**SECURITIES
        AND EXCHANGE COMMISSION**
  **WASHINGTON,
        D.C. 20549**
  **FORM
        10-Q**
 
 x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934.
  FOR
        THE
        QUARTERLY PERIOD ENDED OCTOBER 1, 2006
  OR
 
 o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  FOR
        THE
        TRANSITION PERIOD FROM _________ TO ___________
  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 of incorporation or organization)
              (I.R.S.
                  Employer Identification No.)
 
 **3633
        136** **th** **Place SE, Suite 110**
 **Bellevue,
        Washington 98006**
 (Address
        of principal executive office) (Zip Code)
  **(425)
        945-0213**
 (Registrant's
        telephone number, including area code)
 
 
 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 and 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. **x** YES oNO.
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer (as
        defined in Rule 12b-2 of the Exchange Act) :
 
 Large
                  accelerated filero
              Accelerated
                  filero
              Non-accelerated
                  filer**x**
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act).  o YES **x** NO.
 
 The
        registrant had 4,023,530 common shares, par value $0.001, outstanding at
        November 8, 2006.






















**COST-U-LESS,
      INC.**




**INDEX
      TO FORM 10-Q**








**PART
                I.**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements (Unaudited)Condensed
                Consolidated Statements of
                Operations
            3Condensed
                Consolidated Balance Sheets
            4Condensed
                Consolidated Statements of Shareholders’
                Equity
            5Condensed
                Consolidated Statements of Cash Flows
            6Notes
                to Condensed Consolidated Financial
                Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            12Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            18Item
                4.
            Controls
                and Procedures
            18**PART
                II.**
            **OTHER
                INFORMATION**Item
                1A.
            Risk
                Factors
            19Item
                6.
            Exhibits
            23**SIGNATURES**
            
            24












2


**PART
      I - FINANCIAL INFORMATION**





**ITEM
                1.**
            **FINANCIAL
                STATEMENTS (UNAUDITED)**








**COST-U-LESS,
      INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(in
      thousands, except share and per share data)**





**(Unaudited)**





**13
                Weeks Ended**
            
            **39
                Weeks Ended****October
                1,**
              **2006**
            
            **September
                25,**
              **2005**
            
            **October
                1,**
              **2006**
            
            **September
                25,**
              **2005**Net
                sales
            
            $
            54,613
            
            $
            53,011
            
            $
            162,873
            
            $
            158,545Merchandise
                costs
            
            
            44,301
            
            
            42,991
            
            
            132,309
            
            
            129,253Gross
                profit
            
            
            10,312
            
            
            10,020
            
            
            30,564
            
            
            29,292Operating
                expenses:Store
            
            
            7,719
            
            
            7,084
            
            
            22,254
            
            
            20,789General
                and administrative
            
            
            1,528
            
            
            1,652
            
            
            4,871
            
            
            4,862Store
                openings
            
            
            106
            
            
            63
            
            
            259
            
            
            327Store
                closings
            
            
            —
            
            
            22
            
            
            —
            
            
            81Total
                operating expenses
            
            
            9,353
            
            
            8,821
            
            
            27,384
            
            
            26,059Operating
                income
            
            
            959
            
            
            1,199
            
            
            3,180
            
            
            3,233Other
                income (expense):Interest
                expense, net
            
            
            (101
            )
            
            (121
            )
            
            (314
            )
            
            (231
            )Other
            
            
            14
            
            
            (14
            )
            
            (1
            )
            
            68Income
                before income taxes
            
            
            872
            
            
            1,064
            
            
            2,865
            
            
            3,070Income
                tax provision
            
            
            350
            
            
            425
            
            
            1,110
            
            
            1,185Net
                income
            
            $
            522
            
            $
            639
            
            $
            1,755
            
            $
            1,885Earnings
                per common share:Basic
            
            $
            0.13
            
            $
            0.16
            
            $
            0.44
            
            $
            0.48Diluted
            
            $
            0.12
            
            $
            0.15
            
            $
            0.41
            
            $
            0.45Weighted
                average common shares outstanding, basic
            
            
            4,022,798
            
            
            3,989,876
            
            
            4,013,937
            
            
            3,920,927Weighted
                average common shares outstanding, diluted
            
            
            4,255,781
            
            
            4,207,219
            
            
            4,240,312
            
            
            4,159,784
























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


3


**COST-U-LESS,
      INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(in
      thousands)**





**(Unaudited)**





**October
                1,**
              **2006**
            
            **January
                1,**
              **2006****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            4,961
            
            $
            5,304Accounts
                receivable, net
            
            
            867
            
            
            843Inventories,
                net
            
            
            25,463
            
            
            23,027Other
                current assets
            
            
            1,593
            
            
            1,136Total
                current assets
            
            
            32,884
            
            
            30,310Buildings
                and equipment, net
            
            
            20,959
            
            
            18,550Deposits
                and other assets
            
            
            718
            
            
            772Total
                assets
            
            $
            54,561
            
            $
            49,632**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            17,274
            
            $
            15,062Accrued
                expenses and other liabilities
            
            
            5,345
            
            
            5,422Line
                of credit
            
            
            454
            
            
            80Current
                portion of long-term debt
            
            
            267
            
            
            267Current
                portion of capital lease
            
            
            306
            
            
            226Total
                current liabilities
            
            
            23,646
            
            
            21,057Other
                long-term liabilities
            
            
            1,409
            
            
            1,192Long-term
                debt, less current portion
            
            
            1,811
            
            
            2,011Capital
                lease, less current portion
            
            
            1,684
            
            
            1,329Total
                liabilities
            
            
            28,550
            
            
            25,589Commitments
                and contingencies
            
            
            —
            
            
            —Shareholders’
                equity
            
            
            26,011
            
            
            24,043Total
                liabilities and shareholders’ equity
            
            $
            54,561
            
            $
            49,632























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


4


**COST-U-LESS,
      INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**


**(in
      thousands, except share data)**





**(Unaudited)**





**Common**
              **Stock—**
              **Shares**
            
            **Common**
              **Stock—**
              **Amount**
            
            **Retained**
              **Earnings**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Total**Balance
                at December 26, 2004
            
            
            3,751,306
            
            $
            12,795
            
            $
            7,911
            
            $
            (773
            )
            $
            19,933Net
                income
            
            
            —
            
            
            —
            
            
            1,885
            
            
            —
            
            
            1,885Foreign
                currency translation adjustments
            
            
            —
            
            
            —
            
            
            —
            
            
            (19
            )
            
            (19
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,866Compensation
                related to stock options
            
            
            —
            
            
            24
            
            
            —
            
            
            
            
            
            24Exercise
                of common stock options including income tax benefit.
            
