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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No.1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

 OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

COMMISSION FILE NUMBER: 001-35608

Natural Grocers by Vitamin Cottage, Inc.

(Exact name of registrant as specified in its charter)

12612 West Alameda Parkway

Lakewood, Colorado 80228

(Address of principal executive offices)

(303) 986-4600

(Registrants 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 o No x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by checkmark 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 x No o

Indicate by checkmark 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 x No o

Indicate by checkmark 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. o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The aggregate market value of all common stock held by non-affiliates of the registrant as of July 25, 2012 was $127,571,426.  The registrant was a privately held company on March 30, 2012, which is the last business day of its second fiscal quarter.  As a result, the registrant is disclosing this information as of July 25, 2012, which was the initial trading date of the registrant’s common stock on the New York Stock Exchange.  The number of shares of the registrant’s common stock outstanding as of December 12, 2012 was 22,372,184.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant’s definitive Proxy Statement for the 2013 Annual Meeting of the Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after September 30, 2012.

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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) to the Annual Report on Form 10-K of Natural Grocers by Vitamin Cottage, Inc. (the “Company”) for the fiscal year ended September 30, 2012, initially filed with the Securities and Exchange Commission (the “SEC”) on December 13, 2012 (the “Original Filing”), is being filed to correct two administrative errors in the Original Filing. Specifically, the Original Filing inadvertently (i) did not include a conformed signature on the report of independent registered accounting firm from KPMG LLP (“KPMG”) included in Item 8 and (ii) did not include a conformed signature on the consent from KPMG in Exhibit 23.1.

In addition, pursuant to the rules of the SEC, “Item 8. Financial Statements and Supplementary Data” is being filed in its entirety in this Amendment. The only change in Item 8 from the Original Filing has been to add the conformed signature to the report of independent registered accounting firm.

Finally, consistent with the rules of the SEC, the certifications of the Company’s principal executive officers and principal financial and accounting officer as of the date of this Amendment are attached as exhibits to this Amendment. The only change in these certifications is their date.

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PART II

Item 8.  Financial Statements and Supplementary Data.

Natural Grocers by Vitamin Cottage, Inc.

Index to Consolidated Financial Statements

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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, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2012. 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, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2012, in conformity with U.S. generally accepted accounting principles.

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NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Income

See accompanying notes to consolidated financial statements.

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NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.

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NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

Fiscal years ended September 30, 2012, 2011 and 2010

See accompanying notes to consolidated financial statements.

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Natural Grocers by Vitamin Cottage, Inc.

Notes to Consolidated Financial Statements

September 30, 2012 and 2011

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 59 stores as of September 30, 2012, including 31 stores in Colorado, ten in Texas, four in New Mexico, three in Kansas, two in Wyoming, three in Arizona, and one in each of the following states; Utah, Oklahoma, Missouri, Montana, Idaho and Nebraska, as well as a bulk food repackaging facility and distribution center in Colorado. The Company had 49 and 39 stores as of September 30, 2011 and 2010, respectively.

2. Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation

The holding company was incorporated in Delaware on April 9, 2012. The accompanying consolidated financial statements include all the accounts of the Company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company), Vitamin Cottage Two Ltd. Liability Company (VC2), Natural Systems, LLC and Boulder Vitamin Cottage Group, LLC (BVC). The operating company formed the holding company in order to facilitate the purchase of the remaining noncontrolling interest in BVC and consummation of the initial public offering (IPO).  Prior to the Company’s IPO on July 25, 2012, the Company had a majority 55% ownership of BVC.  Prior to the settlement of the IPO, the Company issued 670,056 shares of stock in the holding company and paid $10,050,880 in cash to purchase the remaining 45% noncontrolling interest in BVC.  Effective October 31, 2012, BVC merged with and into the operating company and ceased to exist.  Prior to the merger, BVC owned five Natural Grocers by Vitamin Cottage retail stores, which were managed by the operating company.  All significant intercompany balances and transactions have been eliminated in consolidation.

Initial Public Offering

The holding company was incorporated in anticipation of the Company’s IPO.  Prior to the IPO, the holding company was a wholly owned subsidiary of the operating company.  In connection with the Company’s IPO, the Company completed a reorganization in which a) the existing shareholders of the operating company exchanged capital stock of the operating company for shares of common stock of the holding company and b) the operating company purchased the remaining 45% noncontrolling interest in BVC for a combination of cash and common stock of the holding company as described above.  The holding company’s only material asset is its direct 100% ownership in the operating company.  On July 25, 2012, the Company issued 4,167,367 shares to the public.  Simultaneously with the IPO, certain selling shareholders sold 4,046,918 shares to the public resulting in no additional proceeds to the Company.

