Natural Grocers by Vitamin Cottage, Inc.

June 30, 2025 and 2024

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, dietary supplements and body care products. The Company operated 169 stores as of June 30, 2025 and September 30, 2024, in 21 states. The Company also has a bulk food repackaging facility and distribution center in Golden, Colorado.

2. Basis of Presentation and Summary of Significant Accounting Policies

Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements and are in the form prescribed by Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for annual financial statements. The information included in this Form 10-Q should be read in conjunction with Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in the Form 10-K. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial results. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a fiscal year ending September 30.

The accompanying unaudited consolidated financial statements include all the accounts of the holding company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company) and Vitamin Cottage Two Ltd. Liability Company (VC2). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has a single reporting segment: natural and organic retail stores.

Use of Estimates

The preparation of financial statements in conformity with 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 valuation of inventories, useful lives of long-lived assets for depreciation and amortization, impairment of goodwill, indefinite-lived intangible assets and long-lived assets, lease assumptions, allowances for self-insurance reserves, 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.

Recently Adopted Accounting Pronouncements

In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-01, “Common Control Arrangements,” Accounting Standards Codification (ASC) Topic 842, “Leases” (ASU 2023-01). Issue 1, Terms and Conditions to Be Considered, of ASU 2023-01 is not applicable to public entities. Issue 2, Accounting for Leasehold Improvements, of ASU 2023-01 requires leasehold improvements associated with common control leases to be amortized over the useful life of the improvements and certain disclosures when the useful life of leasehold improvements to the common control group exceeds the related lease term. The Company adopted ASU 2023-01 prospectively for all applicable new leasehold improvements on or after October 1, 2024. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” ASC Topic 326, “Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), subsequently amended by various standard updates. ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates. ASU 2016-13 also requires financial assets to be measured net of expected credit losses at the time of initial recognition. ASU 2019-10, issued in November 2019, delayed the effective date of ASU 2016-13 for smaller reporting companies such as the Company. The Company adopted ASU 2016-13 effective October 1, 2023 by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of retained earnings. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures,” ASC Topic 280, “Segment Reporting” (ASU 2023-07). The ASU 2023-07 provisions require enhanced disclosures primarily about significant segment expenses. In addition, the provisions enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The provisions of ASU 2023-07 will be effective for the Company’s annual reporting period ending September 30, 2025. The Company expects that the adoption of these provisions will have an impact on its single reportable segment disclosures.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” ASC Topic 740, “Income Taxes” (ASU 2023-09). The ASU 2023-09 provisions require entities, on an annual basis, to disclose specific categories in the rate reconciliation and provide additional information for reconciling items equal to or greater than 5% of the statutory income tax rate amount. ASU 2023-09 also requires that entities disclose on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5% of total income taxes paid. In addition, ASU 2023-09 eliminates some disclosures relating to estimates of the change in unrecognized tax benefits reasonably possible within 12 months. The provisions of ASU 2023-09 will be effective for the Company’s annual reporting period ending September 30, 2026. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses,” ASC Subtopic 220-40, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures” (ASU 2024-03). The ASU 2024-03 provisions require entities, on both an interim and annual basis, to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption of the entity’s income statement, and disclose a qualitative description of the amounts remaining in the relevant expense captions that are not separately disaggregated quantitatively. In addition, ASU 2024-03 requires the disclosure of the total amount of selling expenses and certain other items. The provisions of ASU 2024-03 will be effective for the Company’s annual reporting period ending September 30, 2028. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

No other new accounting pronouncements issued or effective prior to the filing of this Form 10-Q had, or are expected to have, a material impact on the Company’s consolidated financial statements.

3. Revenue Recognition

The nature of the goods the Company transfers to customers at the point of sale consists of merchandise purchased for resale. In these transactions, the Company acts as a principal and recognizes revenue (net sales) from the sale of goods when control of the promised goods is transferred to the customer. Control refers to the ability of the customer to direct the use of, and obtain substantially all the remaining benefits from, the transferred goods.

The Company’s performance obligations are satisfied upon the transfer of goods to the customer (at the point of sale), and payment from the customer is also due at that time. Transaction prices are considered fixed. Discounts provided to customers at the point of sale are recognized as a reduction in revenue as the goods are sold. Revenue excludes sales and usage-based taxes collected.

Proceeds from the sale of the Company’s gift cards are recorded as a liability at the time of sale and recognized as revenue when the gift cards are redeemed by the customer and the performance obligation is satisfied by the Company.