            
            238,570
            
            
            1,111
            
            
            —
            
            
            —
            
            
            1,111Balance
                at September 25, 2005
            
            
            3,989,876
            
            $
            13,930
            
            $
            9,796
            
            $
            (792
            )
            $
            22,934Balance
                at January 1, 2006
            
            
            3,990,171
            
            $
            13,931
            
            $
            10,926
            
            $
            (814
            )
            $
            24,043Net
                income
            
            
            —
            
            
            —
            
            
            1,755
            
            
            —
            
            
            1,755Foreign
                currency translation adjustments
            
            
            —
            
            
            —
            
            
            —
            
            
            9
            
            
            9Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,764Stock
                based compensation
            
            
            —
            
            
            20
            
            
            —
            
            
            —
            
            
            20Exercise
                of common stock options including income tax benefit.
            
            
            33,359
            
            
            184
            
            
            —
            
            
            —
            
            
            184Balance
                at October 1, 2006
            
            
            4,023,530
            
            $
            14,135
            
            $
            12,681
            
            $
            (805
            )
            $
            26,011




























































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


5


**COST-U-LESS,
      INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(in
      thousands)**





**(Unaudited)**





**39
                Weeks Ended****October
                1,**
              **2006**
            
            **September
                25,**
              **2005**OPERATING
                ACTIVITIES:Net
                income
            
            $
            1,755
            
            $
            1,885Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            1,751
            
            
            1,380Stock
                option expense
            
            
            20
            
            
            24Deferred
                tax provision
            
            
            192
            
            
            234Loss
                on buildings and equipment
            
            
            60
            
            
            35Tax
                benefit from exercise of stock options
            
            
            —
            
            
            684Cash
                provided by/(used in) changes in operating assets and
                liabilities:Accounts
                receivable
            
            
            289
            
            
            (393
            )Inventories
            
            
            (2,436
            )
            
            (1,437
            )Other
                current assets
            
            
            (539
            )
            
            (566
            )Deposits
                and other assets
            
            
            54
            
            
            —Accounts
                payable
            
            
            2,964
            
            
            (924
            )Accrued
                expenses and other liabilities
            
            
            (390
            )
            
            (803
            )Other
                long-term liabilities
            
            
            107
            
            
            (1
            )Net
                cash provided by operating activities
            
            
            3,827
            
            
            118INVESTING
                ACTIVITY:Cash
                used to purchase property and equipment
            
            
            (4,224
            )
            
            (5,601
            )Proceeds
                from sale of buildings and equipment
            
            
            8
            
            
            68Net
                cash used by investing activities
            
            
            (4,216
            )
            
            (5,533
            )FINANCING
                ACTIVITIES:Proceeds
                from exercise of common stock options
            
            
            137
            
            
            427Tax
                benefit from exercise of stock options
            
            
            47
            
            
            —Proceeds
                from short term note payable (1)
            
            
            608
            
            
            —Proceeds
                fromcapital
                lease obligations
            
            
            —
            
            
            1,000Proceeds
                from line of credit, net
            
            
            374
            
            
            1,703Increase/(decrease)
                in bank checks outstanding
            
            
            (752
            )
            
            837Principal
                payments on capital lease obligations
            
            
            (173
            )
            
            (99
            )Principal
                payments on long-term debt
            
            
            (200
            )
            
            (200
            )Net
                cash provided by financing activities
            
            
            41
            
            
            3,668Foreign
                currency translation adjustments
            
            
            5
            
            
            (11
            )Net
                decrease in cash and cash equivalents
            
            
            (343
            )
            
            (1,758
            )Cash
                and cash equivalents:Beginning
                of period
            
            
            5,304
            
            
            6,081End
                of period
            
            $
            4,961
            
            $
            4,323SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the period for:Interest
            
            $
            340
            
            $
            320Income
                taxes, net
            
            $
            556
            
            $
            671





(1)
            During
                the quarter ended October 1, 2006, the company refinanced its short-term
                note payable with a seven-year capital
                lease.





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


6


**COST-U-LESS,
      INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**(Unaudited)**








**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 various
      United States Territories (“U.S. Territories”), foreign island countries in the
      Pacific and the Caribbean, the Hawaiian Islands and Sonora, California. As
      of
      October 1, 2006, 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
      July
      8, 2005, the Company announced that it had been granted approval from the Cayman
      Islands Trade and Business Licensing Board to operate a retail and wholesale
      business through a controlled subsidiary organized in the Cayman Islands. On
      April 25, 2006, the Company announced that it had entered into a long-term
      lease
      with the developer of Governor’s Square in Grand Cayman to lease land on which
      to construct and operate a store under the Cost-U-Less name. The signing of
      the
      lease is one in a number of steps that must be undertaken before a store
      operating under the Cost-U-Less name can be opened in the Cayman Islands.
      Although there are still a number of steps that have to be taken before the
      store can be opened, the Company expects to open the store during the first
      half
      of 2007.








*Basis
      of Presentation*





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial reporting and pursuant to the
      rules and regulations of the Securities and Exchange Commission (SEC). In the
      opinion of management, the financial information includes all adjustments that
      the Company considers necessary for a fair presentation of the financial
      position at such dates and the operations and cash flows for the periods then
      ended. The condensed consolidated balance sheet at January 1, 2006, has been
      derived from the audited financial statements at that date. Certain information
      and footnote disclosures normally included in the financial statements prepared
      in accordance with accounting principles generally accepted in the United States
      have been condensed or omitted pursuant to SEC rules and regulations on
      quarterly reporting. Operating results for the 13 and 39 week periods ended
      October 1, 2006, are not necessarily indicative of results that may be expected
      for the entire year. All quarterly periods reported consist of 13 weeks. For
      further information, refer to the financial statements and footnotes included
      in
      the Company's annual report on Form 10-K filed with the SEC on March 29,
      2006.








*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. Fiscal 2006,
      ending on December 31, 2006, is a 52-week year. Fiscal 2005, which ended on
      January 1, 2006, was a 53-week fiscal year.








*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, Cayman Islands, Nevada, Fiji and New Zealand. All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.


7


**COST-U-LESS,
      INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)**





**(Unaudited)**








*Foreign
      Currency Translations and Comprehensive Income*





The
      U.S.
      dollar is the functional currency for all locations, except for Fiji,
      Netherlands Antilles and the Cayman Islands, 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
      inventory; and deferred 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.








*Stock-Based
      Compensation*





The
      Company maintains a stock incentive compensation plan that provides for the
      granting of various stock awards, including stock options and restricted stock,
      with a maximum of 1,000,000 shares of common stock available for issuance.
      Options issued under the plan vest at various terms ranging from immediately
      to
      five years and generally expire ten years from the date of grant. The options
      are generally granted at prices equal to the fair value on the date of grant.
      There were 357 shares available for future grant under the plan at October
      1,
      2006.