The following table summarizes the shares issued in the IPO.

The following table details total shares outstanding as of September 30, 2012.

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Based on the public offering price of $15.00, the Company received gross proceeds from the issuance of 4,167,367 shares issued to the public in the IPO of $62,510,505, and paid underwriting costs of 7%, or $4,375,735, for net proceeds of $58,134,770.  The Company recorded the proceeds received from the IPO as cash and cash equivalents and recorded the issuance of common stock at par value, with the remaining amount being recorded as additional paid in capital.  The Company also incurred issuance costs of approximately $2.7 million.

The Company accounted for the acquisition of the BVC noncontrolling interest, as described above, as an equity transaction.  Since the transaction is treated as an equity transaction, the transaction costs are also reflected as a reduction of equity and a financing activity in the statement of cash flows.  The Company recorded the issuance of the 670,056 shares in common stock at par value, reduced cash and cash equivalents by approximately $10.1 million, eliminated approximately $1.5 million in noncontrolling interest on the balance sheet in July 2012, and recorded the remaining amount as additional paid in capital.  As a result of the acquisition of the remaining noncontrolling interest, the Company is entitled to tax deductions to the extent of any step up in tax basis on the assets of BVC, limited to the cash consideration paid.  Accordingly, the tax basis in excess of book basis at the date of purchase resulted in deferred tax assets of approximately $3.6 million.

As of September 30, 2012, the Company has used the proceeds from the IPO to pay down all outstanding amounts under the credit facility, pay the cash portion of the BVC purchase, pay expenses associated with the IPO and pay the cash portion of restricted stock awards.  The following table illustrates the use of proceeds received from the IPO as of September 30, 2012:

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 for depreciation and amortization of property and equipment, valuation allowances for 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. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 280, Segment Reporting, establishes standards for reporting information about a company’s operating segments.

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 of year end. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

Accounts Receivable

Accounts receivable consists primarily of receivables from vendors for certain promotional programs, primarily newsletter advertising, and other miscellaneous receivables and are presented net of any allowances for doubtful accounts. The Company had no allowances for doubtful accounts as of September 30, 2012 and 2011. Accounts receivable—leasehold incentives consist of receivables due from landlords for tenant allowances.

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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, accounts receivable and investments in available-for-sale securities. The Company’s cash and cash equivalent account balances did not exceed the Federal Deposit Insurance Corporation’s federally insured limits as of September 30, 2012. The Company records accounts receivable from the sale of newsletter advertising to vendors. If the accounts are not paid timely, the Company has the right to set off the amount of unpaid receivable balance with the amount owed to the other party for vendor product invoices. The Company evaluates the ability to collect the receivables and believes the amounts appearing on the consolidated balance sheets to be fully collectible as of September 30, 2012 and 2011. Accordingly, no allowance for doubtful accounts has been recorded for the years ended September 30, 2012, 2011 and 2010.

Vendor Concentration

For the years ended September 30, 2012, 2011 and 2010, purchases from the Company’s largest vendor and one of its subsidiaries represented approximately 53%, 53% and 52% of all product purchases made during the respective periods. However, the Company believes that, if necessary, alternate vendors could supply similar products in adequate quantities to avoid disruption 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. Cost is determined using the weighted average cost method.

Property and Equipment

Property and equipment is stated at historical cost less accumulated depreciation. In accordance with FASB ASC Topic 835, Interest, the Company capitalizes interest, if applicable, as part of the historical costs of leasehold improvements. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets.

For leasehold and land improvements, depreciation is recorded over the shorter of the useful lives or the lease terms. The estimated useful lives range from two to 20 years. 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 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 of the fair value hierarchy are as follows:

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Goodwill and Intangible Assets

In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350); Testing Goodwill for Impairment. The objective of the update is to simplify how entities test goodwill for impairment. The update allows for a company to first evaluate 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. The Company early adopted the provisions of this update as of September 30, 2011. Goodwill is reviewed for impairment at least annually. In order to test goodwill for impairment, 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 would perform 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.

Impairment of Intangible and Long-Lived 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. The Company’s annual impairment testing is performed as of September 30. 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.

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.

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 effective interest method.

Self-Insurance

The Company is self-insured for certain losses relating to employee medical and dental benefits. 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, returns and allowances. 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 also ships certain products ordered through its Internet site. Revenue is recognized on Internet sales at the time the products are shipped to the customers. The Company records a deferred revenue liability within accrued expenses when it sells Natural Grocers gift cards or issues gift cards to employees, and records a sale when a customer redeems the gift card. The gift cards do not expire. The Company currently does not record breakage for unused portions of gift cards.

