Natural Grocers by Vitamin Cottage, Inc. Annual Report 2015

FY2015 Annual Report · Natural Grocers by Vitamin Cottage, Inc.

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NATURAL GROCERS BY VITAMIN COTTAGE, INC.

2015 ANNUAL REPORT

DEAR FELLOW STOCKHOLDERS:
Fiscal 2015 was a year of milestones for Natural Grocers and we are pleased to share them with you.
We continued to experience strong sales growth and surpassed the 100 store mark while maintaining
our operational excellence. We also proudly celebrated our 60th Anniversary and attribute our continued
success to our Five Founding Principles.

NET SALES
(in millions)

$520.7

$430.7

$624.7

$336.4

$264.5

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

DAILY AVERAGE COMPARABLE STORE SALES GROWTH

11.3%

11.1%

7.3%

COMP
MATURE COMP

6.4%

5.6%

5.9%

3.4%

2.6%

4.9%

2.0%

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

We delivered strong financial results
in fiscal 2015 and anticipate that we
will carry this positive momentum
forward. During fiscal 2015, net SALES
INCREASED 20.0% to $624.7 million,
and COMPARABLE STORE SALES
INCREASED 5.9%. NET INCOME
INCREASED 20.3% to $16.2 million,
and our diluted EARNINGS PER SHARE
in fiscal 2015 was $0.72, compared to
$0.60 last year.

Fiscal 2015 represented our 60TH ANNIVERSARY OF EMPOWERING HEALTH. We
believe our pioneering and unrelenting commitment to healthy, organic, natural and
minimally processed foods and dietary supplements positions us at the forefront of an
accelerating consumer movement that is creating demand for products with higher
standards. Spanning generations and demographics, our long-standing customer
relationships reflect our ongoing commitment to our guiding principles.

20% NEW STORE COMPOUND ANNUAL GROWTH RATE

FROM FISCAL 2011 TO FISCAL 2015

2015 ANNUAL REPORTWe opened a record 16 STORES IN
FISCAL 2015, bringing our total count
to 103 STORES IN 18 STATES. Our
real estate strategy has succeeded in a
broad range of communities. We continue to

focus on opening new stores in both new and
existing locations and in both smaller, rural
areas and larger, metropolitan areas. We believe

the entire U.S. market can support at least 1,100
Natural Grocers stores, including approximately
230 additional stores in the 19 states in which we
currently operate or have signed leases.

20% NEW STORE COMPOUND ANNUAL GROWTH RATE
FROM FISCAL 2011 TO FISCAL 2015

In fiscal 2015, we remained committed to our FIVE FOUNDING PRINCIPLES: Empowering NUTRITION
EDUCATION in our communities through on-staff Nutritional Health Coaches, Demonstration Kitchens and
Community Rooms; Offering only the HIGHEST QUALITY PRODUCTS and continually refining and introducing
industry-leading standards like 100% Organic Produce, Pasture-Based Dairy and Naturally-Raised Meats;
Maintaining an E.D.A.P – EVERY DAY AFFORDABLE PRICE® on every item in our stores; Giving back to the
COMMUNITY by creating less waste with our bag-free check outs, sourcing local products and supporting
community advocates; and Creating great jobs for our EMPLOYEES who share our vision for a better work-
place and a better world.

We continue to engage with our communities and increase awareness around our high quality standards
that make us a leader in the grocery and supplement industry, providing our customers with confidence
in what we sell at everyday affordable prices.

More than ever, we remain focused on our founding principles, which we believe have significantly
contributed to our success and will help guide us as we grow.

Kemper Isely, Co-President

Zephyr Isely, Co-President

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2015
COMMISSION FILE NUMBER: 001-35608

Natural Grocers by Vitamin Cottage, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

45-5034161
(I.R.S. Employer
Identification Number)

12612 West Alameda Parkway
Lakewood, Colorado 80228
(Address of principal executive offices)
(303) 986-4600
(Registrant’s telephone number, including area code)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive

Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be

contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 
Non-accelerated filer 
(Do not check if a smaller reporting company)

Accelerated filer 
Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Based on the closing price of the registrant’s common stock on March 31, 2015, the aggregate market value of the voting and non-voting

common stock held by non-affiliates was approximately $265,209,539.

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of December 8, 2015 was 22,498,336.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by reference
from the registrant’s Definitive Proxy Statement on Schedule 14A for the 2016 Annual Meeting of the Stockholders, which will be filed with the
Securities and Exchange Commission not later than 120 days after September 30, 2015.

Natural Grocers by Vitamin Cottage, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 2015

Table of Contents

PART I

Business .......................................................................................................................................................
Item 1.
Item 1A. Risk Factors ..................................................................................................................................................
Item 1B. Unresolved Staff Comments .........................................................................................................................
Properties ......................................................................................................................................................
Item 2.
Legal Proceedings.........................................................................................................................................
Item 3.
Mine Safety Disclosures ...............................................................................................................................
Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities ...................................................................................................................................................
Selected Financial Data ................................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ......................................................................
Financial Statements and Supplementary Data .............................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......................
Item 9A. Controls and Procedures ...............................................................................................................................
Item 9B. Other Information .........................................................................................................................................

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Directors, Executive Officers and Corporate Governance ............................................................................
Executive Compensation ..............................................................................................................................

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters .......................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence ..............................................
Principal Accounting Fees and Services .......................................................................................................

PART III

Item 15.

Exhibits and Financial Statement Schedules ................................................................................................

PART IV

SIGNATURES...................................................................................................................................................................

Page
Number

1
15
30
31
31
32

34
38
53
54
79
79
79

80
80
80

80
80

Except where the context otherwise requires or where otherwise indicated, all references herein to ‘‘we,’’ ‘‘us,’’ ‘‘our,’’

‘‘Natural Grocers,’’ and the “Company’’ refer collectively to Natural Grocers by Vitamin Cottage, Inc. and its consolidated
subsidiaries.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (the Form 10-K) includes forward-looking statements within the meaning of the Private

Securities Litigation Reform Act of 1995 in addition to historical information. These forward-looking statements are included
throughout this Form 10-K, including in the sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” All statements that are not statements of historical fact, including those that relate
to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins,
profitability, capital expenditures, liquidity and capital resources and other financial and operating information, are forward looking
statements. We may use the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “predict,” “project,” “future,” “target” and similar terms and phrases to identify forward-looking statements in this
Form 10-K.

The forward-looking statements contained in this Form 10-K are based on management’s current expectations and are subject

to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have
anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political,
economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these
factors include those described in “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our
assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking
statements.

Any forward-looking statement made by us in this Form 10-K speaks only as of the date of this report. Factors or events that
could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake
no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or
otherwise, except as may be required by applicable securities laws. You are advised, however, to consult any disclosures we may
make in our future reports filed with the Securities and Exchange Commission (the SEC). Such reports may be read and copied at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and may also be accessed on the SEC’s website at
www.sec.gov. Our filings with the SEC are also available, free of charge, through our website at www.naturalgrocers.com.

PART I

Item 1. Business.

General

Natural Grocers is an expanding specialty retailer of natural and organic groceries and dietary supplements. We focus on

providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We
strive to generate long-term relationships with our customers based on transparency and trust by:



selling only natural and organic groceries and dietary supplements that meet our strict quality guidelines - we do not
approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or
partially hydrogenated or hydrogenated oils;

utilizing an efficient and flexible smaller-store format to offer affordable prices and a shopper-friendly retail
environment; and

enhancing our customers’ shopping experience by providing free science-based nutrition education to help our customers
make well-informed health and nutrition choices.

Our History and Founding Principles

Our founders, Margaret and Philip Isely, were early proponents of the connection between health and the use of natural and

organic products and dietary supplements. In the mid-1950’s, Margaret transformed her health and the health of her family by
applying concepts and principles she learned from books on nutrition. This inspired the Iselys to provide the same type of nutrition
education to their community. The Iselys started by lending books on nutrition and providing samples of whole grain bread door-to-
door in Golden, Colorado and subsequently concluded they could develop a viable business that would also improve their customers’
well-being. Over time, they fostered relationships through nutrition education and began taking orders for dietary supplements, whole

grain bread and unprocessed foods. As their customers gained more knowledge about nutrition, they were empowered to make
changes to their diets with the objective of supporting their health. Using this model as the foundation for their business, the Iselys
opened their first store in 1958, which they later moved to a modest cottage.

We are committed to maintaining the following founding principles, which have helped foster our growth:

 Nutrition Education. We provide nutrition education in the communities we serve. Empowering our customers and our

employees to take charge of their lives and their health is the foundation upon which our business is built.

 Quality. Every product on our shelves must go through a rigorous screening and approval process. Our mission includes
providing the highest quality groceries and supplements, Natural Grocers branded products and only United States
Department of Agriculture (USDA) certified organic, fresh produce at the best prices in the industry.

 EDAP - Every Day Affordable Price®. We work hard to secure the best possible prices on all of our customers’ favorite
natural and organic foods and supplements. We believe everyone should be able to afford to help take care of their health
by buying high quality competitively priced natural and organic products.

 Community. From free nutrition education lectures, to bag-free checkouts, to sourcing local products, to our donation

program, we work hard to serve the communities that help shape our world.

 Employees. Our employees make our company great. We work hard to ensure that our employees are able to live a

healthy, balanced lifestyle. We support them with free nutrition education programs, good pay and excellent benefits.

In 1998, the second generation of the family, including Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely,

purchased our predecessor and the Vitamin Cottage® trademark and assumed control of the business. Since then, we have grown our
store count from 11 stores in Colorado to 103 stores in 18 states as of September 30, 2015. We have also implemented numerous
organizational and operational improvements that have enhanced our ability to scale our operations. We believe that by staying true to
our founding principles, we have been able to continue to attract new customers, extend our geographic reach and further solidify our
competitive position.

Our Markets

We operate within the natural products retail industry, which is a subset of the United States grocery industry and the dietary

supplement business. This industry includes conventional supermarkets, natural, gourmet and specialty food markets, mass and
discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food
co-ops, mail order and online retailers and multi-level marketers. Industry-wide sales of natural and organic foods and dietary
supplements have experienced meaningful growth over the past several years, and we believe that growth will continue for the
foreseeable future.

We believe the growth in sales of natural and organic foods and dietary supplements continues to be driven by numerous

factors, including:



greater consumer focus on high-quality nutritional products;

an increased awareness of the importance of good nutrition to long-term wellness;

an aging United States population seeking to support healthy aging;

heightened consumer awareness about the importance of food quality and a desire to avoid pesticide residues, growth
hormones, artificial ingredients and genetically engineered ingredients in foods;



growing consumer concerns over the use of harmful chemical additives in body care and household cleaning supplies;

 well-established natural and organic brands, which generate additional industry awareness and credibility with

consumers; and



the growth in the number of consumers with unique dietary requirements as a result of allergies, chemical sensitivities,
auto-immune disorders and other conditions.

Our Competitive Strengths

We believe we are well-positioned to capitalize on favorable natural and organic grocery and dietary supplement industry

dynamics as a result of the following competitive strengths:

Strict focus on high-quality natural and organic grocery products and dietary supplements. We offer high-quality products
and brands, including an extensive selection of widely-recognized natural and organic food, dietary supplements, body care products,
pet care products and books. We offer our customers an average of approximately 20,700 Stock Keeping Units (SKUs) of natural and
organic products per comparable store (stores open for 13 months or longer), including an average of approximately 6,500 SKUs of
dietary supplements. We believe our broad product offering enables our customers to shop our stores for substantially all of their
grocery and dietary supplement purchases. In our grocery departments, we only sell USDA certified organic produce and do not
approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially
hydrogenated or hydrogenated oils. In addition, we only sell pasture-raised, non-confinement dairy products. Consistent with this
strategy, our product selection does not include items that do not meet our strict quality guidelines. Our store managers enhance our
robust product offering by customizing their stores’ selections to address the preferences of local customers. All products undergo a
stringent review process to ensure the products we sell meet our strict quality guidelines, which we believe helps us generate long-
term relationships with our customers based on transparency and trust.

Engaging customer service experience based on education and empowerment. We strive to offer consistently exceptional

customer service in a shopper-friendly environment, which we believe creates a differentiated shopping experience, enhances
customer loyalty and generates repeat visits from our clientele. A key aspect of our customer service model is to provide free nutrition
education to our customers. We believe this focus provides an engaging retail experience while also empowering our customers to
make informed decisions about their health. We offer our science-based nutrition education through our trained employees, our Health
Hotline® newsletter and sales flyer, community out-reach programs, one-on-one nutrition health coaching, nutrition classes and
cooking demonstrations. Our commitment to nutrition education and customer empowerment is emphasized throughout our entire
organization, from executive management to store employees. Every store also maintains a Nutritional Health Coach, or NHC,
position. The NHC is responsible for training our store employees and educating our customers about nutrition in accordance with
applicable local, state and federal regulations. Each NHC must have earned a degree or certificate in nutrition or a related field from
an accredited school, complete continuing education in nutrition, and be thoroughly committed to fulfilling our mission. Substantially
all of our NHCs are full-time employees. We believe our NHC position represents a key element of our customer service model.

Scalable operations and replicable, cost-effective store model. We believe our scalable operating structure, attractive new

store model, flexible real estate strategy and disciplined approach to new store development allow us to maximize store performance
and continue to grow our store base. Our store model has been successful in highly competitive markets and has supported significant
growth outside of our original Colorado geography. We believe our supply chain and infrastructure are scalable and will accommodate
significant growth based on the ability of our primary distribution relationships to effectively service our planned store locations. Our
investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale,
warehousing, distribution, accounting, reporting and financial systems support this growth. We have also implemented a human
resources information and learning management system (HRIS) to further support the scalability of our operations. In addition, we
have established effective site selection guidelines, as well as scalable procedures, to enable us to open a new store within
approximately nine months from the time of lease execution. The smaller-store footprint made possible by our limited offering of
prepared foods reduces real estate costs, labor costs and perishable inventory shrink and allows us to leverage our new store opening
costs.

Experienced and committed management team with proven track record. Our executive management team has an average of

37 years of experience in the natural grocery industry, while our entire management team has an average of over 29 years of relevant
experience. Since the second generation of the Isely family assumed control of the business in 1998, we have grown our store count
from 11 stores to 103 stores as of September 30, 2015 by remaining dedicated to our founding principles. Over their tenure, members
of our executive management team have been instrumental in establishing a successful, scalable operating model, generating
consistently strong financial results and developing an effective site selection and store opening process. The depth of our
management experience extends beyond our home office. As of September 30, 2015, approximately 45% of our store managers at
comparable stores had tenures of over four years with us, and our store and department managers at these stores had average tenures
of over three years with us. In addition, we have a track record of promoting store management personnel from within. We believe our
management’s experience at all levels will allow us to continue to grow our store base while maintaining operational excellence by
driving efficiencies in store and back room operations, managing inventory levels and focusing on exceptional customer service.

Our Growth Strategies

We are pursuing several strategies to continue our profitable growth, including:

Expand our store base. We intend to continue expanding our store base through new store openings in existing markets, as
well as penetrating new markets, by leveraging our core competencies of site selection and efficient store openings. Based upon our
operating experience and research conducted for us by The Buxton Company, a customer analytics firm, we believe the entire United
States market can support over 1,100 Natural Grocers stores, including approximately 230 additional Natural Grocers stores in the 19
states in which we currently operate or have signed leases. In fiscal years 2015 and 2014, we opened 16 and 15 new stores,
respectively, and we plan to open 23 new stores in fiscal year 2016, of which three have opened during the first quarter of fiscal year
2016 prior to the filing of this Form 10-K. We intend to target new store openings at or above our current levels over the near term.

Current store locations, signed leases and new store locations.

*Includes signed leases for stores to be opened subsequent to fiscal year 2015. We have 18 signed leases for stores planned to open in fiscal 2016 and 2017.

Increase sales from existing customers. We have achieved positive comparable store sales growth for over 53 consecutive
quarters. In order to increase our average ticket and the number of customer transactions, we plan to continue offering an engaging
customer experience by providing science-based nutrition education and a differentiated merchandising strategy that delivers
affordable, high-quality natural and organic grocery products and dietary supplements. We also plan to continue to utilize targeted
marketing efforts to reach our existing customers, which we anticipate will drive customer transactions and convert occasional, single-
category customers into core, multi-category customers.

Grow our customer base. During fiscal year 2015, we implemented several measures aimed at building our brand awareness

and growing our customer base, including: (i) redesigning our website (www.naturalgrocers.com) to enhance functionality, create a
more engaging user experience and increase its reach and effectiveness; (ii) introducing the{N}powerSM customer appreciation
program at all our stores; (iii) offering home delivery services in select markets; and (iv) developing new collateral marketing
materials. We believe offering nutrition education has historically been one of our most effective marketing strategies for reaching
new customers and increasing the demand for natural and organic groceries and dietary supplements in our markets. To maximize the
impact of our Nutritional Health Coaches, we have increased their focus on relationship-building opportunities in our communities
and with our customers, including hosting additional educational cooking events, lectures and classes in our stores. Additionally, we
seek to attract new customers by enhancing their nutrition knowledge through printed and digital versions of our broad range of
educational resources, including the distribution of our Health Hotline newsletter and sales flyer, and via the internet and social media.
In addition to offering nutrition education, our strategy is to attract new customers with our EDAP - Every Day Affordable Price and
to build community awareness through our support of local vendors and charities.

Improve operating margins. We expect to continue to improve our operating margins as we benefit from investments we

have made or are making in fixed overhead and information technology, including the implementation of our enterprise resource

planning (ERP) system in fiscal year 2010 and the implementation of the HRIS in fiscal year 2014. We anticipate these investments
will support our long-term growth strategy with only a modest amount of additional capital. We expect to achieve greater economies
of scale through sourcing and distribution as we add more stores. In addition, to achieve additional operating margin expansion, we
intend to further optimize performance, maintain appropriate store labor levels and effectively manage product selection and pricing.

Our Stores

Our stores offer a comprehensive selection of natural and organic groceries and dietary supplements in a smaller-store format

that aims to provide a convenient, easily shopped and relaxed environment for our customers. Our store design emphasizes a clutter-
free, organized feel, a quiet ambience accented with warm lighting and the absence of aromas from meat and seafood counters present
in many of our competitors’ stores. We believe our core customers consider us a destination stop for their nutritional education and
information, natural and organic products and dietary supplements.

Our Store Format. Our stores range from 5,000 to 16,000 selling square feet, and average approximately 10,000 selling

square feet. In fiscal year 2015, our 16 new stores averaged approximately 12,000 selling square feet. Approximately one quarter of
our stores’ selling square footage is dedicated to dietary supplements. Some of our stores also include a dedicated community room
available for public gatherings, a demonstration kitchen for cooking education and/or lecture space. Our comparable stores sell an
average of approximately 20,700 SKUs of natural and organic products per store, including an average of approximately 6,500 SKUs
of dietary supplements.

The following diagram depicts a typical new store layout:

Site Selection. Our real estate strategy is adaptable to a variety of market conditions. When selecting locations for new stores,

we use analytical models, based on research provided by The Buxton Company and our extensive experience, to identify promising
store locations. We typically locate new stores in prime locations which offer easy customer access and high visibility. Many of our
stores are near other supermarkets or gourmet food retailers, and we complement their conventional product offerings with high-
quality, affordable natural and organic groceries and dietary supplements in an efficient and convenient retail setting. Our model for
selecting viable new store locations incorporates factors such as target demographics, community characteristics, nearby retail activity
and other measures and is based on first-hand observation of the community’s characteristics surrounding each site. We have teams of
employees dedicated to opening new stores efficiently and quickly, typically within approximately nine months from the time of lease
execution.

Store-Level Economics. Since January 1, 2005, opening new stores has required an average upfront capital investment of

approximately $2.1 million. We anticipate that our fiscal year 2016 new stores will require an average upfront capital investment of

approximately $2.2 million, consisting of capital expenditures of approximately $1.7 million, net of tenant allowances, initial
inventory of approximately $0.3 million, net of payables, and pre-opening expenses of approximately $0.2 million. We target
approximately four years to recoup our initial net cash investments and expect to achieve approximately 30% cash-on-cash returns by
the end of the fifth year following the opening.

Individual new store investment levels and the performance of new store locations may differ widely from originally targeted
levels and from store-to-store due to a variety of factors, and these differences may be material. In particular, investments in individual
stores, store-level sales, profit margins, payback periods and cash-on-cash return levels are impacted by a range of risks and
uncertainties beyond our control, including those described under the caption “Risk Factors.”

Our Focus on Nutrition Education

Nutrition education is one of our founding principles and is a primary focus for all employees. We believe our emphasis on
science-based nutrition education differentiates us from our competitors and creates a unique shopping experience for our customers.

Our Nutritional Health Coaches, or NHCs, are a core element of our nutrition education program. Every store has a full-time
NHC position to educate customers and train employees on nutrition. NHCs must have earned a degree or certificate in nutrition or a
related field from an accredited school, complete continuing education in nutrition, and be thoroughly committed to fulfilling our
mission. To educate and empower customers to make informed nutrition choices, our NHCs are available for complimentary one-on-
one nutrition health coaching sessions. Each NHC is also responsible for various relationship-building opportunities in our
communities and with our customers, including educational activities such as nutrition classes, lectures, seminars, health fairs and
store tours. To maximize the impact of our NHCs, we have increased their focus on hosting cooking events (at our stores with
demonstration kitchens) and have increased the number of in-store educational events they conduct. We believe that our NHCs’ focus
on relationship-building opportunities in our communities and with our customers helps to enhance our marketing and branding
initiatives. Additionally, our NHCs are an onsite resource for nutrition training and education for our employees. Each NHC trains our
employees to use a compliant educational approach to customer service without attempting to diagnose or treat specific conditions or
ailments. We believe our NHC position is a competitive differentiator and represents a key element of our customer service model.

Our training and education programs are supplemented by outside experts, online materials and printed handouts. We also

use our Health Hotline to educate our customers. The Health Hotline is a newsletter and sales flyer which is published eight times per
year and includes in-depth articles on health and nutrition, along with a selection of sale items. During fiscal year 2015, we
redesigned the www.naturalgrocers.com website to enhance functionality and create a more engaging user experience, including
readily accessible additional nutritional education information and resources.

Our Products

Product Selection Guidelines. We have a set of strict quality guidelines covering all products we sell. For example:

 we do not approve for sale food known to contain artificial colors, flavors, preservatives or sweeteners or partially

hydrogenated or hydrogenated oils, regardless of the proportion of its natural or organic ingredients;

 we only sell USDA certified organic produce;

 we only sell pasture-raised, non-confinement dairy products;

 we only sell meats naturally raised without hormones, antibiotics or treatments and that were not fed animal by-products;

and

 we do not sell wine, beer, liquor or tobacco.

Our product review team analyzes all new products and approves them for sale based on ingredients, price and uniqueness

within the current product set. We actively research new products in the marketplace through our product vendors, private label
manufacturers, scientific findings, customer requests and general trends in popular media. Our stores are able to fully merchandise all
departments by providing an extensive assortment of natural and organic products. We do not believe we need to sell conventional
products to fill our selection, increase our margins or attract more customers.

What We Sell. We operate both a full-service natural and organic grocery store and a dietary supplement store within a single

retail location. The following is a breakdown of our sales mix for the fiscal year ended September 30, 2015:

The products in our stores include:

 Grocery. We offer a broad selection of natural and organic grocery products with an emphasis on minimally processed
and single ingredient products that are not known to contain artificial colors, flavors, preservatives or sweeteners or
partially hydrogenated or hydrogenated oils. Additionally, we carry a wide variety of products associated with special
diets such as gluten free, vegetarian and non-dairy. Our grocery products include:

 Produce. We sell only USDA certified organic produce and source from local, organic producers whenever

feasible. Our selection varies based on seasonal availability, and we offer a variety of organic produce offerings
that are not typically found at conventional food retailers.

 Bulk Food and Private Label Products. We sell a wide selection of private label repackaged bulk and other

products, including nuts, water, pasta, canned seafood, dried fruits, grains, granolas, honey, eggs, herbs, spices
and teas. We also sell peanut and almond butters, freshly ground in-store under the Natural Grocers brand.

 Dry, Frozen and Canned Groceries. We offer a wide variety of natural and organic dry, frozen and canned

groceries, including cereals, soups, baby foods, frozen entrees and snack items. We offer a broad selection of
natural chocolate bars, and energy, protein and food bars.

 Meats and Seafood. We only offer naturally-raised or organic meat products. The meat products we offer come
from animals that have never been treated with antibiotics or hormones or fed animal by-products. Additionally,
we only buy from companies we believe employ humane animal-raising practices. Our seafood items are
generally frozen at the time of processing and sold from our freezer section, thereby ensuring freshness and
reducing food spoilage and safety issues.

 Dairy Products and Dairy Substitutes. We offer a broad selection of natural and organic dairy products such as
milk, eggs, cheeses, yogurts and beverages, as well as non-dairy substitutes made from almonds, coconuts, rice
and soy. During fiscal year 2015, we began to sell only pasture-raised, non-confinement dairy products at all
our stores.

 Prepared Foods. Our stores have a convenient selection of refrigerated prepared fresh food items, including

salads, sandwiches, salsa, humus and wraps. The size of this offering varies by location.

 Bread and Baked Goods. We receive regular deliveries of a wide selection of bakery products for our bakery

section, which includes an extensive selection of gluten-free items.

 Beverages. We offer a wide variety of beverages containing natural and organic ingredients. We also offer low-
cost, self-serve filtered drinking water that is dispensed into one-gallon or larger containers provided by our
customers.

 Dietary Supplements. Our dietary supplement department primarily sells name-brand supplements, as well as a line of
private label dietary supplements. The department is carefully organized to help both employees and customers find
products efficiently. We generally offer several different formulations and potencies for each type of product in order to
meet our customers’ varying needs.

 Other.

 Body Care. We offer a full range of cosmetics, skin care, hair care, fragrance and personal care products

containing natural and organic ingredients. Our body care offerings range from bargain-priced basics to high-
end formulations.

 Pet Care. We offer a full line of natural pet care and food products that comply with our human food

guidelines.

 Household and General Merchandise. Our offerings include sustainable, hypo-allergenic and fragrance-free
household products, including cleaning supplies, paper products, dish and laundry soap and other common
household products, including diapers.

 Books and Handouts. We stock approximately 400 titles in each store’s book department. Titles cover various
approaches to diet, lifestyle and health. Additionally, we offer hundreds of handouts on various health topics
and dietary supplements to our customers free of charge.

Quality Assurance. We endeavor to ensure the quality of the products we sell. We work with reputable suppliers we believe

are compliant with established regulatory and industry guidelines. Our purchasing department requires a complete supplier and
product profile as part of the approval process. Our dietary supplement suppliers must follow Food and Drug Administration (FDA)
current good manufacturing practices supported by quality assurance testing for both the base ingredients and the finished product. We
expect our suppliers to comply with industry best practices for food safety.

Many of our suppliers are inspected and certified under the USDA National Organic Program, voluntary industry
associations, and other third party auditing programs with regard to additional ingredients, manufacturing and handling standards.
Each Natural Grocers store is certified as an organic handler and processor by an accredited USDA certifier in the calendar year after
it opens, and annually thereafter. We operate all our stores in compliance with the National Organic Program standards, which restricts
the use of certain substances for cleaning and pest control and requires rigorous recordkeeping, among other requirements.

Our Pricing Strategy

We have an EDAP - Every Day Affordable Price designation on many products, while also providing special sale pricing on

hundreds of additional items. We believe our pricing strategy allows our customers to shop our stores on a regular basis for their
groceries and dietary supplements.

The key elements of our pricing strategy include:

 EDAP - Every Day Affordable Price throughout our stores;



heavily advertised Health Hotline deals supported by manufacturer participation;

in-store specials generally lasting for one month and not advertised outside the store;

 managers’ specials, such as clearance, overstock, short-dated or promotional incentives; and



specials on seasonally harvested produce.

As we continue to expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as

administrative expenses, as well as increased economies of scale in sourcing products. We strive to keep our product, operating and
general and administrative costs low, which allows us to continue to offer attractive pricing for our customers.

Our Store Operations

Store Hours. Our stores are open from 8:00 a.m. to 9:04 p.m., Monday through Saturday, and from 8:00 a.m. to 7:35 p.m. on

Sunday.

Store Management and Staffing. Our typical store staffing includes a manager and assistant manager, with department
managers in each of the dietary supplement, grocery, dairy and frozen, produce, body care and receiving departments, as well as
several non-management employees. Each store manager is responsible for monthly store profit and loss, including labor,
merchandising and inventory costs. We also employ regional managers to oversee all store operations for regions consisting of
approximately 13 to 15 stores.

To ensure a high level of service, all employees receive training and guidance on customer service skills, product attributes
and nutrition education. Employees are carefully trained and evaluated based on a requirement that they present nutrition information
in an appropriate and legally compliant educational context while interacting with customers. Additionally, store employees are cross-
trained in various functions, including cashier duties, stocking and receiving product.

Every store also maintains a Nutritional Health Coach, or NHC, position. The NHC is responsible for training our store
employees and educating our customers in accordance with applicable local, state and federal regulations. Each NHC must have
earned a degree or certificate in nutrition or a related field from an accredited school, complete continuing education in nutrition and
be thoroughly committed to fulfilling our mission. Substantially all of our NHCs are full-time employees. The NHCs are overseen by
Regional Nutritional Health Coach Managers.

Bulk Food Repackaging Facility and Distribution Center. We lease a 107,000 square foot bulk food repackaging facility and

distribution center located in Golden, Colorado. That facility also houses a training center and certain administrative support
functions. During fiscal year 2015, we exercised an option to lease additional space in the building that houses the bulk food
repackaging facility and distribution center. As a result of our exercise of that option, we plan to expand the bulk food repackaging
facility and distribution center to approximately 150,000 square feet.

Inventory. We use a robust merchandise management and perpetual inventory system that values goods at moving average

cost. We manage shelf stock based on weeks-on-hand relative to sales, resupply time and minimum economic order quantity.

Sourcing and Vendors. We source from approximately 1,200 suppliers, and offer over 3,100 brands. These suppliers range
from small independent businesses to multi-national conglomerates. As of September 30, 2015, we purchased approximately 79% of
the goods we sell from our top 20 suppliers. For the fiscal year ended September 30, 2015, approximately 57% of our total purchases
were from United Natural Foods Inc. and its subsidiaries (UNFI). We maintain good relations with UNFI and believe we have
adequate alternative supply methods, including self-distribution.

We contract with third-party manufacturers to produce groceries and dietary supplements under our private labels, which

include the Natural Grocers and Vitamin Cottage brands. We have longstanding relationships with our suppliers, and we require
disclosure from them regarding quality, freshness, potency and safety data information. Our bulk food private label products are
packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores. Unlike most of our
competitors, most of our private label nuts, trail mix and flours are refrigerated in our warehouse and stores to maintain freshness.

