AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998.
REGISTRATION NO. 333-52459
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
COST-U-LESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WASHINGTON 5331 91-1615590

(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

12410 S.E. 32ND STREET
BELLEVUE, WASHINGTON 98005
(425) 644-4241
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

MICHAEL J. ROSE
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
COST-U-LESS, INC.
12410 S.E. 32ND STREET
BELLEVUE, WASHINGTON 98005
(425) 644-4241
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

--------------
COPIES TO:

GREGORY GORDER MICHAEL J. ERICKSON
NEAL M. SUGGS LAURA A. BERTIN
PERKINS COIE LLP SUMMIT LAW GROUP, P.L.L.C.
1201 THIRD AVENUE, 40TH FLOOR 1505 WESTLAKE AVENUE N., SUITE 300
SEATTLE, WASHINGTON 98101-3099 SEATTLE, WASHINGTON 98109
(206) 583-8888 (206) 281-9881

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JUNE 16, 1998

PROSPECTUS

1,723,222 SHARES

[LOGO OF COST-U-LESS]

COMMON STOCK

Of the 1,723,222 shares of Common Stock offered hereby (the "Offering"),
1,600,000 shares are being sold by Cost-U-Less, Inc. ("Cost-U-Less" or the
"Company") and 123,222 shares are being sold by certain shareholders (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Shareholders. Prior to the Offering, there has been no public market for the
Company's Common Stock. It is currently estimated that the initial public
offering price will be between $8.50 and $9.50 per share. See "Underwriting"
for factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock listed on the Nasdaq
National Market under the symbol "CULS."

Approximately 10% of the shares of Common Stock offered by the Company have
been reserved for sale to the Kula Fund, an affiliate of the Commonwealth
Development Corporation ("CDC"). The price per share of the shares to be sold
to the Kula Fund is the same as the price to the public in the Offering. Upon
completion of the Offering, the Company also intends to further develop its
relationship with CDC by appointing a representative of CDC to the Company's
Board of Directors and issuing warrants to the Kula Fund to purchase Common
Stock. See "Certain Transactions" and "Underwriting."

----------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.

----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS (2)
- -----------------------------------------------------------------------------------------------

Per Share.............. $ $ $ $
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Total (3).............. $ $ $ $
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

(1) Excludes a nonaccountable expense allowance payable to Cruttenden Roth
Incorporated, representative of the Underwriters (the "Representative"),
and the value of a warrant to purchase up to 160,000 shares of Common
Stock at an exercise price equal to 120% of the public offering price to
be issued to the Representative (the "Representative's Warrant"). The
Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $910,000 and the Selling Shareholders estimated at $40,000, including
the Representative's nonaccountable expense allowance, assuming a public
offering price of $9.00 per share.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
240,000 shares of Common Stock on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If all such shares
of Common Stock are purchased, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."

----------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to certain other conditions, including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is
expected that delivery of certificates representing the shares will be made on
or about , 1998, at the offices of the Representative, Irvine,
California.

----------

CRUTTENDEN ROTH
INCORPORATED BLACK & COMPANY, INC.

THE DATE OF THIS PROSPECTUS IS , 1998.

INSIDE FRONT COVER:

[COST-U-LESS LOGO]

[MAP DEPICTING THE COMPANY'S CURRENT STORES, STORES UNDER CONSTRUCTION, SITES
UNDER CONSIDERATION, CORPORATE HEADQUARTERS AND FREIGHT CONSOLIDATION DEPOTS]

CURRENT STORES: Pago Pago, American Samoa; Sonora, California; Dededo, Guam;
Tamuning, Guam; Hilo, Hawaii; Kapaa, Kauai, Hawaii; St. Croix, U.S. Virgin
Islands; St. Thomas, U.S. Virgin Islands

STORES UNDER CONSTRUCTION: Nadi, Fiji; Suva, Fiji; Curacao, Netherlands
Antillies

SITES UNDER CONSIDERATION: Caribbean - Antigua; Aruba; Barbados; Bahamas;
Belize; Bermuda; Dominica; French Guiana; Jamaica; Martinique; St. Lucia; St.
Maartin; St. Vincent & The Grenadines; Trinidad & Tobago. South Pacific - New
Caledonia; New Zealand; Papua New Guinea; Solomon Islands; Suriname; Tahiti;
Tonga; Vanuatu; Western Samoa

CORPORATE HEADQUARTERS: Bellevue, Washington

FREIGHT CONSOLIDATION DEPOTS: Union City, California; Miami, Florida;
Auckland, New Zealand

INSIDE GATEFOLD:

[Nine different pictures depicting the Company's:

. Fresh Produce Department
. Refrigeration Cases
. Meat Department
. Forklift
. Check-out Lanes
. Store Interiors (from an aerial view)
. Computer Systems
. Steel Racking
. Store-fronts]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."

The Company has been granted federal registration of the name "Cost-U-Less"
and has applied for federal registration of the stylized logo "Cost-U-Less."
All other trademarks or service marks appearing in this Prospectus are
trademarks or service marks of the respective companies that utilize them.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Prospective investors should carefully
consider the information set forth under "Risk Factors." Unless otherwise
indicated, the information contained in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised.

THE COMPANY

Cost-U-Less is a leading operator of mid-sized warehouse club-style stores in
U.S. territory island markets throughout the Pacific and Caribbean. The
Company's seven island stores are located in Hawaii, the U.S. Virgin Islands,
Guam and American Samoa. The Company has increased its net sales from $13.5
million in 1991 to $125 million in 1997, thereby achieving a compound annual
growth rate of 45%. The Company believes it has developed a proven store
concept, as well as effective operating methods and systems, which together
provide it certain competitive advantages in pursuing the significant
opportunities represented by the many regions that satisfy the Company's
criteria for target island markets. By entering new island markets in the
Pacific and Caribbean, the Company plans to open at least 26 additional stores
within the next four years, including one in each of the last two quarters of
fiscal 1998.

Capitalizing on management's experience in the warehouse club industry, the
Company opened its first retail warehouse store in 1989. In 1992, the Company
initiated its expansion by opening stores in relatively remote island
locations. After experiencing success with its mid-sized store concept, the
Company began experimenting in late 1992 with similar stores in various
mainland markets while continuing to open stores in island markets. Facing
increasing competition from larger discount retailers and warehouse clubs in
its mainland markets while continuing to succeed against similar competitors in
its island stores, management decided in 1995 to return its focus to its core
island markets. In 1996, while further refining its island store concept,
enhancing inventory control and management information systems, adjusting its
island store product mix to include higher-margin items and local merchandise,
and developing a prototype island store design, the Company continued the
process of closing nearly all its mainland stores. The Company believes it is
now well positioned to pursue an aggressive growth strategy focused on
accelerating the roll-out of its island stores, starting with two new stores in
Fiji for which leases have been signed and site development has begun.

The warehouse club industry has experienced strong growth in recent years and
consumer acceptance of warehouse club stores has been quite high. According to
Warehouse Club Focus, an industry research group, the U.S. warehouse club
industry achieved compound annual growth rates of 8.4% in retail market share
and 13.4% in industry sales from 1988 to 1997, and reached approximately $41.2
billion in total annual sales in 1997. As the industry has grown, retailing
methods pioneered by warehouse club operators have been well tested and
validated. These methods include emphasizing low overhead by using no-frills
shopping environments and volume purchasing, as well as achieving operating
efficiencies through limited handling of merchandise and floor-to-ceiling
racked shelving. The Company believes that these methods, in combination with
its "no membership fee" policy and its localized merchandising strategy, make
its warehouse club-style stores strongly appealing to island market consumers,
and that additional factors unique to island markets, such as handling
significant geographical or logistical challenges and dealing with various
governmental or cultural issues, together lead to certain competitive
advantages for the Company given its island operations expertise. In addition,
the Company believes that traditional large-format warehouse clubs and discount
retailers are generally unwilling to adapt their multiunit, continent-based
operations to meet the unique characteristics and small populations of island
markets. The Company estimates that there are at least 30 Pacific and Caribbean
islands that meet or exceed its minimum requirements of 40,000 population and
$125 million Gross Domestic Product, and believes these islands represent as
many as 90 potential locations for its island concept stores.

To achieve its anticipated growth, the Company plans to employ a multitier
business strategy designed to leverage the Company's core competencies in
opening and operating stores in distant and diverse locations, while
capitalizing on the inherent features of island markets. Through its past
experience with island operations, the Company has (i) developed a cost-
effective store prototype designed to endure severe island weather conditions,
(ii) negotiated competitive transportation rates, and (iii) adopted innovative
shipping techniques, including use of both cross-dock depots (whereby product
is loaded directly from transportation vehicles to Company containers and
shipped to Company stores with minimal storage time) and independent
distribution facilities. In addition, the Company utilizes modern systems and
merchandising techniques often unused by its local competitors, including
sophisticated computerized systems, efficient shelving and state-of-the-art
refrigeration and air-conditioning equipment, to provide a shopping environment
the Company believes is superior to that of its local competition. Moreover,
benefiting from its retail operating efficiencies, "no membership fee" policy,
and access to volume purchasing discounts, the Company believes it is able to
offer attractive consumer value while maintaining strong margins. The Company
also sources a meaningful portion of its product selection from local island
vendors while deriving the benefits of centralized purchasing. Further, the
Company manages overhead through the use of efficient facilities, controlled
operating expenditures and labor that the Company believes is less costly than
that generally available in mainland markets. Finally, the Company intends to
develop a strong relationship with CDC which, in conjunction with the Kula
Fund, has strong ties to, and knowledge of, the Pacific Islands and Caribbean
regions and a presence in most areas where the Company either operates or plans
to operate.

In addition to its island-operations expertise, the Company believes that its
past success in island markets has also been attributable to a "first-mover"
advantage. By opening stores in markets that other warehouse clubs and discount
retailers have not yet entered, the Company believes that it will be better
able to achieve significant market share and develop name recognition and
customer loyalty, thus further discouraging entry by large-format discount
competition. Accordingly, the Company's future growth is focused on expanding
into relatively untapped markets.

The Company's principal executive offices are located at 12410 S.E. 32nd
Street, Bellevue, Washington 98005, and its telephone number is (425) 644-4241.
The Company was incorporated in the state of Hawaii in April 1989 and
reincorporated in Washington in January 1994. References to Cost-U-Less and the
Company in this Prospectus include the Company and its subsidiaries in Guam,
the U.S. Virgin Islands, American Samoa, Nevada, the Republic of Fiji, New
Zealand, Netherlands Antilles, and the Republic of Vanuatu.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

THE OFFERING

Common Stock Offered by:
The Company......................... 1,600,000 shares
The Selling Shareholders............ 123,222 shares
Common Stock to be Outstanding After
the Offering.......................... 3,599,961 shares(1)
Use of Proceeds........................ Repaying outstanding short-term
indebtedness, and funding the
Company's expansion program, working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol. "CULS"

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

This Prospectus contains certain forward-looking statements that involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or industry trends to
differ materially from those expressed or implied by such forward-looking
statements. Such factors include, among others, those discussed in "Risk
Factors" and elsewhere in this Prospectus.

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)

FISCAL YEAR ENDED(1) QUARTER ENDED(1)
------------------------------ --------------------
DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------

INCOME STATEMENT DATA:
Net sales.............. $139,652 $134,820 $124,865 $31,789 $31,753
Gross profit........... 19,477 20,996 20,468 5,066 5,202
Store contribution(2).. 4,528 4,797 5,475 1,136 1,549
Store closing expenses. 400 918 1,346 700 --
Operating income
(loss)................ 800 1,196 1,027 (291) 556
Net income (loss)...... 250 370 363 (278) 326
Diluted earnings (loss)
per common share...... $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
Weighted average common
shares outstanding,
assuming dilution..... 2,198 2,147 2,124 2,000 2,151
SELECTED OPERATING DATA:
Island stores:
Stores opened......... 2 -- -- -- --
Stores closed......... 1 -- -- -- --
Stores open at end of
period............... 7 7 7 7 7
Average net sales per
square foot(1)(3).... $ 547 $ 535 $ 536 $ 134 $ 142
Comparable store net
sales increase
(decrease)(1)(4)..... (18.5)% (5.0)% (0.2)% (0.4)% 6.1%
Mainland stores:
Stores opened......... 2 -- -- -- --
Stores closed......... -- 1 2 1 --
Stores open at end of
period............... 4 3 1 2 1
Average net sales per
square foot(1)(3).... $ 244 $ 217 $ 244 $ 49 $ 68
Comparable store net
sales increase
(decrease)(1)(4)..... 8.9% (4.2)% (3.2)% (4.9)% (10.0)%
Total stores open at
end of period......... 11 10 8 9 8
Total comparable store
net sales increase
(decrease)(1)(4)...... (15.8)% (4.9)% (0.5)% (0.9)% 5.2%

AS OF MARCH 29, 1998
----------------------
ACTUAL AS ADJUSTED(5)
------- --------------

BALANCE SHEET DATA:
Working capital......................................... $ 3,059 $15,397
Total assets............................................ 25,223 36,946
Line of credit.......................................... 615 --
Long-term debt, less current maturities................. 1,632 1,632
Total shareholders' equity.............................. 10,052 22,390

- --------

(1) The Company's fiscal year ends on the last Sunday in December. Fiscal 1995
was a 53-week year; all other fiscal years were 52-week years. Comparable
store net sales and average sales per square foot for fiscal 1995 have been
adjusted to reflect a 52-week year. The Company's fiscal quarters are 13
weeks.
(2) Store contribution is determined by deducting store expenses from store
gross profit.
(3) Quarterly average sales per square foot have not been annualized.

(4) A new store becomes comparable after it has been open for a full 13 months.

(5) As adjusted to reflect the sale of the 1,600,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $9.00 per share and application of the estimated net proceeds therefrom.
See "Use of Proceeds."

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Certain statements under the captions "Prospectus Summary,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as statements
made in the following "Risk Factors" and elsewhere in this Prospectus,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: risks
associated with island and international operations; ability to manage growth;
small store base; competition; dependence on key personnel; general economic
conditions; fluctuations in comparable store sales; and other factors
referenced in this Prospectus. Prospective investors should carefully consider
the following risk factors, in addition to the other information in this
Prospectus.

RISKS ASSOCIATED WITH ISLAND AND INTERNATIONAL OPERATIONS

The Company's net sales from island operations represented approximately 89%
of the Company's total net sales for fiscal 1997. The Company expects that its
island and future international operations together will continue to account
for nearly all of its total net sales. The distance, as well as the time-zone
differences, involved with island locations impose significant challenges to
the Company's ability to manage its operations.

Transportation Issues. The Company's island locales require the
transportation of products over great distances on water, which results in (i)
substantial lags between the procurement and delivery of product, thus
complicating merchandising and inventory control methods, (ii) the possible
loss of product due to potential damage to, or destruction of, ships or
containers delivering the Company's goods, (iii) tariff, customs and shipping
regulation issues, and (iv) substantial ocean freight and duty costs.
Moreover, only a limited number of transportation companies service the
Company's regions, none of which has entered into a long-term contract with
the Company. The inability or failure of one or more key transportation
companies to provide transportation services to the Company, any collusion
among the transportation companies regarding shipping prices or terms, changes
in the regulations that govern shipping tariffs or any other disruption in the
Company's ability to transport its merchandise could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Operations."

Isolation of Store Operations From Corporate Management; Increased
Dependence on Local Managers. The Company's headquarters and administrative
offices are located in Bellevue, Washington; however, seven of the Company's
eight stores and a majority of its employees are located on remote islands.
Although the Company invests resources to hire and train its on-site managers,
the inability of the Company's executives to be physically present at the
Company's current and planned store sites on a regular basis may result in (i)
an isolation of store operations from corporate management and an increased
dependence on store managers, (ii) a diminished ability to oversee employees,
which may lead to decreased productivity or other operational problems, (iii)
construction delays or difficulties caused by inadequate supervision of the
construction process, and (iv) communication challenges. The Company will need
to invest significant resources to update and expand its 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 do so could have a material adverse effect on the
Company's business, financial condition and operating results. See "Business--
Operations."

Weather and Other Risks Associated With Island Operations. The Company's
operations will be subject to the volatile weather conditions and natural
disasters characteristic of the island markets in which the Company's stores
are located, which could result in delays in construction or result in
significant damage to, or destruction of, the Company's stores. In addition,
island operations involve uncertainties arising from

(i) local business practices, language and cultural considerations, including
the capacity or willingness of local business and government officials to
provide necessary services, (ii) the ability to acquire, install and maintain
modern capabilities such as dependable and affordable electricity, telephone,
computer, Internet and satellite connections in remote and often undeveloped
regions, (iii) political, military and trade tensions, (iv) currency exchange
rate fluctuations, (v) local economic conditions, (vi) longer payment cycles,
(vii) difficulty enforcing agreements or protecting intellectual property, and
(viii) collection of debts and other obligations in foreign countries. There
can be no assurance that the Company will be able to devote the resources
necessary to meet the challenges posed by island operations; any failure to do
so would have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Expansion Plans."

Expansion Outside U.S. Territories. All of the Company's existing island
stores are located in U.S. territories throughout the Pacific and Caribbean
(the "U.S. Territories") or the Hawaiian Islands. The Company's future
expansion plans involve entry into foreign countries, which may involve
additional or heightened risks and challenges that are different from those
currently encountered by the Company, including risks associated with being
further removed from the political and economic systems in the United States.
Moreover, the Company intends to open two new stores in Fiji, which has been
subject to significant political and economic unrest during recent years. In
addition, while awaiting government approval of a long-term lease, the lessor
of one of the Company's Fijian sites currently holds a short-term lease on the
underlying property that expires prior to the expiration date of the lease
between the Company and the lessor. The failure to adequately address the
additional challenges involved with international operations, and specifically
those associated with the Company's Fijian stores, could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Expansion Plans."

Governmental Regulations. Governmental regulations in foreign countries
where the Company plans to expand its operations might prevent or delay entry
into the market or prevent or delay the introduction, or require modification,
of certain of the Company's operations. Additionally, the Company's 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. The Company may also be subject to
taxation in these foreign jurisdictions, and the final determination of its
tax liabilities may involve the interpretation of the statutes and
requirements of the various domestic and foreign taxing authorities. There can
be no assurance that any of these risks will not have an adverse effect on the
Company's business, financial condition and operating results. See "Business--
Governmental Regulation."

ABILITY TO MANAGE GROWTH

The Company intends to pursue an aggressive growth strategy, the success of
which will depend to a significant degree on the Company's ability to (i)
expand its operations through the opening of new stores, (ii) operate new
stores on a profitable basis, and (iii) maintain positive comparable store net
sales. The Company currently operates eight stores and plans to open at least
26 new stores by the end of the year 2002, which represents a significant
increase in the number of stores opened and operated by the Company. Although
in prior years the Company opened new stores on a fairly rapid schedule, it
has not opened any new stores in the last two fiscal years. Moreover, to date,
the Company has never opened more than four stores in any given fiscal year
and has no operating experience in most of the markets in which it expects to
open new stores. These new markets may present operational, competitive,
regulatory and merchandising challenges that are different from those
currently encountered by the Company. There can be no assurance that the
Company will be able to adapt its operations to support these expansion plans
or that the Company's new stores will be profitable.

The Company's ability to open new stores on a timely basis will also depend
on a number of factors, some of which may be beyond the Company's control,
including the ability to (i) properly identify and enter new markets, (ii)
locate suitable store sites, (iii) negotiate acceptable lease terms, (iv)
construct or refurbish sites, and (v) obtain necessary funds on satisfactory
terms. Additionally, the Company relies significantly on the skill and
expertise of its on-site store managers. The Company will be required to hire,
train and retain skilled managers and personnel to support its growth, and may
experience difficulties locating store managers and employees who possess the
training and experience necessary to operate the Company's new stores,

including the Company's management information and communications systems,
particularly in island markets where language, education and cultural factors
may impose additional challenges. Further, the Company has 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 the Company intends to locate its stores. There
can be no assurance that the Company will be able to open the planned number
of new stores according to its store-opening schedule or that it will be able
to continue to attract, develop and retain the personnel necessary to pursue
its growth strategy. Failure to do so could have a material adverse effect on
the Company's business, financial condition and operating results.

The Company also will need to continually evaluate the adequacy of its
existing systems and procedures, including store management, financial and
inventory control and distribution systems. Moreover, as the Company grows, it
will need to continually analyze the sufficiency of its distribution depots
and inventory distribution methods and may require additional facilities in
order to support its planned growth. There can be no assurance the Company
will anticipate all of the changing demands that its expanding operations will
impose on such systems. Failure to adequately update its internal systems or
procedures as required could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business--Business
Strategy" and "--Expansion Plans."

SMALL STORE BASE

The Company opened its first store in 1989, opened a total of 14 stores in
the following six years, and presently operates eight stores. From December
1994 to June 1997, the Company has closed six stores, which has adversely
affected the Company's operating results. Should (i) any new store be
unprofitable, (ii) any existing store experience a decline in profitability,
or (iii) the Company's general and administrative expenses increase to address
the Company's expanded operations, the effect on the Company's operating
results would be more significant than would be the case if the Company had a
larger store base, and could have a material adverse effect on the Company's
business, financial condition and operating results. Although the Company
believes that it has carefully planned for the implementation of its expansion
program, 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 the Company's business, financial condition and operating
results. See "Business--General," "--Store Locations" and "--Properties."

COMPETITION

The warehouse club and discount retail businesses are highly competitive.
The Company currently competes in several of its markets against other
warehouse clubs and discount retailers, including Costco Companies, Inc.
("Costco"), Kmart Corporation ("Kmart") and Wal-Mart Stores, Inc. ("Wal-
Mart"). The Company's competition also consists of regional and smaller
discount retailers and other national and international grocery store chains.
Some of the Company's competitors have substantially greater resources, buying
power and name recognition than the Company. While the Company expects that
the size of many of the markets in which it operates or expects to enter will
deter entry by most of its larger competitors, there can be no assurance that
the Company's larger competitors will not decide to enter these markets or
that its smaller competitors will not compete more effectively against the
Company. The Company's gross margin and operating income are generally lower
for those stores in markets where traditional warehouse clubs and discount
retailers also operate stores. The Company may be required to implement price
reductions in order to remain competitive should any of its competitors reduce
prices in any of its markets. Moreover, the Company's ability to expand into
and operate profitably in new markets, particularly small markets, may be
adversely affected by the existence or entry of competing warehouse clubs or
discount retailers. See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends in large part on the abilities and continued
service of its executive officers and other key employees, including Michael
J. Rose, the Company's founder, Chairman of the Board, President and Chief
Executive Officer, Allan C. Youngberg, the Company's Vice President-Chief
Financial Officer, Secretary and Treasurer and Terence R. Buckley, the
Company's Director of Pacific Expansion. None of the Company's executive
officers or key employees, including Messrs. Rose, Youngberg and Buckley, are
subject to employment agreements that would prevent them from leaving the
Company. There can be no assurance that the Company 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 the Company's business,
financial condition and operating results. See "Management--Directors,
Director Nominees, Executive Officers and Key Employees."