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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 Expenses

Store expenses consist of store-level expenses such as salaries and benefits, 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 and benefits, 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.

Leases

The Company leases retail stores, a bulk food repackaging facility and distribution center and administrative offices under long-term operating 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. 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. 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.

The Company recently entered into lease agreements with a developer for certain build to suit store locations.  Under the terms of the lease agreements, the Company is responsible for contributing certain amounts towards the cost of construction.  As a result of this involvement, the Company was deemed the “owner” for accounting purposes during the construction period, and is required to capitalize the construction costs on its balance sheet.  Upon completion of the project, the Company performs a sale-leaseback analysis pursuant to ASC Topic 840, Leases, to determine if the Company can remove the assets from its balance sheet.  In accordance with the terms of the lease agreements, the Company is not reimbursed for the amounts contributed towards the cost of construction and is therefore deemed to have “continuing involvement” per ASC Topic 840, Leases, which prevents the Company from derecognizing the assets on the balance sheet when construction is complete and requires the Company to account for the leases as assets and related capital lease finance obligations.  As provided by ASC Topic 840, Leases, the Company records the fair market value of the building as an asset on its balance sheet, and records a capital lease finance obligation equal to the fair market value of the building less the amount the Company contributed towards construction.  The Company does not record rent expense for the capital leases, but rather rental payments under the capital leases are recognized as a reduction of the capital lease finance obligation and as interest expense.  The capital lease asset is depreciated on a straight line basis over a 40 year life for buildings and an indefinite life for land. The Company had four stores as of September 30, 2012 that were build to suit store locations where the Company was deemed to be the owner during the construction period.  Two of the stores opened in the fourth quarter of fiscal year 2012 and are reflected as capitalized real estate leases and capital lease finance obligations at September 30, 2012.

Two of the stores were under construction as of September 30, 2012 and are scheduled to open in the first quarter of fiscal year 2013.  Construction costs for the two stores currently under construction are reflected in construction in process and capital lease finance obligations.

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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, 2012, 2011 and 2010 were approximately $5.1 million, $5.4 million and $3.9 million, respectively, net of vendor reimbursements received for newsletter advertising. Advertising expense reimbursements received from vendors totaled approximately $1.3 million, $1.1 million and $651,000 for the years ended September 30, 2012, 2011 and 2010, respectively.

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 separate component of stockholders’ equity 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 greater than one year are classified as long-term assets.

Comprehensive Income

Comprehensive income consists of net income and unrealized gains and losses on available-for-sale securities.  Comprehensive income is reflected in the consolidated statements of changes in stockholders’ equity and comprehensive income.

Stock-Based Compensation

The Company adopted an Omnibus Incentive Plan in connection with the IPO on July 25, 2012.  As of September 30, 2012, the Company had issued restricted stock units to its Chief Financial Officer and a member of the Board of Directors.  Restricted common stock is granted at the market price of the stock on the day of grant and is expensed over the applicable vesting period.

The benefits of tax deductions in excess of recognized compensation costs are reported as a credit to additional-paid-in capital and as operating cash flows, but only 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 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.

Noncontrolling Interest in Consolidated Financial Statements

Prior to the Company’s IPO on July 25, 2012, the Company had a majority 55% ownership of BVC which owned five Natural Grocers by Vitamin Cottage retail stores managed by the operating company.  Subsequent to the IPO the Company purchased the remaining 45% noncontrolling interest in BVC.  Noncontrolling interest in the Company’s consolidated financial statements relates to the noncontrolling 45% ownership in BVC prior to the purchase. Net income attributable to noncontrolling interest and net income attributable to the Company are reported separately in the consolidated statements of income. Additionally, noncontrolling interest in the consolidated subsidiaries of the Company is reported as a separate component of equity in the consolidated balance sheet, apart from the Company’s equity.

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Reclassifications

Where appropriate, we have reclassified prior years’ financial statements to conform to current year presentation.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends ASC 350, Intangibles — Goodwill and Other.  The amended guidance simplifies how entities test for impairment of indefinite-lived intangible assets.  The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount as a basis for determining if performing a quantitative test is necessary.  The amendments do not change the impairment losses.  The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  The provisions are effective for the Company’s first quarter of fiscal year 2013.  The Company does not expect the adoption of these provisions to have a significant effect on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentations of Comprehensive Income, which amends ASC 220, Comprehensive Income. The update eliminates the option of presenting the components of other comprehensive income as part of the statement of stockholders’ equity. Instead, comprehensive income must be reported either in a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers the implementation requirement in ASU No. 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amended guidance specifies that entities should continue to report reclassifications out of accumulated other comprehensive income consistent with presentation requirements in effect before ASU No. 2011-05. The guidance provided in ASU No. 2011-05 and ASU No. 2011-12 is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The provisions are effective for the Company’s first quarter of fiscal year 2013. The Company does not expect the adoption of these provisions to have a significant effect on the Company’s consolidated financial statements.

