BJ's
Wholesale Club, Inc. and Sam's Club, a division of Wal-Mart Stores, Inc., focus
on both retail and small-business customers, with store formats averaging
approximately 115,000 square feet. These retailers typically (i) offer a range
of national brand and selected private label products at low prices, often in
case, carton or multiple-pack quantities, (ii) provide no-frills, self-service
warehouse facilities with pallet-stacked product aisles, and (iii) charge annual
membership fees. Although we employ many of the retailing methods of the larger
participants in the warehouse club industry, we operate smaller stores
(averaging approximately 30,000 square feet), we do not charge a membership fee,
we typically locate our stores in smaller geographic areas with less
concentrated population centers, and we rely to a greater degree on long-haul
water transportation than do other such companies.

     While the typical U.S. warehouse club customer has virtually unlimited
access to popular U.S. brand-name products, we believe that these products are
carried by relatively few local retailers in a number of island markets.
Moreover, island markets often demonstrate unique consumer preferences, which
typically require retailers to conduct local research and incorporate flexible
merchandise purchasing policies in order to offer a diverse selection of local
products, as well as popular U.S. brand-name products.

Business Strategy

     Our current business strategy is to

     o    enter small island markets ahead of large warehouse club competitors;
     o    select markets familiar with the warehouse club concept;
     o    offer U.S. goods where availability of such goods is minimal and
          significant demand exists;
     o    leverage island-operations expertise;
     o    utilize modern systems and merchandising methods;
     o    offer competitive prices while maintaining favorable margins; and
     o    provide a local product mix while benefiting from low overhead costs.

     Expand to New Markets. We intend to pursue future growth by expanding into
markets that other warehouse clubs and discount retailers have not yet entered,
including but not limited to the Pacific and Caribbean regions. The pace at
which we will open new stores will be dictated by availability and ease of
entry. We plan to refine our expansion efforts to focus on markets with high
U.S. brand awareness and demand, as well as other attributes that typify our
most successful stores. Future development of our business will be directed to
markets in which we can compete effectively by offering competitive prices while
maintaining low costs of goods and services to consumers. Currently, we believe
the number of new island markets with the attributes for our existing growth
strategy is limited, and we have no plans to open new stores during 2004.
However, we continue to analyze opportunities for new stores in the future.

     Enter Markets Familiar With Warehouse Concept. We plan to seek markets that
have some familiarity with the warehouse club concept. Residents of potential
island markets often gain familiarity with the warehouse club concept through
travel to the U.S. and other markets where warehouse clubs are present. We
believe that the presence of this attribute has helped accelerate market
acceptance of our stores in the past.

     Offer U.S. Goods in Markets with Minimal Supply and Significant Demand. We
believe that markets that have awareness and acceptance of U.S. goods but have
limited access to those goods offer substantial sales and profit potential. We
believe that procuring U.S. goods in large volumes and shipping them long
distances to island stores are two of our core competencies.

     Leverage Island-Operations Expertise. Through our experience in opening and
operating retail warehouse club-style stores in the U.S. Territories, foreign
island countries and the Hawaiian Islands, we believe that we have developed a
depth of expertise in dealing with the inherent challenges of island market
operations. We have refined a mid-sized building prototype that is designed to
endure most severe island weather conditions and that incorporates low
construction costs and easily replicated specifications. Through our
long-standing relationships with steamship lines, we negotiate what we believe
to be competitive transportation rates while selecting efficient shipping routes
and utilizing cost-effective freight handling techniques, including the use of
both Company-operated cross-dock depots and independently operated distribution
facilities.


                                       4
<PAGE>

     Utilize Modern Systems and Merchandising Methods. We believe that many
merchants in our most promising target markets have not adopted modern retail
operating efficiencies and do not have access to vendor network and distribution
channels equivalent to those we have developed. By utilizing the modern systems
and merchandising methods we have developed, we believe that we can achieve
greater efficiencies and higher margins than other local island retailers.

     Emphasize Strong Margins While Maintaining Everyday Low Prices. In addition
to providing a pleasant shopping atmosphere, we strive to sell products at
prices that we believe are lower than those offered by our local island
competitors, yet still above those that could be charged in large mainland
markets. By leveraging our retail operating efficiencies, access to
volume-purchasing discounts and distribution capabilities, we believe that we
are able to acquire some products at a significantly lower cost than that paid
by other local island retailers. Historically, these factors have enabled us to
achieve higher margins than those achieved by mainland warehouse clubs and
discount retailers.

     Use Localized Product Sourcing While Deriving Benefits of Centralized
Purchasing. We conduct market research through our vendors, store managers and
resident employees to ascertain the product preferences of each particular
locale, including which U.S. brands are favored and which regional and ethnic
items are desired. To the extent possible, our buyers then procure these
products through our centralized purchasing department, thus deriving the
benefits of volume purchase discounts, streamlined distribution and enhanced
selection. The remaining products, including locally produced items that are
available only in a particular region, are generally purchased by store managers
and our corporate buyers directly from suppliers located in the region.

Market and Site Selection

     We believe that there are certain key attributes for successful stores,
such as acceptance and demand for U.S. goods, familiarity with the warehouse
concept, and absence of large warehouse club competition. Once we identify a
target location as a possible site for expansion and we are satisfied with the
political and regulatory environment in the target location, we then compare the
prices charged by local competitors to the prices we would need to charge in
order to achieve an acceptable return on our investment (after factoring in cost
of the product, cost of freight, duties, port charges, transportation and
taxes). If our market research indicates that we would be able to charge an
adequate price for our products, we then commence a formal search for a suitable
store site. Desirable attributes of suitable sites include a central location in
a population center, sufficient space for our facility, including parking and
loading docks, access to utilities and acceptable geological conditions for
successful construction.

     We generally do not intend to own the land or buildings for our stores. To
the extent, however, that we believe it to be advantageous to purchase land for
our new store sites or to construct new store buildings, we may use our cash
resources or existing financing sources during the construction period and
subsequently attempt to obtain permanent financing after the stores are opened.
Our ability or the ability of a potential landlord to secure financing for new
stores is subject to the availability of commercial real estate financing on
acceptable terms. Failure to secure adequate financing on a timely basis would
delay or potentially prevent new store openings.

     We opened our first retail warehouse store in 1989 in Maui, Hawaii. In
1992, we began to expand by opening stores built to our specifications, in other
island locations. After experiencing success with our mid-sized store concept,
we began to enter various mainland markets in late 1992, occupying existing
retail spaces on favorable lease terms, while continuing to open more stores in
island markets that were built to our specifications. Due to a lack of success
in the mainland markets, we decided in 1995 to return our focus to our core
island markets and we began closing our mainland stores. The process of closing
five of our six mainland stores was completed in 1997.

     In 1998, we opened two stores in Fiji. In 1999, we opened two stores in New
Zealand and one in Curacao. In 2000, we opened a store in St. Maarten, located
in the Caribbean near our St. Thomas and St. Croix stores.

     In June 2000, we closed our two New Zealand stores, as well as our buying
office in Auckland. Although we believed that we had introduced what was to be
the first warehouse club concept to the New Zealand marketplace, we believe that
the loyalty of New Zealand customers to many regional brands resulted in
disappointing sales by the new stores of the U.S. brands we primarily sold.

     In February 2001, we closed one of our two Fiji stores, due primarily to
the impact that the political turmoil in Fiji was having on the tourist
industry. The resulting economic downturn severely impacted the performance of
our store in Nadi, Fiji. Our remaining store in Fiji is located in the city of
Suva, which is the capital and the primary population center of Fiji.


                                       5
<PAGE>

Store Economics

     During fiscal 2003, our ten stores that were open the entire fiscal year
generated annual average net sales of approximately $16.0 million, average net
sales per square foot of approximately $530, average annual per store
contribution of approximately $840,000, and average annual per store
contribution before depreciation of approximately $960,000. Store contribution
is store gross profit less direct store operating expenses. The average
investment in buildings, equipment and leasehold improvements in our eleven
stores, as of December 28, 2003, was approximately $1.1 million. The average
investment in inventory, net of accounts payable of approximately 60%, was
$735,000 at December 28, 2003. The store contribution return on average
investment for fiscal 2003 for these eleven stores was approximately 52%.

Store Layout

     We have incorporated into our prototype store many standard features found
in domestic warehouse clubs that have not been previously used in many island
markets. Store layout and interior designs were planned and calculated using
computer models, with the goal of maximizing the sales per square foot and
providing uniformity among the stores. Further, we believe that we are able to
gain a competitive advantage over our competitors by utilizing:

     o    loading docks;
     o    comparatively large freezer and refrigeration space with
          state-of-the-art equipment;
     o    efficient shelving and display racks;
     o    computerized cash registers and inventory tracking systems;
     o    multiple checkout lanes; and
     o    fresh meat departments, including rotisserie meat items.

     Each of our stores is outfitted with adjustable metal shelving that allows
us to vary the display of our product based on each location's specific consumer
needs. Each island store has backup generators designed to protect perishables
and the store's security system during disruption of electric service caused by
severe weather conditions that can occur in island markets.

     We have used considerable care in developing our store layout, which
features a logical flow to encourage shopping of all departments. When ready for
check out, the customer proceeds to the check-out area in the front of the
store, which usually features 10 lanes. During a typical store visit, the
average customer will spend approximately $47. We accept various forms of
payment in each store, including food stamps and debit and credit cards, and we
selectively extend credit to some local businesses and government agencies.
Utilizing a "no-frills" approach, we display items in steel racking, usually on
a vendor's pallets or in open cases, to maximize warehouse space and minimize
labor costs. We utilize in-store signage to reinforce our basic value image, and
we strive to generate customer excitement through the use of end-cap displays
featuring new merchandise and special promotions, food demonstrators offering
product samples, and ongoing introduction of new items.

     We have also attempted to utilize the design of our stores to minimize our
costs. For example, we achieve lower construction and maintenance costs because
we do not use expensive fixtures such as floor tiles and false ceilings. In
addition, our refrigeration supplier has designed specialized refrigeration
units using modern equipment that allows for cost-effective monitoring,
maintenance and repair, and helps keep our energy costs to a minimum. We have
also developed standardized construction specifications and have negotiated
competitive prices on building materials, such as metal exterior panels,
building components, store equipment and shelving, allowing us better control of
material costs on a per-facility basis and helping us obtain more uniformity of
materials throughout our facilities.

Merchandising

     We typically carry approximately 3,000 stock-keeping units, or SKUs,
compared to the 3,500 to 5,000 SKUs industry sources estimate are carried by
traditional warehouse clubs. Our stores do not have certain departments found in
most large-format warehouse clubs, such as automobile tire, bakery, photo
finishing and prescription drug departments. Our stores feature the following
main product categories:

          Food-Perishables. Meat, produce, deli, dairy and frozen items
     represent approximately 25% of a typical store's net sales. The "reach-in"
     freezers and coolers are substantially larger than those found in the
     stores of most of our local island competitors. During fiscal 2003, we
     added rotisserie chicken and ribs in Curacao, Samoa and our two Guam
     stores. We also began offering our produce items for sale by the pound in
     our Guam stores.


                                       6
<PAGE>

          Food-Non-perishables. Dry grocery goods, including soda, wine, beer,
     liquor, candy and snacks, represent approximately 40% of a typical store's
     net sales. Also included in this area are ethnic and specialty items
     catering to local consumer demands.

          Nonfood. Other nonfood items comprise the remaining 35% of a typical
     store's net sales, and include tobacco, sundries, health and beauty aids,
     office products, hardware, electronics, housewares, furniture and sporting
     goods.

     Purchasing. We balance our product mix by providing popular U.S. brand name
products together with local ethnic items found in each island region.
Approximately 25% of our items are produced locally or purchased through local
suppliers in each market. We believe offering locally purchased merchandise
enables us to better serve our island customers and offer an innovative
variation to the warehouse store format. Our store managers are able to purchase
product that may be available only on their particular islands. Our corporate
buyers monitor sales and inventory levels on a daily basis from all of our
stores. In an effort to cater to retail customers who generally purchase
products for home use, we carry products in various product sizes, including
single packages, "bulk packages" and mid-sized "value-packs." We purchase
merchandise from manufacturers and suppliers on a purchase order basis.

     Pricing. We strive to be the "low price leader" for the markets we serve.
We do not charge our customers a membership fee, thereby allowing all consumers
to receive the benefits of our value-pricing philosophy. We believe that we
provide everyday low prices that are often lower than regular prices offered at
most retailers, such as grocery stores, and are generally intended to be
slightly lower than those offered by mass merchant discount retailers, such as
Wal-Mart and Kmart Corporation, that operate in some of our island markets. In
our ongoing effort to achieve the lowest prices offered in a particular market,
we regularly compare prices and products being offered by our local competitors.
Generally, given the economic efficiencies that we can bring to bear with our
ability to purchase product in large quantities as well as our efficient
distribution system that allows us to take advantage of optimal freight and
transportation costs, we believe that we have a competitive advantage when
pricing most of our products compared to local competition. However, if the
comparison of local competitors' prices discloses that our prices exceed those
of our local competition, then our store managers have the authority to reduce
prices to remain competitive. This decentralization of pricing decisions allows
us to respond quickly and efficiently to competitive challenges in each of our
island markets.

Distribution

     We currently operate a distribution facility in San Leandro, California,
and we use third-party operated facilities in Port Everglades, Florida,
Sacramento, California, Auckland, New Zealand and Sydney, Australia. We have no
written agreements with the independently operated distribution facilities, but
instead have month-to-month service relationships. At each distribution
facility, merchandise is received, consolidated and cross-docked, and ultimately
shipped in fully loaded containers to our stores. The depot has a "lane"
designated for each store. When a full container load is queued into a specific
lane, goods are loaded by forklift into a cargo container, which, when filled,
is then delivered to the closest port for shipment to the designated store. Our
management has significant experience and long-term relationships with steamship
lines and, with our present volume, has negotiated what we believe to be
competitive transportation rates. We do not have a warehouse, but control
inventory levels in our stores by maintaining sufficient back stock in the
stores combined with efficient cross-dock facilities. For perishable items, such
as meats and frozen and chill goods, we use independently operated consignment
depots. Each supplier of these perishable items pays a storage charge for use of
the depots based on the amount of space used for the storage of the supplier's
goods. Fruits and vegetables are purchased direct from established suppliers who
ship the refrigerated containers on a direct basis to each store.

Management Information Systems

     We consider our management information systems to be a key component of our
business model. Each day we track inventory movement, sales and purchase orders
by SKU number, vendor number, store and date. We currently use electronic
point-of-sale equipment in all our stores. All data and communications from each
location are sent via our company wide area network, to the computer system
located at our corporate headquarters in Washington State. Our company wide area
network provides communications capabilities that allow for quick responses to
ever-changing customer needs and local retail opportunities. The ability to
quickly and consistently communicate between our headquarters and store
locations is necessary since our stores are located in such remote locations.


                                       7
<PAGE>

Employee Organization, Training and Compensation

     Management of each of our stores generally consist of a store manager, one
assistant manager and two to three department managers, depending on the store.
The merchandising manager oversees the training and day-to-day operations of the
stockers and forklift operators. The receiving manager oversees the day-to-day
receiving operations and the receiving clerks. The administrative manager
oversees the training and day-to-day operations of the vault clerks, cashiers
and security personnel, if applicable.

     Our goal is to hire most of our employees from the island market in which
the particular store resides, thus creating job opportunities for local
residents. New store employees initially receive one to two weeks of training,
which typically includes working alongside individuals in comparable positions
before working without direct supervision. We have found that such on-the-job
training, together with the use of detailed operating and training manuals, is
an effective way to introduce new employees and managers to our systems and
procedures.

     In total, we employ approximately 550 people worldwide. We strive to
attract and retain highly motivated, performance-oriented employees and managers
by offering competitive compensation, including bonus programs based on
performance. Our Store Manager Bonus Program provides for annual bonuses for
store managers based on store and company profitability targets. In 2001, we
also implemented a sales incentive bonus program for all store employees based
on sales targets. In 2003, we added an inventory control target to the program.
Although we believe that we generally pay our employees above-market wages and
are thereby able to attract and retain high-quality employees, we further
believe that island wages are generally lower than mainland wages and thus
result in comparatively lower labor costs.