FLUCTUATIONS IN COMPARABLE-STORE SALES

A variety of factors affect the Company's comparable store sales, including,
among others, actions of competitors (including the opening of additional
stores in the Company's markets), the retail sales environment, general
economic conditions, weather conditions and the Company's ability to execute
its business strategy effectively. In addition, the Company's expansion may
result in opening additional stores in markets where the Company already does
business. The Company has experienced a reduction in sales at an existing
Company store when a new Company store was opened in the same market. The
Company's comparable store sales increases (decreases) over the prior period
were (15.8)%, (4.9)% and (0.5)% in fiscal 1995, 1996 and 1997, respectively,
and 5.2% in the first quarter of fiscal 1998. These factors may result in
future comparable store sales increases that are lower than those experienced
in the first quarter of fiscal 1998. Moreover, there can be no assurance that
comparable store sales for any particular period will not decrease in the
future. Following the Offering, changes in the Company's comparable store
sales could cause the price of the Common Stock to fluctuate substantially.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."

GENERAL ECONOMIC CONDITIONS

The success of the Company's 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 its island markets, taxation,
consumer spending patterns and customer preferences. There can be no assurance
that consumer spending in the Company's markets will not be adversely affected
by these factors, thereby impacting the Company's growth, net sales and
profitability. A decline in the national or regional economies of the United
States and the U.S. Territories where the Company currently operates or any
foreign countries in which the Company will operate could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."

DEPENDENCE ON SYSTEMS; YEAR 2000 COMPLIANCE

As the Company expands, it will need to upgrade or reconfigure its
management information systems. While the Company has taken a number of
precautions against certain events that could disrupt the operation of its
management information systems, including in connection with its planned
systems revisions, it may experience systems failures or interruptions, which
could have a material adverse effect on its business, financial condition and
operating results. The Company's business is highly dependent on
communications and information systems, primarily systems provided by third-
party vendors. Any failure or interruption of the Company's systems or systems
provided by third-party vendors could cause delays or other problems in the
Company's operations, which could have a material adverse effect on the
Company's business, financial condition and operating results. Such failures
and interruptions may result from the inability of certain systems (including
those of the Company and, in particular, of third-party vendors to the
Company) to recognize the

year 2000. The Year 2000 issue is the result of computer programs being
written using two digits, rather than four, to define the applicable year. Any
of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. If not
addressed, the direct result of the Year 2000 issue could be a system failure
or miscalculations, causing disruption of operations, including a temporary
inability to process customer transactions, order merchandise, accurately
track inventory and revenue, or engage in similar normal business activities.
The Company has implemented a plan to review and monitor its computer systems
to ensure that they are Year 2000-compliant, but does not believe that it will
be required to invest a material amount of funds to make its systems Year
2000-compliant. The Company's failure to implement its Year 2000 corrections
in a timely fashion or in accordance with its current cost estimates, or the
failure of third-party vendors to correct their Year 2000 problems, could have
a material adverse effect on the Company's business, financial condition and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance" and "Business--
Operations."

ABSENCE OF PRIOR MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or,
if developed, will be sustained following the Offering. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and the Representative, and may not be indicative of the market
price of the Common Stock after the Offering. Certain factors, such as sales
of Common Stock into the market by existing shareholders, fluctuations in
operating results of the Company or its competitors, market conditions
generally for equity securities of similar companies, changes in earnings
estimates by analysts and changes in accounting policies, among other factors,
could cause the market price of the Common Stock to fluctuate substantially.
In addition, the market prices of many securities have been highly volatile in
recent years, often as a result of factors unrelated to a company's
operations. Accordingly, the market price of the Common Stock may decline even
if the Company's operating results or prospects have not changed. See "Shares
Eligible for Future Sale" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of Common Stock in the public
market following the Offering, whether by purchasers in the Offering or
current shareholders or employees of the Company, could adversely affect the
market price of the Common Stock, and could impair the Company's future
ability to raise capital through an offering of its equity securities. Of the
3,599,961 shares to be outstanding following the Offering, the 1,723,222
shares offered hereby will be freely tradeable and the remaining 1,876,739
shares will be "restricted securities" under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The Company, its
directors, executive officers, key employees and certain shareholders and
optionholders, who collectively hold an aggregate of 1,784,110 shares, and
options and warrants to purchase an aggregate of 484,337 additional shares,
have agreed not to sell, directly or indirectly, any shares owned by them for
a period of 180 days after the date of this Prospectus without the prior
written consent of the Representative. Upon the expiration of this 180-day
lock-up period (or earlier upon the consent of the Representative), all of
these restricted shares (plus shares issuable upon exercise of then-vested
outstanding options and warrants) will become eligible for sale subject to the
restrictions of Rule 144 and Rule 701. The Representative has no current
intention to release any shareholder from the provisions of the lock-up
agreements prior to the expiration of the 180-day lock-up period. See "Shares
Eligible for Future Sale" and "Underwriting."

CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS

The Company's directors and executive officers, in the aggregate, will
beneficially own approximately 26.7% of the outstanding shares of Common Stock
after the Offering (approximately 25.2% if the Underwriters' over-allotment
option is exercised in full). As a result, the Company's directors and
executive

officers, acting together, would be able to significantly influence and may be
able to control many matters requiring approval by the Company's shareholders,
including, without limitation, the election of directors and approval of
significant corporate transactions. In addition, this concentration of
ownership and voting power may have the effect of accelerating, delaying or
preventing a change in control of the Company or otherwise affect the ability
of other shareholders to influence the policies of the Company. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."

ANTITAKEOVER CONSIDERATIONS

The Company's 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 the Company's shareholders. This authority, together
with certain provisions of the Company's Restated Articles of Incorporation
(the "Restated Articles"), 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 the Company, even if shareholders may consider such a
change in control to be in their best interests. In addition, Washington law
contains certain provisions that may have the effect of delaying, deterring or
preventing a hostile takeover of the Company. See "Description of Capital
Stock."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $2.79 per share in net tangible book value based on an
assumed initial public offering price of $9.00 per share. To the extent that
currently outstanding options to purchase Common Stock are exercised,
purchasers of Common Stock may experience additional dilution. See "Dilution."

ABSENCE OF DIVIDENDS

The Company has never declared or paid any cash dividends on the Common
Stock. In addition, the Company does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. See "Dividend Policy."

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 1,600,000
shares of Common Stock by the Company hereby, assuming an initial public
offering price of $9.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $12.3 million (approximately $14.3 million if
the Underwriters' over-allotment option is exercised in full). The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders." The Company
intends to use the net proceeds of the Offering to repay outstanding short-
term indebtedness, to fund the Company's expansion program and for working
capital and other general corporate purposes. Specifically, the Company
intends to use approximately $4.0 million of the net proceeds to repay the
expected outstanding balance on the Company's revolving working capital line
of credit (the "Line of Credit") with Bank of America NT & SA dba Seafirst
Bank ("Seafirst Bank"). As of March 29, 1998, the outstanding principal on the
Line of Credit was $615,000. The Line of Credit bears interest at Seafirst
Bank's prime rate (8.5% as of March 29, 1998). In addition, the Company plans
to use approximately $7.0 million of the net proceeds to purchase equipment
and store fixtures for new stores and approximately $1.0 million to upgrade
computer systems for the Company's corporate office and its New Zealand buying
office. The remainder of the net proceeds will be used for working capital and
general corporate purposes. Pending their application, the net proceeds of the
Offering will be invested in short-term, interest-bearing, investment-grade
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on the Common
Stock, and presently intends to retain any future earnings to finance its
operations and expand its business. In addition, the Company's various credit
facilities restrict the ability of the Company to declare dividends. The
Company therefore does not anticipate paying cash dividends in the foreseeable
future.

CAPITALIZATION

The following table sets forth the Company's Line of Credit and
capitalization as of March 29, 1998, and as adjusted to give effect to the
Offering (after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) and application of the estimated net
proceeds therefrom, at an assumed initial public offering price of $9.00 per
share.

MARCH 29, 1998
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)

Line of Credit............................................... $ 615 $ --
======= =======
Long-term debt, less current maturities...................... $ 1,632 $ 1,632
Shareholders' equity:
Preferred Stock, $0.001 par value per share; 2,000,000
shares authorized; no shares issued or outstanding........ -- --
Common Stock, $0.001 par value per share; 25,000,000 shares
authorized; 1,999,961 shares issued and outstanding,
actual; 3,599,961 shares issued and outstanding, as
adjusted(1)(2)............................................ 3,600 15,938
Retained earnings.......................................... 6,491 6,491
Accumulated other comprehensive income..................... (39) (39)
------- -------
Total shareholders' equity................................. 10,052 22,390
------- -------
Total capitalization..................................... $11,684 $24,022
======= =======

DILUTION

As of March 29, 1998, the Company's net tangible book value was
approximately $10.0 million, or $5.02 per share of Common Stock. Net tangible
book value per share represents the Company's total assets less intangible
assets less total liabilities divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in net tangible
book value after March 29, 1998, other than to give effect to the sale of
1,600,000 shares of Common Stock by the Company in the Offering at an assumed
initial public offering price of $9.00 per share and the receipt by the
Company of the estimated net proceeds therefrom, the net tangible book value
of the Company as of March 29, 1998 would have been approximately $22.4
million, or $6.21 per share. This represents an immediate increase in net
tangible book value of $1.19 per share to existing shareholders and an
immediate dilution of $2.79 per share to purchasers of shares of Common Stock
in the Offering, as illustrated by the following:

Assumed initial public offering price per share................... $9.00
Net tangible book value per share as of March 29, 1998.......... $5.02
Increase per share attributable to new investors................ 1.19
-----
Pro forma net tangible book value per share after the Offering.... 6.21
-----
Dilution per share to new investors............................... $2.79
=====

The following table summarizes as of March 29, 1998, after giving effect to
the Offering, the differences between existing shareholders and purchasers of
shares of Common Stock in the Offering with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:

SHARES
PURCHASED(1)(2) TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------

Existing shareholders.... 1,999,961 55.6% $ 3,525,000 19.7% $1.76
New investors............ 1,600,000 44.4 14,400,000 80.3 9.00
--------- ----- ----------- -----
Total.................... 3,599,961 100.0% $17,925,000 100.0%
========= ===== =========== =====

- --------
(1) Excludes 984,337 shares of Common Stock reserved for issuance pursuant to
the Company's benefit plans, agreements and warrants, of which options and
warrants to purchase 484,337 shares were outstanding as of March 29, 1998
at a weighted average exercise price of $6.41 per share. No options were
granted by the Company between March 29, 1998 and the date of this
Prospectus. See "Management--Compensation Pursuant to Plans" and
"Description of Capital Stock."
(2) The above table is based on ownership as of March 29, 1998. Sales by the
Selling Shareholders in the Offering will reduce the number of shares held
by existing shareholders to 1,876,739 shares, or 52.1% (48.9% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares outstanding after the Offering, and will increase the
number of shares held by new investors to 1,723,222 shares, or 47.9%
(51.1% if the Underwriters' over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding after the Offering.
See "Principal and Selling Shareholders."

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data are qualified in their
entirety by, and should be read in conjunction with, the Company's
Consolidated Financial Statements, including the Notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus. The consolidated
statements of income data for the fiscal years ended December 29, 1996 and
December 28, 1997 and the consolidated balance sheet data as of December 29,
1996 and December 28, 1997 have been derived from the audited consolidated
financial statements of the Company, which were audited by Ernst & Young LLP,
independent auditors, as indicated in their report included elsewhere in this
Prospectus. The consolidated income statement data for the fiscal year ended
December 31, 1995 have been audited by Deloitte & Touche LLP, as indicated in
their report included elsewhere in this Prospectus. The consolidated
statements of income data for the fiscal years ended December 26, 1993 and
December 25, 1994 and the consolidated balance sheet data as of December 26,
1993, December 25, 1994 and December 31, 1995 are derived from consolidated
financial statements audited by Deloitte & Touche LLP that are not included
herein. The consolidated statements of income data and the consolidated
balance sheet data for the quarters ended March 30, 1997 and March 29, 1998
are derived from unaudited consolidated financial statements included herein
which, in the opinion of management of the Company, reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial data for such periods. The results of operations for the quarter
ended March 29, 1998 are not necessarily indicative of the results that may be
expected for any other interim period or for the full fiscal year.

FISCAL YEAR ENDED(1) QUARTER ENDED(1)
-------------------------------------------------- --------------------
DEC. 26, DEC. 25, DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA, AVERAGE SALES PER SQUARE
FOOT, NUMBER OF STORES AND PERCENTAGE DATA)

INCOME STATEMENT DATA
Net sales.............. $85,567 $117,204 $139,652 $134,820 $124,865 $31,789 $31,753
Gross profit........... 12,144 16,351 19,477 20,996 20,468 5,066 5,202
Operating expenses:
Store.................. 6,414 10,512 14,949 15,843 14,543 3,840 3,535
General and
administrative........ 1,513 2,210 2,728 3,039 3,225 795 981
Store opening.......... 456 643 600 -- 327 22 130
Store closing.......... -- 840 400 918 1,346 700 --
------- -------- -------- -------- -------- ------- -------
Operating income
(loss)................ 3,761 2,146 800 1,196 1,027 (291) 556
Interest expense....... (84) (160) (555) (605) (427) (124) (55)
Other income (expense). 19 176 150 -- (40) -- --
------- -------- -------- -------- -------- ------- -------
Income (loss) before
income taxes.......... 3,696 2,162 395 591 560 (415) 501
Income tax provision
(benefit)............. 1,305 982 145 221 197 (137) 175
------- -------- -------- -------- -------- ------- -------
Net income (loss)...... $ 2,391 $ 1,180 $ 250 $ 370 $ 363 $ (278) $ 326
======= ======== ======== ======== ======== ======= =======
Diluted earnings (loss)
per common share...... $ 1.17 $ 0.53 $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
======= ======== ======== ======== ======== ======= =======
Weighted average common
shares outstanding,
assuming dilution..... 2,042 2,210 2,198 2,147 2,124 2,000 2,151

SELECTED OPERATING DATA
Island stores:
Net sales.............. $81,369 $ 97,809 $120,010 $111,413 $111,480 $27,882 $29,547
Store contribution (2). $ 5,852 $ 6,547 $ 4,958 $ 5,212 $ 5,635 $ 1,321 $ 1,584
Stores opened.......... 2 1 2 -- -- -- --
Stores closed.......... -- -- 1 -- -- -- --
Stores open at end of
period................ 5 6 7 7 7 7 7
Average net sales per
square foot(1)(3)..... $ 808 $ 699 $ 547 $ 535 $ 536 $ 134 $ 142
Comparable store net
sales increase
(decrease)(1)(4)...... 10.9% 0.1% (18.5)% (5.0)% (0.2)% (0.4)% 6.1%
Mainland stores:
Net sales.............. $ 4,198 $ 19,394 $ 19,642 $ 23,407 $ 10,684 $ 3,748 $ 1,570
Store contribution (2). $ (157) $ (707) $ (430) $ (415) $ (160) $ (185) $ (35)
Stores opened.......... -- 3 2 -- -- -- --
Stores closed.......... -- 2 -- 1 2 1 --
Stores open at end of
period................ 1 2 4 3 1 2 1
Average net sales per
square foot(1)(3)..... $ 146 $ 223 $ 244 $ 217 $ 244 $ 49 $ 68
Comparable store net
sales increase
(decrease) (1)(4)..... 0.0% 17.6% 8.9% (4.2)% (3.2)% (4.9)% (10.0)%
Total stores open at
end of period......... 6 8 11 10 8 9 8
Total comparable store
net sales increase
(decrease)(1)(4)...... 10.9% 0.9% (15.8)% (4.9)% (0.5)% (0.9)% 5.2%

DEC. 26, DEC. 25, DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)

BALANCE SHEET DATA
Working capital......... $ 4,479 $ 4,710 $ 3,429 $ 3,635 $ 3,814 $ 3,005 $ 3,059
Total assets............ 13,836 21,907 28,525 24,856 22,815 25,494 25,223
Line of credit.......... -- 622 3,500 1,500 376 2,221 615
Long-term debt, less
current maturities..... 316 798 2,237 1,965 1,169 1,569 1,632
Total shareholders'
equity................. 7,289 8,704 8,957 9,327 9,670 9,049 10,052

- --------

(1) Fiscal 1995 was a 53-week year; all other fiscal years were 52-week years.
Comparable store net sales and average sales per square foot for fiscal
1995 have been adjusted to reflect a 52-week year. The Company's fiscal
quarters are 13 weeks.
(2) Store contribution is determined by deducting store expenses from store
gross profit.
(3) Quarterly average sales per square foot have not been annualized.
(4) A new store becomes comparable after it has been open for a full 13
months.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with "Selected
Consolidated Financial Data" and the Company's Consolidated Financial
Statements, including the Notes thereto, included elsewhere in this
Prospectus. In addition to historical information, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements that involve known and unknown
risks and uncertainties. The Company's actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed in "Risk Factors" and
elsewhere in this Prospectus.

OVERVIEW

Background

Seeking to capitalize on management's experience in the warehouse club
industry, Cost-U-Less began operations in 1989 by opening a mid-sized
warehouse club-style store in Maui, Hawaii. In early 1992, the Company
expanded its operations by opening additional island stores in other
relatively remote island locations. After experiencing success with its mid-
sized store concept, the Company began experimenting in late 1992 with similar
stores in various mainland markets. Over the course of a three-year period,
the Company opened six mainland stores and seven island stores, but, over
time, found that most of the mainland stores were not profitable and did not
meet the Company's performance expectations. The Company believes that the
unanticipated concurrent expansion of large discount retailers in the
Company's mainland target markets, together with the substantially stronger
buying power, broader name recognition, better ability to afford prime
locations for new facilities and overall greater resources of these
competitors, combined to prevent the success of the Company's mainland stores.

The Company's store concept, however, continued to prove successful in the
more remote, and in many ways more challenging, island markets. The Company
therefore refocused on its core competencies in operating island stores and
began closing its mainland stores. The combined operating losses attributable
to mainland stores, including opening and closing expenses (but excluding any
allocation for related general and administrative or interest expenses) in
fiscal 1993 through 1997 totaled $5.8 million. Currently only one mainland
store remains open; the store is profitable and serves as an efficient testing
ground for new operating and merchandising methods. The Company intends to
retain this store while targeting its future growth on island markets. To
date, the Company's island stores have been located in the Hawaiian Islands
and the U.S. Territories. The Company's expansion strategy focuses primarily
on foreign island markets, beginning with the planned opening of its two
stores in Fiji in fiscal 1998.

Store Economics

Cost-U-Less benefits from attractive store-level economics and favorable
returns on investment at its island stores, which the Company believes will
help drive and support its planned expansion. The Company's seven island
stores open during all of fiscal 1997 generated average per store net sales of
$15.9 million, average net sales per square foot of $536, average annual per
store contribution of approximately $805,000 and average annual per store
contribution before depreciation of approximately $888,000. The Company
determines store contribution by deducting store expenses from gross profit.
The Company uses the entire interior space of its store, including receiving
and office space, in calculating average net sales per square foot.

In August 1995, the Company began a program aimed at increasing its gross
margin. The Company (i) added higher margin items, such as fresh meat and
perishables, to its product mix, (ii) negotiated lower freight rates, (iii)
improved and increased item selection in its stores, including offering sizes
that generate higher margins than traditional warehouse pack sizes, and (iv)
emphasized local ethnic items in addition to popular U.S. brand names. As a
result of this program, the Company increased its gross margin from 14.0% in
fiscal 1995 to 16.4% in fiscal 1997.

Since June 1995, the Company has also upgraded its inventory control systems
by (i) adding bar code scanning at all store cash registers, receiving docks
and distribution facilities, (ii) installing security cameras in some of its
stores, and (iii) implementing an employee incentive program designed to
reward, among other things, reductions in inventory shrink rates. The effect
of implementing these systems has reduced the Company's inventory shrink
expense from 0.6% of net sales in fiscal 1995 to 0.3% in fiscal 1997.

Distribution Facilities

The Company receives, consolidates and loads merchandise at its distribution
facilities, then ships merchandise to its island stores in fully loaded
containers. The Company does not own or operate a warehouse facility and
manages its in-store inventory primarily by electronically monitoring sell-
through of merchandise and maintaining efficient distribution facilities. The
Company's method of inventory management has enabled the Company to achieve
inventory turns of 7.7 for fiscal 1997, which represents an improvement over
the 7.2 inventory turns for fiscal 1996. In-store inventory turns (excluding
product in transit to stores and in the distribution facilities) were 9.5 for
fiscal 1997, compared to 8.5 for fiscal 1996.

Store Openings

The Company expenses store opening costs as incurred. Store opening expenses
include payroll, travel and other costs incurred by the Company in connection
with site selection, licensing, permitting, lease negotiations and
construction supervision, as well as training for new store managers. The
Company anticipates that in fiscal 1998 and 1999 its required investment to
open a new store will be approximately $2.0 million, including approximately
$300,000 for opening expenses, $800,000 for store fixtures and equipment and
$900,000 for inventory. The Company expects to carry approximately $1.8
million of inventory, including $600,000 of inventory in transit. Typically,
50% of the Company's inventory is vendor-financed, resulting in the $900,000
average per-store inventory investment by the Company.

Store Closings

The Company's store closing expenses consist primarily of costs related to
(i) buying out the unexpired portion of the store lease and writing off the
net book value of leasehold improvements and (ii) repairing facilities prior
to their return to the lessor. The Company expenses these items in the period
when the decision is made to close the store.

Wholesale Activities

Beginning in 1997, the Company has sold merchandise from its distribution
facilities at wholesale prices to retailers that, the Company believes, resell
the merchandise in markets not currently served by the Company. In fiscal 1997
and the first quarter of fiscal 1998, gross margin on the Company's wholesale
sales averaged 10.5%. Because there are less handling expenses associated with
the Company's wholesale operations, the Company believes that these operations
provide it with a profit opportunity that does not detract from its primary
business of retail sales.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
the Company's net sales represented by certain consolidated income statement
data.

FISCAL YEAR ENDED QUARTER ENDED
-------------------------- -------------------
DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------

Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................... 14.0 15.6 16.4 15.9 16.4
Operating expenses:
Store.......................... 10.7 11.7 11.6 12.1 11.1
General and administrative..... 2.0 2.3 2.6 2.5 3.1
Store opening.................. 0.4 -- 0.3 -- 0.4
Store closing.................. 0.3 0.7 1.1 2.2 --
----- ----- ----- ----- -----
Operating income (loss)......... 0.6 0.9 0.8 (0.9) 1.8
Interest expense................ (0.4) (0.5) (0.3) (0.4) (0.2)
Other income.................... 0.1 -- -- -- --
----- ----- ----- ----- -----
Income (loss) before income tax-
es............................. 0.3 0.4 0.5 (1.3) 1.6
Income tax provision (benefit).. 0.1 0.1 0.2 (0.4) 0.6
----- ----- ----- ----- -----
Net income (loss)............... 0.2% 0.3% 0.3% (0.9)% 1.0%
===== ===== ===== ===== =====

Quarter Ended March 29, 1998 Compared to Quarter Ended March 30, 1997

Net Sales. Net sales of $31.8 million in the first quarter of fiscal 1998
were unchanged compared to the first quarter of fiscal 1997, despite closure
of two mainland stores, which stores in the first quarter of fiscal 1997
together generated approximately $2.0 million in net sales. The Company did
not open any new stores in the first quarter of either year. Comparable store
sales increased 5.2%, or $1.5 million. The Company believes the increase in
comparable store sales in the first quarter of fiscal 1998 was primarily
attributable to the introduction of the Company's program to improve
merchandising and store promotions, and that comparable store sales could
fluctuate in the future.

