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 SEPTEMBER 28, 2003

                                       OR

/_/  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            (I.R.S. Employer Identification No.)
 incorporation or organization)

                    8160 304th Avenue S.E., Bldg. 3, Suite A
                            PRESTON, WASHINGTON 98050
               (Address of principal executive office) (Zip Code)

                                 (425) 222-5022
              (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 |_| NO.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_| YES |X| NO

The registrant had 3,606,376 common shares, par value $0.001, outstanding at
November 7, 2003.
<PAGE>

                                COST-U-LESS, INC.

                               INDEX TO FORM 10-Q
<TABLE>
<S>        <C>          <C>                                                                                    <C>
PART I.    FINANCIAL INFORMATION

           Item 1.      Financial Statements (Unaudited)
                        Condensed Consolidated Statements of Operations........................................ 3
                        Condensed Consolidated Balance Sheets.................................................. 4
                        Condensed Consolidated Statements of Shareholders' Equity.............................. 5
                        Condensed Consolidated Statements of Cash Flows........................................ 6
                        Notes to Condensed Consolidated Financial Statements................................... 7

           Item 2.      Management's Discussion and Analysis of Financial Condition and Results of Operations.. 12

           Item 3.      Quantitative and Qualitative Disclosures About Market Risk............................. 23

           Item 4.      Controls and Procedures................................................................ 23

PART II.   OTHER INFORMATION

           Item 6.      Exhibits and Reports on Form 8-K....................................................... 24

SIGNATURES              ....................................................................................... 25
</TABLE>


                                       2
<PAGE>

                         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)
<TABLE>
<CAPTION>
                                                                13 Weeks Ended            39 Weeks Ended
                                                                --------------            --------------
                                                         September 28,  September 29, September 28, September 29,
                                                               2003         2002         2003          2002
                                                            ---------    ---------    ----------    ---------
                                                            <C>          <C>          <C>           <C>
Net sales.................................................  $  42,258    $  43,215    $ 126,602     $ 130,878
Merchandise costs.........................................     34,498       35,787      104,070       109,471
                                                            ---------    ---------    ----------    ---------
Gross profit..............................................      7,760        7,428       22,532        21,407

Operating expenses:
     Store................................................      5,426        5,533       16,094        16,627
     General and administrative...........................      1,568        1,364        4,708         4,421
     Store openings.......................................        160            2          208            14
                                                            ---------    ---------    ----------    ---------
Total operating expenses..................................      7,154        6,899       21,010        21,062
                                                            ---------    ---------    ---------     ---------

Operating income..........................................        606          529        1,522           345

Other income (expense):
     Interest expense, net................................       (114)         (84)        (319)         (287)
     Other................................................        (11)        (103)         160            91
                                                            ---------    ---------    ----------    ---------
Income before income taxes................................        481          342        1,363           149

Income tax provision......................................        200          135          550            60
                                                            ---------    ---------    ---------     ----------
Net income................................................  $     281    $     207    $     813     $      89
                                                            =========    =========    =========     =========

Earnings per common share:
     Basic................................................  $     0.08   $     0.06   $     0.23    $     0.02
                                                            ==========   ==========   ==========    ==========
     Diluted..............................................  $     0.08   $     0.06   $     0.22    $     0.02
                                                            ==========   ==========   ==========    ==========

Weighted average common shares outstanding, basic            3,606,376     3,606,376   3,606,376     3,606,376
                                                            ==========   ===========  ==========    ==========
Weighted average common shares outstanding, diluted........  3,703,041    3,630,341    3,652,983     3,611,129
                                                            =========    ==========   ==========    ==========
</TABLE>

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


                                       3
<PAGE>

                                COST-U-LESS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                       September 28,  December 29,
                                                                                            2003         2002
                                                                                          --------     --------
                                        ASSETS
                                        ------
<S>                                                                                       <C>          <C>
Current assets:
     Cash and cash equivalents..........................................................  $  3,121     $  2,383
     Insurance receivable...............................................................       706        1,460
     Accounts receivable, net...........................................................     1,506        2,517
     Inventories, net...................................................................    21,882       18,626
     Other current assets...............................................................     1,443          911
                                                                                          --------     --------
          Total current assets..........................................................    28,658       25,897

Property and equipment, net.............................................................    12,850       13,510
Deposits and other assets...............................................................       778          783
                                                                                          --------     --------

          Total assets..................................................................  $ 42,286     $ 40,190
                                                                                          ========     ========

                          LIABILITIES AND SHAREHOLDERS' EQUITY
                          ------------------------------------

Current liabilities:
     Line of credit.....................................................................  $  3,394      $ 2,367
     Accounts payable...................................................................    15,736       15,449
     Accrued expenses and other liabilities.............................................     3,388        3,107
     Current portion of long-term debt..................................................       267          267
                                                                                          --------     --------
          Total current liabilities.....................................................    22,785       21,190

Other long-term liabilities.............................................................       551          594
Long-term debt, less current portion....................................................     2,611        2,811
                                                                                          --------     --------
          Total liabilities.............................................................    25,947       24,595

Commitments and contingencies

Shareholders' equity....................................................................    16,339       15,595
                                                                                          --------     --------

          Total liabilities and shareholders' equity...................................   $ 42,286     $ 40,190
                                                                                          ========     ========
</TABLE>

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


                                       4
<PAGE>

                                COST-U-LESS, INC.