Immaterial Adjustments to Previously Reported Consolidated Statements of Cash Flows

The Company has recorded immaterial adjustments of approximately $1,104,000 and $340,000 to increase previously reported net cash provided by operating activities and to increase previously reported net cash used in investing activities to properly reflect cash paid for the acquisition of property and equipment for the years ended September 30, 2011 and 2010, respectively. These adjustments had no impact on the net change in cash and cash equivalents for the respective periods.

3. Earnings Per Share

Basic earnings per share (EPS) excludes dilution and is computed by dividing net income attributable to Natural Grocers by Vitamin Cottage, Inc. stockholders by the weighted average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of common stock that would then share in the earnings of the Company. Presented below is basic and diluted EPS for the years ended September 30, 2012, 2011 and 2010:

The Company did not declare any dividends in the years ended September 30, 2012, 2011 and 2010.

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As of September 30, 2012, the Company had 50,000,000 shares of common stock authorized and 22,372,184 shares outstanding as well as 10,000,000 shares of preferred common stock authorized with none outstanding.

4.  Investments

The Company had money market fund investments that are classified as cash and cash equivalents of approximately $246,000 as of September 30, 2012.  The Company also had available-for-sale securities, generally consisting of certificates of deposit, corporate bonds and municipal bonds, totaling approximately $1.8 million, of which approximately $777,000 were classified as short-term. At September 30, 2012, the average effective maturities of the Company’s short-term and long-term investments were approximately 8 and 17 months, respectively.  During the year ended September 30, 2012, the Company recorded interest income of approximately $2,400 and recorded expense relating to amortized premiums paid of approximately $1,800.  The Company had no money market fund investments or available-for-sale investments as of September 30, 2011.

As of September 30, 2012, available-for-sale securities totaling approximately $1.8 million were in unrealized loss positions with $3,696 recorded in accumulated other comprehensive income for temporary declines in fair value, consisting of three securities in gain positions and nine securities in loss positions due to the amortization of premiums paid to acquire the securities.

The Company established an investment policy with the objective to achieve maximum yields on invested funds while protecting principal, as well as ensuring that funds will be available to meet operating cash flow requirements.  The investment policy establishes the type of investments that are acceptable, requires that each investment have a certain high level of rating as established by Standard and Poor’s and/or Moody’s and limits the amount of any one investment that may be held based on the market value of the total funds at the time of investment purchase. As of September 30, 2012, the Company’s investments in available-for-sale securities were in compliance with the Company’s investment policy.

5. Fair Value Measurements

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).

As of September 30, 2012 and 2011, the Company had the following financial assets and liabilities that were subject to fair value measurements according to the fair value hierarchy:

The carrying amounts of the money market fund and available-for-sale securities are carried at fair value. The carrying amounts of the term loan and revolving credit facility approximate fair value for the year ended September 30, 2011.

Management believes that the carrying values approximate fair values of notes payable—related party because stated interest rates approximate market rates. The carrying amounts of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other accrued expenses approximate fair value because of the short maturity of those instruments.

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6. Property and Equipment

The Company had the following property and equipment balances as of September 30, 2012 and 2011.

Capitalized real estate leases include the assets for two build to suit stores that were open as of September 30, 2012 (see Note 2 and Note 13).

Construction in process includes $1.9 million as of September 30, 2012 related to construction costs for build to suit leases in process for which the Company was deemed the owner during the construction period.  These two stores are scheduled to open in the first quarter of fiscal year 2013.

Costs capitalized for computer software development for the years ended September 30, 2012 and 2011 were approximately $55,000 and $122,000, respectively, including approximately $42,000 and $110,000, respectively, related to internal staff compensation. Amortization expense related to capitalized computer software development was approximately $487,000 and $530,000 for the years ended September 30, 2012 and 2011, respectively.

Total costs capitalized for leasehold improvements and fixtures and equipment include approximately $322,000 and $337,000 related to internal staff compensation, and approximately $19,000 and $32,000 in interest costs for the years ended September 30, 2012 and 2011, respectively.

Depreciation and amortization expense for the years ended September 30, 2012, 2011 and 2010 was approximately $9.9 million, $7.6 million and $5.5 million, respectively.

7. Goodwill and Other Intangible Assets

Goodwill and other intangible assets are summarized as follows as of September 30, 2012 and 2011: