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 MARCH 30, 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 May
7, 2003.

<PAGE>

                                COST-U-LESS, INC.

                               INDEX TO FORM 10-Q
<TABLE>
<S>                                                                                                <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 .................. 21

           Item 4.   Controls and Procedures ..................................................... 21

PART II.   OTHER INFORMATION

           Item 6.   Exhibits and Reports on Form 8-K ............................................ 22

SIGNATURES ....................................................................................... 23

CERTIFICATIONS ................................................................................... 24
</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
                                                             --------------
                                                        March 30,       March 31,
                                                          2003            2002
                                                          ----            ----
<S>                                                    <C>             <C>
Net sales .........................................    $    42,334     $    44,998
Merchandise costs .................................         34,966          37,799
                                                       -----------     -----------
Gross profit ......................................          7,368           7,199

Operating expenses:
     Store ........................................          5,297           5,488
     General and administrative ...................          1,597           1,548
     Store openings ...............................             28              10
                                                       -----------     -----------
Total operating expenses ..........................          6,922           7,046
                                                       -----------     -----------

Operating income ..................................            446             153

Other income (expense):
     Interest expense, net ........................            (93)            (94)
     Other ........................................             23              58
                                                       -----------     -----------
Income before income taxes ........................            376             117

Income tax provision ..............................            150              45
                                                       -----------     -----------
Net income ........................................    $       226     $        72
                                                       ===========     ===========

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

Weighted average common shares outstanding, basic .      3,606,376       3,606,376
                                                       ===========     ===========
Weighted average common shares outstanding, diluted      3,613,792       3,608,512
                                                       ===========     ===========
</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>
                                                                 March 30,  December 29,
                                                                   2003         2002
                                                                   ----         ----
                                       ASSETS
<S>                                                               <C>        <C>
Current assets:
     Cash and cash equivalents ...............................    $ 2,020    $ 2,383
     Insurance receivable ....................................        759      1,460
     Accounts receivable, net ................................      1,758      2,517
     Inventories, net ........................................     19,764     18,626
     Other current assets ....................................      1,398        911
                                                                  -------    -------
          Total current assets ...............................     25,699     25,897

Property and equipment, net ..................................     13,245     13,510
Deposits and other assets ....................................        745        783
                                                                  -------    -------

          Total assets .......................................    $39,689    $40,190
                                                                  =======    =======

                     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Line of credit ..........................................    $ 3,628    $ 2,367
     Accounts payable ........................................     13,745     15,449
     Accrued expenses and other liabilities ..................      2,958      3,107
     Current portion of long-term debt .......................        267        267
                                                                  -------    -------
          Total current liabilities ..........................     20,598     21,190

Other long-term liabilities ..................................        580        594
Long-term debt, less current portion .........................      2,744      2,811
                                                                  -------    -------
          Total liabilities ..................................     23,922     24,595

Commitments and contingencies

Shareholders' equity                                               15,767     15,595
                                                                  -------    -------

          Total liabilities and shareholders' equity .........    $39,689    $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 .............................             --             --             72             --              72
     Foreign currency translation adjustments             --             --             --            (28)            (28)
                                                                                                                ---------
         Comprehensive income ...............                                                                          44
                                                                                                                ---------

                                                   =========      =========      =========      =========       =========
Balance at March 31, 2002 ...................      3,606,376      $  12,446      $   3,629      $    (690)      $  15,385
                                                   =========      =========      =========      =========       =========

Balance at December 29, 2002 ................      3,606,376      $  12,446      $   3,842      $    (693)      $  15,595
     Net income .............................             --             --            226             --             226
     Foreign currency translation adjustments             --             --             --            (54)            (54)
                                                                                                                ---------
         Comprehensive income ...............                                                                         172
                                                                                                                ---------