Our Employees

Commitment to our employees is one of our five founding principles. Employees are eligible for health, long-term disability,

vision and dental insurance coverage, as well as Company paid short-term disability and life insurance benefits, after they meet
eligibility requirements. Additionally, our employees are offered a 401(k) retirement savings plan with discretionary contribution
matching opportunities. We believe we pay above average retail wages, and all employees earn an additional $0.75 per hour, up to
$30 a week, in “Vitamin Bucks” which can be used to purchase products in our stores. It is important to us that our employees live a
healthy, balanced lifestyle, and we believe the Vitamin Bucks incentive provides an additional resource for our employees to purchase
natural and organic products. This further offers our employees the opportunity to become more familiar with our products, which we
believe improves the customer service our employees are able to provide. We believe these and other factors result in higher retention
rates and encourage our employees to appreciate our culture, which helps them better promote our brand.

All employees are eligible to participate in our discretionary pay-for-performance incentive compensation plan after meeting

certain length of service requirements. The pay-for-performance incentive compensation plan sets certain Company-level financial
goals that must be met before it can be funded. If the financial goals are achieved, additional criteria for store-level incentive
compensation include meeting sales projections, sales to labor hour goals and cost of goods sold metrics. We believe these criteria
help align all store employees with both corporate and store-level financial goals. We have an established set of standard operating
procedures, including hiring and human resource policies, training practices and operational instruction manuals. This allows each
store to operate with strict accountability and still maintain independence to respond to its unique circumstances.

As of September 30, 2015, we employed 2,447 full-time and 383 part-time (less than 30 hours per week) employees,

including a total of 201 employees at our home office and our bulk food repackaging facility and distribution center. None of our
employees is subject to a collective bargaining agreement. We believe we have good relations with our employees.

Our Customers

The growth in the natural and organic grocery and dietary supplement industries and growing consumer interest in health and

nutrition have led to an increase in our core customer base. We believe the demands for affordable, nutritious food and dietary
supplements are shared attributes of our core customers, regardless of their socio-economic status. Additionally, we believe our core
customers prefer a retail store environment that offers carefully selected natural and organic products and dietary supplements. Our
customers tend to be interested in health and nutrition, and expect our store employees to be highly knowledgeable about these topics
and related products.

An analysis of our Health Hotline subscriber list indicates that our customers come from broad geographic segments,

including urban, suburban and rural areas, which reflects the varied characteristics and portability of our store locations.

Our Communities

One of our founding principles is to be an active member and steward of the communities we serve. As a commitment to this

principle, we:



provide extensive free educational services to customers in the form of lectures, classes, printed resources, online
resources, publications and one-on-one nutrition coaching;

participate in health fairs, school outreach, community wellness events and other activities to engage with and educate
the community;

disseminate new research on nutrition information;

participate in the legislative and regulatory process at local, state and national levels so that our customers have access to
quality food and dietary supplements and the educational resources to guide their own wellness;

continually strive to source products and services from local producers and vendors;

carefully collect all of our excess or distressed food and merchandise and donate it to local non-profit organizations;

provide cash to local food banks, making donation determinations based on the number of customers who shop our
stores with their own bags;

do not provide paper or plastic bags at our registers and encourage the use of reusable totes;

reduce our energy costs and carbon footprint using efficient heating, ventilation and air conditioning, lighting, and
refrigerating systems;

implement strategies to eliminate excess packaging, energy and transportation costs;

recycle and reuse paper, plastic, glass and electronic products whenever possible; and

use healthy and environmentally responsible building materials and finishes in our new stores and remodels.

Marketing and Advertising

A significant portion of our marketing efforts is focused on educating our customers on the benefits of natural and organic

grocery products and dietary supplements. Our customer outreach programs provide practical general nutrition knowledge to a variety
of groups and individuals, schools, businesses, families and seniors. These educational efforts fulfill one of our founding principles
and also offer us the opportunity to build relationships with customers and community influencers.

Health Hotline. At the heart of our marketing efforts is our Health Hotline, a 28-page newsletter and sales flyer which

contains a mix of in-depth health and nutrition articles, along with a selection of popular sale items. The articles aim to be relevant,
science-based and written to reflect the most recent research findings. The full version of the Health Hotline is published eight times
per year and is mailed to over 350,000 subscribers by United States mail. Additionally, approximately 160,000 copies of each release

are distributed in our stores. Over 6.3 million copies of a condensed version of the Health Hotline, which typically emphasizes only
one article or topic, are inserted into the newspaper in many of our communities approximately 35 times per year. In addition, an
electronic version of the condensed Health Hotline is distributed to over 90,000 subscribers. Generally, we negotiate with our
suppliers for significantly lower costs on Health Hotline sale items, which in turn allows us to offer low sale prices to our customers.
Focused staff training at all locations occurs congruent with the release of each Health Hotline to ensure that store staff are familiar
with the content in each issue.

Web Sites and Social Media. We maintain www.naturalgrocers.com as our official company website to host store

information, sales flyers, educational materials, product information, policies and contact forms, advocacy and news items and e-
commerce activities. We redesigned our website in fiscal year 2015 to enhance functionality, create a more engaging user experience
and increase its reach and effectiveness. The website redesign was intended to be part of an overall enhanced branding strategy to
more effectively communicate our brand’s unique and compelling attributes, including our founding principles. We believe the
continued growth of site visitors, page views and other metrics of our website activity indicates that our content is timely and
informative to the communities we serve. Our website is interlinked with other online and social media outlets, including Facebook,
Instagram, Twitter, Pinterest and YouTube. During fiscal year 2015, we started to use digital engagement methods to increase
awareness of an affinity for our brand among consumers, bloggers and on-line influencers. We expect to increase such digital
engagement activities during fiscal year 2016.

{N}power Customer Appreciation Program. During fiscal year 2015, we completed the introduction of the {N}power

customer appreciation program at all our stores. Registered users of {N}power receive digital coupons, personalized offers and other
rewards, all by providing their phone number at the time of checkout. We believe the {N}power customer appreciation program will
enhance customer loyalty and increase customer engagement levels.

Home Delivery Services. During fiscal year 2015, we began home delivery services in select markets in partnership with a

third party. We currently provide home delivery services in the Portland, Oregon and Denver and Boulder, Colorado markets.

Other Marketing Activities. We occasionally use television, radio and billboards as part of our marketing activities.

New Store Openings. We use various targeted marketing efforts to support the successful introduction of our new stores in

their individual markets. In addition to the distribution of our Health Hotline newsletter and Internet and social media efforts targeted
to the region, we utilize direct mail distribution of a series of introductory postcards promoting our brand and providing discounts and
other incentives for new customers. We also focus on community relationship-building activities, including a series of lectures and
cooking and other demonstrations in each new store’s community room and/or demonstration kitchen. During the second quarter of
fiscal year 2015, we introduced new promotional initiatives to increase customer awareness of and participation at new store openings.
These initiatives include gift card giveaways, performances by local bands and participation by local community leaders and
organizations.

Competition

The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers

to entry. Our competition varies by market and includes conventional supermarkets such as Kroger and Safeway, mass or discount
retailers such as Wal-Mart and Target, natural and gourmet markets such as Whole Foods and The Fresh Market, specialty food
retailers such as Sprouts and Trader Joe’s, warehouse clubs such as Sam’s Club and Costco, independent health food stores, dietary
supplement retailers, drug stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. These
businesses compete with us for customers on the basis of price, selection, quality, customer service, shopping experience or any
combination of these or other factors. They also compete with us for products and locations. In addition, some of our competitors are
expanding to offer a greater range of natural and organic foods. We believe our commitment to carrying only carefully vetted,
affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutritional
education, differentiate us in the industry and provide a competitive advantage.

Seasonality

Our business is active throughout the calendar year and does not experience significant fluctuation caused by seasonal

changes in consumer purchasing.

Insurance and Risk Management

We use a combination of insurance and self-insurance to cover workers’ compensation, general liability, product liability,

director and officers’ liability, employment practices liability, associate healthcare benefits and other casualty and property risks.
Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit

level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect
ultimate settlements of claims. We evaluate our insurance requirements and providers on an ongoing basis.

Trademarks and Other Intellectual Property

We believe that our intellectual property is important to the success of our business. We have received the registration of

trademarks not only for Vitamin Cottage and Health Hotline but also for our logo, Natural Grocers by Vitamin Cottage ® and Vitamin
Cottage Natural Grocers® for appropriate categories of trade. In addition, we have received the registration of a service mark for
EDAP - Every Day Affordable Price. We do not own or license for use any patents, franchises or concessions that are material to our
business. Our trademarks are generally valid and may be renewed indefinitely as long as they are in use and their registrations are
properly maintained.

Information Technology Systems

We have made significant investments in overhead and information technology infrastructure, including purchasing,

receiving, inventory, point of sale, warehousing, distribution, accounting, reporting and financial systems. We use an ERP system
with integrated merchandise management, reporting and accounting system at all of our stores, as well as at our bulk food repackaging
facility and distribution center and for corporate functions including accounting, reporting and purchasing. Our ERP system
application support and hardware functions are outsourced, which allows us to focus on our core business. We completed the
implementation of an enterprise-wide HRIS, which has enabled us to more efficiently and effectively onboard and train our employees
at all locations.

Regulatory Compliance

The safety, formulation, manufacturing, processing, packaging, importation, labeling, promotion, advertising and distribution

of products we sell in our stores, including private label products, are subject to regulation by several federal agencies, including the
FDA, the Federal Trade Commission (the FTC), the USDA, the Consumer Product Safety Commission and the Environmental
Protection Agency and various agencies of the states and localities. Pursuant to the Food, Drug, and Cosmetic Act (the FDCA), the
FDA regulates the safety, formulation, manufacturing, processing, packaging, labeling, importation and distribution of food and
dietary supplements (including vitamins, minerals, amino acids and herbs). In addition, the FTC has jurisdiction to regulate the
promotion and advertising of these products.

Dietary Supplements. The FDCA has been amended several times with respect to dietary supplements, in particular by the

Dietary Supplement Health and Education Act of 1994 (DSHEA). DSHEA established a framework governing the composition,
safety, labeling, manufacturing and marketing of dietary supplements, defined “dietary supplement” and “new dietary ingredient” and
established new statutory criteria for evaluating the safety of substances meeting the respective definitions. In the process, DSHEA
removed dietary supplements and new dietary ingredients from pre-market approval requirements that apply to food additives and
pharmaceuticals and established a combination of “notification” and “post marketing controls” for regulating product safety.
Notwithstanding, non-dietary ingredients in a dietary supplement remain subject to the FDA’s food additive authorities. The FDA
does not require notification to market a dietary supplement if it contains only dietary ingredients that were present in the United
States food supply prior to DSHEA’s enactment on October 15, 1994. However, for a dietary ingredient not present in the food supply
prior to this date, the manufacturer must provide the FDA with information supporting the conclusion that the ingredient will
reasonably be expected to be safe at least 75 days before introducing a new dietary ingredient into interstate commerce. As required by
the Food Safety Modernization Act (FSMA), the FDA issued draft guidance in July 2011, which attempted to clarify when an
ingredient would be considered a “new dietary ingredient,” the evidence needed to document the safety of a new dietary ingredient
and appropriate methods for establishing the identity of a new dietary ingredient. The draft guidance has not been finalized. If
finalized, the draft guidance may cause dietary supplement products available in the market before DSHEA to be classified to include
a “new dietary ingredient” if the dietary supplement product was produced using manufacturing processes different from those used in
1994.

In certain circumstances, the FDA’s guidance regarding applications for approval of Investigational New Drugs (INDs)

applies to the food and dietary supplement industry. The FDA’s guidance states that certain dietary supplements should not be
marketed if they contain a substance that is undergoing substantial clinical investigations intended to evaluate the dietary supplement’s
ability to diagnose, cure, mitigate, treat, or prevent a disease when such investigations are public knowledge, unless the article was
marketed as a dietary supplement before the IND application became effective and before any such investigations began. Although the
boundaries of the FDA’s enforcement activities regarding alleged violations of its guidance are not clear at this time, some dietary
supplements might have to be immediately withdrawn from the market if they were not marketed as a dietary supplement before
initiation of substantial clinical investigations, the existence of which has been made public. The potential need for withdrawal could
negatively affect the supply chain for certain products.

DSHEA also empowered the FDA to establish good manufacturing practice regulations governing key aspects of the
production of dietary supplements. DSHEA expressly permits dietary supplements to bear statements describing how a product affects
the structure, function and general well-being of the body. Currently, although manufacturers must be able to substantiate any such
statement, no pre-market approval authorization is required for such statements and manufacturers need only notify FDA that they are
employing a given claim. No statement may expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate,
treat or prevent a disease. DSHEA does, however, authorize supplement sellers to provide “third-party literature,” (e.g., a reprint of a
peer-reviewed scientific publication linking a particular dietary ingredient with health benefits) in connection with the sale of a dietary
supplement to consumers. This provision is an exception to the FDA’s broad powers over the promotion of regulated products.
Accordingly, the authorization is limited and applies only if the publication is printed in its entirety, is not false or misleading, presents
a balanced view of the available scientific information and does not “promote” a particular manufacturer or brand of dietary
supplement and is displayed in an area physically separate from the dietary supplements.

Food. The FDA has comprehensive authority to regulate the safety of food and food ingredients, other than dietary
supplements. Food additives and food contact substances are subject to pre-market approvals or notification requirements. The FDA’s
overall food safety authority was dramatically enhanced in 2011 with the passage of the FSMA. The FSMA required the FDA to issue
regulations mandating that risk-based preventive controls be observed by the majority of food producers. Regulations and rules issued
under FSMA are in varying degrees of finalization. Regardless, the FDA’s authority under FSMA applies to all domestic food
facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply us with food products. In
addition, the FSMA required the FDA to establish science-based minimum standards for the safe production and harvesting of
produce, to identify “high risk” foods and “high risk” facilities and instructed the FDA to set goals for the frequency of FDA
inspections of such high risk facilities as well as non-high risk facilities and foreign facilities from which food is imported into the
United States. With respect to both foods and dietary supplements, the FSMA meaningfully augmented the FDA’s ability to access
producers’ records and suppliers’ records. This increased access could cause the FDA to identify areas of concern it had not
previously considered to be problematic for our suppliers and contract manufacturers. The FSMA also gives the FDA authority to
require food producers, distributors and sellers to recall adulterated or misbranded food if the FDA determines that there is a
reasonable probability that the food will cause serious adverse health consequences to persons or animals. Additionally, the FSMA
increases the FDA’s authority for administrative detentions of adulterated and misbranded foods. The FSMA also could cause
enhanced tracking and tracing of food requirements and, as a result, added recordkeeping burdens upon our suppliers and contract
manufacturers.

The FDA also exercises broad jurisdiction over the labeling and promotion of food. Labeling is a broad concept that, under
certain circumstances, extends even to product-related claims and representations made on a company’s website or similar printed or
graphic medium. All foods, including dietary supplements, must bear labeling that provides consumers with essential information with
respect to ingredients, product weight, etc. The FDA administers a pre-market authorization program applicable to foods and
supplements alike regarding the use of “nutrient content” claims (e.g., “high in antioxidants,” “low in fat,” etc.), “health” claims
(claims describing the relationship between a food substance and a health or disease condition), and “natural and “all natural” claims.
“Organic” claims, however, are primarily regulated by the USDA. In addition, the FDA has authority over products falsely or
misleadingly labeled “organic.” Products labeled “organic” must be certified by an accredited agent as compliant with USDA-
established standards.

FDA Enforcement. The FDA has broad authority to enforce the provisions of the FDCA applicable to the safety, labeling,

manufacturing and promotion of foods and dietary supplements, including powers to issue a public warning letter to a company,
publicize information about illegal products, institute an administrative detention of food, request or order a recall of illegal products
from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution in the
United States courts. Pursuant to the FSMA, the FDA also has the power to refuse the import of any food or dietary supplement from a
foreign supplier that is not appropriately verified as in compliance with all FDA laws and regulations. Moreover, the FDA has the
authority to administratively suspend the registration of any facility producing food, including supplements, deemed to present a
reasonable probability of causing serious adverse health consequences.

Food and Dietary Supplement Advertising. The FTC exercises jurisdiction over the advertising of foods and dietary

supplements. The FTC has the power to institute monetary sanctions and the imposition of “consent decrees” and penalties that can
severely limit a company’s business practices. In recent years, the FTC has instituted numerous enforcement actions against dietary
supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading
advertising claims.

The FTC and FDA have authority to regulate the marketing and label claims of foods, functional foods, dietary supplements,

probiotic preparations and homeopathic remedies. The agencies have suggested in published comments and court filings that health
claims for these products should be based on two Random Controlled Trials (RTCs) or similar investigational research methods. It is
not clear that RTCs designed to measure the effects and side effects of a medical drug on a human population suffering a disease are
appropriate for measuring the efficacy of foods, functional foods, dietary supplements, probiotic preparations and homeopathic

remedies to help maintain an individual’s healthy non-diseased state. If the FTC and FDA final guidance do not reflect these concerns,
and if RTCs or similar methods are required in the future, the high cost and delays of RTCs or other investigational methods may
disrupt the supply chain for these products or cause their removal from the market.

Compliance. As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products
they manufacture and sell to us comply with all applicable regulatory and legislative requirements. In general, we seek certifications
of compliance, representations and warranties, indemnification and insurance from our suppliers and contract manufacturers.
However, even with adequate certifications, representations and warranties, insurance and indemnification, any claims of non-
compliance could significantly damage our reputation and consumer confidence in our products. In addition, the failure of such
products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us
to recall or remove such products from our stores. In order to comply with applicable statutes and regulations, our suppliers and
contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised
certain provisions of our sales and marketing program.

Furthermore, to ensure compliant practices, our employees working in our stores are trained regularly on how to provide

customer service using an educational approach that is ethical, honest, accurate and does not cross over into a scope of practice
reserved for licensed healthcare professionals. For instance, we do not allow discussion of any “disease” or “cure.” Instead, we focus
on how the structure and function of the body is affected by lifestyle choices and the different nutritional components of an
individual’s diet, including those contained in dietary supplements. Our customers are encouraged to make informed decisions about
their diet, lifestyle, and possible need for supplementation. We also conduct internal compliance reviews on all free nutrition literature
that we make available to our customers upon request with the goal of ensuring that these materials only reference relevant dietary
supplement ingredients and not any particular brands or products. One responsibility of the Nutritional Health Coach is to oversee our
FDA and FTC compliance measures. We believe that our nutrition education practices are in compliance with federal and state
requirements, but a finding to the contrary could pose significant issues with respect to our business and reputation among our
customers or otherwise have a material adverse effect on our business.

New or revised government laws and regulations affecting our business or our industry, such as those relating to genetically

modified foods, could result in additional compliance costs and civil remedies. The risks associated with these laws and regulations
are further described under the caption “Risk Factors.”

Segment Information

We have one reporting segment, natural and organic retail stores, through which we conduct all of our business. Please see
the Consolidated Financial Statements of the Company for the fiscal year ended September 30, 2015, set forth in Part IV of this Form
10-K, for financial information regarding this segment.

Available Information

Our website is located at www.naturalgrocers.com. We make our periodic reports and other information filed with or

furnished to the SEC, available, free of charge, through our website as soon as reasonably practicable after those reports and other
information are electronically filed with or furnished to the SEC. In addition, our Corporate Governance Guidelines, the charters for
our Audit Committee and Compensation Committee, and our Code of Ethics are publicly available on our website at
www.naturalgrocers.com under the “Investor Relations – Corporate Governance” section, and we will post any amendments to, or
waivers from, a provision of this Code of Ethics on our website, at the address and location specified above. A printed copy of this
information is also available without charge by sending a written request to Corporate Secretary, Natural Grocers by Vitamin Cottage,
Inc., 12612 West Alameda Parkway, Lakewood, CO 80228. You may read and copy any materials we file with the SEC at the
Securities and Exchange Commission Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The SEC also
maintains a website that contains our reports and other information at www.sec.gov. Information on our website or any other website is
not incorporated by reference into this Form 10-K.

Item 1A. Risk Factors.

Our business, financial condition and results of operations can be materially impacted by a number of factors which could

cause our actual results to vary materially from recent results or from our anticipated future results. If any of the following risks
actually occurs, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely
affected. As a result, the trading price of our common stock could decline and you could lose all or part of your investment in our
common stock. Accordingly, you should carefully consider the risks described below as well as the other information and data
included in this Form 10-K.

Risks related to our business

We may not be successful in our efforts to grow.

Our continued growth largely depends on our ability to increase sales in our existing stores and successfully open and operate

new stores on a profitable basis. Our comparable store sales growth could be lower than our historical average for various reasons,
including the opening of new stores that cannibalize sales in existing stores, increased competition, general economic conditions,
regulatory changes, price changes as a result of competitive factors and product pricing and availability.

During fiscal years 2015 and 2014, we opened 16 and 15 new stores, respectively. We plan to open 23 new stores, relocate

four existing stores and remodel two stores in fiscal year 2016. Delays or failures in opening new stores, or achieving lower than
expected sales in new stores, could materially and adversely affect our growth. Our plans for continued expansion could place
increased demands on our financial, managerial, operational and administrative resources. For example, our planned expansion will
require us to increase the number of people we employ and may require us to upgrade our management information system and our
distribution infrastructure. We currently operate a single bulk food repackaging facility and distribution center, which houses our bulk
food repackaging operation. In order to support our recent and expected future growth and to maintain the efficient operation of our
business, we may need to add additional capacity in the future. These increased demands and operating complexities could cause us to
operate our business less efficiently, which could materially and adversely affect our operations, financial performance and future
growth.

We may not be able to open new stores on schedule or operate them successfully. Our ability to successfully open new stores

depends upon a number of factors, including our ability to select suitable sites for our new store locations, to negotiate and execute
leases, to coordinate the contracting work on our new stores, to identify and recruit store managers, Nutritional Health Coaches and
other staff, to secure and manage the inventory necessary for the launch and successful operation of our new stores and to effectively
promote and market our new stores. If we are ineffective in performing these activities, our efforts to open and operate new stores may
be unsuccessful or unprofitable, which could materially and adversely affect our operations, financial performance and future growth.

Our newly opened stores may negatively impact our financial results in the short-term, and may not achieve sales and

operating levels consistent with our more mature stores on a timely basis or at all.

We have actively pursued new store growth and plan to continue doing so in the future. Our new store openings may not be

successful or reach the sales and profitability levels of our existing stores. Although we target particular levels of cash-on-cash returns
and capital investment for each of our new stores, new stores may not meet these targets. Any store we open may not be profitable or
achieve operating results similar to those of our existing stores. New store openings may negatively impact our financial results in the
short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period
following opening. New stores build their sales volume and their customer base over time and, as a result, generally have lower
margins and higher operating expenses, as a percentage of net sales, than our existing stores. New stores may not achieve sustained
sales and operating levels consistent with our more mature store base on a timely basis or at all. This may have an adverse effect on
our financial condition and operating results.

In addition, we may not be able to successfully integrate new stores into our existing store base and those new stores may not

be as profitable as our existing stores. Further, we have experienced in the past, and expect to experience in the future, some sales
volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations. If our
new stores are less profitable than our existing stores, or if we experience sales volume transfer from our existing stores, our financial
condition and operating results may be adversely affected.

If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner,

our sales may decrease.

We believe our success depends, in substantial part, on our ability to:



anticipate, identify and react to natural and organic grocery and dietary supplement trends and changing consumer
preferences in a timely manner;

translate market trends into appropriate, saleable product and service offerings in our stores before our competitors; and

develop and maintain vendor relationships that provide us access to the newest merchandise, and dairy products that
satisfy upgraded standards, on reasonable terms.

Consumer preferences often change rapidly and without warning, moving from one trend to another among many product or
retail concepts. Our performance is impacted by trends regarding natural and organic products, dietary supplements and at-home meal
preparation. Consumer preferences towards dietary supplements or natural and organic food products might shift as a result of, among
other things, economic conditions, food safety perceptions, reduced or changed consumer choices and the cost of these products. Our
store offerings are comprised of natural and organic products and dietary supplements. A change in consumer preferences away from
our offerings, including as a result of, among other things, reductions or changes in our offerings, would have a material adverse effect
on our business. Additionally, negative publicity regarding the safety of natural and organic products or dietary supplements, or new
or upgraded regulatory standards may adversely affect demand for our products and could result in lower customer traffic, sales and
results of operations. In addition, reduced or changed consumer choices may result from, among other things, the implementation of
our requirements for dairy products that satisfy our pasture-based, non-confinement standards.

If we are unable to anticipate and satisfy consumer merchandise preferences in the regions where we operate, our net sales

may decrease, and we may be forced to increase markdowns of slow-moving merchandise, either of which could have a material
adverse effect on our business, financial condition and results of operations.

Our comparable store sales and quarterly financial performance may fluctuate for a variety of reasons.

Our comparable store sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to

fluctuate in the future. A variety of other factors affect our comparable store sales and quarterly financial performance, including:



changes in our merchandising strategy or product mix;

performance of our newer and remodeled stores;

the effectiveness of our inventory management;

the timing and concentration of new store openings, and the related additional human resource requirements and pre-
opening and other start-up costs;

the cannibalization of existing store sales by new store openings;

levels of pre-opening expenses associated with new stores;

timing and effectiveness of our marketing activities;

seasonal fluctuations due to weather conditions and extreme weather-related disruptions;

actions by our existing or new competitors, including pricing changes;

regulatory changes affecting availability and marketability of products;

supply shortages; and

general United States economic conditions and, in particular, the retail sales environment.

Accordingly, our results for any one fiscal year or quarter are not necessarily indicative of the results to be expected for any

other year or quarter, and comparable store sales of any particular future period may decrease. In the event of such a decrease, the
price of our common stock would likely decline. For more information on our results of operations for the fiscal year 2015, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition

and could negatively impact our ability to execute our growth strategy.

Adverse and uncertain economic conditions may impact demand for the products we sell in our stores. Consumer spending

and levels of disposable income, including spending for natural and organic grocery and dietary supplement products that we sell, are
affected by, among other things, prevailing economic conditions, levels of employment, salaries and wages, interest rates, the
availability of credit, tax rates, fuel and energy costs, housing market conditions, general business conditions, consumer confidence,
political instability and consumer perception of economic conditions. Natural disasters, the outbreak or escalation of war, the
occurrence of terrorist acts or other hostilities in or affecting the United States, or concern regarding epidemics in the United States or
in international markets could also lead to a decrease in spending by consumers. In the event of an economic slowdown, consumer
spending could be adversely affected, and we could experience lower net sales than expected. We could be forced to delay or slow our
new store growth plans, which could have a material adverse effect on our business, financial condition and results of operations. In
addition, our ability to manage normal commercial relationships with our suppliers, manufacturers of our private label products,
distributors, customers and creditors may suffer. Customers may shift purchases to lower-priced or other perceived value offerings
during economic downturns. In particular, customers may reduce the amount of natural and organic products that they purchase and
instead purchase conventional offerings, which generally have lower retail prices, at other stores. In addition, consumers may choose
to purchase private label products at other stores rather than branded products because they are generally less expensive. Suppliers
may become more conservative in response to these conditions and seek to reduce their production. Our results of operations depend
upon, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new customers and
to provide products that appeal to customers at prices they are willing and able to pay. Prolonged unfavorable economic conditions
may have an adverse effect on our sales and profitability.

We may be unable to compete effectively in our markets, which are highly competitive.

The markets for natural and organic groceries and dietary supplements are large, fragmented and highly competitive, with

few barriers to entry. Our competition varies by market and includes conventional supermarkets, natural, gourmet and specialty food
markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores,
farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. These businesses compete with us for
customers on the basis of price, selection, quality, customer service, shopping experience or any combination of these or other factors.
They also compete with us for products and locations. In addition, some of our competitors are expanding to offer a greater range of
natural and organic foods. Many of our competitors are larger, more established and have greater financial, marketing and other
resources than us, and may be able to adapt to changes in consumer preferences more quickly, devote greater resources to the
marketing and sale of their products, or generate greater brand recognition. An inability to compete effectively may cause us to lose
market share to our competitors and could have a material adverse effect on our business, financial condition and results of operations.

An inability to maintain or increase our operating margins could adversely affect our results of operations.

We intend to increase our operating margins by leveraging more efficiencies of scale, additional improved systems, further

cost discipline, added focus on appropriate store labor levels and even more disciplined product selection. If we are unable to
successfully manage the potential difficulties associated with store growth, we may not be able to capture the efficiencies of scale that
we expect from expansion. If we are not able to continue to capture greater efficiencies of scale, improve our systems, further enhance
our cost discipline and increase our focus on appropriate store labor levels and disciplined product selection, we may not be able to
achieve our goals with respect to operating margins. In addition, if we do not adequately refine and improve our various ordering,
tracking and allocation systems, we may not be able to increase sales and reduce inventory shrink. As a result, our operating margins
may stagnate or decline, which could have a material adverse effect on our business, financial condition and results of operations and
adversely affect the price of our common stock.

A reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our

sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and
results of operations.

Many of our stores are located in close proximity to shopping areas that may also accommodate other well-known anchor
stores. Sales at our stores are derived, in part, from the volume of traffic generated by the other anchor stores in the shopping areas
where our stores are located. Customer traffic may be adversely affected by regional economic downturns, a general downturn in the
local area where our store is located, long-term nearby road construction projects, the closing of nearby anchor stores or other nearby
stores or the decline of the shopping environment in a particular shopping area. Any of these events would reduce our sales and leave
us with excess inventory, which could have a material adverse effect on our business, financial condition and results of operations. In
response to such events, we may be required to increase markdowns or initiate marketing promotions to reduce excess inventory,
which would further decrease our gross profits and net income.

If we or our third-party suppliers fail to comply with regulatory requirements, or are unable to provide products that meet

our specifications, our business and our reputation could suffer.

If we or our third-party suppliers, including suppliers of our private label products, fail to comply with applicable regulatory

requirements or to meet our quality specifications, we could be required to take costly corrective action and our reputation could
suffer. We do not own or operate any manufacturing facilities, except for our bulk food repackaging facility and distribution center
discussed below, and therefore depend upon independent third-party vendors to produce our private label branded products, such as
vitamins, minerals, dietary supplements, body care products, food products and bottled water. Third-party suppliers of our private
label products may not maintain adequate controls with respect to product specifications and quality. Such suppliers may be unable to
produce products on a timely basis or in a manner consistent with regulatory requirements. We depend upon our bulk food
repackaging facility and distribution center for the majority of our private label bulk food products. We may also be unable to
maintain adequate product specification and quality controls at our bulk food repackaging facility and distribution center, or produce
products on a timely basis and in a manner consistent with regulatory requirements. In addition, we may be required to find new third-
party suppliers of our private label products or to find third-party suppliers to source our bulk foods. There can be no assurance that
we would be successful in finding such third-party suppliers that meet our quality guidelines.