The balance of contract liabilities related to unredeemed gift cards was $1.7 million and $1.5 million as of June 30, 2025 and September 30, 2024, respectively. Revenue for the three months ended June 30, 2025 and 2024 includes $0.1 million and less than $0.1 million, respectively, that was included in the contract liability balance of unredeemed gift cards at September 30, 2024 and 2023, respectively. Revenue for the nine months ended June 30, 2025 and 2024 includes approximately $0.7 million and $0.5 million, respectively, that was included in the contract liability balance of unredeemed gift cards at September 30, 2024 and 2023, respectively.

Rewards program points are accrued as deferred revenue at the retail value per point, net of estimated breakage based on historical redemption rates experienced within the rewards program. Rewards points are forfeited at the end of each calendar year.

The following table disaggregates the Company’s revenue by product category for the three and nine months ended June 30, 2025 and 2024, dollars in thousands and as a percentage of net sales:

4. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed using the treasury stock method and reflects the potential dilution that could occur if the Company’s granted but unvested restricted stock units (RSUs) were to vest, resulting in the issuance of common stock that would then share in the earnings of the Company.

The following table presents the Company’s basic and diluted EPS for the three and nine months ended June 30, 2025 and 2024, dollars in thousands, except per share data:

There wereno and 13,000 non-vested RSUs for the three months ended June 30, 2025 and 2024, respectively, and 32,096 and 27,944 non-vested RSUs for the nine months ended June 30, 2025 and 2024, respectively, excluded from the calculation of diluted EPS as they were antidilutive.

5. Debt

Credit Facility

The Company is party to a credit facility originally entered into on January 28, 2016, as subsequently amended, consisting of a revolving loan facility and, prior to its repayment in September 2024, a $35.0 million term loan (the Term Loan, and, collectively, the Credit Facility). As of September 30, 2024, the Company had fully repaid all remaining amounts outstanding under the Term Loan. The operating company is the borrower under the Credit Facility and its obligations under the Credit Facility are guaranteed by the holding company and VC2. The Credit Facility is secured by a lien on substantially all of the Company’s assets. At June 30, 2025, the aggregate revolving commitment amount available under the Credit Facility was $72.5 million, including a $5.0 million sublimit for standby letters of credit. The Company has the right to borrow, prepay and re-borrow revolving amounts under the Credit Facility at any time prior to its maturity date without premium or penalty. The revolving commitments under the Credit Facility mature on November 16, 2028. Base rate loans under the Credit Facility bear interest at a fluctuating base rate, as determined by the lenders’ administrative agent based on the most recent compliance certificate of the operating company and stated at the highest of: (i) the federal funds rate plus 0.50%; (ii) theprime rate; and (iii) Term SOFR plus 1.00%, subject to the applicable interest rate floor, less the lender spread based upon the Company’s consolidated leverage ratio. Term SOFR borrowings under the Credit Facility bear interest based on Term SOFR for the interest period plus the lender spread based upon the Company’s consolidated leverage ratio. The unused commitment fee is based upon the Company’s consolidated leverage ratio.

The Credit Facility requires compliance with certain customary operational and financial covenants, including a consolidated leverage ratio. The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations. Additionally, the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company without the administrative agent’s consent, provided that so long as no default or event of default exists or would arise as a result thereof, the operating company may pay cash dividends to the holding company in an amount sufficient to allow the holding company to: (i) pay various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business and (ii) repurchase shares of common stock and pay dividends on the Company’s common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.

On November 16, 2023, the Company amended the Credit Facility to: (i) increase its aggregate revolving commitments from $50.0 million to $75.0 million; (ii) extend the maturity date of the revolving commitments under the Credit Facility to November 16, 2028; (iii) permit payment of a one-time cash dividend of up to $25.0 million no later than December 31, 2023; and (iv) increase the Company’s restricted payment capacity by $2.5 million, allowing the Company to repurchase shares of common stock and pay dividends on its common stock in an aggregate amount not to exceed $15.0 million during any fiscal year. The aggregate revolving commitment amount is automatically and permanently reduced by $2.5 million on each anniversary date until the Credit Facility matures on November 16, 2028, unless the Company has previously exercised its option to reduce the aggregate revolving commitments to a lower amount.

The Company had no revolving loan amounts outstanding under the Credit Facility as of June 30, 2025 and September 30, 2024. The Company had undrawn, issued and outstanding letters of credit of $3.0 million and $2.2 million as of June 30, 2025 and September 30, 2024, respectively, which were reserved against the amount available for borrowing under the terms of the Credit Facility. The Company had $69.5 million and $72.8 million available for borrowing under the Credit Facility as of June 30, 2025 and September 30, 2024, respectively.

As of June 30, 2025 and September 30, 2024, the Company was in compliance with all covenants under the Credit Facility.