                                                   =========      =========      =========      =========       =========
Balance at March 30, 2003 ...................      3,606,376      $  12,446      $   4,068      $    (747)      $  15,767
                                                   =========      =========      =========      =========       =========
</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>
                                                                    March 30,     March 31,
                                                                      2003          2002
                                                                      ----          ----
<S>                                                                  <C>           <C>
OPERATING ACTIVITIES:
     Net income ...............................................      $   226       $    72
     Adjustments to reconcile net income to net cash used by
        operating activities:
          Depreciation and amortization .......................          422           473
          Deferred tax benefit ................................           --           (27)
     Cash provided by/(used in) changes in operating assets and
        liabilities:
          Insurance receivable ................................          701            --
          Accounts receivable .................................          759           294
          Inventories .........................................       (1,138)       (1,959)
          Other current assets ................................         (487)         (554)
          Deposits and other assets ...........................           38            (4)
          Accounts payable ....................................       (1,704)         (818)
          Accrued expenses and other liabilities ..............         (149)       (1,390)
          Other long-term liabilities .........................           (7)           (3)
                                                                     -------       -------
               Net cash used by operating activities ..........       (1,339)       (3,916)

INVESTING ACTIVITY:
     Cash used to purchase property and equipment .............         (142)         (111)

FINANCING ACTIVITIES:
     Net borrowings under line of credit ......................        1,261         3,598
     Principal payments on long-term debt .....................          (67)          (66)
                                                                     -------       -------
               Net cash provided by financing activities ......        1,194         3,532

     Foreign currency translation adjustments .................          (76)          (28)
                                                                     -------       -------

Net decrease in cash and cash equivalents .....................         (363)         (523)

Cash and cash equivalents:
     Beginning of period ......................................        2,383         2,660
                                                                     -------       -------
     End of period ............................................      $ 2,020       $ 2,137
                                                                     =======       =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
          Interest ............................................      $    89       $    95
          Income taxes ........................................      $   100       $    70
     Cash received during the period for:
          Income taxes ........................................      $    58            --
</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 Territories ("U.S. Territories"), foreign island
countries in the Pacific and the Caribbean, the Hawaiian Islands and Sonora,
California. At March 30, 2003, the Company operated ten retail stores with an
eleventh store being rebuilt as follows: two stores in each of Hawaii and Guam,
and one store in each of St. Thomas, St. Croix, American Samoa, Fiji, Curacao,
St. Maarten and Sonora, California. On December 8, 2002, the Company's two
stores on the island of Guam suffered damage from the Supertyphoon Pongsona,
resulting in the immediate closure of both stores. The Company's Tamuning store
lost its generator in the storm, but reopened shortly thereafter on December
12th. The Company's Dededo store, however, suffered more significant damage, and
has yet to reopen. The Company believes that the building structure is most
likely a total loss and is currently working with its landlord to rebuild this
store.

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 have been
condensed or omitted pursuant to SEC rules and regulations on quarterly
reporting. Operating results for the 13 weeks ended March 30, 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 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 thirteen weeks ended March 30, 2003 and March 31, 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
                                                                              --------------
                                                                      March 30, 2003   March 31, 2002
                                                                      --------------   --------------
<S>                                                                       <C>              <C>
Net income as reported .........................................          $   226          $    72
Less:  Total stock-based employee compensation expense
              determined under fair value method for all awards,
              net of tax .......................................               18               27
                                                                          -------          -------
Net income pro forma ...........................................          $   208          $    45
                                                                          =======          =======

Earnings per common share, basic as reported ...................          $  0.06          $  0.02
Earnings per common share, basic pro forma .....................          $  0.06          $  0.01
Earnings per common share, diluted as reported .................          $  0.06          $  0.02
Earnings per common share, diluted pro forma ...................          $  0.06          $  0.01
</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 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.

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
                                                                           --------------
                                                                 March 30, 2003      March 31, 2002
                                                                 --------------      --------------
<S>                                                                <C>                 <C>
Numerator:
     Net income .........................................          $      226          $       72
                                                                   ==========          ==========
Denominator:
     Denominator for basic earnings per share--weighted
        average shares ..................................           3,606,376           3,606,376
Effect of potentially dilutive shares:
     Stock options and warrants .........................               7,416               2,136
                                                                   ----------          ----------
     Denominator for diluted earnings per share--adjusted
        weighted average shares and assumed conversion of
        stock options and warrants ......................           3,613,792           3,608,512
                                                                   ==========          ==========

Basic earnings per common share .........................          $     0.06          $     0.02
Diluted earnings per common share .......................          $     0.06          $     0.02
</TABLE>


                                       9
<PAGE>

                                COST-U-LESS, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)

                                   (Unaudited)

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 has yet to reopen. The Company
believes that the building structure is most likely a total loss. 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 March 30, 2003, the Company had received $0.8 million of the receivable
from its insurance companies.