We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and
regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain
products, raise regulatory enforcement risks not present in the past or otherwise adversely affect our business, results of operations
and financial condition.

As a retailer of food and dietary supplements and a seller of many of our own private label products, we are subject to

numerous federal and state health and safety laws and regulations. Our suppliers and contract manufacturers are also subject to such
laws and regulations. These laws and regulations apply to many aspects of our business, including the manufacturing, packaging,
labeling, distribution, advertising, sale, quality and safety of our products, as well as the health and safety of our employees and the
protection of the environment. In the United States, we are subject to regulation by various federal government agencies, including the
FDA, the USDA, the FTC, the Occupational Safety and Health Administration, the Consumer Product Safety Commission and the
Environmental Protection Agency, as well as various state and local agencies. We are also subject to the USDA’s Organic Rule, which
facilitates interstate commerce and the marketing of organically produced food, and provides assurance to our customers that such
products meet consistent, uniform standards. Compliance with the USDA’s Organic Rule also places a significant burden on some of
our suppliers, which may cause a disruption in some of our product offerings. In addition, our sales of dietary supplements are
regulated under DSHEA. DSHEA expressly permits dietary supplements to bear statements describing how a product affects the
structure, function and general well-being of the body. However, no statement may expressly or implicitly represent that a dietary
supplement will diagnose, cure, mitigate, treat or prevent a disease. If these laws and regulations were violated by our management,
employees, suppliers, distributors or vendors, we could be subject to fines, penalties and sanctions, including injunctions against future
shipment and sale of products, seizure and confiscation of products, prohibition on the operation of our stores, restitution and
disgorgement of profits, operating restrictions and criminal prosecution.

In connection with the marketing and advertisement of our products, we could be the target of claims relating to false or
deceptive advertising, including under the auspices of the FTC and the consumer protection statutes of some states. These events
could interrupt the marketing and sales of products in our stores, including our private label products, severely damage our brand
reputation and public image, increase the cost of products in our stores, result in product recalls or litigation, and impede our ability to
deliver merchandise in sufficient quantities or quality to our stores, which could result in a material adverse effect on our business,
financial condition and results of operations.

New or revised government laws and regulations have been adopted in recent years, such as those relating to genetically

modified foods, could result in additional compliance costs and the increased use of civil remedies to enforce such laws and
regulations. Additionally, increased enforcement by government agencies could result in such costs and remedies, as well as the
payment of fines or penalties imposed by such agencies.

The FSMA passed in January 2011, granted the FDA greater authority over the safety of the national food supply and

required the FDA to issue regulations mandating that risk-based preventive controls be observed by the majority of food producers.
Regulations and rules issued under FSMA are in varying degrees of finalization. Regardless, the FDA’s authority under FSMA applies
to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food
products. In addition, the FSMA required the FDA to establish science based minimum standards for the safe production and
harvesting of produce, required the FDA to identify “high risk” foods and “high risk” facilities and instructed the FDA to set goals for
the frequency of FDA inspections of such high risk facilities as well as non-high risk facilities and foreign facilities from which food
is imported into the United States. With respect to both food and dietary supplements, the FSMA meaningfully augmented the FDA’s
ability to access a producer’s records and a supplier’s records. This increased access could permit the FDA to identify areas of concern
it had not previously considered to be problematic either for us or for our suppliers. The FSMA also could result in the implementation

of enhanced tracking and tracing of food requirements and, as a result, added recordkeeping burdens upon our suppliers. In addition,
under the FSMA, the FDA now has the authority to inspect certifications and therefore evaluate whether foods and ingredients from
our suppliers are compliant with the FDA’s regulatory requirements. Such inspections may delay the supply of certain products or
result in certain products being unavailable to us for sale in our stores. The implementation of FSMA requirements may be too
expensive or too complicated for some of our suppliers, which may result in certain products from small and/or local suppliers being
unavailable to us for sale in our stores.

DSHEA established that no notification to the FDA is required to market a dietary supplement if it contains only dietary
ingredients that were present in the United States food supply prior to DSHEA’s enactment. However, for a dietary ingredient not
present in the food supply prior to DSHEA’s enactment, the manufacturer is required to provide the FDA with information supporting
the conclusion that the ingredient will reasonably be expected to be safe at least 75 days before introducing a new dietary ingredient
into interstate commerce. As required by the FSMA, the FDA issued draft guidance in July 2011, which attempted to clarify when an
ingredient would be considered a “new dietary ingredient,” the evidence needed to document the safety of a new dietary ingredient
and appropriate methods for establishing the identity of a new dietary ingredient. The draft guidance has not yet been finalized. If
finalized, the draft guidance may cause dietary supplement products available in the market before DSHEA to be classified to include
a new dietary ingredient if the dietary supplement product was produced using manufacturing processes different from those used in
1994. Accordingly, the finalization and adoption of the draft FDA guidance or similar guidance could materially adversely affect the
availability of dietary supplement products.

The FDA also issued draft guidance on Investigational New Drugs (INDs) in 2015. The guidance could classify a food or

dietary supplement ingredient as an investigational new drug and simultaneously force the ingredient to be removed from commerce if
the ingredient is being investigated as a potential drug treatment for a disease. The guidance has not been finalized. If the guidance is
finalized in its present form, some food and dietary supplement products containing certain ingredients may not be available to us to
sell in our stores.

The FDA and FTC have increased their regulatory scrutiny of homeopathic products through a public stakeholder workgroup

process. Although no guidance has been issued at this time, the stakeholder process may result in guidance that reclassifies
homeopathic products as drugs, requires homeopathic products to be approved for sale under a new approval or review regimen, or
otherwise lessens their availability to us to sell in our stores.

Furthermore, in recent years, the FDA has been and continues to be aggressive in enforcing its regulations with respect to

nutrient content claims (e.g., “low fat,” “good source of,” “calorie free,” etc.), unauthorized “health claims” (claims that characterize
the relationship between a food or food ingredient and a disease or health condition) and other claims that impermissibly suggest
therapeutic benefits for certain foods or food components. Such FDA enforcement with respect to such promotional practices could
result in costly product changes, potential private litigation, bad publicity and loss of consumer goodwill.

We are also subject to laws and regulations more generally applicable to retailers, including labor and employment, taxation,
zoning and land use. In addition, changes in federal and state minimum wage laws and other laws relating to employee benefits could
cause us to incur additional wage and benefits costs, which could hurt our profitability.

We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either

additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory
schemes would have on our business in the future. They could, however, require the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products not able to be reformulated, additional recordkeeping, expanded
documentation of the properties of certain products, expanded or different labeling and scientific substantiation. Any or all of such
requirements could have an adverse effect on our operating results.

We may experience product recalls, withdrawals or seizures which could reduce our sales and adversely affect our results

of operations.

We may be subject to product recalls, withdrawals or seizures if any of the products we sell is believed to cause injury or

illness or if we are alleged to have violated governmental regulations in the labeling, promotion, sale or distribution of those products.
A significant recall, withdrawal or seizure of any of the products we sell may require significant management attention, would likely
result in substantial and unexpected costs and may adversely affect our business, financial condition or results of operations.
Furthermore, a recall, withdrawal or seizure of any of our products may adversely affect consumer confidence in our brands and thus
decrease consumer demand for our products. We rely on our suppliers to ensure that the products they manufacture and sell to us
comply with all applicable regulatory and legislative requirements. In general, we seek representation and warranties, indemnification
and/or insurance from our suppliers. However, even with adequate insurance and indemnification, any claims of non-compliance
could significantly damage our reputation and consumer confidence in our products. In addition, the failure of those products to
comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or

remove such products from the market, which in certain cases could materially and adversely affect our business, financial condition
and results of operations.

The activities of our Nutritional Health Coaches and our nutrition education services may be impacted by government

regulation or an inability to secure adequate liability insurance.

Some of the activities of our NHCs, who, among other duties, provide nutrition oriented educational services to our

customers, may be subject to state and federal regulation, and oversight by professional organizations. In the past, the FDA has
expressed concerns regarding summarized health and nutrition-related information that: (i) does not, in the FDA’s view, accurately
present such information (ii) diverts a consumer’s attention and focus from FDA-required nutrition labeling and information; or (iii)
impermissibly promotes drug-type disease-related benefits. Although we have provided training to our NHCs on relevant regulatory
requirements, we cannot control the actions of such individuals, and our NHCs may not act in accordance with such regulations. If our
NHCs or other employees do not act in accordance with regulatory requirements, we may become subject to penalties which could
have a material adverse effect on our business. We believe we are currently in compliance with relevant regulatory requirements, and
we maintain professional liability insurance on behalf of our NHCs in order to mitigate risks associated with our NHCs’ nutrition
oriented educational activities. However, we cannot predict the nature of future government regulation and oversight, including the
potential impact of any such regulation on the services currently provided by our NHCs. Furthermore, the availability of professional
liability insurance or the scope of such coverage may change, or our insurance coverage may prove inadequate, which may adversely
impact the ability of our NHCs to provide some services to our customers. The occurrence of any such developments could negatively
impact the perception of our brand, our sales and our ability to attract new customers.

Our future business, results of operations and financial condition may be adversely affected by reduced availability of

organic products or dairy products that satisfy our pasture-based, non-confinement standards.

Our ability to ensure a continuing supply of organic products and dairy products that satisfy our pasture-based, non-
confinement standards at competitive prices depends on many factors beyond our control, such as the number and size of farms that
grow organic crops or raise organic livestock or satisfy our pasture-based, non-confinement standards, the vagaries of these farming
businesses and our ability to accurately forecast our sourcing requirements. The organic ingredients used in many of the products we
sell are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and
pestilences. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn
could reduce the available supply of, or increase the price of, organic ingredients. Certain products we purchase from our suppliers
include organic ingredients sourced offshore, and the availability of such ingredients may be affected by events in other countries. In
addition, we and our suppliers compete with other food producers in the procurement of organic ingredients and dairy products that
satisfy our pasture-based, non-confinement standards, which are often less plentiful in the open market than conventional ingredients
and products. This competition may increase in the future if consumer demand increases for organic products and dairy products that
satisfy our pasture-based, non-confinement standards. If supplies of organic ingredients and dairy products that satisfy our pasture-
based, non-confinement standards are reduced or there is greater demand for such ingredients from us and others, we may not be able
to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to our stores and may
adversely affect our business, results of operations and financial condition.

The organic products we sell rely on independent certification and must comply with the requirements of independent

organizations or certification authorities in order to be labeled as such. Certain products we sell in our stores can lose their “organic”
certification if a contract manufacturing plant becomes contaminated with non-organic materials or if it is not properly cleaned after a
production run, among other issues. The loss of any independent certifications could reduce the availability of organic products that
we can sell in our stores and harm our business.

Disruptions affecting our significant suppliers, or our relationships with such suppliers, could negatively affect our

business.

UNFI is our single largest third-party supplier, accounting for approximately 57% of our total purchases in fiscal year 2015.

In fiscal year 2012, we extended our long-term relationship with UNFI as our primary supplier of dry grocery and frozen food
products into 2016. Due to this concentration of purchases from a single third-party supplier, the cancellation or non-renewal of our
distribution agreement or the disruption, delay or inability of UNFI to deliver product to our stores may materially and adversely
affect our operating results and we may be unable to establish alternative distribution channels on reasonable terms or at all.

Certain of our vendors use overseas sourcing to varying degrees to manufacture some or all of their products. Any event

causing a sudden disruption of manufacturing or imports from such foreign countries, including the imposition of additional import
restrictions, unanticipated political changes, increased customs duties, labor disputes, health epidemics, adverse weather conditions,
crop failure, acts of war or terrorism, legal or economic restrictions on overseas suppliers’ ability to produce and deliver products, and
natural disasters, could increase our costs and materially harm our business and financial condition and results of operations. Our

business is also subject to a variety of other risks generally associated with indirectly sourcing goods from abroad, such as political
instability, disruption of imports by labor disputes and local business practices. In addition, requirements imposed by the FSMA
compel importers to verify that food products and ingredients produced by a foreign supplier comply with all applicable legal and
regulatory requirements enforced by the FDA, which could result in certain products being deemed inadequate for import.

The current geographic concentration of our stores creates exposure to local economies, regional downturns or severe

weather or catastrophic occurrences.

As of September 30, 2015, we had primary store concentration in Colorado and Texas, operating 34 stores and 14 stores in

those states, respectively, accounting for a total of 46.6% of our stores. As a result, our business is currently more susceptible to
regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns
in those regions. Any unforeseen events or circumstances that negatively affect these areas could materially adversely affect our
revenues and profitability. These factors include, among other things, changes in demographics, population, competition, consumer
preferences, new or revised laws or regulations, fires, floods or other natural disasters in these regions.

If we fail to maintain our reputation and the value of our brand, our sales may decline.

We believe our continued success depends on our ability to maintain and grow the value of the Natural Grocers by Vitamin
Cottage brand. Maintaining, promoting and positioning our brand and reputation will depend largely on the success of our marketing
and merchandising efforts and our ability to provide a consistent, high quality customer experience. Brand value is based in large part
on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse
publicity, governmental investigations or litigation. Our brand could be adversely affected if we fail to achieve these objectives, or if
our public image or reputation were to be tarnished by negative publicity. Sources of negative publicity may include, among others,
social media posts, investment or financial community posts and poor reviews of stores, products, customer service and employment.

Consumers or regulatory agencies may challenge certain claims made regarding our products.

Our reputation could also suffer from real or perceived issues involving the labeling or marketing of our products. Products

that we sell may carry claims as to their origin, ingredients or health benefits, including, by way of example, the use of the term
“natural.” Although the FDA and USDA each has issued statements regarding the appropriate use of the word “natural,” there is no
single, United States government regulated definition of the term “natural” for use in the food industry. The resulting uncertainty has
led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against a number of food companies
that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to
genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural” but
that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid
purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters
may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of
confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome
and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and decrease our
sales, which would have a material adverse effect on our business, financial condition and results of operations.

Perishable food product losses could materially impact our results of operations.

Our stores offer a significant number of perishable products. Our offering of perishable products may result in significant
product inventory losses in the event of extended power or other utility outages, natural disasters or other catastrophic occurrences.

The decision by certain of our suppliers to distribute their specialty products through other retail distribution channels

could negatively impact our revenue from the sale of such products.

Some of the specialty retail products that we sell in our stores are not generally available through other retail distribution

channels such as drug stores, conventional grocery stores or mass merchandisers. In the future, our suppliers could decide to distribute
such products through other retail distribution channels, allowing more of our competitors to offer these products, and adversely
affecting the desirability of these products to our core customers, which could negatively impact our revenues.

Our ability to operate our business effectively could be impaired if we fail to retain or attract key personnel or are unable

to attract, train and retain qualified employees.

Our business requires disciplined execution at all levels of our organization. This execution requires an experienced and

talented management team. The loss of any member of our senior management team, particularly Kemper Isely or Zephyr Isely, our
Co-Presidents since 1998, or Heather Isely or Elizabeth Isely, our Executive Vice Presidents since 1998, could have a material adverse
effect on our ability to operate our business, financial condition and results of operations, unless, and until, we are able to find a

qualified replacement. Furthermore, our ability to manage our new store growth will require us to attract, motivate and retain qualified
managers, NHCs and store employees who understand and appreciate our culture and are able to represent our brand effectively in our
stores. Competition for such personnel is intense, and we may be unable to attract, assimilate and retain the personnel required to grow
and operate our business profitably.

Any significant interruption in the operations of our bulk food repackaging facility and distribution center could disrupt

our ability to deliver our merchandise in a timely manner.

We repackage and distribute some of the products we sell through our bulk food repackaging facility and distribution center

in Golden, Colorado. Any significant interruption in the operation of our bulk food repackaging and distribution center infrastructure,
such as disruptions due to fire, severe weather or other catastrophic events, power outages, labor disagreements, or shipping problems,
could adversely impact our ability to receive and process orders, and distribute products to our stores. Such interruptions could result
in lost sales, cancelled sales and a loss of customer loyalty to our brand. While we maintain business interruption and property
insurance, if the operation of our distribution facility were interrupted for any reason causing delays in shipment of merchandise to our
stores, our insurance may not be sufficient to cover losses we experience. This could have a material adverse effect on our business,
financial condition and results of operations.

A widespread health epidemic could materially impact our business.

Our business could be severely impacted by a widespread regional, national or global health epidemic. A widespread health

epidemic may cause customers to avoid public gathering places such as our stores or otherwise change their shopping behaviors.
Additionally, a widespread health epidemic could adversely impact our business by disrupting production and delivery of products to
our stores and by impacting our ability to appropriately staff our stores.

Union activity at third-party transportation companies or labor organizing activities among our employees could disrupt

our operations and harm our business.

Independent third-party transportation companies deliver the majority of our merchandise to our stores and to our customers.

Some of these third parties employ personnel represented by labor unions. Disruptions in the delivery of merchandise or work
stoppages by employees of these third parties could delay the timely receipt of merchandise, which could result in cancelled sales, a
loss of loyalty to our stores and excess inventory.

While all of our employees are currently non-union, our employees may attempt to organize and join a union. The United

Food and Commercial Workers Union recently sought to organize workers at one of our stores in Idaho. That effort was unsuccessful.
We could face union organizing activities at other locations. The unionization of all or a portion of our workforce could result in work
slowdowns, could increase our overall costs and reduce the efficiency of our operations at the affected locations, could adversely
affect our flexibility to run our business competitively, and could otherwise have a material adverse effect on our business, financial
condition and results of operations.

Our management has limited experience managing a public company.

We are subject to various regulatory requirements, including those of the SEC and The New York Stock Exchange (NYSE).
These requirements include, among other things, record keeping, financial reporting and corporate governance rules and regulations.
Our management has been managing a public company since the Company’s initial public offering (IPO) in fiscal year 2012, and
therefore its overall experience in managing a public company remains limited. Our public company reporting obligations have
increased, and continue to impose, demands on our internal infrastructure and resources. Although we have hired additional staff in
order to comply with these requirements, we may be unable to retain the staff necessary to comply with these requirements in the
future. In certain continuing respects, we rely on outside consultants and professionals to supplement our capacity to meet these
requirements. Our business could be adversely affected if we are unable to fulfill our public company obligations.

Future events could result in impairment of long-lived assets, which may result in charges that adversely affect our results

of operations and capitalization.

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Our impairment evaluations require use of financial estimates of future cash flows.
Application of alternative assumptions could produce significantly different results. We may be required to recognize impairments of
long-lived assets based on future economic factors such as unfavorable changes in estimated future undiscounted cash flows of an
asset group.

We have significant lease obligations, which may require us to continue paying rent for store locations that we no longer

operate.

Our stores, bulk food repackaging facility and distribution center and administrative facility are leased. We are subject to

risks associated with our current and future real estate leases. Our costs could increase because of changes in the real estate markets
and supply or demand for real estate sites. We generally cannot cancel our leases, so if we decide to close or relocate a location, we
may nonetheless be committed to perform our obligations under the applicable lease including paying the base rent for the remaining
lease term. As each lease expires, we may fail to negotiate renewals, either on commercially acceptable terms or any terms at all and
may not be able to find replacement locations that will provide for the same success as current store locations. Of the current leases for
our stores, five expire in fiscal year 2016, one expires in fiscal year 2017, four expire in fiscal year 2018, seven expire in fiscal year
2019 and the remainder expire between fiscal years 2020 and 2062.

Our fixed lease obligations could adversely affect our business.

We will require substantial cash flows to make required payments under our leases, which generally provide for periodic

increases in rent. If we are not able to make the required payments under the leases, the owners of the relevant properties may, among
other things, repossess those properties, which could adversely affect our ability to conduct our operations. In addition, the termination
of a lease due to the non-payment of rent under such lease would trigger an event of default under our amended and restated credit
facility if such termination could reasonably be expected to have a material adverse effect on our business or our ability to meet our
obligations thereunder.

Any material failure of our information systems could negatively impact our operations.

We are increasingly dependent on a variety of information systems to effectively manage the operations of our growing store

base, including our supply chain. The failure of our information systems to perform as designed, including the failure of our vendors
to maintain and make available software or the failure of our warehouse management software system to operate as expected or to
support our distribution facility, could have a material adverse effect on our business and results of operations. Any material failure or
slowdown of our systems could disrupt our ability to track, record and analyze our merchandise, and could negatively impact our
operations, including, among other things, our ability to process and receive shipments of goods and process financial and credit card
transactions. Additionally, changes in technology could cause our information systems to become obsolete and it may be necessary to
incur additional costs to upgrade such systems, and if our information systems prove inadequate to handle our growth, we could lose
customers, which could have a material adverse effect on our business, financial condition and results of operations. We are also
vulnerable to certain risks and uncertainties associated with our websites, including changes in required technology interfaces, website
downtime and other technical failures, security breaches and consumer privacy concerns. Our failure to successfully respond to these
risks could damage our reputation.

Claims under our self-insurance program may differ from our estimates, which could materially impact our results of

operations.

We currently maintain insurance customary for businesses of our size and type using a combination of insurance and self-

insurance plans to provide for the potential liabilities for workers’ compensation, general liability, professional liability, property
insurance, director and officers’ liability insurance, vehicle liability and employee health-care benefits. There are types of losses we
may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a
material adverse effect on our business and results of operations. In addition, liabilities associated with the risks that are retained by
the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other
actuarial assumptions. Our results could be materially impacted by claims and other expenses related to such plans if future
occurrences and claims differ from these assumptions and historical trends.

If we are unable to protect our intellectual property rights, our ability to compete and the value of our brand could be

harmed.

We believe that our trademarks or service marks, trade dress, copyrights, trade secrets, know-how and similar intellectual

property are important to our success. In particular, we believe that the Natural Grocers by Vitamin Cottage name is important to our
business, as well as to the implementation of our growth strategy. Our principal intellectual property rights include registered marks
on Vitamin Cottage, Natural Grocers by Vitamin Cottage, Vitamin Cottage Natural Grocers and EDAP - Every Day Affordable Price,
copyrights of our website content, rights to our domain names including www.naturalgrocers.com and www.vitamincottage.com, and
trade secrets and know-how with respect to our product sourcing, sales and marketing and other aspects of our business. As such, we
rely on trademark or service mark and copyright law, trade secret protection and confidentiality agreements with our employees and
certain of our consultants, suppliers and others to protect our proprietary rights. If we are unable to defend or protect or preserve the

value of our trademarks or service marks, copyrights, trade secrets or other proprietary rights for any reason, our brand and reputation
could be impaired and we could lose customers.

Although several of our brand names are registered in the United States, we may not be successful in asserting trademark or

service mark or trade name protection and the costs required to protect our trademarks or service marks and trade names may be
substantial. In addition, the relationship between regulations governing domain names and laws protecting trademarks or service
marks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our trademarks or service marks and other proprietary rights.
Additionally, other parties may infringe on our intellectual property rights and may thereby dilute our brand in the marketplace. Third
parties could also bring additional intellectual property infringement suits against us from time to time to challenge our intellectual
property rights. Any such infringement of our intellectual property rights by others, or claims by third parties against us, would likely
result in a commitment of our time and resources to protect these rights through litigation or otherwise. If we were to receive an
adverse judgment in such a matter, we could suffer further dilution of our trademarks or service marks and other rights, which could
harm our ability to compete as well as our business prospects, financial condition and results of operations.

Our products could suffer from real or perceived quality or food safety concerns and may cause unexpected side effects,
illness, injury or death that could result in their discontinuance or expose us to lawsuits, any of which could result in unexpected
costs and damage to our reputation.

We could be materially, adversely affected if consumers lose confidence in the safety and quality of products we sell. There

is substantial governmental scrutiny of and public awareness regarding food safety. We believe that many customers hold us to a
higher quality standard than other retailers. Many of our products are vitamins, herbs and other ingredients that are classified as foods
or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain
contaminated substances, and some of our products contain ingredients that do not have long histories of human consumption.
Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. Unexpected side effects,
illness, injury or death caused by our products could result in the discontinuance of sales of our products or prevent us from achieving
market acceptance of the affected products. Such side effects, illnesses, injuries and death could also expose us to product liability or
negligence lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any
judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our
capital resources. Further, we may not have sufficient capital resources to pay a judgment in which case our creditors could levy
against our assets. The real or perceived sale of contaminated or harmful products would cause negative publicity regarding our
company, brand or products, including negative publicity in social media, which could in turn harm our reputation and net sales and
could have a material adverse effect on our business, financial condition and results of operations, or result in our insolvency.

Increases in the cost of raw materials could hurt our sales and profitability.

Costs of the raw agricultural commodities used in our private label products, including our bulk repackaged products, could
increase. Such commodities are generally subject to availability constraints and price volatility caused by weather, supply conditions,
government regulations, energy prices, price inflation and general economic conditions and other unpredictable factors. An increase in
the demand for or a reduced supply of raw agricultural commodities could cause our vendors to seek price increases from us, which
could cause the retail price we charge for certain products to increase, in turn decreasing our sales of such products. Supply shortages
may cause certain items to be unavailable, which could negatively affect our sales. Our profitability may be adversely impacted as a
result of such developments through reduced gross margins or a decline in the number and average size of customer transactions. The
cost of construction materials we use to build and remodel our stores is also subject to significant price volatility based on market and
economic conditions. Higher construction material prices would increase the capital expenditures needed to construct a new store or
remodel an existing store and, as a result, could increase the rent payable by the Company under its leases.

Energy costs are a significant component of our operating expenses and increasing energy costs, unless offset by more

efficient usage or other operational responses, may impact our profitability.

We utilize natural gas, water, sewer and electricity in our stores and use gasoline and diesel in our trucks that deliver products

to our stores. Increases in energy costs, whether driven by increased demand, decreased or disrupted supply or an anticipation of any
such events will increase the costs of operating our stores. Our shipping costs have also increased due to fuel and freight prices, and
these costs may continue to increase. We may not be able to recover these rising costs through increased prices charged to our
customers, and any increased prices may exacerbate the risk of customers choosing lower-cost alternatives. In addition, if we are
unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy
procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase which
would impact our profitability, financial condition and results of operations.

Increases in certain costs affecting our marketing, advertising and promotions may adversely impact our ability to

advertise effectively and reduce our profitability.

Postal rate increases, and increasing paper and printing costs affect the cost of our promotional mailings. Previous changes in

postal rates increased the cost of our Health Hotline mailings and previous increases in paper and printing costs increased the cost of
producing our Health Hotline newspaper inserts. In response to any future increase in mailing costs, we may consider reducing the
number and size of certain promotional pieces. In addition, we rely on discounts from the basic postal rate structure, such as discounts
for bulk mailings and sorting by zip code and carrier routes. We are not party to any long-term contracts for the supply of paper. We
are also affected by increases in billboard costs and the cost of producing and broadcasting our television, radio and internet
advertising pieces. Previous changes in broadcast rates resulted in an increase in the cost of our television commercials. In response to
any future increase in broadcast costs, we may consider reducing the frequency, placement and length of certain promotional pieces.
We are not party to any long-term contracts for broadcast time. Future increases in costs affecting our marketing, advertising and
promotions could adversely impact our ability to advertise effectively and our profitability.

Legal proceedings could adversely affect our business, financial condition and results of operations.

Our operations, which are characterized by transactions involving a high volume of customer traffic and a wide variety of
product selections, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in
certain other industries. Consequently, we have been, are, and may in the future become a party to individual personal injury, product
liability and other legal actions in the ordinary course of our business. While these actions are generally routine in nature, incidental to
the operation of our business and immaterial in scope, the outcome of litigation is difficult to assess or quantify. Additionally, we
could be exposed to industry-wide or class-action claims arising from the products we carry or industry-specific business practices.
Further, we have been, are and may in the future become subject to claims for discrimination, harassment, wages and hours and other
federal or state employment matters. While we maintain insurance, such coverage may not be adequate or may not cover a specific
legal claim. Moreover, the cost to defend against litigation may be significant. As a result, litigation could have a material adverse
effect on our business, financial position and results of operations.

See “Legal Proceedings” for a description of a purported class action lawsuit filed against the Company in connection with a

data security incident that affected the Company, which description is incorporated herein by reference.

Failure to protect our information systems against cyber-attacks or information security breaches, including failure to
protect the integrity and security of individually identifiable data of our customers and employees, could expose us to litigation,
damage our reputation and have a material adverse effect on our business.

We rely on computer systems and information technology to conduct our business, including to securely transmit data

associated with cashless payments. These systems are inherently vulnerable to disruption or failure, as well as internal and external
security breaches, denial of service attacks and other disruptive problems caused by hackers.

In addition, we receive and maintain certain personal information about our customers and employees. The use of this

information by us is regulated by applicable law. Privacy and information security laws and regulations change, and compliance with
updates may result in cost increases due to necessary systems changes and the development of new administrative processes.

If our security and information systems are compromised or our employees fail to comply with applicable laws and

regulations and personal or other confidential information is obtained by unauthorized persons or used inappropriately, it could
interrupt our business, resulting in a slowdown of our normal business activities or limitations on our ability to process credit card
transactions, and could adversely affect our reputation, ability to compete in the food retail marketplace, financial condition and
results of operations. Additionally, a data security breach could subject us to litigation, customer demands for indemnification for
third party claims and/or the imposition of penalties, fines or other assessments. In such event, our liability could exceed our
insurance coverage or our ability to pay. In addition, a security breach could require that we expend significant amounts to remediate
the breach, including changes in our information security systems.

We were affected by a data security incident during fiscal year 2015. See “Legal Proceedings” for a description of a
purported class action lawsuit filed against the Company in connection with that data security incident, which description is
incorporated herein by reference.

Our credit facility could limit our operational flexibility.

We have a credit agreement (our Credit Facility) that allows us to borrow up to $25.0 million. Our Credit Facility is secured
by a lien on substantially all of our assets and contains usual and customary restrictive covenants relating to our management and the
operation of our business. These covenants, among other things, restrict our ability to incur additional indebtedness, grant liens,

engage in certain merger, consolidation or asset sale transactions, make certain investments, make loans, advances, guarantees or
acquisitions, engage in certain transactions with affiliates or permit certain sale and leaseback transactions without lender consent. We
are also required to maintain certain financial ratios under our Credit Facility, including a consolidated leverage ratio and a
consolidated fixed charge ratio. These covenants could restrict our operational flexibility, including our ability to open stores, and any
failure to comply with these covenants or our payment obligations would limit our ability to borrow under our Credit Facility and, in
certain circumstances, may allow the lender thereunder to require repayment.

We may need to raise additional debt or equity capital.