Customer Service

     We bring to our island markets a commitment to customer service that we
believe gives us a competitive advantage in each of the local markets we serve.
Our store layout is designed to maximize floor space used for selling product as
well as to give customers a spacious feel while shopping. We accept various
forms of payments, including food stamps and credit and debit cards, and we
selectively extend credit to some local businesses and government agencies. For
most items, we have a 30-day, no-questions-asked return policy. Each of our
stores has approximately 10 checkout lanes, which allows for quick and efficient
shopping. Each store features a customer desk where customers can have questions
answered, usually by a management team member. We also train our employees to
help customers locate store products.

Marketing and Advertising

     We generally rely on word-of-mouth advertising in order to save on
advertising and marketing costs and pass on the savings to our customers. We
have historically spent less than 0.2% of net sales on advertising. However, in
more competitive markets, we may experience higher marketing and advertising
costs.

     To remain competitive in the St. Thomas and Guam markets, among other
things, we implemented a customer loyalty program for our customers. Our
customers are given "points" based on the dollar amount of items purchased in
our stores, which affords them with the opportunity to receive gift certificates
for merchandise in our stores and other promotional items.

Competition

     The warehouse club and discount retail businesses are highly competitive.
We have historically faced significant competition from warehouse clubs and
discount retailers such as Wal-Mart, Kmart and Costco in Hawaii, from Kmart in
the U.S. Virgin Islands and Guam, and PriceSmart in St. Thomas and Guam. We
believe that we compete effectively with membership warehouse clubs and discount
retailers in the markets in which our store reside by offering a balanced
product mix, convenient shopping facilities, a high level of customer service
and competitive pricing. Our competition also consists of national and
international grocery store chains.

     Some of our competitors have substantially greater resources, buying power
and name recognition than we have. The cost of doing business in island markets
is typically higher than on the U.S. mainland because of ocean freight and duty
costs and higher facility costs. While we expect that the size of many of the
markets in which we operate or expect to enter will delay or deter entry by many
of our larger competitors, there can be no assurance that our larger competitors
will not decide to enter these markets or


                                       8
<PAGE>

that other competitors will not compete more effectively against us. Our gross
margin and operating income are generally lower for those stores in markets
where traditional warehouse clubs and discount retailers also operate stores,
due to increased price competition and reduced market share. We may be required
to implement price reductions and other actions in order to remain competitive
in our markets. For example, in response to the opening of a PriceSmart store in
Guam in 2002, we remodeled our Dededo store and increased our price
competitiveness and marketing activities in Guam. Although PriceSmart announced
that it closed its store in Guam in December 2003, we believe that we will need
to continue our efforts to maintain lower prices and higher levels of service to
effectively compete in the markets in which our store reside.

Intellectual Property

     We obtain proprietary rights protection for trademarks by filing
applications for registrable marks with the U.S. Patent and Trademark Office. We
have been granted federal registration of the name and stylized logo
"Cost-U-Less." In addition, we rely on trade secret laws to protect our
proprietary rights. While we believe that our trademarks and other proprietary
know-how have significant value, changing technology and the competitive
marketplace make our future success dependent principally upon our employees
technical competence and our business strategy.

     There can be no assurance that third parties will not assert claims against
us with respect to existing and future trademarks, trade names and sales
techniques. In the event of litigation to determine the validity of any third
party's claims, such litigation could result in significant expense and divert
the efforts of our management, whether or not such litigation is determined in
our favor.

Governmental Regulation

       We are subject to various applicable laws and regulations administered by
federal, state and foreign regulatory authorities, including, but not limited
to, laws and regulations regarding tax, tariffs, currency repatriation, zoning,
employment and licensing requirements. Additionally, as we pursue future
expansion in foreign countries, our operations will be subject to additional
foreign regulatory standards, laws and regulations, in addition to customs,
duties and immigration laws and regulations. Changes in the foregoing laws and
regulations, or their interpretation by agencies and the courts, occur from time
to time. While we believe that we presently comply in all material respects with
such laws and regulations, there can be no assurance that future compliance will
not have a material adverse effect on our business, financial condition and
operating results. See "Risk Factors That May Affect Future Results--Risks
Associated With Island and International Operations."

Employees

     As of March 10, 2003, we had 37 full-time equivalent employees at our
corporate headquarters in Washington State, and 12 employees at our main
distribution facility in California. In total, we employ approximately 550
people worldwide. None of our employees are covered by collective bargaining
agreements.

Available Information

     We file reports with the Securities and Exchange Commission, including
annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports
from time to time. You may read and copy any materials we file with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC
maintains an Internet site at http://www.sec.gov that contains the reports,
proxy and information statements, and other information filed electronically.
Additional information about Cost-U-Less, Inc. is available at
www.costuless.com.

Risk Factors That May Affect Future Results

     You should carefully consider the following factors that may affect future
results and other information included in this annual report. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us or that are currently deemed
immaterial also may impair our business operations or could cause actual


                                       9
<PAGE>

results to differ from historical results or those anticipated. If any of the
following risks actually occur, our business, financial condition and operating
results could be materially adversely affected.

     Our ability to operate profitably in existing markets and to expand into
new markets may be adversly affected by competing warehouse clubs or discount
retailers. The warehouse club and discount retail businesses are highly
competitive. If we fail to successfully respond to competitve pressures in this
industry, or to effectively implement our strategies to respond to these
pressures, our operating results may be negatively affected. Many of our
competitors have substantially greater resources, buying power and name
recognition than we have. The cost of doing business in island markets is
typically higher than on the U.S. mainland because of ocean freight and duty
costs and higher facility costs. In addition, our gross margin and operating
income are generally lower for stores in markets where traditional warehouse
clubs and discount retailers also operate stores, due to increased price
competition and reduced market share. We may be required to implement price
reductions and other actions in order to remain competitive in our markets.
Furthermore, our ability to expand into and operate profitably in new markets
may be adversely affected by the existence or entry of competing warehouse clubs
or discount retailers. These factors could result in reduced sales and margins
or loss of market share, any of which could negatively affect our results of
operations.

     A decline in the general economic condition in the United States or in
island markets in which we operate could have a significant impact on our
financial performance. The success of our operations depends to a significant
extent on a number of factors relating to discretionary consumer spending,
including employment rates, business conditions, interest rates, inflation,
population and Gross Domestic Product levels in each of our island markets,
taxation, consumer spending patterns and customer preferences. We cannot fully
forsee the changes in business and economic conditions that may result from
domestic or foreign factors. There can be no assurance that consumer spending in
our markets will not be adversely affected by these factors, thereby affecting
our growth, net sales and profitability. A downturn in tourism or a decline in
the national or regional economies of the United States and the U.S. Territories
where we currently operate or any foreign countries in which we currently or
will operate, could have a material adverse effect on our business, financial
condition and operating results.

     Because we have a small store base, adverse store performance or increased
expenses will have a more significant adverse impact on our operating and
financial results than if we had a larger store base. We opened our first store
in 1989 and opened a total of 21 stores through December 2003, and presently
operate eleven stores. Our closure of the ten other stores prior to March 2001,
adversely affected our operating results. Should any existing store experience a
significant decline in profitability or any new store be unprofitable, the
negative effect on our business would be more significant than would be the case
if we had a larger store base, and could have a material adverse effect on our
business, financial condition and operating results. In addition, if our general
and administrative expenses increase, the negative effect on our business and
results of operations would be more significant than if we had a larger store
base. Although we intend to carefully plan for the implementation of additional
stores, there can be no assurance that such plans can be executed as envisioned
or that the implementation of those plans will not have a material adverse
effect on our business, financial condition and operating results. In addition,
our ability to acquire products at a lower cost than competitors or obtain
volume-based pricing can be adversely affected because of our small store base.

       If we cannot obtain sufficient funds to grow our business, our operations
and business may suffer. We expect to have substantial future capital
requirements to expand our business. Currently, we believe we have sufficient
funds from our existing cash, various credit facilities and cash flow from
operations to fund our operations through the next 12 months. We do not,
however, have sufficient funds to pursue a rapid growth strategy. Our ability to
expand our business and pursue a rapid growth strategy will depend on our
ability to obtain significant external financing. Our ability to obtain
additional financing on acceptable terms depends on a number of factors, such as
market conditions and our operating performance. There can be no assurance that
we will be able to obtain additional financing in a timely manner and upon
acceptable terms, if at all. If we fail to obtain necessary funds upon
acceptable terms, we may be forced to delay expansion of our business or
otherwise curtail our operations and our operations and business may suffer.

     A prolonged decrease in tourism and air travel could have an indirect but
significant impact on our financial performance, operations and liquidity.
Because our operations are primarily located in the U.S. Territories and foreign
island countries throughout the Pacific and Caribbean, the success of our
operations depends to a significant extent on tourism and the travel industry.
Prolonged adverse occurrences affecting tourism or air travel, particularly to
non-U.S. destinations, including political instability, armed hostilities,
terrorism, or other activity that involves or affects air travel or the tourism
industry generally, could have an indirect but adverse and significant impact on
our financial performance, operations liquidity or capital resources.

     If we are unable to overcome challenges resulting from the isolation of
store operations from our corporate management and our increased dependence on
local managers, we may experience decreased productivity or other operational
problems. Our headquarters and administrative offices are located in Washington
State; however, ten of our eleven stores and a majority of our employees are
located on islands. Although we invest resources to hire and train our on-site
managers, the inability of our executives to be physically present at our
current and planned store sites on a regular basis may result in the following:


                                       10
<PAGE>

     o    Isolation of store operations from corporate management and an
          increased dependence on store managers;
     o    Diminished ability to oversee employees, which may lead to decreased
          productivity or other operational problems;
     o    Construction delays or difficulties caused by inadequate supervision
          of the construction process; and
     o    Communication challenges.

     We may need to invest significant resources to update and expand our
communications systems and information networks and to devote a substantial
amount of time, effort and expense to national and international travel in order
to overcome these challenges; failure to do so could have a material adverse
effect on our business, financial condition and operating results.

     Our business could suffer if we are unable to manage the challenges
associated with island and international operations. Our net sales from island
operations represented approximately 90.6% of our total net sales for fiscal
2003. We expect that our island and international operations together will
continue to account for nearly all of our total net sales. The distance, as well
as the time-zone differences, involved with island locations impose significant
challenges to our ability to manage our operations. Logistical challenges are
presented by operating individual store units in remote locations, whether in
terms of information flow or transportation of goods. Our inability to
effectively manage our island and international operations could have a
significant adverse effect on our business, results of operations and financial
condition

     We may encounter disruption in the transportation of our products which
would significantly harm our business. Our island locales require the
transportation of products over great distances on water, which results in the
following:

     o    Substantial lags between the procurement and delivery of product, thus
          complicating merchandising and inventory control methods;
     o    Possible loss of product due to potential damage to, or destruction
          of, ships or containers delivering our goods;
     o    Tariff, customs and shipping regulation issues;
     o    Substantial ocean freight and duty costs; and
     o    Interruption in the delivery of product due to labor disruption.

         Moreover, only a limited number of transportation companies service our
regions, none of which has entered into a long-term contract with us. The
inability or failure of one or more key transportation companies to provide
transportation services to us, changes in the regulations that govern shipping
tariffs or any other disruption in our ability to transport our merchandise
could have a material adverse effect on our business, financial condition and
operating results.

     We face a number of uncertainties associated with expansion outside U.S.
Territories. Our failure to adequately address these uncertainities could cause
our business to suffer. Currently, three of our stores are located outside the
U.S. Territories. Our future expansion plans may involve entry into additional
foreign countries, which may involve additional or heightened risks and
challenges that are different from those we currently encounter, including risks
associated with being further removed from the political and economic systems in
the United States and anti-American sentiment as a result of political or
military action. We do not currently engage in currency hedging activities. On
February 15, 2001, we closed one of the two stores we operated in Fiji due
primarily to the impact that the political turmoil in Fiji was having on the
tourist industry, with the resulting economic downturn severely impacting our
store in Nadi. Our remaining store in Fiji is located in the city of Suva, which
is the capital of Fiji and the primary population center. There can be no
assurance that further political and economic changes in Fiji, or political and
economic changes in other markets, will not have a material adverse effect on
our business, financial condition and operating results. The failure to
adequately address the additional challenges involved with international
operations could have a material adverse effect on our business, financial
condition and operating results.

     We are exposed to weather and other risks associated with island
operations, which could affect our business and results of our operations. Our
operations are primarily located on islands subject to volatile weather
conditions and natural disasters, which could result in delays in construction
or result in significant damage to, or destruction of, our stores. On December
8, 2002, our two stores on the island of Guam suffered damage from Supertyphoon
Pongsona, resulting in the immediate closure of both stores. Our Tamuning store
lost its generator in the storm but reopened shortly thereafter on December
12th. Our Dededo store, however, suffered more significant damage and and had to
be closed for reconstruction. The store was rebuilt and it reopened for business
on October 3, 2003.


                                       11
<PAGE>

      In addition to weather, island operations involve uncertainties arising
from such as:

     o    Local business practices, language and cultural considerations,
          including the capacity or willingness of local business and government
          officials to provide necessary services;
     o    Ability to acquire, install and maintain modern capabilities such as
          dependable and affordable electricity, telephone, computer, Internet
          and satellite connections often in undeveloped regions;
     o    Political, military and trade tensions;
     o    Currency exchange rate fluctuations and repatriation restrictions;
     o    Local economic conditions;
     o    Difficulty enforcing agreements or protecting intellectual property;
          and
     o    Collection of debts and other obligations in foreign countries.

     There can be no assurance that we will be able to devote the resources
necessary to meet the challenges posed by island operations, or that losses from
business interruption will be adequately compensated by insurance; any failure
to do so would have a material adverse effect on our business, financial
condition and operating results.

     If we are unable to manage our fluctating comparable store sales or our
comparable store sales decline, our business and results of operations could
suffer. Historically, our comparable store sales have fluctated significantly. A
variety of factors affect our comparable store sales, including, among others,
actions of competitors (including the opening of additional stores in our
markets), the retail sales environment, general economic conditions, weather
conditions and our ability to execute our business strategy effectively. In
addition, our future expansion may result in opening additional stores in
markets where we already do business. Historically, we have experienced a
reduction in sales at an existing store when we open a new store in the same
market. These factors may result in future comparable store sales declines.
Moreover, there can be no assurance that comparable store sales for any
particular period will not decrease in the future. If our comparable store sales
decline, our business, results of operations and financial condition would
suffer.

     If we are unable to execute our growth strategy, our business could suffer.
The success of our future growth strategy will depend to a significant degree on
our ability to do the following:

     o    Operate our stores on a profitable basis;
     o    Expand our operations through the opening of new stores;
     o    Properly identify and enter new markets;
     o    Locate suitable store sites;
     o    Negotiate acceptable lease terms;
     o    Locate local developers to construct facilities to lease;
     o    Construct or refurbish sites; and
     o    Obtain necessary funds on acceptable terms.

         We have not opened stores in foreign island markets at a rapid pace.
Currently, we have no plans to open new stores during 2004, but we are in the
process of exploring expansion opportunities in selected markets and relocation
opportunities for existing stores with leases expiring in the next one to two
years. We do not have operating experience in many of the markets in which we
may open new stores. In fact, in June 2000, we closed the two stores that we had
opened in New Zealand in 1999, as they had performed below expectations, due in
part to competitive and merchandising challenges that are different from our
other stores. Additionally, in February 2001, we closed one of our two Fiji
stores, due primarily to the impact that the political turmoil and resulting
economic downturn in Fiji were having on the tourist industry. New markets may
present operational, competitive, regulatory and merchandising challenges that
are different from those we currently encounter. There can be no assurance that
we will be able to adapt our operations to support our future expansion plans or
that our new stores will be profitable. Any failure on our part to manage our
growth could have a material adverse effect on our business, financial condition
and operating results.

     Additionally, we rely significantly on the skill and expertise of our
on-site store managers. We will be required to hire, train and retain skilled
managers and personnel to support any growth, and may experience difficulties
locating store managers and employees who possess the training and experience
necessary to operate our new stores, including our management information and
communications systems, particularly in island markets where language, education
and cultural factors may impose additional challenges. Further, we have
encountered, and may continue to encounter, substantial delays, increased
expenses or loss of potential sites due to the complexities, cultural
differences, and local political issues associated with the regulatory and
permitting processes in the island markets in which we may locate our stores.
There can be no assurance that we will be able to open new stores according to
our business plans, or that we will be able to continue to attract, develop and
retain the personnel necessary to pursue our growth strategy. Failure to do so
could have a material adverse effect on our business, financial condition and
operating results.