Lease Obligations

The Company had 25 and 24 leases that were classified as finance leases as of June 30, 2025 and September 30, 2024, respectively. No rent expense is recorded for these finance leases; rather, rental payments under such leases are recognized as a reduction of the lease obligation and as interest expense. The interest rate on finance lease obligations is determined at the commencement of the lease.

Interest

The Company incurred gross interest expense of $0.8 million and $1.2 million for the three months ended June 30, 2025 and 2024, respectively, and $2.5 million and $3.4 million for the nine months ended June 30, 2025 and 2024, respectively. Interest expense for the three and nine months ended June 30, 2025 and 2024 relates primarily to interest on finance lease obligations and the Credit Facility. The Company capitalized interest of $0.1 million for each of the three months ended June 30, 2025 and 2024, and $0.2 million and $0.3 million for the nine months ended June 30, 2025 and 2024, respectively.

6. Stockholders’** Equity**

Share Repurchases

In May 2016, the Board of Directors (the Board) authorized atwo-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company’s common stock. The Board subsequently extended the share repurchase program – most recently in May 2024 – and the current program will terminate on May 31, 2026. Repurchases under the Company’s share repurchase program may be made from time to time at management’s discretion on the open market or through privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the Exchange Act), subject to market conditions, applicable legal requirements and other relevant factors. Repurchases of common stock may also be made under a Rule 10b5-1 plan, which permits common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The share repurchase program does not obligate the Company to purchase any particular amount of common stock and may be suspended, modified or discontinued by the Company without prior notice. The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.1 million.

The Company didnot repurchase any shares of common stock during the three and nine months ended June 30, 2025 and 2024. During the nine months ended June 30, 2024, the Company reissued 6,497 treasury shares at a cost of $0.1 million to partially satisfy the issuance of common stock pursuant to the vesting of certain restricted stock unit awards and the award of stock grants. At June 30, 2025 and September 30, 2024, the Company heldno shares in treasury.

Dividends

The Company paid a quarterly cash dividend of $0.12 per share of common stock in each of the first three quarters of fiscal year 2025 and $0.10 per share of common stock in each of the first three quarters of fiscal year 2024. In addition, the Company paid a special cash dividend of $1.00 per share of common stock in the first quarter of fiscal year 2024.

Share-Based Compensation

During the nine months ended June 30, 2025, the Company accelerated the vesting of certain restricted stock units upon the retirement of the Company’s former Chief Financial Officer, making them fully vested, resulting in incremental share-based compensation expense of $0.5 million.

7. Leases

The Company leases most of its stores, a bulk food repackaging facility and distribution center, and its administrative offices. The Company determines if an arrangement is a lease or contains a lease at inception. Lease terms generally range from 10 to 25 years, with scheduled increases in minimum rent payments.

Operating and finance lease liabilities represent the present value of lease payments not yet paid. Operating and finance lease assets represent the Company’s right to use an underlying asset and are based upon the operating and finance lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives and impairment of operating and finance lease assets.

Most leases include one or more options to renew, with renewal terms normally expressed in periods offive toten-year increments. The exercise of lease renewal options is at the Company’s sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option.

Variable payments related to pass-through costs for maintenance, taxes and insurance or adjustments based on an index such as Consumer Price Index are not included in the measurement of the lease liability or asset and are expensed as incurred.

Because the rate implicit in the Company’s lease agreements is typically not readily determinable, the Company uses an estimated incremental borrowing rate, which is derived from third-party lenders, to determine the present value of lease payments. The Company uses other observable market data to evaluate the appropriateness of the rate derived from the lenders. The estimated incremental borrowing rate is based on the borrowing rate for a secured loan with a term similar to the expected term of the lease.

Leases are recorded at the commencement date (the date the underlying asset becomes available for use) for the present value of lease payments, less tenant improvement allowances received or receivable. Leases with a term of 12 months or less (short-term leases) are not presented on the balance sheet. The Company has elected to account for the lease and non-lease components as a single lease component for all current classes of leases.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company subleases certain real estate or portions thereof to third parties. Such subleases have all been classified as operating leases. Remaining sublease terms extend through fiscal year 2030. Although some sublease arrangements provide renewal options, the exercise of sublease renewal options is at the sole discretion of the subtenant. The Company recognizes sublease income on a straight-line basis.

The Company hasfive operating leases with Chalet Properties, LLC (Chalet), one operating lease with the Isely Family Land Trust LLC (Land Trust) andone operating lease with FTVC, LLC (FTVC), each of which is a related party (see Note 13). The leases began at various times with the earliest commencing in November 1999, continue for various terms through May 2042 and include various options to renew. The terms and rental rates of these leases have been approved by our audit committee in accordance with our related party transaction policy. As of June 30, 2025, these leases accounted for $8.6 million of operating lease assets and $8.8 million of operating lease liabilities, of which $0.8 million was current, and are included in the disclosures below. Lease expense is recognized on a straight-line basis and was $0.3 million for each of the three months ended June 30, 2025 and 2024 and $0.9 million for each of the nine months ended June 30, 2025 and 2024.