Gross Profit. Gross profit increased to $5.2 million from $5.1 million in
the comparable period of the prior year, despite closure of two mainland
stores, which in the first quarter of 1997 together generated $246,000 in
gross profit. Gross margin increased to 16.4% from 15.9% in the comparable
prior period. The increase in gross margin was primarily due to the closure of
two mainland stores with lower gross profit margins, and to increased sales in
higher-margin departments such as fresh meat, perishables and frozen foods in
the Company's other stores. Comparable store gross profit increased $348,000.

Store Expenses. Store expenses decreased $305,000, or 7.9%, to $3.5 million
from $3.8 million in the comparable period of the prior year. The decrease was
primarily attributable to a $431,000 reduction in store expenses associated
with the two mainland stores that were closed in fiscal 1997, which was offset
primarily by an increase of $126,000 from higher wage rates, advertising
expenses and facility costs in the first quarter of fiscal 1998. Store
expenses overall decreased as a percentage of net sales to 11.1% from 12.1%.

General and Administrative Expenses. General and administrative expenses
increased $186,000, or 23.4%, to $981,000 from $795,000 in the comparable
period of the prior year, and increased as a percentage of net sales to 3.1%
from 2.5%. The increase was primarily due to hiring additional corporate
personnel in preparation for the Company's expansion program and a $75,000
one-time noncash expense associated with the grant in January 1998 of a stock
option to one of the Company's directors.

Store Opening Expenses. Store opening expenses were $130,000 in the first
quarter of fiscal 1998 and $22,000 in the comparable period in fiscal 1997.
These expenses were attributable to new stores scheduled to

open in the second half of fiscal 1998 and site selection costs related to
store openings anticipated for fiscal 1999.

Store Closing Expenses. The Company incurred store closing expenses of
$700,000 in the first quarter of fiscal 1997. The Company did not incur any
store closing expenses in the comparable period in fiscal 1998. The Company
expects to incur an estimated $250,000 of expenses in the second quarter of
fiscal 1998 in connection with costs associated with closing the existing St.
Thomas store and replacing it with a new St. Thomas store.

Interest Expense. Interest expense declined to $55,000 from $124,000 in the
comparable period of the prior year due to a decrease in the Company's average
outstanding borrowings.

Fiscal 1997 Compared to Fiscal 1996

Net Sales. Net sales in fiscal 1997 declined $9.9 million, or 7.4%, to
$124.9 million from $134.8 million in the prior year. The decrease was
primarily due to store closures, which reduced sales by $12.3 million, and a
decline in comparable store sales of $577,000. This decrease in comparable
store sales was largely attributable to the Company's Hawaii stores, for which
sales decreased $1.7 million in fiscal 1997 compared to fiscal 1996. The
Company believes that the decrease in sales for its Hawaii stores was
principally due to a long-term statewide recession and a significant increase
in the level of competition in the Hawaii market. The decrease in net sales
was partially offset by $2.7 million in wholesale sales and by a comparable
store sales increase in the Company's other island stores of $1.5 million, or
1.7%.

Gross Profit. Gross profit decreased to $20.5 million from $21.0 million,
which resulted from a comparable store gross profit increase of $966,000 in
fiscal 1997, offset by a $1.7 million decline in gross profit attributable to
store closures in fiscal 1997. Gross margin increased to 16.4% in fiscal 1997
from 15.6% in fiscal 1996. The increase in gross margin was due to the closure
of three low-margin mainland stores, increased sales in higher-margin
departments such as the fresh meat and perishable departments, and decreased
distribution costs in its island stores.

Store Expenses. Store expenses decreased $1.3 million, or 8.2%, to $14.5
million from $15.8 million, and decreased as a percentage of net sales to
11.6% from 11.7%. The decrease was primarily due to a reduction in store
expenses from closed stores of $2.0 million. This reduction was offset by an
increase in store expenses for existing stores of $673,000, primarily from
wage rate increases associated with pay raises provided by the Company to its
hourly employees during the first three years of employment, the increased
rate at which the Company accrues vacation pay, increased rent associated with
consumer price index increases and utility usage relating to added
refrigeration capabilities.

General and Administrative Expenses. General and administrative expenses
increased $186,000, or 6.1%, to $3.2 million from $3.0 million, and increased
as a percentage of net sales to 2.6% from 2.3%. The increase was primarily due
to an increase in the number of corporate employees hired to support the
Company's planned expansion and increased accounting and tax preparation fees
related to incorporation of U.S. Territory stores as wholly owned
subsidiaries.

Store Opening Expenses. The Company incurred store opening expenses of
$327,000 in fiscal 1997. The Company did not incur any store opening expenses
in fiscal 1996. The fiscal 1997 store opening expenses were primarily for
payroll and travel costs associated with site selection, licensing, permitting
and lease negotiations for new stores.

Store Closing Expenses. Store closing expenses increased to $1.3 million
from $918,000 due to closing two stores in fiscal 1997 compared to closing one
store in fiscal 1996.

Interest Expense. Interest expense declined $178,000 in fiscal 1997 due to a
decrease in average outstanding borrowings to $3.7 million in fiscal 1997 from
$6.0 million in fiscal 1996.

Other Expenses. Other expenses were comprised of insurance deductibles for
property and business interruption claims, including those related to the
effects of Typhoon Paka in Guam in December 1997.

Fiscal 1996 Compared to Fiscal 1995

Net Sales. Net sales in fiscal 1996 declined $4.9 million, or 3.5%, to
$134.8 million from $139.7 million. The decrease was due to a number of
factors. Fiscal 1996 was a 52-week year while fiscal 1995 was a 53-week year,
with an additional $2.3 million in sales attributable to the extra week. In
fiscal 1996, the Company closed one store, which further reduced net sales by
$7.0 million, though this reduction was offset by sales increases of $9.0
million in fiscal 1996 in the four stores that the Company opened in fiscal
1995. The Company opened no new stores in fiscal 1996. Comparable store sales
decreased 4.9% in fiscal 1996, primarily due to opening an additional Guam
store in a neighboring town during March 1995. Excluding the original Guam
store, comparable store island sales increased 1.1%, or $856,000.

Gross Profit. The Company's gross profit increased to $21.0 million from
$19.5 million. Gross margin increased to 15.6% from 14.0%. The increase in
gross profit resulted from a comparable store gross profit increase of
$822,000 and a $1.5 million increase from four stores opened in fiscal 1995,
offset by a $758,000 loss of gross profit from a store closure at the end of
fiscal 1995. The increase in gross margin was primarily a result of sales in
higher-margin produce and meat departments, increased selection of other
higher-margin items, decreased freight and distribution costs and increased
prices on non-price-sensitive items.

Store Expenses. Store expenses increased $894,000, or 6.0%, to $15.8 million
from $14.9 million and increased as a percentage of net sales to 11.7% from
10.7%. The increase was attributable to a $1.8 million increase from stores
opened during fiscal 1995 and a $469,000 increase in store expenses related to
increased depreciation, utilities and maintenance expenses associated with new
refrigeration equipment, the increased rate at which the Company accrues
vacation pay, and professional fees associated with store lease negotiations
and incorporation of the island stores, offset by a $1.2 million reduction of
store expenses for stores closed in fiscal 1996. The increase in store
expenses as a percentage of net sales was due primarily to the effect of
opening a second store in Guam during fiscal 1995, which increased total store
expenses for the two Guam stores by $401,000 in fiscal 1996 compared to fiscal
1995.

General and Administrative Expenses. General and administrative expenses
increased $311,000, or 11.4%, to $3.0 million from $2.7 million and increased
as a percentage of net sales to 2.3% from 2.0%. The increase was primarily due
to additional personnel and costs related to four new stores opened in fiscal
1995.

Store Opening Expenses. In fiscal 1995, the Company incurred store opening
expenses of $600,000 for four new stores: one in Guam, one in American Samoa
and two in California. The Company did not incur any store opening expenses in
fiscal 1996.

Store Closing Expenses. Store closing expenses increased to $918,000 from
$400,000. The Company closed one mainland store in December 1996, which
necessitated buying out a long-term lease, and closed the Maui, Hawaii store
in December 1995. The Maui store was near the end of its lease term, and the
Company did not renew the lease because of the continued recession in Hawaii
and the opening of two new large-format discount retail stores in the same
town.

Interest Expense. Interest expense increased $50,000 due to an increase in
average outstanding borrowings to $6.0 million in fiscal 1996 from $4.4
million in fiscal 1995.

Other Income. Other income in fiscal 1995 of $150,000 was comprised of an
insurance recovery for business interruption claims related to the effects of
Hurricane Marilyn in St. Thomas in September 1995.

QUARTERLY OPERATING RESULTS

The following table sets forth unaudited financial information derived from
the Company's consolidated quarterly statements of income for the nine
quarters ended March 29, 1998. This information includes all adjustments,
consisting only of normal recurring accruals, that the Company considers
necessary for a fair presentation.

1996 1997 1998
---------------------------------- ---------------------------------- -------
MAR. 31 JUN. 30 SEP. 29 DEC. 29 MAR. 30 JUN. 29 SEP. 28 DEC. 28 MAR. 29
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)

Net sales............... $33,443 $33,844 $32,717 $34,816 $31,789 $31,868 $29,747 $31,461 $31,753
Gross profit............ 4,940 5,194 5,210 5,652 5,066 5,240 4,876 5,286 5,202
Operating expenses:
Store.................. 3,841 3,918 3,918 4,166 3,840 3,677 3,484 3,542 3,535
General and administra-
tive.................. 823 752 691 773 795 788 769 873 981
Store opening.......... -- -- -- -- 22 46 115 144 130
Store closing.......... -- 25 30 863 700 600 -- 46 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss). 276 499 571 (150) (291) 129 508 681 556
Interest expense........ (135) (124) (117) (229) (124) (121) (118) (64) (55)
Other income (expense).. -- -- -- -- -- -- -- (40) --
Income tax provision
(benefit).............. 50 140 194 (163) (137) 5 126 203 175
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 91 $ 235 $ 260 $ (216) $ (278) $ 3 $ 264 $ 374 $ 326
======= ======= ======= ======= ======= ======= ======= ======= =======

The Company's quarterly operating results have fluctuated in the past and
are expected to fluctuate in the future as a result of a variety of factors,
including the timing of store openings and related store opening expenses,
weather conditions, price increases by suppliers, actions by competitors,
conditions in the discount retail market in general, regional, national and
international economic conditions and other factors.

The Company expects its business to exhibit some measure of seasonality,
which it believes is typical of the retail industry. Per store sales in the
fourth quarter are typically higher than in other quarters due to holiday
sales. The Company's quarterly results also reflect variations due to the use
of estimates in the first and third quarters for inventory shrink. These
estimates are adjusted to actual physical counts in the second and fourth
quarters. The Company traditionally accrues 0.5% of net sales for inventory
shrink and adjusts the accrual based on the results of the actual physical
count, which generally results in a lower shrink expense in the second and
fourth quarters.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations with internally
generated funds, the Company's credit facilities and private equity
transactions.

Net cash provided by (used in) operations was $205,000 and $(36,000) for the
first quarter of fiscal 1997 and 1998, respectively. In the first quarter of
fiscal 1998, operating cash flow was used primarily to replenish inventories
after the fourth quarter holiday season. In the comparable period in fiscal
1997, the Company was able to replenish inventories primarily from inventories
available from a store closure. For fiscal 1995, 1996 and 1997, net cash
provided by operations was $186,000, $2.3 million and $4.6 million,
respectively. The increase in net cash provided by operations over that period
was attributable to the Company's ability to reduce inventories through
improved inventory and purchasing systems in fiscal 1996 and 1997 and store
closures in each year.

Net cash used in investing activities was $581,000 and $1.8 million for the
first quarter of fiscal 1997 and 1998, respectively. The increase in the first
quarter of fiscal 1998 was primarily due to construction costs incurred for
the new St. Thomas store. Cash used in investing activities for fiscal 1995,
1996 and 1997 was $3.1 million, $2.0 million and $899,000, respectively. The
decline was primarily a result of discontinuing expansion activities during
these years.

Net cash provided by financing activities was $324,000 and $778,000 for the
first quarter of fiscal 1997 and 1998, respectively. The increase in the first
quarter of fiscal 1998 was primarily due to the receipt of $1.0 million from
the construction loan for the new St. Thomas store. Net cash provided by (used
in) financing activities for fiscal 1995, 1996 and 1997 was $4.3 million,
$(1.8) million and $(2.7) million, respectively, primarily reflecting a
reduction in the last two fiscal years of the outstanding balance on the
Company's bank credit facilities to $760,000 as of December 28, 1997 from a
high of $8.2 million in June 1995.

On May 1, 1998, the Company renewed and increased the Line of Credit to $7.0
million, which now expires May 1, 1999. Borrowings under the Line of Credit
were $2.1 million at May 1, 1998. Of the borrowings under the Line of Credit,
$633,000 bear interest at the bank's prime rate (8.5% at May 1, 1998) and $1.5
million at the LIBOR plus 1.5% (7.17% at May 1, 1998). The borrowing
collateral for the Line of Credit consists of inventories, equipment and trade
accounts receivable. The Line of Credit contains certain restrictive covenants
relating to working capital, debt-to-equity ratios, minimum equity, payment of
cash dividends and cash flow coverage.

The new St. Thomas store will be constructed and owned by the Company at a
total estimated cost of $3.0 million, including $400,000 for furniture,
fixtures and equipment. The Company obtained $3.0 million of construction
financing from two banks for its new store in St. Thomas. The construction
financing included a $1.0 million note payable with interest at the LIBOR plus
1.75% (7.77% at May 1, 1998), maturing on April 30, 2000. The construction
financing also included a $2.0 million note payable with interest at the
bank's prime rate plus 1.0% (9.5% at May 1, 1998) maturing on June 1, 2013.
The second note is secured by a first priority leasehold mortgage on the new
St. Thomas store. Each of these agreements contains certain restrictive
covenants relating to payment of cash dividends and other matters.

The Company estimates that its total cash outlay for opening a typical
island store will be approximately $2.0 million. The Company plans to open
three stores in fiscal 1998 (one store in St. Thomas and two stores in Fiji),
and six stores in each of fiscal 1999 and 2000. Overall, the Company
anticipates opening at least 26 new stores by the end of fiscal 2002. See
"Business--Expansion Plans."

When opening a new store, as well as on an on-going basis, the Company
expects to finance a substantial portion of its merchandise inventory cost by
using a combination of vendor and bank financing. However, there can be no
assurance that this level of financing will be available in the future on
terms acceptable to the Company.

The Company's cash needs are primarily for working capital to support its
inventory requirements and for store expansion. The Company intends to use a
portion of the net proceeds of the Offering to finance its expansion program
in fiscal 1998 and 1999 and to repay debt outstanding under the Line of
Credit, which is expected to be $4.0 million upon closing of the Offering. See
"Use of Proceeds." The Company believes that the net proceeds of the Offering,
together with amounts from bank financing and fixed-term capital asset loans
and net cash from operations, will be sufficient to satisfy the Company's
currently anticipated working capital and capital expenditure requirements
through fiscal 1999.

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. If not addressed,
the direct result of the Year 2000 issue could be a system failure or
miscalculations, causing disruption of operations, including a temporary
inability to process customer transactions, order merchandise, accurately
track inventory and revenue, or engage in similar normal business activities.
The Company has implemented a plan to review and monitor its computer systems
to ensure that they are Year 2000-compliant, but does not believe that it will
be required to invest a material amount of funds to make its systems Year
2000-compliant. The Company's failure to implement its Year 2000 corrections
in a timely fashion or in accordance with its current cost estimates, or the
failure of third-party vendors to correct their Year 2000 problems, could have
a material adverse effect on the Company's business, financial condition and
operating results. See "Risk Factors--Dependence on Systems; Year 2000
Compliance."

BUSINESS

GENERAL

Cost-U-Less is a leading operator of mid-sized warehouse club-style stores
in the U.S. Territories. The Company enjoys significant benefits from the
extensive experience of its management team in the warehouse club industry. As
a result of prior relationships with industry leaders such as Costco, the
Company's officers and key employees gained competencies related to the
operation methods, purchasing strategies and management information systems
employed by warehouse clubs. During the Company's early years, its key
personnel developed and implemented a business plan whereby the Company
purchased merchandise at retail from existing large-format warehouse clubs and
then resold the merchandise, at attractive margins, through stores located in
relatively remote and underserved markets. By selling only products proven to
be successful at established warehouse clubs, the Company minimized its need
for in-house buyers and was able to keep corporate costs low. The Company
utilized this strategy for several years and maintained its focus on operating
pursuant to an effective and low-cost business model. However, as sales volume
grew, the Company became able to source its merchandise directly from
manufacturers, thereby significantly reducing its cost of goods. Over time,
the Company augmented its corporate buying team as it began to increasingly
tailor its product mix to its specific markets and further realize the
benefits of direct purchasing. The Company then began to build a functional
corporate infrastructure to support anticipated growth.

Capitalizing on management's experience in the warehouse club industry, the
Company opened its first retail warehouse store in 1989. In 1992, the Company
initiated its expansion by opening stores in relatively remote island
locations. After experiencing success with its mid-sized store concept, the
Company began experimenting in late 1992 with similar stores in various
mainland markets while continuing to open stores in island markets. Facing
increasing competition from larger discount retailers and warehouse clubs in
its mainland markets while continuing to succeed against similar competitors
in its island stores, management decided in 1995 to return its focus to its
core island markets. In 1996, while further refining its island store concept,
enhancing inventory control and management information systems, adjusting its
island store product mix to include higher-margin items and local merchandise,
and developing a prototype island store design, the Company continued the
process of closing nearly all its mainland stores. The Company believes it is
now well positioned to pursue an aggressive growth strategy focused on
accelerating the roll-out of its island stores, starting with two new stores
in Fiji for which leases have been signed and site development has begun.

The Company intends to concentrate its future expansion efforts on island
markets, which it believes offer significant opportunities for growth. To
achieve its anticipated growth, the Company plans to employ a multitier
business strategy designed to leverage the Company's core competencies in
opening and operating stores in distant and diverse locations, while
capitalizing on the inherent features of island markets. Moreover, the Company
intends to continue utilizing a "first-mover" advantage. By opening stores in
markets that other warehouse clubs and discount retailers have not yet
entered, the Company believes that it will be better able to achieve
significant market share and develop name recognition and customer loyalty,
thus further discouraging entry by large-format discount competition.
Accordingly, the Company's future growth involves expanding into relatively
untapped markets, and the Company has identified a number of islands
throughout the Pacific and Caribbean in which warehouse clubs and discount
retailers have not opened stores.

INDUSTRY OVERVIEW

According to Warehouse Club Focus, an industry research group, sales in the
warehouse club industry totaled approximately $13.3 billion in 1988,
representing 1% of U.S. nonautomotive retail sales, which totaled
approximately $1.28 trillion. In calendar year 1997, industry-wide sales
totaled approximately $41.2 billion, or 2.1% of all U.S. nonautomotive retail
sales, which totaled approximately $1.93 trillion. These results represent
compound annual growth rates of 13.4% for warehouse club sales and 8.4% for
market share. The compound annual sales growth rate of 13.4% compares to only
4.7% in compound annual growth for U.S. nonautomotive retail sales over the
same period. Warehouse club industry sales have increased steadily, capturing
an increasing percentage of U.S. nonautomotive retail sales in each of the
last 10 years. Spawned in the 1970s with the introduction of a regional
Southern California membership-based retail and wholesale warehouse club, the
warehouse club industry has grown to include three national warehouse club
chains, Costco, BJ's

Wholesale Club, Inc. and Sam's Club (a subsidiary of Wal-Mart), with 1997
annual sales growth rates of 16.5%, 8.6% and 4.8%, respectively.

Traditional warehouse clubs focus on both retail and small-business
customers, with store formats averaging approximately 115,000 square feet.
These retailers typically (i) offer a range of national brand and selected
private label products, often in case, carton or multiple-pack quantities,
(ii) provide no-frills, self-service warehouse facilities with pallet-stacked
product aisles, and (iii) charge annual membership fees. Prior to the
inception of the membership warehouse club concept in the mid-1970s, the
dominant companies selling comparable lines of merchandise were department
stores, grocery stores and traditional wholesalers. Warehouse clubs positioned
themselves as low-price leaders in the communities they entered and thereby
quickly gained market share as their new merchandising concepts and aggressive
marketing techniques led to a more competitive retail environment.

The Company believes that its target island markets are similar in many
respects to those found in the United States before the introduction of the
first warehouse club stores; however, island markets are characterized by
distinct attributes that, management believes, lead to certain competitive
advantages for the Company. Logistical challenges are presented by operating
individual store units in remote locations, whether in terms of information
flow or transportation of goods. Meeting these challenges requires specially
tailored systems and methods. Issues related to receiving local government
approvals, dealing with island real estate and site selection, and
constructing weather-resistant buildings that have been properly formatted for
efficient retailing are difficult to overcome. Retailers, and thus consumers,
in island markets generally have limited experience with modern, more
effective retailing methods and therefore, the Company believes, an
opportunity exists to capitalize on competitive advantages inherent in
employing such techniques. In addition, while the typical U.S. warehouse club
customer has virtually unlimited access to popular U.S. brand-name products,
the Company believes these products are carried by relatively few local island
retailers. As a result, an unusually strong yet largely unsatisfied demand for
certain products may exist. Moreover, each island or region demonstrates
unique consumer preferences and thus may require effective retailers to
conduct regional research and to incorporate flexible localized merchandise
purchasing policies in order to offer a diverse selection of local products,
as well as popular U.S. brand-name products. Based on the increasing
acceptance of the traditional warehouse-club concept in mainland markets, the
Company's experience and operating results in current island locations, as
well as its market research of potential markets, the Company believes that
significant opportunities exist in island markets for expansion of its
warehouse club-style store concept.

The Company has identified its prototypical target market as an island with
a minimum population of 40,000 and a Gross Domestic Product of at least $125
million. The Company estimates that at least 30 Pacific and Caribbean islands
meet or exceed these criteria. Based on its estimates, the Company believes
these islands currently represent as many as 90 potential locations for its
island concept stores.

BUSINESS STRATEGY

The Company's goal is to become the leading operator of warehouse club-style
stores in island markets by leveraging its island-operations expertise,
utilizing modern systems and merchandising techniques, offering competitive
prices while maintaining attractive margins, providing a localized product mix
and benefiting from low overhead costs.

Concentrate Expansion Efforts in Island Markets. The Company's expansion
strategy focuses on opening mid-sized warehouse club-style stores in island
markets throughout the Pacific and Caribbean. The Company believes these
markets offer significant opportunities for growth. Specifically, island
markets are often characterized by (i) significant geographic and logistical
challenges, (ii) local competition with minimal experience in modern retailing
methods, and (iii) a demand for U.S. brand-name products that have limited
availability. In addition, the Company believes that traditional large-format
warehouse club and discount retailers are generally unwilling to adapt their
multiunit, continent-based operations to meet the unique characteristics and
small populations of island markets.