                                       12
<PAGE>

     We believe that there are certain attributes of appropriate markets into
which we may expand our operations through the opening of new stores, including:

     o    Acceptance and demand for U.S. goods;
     o    Familiarity with the warehouse concept;
     o    Absence of large warehouse club competition;
     o    Stable political and regulatory environment; and
     o    Favorable pricing structure to provide adequate return on investment.

     We believe the number of new island markets with these attributes is
limited in number as a result of, among other things, the entry by many of our
larger competitors into these markets. If we are unable to expand into new
island markets ahead of large warehouse club competitors, our business,
financial condition and results of operations may be adversely affected.

     We also will need to continually evaluate the adequacy of our existing
systems and procedures, including store management, financial and inventory
control and distribution systems. As we grow, we will need to continually
analyze the sufficiency of our distribution depots and inventory distribution
methods and may require additional facilities in order to support our planned
growth. There can be no assurance that we will anticipate all the changing
demands that our expanding operations will impose on such systems. Failure to
adequately update our internal systems or procedures as required could have a
material adverse effect on our business, financial condition and operating
results.

     The loss of key personnel could harm our business and results of
operations. Our success depends in large part on the abilities and continued
service of our executive officers and other key employees. In addition, we do
not currently carry key-man life insurance. There can be no assurance that we
will be able to retain the services of such executive officers and other key
employees, the loss of any of whom could have a material adverse effect on our
business, financial condition and operating results.

     A disruption of our information systems could cause our business and
results of operations to suffer. Our business is highly dependent on
communications and information systems, primarily systems provided by
third-party vendors. Although we have taken a number of precautions against
certain events that could disrupt the operation of our management information
systems, we may experience systems failures or interruptions, which could have a
material adverse effect on our business, financial condition and operating
results. Any failure or interruption of our systems or systems provided by
third-party vendors could cause delays or other problems in our operations,
which could have a material adverse effect on our business, financial condition
and operating results.

     We may not be able to utilize certain tax benefits, which could have a
material adverese effect on our results of operations. Our ability to utilize
various tax benefits is dependent on our ability to generate adequate taxable
income in the United States and in foreign jurisdictions. As of December 28,
2003, we had recognized an aggregate foreign tax benefit of $2.3 million on
foreign operating losses and a corresponding valuation allowance of $2.2
million. Approximately one-half of the Net Operating Losses, or NOLs, will begin
expiring in the year 2006. The remaining NOLs were generated in Curacao and St.
Maarten and are not subject to expiration time limits. Utilization of the tax
benefit is dependent on our generating future taxable income. There can be no
assurance that we will be able to produce adequate future taxable income to
utilize this tax benefit, and failure to generate such income may have a
material adverse effect on our business, financial condition and operating
results.

     Certain provisions in our charter documents and otherwise may discourage
third parties from attempting to acquire control of our Company, which may have
an adverse effect on the price of our stock. Our board of directors has the
authority, without obtaining shareholder approval, to issue up to 2,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions of such shares without any further vote or action by our
shareholders. Our articles of incorporation and bylaws also provide for a
classified board and special advance notice provisions for proposed business at
annual meetings. In addition, Washington law contains certain provisions that
may have the effect of delaying, deferring or preventing a hostile takeover of
our company. Further, we have a shareholder rights plan that is designed to
cause substantial dilution to a person or group that attempts to acquire our
company without approval of our board of directors, and thereby make a hostile
takeover attempt prohibitively expensive for a potential acquirer. These
provisions, among others, may have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from attempting to
acquire, control of our company, even if shareholders may consider such a change
in control to be in their best interests, which may cause the price of our
common stock to suffer.

     We are subject to various governmental regulations, which may have an
adverse effect on our business. Governmental regulations in foreign countries
where we plan to expand our operations might prevent or delay entry into the
market or prevent or delay the introduction, or require modification, of certain
of our operations. Additionally, our ability to compete may be adversely
affected by foreign governmental regulations that encourage or mandate the
employment of citizens of, or purchase of supplies


                                       13
<PAGE>

from vendors in a particular jurisdiction. We may also be subject to taxation in
these foreign jurisdictions, and the final determination of our tax liabilities
may involve the interpretation of the statutes and requirements of the various
domestic and foreign taxing authorities. We may also be subject to currency
repatriation restrictions. There can be no assurance that any of these risks
will not have a material adverse effect on our business, financial condition and
operating results.


                                       14
<PAGE>

Item 2.   Properties

     We currently lease a majority of our existing store locations. We also
lease the land for our St. Thomas and St. Maarten stores, but own the store
facilities. The stores average approximately 30,000 square feet and range in
size from approximately 22,000 square feet to approximately 39,000 square feet.
The store leases typically have a term of 10 years with options to lease for an
additional 5 to 10 years and typically are net leases. With the exception of our
Sonora store, which opened in an existing facility, all of our stores have been
built to our specifications.

     Mid-Sized Format. The average size of our eleven stores is approximately
30,000 square feet, while the traditional warehouse stores found in the United
States average approximately 115,000 square feet. We have developed three store
"footprints" based on a 27,000, 36,000 and 42,000-square-foot facility, which
are adaptable from anywhere between 25,000 to 45,000 square feet. We developed
our prototype in consultation with architects and designers who helped design
many of the warehouse stores operating in the United States today. We used the
prototype in the construction of our stores in Fiji, St. Thomas, Curacao and St.
Maarten.

     We have developed a standard lease that we use as a starting point for our
lease negotiations with each potential landowner/developer. We routinely
negotiate 10-year leases with at least two five-year renewal options. The
following is a summary of our facility locations:

<TABLE>
<CAPTION>
                                                                        Approximate   Original                      Remaining
                                                                        Store Square   Lease         Current        Options to
          Location                                       Date Opened      Footage       Term     Expiration Date      Extend
          --------                                       -----------      -------       ----     ----------------     ------
<S>                                                   <C>                  <C>        <C>       <C>                  <C>
Dededo, Guam (1)..................................    May 1, 1992          38,800     15 years  May 31, 2017         10 years
Hilo, Hawaii......................................    August 27, 1992      23,000     15 years  August 31, 2006      10 years
Kapaa, Kauai......................................    March 18, 1993       22,000     17 years  April 22, 2010       10 years
St. Thomas, USVI (Land Lease).....................    June 25, 1998        36,000     20 years  September 30, 2017   30 years
Sonora, CA (2)....................................    January 27, 1994     23,150     10 years  April 30, 2009       5 years
St. Croix, USVI...................................    November 3, 1994     26,210     10 years  November 1, 2004     10 years
Tamuning, Guam....................................    March 15, 1995       35,000     15 years  March 1, 2010        10 years
Pago Pago, American Samoa.........................    March 20, 1995       32,055     10 years  February 28, 2005    15 years
Suva, Fiji........................................    November 12, 1998    30,000     10 years  November 1, 2008     10 years
Curacao, Netherlands Antilles.....................    March 2, 1999        38,711     10 years  February 1, 2009     10 years
St. Maarten, Netherlands Antilles (Land Lease)....    June 29, 2000        36,000     25 years  February 25, 2024    30 years
</TABLE>

(1)  On December 8, 2002, our Dededo store on the island of Guam suffered damage
     from the Supertyphoon Pongsona, resulting in its immediate closure. During
     the closure of our store, our rent was abated. The store was rebuilt in a
     slightly larger size and it reopened for business on October 3, 2003. We
     have renegotiated our lease at this location due to the new size of our
     building and have extended the lease term an additional five years.
(2)  In March 2004, we exercised the first of two five year options to extend
     our Sonora store's lease term.

     Currently, we have no plans to open new stores during 2004, but we are in
the process of exploring expansion opportunities in selected markets and
relocation opportunities for existing stores with leases expiring in the next
one to two years.

     Our principal offices are currently located in Preston, Washington and
consist of approximately 14,000 square feet of office space. On April 5, 2004,
we will be relocating our principal offices to a new location approximately ten
miles from our existing offices. Our new lease consists of approximately 9,000
square feet of office space in Bellevue, Washington, and expires on March 31,
2009.

     In addition, we lease our San Leandro distribution facility. The facility
is approximately 56,000 square feet, and the lease expires on January 31, 2007.
We also use third-party operated distribution facilities in Florida, California,
New Zealand and Australia. We believe that our current distribution facilities
will be sufficient to meet our present needs and that we will be able to secure
additional facilities in the future as needed. However, there can be no
assurance that we will be able to obtain additional distribution facilities when
needed or on terms that are acceptable to us.


                                       15
<PAGE>

Item 3.   Legal Proceedings

     We may be subject to legal proceedings or claims, either asserted or
unasserted, that arise in the ordinary course of business. While the outcome of
these potential claims cannot be predicted with certainty, we do not believe
that any pending legal matters will have a material adverse effect on us.
However, any adverse outcome to future lawsuits against us may result in a
material adverse affect on our financial condition.

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

     No matters were submitted to a vote of our shareholders during the fourth
quarter of the fiscal year ended December 28, 2003.


                                       16
<PAGE>

                                     PART II

Item 5.   Market for Company's Common Stock and Related Shareholder Matters

     Our common stock is currently traded on the Nasdaq SmallCap Market under
the symbol "CULS". The number of shareholders of record of our common stock at
March 10, 2004, was 63.

     The last sale price of our common stock on the Nasdaq SmallCap Market on
March 10, 2004 was $4.70 per share. High and low sales prices for our common
stock for the periods indicated in 2003 and 2002, are as follows. Such prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.

          <TABLE>
          <CAPTION>
                                                                                Stock Price
                           Year                                               High       Low
          <S>                                                               <C>        <C>

          Fiscal 2003 (ended December 28, 2003)
               First Quarter...........................................     $ 1.23     $ 0.70
               Second Quarter..........................................       2.60       0.99
               Third Quarter...........................................       2.98       1.84
               Fourth Quarter..........................................       3.89       2.36

          Fiscal 2002 (ended December 29, 2002)
               First Quarter...........................................       1.75       1.16
               Second Quarter..........................................       2.42       1.31
               Third Quarter...........................................       1.42       0.75
               Fourth Quarter..........................................       1.62       0.69
</TABLE>

     We have never declared or paid any cash dividends on our common stock. We
currently anticipate that we will retain all future earnings for use in the
expansion and operations of our business and do not anticipate paying cash
dividends in the foreseeable future.


                                       17
<PAGE>

Item 6.   Selected Financial Data

     The following selected financial data, excluding the selected operating
data, is derived from our audited consolidated financial statements and
accompanying notes. This selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included elsewhere in this report. Our fiscal year ends on the last Sunday in
December. All years presented represent 52-week fiscal years except fiscal 2000,
which was a 53-week fiscal year.

                       Selected Consolidated Financial and
                 Operating Data (in thousands, except per share
                      data, average sales per square foot,
                      number of stores and percentage data)

<TABLE>
<CAPTION>
                                                    Dec.28,       Dec.29,      Dec.30,      Dec.31,      Dec.26,
                                                     2003          2002         2001          2000        1999
                                                     -----         -----        -----         ----        ----
<S>                                                 <C>          <C>          <C>           <C>          <C>
Income Statement Data:
Net sales........................................   $177,066     $176,190     $177,856      $186,299     $167,079
Gross profit.....................................     31,503       29,215       28,932        28,349       27,395
Operating Expenses:
  Store..........................................     22,304       22,181       21,288        21,775       18,254
  General and administrative.....................      6,853        5,934        5,786         6,421        5,654
  Store opening..................................        287           14           68           518        1,217
  Store closing..................................          0            0            0         3,740            0
Operating income (loss)..........................      2,059        1,086        1,790        (4,105)       2,270
Interest expense, net............................      (458)        (375)        (589)         (663)        (403)
Other income (expense)...........................        710        (236)        (155)         (283)         (57)
Income (loss) before income taxes................      2,311          475        1,046        (5,051)       1,810
Income tax provision.............................        930          190          490           460          656
Net income (loss)................................   $  1,381     $    285     $    556      $ (5,511)    $  1,154
Earnings (loss) per common share:
  Basic..........................................   $   0.38     $   0.08     $   0.15      $  (1.53)    $   0.32
  Diluted........................................   $   0.38     $   0.08     $   0.15      $  (1.53)    $   0.32
Weighted average common shares outstanding, basic.     3,614        3,606        3,606         3,599        3,558
Weighted average common shares outstanding,            3,671        3,615        3,607         3,599        3,618
diluted..........................................

Selected Operating Data:
  Stores opened..................................          1            0            0             1            3
  Stores closed (1)..............................          0            1            1             2            0
  Stores open at end of period...................         11           10           11            12           13
  Average net comparable store sales per square
  foot(2)(3).....................................   $    530     $    490     $    485      $    498     $    515
  Comparable-store net sales increase
  (decrease)(2)(3)...............................        8.2%         1.4%       (4.7)%        (2.2)%         6.8%

Consolidated  Balance Sheet Data:
Working capital..................................   $  6,567     $  4,707     $  2,568      $    535     $  5,992
Total assets.....................................     40,940       40,190       41,606        41,717       45,812
Line of credit...................................        960        2,367        2,173         2,700        2,163
Long-term debt, less current maturities..........      2,544        2,811        3,077         3,344        2,517
Total shareholders' equity.......................     17,000       15,595       15,341        14,794       20,665
</TABLE>

--------------
(1)  On December 8, 2002, our two stores on the island of Guam suffered damage
     from the Supertyphoon Pongsona, resulting in the immediate closure of both
     stores. Our Tamuning store, lost its generator in the storm, but reopened
     shortly thereafter on December 12th. Our Dededo store, however, suffered
     more significant damage, and and had to be closed for reconstruction. The
     store was rebuilt and it reopened for business on October 3, 2003.
(2)  Fiscal 2000 was a 53-week year; all other fiscal years were 52-week years.
     Comparable store net sales and average sales per square foot for fiscal
     2000 have been adjusted to reflect a 52-week year. Our fiscal quarters are
     13 weeks, except 4th quarter 2000, which was a 14 week quarter.
(3)  A new store becomes comparable after it has been open for a full 13 months.
     Comparable-store net sales increases for fiscal 2002 and fiscal 2003 are
     calculated on stores excluding the Guam market as our Dededo store was
     closed from December 8, 2002 until its reopening on October 3, 2003.


                                       18
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

     This Management's Discussion and Analysis contains forward-looking
statements. All statements other than statements of historical fact made in this
annual report are forward-looking. Forward-looking statements reflect
management's current expectations and are subject to risks and uncertainties
discussed below, and identified in the section of this annual report on Form
10-K entitled "Risk Factors That May Affect Future Results", that could cause
actual results to differ materially from historical results or those
anticipated.

Overview

     We operate mid-sized warehouse club-style stores in the United States
Territories, foreign island countries in the Pacific and the Caribbean, the
Hawaiian Islands and Sonora, California. Our primary strategy is to operate in
island markets, offering predominately U.S. branded goods. We currently operate
eleven retail stores as follows: two stores in each of Hawaii and Guam, and one
store in each of St. Thomas, St. Croix, American Samoa, Fiji, Curacao, St.
Maarten and Sonora, California.

     On December 8, 2002, our two stores on the island of Guam suffered damage
from Supertyphoon Pongsona, resulting in the immediate closure of both stores.
Our Tamuning store lost its generator in the storm, but reopened shortly
thereafter on December 12th. Our Dededo store, however, suffered more
significant damage, and had to be closed for reconstruction. The store was
rebuilt and it reopened for business on October 3, 2003.

      Our stores are patterned after the warehouse club concept, although the
stores (i) are smaller (averaging approximately 30,000 square feet vs. large
format warehouse clubs of approximately 115,000 square feet), (ii) generally
target niche markets, mainly U.S. Territories, U.S. island states and foreign
island countries, where demographics do not support large format warehouse
clubs, (iii) carry a wide assortment of local and ethnic food items, and (iv) do
not charge a membership fee. Although we do not have large seasonal fluctuations
in sales, the fourth quarter is typically the highest sales quarter due to
additional holiday sales.

         Our management focus relative to our core island store operations
includes reviewing our merchandising strategies, both those that apply to all
stores and those specific to each store in light of the different conditions in
each market. During 2003 we opened no new stores other than the reopening of our
Dededo, Guam store. However, we are in the process of analyzing opportunities in
selected markets and relocation opportunities for existing stores with leases
expiring in the next one to two years. While we believe these actions can
improve profitability, there can be no assurance that these actions will be
successful.

      We also continue to explore ways to maximize long-term value for our
shareholders, including focusing on efforts to increase earnings, responding to
competition, and improving same store sales and gross margins. We believe the
number of new island markets with the attributes for our existing growth
strategy is limited as a result of, among other things, changing market
conditions. We are currently evaluating alternative methods of implementing
future expansion.