Prior
      to
      the adoption of Statement of Financial Accounting Standards (SFAS)
      No. 123R, “Share-Based Payments,” which revises SFAS 123, “Accounting for
      Stock-Based Compensation” in the first quarter of fiscal 2006, the Company
      accounted for stock-based compensation using the intrinsic value method
      prescribed in Accounting Principles Board Opinion (APB) No. 25, “Accounting
      for Stock Issued to Employees,” and related interpretations in accounting for
      stock options. Because the Company generally grants stock options to employees
      at exercise prices equal to fair market value on the date of grant, no
      significant compensation cost has been recognized for option grants in periods
      prior to fiscal 2006. As permitted by SFAS 123, stock-based compensation was
      included as a pro forma disclosure in the notes to the consolidated financial
      statements.





Effective
      with the first fiscal quarter of fiscal 2006, the Company adopted the fair
      value
      recognition provisions of SFAS 123R, using the modified-prospective transition
      method. Under this transition method, stock-based compensation expense will
      be
      recognized in the consolidated financial statements for stock options granted
      subsequent to January 1, 2006, based on the grant date fair value estimated
      in
      accordance with the provisions of SFAS 123R. Results for prior periods have
      not
      been restated, as provided for under the modified-prospective
      method.





Prior
      to
      the adoption of SFAS 123R, the Company presented all tax benefits resulting
      from
      the exercise of stock options as operating cash inflows in the consolidated
      statements of cash flows, in accordance with the provisions of the Emerging
      Issues Task Force (“EITF”) Issue No 00-15, “Classification in the Statement of
      Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of
      a
      Nonqualified Employee Stock Option.” SFAS 123R requires the benefits of tax
      deductions in excess of the compensation cost recognized for those options
      to be
      classified as financing cash inflows rather than operating cash inflows, on
      a
      prospective basis. This amount is shown as “Tax benefit from exercise of stock
      options” on the consolidated statement of cash flows.


8


**COST-U-LESS,
      INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)**





**(Unaudited)**








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:





**13
                Weeks Ended**
              **September
                25,**
              **2005**
            
            **39
                Weeks Ended**
              **September
                25,**
              **2005**Net
                income, as reported
            
            $
            639
            
            $
            1,885Add:
                Stock-based compensation, as reported
            
            
            24
            
            
            24Less:
                Total stock-based employee compensation expense determined under
                fair
                value method for all awards, net of tax
            
            
            (36
            )
            
            (50
            )Net
                income, pro forma
            
            $
            627
            
            $
            1,859Earnings
                per common share, basic as reported
            
            $
            0.16
            
            $
            0.48Earnings
                per common share, basic pro forma
            
            $
            0.16
            
            $
            0.47Earnings
                per common share, diluted as reported
            
            $
            0.15
            
            $
            0.45Earnings
                per common share, diluted pro forma
            
            $
            0.15
            
            $
            0.45





Disclosures
      for the 13 and 39-week periods ended October 1, 2006, are not presented because
      the amounts are recognized in the consolidated financial
      statements.





The
      following table summarizes the stock option transactions during the 39 weeks
      ended October 1, 2006:




**Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Weighted**
                **Average**
                **Contractual**
                **Life**
              
              **Aggregate**
                **Intrinsic**
                **Value
                  (a)**Outstanding
                  at January 1, 2006
              
              
              613,324
              
              $
              3.39
              
              
              —
              
              
              —Granted
                  at fair value
              
              
              4,000
              
              
              8.09
              
              
              —
              
              
              —Forfeited
              
              
              (1,475
              )
              
              4.75
              
              
              —
              
              
              —Exercised
              
              
              (33,359
              )
              
              4.12
              
              
              —
              
              
              —Outstanding
                  at October 1, 2006
              
              
              582,490
              
              
              3.38
              
              
              5.32
              
              $
              3,075,547Exercisable
                  at October 1, 2006
              
              
              582,490
              
              
              3.38
              
              
              5.32
              
              $
              3,075,547




(a)
            The
                intrinsic value of a stock option is the amount by which the market
                value
                of the underlying stock exceeds the exercise price of the
                option.





The
      Company recognized stock compensation costs of $20,000 and a related tax benefit
      of $8,000 during both the 13 and 39 weeks ended October 1, 2006. The expense
      recorded for the portion vesting in the current period for the 2,090 options
      granted prior to, but not vested as of, January 1, 2006, is less than $1,000.
      These options were fully vested as of August 2006.


9


**COST-U-LESS,
      INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)**





**(Unaudited)**








Cash
      proceeds, tax benefits and intrinsic value related to total stock options
      exercised during the first 39 weeks of fiscal 2006 and fiscal 2005 were as
      follows (in thousands):


**39
                Weeks Ended****October
                1,**
              **2006**
            
            **September
                25,**
              **2005**Proceeds
                from stock options exercised
            
            $
            137
            
            $
            427Tax
                benefit related to stock options exercised
            
            
            47
            
            
            684Intrinsic
                value of stock options exercised
            
            
            139
            
            
            2,013








*Reclassifications*





Certain
      reclassifications of prior period balances have been made for consistent
      presentation with the current period.








*New
      Accounting Pronouncements*





In
      October 2005, the FASB issued Staff Position No. FAS 13-1, “Accounting for
      Rental Costs Incurred During a Construction Period” (FSP 13-1). FSP 13-1
      requires that rental costs associated with ground or building operating leases
      that are incurred during a construction period be recognized as rental expense.
      FSP 13-1 is effective for the first reporting period beginning after December
      15, 2005. The adoption of FSP 13-1 did not impact the Company’s financial
      statements for the first quarter of fiscal 2006, as the Company did not have
      a
      lease for a site under construction. However, on April 25, 2006, the Company
      announced that it had entered into a twenty-year lease with the developer of
      Governor’s Square in Grand Cayman to lease land on which to construct and
      operate a store under the Cost-U-Less name. Rental payments under this lease
      commenced on April 1, 2006. In accordance with FSP 13-1 and other applicable
      lease accounting guidance, the Company will expense rental costs over the lease
      term, which includes the construction period.





In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”
(FIN 48), which seeks to reduce the diversity in practice associated with the
      accounting and reporting for uncertainty in income tax positions. FIN 48
      prescribes a comprehensive model for the financial statement recognition,
      measurement, presentation and disclosure of uncertain tax positions taken or
      expected to be taken in income tax returns. FIN 48 is effective for fiscal
      years
      beginning after December 15, 2006 and the Company will adopt the new
      requirements in its fiscal first quarter of 2007. The cumulative effects, if
      any, of adopting FIN 48 will be recorded as an adjustment to retained earnings
      as of the beginning of the period of adoption. The Company has not yet
      determined the impact, if any, of adopting FIN 48 on its consolidated financial
      statements.