We have depended primarily on cash flow from our operations and borrowings from our Credit Facility to fund our business
and execute on our growth strategy. From time to time, we may be required to seek additional equity or debt financing in order to fund
capital expenditures or to provide additional working capital for our business, or to fund the execution of our growth strategy. In
addition, changes in economic conditions, or market conditions requiring a shift in our business model could result in our need for
additional debt or equity financing. We cannot predict the timing or amount of any such capital requirements. We do not know
whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all. If financing is not available
to us on satisfactory terms, or at all, we may be unable to operate or expand our business or to successfully pursue our growth strategy,
and our results of operations may suffer. Pursuant to the NYSE Listed Company Manual, in order to rely on the “controlled
company” corporate governance exemptions, the Isely family is, or entities controlled by the Isely family are, required to retain more
than 50% of the total voting power of our shares of common stock for the election of directors. As long as we intend to remain a
“controlled company,” these voting requirements will constrain our ability to issue additional shares of our common stock in the
future.

Our political advocacy activities may reduce our customer count and sales.

We believe our ability to profitably operate our business depends, in part, upon our access to natural and organic products

and dietary supplements. We attempt to protect our interest in this access through ongoing and proactive political advocacy
campaigns, including participation in education programs, petitions, letter writing, phone calls, policy conferences, advisory boards,
industry groups, public commentary and meetings with trade groups, office holders and regulators. We may publicly ally with and
support trade groups, political candidates, government officials and regulators who support a particular policy we consider important
to our business and in alignment with our principles regarding access to natural and organic products and dietary supplements. We
may, from time to time, publicly oppose other trade groups, candidates, officeholders and regulators whose point of view we believe
will harm our business, or impede access to nutritious food and dietary supplements. In some cases, we may lose customers and sales
because our political advocacy activities are perceived to be contrary to those customers’ points of view, political affiliations, political
beliefs or voting preferences.

Effective tax rate changes and results of examinations by taxing authorities could materially impact our results of

operations.

Our future effective tax rates could be adversely affected by our earnings mix being lower than historical results in states

where we have lower statutory rates and higher than historical results in states where we have higher statutory rates, by changes in the
valuation of our deferred tax assets and liabilities or by changes in tax laws or interpretations thereof. In addition, we are subject to
periodic audits and examinations by the Internal Revenue Service (IRS), and other state and local taxing authorities. Our results could
be materially impacted by the determinations and expenses related to proceedings by the IRS and other state and local taxing
authorities.

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial

reporting and could harm our ability to manage our expenses.

Our anticipated growth, and continuing reporting obligations as a public company, are placing a continuing and considerable
strain on our financial and management systems, processes and controls, as well as on our personnel. In addition, as a public company,
we are required to document and test our internal controls over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of
2002 (Sarbanes-Oxley), so that our management can periodically certify the effectiveness of such controls. As an “emerging growth
company,” we have opted to take advantage of certain exemptions contained in the Jumpstart Our Business Startups Act, or JOBS
Act, and as a result, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal
control over financial reporting pursuant to Section 404 until the date we are no longer an “emerging growth company” as defined in
the JOBS Act. We will remain an “emerging growth company” until the earliest of (a) September 30, 2017, (b) the last day of our
fiscal year in which we have annual gross revenue of $1.0 billion or more, (c) the date on which we have, during the previous three-
year period, issued more than $1.0 billion in non-convertible debt, or (d) the date on which we are deemed to be a “large accelerated
filer,” which will occur at such time as we have: (i) an aggregate worldwide market value of common equity securities held by non-
affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (ii) been required to

file annual, quarterly and current reports under the Securities Exchange Act of 1934, as amended (the Exchange Act) for a period of at
least 12 calendar months and (iii) filed at least one annual report pursuant to the Exchange Act. As a result, we may qualify as an
“emerging growth company” until as late as September 30, 2017. At such time, our independent registered public accounting firm may
issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
If our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the
effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on
management’s assessment and the effectiveness of our internal control over financial reporting, or if material weaknesses in our
internal control over financial reporting are identified, we could be subject to regulatory scrutiny and a loss of public confidence,
which could have a material adverse effect on our business and our stock price.

Changes in accounting standards may materially impact reporting of our financial condition and reported results of

operations.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and
interpretations for many aspects of our business, such as accounting for inventories, goodwill and intangible assets, store closures,
leases, insurance, income taxes, stock-based compensation and mergers and acquisitions, are highly complex and involve subjective
judgments. Changes in these rules or their interpretation or changes in underlying estimates, assumptions or judgments could
significantly change or add significant volatility to our reported earnings without a comparable underlying change in cash flow from
operations. As a result, changes in accounting standards may materially impact our reported results of operations.

We are an “emerging growth company” and, although we do not now believe that investors have found our common stock
less attractive since our IPO as a result, we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to investors in the future.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various reporting and other requirements that are applicable to other public companies that are not “emerging growth companies.” For
so long as we are an “emerging growth company,” we will, among other things:



not be required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley;

not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of
the Exchange Act;

not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to
Section 14A(b) of the Exchange Act;

be exempt from any rule adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm
rotation or a supplemental auditor discussion and analysis; and

be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements.

Although we do not now believe that investors have found our common stock less attractive since our IPO because we rely
on certain of these exemptions, we cannot predict if investors may in the future view our common stock less favorably as a result of
our “emerging growth company” status. If some investors in the future find our common stock less attractive as a result, there may be
a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended

transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act), for complying with
new or revised accounting standards. An “emerging growth company” can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. However, we chose to “opt out” of such extended transition period, and
as a result, we have complied and will comply with new or revised accounting standards on the relevant dates on which adoption of
such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of
the extended transition period for complying with new or revised accounting standards is irrevocable.

Risks related to our common stock

The market price of our common stock has been volatile and may continue to be volatile, and you may not be able to sell

our common stock at a favorable price or at all.

The market price of our common stock is likely to fluctuate significantly from time to time in response to a number of
factors, most of which we cannot control, including those described under “—Risks related to our business” and the following:



differences between our actual financial and operating results and those expected by investors;

fluctuations in our quarterly comparable store sales operating results;

 market conditions in our industry and the economy as a whole;



changes in our earnings guidance;

a change in the recommendation by any research analyst that follows our stock or any failure to meet the estimates made
by research analysts;

investor perceptions of our prospects and the prospects of the grocery and dietary supplement industries;

the performance of our key vendors;

announcements by us, our vendors or our competitors regarding performance, strategy, significant acquisitions,
divestitures, strategic partnerships, joint ventures or capital commitments;

introductions of new product or new pricing policies by us or our competitors;

failure to recruit or retain key personnel; and

the level and quality of securities research analyst coverage for our common stock.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to

affect the market price of equity securities.

An inability to maintain or improve levels of comparable store sales could cause our stock price to decline.

We may not be able to maintain or improve the levels of comparable store sales that we have experienced in the past. In

addition, our overall comparable store sales may fluctuate in the future. A variety of factors affect comparable store sales, including:



our ability to execute our business strategy effectively, including successfully opening new stores that achieve sales
consistent with our existing stores;

consumer preferences;

competition;

economic conditions;

regulatory changes;

product pricing and availability;

in-store merchandising-related activities;

consumer confidence;

initial sales performance at our new stores; and

our ability to source and distribute products efficiently.

In addition, many specialty retailers have been unable to sustain high levels of comparable store sales during and after

periods of substantial expansion. These factors may cause our comparable store sales results to be materially lower than in recent
periods, which could have a material adverse effect on our business, financial condition and results of operations, and could result in a
decline in the price of our common stock.

Our current principal stockholders have significant influence over us, and they could delay, deter or prevent a change of

control or other business combination or otherwise cause us to take action with which you might not agree.

Members of the Isely family and certain persons, entities and accounts subject to a stockholders agreement relating to voting

and limitations on the sale of shares, own or control approximately 57.3% of our common stock. Due to their holdings of common
stock, members of the Isely family are able to continue to determine the outcome of virtually all matters submitted to stockholders for
approval, including the election of directors, an amendment of our certificate of incorporation (except when a class vote is required by
law), any merger or consolidation requiring common stockholder approval, and a sale of all or substantially all of the Company’s
assets. Members of the Isely family have the ability to prevent change-in-control transactions as long as they maintain voting control
of the Company. In addition, members of the Isely family and trusts controlled by them entered into a stockholders agreement by
which they agreed to aggregate their voting power with regard to the election of directors.

In addition, because these holders have the ability to elect all of our directors, they are able to control our policies and

operations, including the appointment of management, future issuances of our common stock or other securities, the payments of
dividends on our common stock and entering into extraordinary transactions, and their interests may not in all cases be aligned with
your interests.

A substantial number of shares of our common stock are eligible for sale, and their sale could adversely affect our stock

price and could impair our ability to raise capital through the sale of equity securities.

If certain of our stockholders sell, or the market perceives that certain of our stockholders intend to sell, in the public market,

substantial amounts of our common stock, the market price of our common stock could decline significantly. These sales also might
make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate. As of
December 8, 2015, we had a total of 22,498,336 shares of common stock outstanding, of which 8,214,285 shares of common stock
were issued in the IPO and 317,338 shares had been issued in connection with the vesting of restricted stock units issued under the
2012 Omnibus Incentive Plan, are registered and freely tradable without restriction under the Securities Act. The Company is aware
that 34,947 shares have been sold, and believes approximately 440,000 additional shares could be sold, in exempt transactions. Up to
approximately 13,491,766 additional shares of common stock could be sold, subject to compliance with the requirements of the
Securities Act and the stockholders agreement among members of the Isely family and certain persons, entities and accounts related to
them. The market price of our common stock could drop significantly if the holders of restricted stock sell them or are perceived by
the market as intending to sell them. Also, in the future, we may issue shares of our common stock as a result of the vesting of up to
130,601 additional restricted stock units or in connection with investments or acquisitions. The number of shares of our common stock
issued in connection with an investment or acquisition could constitute a material portion of our then outstanding shares of our
common stock.

We do not anticipate paying dividends on our capital stock in the foreseeable future and capital appreciation may be your

sole source of potential gain.

We anticipate that we will retain our future earnings, for the foreseeable future, in order to fund our growth strategy and for
general corporate purposes. The declaration and payment of future dividends to holders of our common stock will be at the discretion
of our board of directors (our Board) and will depend upon many factors, including our financial condition, earnings, legal
requirements, restrictions in our debt agreements and other factors our Board deems relevant. As a result, we can make no assurance
that we will pay cash dividends to our stockholders in the future. Capital appreciation, if any, of our common stock will be your sole
source of potential gain for the foreseeable future.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their

recommendations regarding our common stock or if our operating results do not meet their expectations, our common stock price
could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish
about us or our business. If one or more of these analysts cease to cover our company or fail to publish reports on us regularly, we may
lose visibility in the financial markets, which could cause our stock price or trading volume to decline. Moreover, if one or more of the
analysts who cover our company downgrades our common stock, or if our operating results do not meet their expectations, our
common stock price could decline.

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in

control, even if a sale of the Company would be beneficial to our stockholders, which could cause our stock price to decline and
prevent attempts by our stockholders to replace or remove our current management.

Several provisions of our certificate of incorporation and amended and restated bylaws could make it difficult for our

stockholders to change the composition of our Board, preventing them from changing the composition of management. In addition,
the same provisions may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable.

These provisions include:



a staggered, or classified, Board;

authorizing our Board to issue “blank check” preferred stock without stockholder approval;

prohibiting cumulative voting in the election of directors;

limiting the persons who may call special meetings of stockholders;

prohibiting stockholders from acting by written consent after the Isely family ceases to own more than 50% of the total
voting power of our shares; and

establishing advance notice requirements for nominations for election to our Board or for proposing matters that can be
acted on by stockholders at stockholder meetings.

These anti-takeover provisions could substantially impede the ability of our common stockholders to benefit from a change in

control and, as a result, could materially adversely affect the market price of our common stock and your ability to realize any
potential change-in-control premium.

We are a “controlled company” within the meaning of the NYSE Listed Company Manual, and, as a result, rely on

exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

The Isely family, or entities controlled by the Isely family, own more than 50% of the total voting power of our common

shares for the election of directors, and therefore, we are considered a “controlled company” under the corporate governance standards
set forth in the NYSE Listed Company Manual. As a “controlled company,” certain exemptions under NYSE standards free us from
the obligation to comply with certain corporate governance requirements of the NYSE, including the requirements:



that a majority of our Board consists of “independent directors,” as defined under the rules of the NYSE;

that our director nominees be selected, or recommended for our Board’s selection, either: (i) by a majority of
independent directors in a vote by independent directors, pursuant to a nominations process adopted by a Board
resolution or (ii) by a nominating and governance committee composed solely of independent directors with a written
charter addressing the nominations process; and

that the compensation of our executive officers be determined, or recommended to the Board for determination, by a
majority of independent directors in a vote by independent directors, or a compensation committee composed solely of
independent directors.

Accordingly, for so long as we are a “controlled company,” stockholders will not have the same protections afforded to

stockholders of companies that are subject to all of the NYSE corporate governance requirements.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

As of September 30, 2015, we had 103 stores located in 18 states, as shown in the following chart:

State
Arizona ..................................................................................
Arkansas ................................................................................
Colorado ................................................................................
Idaho ......................................................................................
Kansas ...................................................................................
Minnesota ..............................................................................
Missouri .................................................................................
Montana .................................................................................
Nebraska ................................................................................
Nevada ...................................................................................
New Mexico ...........................................................................
North Dakota .........................................................................
Oklahoma ..............................................................................
Oregon ....................................................................................
Texas .....................................................................................
Utah .......................................................................................
Washington ...........................................................................
Wyoming ...............................................................................

Number
of Stores
6
1
34
3
8
1
2
4
3
1
5
1
7
8
14
2
1
2

During the fiscal years ended September 30, 2015 and 2014, we opened 16 and 15 new stores, respectively. During fiscal

year 2016, through the date of this Form 10-K, we have opened a total of three stores in Colorado and Utah. We have signed leases for
an additional 18 new stores that we expect to open in fiscal year 2016 and 2017.

Our home office is located in Lakewood, Colorado. We occupy our home office under a lease covering approximately 35,000

square feet that expires in 2026; this facility is co-located with one of our stores. Additionally, we lease a 107,000 square foot bulk
food repackaging facility and distribution center located in Golden, Colorado. That facility also houses a training center and certain
administrative support functions. During fiscal year 2015, we exercised an option to lease additional space in the building that houses
the bulk food repackaging facility and distribution center. As a result of our exercise of that option, we plan to expand the bulk food
repackaging facility and distribution center to approximately 150,000 square feet.

All of our stores and facilities, with one exception, are leased, with varying terms and renewal options. We own one store that

is located on leased property. Lease terms typically range between ten and 20 years, with additional renewal options. We do not
believe that any individual store property is material to our financial condition or results of operations. Of the current leases for our
stores, five expire in fiscal year 2016, one expires in fiscal year 2017, four expire in fiscal year 2018, seven expire in fiscal year 2019;
and the remainder will expire between fiscal years 2020 and 2062. We expect that we will be able to renegotiate these leases or
relocate these stores as necessary.

In addition to new store openings, we periodically relocate or remodel stores. For fiscal year 2016, we plan to relocate four

stores and remodel two stores.

Item 3. Legal Proceedings.

We periodically are involved in legal proceedings, including discrimination and other employment-related claims, customer

personal injury claims, investigations and other proceedings arising in the ordinary course of business. When the potential liability
from a matter can be estimated and the loss is considered probable, we record the estimated loss. Due to uncertainties related to the
resolution of lawsuits, investigations and claims, the ultimate outcome may differ from our estimates. Although we cannot predict
with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against us, we do not believe any currently
pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition,
cash flows or results of operations.

In Bernhard Engl v. Natural Grocers by Vitamin Cottage, Inc. and Vitamin Cottage Natural Food Markets, Inc., filed on

intend to vigorously defend ourselves in this proceeding. At this time, we cannot predict: (i) whether the Court will certify plaintiff’s
claims for class-wide treatment; (ii) how the Court will rule on the merits of the plaintiff’s claims; or (iii) the scope of the potential
loss in the event of an adverse outcome.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded on the NYSE under the symbol “NGVC.”

Price Range of Our Common Stock

The following table shows the high and low sale prices per share of our common stock as quoted by the NYSE for the

periods indicated:

Fiscal year ended September 30, 2015
First Quarter (October 1, 2014 – December 31, 2014) ...................
Second Quarter (January 1, 2015 – March 31, 2015) .....................
Third Quarter (April 1, 2015 – June 30, 2015) ...............................
Fourth Quarter (July 1, 2015 – September 30, 2015) .....................

Fiscal year ended September 30, 2014
First Quarter (October 1, 2013 – December 31, 2013) ...................
Second Quarter (January 1, 2014 – March 31, 2014) .....................
Third Quarter (April 1, 2014 – June 30, 2014) ...............................
Fourth Quarter (July 1, 2014 – September 30, 2014) .....................

High

Low

28.72
35.00
29.90
28.67

High

42.68
44.60
44.00
24.27

15.89
24.84
22.55
19.82

Low

34.47
33.51
18.95
16.01

Holders of Record

As of December 8, 2015, there were 100 holders of record of our common stock, and the closing price of our common stock

was $20.01.

Dividend Policy

We anticipate that we will retain our future earnings, for the foreseeable future, in order to fund our growth strategy and for
general corporate purposes. The declaration and payment of future dividends to holders of our common stock will be at the discretion
of our Board and will depend upon many factors, including our financial condition, earnings, legal requirements, and restrictions in
our debt agreements and other factors our Board deems relevant. Additionally, our Credit Facility prohibits the payment of cash
dividends to Natural Grocers by Vitamin Cottage, Inc., the holding company, from Vitamin Cottage Natural Food Markets, Inc., the
operating company, without the administrative agent’s consent except when no default or event of default exists. If no default or
event of default exists, dividends are allowed for various audit, accounting, tax, securities, indemnification, reimbursement, insurance
and other reasonable expenses in the ordinary course of business.

Performance Graph

The graph below compares the cumulative return to shareholders of our common stock relative to the cumulative total returns
of the NYSE Composite Index and the S&P Food Retail Index from July 25, 2012 to September 30, 2015, which is the amount of time
our stock has been trading publicly following our IPO on July 25, 2012. The graph tracks the performance of a $100 investment in
our common stock and in each of the indexes from July 25, 2012 to September 30, 2015. The stock price performance included in this
graph is not necessarily indicative of future stock price performance.

Use of Proceeds From Registered Securities

None.

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

None.

Item 6. Selected Financial Data.

The following selected financial data presented below is derived from the Company’s consolidated financial statements and
should be read in conjunction with “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.” Our historical results set forth below are not
necessarily indicative of results to be expected for any future period.

2015

2014

2013

2012

2011

Year ended September 30,

Statements of Income Data (dollars in

thousands):

Net sales ....................................................................................................
Cost of goods sold and occupancy costs ...................................................
Gross profit ...........................................................................................
Store expenses ...........................................................................................
Administrative expenses ...........................................................................
Pre-opening and relocation expenses ........................................................
Operating income ..................................................................................

624,678
442,582
182,096
132,131
17,514
3,822
28,629

520,674
369,172
151,502
108,657
14,823
3,774
24,248

Other (expense) income:
Interest expense .........................................................................................
Other income, net ......................................................................................
Income before income taxes .................................................................
Provision for income taxes ........................................................................
Net income ............................................................................................
Net income attributable to noncontrolling interest ....................................

(2,993 )
—
25,636
(9,432 )
16,204
—

(2,496 )
2
21,754
(8,281 )
13,473
—

Net income attributable to Natural Grocers by

430,655
304,922
125,733
89,935
13,479
3,231
19,088

(2,166 )
9
16,931
(6,379 )
10,552
—

336,385
237,328
99,057
72,157
12,733
2,173
11,994

(568 )
6
11,432
(3,955 )
7,477
(828 )

264,544
187,162
77,382
57,610
10,397
1,964
7,411

(669 )
35
6,777
(2,167 )
4,610
(1,106 )

Vitamin Cottage, Inc. ........................................................................

16,204

Per Share Data:
Net income attributable to Natural Grocers by
Vitamin Cottage, Inc. per share of common
stock (EPS)
Basic .....................................................................................................
Diluted ..................................................................................................

0.72
0.72

$
$

13,473

10,552

6,649

3,504

0.60
0.60

0.47
0.47

0.30
0.30

0.16
0.16

Shares used in computation of EPS

Basic .....................................................................................................
Diluted ..................................................................................................

22,490,260
22,500,833

22,466,432
22,479,835

22,399,346
22,441,382

22,372,184
22,463,093

22,372,184
22,461,405

Pro Forma Statements of Income Data
(Unaudited) (dollars in thousands)(1):

Income before income taxes .....................................................................
Pro forma provision for income taxes .......................................................
Pro forma net income ...............................................................................

25,636
(9,432)

21,754
(8,281 )

16,931
(6,379 )

11,432
(4,264 )

6,777
(2,589 )

Pro Forma Per Share Data (Unaudited)(2):
Pro forma net income per share of common stock

16,204

13,473

10,552

7,168

4,188

0.72
0.72

$
$

Other Financial Data (Unaudited) (dollars in

thousands):

EBITDA(3) ...............................................................................................
EBITDA margin(4) ...................................................................................

49,966

8.0 %

0.60
0.60

0.47
0.47

0.32
0.32

0.19
0.19

41,462
8.0

32,593
7.6

21,949
6.5

15,137
5.7

Other Operating Data (Unaudited):
Number of stores at end of period .............................................................
Number of stores opened during the period ..............................................
Number of stores relocated and remodeled during

103
16

the period ..............................................................................................
Change in comparable store sales(5) ........................................................
Change in daily average comparable store

2
5.9 %

sales(5) ...................................................................................................
Change in mature store sales(6) .................................................................
Change in daily average mature store sales(6) ...........................................

5.9 %
2.6 %
2.6 %

87
15

2
5.6

5.6
3.4
3.4

Gross square footage at end of period(7) ..................................................
Selling square footage at end of period(7) ................................................
Average comparable store size (gross square

1,668,534
1,089,020

1,354.204
892,908

72
13

3
10.8

11.1
6.1
6.4

59
10

1
11.6

11.3
7.6
7.3

49
10

1
4.9

4.9
2.0
2.0

1,097,708
728,609

801,914
572,132

619,172
459,435

feet)(8) ..................................................................................................

15,579

15,250

13,900

12,816

12,239

Average comparable store size (selling square

feet)(8) ..................................................................................................

10,250

10,125

9,872

9,458

9,284

Comparable store sales per selling square foot

during period(9) ....................................................................................

678

708

729

734

720

2015

2014

2013

2012

2011

As of September 30,

Selected Balance Sheet Data (dollars in

thousands):

Cash and cash equivalents ........................................................................
Total assets ................................................................................................
Total debt(10) ...........................................................................................
Total stockholders’ equity .........................................................................

$ 2,915
233,924
27,607
115,488

5,113
188,985
21,977
98,854

8,132
159,903
19,822
84,533

17,291
125,662
5,808
72,949

378
78,915
28,442
15,927

(1)

In connection with our IPO in the fourth quarter of fiscal year 2012, we purchased the 45% noncontrolling interest in Boulder
Vitamin Cottage Group, LLC (BVC) not previously owned by us. Prior to the purchase of the noncontrolling interest, we held a
controlling 55% interest in BVC for all periods presented. As such, our consolidated statements of income include the revenues
and expenses of BVC for the fiscal years ended September 30, 2012 and 2011 as required by generally accepted accounting
principles in the United States of America (GAAP). We previously reported the 45% of BVC’s net income as net income
attributable to noncontrolling interest in our consolidated statements of income for the periods in which we did not own 100% of
BVC. The pro forma financial data presented above illustrates what our net income would have been had we owned 100% of
BVC for the fiscal years ended September 30, 2012 and 2011. Pro forma net income attributable to Natural Grocers by Vitamin
Cottage, Inc., is not a measure of financial performance under GAAP. Management believes that investors’ understanding of our
performance is enhanced by including this non-GAAP financial measure of pro forma net income, together with a reconciliation
from net income attributable to Natural Grocers by Vitamin Cottage, Inc., as a reasonable basis for comparing our ongoing
results of operations. Many investors are interested in understanding the performance of our business by comparing our results
from ongoing operations period over period, and we believe this non-GAAP measure provides investors with comparable data
period over period to illustrate pro forma results had we owned 100% of BVC for all periods presented. We further believe that
our presentation of this non-GAAP financial measure provides information that is useful to analysts and investors because it is an
important indicator of the strength of our operations and the performance of our business. This non-GAAP measure is a
supplemental measure of operating performance that does not represent and should not be considered in isolation or as an
alternative to, or substitute for, net income attributable to Natural Grocers by Vitamin Cottage, Inc. or other financial statement
data presented in the consolidated financial statements as indicators of financial performance. This non-GAAP financial measure
has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as
reported under GAAP.

The following table reconciles net income attributable to Natural Grocers by Vitamin Cottage, Inc. to pro forma net income,
dollars in thousands, except per share data:

2015

Year ended September 30,
2013

2014

2012

2011

Net income attributable to

Natural Grocers by Vitamin
Cottage, Inc. .................................

Net income attributable to

16,204

13,473

10,552

6,649

3,504

noncontrolling interest ..................
Net income .......................................
Provision for income taxes ...........
Income before income taxes ............

—
16,204
9,432
25,636

—
13,473
8,281
21,754

—
10,552
6,379
16,931

828
7,477
3,955
11,432

1,106
4,610
2,167
6,777

Pro forma provision for

income taxes ............................
Pro forma net income .......................
Per Share Data:
Pro forma net income per share

of common stock

(9,432 )
16,204

(8,281 )
13,473

)

(6,379
10,552

(4,264 )
7,168

(2,589 )
4,188

Basic ................................................
Diluted .............................................

$
$

0.72
0.72

0.60
0.60

0.47
0.47

0.32
0.32

0.19
0.19

Our effective tax rate increased as a result of the BVC acquisition, as the income attributable to the noncontrolling interest
was nontaxable income prior to the acquisition, but is included in our taxable income after the acquisition. The following
table reconciles our effective tax rate to our pro forma effective tax rate had we owned 100% of BVC for the fiscal years
ended September 30, 2012 and 2011:

2015

Year ended September 30,
2012

2013

2014

Statutory tax rate .........................................
Nontaxable net income attributable

35.0 %

to noncontrolling interest .........................

—

State income taxes, net of federal

income tax expense .................................
Other, net .....................................................
Effective tax rate .....................................

2.9
(1.1 )
36.8

Pro forma adjustment to exclude

nontaxable net income
attributable to noncontrolling
interest .....................................................
Pro forma effective tax rate .....................

—
36.8 %

35.0

—

3.0
0.1
38.1

—
38.1

34.0

—

3.3
0.4
37.7

—
37.7

2011

34.0

(6.2 )

3.4
0.8
32.0

34.0

(2.7 )

3.0
0.3
34.6

2.7
37.3

6.2
38.2

Effective October 31, 2012, BVC merged with and into our operating company and ceased to exist.

(2) Pro forma per share data is calculated using pro forma net income had we owned 100% of BVC for the fiscal years ended
September 30, 2012 and 2011, as discussed above, divided by basic and diluted weighted average shares of common stock
outstanding for those fiscal periods.

(3) Earnings before interest, taxes, depreciation and amortization (EBITDA) is not a measure of financial performance under GAAP.
We define EBITDA as net income attributable to Natural Grocers by Vitamin Cottage, Inc. before interest expense, provision for
income tax, depreciation and amortization, and for the fiscal years ended September 30, 2012 and 2011, net income attributable
to the noncontrolling interest. We believe EBITDA provides additional information about: (i) our operating performance,
because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-
cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest
expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is
a measure in our financial covenants under our Credit Facility. In addition, EBITDA performance is one of the factors upon
which funding of our incentive compensation plans is based.

Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating
performance of companies in our industry. Management believes that some investors’ understanding of our performance is
enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations.
By providing this non-GAAP financial measure, together with a reconciliation from net income attributable to Natural Grocers
by Vitamin Cottage, Inc., we believe we are enhancing investors’ understanding of our business and our results of operations, as
well as assisting investors in evaluating how well we are executing our strategic initiatives. Our competitors may define
EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies.
Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a
supplemental measure of operating performance that should not be considered in isolation and that does not represent, and
should not be considered as an alternative to, or substitute for net income or other financial statement data presented in our
consolidated financial statements as indicators of financial performance. EBITDA has limitations as an analytical tool, and
should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the
limitations are:



EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual
commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect any impact for straight-line rent expense for leases classified as capital and financing lease
obligations;

EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal
payments on our debt;

EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have
to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the
growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA as
supplemental information. We further believe that our presentation of this non-GAAP financial measurement provides
information that is useful to analysts and investors because it is an important indicator of the strength of our operations and the
performance of our business.

The following table reconciles net income attributable to Natural Grocers by Vitamin Cottage, Inc. to EBITDA, dollars in
thousands:

2015

Year ended September 30,
2013

2014

2012

2011

Net income attributable to

Natural Grocers by Vitamin
Cottage, Inc. .................................
Net income attributable to

noncontrolling interest ..............
Net income .......................................
Interest expense ............................
Provision for income taxes ...........
Depreciation and

—
16,204
2,993
9,432

amortization ..............................
EBITDA ...........................................

21,337
49,966

16,204

13,473

10,552

6,649

3,504

—
13,473
2,496
8,281

17,212
41,462

—
10,552
2,166
6,379

13,496
32,593

828
7,477
568
3,955

1,106
4,610
669
2,167

9,949
21,949

7,691
15,137

(4) EBITDA margin is defined as the ratio of EBITDA to net sales. We present EBITDA margin because it is used by management

as a performance measurement of EBITDA generated from net sales. See footnote (3) above for a discussion of EBITDA as a
non-GAAP financial measure and a reconciliation of net income to EBITDA.

(5) When calculating change in comparable store sales, we begin to include sales from a store in our comparable store base on the

first day of the thirteenth full month following the store’s opening. We monitor the percentage change in comparable store sales
by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the

same number of operating months in the comparable reporting period of the prior year. When a store that is included in
comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales.
When calculating daily average comparable store sales, we include the comparable store sales divided by the number of selling
days in each period. We use this metric to remove the effect of differences in the number of selling days we are open during the
comparable periods.

(6) When calculating change in mature store sales, we begin to include sales from a store in our mature store base after the store has

been open for any part of five fiscal years (for example, our mature stores for fiscal year 2015 are stores that opened during or
before fiscal year 2010). We monitor the percentage change in mature store sales by comparing sales from all stores in our
mature store base for a reporting period against sales from the same stores for the same number of operating months in the
comparable reporting period of the prior year. When a store that is included in mature store sales is remodeled or relocated, we
continue to consider sales from that store to be mature store sales. When calculating daily average mature store sales, we include
the mature store sales divided by the number of selling days in each period. We use this metric to remove the effect of
differences in the number of selling days we are open during the comparable periods.

(7) Gross square footage and selling square footage at the end of the period include the square footage for all stores that were open

as of the end of the period presented.

(8) Average comparable store size for gross square feet and selling square feet are calculated using the average store size for all

stores that were in the comparable store base as of the end of the period presented.

(9) Comparable store sales per selling square foot is calculated using comparable store sales for the period divided by the weighted
average selling square feet per store based on the amount of time the store was included in the comparable store base during the
period.