Leverage Island-Operations Expertise. Capitalizing on its experience in
opening and operating retail warehouse club-style stores in remote U.S.
Territories and the Hawaiian Islands, the Company has developed core
competencies in overcoming the inherent challenges of island market
operations. The Company has refined a mid-sized building prototype designed to
endure severe island weather conditions. This prototype also incorporates low
construction costs, specifications that can be easily and quickly replicated,
and standardized equipment designed either to be readily repaired by island
employees or efficiently monitored off-site by equipment vendors. Moreover,
the Company has made a significant investment in its information systems and
communication networks, enabling corporate management and store buyers to
receive daily sales and inventory information and maintain regular contact
with in-store management and employees. In addition, through its longstanding
relationships with steamship lines, and with its present volume of deliverable
goods, the Company has negotiated what it believes to be competitive
transportation rates while selecting efficient shipping routes and cost-
effective freight techniques, including the use of both a Company-operated
cross-dock depot and independently operated distribution facilities.

Utilize Modern Systems and Merchandising Methods to Successfully Enter
Target Markets. The Company believes that merchants in target markets often
have not adopted modern retail operating efficiencies, including computerized
cash registers and inventory-tracking devices, state-of-the-art refrigeration
and air-conditioning equipment, efficient shelving and display racks, improved
forklifts and sophisticated security systems. Moreover, the Company believes
that many locally operated stores do not have access to the vendor network and
distribution channels developed by the Company. As a result, the Company
believes that it will be able to successfully enter remote island markets by
using its advanced systems to provide a superior shopping environment for its
customers by (i) monitoring sales and inventory levels and using this
information to respond rapidly to changing consumer preferences and (ii)
offering a level of product selection and customer service often not found in
most of its local competitors' island stores.

Emphasize Strong Margins While Maintaining Everyday Low Prices. In addition
to providing a pleasant shopping atmosphere, the Company is able to sell its
products at prices that it believes are lower than those offered by its local
island competitors, yet are still above those that could be charged in
mainland markets. By leveraging its retail operating efficiencies and access
to volume-purchasing discounts, the Company believes it is able to acquire its
products at a significantly lower cost than that paid by other island
retailers. The Company passes along much of these savings to its customers
through "low price leader," "everyday low prices" and "dare to compare"
pricing policies. In addition, unlike most warehouse clubs, the Company does
not charge a club membership fee, further providing cost-effective shopping to
its customers. However, due to the demand in island markets for the Company's
goods, the lack of meaningful price competition and the generally high price
levels found in such markets, the Company believes its prices are often higher
than those charged on the mainland by warehouse clubs and discount retailers,
enabling the Company historically to achieve higher margins than those
achieved by mainland warehouse clubs and discount retailers.

Use Localized Product Sourcing Yet Derive Benefits of Centralized
Purchasing. An important element of the Company's marketing strategy is to
specifically cater its product selection to each distinct island market. To
this end, the Company conducts market research through its vendors, store
managers and resident employees to ascertain the preferences of each
particular locale, including determining which national brands are favored and
which regional and ethnic items are desired. The Company's buyers then procure
a majority of these products through the Company's centralized purchasing
department, thus deriving the benefits of volume purchase discounts,
streamlined distribution and enhanced selection. The remaining products,
including locally produced items that are available only in a particular
region, are generally purchased by store managers and Company buyers directly
from suppliers located in the region.

Capitalize on Efficient Facilities, Controlled Operating Expenditures and
Cost-Effective Labor. The Company seeks to minimize costs throughout its
operations in an effort to decrease overhead and increase margins. These
savings are achieved through the use of efficient facilities, including
designing stores that (i) do not incorporate expensive fixtures such as floor
tiles and false ceilings, (ii) are energy-efficient as a result of

modern refrigeration and air-conditioning equipment, (iii) encourage self-
service and feature sophisticated scanning systems, thereby reducing labor and
shrink expense, and (iv) maximize selling-floor space, thus reducing overall
space requirements and rental expense. In addition, the Company has been able
to limit advertising expense by relying primarily on "word-of-mouth" publicity
in island markets because of its significant market presence in relation to
most of its competitors. Further, the Company's efforts at controlling
inventory shrink expense have contributed to increased gross profit. Finally,
although the Company believes that it generally pays its employees above-
market wages and is thereby able to attract and retain high-quality employees,
it further believes that island wages are generally lower than mainland wages
and thus result in decreased labor costs.

Develop Relationship with CDC. The Company is seeking to develop a strong
relationship with CDC, a development finance institution of the U.K.
government. Organized in 1948, CDC is engaged in economic development
activities in overseas countries, including venture capital and other
investments, and has significant interests in the Pacific Islands and
Caribbean regions. The Kula Fund, a private equity fund established in 1997
for 12 Pacific Island countries and managed by a CDC affiliate, is financed by
CDC, Asian Development Bank, European Investment Bank, International Finance
Corporation, Societe de Promotion et de Participation pour la Cooperation
Economique/Proparco and Fiji National Provident Fund. The Company has reserved
for purchase by the Kula Fund approximately 10% of the shares being offered by
the Company in the Offering. The Company also anticipates that Ashley
Emberson-Bain will join the Company's Board of Directors, and expects to sell
warrants to the Kula Fund upon completion of the Offering. Mr. Emberson-Bain
has been employed by CDC since 1986 in a variety of management, investment and
staff positions. Since 1995, he has been principally responsible for
overseeing CDC investments in the Pacific Islands. The Company believes that
CDC's strong ties to, and knowledge of, the Pacific Islands and Caribbean
regions, and its presence in most areas where the Company either operates or
plans to operate, will strengthen the Company's business and business
strategy. See "Certain Transactions," "Description of Capital Stock" and
"Underwriting."

EXPANSION PLANS

General. The Company's expansion plans focus on opening new stores in
foreign island markets. The Company believes such island markets offer
significant opportunities for growth because they are often characterized by
(i) significant geographic and logistical barriers to entry, (ii) existing
higher-priced local competitors with minimal experience with modern operating
processes in purchasing, distribution, merchandising and information
technologies, and (iii) a demand for U.S. brand-name products that have
limited availability. The Company intends to resume expansion efforts in
fiscal 1998 after concentrating its efforts in fiscal 1996 and 1997 on (i)
improving internal operating efficiencies, (ii) standardizing its island
business model and related strategies, and (iii) closing nearly all of its
U.S. mainland stores. The Company plans to open three stores in fiscal 1998
(one store in St. Thomas and two stores in Fiji), six stores in fiscal 1999
(including one store in Curacao, Netherlands Antilles, where the Company has
entered into a lease and begun preconstruction activities) and six stores in
fiscal 2000. Overall, the Company anticipates opening at least 26 new stores
by the end of fiscal 2002 throughout the Caribbean and Pacific.

Mid-Sized Format. The average size of the Company's seven island stores is
approximately 30,000 square feet, while the traditional warehouse stores found
in the United States average approximately 115,000 square feet. The Company
has developed a store "footprint" based on a 36,000-square-foot facility,
which it believes is adaptable from anywhere between 25,000 to 45,000 square
feet. The Company's prototype was developed in consultation with architects
and designers who helped design many of the warehouse stores operating in the
United States today. The prototype is being used in the construction of the
two stores in Fiji, the store in St. Thomas, and the store planned for
Curacao.

Site Selection. The Company believes that the reduced size of its stores, as
compared to typical large-format discount retailers, will enable it to operate
profitably in markets far less populated than typical warehouse clubs. The
Company chooses potential store sites by comparing the demographics of its
current store base to the demographics of the target market. The following
chart reflects the demographics of the

Company's current U.S. Territories stores, sites under development and islands
that the Company currently considers to be potential markets for Company
stores during the next several years:

GROSS
DOMESTIC
POPULATION PRODUCT
LOCATION (ESTIMATED) (ESTIMATED)
-------- ----------- -----------

CURRENT
Guam.......................... 154,000 $ 3.1B
U.S. Virgin Islands........... 102,000 $ 1.2B
American Samoa................ 58,900 $ 253M
UNDER DEVELOPMENT
Fiji.......................... 800,000 $ 1.8B
Netherlands Antilles.......... 211,000 $ 2.0B
SITE SELECTION PHASE
Papua New Guinea.............. 4,142,000 $ 4.6B
New Zealand................... 3,587,000 $65.6B
French Polynesia (Tahiti)..... 229,000 $ 3.4B
Tonga......................... 99,000 $ 125M
Aruba......................... 78,692 $ 1.4B

Because of the unavailability of detailed demographic studies by third-party
consultants, the Company's market analysis is performed in-house. The Company
compares the results of its analysis with the demographic statistics of its
successful island stores. If the demographics for a targeted location compare
favorably with those of its current island operations, the Company includes
the target location as a potential site for expansion.

Once the Company identifies a target location as a possible site for its
expansion and is satisfied with the political and regulatory environment in
the target location, the Company compares the prices charged by local
competitors to the prices the Company would need to charge in order to achieve
an acceptable return on its investment (after factoring in cost of the
product, cost of freight, duties, port charges, transportation and taxes). If
the Company's market research indicates that the Company would be able to
charge an adequate price for its products, the Company commences a formal
search for a suitable store site. Desirable attributes of suitable sites
include a central location in a population center of at least 40,000,
sufficient space for the Company's facility, including parking and loading
docks, access to utilities and acceptable geological conditions for successful
construction.

Store Openings. The Company prefers to lease its facilities, which are
generally built to Company specifications. To this end, the Company has
developed a standard lease that it uses as a starting point for its lease
negotiations with each potential landowner/developer. The Company routinely
negotiates a 10-year lease with at least two five-year renewal options. The
Company typically does not incur construction expenses for the building
itself; however, the Company provides each developer with construction
specifications and a project timeline. The Company plans to source
construction materials for its buildings to help control lease costs and
ensure building quality. The Company estimates that it takes approximately
eight months from execution of the lease to store opening. The use of the
Company's prototype plans helps ensure that the building will be properly
configured for installation of the Company's fixtures. The refrigeration
equipment will be installed under the supervision of the equipment vendor,
with the Company's crew installing other equipment. The Company anticipates
that in fiscal 1998 and 1999 its required investment to open a new store will
be approximately $2.0 million, including approximately $300,000 for opening
expenses, $800,000 for store fixtures and equipment and $900,000 for
inventory. The Company expects to carry approximately $1.8 million of
inventory, including $600,000 of inventory in transit. Typically, 50% of the
Company's inventory is vendor-financed, resulting in a $900,000 average per-
store inventory investment by the Company.

The new St. Thomas store will be constructed and owned by the Company at a
total estimated cost of $3.0 million, including $400,000 for furniture,
fixtures and equipment. The existing St. Thomas store will be closed when the
new store is opened. The current lease on the existing St. Thomas store
expired March 31, 1998, and the store is being rented on a month-to-month
basis. The equipment and inventories will be relocated to existing and new
stores.

The Company generally does not intend to own the land or buildings for its
stores. To the extent, however, that the Company believes it to be
advantageous to purchase land for new store sites or to construct new store
buildings, the Company may use its cash resources or existing financing
sources during the construction period and subsequently attempt to obtain
permanent financing after the stores are opened. The ability of the Company or
its potential future landlords to secure financing for new stores is subject
to the availability of commercial real estate loans; failure to secure
adequate financing on a timely basis would delay or potentially prevent new
store openings.

STORE ECONOMICS

Cost-U-Less benefits from attractive store-level economics and favorable
returns on investment at its island stores, which it believes will help drive
and support its planned expansion. The Company's seven island stores open
during all of fiscal 1997 generated annual average net sales of approximately
$15.9 million, average net sales per square foot of $536, average annual per
store contribution of approximately $805,000 and average annual per store
contribution before depreciation of approximately $888,000. The average
investment in equipment and leasehold improvements as of December 28, 1997 in
the seven island stores was approximately $884,000. The average investment in
inventory, net of accounts payable of approximately 50%, was $650,000 at
December 28, 1997. The store contribution return on average island investment
for fiscal 1997 was 53%.

STORE LOCATIONS

The Company currently operates eight warehouse club-style stores: two in
Hawaii, two in Guam, one in St. Thomas, one in St. Croix, one in American
Samoa and one in Sonora, California.

APPROXIMATE
SQUARE LEASE OPTION TO
LOCATION DATE OPENED FOOTAGE TERM EXPIRATION DATE EXTEND
- -------- ---------------- ----------- -------- ----------------- ---------

Dededo, Guam............ May 1, 1992 31,200 10 years May 1, 2002 10 years
Hilo, Hawaii............ August 27, 1992 23,000 15 years August 31, 2006 10 years
Kapaa, Kauai............ March 18, 1993 22,000 10 years November 15, 2002 10 years
St. Thomas, USVI........ August 19, 1993 38,700 monthly N/A N/A
Sonora, CA.............. January 27, 1994 23,150 10 years January 1, 2004 10 years
St. Croix, USVI......... November 3, 1994 26,210 10 years November 1, 2004 10 years
Tamuning, Guam.......... March 15, 1995 35,000 15 years March 1, 2010 10 years
Pago Pago, American
Samoa.................. March 20, 1995 32,055 10 years February 28, 2005 15 years

The Company has signed a land lease to build a new, replacement store on St.
Thomas. The lease has a term of 20 years with an option to extend for an
additional 30 years. The Company has entered into an agreement to lease a
store in Nadi, Fiji, which the Company anticipates will occupy approximately
25,000 square feet and will be built to Company specifications. The lease
contemplated by the agreement will have a 10-year term with an option to
extend for an additional 20 years. The Company has entered into a similar
agreement to lease a store in Suva, Fiji, which it anticipates will occupy
approximately 30,000 square feet and will be built to Company specifications.
The lease contemplated by the agreement will have a 10-year term with an
option to extend for an additional 10 years. The Company is currently
subleasing two small sites in Fiji to maintain its business and regulatory
licenses and test its systems while it awaits the completion of the two new
Fiji stores. The Company has also signed a lease for a store in Curacao,
Netherlands Antilles. The Company anticipates that the store will occupy
approximately 39,000 square feet and will be built to Company specifications.
The lease has a 10-year term with options to extend for an additional 10
years.

MERCHANDISING

Store Layout. The Company has incorporated into its prototype store many
standard features found in domestic warehouse clubs that had been previously
unused in most island markets. Store layout and interior designs were planned
and calculated using computer models, with the goal of maximizing the sales
per square foot and providing uniformity among the stores. Further, the
Company believes that its use of loading docks, comparatively large freezer
and refrigeration space with state-of-the-art equipment, efficient shelving
and display racks, computerized cash registers and inventory tracking systems,
and multiple checkout lanes helps give it a competitive advantage over its
island competitors. Additionally, because of the damage often caused by severe
weather in its island markets, the Company has designed its prototype to
withstand the severe wind and heavy rain associated with hurricanes, typhoons
and tropical storms.

The Company has used considerable care in developing its store layout, which
features a logical flow to encourage shopping of all departments. Customers
enter through large roll-up metal doors and utilize a large shopping cart or,
in some instances, a rolling flat-bed cart for purchases in larger sizes or
quantities. All items are within easy reach on the floor or, because of the
Company's reduced store size, on a shelf above the sales floor. When ready for
check-out, the customer proceeds to the check-out area in the front of the
store, which usually features 10 lanes. During a typical store visit, the
average customer will spend approximately $50. Various forms of payment are
accepted, including food stamps and debit and credit cards, and credit is
extended to some local businesses and government agencies. Utilizing a no-
frills approach, the stores display items in steel racking, usually on the
vendor's pallets or in open cases, to maximize warehouse space and minimize
labor costs. In-store signage reinforces the basic value image, while stores
generate customer excitement through the use of end-cap displays featuring new
merchandise and special promotions, food demonstrators offering product
samples, and ongoing introduction of new items. The following diagram
represents the layout for the Company's prototype stores under development:

[FLOORPLAN OF STORE]

STORE DIAGRAM

The Company has also attempted to minimize costs through the design of its
prototype. The Company does not use expensive fixtures such as floor tiles and
false ceilings, and thereby lowers construction and maintenance costs. In
addition, the Company's refrigeration supplier has designed specialized
refrigeration units using modern equipment that allows for cost-effective
monitoring, maintenance and repair, and keeps energy costs to a minimum. The
Company has also developed standardized construction specifications. As a
result of the Company's planned expansion and through extensive negotiations
with suppliers, the Company has achieved competitive prices on its building
materials, such as metal exterior panels, building components, store equipment
and shelving, thus allowing the Company to control material costs on a per-
facility basis and help ensure uniformity of materials throughout its
facilities while reducing the Company's lease expenses.

Product Categories. The Company typically carries approximately 2,500 stock-
keeping units ("SKUs"), compared to the 3,500 to 5,000 SKUs estimated by
industry sources to be carried by traditional warehouse clubs. Certain
departments found in most large-format warehouse clubs such as apparel,
automobile tires and prescription drugs are eliminated at Cost-U-Less. All
Cost-U-Less stores feature the following main product categories:

Food--Perishables. Meat, produce, deli, dairy and frozen items represent
approximately 28% of a typical store's net sales. The "reach-in" freezers
and coolers are substantially larger than those found in the stores of most
of the Company's local island competitors.

Food--Nonperishables. Dry grocery goods, including soda, wine, beer,
liquor, candy and snacks, represent approximately 42% of a typical store's
net sales. Also included in this area are ethnic and specialty items
catering to local consumer demands.

Nonfood. Other nonfood items comprise the remaining 30% of a typical
store's net sales, and include tobacco, sundries, health and beauty,
office, hardware, electronics, housewares, furniture and sporting goods.

Purchasing. The Company balances its product mix by providing popular U.S.
brand names together with local ethnic items found in each island region.
Approximately one-third of the Company's product items are produced locally or
purchased through local suppliers in each market. Offering locally purchased
merchandise enables Cost-U-Less to better serve its island customers and offer
an innovative variation to the warehouse store format. Store managers are able
to purchase product that may be available only on their particular islands.
The Company's buyers monitor sales and inventory levels on a daily basis from
all of the Company's stores, which allows the Company to quickly spot product
trends and discontinue slow-moving products. Morever, in an effort to cater to
retail customers who generally purchase products for home use, the Company
carries products in various product sizes, including single packages, "bulk
packages" and mid-sized "value-packs." This strategy differs from traditional
warehouse clubs, which typically stock only products in bulk quantities to
satisfy their wholesale client base.

Pricing. The Company strives to be the "low price leader" for the markets it
serves. Cost-U-Less does not charge its customers a membership fee, which
allows all consumers to receive the benefits of the Company's value-pricing
philosophy. The Company provides everyday low prices that are often lower than
regular prices offered at most retailers, such as grocery stores, and are
generally intended to be slightly lower than those offered by mass merchant
discount retailers, such as Wal-Mart and Kmart, that operate in the Company's
island markets. In order to ensure that the Company has the lowest prices
available in a particular market, the Company regularly compares prices and
products being offered by the Company's local competitors. Generally, given
the economic efficiencies the Company can bring to bear with its ability to
purchase product at larger quantities as well as its efficient distribution
system that allows it to take advantage of optimal freight and transportation
costs, the Company has a competitive advantage when pricing most of its
products compared to local competition. However, if the comparison of local
competitors' prices discloses that the Company's prices exceed those of its
local competition, store managers have the authority to reduce prices to
remain competitive. This decentralization of pricing decisions allows the
Company to respond quickly and efficiently to competitive challenges in each
of its island markets.

OPERATIONS

Distribution and Inventory Management. The Company typically buys directly
from manufacturers in large quantities (full truck loads whenever possible).
The Company currently uses three distribution facilities: a Company-operated
facility in Union City, California and independently operated facilities in
Port Everglades, Florida and Auckland, New Zealand. At each distribution
facility, merchandise is received, consolidated and cross-docked, and
ultimately shipped in fully loaded containers to the Company's stores. Each
store has a "lane" designated to it in the depot; when a full container load
is queued into the lane, it is loaded by forklift into a cargo container,
which, when filled, is then delivered to the closest port for shipment to the
designated store. Management has significant experience and long-term
relationships with steamship lines and, with its present volume, has
negotiated what it believes to be competitive transportation rates. The
Company does not have a warehouse, but controls inventory levels in stores by
maintaining sufficient back stock in stores combined with efficient cross-dock
facilities. For perishable items, the Company uses independently operated
consignment depots that are for the Company's exclusive use. Each supplier of
perishable items, such as meats, frozen foods, fruits and vegetables, pays a
storage charge for use of such depots based upon the amount of space used for
storage of each supplier's goods. The Company gives its suppliers of
perishable items notice of its projected supply needs, and these suppliers
deliver product to the depots. However, the Company does not accept delivery
of the product, nor is it responsible for payment, until it places a final
order. Once the final order is placed, the goods are removed from the
consignment depot and loaded onto refrigerated shipping containers located at
the consignment depots, at which point the goods are deemed delivered. The
Company then transports the shipping containers to the nearest port for
shipment to its island stores. By using this procedure, the Company minimizes
loss of perishable product due to over-orders because it does not "purchase"
the goods until it is certain of the needs of its stores.

Operating Systems. The Company believes that its operating systems provide a
competitive advantage over local retailers. Each Company store is outfitted
with adjustable metal shelving that allows the Company to vary the display of
its product based on each location's specific consumer needs. In addition, the
Company is using new forklifts that have a smaller turning radius, resulting
in the ability to decrease the width of aisles. Reducing aisle widths reduces
the size requirements for future stores while maintaining selling space, and
produces savings in rent expense as well as energy costs. Each island store
has backup generators designed to protect perishables and the store's security
system during disruption of electric service caused by severe weather
conditions that can occur in island markets. The Company has designated the
Sonora, California store as a testing facility to test various store layouts
and display patterns, which enables management to review and monitor various
store designs and innovations before they are implemented in island locations.
In its new stores, the Company will utilize a specialized refrigeration system
comprised of several smaller components rather than one large component.
Because the system uses many different compressors, the loss of one compressor
does not shut down the entire refrigeration system. At the first indication of
system failure, the refrigeration supplier notifies a local service provider,
who visits the Company's facility and replaces the faulty component. Moreover,
the Company keeps many replacement components on-site. This system also helps
minimize the loss of product associated with damaged refrigeration units.

Management Information Systems. Cost-U-Less considers management information
systems to be a key component of its strategic plan. The Company tracks all
inventory movement, sales and purchase orders by SKU number, vendor number,
store and date. The Company currently uses electronic point-of-sale equipment
in all stores, and in the depot located in Union City, California. All data
from each location is sent via modems or the Internet to the computer system
located at the Company's corporate headquarters in Bellevue, Washington. Using
both Company personnel and contract consultants, the Company has enhanced,
extended and improved the data capabilities of its software systems to support
an inventory tracking report and comparisons by year, by store, by item and by
vendor. The Company is developing the specifications for integrated systems to
support automatic replenishment of inventory and supplies, and to profile
sales and purchasing trends. The Company is also testing its new procedures
for multi-currency inventory and purchase order functions. The Company
believes that its current computer systems will support anticipated growth
through fiscal 1999 though the Company may upgrade earlier. In order to
maintain its competitive advantage in its chosen markets, the Company uses a

corporate-wide intranet and the Internet, which allows for quick responses to
ever-changing customer needs and local retail opportunities. Because the
Company's stores are located on various islands, the ability to quickly,
consistently and accurately communicate between headquarters and store
locations is imperative. The Company's expansion plans anticipate continued
use of the intranet and the Internet to connect its stores, thereby decreasing
communication costs. The Company plans to integrate new applications aimed at
providing enhanced services, data analysis and improved customer service, thus
raising office and store productivity. While the Company has taken a number of
precautions against certain events that could disrupt the operation of its
management information systems, including in connection with its planned
systems revisions, there can be no assurance that the Company will not
experience systems failure or interruptions, which could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Risk Factors--Dependence on Systems; Year 2000 Compliance."