      On June 24, 2003, we confirmed that we were engaged in discussions with
ASSI, Inc. concerning a potential acquisition of all of the outstanding shares
of our common stock. On October 10, 2003, we announced that the discussion with
ASSI regarding an acquisition of our outstanding common stock was no longer
active, but that we were continuing discussions regarding a potential cash
investment in unregistered newly-issued shares of our common stock. On November
3, 2003, we announced that discussions with ASSI regarding a potential
investment in newly-issued shares had terminated.


                                       19
<PAGE>

Results of Operations

     The following table sets forth, for the periods indicated, the percentage
of our net sales represented by certain consolidated income statement data.
<TABLE>
<CAPTION>

                                                                       Fiscal Year Ended
                                                        December 28,     December 29,      December 30,
                                                            2003             2002              2001
                                                            ----             ----              ----
<S>                                                        <C>              <C>               <C>
     Net sales.......................................      100.0%           100.0%            100.0%
     Gross margin....................................       17.8             16.6              16.3
     Operating Expenses:
          Store......................................       12.6             12.6              12.0
          General and administrative.................        3.9              3.4               3.3
          Store opening..............................        0.2              ---               ---
     Operating income................................        1.2              0.6               1.0
     Interest expense, net...........................       (0.3)            (0.2)             (0.3)
     Other income (expense)..........................        0.4             (0.1)             (0.1)
     Income before income taxes......................        1.3              0.3               0.6
     Income tax provision............................        0.5              0.1               0.3
     Net income .....................................        0.8%             0.2%              0.3%
</TABLE>

Fiscal 2003 Compared to Fiscal 2002

     During fiscal 2003, we experienced improvements in comparable-store sales
and gross margin, which resulted in higher net income and EPS. These
improvements were due to several factors including better sourcing, pricing,
merchandising and mix of goods in the our stores.

     We also experienced a successful reopening of our Dededo, Guam store, which
had sufferered substantial damage from Supertyphoon Ponsonga on December 8,
2002, forcing it to close. The store was rebuilt and reopened on October 3,
2003. As a result of the reopening of our Dededo, Guam store, we expect our
fiscal 2004 sales to increase as compared to 2003.

     Net Sales. Net sales in fiscal 2003 of $177.1 million increased 0.5% as
compared to net sales of $176.2 million for the comparable period in the prior
year. The 0.5% improvement in sales came despite the nine month closure of our
Dededo, Guam, store and lower business-to-business sales in the current year, as
nine of our other ten stores experienced comparable sales increases. We expect
the level of business-to-business activity during fiscal 2004 to be consistent
with fiscal 2003 levels.

       Comparable-store sales (stores open for a full 13 months) increased 8.2%
during fiscal 2003 as compared to fiscal 2002. Comparable-store sales are
calculated on stores excluding the Guam market as our store in Tamuning, Guam
benefited from the temporary closure of our Dededo store. Including the Tamuning
store, same store sales increased 9.9% during fiscal 2003 as compared to fiscal
2002. During the fourth quarter of 2003, we experienced comparable-store sales
increases of 13.8% as compared to the fourth quarter of fiscal 2002.

      Gross Margin. Gross margin improved to $31.5 million, or 17.8% of sales,
in fiscal 2003 from $29.2 million, or 16.6% of sales, in fiscal 2002. The
increase in gross profit as a percent of sales resulted primarily from
improvements in merchandising, inventory management and a stronger mix of retail
store sales, with typically higher margins, as compared to business-to-business
sales, which generally provide a lower gross margin but are executed at minimal
direct expense.

     Store Expenses. Store expenses remained flat at $22.3 million, or 12.6% of
sales, for fiscal 2003 as compared to $22.2 million, or 12.6% of sales, in
fiscal 2002. During fiscal 2003, increases in insurance, utilities and volume
related expenses such as payroll and bank/bankcard fees were offset by a $1.1
million reduction in store expenses attributable to the nine month closure of
our Dededo, Guam, store. As a percent of sales, payroll actually declined in
2003 as compared to 2002.

     General and Administrative Expense. General and administrative expenses
increased to $6.9 million, or 3.9% of sales, in fiscal 2003, as compared to $5.9
million, or 3.4% of sales, in fiscal 2002. The increase was primarily
attributable to a $0.5 million write-down of idle fixed assets from previously
closed stores and the acceleration of depreciation of leasehold improvements
related to our corporate office, as well as transaction costs incurred in
connection with our discussions with ASSI regarding various strategic
transactions. On November 3, 2003, we announced that discussions with ASSI
regarding those strategic transactions had been terminated.


                                       20
<PAGE>

     Store Opening Expense. Store opening expenses were $287,000 in fiscal 2003,
as compared to $14,000 in fiscal 2002. Store opening expenses in fiscal 2003
primarily relate to the reopening of our Dededo, Guam store. Store opening
expense in fiscal 2002 relate to costs associated with the evaluation of
potential new store locations.

     Net Interest Expense. Interest expense, net increased to $0.5 million in
fiscal 2003 as compared to $0.4 million in fiscal 2002. The increase was
primarily due to commitment fees and the higher interest rate (approximately
1.5% higher than 2002) associated with our new line of credit entered into on
April 9, 2003.

     Other income (expense): Other income of $0.7 million in fiscal 2003
includes a gain of $0.4 million related to the receipt of insurance
reimbursements for damage to inventory and equipment sustained from the
Supertyphoon in Guam and gains of $0.3 million on foreign currency transactions,
and translation of intercompany balances for transactions that exceed the
permanent investments in those countries. Other expense of $0.2 million in
fiscal 2002 includes expense of $0.4 million related to losses sustained from
the Supertyphoon that we did not expect to recover from insurance, offset by
gains of $0.2 million on foreign currency transactions and translation. The
income on foreign currency in both fiscal years is primarily attributable to
appreciation in the Fijian dollar as compared to the U.S. dollar.

     Income Tax Provision. We recorded a tax provision in fiscal 2003 of $0.9
million or 40.2% of pre-tax income. The tax provision represents taxes
associated with income generated in the U.S. and U.S. Territories. No taxes or
tax benefits were provided on foreign pre-tax losses in fiscal 2003, as we
cannot predict whether we will be able to generate an adequate amount of taxable
income in the future to utilize such benefits.

     As of December 28, 2003, we have foreign net operating loss carryforwards
("NOL's") of approximately $6.4 million, which, if not utilized, will begin
expiring in the year 2006. NOL's in Curacao and St. Maarten of approximately
$2.9 million are not subject to expiration time limits. Our ability to utilize
the NOL's carryforwards is dependent upon generating taxable income in the
foreign jurisdictions. As a result, we have recorded a valuation allowance of
$2.2 million attributable to the $2.3 million of tax benefits recorded for net
operating loss carryforwards.

     We had tax credit carryforwards of $0.2 million as of December 29, 2002,
expiring between 2005 and 2006. During 2003, we were able to utilize a portion
of the tax credit carryforward. We expect to be able to fully utilize the
remaining tax credit carryforward of $0.1 million and therefore no valuation
allowance is provided.

     Net Income. Our net income was $1.4 million, or $0.38 per fully diluted
share, in fiscal 2003, compared to net income of $0.3 million, or $0.08 per
fully diluted share, in fiscal 2002

Fiscal 2002 Compared to Fiscal 2001

     Net Sales. Net sales in fiscal 2002 of $176.2 million declined 0.9% as
compared to net sales of $177.9 million for the comparable period in the prior
year. The slight decline in net sales was primarily due to lower
business-to-business sales in the current year as compared to particularly
strong sales in the prior year. Conversely, comparable-store sales (stores open
for a full 13 months) increased 1.4% during fiscal 2002 as compared to fiscal
2001, as decreased sales in Guam were more than offset by sales increases in a
majority of our other stores. On December 8, 2002, our two stores on the island
of Guam suffered damage from Supertyphoon Pongsona, resulting in the immediate
closure of both stores. Our Tamuning store lost its generator in the storm, but
reopened shortly thereafter on December 12th. Our Dededo store, however,
suffered more significant damage, and did not reopen until October 3, 2003.

      Gross Margin. Gross margin improved to $29.2 million, or 16.6% of sales,
in fiscal 2002 from $28.9 million, or 16.3% of sales, in fiscal 2001. The
increase in gross profit as a percent of sales resulted primarily from
improvements in merchandising and a stronger mix of retail store sales, with
typically higher margins, as compared to business-to-business sales, which
generally provide a lower gross margin but are executed at minimal direct
expense.

     Store Expenses. Store expenses increased to $22.2 million for fiscal 2002
as compared to $21.3 million in fiscal 2001. As a percentage of sales, store
expenses increased to 12.6% in fiscal 2002 as compared to 12.0% in fiscal 2001.
The increase in store expenses was primarily due to higher payroll and related
costs associated with an upgrade in store management, higher sales volume and a
higher level of customer service, as well as increases in repairs and
maintenance expense and credit card fees, offset by an improvement in utility
expenses.


                                       21
<PAGE>

     General and Administrative Expense. General and administrative expenses
remained relatively flat at $5.9 million, or 3.4% of sales, in fiscal 2002, as
compared to $5.8 million, or 3.3% of sales, in fiscal 2001.

     Store Opening Expense. Store opening expenses were $14,000 in fiscal 2002,
as compared to $68,000 in fiscal 2001. Store opening expenses in both years
related to costs associated with the evaluation of potential new store
locations.

     Net Interest Expense. Net interest expense decreased to $375,000 in fiscal
2002, as compared to $589,000 in fiscal 2001, due primarily to a reduction in
interest rates.

     Other income (expense): Other expense of $236,000 in fiscal 2002 includes
expense of $406,000 related to uninsured losses sustained from the Supertyphoon
in Guam and gains of $170,000 on foreign currency transactions, and translation
of intercompany balances for transactions that exceed the permanent investments
in those countries. Other expense of $155,000 in fiscal 2001, was primarily
attributable to losses on foreign currency transactions, and translation of
intercompany balances for transactions that exceed the permanent investments in
those countries. The income and (expense) on foreign currency in both fiscal
years is primarily attributable to appreciation and (depreciation) in the Fijian
dollar as compared to the U.S. dollar.

     Income Tax Provision. We recorded a tax provision in fiscal 2002 of $0.2
million or 40.0% of pre-tax income. The tax provision represents taxes
associated with income generated in the U.S. and U.S. Territories. No taxes or
tax benefits were provided on foreign pre-tax losses in fiscal 2002, as we
cannot predict whether we will be able to generate an adequate amount of taxable
income in the future to utilize such benefits. As of December 29, 2002, we had
foreign net operating loss carryforwards ("NOL's") of approximately $6.5
million, which, if not utilized, will begin expiring in the year 2006. NOL's in
Curacao and St. Maarten of approximately $2.9 million are not subject to
expiration time limits. Our ability to utilize the NOL carryforwards is
dependent upon generating taxable income in the foreign jurisdictions. As a
result, we have recorded a valuation allowance of $2.4 million attributable to
the net operating loss carryforwards.

     We had foreign tax credit carryforwards of $0.7 million as of December 30,
2001, expiring between 2005 and 2006. During fiscal 2002, we were able to
utilize most of the foreign tax credit carryforwards. We expect to be able to
fully utilize the remaining foreign tax credit carryforward of $0.2 million and,
therefore, no valuation allowance is provided.

     Net Income. Our net income decreased to $285,000, or $0.08 per share, for
fiscal 2002, compared to net income of $556,000, or $0.15 per share in fiscal
2001.

Liquidity and Capital Resources

     We currently finance our operations with proceeds from various credit
facilities, and internally generated funds. Net cash provided by operations was
$5.5 million, $0.3 million and $1.5 million, for fiscal years 2003, 2002 and
2001, respectively. The increase in net cash provided by operation in 2003 as
compared to 2002 was primarily due to an increase in net income of $1.1 million,
an increase in accrued expenses of $3.0 million, the receipt of insurance
proceeds and payments received on accounts receivable of $1.5 million. The
decrease in net cash provided by operations in 2002 as compared to 2001 was
primarily due to the establishment of a receivable for assets lost as a result
of Supertyphoon Pongsona in Guam and use of cash to reduce accrued expenses.

     Net cash used in investing activities was $2.0 million, $0.4 million and
$0.6 million, for fiscal years 2003, 2002 and 2001, respectively. The cash used
in investing activities in 2003 primarily relates to the reopening of our
Dededo, Guam store. Cash was used in fiscal 2002 and fiscal 2001 for general
store improvements. Currently, we have no plans to open new stores during 2004,
but we are in the process of exploring expansion opportunities in selected
markets and relocation opportunities for existing stores with leases expiring in
the next one to two years.

     Net cash used by financing activities of $1.5 million in fiscal 2003 was
used to reduce the balance on our line of credit. Net cash used by financing
activities of $0.1 million in fiscal 2002 was due to reductions in the
outstanding borrowings on our long-term debt, partially offset by additional
borrowings on our line of credit. In fiscal 2001, the $0.8 million of net cash
used by financing activities was due to the reduction of both our line of credit
and our long-term debt.

     Foreign currency translation resulted in a gain of $34,000 in fiscal 2001
and losses of $0.2 million and $0.1 million in fiscal years 2003 and 2002,
respectively. The foreign currency translation gains and losses are a result of
the translation of our subsidiaries' operating results and balance sheets from
local currencies to U. S. dollars.


                                       22
<PAGE>

     On April 9, 2003, we entered into a line of credit with Wells Fargo
Business Credit that has a three year term, expiring on April 9, 2006. The line
of credit consists of a $6.0 million committed, secured revolving credit line
with a sublimit for letters of credit and bankers acceptances in the amount up
to $0.5 million. At December 28, 2003, there were $1.0 million in borrowings
outstanding on the line of credit, $0.2 million utilized for standby letters of
credit and $0.1 million set aside for other reserves.

     Borrowings are limited to the lesser of $6.0 million or the amount
calculated under the borrowing base. The borrowing base is equal to the lesser
of (a) $6,000,000 or (b) the sum of 70% of eligible inventory in the United
States of America, plus 60% of eligible inventory in the U.S. Virgin Islands and
Guam, less specified reserves. Borrowings under the new line of credit bear
interest at the financial institution's prime rate plus 1.5% (5.5% at December
28, 2003). A fee of 0.25% is charged on the unused portion of the line of
credit. The line of credit contains various covenants, including a requirement
that we maintain minimum pre-tax income and tangible net worth and limitations
on acquisitions, additional debt, change in control and capital expenditures. We
believe that we are currently in compliance with all such covenants.

     On March 2, 2004, the Company and Wells Fargo Business Credit entered into
the Second Amendment to Credit and Security Agreement. The amendment provides
for the following: (i) an immediate reduction in the interest rate on the line
of credit of one half of one percent (0.50%), (ii) a further reduction in the
interest rate of one half of one percent (0.50%) if we meet certain net income
levels from December 29, 2003, through June 27, 2004, and (iii) the adoption of
new measurement values for fiscal 2004.

     Prior to April 9, 2003, we maintained a $6.75 million line of credit with a
different commercial bank. This line of credit was satisfied and terminated on
April 10, 2003.

     A significant portion of our cash flow is generated by our operations. If
our operating results deteriorate, as a result of a decrease in customer demand
or severe pricing pressures from our customers or our competitors, our ability
to generate positive cash flow from operations may be jeopardized. We believe
that amounts available under our various credit facilities, existing cash
available for working capital purposes, and cash flow from operations will most
likely be sufficient to fund our operations through the next 12 months. There
can be no assurance that we will be able to obtain additional financing when
needed, or that any available financing will be on terms acceptable to us.

Contractual Obligations

     As of December 28, 2003, our commitments to make future payments under long
term contractual obligations were as follows (in thousands):

<TABLE>
<CAPTION>
                                                         Payments Due by Period
                                          ---------------------------------------------------
<S>                                          <C>        <C>        <C>      <C>      <C>
                                                       Less than   1 to 3   4 to 5   After 5
          Contractual Obligations             Total     1 year     years    years     years
          -----------------------             -----     ------     -----    -----     -----
          Long-term debt                     $ 2,811    $  267     $  534   $  534   $ 1,476
          Operating Leases (1)                33,396     4,782      8,657    7,599    12,358
          Capital Lease (2)                      990       141        283      283       283
                                             -------    ------     ------   ------   -------

          Total                              $37,197    $5,190     $9,474   $8,416   $14,117
                                             =======    ======     ======   ======   =======
</TABLE>

          (1)  Adjusted to reflect (i) new rental payments negotiated in
               February 2004 for our lease at Dededo, Guam, and (ii) rental
               payments associated with the March 2004 exercise of our first
               five year option to extend our Sonora lease.