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

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                           Common      Common                   Other
                                                           Stock--     Stock--     Retained  Comprehensive
                                                           Shares      Amount      Earnings       Loss        Total
                                                          ---------     -------     ------       ------     -------
<S>                                                       <C>           <C>         <C>          <C>        <C>
Balance at December 30, 2001............................. 3,606,376     $12,446     $3,557       $ (662)    $15,341
     Net income..........................................        --          --         89           --          89
     Foreign currency translation adjustments............        --          --         --          (21)        (21)
         Comprehensive income............................                                                   -------
                                                                                                                 68
                                                          ---------     -------     ------       ------     -------
Balance at September 29, 2002............................ 3,606,376     $12,446     $3,646       $ (683)    $15,409
                                                          =========     =======     ======       ======     =======

Balance at December 29, 2002............................. 3,606,376     $12,446     $3,842       $ (693)    $15,595
     Net income..........................................        --          --        813           --         813
     Foreign currency translation adjustments............        --          --         --          (69)        (69)
                                                                                                            -------
         Comprehensive income............................                                                       744
                                                          --------      -------     ------       ------     -------
Balance at September 28, 2003............................ 3,606,376     $12,446     $4,655       $ (762)    $16,339
                                                          =========     =======     ======       ======     =======
</TABLE>

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


                                       5
<PAGE>

                                COST-U-LESS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                    39 Weeks Ended
                                                                                                    --------------
                                                                                               September 28,September 29,
                                                                                                   2003         2002
                                                                                                   ----         ----
<S>                                                                                               <C>          <C>
OPERATING ACTIVITIES:
     Net income ..........................................................................        $   813      $    89
     Adjustments to reconcile net income to net cash provided (used)
       by operating activities:
          Depreciation and amortization...................................................          1,257        1,385
          Writedown of property and equipment.............................................            312           34
          Deferred tax benefit............................................................             --          (65)
     Changes in operating assets and liabilities:
          Insurance receivable............................................................            799           --
          Accounts receivables............................................................          1,011            5
          Inventories.....................................................................         (3,256)        (558)
          Other current assets............................................................           (532)        (248)
          Deposits and other assets.......................................................              5           22
          Accounts payable................................................................            287         (864)
          Accrued expenses and other liabilities..........................................            394       (1,446)
          Other long-term liabilities.....................................................            (43)           8
                                                                                                   ------      -------
               Net cash provided (used) by operating activities...........................          1,047       (1,638)

INVESTING ACTIVITY:
     Cash used to purchase property and equipment.........................................           (996)        (423)

FINANCING ACTIVITIES:
     Net borrowings under line of credit..................................................          1,027        1,149
     Principal payments on long-term debt.................................................           (200)        (200)
                                                                                                  --------     -------
               Net cash provided by financing activities..................................            827          949

     Foreign currency translation adjustments.............................................           (140)         (21)
                                                                                                  --------     -------

Net increase (decrease) in cash and cash equivalents......................................            738       (1,133)

Cash and cash equivalents:
     Beginning of period..................................................................          2,383        2,660
                                                                                                  --------     -------
     End of period........................................................................        $ 3,121      $ 1,527
                                                                                                  ========     =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
          Interest........................................................................        $   321       $  296
          Income taxes....................................................................        $   475       $  170
     Cash received during the period for:
          Income taxes....................................................................        $    67           --
</TABLE>

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


                                       6
<PAGE>

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

   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 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 December 29, 2002, 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 of America have been condensed or omitted pursuant
to SEC rules and regulations on quarterly reporting. Operating results for the
13 and 39 weeks ended September 28, 2003, 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 April 11, 2003.

   Fiscal Year

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

   Principles of Consolidation

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

   Foreign Currency Translations and Comprehensive Income

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


                                       7
<PAGE>

                                COST-U-LESS, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)

                                   (Unaudited)

   Use of Estimates

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

Stock-Based Compensation

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

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

     Had the stock option compensation expense for the Company's stock option
plans been determined based on the fair value at the grant dates for options
granted in the 13 weeks and 39 weeks ended September 28, 2003 and September 29,
2002, consistent with the fair value methods of SFAS No. 123, the Company's net
income and earnings per share amounts would have been reduced to these pro-forma
amounts (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                          13 Weeks Ended             39 weeks Ended
                                                                          --------------             --------------
                                                                     Sept. 28,    Sept. 29,      Sept. 28,   Sept. 29,
                                                                        2003         2002          2003       2002
                                                                        ----         ----          ----       ----
<S>                                                                     <C>          <C>           <C>        <C>
Net income as reported.............................................     $ 281        $ 207         $ 813      $  89
Less:  Total stock-based employee compensation expense
       determined under fair value method for all awards,
       net of tax...................................................       69           36           104         95
                                                                        -----        -----         -----      -----
Proforma Net income................................................     $ 212        $ 171         $ 709      $  (6)
                                                                        =====        =====         =====      =====

Earnings per common share, basic as reported.......................     $0.08        $0.06         $0.23      $0.02
Earnings per common share, basic pro forma.........................     $0.06        $0.05         $0.20      $0.00
Earnings per common share, diluted as reported.....................     $0.08        $0.06         $0.22      $0.02
Earnings per common share, diluted pro forma.......................     $0.06        $0.05         $0.19      $0.00
</TABLE>


                                       8
<PAGE>

                                COST-U-LESS, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)

                                   (Unaudited)

Reclassifications

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

New Accounting Pronouncements

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

      In November 2002, the Emerging Issues Task Force (EITF) released Issue No.
02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor", applicable to the Company for
arrangements entered into beginning in fiscal 2003. The Company records vendor
allowances and discounts in the income statement when the purpose for which
those monies were designated is fulfilled. As such, the adoption of EITF No.
02-16 during fiscal 2003 did not have a material impact on the Company's
consolidated financial statements.