(10) Total debt includes capital and financing lease obligations, notes payable to related parties, the outstanding principal balance of
our term loan and outstanding borrowings under our Credit Facility. As of September 30, 2012, the term loan was fully repaid.
As of September 30, 2013, the notes payable to related parties were fully repaid. As of September 30, 2015, 2014 and 2013, no
amounts were outstanding under our Credit Facility.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be

read in conjunction with our consolidated financial statements and notes thereto and “Selected Financial Data,” which are included
elsewhere in this Form 10-K. This MD&A contains forward-looking statements. Refer to “Forward-Looking Statements” at the
beginning of this Form 10-K for an explanation of these types of statements. All references to a “fiscal year” refer to a year beginning
on October 1 of the previous year, and ending on September 30 of such year (for example “fiscal year 2015” refers to the year from
October 1, 2014 to September 30, 2015). Summarized numbers included in this section, and corresponding percentage or basis point
changes may not sum due to the effects of rounding.

Company Overview

We operate natural and organic grocery and dietary supplement stores that are focused on providing high quality products at

affordable prices, exceptional customer service, nutrition education and community outreach. We believe we have been at the
forefront of the natural and organic foods movement since our founding. We are headquartered in Lakewood, Colorado, and as of
September 30, 2015, we operated 103 stores in 18 states, including Colorado, Arizona, Arkansas, Idaho, Kansas, Minnesota, Missouri,
Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming. We also
operate a bulk food repackaging facility and distribution center in Colorado.

We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The size of

our stores varies from 5,000 to 16,000 selling square feet. For the year ended September 30, 2015, our new stores averaged
approximately 12,000 selling square feet.

The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us
to continue to open new stores and enter new markets. Over the last five fiscal years, our store base has grown at a compound annual
growth rate of 21.4%, including 16, 15 and 13 new stores in fiscal year 2015, 2014 and 2013, respectively. We currently plan to open
23 new stores in fiscal year 2016. Between September 30, 2015 and the date of this Form 10-K, we have opened a total of three stores
in Colorado and Utah. As of the date of this report, we also have signed leases for an additional 18 new store locations expected to
open in fiscal years 2016 and 2017 in Arkansas, Arizona, Colorado, Iowa, Oregon, Texas, Utah and Washington.

Performance Highlights

Key highlights of our recent performance are discussed briefly below and are discussed in further detail throughout this

MD&A. Key financial metrics, including, but not limited to, comparable store sales, daily average comparable store sales, mature
store sales and daily average mature store sales are defined under the caption “Key Financial Metrics in Our Business,” presented later
in this MD&A.

 Net sales. Net sales were $624.7 million for the year ended September 30, 2015, an increase of $104.0 million, or
20.0%, compared to net sales of $520.7 million for the year ended September 30, 2014. Net sales increased at a
compound annual growth rate of 20.4% from fiscal year 2013 to fiscal year 2015.

 Comparable store sales and daily average comparable store sales. Comparable store sales and daily average

comparable store sales for the year ended September 30, 2015 each increased 5.9% over the year ended September 30,
2014. As of September 30, 2015, we have had over 53 consecutive quarters of positive comparable store sales growth.

 Mature store sales and daily average mature store sales. Mature store sales and daily average mature store sales for the
year ended September 30, 2015 each increased 2.6% over the year ended September 30, 2014. For fiscal year 2015,
mature stores include all stores open during or before fiscal year 2010.

 Net income. Net income was $16.2 million for the year ended September 30, 2015, an increase of $2.7 million, or

20.3%, compared to net income of $13.5 million for the year ended September 30, 2014.



EBITDA. EBITDA was $50.0 million in the year ended September 30, 2015, an increase of $8.5 million, or 20.5%,
compared to EBITDA of $41.5 million for the year ended September 30, 2014. EBITDA is not a measure of financial
performance under GAAP. Refer to the “Selected Financial Data” section of this Form 10-K for a definition of EBITDA
and a reconciliation of the Company’s net income to EBITDA.

Liquidity. As of September 30, 2015, cash and cash equivalents was $2.9 million, and there was $14.0 million available
under our then-existing $15.0 million credit agreement. As of September 30, 2015, the Company had outstanding letters
of credit of $1.0 million, which amount was reserved against the amount available for borrowing under the terms of the
credit agreement. The Company had no amounts outstanding under its credit agreement as of September 30, 2015.

 New store growth. We have opened 64 new stores since the beginning of fiscal year 2011, with 103 stores open as of

September 30, 2015. Our new store compound annual growth rate was 19.6% from fiscal year 2013 to fiscal year 2015.

Industry Trends and Economics

We have identified the following recent trends and factors that have impacted and may continue to impact our results of

operations and financial condition:



Impact of broader economic trends. The grocery industry and our sales are affected by general economic conditions,
including, but not limited to, consumer spending, economic conditions, the level of disposable consumer income,
consumer debt, interest rates, the price of commodities, the political environment and consumer confidence.

 Opportunities in the growing natural and organic grocery and dietary supplements industry. Our industry, which
includes organic and natural foods and dietary supplements, continues to experience growth driven primarily by
increased public interest in health and nutrition. Capitalizing on this opportunity, we continue to open new stores and
enter new markets. As we open new stores, our results of operations have been and may continue to be materially
adversely affected based on the timing and number of new stores we open, their initial sales and new lease costs. The
length of time it takes for a new store to become profitable can vary depending on a number of factors, including
location, competition, a new market versus an existing market, the strength of store management and general economic
conditions. Once a new store is open, it typically grows at a faster rate than mature stores for several years. Mature
stores are stores that have been open for any part of five fiscal years or longer.

As we expand across the United States and enter markets where consumers may not be as familiar with our brand, we
seek to secure prime real estate locations for our stores to establish greater visibility with consumers in those markets.
This strategy has resulted in higher lease costs, and we anticipate these increased costs will continue into the foreseeable
future. Our financial results for the year ended September 30, 2015 reflect the effects of these factors, and we anticipate
future periods will be similarly impacted.

Our performance is also impacted by trends regarding natural and organic products, dietary supplements and at-home
meal preparation. Consumer preferences towards dietary supplements or natural and organic food products might shift as
a result of, among other things, economic conditions, food safety perceptions, changing consumer choices and the cost of
these products. Our store offerings consist of natural and organic products and dietary supplements. A change in
consumer preferences away from our offerings, including those resulting from reductions to or changes in our offerings,
would have a material adverse effect on our business. Additionally, negative publicity regarding the safety of dietary
supplements, product recalls or new or upgraded regulatory standards may adversely affect demand for our products and
could result in lower consumer traffic, sales and results of operations.



Increased Competition. The grocery and dietary supplement retail business is a large, fragmented and highly
competitive industry, with few barriers to entry. Our competition varies by market and includes conventional
supermarkets such as Kroger and Safeway, mass or discount retailers such as Wal-Mart and Target, natural and gourmet
markets such as Whole Foods and The Fresh Market, specialty food retailers such as Sprouts and Trader Joe’s,
warehouse clubs such as Sam’s Club and Costco, independent health food stores, dietary supplement retailers, drug
stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. These businesses
compete with us on the basis of price, selection, quality, customer service, shopping experience or any combination of
these or other factors. They also compete with us for products and locations. In addition, some of our competitors are
expanding to offer a greater range of natural and organic foods. We believe our commitment to carrying only carefully
vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on
providing nutritional education, differentiate us in the industry and provide a competitive advantage.

Outlook

We believe there are several key factors that have contributed to our success and will enable us to continue to expand

profitably and increase our comparable store sales. These factors include a loyal customer base, increasing basket size, growing
consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education
and a shopper friendly retail environment, and our focus on high quality, affordable natural and organic groceries and dietary
supplements.

We plan for the foreseeable future to continue opening new stores and entering new markets at or above recent levels of

growth. During the past few years, we have successfully expanded our infrastructure to enable us to support our continued growth.
This has included successfully implementing our ERP system, hiring key personnel, developing efficient new store opening
construction and operations processes and relocating and expanding our bulk food repackaging facility and distribution center. We
believe the implementation of our HRIS system has enabled us to more efficiently and effectively onboard and train our employees at
all locations. During fiscal year 2015, we redesigned our website (www.naturalgrocers.com) to enhance functionality, create a more
engaging user experience and increase its reach and effectiveness. In addition, in fiscal year 2015 we introduced the {N}power
customer appreciation program at all our stores which we believe will enhance customer loyalty and increase customer engagement
levels.

We believe there are opportunities for us to continue to expand our store base and focus on increasing comparable store sales.

However, future sales growth, including comparable store sales, could vary due to increasingly competitive conditions in the natural
and organic grocery and dietary supplement industry. As we continue to expand our store base, we believe there are opportunities for
increased leverage in costs, such as administrative expenses, as well as increased economies of scale in sourcing products. However,
due to our commitment to providing high-quality products at affordable prices and increased competition, such sourcing economies
and efficiencies at our bulk food repacking facility and distribution center may not be reflected in our gross margin in the near term.

Our operating results may be affected by a variety of internal and external factors and trends, which are described more fully

in the section entitled “Risk Factors” appearing elsewhere in this Form 10-K.

Key Financial Metrics in Our Business

In assessing our performance, we consider a variety of performance and financial measures. The key measures are as follows:

Net sales

Our net sales are comprised of gross sales net of discounts, in-house coupons, returns and allowances. In comparing net sales

between periods we monitor the following:

 Change in comparable store sales. We begin to include sales from a store in comparable store sales on the first day of
the thirteenth full month following the store’s opening. We monitor the percentage change in comparable store sales by

comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for
the same number of operating months in the comparable reporting period of the prior year. When a store that is included
in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store
sales. Our comparable store sales data may not be presented on the same basis as our competitors. We use the term “new
stores” to refer to stores that have been open for less than thirteen months.

 Change in daily average comparable store sales. Daily average comparable store sales are comparable store sales
divided by the number of selling days in each period. We use this metric to remove the effect of differences in the
number of selling days we are open during the comparable periods (for example, as a result of leap years or the Easter
holiday shift between quarters).

 Change in mature store sales. We begin to include sales from a store in mature store sales after the store has been open
for any part of five fiscal years (for example, our mature stores for fiscal year 2015 are stores that opened during or
before fiscal year 2010). We monitor the percentage change in mature store sales by comparing sales from all stores in
our mature store base for a reporting period against sales from the same stores for the same number of operating months
in the comparable reporting period of the prior year. When a store that is included in mature store sales is remodeled or
relocated, we continue to consider sales from that store to be mature store sales. Our mature store sales data may not be
presented on the same basis as our competitors.

 Change in daily average mature store sales. Daily average mature store sales are mature store sales divided by the

number of selling days in each period. We use this metric to remove the effect of differences in the number of selling
days during the comparable periods (for example, as a result of leap years or the Easter holiday shift between quarters).



Transaction count. Transaction count represents the number of transactions reported at our stores during the period and
includes transactions that are voided, return transactions and exchange transactions.

Average transaction size. Average transaction size, or basket size, is calculated by dividing net sales by transaction
count for a given time period. We use this metric to track the trends in average dollars spent in our stores per customer
transaction.

Cost of goods sold and occupancy costs

Our cost of goods sold and occupancy costs include the cost of inventory sold during the period (net of discounts and
allowances), shipping and handling costs, distribution and supply chain costs (including the costs of our bulk food repackaging
facility), buying costs, shrink and store occupancy costs. Store occupancy costs include rent, common area maintenance and real estate
taxes. Depreciation expense included in cost of goods sold relates to depreciation of assets directly used at our bulk food repackaging
facility. The components of our cost of goods sold and occupancy costs may not be identical to those of our competitors, and as a
result, our cost of goods sold and occupancy costs data included in this Form 10-K may not be identical to those of our competitors,
and may not be comparable to similar data made available by our competitors. Occupancy costs as a percentage of sales typically
decrease as new stores mature and increase sales. We do not record in cost of goods sold and occupancy costs rent payments for leases
classified as capital and financing lease obligations. Rather, these rent payments are recognized as a reduction of the related
obligations and as interest expense. Additionally, depreciation expense related to the capitalized asset is recorded in store expenses.

Gross profit and gross margin

Gross profit is equal to our net sales less our cost of goods sold and occupancy costs. Gross margin is gross profit as a
percentage of sales. Gross margin is impacted by changes in retail prices, product costs, occupancy costs and the mix of products sold,
as well as the rate at which we open new stores.

Store expenses

Store expenses consist of store level expenses, such as salary and benefits, share-based compensation, supplies, utilities,

depreciation, advertising, bank credit card charges and other related costs associated with operations and purchasing support.
Depreciation expense included in store expenses relates to depreciation for assets directly used at the stores, including depreciation on
capitalized real estate leases, land improvements, leasehold improvements, fixtures and equipment and computer hardware and
software. Additionally, store expenses include any gain or loss recorded on the disposal of fixed assets, primarily related to store
relocations. The majority of store expenses are comprised of salary-related expenses which we closely manage and which trend
closely with sales. Labor-related expenses as a percentage of sales tend to be higher at new stores compared to comparable stores, as
new stores require a certain level of staffing in order to maintain adequate levels of customer service combined with lower sales. As
new stores increase their sales, labor-related expenses as a percentage of sales typically decrease.

Administrative expenses

Administrative expenses consist of home office-related expenses, such as salary and benefits, share-based compensation,
office supplies, hardware and software expenses, depreciation and amortization expense, occupancy costs (including rent, common
area maintenance, real estate taxes and utilities), professional services expenses, expenses associated with our Board and other general
and administrative expenses. Depreciation expense included in administrative expenses relates to depreciation for assets directly used
at the home office including depreciation on land improvements, leasehold improvements, fixtures and equipment and computer
hardware and software.

Pre-opening and relocation expenses

Pre-opening and relocation expenses may include rent expense, salaries, advertising, supplies and other miscellaneous costs

incurred prior to the store opening. Rent expense is generally incurred from one to four months prior to a store’s opening date for store
leases classified as operating. For store leases classified as capital or financing leases, no pre-opening rent expense is recognized.
Other pre-opening and relocation expenses are generally incurred in the 60 days prior to the store opening. Certain advertising and
promotional costs associated with opening a new store may be incurred both before and after the store opens. All pre-opening and
relocation costs are expensed as incurred.

Operating income

Operating income consists of gross profit less store expenses, administrative expenses and pre-opening and relocation
expenses. Operating income can be impacted by a number of factors, including the timing of new store openings and store relocations,
whether or not a store lease is classified as an operating or a capital or financing lease, as well as increases in store expenses and
administrative expenses. The amount of time it takes for new stores to become profitable can vary depending on a number of factors,
including location, competition, a new market versus an existing market and the strength of store management.

Interest expense

Interest expense consists of the interest associated with capital and financing lease obligations, net of capitalized interest.

Interest expense also includes interest we incur on our outstanding indebtedness, including under our Credit Facility. As of September
30, 2015, 2014 and 2013, no amounts were outstanding under our Credit Facility.

Results of Operations

The following table presents key components of our results of operations expressed as a percentage of net sales for the

periods presented:

Statements of Income Data:*
Net sales .........................................................................
Cost of goods sold and occupancy costs ........................
Gross profit .................................................................
Store expenses ................................................................
Administrative expenses ................................................
Pre-opening and relocation expenses .............................
Operating income .......................................................
Interest expense ..............................................................
Income before income taxes .......................................
Provision for income taxes .............................................
Net income .................................................................

__________________________

*Figures may not sum due to rounding.

Other Operating Data:
Number of stores at end of period ...................................
Store unit count increase period over period ...................
Change in comparable store sales ...................................
Change in daily average comparable store sales .............
Change in mature store sales ...........................................
Change in daily average mature store sales .....................

Year ended September 30,
2013
2014

2015

100.0 %
70.8
29.2
21.2
2.8
0.6
4.6
(0.5 )
4.1
(1.5 )
2.6 %

103
18.4 %
5.9 %
5.9 %
2.6 %
2.6 %

100.0
70.9
29.1
20.9
2.8
0.7
4.7
(0.5 )
4.2
(1.6 )
2.6

87
20.8
5.6
5.6
3.4
3.4

100.0
70.8
29.2
20.9
3.1
0.8
4.4
(0.5 )
3.9
(1.5 )
2.5

72
22.0
10.8
11.1
6.1
6.4

Year ended September 30, 2015 compared to Year ended September 30, 2014

The following table summarizes our results of operations and other operating data for the periods presented, dollars in

thousands:

Year ended September 30,

Change in

2015

2014

Dollars

Percent

Statements of Income Data:
Net sales .............................................................................
Cost of goods sold and occupancy costs ............................
Gross profit ................................................................
Store expenses ....................................................................
Administrative expenses ....................................................
Pre-opening and relocation expenses .................................
Operating income .......................................................

Other income (expense):

Dividends and interest income .......................................
Interest expense ..............................................................
Income before income taxes ......................................
Provision for income taxes .................................................
Net income .................................................................

624,678
442,582
182,096
132,131
17,514
3,822
28,629

—
(2,993 )
25,636
(9,432 )
16,204

Net sales

520,674
369,172
151,502
108,657
14,823
3,774
24,248

2
(2,496 )
21,754
(8,281 )
13,473

104,004
73,410
30,594
23,474
2,691
48
4,381

20.0 %
19.9
20.2
21.6
18.2
1.3
18.1

(2 )
(497 )
3,882
(1,151 )
2,731

(100.0 )
19.9
17.8
13.9
20.3 %

Net sales increased $104.0 million, or 20.0%, to $624.7 million for the year ended September 30, 2015 compared to $520.7

million for the year ended September 30, 2014, primarily due to a $73.3 million increase in new store sales and a $30.7 million, or
5.9%, increase in comparable store sales. The comparable store sales increase was driven by a 3.6% increase in daily average
transaction count and a 2.2% increase in average transaction size. Comparable store average transaction size was $35.98 in the year
ended September 30, 2015.

Gross profit

Gross profit increased $30.6 million, or 20.2%, to $182.1 million for the year ended September 30, 2015 compared to $151.5

million for the year ended September 30, 2014, primarily driven by positive comparable store sales and an increase in the number of
stores. Gross margin increased to 29.2% for the year ended September 30, 2015 from 29.1% for the year ended September 30, 2014.
Gross margin was positively impacted by an increase in product gross margin, partially offset by an increase in occupancy costs as a
percentage of sales for the year ended September 30, 2015 as compared to the year ended September 30, 2014. The positive impact in
product margin is due to increases in product margin across most departments in the year ended September 30, 2015 as compared to
the year ended September 30, 2014. Occupancy costs as a percentage of sales increased in the year ended September 30, 2015 as
compared to the year ended September 30, 2014, primarily due to increased average lease expenses at newer stores.

For the years ended September 30, 2015 and 2014, the Company had 13 and ten leases respectively, for stores which were
classified as capital and financing lease obligations. If these leases had qualified as operating leases, the straight-line rent expense
would have been included in occupancy costs, and our costs of goods sold and occupancy costs as a percentage of sales during the
years ended September 30, 2015 and 2014 would have been approximately 60 basis points higher than as reported.

Store expenses

Store expenses increased $23.5 million, or 21.6%, to $132.1 million in the year ended September 30, 2015 from $108.7
million in the year ended September 30, 2014, primarily due to increases in salary related expenses, depreciation, and other store
expenses related for the most part to increases in store count. Store expenses as a percentage of sales were 21.2% and 20.9% for the
years ended September 30, 2015 and 2014, respectively. The increase in store expenses as a percentage of sales was primarily due to
increases in other store expense and depreciation expense, partially offset by decreases in salary related expenses, all as a percentage
of sales. The increase in other store expense as a percentage of sales was primarily driven by increases in ongoing facilities
maintenance, other promotions and marketing support. Store expenses for the year ended September 30, 2015 were also impacted by
higher incentive compensation and other discretionary benefit expense, reflecting our pay-for-performance philosophy.

Administrative expenses

Administrative expenses increased $2.7 million, or 18.2%, to $17.5 million for the year ended September 30, 2015 compared

to $14.8 million for the year ended September 30, 2014, primarily due to increases in salary-related expenses, various professional
fees and other administrative expenses. Administrative expenses as a percentage of sales were 2.8% for each of the years ended
September 30, 2015 and 2014.

Pre-opening and relocation expenses

Pre-opening and relocation expenses were $3.8 million in each of the years ended September 30, 2015 and 2014. Pre-

opening and relocation expenses as a percentage of sales were 0.6% and 0.7% for the years ended September 30, 2015 and 2014,
respectively. The numbers of stores opened, relocated and remodeled were as follows for the periods presented:

New stores ......................................................................
Relocated stores ..............................................................
Remodeled stores ...........................................................

Year ended September 30,

2015

2014

16
1
1
18

15
─
2
17

Interest expense

Interest expense, net of capitalized interest, increased $0.5 million, or 19.9%, in the year ended September 30, 2015

compared to the year ended September 30, 2014, primarily due to a $0.4 million increase in interest expense related to capital and
financing lease obligations. If our capital and financing lease obligations had qualified as operating leases, interest expense as a
percent of sales would have been approximately 50 and 45 basis points lower than as reported in the years ended September 30, 2015
and 2014, respectively.

Income taxes

Provision for income taxes increased $1.2 million, or 13.9%, in the year ended September 30, 2015 compared to the year

ended September 30, 2014, primarily due to a $3.9 million increase in income before income taxes, partially offset by favorable return
to provision adjustments recognized in the year ended September 30, 2015. The effective tax rate decreased from 38.1% in the year
ended September 30, 2014 to 36.8% in the year ended September 30, 2015, primarily due to the favorable return to provision
adjustments resulting from lower federal taxable income due to the extension of the American Taxpayer Relief Act of 2012, which
extended the 50% bonus depreciation on qualifying assets and the special 15 year life for qualified leasehold property and qualified
retail improvement property acquired from January 1, 2014 through December 31, 2014. The lower taxable income reduced our
actual federal income tax rate for fiscal year 2014 to 34.4%, compared to 35.0% estimated in our fiscal year 2014 tax provision. In
addition, our return to provision adjustments were also favorably impacted by extension of the Work Opportunity Tax Credit (WOTC)
through December 31, 2014 and other state tax credits.

Net income

Net income increased 20.3% to $16.2 million, or $0.72 per diluted earnings per share, in the year ended September 30, 2015

from $13.5 million, or $0.60 per diluted earnings per share, in the year ended September 30, 2014.

Year ended September 30, 2014 compared to the year ended September 30, 2013

The following table summarizes our results of operations and other operating data for the periods presented, dollars in

thousands:

Year ended September 30,

Change in

2014

2013

Dollars

Percent

Other income (expense):

520,674
369,172
151,502
108,657
14,823
3,774
24,248

2
(2,496 )
21,754
(8,281 )
13,473

Net sales

430,655
304,922
125,733
89,935
13,479
3,231
19,088

9
(2,166 )
16,931
(6,379 )
10,552

90,019
64,250
25,769
18,722
1,344
543
5,160

(7 )
(330 )
4,823
(1,902 )
2,921

20.9 %
21.1
20.5
20.8
10.0
16.8
27.0

(77.8 )
15.2
28.5
29.8
27.7 %

Net sales increased $90.0 million, or 20.9%, to $520.7 million for the year ended September 30, 2014 compared to $430.7
million for the year ended September 30, 2013, primarily due to a $66.0 million increase in new store sales and a $24.0 million, or
5.6%, increase in comparable store sales. The comparable store sales increase was driven by a 2.3% increase in daily average
transaction count and a 3.2% increase in average transaction size. Comparable store average transaction size was $36.09 in the year
ended September 30, 2014. The rate of growth in our comparable store sales, while positive, has been slowed by the impact of
increased competition.

Gross profit

Gross profit increased $25.8 million, or 20.5%, to $151.5 million for the year ended September 30, 2014 compared to $125.7

million for the year ended September 30, 2013, primarily driven by positive comparable store sales and an increase in the number of
stores. Gross margin decreased to 29.1% for the year ended September 30, 2014 from 29.2% for the year ended September 30, 2013.
The decrease in gross margin was due to an increase in occupancy costs as a percentage of sales, partially offset by an increase in
product margin. The positive impact in product margin was due to increases in product margin across almost all departments, partially
offset by a shift in sales mix towards products with lower margin for the year ended September 30, 2014 as compared to the year
ended September 30, 2013. Gross margin benefitted from operating efficiencies at the bulk food repackaging and distribution center
for the year ended September 30, 2014 as compared to the year ended September 30, 2013. Occupancy costs as a percentage of sales
increased in the year ended September 30, 2014 as compared to the year ended September 30, 2013, primarily due to increased
average lease expenses at newer stores and the fixed nature of occupancy costs per store.

For the years ended September 30, 2014 and 2013, the Company had ten and nine leases for stores which were classified as

capital and financing lease obligations. If these leases had qualified as operating leases, the straight-line rent expense would have
been included in occupancy costs, and our costs of goods sold and occupancy costs as a percentage of sales during the years ended
September 30, 2014 and 2013 would have been approximately 60 and 55 basis points higher than as reported, respectively.

Store expenses

Store expenses increased $18.7 million, or 20.8%, to $108.7 million in the year ended September 30, 2014 from $89.9
million in the year ended September 30, 2013. Store expenses as a percentage of sales were 20.9% for both of the years ended
September 30, 2014 and 2013. The consistency of store expenses as a percentage of sales was primarily due to an overall decrease in
salaries, benefits and related expenses, offset by increases in depreciation expense and, to a lesser extent, utilities expense. The
decreases in salaries, benefits and related expenses was primarily due to lower incentive compensation and other discretionary benefits
expense, reflecting our pay-for-performance philosophy, partially offset by increases in salaries, benefits and related expenses required
to support store growth. Salaries, benefits and related expense increased as a percentage of sales at comparable stores. Depreciation
expense as a percentage of sales increased due to stores opened in fiscal year 2014.

Administrative expenses

Administrative expenses increased $1.3 million, or 10.0%, to $14.8 million for the year ended September 30, 2014 compared

to $13.5 million for the year ended September 30, 2013, primarily due to the addition of general and administrative positions to
support our store growth, partially offset by lower incentive compensation and other discretionary benefits expense, reflecting our
pay-for-performance philosophy. Administrative expenses as a percentage of sales were 2.8% and 3.1% for the years ended
September 30, 2014 and 2013, respectively. The decrease in administrative expenses as a percentage of sales was a result of our
ability to support additional store investment and sales without proportionate investments in overhead.

Pre-opening and relocation expenses

Pre-opening and relocation expenses increased $0.5 million, or 16.8%, in the year ended September 30, 2014 to $3.8 million

compared to $3.2 million in the year ended September 30, 2013 due to the increased number of new store openings in fiscal year 2014,
as well as the timing of new store openings and possession of stores that are not yet opened, and the lease classification for those
stores that were opened. Pre-opening and relocation expenses as a percentage of sales were 0.7% and 0.8% for the years ended
September 30, 2014 and 2013, respectively. The numbers of stores opened, relocated and remodeled were as follows for the periods
presented:

Year ended September 30,

2014

2013

15
─
2
17

13
1
2
16

Interest expense

Interest expense, net of capitalized interest, increased $0.3 million, or 15.2%, in the year ended September 30, 2014

compared to the year ended September 30, 2013, primarily due to a $0.7 million increase in interest expense primarily related to
capital and financing lease obligations, offset by a $0.4 million increase in capitalized interest. If the capital and financing lease
obligations had qualified as operating leases, interest expense as a percent of sales would have been approximately 45 and 50 basis
points lower than as reported in the years ended September 30, 2014 and 2013, respectively.

Income taxes

Our effective income tax rate for the years ended September 30, 2014 and 2013 was 38.1% and 37.7%, respectively. The

increase in our effective income tax rate was primarily due to an increase in federal income taxes, and to a lesser extent to changes in
the blended state tax rates. Our federal income taxes increased because of additional taxable income and a consequential higher tax
rate. Our additional taxable income was due in part to the impact of prior deductions for bonus depreciation.

During the first quarter of fiscal year 2014, the Company experienced benefits from the American Taxpayer Relief Act of

2012, which extended the 50% bonus depreciation on qualifying assets and the special 15 year life for qualified leasehold property and
qualified retail improvement property for property acquired from January 1, 2013 through December 31, 2013. The Company also
benefited from the extension of the Work Opportunity Tax Credit during the quarter ended December 31, 2013.

Net income

Net income increased 27.7% to $13.5 million, or $0.60 per diluted earnings per share, in the year ended September 30, 2014

from $10.6 million, or $0.47 per diluted earnings per share, in the year ended September 30, 2013.

Non-GAAP financial measure

EBITDA

EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest expense,

provision for income taxes, depreciation and amortization. The following table reconciles net income to EBITDA, dollars in
thousands:

Year ended September 30,
2014

2015

2013

Net income .........................................................................
Interest expense ...........................................................
Provision for income taxes ..........................................
Depreciation and amortization ....................................
EBITDA .............................................................................

$ 16,204
2,993
9,432
21,337
$ 49,966

13,473
2,496
8,281
17,212
41,462

10,552
2,166
6,379
13,496
32,593

EBITDA increased 20.5% to $50.0 million in the year ended September 30, 2015 compared to $41.5 million in the year

ended September 30, 2014. EBITDA as a percent of sales was 8.0% for each of the years ended September 30, 2015 and 2014,
respectively. The stores with leases that are classified as capital and financing lease obligations, rather than being reflected as
operating leases, increased EBITDA as a percentage of sales by approximately 60 basis points for each of the years ended September
30, 2015 and 2014 due to the impact on cost of goods sold and occupancy costs as discussed above, as well as occupancy costs that
would have been included in pre-opening expenses prior to the stores’ opening date if these leases had been accounted for as operating
leases.

EBITDA increased 27.2% to $41.5 million in the year ended September 30, 2014 compared to $32.6 million in the year
ended September 30, 2013. EBITDA as a percent of sales was 8.0% and 7.6% for the year ended September 30, 2014 and 2013,
respectively. The stores with leases that are classified as capital and financing lease obligations, rather than being reflected as
operating leases, increased EBITDA as a percentage of sales by approximately 60 basis points for each of the years ended September
30, 2014 and 2013, due to the impact on cost of goods sold and occupancy costs as discussed above, as well as occupancy costs that
would have been included in pre-opening expenses prior to the stores’ opening date if these leases had been accounted for as operating
leases.

Management believes that some investors’ understanding of our performance is enhanced by including EBITDA, a non-
GAAP financial measure. We believe EBITDA provides additional information about: (i) our operating performance, because it
assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash
depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and
income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is a measure in our
financial covenants under our Credit Facility, and our incentive compensation plans base incentive compensation payments on our
EBITDA performance. Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the
overall operating performance of companies in our industry. Management believes that some investors’ understanding of our
performance is enhanced by including EBITDA as a reasonable basis for comparing our ongoing results of operations. By providing
EBITDA, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting
investors in evaluating how well we are executing our strategic initiatives.

Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to

those of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial
performance. EBITDA is a supplemental measure of operating performance that does not represent and should not be considered in
isolation or as an alternative to, or substitute for, net income or other financial statement data presented in the consolidated financial
statements as indicators of financial performance. EBITDA has limitations as analytical tools, and should not be considered in
isolation, or as an alternative to, or as a substitute for, analysis of our results as reported under GAAP. For additional discussion of
our use of EBITDA, and some of the limitations, please refer to the “Selected Financial Data” section of this Form 10-K.

Liquidity and Capital Resources

Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents

and borrowings under our Credit Facility.

Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in
connection with opening, relocating and remodeling stores, debt service and corporate taxes. As of September 30, 2015, we had $2.9
million in cash and cash equivalents, as well as $14.0 million available under our then-existing $15.0 million credit agreement. On
November 17, 2015, as provided for in our Credit Facility, we obtained a commitment to increase the amount available for borrowing
under our Credit Facility from $15.0 million to $25.0 million.

We plan to continue to open new stores, which has previously required and may continue to require us to borrow additional

amounts under our Credit Facility in the future. We believe that cash and cash equivalents, together with the cash generated from
operations and the borrowing availability under our Credit Facility will be sufficient to meet our working capital needs and planned
capital expenditures, including capital expenditures related to new store needs for at least the next twelve months. Our working capital
position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit
card transactions, within days from the related sale.

The following is a summary of our operating, investing and financing activities for the periods presented, dollars in

thousands:

Year ended September 30,
2014

2013

2015

Net cash provided by operating activities .......................
Net cash used in investing activities ...............................
Net cash (used in) provided by financing activities ........
Net decrease in cash and cash equivalents .....................
Cash and cash equivalents, beginning of year ................
Cash and cash equivalents, end of year ..........................

41,003
(42,338 )
(863 )
(2,198 )
5,113
2,915

31,749
(34,872 )
104
(3,019 )
8,132
5,113

25,717
(34,624 )
(252 )
(9,159 )
17,291
8,132

Operating Activities

Cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation

and amortization and changes in deferred taxes, and the effect of working capital changes. Cash provided by operating activities
increased $9.3 million, or 29.1%, to $41.0 million in the year ended September 30, 2015, from $31.7 million in the year ended
September 30, 2014. Cash provided by operating activities increased $6.0 million, or 23.5%, to $31.7 million in the year ended
September 30, 2014, from $25.7 million in the year ended September 30, 2013. The increase in cash provided by operating activities
was primarily due to an increase in net income, as adjusted for depreciation and amortization resulting from the addition of new stores,
offset by changes in working capital driven by the timing of payment on inventory and other purchases. Our working capital
requirements for inventory will likely continue to increase as we continue to open new stores.

Investing Activities

Cash used in investing activities consists primarily of capital expenditures. Cash used in investing activities increased $7.5

million, or 21.4%, to $42.3 million in the year ended September 30, 2015 compared to $34.9 million in the year ended September 30,
2014 due to the Company’s purchase of substantially all the assets and assumption of certain liabilities of natural foods retailer
Nature’s Pantry, Inc. (the Store Acquisition), which operated one retail store in Independence, Missouri. We paid $5.6 million during
the year ended September 30, 2015 related to the Store Acquisition. Cash paid for capital expenditures increased $0.2 million in the
year ended September 30, 2015 compared to the year ended September 30, 2014, and is driven by the number and the timing of new
store openings.

During the year ended September 30, 2015, we opened 16 new stores, relocated one store and remodeled one store. We plan
to spend approximately $54 million to $56 million on capital expenditures during fiscal year 2016 in connection with the 23 planned
new stores, the four store relocations and the two store remodels. We anticipate that our new stores will require, on average, an
upfront capital investment of approximately $2.2 million per store.

Acquisition of property and equipment not yet paid increased $3.2 million to $6.4 million in fiscal year 2015 compared to
fiscal year 2014 due to the timing of new store openings and relocations. We opened four new stores in the fourth quarter of fiscal
year 2015 compared to opening three new stores in the fourth quarter of fiscal year 2014.

Cash used in investing activities increased $0.2 million, or 0.7%, to $34.9 million in the year ended September 30, 2014 from

$34.6 million in the year ended September 30, 2013. The increase in capital expenditures from the year ended September 30, 2014
compared to the year ended September 30, 2013, was primarily driven by the timing and increased number of new stores opened

during the year ended September 30, 2014. In the year ended September 30, 2014, we had proceeds from the maturity of available-for-
sale securities of $1.1 million and a reduction in our restricted cash balance of $0.5 million.

Financing Activities

Cash used in or provided by financing activities consists primarily of borrowings and repayments under our Credit Facility,

excess tax benefits on vested share-based compensation and payments of capital and financing lease obligations. Cash used in
financing activities was $0.9 million for the year ended September 30, 2015, compared to cash provided by financing activities of $0.1
million in the year ended September 30, 2014. The decrease in cash provided by financing activities for the year ended September 30,
2015 was primarily due to the payment of $0.5 million of contingent consideration related to the Store Acquisition and a $0.4 million
decrease in the excess tax benefit from share-based compensation.

Cash provided by financing activities was $0.1 million for the year ended September 30, 2014, as compared to cash used in

financing activities of $0.3 million in the year ended September 30, 2013. The increase in cash provided by financing activities for the
year ended September 30, 2014 was primarily due to a decrease in repayments of related party notes payable and equity issuance costs
paid, partially offset by a decrease in excess tax benefits for vested share based compensation.

Credit Facility

We are a party to an amended and restated revolving Credit Facility.

We had no amounts outstanding under our then-existing $15.0 million credit agreement at September 30, 2015 or 2014, and
$14.0 million available for borrowing as of September 30, 2015. As of September 30, 2015, we had undrawn, issued and outstanding
letters of credit of $1.0 million, which amount was reserved against the amount available for borrowing under the terms of the credit
agreement. On November 17, 2015, as provided for in our Credit Facility, we obtained a commitment to increase the amount
available for borrowing under our Credit Facility from $15.0 million to $25.0 million.

For floating rate borrowings under our Credit Facility, interest is determined by the lender’s administrative agent and is stated

at the prime rate less the lender spread, subject to the Company meeting certain financial measures. For fixed rate borrowings under
our Credit Facility, interest is determined by quoted LIBOR rates for the interest period plus the lender spread, subject to us meeting
certain financial measures.

Our Credit Facility is secured by a lien on substantially all of our assets. Our Credit Facility requires compliance with certain

operational and financial covenants (including a leverage ratio and a fixed charge coverage ratio). Our Credit Facility also contains
certain other limitations on our ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments
or acquisitions as defined in the agreement. Additionally, our Credit Facility prohibits the payment of cash dividends to the holding
company from the operating company, without the administrative agent’s consent except when no default or event of default exists. If
no default or event of default exists, dividends are allowed for various audit, accounting, tax, securities, indemnification,
reimbursement, insurance and other reasonable expenses in the ordinary course of business. We do not expect such restrictions to
impact our ability to meet our cash obligations. The terms and conditions of the Credit Facility and associated documents are
customary and include, among other things, guarantees, security interest grants, pledges and subordinations. As of September 30,
2015, we were in compliance with the debt covenants of our credit agreement.

Contractual Obligations

The following table summarizes our contractual obligations as of September 30, 2015, dollars in thousands:

Interest payments (1) ........................................... $
Operating leases (2) ............................................
Capital and financing lease obligations, including
principal and interest payments (3) .................

Contractual obligations for construction related

activities (4) ....................................................

Total

29
387,906

Payments Due by Period

Less than
1 year

1–3 years

3-5 years

More than
5 years

16
27,172

13
59,809

─
57,069

─
243,856

47,206

3,692

7,439

7,526

28,549

3,422
438,563

3,422
34,302

─
67,261

─
64,595

─
272,405

(1) We assumed the interest payments to be paid during the remainder of our Credit Facility using an unused commitment fee of

0.15% for amounts not borrowed as of September 30, 2015.

(2) Represents the minimum lease payments due under our operating leases, excluding annual common area maintenance, insurance

and taxes related to our operating lease obligations.

(3) Represents the payments due under our 13 capital and financing lease obligations, 12 of which were open as of September 30,
2015. We do not record rent expense for these capital leases, but rather rental payments under the capital leases are recognized
as a reduction of the capital and financing lease obligations and interest expense.

(4) Contractual obligations for construction-related activities include future payments to general contractors that are legally binding

as of September 30, 2015 and relate to new store construction, relocations and remodels.

Off-Balance Sheet Arrangements

As of September 30, 2015, our off-balance sheet arrangements consisted of operating leases and the undrawn portion of our

Credit Facility. All of our stores and facilities, with one exception, are leased. We own one store that is located on leased property. As
of September 30, 2015, 13 store leases were classified as capital and financing lease obligations, and the remaining leases were
classified as operating leases in our consolidated financial statements. We have no other off-balance sheet arrangements that have had,
or are reasonably likely to have, a material effect on our consolidated financial statements or financial condition.

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2015-17

“Income Taxes” Topic 740, “Income Taxes.” (ASU 2015-17). ASU 2015-17 addresses the balance sheet classification of deferred
taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a
classified statement of financial position. The amendments in ASU 2015-17 require that deferred tax liabilities and assets be classified
as noncurrent in a classified statement of financial position. ASU 2015-17 will be effective for financial statements issued for fiscal
years beginning after December 15, 2016 and interim periods within those fiscal years. The guidance will be effective for our first
quarter of the fiscal year ending September 30, 2018. Earlier application is permitted for all entities as of the beginning of an interim
or annual reporting period. We are currently evaluating the impact that the adoption of ASU 2015-17 will have on our consolidated
financial statements.

In September 2015, the FASB issued Accounting Standards Update 2015-16 “Simplifying the Accounting for Measurement-

Period Adjustments” Topic 805, “Business Combinations” (ASU 2015-16). The amendments in ASU 2015-16 require that an
acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the
adjustments are determined and eliminates the requirement to retrospectively revise prior periods. Additionally, an acquirer should
record in the same period the effects on earnings of any changes in the provisional accounts, calculated as if the accounting had been
completed at the acquisition date. The amendments should be applied on a prospective basis. ASU 2015-16 is effective for fiscal
years beginning after December 15, 2015 and interim periods within those fiscal years. The guidance in ASU 2015-16 will be
effective for our first quarter of the fiscal year ending September 30, 2017.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” Topic 330, “Inventory” (ASU

2015-11). The amendments in ASU 2015-11, which apply to inventory that is measured using any method other than the last-in, first-
out (LIFO) or retail inventory method, require that entities measure inventory at the lower of cost and net realizable value. The
amendments in ASU 2015-11 should be applied on a prospective basis. ASU 2015-11 is effective for fiscal years beginning after
December 15, 2016 and interim periods within those years. The provisions of ASU 2015-11 are effective for our first quarter of the
fiscal year ending September 30, 2018. We are currently evaluating the impact that the adoption of ASU 2015-11 will have on our
consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,”

Subtopic 350-40, “Intangibles-Goodwill and Other – Internal-Use Software” (ASU 2015-05). ASU 2015-05 provides guidance as to
whether a cloud computing arrangement (such as software as a service, platform as a service, infrastructure as a service, and other
similar hosting arrangements) includes a software license and, based on that determination, how to account for such arrangements.
The amendments in ASU 2015-05 may be applied on either a prospective or retrospective basis and early adoption is permitted. ASU
2015-05 is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The provisions
of ASU 2015-05 are effective for our first quarter of the fiscal year ending September 30, 2017. We are currently evaluating the
impact that the adoption of ASU 2015-05 will have on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” Topic 835, “Interest”

(ASU 2015-03). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet
as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued
ASU 2015-15, “Interest – Imputation of Interest,” Subtopic 835-30, “Interest” (ASU 2015-15). The guidance in ASU 2015-03 did not
address the presentation or subsequent measurement of debt issuance costs related to line of credit arrangements and ASU 2015-15
was issued to clarify that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and
subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether
there are any outstanding borrowings on the line of credit arrangements. The amendments in ASU 2015-03 should be applied on a
retrospective basis and early adoption is permitted. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The guidance in ASU 2015-03 will be effective for us in the first quarter of the fiscal year
ending September 30, 2017. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” Topic 606,
“Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides guidance for revenue recognition and will replace
most existing revenue recognition guidance in GAAP when it becomes effective. ASU 2014-09’s core principle is that a company will
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the
company expects to be entitled for the transfer of those goods or services. ASU 2014-09 permits the use of either the retrospective or
cumulative effect transition method. In July 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers –
Deferral of the Effective Date.” The FASB approved the deferral of ASU 2014-09, by extending the new revenue recognition
standard’s mandatory effective date by one year and permitting public companies to apply the new revenue standard to annual
reporting periods beginning after December 15, 2017. However, earlier application is permitted only as of annual reporting periods
beginning after December 15, 2016. The guidance in ASU 2014-09 will be effective for us in the first quarter of the fiscal year ending
September 30, 2019. We have not yet selected a transition method and are currently in the process of evaluating the impact of the
adoption of ASU 2014-09 on our consolidated financial statements and related disclosures.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and

assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and
liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience and on various other
assumptions and factors that we believe to be reasonable under the circumstances. We evaluate our accounting policies and resulting
estimates on an ongoing basis to make adjustments we consider appropriate under the facts and circumstances.

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and
financial position, and we apply those accounting policies in a consistent manner. Refer to our consolidated financial statements and
related notes for a summary of our significant accounting policies. We believe that the following accounting policies are the most
critical in the preparation of our consolidated financial statements because they involve the most difficult, subjective or complex
judgments about the effect of matters that are inherently uncertain.

Income Taxes

We account for income taxes using the asset and liability method. This method requires recognition of deferred tax assets and

liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial
reporting basis of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective
jurisdictions in which we operate. We consider the need to establish valuation allowances to reduce deferred income tax assets to the
amounts that we believe are more likely than not to be recovered.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained by the

relevant taxing authority. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax

assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is
uncertain. In addition, we are subject to periodic audits and examinations by the IRS and other state and local taxing authorities.
Although we believe that our estimates are reasonable, actual results could differ from these estimates.

To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our

reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax
settlement would require the use of our cash and would result in an increase in our effective income tax rate in the period of
resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

Goodwill and Intangible Assets

We assess our goodwill and intangible assets primarily consisting of trademarks, favorable operating leases and covenants-

not-to-compete at least annually. The Company’s annual impairment testing of goodwill is performed as of September 30. In
performing the Company’s analysis of goodwill, the Company first evaluates qualitative factors, including relevant events and
circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If
it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the two-step impairment test is not
necessary. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then
the Company performs the two-step impairment test. There are significant judgments and estimates within the processes; it is therefore
possible that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were
to change.

Impairment of Long-Lived Assets

We assess our long-lived assets, principally property and equipment, for possible impairment at least annually, or whenever
events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability is measured by a
comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. We
aggregate long-lived assets at the store level which we consider to be the lowest level in the organization for which independent
identifiable cash flows are available. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted
cash flow basis, impairment is recognized to the extent the carrying value exceeds its fair value.

Our judgment regarding events or changes in circumstances that indicate an asset’s carrying value may not be recoverable is

based on several factors such as historical and forecasted operating results, significant industry trends and other economic factors.
Further, determining whether an impairment exists requires that we use estimates and assumptions in calculating the future
undiscounted cash flows expected to be generated by the assets. These estimates and assumptions look several years into the future
and include assumptions on future store revenue growth, potential impact of operational changes, competitive factors, inflation and the
economy. Application of alternative assumptions could produce materially different results.

Leases

We lease retail stores, a bulk food repackaging facility and distribution center, land and administrative offices under long-

term operating, capital financing leases or capital leases. Accounting for leased properties requires compliance with technical
accounting rules and significant judgment by management. Application of these accounting rules and assumptions made by
management will determine whether the lease is accounted for as an operating lease, whether we are considered the owner for
accounting purposes or whether the lease is accounted for as a capital lease.

If the lease is classified as an operating lease, it is not recognized on our consolidated balance sheet, and rent expense,

including rent holidays and escalating payment terms, is recognized on a straight-line basis over the expected lease term.

If we are determined to be the owner for accounting purposes, we record the fair market value of the leased asset and a
related capital lease finance obligation on our consolidated balance sheet. The leased asset is then depreciated over the estimated
useful life of the asset. Rent payments for these properties are not recorded as rent expense, but rather are recognized as a reduction of
the capital lease finance obligation and as interest expense.

If the lease is classified as a capital lease, we record the present value of the minimum lease payments and a related capital

lease obligation on our consolidated balance sheet. The asset is then depreciated over the expected lease term. Rent payments for these
properties are not recorded as rent expense, but rather are recognized as a reduction of the capital lease obligation and as interest
expense.

Significant accounting judgment and assumptions are required in determining the accounting for leases, including:



fair market value of the leased asset, which is generally estimated based on project costs or comparable market data. Fair
market value is used as a factor in determining whether the lease is accounted for as an operating or capital lease, and is
used for recording the leased asset when we are determined to be the owner for accounting purposes;

 minimum lease term that includes contractual lease periods, and may also include the exercise of renewal options if the

exercise of the option is determined to be reasonably assured or where failure to exercise such options would result in an
economic penalty. The minimum lease term is used as a factor in determining whether the lease is accounted for as an
operating lease or a capital lease and in determining the period over which to depreciate the capital lease asset; and



incremental borrowing rate which is estimated based on treasury rates for debt with maturities comparable to the
minimum lease term and our credit spread and other premiums. The incremental borrowing rate is used as a factor in
determining the present value of the minimum lease payments which is then used in determining whether the lease is
accounted for as an operating lease or capital lease, as well as for allocating our rental payments on capital leases
between interest expense and a reduction of the outstanding obligation.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to interest rate changes of our long-term debt. We do not use financial instruments for trading or other

speculative purposes.

Interest Rate Risk

Our principal exposure to market risk relates to changes in interest rates with respect to our Credit Facility. As of September

30, 2015, we had no amounts outstanding under our Credit Facility. Our Credit Facility carries floating interest rates that are tied to
the prime rate, and therefore, our statements of income and our cash flows are exposed to changes in interest rates. Based upon a
sensitivity analysis at September 30, 2015, a hypothetical 100 basis point change in interest rates would change our annual interest
expense by less than $0.1 million in the year ended September 30, 2015.

Item 8. Financial Statements and Supplementary Data.

Natural Grocers by Vitamin Cottage, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm ................................................................................................
Consolidated Balance Sheets as of September 30, 2015 and 2014 ......................................................................................
Consolidated Statements of Income for the years ended September 30, 2015, 2014 and 2013 ...........................................
Consolidated Statements of Comprehensive Income for the years ended September 30, 2015, 2014 and 2013 .................
Consolidated Statements of Cash Flows for the years ended September 30, 2015, 2014 and 2013 ....................................
Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2015, 2014 and 2013 ...
Notes to Consolidated Financial Statements ........................................................................................................................

Page
Number

55
56
57
58
59
60
61

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Natural Grocers by Vitamin Cottage, Inc.:

We have audited the accompanying consolidated balance sheets of Natural Grocers by Vitamin Cottage, Inc. and subsidiaries (the
Company) as of September 30, 2015 and 2014, and the related consolidated statements of income, comprehensive income, cash flows,
and changes in stockholders’ equity for each of the years in the three-year period ended September 30, 2015. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Natural Grocers by Vitamin Cottage, Inc. and subsidiaries as of September 30, 2015 and 2014, and the results of their operations and
their cash flows for each of the years in the three-year period ended September 30, 2015, in conformity with U.S. generally accepted
accounting principles.

Denver, Colorado
December 10, 2015

/s/ KPMG LLP

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Balance Sheets
(Dollars in thousands, except per share data)

September 30,

2015

2014

Current assets:

Assets

Cash and cash equivalents ....................................................................................................
Accounts receivable, net ......................................................................................................
Merchandise inventory .........................................................................................................
Prepaid expenses and other current assets ............................................................................
Deferred income tax assets ..................................................................................................
Total current assets ..........................................................................................................
Property and equipment, net ....................................................................................................
Other assets:

Deposits and other assets .....................................................................................................
Goodwill and other intangible assets, net ............................................................................
Deferred financing costs, net ...............................................................................................
Total other assets ..............................................................................................................
Total assets .......................................................................................................................

Current liabilities:

Liabilities and Stockholders’ Equity

Accounts payable .................................................................................................................
Accrued expenses .................................................................................................................
Capital and financing lease obligations, current portion ......................................................
Total current liabilities .....................................................................................................

Long-term liabilities:

Capital and financing lease obligations, net of current portion ............................................
Deferred income tax liabilities .............................................................................................
Deferred compensation ........................................................................................................
Deferred rent .........................................................................................................................
Leasehold incentives .............................................................................................................
Total long-term liabilities .................................................................................................
Total liabilities .................................................................................................................
Commitments (Notes 11 and 18) ..............................................................................................
Stockholders’ equity:

Common stock, $0.001 par value. 50,000,000 shares authorized, 22,496,628 and

22,485,488 shares issued and outstanding, respectively ..................................................
Additional paid-in capital .....................................................................................................
Retained earnings .................................................................................................................
Total stockholders’ equity ................................................................................................
Total liabilities and stockholders’ equity .........................................................................

2,915
2,576
74,818
1,108
866
82,283
145,219

778
5,623
21
6,422
233,924

49,896
19,649
333
69,878

27,274
6,073
314
6,922
7,975
48,558
118,436

22
54,982
60,484
115,488
233,924

5,113
2,146
58,381
641
832
67,113
120,224

712
900
36
1,648
188,985

33,835
15,822
229
49,886

21,748
5,409
—
5,842
7,246
40,245
90,131

22
54,552
44,280
98,854
188,985

See accompanying notes to consolidated financial statements.

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Income
(Dollars in thousands, except per share data)

Year ended September 30,
2014

2013

2015

Net sales ....................................................................................................
Cost of goods sold and occupancy costs ....................................................
Gross profit .......................................................................................
Store expenses............................................................................................
Administrative expenses ............................................................................
Pre-opening and relocation expenses ........................................................
Operating income ..............................................................................

624,678
442,582
182,096
132,131
17,514
3,822
28,629

Other income (expense):

Dividends and interest income ..............................................................
Interest expense .....................................................................................
Total other expense, net ....................................................................
Income before income taxes .............................................................
Provision for income taxes ........................................................................
Net income ........................................................................................

—
(2,993 )
(2,993 )
25,636
(9,432 )
$ 16,204

520,674
369,172
151,502
108,657
14,823
3,774
24,248

2
(2,496 )
(2,494 )
21,754
(8,281 )
13,473

430,655
304,922
125,733
89,935
13,479
3,231
19,088

9
(2,166 )
(2,157 )
16,931
(6,379 )
10,552

Net income per share of common stock:

Basic .................................................................................................
Diluted ..............................................................................................

$
$

0.72
0.72

0.60
0.60

0.47
0.47

Weighted average number of shares of common stock outstanding:

22,490,260
22,500,833

22,466,432
22,479,835

22,399,346
22,441,382

See accompanying notes to consolidated financial statements.

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Comprehensive Income
(Dollars in thousands)

Net income ................................................................................................
Other comprehensive income, net of tax:

16,204

Unrealized gain on available-for-sale securities, net of tax benefit ...
Other comprehensive income .............................................................
Comprehensive income ..............................................................................

—
—
$ 16,204

13,473

—
—
13,473

10,552

4
4
10,556

Year ended September 30,
2014

2013

2015

See accompanying notes to consolidated financial statements.

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)

Year ended September 30,

2015

2014

2013

Operating activities:

Net income ...............................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization .............................................................................
Loss on disposal of property and equipment ........................................................
Share-based compensation....................................................................................
Excess tax benefit from share-based compensation .............................................
Deferred income tax expense (benefit) ................................................................
Non-cash interest expense ...................................................................................
Interest accrued on investments and amortization of premium .............................
Other amortization ...............................................................................................
Changes in operating assets and liabilities ............................................................

(Increase) decrease in:

Accounts receivable, net .............................................................................
Income tax receivable .................................................................................
Merchandise inventory ...............................................................................
Prepaid expenses and other assets ..............................................................

Increase in:

Accounts payable .......................................................................................
Accrued expenses .......................................................................................
Deferred compensation ...............................................................................
Deferred rent and leasehold incentives .......................................................
Net cash provided by operating activities ..............................................

Investing activities:

Acquisition of property and equipment ....................................................................
Proceeds from sale of property and equipment ........................................................
Payment for acquisition ............................................................................................
Purchase of available-for-sale securities ..................................................................
Proceeds from sale of available-for-sale securities ....................................................
Proceeds from maturity of available-for-sale securities ............................................
Decrease (increase) in restricted cash ........................................................................
Net cash used in investing activities ......................................................

Financing activities:

Borrowings under credit facility ...............................................................................
Repayments under credit facility ..............................................................................
Repayments under notes payable, related party ........................................................
Capital and financing lease obligations payments ....................................................
Contingent consideration payments for acquisition ..................................................
Excess tax benefit from share-based compensation ..................................................
Equity issuance costs .................................................................................................
Payments on withholding tax for restricted stock unit vesting ..................................
Loan fees paid ..........................................................................................................
Net cash (used in) provided by financing activities ...............................
Net decrease in cash and cash equivalents .............................................
Cash and cash equivalents, beginning of year ...............................................................
Cash and cash equivalents, end of year .........................................................................
Supplemental disclosures of cash flow information:

Cash paid for interest ................................................................................................
Cash paid for interest on capital and financing lease obligations, net of capitalized
interest of $309, $364 and $0, respectively ..........................................................
Income taxes paid .....................................................................................................

Supplemental disclosures of non-cash investing and financing activities:

Acquisition of property and equipment not yet paid .................................................
Property acquired through capital and financing lease obligations ...........................

16,204

21,337
56
573
—
630
15
—
—

(430 )
—
(15,711 )
(533 )

12,891
3,848
314
1,809
41,003

(36,750 )
13
(5,601 )
—
—
—
—
(42,338 )

202,878
(202,878 )
—
(247 )
(514 )
—
—
(102 )
—
(863 )
(2,198 )
5,113
2,915

2,809
8,194

6,429
5,772

See accompanying notes to consolidated financial statements.

13,473

10,552

17,212
1
532
(399 )
(1,186 )
19
9
—

255
612
(12,909 )
(665 )

5,202
6,952
—
2,641
31,749

(36,512 )
—
—
—
—
1,140
500
(34,872 )

46,440
(46,440 )
—
(182 )
—
399
—
(83 )
(30 )
104
(3,019 )
8,132
5,113

2,423
3,762

3,260
2,300

13,496
43
602
(592 )
2,452
47
27
26

(546 )
(601 )
(7,928 )
105

4,480
2,283
—
1,271
25,717

(39,708 )
5,005
—
(521 )
90
1,010
(500 )
(34,624 )

81
(81 )
(282 )
(121)
—
592
(268 )
(155 )
(18 )
(252 )
(9,159 )
17,291
8,132

2,036
3,916

3,545
14,372

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Fiscal years ended September 30, 2015, 2014 and 2013
(Dollars in thousands, except per share data)

Common Stock –$0.001
par
value

Shares
22,372,184 $

Amount

Accumulated
other
comprehensive
(loss) income

Additional

Balances September 30, 2012

Net income. .......................
Accumulated other comprehensive income
Issuance costs .....................
Share-based compensation .
Excess tax benefit of share-based compensation

Balances September 30, 2013

Net income .........................
Share-based compensation .
Excess tax benefit of share-based compensation

Balances September 30, 2014
Net income ........................
Share-based compensation .
Tax shortfall related to share-based compensation

Balances September 30, 2015

—
—
—
69,069
—
22,441,253
—
44,235
—
22,485,488
—
11,140
—

22,496,628 $

22 $
—
—
—
—
—
22
—
—
—
22
—
—
—
22 $

(4 ) $
—
4
—
—
—
—
—
—
—
—
—
—
—
— $

paid-in
capital

—
—
(12 )
448
592

Retained
earnings
52,676 $ 20,255
10,552
—
—
—
—
53,704 30,807
13,473
—
—
54,552 44,280
16,204
—
—
54,982 $ 60,484

—
471
(41 )

—
449
399

Total
stockholders’
equity

72,949
10,552
4
(12 )
448
592
84,533
13,473
449
399
98,854
16,204
471
(41 )
115,488

See accompanying notes to consolidated financial statements.

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Notes to Consolidated Financial Statements
September 30, 2015 and 2014

1. Organization

Nature of Business

Natural Grocers by Vitamin Cottage, Inc. (Natural Grocers or the holding company) and its consolidated subsidiaries
(collectively, the Company) operate retail stores that specialize in natural and organic groceries and dietary supplements. The
Company operates its retail stores under its trademark Natural Grocers by Vitamin Cottage® with 103 stores as of September 30,
2015, including 34 stores in Colorado, 14 in Texas, eight each in Oregon and Kansas, seven in Oklahoma, six in Arizona, five in New
Mexico, four in Montana, three each in Idaho and Nebraska, two each in Missouri, Utah and Wyoming, and one each in Arkansas,
Minnesota, Nevada, North Dakota and Washington. The Company also has a bulk food repackaging facility and distribution center in
Colorado. The Company had 87 and 72 stores as of September 30, 2014 and 2013, respectively.

2. Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include all the accounts of the holding company’s wholly owned
subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company), Vitamin Cottage Two Ltd. Liability Company and
Natural Systems, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management reviews its estimates on an ongoing basis, including those related to allowances
for self-insurance reserves, valuation of inventories, useful lives of property and equipment for depreciation and amortization, deferred
tax assets and liabilities and litigation based on currently available information. Changes in facts and circumstances may result in
revised estimates and actual results could differ from those estimates.

Segment Information

The Company has one reporting segment, natural and organic retail stores.

Cash and Cash Equivalents

Cash and cash equivalents include currency on hand, demand deposits with banks, money market funds and credit and debit

card transactions which typically settle within three business days. The Company considers all highly liquid investments with a
remaining maturity of 90 days or less when acquired to be cash equivalents.

Investments

Available-for-sale investments are recorded at fair value. Unrealized holding gains and losses on available-for-sale
investments are excluded from earnings and are reported as a component of other comprehensive income until realized. A decline in
the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary for a period greater than two
fiscal quarters results in a reduction of the fair value. Declines in fair value deemed to be other-than-temporary are charged against
net earnings. Investments that have an original maturity date of less than one year are classified as short-term assets, and investments
that have an original maturity date of greater than one year are classified as long-term assets.

Accounts Receivable

Accounts receivable consists primarily of receivables from vendors for certain promotional programs, newsletter advertising

and other miscellaneous receivables and are presented net of any allowances for doubtful accounts. Vendor receivable balances are
generally presented on a gross basis separate from any related payable due. Allowance for doubtful accounts is calculated based on
historical experience and application of the specific identification method. Allowance for doubtful accounts totaled less than $0.1
million at each of September 30, 2015 and 2014.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of investments
in cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalent account balances, which are held in
major financial institutions, exceeded the Federal Deposit Insurance Corporation’s federally insured limits by approximately $1.1
million as of September 30, 2015.