**2.**
            **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.


10


**COST-U-LESS,
      INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)**





**(Unaudited)**








The
      following table sets forth the computation of basic and diluted earnings per
      common share:





**13
                Weeks****Ended**
            
            **39
                Weeks****Ended****October
                1,**
              **2006**
            
            **September
                25,**
              **2005**
            
            **October
                1,**
              **2006**
            
            **September
                25,**
              **2005**Numerator:Net
                income
            
            $
            522
            
            $
            639
            
            $
            1,755
            
            $
            1,885Denominator:Denominator
                for basic earnings per share—weighted average shares
            
            
            4,022,798
            
            
            3,989,876
            
            
            4,013,937
            
            
            3,920,927Effect
                of dilutive common equivalent shares:Stock
                options
            
            
            232,983
            
            
            217,343
            
            
            226,375
            
            
            238,857Denominator
                for diluted earnings per share—adjusted weighted average shares and
                assumed conversion of stock options
            
            
            4,255,781
            
            
            4,207,219
            
            
            4,240,312
            
            
            4,159,784Basic
                earnings per common share
            
            $
            0.13
            
            $
            0.16
            
            $
            0.44
            
            $
            0.48Diluted
                earnings per common share
            
            $
            0.12
            
            $
            0.15
            
            $
            0.41
            
            $
            0.45








**3.**
            **Line
                of Credit**





The
      Company has maintained a line of credit with Wells Fargo Business Credit since
      April 9, 2003. On May 26, 2005, the Company entered into a Fourth Amendment
      to
      the Credit and Security Agreement (the Fourth Amendment) as it relates to the
      line of credit. The Fourth Amendment extended the maturity date of the line
      of
      credit from April 9, 2006, to May 18, 2007. Additionally, the Fourth Amendment
      (1) reduced the interest rate to an annual interest rate equal to the “prime
      rate” as defined by Wells Fargo Bank National Association, (2) reduced the
      minimum interest charge to not less than $25,000 per calendar year, (3)
      increased the unused line fee to a rate of three-eighths of one percent (0.375%)
      per annum on the average daily unused line and (4) eliminated the one day
      interest charge on all payments received on the line of credit. The line of
      credit was further amended on April
      20,
      2006, to update specific financial covenants contained in the credit agreement,
      including minimum book net worth, minimum net income and capital expenditures.





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 an amount
      up
      to $0.7 million. At October 1, 2006, there was $0.5 million outstanding on
      the
      line of credit and no letters of credit outstanding. At
      October 1, 2006, the rate charged by Wells
      Fargo was
      8.25%.





Borrowings continue
      to be 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) $6.0 million
      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.





T he
      line
      of credit contains various covenants, all of which the Company believes it
      was
      in compliance with as of October 1, 2006.








**4.**
            **Commitments
                and Contingencies**





*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.


11


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








**Certain
      Factors That May Affect Future Results of Operations**





This
      discussion and analysis should be read in conjunction with our unaudited
      condensed consolidated financial statements and the related notes thereto
      appearing in Item 1 of this report. In addition to historical information,
      this
      quarterly report on Form 10-Q contains, and may incorporate by reference,
      statements which may constitute forward-looking statements which involve known
      and unknown risks, uncertainties and other factors that could cause actual
      results to differ materially from those expressed or implied by such
      forward-looking statements. Forward-looking statements may be identified by
      the
      use of forward-looking terminology such as "may," "will," "expect," "estimate,"
      "anticipate," "continue," or similar terms, variations of such terms or the
      negative of those terms, but the absence of such terms does not mean that a
      statement is not forward-looking. Forward-looking statements reflect the
      expectations of our management at the time that they are made and do not
      represent an opinion about what may happen in the future. More information
      about
      factors that could affect our financial results is included in Item 1A. of
      Part
      II of this report and in the "Risk Factors That May Affect Future Results"
      and
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" sections of our annual report on Form 10-K for the fiscal year
      ended
      January 1, 2006, which was filed on March 29, 2006, with the Securities and
      Exchange Commission.





The
      following management’s discussion and analysis of financial condition and
      results of operations should be read in conjunction with management’s discussion
      and analysis of financial condition and results of operations included in our
      annual report on Form 10-K for the fiscal year ended January 1,
      2006.





As
      used
      in this quarterly report on Form 10-Q, 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.








**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.





Our
      stores are patterned after the warehouse club concept, except our stores (i)
      are
      smaller (averaging approximately 32,500 square feet vs. large format warehouse
      clubs of approximately 130,000 square feet), (ii) generally target niche
      markets, mainly U.S. Territories, U.S. island states and foreign island
      countries, (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.





During
      fiscal 2005, we built a new St. Croix store on a parcel of land located closer
      to the main trade area in the center of the island than our existing store.
      This
      new building expanded the size of our St. Croix store by about 45% to
      approximately 38,000 square feet. The new store opened on May 26, 2005.





On
      April
      25, 2006, we announced that we had entered into a long-term lease with the
      developer of Governor’s Square in Grand Cayman to lease land on which to
      construct and operate a store under the Cost-U-Less name through a controlled
      subsidiary organized in the Cayman Islands. The signing of the lease is one
      in a
      number of steps that we must undertake before we can open a store operating
      under the Cost-U-Less name in the Cayman Islands. Although there are still
      a
      number of steps that we have to take before the store can be opened, we expect
      to open the store during the first half of 2007.





On
      August
      10, 2006, we completed the remodel and expansion of our store in St. Thomas.
      In
      addition to increasing the size of our store by approximately 6,400 square
      feet
      (an increase of approximately 18%), we also upgraded and replaced much of the
      store’s equipment, added a new produce format and a rotisserie department.
      Additionally, we recently completed a remodel of our Kauai store to add retail
      enhancements such as fresh produce by the pound. Furthermore, we continue to
      explore expansion opportunities in selected markets and additional relocation
      opportunities for stores in existing markets. We currently have no plans to
      open
      stores in new markets during fiscal 2006.





Our
      net
      sales increased for the 13 and 39 weeks ended October 1, 2006, as compared
      to
      the same periods in the prior year, primarily because of increases in
      comparable-store sales. Nine of our eleven stores experienced increased sales
      in
      both the 13 and 39 weeks ended October 1, 2006, as compared to the same periods
      in the prior year. These increases were primarily due to general inflationary
      trends and related price increases, improvements in our assortment of goods
      and
      other operating improvements.





12


We
      have
      experienced increasing energy and fuel surcharge costs over the last few years
      and have largely been able to pass these additional costs on to our customers
      with higher prices. For example, during the 39 weeks ended October 1, 2006,
      our
      energy (utility) expenses were approximately 21% higher than the same period
      in
      fiscal 2005. As these costs continue to rise, we have had increasing difficulty
      in passing on these additional costs to our customers.