      In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 interprets ARB No. 51,
"Consolidated Financial Statements," as amended by FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries," which requires the
preparation of consolidated financial statements when one entity has a
controlling financial interest in a second entity. FIN 46 specifies disclosures
that are required for financial statements issued after January 31, 2003 but
prior to the effective date of the Interpretation for entities created before
February 1, 2003 and interests in those entities acquired before that date, as
well as disclosures that will be required for financial statements of primary
beneficiaries and others with variable interests in variable interest entities
issued after the effective date. The Company believes its adoption of this new
accounting standard will not have a material impact on the Company's results of
operations or financial position, as the Company does not have variable interest
entities.

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

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


                                       9
<PAGE>

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.

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

<TABLE>
<CAPTION>
                                                                        13 Weeks Ended               39 weeks Ended
                                                                        --------------               --------------
                                                                   Sept. 28,    Sept. 29,        Sept. 28,      Sept. 29,
                                                                      2003         2002            2003           2002
                                                                      ----         ----            ----           ----
<S>                                                               <C>             <C>              <C>            <C>
Numerator:
     Net income..............................................     $      281      $      207       $      813     $      89
                                                                  ==========      ==========       ==========     =========
Denominator:
     Denominator for basic earnings per share--weighted
        average shares.......................................      3,606,376       3,606,376        3,606,376      3,606,376
Effect of dilutive common equivalent shares:
     Stock options and warrants..............................         96,665          23,965           46,607          4,753
                                                                  ----------      ----------       ----------     ----------
     Denominator for diluted earnings per share--adjusted
        weighted average shares and assumed conversion of
        stock options and warrants...........................      3,703,041       3,630,341        3,652,983      3,611,129
                                                                  ==========      ==========       ==========     ==========
Basic earnings per common share..............................     $     0.08      $     0.06       $     0.23     $     0.02
Diluted earnings per common share............................     $     0.08      $     0.06       $     0.22     $     0.02
</TABLE>

3.   Insurance Receivable

     On December 8, 2002, the Company's two stores on the island of Guam
suffered damage from Supertyphoon Pongsona, resulting in the immediate closure
of both stores. The Company's Tamuning store lost its generator in the storm,
but reopened shortly thereafter on December 12th. The Company's Dededo store,
however, suffered more significant damage and had to be closed for
reconstruction. The store was rebuilt and it reopened for business on October 3,
2003. The Company lost inventory, leasehold improvements and equipment as a
result of the supertyphoon. At December 29, 2002, the Company recorded a $1.5
million receivable for losses that it expects to be recovered from insurance.
The receivable represents $0.9 million for inventory losses and $0.6 million for
fixed asset losses. Additionally, the Company recorded a loss of $0.4 million in
Other Expense during fiscal 2002, which represents the amount of inventory
losses and other expenses that are not expected to be recovered from insurance.
As of September 28, 2003, the Company had received $1.2 million from its
insurance companies; $0.4 million of which was transferred to its landlord to
cover costs related to the new Dededo building.


                                       10
<PAGE>

                                COST-U-LESS, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)

                                   (Unaudited)

4.   Line of Credit

      On April 9, 2003, the Company entered into a line of credit with Wells
Fargo Business Credit that has a three year term, expiring on April 9, 2006. The
line of credit consists of a $6.0 million committed, secured revolving credit
line with a sublimit for letters of credit and bankers acceptances in the amount
up to $0.5 million. At September 28, 2003, there were $3.4 million in borrowings
outstanding on the line of credit, $0.3 million utilized for standby letters of
credit and $0.1 million set aside for other reserves.

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

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

5.   Commitments and Contingencies

     Legal Proceedings

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


                                       11
<PAGE>

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. Factors that could affect our actual results
include, but are not limited to: (i) competition; (ii) a decline in general
economic conditions, (iii) risks associated with a small store base; (iv)
fluctuations in foreign currency; (v) isolation of store operations from
corporate management; (vi) challenges associated with island and international
operations; (vii) dependence on, and uncertainties associated with, expansion
outside the U.S.; (viii) transportation difficulties; (ix) weather and other
risks associated with island operations; (x) implementation of growth strategy;
(xi) dependence on key personnel and local managers; (xii) ability to maintain
existing credit and obtain additional credit; (xiii) reliance on information and
communication systems provided by third-party vendors; and (xiv) ability to
utilize tax benefits. The September 11, 2001 terrorist attacks on the United
States of America, hostilities in the Middle East, other acts of war or
hostility, the effects on consumer demand, the financial markets, product supply
and distribution and other conditions increase the uncertainty inherent in
forward-looking statements. 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 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
year ended December 29, 2002, which was filed on April 11, 2003 with the
Securities 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 year ended December 29, 2002.