          (2)  Represents rental payments associated with our January 2004
               equipment lease for certain Guam assets.

Critical Accounting Policies

      We have chosen accounting policies that we believe are appropriate to
report accurately and fairly our operating results and financial position, and
we apply those accounting policies in a consistent manner. The significant
accounting policies are summarized in Note 1 to the consolidated financial
statements included in this annual report on Form 10-K.

      The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. We base our estimates on historical experience and other
factors believed to be reasonable under the


                                       23
<PAGE>

circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those estimates.

     We believe that the following accounting policies are the most critical in
the preparation of our financial statements because they involve the most
difficult, subjective or complex judgments about the effect of matters that are
inherently uncertain.

Inventories

     Inventories are carried at the lower of average cost or market. We provide
for estimated inventory losses between physical inventory counts on the basis of
a percentage of sales. The provision is adjusted periodically to reflect the
trend of actual physical inventory count results.

Long Lived Assets

     When facts and circumstances indicate that the carrying values of
long-lived assets, including intangibles, may be impaired, an evaluation of the
recoverability is performed by comparing the carrying value of the assets to
projected future cash flows. Upon indication that the carrying value of such
assets may not be recoverable, the Company recognizes an impairment loss by a
charge against current operations.

Foreign Currency Translation

     The U.S. dollar is the functional currency for all our locations, except
for Fiji and Netherlands Antilles, where the local currency is the functional
currency. Prior to the closure of our New Zealand stores in June 2000, the
functional currency for New Zealand was its local currency. Assets and
liabilities denominated in foreign currencies are translated at the applicable
exchange rate on the balance sheet date. Net sales costs and expenses are
translated at the average rates of exchange prevailing during the period.
Adjustments resulting from this process are reported, net of taxes, as
Accumulated Other Comprehensive Income (Loss), a component of Shareholders'
Equity. Realized and unrealized gains on foreign currency transactions are
included in Other Income (Expense). The cumulative translation adjustment
resulting from a net investment in a country is recognized as income or expense
in the period we substantially liquidated operations in that country.

Income Taxes

     Income tax expense includes U.S. and foreign income taxes. We account for
income taxes under the liability method. Under the liability method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. We apply judgment in determining whether it is more likely
than not that the deferred tax assets will be realized, and valuation allowances
are established when necessary. Our effective tax rate is currently higher than
the expected federal statutory rate because valuation allowances have been
established against the tax benefits of foreign losses, as we have no assurance
that we will be able to generate an adequate amount of taxable income in the
future to utilize such benefits. We are developing and implementing certain tax
planning strategies, which may affect our ability to recognize some of the
deferred tax assets that are currently allowed for and may ultimately change our
estimate of the valuation allowance.

Accounting Pronouncements

     During 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143 "Accounting for Asset
Retirement Obligations" and, during 2002, the FASB issued SFAS No.146,
"Accounting for Costs Associated with Exit and Disposal Activities". The
adoption of SFAS Nos. 143 and 146 during fiscal 2003 did not have a material
impact on the our consolidated financial statements.

     In November 2002, the Emerging Issues Task Force (EITF) released Issue No.
02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor", applicable to the Company for
arrangements entered into beginning in fiscal 2003. We record vendor allowances
and discounts in the income statement when the purpose for which those monies
were designated is fulfilled. As such, the adoption of EITF No. 02-16 during
fiscal 2003 did not have a material impact on our consolidated financial
statements. Additionally, in November 2003, the FASB ratified the EITF's
consensus on Issue 03-10 "Application of Issue 02-16 by Resellers to Sales
Incentives Offered to Consumers by Manufacturers" which amends


                                       24
<PAGE>

EITF 02-16. According to the amended guidance, if certain criteria are met,
consideration received by a reseller in the form of reimbursement from a vendor
for honoring the vendor's sales incentives offered directly to consumers (i.e.
manufacturer's coupons) should not be recorded as a reduction of the cost of the
reseller's purchases from the vendor. The adoption of EITF 03-10 during fiscal
2003 did not have a material impact on our consolidated financial statements.

     In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 interprets ARB No. 51,
"Consolidated Financial Statements," as amended by FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries," which requires the
preparation of consolidated financial statements when one entity has a
controlling financial interest in a second entity. FIN 46 specifies disclosures
that are required for financial statements issued after January 31, 2003 but
prior to the effective date of the Interpretation for entities created before
February 1, 2003 and interests in those entities acquired before that date, as
well as disclosures that will be required for financial statements of primary
beneficiaries and others with variable interests in variable interest entities
issued after the effective date. Additionally, in December 2003, the FASB issued
FASB Interpretation 46 Revised, "Consolidation of Variable Interest Entities -
an Interpretation of ARB No. 51" (FIN 46R), which provided, among other things,
immediate deferral of the application of FIN 46 for entities which did not
originally qualify as special purpose entities, and provided additional scope
exceptions for joint ventures with business operations and franchises. Our
adoption of these interpretations did not have a material impact on our results
of operations or financial position, as we do not have variable interest
entities.

     In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. We believe that our adoption of this new accounting standard will
not have a material impact on our results of operations or financial position,
as we do not have derivatives nor do we participate in hedging activities.

     In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
This statement is effective for all financial instruments entered into or
modified after May 31, 2003. The adoption of SFAS No 150 during fiscal 2003 did
not have a material impact on our consolidated financial statements.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

     We operate stores in foreign countries and have market risks associated
with foreign currencies. However, sales are primarily made in U.S. cash or
foreign currencies with minimal trade credit extended and no borrowings exist in
foreign currencies. Cash deposited from sales are remitted back to the U.S. bank
account, routinely.

     We record gains and losses on foreign currency transactions, and
translation of intercompany balances for transactions that exceed the permanent
investments in those countries in Other Income (Expense). Gains and losses are
primarily attributable to appreciation and (depreciation) in the Fijian dollar
as compared to the U.S. dollar.

     We have also assessed our vulnerability to interest rate risk associated
with our financial instruments, including, cash and cash equivalents, lines of
credit and long term debt. Due to the nature of these financial instruments, we
believe that the risk associated with interest rate fluctuations does not pose a
material risk. Our line of credit and long-term debt can be expected to vary in
the future as a result of future business requirements, market conditions and
other factors.

     We do not have any derivative financial instruments as of December 28,
2003.


                                       25
<PAGE>

Item 8.   Financial Statements and Supplementary Data

     The following consolidated financial statements and supplementary data are
included beginning on page 27 of this Report:

     <TABLE>
     <CAPTION>
                                                                                                        Page
                                                                                                        ----
     <S>                                                                                                 <C>
     Report of Grant Thornton LLP, Certified Public Accountants....................................      27
     Report of Deloitte & Touche LLP, Independent Auditors.........................................      28
     Consolidated Financial Statements:
          Consolidated Statements of Operations....................................................      29
          Consolidated Balance Sheets..............................................................      30
          Consolidated Statements of Shareholders' Equity..........................................      31
          Consolidated Statements of Cash Flows....................................................      32
          Notes to Consolidated Financial Statements...............................................      33
</TABLE>


                                       26
<PAGE>

           REPORT OF GRANT THORNTON LLP, CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Cost-U-Less, Inc.

We have audited the accompanying consolidated balance sheet of Cost-U-Less, Inc.
as of December 28, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cost-U-Less, Inc. as
of December 28, 2003, and the results of their operations and theircash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

/s/ GRANT THORNTON LLP

Seattle, Washington
February 20, 2004


                                       27
<PAGE>

              REPORT OF DELOITTE & TOUCHE LLP, Independent Auditors

Board of Directors
Cost-U-Less, Inc.
Preston, Washington

We have audited the accompanying consolidated balance sheet of Cost-U-Less, Inc.
and subsidiaries (collectively, the "Company") as of December 29, 2002, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years ended December 29, 2002 and December 30, 2001. Our audit
also included the consolidated financial statement schedule listed in Item 15
for the years ended December 29, 2002 and December 30, 2001. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 29, 2002,
and the results of their operations and their cash flows for the years ended
December 29, 2002, and December 30, 2001, respectively, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedule for the
corresponding periods, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

/S/    DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Seattle, Washington
March 13, 2003 (April 10, 2003 as to Note 4)


                                       28
<PAGE>

                                COST-U-LESS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                          Fiscal Year Ended
                                                            ----------------------------------------------
                                                            December 28,      December 29,    December 30,
                                                                2003              2002            2001
                                                            ------------      ------------    ------------
<S>                                                          <C>              <C>              <C>
Net sales................................................    $  177,066       $  176,190       $  177,856
Merchandise costs........................................       145,563          146,975          148,924
                                                            ------------      ------------    ------------
Gross profit.............................................        31,503           29,215           28,932
Operating expenses:
     Store...............................................        22,304           22,181           21,288
     General and administrative..........................         6,853            5,934            5,786
     Store openings......................................           287               14               68
                                                            ------------      ------------    ------------
Total operating expenses.................................        29,444           28,129           27,142
                                                            ------------      ------------    ------------
Operating income.........................................         2,059            1,086            1,790
Other income (expenses):
     Interest expense, net...............................          (458)            (375)            (589)
     Other...............................................           710             (236)            (155)
                                                            ------------      ------------    ------------
Income before income taxes...............................         2,311              475            1,046
Income tax provision.....................................           930              190              490
                                                            ------------      ------------    ------------
Net income ..............................................    $    1,381       $      285       $      556
                                                            ============      ============    ============
Earnings per common share:
     Basic...............................................    $     0.38       $     0.08       $     0.15
                                                            ============      ============    ============
     Diluted.............................................    $     0.38       $     0.08       $     0.15
                                                            ============      ============    ============
Weighted average common shares outstanding, basic........     3,613,988        3,606,376        3,606,376
                                                            ============      ============    ============
Weighted average common shares outstanding, diluted......     3,670,908        3,614,514        3,607,238
                                                            ============      ============    ============
</TABLE>


         The accompanying Notes to Consolidated Financial Statements are
                     an integral part of these statements.

                                       29
<PAGE>

                                COST-U-LESS, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                             December 28,     December 29,
                                                                                 2003             2002
                                                                            -------------     ------------
<S>                                                                              <C>              <C>
                                  ASSETS
Current assets:
     Cash and cash equivalents..........................................         $ 4,093          $ 2,383
     Insurance receivable...............................................           1,135            1,460
     Accounts receivable (net of allowance of $208 and $224 in 2003 and
            2002, respectively).........................................             838            1,713
     Income tax receivable..............................................             528              804
     Inventories........................................................          19,540           18,626
     Prepaid expenses...................................................             400              292
     Deferred taxes, net................................................             745              619
                                                                            -------------     ------------
          Total current assets..........................................          27,279           25,897
Buildings and equipment, net............................................          12,862           13,510
Deposits and other assets...............................................             799              783
                                                                            -------------     ------------
          Total assets..................................................        $ 40,940         $ 40,190
                                                                            =============     ============

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Line of credit.....................................................           $ 960          $ 2,367
     Accounts payable...................................................          15,240           15,449
     Accrued expenses...................................................           4,245            3,107
     Current portion of long-term debt..................................             267              267
                                                                            -------------     ------------
          Total current liabilities.....................................          20,712           21,190
Deferred rent...........................................................             498              529
Deferred taxes, net.....................................................             186               65
Long-term debt, less current portion....................................           2,544            2,811
                                                                            -------------     ------------
          Total liabilities.............................................          23,940           24,595

Commitments and Contingencies
                                                                                  --                --

Shareholders' equity:
Preferred stock--$0.001 par value; Authorized shares--2,000,000; Issued
    and outstanding shares--none.......................................
                                                                                  --                --
Common stock--$0.001 par value; Authorized shares--25,000,000; Issued
    and outstanding shares, 3,688,376 and 3,606,376 in 2003 and                   12,597           12,446
            2002, respectively..........................................
Retained earnings.......................................................           5,223            3,842
Accumulated other comprehensive loss....................................            (820)            (693)
                                                                            -------------     ------------
          Total shareholders' equity....................................          17,000           15,595
                                                                            -------------     ------------
          Total liabilities and shareholders' equity....................        $ 40,940         $ 40,190
                                                                            =============     ============

         The accompanying Notes to Consolidated Financial Statements are
                     an integral part of these statements.
</TABLE>


                                       30
<PAGE>

                                COST-U-LESS, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                    Accumulated
                                                           Common        Common                        Other
                                                           Stock--       Stock--      Retained     Comprehensive
                                                           Shares        Amount       Earnings         Loss           Total
                                                         ---------      --------      --------     -------------    --------
<S>                                                      <C>            <C>            <C>              <C>         <C>
Balance at December 31, 2000 ........................... 3,606,376      $ 12,446       $3,001           $(653)      $14,794
     Net income.........................................        --            --          556               --          556
     Foreign currency translation adjustments...........        --            --           --              (9)           (9)
                                                                                                                    -------
     Comprehensive income...............................                                                                547
                                                                                                                    -------
                                                         ---------      --------      --------     -------------    -------
Balance at December 30, 2001............................ 3,606,376        12,446        3,557            (662)       15,341
     Net income.........................................        --            --          285               --          285
     Foreign currency translation adjustments...........        --            --           --             (31)          (31)
                                                                                                                    -------
     Comprehensive income...............................                                                                254
                                                                                                                    -------
                                                         ---------      --------      --------     -------------    -------
Balance at December 29, 2002............................ 3,606,376        12,446        3,842            (693)       15,595
     Net income.........................................        --            --        1,381               --        1,381
     Foreign currency translation adjustments ..........        --            --           --            (127)         (127)
                                                                                                                    -------
     Comprehensive income ..............................                                                              1,254
                                                                                                                    -------
     Exercise of common stock options...................    82,000           151                                        151
                                                         ---------      --------      --------     -------------    -------
Balance at December 28, 2003............................ 3,688,376      $ 12,597       $5,223           $(820)      $17,000
                                                         =========      ========      ========     =============    =======
</TABLE>

         The accompanying Notes to Consolidated Financial Statements are
                      an integral part of these statements.


                                       31
<PAGE>
                                COST-U-LESS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                December 28,        December 29,      December 30,
                                                                                    2003                2002              2001
                                                                                ------------        ------------      ------------
<S>                                                                                  <C>                <C>              <C>
OPERATING ACTIVITIES:
     Net income ..........................................................        $ 1,381               $   285          $   556
     Adjustments to reconcile net income to net cash provided by
        operating activities:
          Depreciation and amortization...................................          1,816                 1,831            1,886
          (Gain) loss on property damaged by Supertyphoon Ponsonga........           (411)                  350               --
          Writedown of buildings and equipment............................            436                    33               --
          Deferred tax (benefit) provision................................             (5)                  326               45
          Allowance for doubtful accounts.................................            (16)                  104             (134)
          Cash provided (used) by changes in operating assets and
            liabilities:
               Insurance receivable.......................................            728                   (42)              --
               Accounts receivables.......................................            891                   (68)             393
               Income tax receivable......................................            276                  (436)            (205)
               Inventories................................................           (914)                 (353)          (1,327)
               Prepaid expenses...........................................           (108)                   32             (109)
               Deposits and other assets..................................            (16)                   18              212
               Accounts payable...........................................           (209)                 (436)             381
               Accrued expenses...........................................          1,652                (1,057)             709
               Accrued store closure reserve .............................            (15)                 (262)            (974)
               Deferred rent..............................................            (31)                   14               20
                                                                                  -------                ------           ------
                    Net cash provided by operating activities.............          5,455                   339            1,453

INVESTING ACTIVITY:
     Cash used to purchase buildings and equipment........................         (1,987)                 (435)            (558)

FINANCING ACTIVITIES:
     Proceeds from exercise of common stock options.......................            151                    --                --
     Proceeds (payments) from (on) line of credit, net....................         (1,407)                  194             (527)
     Payments on long-term debt...........................................           (267)                 (266)            (267)
                                                                                  -------                ------           ------
                    Net cash used by financing activities.................         (1,523)                  (72)            (794)
     Foreign currency translation adjustments.............................           (235)                 (109)              34
                                                                                  -------                ------           ------
Net increase (decrease) in cash and cash equivalents......................          1,710                  (277)             135
Cash and cash equivalents:
     Beginning of period..................................................          2,383                 2,660            2,525
                                                                                  -------                ------           ------
     End of period........................................................        $ 4,093               $ 2,383          $ 2,660
                                                                                  ========              ========         =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Noncash activities:
        Writeoff of Inventory lost in Supertyphoon and accrual of
                   related costs..........................................        $    --               $ 1,165          $    --
        Writeoff of Fixed Assets lost in Supertyphoon.....................             --                   603               --
        Establishment of Insurance Receivable for Supertyphoon losses.....             --                 1,418               --


     Cash paid during the period for:
        Interest..........................................................        $   458               $   382          $   624
        Income taxes......................................................            597                   200              696
</TABLE>

         The accompanying Notes to Consolidated Financial Statements are
                     an integral part of these statements.