Employee Organization, Training and Compensation. Management of each Cost-U-
Less store generally consists of a store manager, two assistant managers and
one or more department managers, depending on the store. Typically, the
department managers are assigned to two categories: merchandising and
administrative. The merchandising manager oversees the training and day-to-day
operations of the stockers, forklift operators and receiving clerks. The
administrative manager oversees the training and day-to-day operations of the
vault clerks, cashiers and security personnel, if applicable.

In order to meet its expansion goals, the Company believes it will need to
hire approximately 45 employees for each new store. The Company's goal is to
hire most of those employees from the island market, thus creating job
opportunities for local residents. The Company attempts to promote its store
managers internally. The Company requires its store managers to complete an
approximately six-month training program in the Company's store in Tamuning,
Guam, which is used as a training facility for potential managers. New store
employees receive initially one to two weeks of training, which typically
includes working alongside individuals in comparable positions before working
without direct supervision. The Company has found that such on-the-job
training, together with the use of detailed operating and training manuals, is
an effective way to introduce new employees and managers to Cost-U-Less
systems and procedures.

The Company strives to attract and retain highly motivated, performance-
oriented employees and managers by offering competitive compensation,
including bonus programs based on their performance. Store managers
participate in a manager bonus program that ties compensation awards to the
Company's overall profits. In addition, all store employees are eligible to
participate in an incentive plan whereby they receive monthly bonuses for
increased store sales and control of inventory shrink expense. Although the
Company believes that it generally pays its employees above-market wages and
is thereby able to attract and retain high-quality employees, it further
believes that island wages are generally lower than mainland wages and thus
result in decreased labor costs.

Local service providers are also trained in the maintenance and repair of
the Company's refrigeration and air-conditioning systems. The Company and its
refrigeration supplier send crews to facilities during the construction phase
to install these systems. These crews work with local electricians, training
them in the operation and installation of the Company's systems. Thus, when
repairs are necessary, the Company may opt to use a local vendor rather than
incur the expense and time involved in using a service person from either the
U.S. mainland or New Zealand.

CUSTOMER SERVICE

The Company brings to its island markets a commitment to customer service
that it believes gives it a competitive advantage in each of the local markets
it serves. The Company's store layout is designed to maximize floor space used
for selling product as well as to give customers a spacious feel while
shopping. Various forms of payments are accepted, including food stamps and
credit and debit cards, and credit is extended to some local businesses and
government agencies. The Company has a 30-day, no-questions-asked return
policy. Each of the Company's stores has approximately 10 checkout lanes,
which allows for quick and efficient shopping. Each store features a customer
desk where customers can have questions answered, usually by a management team
member. In addition, employees are trained to help customers locate store
products.

MARKETING AND ADVERTISING

The Company generally relies on word-of-mouth advertising in order to save
on advertising and marketing costs and pass on the savings to its customers.
The Company currently spends less than 0.2% of net sales on advertising, and
in the past has utilized coupon books, direct mail advertising and newspaper
advertisements. The Company recently hired a manager of marketing and
advertising to analyze demographic and market data necessary for its expansion
plans and to develop marketing and advertising strategies for those markets
that require it.

COMPETITION

The warehouse club and discount retail businesses are highly competitive.
The Company has faced significant competition from warehouse clubs and
discount retailers such as Wal-Mart, Kmart and Costco in Hawaii, Kmart in the
U.S. Virgin Islands, and Kmart and a local joint venture between Price
Enterprises, Inc. and a regional investor in Guam. The Company's competition
also consists of regional and smaller discount retailers and other national
and international grocery store chains. Some of the Company's competitors have
substantially greater resources, buying power and name recognition than the
Company. The Company is targeting expansion in additional island markets that
it believes are underserved by existing retailers. 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. After eight years of
experience refining the warehouse club format in island markets, management
believes that significant growth and profit opportunities exist in remote
island markets. While the Company expects that the size of many of the markets
in which it operates or expects to enter will deter entry by most of its
larger competitors, there can be no assurance that the Company's larger
competitors will not decide to enter these markets or that its smaller
competitors will not compete more effectively against the Company. The
Company's gross margin and operating income are generally lower for those
stores in markets where traditional warehouse clubs and discount retailers
also operate stores. The Company may be required to implement price reductions
in order to remain competitive should any of its competitors reduce prices in
any of its markets. Moreover, the Company's ability to expand into and operate
profitably in new markets, particularly small markets, may be adversely
affected by the existence or entry of competing warehouse clubs or discount
retailers. See "Risk Factors--Competition."

PROPERTIES

The Company currently leases its eight existing store locations. The stores
average approximately 30,000 square feet and range in size from approximately
22,000 square feet to approximately 39,000 square feet. The store leases
typically have a term of ten years with an option to lease for an additional
ten years, with lease rates that increase periodically over the term of the
lease. With the exception of the Sonora store and the current St. Thomas
store, both of which opened in existing facilities, all of the Company's
stores have been built to Company specifications. See "--Store Locations."

The Company leases approximately 40,000 square feet for its distribution
facility in Union City, California, which lease expires on December 31, 1998.
The Company also leases approximately 6,000 square feet of office space for
its headquarters in Bellevue, Washington, which lease expires on April 30,
1999. The Company subleases approximately 2,000 additional square feet at its
headquarters in Bellevue on a month-to-month basis. Beginning on July 1, 1998,
the Company will lease approximately 430 square feet of office space in
Auckland, New Zealand. Such lease term will expire on July 1, 1999, but can be
renewed thereafter on a month-to-month basis. The Company believes that such
corporate offices and distribution facilities will be sufficient to meet the
Company's needs through the end of fiscal 1999. The Company expects it will be
able to renew the Union City, California and Bellevue, Washington leases
annually; however, the Company believes it will be able to find suitable
replacements facilities if either facility lease is not extended.

TRADEMARKS

The Company has been granted federal registration of the name "Cost-U-Less"
and has applied for federal registration of the stylized logo "Cost-U-Less."

GOVERNMENTAL REGULATION

The Company is subject to various applicable laws and regulations
administered by federal, state or U.S. Territory regulatory authorities,
including, but not limited to, laws and regulations regarding tax, tariffs,
zoning, employment and licensing requirements. Additionally, as the Company
pursues future expansion in foreign countries, the Company's operations will
be subject to foreign regulatory standards involving corresponding laws and
regulations, in addition to customs, duties and immigration laws and
regulations. Changes in the foregoing laws and regulations, or their
interpretation by agencies and the courts, occur from time to time. While the
Company believes that it presently complies in all material respects with such
laws and regulations, there can be no assurance that future compliance will
not have a material adverse effect on the Company's business, financial
condition and operating results. See "Risk Factors--Risks Associated With
Island and International Operations."

EMPLOYEES

As of May 1, 1998, the Company had 34 full-time employees at its corporate
headquarters in Bellevue, Washington, and 11 employees at its main
distribution facility in Union City, California. In total, the Company employs
approximately 350 people worldwide. None of the Company's employees are
covered by collective bargaining agreements. The Company considers its
relationship with its employees to be good.

LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Prospectus, the Company is not a party to any litigation that, if
adversely determined, would have a material adverse effect on its business,
financial condition and operating results.

MANAGEMENT

DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The directors, director nominees, executive officers and key employees of
the Company, and their ages and positions as of May 1, 1998, are as follows:

NAME AGE POSITION
- ---- --- --------

EXECUTIVE OFFICERS, DIRECTORS
AND DIRECTOR NOMINEES
Michael J. Rose....... 47 Chairman of the Board, President and Chief Executive Officer
Allan C. Youngberg.... 45 Vice President-Chief Financial Officer, Secretary and Treasurer
Ashley Emberson-Bain.. 39 Director Nominee
Donald L. Gevirtz..... 70 Director
George C. Textor...... 53 Director
David A. Enger........ 52 Director
Wayne V. Keener....... 60 Director
Gary W. Nettles....... 46 Director
KEY EMPLOYEES
Terence R. Buckley.... 61 Director of Pacific Expansion
James F. Arcuri....... 48 Project Manager
Donald A. Kunecke..... 45 Management Information Systems Manager
William W. Lofgren.... 35 Operations Manager
Michael T. Scalzo..... 33 General Merchandise Manager
Paul J. Schulte....... 49 Sales and Marketing Manger

The Board of Directors is divided into three classes. Each director serves
a three-year term and one class is elected each year by the Company's
shareholders, commencing at the Company's annual shareholders meeting in 1999.
Directors hold office until their terms expire and their successors are
elected and qualified. The terms of the current directors will expire as
follows: Messrs. Nettles and Enger in 1999, Messrs. Keener and Textor in 2000,
and Messrs. Rose and Gevirtz in 2001. Executive officers are appointed by, and
serve at the direction of, the Board of Directors. There are no family
relationships between any of the directors or executive officers of the
Company.

EXECUTIVE OFFICERS

Michael J. Rose is the founder, Chairman of the Board, President and Chief
Executive Officer of the Company. Prior to 1992, Mr. Rose was President and a
50% shareholder of Rose-Chamberlin Inc. ("Rose-Chamberlin"), a brokerage
company founded in 1985, which acted as a manufacturers' representative and
sold merchandise primarily to Costco.

Allan C. Youngberg has been Vice President-Chief Financial Officer,
Secretary and Treasurer of the Company since January 1993. Prior to joining
the Company, Mr. Youngberg was President and a 50% shareholder of Youngberg &
Schumacher, P.S., a certified public accounting firm in Bellevue, Washington,
which Mr. Youngberg formed in 1984 and sold in December 1992. Mr. Youngberg is
a Certified Public Accountant.

DIRECTORS AND DIRECTOR NOMINEES

Ashley Emberson-Bain has been chosen as a nominee for Director of the
Company. Mr. Emberson-Bain has served since 1986 in a variety of management,
investment and staff positions with CDC, a development finance institution of
the U.K. government. Since 1997, Mr. Emberson-Bain has been the Chief
Executive Officer and Managing Director of Pacific Capital Partners, a venture
capital firm based in Papua New Guinea that manages the Kula Fund. Mr.
Emberson-Bain has also served since 1995 as the Regional Manager, Pacific
Islands of CDC.

Donald L. Gevirtz has been a Director of the Company since January 1998.
Since 1996, Mr. Gevirtz has served as the director of the Gevirtz Research
Center, a nonprofit organization involved in educational outreach projects.
Mr. Gevirtz served as U.S. Ambassador to the Republic of Fiji, the Kingdom of
Tonga, the Republic of Nauru and the Republic of Tuvalu from 1996 through
1997. From 1970 to 1996, Mr. Gevirtz served as Chairman of the Board and Chief
Executive Officer of the Foothill Group, Inc., a public company engaged in
banking services, which was sold to Norwest Bank Corporation in 1995.

George C. Textor has been a Director of the Company since January 1998. Mr.
Textor is a general partner of Capstan Partners, a Seattle-based private
equity investment fund which he co-founded in 1988. From 1982 to 1988, Mr.
Textor was a founding general partner of Cable Howse & Ragen (now Ragen
MacKenzie Group Incorporated), an investment banking and brokerage firm
located in the Pacific Northwest. Mr. Textor serves as a director of Pyramid
Breweries, Inc., a public company that makes specialty beers.

David A. Enger has been a Director of the Company since 1993. Mr. Enger has
served since 1992 as Executive Vice President of Keener's, Inc. dba K&N Meats
("Keener's"), one of the Northwest's largest distributors of fresh foods. In
1990, Mr. Enger founded the Business & Banking Institute, where he currently
engages in business and banking consulting and training. From 1980 to 1990,
Mr. Enger served as a principal of Management Advisory Services, Inc., a
business and banking consulting firm which he co-founded in 1980. From 1976 to
1980, Mr. Enger was a vice president of Seafirst Bank. Mr. Enger serves as a
director of Keener's, Colmac Industries, Inc., a dry-cleaning equipment
manufacturer, and Colmac Coil Manufacturing, Inc., a heating and air-
conditioning coils manufacturer.

Wayne V. Keener has been a Director of the Company since 1989. Since 1960,
Mr. Keener has been the President and Chief Executive Officer of Keener's, of
which he has been a 50% owner since 1989. Mr. Keener serves as a director of
both the National Meat Association and the North American Meat Association.

Gary W. Nettles has been a Director of the Company since 1996. Mr. Nettles
is a Certified Public Accountant and owner of Guchereau & Nettles, an
accounting firm located in Costa Mesa, California, where he has worked since
1987.

KEY EMPLOYEES

Terence R. Buckley has been Director of Pacific Expansion of the Company
since January 1998, after joining the Company as a consultant in February
1997. Mr. Buckley also serves on the board of directors of a wholly owned
subsidiary of the Company. From 1978 until joining the Company, Mr. Buckley
worked on various consulting projects for companies throughout the Pacific,
including projects for Hyatt International Corporation and Fletcher Challenge
Limited, a New Zealand natural resources and construction company. Mr. Buckley
has lived in Fiji for 10 years and has extensive knowledge and contacts in the
Pacific and New Zealand.

James F. Arcuri has been Project Manager of the Company since 1994. He
joined the Company in 1991 as a store manager in Hawaii and opened the Sonora,
California store in 1994. Mr. Arcuri is currently responsible for construction
of new stores and maintenance of store facilities. From 1979 to 1991, Mr.
Arcuri was President of A&F Stores Corporation, a chain of high-end specialty
markets based in southern California. Mr. Arcuri's responsibilities at A&F
Stores included site procurement, lease negotiations, construction management
and working with developers.

Donald A. Kunecke has been Management Information Systems Manager of the
Company since 1995, after joining the Company in 1994 as program manager. From
1992 to 1994, Mr. Kunecke was the principal and owner of Softnet, Inc., a
computer software support company. Mr. Kunecke has over 20 years of experience
with systems development and implementation of relational database management
systems. He has held positions in information technology with Northern
Telecom, Inc., Martin Marietta International, Inc. and Boeing Computer
Services.

William W. Lofgren has been Operations Manager of the Company since 1996,
after joining the Company in 1992 as Information Systems Manager. Mr. Lofgren
has overall operational responsibility for the Company's stores. Prior to
joining the Company, Mr. Lofgren served as Electronic Maintenance Manager of
Costco from 1986 to 1991.

Michael T. Scalzo has been General Merchandise Manager of the Company since
1995, after joining the Company in 1992 as a buyer. Mr. Scalzo assisted in
creating the Company's buying office and was one of the original buyers for
the Company. From 1990 to 1992, Mr. Scalzo worked for Rose-Chamberlin as an
account executive.

Paul J. Schulte has been Sales and Marketing Manager of the Company since
January 1998. Mr. Schulte is responsible for the management and direction of
the Company's marketing, advertising and promotional activities. From February
1997 to January 1998, Mr. Schulte worked as a co-principal and consultant of
Crucible, Inc., a direct response mail-order catalog business. From 1995 to
1997, Mr. Schulte was Senior Vice President for Sales and Marketing of Acorto,
Incorporated, a manufacturer and wholesaler of automatic espresso equipment.
From 1994 to 1995, Mr. Schulte was Vice President of Marketing for Seattle
Coffee Holdings, a retailer and wholesaler of specialty coffees. From 1973 to
1994, Mr. Schulte held a variety of senior sales and marketing positions with
the Ford Motor Company.

BOARD COMMITTEES AND COMPENSATION

The Company has established an Audit Committee and a Compensation Committee.
The Audit Committee makes recommendations to the Board of Directors regarding
the selection of independent auditors, reviews the results and scope of the
audit and other services provided by the Company's independent auditors,
reviews the Company's balance sheet, statement of operations and cash flows
and reviews and evaluates the Company's internal control functions. The Audit
Committee consists of Messrs. Enger (Chairman), Keener, Nettles and Textor.
The Compensation Committee reviews and approves the compensation and benefits
for the Company's executive officers, administers the Company's stock option
plans and makes recommendations to the Board of Directors regarding such
matters. The Compensation Committee consists of Messrs. Nettles (Chairman),
Enger, Keener and Gevirtz.

Directors of the Company are paid $1,000 for each Board of Directors meeting
attended and $250 for each committee meeting attended. The Company also
reimburses directors for travel expenses in attending meetings. The Company
has granted nonqualified stock options to its directors pursuant to individual
director stock option agreements. Directors have generally been granted a 10-
year, immediately exercisable option to purchase 10,331 shares of Common Stock
at an exercise price at $10.16 per share, and a 10-year option to purchase
2,951 shares of Common Stock at an exercise price of $10.16 per share, vesting
ratably over a five-year period. In April 1997, the Board of Directors granted
Michael J. Rose a 10-year, immediately exercisable option to purchase 10,331
shares of Common Stock at an exercise price of $10.16 per share, and a 10-year
option to purchase 2,951 shares of Common Stock at an exercise price of $10.16
per share, which will become fully vested on August 1, 1998. See "--Executive
Compensation." In January 1998, the Company granted Donald L. Gevirtz a
10-year, immediately exercisable option to purchase 88,554 shares of Common
Stock at an exercise price of $7.62 per share. See "Certain Transactions." The
Company intends that any future option grants to directors will be made
pursuant to the Company's 1998 Stock Incentive Compensation Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No executive officer of the Company serves as a member of the board of
directors of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information regarding compensation earned by the Company's Chief Executive
Officer and its one other executive officer (the "Named Executive Officers")
for the fiscal year ended December 28, 1997.

LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION
--------------------- SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
- ------------------------ --------- ----------- ------------ ------------------

Michael J. Rose
Chairman of the Board,
President and Chief
Executive Officer..... $220,000 $22,600 13,282 $8,102
Allan C. Youngberg
Vice President-Chief
Financial Officer,
Secretary and
Treasurer............. $160,000 $16,500 -- $3,293

- --------
(1) Represents bonuses paid pursuant to the Company's Manager Bonus Program.
(2) Consists of matching contributions to the Company's 401(k) profit-sharing
plan of $2,375 for both Mr. Rose and Mr. Youngberg, payments of life
insurance premiums of $1,227 to Mr. Rose and $918 to Mr. Youngberg, and
director's fees of $4,500 paid to Mr. Rose.

Option Grants in Last Fiscal Year. Mr. Youngberg was not granted any stock
options during fiscal 1997. The following table sets forth certain information
regarding stock options granted to Mr. Rose during fiscal 1997.

INDIVIDUAL GRANTS
---------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------
NAME GRANTED FISCAL YEAR(1) PRICE($/SH)(2) DATE 5%($) 10%($)
---- ---------- -------------- -------------- ---------- ------- --------

Michael J. Rose......... 13,282 29.0% $10.16 4/30/07 $48,087 $156,503

- --------
(1) Based on a total of 45,744 options granted to employees during fiscal
1997.
(2) In April 1997, the Board of Directors determined that Mr. Rose should
have been granted stock options with the same terms and conditions as
options granted to other directors who served on the Board of Directors
in June 1993. Accordingly, the Board of Directors granted Mr. Rose a 10-
year, immediately exercisable option to purchase 10,331 shares of Common
Stock at an exercise price of $10.16 per share, and a 10-year option to
purchase 2,951 shares of Common Stock at an exercise price of $10.16 per
share, which will become fully vested on August 1, 1998. The fair market
value of the Common Stock in April 1997 was $8.46 per share.
(3) The assumed rates of appreciation are prescribed by the Securities and
Exchange Commission (the "Commission") for illustrative purposes only and
are not intended to forecast or predict future stock prices.

Fiscal 1997 Year-End Option Values. No options were exercised by the Named
Executive Officers during fiscal 1997. The following table sets forth certain
information regarding unexercised stock options held by the Named Executive
Officers as of December 28, 1997.

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
END(#) FISCAL YEAR-END ($)(1)
----------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------

Michael J. Rose............ 49,589 590 $174,652 $ --
Allan C. Youngberg......... 41,325 2,951 $194,652 $ --

- --------
(1) Calculated on the basis of the fair market value of the Common Stock on
December 28, 1997 at $8.46 per share, based on the price paid for shares
of Common Stock in a transaction between shareholders in November 1997.

COMPENSATION PURSUANT TO PLANS

Manager Bonus Program

The purpose of the Manager Bonus Program (the "Program") is to provide an
incentive to key employees to meet the Company's profit goals. Officers, store
managers and other Company managers are eligible to participate in the
Program. The bonus percentage under the Program is determined by the
Compensation Committee at the beginning of the Program year upon the
recommendation of the Company's Chief Executive Officer and Chief Financial
Officer. Bonuses under the Program are determined on the basis of the
Company's "Adjusted Net Income," as defined in the Program, which is
calculated based on the Company's net income for the previous fiscal year,
income tax expense, bonus expenses and other nonoperating income or expenses
as determined by the Compensation Committee. No bonus is paid under the
Program if the "Adjusted Net Income" is less than 80% of budgeted "Adjusted
Net Income" for the previous fiscal year. Participants in the Program are
eligible for a percentage of the total bonus paid under the Program, based
upon the participant's salary divided by the combined salaries of all
participants employed at the end of the fiscal year. The Compensation
Committee may modify or terminate the Program at any time.

1998 Stock Incentive Compensation Plan

The purpose of the Company's 1998 Stock Incentive Compensation Plan (the
"1998 Plan") is to enhance the long-term shareholder value of the Company by
offering employees, directors, officers, consultants, agents, advisors and
independent contractors of the Company and its subsidiaries an opportunity to
participate in the Company's growth and success, and to encourage them to
remain in the service of the Company and its subsidiaries and acquire and
maintain stock ownership in the Company. The 1998 Plan provides for both stock
options and restricted stock awards. A maximum of 500,000 shares of Common
Stock will be available for issuance under the 1998 Plan, although no options
or stock awards will be granted until after completion of the Offering.

Stock Option Grants. The Plan Administrator of the 1998 Plan will be the
Compensation Committee (the "Plan Administrator"), which will have the
authority to select individuals who are to receive options under the 1998 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which, for incentive stock options, must be
at least equal to the fair market value of the Common Stock on the date of
grant), the vesting provisions and the option term. For purposes of the 1998
Plan, fair market value means the closing sale price as reported on the Nasdaq
National Market on the date of grant. Unless otherwise provided by the Plan
Administrator, and to the extent required for incentive stock options by the
Internal Revenue Code of 1986, as amended, an option granted under the 1998
Plan will expire 10 years from the date of grant or, if earlier, three months
after the optionee's termination of service (other than termination for cause)
or one year after the optionee's death or disability.

Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Restrictions may be based on continuous
service with the Company or its subsidiaries or the achievement of such
performance goals as the Plan Administrator may determine. Holders of
restricted stock are recorded as shareholders of the Company and have, subject
to certain restrictions, all the rights of shareholders with respect to such
shares.

Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.