**Results
      of Operations**





*Comparison
      of the 13 and 39 Weeks Ended October 1, 2006, to the 13 and 39 Weeks Ended
      September 25, 2005:*





*Net
      Sales:* Net
      sales of $54.6 million for the 13 weeks ended October 1, 2006, increased 3.0%
      compared to net sales of $53.0 million for the same period in the prior year.
      Net sales of $162.9 million for the 39 weeks ended October 1, 2006, increased
      2.7% compared to net sales of $158.5 million for the same period in the prior
      year. The increase in net sales in the 13 and 39 weeks ended October 1, 2006,
      as
      compared to the same periods in the prior year, was due to comparable-store
      sales increases partially offset by a decline in business-to-business sales
      as
      compared to the same period in the prior year. We expect the level of
      business-to-business activity for fiscal 2006 to be slightly less than the
      levels in 2005. Additionally, we anticipate that sales for our Kauai store
      will
      be lower in the fourth quarter of fiscal 2006, as compared to the prior year,
      due to increased competition and reduced market share, which has occurred as
      a
      result of Costco opening a new store in Kauai on October 17, 2006.





Comparable-store
      sales (stores open for a full 13 months) increased 3.5% and 3.3% for the 13
      and
      39 weeks ended October 1, 2006, respectively, as compared to the same periods
      in
      the prior year. Nine of our eleven stores experienced increased sales in both
      the 13 and 39 weeks ended October 1, 2006, as compared to the same periods
      in
      the prior year, primarily due to general inflationary trends and related price
      increases, improvements in our assortment of goods and other operating
      improvements.





*Gross
      Profit:* Gross
      profit dollars of $10.3 million, for the 13 weeks ended October 1, 2006,
      increased slightly as compared to gross profit dollars of $10.0 million for
      the
      same period in the prior year. Gross profit as a percentage of sales was 18.9%
      for both the 13 weeks ended October 1, 2006 and the same period in the prior
      year. Gross profit of $30.6 million, or 18.8% of sales, for the 39 weeks ended
      October 1, 2006, increased as compared to gross profit of $29.3 million, or
      18.5% of sales, in the same period in the prior year. The improvement in gross
      profit dollars in both the 13 and 39 weeks ended October 1, 2006, was primarily
      due to improvements in merchandising, including enhanced sourcing and pricing
      strategies to maintain operating margins.





*Store
      expenses:* Store
      expenses increased to $7.7 million and $22.3 million for the 13 and 39 weeks
      ended October 1, 2006, respectively, as compared to $7.1 million and $20.8
      million for the same periods in the prior year. As a percentage of sales, store
      expenses were 14.1% and 13.7% of sales for the 13 and 39 weeks ended October
      1,
      2006, respectively, as compared to 13.4% and 13.1% for the same periods in
      the
      prior year. For the 13 weeks ended October 1, 2006, approximately 36% of the
      dollar increase in store expenses was attributable to higher energy (utility)
      expenses, which were 21% higher than the same period in the prior year. Another
      19% of the dollar increase between comparable 13-week periods was due to
      increased depreciation expense, primarily due to our new store in St. Croix
      and
      the expansion of our store in St. Thomas. An additional 19% of the dollar
      increase between comparable 13-week periods was due to higher payroll and
      related costs, which were 4% higher than the same period in the prior year,
      due
      in part to the additional labor required during the remodel and expansion of
      our
      St. Thomas store. For the 39 weeks ended October 1, 2006, approximately 42%
      of
      the dollar increase in store expenses was attributable to higher energy
      (utility) expenses, which were 21% higher than the same period in the prior
      year. Another 27% of the dollar increase between comparable 39-week periods
      was
      due to increased depreciation expense, primarily due to our new store in St.
      Croix. An additional 16% of the dollar increase between comparable 39-week
      periods was attributable to payroll and related costs such as health care,
      which
      were 3% higher than the same period in the prior year. Payroll and related
      costs, although higher due to volume, remained comparable as a percent of store
      sales at 5.3% of store sales for both periods in 2006 and 5.2% of store sales
      for both periods in 2005.





*General
      and administrative expenses:* General
      and administrative expenses decreased slightly to $1.5 million and $4.9 million
      for the 13 and 39 weeks ended October 1, 2006, respectively, as compared to
      $1.7
      million and $4.9 million for the same periods in the prior year. As a percentage
      of sales, general and administrative expenses were 2.8% and 3.0% of sales for
      the 13 and 39 weeks ended October 1, 2006, respectively, as compared to 3.1%
      for
      both periods in the prior year. The decrease in expense during the 13 week
      period was primarily attributable to lower personnel related expenses, including
      health benefits paid in the 13 weeks ended October 1, 2006, as compared to
      the
      same period in the prior year. For the 39-week period, however, health benefits
      paid in 2006 were approximately 46% higher than the same period in 2005.
      Approximately 40% of our employees, including all of our corporate employees,
      are in a health plan that is self-insured with a stop-loss provision. We
      experienced a higher volume of claims during the 39 weeks ended October 1,
      2006,
      than we experienced in the same period in the prior year.


13


*Store
      opening expenses:* Store
      opening expenses were equal to the prior year at $0.1 million for the 13-week
      period and $0.3 million for the 39 week period. Store opening expenses in 2006
      include costs associated with our initial work on our store in the Cayman
      Islands, including rent expense associated with our land lease for that
      location. Store opening expenses in fiscal 2005 primarily relate to costs
      associated with the relocation of our St. Croix store and the evaluation of
      potential new store locations. We expect store opening expenses in fiscal 2006
      to be higher than those incurred in fiscal 2005 as we continue to develop our
      new store in the Cayman Islands and incur rent in the Caymans associated with
      the land on which our building is being developed.





*Store
      closing expenses:* Store
      closing expenses of $22,000 in the 13 weeks ended September 25, 2005, and
      $81,000 in the 39 weeks ended September 25, 2005, represent the costs incurred
      with closing our former St. Croix location after we relocated our store on
      May
      26, 2005.





*Interest
      expense, net:* Interest
      expense, net remained relatively flat at $0.1 million and $0.3 million for
      the
      13 and 39 weeks ended October 1, 2006, respectively, as compared to $0.1 million
      and $0.2 million for the same periods in the prior year. The increase in
      interest expense during the 39 weeks was primarily attributable to the
      capitalization of approximately $0.1 million of interest related to the
      construction of our new store in St. Croix during the 39 weeks ended September
      25, 2005.





*Other
      income/(expense):* Other
      income/(expense) was $14,000 for the 13 weeks ended October 1, 2006, as compared
      to ($14,000) for the same period in the prior year. Other income/(expense)
      was
      ($1,000) for the 39 weeks ended October 1, 2006, as compared to $68,000 for
      the
      same period in the prior year. The decrease in the 39 weeks ended October 1,
      2006 was primarily due to the receipt of a $0.1 million non-recurring insurance
      reimbursement in 2005. All other amounts included in other income/(expense)
      are
      attributable to gains on foreign currency transactions and translation of
      intercompany balances for transactions that exceed the permanent investments
      in
      those countries.