                                       32
<PAGE>

                                COST-U-LESS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Summary of Significant Accounting Policies

Nature of Business

     Cost-U-Less, Inc. (the "Company") operates mid-sized warehouse club-style
stores in the United States Territories ("U.S. Territories"), foreign island
countries in the Pacific and the Caribbean, the Hawaiian Islands and Sonora,
California. At December 28, 2003, the Company operated eleven retail stores as
follows: two stores in each of Hawaii and Guam, and one store in each of St.
Thomas, St. Croix, American Samoa, Fiji, Curacao, St. Maarten and Sonora,
California. On December 8, 2002, the Company's two stores on the island of Guam
suffered damage from Supertyphoon Pongsona, resulting in the immediate closure
of both stores. The Company's Tamuning store lost its generator in the storm,
but reopened shortly thereafter on December 12th. The Company's Dededo store,
however, suffered more significant damage and had to be closed for
reconstruction. The store was rebuilt and it reopened for business on October 3,
2003.


Fiscal Year

     The Company reports on a 52/53-week fiscal year, consisting of four
thirteen-week periods and ending on the Sunday nearest to the end of December.
The years ended December 28, 2003, December 29, 2002 and December 30, 2001 were
52-week fiscal years.


Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries in the U.S. Virgin Islands, Netherlands
Antilles, Guam, American Samoa, Nevada, Fiji and New Zealand. All significant
inter-company accounts and transactions have been eliminated in consolidation.


Foreign Currency Translations and Comprehensive Income

     The U.S. dollar is the functional currency for all locations, except for
Fiji and Netherlands Antilles, where the local currency is the functional
currency. Assets and liabilities denominated in foreign currencies are
translated at the applicable exchange rate on the balance sheet date. Net sales,
costs and expenses are translated at the average rates of exchange prevailing
during the period. Adjustments resulting from this process are reported, net of
taxes, as Accumulated Other Comprehensive Income (Loss), a component of
Shareholders' Equity. Realized and unrealized gains on foreign currency
transactions are included in Other Income (Expense). The cumulative translation
adjustment resulting from a net investment in a country is recognized as income
or expense in the period the Company has substantially liquidated operations in
that country.


Use of Estimates

     The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Estimates are used for, but not
limited to: allowance for doubtful accounts; depreciable lives of assets;
reserves for store closure expenses; and tax valuation allowances. Future events
and their effects cannot be determined with certainty. Accordingly, the
accounting estimates require the exercise of judgment. The accounting estimates
used in the preparation of the consolidated financial statements may change as
new events occur, as more experience is acquired, as additional information is
obtained and as the Company's operating environment changes. Actual results
could differ from those estimates.


                                       33
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

Cash Equivalents

     The Company considers all highly liquid investments with an initial
maturity three months or less to be cash equivalents.


Financial Instruments

     The carrying value of financial instruments, including cash, cash
equivalents, receivables, payables, and long-term debt, approximates market
value at December 28, 2003 and December 29, 2002. The carrying value of cash,
cash equivalents, receivables and payables approximates their fair value based
on the liquidity of these financial instruments or based on their short-term
nature. The carrying value of long-term debt approximates fair value based on
the variable interest rates charged on the debt.


Inventories

     Inventory consists of retail merchandise inventory and is carried at the
lower of average cost or market.


Accounts Receivables, net

     Accounts receivables consist primarily of receivables from local businesses
and government agencies, vendor rebates and promotional allowances and other
miscellaneous amounts due to the Company. Management determines the allowance
for doubtful accounts based on known troubled accounts and historical experience
applied to an aging of accounts.


Buildings and Equipment

     Buildings and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method for financial reporting purposes. Buildings are generally
depreciated over thirty-five years; equipment and fixtures are depreciated over
three to ten years; and leasehold improvements are amortized over the lesser of
the initial term of the lease or the assets' estimated useful life. Equipment
acquired under capitalized leases is depreciated over the shorter of the asset's
estimated useful life or the life of the related lease.

Long Lived Assets

     When facts and circumstances indicate that the carrying values of
long-lived assets, including intangibles, may be impaired, an evaluation of the
recoverability is performed by comparing the carrying value of the assets to
projected future cash flows. Upon indication that the carrying value of such
assets may not be recoverable, the Company recognizes an impairment loss by a
charge against current operations.

   Accounts Payable

     The Company's major bank accounts are replenished as checks are presented.
Accordingly, included in accounts payable at December 28, 2003 and December 29,
2002 are $4.4 million and $2.9 million, respectively, representing the excess of
outstanding checks over cash on deposit in the accounts on which the checks were
drawn.

Revenue Recognition

     The Company recognizes revenue from product sales when the customer
purchases the products, generally at the point of sale.


                                       34
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


Vendor Allowances

     The Company records vendor allowances in the income statement when the
purpose for which those monies were designated is fulfilled. Allowances provided
by vendors generally relate to profitability of inventory recently sold and,
accordingly, are reflected as reductions to cost of merchandise sold as
negotiated. Vendor allowances received for advertising programs reduce the
Company's expense for the related advertising program.


Advertising Costs

     The cost of advertising is expensed as incurred. Advertising expenses
incurred during fiscal years 2003, 2002 and 2001 were not material to the
Company's operating results.


Store Opening Costs

     Pre-opening costs incurred in connection with the startup and promotion of
new stores are expensed as incurred.


Stock-Based Compensation

     In December 2002, the Financial Accounting Standards Board issued SFAS No.
148, "Accounting for Stock Based Compensation - Transition and Disclosure,"
which amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS No. 148
requires expanded and more prominent disclosure in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method on reported results. The Company
adopted SFAS No. 148 in the fiscal year ended December 29, 2002.

     The Company has elected to apply the disclosure-only provisions of
Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation. Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations under APB No. 25, whereby compensation cost for stock
options is measured as the excess, if any, of the fair value of the Company's
common stock at the date of grant over the stock option exercise price. The
Company usually grants stock options at exercise prices equal to fair market
value on the date of grant; as a result, no compensation cost has been
recognized.


                                       35
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

     Had stock option compensation expense for the Company's stock option plans
been recognized based on the estimated fair value on the grant date under the
fair value methodology allowed by FAS 123, as amended by FAS 148, the Company's
net income and earnings per share amounts would have been as follows:

<TABLE>
<CAPTION>
                                                                          2003            2002             2001
                                                                          ----            ----             ----
                                                                               (Net income in thousands)

<S>                                                                      <C>              <C>              <C>
     Net income as reported..........................................    $ 1,381          $ 285            $ 556
     Less:  Total stock-based employee compensation expense
               determined under fair value method for all awards,
               net of tax............................................        132            172              168
                                                                         -------          -----            -----
     Net income pro forma............................................    $ 1,249          $ 113            $ 388
                                                                         =======          =====            =====

     Earnings per common share, basic as reported....................      $0.38          $0.08            $0.15
     Earnings per common share, basic pro forma......................      $0.35          $0.03            $0.11
     Earnings per common share, diluted as reported..................      $0.38          $0.08            $0.15
     Earnings per common share, diluted pro forma....................      $0.34          $0.03            $0.11

<CAPTION>
     The fair value of each option is estimated on the date of grant under the
Black-Scholes option-pricing model using the following assumptions:

                                                                          2003            2002             2001
                                                                          ----            ----             ----

<S>                                                                      <C>            <C>               <C>
     Risk-free interest rate.........................................      3.90%          3.37%             5.17%
     Expected life...................................................    5 years        5 years           5 years
     Expected dividend yield.........................................         0%             0%                0%
     Volatility......................................................        74%            75%               71%
</TABLE>

     The weighted average fair values of options granted in 2003, 2002, and 2001
were $0.78, $0.42 and $0.54, respectively.


Income Taxes

     Income tax expense includes U.S. and foreign income taxes. The Company
accounts for income taxes under the liability method. Under the liability
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts that more likely than not
will be realized.


Segment Reporting

     The Company operates mid-sized warehouse club-style stores in the United
States (U.S.), U.S. Territories, and foreign island countries throughout the
Pacific and the Caribbean. The Company's retail operations are its only
reportable segment. The financial information used by the Company's chief
operating decision maker in allocating resources and assessing performance is
only provided for one reportable segment.


                                       36
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


New Accounting Pronouncements

     During 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143 "Accounting for Asset
Retirement Obligations" and, during 2002, the FASB issued SFAS No.146,
"Accounting for Costs Associated with Exit and Disposal Activities". The
adoption of SFAS Nos. 143 and 146 during fiscal 2003 did not have a material
impact on the Company's consolidated financial statements.

      In November 2002, the Emerging Issues Task Force (EITF) released Issue No.
02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor", applicable to the Company for
arrangements entered into beginning in fiscal 2003. The Company records vendor
allowances and discounts in the income statement when the purpose for which
those monies were designated is fulfilled. As such, the adoption of EITF No.
02-16 during fiscal 2003 did not have a material impact on the Company's
consolidated financial statements. Additionally, in November 2003, the FASB
ratified the EITF's consensus on Issue 03-10 "Application of Issue 02-16 by
Resellers to Sales Incentives Offered to Consumers by Manufacturers" which
amends EITF 02-16. According to the amended guidance, if certain criteria are
met, consideration received by a reseller in the form of reimbursement from a
vendor for honoring the vendor's sales incentives offered directly to consumers
(i.e. manufacturer's coupons) should not be recorded as a reduction of the cost
of the reseller's purchases from the vendor. The adoption of EITF 03-10 during
fiscal 2003 did not have a material impact on the Company's consolidated
financial statements.

      In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 interprets ARB No. 51,
"Consolidated Financial Statements," as amended by FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries," which requires the
preparation of consolidated financial statements when one entity has a
controlling financial interest in a second entity. FIN 46 specifies disclosures
that are required for financial statements issued after January 31, 2003 but
prior to the effective date of the Interpretation for entities created before
February 1, 2003 and interests in those entities acquired before that date, as
well as disclosures that will be required for financial statements of primary
beneficiaries and others with variable interests in variable interest entities
issued after the effective date. Additionally, in December 2003, the FASB issued
FASB Interpretation 46 Revised, "Consolidation of Variable Interest Entities -
an Interpretation of ARB No. 51" (FIN 46R), which provided, among other things,
immediate deferral of the application of FIN 46 for entities which did not
originally qualify as special purpose entities, and provided additional scope
exceptions for joint ventures with business operations and franchises. The
adoption of these interpretations did not have a material impact on the
Company's results of operations or financial position, as the Company does not
have variable interest entities.

     In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. The Company believes its adoption of this new accounting standard
will not have a material impact on the Company's results of operations or
financial position, as the Company does not have derivatives nor does it
participate in hedging activities.

     In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
This statement is effective for all financial instruments entered into or
modified after May 31, 2003." The adoption of SFAS No 150 during fiscal 2003 did
not have a material impact on the Company's consolidated financial statements.


Reclassifications

     Certain reclassifications of prior years' balances have been made for
consistent presentation with the current year.


                                       37
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

2.   Insurance Receivable

     On December 8, 2002, the Company's two stores on the island of Guam
suffered damage from the Supertyphoon Pongsona, resulting in the immediate
closure of both stores. The Company's Tamuning store lost its generator in the
storm, but reopened shortly thereafter on December 12th. The Company's Dededo
store, however, suffered more significant damage, and had to be closed for
reconstruction. The store was rebuilt and it reopened for business on October 3,
2003.

     The Company lost inventory, leasehold improvements and equipment as a
result of the supertyphoon. At December 29, 2002, the Company recorded a $1.5
million receivable for losses that it expected to be recovered from insurance.
The receivable represented $0.9 million for inventory losses and $0.6 million
for fixed asset losses. Additionally, the Company recorded a loss of $0.4
million in Other Income/(Expense) during fiscal 2002, which represented the
amount of inventory losses and other expenses that were not expected to be
recovered from insurance.

     During the fourth quarter of fiscal 2003, the Company recorded a gain of
$0.4 million in Other Income/(Expense), which represent a pre-tax gain on the
receipt of insurance reimbursements for damage to its inventory and equipment.
Subsequent to the fiscal year end, the Company has received the remaining $1.1
million of insurance receivables recorded on the balance sheet as of December
28, 2003.

3.   Buildings and Equipment

     Buildings and equipment consist of the following (in thousands) at:

<TABLE>
<CAPTION>
                                                                           December 28,        December 29,
                                                                               2003                2002
                                                                          --------------      --------------

<S>                                                                           <C>                <C>
     Buildings..........................................................      $ 7,113            $ 7,113
     Equipment..........................................................       15,438             14,626
     Leasehold improvements.............................................        1,268              1,197
                                                                              -------            -------
          Buildings, equipment and leasehold improvements...............       23,819             22,936
     Less accumulated depreciation and amortization.....................       10,999              9,458
                                                                              -------            -------
          Net book value of depreciable assets..........................       12,820             13,478
     Computer system and software development in progress...............           42                 32
                                                                              -------            -------
     Total Buildings and Equipment......................................      $12,862            $13,510
                                                                              =======            =======
</TABLE>

     In December, 2002, the Company wrote-off $0.6 million of equipment and
leasehold improvements lost in the supertyphoon in Guam. The Company recovered
this write-off from its insurance company in January 2004 and has since rebuilt
its store in Guam.

     During fiscal 2003, the Company wrote-off $0.4 million of inactive
equipment from previously closed stores.

     Included in Equipment at December 28, 2003, is $0.8 million of equipment
residing in the Company's reconstructed store in Dededo, Guam. In January 2004,
the Company sold and leased back this equipment under a seven year lease.

4.   Line of Credit

     On April 9, 2003, the Company entered into a line of credit with Wells
Fargo Business Credit that has a three year term, expiring on April 9, 2006. The
line of credit consists of a $6.0 million committed, secured revolving credit
line with a sublimit for letters of credit and bankers acceptances in the amount
up to $0.5 million. At December 28, 2003, there were $1.0 million in borrowings
outstanding on the line of credit, $0.2 million utilized for standby letters of
credit and $0.1 million set aside for other reserves.


                                       38
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

     Borrowings are limited to the lesser of $6.0 million or the amount
calculated under the borrowing base. The borrowing base is equal to the lesser
of (a) $6,000,000 or (b) the sum of 70% of eligible inventory in the United
States of America, plus 60% of eligible inventory in the U.S. Virgin Islands and
Guam, less specified reserves. Borrowings under the new line of credit bear
interest at the financial institution's prime rate plus 1.5% (5.5% at December
28, 2003). A fee of 0.25% is charged on the unused portion of the line of
credit. The line of credit contains various covenants, including a requirement
that the Company maintain minimum pre-tax income and tangible net worth and
limitations on acquisitions, additional debt, change in control and capital
expenditures. As of December 28, 2003, the Company was in compliance with all
such covenants.

     Prior to April 9, 2003, the Company maintained a $6.75 million line of
credit with a different commercial bank. This line of credit was satisfied and
terminated on April 10, 2003.

     Subsequent to December 28, 2003, the Company and Wells Fargo Business
Credit entered into the Second Amendment to Credit and Security Agreement. The
amendment provides for the following: (i) an immediate reduction in the interest
rate on the line of credit of one half of one percent (0.50%), (ii) a further
reduction in the interest rate of one half of one percent (0.50%) if the Company
meets certain net income levels from December 29, 2003, through June 27, 2004,
and (iii) the adoption of new measurement values for fiscal 2004.


5.   Long-Term Debt

     In conjunction with the construction of the St. Thomas store in 1998, the
Company entered into a $2.0 million note payable to a bank which matures in June
2013. Interest on the note at December 28, 2003 is at the prime rate plus 1%
(5.00%). As of December 28, 2003, there was a balance owed of $1.3 million,
which is secured by a first leasehold priority mortgage on the St. Thomas
building. The Company makes principal payments of approximately $11,000 per
month, plus interest.