4. Line of Credit

      At March 30, 2003, the Company maintained a $6.75 million line of credit,
as amended, with a commercial bank with an expiration date of April 1, 2003.
Borrowings under the amended line of credit bore interest at the Prime Rate plus
(a) 0% through and including January 1, 2003, (b) 1% from January 2, 2003
through and including February 2, 2003, (c) 2% from February 3, 2003 through and
including March 2, 2003, and (d) 3% from March 3, 2003 and thereafter. A fee of
0.25% was charged on the unused portion of the line of credit. The Prime Rate
was at 4.25% at March 29, 2003.

      At March 30, 2003, the line of credit had $0.2 million utilized for
standby letters of credit, leaving $6.55 million available for operations. At
March 30, 2003, there were $3.6 million in borrowings outstanding on the line of
credit. Collateral for the line of credit consisted of inventories and
equipment. The line of credit contained certain covenants, including the
requirement that the Company maintain minimum tangible net worth and minimum
ratios of current assets to current liabilities, and debt to tangible net worth.
The Company also had to obtain the consent of the lender to (i) pay dividends,
(ii) purchase or sell assets or incur indebtedness, other than in the ordinary
course of business, (iii) make loans to, or investments in, any other person,
(iv) enter into a merger or other business combination, or (v) make capital
expenditures in excess of a specified limit as of and for the year ended
December 30, 2001. In accordance with the terms of this line of credit, the
Company was required to maintain certain financial covenants. As of March 30,
2003, the Company was in compliance with all such covenants.

      Subsequent to March 30, 2003, the Company entered into a replacement line
of credit with Wells Fargo Business Credit. See Note 6 - Subsequent Event.

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.


                                       10
<PAGE>

                                COST-U-LESS, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)

                                   (Unaudited)

6. Subsequent Event

      At March 30, 2003, the Company maintained a $6.75 million line of credit,
as amended, with a commercial bank with an expiration date of April 1, 2003. The
lender informed the Company that it would terminate this credit facility as of
April 1, 2003, but it subsequently extended the terms of the credit facility
until the Company was able to secure a replacement facility. As of April 10,
2003, this line of credit has been satisfied and terminated.

      On April 9, 2003, the Company entered into a replacement line of credit
with Wells Fargo Business Credit that has a three year term, expiring on April
9, 2006. The new 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. 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, plus 60% of eligible inventory in the
U.S. Virgin Islands and Guam, less specified reserves. Borrowings under the
replacement line of credit bear interest at the financial institution's prime
rate plus 1.5%. A fee of 0.25% will be charged on the unused portion of the line
of credit. The replacement 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.


                                       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) transportation difficulties; (ii)
competition; (iii) isolation of store operations from corporate management; (iv)
weather and other risks associated with island operations, (v) dependence on,
and uncertainties associated with, expansion outside the U.S.; (vi) dependence
on key personnel and local managers; (vii) reliance on information and
communication systems provided by third-party vendors; (viii) risks associated
with significant growth; (ix) risks associated with a small store base; (x)
ability to maintain existing credit and obtain additional credit; and (x)
ability to utilize tax benefits. The recent terrorist attacks on the United
States, possible responses by the U.S. government, 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 first fiscal quarter ended March 30, 2003, we operated ten
retail stores with an eleventh store being rebuilt as follows: two stores in
each of Hawaii and Guam, and one store in each of St. Thomas, St. Croix,
American Samoa, Fiji, Curacao, St. Maarten and Sonora, California. On December
8, 2002, our two stores on the island of Guam suffered damage from the
Supertyphoon Pongsona, resulting in the immediate closure of both stores. Our
Tamuning store lost its generator in the storm, but reopened shortly thereafter
on December 12th. Our Dededo store, however, suffered more significant damage,
and has yet to reopen. We believe that the building structure is most likely a
total loss and we are in the process of working with our landlord to rebuild
this store with an expected reopening in late 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.

      We are continuing our focus on our core island store operations by
reviewing our merchandising strategies, both those that apply to all stores and
those specific to each store in light of the different conditions in each
market. Currently, we have no plans to open new stores during 2003 other than
rebuilding our Dededo, Guam store, but 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 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.