*Income
      tax provision:* Our
      income tax provision for the 13 weeks ended October 1, 2006, was $350,000,
      or
      40.1% of pre-tax income, as compared to $425,000, or 39.9% of pre-tax income,
      for the same period in the prior year. Our income tax provision for the 39
      weeks
      ended October 1, 2006, was $1,110,000, or 38.7% of pre-tax income, as compared
      to $1,185,000, or 38.6% of pre-tax income, for the same period in the prior
      year. The slight increase in our effective tax rate in fiscal 2006 was primarily
      due to expenses incurred in the Cayman Islands that are not tax deductible
      as
      there are no corporate taxes in the Cayman Islands. This increase was partially
      offset by the implementation of tax planning strategies in the latter half
      of
      fiscal 2005, which enabled us to offset a portion of our other foreign
      subsidiary losses against foreign subsidiary income.





*Net
      income:* Net
      income was $0.5 million, or $0.12 per fully diluted share, for the 13 weeks
      ended October 1, 2006, as compared to a net income of $0.6 million, or $0.15
      per
      fully diluted share, in the same period in the prior year. Net income was $1.8
      million, or $0.41 per fully diluted share, for the 39 weeks ended October 1,
      2006, as compared to $1.9 million, or $0.45 per fully diluted share for the
      same
      period in the prior year.





**Liquidity
      and Capital Resources**





We
      currently finance our operations with proceeds from various credit facilities
      and internally generated funds. Although we utilized existing working capital
      to
      finance the $5.6 million used to purchase the land and construct our new St.
      Croix store during fiscal 2005, we hope to re-finance our St. Croix store,
      and
      any future relocations and new stores, either through an operating lease, a
      sale-leaseback arrangement or long-term funding from a financial institution.
      We
      intend to continue leasing as many of our store locations as feasible. In those
      instances where a lease is not available on acceptable terms, we intend to
      finance our stores utilizing long-term funding from a financial institution
      (as
      we currently do for our St. Thomas and St. Maarten buildings).





We
      generated $3.8 million of net cash from operations during the 39 weeks ended
      October 1, 2006, as compared to $0.1 million of net cash generated by operations
      during the same period in the prior year. The increase in cash provided by
      operations during the 39 weeks ended October 1, 2006, as compared to the same
      period in the prior year, was primarily due to a decrease in cash used to pay
      down accounts payable and accrued expenses, partially offset by an increase
      in
      cash used to acquire inventory during the 39 weeks ended October 1,
      2006.





Net
      cash
      used in investing activities was $4.2 million for the 39 weeks ended October
      1,
      2006, as compared to $5.5 million in the same period in the prior year. The
      cash
      used in investing activities during the 39 weeks ended October 1, 2006, was
      primarily due to costs associated with renovating and expanding the size of
      our
      store in St. Thomas by approximately 6,400 square feet (an increase of
      approximately 18%) and the replacement of our current point of sale system
      with
      a new and improved version. The cost associated with building construction
      and
      updating equipment associated with our St. Thomas store was approximately $2.0
      million and the cost of replacing our current point of sale system was
      approximately $1.0 million, a majority of which was refinanced with a capital
      lease. Additionally, we spent approximately $0.2 million on the remodel of
      our
      Kauai store in order to add retail enhancements such as fresh produce by the
      pound and we have spent approximately $0.4 million on the development of land
      in
      the Cayman Islands. The cash used in investing activities in the 39 weeks ended
      September 25, 2005, was primarily due to costs associated with the construction
      of the new building in St. Croix where we relocated our St. Croix store on
      May
      26, 2005.


14





We
      currently have no plans to open stores in new markets during fiscal 2006.
      However, we are currently in the process of working with local architects and
      engineers to define the type of building we could construct in the Cayman
      Islands, which we expect to open during the first half of 2007. We anticipate
      spending approximately $1.5 to $2.0 million dollars during fiscal 2006 on our
      proposed new store in the Cayman Islands. **** In
      addition, we are continuing to explore expansion opportunities in selected
      markets and additional relocation opportunities for stores in existing markets.





We
      generated $41,000 of cash from financing activities during the 39 weeks ended
      October 1, 2006, as compared to $3.7 million generated in the same period in
      the
      prior year. The $3.7 million decrease was primarily due to a decrease in
      borrowings on our line of credit and a decrease in bank checks outstanding
      during the 39 weeks ended October 1, 2006, as compared to the same period in
      the
      prior year.





We
      maintain a line of credit with Wells Fargo Business Credit. The line of credit
      expires on May 18, 2007, has an annual interest rate equal to the “prime rate”
as defined by Wells Fargo Bank National Association, and has an unused line
      fee
      of three-eighths of one percent (0.375%) per annum on the average daily unused
      line. The line of credit contains various financial covenants, including minimum book net worth, minimum net income and
      capital expenditures.





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 an amount
      up
      to $0.7 million. At October 1, 2006, there was $0.5 million outstanding on
      the
      line of credit and no letters of credit outstanding. At
      October 1, 2006, the rate charged by Wells Fargo was 8.25%.





Borrowings continue
      to be 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) $6.0 million
      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.





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,
      declining economic conditions in the markets in which we have stores, energy
      related cost increases, or 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 twelve months. However, if such sources of liquidity are unavailable
      or
      insufficient to satisfy our liquidity requirements, we may need to issue equity
      or debt securities, obtain additional credit facilities or consider alternative
      financing arrangements. 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
      October 1, 2006, our commitments to make future payments under long-term
      contractual obligations were as follows (in thousands):


**Payments
                Due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than****1 year**
            
            **1
                to 3****years**
            
            **4
                to 5****years**
            
            **After
                5****years**Long-term
                debt
            
            $
            2,078
            
            $
            267
            
            $
            534
            
            $
            534
            
            $
            743Operating
                Leases (1)
            
            
            34,423
            
            
            4,920
            
            
            8,544
            
            
            4,679
            
            
            16,280Capital
                Lease (2)
            
            
            2,425
            
            
            435
            
            
            868
            
            
            763
            
            
            359Total
            
            $
            38,926
            
            $
            5,622
            
            $
            9,946
            
            $
            5,976
            
            $
            17,382





(1)
            Adjusted
                to reflect a new agreement to lease land entered into in April 2006
                for a
                potential store location in the Cayman Islands. The agreement commenced
                on
                April 1, 2006, and provides for a lease term of 20 years from the
                date on
                which the building is completed and ready for occupancy. Initial
                payments
                under the agreement are $15,000 per month until the building is completed
                and ready for occupancy, after which the base rent under the lease
                agreement will increase pursuant to its
                terms.


(2)
            Adjusted
                to reflect a new POS lease entered into in September 2006, which
                provides
                for a lease term of 7 years.


15


**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
      our annual report on Form 10-K for the fiscal year ended January 1, 2006.