     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

     During the 39 weeks ended September 28, 2003, we operated ten retail stores
as follows: two stores in Hawaii and one store in each of Guam, St. Thomas, St.
Croix, American Samoa, Fiji, Curacao, St. Maarten and Sonora, California. On
December 8, 2002, our two stores on the island of Guam suffered damage from
Supertyphoon Pongsona, resulting in the immediate closure of both stores. Our
Tamuning store lost its generator in the storm, but reopened shortly thereafter
on December 12th. Our Dededo store, however, suffered more significant damage
and had to be closed for reconstruction. The store was rebuilt and it reopened
for business on October 3, 2003.

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

     Our management focus relative to our core island store operations includes
reviewing our merchandising strategies, both those that apply to all stores and
those specific to each store in light of the different conditions in each
market. Currently, we have no plans to open new stores during 2003 other than
the reopening of our Dededo, Guam store. However, we are in the process of
analyzing opportunities for future expansion. While we believe these actions can
improve profitability, there can be no assurance that these actions will be
successful.

       We also continue to explore ways to maximize long-term value for our
shareholders, including focusing on efforts to increase earnings, responding to
competition, and improving same store sales and gross margins. We believe the
number of new


                                       12
<PAGE>

island markets with the attributes for our existing growth strategy is limited
as a result of, among other things, changing market conditions. We are currently
evaluating alternative methods of implementing future expansion.

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

Results of Operations

       We reported net income of $281,000 for the 13 weeks ended September 28,
2003, compared to net income of $207,000 for the same period in fiscal 2002. The
improvement in net income was primarily due to improved gross profit.

Comparison of the 13 Weeks and 39 weeks Ended September 28, 2003 to the 13 Weeks
and 39 weeks Ended September 29, 2002:

         Net Sales: Net sales of $42.3 million for the 13 weeks ended September
28, 2003, declined 2.2%, or $0.9 million, compared with net sales of $43.2
million in the same period in the prior year. For the 39 weeks ended September
29, 2003, net sales of $126.6 million were 3.3% lower than the $130.9 million of
sales for the same period in the prior year. The decline in net sales was mostly
due to the temporary closing of our Dededo store in Guam after it suffered
significant damage from Supertyphoon Pongsona that swept through the island on
December 8, 2002. Sales lost due to the temporary closure of our Dededo store in
Guam were largely offset by increases in most of our other stores. The
reconstruction of our Dededo store has been completed and it reopened for
business on October 3, 2003. Approximately, one percentage-point of the decline
in net sales for the 13 and 39 weeks ended September 28, 2003, was a result of a
continued decrease in business-to-business sales as compared to the prior year.
We expect the level of business-to-business activity during the remainder of
fiscal 2003 to be consistent with current levels.

       Comparable-store sales (stores open for a full 13 months) increased 9.9%
for the 13 weeks and 6.2% for the 39 weeks ended September 28, 2003.
Comparable-store sales are calculated on stores excluding the Guam market as our
remaining store in Tamuning, Guam benefited from the temporary closure of our
Dededo store. Including the Tamuning store, same store sales increased 11.4% and
9.6% for the 13 and 39 weeks ended September 28, 2003, repectively. A majority
of our stores experienced increased sales in the 13 weeks and 39 weeks ended
September 28, 2003, as compared to the same periods in the prior year primarily
due to improved merchandising, including a better assortment of food and general
merchandise.

      Gross Profit: Gross profit of $7.8 million, or 18.4% of sales, for the 13
weeks ended September 28, 2003, increased as compared to gross profit of $7.4
million, or 17.2% of sales, in the same period in the prior year. Gross profit
increased to $22.5 million, or 17.8% of sales, for the 39 weeks ended September
28, 2003, as compared to gross profit of $21.4 million, or 16.4% of sales, in
the same period in the prior year. The improvement in gross profit resulted from
several factors including better sourcing, pricing, merchandising and mix of
goods in our stores. Gross profit percent also improved as a result of lower
business-to-business sales, which typically provide a lower gross margin but are
executed at minimal direct expense.

       Store expenses: Store expenses decreased to $5.4 million for the 13 weeks
and $16.1 million for the 39 weeks ended September 28, 2003, as compared to $5.5
million and $16.6 million for the same periods in the prior year. This decrease
in store expenses was attributable to the temporary closure of our Dededo store,
which more than offset increases in payroll and related costs, insurance,
utilities and bank/bankcard fees at our other ten stores. As a percentage of
sales, store expenses remained flat at 12.8% of net sales for the 13 weeks and
12.7% of net sales for the 39 weeks ended September 28, 2003, compared to the
same periods in the prior year.

       General and administrative expenses: General and administrative expenses
of $1.6 million and $4.7 million for the 13 weeks and 39 weeks ended September
28, 2003, respectively, were slightly higher that the $1.4 million and $4.4
million for the 13 and 39 weeks in the comparable periods in the prior year.
General and administrative expenses as a percent of sales increased slightly to
3.7% of sales for both the 13 weeks and 39 weeks ended September 28, 2003,
compared to 3.2% and 3.4% in the same periods in the prior year. The increase in
general and administrative expenses as a percentage of sales was primarily
attributable to transaction costs incurred in connection with our discussions
with ASSI regarding various strategic transactions. On November 3, 2003, we
announced that discussions with ASSI had been terminated.