Corporate Transactions. In the event of certain Corporate Transactions (as
defined in the 1998 Plan), each outstanding option and restricted stock award
under the 1998 Plan will automatically accelerate so that it will become 100%
vested immediately before the Corporate Transaction, except that acceleration
will not occur if such option or restricted stock award is, in connection with
the Corporate Transaction, to be assumed by the successor corporation or
parent thereof. Any option or restricted stock award granted to an "executive
officer" (as that term is defined for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended) that is assumed or replaced in the Corporate
Transaction and does not otherwise accelerate at that time shall be
accelerated in the event such executive officer, for Good Reason (as defined
in the 1998 Plan), or the successor corporation, without Cause (as defined in
the 1998 Plan), terminates the executive officer's employment or services
within two years following such Corporate Transaction.

Amended and Restated 1989 Stock Option Plan

The Company's Amended and Restated 1989 Stock Option Plan (the "1989 Plan")
provides for the grant of incentive and nonqualified stock options to
employees, officers, directors, agents, consultants and independent
contractors of the Company. An aggregate of 1,350,000 shares of Common Stock
has been authorized for issuance under the 1989 Plan. As of May 1, 1998,
options to purchase an aggregate of 266,207 shares of Common Stock were
outstanding under the 1989 Plan, with exercise prices ranging from $2.37 to
$10.16 per share, and options to purchase 7,084 shares had been exercised. No
additional options will be granted under the 1989 Plan, as future option
grants will be made under the 1998 Plan. Options outstanding under the 1989
Plan will continue to be governed by the terms of the 1989 Plan.

The 1989 Plan is administered by the Compensation Committee, which has the
authority to select individuals who are to receive options under the 1989 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which for incentive stock options must be
at least equal to the fair market value of the Common Stock on the date of
grant), the vesting provisions and the option term. Each option is exercisable
after the period or periods specified in the option agreement, but no option
may be exercisable after the expiration of 10 years from the date of grant.
Options granted under the 1989 Plan are not transferable other than by will or
the laws of descent and distribution, or by operation of law in the event of
legal disability.

401(k) Plan

The Company maintains a 401(k) profit-sharing plan (the "401(k) Plan") that
covers employees who satisfy certain eligibility requirements relating to
minimum age, length of service and hours worked. Participating employees may
elect to defer and contribute up to 15% of their compensation plus up to 100%
of any Company-paid cash bonus to the 401(k) Plan, not to exceed the dollar
limit set by law. The Company matches 25% of each employee's contribution that
does not exceed 15% of such employee's compensation. The Company's matching
contributions vest over five years at the rate of 20% per year of service.

CERTAIN TRANSACTIONS

Prior to the Offering, the Company entered into transactions and business
relationships with certain of its officers, directors and 5% shareholders. Any
future transactions between the Company and its officers, directors or 5%
shareholders will be subject to approval by a majority of the disinterested
directors and will be on terms that the Company believes are no less favorable
to it than would be available from independent third parties.

Participation in the Offering by Kula Fund. During 1997 and 1998, the
Company discussed with CDC a range of potential business relationships.
Recently, these discussions included the appointment of a representative of
CDC to the Company's Board of Directors and the possible sale of warrants to
CDC, as well as CDC's interest in purchasing shares in the Offering. As a
result of these discussions, 160,000 shares of Common Stock, or approximately
10% of the shares offered by the Company, have been reserved for sale to the
Kula Fund, a private equity fund managed by an affiliate of CDC. See
"Underwriting." Upon completion of the Offering, the Company also intends to
further develop its relationship with CDC by appointing Ashley Emberson-Bain
of CDC to the Company's Board of Directors and selling to the Kula Fund, for
nominal consideration, a warrant to purchase 117,000 shares of Common Stock at
an exercise price equal to 120% of the public offering price, such warrant to
be exercisable for a period of four years.

Gevirtz Option. In January 1998, Donald L. Gevirtz was granted a 10-year,
immediately exercisable option to purchase up to 88,554 shares of Common Stock
at an exercise price of $7.62 per share in connection with his appointment to
the Board of Directors. In order to encourage Mr. Gevirtz to join the Board of
Directors, the Board granted him an option with a per share exercise price
that was less than the fair market value of the Common Stock on the date of
grant. The Company therefore recognized a compensation expense of $75,000 in
the first quarter of fiscal 1998 in connection with this grant.

Streamline Capital Corporation. In December 1997, the Company entered into
an investment banking agreement with Streamline Capital Corporation
("Streamline Capital"). The principal of Streamline Capital is Steven L.
Gevirtz, the son of Donald L. Gevirtz, a director of the Company. The
agreement provides for investment banking services, including initiation and
implementation of strategic financing arrangements to fund the Company's
expansion. Pursuant to the agreement, as modified in March 1998, the Company
agreed to pay Streamline Capital a monthly retainer of $6,000 (the
"Retainer"), and a transaction fee of $75,000 in connection with the Offering.
The Retainer offsets any transaction fee earned by Streamline Capital. As of
May 1, 1998, the Company had paid Streamline Capital a total of $12,000. The
agreement terminates upon closing of the Offering.

Fiji Lease. In April 1998, the Company entered into a 10-year lease
agreement with Westmall Limited, a Fiji limited liability company, to lease
premises for its new store in Nadi, Fiji. Westmall Limited is partly owned by
Terence R. Buckley, the Company's Director of Pacific Expansion. The monthly
lease payments are approximately $14,000.

Nevada Property Sublease. In December 1996, the Company entered into an
agreement with Orchard Farms, Inc., a California corporation ("Orchard Farms")
wholly owned by Michael J. Rose, the Company's Chairman of the Board,
President and Chief Executive Officer, to sublease property in Sparks, Nevada
for the purposes of storing excess equipment and consolidating merchandise.
The monthly rent for the property was $2,435. The property was subject to a
lease between Orchard Farms and Newport Federal, Inc. In December 1996, the
property was damaged by a flood, and after repeated attempts to repair the
premises, Orchard Farms terminated rental payments in June 1997 due to the
uninhabitable nature of the premises. Orchard Farms and Newport Federal, Inc.
disputed the amount owed under the lease. As a result, in January 1998,
Newport Federal, Inc. brought suit against Orchard Farms and Mr. Rose, as
personal guarantor of the lease, for failure to pay rent. This suit is
currently pending in state district court in Nevada. The Company has not been
named as a defendant in the suit and does not expect the suit to have a
material adverse effect on it.

Employment of Gerald J. Rose. Gerald J. Rose, the brother of Michael J.
Rose, has been employed by the Company since January 1993. He currently serves
as the Company's logistics manager for general offshore operations. For fiscal
1995, 1996 and 1997, and the first quarter of fiscal 1998, he earned
compensation of approximately $56,700, $61,700, $67,200 and $20,100,
respectively.

Purchases of Product From Beneficial Owner. The Company has purchased
product from Keener's, a company that beneficially owns more than 5% of the
Company's Common Stock and that is 50% owned by Wayne V. Keener, a director of
the Company. David A. Enger, an Executive Vice President and director of
Keener's, is also a director of the Company. For fiscal 1995, 1996 and 1997
and the first quarter of fiscal 1998, the Company purchased from Keener's
approximately $254,000, $164,000, $128,000 and $36,000 of product,
respectively.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth, as of May 1, 1998, certain information
regarding the beneficial ownership of the Common Stock, as adjusted to reflect
the sale of shares of Common Stock in the Offering, by (a) each person known
by the Company to own beneficially more than 5% of the Common Stock, (b) each
director and director nominee of the Company, (c) each of the Named Executive
Officers, (d) all of the Company's directors, director nominees and Named
Executive Officers as a group, and (e) each Selling Shareholder. Except as
otherwise indicated, and subject to community property laws where applicable,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole voting and
investment power with respect to such shares.

BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP NUMBER AFTER THE
PRIOR TO THE OFFERING(1) OF SHARES OFFERING(1)
----------------------------- OFFERED --------------------
NAME AND ADDRESS SHARES PERCENTAGE HEREBY SHARES PERCENTAGE
---------------- -------------- ----------------------- --------- ----------

DIRECTORS, DIRECTOR
NOMINEES, NAMED
EXECUTIVE OFFICERS
AND 5% SHAREHOLDERS
Michael J. Rose(2)...... 571,868 27.5% -- 571,868 15.5%
c/o Cost-U-Less, Inc.
12410 S.E. 32nd Street
Bellevue, WA 98005
Wayne V. Keener(3)...... 234,374 11.7 -- 234,374 6.5
P.O. Box 897
Renton, WA 98057
Keener's, Inc........... 221,387 11.1 -- 221,387 6.1
P.O. Box 897
Renton, WA 98057
Gerald M. Podolny and
Cheryl A. Podolny(4)... 143,901 7.2 -- 143,901 4.0
2000 Partridge Lane
Highland Park, IL 60035
Stephen Lenz(5)......... 139,998 7.0 -- 139,998 3.9
12239 N.E. 130th Way,
#F204
Kirkland, WA 98034
Willis Marketing, Inc... 121,024 6.1 -- 121,024 3.4
3010 Harborview Drive
Gig Harbor, WA 98335
Donald L. Gevirtz(6).... 88,554 4.2 -- 88,554 2.4
Gary W. Nettles(7)...... 67,915 3.4 -- 67,915 1.9
Allan C. Youngberg(8)... 45,457 2.2 -- 45,457 1.3
David A. Enger(9)....... 12,692 * -- 12,692 *
George C. Textor(10).... 10,331 * -- 10,331 *
Ashley Emberson-Bain.... -- -- -- -- --
All directors, director
nominees and executive
officers as a group
(8 persons)(11)........ 1,031,191 45.7% -- 1,031,191 26.7%

BENEFICIAL OWNERSHIP NUMBER BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) OF SHARES AFTER THE OFFERING(1)
---------------------------- OFFERED -------------------------
NAME AND ADDRESS SHARES PERCENTAGE HEREBY SHARES PERCENTAGE
---------------- ------------- -------------- --------- ------------ ------------

SELLING SHAREHOLDERS
Barrett, Hale & Gilman
Profit Sharing Plan and
Trust FBO
Paul A. Barrett........ 9,838 * 2,951 6,887 *
Ernest A. Burgess and
Diane J. Burgess....... 7,969 * 7,969 -- *
David L. Chamberlin..... 6,494 * 2,951 3,543 *
Bernard R. Cote......... 2,361 * 2,361 -- *
Christine Gaeckle....... 590 * 590 -- *
George Handgis.......... 36,897 1.8 23,022 13,875 *
Paul J. Lavin, O.D.
Profit Sharing Plan and
Trust.................. 15,644 * 12,692 2,952 *
Douglas W. McCallum..... 31,978 1.6 14,759 17,219 *
Delaware Charter
Guarantee & Trust Co.
TTEE FBO John W.
Peterson IRA........... 47,967 2.4 23,983 23,984 *
Peter Rettman........... 15,265 * 5,000 10,265 *
Kelley Shawver Rose..... 59,036 3.0 11,807 47,229 1.3
Mark T. Scalzo.......... 11,216 * 4,216 7,000 *
James Shawver........... 37,683 1.9 3,542 34,141 1.0
Charles H. Simonson and
Mia P. Simonson........ 7,379 * 7,379 -- *

- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
the options but are not deemed outstanding for computing the percentage
ownership of any other person.

(2) Includes 12,077 shares held by the Michael J. Rose Childrens' Trust
dated January 6, 1992, 32,470 shares held by the Michael J. Rose Trust
for Children and Grandchildren, and 79,697 shares subject to a warrant
and to options exercisable within 60 days of May 1, 1998. Mr. Rose
disclaims beneficial ownership of the shares held in trust.

(3) Includes 221,387 shares held by Keener's and 12,692 shares subject to
options exercisable within 60 days of May 1, 1998. Mr. Keener has sole
voting and investment power with respect to the shares held by Keener's.

(4) Includes 47,967 shares held by the Delaware Charter Guarantee & Trust Co.
Trustee for the benefit of Gerald M. Podolny IRA.

(5) Includes 139,408 shares held by The January Trust dated January 23, 1990,
of which Mr. Lenz acts as Trustee.
(6) Represents 88,554 shares subject to options exercisable within 60 days of
May 1, 1998.
(7) Includes 11,807 shares held by the Alyce Christene Gangwish Irrevocable
Trust of 1995, 27,477 shares held by The Lenz Educational Partnership,
8,855 shares held by the Brittany Elizabeth Lenz Irrevocable Trust of
1995, and 8,855 shares held by the Cody Allan Lenz Irrevocable Trust of
1995, for each of which Mr. Nettles acts as Co-Trustee, and 10,921 shares
subject to options exercisable within 60 days of May 1, 1998.
(8) Includes 41,325 shares subject to options exercisable within 60 days of
May 1, 1998.
(9) Represents 12,692 shares subject to options exercisable within 60 days of
May 1, 1998.
(10) Represents 10,331 shares subject to options exercisable within 60 days of
May 1, 1998.
(11) Includes 256,214 shares subject to a warrant and options exercisable
within 60 days of May 1, 1998.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $0.001 par value per share, and 2,000,000 shares of Preferred
Stock, $0.001 par value per share. The following summary description of the
Company's capital stock is qualified in its entirety by reference to the
Restated Articles and the Company's Restated Bylaws (the "Restated Bylaws"),
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.

COMMON STOCK

As of May 1, 1998, the Common Stock was held of record by 83 persons and
entities, and a total of 1,999,961 shares were outstanding or committed for
issuance. In addition, 41 persons held options to purchase up to 454,819
shares of Common Stock.

Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available for the
payment of dividends. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no rights to convert
their Common Stock into any other securities, and there are no redemption
provisions with respect to such shares. All the outstanding shares of Common
Stock are fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by,
the rights of holders of shares of any series of Preferred Stock that the
Company may designate and issue in the future.

ROSE WARRANT

In 1991, the Company issued to Michael J. Rose and Kendrick Chamberlin, for
nominal consideration, a warrant to purchase an aggregate of 29,518 shares of
Common Stock at an exercise price of $2.37 per share (the "Rose Warrant"). In
1992, Mr. Rose acquired Mr. Chamberlin's share of the Rose Warrant. The Rose
Warrant is currently exercisable and expires in 2001. The Rose Warrant has
conversion rights and rights in the event of a reclassification of the
Company's Common Stock.

REPRESENTATIVE'S WARRANT

The Company has agreed to sell to the Representative or its designees, for
nominal consideration, a warrant (the "Representative's Warrant") to purchase
up to 160,000 shares of the Company's Common Stock at an exercise price equal
to 120% of the public offering price. The Representative's Warrant is
exercisable for a period of four years, beginning one year from the date of
this Prospectus. At any time during this period, the holder of the
Representative's Warrant shall have the right to require the Company, at the
Company's expense (including reasonable expenses incurred in connection with
Blue Sky qualifications), to prepare and file a registration statement so as
to permit the public offering of the Common Stock underlying the
Representative's Warrant, such registration statement to be kept effective for
a period of up to 120 days. See "Underwriting."

KULA FUND WARRANT

Upon completion of the Offering, the Company expects to appoint a
representative of CDC to the Board of Directors and to sell to the Kula Fund,
for nominal consideration, a warrant to purchase 117,000 shares of Common
Stock at an exercise price equal to 120% of the public offering price, such
warrant to be exercisable for a period of four years. See "Certain
Transactions" and "Underwriting."

PREFERRED STOCK

The Board of Directors has the authority to issue up to 2,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such
series, without any further vote or action by the Company's

shareholders. No shares of Preferred Stock have been issued. The issuance of
Preferred Stock could have one or more of the following effects: (i) restrict
any Common Stock dividends if Preferred Stock dividends have not been paid,
(ii) dilute the voting power and equity interest of holders of Common Stock to
the extent that any series of Preferred Stock has voting rights or is
convertible into Common Stock or (iii) prevent current holders of Common Stock
from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of Preferred Stock are satisfied.
In addition, the issuance of Preferred Stock may, under certain circumstances,
have the effect of discouraging a change in control of the Company by, for
example, granting voting rights to holders of Preferred Stock that require
approval by the separate vote of the holders of Preferred Stock for any
amendment to the Restated Articles or any reorganization, consolidation or
merger (or other similar transaction involving the Company). As a result, the
issuance of Preferred Stock may discourage bids for the Company's Common Stock
at a premium over the market price therefor and could have a material adverse
effect on the market value of the Common Stock. The Board of Directors does
not currently intend to issue any shares of Preferred Stock. See "Risk
Factors--Antitakeover Considerations."

WASHINGTON ANTITAKEOVER STATUTE

Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act (the "WBCA") prohibits a "target
corporation," with certain exceptions, from engaging in certain significant
business transactions with a person or group of persons that beneficially owns
10% or more of the voting securities of the target corporation (an "Acquiring
Person") for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members
of the target corporation's board of directors prior to the time of
acquisition. Such prohibited transactions include, among other things, a
merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the Acquiring Person, termination of 5% or
more of the employees of the target corporation as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a shareholder. After the
five-year period, a "significant business transaction" may take place as long
as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of the
Company. See "Risk Factors--Antitakeover Considerations."

CERTAIN PROVISIONS IN RESTATED ARTICLES

The Restated Articles provide for the division of the Company's Board of
Directors into three classes, as nearly equal in number as possible, each for
a three-year term, with one class being elected each year by the Company's
shareholders. See "Management--Directors, Director Nominees, Executive
Officers and Key Employees." Directors may be removed only for cause and only
by a vote of not less than two-thirds of the shares of the Company's capital
stock entitled to vote on an election of the director whose removal is sought.

The Restated Articles require that certain business combinations (including
a merger, share exchange or the sale, lease, exchange, mortgage, pledge,
transfer or other disposition of a substantial part of the Company's assets)
be approved by the holders of not less than two-thirds of the outstanding
shares, unless such business combination shall have been approved by a
majority of Continuing Directors (defined as those individuals who were
members of the Board of Directors on May 11, 1998 or were elected thereafter
on the recommendation of a majority of the Continuing Directors), in which
case the affirmative vote required shall be a majority of the outstanding
shares.

Under the Restated Articles, the shareholders may call a special meeting
only upon the request of holders of at least 25% of the outstanding shares.
The Restated Articles also provide that changes to certain provisions of the
Articles of Incorporation, including those regarding amendment of certain
provisions of the Restated Bylaws or Restated Articles, the classified Board
of Directors, special voting provisions for business combinations and special
meetings of shareholders, must be approved by the holders of not less than
two-thirds of the outstanding shares.

It is possible that these provisions in the Restated Articles may have the
effect of delaying, deterring or preventing a change in control of the
Company.

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY

The Restated Articles include a provision that limits the liability of the
Company's directors to the fullest extent permitted by the WBCA as it
currently exists or as it may be amended in the future. Consequently, subject
to the WBCA, no person shall be liable to the Company or its shareholders for
monetary damages resulting from such person's conduct as a director of the
Company. Amendments to the Restated Articles may not adversely affect any
right of a director of the Company with respect to acts or omissions occurring
prior to such amendment. Section 23B.08.320 of the WBCA provides that the
Restated Articles may not limit any director's liability for acts or omissions
involving intentional misconduct or knowing violations of law, unlawful
distributions or transactions from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. In addition, Washington law provides for broad indemnification by
the Company of its officers and directors. The Restated Bylaws implement this
indemnification to the fullest extent permitted by law. Insofar as the
indemnification for liabilities arising under the Securities Act may be
permitted to directors or officers of the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 3,599,961 shares of
Common Stock outstanding (3,839,961 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of outstanding options
under the 1998 Plan, the 1989 Plan, the outstanding directors' options or the
Rose Warrant. The 1,723,222 shares sold in the Offering will be freely
tradable without restriction or limitation under the Securities Act, except
for any such shares held by "affiliates" of the Company, as such term is
defined under Rule 144 of the Securities Act, which shares will be subject to
the resale limitations under Rule 144. The remaining 1,876,739 shares are
"restricted securities" within the meaning of Rule 144 and were issued and
sold by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. The Company, its directors,
executive officers, key employees and certain shareholders and option holders,
who collectively hold an aggregate of 1,784,110 shares, and options and
warrants to purchase an aggregate of 484,337 additional shares, have agreed
not to sell, directly or indirectly, any shares owned by them for a period of
180 days after the date of this Prospectus without the prior written consent
of the Representative. Upon the expiration of this 180-day lock-up period (or
earlier upon the consent of the Representative), all of these restricted
shares (plus shares issuable upon exercise of then-vested outstanding options
and warrants) will become eligible for sale subject to the restrictions of
Rule 144 and Rule 701.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year, including an affiliate of the Company, would be entitled to sell,
within any three-month period, that number of shares that does not exceed the
greater of 1% of the then-outstanding shares of Common Stock (approximately
36,000 shares) and the average weekly trading volume in the Common Stock
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Commission, provided certain manner of sale
and notice requirements and requirements as to the availability of current
public information about the Company are satisfied. In addition, affiliates of
the Company must comply with the restrictions and requirements of Rule 144,
other than the one-year holding period requirement, in order to sell shares of
Common Stock. As defined in Rule 144, an "affiliate" of an issuer is a person
who directly or indirectly through the use of one or more intermediaries
controls, or is controlled by, or is under common control with, such issuer.
Under Rule 144(k), a holder of "restricted securities" who is not deemed an
affiliate of the issuer and who has beneficially owned shares for at least two
years would be entitled to sell shares under Rule 144(k) without regard to the
limitations described above.

The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that such sales
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the prospect of such
sales, could adversely affect the market price of the Common Stock.

UNDERWRITING

The Underwriters named below, acting through the Representative, have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite
their respective names at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions, and that the Underwriters are committed to
purchase all of such shares (other than those covered by the over-allotment
option described below), if any are purchased.

NUMBER OF
UNDERWRITERS SHARES
------------ ---------

Cruttenden Roth Incorporated.......................................
Black & Co.........................................................
---------
Total............................................................ 1,723,222
=========

The Company has been advised by the Representative that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
public offering price reflected on the cover page of this Prospectus and to
selected securities dealers at such price less a concession not exceeding
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not exceeding $ per share to other dealers. After the public
offering of the shares of Common Stock, the public offering price and other
offering terms may be changed.

The Company has granted the Underwriters an over-allotment option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to 240,000 additional shares of Common Stock at the public
offering price set forth on the cover page of this Prospectus less the
underwriting discounts and commissions. The Underwriters may exercise the
over-allotment option only to cover over-allotments in the sale of Common
Stock. If the Underwriters exercise the over-allotment option, the
Underwriters will purchase additional shares in approximately the same
proportion as the shares set forth in the above table.

Approximately 10% of the shares being offered by the Company, or 160,000
shares, have been reserved for sale to the Kula Fund. See "Certain
Transactions." The price per share of the shares to be sold to the Kula Fund
is the same as the price to the public in the Offering. The number of shares
available for sale to the public in the Offering will be reduced to the extent
of this purchase. Any reserved shares not so purchased will be offered by the
Underwriters to the public on the same basis as the other shares offered
hereby. Upon completion of the Offering, the Company also intends to further
develop its relationship with CDC by appointing a representative of CDC to the
Board of Directors and selling to the Kula Fund, for nominal consideration, a
four-year warrant to purchase 117,000 shares of Common Stock at an exercise
price of 120% equal to the public offering price. See "Certain Transactions."