     In November 1999, the Company entered into a $2.0 million credit facility
with a financial institution to fund the construction of the St. Maarten store.
The note payable matures in June 2015. As of December 28, 2003, there was a
balance owed of $1.5 million against this credit facility. Interest on the note
at December 28, 2003 is at the prime rate plus 1% (5.00%). The credit facility
is secured by a first leasehold security interest on the St. Maarten property.
The Company makes principal payments of approximately $11,000 per month, plus
interest.

     Maturities of long-term debt are as follows (in thousands):

        2004............................       $  267
        2005............................          267
        2006............................          267
        2007............................          267
        2008............................          267
        Thereafter......................        1,476
                                                -----
               Total....................       $2,811
                                               ======


6.   Contingencies

     The Company is involved from time to time in claims, proceedings and
litigation arising from its business and property ownership. The Company does
not believe that any such claim, proceeding or litigation, either alone or in
the aggregate, will have a material adverse effect on the Company's business,
financial condition or results of operation.


                                       39
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)

7.   Interest Expense, Net

     The components of interest, net are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                 2003            2002           2001
                                                                               --------        --------       --------
<S>                                                                             <C>             <C>            <C>
     Interest Expense.........................................................  $  459          $  376         $   589
     Interest Income..........................................................      (1)             (1)              0
                                                                                ------          ------         -------
          Interest Expense, net...............................................  $  458          $  375         $   589
                                                                                ======          ======         =======
</TABLE>

8.   Income Taxes

     Income before income taxes by jurisdiction is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                 2003            2002           2001
                                                                               --------        --------       --------
<S>                                                                             <C>             <C>            <C>
     United States.......................................................       $1,049          $1,126         $ 2,052
     U.S. Territories....................................................        1,134            (560)          1,078
     Foreign.............................................................          128             (91)         (2,084)
                                                                                ------          ------         -------
          Income before income taxes.....................................       $2,311          $  475         $ 1,046
                                                                                ======          ======         =======

<CAPTION>
     The provision for income taxes is as follows (in thousands):
                                                                                 2003            2002           2001
                                                                               --------        --------       --------
<S>                                                                             <C>             <C>            <C>
     Current Income Taxes:
          United States..................................................       $  470          $   71         $    58
          U.S. Territories...............................................          465            (207)            387
          Foreign........................................................            0               0               0
                                                                                ------          ------         -------
               Current Income Taxes......................................          935            (136)            445
                                                                                ------          ------         -------
     Deferred Income Taxes
          United States..................................................         (121)            298              51
          U.S. Territories...............................................          (45)             28              (6)
          Foreign .                                                                161               0               0
                                                                                ------          ------         -------
               Deferred income taxes.....................................           (5)            326              45
                                                                                ------          ------         -------
     Provision for Income Taxes..........................................       $  930          $  190         $   490
                                                                                ======          ======         =======
</TABLE>

     A reconciliation of the Company's effective tax rate with the federal
statutory rate of 34% for the years ended December 28, 2003, December 29, 2002,
and December 30, 2001, is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                   2003                    2002                  2001
                                                ----------              ----------            -----------
<S>                                                <C>         <C>          <C>       <C>        <C>       <C>
Tax at U.S. Statutory Rate.....................    $ 786       34.0%       $ 162        34.0%    $ 355      34.0%
Non-Deductible Permanent Differences...........        3        0.1%           3         0.6%        3       0.2%
Foreign Tax Losses not Benefited (Taken).......      165        7.1%         568       119.6%     (316)    (30.2)%
Foreign Tax Credit not Taken (Utilized)........      (68)      (2.9)%       (542)     (114.1)%     393      37.6%
Statutory Rate Difference as Compared to
        U.S. Statutory Rate....................       38        1.6%          19         4.0%       20       1.9%
Other..........................................        6        0.3%         (20)       (4.2)%      35       3.4%
                                                   -----                    -----                -----
     Effective Income Tax Rate.................    $ 930       40.2%       $ 190        40.0%    $ 490      46.9%
                                                   =====                    =====                =====
</TABLE>


                                       40
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


<TABLE>
<CAPTION>
   Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):

                                                                                     December 28,     December 29,
                                                                                         2003             2002
                                                                                    ---------------  ---------------
Deferred Tax Assets
<S>                                                                                    <C>              <C>
     Inventory Adjustments..........................................................   $   205          $   193
     Vacation Accrual...............................................................       330              308
     Deferred Rent..................................................................       143              156
     Store Closure Reserve..........................................................       117              117
     Net Operating Loss Carryforward--Foreign.......................................     2,277            2,591
     Foreign tax credits............................................................       131              199
     Other..........................................................................       (20)              15
                                                                                       -------          -------
     Total Deferred Tax Assets......................................................     3,183            3,579
          Valuation Allowance.......................................................    (2,184)          (2,402)
                                                                                       --------         -------
                                                                                           999            1,177
Deferred Tax Liabilities
     Cash Discounts.................................................................       (18)             (14)
     Fixed Asset Basis Difference...................................................      (422)            (609)
                                                                                       -------          -------
     Total Deferred Tax Liabilities.................................................      (440)            (623)
                                                                                       -------          -------
Net Deferred Tax Assets.............................................................   $   559          $   554
                                                                                       =======          =======
</TABLE>

     Net deferred tax assets are classified on the balance sheet as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                     December 28,     December 29,
                                                                                         2003             2002
                                                                                    ---------------  ---------------
<S>                                                                                      <C>              <C>
     Current Assets.................................................................     $ 745            $ 619
     Long-Term Liabilities, net.....................................................      (186)             (65)
                                                                                         -----            -----
     Net Deferred Tax Assets........................................................     $ 559            $ 554
                                                                                         =====            =====
</TABLE>

     As of December 28, 2003, the Company has foreign net operating loss
carryforwards ("NOL's") of approximately $6.4 million, which, if not utilized,
will begin expiring in the year 2006. NOL's in Curacao and St. Maarten of
approximately $2.9 million are not subject to expiration time limits. The
Company's ability to utilize the NOL's carryforwards is dependent upon
generating taxable income in the foreign jurisdictions. As a result, the Company
has recorded a valuation allowance of $2.2 million attributable to the net
operating loss carryforwards.

     The Company had tax credit carryforwards of $0.2 million as of December 29,
2002, expiring between 2005 and 2006. During 2003, the Company was able to
utilize a portion of the tax credit carryforward. The Company expects to be able
to fully utilize the remaining tax credit carryforward of $0.1 million and
therefore no valuation allowance is provided.

9.   Shareholders' Equity

Stock Options

     The Company maintains an Amended and Restated 1989 Stock Option Plan (the
"1989 Plan"), which provides for the granting of incentive and nonqualified
stock options to employees, directors, and consultants of the Company. An
aggregate of 398,496 shares of common stock has been authorized for issuance
under the 1989 Plan. Options issued under the 1989 Plan vest ratably over five
years and expire ten years from the date of grant and were generally granted at
prices equal to the fair value on the date of grant. There were 285,885 options
available for future grant under the 1989 Plan at December 29, 2002. No
additional options will be granted under the 1989 Plan. All options issued under
this plan were expired as of December 29, 2002.


                                       41
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


     In 1998, the Company adopted, and shareholders approved, issuance of the
1998 Stock Incentive Compensation Plan (the "1998 Plan"). The 1998 Plan, as
amended, provides for the granting of various stock awards, including stock
options and issuance of restricted stock, with a maximum of 1,000,000 shares of
common stock available for issuance. Options issued under the 1998 Plan vest at
various terms ranging from immediately to five years and generally expire ten
years from the date of grant. The options are usually granted at prices equal to
the fair value on the date of grant. There were 78,757 options available for
future grant under the 1998 Plan at December 28, 2003. However, on December 31,
2003 the Company's Board of Directors granted each of the eight members of
senior management of the Company 8,000 options to purchase the Company's common
stock.

         A summary of the status of stock option plans as of December 28, 2003,
December 29, 2002, and December 30, 2001, and changes during the years then
ended are presented below:

<TABLE>
<CAPTION>
                                            2003                       2002                       2001
                                  -------------------------  -------------------------   -------------------------
                                                  Weighted                   Weighted                    Weighted
                                                  Average                     Average                    Average
                                                  Exercise                   Exercise                    Exercise
                                    Options        Price       Options           Price     Options        Price
                                    -------       --------     -------       ---------     -------       --------
<S>                                  <C>           <C>          <C>            <C>          <C>           <C>
Outstanding, beginning of year...    921,352       $2.86        690,093        $3.75        528,319       $4.51
     Granted at fair value.......     93,192        2.58        294,367          1.26       194,000        1.71
     Forfeited...................    (93,301)       3.60        (63,108)         5.11       (32,226)       3.80
     Exercised...................    (82,000)       1.08              0             0             0           0
                                     -------                    -------                     -------
Outstanding, end of year.........    839,243        2.92        921,352          2.86       690,093        3.75
                                     =======                    =======                     =======
</TABLE>

     The following summarizes information related to options outstanding and
exercisable at December 28, 2003:

<TABLE>
<CAPTION>
                                          Outstanding                              Exercisable
                           --------------------------------------------     ---------------------------
                                            Weighted        Weighted                          Weighted
       Range of                             Average          Average                          Average
       Exercise                             Exercise       Contractual                        Exercise
        Prices               Options         Price           Life               Options        Price
        -----------        ---------       ---------      -------------         -------       --------
<S>                          <C>            <C>              <C>                <C>            <C>
     $1.02 - 1.44            241,667        $ 1.31           8.30 years         239,667        $1.31
      1.50 - 2.63            375,367          1.92           8.11 years         357,207         1.91
      3.00 - 6.00             68,613          4.99           5.81 years          60,038         5.00
             7.00            153,596          7.00           4.79 years         152,096         7.00
                             -------                                            -------
                             839,243          2.92                              809,008         2.92
                             =======                                            =======
</TABLE>


Preferred Share Purchase Rights

     On February 23, 1999, the Company's Board of Directors declared a dividend
distribution of preferred share purchase rights (the "Rights") pursuant to a
Shareholder Rights Plan. The Rights initially trade with shares of the Company's
common stock and have no impact upon the way in which shareholders can trade the
Company's common stock. However, ten days after a person or group acquires 15%
or more of the Company's common stock, or such date, if any, as the Board of
Directors may designate after a person or group commences or publicly announces
its intention to commence a tender or exchange offer which could result in that
person or group owning 15% or more of the Company's common stock (even if no
purchases actually occur), the Rights will become exercisable and separate
certificates representing the Rights will be distributed. The Rights would then
begin to trade independently from the Company's shares at that time. As of
December 28, 2003, no rights have become exercisable.


                                       42
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


10.   Earnings Per Share

     Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period and excludes any dilutive effects of
stock options and warrants. Diluted earnings per share are computed using the
weighted average number of common shares and potentially dilutive shares
outstanding during the period. Potentially dilutive shares are excluded from the
computation if their effect is anti-dilutive.

       The following table sets forth the computation of basic and diluted
earnings per common share (dollars in thousands):

<TABLE>
<CAPTION>
                                                                      -------------------------------------------------------
                                                                                        Fiscal Year Ended
                                                                      -------------------------------------------------------
                                                                          December 28,      December 29,     December 30,
                                                                             2003              2002             2001
                                                                           ---------         ---------        ---------
<S>                                                                        <C>               <C>              <C>
     Numerator:
          Net income...............................................        $   1,381         $     285        $     556
                                                                           =========         =========        =========
     Denominator:
          Denominator for basic earnings per share--weighted
             average shares........................................        3,613,988         3,606,376        3,606,376
     Effect of potentially dilutive shares:
          Stock options and warrants...............................           56,920             8,138              862
                                                                           ---------         ---------        ---------
          Denominator for diluted earnings per share--adjusted
             weighted average shares and assumed conversion of
             stock options and warrants............................        3,670,908         3,614,514        3,607,238
                                                                           =========         =========        =========
     Basic earnings per common share...............................          $  0.38           $  0.08          $  0.15
     Diluted earnings per common share.............................          $  0.38           $  0.08          $  0.15
</TABLE>


11.   Geographic Information

         Geographic information pertaining to the Company's one reporting
segment is as follows:
<TABLE>
<CAPTION>
                                                                                                       Long-lived
                                                                                          Sales          Assets
                                                                                         --------      ----------
                                                                                              (in thousands)
<S>                                                                                      <C>             <C>
      2003
           United States............................................................      $42,519         $1,745
           U.S. Territories and foreign countries (1)...............................      134,547         11,916
                                                                                         --------        -------
                                                                                         $177,066        $13,661
                                                                                         ========        =======
      2002
           United States............................................................      $44,628         $2,976
           U.S. Territories and foreign countries (1)...............................      131,562         11,317
                                                                                         --------        -------
                                                                                         $176,190        $14,293
                                                                                         ========        =======
      2001
           United States............................................................      $46,470         $3,711
           U.S. Territories and foreign countries...................................      131,386         12,654
                                                                                         --------        -------
                                                                                         $177,856        $16,365
                                                                                         ========        =======
</TABLE>

     (1)  On December 8, 2002, our Dededo store on the island of Guam suffered
          damage from the Supertyphoon Pongsona, resulting in its immediate
          closure. The store was rebuilt and reopened on October 3, 2003. As of
          December 29, 2002, the Company had written-off $0.6 million of
          equipment and leasehold improvements lost in the Supertyphoon in Guam.
          The Company recovered this write-off from its insurance company in
          January 2004. Included in long-lived assets of U.S. Territories at
          December 28, 2003, is $0.8 million of equipment residing in the
          Company's reconstructed store in Dededo, Guam. In January 2004, the
          Company sold and leased back this equipment under a seven year lease.


                                       43
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


12.  Lease Commitments

     The Company has entered into operating leases for its retail and
administrative office locations. The leases range from 3 to 15 years and include
renewal options. The Company is required to pay a base rent, plus insurance,
taxes, and maintenance.

      A summary of the Company's future minimum lease obligations at December
28, 2003 under noncancellable operating leases with initial or remaining terms
of one year or more is as follows (in thousands):

     2004...........................................................     $ 4,782
     2005...........................................................       4,345
     2006...........................................................       4,312
     2007...........................................................       3,928
     2008...........................................................       3,671
     Thereafter.....................................................      12,358
                                                                         -------
                                                                         $33,396
                                                                         =======

     Rent expense under operating leases for the fiscal years ended December 28,
2003, December 29, 2002, and December 30, 2001, totaled $4.7 million, $5.0
million and $5.0 million, respectively.

     In January 2004, the Company sold and leased back $0.8 million of equipment
residing in its reconstructed store in Dededo, Guam. The new lease is for seven
years with annual rental payments of approximately $0.1 million.


13.   Employee Benefit Plans

     The Company maintains a 40l(k) profit-sharing plan covering all eligible
employees over the age of 18 with at least six months of service. Participating
employees may elect to defer and contribute up to 15% of their compensation to
the plan, subject to annual limitations under the Internal Revenue Code. The
Company matches employee contributions at a rate of 25%. The Company's matching
contributions to the plan approximated $0.1 million in each of fiscal years
2003, 2002 and 2001.

     The Company has a Manager Bonus Program, which provides for annual bonuses
for managers based on store and company profitability targets. In 2001, we also
implemented a sales incentive bonus program for all store employees based on
sales targets. All amounts payable under the program are accrued in the year
earned. Accordingly, bonuses accrued under these programs totaled $0.5 million,
$0.2 million and $0.2 million for fiscal 2003, 2002 and 2001, respectively.

     During 2001, the Company implemented a sales incentive bonus program for
all store employees based on sales targets. These bonuses are paid monthly and
were approximately $0.1 million, $0.1 million and $17,000 in fiscal 2003, 2002
and 2001, respectively.