       Store opening expenses: Store opening expenses were $160,000 and $208,000
for the 13 weeks and 39 weeks ended September 28, 2003, respectively, as
compared to $2,000 and $14,000 for the 13 and 39 week periods in the prior year.
Store


                                       13
<PAGE>

opening expenses in the 13 weeks ended September 28, 2003, primarily related to
costs associated with the reopening of our Dededo, Guam store. The other store
opening expenses in 2003 and those incurred in 2002 relate to costs associated
with the evaluation of potential new store locations. We expect store opening
expenses in fiscal 2003 to be higher than those incurred in fiscal 2002 as we
evaluate alternative methods of implementing future expansion and as a result of
the reopening of our Dededo store.

       Interest expense, net: Interest expense, net increased to $114,000 and
$319,000 for the 13 weeks and 39 weeks ended September 28, 2003, respectively,
as compared to $84,000 and $287,000 for the 13 and 39 week periods in the prior
year. The increase was primarily due to commitment fees and the higher interest
rate (approximately 1.5% higher than 2002) associated with our new line of
credit entered into on April 9, 2003.

     Other income/(expense): Other income/(expense) of ($11,000) and $160,000
for the 13 weeks and 39 weeks ended September 28, 2003, respectively, as
compared to ($103,000) and $91,000 for the 13 and 39 week periods in the prior
year was primarily attributable to gains and losses on foreign currency
transactions and translation of intercompany balances for transactions that
exceed the permanent investments in those countries. The other income in the 39
week periods in both years was primarily attributable to appreciation in the
Fijian dollar as compared to the U.S. offset by the cost of exchanging foreign
currency into U.S. dollars.

       Income tax provision: The tax provisions and benefits for the 13 and 39
week periods ended September 28, 2003, and September 29, 2002, primarily
represented taxes and tax benefits associated with income or losses generated in
the U.S. and U.S. Territories. Our effective tax rate is higher than the
expected federal statutory rate because no tax benefits were provided on 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.

       Net income: Net income was $281,000, or $0.08 per fully diluted share,
for the 13 weeks ended September 28, 2003, compared to net income of $207,000,
or $0.06 per fully diluted share, in the same period in the prior year. Our net
income was $813,000, or $0.22 per fully diluted share, for the 39 weeks ended
September 28, 2003, compared to net income of $89,000, or $0.02 per fully
diluted share, in the same period in the prior year. The improvement in net
income was primarily due to improved gross profit.

Liquidity and Capital Resources

       We currently finance our operations with proceeds from various credit
facilities, and internally generated funds. We generated $1.0 million of net
cash from operations during the 39 weeks ended September 28, 2003, as compared
to utilizing $1.6 million in the same period in the prior year. In the 39 weeks
ended September 28, 2003, cash was generated from store operations, the receipt
of a net $0.8 million of the receivable from our insurance companies related to
the damage our Guam stores suffered from Supertyphoon Pongsona in December 2002
and the receipt of payments on other accounts receivable, which more than offset
the cash used to increase inventory levels.

       Net cash used in investing activities was $1.0 million for the 39 weeks
ended September 28, 2003, as compared to $0.4 million for the same period in the
prior year. The increase in cash used was primarily do to the costs associated
with rebuilding our Dededo, Guam store that opened on October 3, 2003. We
currently have no plans to open new stores in 2003, but we continue to analyze
opportunities for new stores in the future. As a result, our capital expenditure
requirements for the remainder of 2003 are projected to be approximately $0.8
million, primarily related to the acquisition of equipment for our Dededo, Guam
store and general store improvements.

       Net cash provided by financing activities decreased slightly to $0.8
million for the 39 weeks ended September 28, 2003, as compared to $0.9 million
in the same period in the prior year. Our current ratio improved to 1.24 at
September 28, 2003, as compared to 1.22 at December 29, 2002, and 1.16 at
September 29, 2002.

      On April 9, 2003, we entered into a line of credit with Wells Fargo
Business Credit that has a three year term, expiring on April 9, 2006. The line
of credit consists of a $6.0 million committed, secured revolving credit line
with a sublimit for letters of credit and bankers acceptances in the amount up
to $0.5 million. At September 28, 2003, there were $3.4 million in borrowings
outstanding on the line of credit, $0.3 million utilized for standby letters of
credit and $0.1 million set aside for other reserves.

      Borrowings are limited to the lesser of $6.0 million or the amount
calculated under the borrowing base. The borrowing base is equal to the lesser
of (a) $6,000,000 or (b) the sum of 70% of eligible inventory in the United
States of America, plus 60% of eligible inventory in the U.S. Virgin Islands and
Guam, less specified reserves. Borrowings under the new line of credit bear
interest at the financial institution's prime rate plus 1.5% (5.5% at September
28, 2003). A fee of 0.25% is charged on the unused


                                       14
<PAGE>

portion of the line of credit. The line of credit contains various covenants,
including a requirement that we maintain minimum pre-tax income and tangible net
worth and limitations on acquisitions, additional debt, change in control and
capital expenditures. We believe that we are currently in compliance with all
such covenants.

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

       During the 39 weeks ended September 28, 2003, a significant portion of
our cash flow was generated by our operations. If our operating results
deteriorate, as a result of a decrease in customer demand or pricing pressures
from our customers or our competitors or for other reasons, our ability to
generate positive cash flow from operations may be jeopardized. We believe that
amounts available under our various credit facilities, existing cash available
for working capital purposes, and cash flow from operations will most likely be
sufficient to fund our operations through the next 12 months. There can be no
assurance that we will be able to obtain additional financing when needed, or
that any available financing will be on terms acceptable to us.