In connection with the Offering, the Company has agreed to issue to the
Representative the Representative's Warrant to purchase up to 160,000 shares
of Common Stock. The Representative's Warrant is exercisable for a period of
four years, beginning one year from the date of this Prospectus. The
Representative's Warrant is exercisable at a price equal to 120% of the public
offering price. The Representative's Warrant is nontransferable for a period
of one year following the date of this Prospectus, except to (i) other brokers
or dealers; (ii) one or more bona fide officers and/or partners of the
Representative; (iii) a successor to the transferring holder in a merger or
consolidation; (iv) a purchaser of all or substantially all of the
transferring holder's assets; or (v) any person receiving the Representative's
Warrants from one or more of the persons listed in subsections (i), (ii),
(iii) and (iv). The holders of the Representative's Warrant will have, in that
capacity, no voting, dividend or other shareholder rights; provided, however,
that the number

of shares covered by the Representative's Warrant and the exercise price is
subject to adjustment in certain events to prevent dilution. Additionally, at
any time during the period the Representative's Warrant is exercisable, the
holder of the Representative's Warrant shall have the right to require the
Company, at the Company's expense (including reasonable expenses incurred in
connection with Blue Sky qualifications), to prepare and file a registration
statement so as to permit the public offering of the Common Stock underlying
the Representative's Warrant, such registration statement to be kept effective
for a period of up to 120 days. Any profit realized by the Representative on
the sale of Common Stock issuable on the exercise of the Representative's
Warrant may be deemed to be additional underwriting compensation.

In connection with the Offering, the Company will pay Streamline Capital a
transaction fee of $75,000, which may be deemed to be additional underwriting
compensation. See "Certain Transactions."

The Representative will also receive at the closing of the Offering a
nonaccountable expense allowance equal to 2% of the aggregate initial public
offering price of the shares of Common Stock sold in the Offering.

The directors, executive officers, key employees and certain shareholders of
the Company and their affiliates, who as of May 1, 1998 held an aggregate of
1,638,783 shares and options and warrants to purchase an aggregate of 484,337
additional shares, have agreed not to sell any shares of Common Stock owned by
such persons, pursuant to Rule 144 under the Securities Act or otherwise,
without the prior written consent of the Representative, for a period of 180
days from the date of the closing of the Offering. The Representative has the
discretion to reduce or eliminate the time period for the lock-up; the
Representative has no current intention to release anyone from the provisions
of the lock-up agreement prior to expiration of the 180-day lock-up period.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

In addition, the Company and the Selling Shareholders have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, and to contribute in certain events to any
liabilities incurred by the Underwriters in connection with the sale of the
shares of Common Stock offered hereby.

Certain persons participating in the Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with the Offering when shares of Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of
the Representative, the Company and the Commission. See "Additional
Information."

LEGAL MATTERS

Certain legal matters will be passed on for the Company and the Selling
Shareholders by Perkins Coie LLP, Seattle, Washington. Certain legal matters
will be passed on for the Underwriters by Summit Law Group, P.L.L.C., Seattle,
Washington. Steven Hale, a partner at Perkins Coie LLP, is a former partner of
Barrett Hale & Gilman (now Barrett Gilman & Ziker), the profit sharing plan of
which is a selling shareholder in the Offering. Mr. Hale has no continuing
interest in such profit sharing plan and disclaims any beneficial interest in
the shares held by the plan.

EXPERTS

Effective December 12, 1996, the Company's Board of Directors retained Ernst
& Young LLP as the independent auditors for the Company. There were no
disagreements with Deloitte & Touche LLP, the Company's former independent
accountants, regarding accounting principles or practices, financial statement
disclosures, or auditing scope or procedures. The former accountants' report
for the fiscal year ended December 31, 1995, which report is included herein,
did not contain an adverse opinion or a disclaimer of an opinion or
qualifications as to uncertainty, audit scope or accounting principles. Prior
to retaining Ernst & Young LLP, the Company had not consulted with Ernst &
Young LLP regarding the application of accounting principles, the type of
audit opinion that might be rendered on the Company's consolidated financial
statements, or any event that was either a reportable event or the subject of
a disagreement.

The Company's consolidated financial statements as of December 29, 1996 and
December 28, 1997, and for the years then ended appearing in this Prospectus
and in the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
report thereon given upon the authority of such firm as experts in auditing
and accounting.

The Company's consolidated financial statements for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing elsewhere herein and have been so included
in reliance on the reports of such firm given upon their authority as experts
in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus, which constitutes part of the
Registration Statement, omits certain information contained in the
Registration Statement and the exhibits thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including the exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies may be obtained at the prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. The Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically, including the Company, with the
Commission at http://www.sec.gov.

Statements contained in this Prospectus as to the contents of any written
contract, agreement or other document referred to are not necessarily
complete, and reference is made to the copies of contracts, agreements or
other documents filed as exhibits to the Registration Statement, each such
statement being qualified in all respects by such reference.

The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by independent auditors and may furnish its shareholders with
quarterly reports for the first three quarters of each fiscal year containing
unaudited summary consolidated financial information.

COST-U-LESS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

PAGE
----

Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Report of Deloitte & Touche LLP, Independent Auditors...................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Income........................................ F-5
Consolidated Statements of Shareholders' Equity.......................... F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-8

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Cost-U-Less, Inc.

We have audited the accompanying consolidated balance sheets of Cost-U-Less,
Inc. as of December 29, 1996 and December 28, 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cost-U-Less,
Inc. at December 29, 1996 and December 28, 1997, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Seattle, Washington
March 13, 1998, except as to Note 11,
as to which the date is May 13, 1998

F-2

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS

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

We have audited the consolidated balance sheet of Cost-U-Less, Inc. as of
December 31, 1995, which is not included herein, and the accompanying related
consolidated statements of income, shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1995, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Seattle, Washington

April 4, 1996 (May 8, 1998 as to Notes 1, 6,
and 7, and June 5, 1998 as to Note 11)

F-3

COST-U-LESS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)

ASSETS
------
Current assets:
Cash and cash equivalents.............. $ 95 $ 1,028 $ --
Receivables (net of allowance of $25,
$25, and $40 in 1996, 1997, and 1998,
respectively)......................... 715 1,023 934
Refundable income taxes................ 387 179 195
Inventories............................ 14,938 12,271 13,772
Prepaid expenses....................... 315 137 693
Deferred tax assets.................... 418 671 493
------- ------- -------
Total current assets................. 16,868 15,309 16,087
Property and equipment, net.............. 7,428 6,847 8,387
Deposits and other assets................ 419 518 608
Deferred tax assets...................... 141 141 141
------- ------- -------
Total assets......................... $24,856 $22,815 $25,223
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................... $ 8,601 $ 8,953 $ 9,776
Accrued expenses....................... 1,517 1,235 1,752
Income taxes payable................... -- 141 --
Line of credit......................... 1,500 376 615
Current portion of long-term debt...... 1,247 384 475
Current portion of capital lease
obligations .......................... 368 406 410
------- ------- -------
Total current liabilities............ 13,233 11,495 13,028
Deferred rent............................ 331 481 511
Long-term debt, less current portion..... 383 -- 582
Capital lease obligations, less current
portion................................. 1,582 1,169 1,050
------- ------- -------
Total liabilities.................... 15,529 13,145 15,171
Commitments
Shareholders' equity:
Preferred stock--$0.001 par value;
Authorized shares--2,000,000; Issued
and outstanding shares--none.......... -- -- --
Common stock--$0.001 par value;
Authorized shares--25,000,000; Issued
and outstanding shares--1,999,961..... 3,525 3,525 3,600
Retained earnings...................... 5,802 6,165 6,491
Accumulated other comprehensive income. -- (20) (39)
------- ------- -------
Total shareholders' equity........... 9,327 9,670 10,052
------- ------- -------
Total liabilities and shareholders'
equity.............................. $24,856 $22,815 $25,223
======= ======= =======

See accompanying notes.

F-4

COST-U-LESS, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

FISCAL YEAR ENDED QUARTER ENDED
-------------------------------------- ----------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ ---------- ----------
(UNAUDITED)

Net sales............... $ 139,652 $ 134,820 $ 124,865 $ 31,789 $ 31,753
Merchandise costs....... 120,175 113,824 104,397 26,723 26,551
---------- ---------- ---------- ---------- ----------
Gross profit............ 19,477 20,996 20,468 5,066 5,202
Operating expenses:
Store................. 14,949 15,843 14,543 3,840 3,535
General and
administrative....... 2,728 3,039 3,225 795 981
Store openings........ 600 -- 327 22 130
Store closings........ 400 918 1,346 700 --
---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 18,677 19,800 19,441 5,357 4,646
---------- ---------- ---------- ---------- ----------
Operating income (loss). 800 1,196 1,027 (291) 556
Other income (expense):
Interest expense...... (555) (605) (427) (124) (55)
Other................. 150 -- (40) -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 395 591 560 (415) 501
Income tax provision
(benefit).............. 145 221 197 (137) 175
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 250 $ 370 $ 363 $ (278) $ 326
========== ========== ========== ========== ==========
Earnings (loss) per
common share:
Basic................. $ 0.13 $ 0.19 $ 0.18 $ (0.14) $ 0.16
========== ========== ========== ========== ==========
Diluted............... $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
========== ========== ========== ========== ==========
Weighted average common
shares outstanding..... 1,999,961 1,999,961 1,999,961 1,999,961 1,999,961
========== ========== ========== ========== ==========
Weighted average common
shares outstanding,
assuming dilution...... 2,197,786 2,146,745 2,123,784 1,999,961 2,150,935
========== ========== ========== ========== ==========

See accompanying notes.

F-5

COST-U-LESS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

COMMON STOCK
----------------
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME TOTAL
--------- ------ -------- ------------- -------

Balance at December 25, 1994.. 1,999,371 $3,522 $5,182 $-- $ 8,704
Exercise of stock options... 590 3 -- -- 3
Net income and comprehensive
income..................... -- -- 250 -- 250
--------- ------ ------ ---- -------
Balance at December 31, 1995.. 1,999,961 3,525 5,432 -- 8,957
Net income and comprehensive
income -- -- 370 -- 370
--------- ------ ------ ---- -------
Balance at December 29, 1996.. 1,999,961 3,525 5,802 -- 9,327
Net income.................. -- -- 363 -- 363
Other comprehensive income.. -- -- -- (20) (20)
-------
Comprehensive income........ 343
--------- ------ ------ ---- -------
Balance at December 28, 1997.. 1,999,961 3,525 6,165 (20) 9,670
Net income (unaudited)...... -- -- 326 -- 326
Other comprehensive income
(unaudited)................ -- -- -- (19) (19)
-------
Comprehensive income
(unaudited)................ 307
Stock compensation
(unaudited)................ -- 75 -- -- 75
--------- ------ ------ ---- -------
Balance at March 29, 1998
(unaudited).................. 1,999,961 $3,600 $6,491 $(39) $10,052
========= ====== ====== ==== =======

See accompanying notes.

F-6

COST-U-LESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FISCAL YEAR ENDED QUARTER ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(UNAUDITED)

OPERATING ACTIVITIES
Net income (loss)....... $ 250 $ 370 $ 363 $(278) $ 326
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation........... 779 1,089 917 244 230
Writedown of property
and equipment......... 114 713 637 387 --
Deferred tax (benefit)
provision............. (220) (20) (253) -- 178
Stock compensation..... -- -- -- -- 75
Reserve for bad debts.. -- 25 -- (16) 15
Cash provided by (used
in) changes in
operating assets and
liabilities:
Receivables............ (908) 605 (308) 132 73
Refundable income
taxes................. (515) 128 208 (292) (15)
Inventories............ (665) 1,660 2,667 (65) (1,501)
Prepaid expenses....... 27 (108) 179 (455) (556)
Deposits and other
assets................ 2 31 (193) (44) (89)
Accounts payable....... 1,726 (1,860) 352 (139) 822
Accrued expenses....... (605) (496) (142) 692 376
Deferred rent.......... 201 129 151 39 30
------- ------- ------- ----- -------
Net cash provided by
(used in) operating
activities............. 186 2,266 4,578 205 (36)
INVESTING ACTIVITY--
purchases of property
and equipment.......... (3,081) (2,006) (899) (581) (1,770)
FINANCING ACTIVITIES
Proceeds from exercise
of stock options....... 3 -- -- -- --
Net borrowings
(repayments) under line
of credit.............. 2,878 (2,000) (1,125) 721 239
Proceeds from long-term
debt................... 3,500 1,747 -- -- 1,000
Principal payments on
long-term debt......... (2,112) (1,151) (1,246) (303) (327)
Payments of capital
lease obligations...... -- (406) (375) (94) (115)
Unrealized foreign
exchange loss.......... -- -- -- -- (19)
------- ------- ------- ----- -------
Net cash provided by
(used in) financing
activities............. 4,269 (1,810) (2,746) 324 778
------- ------- ------- ----- -------
Net increase (decrease)
in cash and cash
equivalents............ 1,374 (1,550) 933 (52) (1,028)
Cash and cash
equivalents:
Beginning of period.... 271 1,645 95 95 1,028
------- ------- ------- ----- -------
End of period.......... $ 1,645 $ 95 $ 1,028 $ 43 $ 0
======= ======= ======= ===== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for:
Interest............... $ 542 $ 619 $ 442 $ 119 $ 58
Income taxes........... $ 1,012 $ 107 $ 102 $ 175 $ 153
SUPPLEMENTAL DISCLOSURE
OF NONCASH FINANCING
AND INVESTING
ACTIVITIES
Property and equipment
acquired with capital
lease obligations..... $ 663 $ 1,660 $ -- $ -- $ --

See accompanying notes.

F-7

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Cost-U-Less, Inc. (the "Company") operates mid-sized warehouse club-style
stores in "island" markets in U.S. territories throughout the Pacific and
Caribbean. The Company currently operates seven island stores located in
Hawaii, U.S. Virgin Islands, Guam, American Samoa, and one U.S. mainland store
in California.

Principles of Consolidation

The Company operates wholly owned subsidiaries in Guam, U.S. Virgin Islands,
American Samoa, Nevada, Republic of Fiji, New Zealand, and Vanuatu. All
significant intercompany balances and transactions have been eliminated in
consolidation.

The U.S. dollar is the functional currency for all locations, except for
Fiji, which uses the Fijian dollar.

Fiscal Year

The Company's fiscal year ends on the last Sunday in December. The years
ended December 29, 1996 and December 28, 1997 represent 52-week fiscal years,
and the year ended December 31, 1995 was a 53-week fiscal year.

Cash Equivalents

Highly liquid investments maturing within three months from the date of
purchase are classified as cash equivalents.

Financial Instruments

The carrying value of financial instruments, including cash, receivables,
payables, and long-term debt, approximates market value at December 29, 1996
and December 28, 1997.

Inventories

Merchandise inventories are recorded at the lower of average cost or market.

Property and Equipment

Property and equipment are carried at cost. Depreciation is provided using
the straightline method over the estimated useful lives of the assets, ranging
from 5 to 15 years. Equipment acquired under capitalized leases is depreciated
over the shorter of the asset's estimated useful life or the life of the
related lease.

The Company's policy to recognize impairment losses relating to long-lived
assets is based on several factors, including, but not limited to,
management's plans for future operations, recent operating results and
projected cash flows.

Advertising Costs

The cost of advertising is expensed as incurred. Advertising expenses
incurred during fiscal years 1995, 1996, and 1997 were not material to the
Company's operating results.

F-8

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

Preopening Costs

Costs incurred in connection with the startup and promotion of new store
openings are expensed as incurred.

Stock-Based Compensation

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 price.

Earnings Per Share

Basic earnings per share is computed based on weighted average shares
outstanding. Diluted earnings per share includes the effect of dilutive
securities (options and warrants) except where their inclusion is
antidilutive.

Comprehensive Income

As of December 29, 1997, the Company adopted Statement No. 130, Reporting
Comprehensive Income. Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholder's equity. Statement No. 130 requires foreign currency translation
adjustments, which prior to adoption were reported separately in shareholder's
equity to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
No. 130.

During the first quarter of 1997 and 1998, total comprehensive income (loss)
amounted to $(278,000) and $307,000, respectively.

Segment Reporting

Effective January 1, 1997, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of Enterprise and Related Information. This
Statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Statement No. 131 also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The adoption of this Statement did not affect
results of operations or financial position.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

F-9

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

Unaudited Interim Financial Information

The financial information as of March 29, 1998 and for the quarters ended
March 30, 1997 and March 29, 1998 is unaudited, but includes all adjustments
(consisting only of normal recurring 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. Operating results
for the quarter ended March 29, 1998 are not necessarily indicative of results
that may be expected for the entire year. All quarterly periods reported
consist of 13 weeks.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 28, DECEMBER 28, MARCH 29,
1996 1997 1998
------------ ------------ ---------
(IN THOUSANDS)

Equipment.............................. $8,537 $8,238 $8,932
Leasehold improvement.................. 1,204 1,339 1,361
Construction in progress............... -- 94 1,147
------ ------ ------
9,741 9,671 11,440
Less accumulated depreciation.......... 2,313 2,824 3,053
------ ------ ------
Total assets........................... $7,428 $6,847 $8,387
====== ====== ======

Equipment under capitalized leases had a cost of $2,322,000, $1,733,000, and
$1,733,000 and accumulated depreciation of $184,000, $331,000, and $359,000 at
December 29, 1996, December 28, 1997, and March 29, 1998, respectively.

3. BANK LINE OF CREDIT

At December 28, 1997, the Company had a $6,000,000 line of credit available
from a commercial bank that expires May 1, 1998. Borrowings bear interest at
prime (8.5% at December 28, 1997) and are secured by various Company assets.
As of December 28, 1997, $376,000 was outstanding under the line of credit
agreement.

Terms of this line of credit include covenants that require, among other
things, that the Company maintain certain financial ratios. As of December 28,
1997, the Company was in compliance with these covenants.

4. LONG-TERM DEBT

Long-term debt consists of a note payable to bank due in monthly
installments of $111, including interest at the fixed rate index plus 1.75%
(7.73% at December 28, 1997). The note matures in March 1998, and is secured
by equipment with a net book value of $4,782.

At December 28, 1997, the Company secured additional long-term financing
totaling $3,000,000 for the construction of a new store in St. Thomas. The
financing included a $1,000,000 note payable to a bank with interest at the
fixed rate index plus 1.75% (7.7% at December 28, 1997), maturing April 30,
2000. The

F-10

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

financing also included a $2,000,000 note payable to a bank with interest at
the prime rate plus 1%, maturing June 2013. The note will be secured by a
first leasehold priority mortgage on the new St. Thomas building. There were
no amounts drawn on either of these notes in 1997.

5. INCOME TAXES

The provision for income taxes for the fiscal years ended December 31, 1995,
December 29, 1996, and December 28, 1997, respectively, consists of the
following:

1995 1996 1997
----- ---- -----
(IN THOUSANDS)

Current:
Federal............................................ $ 6 $ 10 $ --
Foreign............................................ 338 199 463
State.............................................. 21 32 (13)
----- ---- -----
365 241 450
Deferred:
Federal and state.................................. (220) (76) (268)
Foreign............................................ -- 56 15
----- ---- -----
(220) (20) (253)
----- ---- -----
$ 145 $221 $ 197
===== ==== =====

A reconciliation between the U.S statutory income tax rate and the effective
rate follows:

1995 1996 1997
----------- ----------- -----------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(DOLLARS IN THOUSANDS)

Tax at U.S. statutory rate.............. $134 34.0% $201 34.0% $190 34.0%
State income taxes, net of federal bene-
fit.................................... 14 3.5 21 3.6 (9) (1.6)
Foreign related taxes and other......... (3) (0.8) (1) (0.2) 16 2.8
---- ---- ---- ---- ---- ----
Income taxes at effective rate.......... $145 36.7% $221 37.4% $197 35.2%
==== ==== ==== ==== ==== ====

F-11

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

The significant items comprising the Company's net deferred tax assets are
as follows:

DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
(IN THOUSANDS)

Current deferred tax
assets and (liabilities):
Uniform capitalization.. $111 $ 95
Store accruals.......... 289 --
Vacation pay and bad
debts.................. 41 52
Charitable contribution
carryovers............. -- 45
Net operating loss
carryforwards.......... 37 600
Cash discounts and
other.................. (60) (121)
---- ----
Current deferred tax as-
sets, net................ $418 $671
==== ====
Long-term deferred tax
assets and (liabilities):
Deferred rent credits... $112 $163
Foreign tax credits..... 424 434
AMT and other credits... 91 85
Other................... 18 8
Accelerated
depreciation........... (337) (382)
---- ----
308 308
Less valuation allowance.. (167) (167)
---- ----
Long-term deferred tax as-
sets, net................ $141 $141
==== ====

The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings. It is not
practicable to estimate the tax liabilities which would result upon such
repatriation.

The valuation allowance has been provided due to uncertainty regarding the
full realization of the Company's foreign tax credits and other long-term
deferred tax assets. Foreign tax credit carryforwards expire in 1999 and 2000.
As of December 28, 1997, the Company had a U.S. net operating loss of
approximately $1,362,000, which will expire in 2012, and a Fiji net operating
loss of approximately $165,000, which will expire in 2006.

6. SHAREHOLDERS' EQUITY

Stock Options

The Company's Amended and Restated 1989 Stock Option Plan (the "1989 Plan")
provides for the granting of incentive and nonqualified stock options to
employees, directors, and consultants of the Company. An aggregate of
1,350,000 shares of common stock has been authorized for issuance under the
1989 Plan. Options issued under the 1989 Plan vest ratably over five years and
expire after ten years from the date of grant and are generally granted at
prices equal to the fair value on the date of grant. There were 1,032,974
options available for future grant under the 1989 Plan at December 28, 1997.

F-12

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

The Company has also granted nonqualified stock options to its Directors.
Options granted to Directors have vesting provisions ranging from immediate
vesting to 20% vesting per year and are generally issued at the fair value at
the date of grant. Options expire after ten years. At December 28, 1997,
66,410 options have been granted at an exercise price of $10.16 per share.

A summary of stock option transactions for the years ended December 31,
1995, December 29, 1996, and December 28, 1997:

1995 1996 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------

Outstanding, beginning of
year.................... 352,557 $ 8.60 270,320 $ 6.20 270,320 $4.98
Granted................ 11,802 16.94 47,497 8.47 45,744 9.82
Forfeited.............. (93,420) 16.70 (47,497) 13.42 (25,055) 9.45
Exercised.............. (619) 4.03 -- -- -- --
------- ------- -------
Outstanding, end of year. 270,320 6.20 270,320 4.98 291,009 5.49
======= ======= =======
Exercisable, end of year. 174,748 4.78 206,257 4.51 255,340 5.03
======= ======= =======

The weighted average fair value of options granted in 1995, 1996, and 1997
was $0.82, $0.42 and $0.09, respectively. The following table summarizes
information related to outstanding options at December 28, 1997:

OUTSTANDING EXERCISABLE
------------------------------------------------- -------------------
RANGE OF WEIGHTED WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICES OPTIONS PRICE LIFE OPTIONS PRICE
------------- ------- -------- ----------- ------- --------

$0.81 - 2.37 73,795 $1.73 2.85 years 73,795 $1.73
3.39 - 3.73 102,569 3.69 4.65 years 102,569 3.69
8.47 - 10.16 114,645 9.49 7.43 years 78,976 9.82
------- -------
291,009 5.49 255,340 5.03
======= =======

In 1996, the Company offered employees with options granted with exercise
prices of $16.94 per share the opportunity to surrender those options and
receive new options with an exercise price of $8.47 per share. With the
exception of the exercise price, the terms of the new options, including the
vesting schedule, are identical to the terms of the old options. The holders
of 29,789 options elected to exchange their options under this repricing
offer.

