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In an amended 13D filing on Cost-U-Less Inc. (Nasdaq: CULS) filed Wednesday afternoon, 9.5% holder Delafield Hambrecht disclosed a letter sent to the company noting that they still believe the stock is significantly under-valued and is ill-suited to be publicly owned. The firm is calling for an immediate sale. Delafield Hambrecht said they would participate as a potential buyer in the auction.

In the letter the firm said, "As the largest owners of the Company, we maintain that our capital would be better utilized by realizing fair value through a sale of the Company today than by continuing to wait for new investors to embrace a small, illiquid company whose capital is chewed up by the cost of being public. We have been patient long enough and request that you immediately appoint an investment bank to market the Company broadly through an auction process to both strategic and financial buyers. Although strategic investors should pay more for the Company, financial buyers will pay a healthy premium to today’s market price. As you know, we would participate as a potential buyer in the auction of the Company since all along we have had an interest in buying it. We may or may not be the ultimate buyer but realizing significantly higher value through a sale is preferable to us to continuing to watch our capital stagnate."

A Copy of the Letter:

Dear George:

Delafield Hambrecht, Inc. and certain other investors together own approximately 9.5% of Cost-U-Less, Inc. (the “Company”). We have communicated with you in person, at the 2006 annual shareholders’ meeting and in writing our belief that the Company is significantly under-valued and is ill-suited to be publicly owned. We have filed two 13D statements (November 1, 2005 and April 26, 2006) elaborating our thinking. Our views have not changed.

The Company’s enterprise value today is approximately $30 million (adjusting for the cash raised in the St. Croix store sale/leaseback). EBITDA in 2006 and 2007 should be approximately $7.0 million and $7.5 million, respectively. Adding back $1.0 million in public company costs, 2007 pro forma EBITDA to a buyer would be $8.5 million. Assuming we are correct, the market currently values our Company (on an enterprise value basis) at 3.5x EBITDA. Clearly, this is too low and a sale of the Company would yield a significantly higher price than we enjoy today.

Please note that we are not casual observers of the Company and our estimates assume the opportunities (new Grand Cayman store, lower oil prices, etc.) you enjoy and the challenges you face (coup in Fiji, Costco opening in Kauai, etc.). Furthermore, we do not assume any impact for other synergies a strategic buyer might realize – purchasing power, employee redundancies, real estate consolidation, etc. Value is building in the business; however, the market refuses to recognize it.

As the largest owners of the Company, we maintain that our capital would be better utilized by realizing fair value through a sale of the Company today than by continuing to wait for new investors to embrace a small, illiquid company whose capital is chewed up by the cost of being public. We have been patient long enough and request that you immediately appoint an investment bank to market the Company broadly through an auction process to both strategic and financial buyers. Although strategic investors should pay more for the Company, financial buyers will pay a healthy premium to today’s market price. As you know, we would participate as a potential buyer in the auction of the Company since all along we have had an interest in buying it. We may or may not be the ultimate buyer but realizing significantly higher value through a sale is preferable to us to continuing to watch our capital stagnate.

You and the other directors have an obligation to the shareholders to act in the interest of the owners of the Company. In the event the Company has not publicly initiated this process by the spring, we will propose certain actions at the next meeting of the shareholders, including the election of directors who support our point of view.

Sincerely,

J.D. Delafield

Chairman

Delafield Hambrecht, Inc.

Source: Cost-U-Less: Delafield Hambrecht Calls For Sale