Vendor Concentration

For the years ended September 30, 2015, 2014 and 2013, purchases from the Company’s largest vendor and one of its

subsidiaries represented approximately 57%, 56% and 55%, respectively, of all product purchases made during such periods.
However, the Company believes that, if necessary, alternate vendors could supply similar products in adequate quantities to avoid
material disruptions to operations.

Merchandise Inventory

Merchandise inventory consists of goods held for sale. The cost of inventory includes certain costs associated with the

preparation of inventory for sale, including inventory overhead costs. Merchandise inventory is carried at the lower of cost or market
value. Cost is determined using the weighted average cost method.

Property and Equipment

Property and equipment is stated at historical cost less accumulated depreciation. Depreciation is provided using the straight-

line method over the following estimated useful lives of the related assets.

Land improvements ...............................................................................................
Buildings ...............................................................................................................
Leasehold and building improvements ..................................................................
Capitalized real estate leases for build-to-suit stores ..............................................
Capitalized real estate leases .................................................................................
Fixtures and equipment .........................................................................................
Computer hardware and software ..........................................................................

Useful lives
(in years)
5 – 15
40
1 – 25
40
15
5 – 7
3 – 5

For land improvements and leasehold and building improvements, depreciation is recorded over the shorter of the assets’

useful lives or the lease terms. Maintenance, repairs and renewals that neither add to the value of the property nor appreciably prolong
its life are charged to expense as incurred. Gains and losses on disposition of property and equipment are included in store expenses in
the year of disposition, and primarily relate to store relocations.

The Company capitalizes interest, if applicable, as part of the historical costs of buildings and leasehold and building

improvements. The Company capitalizes certain costs incurred with developing or obtaining internal-use software. Capitalized
software costs are included in property and equipment in the consolidated balance sheets and are amortized over the estimated useful
lives of the software. Software costs that do not meet capitalization criteria are expensed as incurred.

Fair Value of Financial Instruments

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair
value in authoritative guidance. The framework establishes a fair value hierarchy that distinguishes between assumptions based on
market data (observable inputs) and the Company’s own assumptions (unobservable inputs). The three levels are defined as follows:

Level 1 —
Level 2 —

Level 3 —

Inputs are unadjusted quoted prices for identical assets or liabilities in active markets;
Inputs include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for
the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and
Inputs are unobservable and are considered significant to the fair value measurement.

Transfers between levels of the fair value hierarchy are deemed to have occurred as of the date of the event or transfer.

Goodwill and Intangible Assets

Intangible assets primarily consist of goodwill, trademarks, favorable operating leases and covenants-not-to-compete.
Goodwill and the Vitamin Cottage trademark have indefinite lives and are not amortized; rather, they are tested for impairment at least
annually. Intangible assets with definite lives are amortized over their estimated useful lives. The Company evaluates the
reasonableness of the useful lives of these intangibles at least annually.

The Company’s annual impairment testing of goodwill is performed as of September 30. In performing the Company’s
analysis of goodwill, the Company first evaluates qualitative factors, including relevant events and circumstances, to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is not more likely than not
that the fair value of a reporting unit is less than its carrying amount, the two-step impairment test is not necessary. If it is determined
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company performs the
two-step impairment test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including
goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the
reporting unit and the Company must perform step two of the impairment test (measurement). Under step two, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. To
date, the Company has recorded no impairment charges related to goodwill.

Impairment of Finite-Lived Intangible and Long-Lived Assets

Long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The
Company aggregates long-lived assets at the store level, which the Company considers to be the lowest level in the organization for
which independent identifiable cash flows are available. If circumstances require a long-lived asset or asset group to be tested for
possible impairment, the Company first compares undiscounted cash flows expected to be generated by that store to its carrying value.
If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is
recognized to the extent that the carrying value exceeds its fair value. The Company considers factors such as historic and forecasted
operating results, trends and future prospects, current market value, significant industry trends and other economic and regulatory
factors in performing these analyses. To date, the Company has recorded no impairment charges related to finite-lived intangible or
long-lived assets.

Deferred Financing Costs

Certain costs incurred with borrowings or establishment of credit facilities are deferred. These costs are amortized over the

life of the borrowing or the life of the credit facility using the straight-line methods.

Leases

The Company leases retail stores, a bulk food repackaging facility and distribution center and administrative offices under

long-term operating or capital and financing leases. These leases include scheduled increases in minimum rents and renewal
provisions at the option of the Company. The lease term for accounting purposes commences with the date the Company takes
possession of the space and ends on the later of the primary lease term or the expiration of any renewal periods that are deemed to be
reasonably assured at the inception of the lease.

Operating leases

The Company accounts for operating leases with rent holidays and escalating payment terms by recognizing the associated

expense on a straight-line basis over the lease term, and the difference between the average rental amount charged to expense and
amounts payable under the leases are included in deferred rent. For certain leases, the Company has also received cash from landlords
to compensate for costs incurred by the Company in making the store locations ready for operation (leasehold incentives or tenant
allowances). Leasehold incentives received from a landlord are deferred and recognized on a straight-line basis as a reduction to rent
expense over the lease term.

Capital financing leases

From time to time, the Company enters into leases with developers for build-to-suit store locations. Upon lease execution,

the Company analyzes its involvement during the construction period. As a result of defined forms of lessee involvement, the
Company could be deemed the “owner” for accounting purposes during the construction period, and may be required to capitalize the
project costs on its balance sheet. If the project costs are capitalized, the Company performs a sale-leaseback analysis upon
completion of the construction to determine if the Company can remove the assets from its balance sheet. If the asset cannot be
removed from the balance sheet, the fair market value of the building remains recognized as an asset on the balance sheet, along with

a corresponding capital lease financing obligation equal to the fair market value of the building less any amount the Company
contributed towards construction. The Company does not record rent expense for the rental payments under capital financing leases,
but rather payments under the capital financing lease obligations are recognized as a reduction of the capital lease financing obligation
and as interest expense. The capital financing lease asset is depreciated on a straight-line basis over the estimated useful life of the
asset.

Capital leases

Occasionally, the Company enters into leases that are deemed to be capital leases. For these leases, the Company capitalizes

the lower of the present value of the minimum lease payments or the fair value of the leased asset at inception and records a
corresponding capital lease obligation. The Company does not record rent expense for the rental payments under capital leases, but
rather payments under the capital lease obligations are recognized as a reduction of the capital lease obligation and as interest expense.
The capital lease asset is depreciated on a straight-line basis over the term of the related lease.

Self-Insurance

The Company is self-insured for certain losses relating to employee medical and dental benefits and workers compensation.
Stop-loss coverage has been purchased to limit exposure to any significant level of claims. Self-insured losses are accrued based upon
the Company’s estimates of the aggregate claims incurred but not reported using historical experience. The estimated accruals for
these liabilities could be significantly affected if future occurrences and claims differ from historical trends.

Revenue Recognition

Revenue is recognized at the point of sale, net of in-house coupons, discounts and returns. Sales taxes are not included in

sales. The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing
jurisdiction. The Company records a deferred revenue liability within accrued expenses when it sells the Company’s gift cards or
issues gift cards for award or promotional purposes, and records a sale when a customer redeems the gift card. Generally, the gift
cards do not expire. The Company currently does not record breakage for unused portions of gift cards.

Cost of Goods Sold and Occupancy Costs

Cost of goods sold and occupancy costs includes the cost of inventory sold during the period net of discounts and allowances,

as well as, distribution, shipping and handling costs, store occupancy costs and costs of the bulk food repackaging facility and
distribution center. The amount shown is net of various rebates from third-party vendors in the form of quantity discounts and
payments. Vendor consideration associated with product discounts is recorded as either a reduction of merchandise inventory or cost
of goods sold. Store occupancy costs include rent, common area maintenance and real estate taxes. Store occupancy costs do not
include any rent amounts for the store leases classified as capital and financing lease obligations.

Store Expenses

Store expenses consist of store-level expenses such as salaries, benefits and share-based compensation, supplies, utilities,

depreciation, gain or loss on disposal of assets and other related costs associated with operations support. Store expenses also include
purchasing support services and advertising and marketing costs.

Administrative Expenses

Administrative expenses consist of salaries, benefits and share-based compensation, occupancy costs, depreciation, office

supplies, hardware and software expenses, professional services expenses and other general and administrative expenses.

Pre-Opening and Relocation Expenses

Costs associated with the opening of new stores or relocating existing stores are expensed as incurred.

Advertising and Marketing

Advertising and marketing costs are expensed as incurred and are included in store expenses and pre-opening and relocation
expenses in the consolidated statements of income. Total advertising and marketing expenses for the years ended September 30, 2015,
2014 and 2013 were approximately $9.3 million, $7.8 million and $6.2 million, respectively, net of vendor reimbursements received
for newsletter advertising. Advertising expense reimbursements received from vendors totaled approximately $2.5 million, $1.9
million and $1.5 million for the years ended September 30, 2015, 2014 and 2013, respectively.

Share-Based Compensation

The Company adopted the 2012 Omnibus Incentive Plan in connection with the IPO on July 25, 2012. Restricted common

stock units are granted at the market price of the Company’s common stock on the date of grant and expensed over the applicable
vesting period.

The excess tax benefits for recognized compensation costs are reported as a credit to additional-paid-in capital and as

operating cash outflows when such excess tax benefits are realized by a reduction to current taxes payable.

Income Taxes

The Company accounts for income taxes using the asset and liability method. This method requires recognition of deferred
tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and
financial reporting basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates
in the respective jurisdictions in which the Company operates.

The Company considers the need to establish valuation allowances to reduce deferred income tax assets to the amounts the

Company believes are more likely than not to be recovered.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being

sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Although the Company
believes that its estimates are reasonable, actual results could differ from these estimates. In addition, the Company is subject to
periodic audits and examinations by the Internal Revenue Service (IRS) and other state and local taxing authorities.

Any interest or penalties incurred related to income taxes are expensed as incurred and treated as permanent differences for

tax purposes.

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2015-17

“Income Taxes” Topic 740, “Income Taxes.” (ASU 2015-17). ASU 2015-17 addresses the balance sheet classification of deferred
taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a
classified statement of financial position. The amendments in ASU 2015-17 require that deferred tax liabilities and assets be classified
as noncurrent in a classified statement of financial position. ASU 2015-17 will be effective for financial statements issued for fiscal
years beginning after December 15, 2016 and interim periods within those fiscal years. The guidance will be effective for the
Company’s first quarter of the fiscal year ending September 30, 2018. Earlier application is permitted for all entities as of the
beginning of an interim or annual reporting period. The Company is currently evaluating the impact that the adoption of ASU 2015-
17 will have on its consolidated financial statements.

In September 2015, the FASB issued Accounting Standards Update 2015-16 “Simplifying the Accounting for Measurement-

Period Adjustments” Topic 805, “Business Combinations” (ASU 2015-16). The amendments in ASU 2015-16 require that an
acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the
adjustments are determined and eliminates the requirement to retrospectively revise prior periods. Additionally, an acquirer should
record in the same period the effects on earnings of any changes in the provisional accounts, calculated as if the accounting had been
completed at the acquisition date. The amendments should be applied on a prospective basis. ASU 2015-16 is effective for fiscal
years beginning after December 15, 2015 and interim periods within those fiscal years. The guidance in ASU 2015-16 will be
effective for the Company’s first quarter of the fiscal year ending September 30, 2017.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” Topic 330, “Inventory” (ASU

2015-11). The amendments in ASU 2015-11, which apply to inventory that is measured using any method other than the last-in, first-
out (LIFO) or retail inventory method, require that entities measure inventory at the lower of cost and net realizable value. The
amendments in ASU 2015-11 should be applied on a prospective basis. ASU 2015-11 is effective for fiscal years beginning after
December 15, 2016 and interim periods within those years. The provisions of ASU 2015-11 are effective for the Company’s first
quarter of the fiscal year ending September 30, 2018. The Company is currently evaluating the impact that the adoption of ASU 2015-
11 will have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,”

The amendments in ASU 2015-05 may be applied on either a prospective or retrospective basis and early adoption is permitted. ASU
2015-05 is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The provisions
of ASU 2015-05 are effective for the Company’s first quarter of the fiscal year ending September 30, 2017. The Company is currently
evaluating the impact that the adoption of ASU 2015-05 will have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” Topic 835, “Interest”

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” Topic 606, “Revenue from

Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides guidance for revenue recognition and will replace most existing
revenue recognition guidance in GAAP when it becomes effective. ASU 2014-09’s core principle is that a company will recognize
revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company
expects to be entitled for the transfer of those goods or services. ASU 2014-09 permits the use of either the retrospective or cumulative
effect transition method. In July 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers – Deferral of the
Effective Date.” The FASB approved the deferral of ASU 2014-09, by extending the new revenue recognition standard’s mandatory
effective date by one year and permitting public companies to apply the new revenue standard to annual reporting periods beginning
after December 15, 2017. However, earlier application is permitted only as of annual reporting periods beginning after December 15,
2016. The guidance in ASU 2014-09 will be effective for the Company in the first quarter of the fiscal year ending September 30,
2019. The Company has not yet selected a transition method and is currently in the process of evaluating the impact of the adoption
of ASU 2014-09 on the Company’s consolidated financial statements and related disclosures.

3. Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of shares

of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if the
Company’s granted but unvested restricted stock units were to vest, resulting in the issuance of common stock that would then share in
the earnings of the Company. Presented below is basic and diluted earnings per share for the years ended September 30, 2015, 2014
and 2013, dollars in thousands, except per share data:

Net income ...........................................................
Weighted average number of shares of common

stock outstanding ..............................................
Effect of dilutive securities ...................................
Weighted average number of shares of common

stock outstanding including the effect of dilutive
securities ...........................................................

Year ended September 30,
2014

2013

2015

16,204

13,473

10,552

22,490,260
10,573

22,466,432
13,403

22,399,346
42,036

22,500,833

22,479,835

22,441,382

Basic earnings per share ........................................
Diluted earnings per share ....................................

$
$

0.72
0.72

0.60
0.60

0.47
0.47

There were 120,674, 3,558 and 50,320 non-vested restricted stock units (RSUs) for the years ended September 30, 2015,

2014 and 2013, respectively, excluded from the calculation as they are antidilutive.

The Company did not declare or pay any dividends in the years ended September 30, 2015, 2014 or 2013.

As of September 30, 2015, the Company had 50,000,000 shares of common stock authorized, of which 22,496,628 shares

were issued and outstanding, as well as 10,000,000 shares of preferred common stock authorized, of which none was issued and
outstanding.

4. Investments

The Company had no investments as of September 30, 2015 or 2014. During the years ended September 30, 2014 and 2013,

the Company recorded insignificant amounts of interest income.

5. Fair Value Measurements

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair
value. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable
inputs) and market participant’s assumptions (unobservable inputs). Non-financial assets, such as goodwill and long-lived assets, are
accounted for at fair value on a non-recurring basis. These items are tested for impairment on the occurrence of a triggering event or
in the case of goodwill, at least on an annual basis.

As of September 30, 2015 and 2014, the Company did not have any financial assets or liabilities that were subject to fair

value measurements.

6. Property and Equipment

The Company had the following property and equipment balances as of September 30, 2015 and 2014, dollars in thousands:

Useful lives
(in years)
n/a

As of September 30,

2015

10,150

2014

6,867

Construction in process .................................
Capitalized real estate leases for build-to-suit stores,
including unamortized land of $617 and $617,
respectively ................................................
Capitalized real estate leases .........................
Land ...............................................................
Buildings .......................................................
Land improvements .......................................
Leasehold and building improvements ..........
Fixtures and equipment .................................
Computer hardware and software ..................

40
15
n/a
40
5 - 15
1 - 25
5 - 7
3 - 5

Less accumulated depreciation and amortization
Property and equipment, net ......................

24,774
4,866
192
4,980
1,015
91,865
83,932
13,834
235,608
(90,389 )
145,219

17,107
4,866
192
3,985
1,000
74,691
69,894
10,740
189,342
(69,118 )
120,224

As of September 30, 2015 and 2014, construction in process included $0 and approximately $2.3 million, respectively,

related to construction costs for build-to-suit leases in process for which the Company was deemed the owner during the construction
period. As of September 30, 2015 and 2014, construction in process included $0.9 million and $0, respectively, for capital real estate
leases.

Capitalized costs for computer software development were $0.2 million and $0.1 million for the years ended September 30,

2015 and 2014, respectively, primarily due to capitalization of internal staff compensation. Total costs capitalized for qualifying
construction projects on leasehold and building improvements and fixtures and equipment included approximately $0.6 million and
$0.5 million, for the years ended September 30, 2015 and 2014, respectively, related to internal staff compensation. Interest costs of
approximately $0.3 million and $0.4 million were capitalized for the years ended September 30, 2015 and 2014, respectively; no
amounts of interest were capitalized for the year ended September 30, 2013. Depreciation expense related to capitalized internal staff
compensation was approximately $0.4 million, $0.3 million and $0.3 million for the years ended September 30, 2015, 2014, and 2013,
respectively.

Depreciation and amortization expense for the years ended September 30, 2015, 2014 and 2013 is summarized as follows,

dollars in thousands:

Year ended September 30,
2014

2013

2015

Depreciation and amortization expense included in
cost of goods sold and occupancy costs ...........
Depreciation and amortization expense included in
store expenses ....................................................
Depreciation and amortization expense included in
administrative expenses ....................................
Total depreciation and amortization expense .....

796

770

19,635

906
21,337

15,861

581
17,212

709

12,365

422
13,496

7. Goodwill and Other Intangible Assets

Goodwill and other intangible assets as of September 30, 2015 and 2014, are summarized as follows, dollars in thousands:

Useful lives
(in years)

As of September 30,

2015

2014

Amortizable intangible assets:

Covenants-not-to-compete ............................
Favorable operating lease .............................
Other intangibles ..........................................
Amortized intangible assets ......................
Less accumulated amortization ....................
Amortized intangible assets, net ...............
Trademark ........................................................
Total other intangibles, net .......................
Goodwill ...........................................................
Total goodwill and other intangibles,

net .........................................................

2-5
5
0.5-1

Indefinite

353
339
27
719
(683 )
36
389
425
5,198

5,623

293
339
22
654
(654 )
—
389
389
511

900

Amortization expense was less than $0.1 million, $0 and less than $0.1 million for the years ended September 30, 2015, 2014
and 2013, respectively. The aggregate estimated amortization expense for the years ending September 30, 2016 and 2017 is less than
$0.1 million. There is no estimated amortization expense for the years ending September 30, 2018, 2019 and 2020. The increase in
goodwill and intangible assets in the year ended September 30, 2015 was due to the Store Acquisition described in Note 17.

8. Accrued Expenses

The composition of accrued expenses as of September 30, 2015 and 2014, is summarized as follows, dollars in thousands:

As of September 30,

2015

2014

Payroll and employee-related expenses .........................................
Accrued income taxes payable ......................................................
Accrued property, sales and use tax payable .................................
Accrued marketing expenses ..........................................................
Deferred revenue related to gift card sales ....................................
Other ..............................................................................................
Total accrued expenses ..............................................................

7,795
5,540
4,365
532
864
553
19,649

5,886
4,868
3,409
421
725
513
15,822

9. Deferred Financing Costs

The Company has capitalized costs incurred in securing its Credit Facility (see Note 10). Deferred financing costs, net of

accumulated amortization were less than $0.1 million as of September 30, 2015 and 2014. Accumulated amortization was
approximately $0.9 million as of both September 30, 2015 and 2014, respectively.

Total amortization expense for deferred financing costs was less than $0.1 million for each of the years ended September 30,

2015, 2014 and 2013.

10. Long-Term Debt

Credit Facility

The Company is party to a credit agreement (the Credit Facility). The operating company is the borrower under the Credit

Facility, and its obligations under the Credit Facility are guaranteed by the holding company. The Credit Facility is secured by a lien
on substantially all of the Company’s assets.

The Credit Facility requires compliance with certain operational and financial covenants including a leverage ratio and fixed

charge coverage ratio. The Credit Facility also contains certain other limitations on the Company’s ability to incur additional debt,
guarantee other obligations, grant liens on assets and make investments or acquisitions as defined in the Credit Facility. Additionally,

the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company, without the
administrative agent’s consent except when no default or event of default exists.

If no default or event of default exists dividends are allowed for various audit, accounting, tax, securities, indemnification,

reimbursement, insurance and other reasonable expenses in the ordinary course of business. The Company does not expect such
restrictions to impact its ability to meet cash obligations. The terms and conditions of the Credit Facility and associated documents are
customary and include, among other things, guarantees, pledges and subordinations. At September 30, 2015 and 2014, the Company
was in compliance with the debt covenants.

On December 12, 2013, the Company amended and restated its $15.0 million credit agreement, as a result of which, among

other things: (i) the maturity date of the Credit Facility was extended by three years to January 31, 2017; (ii) the Company has the
right to request the issuance of letters of credit under the Credit Facility of up to $3.0 million; (iii) the Company is allowed to increase
the amount available under the revolving credit facility, by an additional amount that may not exceed $10.0 million, by obtaining an
additional commitment or commitments; (iv) a requirement for a consolidated earnings before interest, taxes, depreciation and
amortization to revenue ratio was eliminated; and (v) the unused commitment fee was changed from 0.20% to amounts ranging from
0.15% to 0.35% based on certain conditions. The Company may borrow, prepay and re-borrow amounts under the Credit Facility at
any time prior to the maturity date.

On November 17, 2015, as provided for in the Credit Facility, the Company obtained a commitment to increase the amount

available for borrowing under the Credit Facility from $15.0 million to $25.0 million.

The Company had no amounts outstanding on its credit agreement as of September 30, 2015 and 2014. During the years
ended September 30, 2015 and 2014, the Company made and repaid borrowings under the credit agreement. As of September 30,
2015, the Company had undrawn, issued and outstanding letters of credit of $1.0 million which were reserved against the amount
available for borrowing under the terms of the credit agreement. As of each of September 30, 2015 and 2014, there was $14.0 million
available under the then-existing $15.0 million credit agreement.

For floating rate borrowings under the Credit Facility, interest is determined by the lender’s administrative agent and is stated

at the prime rate less the lender spread, subject to the Company meeting certain financial measures. For fixed rate borrowings under
the Credit Facility, interest is determined by quoted LIBOR rates for the interest period plus the lender spread, subject to the Company
meeting certain financial measures.

Capital and Financing Lease Obligations

The Company had 13 and ten leases as of September 30, 2015 and 2014, respectively, that are included in capital and

financing lease obligations (see Notes 2 and 11). The Company does not record rent expense for these capitalized real estate leases,
but rather rental payments under the capital leases are recognized as a reduction of the capital and financing lease obligation and as
interest expense (see Note 11). The interest rate on capital and financing lease obligations is determined at the inception of the lease.

Interest

The Company incurred gross interest expense of approximately $3.3 million, $2.9 million and $2.2 million in the years ended

September 30, 2015, 2014 and 2013, respectively. Interest expense for the years ended September 30, 2015, 2014 and 2013 relates
primarily to interest on capital and financing lease obligations. The Company capitalized interest of approximately $0.3 million and
$0.4 million for the years ended September 30, 2015 and 2014, respectively, and had no amounts of capitalized interest for the year
ended September 30, 2013.

11. Lease Commitments

Operating Leases

The Company leases retail stores, a bulk food repackaging facility and distribution center and administrative offices under
long-term operating leases through 2062. These leases include scheduled increases in minimum rents and renewal provisions at the
option of the Company. Deferred rent expense as of September 30, 2015 and 2014 was approximately $6.9 million and $5.8 million,
respectively. Tenant improvement allowances received from landlords (leasehold incentives) are recorded as liabilities and recognized
evenly as a reduction to rent expense over the lease term. Leasehold incentives at September 30, 2015 and 2014 were approximately
$8.0 million and $7.2 million, respectively. Sublease rental income was less than $0.1 million for each of the years ended September
30, 2015 and 2014. The Company had no sublease rental income during the year ended September 30, 2013.

The Company has five operating leases with Chalet Properties, LLC (Chalet), one operating lease with the Isely Family Land
Trust LLC and one operating lease with FTVC, LLC, all related parties (see Note 13). The terms and rental rates of these related party

leases are similar to leases with nonrelated parties and are at market rental rates. The leases began at various times with the earliest
occurring in November 1999, continue for various terms through February 2027 and include various options to renew. Currently,
annual lease payments range from less than $0.1 million to approximately $0.3 million per lease.

Minimum rental commitments and sublease rental income under the terms of the Company’s operating leases are as follows,

dollars in thousands:

Fiscal Year
2016 ..................................................
2017 ..................................................
2018 ..................................................
2019 ..................................................
2020 ..................................................
Thereafter .........................................

Third
parties
$ 25,889
28,458
28,789
27,588
26,915
235,971
373,610

Related
parties

Sublease
Rental
Income

Total
Operating
Leases

1,283
1,281
1,281
1,281
1,285
7,885
14,296

(125)
(134)
(134)
(124)
(121)
(338)
(976)

27,047
29,605
29,936
28,745
28,079
243,518
386,930

Total rent expense, including common area expenses and warehouse rent, for the years ended September 30, 2015, 2014, and

2013 totaled approximately $26.3 million, $20.5 million and $14.8 million, respectively, which is included in cost of goods sold and
occupancy costs and administrative expenses in the consolidated statements of income. In addition, approximately $0.8 million, $1.0
million and $0.6 million is included in pre-opening and relocation expense associated with rent expense for stores prior to their
opening date for the years ended September 30, 2015, 2014 and 2013, respectively.

For the year ended September 30, 2013, the Company completed one sale-leaseback transaction with an unrelated party for

proceeds of approximately $5.0 million, with a gain on the sale of approximately $0.2 million which has been deferred and will be
amortized over the initial lease term. Concurrent with the sale, the Company entered into an agreement to lease the property back
from the purchaser over an initial lease term of 15 years. The Company classified the lease as operating and considers the transaction
as a normal leaseback with no other continuing involvement.

Capital and Financing Lease Obligations

Capital and financing lease obligations as of September 30, 2015 and 2014, were as follows, dollars in thousands:

As of September 30,
2014

2015

Capital lease finance obligations, due in monthly installments

through fiscal year 2029 .................................................................................

22,096

14,989

Capital lease obligations due in monthly installments through fiscal

year 2028 .........................................................................................................

4,539

Capital lease finance obligations for assets under construction, due

in monthly installments through fiscal year 2024 ...........................................

—

Capital lease obligations for assets under construction, due in

monthly installments through fiscal year 2041 ................................................
Total capital and financing lease obligations .................................................
Less current portion .............................................................................................

972
27,607
(333 )

Total capital and financing lease obligations, net of current

4,672

2,316

—
21,977
(229 )

portion ........................................................................................................

27,274

21,748

Capital lease finance obligations

From time to time, the Company enters into leases with developers for build-to-suit store locations. Upon lease execution,

the Company analyzes its involvement during the construction period. As a result of defined forms of lessee involvement, the
Company could be deemed the “owner” for accounting purposes during the construction period, and would be required to capitalize
construction costs on its balance sheet. If the project costs were capitalized, the Company performs a sale-leaseback analysis upon
completion of the project to determine if the Company can remove the asset from its balance sheet. If the asset cannot be removed
from the balance sheet, the fair market value of the building remains on the balance sheet along with a corresponding capital lease
finance obligation equal to the fair market value of the building less any amounts the Company contributed toward construction. The
Company had capital lease finance obligations totaling approximately $22.1 million and $15.0 million as of September 30, 2015 and

2014, respectively. The leases that created the obligations expire or become subject to renewal clauses at various dates through fiscal
year 2029. The Company does not record rent expense for capital lease finance obligations, but rather rent payments per the leases are
recognized as a reduction of the related capital lease finance obligation and as interest expense. Depreciation expense for the related
capitalized lease assets is included in store expenses in the consolidated statements of income. At the end of the lease term, the
offsetting balances of the capitalized assets, net of accumulated depreciation, and capital lease finance obligation will be derecognized.

During the quarter ended December 31, 2014, the Company amended an existing lease with Chalet Properties, LLC, a related

party (see Note 13) to obtain additional square footage at one Company store. Due to the Company’s involvement with construction
for the additional space, the amended lease was deemed to be a capital financing lease in the quarter ended December 31, 2014. The
Company capitalized a building asset and related capital lease finance obligation of $3.3 million. Per the lease terms, the Company
will pay $2.8 million in cash for rent during the remaining term of the lease, of which $1.8 million will be recorded as interest expense
and $1.0 million will be recorded as principal payments. Additionally, the Company will record $1.0 million in depreciation expense
related to the building asset.

Capital lease obligations

The Company had capital lease obligations totaling approximately $4.5 million and $4.7 million as of September 30, 2015
and 2014, respectively. Certain of the Company’s leases for store locations are considered capital leases, and as such, the Company
has capitalized the present value of the minimum lease payments under the leases for the stores and recorded related capital lease
obligations. The leases that created the obligation expire or become subject to renewal clauses at various dates through fiscal year
2028. The Company does not record rent expense for capital lease obligations, but rather rent payments per the leases are recognized
as a reduction of the related capital lease obligation and as interest expense. Depreciation expense for the related capitalized lease
assets is included in store expenses in the consolidated statements of income.

Capital lease finance obligations for assets under construction

As of September 30, 2015, the Company had no construction in process related to capital lease finance obligations. As of

September 30, 2014, the Company had recorded approximately $2.3 million in capital lease finance obligations for assets under
construction. Once construction is completed, the Company was deemed to have continuing involvement and capitalized any
additional costs of construction. The lease that created the obligation as of September 30, 2014 expires or becomes subject to renewal
clauses in fiscal year 2024. The Company will not record rent expense for these leases, but rather rental payments under the leases
will be recognized as a reduction of the capital lease finance obligation and as interest expense. Depreciation expense for the related
capitalized lease assets is included in store expenses in the consolidated statements of income. At the end of the lease term, the
offsetting balances of the capitalized assets, net of accumulated depreciation, and the capital lease finance obligation will be
derecognized.

Capital lease obligations for assets under construction

As of September 30, 2015, the Company had recorded approximately $0.9 million for capital lease obligations for assets

under construction. As of September 30, 2014, the Company had no construction in process related to capital lease obligations. The
lease that created the obligation as of September 30, 2015 expires or becomes subject to renewal clauses in fiscal year 2041. The
Company will not record rent expense for these leases, but rather rental payments under the leases will be recognized as a reduction of
the capital lease obligation and as interest expense. Depreciation expense for the related capitalized lease assets is included in store
expenses in the consolidated statements of income. At the end of the lease term, the offsetting balances of the capitalized assets, net of
accumulated depreciation, and the capital lease obligation will be $0.