F-13

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

As described in Note 1, the Company has elected to account for stock-based
compensation expense in accordance with APB No. 25. Accordingly, for fiscal
years 1995, 1996, and 1997, no compensation expense has been recognized for
stock-based compensation since the grant price equaled the estimated fair
value of the stock on the date of grant. Had compensation cost been recognized
based on the fair value at the grant date for options awarded under the Plan,
pro forma net income and net income per share would have been as follows:

1995 1996 1997
-------- -------- --------

Net income as reported............................ $250,000 $370,000 $363,000
Net income pro forma.............................. 248,000 367,000 357,000
Earnings per common share, basic as reported...... $ 0.13 $ 0.19 $ 0.18
Earnings per common share, basic pro forma........ $ 0.12 $ 0.18 $ 0.18
Earnings per common share, diluted as reported.... $ 0.11 $ 0.17 $ 0.17
Earnings per common share, diluted pro forma...... $ 0.11 $ 0.17 $ 0.17

Compensation expense recognized in providing pro forma disclosures may not
be representative of the effects on pro forma net income for future years
because the above amounts include only the amortization for the fair value of
grants made in fiscal years 1995, 1996, and 1997.

The fair value of each option is estimated on the date of grant under the
Black-Scholes option pricing model with a volatility of zero and using the
following assumptions:

1995 1996 1997
------- ------- -------

Risk-free interest rate............................ 6% 6.20% 6.20%
Expected life...................................... 3 years 3 years 3 years

In January 1998, the Company granted 88,554 options with immediate vesting
to a director of the Company. The options were granted with an exercise price
of $7.62, with a deemed fair value of $8.47. Accordingly, for financial
statement presentation purposes, compensation expense of $75,000 has been
recognized.

Warrants

In 1991, the Company issued 29,518 warrants to an officer. The warrants
grant the holder the right to 29,518 shares of the Company's common stock at
$2.37 per share. The warrants are currently exercisable and expire in 2001.

COMMON STOCK RESERVED

Common stock reserved for future issuance at December 28, 1997 is as
follows:

Stock options.................................................... 1,462,612
Warrants......................................................... 29,518
---------
1,492,130
=========

F-14

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

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

Numerator:
Net income (loss)...... $ 250 $ 370 $ 363 $ (278) $ 326
Denominator:
Denominator for basic
earnings per share--
weighted average
shares................ 1,999,961 1,999,961 1,999,961 1,999,961 1,999,961
Effect of dilutive
securities:
Stock options and
warrants............. 197,825 146,784 123,823 -- 150,974
Denominator for diluted
earnings per share--
adjusted weighted
average shares and
assumed conversion of
stock options and
warrants.............. 2,197,786 2,146,745 2,123,784 1,999,961 2,150,935
Basic earnings (loss)
per common share....... $ 0.13 $ 0.19 $ 0.18 $ (0.14) $ 0.16
Diluted earnings (loss)
per common share....... $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15

7. SEGMENT INFORMATION AND STORE CLOSURES

The Company reports operating results in two segments due to distinct
geographical and operational differences. These two segments include the
Company's discount retail stores located in its island markets and those
located on the U.S. mainland.

Other business activities include wholesale sales directly from the
Company's distribution facilities. These sales are not significant to include
as a separate segment and are aggregated with other income and expenses that
are not directly related to the operations of the stores in the particular
segments.

F-15

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

ISLAND MAINLAND
STORES STORES OTHER TOTALS
-------- -------- ----- --------
(IN THOUSANDS)

YEAR ENDED DECEMBER 31, 1995
Net sales..................................... $120,010 $19,642 $ -- $139,652
Contribution.................................. 4,958 (430) -- 4,528
Depreciation.................................. 475 152 -- 627
Store opening expense......................... 267 333 -- 600
Store closing expense......................... 400 -- 400
Segment inventories........................... 10,725 3,196 -- 13,921
Segment total assets.......................... 16,845 5,204 -- 22,049
YEAR ENDED DECEMBER 29, 1996
Net sales..................................... 111,413 23,407 -- 134,820
Contribution.................................. 5,212 (415) 356 5,153
Depreciation.................................. 556 272 -- 828
Store closing expense......................... -- 918 -- 918
Segment inventories........................... 9,543 2,996 -- 12,539
Segment total assets.......................... 16,140 5,154 -- 21,294
YEAR ENDED DECEMBER 28, 1997
Net sales..................................... 111,480 10,684 2,701 124,865
Contribution.................................. 5,635 (160) 450 5,925
Depreciation.................................. 579 110 -- 689
Store opening expense......................... 327 -- -- 327
Store closing expense......................... -- 1,346 -- 1,346
Segment inventories........................... 8,655 764 -- 9,419
Segment total assets.......................... 16,240 1,350 -- 17,590
QUARTER ENDED MARCH 30, 1997
Net sales..................................... 27,882 3,748 159 31,789
Contribution.................................. 1,321 (185) 90 1,226
Segment inventories........................... 9,183 1,450 -- 10,633
Segment total assets.......................... 14,801 2,750 -- 17,551
QUARTER ENDED MARCH 29, 1998
Net sales..................................... 29,547 1,570 636 31,753
Contribution.................................. 1,584 (35) 118 1,667
Segment inventories........................... 8,538 780 -- 9,318
Segment total assets.......................... 15,654 1,345 -- 16,999

F-16

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

Reconciliation of Contribution to Consolidated Income before Income Taxes

Total contribution for
reportable segments.... $ 4,528 $ 4,797 $ 5,475 $1,136 $1,549
Other contribution...... -- 356 450 90 118
Administrative expense
not allocated to
segments............... (2,728) (3,039) (3,225) (795) (981)
Store opening/closing
expenses............... (1,000) (918) (1,673) (722) (130)
Other income (expense).. 150 -- (40) -- --
Interest expense........ (555) (605) (427) (124) (55)
------- ------- ------- ------ ------
Consolidated income
(loss) before income
taxes.................. $ 395 $ 591 $ 560 $ (415) $ 501
======= ======= ======= ====== ======

Reconciliation of Significant Items

SEGMENT CONSOLIDATED
TOTALS CORPORATE TOTALS
------- --------- ------------
(IN THOUSANDS)

DECEMBER 31, 1995
OTHER SIGNIFICANT ITEMS
Depreciation..................................... $ 627 $ 152 $ 779
Inventories...................................... 13,921 2,677 16,598
Total assets..................................... 22,049 6,476 28,525
DECEMBER 29, 1996
OTHER SIGNIFICANT ITEMS
Depreciation..................................... 828 261 1,089
Inventories...................................... 12,539 2,399 14,938
Total assets..................................... 21,294 3,562 24,856
DECEMBER 28, 1997
OTHER SIGNIFICANT ITEMS
Depreciation..................................... 689 228 917
Inventories...................................... 9,419 2,852 12,271
Total assets..................................... 17,590 5,225 22,815
MARCH 30, 1997
Inventories...................................... 10,633 4,370 15,003
Total assets..................................... 17,551 7,943 25,494
MARCH 29, 1998
Inventories...................................... 9,318 4,454 13,772
Total assets..................................... 16,999 8,224 25,223

F-17

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

Geographic Information

LONG-LIVED
SALES ASSETS
-------- ----------
(IN THOUSANDS)

1995
United States.......................................... $ 51,346 $3,644
Other foreign countries*............................... 88,306 4,031
-------- ------
$139,652 $7,675
======== ======
1996
United States.......................................... $ 46,548 $4,091
Other foreign countries*............................... 88,272 3,756
-------- ------
$134,820 $7,847
======== ======
1997
United States.......................................... $ 34,801 $3,451
Other foreign countries*............................... 90,064 3,914
-------- ------
$124,865 $7,365
======== ======

- --------
* including U.S. territories

In 1995 and 1996, the Company closed the Maui, Hawaii and San Jose,
California stores, respectively. In 1997, the Company permanently closed the
Davis, California and Walla Walla, Washington stores. The following represents
the costs charged to expense related to the store closures for the indicated
fiscal years:

1995 1996 1997
---- ---- ------
(IN THOUSANDS)

Lease buyout............................................. $138 $225 $ 421
Leasehold improvement writeoff........................... 114 530 635
Other closure costs...................................... 148 163 290
---- ---- ------
$400 $918 $1,346
==== ==== ======

The 1997 charge of $1,346,000 includes $256,000 of additional closure costs
related to the termination of stores previously closed.

Total revenues and net operating losses contributed by the four stores
closed during fiscal 1995, 1996, and 1997 were as follows:

1995 1996 1997
------- ------- ------
(IN THOUSANDS)

Total revenues...................................... $18,480 $15,691 $3,433
======= ======= ======
Store operating losses.............................. $ 933 $ 608 $ 243
======= ======= ======

F-18

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

8. LEASE COMMITMENTS

The Company has entered into operating leases for retail and administrative
office locations. The leases range from 5 to 15 years and include renewal
options. The Company is required to pay a base rent, plus insurance, taxes,
and maintenance. The Company also leases equipment that may be purchased for a
nominal amount on expiration of the lease.

A summary of the Company's future minimum lease obligations under leases
with initial or remaining terms of one year or more is as follows:

OPERATING CAPITAL
LEASE LEASE
--------- -------
(IN THOUSANDS)

1998.................................................... $ 3,284 $ 537
1999.................................................... 3,044 537
2000.................................................... 3,086 778
2001.................................................... 3,110 --
2002.................................................... 2,830 --
Thereafter.............................................. 12,315 --
------- ------
$27,669 1,852
=======
Amounts representing interest........................... (277)
------
Present value of net minimum lease payments............. $1,575
======

Rent expense under operating leases for the fiscal years ended December 31,
1995, December 29, 1996, and December 28, 1997 totaled $3,614,000, $4,103,000,
and $3,817,000, respectively.

Total minimum capital lease payments include $431,000 of residual value
payments to be paid in fiscal year 2000.

Subsequent to December 28, 1997, the Company entered into agreements to
lease two stores in Fiji, and entered into a lease for one store in Curacao,
Netherlands Antilles. The Fiji agreements contemplate leases with have ten-
year terms and renewal options. Rental rates for the Fiji stores in Fijian
dollars will be $27,000 and $29,000 per month, respectively ($14,000 and
$15,000 in U.S. dollars, respectively). A rental review and adjustment to the
rental rate, if required, will be made every five years on one of the leases.
The Curacao store is a ten-year lease with two five-year options to extend the
lease term. Rental rates for the Curacao store are $64,000 (in U.S. dollars)
per month fixed for the first seven years and adjusted by the Consumer Price
Index for the remaining three years. The Company's future minimum lease
obligations for the Fiji stores are $1,685,000 and $1,804,000, and its future
minimum lease obligation for the Curacao store is $7.7 million. None of the
stores will have any common area charges or taxes. Property insurance for the
buildings will be paid by the Company.

Lease payments will not begin until the buildings are completed. All three
are expected to be completed by the first quarter of 1999.

F-19

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

9. EMPLOYEE BENEFIT PLAN

The Company maintains a 40l(k) profit-sharing plan covering all eligible
employees. Participating employees may elect to defer and contribute a stated
percentage of their compensation to the plan, not to exceed the dollar limit
set by law. The Company matches 25% of each employee's contribution, up to a
maximum of the first 15% of each employee's compensation. The Company's
matching contributions to the plan approximated $70,000, $86,000, and $75,000
in fiscal 1995, 1996, and 1997, respectively.

10. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the Company's unaudited quarterly results of
operations:

EARNINGS
(LOSS) PER
STORE COMMON
WEEKS NET SHARE(1)
IN NET GROSS INCOME ---------------
PERIOD SALES PROFIT (LOSS) BASIC DILUTED
------ ------- ------ ------ ------ -------
(IN THOUSANDS, EXCEPT STORE WEEKS AND PER-
SHARE DATA)

FISCAL 1996
First quarter..................... 143 $33,443 $4,940 $ 91 $ 0.05 $ 0.04
Second quarter.................... 143 33,844 5,194 235 0.12 0.11
Third quarter..................... 143 32,717 5,210 260 0.13 0.12
Fourth quarter(2)................. 143 34,816 5,652 (216) (0.11) (0.11)
FISCAL 1997
First quarter(3).................. 130 $31,789 $5,066 $(278) $(0.14) $(0.14)
Second quarter(4)................. 117 31,868 5,240 3 -- --
Third quarter..................... 104 29,747 4,876 264 0.13 0.12
Fourth quarter.................... 104 31,461 5,286 374 0.19 0.18

- --------
(1) Interim per share amounts may not accumulate to annual per share amounts
due to rounding.
(2) Includes store closure costs of $839,000.
(3) Includes store closure costs of $700,000.
(4) Includes store closure costs of $600,000.

11. SUBSEQUENT EVENTS

In December 1997, the Company entered into an investment banking agreement
with Streamline Capital Corporation ("Streamline Capital"). The agreement was
modified in March 1998, whereby the Company will pay Streamline Capital a
monthly retainer of $6,000 and pay a transaction fee of $75,000 for the
completion of an initial public offering ("IPO"). The retainer is used to
offset any transaction fees earned by Streamline Capital. The principal of
Streamline Capital is the son of a director of the Company.

On May 1, 1998, the Company increased its line of credit from a commercial
bank to $7,000,000. The line of credit expires May 1, 1999. Borrowings under
the line of credit bear interest at the bank's prime rate, or, at the
Company's option, at LIBOR index plus 1.5%, and are secured by various Company
assets. The line of credit contains certain restrictive covenants similar to
those under the previous line of credit. (See Note 3.)

On May 12, 1998, the Company's Board of Directors authorized management to
file a Registration Statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.

F-20

COST-U-LESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)

On May 13, 1998, the Company effected a 1-for-3.38773 reverse split of its
common stock. All share and per-share information has been restated to reflect
this stock split.

On February 28, 1998, the Company adopted the 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). The 1998 Plan includes both stock options
and stock awards, including restricted stock, with a maximum of 500,000 shares
of common stock available for issuance. On May 13, 1998, the shareholders
approved the 1998 Plan. All future option grants will be made under the 1998
Plan, and no additional options will be granted under the 1989 Plan.

F-21

BACK COVER:

. Picture of a warehouse membership card with a circle/slash overlay with the
following text:

"At Cost-U-Less, You're Already a Member."

Unlike most warehouse club stores, we don't charge you an annual membership
fee just shop at Cost-U-Less."

. Picture of Cost-U-Less logo

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

page

Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 25
Management................................................................ 37
Certain Transactions...................................................... 43
Principal and Selling Shareholders........................................ 45
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 51
Legal Matters............................................................. 52
Experts................................................................... 53
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

1,723,222 SHARES

[LOGO OF COST-U-LESS]

COMMON STOCK

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

PROSPECTUS

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

CRUTTENDEN ROTH
INCORPORATED

BLACK & COMPANY, INC.

, 1998

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the sale of the Common Stock being registered hereby. All
amounts shown are estimates, except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.

Securities and Exchange Commission registration fee.............. $ 6,082
NASD filing fee.................................................. 2,562
Nasdaq National Market listing fee............................... 53,750
Representative's nonaccountable expense allowance................ 288,000
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 100,000
Legal fees and expenses.......................................... 175,000
Accounting fees and expenses..................................... 175,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 89,606
--------
Total.......................................................... $910,000
========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 23B.08.500 through 23B.08.600 of the WBCA authorize a court to
award, or a corporation's board of directors to grant, indemnification to
directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). Section 10 of the registrant's
Restated Bylaws (Exhibit 3.2 hereto) provides for indemnification of the
registrant's directors, officers, employees and agents to the maximum extent
permitted by Washington law. The directors and officers of the registrant also
may be indemnified against liability they may incur for serving in that
capacity pursuant to a liability insurance policy maintained by the registrant
for such purpose.

Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, knowing violations of law or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article 8 of the registrant's Restated
Articles of Incorporation (Exhibit 3.1 hereto) contains provisions
implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to the registrant and its shareholders.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and
directors, and by the registrant of the Underwriters, for certain liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided in writing by the Underwriters for inclusion in
this Registration Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

From May 1, 1995 through May 1, 1998, the registrant granted stock options
to purchase 78,191 shares of Common Stock at a weighted average exercise price
of $9.50 per share to employees and officers pursuant to its 1989 Stock Option
Plan. Of these options, none have been canceled without being exercised, 590
have been exercised and 77,601 remain outstanding. From May 1, 1995 through
May 1, 1998, the registrant also granted stock options to directors, pursuant
to individual director stock option agreements, to purchase

II-1

152,013 shares of Common Stock at a weighted average exercise price of $8.68
per share. Of these options, none have been canceled, none have been exercised
and 152,013 remain outstanding.

No underwriters were engaged in connection with these option grants, which
were deemed to be exempt from registration under the Securities Act
principally by virtue of Section 4(2) thereof as transactions not involving
any public offering, and by virtue of Rule 701 promulgated under the
Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

1.1+ Form of Underwriting Agreement
1.2+ Form of Warrant Agreement
3.1+ Restated Articles of Incorporation of the registrant
3.2+ Amended and Restated Bylaws of the registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Perkins Coie LLP regarding legality of shares
10.1+ 1998 Stock Incentive Compensation Plan
10.2+ Amended and Restated 1989 Stock Option Plan
10.3+ Form of Director Stock Option Agreement (Vesting)
10.4+ Form of Director Stock Option Agreement (Nonvesting)
10.5+ Manager Bonus Program
10.6+ Common Stock Purchase Warrant between the registrant and Michael J.
Rose
10.7+ Business Loan Agreement between Bank of America NT & SA dba
Seafirst Bank and the registrant, dated April 28, 1998
10.8+ Promissory Note between Bank of America NT & SA dba Seafirst Bank
and the registrant, dated December 31, 1997
10.9+ Construction/Permanent Loan Agreement by and among CULUSVI, Inc.,
the registrant and Banco Popular de Puerto Rico, dated November 6,
1997
10.10+ Lease Agreement between Westmall Limited and the registrant,
effective March 1, 1998
10.11+ Form of Lease Agreement between Fiji Public Service Association and
the registrant
10.12+ Lease Agreement between Baroud Real Estate Development N.V. and the
registrant, dated April 3, 1998
10.13+ Ground Lease between Market Square East, Inc. and the registrant,
dated October 20, 1997
10.14+ Month-to-Month Rental Agreement (Gross) between Whipple Road
Associates and the registrant, dated January 6, 1995
10.15+ Sublease Agreement between Tamuning Capital Investment, Inc. and
the registrant dated July 15, 1994
10.16+ Lease Agreement between Ottoville Development Company and the
registrant, dated March 9, 1994
10.17+ Lease Agreement between Inmostrat Corporation and the registrant,
dated August 1993
10.18+ Lease Agreement between Hassan Rahman and the registrant, dated
July 30, 1993
10.19+ Industrial Real Estate Lease (Single-Tenant Facility) between Hilo
Partners and the registrant, dated September 1, 1991
10.20+ Indenture of Lease between Kai Pacific Limited and the registrant,
dated August 30, 1991
10.21+ Lease Agreement between Tonko Reyes, Inc. and the registrant, dated
July 1991
21.1+ Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Deloitte & Touche, LLP, Independent Auditors

II-2

23.3* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit 5.1 hereto)
23.4 Consent of Ashley Emberson-Bain
24.1+ Power of Attorney
27.1+ Financial Data Schedule

- --------
+ Previously filed
* To be filed by amendment

(b) Financial Statement Schedules

All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the
registrant or related notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.

The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Bellevue, State of Washington, on the 16th day of June, 1998.

COST-U-LESS, INC.

/s/ Allan Youngberg
By: _________________________________
Allan Youngberg
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities indicated below on the 16th day of June, 1998.

SIGNATURE TITLE
--------- -----

Michael J. Rose* Chairman of the Board, President and Chief
___________________ Executive Officer (Principal Executive
Michael J. Rose Officer)

/s/ Allan Youngberg Executive Vice President, Chief Financial
___________________ Officer, Secretary and Treasurer (Principal
Allan Youngberg Financial and Accounting Officer)

David A. Enger* Director
___________________
David A. Enger

Don L. Gevirtz* Director
___________________
Don L. Gevirtz

Wayne V. Keener* Director
___________________
Wayne V. Keener

Gary W. Nettles* Director
___________________
Gary W. Nettles

George C. Textor* Director
___________________
George C. Textor

/s/ Allan Youngberg
*By: ___________________
Allan Youngberg
Attorney-in-Fact

II-4

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
------- -----------

1.1+ Form of Underwriting Agreement
1.2+ Form of Warrant Agreement
3.1+ Restated Articles of Incorporation of the registrant
3.2+ Restated Bylaws of the registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Perkins Coie LLP regarding legality of shares
10.1+ 1998 Stock Incentive Compensation Plan
10.2+ Amended and Restated 1989 Stock Option Plan
10.3+ Form of Director Stock Option Agreement (Vesting)
10.4+ Form of Director Stock Option Agreement (Nonvesting)
10.5+ 1998 Manager Bonus Program
10.6+ Common Stock Purchase Warrant between the registrant and Michael J.
Rose
10.7+ Business Loan Agreement between Bank of America NT & SA dba Seafirst
Bank and the registrant, dated April 28, 1998
10.8+ Promissory Note between Bank of America NT & SA dba Seafirst Bank and
the registrant, dated December 31, 1997
10.9+ Construction/Permanent Loan Agreement by and among CULUSVI, Inc., the
registrant and Banco Popular de Puerto Rico, dated November 6, 1997
10.10+ Lease Agreement between Westmall Limited and the registrant, effective
March 1, 1998
10.11+ Form of Lease Agreement between Fiji Public Service Association and
the registrant
10.12+ Lease Agreement between Baroud Real Estate Development N.V. and the
registrant, dated April 3, 1998
10.13+ Ground Lease between Market Square East, Inc. and the registrant,
dated October 20, 1997
10.14+ Month-to-Month Rental Agreement (Gross) between Whipple Road
Associates and the registrant, dated January 6, 1995
10.15+ Sublease Agreement between Tamuning Capital Investment, Inc. and the
registrant dated July 15, 1994
10.16+ Lease Agreement between Ottoville Development Company and the
registrant, dated March 9, 1994
10.17+ Lease Agreement between Inmostrat Corporation and the registrant,
dated August 1993
10.18+ Lease Agreement between Hassan Rahman and the registrant, dated July
30, 1993
10.19+ Industrial Real Estate Lease (Single-Tenant Facility) between Hilo
Partners and the registrant, dated September 1, 1991
10.20+ Indenture of Lease between Kai Pacific Limited and the registrant,
dated August 30, 1991
10.21+ Lease Agreement between Tonko Reyes, Inc. and the registrant, dated
July 1991
21.1+ Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Deloitte & Touche, LLP, Independent Auditors
23.3* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1 hereto)
23.4 Consent of Ashley Emberson-Bain
24.1+ Power of Attorney (contained on signature page)
27.1+ Financial Data Schedule

- --------
* To be filed by amendment
+ Previously filed