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 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, we recognize 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,
      Netherlands Antilles and the Cayman Islands, 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 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**





In
      October 2005, the FASB issued Staff Position No. FAS 13-1, “Accounting for
      Rental Costs Incurred During a Construction Period” (FSP 13-1). FSP 13-1
      requires that rental costs associated with ground or building operating leases
      that are incurred during a construction period be recognized as rental expense.
      FSP 13-1 is effective for the first reporting period beginning after December
      15, 2005. The adoption of FSP 13-1 did not impact our financial statements
      for
      the first quarter of fiscal 2006, as we did not have a lease for a site under
      construction. However, on April 25, 2006, we announced that we had entered
      into
      a twenty-year lease with the developer of Governor’s Square in Grand Cayman to
      lease land on which to construct and operate a store under the Cost-U-Less
      name.
      Rental payments under this lease commenced on April 1, 2006. In accordance
      with
      FSP 13-1 and other applicable lease accounting guidance, we will expense rental
      costs over the lease term, which includes the construction period.





16


In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”
(FIN 48), which seeks to reduce the diversity in practice associated with the
      accounting and reporting for uncertainty in income tax positions. FIN 48
      prescribes a comprehensive model for the financial statement recognition,
      measurement, presentation and disclosure of uncertain tax positions taken or
      expected to be taken in income tax returns. FIN 48 is effective for fiscal
      years
      beginning after December 15, 2006 and we will adopt the new requirements in
      our fiscal first quarter of 2007. The cumulative effects, if any, of adopting
      FIN 48 will be recorded as an adjustment to retained earnings as of the
      beginning of the period of adoption. We have not yet determined the impact,
      if
      any, of adopting FIN 48 on our consolidated financial statements.





17


**ITEM
                3.**
            **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. dollars 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
      operate in four foreign countries that function under currencies other than
      the
      US dollar. Two of the these foreign countries operate under the Netherlands
      Antilles Guilder and one of these foreign countries operates under the Caymans
      Island Dollar, both of which have historically had an exchange rate fixed to
      the
      U.S. dollar but there can be no assurance that this will continue. If the
      Netherlands Antilles Guilder and/or the Caymans Island Dollar is allowed to
      float this would lead to an increase in foreign exchange volatility and risk
      which could have a materially adverse effect on our business, financial
      condition and operating results. There is also the possibility these three
      foreign countries that function under currencies other than the U.S. dollar
      could devalue their currency against the U.S. dollar at any time and if this
      was
      to occur there could be a materially adverse effect on our business, financial
      condition and operating results.





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
      did
      not have any derivative financial instruments as of October 1,
      2006.








**ITEM
                4.**
            **CONTROLS
                AND PROCEDURES**





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-15(e) promulgated under the Securities Exchange Act of 1934,
      as
      amended, as of October 1, 2006. Based on this evaluation, our principal
      executive officer and principal financial officer concluded that our disclosure
      controls and procedures were effective as of such date.


18


**PART
      II - OTHER INFORMATION**







**ITEM
                1A.**
            **RISK
                FACTORS**





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 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.





*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 September 2006
      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 results of operations.
      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 results
      of operations. 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.





*Our
      ability to operate profitably in existing markets and to expand into new markets
      may be adversely 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 competitive 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. For example, Costco opened a new store in
      Kauai on October 17, 2006, which will likely cause our gross margin and
      operating income for our Kauai store to be lower in fiscal 2006 due to the
      increased competition and reduced market share and the actions we may be
      required to take to remain competitive in Kauai. 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.





*One
      or more of our stores may be damaged or destroyed by volatile weather conditions
      or natural disasters, which would severely harm our business and financial
      results.*





Our
      stores are primarily located on islands subject to volatile weather conditions
      and natural disasters, such as tsunamis, hurricanes, floods, typhoons and
      earthquakes. If the islands on which any of our stores is located experienced
      any of these or other severe weather conditions or natural disasters, one or
      more of our stores could be damaged significantly or destroyed. For example,
      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 and our Dededo store had to
      be
      closed for reconstruction. Additionally, we have four stores in the Caribbean,
      which has experienced increased activity from hurricanes and tropical storms
      in
      the past few years. The damage or destruction of one or more of our stores
      would
      materially harm our business, operating results and financial condition. We
      could also experience business interruptions, delays in shipping, delays in
      construction or loss of life as a result of severe weather conditions, any
      of
      which could materially affect our business.


19


*If
      we
      were to experience a catastrophic loss as a result of severe weather conditions
      or otherwise, we may exceed our insurance policy limits and we may have
      difficulty obtaining similar insurance coverage in the future.*





We
      maintain property, casualty and business interruption insurance coverage in
      amounts we consider customary in our industry for these types of events.
      However, insurance payments generally do not fully reimburse us for all of
      the
      damages and lost profits caused by adverse weather events. If any insurance
      reimbursement we receive does not fully cover the losses and business
      interruption caused by severe weather events or natural disasters, or if our
      insurance coverage is not adequate to cover such losses or we exceed our
      insurance policy limits, we may be required to pay substantial amounts and
      our
      financial condition and liquidity would suffer.





Additionally,
      we utilize a combination of insurance policies and self-insurance mechanisms
      to
      provide for the potential liabilities for property insurance, general liability,
      director and officers’ liability, workers’ compensation and employee health care
      insurance. The costs related to obtaining our current insurance coverage have
      been increasing. If the costs of maintaining this insurance coverage continue
      to
      increase significantly, we would experience an associated increase in our store
      and administrative expenses that may negatively impact our results of
      operations. In addition, there is no assurance as to how casualty insurance
      carriers may react to increasing weather related damages in areas where our
      stores are located. If we are unable to maintain our current or similar
      insurance coverage, or if an event were to occur that was not covered by our
      current insurance policy coverage levels (including acts of terrorism, war
      and
      actions such as government nationalizations), our business and results of
      operations could suffer.





*If
      energy costs and fuel surcharges continue to rise, the profitability of our
      stores may decline and our business and financial condition could
      suffer.*





We
      have
      experienced increasing energy and fuel surcharge costs over the last few years
      and have largely been able to pass these additional costs on to our customers
      with higher prices. For example, during the 39 weeks ended October 1, 2006,
      our
      energy (utility) expenses were approximately 21% higher than the same period
      in
      fiscal 2005. If these costs continue to rise, we may not be able to continue
      the
      practice of passing on these additional costs to our customers. Our inability
      to
      effectively pass on these costs to our customers could have a significant
      adverse effect on our business, results of operations and financial
      condition.