Future payments for capital lease finance obligations and capital lease obligations

Future payments under the terms of the leases for opened stores included in capital lease finance obligations and capital lease

obligations as of September 30, 2015 are as follows, dollars in thousands:

Interest
expense on
capital lease
finance
obligations

Principal
payments on
capital lease
finance
obligations

Interest
expense on
capital lease
obligations

Principal
payments on
capital lease
obligations

Total future
payments on
capital lease
finance and capital
lease obligations

2016 ...............................................................
2017 ...............................................................
2018 ...............................................................
2019 ...............................................................
2020 ...............................................................
Thereafter .......................................................
Non-cash derecognition of capital

lease finance obligations at end of
lease term ...................................................

2,643
2,625
2,604
2,578
2,546
15,836

—
28,832

177
199
234
295
329
4,464

16,399
22,097

650
631
609
584
554
2,460

—
5,488

151
170
192
217
247
3,561

—
4,538

3,621
3,625
3,639
3,674
3,676
26,321

16,399
60,955

Future payments under the terms of the lease for the store location at which construction was in progress as of September 30,

2015, based on the store opening date in the first quarter of fiscal 2016, are as follows, dollars in thousands:

Interest expense on capital
lease obligations for assets
under construction

Principal payments on
capital lease obligations for
assets under construction

Total future payments on capital
lease obligations for assets under
construction

85
85
85
85
85
1,253
1,678

12. Share-Based Compensation

(14 )
3
3
3
3
974
972

71
88
88
88
88
2,227
2,650

The Company adopted the 2012 Omnibus Incentive Plan (the Plan) on July 17, 2012. Restricted stock unit awards granted
pursuant to the Plan, if they vest, will be settled in new shares of the Company’s common stock. At the adoption of the Plan, there
were 1,090,151 shares of common stock available for issuance or delivery under the Plan, of which 620,580 remain available for
grants as of September 30, 2015. The Plan provides for awards of options, stock appreciation rights, stock grants, restricted stock
units, other share-based awards and cash-based incentive awards to officers, members of the Board of Directors (the Board) and
certain employees who are not named executive officers and consultants. As of September 30, 2015, only restricted stock units had
been granted under the Plan, at no out-of-pocket cost to officers, Board members and key employees. These restricted stock units vest
subject to requisite service requirements, immediately in part or annually in installments over a one-to-five year period. The award
recipients are not entitled to cash dividends or to vote with regard to non-vested restricted stock units, and the units are subject to
forfeiture during the vesting period. Restricted stock units are granted at the market price of the Company’s stock on the date of grant
and are expensed on a straight-line basis over the vesting period.

The shares of non-vested restricted stock units as of September 30, 2015 were as follows:

Non-vested as of September 30, 2013 .............
Granted ...........................................................
Forfeited ..........................................................
Vested ..............................................................
Non-vested as of September 30, 2014 .............
Granted ...........................................................
Forfeited .........................................................
Vested .............................................................
Non-vested as of September 30, 2015 ............

Weighted
average grant
date fair value

86,053 $
3,558
(3,868 )
(48,549 )
37,194
127,751
(17,560 )
(15,529 )
131,856

21.80
42.16
34.07
12.38
34.77
24.14
25.04
32.34
26.05

Share-based compensation expense for awards to certain employees who are not named executive officers was approximately

$0.4 million, $0.4 million, and $0.5 million for the years ended September 30, 2015, 2014, and 2013, respectively.

Prior to fiscal year 2015, each independent member of the Board was annually granted a number of non-vested restricted

stock units under the Plan equal to the number of shares of common stock having a value equal to $50,000 (based on the closing price
of common stock on the New York Stock Exchange on the date of grant). In December 2014, the disinterested members of the Board
increased the value of the annual grant of restricted stock to each independent director to $60,000 (based on the closing price of
common stock on the New York Stock Exchange on the date of grant). Such grants are made each year on the date of the Company’s
annual meeting of stockholders, or on a pro rata basis in the case of a mid-year appointment. Share-based compensation expense for
the Company’s awards to its Board members was approximately $0.2 million, $0.1 million, and $0.1 million for the years ended
September 30, 2015, 2014, and 2013, respectively.

The Company recorded total share-based compensation expense before income taxes of approximately $0.6 million, $0.5

million, and $0.6 million in the years ended September 30, 2015, 2014, and 2013, respectively. The share-based compensation
expense is included in cost of goods sold and occupancy expenses, store expenses or administrative expenses in the consolidated
statements of income consistent with the manner in which the applicable officer, Board member or key employee’s compensation
expense is presented. The Company recognized a tax benefit from share-based compensation expense of approximately $0.2 million
in each of the years ended September 30, 2015, 2014 and 2013.

As of September 30, 2015, there was approximately $3.0 million of unrecognized share-based compensation expense related

to non-vested restricted stock units, net of estimated forfeitures, which the Company anticipates will be recognized over a weighted
average period of approximately four years.

13. Related Party Transactions

The Company has ongoing relationships with related parties as noted:

Chalet Properties, LLC: The Company has five operating leases and one capital lease finance obligation (see Note 11) with

Chalet Properties, LLC (Chalet). Chalet is owned by the Company’s four non-independent Board members, Kemper Isely, Zephyr
Isely, Heather Isely and Elizabeth Isely, and other related family members. Rent paid to Chalet was approximately $1.1, million, $1.3
million and $1.3 million for the years ended September 30, 2015, 2014, and 2013, respectively. During the year ended September 30,
2015, Chalet sold one property to a third party in connection with one of the Company’s planned store relocations for the year ended
September 30, 2016. The Company leased a new property with a non-related party for the relocated store’s new location. During the
quarter ended December 31, 2014, the Company amended an existing lease with Chalet to obtain additional square footage at one
Company store. Due to the Company’s involvement with construction for the additional space, the amended lease was deemed to be a
capital financing lease in the quarter ended December 31, 2014.

Isely Family Land Trust LLC: The Company has one operating lease (see Note 11) with the Isely Family Land Trust LLC

(Land Trust). The Land Trust is owned by the Isely Children’s Trust and by the Margaret A. Isely Family Trust. Rent paid to the Land
Trust was approximately $0.3 million for each of the years ended September 30, 2015, 2014, and 2013.

FTVC LLC: The Company has one operating lease for a store location with FTVC LLC, which is owned by the Company’s
four non-independent Board members and other related family members. Rent paid to FTVC LLC was less than $0.1 million for the
year ended September 30, 2015.

14. Income Taxes

The following are the components of the provision for income taxes as of September 30, 2015, 2014 and 2013, respectively,

dollars in thousands:

Year ended September 30,
2014

2015

2013

Current federal income tax expense ................ $
Current state income tax expense ....................

Deferred federal income tax expense (benefit)
Deferred state income tax expense (benefit) ...

7,769
1,033
8,802

514
116
630

8,304
1,163
9,467

(1,112 )
(74 )
(1,186 )

Total provision for income taxes ................. $

9,432

8,281

3,376
551
3,927

2,156
296
2,452

6,379

The differences between the United States federal statutory income tax rate and the Company’s effective tax rate are as

follows:

Year ended September 30,
2014

2013

2015

Statutory tax rate ...........................................
State income taxes, net of federal income tax

expense ......................................................
Other, net .......................................................
Effective tax rate .......................................

35.0 %

2.9
(1.1 )
36.8 %

35.0

3.0
0.1
38.1

34.0

3.3
0.4
37.7

Deferred taxes have been classified on the consolidated balance sheets as follows, dollars in thousands:

Current assets ..........................................................................
Long-term liabilities ................................................................
Net deferred tax liabilities ...................................................

866
(6,073 )
(5,207 )

832
(5,409 )
(4,577 )

As of September 30,
2014
2015

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities

are as follows, dollars in thousands:

As of September 30,
2014
2015

Deferred tax assets ...............................................................
Capital and financing lease obligations ...........................
Goodwill ...........................................................................
Leasehold incentives .......................................................
Deferred rent ...................................................................
Trademarks ......................................................................
Accrued employee benefits .............................................
Other ................................................................................
Gross deferred tax assets .............................................

Deferred tax liabilities ..........................................................
Property and equipment ...................................................
Leasehold improvements .................................................
Other ................................................................................
Gross deferred tax liabilities ........................................
Net deferred tax liabilities ...........................................

10,473
2,582
3,025
2,627
1,018
729
363
20,817

(22,909 )
(3,087 )
(28 )
(26,024 )
(5,207 )

8,330
2,937
2,746
2,214
1,018
590
322
18,157

(19,930 )
(2,804 )
—
(22,734 )
(4,577 )

The Company believes that it is more likely than not that it will fully realize all deferred tax assets in the form of future

deductions based on the nature of the deductible temporary differences and expected future taxable income.

The Company had $0 and approximately $0.1 million as of September 30, 2015 and 2014, respectively, in tax effected
operating loss carryforwards related to state income taxes. The Company utilized the remaining operating loss carryforwards, of
approximately $0.1 million, on its tax return for the year ended September 30, 2015. The Company utilized less than $0.1 million in
tax effected state income tax carryforwards in the year ended September 30, 2014.

The Company files income tax returns with federal, state and local tax authorities. With limited exceptions, the Company is
no longer subject to federal income tax examinations for fiscal years 2011 and prior and is no longer subject to state and local income
tax examinations for fiscal years 2010 and prior.

15. Defined Contribution Plan

The Company has a defined contribution retirement plan (the Retirement Plan) covering substantially all employees who

meet certain eligibility requirements as to age and length of service. The Retirement Plan incorporates the salary deferral provisions of
Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code). Employees may defer up to the annual maximum limit
prescribed by the Code. The Company, on a discretionary basis, may match 25% of participant contributions up to a maximum annual
employer match of $2,500. The Company’s matching contribution included in administrative expenses was approximately $0.6
million, $0.1 million and $0.4 million for the years ended September 30, 2015, 2014 and 2013 respectively.

16. Segment Reporting

The Company has one reporting segment, natural and organic retail stores. The Company’s revenues are derived from the

sale of natural and organic products at its stores. All existing operations are domestic.

Sales from the Company’s natural and organic retail stores are derived from sales of the following products which are

presented as a percentage of sales for the years ended September 30, 2015, 2014 and 2013 as follows:

Grocery ..........................................................
Dietary supplements ......................................
Body care, pet care and other ........................

As of September 30,
2014

2013

2015

66.4 %
22.5
11.1
100.0 %

66.7
23.2
10.1
100.0

65.2
24.8
10.0
100.0

17. Business Combination

On December 7, 2014, the Company purchased substantially all of the assets and assumed certain liabilities of natural foods
retailer Nature’s Pantry, Inc. (the Store Acquisition), which operated one retail store in Independence, Missouri. Following the Store
Acquisition, the store was rebranded as a Natural Grocers by Vitamin Cottage store. The transaction has been recorded in accordance
with Accounting Standards Codification 805, “Business Combinations.” Assets acquired included, but were not limited to, inventory,
property and equipment and certain intangible assets, including the Nature’s Pantry internet domain name and a covenant not to
compete. The purchase price has been provisionally allocated to tangible and identifiable intangible assets totaling approximately
$1.5 million based on their estimated fair values at the date of acquisition, summarized as follows, dollars in thousands:

Inventory and supplies ...................................................................
Property and equipment .................................................................
Other intangible assets ...................................................................

726
680
65

Total provisionally allocated to tangible and identifiable

intangible assets .....................................................................

1,471

Other intangible assets is primarily comprised of a covenant not to compete that will be amortized over a period of two years
(see Note 7). During the year ended September 30, 2015, the Company adjusted the provisional fair value measurement as of the date
of acquisition for property and equipment, resulting in an increase of $0.1 million in the purchase price allocated to property and
equipment and a decrease of $0.1 million in goodwill. Total costs in excess of tangible and identifiable intangible assets acquired of
approximately $4.7 million have been recorded as goodwill and reflect the value the Company sees in a similar long-term commitment
to nutrition education and natural and organic products. A significant portion of the goodwill recognized is expected to be deductible
for income tax purposes. During the year ended September 30, 2015, the Company paid cash of $6.1 million related to the Store

Acquisition, which includes the payment during the three months ended March 31, 2015 of $0.5 million of contingent consideration,
which had been accrued in the three months ended December 31, 2014.

Results of this acquired operation are included in the Company’s consolidated statements of income beginning December 7,

2014.

18. Commitments and Contingencies

Self-Insurance

The Company is self-insured for claims under its health benefit plans, subject to a stop loss policy. The self-insurance

liability related to claims under the Company’s health benefit plans is determined based on analysis of actual claims. The amounts
related to these claims are included as a component of payroll and employee-related expenses in accrued expenses. Liabilities
associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience,
demographic factors and other actuarial assumptions. While the Company believes that its assumptions are appropriate, the estimated
accrual for these liabilities could be significantly affected if future occurrences and claims materially differ from these assumptions
and historical trends.

Legal

The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business,
including but not limited to employment discrimination claims, customer injury claims and investigations. When the potential liability
from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties
related to the resolution of lawsuits, investigations and claims, the ultimate outcome may differ from the estimates. Although the
Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against it,
management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse
effect on its business, prospects, financial condition, cash flows or results of operations.

In Bernhard Engl v. Natural Grocers by Vitamin Cottage, Inc. and Vitamin Cottage Natural Food Markets, Inc., filed on

September 25, 2015 in the United States District Court for the District of Colorado, the plaintiff filed a lawsuit against the Company in
connection with a data security incident that affected the Company during fiscal year 2015. The complaint purports to state an action
on behalf of a class of customers who used debit or credit cards at the Company’s stores. The Company believes the plaintiff's claims
are without merit and intends to vigorously defend itself in this proceeding. At this time, the Company cannot predict: (i) whether the
Court will certify plaintiff’s claims for class-wide treatment; (ii) how the Court will rule on the merits of the plaintiff’s claims; or (iii)
the scope of the potential loss in the event of an adverse outcome.

19. Selected Quarterly Financial Data (Unaudited)

The summarized unaudited quarterly financial data presented below reflect all adjustments, which in the opinion of

management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented.

Summarized unaudited quarterly financial data for each fiscal year is as follows, dollars in thousands, except per share data:

Fiscal Year Ended September 30, 2015

Three months ended

December 31,
2014

March 31,
2015

June 30,
2015

September 30,
2015

Net sales ......................................................................
Cost of goods sold and occupancy costs .....................
Gross profit .........................................................
Store expenses.............................................................
Administrative expenses .............................................
Pre-opening and relocation expenses ..........................
Operating income ................................................
Interest expense ...........................................................
Income before income taxes ...............................
Provision for income taxes ..........................................
Net income . ........................................................

Basic earnings per share .............................................
Diluted earnings per share .........................................

145,887
103,593
42,294
31,049
4,227
577
6,441
(735 )
5,706
(2,142 )
3,564

0.16
0.16

157,744
110,874
46,870
32,461
4,156
870
9,383
(714 )
8,669
(3,266 )
5,403

0.24
0.24

158,650
112,508
46,142
33,508
4,322
1,078
7,234
(768 )
6,466
(2,121 )
4,345

0.19
0.19

162,397
115,607
46,790
35,113
4,809
1,297
5,571
(776 )
4,795
(1,903 )
2,892

0.13
0.13

Fiscal Year Ended September 30, 2014

Three months ended

December 31,
2013

March 31,
2014

June 30,
2014

September 30,
2014

Other income (expense):

Dividends and interest income ................................
Interest expense .......................................................
Total other expense .............................................
Income before income taxes ...............................
Provision for income taxes ..........................................
Net income . ........................................................

Basic earnings per share .............................................
Diluted earnings per share .........................................

20. Subsequent Events

120,580
85,199
35,381
25,173
3,889
889
5,430

1
(707 )
(706 )
4,724
(1,802 )
2,922

0.13
0.13

130,343
91,590
38,753
26,877
3,548
1,211
7,117

1
(704 )
(703 )
6,414
(2,415 )
3,999

0.18
0.18

134,036
95,424
38,612
28,213
3,585
729
6,085

—
(706 )
(706 )
5,379
(2,015 )
3,364

0.15
0.15

135,715
96,959
38,756
28,394
3,801
945
5,616

—
(379 )
(379 )
5,237
(2,049 )
3,188

0.14
0.14

On November 17, 2015, as provided for in the Credit Facility, the Company obtained a commitment to increase the amount

available for borrowing under its Credit Facility from $15.0 million to $25.0 million.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in

Rule 13a-15(f) promulgated under the Exchange Act. Internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and preparation of consolidated financial statements for external purposes in
accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:



pertain to the maintenance of records that, in a reasonable detail, accurately and fairly reflect the dispositions of our
transactions and assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of
our assets that could have a material adverse effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have assessed the effectiveness of our internal control over financial reporting as of September 30, 2015 using the criteria

described in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment of the design and related testing of the internal control over financial reporting, management
concluded that, as of September 30, 2015, we maintained effective internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officers and principal financial and accounting officer,

evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of
the period covered by this Form 10-K. The evaluation included certain internal control areas in which we have made and are
continuing to make changes to improve and enhance controls. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact
that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls
and procedures relative to their costs.

Based on that evaluation, our principal executive officers and principal financial and accounting officer concluded that our

disclosure controls and procedures were effective as of September 30, 2015.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2015 that

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated herein by reference to the information provided under the headings

“Executive Officers and Directors," “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our
Definitive Proxy Statement on Schedule 14A for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days
of September 30, 2015 (the “2016 Proxy Statement”). We have adopted a code of business conduct and ethics that establishes the
standards of ethical conduct applicable to all of our directors, officers, including our principal executive, financial and accounting
officers, employees, consultants and contractors. Our code of business conduct and ethics is publicly available on our website at
www.naturalgrocers.com and we will post any amendments to, or waivers from, a provision of this Code of Business Conduct and
Ethics by posting such information on our website, at the address and location specified above.

Item 11. Executive Compensation.

The information required by this item is incorporated herein by reference to the information in the 2016 Proxy Statement

under the headings “Executive Compensation” and “Director Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item concerning securities authorized for issuance under equity compensation plans and
security ownership of certain beneficial owners and management is incorporated by reference to the information in the 2016 Proxy
Statement under the headings “Securities Authorized for Issuance Under Equity Compensation Plans” and “Security Ownership of
Certain Beneficial Owners and Management.”

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item concerning transactions with related persons and director independence is incorporated

by reference to the information in the 2016 Proxy Statement under the headings “Certain Relationships and Related Party
Transactions” and “Corporate Governance.”

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference to the information in the 2016 Proxy Statement under the

heading “Ratification of Independent Registered Public Accounting Firm—Principal Accounting Fees and Services.”

Item 15. Exhibits and Financial Statement Schedules.

1. Financial Statements: See Part II, Item 8 of this Form 10-K.

PART IV

2. Financial Statement Schedules: Schedules not listed above have been omitted because the information required to be set forth

therein is not applicable or is shown in the financial statements or notes herein.

3. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 10, 2015.

SIGNATURES

Natural Grocers by Vitamin Cottage, Inc.

By:

/s/ KEMPER ISELY
Kemper Isely,
Its Co-President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons in the capacities and on the dates indicated.

Name

Title

Date

/s/ KEMPER ISELY
Kemper Isely

(Principal Executive Officer, Co-President,

Director)

December 10, 2015

/s/ ZEPHYR ISELY
Zephyr Isely

(Principal Executive Officer, Co-President,

Director)

December 10, 2015

/s/ SANDRA BUFFA
Sandra Buffa

(Principal Financial and Accounting Officer,

Chief Financial Officer)

December 10, 2015

/s/ ELIZABETH ISELY
Elizabeth Isely

/s/ HEATHER ISELY
Heather Isely

Director

/s/ MICHAEL CAMPBELL
Michael Campbell

Director

/s/ EDWARD CERKOVNIK
Edward Cerkovnik

Director

/s/ RICHARD HALLÉ
Richard Hallé

Director

December 10, 2015

Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

EXHIBIT INDEX

Description

Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Reference is made to Exhibits 3.1 and 3.2
Specimen Common Stock Certificate
Form of Notice of Grant of Stock Unit Award
Form of Registration Rights Agreement

Form
Form S-1
Form S-1

Form S-1
Form S-8
Form S-1

Form 10-Q

File No.

Exhibit
Number

333-182186
333-182186

3.1
3.2

333-182186
333-182886
333-182186
001-35608

4.2
4.2
4.3

10.1

Filing Date
July 5, 2012
July 5, 2012

July 20, 2012
July 27, 2012
July 5, 2012
January 29,
2015

Second Amended and Restated Employment Agreement by
and between Vitamin Cottage Natural Food Markets, Inc.,
Natural Grocers by Vitamin Cottage, Inc. and Sandra M.
Buffa, dated June 26, 2012*
Credit Agreement among Vitamin Cottage Natural Food
Markets, Inc., the Lenders Party thereto, and JPMorgan
Chase Bank, N.A., as Administrative Agent, dated
September 29, 2006
First Amendment to Credit Agreement by and among
Vitamin Cottage Natural Food Markets, Inc. and JPMorgan
Chase Bank, N.A., dated November 2, 2006
Second Amendment to Credit Agreement by and among
Vitamin Cottage Natural Food Markets, Inc. and JPMorgan
Chase Bank, N.A., dated December 13, 2006
Third Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc. the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated June 26, 2007
Fourth Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated November 30,
2008
Fifth Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated June 30, 2009
Sixth Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated June 30, 2010
Seventh Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated December 21,
2010
Eighth Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated May 13, 2011
Ninth Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated July 11, 2011
Tenth Amendment to Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated January 26, 2012
Subordination Agreement by and among Vitamin Cottage
Two Ltd. Liability Company, and Vitamin Cottage Natural

Form S-1

333-182186

10.2

June 29, 2012

Form S-1

333-182186

10.3

June 29, 2012

Form S-1

333-182186

10.4

June 29, 2012

Form S-1

333-182186

10.5

June 29, 2012

Form S-1

333-182186

10.6

June 29, 2012

Form S-1

333-182186

10.7

June 29, 2012

Form S-1

333-182186

10.8

June 29, 2012

Form S-1

333-182186

10.9

June 29, 2012

Form S-1

333-182186

10.10

June 29, 2012

Form S-1

333-182186

10.11

June 29, 2012

Form S-1

333-182186

10.12

June 29, 2012

Form S-1

333-182186

10.13

June 29, 2012

Exhibit
Number

10.14

10.15

10.16
10.17

10.18
10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

Description

Form

File No.

Exhibit
Number

Filing Date

Food Markets, Inc., in favor of JPMorgan Chase Bank,
N.A., as administrative agent, dated September 29, 2006
First Amendment to Subordination Agreement by and
between Vitamin Cottage Two Ltd. Liability Company, and
Vitamin Cottage Natural Food Markets, Inc., in favor of
JPMorgan Chase Bank, N.A., as administrative agent, dated
June 26, 2007
Amended and Restated Promissory Note by Vitamin
Cottage Natural Food Markets, Inc., for the benefit of
JPMorgan Chase Bank, N.A., as Lender, dated
December 21, 2010

Form S-1

333-182186

10.14

June 29, 2012

Form S-1

333-182186

10.15

June 29, 2012

Form of Omnibus Incentive Plan*

Summary of Compensation Arrangements for Non-
Employee Directors*

Form of Indemnification Agreement*

Form S-1
Form S-1

333-182186
333-182186

10.16
10.17

July 5, 2012

June 29, 2012

Form S-1
Form S-1

333-182186
333-182186

10.18
10.19

June 29, 2012
June 29, 2012

Shopping Center Lease by and between Chalet Properties,
LLC and Vitamin Cottage Natural Food Markets, Inc.,
dated January 1, 2010
Ground lease by and between 3801 East Second Avenue,
LLC and Vitamin Cottage Natural Food Markets, Inc.,
dated March 1, 2001
Commercial Lease by and between Chalet Properties, LLC
and Vitamin Cottage Natural Food Markets, Inc., dated
June 1, 2006
Sublease by and between Chalet Properties, LLC and
Vitamin Cottage Natural Food Markets, Inc., dated June 1,
2006
Lease by and between Chalet Properties, LLC and Vitamin
Cottage Natural Food Markets, Inc., dated September 1,
2011
Lease by and between Chalet Properties, LLC and Boulder
Vitamin Cottage Group, LLC, dated July 1, 2011
Lease by and between Isely Family Land Trust, LLC and
Vitamin Cottage Natural Food Markets, Inc., dated
February 29, 2012
Lease by and between Chalet Properties, Austin, LLC and
Vitamin Cottage Natural Food Markets, Inc., dated
February 29, 2012
Building Lease by and between Chalet Properties, LLC and
Vitamin Cottage Natural Food Markets, Inc., dated
December 8, 2010
Distribution Agreement between United Natural Foods, Inc.
and Vitamin Cottage Natural Food Markets, Inc., dated
May 20, 2008#
Addendum A to Distribution Agreement between United
Natural Foods, Inc. and Vitamin Cottage Natural Food
Markets, Inc., dated February 27, 2009#
Agreement Addendum to Distribution Agreement between
United Natural Foods, Inc. and Vitamin Cottage Natural
Food Markets, Inc., dated March 10, 2012#
Third Amendment to Distribution Agreement between
United Natural Foods, Inc. and Vitamin Cottage Natural
Food Markets, Inc., dated June 3, 2012#
Form of Stockholders Agreement, by, between and among
Natural Grocers by Vitamin Cottage, Inc. and the
stockholders to be named therein

Form S-1

333-182186

10.20

June 29, 2012

Form S-1

333-182186

10.21

July 5, 2012

Form S-1

333-182186

10.22

June 29, 2012

Form S-1

333-182186

10.23

June 29, 2012

Form S-1

333-182186

10.24

June 29, 2012

Form S-1

333-182186

10.25

June 29, 2012

Form S-1

333-182186

10.26

June 29, 2012

Form S-1

333-182186

10.27

June 29, 2012

Form S-1

333-182186

10.28

June 29, 2012

Form S-1

333-182186

10.29

June 29, 2012

Form S-1

333-182186

10.30

June 29, 2012

Form S-1

333-182186

10.31

June 29, 2012

Form S-1

333-182186

10.32

July 12, 2012

10.33

Eleventh Amendment to Credit Agreement among Vitamin Form 10-K 001-35608

10.33

December 13,

Exhibit
Number

10.34

10.35

10.36

10.37

10.38

21.1

23.1
31.1

31.2

31.3

32.1

Form

File No.

Exhibit
Number

Filing Date

2012

December 13,
2012

December 12,
2013

December 13,
2012
December 13,
2012

Description
Cottage Natural Food Markets, Inc., the Lenders under the
Credit Agreement and JPMorgan Chase Bank, N.A., as
Lender and Administrative Agent, dated October 31, 2012
Third Amended and Restated Promissory Note by Vitamin
Cottage Natural Food Markets, Inc., for the benefit of
JPMorgan Chase Bank, N.A., as Lender, dated October 31,
2012
Pledge and Security Agreement by and between Natural
Grocers by Vitamin Cottage, Inc. and JP Morgan Chase
Bank, N.A., as Administrative Agent, for the ratable benefit
of the Secured Parties, dated October 31, 2012
Guaranty made by Natural Grocers by Vitamin
Cottage, Inc. in favor of JP Morgan Chase Bank, N.A., as
Administrative Agent, for the ratable benefit of the Secured
Parties, dated October 31, 2012

Amended and Restated Credit Agreement among Vitamin
Cottage Natural Food Markets, Inc., the Lenders Party
thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent, dated December 12, 2013

Amendment and Reaffirmation of Loan Documents dated
December 12, 2013 among Vitamin Cottage Natural Food
Markets, Inc., Natural Grocers by Vitamin Cottage, Inc.,
Natural Systems, LLC, Vitamin Cottage Two Ltd. Liability
Company and JPMorgan Chase Bank, N.A., as
Administrative Agent for the Lenders and each other
Secured Party under the Amended and Restated Credit
Agreement referred to above
Code of Ethics

Form 10-K

001-35608

10.34

Form 10-K

001-35608

10.35

Form 10-K

001-35608

10.36

Form 10-K

001-35608

10.37

Form 10-K

001-35608

10.38

Form 10-K

001-35608

List of subsidiaries

Form 10-K

001-35608

21.1

Consent of KPMG LLP

Certification of Kemper Isely, a Principal Executive Officer
Required Under Section 302(a) of the Sarbanes-Oxley Act
of 2002
Certification of Zephyr Isely, a Principal Executive Officer
Required Under Section 302(a) of the Sarbanes-Oxley Act
of 2002
Certification of Sandra Buffa, Principal Financial Officer
Required Under Section 302(a) of the Sarbanes-Oxley Act
of 2002
Certification of Principal Executive Officers and Principal
Financial Officer Required Under 18 U.S.C. §1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002†

—
—

—

101

The following materials from Natural Grocers by Vitamin Cottage, Inc.’s Annual Report on Form 10-K for the year ended
September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated
Statements of Cash Flows, (v) Consolidated Statements of Changes in Shareholders’ Equity, and (vi) Notes to
Consolidated Financial Statements.

*Indicates a management contract or compensatory plan or arrangement

# Confidential portions have been omitted pursuant to a request for confidential treatment.

† The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K, are not deemed filed with the
Securities and Exchange Commission and are not to be incorporated by reference into any filing of Natural Grocers by Vitamin
Cottage, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.

BOARD OF DIRECTORS
Kemper Isely, Chairman of the Board
Heather Isely, Corporate Secretary, Chair of the Compensation Committee
Michael T. Campbell, Chair of the Audit Committee
Edward Cerkovnik
Richard Hallé
Elizabeth Isely
Zephyr Isely

EXECUTIVE OFFICERS
Kemper Isely, Co-President
Zephyr Isely, Co-President
Elizabeth Isely, Executive Vice President
Heather Isely, Executive Vice President
Sandra Buffa, Chief Financial Officer

ORDERING FINANCIAL STATEMENTS
A copy of our 2015 Annual Report and Form
10-K may be obtained by written, phone or
email requests to:
Mail: Investor Relations

Natural Grocers by Vitamin Cottage, Inc.
12612 West Alameda Parkway
Lakewood, Colorado 80228

Email: SBuffa@NaturalGrocers.com
Phone: (303) 986-4600

ANNUAL MEETING
March 2, 2016
1:00 p.m. Mountain Time
Natural Grocers by Vitamin Cottage, Inc.
Home Office Auditorium
12612 West Alameda Parkway
Lakewood, Colorado 80228

TRANSFER AGENT & REGISTRAR
Information about stock certificates, address
changes, ownership transfers or other stock
matters can be obtained from American Stock
Transfer & Trust Company, LLC via:
Mail: American Stock Transfer & Trust Company

6201 15th Avenue,
Brooklyn, NY 11219
Email: info@amstock.com
Phone: (800) 937-5449
Hearing Impaired (TTY):
(866) 703-9077 or (718) 921-8386
Web: amstock.com

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP

TRADING INFORMATION
The common stock of Natural Grocers by
Vitamin Cottage, Inc. is traded on the New York
Stock Exchange (symbol: NGVC).

CORPORATE INFORMATION