                                       12
<PAGE>

Results of Operations

      We reported net income of $226,000 for the fiscal first quarter ended
March 30, 2003, compared to a net income of $72,000 for the same period in
fiscal 2002. The improvement in net income was primarily due to improved gross
margin and lower store expenses.

Comparison of the 13 Weeks Ended March 30, 2003 to the 13 Weeks Ended March 31,
2002

      Net Sales: Net sales of $42.3 million for the first quarter of fiscal
2003, decreased 5.9% as compared to net sales of $45.0 million for the first
quarter of fiscal 2002. The decrease was largely due to the temporary closing of
the Company's Dededo store in Guam after it suffered significant damage from
Supertyphoon Pongsona that swept through the island on December 8, 2002. The
Company is in the process of working with the landlord to rebuild the store and
believes it will be ready to reopen in late 2003. The decline in net sales was
also a result of a decrease in business-to-business sales which were
uncharacteristically strong in the first quarter of fiscal 2002. We expect the
level of business-to-business activity in fiscal 2003 to be consistent with
current levels.

      Comparable-store sales (stores open for a full 13 months) increased 4.6%
for the first quarter of fiscal 2003 as compared to the first quarter of fiscal
2002. Comparable-store sales are calculated on stores excluding the Guam market
as the Company's remaining store in Tamuning, Guam is benefiting from the
temporary closure of the Dededo store. A majority of our stores experienced
increased sales in the first quarter of 2003 as compared to 2002 due primarily
to a better assortment of food and general merchandise.

      Gross Profit: Gross profit of $7.4 million, or 17.4% of sales, for the
first quarter of fiscal 2003, increased as compared to gross profit of $7.2
million, or 16.0% of sales, in the first quarter of fiscal 2002 due primarily to
improved buying, mix of goods, and less markdowns.

      Store expenses: Store expenses of $5.3 million for the first quarter of
fiscal 2003 decreased $0.2 million compared to expenses of $5.5 million for the
first quarter of fiscal 2002. This decrease in store expenses was primarily
attributable to the temporary closure of the Dededo store. As a percentage of
sales, store expenses increased to 12.5% of sales for the first quarter of
fiscal 2003 compared to 12.2% for same period in the prior year primarily due to
higher insurance costs.

      General and administrative expenses: General and administrative expenses
for the first quarter of fiscal 2003 increased slightly to $1.6 million, or 3.8%
of sales, as compared to $1.5 million, or 3.4% of sales, for the first quarter
of fiscal 2002. The slight increase in general and administrative expense
dollars was primarily due to increased audit fees, consulting fees and insurance
costs, partially offset by a decrease in administrative payroll expense. The
increase in general and administrative expenses as a percentage of sales is
primarily attributable to the temporary closure of the Dededo store.

      Store opening expenses: Store opening expenses were $28,000 in the first
quarter of fiscal 2003 compared to $10,000 in the first quarter of fiscal 2002.
Store opening expenses in both periods relate to costs associated with the
evaluation of potential new store locations. We expect store opening expenses in
fiscal 2003 to be slightly higher than those incurred in fiscal 2002 as we
evaluate alternative methods of implementing future expansion.

      Interest expense, net: Interest expense of $93,000 in the first quarter of
fiscal 2003 remained flat as compared to $94,000 in the first quarter of fiscal
2002.

      Other income: Other income in both the first quarter of fiscal 2003 and
fiscal 2002 was primarily attributable to gains on foreign currency
transactions, and translation of intercompany balances for transactions that
exceed the permanent investments in those countries.

      Income tax provision: The tax provisions for the first quarter of fiscal
2003 and fiscal 2002, represent taxes associated with income 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.


                                       13
<PAGE>

      Net income: Net income was $226,000, or $0.06 per share, for the first
quarter of fiscal 2003 compared to a net income for the first quarter of fiscal
2002 of $72,000, or $0.02 per share. Weighted average diluted common shares
outstanding were 3,613,792 for first quarter of 2003 as compared to 3,608,512 in
the same period in the prior year.

Liquidity and Capital Resources

      We currently finance our operations with proceeds from various credit
facilities, and internally generated funds. Net cash used by operations was $1.3
million for the first quarter of fiscal 2003 as compared to $3.9 million in the
first quarter of fiscal 2002. The decrease in cash used by operations in the
first quarter of fiscal 2003, as compared to the same period in the prior year,
was primarily due to the receipt of insurance advances related to the inventory
and equipment damaged by the Supertyphoon on December 8, 2002 and an increase in
payments received on other receivables as compared to the same period in the
prior year.