The components of total lease cost for the three and nine months ended June 30, 2025 and 2024 were as follows, dollars in thousands:

(1) Immaterial balances related to corporate headquarters and distribution center are included in administrative expenses and store expenses, respectively.

Additional information related to the Company’s leases for the three and nine months ended June 30, 2025 and 2024 were as follows, dollars in thousands:

Additional information related to the Company’s leases as of June 30, 2025 and 2024 was as follows:

During the nine months ended June 30, 2025, the Company early terminated a lease due to a store relocation, and, as a result, the Company wrote off operating lease assets and liabilities of less than $0.1 million each and recorded a gain of less than $0.1 million. During the nine months ended June 30, 2024, the Company paid $0.3 million to early terminate the operating lease associated with a closed store, and, as a result, the Company wrote off $0.4 million of operating lease assets and $0.6 million of operating lease liabilities and recorded a loss of $0.2 million. In addition, during the nine months ended June 30, 2025, the Company recorded impairment charges related to operating lease assets of $0.1 million, associated with store closures and an early store relocation, and during the three and nine months ended June 30, 2024, the Company recorded impairment charges related to operating lease assets of $0.4 million, associated with a store closure and an early store relocation, and $0.5 million, associated with store closures and an early store relocation, respectively.

Future lease payments under non-cancellable leases as of June 30, 2025 were as follows, dollars in thousands:

The table above excludes $15.4 million of legally binding minimum lease payments for leases that had been executed as of June 30, 2025 but whose terms had not yet commenced.

8. Property and Equipment

The Company had the following property and equipment balances as of June 30, 2025 and September 30, 2024, dollars in thousands:

Depreciation and amortization expense for the three and nine months ended June 30, 2025 and 2024 is summarized as follows, dollars in thousands:

9. Other Assets

Other assets as of June 30, 2025 and September 30, 2024, are summarized as follows, dollars in thousands:

10. Goodwill and Other Intangible Assets

The Company had the following goodwill and other intangible asset balances as of June 30, 2025 and September 30, 2024, dollars in thousands:

(1) Internal-use software at September 30, 2024 has been reclassified from other intangibles to be consistent with the current period presentation.

11. Accrued Expenses

The composition of accrued expenses as of June 30, 2025 and September 30, 2024 is summarized as follows, dollars in thousands:

12. Income Taxes

Income taxes are accounted for in accordance with the provisions of FASB ASC Topic 740 “Income Taxes” (ASC 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

On July 4, 2025, the U.S. federal government enacted the One Big Beautiful Bill Act (OBBBA). The OBBBA, among other things, makes changes to certain business-related exclusions, deductions and credits. As the effects of changes in tax law are recognized in the period of change, this legislation is not reflected in the Company’s unaudited consolidated financial statements for the periods ended June 30, 2025. The Company is currently evaluating the impact of the OBBBA, but does not expect it to have a material impact on its consolidated financial statements.

13. Related Party Transactions

The Company has ongoing relationships with related entities as noted below:

Chalet Properties, LLC: The Company hasfive operating leases (see Note 7) with 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 $0.2 million for each of the three months ended June 30, 2025 and 2024, and $0.6 million for each of the nine months ended June 30, 2025 and 2024.

*Isely Family Land Trust LLC:*The Company hasone operating lease (see Note 7) with the 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 $0.1 million for each of the three months ended June 30, 2025 and 2024 and was $0.2 million for each of the nine months ended June 30, 2025 and 2024.

*FTVC LLC:*The Company hasone operating lease (see Note 7) with FTVC, which is owned by the Company’s four non-independent Board members and other related family members. Rent paid to FTVC was less than $0.1 million for each of the three months ended June 30, 2025 and 2024 and was less than $0.1 million for each of the nine months ended June 30, 2025 and 2024.

14. Commitments and Contingencies

Self-Insurance

The Company is self-insured for certain losses, liabilities and employee benefit costs, subject to a stop loss policy or deductible limits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering an analysis of actual claims, 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 Proceedings

The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to labor and employment-related claims, customer 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, 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 financial statements.

15. Subsequent Event

On August 6, 2025, the Board approved the payment of a quarterly cash dividend of $0.12 per share of common stock to be paid on September 17, 2025 to stockholders of record as of the close of business on September 2, 2025.