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 year ended
December 29, 2002.

      The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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.

Foreign Currency Translation

     The U.S. dollar is the functional currency for all our locations, except
for Fiji and Netherlands Antilles, where the local currency is the functional
currency. 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 or losses 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 liquidate
operations in that country.


                                       15
<PAGE>

Stock-Based Compensation

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

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.

Recent Accounting Pronouncements

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

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

      In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 interprets ARB No. 51,
"Consolidated Financial Statements," as amended by FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries," which requires the
preparation of consolidated financial statements when one entity has a
controlling financial interest in a second entity. FIN 46 specifies disclosures
that are required for financial statements issued after January 31, 2003 but
prior to the effective date of the Interpretation for entities created before
February 1, 2003 and interests in those entities acquired before that date, as
well as disclosures that will be required for financial statements of primary
beneficiaries and others with variable interests in variable interest entities
issued after the effective date. We believe the adoption of this new accounting
standard will not have a material impact on our results of operations or
financial position, as we do not have variable interest entities.

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

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


                                       16
<PAGE>

Risk Factors That May Affect Future Results

     You should carefully consider the following factors that may affect future
results and other information included in this quarterly 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.

     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. We have historically faced significant competition from warehouse
clubs and discount retailers, such as Wal-Mart and Costco in Hawaii, and from
Kmart in the U.S. Virgin Islands and Guam. Our competition also consists of
discount retailers and other national and international grocery store chains.
Some of our competitors have substantially greater resources, buying power and
name recognition than we have. The cost of doing business in island markets is
typically higher than on the U.S. mainland because of ocean freight and duty
costs and higher facility costs. While we expect that the size of many of the
markets in which we operate or expect to enter will delay or deter entry by many
of our larger competitors, there can be no assurance that our larger competitors
will not decide to enter these markets or that other competitors will not
compete effectively against us. Our gross margin and operating income are
generally lower for those stores in markets where traditional warehouse clubs
and discount retailers also operate stores, due to increased price competition
and reduced market share. We may be required to implement price reductions and
other actions in order to remain competitive in our markets.

     For example, in May 2001, PriceSmart opened a store on St. Thomas, where we
had an established market share. To remain competitive in St. Thomas, among
other things, we implemented a customer rewards program, which presented
customers with merchandise certificates based on the achievement of specified
levels of customer purchases. Additionally, PriceSmart opened a store in Guam in
March of 2002, and as a result, during 2002 we experienced a decline in sales in
Guam. In response, we remodeled our Dededo store and increased our price
competitiveness and marketing activities in Guam. Although PriceSmart has
announced that it will be closing its Guam store at the end of 2003, there is no
assurance that the steps we take in response to increased competition will be
effective. 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. If our larger competitors decide to enter
our existing markets, or if other competitors compete more effectively against
us, our ability to operate profitably in existing markets or to expand into new
markets may be adversely affected.

     A decline in the general economic condition in the United States of America
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. 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
decline in the national or regional economies of the United States of America
and the U.S. Territories where we currently operate or any foreign countries in
which we currently or will operate could have a material adverse effect on our
business, financial condition and operating results.

     Because we have a small store base, adverse store performance or increased
expenses will have a more significant adverse impact on our operating and
financial results than if we had a larger store base. We opened our first store
in 1989 and opened a total of 21 stores through September 2003, and presently
operate eleven stores now that our Dededo, Guam store, previously closed due to
damage sustained from Supertyphoon Pongsona on December 8, 2002, reopened on
October 3, 2003. Our closure of the ten stores has adversely affected our
operating results. Should (i) any new store be unprofitable, (ii) any existing
store experience a significant decline in profitability, or (iii) our general
and administrative expenses increase, the effect on our operating results would
be more significant than would be the case if we had a larger store base, and
could have a material adverse effect on our business, financial condition and
operating results. Although we intend to carefully plan for the implementation
of additional stores, there can be no assurance that such plans can be executed
as envisioned or that the implementation of those plans will not have a material
adverse effect on our business, financial condition and operating results. In
addition, our ability to acquire products at a lower cost than competitors or
obtain volume-based pricing can be adversely affected because of our small store
base.

     Terrorist acts and acts of war may seriously harm our business, revenues,
costs, expenses and financial condition. Terrorist acts or acts of war, wherever
located around the world, may cause damage or disruption to us, our employees,
facilities, suppliers and customers, which could significantly impact our
revenues, expenses and financial condition. The potential for future terrorist
attacks, the national and international responses to terrorist attacks,
hostilities in the Middle East, including Iraq and the Korean peninsula, and
other acts of war or hostility, have created economic and political
uncertainties, which could adversely affect our business and results of
operations in ways that cannot be predicted. In addition, we may encounter
disruption in the


                                       17
<PAGE>

transportation of our products as a result of terrorist attacks or the national
and international responses to terrorist attacks, which would significantly harm
our business.