*If
      we
      fail to effectively manage the logistical and local operating challenges we
      face
      because our business primarily consists of island and international operations,
      our business and results of operations would suffer.*





Our
      net
      sales from island operations represented approximately 94.5% of our total net
      sales for fiscal 2005. 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. In addition, island operations involve uncertainties arising from
      items  such
      as:





§
            Changes
                in local labor markets, including unionization and inadequate labor
                pools;


§
            Local
                business practices, language and cultural considerations, including
                the
                capacity or willingness of local business and government officials
                to
                provide necessary services;


§
            Ability
                to acquire, install and maintain modern capabilities such as dependable
                and affordable electricity, telephone, computer, Internet and satellite
                connections often in undeveloped
                regions;


§
            Currency
                exchange rate fluctuations and repatriation
                restrictions;


§
            Difficulty
                enforcing agreements or protecting intellectual property;


§
            Collection
                of debts and other obligations in foreign countries;
                and


§
            Volatile
                island operating expenses, including
                utilities.





Our
      inability to effectively manage these logistical challenges and local
      uncertainties inherent in our island and international operations could have
      a
      significant adverse effect on our business, results of operations and financial
      condition.





*If
      the countries in which we operate experience a decrease in foreign aid, our
      business could suffer.*





Eight
      of
      our stores are located outside the United States. Some of those locations depend
      on foreign aid to support their local economies. A change in the level of
      foreign aid administered to these countries could have a material adverse effect
      on our business, financial condition and results of operations.





*An
      increase in acts of terrorism or political instability in countries where we
      operate may cause a prolonged decrease in tourism and air travel, which could
      have an indirect but significant impact on our financial performance, operations
      and liquidity.*





20


Because
      our operations are primarily located in 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,
      weather conditions, 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.





*We
      do
      not have operating experience in many of the markets in which we may consider
      opening new stores. If we are unable to adapt our operations to support any
      future expansion plans or if any new stores we open are not profitable, our
      business and financial condition could suffer.*





We
      have
      not opened stores in foreign island markets at a rapid pace. Although we have
      no
      plans to open stores in new markets during 2006, we continue to explore
      expansion opportunities in selected markets and additional relocation
      opportunities for stores in existing markets. For example, in May 2005 we moved
      our St. Croix store into a newly constructed building on a parcel of land
      located closer to the main trade area in the center of the island than our
      former store. Additionally, on April 25, 2006, we announced that we had entered
      into a long-term lease with the developer of Governor’s Square in Grand Cayman
      to lease land on which to construct and operate a store under the Cost-U-Less
      name through a controlled subsidiary organized in the Cayman Islands. The
      signing of the lease is one in a number of steps that we must undertake before
      we can open a store operating under the Cost-U-Less name in the Cayman Islands.
      Although there are still a number of steps that we have to take before the
      store
      can be opened, we expect to open the store during the first half of 2007. New
      markets such as the Cayman Islands and others we may enter may present
      operational, competitive, regulatory and merchandising challenges that are
      different from those we currently encounter. We do not have operating experience
      in many of the markets in which we may consider opening 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 political turmoil and the resulting economic downturn in Fiji were
      having on the tourist industry. We have encountered, and may continue to
      encounter, substantial delays, increased expenses or loss of potential store
      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 adapt our operations to support our future expansion plans or that any 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 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 foresee 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 or any foreign
      countries in which we currently or will operate, could have a material adverse
      effect on our business, financial condition and results of
      operations.





*The
      loss of key personnel or our inability to successfully hire skilled store
      managers 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. Additionally, we rely significantly
      on the skill and expertise of our on-site store managers, particularly in island
      markets where language, education and cultural factors may impose additional
      challenges. We do not carry key-man life insurance on any of our personnel.
      There can be no assurance that we will be able to hire, train and retain skilled
      managers and personnel to support our existing business and any growth, or
      that
      we will be able to retain the services of our executive officers and other
      key
      employees, the loss of any of whom could have a material adverse effect on
      our
      business, financial condition and results of operations.





*If
      our information systems are disrupted, our business and results of operations
      could suffer.*





Our
      business is highly dependent on communications and information systems,
      primarily systems provided by third-party vendors. 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 results of operations.





21


*If
      our store employees decided to become unionized, we may experience increased
      operating costs or other operation problems.*





None
      of
      our employees are currently covered by a collective bargaining agreement.
      However, several of our hourly employees in our St. Maarten store have joined
      the local union. Unionization of any of our stores could result in higher
      employee compensation and restrictive working condition demands that could
      increase our operating costs and have a material adverse effect on our business,
      financial condition and results of operations.





*We
      are subject to various governmental regulations and licensing requirements,
      which may have an adverse effect on our business.*





Governmental
      regulations and licensing requirements 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.
      For example, in July 2005 the Cayman Islands Trade and Business Licensing Board
      granted approval for us to operate a retail and wholesale business in the Cayman
      Islands through a controlled subsidiary. However, this is the first in a series
      of steps that we must take before we can open a store operating under the
      Cost-U-Less name in the Cayman Islands. Additionally, our ability to compete
      may
      be adversely affected by foreign governmental regulations and licensing
      requirements that encourage or mandate the employment of citizens of, or
      purchase of supplies 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. If governmental regulations
      or
      licensing requirements prevent or delay our entry into market, require
      modification of our existing operations, or subject us to taxation or currency
      repatriation issues, our business, financial condition and results of operations
      could suffer.





*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:





§
            Isolation
                of store operations from corporate management and an increased dependence
                on store managers;


§
            Diminished
                ability to oversee employees, which may lead to decreased productivity
                or
                other operational problems;


§
            Construction
                delays or difficulties caused by inadequate supervision of the
                construction process; and


§
            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 results of operations.





*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:





§
            Substantial
                lags between the procurement and delivery of product, thus complicating
                merchandising and inventory control
                methods;


§
            Possible
                loss of product due to potential damage to, or destruction of, ships
                or
                containers delivering our goods;


§
            Tariff,
                customs and shipping regulation issues;


§
            Substantial
                ocean freight and duty costs;


§
            Port
                and container security issues; and


§
            Interruption
                in the delivery of product due to labor disruption or weather related
                issues.





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 results of
      operations.





22


*Our
      failure to adequately address barriers and challenges associated with expansion
      outside of the United States or its territories could cause our business to
      suffer.*





Three
      of
      our stores are located outside the United States or its territories. Our future
      expansion plans may involve entry into additional foreign countries, which
      may
      involve additional or heightened barriers 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. The failure to adequately
      address the additional challenges involved with international operations could
      have a material adverse effect on our business, financial condition and results
      of operations.





*Certain
      provisions in our charter documents and elsewhere* ** *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.








**ITEM
                6.**
            **EXHIBITS**







**Exhibit**
              **No.**
            **Description**31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 200232.2
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002







23


**SIGNATURES**







Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.








COST-U-LESS,
                INC.Date:November
                13,
                2006
            /s/
                J. Jeffrey MederJ.
                Jeffrey MederPresident
                and Chief Executive OfficerDate:
                November 13, 2006
            /s/
                Martin P. MooreMartin
                P. MooreChief
                Financial Officer























24