                                       44
<PAGE>

                                COST-U-LESS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)


14.   Quarterly Financial Data (Unaudited)

     The following is a summary of the Company's unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
                                                                                               Earnings (Loss)
                                                                                                 Per Common
                                          Store                                    Net              Share
                                          Weeks                       Gross       Income            -----
                                        in Period    Net Sales        Profit      (Loss)       Basic     Diluted
                                        ---------  -------------   ------------ ----------   ---------  ---------
                                                  (in thousands, except store weeks and per-share data)
Fiscal 2003 (1)
<S>                                        <C>         <C>            <C>          <C>       <C>         <C>
First quarter .........................    130         $42,334        $7,368       $  226    $  0.06     $ 0.06
Second quarter  .......................    130          42,010         7,404          306       0.08       0.08
Third quarter .........................    130          42,258         7,760          281       0.08       0.08
Fourth quarter (2).....................    142          50,464         8,971          568       0.16       0.15

Fiscal 2002 (1)
First quarter .........................    143         $44,998        $7,199       $  72     $  0.02     $ 0.02
Second quarter  .......................    143          42,665         6,780        (190)      (0.05)     (0.05)
Third quarter .........................    143          43,215         7,428          207       0.06       0.06
Fourth quarter (2).....................    140          45,312         7,808          196       0.05       0.05
</TABLE>

--------------
(1)  The Company's fiscal quarters are 13 weeks.
(2)  On December 8, 2002, one of the Company's stores in Guam closed due to
     damage caused by Supertyphoon Pongsona. The store was rebuilt and it
     reopened for business on October 3, 2003.

                                       45
<PAGE>

Item 9A.  Controls and Procedures

(a)  Under the supervision and with the participation of our management,
     including our principal executive officer and principal financial officer,
     we conducted an evaluation of our disclosure controls and procedures, as
     such term is defined under Rule 13a-14(c) promulgated under the Securities
     Exchange Act of 1934, as amended, within 90 days of the filing date of this
     report. Based on their evaluation, our principal executive officer and
     principal accounting officer concluded that our disclosure controls and
     procedures are effective.

(b)  There have been no significant changes (including corrective actions with
     regard to significant deficiencies or material weaknesses) in our internal
     controls or in other factors that could significantly affect these controls
     subsequent to the date of the evaluation referenced in paragraph (a) above.


                                       46
<PAGE>
                                    PART III

Item 10.     Executive Officers and Directors of the Registrant

     Information called for by Part III, Item 10, is included in our proxy
statement relating to our annual meeting of shareholders to be held on May 12,
2004, and is incorporated herein by reference.


Item 11.     Executive Compensation

     Information called for by Part III, Item 11, is included in our proxy
statement relating to our annual meeting of shareholders to be held on May 12,
2004 and is incorporated herein by reference.


Item 12.      Security Ownership of Certain Beneficial Owners and Management

     Information called for by Part III, Item 12, is included in our proxy
statement relating to our annual meeting of shareholders to be held on May 12,
2004, and is incorporated herein by reference.


Item 13.      Certain Relationships and Related Transactions

     Information called for by Part III, Item 13, is included in our proxy
statement relating to our annual meeting of shareholders to be held on May 12,
2004, and is incorporated herein by reference.

Item 14.      Principal Accountant Fees and Services

     Information called for by Part III, Item 14, is included in our proxy
statement relating to our annual meeting of shareholders to be held on May 12,
2004, and is incorporated herein by reference.


                                       47
<PAGE>

                                     PART IV


Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

     (a) Documents filed as part of this Report:

          (1) Financial Statements--all consolidated financial statements of the
     Company as set forth under Item 8, beginning on p. 27 of this Report.

          (2) Financial Statement Schedules--Schedule II Valuation and
Qualifying Accounts.

     The independent auditors' report with respect to the financial statement
schedules appears on page 27 of this annual report. All other financial
statements and schedules not listed are omitted because either they are not
applicable or not required, or the required information is included in the
consolidated financial statements.

          (3) Exhibits

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Incorporated by Reference
Exhibit                                                                    Filed       ---------------------------------------------
  No.                            Description                             Herewith       Form   Exhibit No.  File No.   Filing Date
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>          <C>       <C>      <C>         <C>
   3.1    Restated Articles of Incorporation of Cost-U-Less, Inc.                       S-1/A      3.1     333-52459   06/05/1998
------------------------------------------------------------------------------------------------------------------------------------
   3.2    Amended and Restated Bylaws of Cost-U-Less, Inc.                              10-Q       3.1     000-24543   08/11/2003
------------------------------------------------------------------------------------------------------------------------------------
   4.1    Rights Agreement between Cost-U-Less, Inc. and                                 8-A       2.1     000-24543   03/15/1999
          ChaseMellon Shareholder Services, L.L.C. as rights agent,
          dated March 15, 1999
------------------------------------------------------------------------------------------------------------------------------------
   4.2    Form of Common Stock Certificate of Cost-U-Less, Inc.                         S-1/A      4.1     333-52459   07/10/1998
------------------------------------------------------------------------------------------------------------------------------------
   10.1   Amended and Restated 1998 Stock Incentive Compensation Plan*                  10-K      10.1     000-24543   04/01/2002
------------------------------------------------------------------------------------------------------------------------------------
   10.2   Form of Stock Option Agreement                                                10-K      10.2     000-24543   04/01/2002
------------------------------------------------------------------------------------------------------------------------------------
   10.3   Amended and Restated 1989 Stock Option Plan*                                   S-1      10.2     333-52459   05/12/1998
------------------------------------------------------------------------------------------------------------------------------------
   10.4   Form of Director Stock Option Agreement (Vesting)*                             S-1      10.3     333-52459   05/12/1998
------------------------------------------------------------------------------------------------------------------------------------
   10.5   Form of Director Stock Option Agreement (Nonvesting)*                          S-1      10.4     333-52459   05/12/1998
------------------------------------------------------------------------------------------------------------------------------------
   10.6   Form of Indemnification Agreement*                                            10-Q      10.1     000-24543   08/11/2003
------------------------------------------------------------------------------------------------------------------------------------
   10.7   Credit and Security Agreement, dated April 9, 2003, by                         8-K      10.1     000-24543   04/11/2003
          and between Cost-U-Less, Inc., CULGUAM, Inc., CULNEV,
          Inc., CULUSVI, Inc., and Wells Fargo Business Credit, Inc.
------------------------------------------------------------------------------------------------------------------------------------
   10.8   First Amendment dated as of October 17, 2003 to the
          Credit and Security Agreement dated April 9, 2003, by and
          between Cost-U-Less, Inc., CULGUAM, Inc., CULNEV, Inc.,          X
          CULUSVI, Inc., and Wells Fargo Business Credit, Inc.
------------------------------------------------------------------------------------------------------------------------------------
   10.9   Second Amendment dated as of March 2, 2004 to the Credit
          and Security Agreement dated April 9, 2003, by and
          between Cost-U-Less, Inc., CULGUAM, Inc., CULNEV, Inc.,          X
          CULUSVI, Inc., and Wells Fargo Business Credit, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       48
<PAGE>


<TABLE>
<CAPTION>

<S>                                                                        <C>          <C>       <C>      <C>         <C>
  10.10   Construction/Permanent Loan Agreement by and among                             S-1      10.8     333-52459   05/12/1998
          CULUSVI, Inc., Cost-U-Less, Inc. and Banco Popular de
          Puerto Rico, dated November 6, 1997
------------------------------------------------------------------------------------------------------------------------------------
  10.11   Employment Agreement between Cost-U-Less, Inc. and J.                         10-Q      10.3     000-24543   11/13/2002
          Jeffrey Meder, dated October 22, 2002*
------------------------------------------------------------------------------------------------------------------------------------
  10.12   Lease Agreement between Westmall Limited and CUL (Fiji)                       S-1/A     10.10    333-52459   06/05/1998
          Limited, effective March 1, 1998
------------------------------------------------------------------------------------------------------------------------------------
  10.13   Lease Agreement between Fiji Public Service Association          X
          and CUL (Fiji) Limited, dated June 4, 1998
------------------------------------------------------------------------------------------------------------------------------------
  10.14   Lease Agreement between Baroud Real Estate Development                         S-1      10.12    333-52459   05/12/1998
          N.V. and C.U.L. (Curacao) N.V., dated April 3, 1998
------------------------------------------------------------------------------------------------------------------------------------
  10.15   Ground Lease between Market Square East, Inc. and                              S-1      10.13    333-52459   05/12/1998
          CULUSVI, Inc., dated October 20, 1997
------------------------------------------------------------------------------------------------------------------------------------
  10.16   Sublease Agreement between Taumuning Capital Investment,                       S-1      10.15    333-52459   05/12/1998
          Inc. and Cost-U-Less, Inc., dated July 15, 1994
------------------------------------------------------------------------------------------------------------------------------------
  10.17   Lease Agreement between Ottoville Development Company and                      S-1      10.16    333-52459   05/12/1998
          Cost-U-Less, Inc., dated March 9, 1994
------------------------------------------------------------------------------------------------------------------------------------
  10.18   Lease Agreement between Inmostrat Corporation and                              S-1      10.17    333-52459   05/12/1998
          Cost-U-Less, Inc., dated August 1993
------------------------------------------------------------------------------------------------------------------------------------
  10.19   Lease Agreement between Hassan Rahman and Cost-U-Less,                         S-1      10.18    333-52459   05/12/1998
          Inc., dated July 30, 1993
------------------------------------------------------------------------------------------------------------------------------------
  10.20   Industrial Real Estate Lease between Hilo Partners and                         S-1      10.19    333-52459   05/12/1998
          Cost-U-Less, Inc., dated September 1, 1991
------------------------------------------------------------------------------------------------------------------------------------
  10.21   Indenture of Lease between H.C.L. Investments, Inc. and                       10-K     10.21     000-24543   04/01/2002
          Cost-U-Less, Inc., dated August 21, 1992
------------------------------------------------------------------------------------------------------------------------------------
  10.22   Amendment to Lease between H.C.L. Investments, Inc. and                       10-K     10.22     000-24543   04/01/2002
          Cost-U-Less, Inc., dated April 27, 2000
------------------------------------------------------------------------------------------------------------------------------------
  10.23   Lease Agreement between Caribe Lumber & Trading N.V. (St.                     10-K      10.26    000-24543   03/26/1999
          Maarten) and CUL Sint Maarten N.V., dated February 19,
          1999
------------------------------------------------------------------------------------------------------------------------------------
  10.24   Sublease Agreement between New Breed Distribution Corp of                    10-K/A     10.27    000-24543   04/05/2000
          California, Inc. and Cost-U-Less, Inc., dated November 1,
          1999
------------------------------------------------------------------------------------------------------------------------------------
  10.25   Lease Agreement between AMB Property, L.P. and                               10-K/A     10.28    000-24543   04/05/2000
          Cost-U-Less, Inc., dated November 12, 1999
------------------------------------------------------------------------------------------------------------------------------------
  10.26   First Amendment to Lease Agreement between AMB Property,                      10-K     10.28     000-24543   04/01/2002
          L.P. and Cost-U-Less, Inc., dated November 21, 2001
------------------------------------------------------------------------------------------------------------------------------------
  10.27   Lease Agreement between BDC One Preston Properties                            10-K      10.26    000-24543   04/02/2001
          Limited Partnership and Cost-U-Less, Inc., dated April
          27, 2000
------------------------------------------------------------------------------------------------------------------------------------
  10.28   Lease Agreement between Tonko Reyes, Inc., a Guam                             10-K     10.30     000-24543   04/01/2002
          corporation and Cost-U-Less, Inc., dated October 22, 2001
------------------------------------------------------------------------------------------------------------------------------------
  10.29   Amendment to Lease Agreement between Tonko Reyes, Inc., a
          Guam corporation and Cost-U-Less, Inc., dated October 22,        X
          2001
------------------------------------------------------------------------------------------------------------------------------------
  10.30   Lease Agreement between Sun Life Assurance Company of
          Canada and Cost-U-Less, Inc., dated November 18, 2003            X
------------------------------------------------------------------------------------------------------------------------------------
  10.31   Executive Severance Plan*                                        X
------------------------------------------------------------------------------------------------------------------------------------
   16.1   Letter re: change in certifying accountant                                     8-K      16.1     000-24543   06/24/2003
------------------------------------------------------------------------------------------------------------------------------------
   21.1   Subsidiaries of Cost-U-Less, Inc.                                              10-K     21.1     000-24543   04/01/2002
------------------------------------------------------------------------------------------------------------------------------------
   23.1   Consent of Grant Thornton LLP                                    X
------------------------------------------------------------------------------------------------------------------------------------
   23.2   Consent of Deloitte & Touche LLP                                 X
------------------------------------------------------------------------------------------------------------------------------------
  24.10   Power of Attorney (See page 50)                                  X
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       49
<PAGE>
<TABLE>
<CAPTION>

<S>         <C>                                                            <C>
     31.1   Certification  of Chief  Executive  Officer  pursuant to       X
            Section 302 of the Sarbanes-Oxley Act of 2002
------------------------------------------------------------------------------------------------------------------------------------
     31.2   Certification  of Chief  Financial  Officer  pursuant to       X
            Section 302 of the Sarbanes-Oxley Act of 2002
------------------------------------------------------------------------------------------------------------------------------------
     32.1   Certification  of Chief  Executive  Officer  pursuant to       X
            Section 906 of the Sarbanes-Oxley Act of 2002
------------------------------------------------------------------------------------------------------------------------------------
     32.2   Certification  of Chief  Financial  Officer  pursuant to        X
            Section 906 of the Sarbanes-Oxley Act of 2002
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     *   Management contract or compensatory plan or arrangement

     (b) Reports on Form 8-K:

          o    On October 14, 2003, we filed a current report on Form 8-K
               regarding our October 10, 2003, press release, which (i) updated
               our previous announcement regarding preliminary discussions with
               ASSI, Inc. regarding a potential acquisition by ASSI of all
               outstanding shares of our common stock, (ii) announced the
               reopening of our Dededo store in Guam on October 3, 2003, and
               (iii) announced an increase of 9.9% in same store sales (stores
               open a full 13 months) for the fiscal quarter ending September
               28, 2003.

          o    On November 6, 2003, we filed a current report on Form 8-K
               regarding our November 4, 2003, press release, which (i)
               announced earnings of $0.08 per share for the fiscal quarter
               ending September 28, 2003, and (ii) stated that our discussions
               with ASSI, Inc. regarding a potential cash investment by ASSI
               pursuant to the purchase of unregistered newly-issued shares of
               our common stock had been terminated.

          o    On January 9, 2004, we filed a current report on Form 8-K
               regarding our January 8, 2004, press release, which announced an
               increase of 13.8% in same store sales (stores open a full 13
               months) for the fiscal quarter ending December 28, 2003 and an
               increase of 8.2% in same store sales for the fiscal year ending
               December 28, 2003.

          o    On February 27, 2004, we filed a current report on Form 8-K
               regarding our February 26, 2004, press release, which announced
               that we had generated net income of $568,000 for the fourth
               fiscal quarter of 2003, or $0.15 per fully diluted share
               outstanding, compared to net income of $196,000, or $0.05 per
               fully diluted share outstanding for the corresponding period last
               year.


                                       50
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      COST-U-LESS, INC.

Date: March 25, 2004                  By:       /s/ J. JEFFREY MEDER
                                         --------------------------------------
                                                  J. Jeffrey Meder
                                                    President and
                                               Chief Executive Officer


     Each person whose individual signature appears below hereby authorizes and
appoints J. Jeffrey Meder and Martin P. Moore, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his or her true and lawful attorney-in-fact and agent to act in his or her name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his or her substitute or substitutes may lawfully do or cause
to be done by virtue thereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities indicated below on the 25th day of March 2004.

            Signature                               Title
            ---------                               -----

<TABLE>
<CAPTION>

<S>                                <C>
      /s/ GEORGE C. TEXTOR         Chairman of the Board
-------------------------------
        George C. Textor

      /s/ J. JEFFREY MEDER         President, Chief Executive Officer and Director (Principal
-------------------------------    Executive Officer)
        J. Jeffrey Meder

      /s/ MARTIN P. MOORE          Vice President, Chief Financial Officer, Secretary and
-------------------------------    Treasurer (Principal Financial and Accounting Officer)
        Martin P. Moore

       /s/ DAVID A. ENGER          Director
-------------------------------
         David A. Enger

      /S/ GARY W. NETTLES          Director
-------------------------------
        Gary W. Nettles
</TABLE>


                                       51

<PAGE>

                                                                     SCHEDULE II

                                COST-U-LESS, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                Balance at                               Balance at
                                                                 Beginning                    (1)          End of
                          Description                            of Year      Additions    Deductions       Year
                          -----------                           ----------    ---------    ----------    ----------
<S>                                                               <C>          <C>           <C>           <C>
Year Ended December 28, 2003
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts...............................    $224,000     $160,000      $176,000      $208,000

Year Ended December 29, 2002
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts...............................    $120,000     $135,000       $31,000      $224,000

Year Ended December 30, 2001
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts...............................    $254,000     $155,000      $289,000      $120,000
---------------
</TABLE>

(1) Uncollectible accounts written off, net of recoveries.