      Fluctuations in the value foreign currencies could result in variability
in our financial condition or results of operations. Our revenues and expenses
are generally denominated in U.S. Dollars, but our revenues and expenses for our
stores located in Fiji and the Netherlands Antilles are generally denominated in
local foreign currencies. 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), a
component of the Statement of Operations. Fluctuations in exchange rates between
the U.S. Dollar and other currencies could have a material adverse effect on our
business, financial condition or results of operations. To date, we have not
sought to hedge the risks associated with fluctuations in exchange rates as
foreign currency translation gains and losses have not had an adverse effect on
our business, but we may undertake to do so in the future. Any hedging
techniques we implement in the future may not be successful. Exchange rate
fluctuations could also make our products more expensive than competitive
products not subject to these fluctuations, which could adversely affect our
revenues and profitability.

     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 Preston,
Washington; 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:

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

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

     Our business could suffer if we are unable to manage the challenges
associated with island and international operations. Our net sales from island
operations represent approximately 90% of our total net sales. We expect that
our island and international operations together will continue to account for
nearly all of our total net sales. The distance, as well as the time-zone
differences, involved with island locations impose significant challenges to our
ability to manage our operations. Logistical challenges are presented by
operating individual store units in remote locations, whether in terms of
information flow or transportation of goods. Our inability to effectively manage
our island and international operations could have a significant adverse effect
on our business, results of operations and financial condition.

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

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

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


                                       18
<PAGE>

     o  Possible interruption in the delivery of product due to labor
        disruption, terrorist acts or acts of war or other hostilities.

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

     We are exposed to weather and other risks associated with island
operations, which could affect our business and results of our operations. Our
operations are primarily located on islands subject to volatile weather
conditions and natural disasters, which could result in delays in construction
or result in significant damage to, or destruction of, our stores. On December
8, 2002, our two stores on the island of Guam suffered damage from Supertyphoon
Pongsona, resulting in the immediate closure of both stores. Our Tamuning store
lost its generator in the storm, but reopened shortly thereafter on December
12th. Our Dededo store, however, suffered more significant damage and had to be
closed for reconstruction. The store was rebuilt and it reopened for business on
October 3, 2003. We currently maintain insurance we believe prudent and
customary for businesses of our size and type, which provides insurance against
some, but not all, of these risks. There are types of losses we may incur that
cannot be insured against or that we believe are not economically reasonable to
insure, such as losses from climatic conditions. Losses may also be in amounts
in excess of existing insurance coverage. We may not be able to maintain
adequate insurance in the future at rates we consider reasonable and particular
types of coverage may not be available on favorable terms, or at all. An event
that is not fully covered by insurance could have a material adverse effect on
our business and results of operations. In addition, losses from business
interruption may not be adequately compensated by insurance and could have a
material adverse impact on our business, financial condition and results of
operations.

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

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

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

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

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

     We have not opened stores in foreign island markets at a rapid pace. In
fact, since May of 2000, we have closed more stores than we have opened,
including the closure of two stores in New Zealand and one in Fiji. Currently,
we have no plans to open new stores during 2003, other than the October 3, 2003,
reopening or our Dededo, Guam store.

     We do not have operating experience in many of the markets in which we may
open new stores. For example, in June 2000, we closed the two stores that we had
opened in New Zealand in late 1999, due in part to competitive and merchandising
challenges that were different from our other stores. New markets may present
operational, competitive, regulatory and merchandising challenges that are
different from those we currently encounter. We will be required to hire, train
and retain skilled managers and personnel to support any growth, and may
experience difficulties locating store managers and employees who possess
interest in island life, the training and experience necessary to operate our
new stores, including our management


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<PAGE>

information and communications systems, particularly in island markets where
language, education and cultural factors may impose additional challenges.
Further, we have encountered, and may continue to encounter, substantial delays,
increased expenses or loss of potential sites due to the complexities, cultural
differences, and local political issues associated with the regulatory and
permitting processes in the island markets in which we may locate our stores.
There can be no assurance that we will be able to open new stores according to
our business plans, that any new stores we may open will be profitable, or that
we will be able to continue to attract, develop and retain the personnel
necessary to pursue our growth strategy. Failure to do so could have a material
adverse effect on our business, financial condition and operating results.

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

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

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

     We believe that there may be a select number of domestic markets in which
expansion may be successful, but we believe that opening stores in these markets
would involve a high degree of risk. We have had limited operating success in
domestic markets and gradually abandoned our domestic strategy during the
mid-1990s. We believe that expansion in domestic markets would not leverage our
core competencies that we have attained by operating in foreign island markets.
Similarly, our ability to price our products at attractive gross margin levels
that are still lower than most local competitors in island locations might not
hold true in domestic markets where traditional warehouse clubs and discount
retailers also operate stores. We do not currently have sufficient capital to
pursue a rapid growth domestic strategy, so we believe any effort to pursue such
a strategy would require us to raise substantial capital. We believe that we
would at best be able to expand slowly and would initially find it difficult to
leverage synergies and economies of scale in advertising, transportation of
products, logistics and overhead costs across a broad base of domestic stores.
Our pursuit of a domestic growth strategy would involve a high degree of risk
and could adversely affect our business, results of operations and our financial
condition.

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

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

     If we cannot maintain our existing credit facility, our operations and
business would suffer. A significant portion of our cash flow is generated by
our operations. If our operating results deteriorate, as a result of a decrease
in customer demand or severe pricing pressures from our customers or our
competitors, our ability to generate positive cash flow from operations may be
jeopardized. If we are unable to maintain our existing credit facility, there
would be a material adverse effect on our business, financial condition and
results of operation. Additionally, there can be no assurance that we would be
able to obtain additional financing when needed, or that any available financing
will be on terms acceptable to us.

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


                                       20
<PAGE>

obtain necessary funds upon acceptable terms, we may be forced to delay
expansion of our business or otherwise curtail our operations and our operations
and business may suffer.

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

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

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

     We may not be able to utilize certain tax benefits, which could have a
material adverse effect on our results of operations. Utilization of Tax
Benefits. Our ability to utilize various tax benefits is dependent on our
ability to generate adequate taxable income in the United States of America and
in foreign jurisdictions. As of December 29, 2002, we had recognized an
aggregate foreign tax benefit of $2.6 million on foreign operating losses and a
corresponding valuation allowance of $2.4 million. Approximately one-half of the
Net Operating Losses ("NOL's") will begin expiring in the year 2006. The
remaining NOL's were generated in Curacao, St. Maarten and Australia and are not
subject to expiration time limits. Utilization of the tax benefit is dependent
on our generating future taxable income. There can be no assurance that we will
be able to produce adequate future taxable income to utilize this tax benefit,
and failure to generate such income may have a material adverse effect on our
business, financial condition and operating results.

     Certain provisions in our charter documents and otherwise may discourage
third parties from attempting to acquire control of our Company, which may have
an adverse effect on the price of our stock. Pursuant to our Restated Articles
of Incorporation, our Board of Directors has the authority, without 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 restated articles 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.

     On February 23, 1999, our Board of Directors declared a dividend
distribution of preferred share purchase rights (the "Rights") pursuant to a
Shareholder Rights Plan. The Rights initially trade with shares of our common
stock and have no impact upon the way in which shareholders can trade our common
stock. However, if the plan is not waived by our board of directors, ten days
after a person or group acquires 15% or more of our common stock, or such date,
if any, as the Board of Directors may designate after a person or group
commences or publicly announces its intention to commence a tender or exchange
offer which could result in that person or group owning 15% or more of the
common stock (even if no purchases actually occur), the Rights will become
exercisable and separate certificates representing the Rights will be
distributed. The Rights would then begin to trade independently from our shares
at that time. The Rights are designed to cause substantial dilution to a person
or group that attempts to acquire our company without approval of the Board of
Directors, and thereby make a hostile takeover attempt prohibitively expensive
for the potential acquirer. As of September 28, 2003, no rights have become
exercisable. 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.


                                       21
<PAGE>

     We are subject to various governmental regulations, which may have an
adverse effect on our business. Governmental regulations in foreign countries
where we plan to expand our operations might prevent or delay entry into the
market or prevent or delay the introduction, or require modification, of certain
of our operations. Additionally, our ability to compete may be adversely
affected by foreign governmental regulations that encourage or mandate the
employment of citizens of, or purchase of supplies from vendors in a particular
jurisdiction. We may also be subject to taxation in these foreign jurisdictions,
and the final determination of our tax liabilities may involve the
interpretation of the statutes and requirements of the various domestic and
foreign taxing authorities. We may also be subject to currency repatriation
restrictions. There can be no assurance that any of these risks will not have a
material adverse effect on our business, financial condition and operating
results.


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<PAGE>

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. cash or
foreign currencies with minimal trade credit extended and no borrowings exist in
foreign currencies. Cash deposited from sales are remitted back to the U.S. bank
account, routinely.

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

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

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

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
evaluated the effectiveness 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. Based on this evaluation, our principal executive
officer and principal accounting officer concluded that our disclosure controls
and procedures were effective.


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<PAGE>

                           PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

<TABLE>
<CAPTION>
           Exhibit
             No.                                Description
             --                                 -----------
           <S>      <C>
           31.1     Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
           31.2     Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
           32.1     Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
           32.2     Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

(b) Reports on Form 8-K

        o On July 8, 2003, we filed a current report on Form 8-K regarding our
          July 2, 2003, press release, which announced an increase of 4.0% in
          same store sales (stores open a full 13 months), for the fiscal
          quarter ending June 29, 2003.

        o On August 11, 2003, we filed a current report on Form 8-K regarding
          our August 8, 2003, press release, which announced earnings of $0.08
          per share for the fiscal quarter ending June 29, 2003.

        o On October 14, 2003, we filed a current report on Form 8-K regarding
          our October 10, 2003, press release, which updated our previous
          announcement regarding preliminary discussions with ASSI, Inc.
          regarding a potential acquisition by ASSI of all outstanding shares of
          our common stock. We stated in our release that discussions regarding
          an acquisition of all of our outstanding shares are no longer active,
          but the parties are continuing to discuss a potential cash investment
          by ASSI pursuant to the purchase of unregistered newly-issued shares
          of our common stock. We also announced the reopening of our Dededo
          store in Guam on October 3, 2003, and an increase of 9.9% in same
          store sales (stores open a full 13 months) for the fiscal quarter
          ending September 28, 2003.

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


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<PAGE>

                                   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.
                                       (Registrant)

Date   November 11, 2003               /s/  J. Jeffrey Meder
       -----------------------         ----------------------------------------
                                       J. Jeffrey Meder
                                       President and
                                       Chief Executive Officer

Date  November 11, 2003                /s/ Martin P. Moore
      ------------------------         ----------------------------------------
                                       Martin P. Moore
                                       Chief Financial Officer


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