      Net cash used in investing activities was $0.1 million for both the first
quarter of fiscal 2003 and fiscal 2002. We currently have no plans to open new
stores during fiscal 2003, other than rebuilding our Dededo, Guam store.
However, we continue to analyze opportunities for new stores in the future.

      Net cash provided by financing activities decreased to $1.2 million for
the first quarter of fiscal 2003 as compared to $3.5 million in the first
quarter of fiscal 2002. The decrease was due to reduced borrowings under our
line of credit as a result of lower inventory levels at March 30, 2003 as
compared to March 31, 2002 as a result of the temporary closure of the Dededo
store. Our current ratio has improved to 1.25 at March 30, 2003 versus 1.12 at
March 31, 2002.

      On October 1, 2002, we amended the terms of our line of credit with a
financial institution (1) to extend the term of the line of credit to April 1,
2003 (which date was subsequently extended until we were able to secure a
replacement facility); (2) to reduce the amount of the line from $8.0 million to
$6.75 million; and (3) to change the interest rate on the line of credit to the
Prime Rate plus (a) 0% through and including January 1, 2003, (b) 1% from
January 2, 2003 through and including February 2, 2003, (c) 2% from February 3,
2003 through and including March 2, 2003, and (d) 3% from March 3, 2003 and
thereafter. A fee of 0.25% was charged on the unused portion of the line of
credit. The Prime Rate was at 4.25% at March 30, 2003. At March 30, 2003, we had
$3.6 million in borrowings outstanding on our line of credit and $0.2 million
utilized for standby letters of credit. As of April 10, 2003, this line of
credit has been satisfied and terminated.

      On April 9, 2003, we entered into a replacement line of credit with Wells
Fargo Business Credit that has a three year term, expiring on April 9, 2006. The
new 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. 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, plus 60% of eligible inventory in the U.S.
Virgin Islands and Guam, less specified reserves. Borrowings under the
replacement line of credit bear interest at the financial institution's prime
rate plus 1.5%. A fee of 0.25% will be charged on the unused portion of the line
of credit. The replacement 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.

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

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 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


                                       14
<PAGE>

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.

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, 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.


                                       15
<PAGE>

      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.

Risk Factors That May Affect Future Results

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

      In May 2001, PriceSmart opened a store on St. Thomas, where we have an
established market share. To remain competitive in St. Thomas, among other
things, we implemented a customer rewards program, which presents 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. In response, we remodeled our Dededo store and have increased our price
competitiveness and marketing activities in Guam. During 2002, we experienced a
decline in sales in Guam as a result of the new competitor. There is no
assurance that the steps taken in Guam will cause initial sales losses to
rebound somewhat as they did when similar competition entered our St. Thomas
market. Additionally, 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 has yet to reopen. We believe that the building
structure is most likely a total loss and we are in the process of rebuilding
our Dededo store with an expected reopening in late 2003. As a result of the
temporary closure of our Dededo store, we expect sales in Guam to be negatively
impacted in 2003.

      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.

      A decline in the general economic condition in the United States or in
island markets in which we operate could have a significant impact on our
financial performance. The success of our operations depends to a significant
extent on a number of factors relating to discretionary consumer spending,
including employment rates, business conditions, interest rates, inflation,
population and Gross Domestic Product levels in each of our island markets,
taxation, consumer spending patterns and customer preferences. 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 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.

      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.


                                       16
<PAGE>

      Because we have a small store base, adverse store performance or increased
expenses will have a more significant adverse impact on our operating and
financial results than if we had a larger store base. We opened our first store
in 1989 and opened a total of 21 stores through December 2002, and presently
operate ten stores due to the December 8, 2002 closure of our Dededo, Guam store
as a result of damage sustained from the Supertyphoon Pongsona. We are in the
process of rebuilding our Dededo store. Our closure of the ten other 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.

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

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

      If we are unable to overcome challenges resulting from the isolation of
store operations from our corporate management and our increased dependence on
local managers, we may experience decreased productivity or other operational
problems. Our headquarters and administrative offices are located in 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 89% 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 may encounter disruption in the transportation of our products which
would significantly harm our business. Our island locales require the
transportation of products over great distances on water, which results in the
following:

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


                                       17
<PAGE>

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

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

      We are exposed to weather and other risks associated with island
operations, which could affect our business and results of our operations. Our
operations are primarily located on islands subject to volatile weather
conditions and natural disasters, which could result in delays in construction
or result in significant damage to, or destruction of, our stores. On December
8, 2002, our two stores on the island of Guam suffered damage from Supertyphoon
Pongsona, resulting in the immediate closure of both stores. Our Tamuning store
lost its generator in the storm but reopened shortly thereafter on December
12th. Our Dededo store, however, suffered more significant damage and has yet to
reopen. We believe that the building structure is most likely a total loss. We
are in the process of rebuilding our Dededo store. Losses from business
interruption may not be adequately compensated by insurance and could have a
material adverse impact affect 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 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.


                                       18
<PAGE>

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

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

      We have not opened stores in foreign island markets at a rapid pace.
Currently, we have no plans to open new stores during 2003, other than
rebuilding our Dededo, Guam store. We do not have operating experience in many
of the markets in which we may open new stores. In fact, in June 2000, we closed
the two stores that we had opened in New Zealand in 1999, as they had performed
below expectations, due in part to competitive and merchandising challenges that
are different from our other stores. Additionally, in February 2001, we closed
one of our two Fiji stores, due primarily to the impact that the political
turmoil and resulting economic downturn in Fiji were having on the tourist
industry. New markets may present operational, competitive, regulatory and
merchandising challenges that are different from those we currently encounter.
There can be no assurance that we will be able to adapt our operations to
support our future expansion plans or that our new stores will be profitable.
Any failure on our part to manage our growth could have a material adverse
effect on our business, financial condition and operating results.

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

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

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

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

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

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


                                       19
<PAGE>

      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 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 March 30, 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.

      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.


                                       20
<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 March 30, 2003.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

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

(b) Changes in internal controls.

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


                                       21
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

           Exhibit
             No.                        Description
             ---                        -----------

            99.1        Certification of Chief Executive Officer
            99.2        Certification of Chief Financial Officer

(b)   Reports on Form 8-K

            o     On April 1, 2003, we filed a current report on Form 8-K
                  regarding our March 24, 2003 press release which announced
                  that we were working with a financial institution to secure a
                  replacement line of credit to meet our working capital needs
                  and that our current lender had indicated that it would not
                  renew our existing line of credit beyond its expiration date
                  of April 1, 2003, although it had stated that it would extend
                  the terms of the existing line of credit facility until such
                  time as we finalized our replacement credit facility. The
                  current report on Form 8-K also included information regarding
                  our Annual Meeting of Shareholders to be held on Tuesday, May
                  13, 2003 at the Doubletree Hotel (Lake Hills Room), 300 112th
                  Ave. S.E., Bellevue, Washington, at 10:00 a.m. local time. The
                  record date for the meeting was set at March 28, 2003.

            o     On April 11, 2003, we filed a current report on Form 8-K
                  regarding our April 10, 2003 press release which announced
                  that we had established a $6 million working capital line of
                  credit with Wells Fargo Business Credit, Inc.


                                       22
<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 May 12, 2003                                    /s/ J. Jeffrey Meder
     ------------------                              ---------------------------
                                                     J. Jeffrey Meder
                                                     President and
                                                     Chief Executive Officer


Date May 12, 2003                                    /s/ Martin P. Moore
     ------------------                              ---------------------------
                                                     Martin P. Moore
                                                     Chief Financial Officer


                                       23
<PAGE>

               Form of Sarbanes-Oxley Section 302(a) Certification

I, J. Jeffrey Meder, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Cost-U-Less, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            quarterly report is being prepared;

      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and

      c)    presented in this quarterly report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent functions):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: May 12, 2003


/s/ J. Jeffrey Meder
--------------------
J. Jeffrey Meder
President and
Chief Executive Officer


                                       24
<PAGE>

               Form of Sarbanes-Oxley Section 302(a) Certification

I, Martin P. Moore, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Cost-U-Less, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            quarterly report is being prepared;

      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and

      c)    presented in this quarterly report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent functions):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: May 12, 2003


/s/ Martin P. Moore
-------------------
Martin P. Moore
Chief Financial Officer


                                       25