UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549




FORM
      10-Q




(Mark
One)




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended March 31, 2010




OR




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




Commission
File Number: 001-34468




VITACOST.COM,
      INC.
                      (Exact
      Name of Registrant as Specified in Its
Charter)





Delaware
            
            37-1333024(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer
              Identification
      No.)5400
      Broken Sound Blvd. - NW, Suite 500, Boca Raton, FL
            
            33487-3521(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(561)
982-4180


(Registrant’s
Telephone Number, Including Area Code)





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  x   No
o.




Indicate
by checkmark whether the registrant has submitted electronically and posted on
its corporate website, 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 time period that the registrant was required to
submit and post such files).   Yes xNo o




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
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer x
              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 o   No
x.




As of
April 30, 2010, 27,488,353 shares of the registrant’s common stock were
outstanding.








Vitacost.com,
Inc.





Table
of Contents




PagePART
      I.
              FINANCIAL
      INFORMATION
              
              1ITEM
      1.
              FINANCIAL
      STATEMENTS
              
              1ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              
              11ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              14ITEM
      4T.
              CONTROLS
      AND PROCEDURES
              
              15PART
      II.
              OTHER
      INFORMATION
              
              15ITEM
      1.
              LEGAL
      PROCEEDINGS
              
              15ITEM
      1A.
              RISK
      FACTORS
              
              15ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              
              15ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
              
              15ITEM
      4.
              [REMOVED
      AND RESERVED.]
              
              15ITEM
      5.
              OTHER
      INFORMATION
              
              15ITEM
      6.
              EXHIBITS
              
              16


i




PART
      I.
            FINANCIAL
      INFORMATION




ITEM
      1.
            FINANCIAL
      STATEMENTS




Vitacost.com,
Inc.
 
 Consolidated
Balance Sheets
 March
31, 2010 and December 31, 2009
 
 March
      31,2010
                        
                        
                        December
      31,(unaudited)
                        
                        
                        2009AssetsCurrent
      AssetsCash
      and cash equivalents
                        
                        $
                        8,635,591
                        
                        
                        $
                        8,658,157Securities
      available for sale
                        
                        
                        35,617,869
                        
                        
                        
                        35,787,227Accounts
      receivable
                        
                        
                        981,521
                        
                        
                        
                        735,355Other
      receivables
                        
                        
                        1,201,717
                        
                        
                        
                        1,055,372Inventory,
      net
                        
                        
                        28,000,792
                        
                        
                        
                        28,096,884Prepaid
      expenses
                        
                        
                        2,932,960
                        
                        
                        
                        1,988,538Deferred
      tax asset
                        
                        
                        958,752
                        
                        
                        
                        1,167,724Total
      current assets
                        
                        
                        78,329,202
                        
                        
                        
                        77,489,257Property
      and equipment, net
                        
                        
                        22,933,460
                        
                        
                        
                        21,961,903Goodwill
                        
                        
                        2,200,000
                        
                        
                        
                        2,200,000Intangible
      assets, net
                        
                        
                        8,321
                        
                        
                        
                        9,446Deposits
                        
                        
                        8,920,374
                        
                        
                        
                        4,656,128Deferred
      tax asset
                        
                        
                        1,176,900
                        
                        
                        
                        1,361,81712,305,595
                        
                        
                        
                        8,227,391Total
      assets
                        
                        $
                        113,568,257
                        
                        
                        $
                        107,678,551Liability
      and Stockholders' EquityCurrent
      LiabilitiesLine
      of credit
                        
                        $
                        3,439,182
                        
                        
                        $
                        3,458,183Current
      maturities of notes payable
                        
                        
                        1,104,776
                        
                        
                        
                        1,090,969Current
      maturities of capital lease obligations
                        
                        
                        18,713
                        
                        
                        
                        35,452Accounts
      payable
                        
                        
                        20,066,050
                        
                        
                        
                        18,052,495Deferred
      revenue
                        
                        
                        889,918
                        
                        
                        
                        1,919,352Accrued
      expenses
                        
                        
                        4,367,570
                        
                        
                        
                        3,282,476Income
      taxes payable
                        
                        
                        366,495
                        
                        
                        
                        51,221Total
      current liabilities
                        
                        
                        30,252,704
                        
                        
                        
                        27,890,148Notes
      payable, less current maturities
                        
                        
                        4,532,292
                        
                        
                        
                        4,820,042Interest
      rate swap liability
                        
                        
                        482,046
                        
                        
                        
                        468,719Total
      liabilities
                        
                        $
                        35,267,042
                        
                        
                        $
                        33,178,909Commitments
      and ContingenciesStockholders'
      EquityPreferred
      stock, par value $.00001 per share; authorized 25,000,000; no shares
      issued and outstanding at March 31, 2010 and December 31,
    2009
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, par value $.00001 per share; authorized 100,000,000; 27,700,453 and
      27,488,353 shares issued and outstanding at March 31, 2010 and Deceember
      31, 2009, respectively
                        
                        
                        277
                        
                        
                        
                        275Additional
      paid-in capital
                        
                        
                        73,231,940
                        
                        
                        
                        71,932,256Accumulated
      other comprehensive loss
                        
                        
                        (3,436
                        )
                        
                        
                        -Retained
      earnings
                        
                        
                        5,072,434
                        
                        
                        
                        2,567,111Total
      stockholders' equity
                        
                        
                        78,301,215
                        
                        
                        
                        74,499,642Total
      liabilities and stockholders' equity
                        
                        $
                        113,568,257
                        
                        
                        $
                        107,678,551
 
 See Notes
to Consolidated Financial Statements
  1
 
 Vitacost.com,
Inc.
 
 Consolidated
Statements of Operations
 For
the Three Months Ended March 31, 2010 and 2009 (unaudited)
 
 2010
                  
                  
                  2009Net
      sales
                  
                  $
                  57,176,143
                  
                  
                  
                  45,884,033Cost
      of goods sold
                  
                  
                  40,808,370
                  
                  
                  
                  30,882,122Gross
      profit
                  
                  
                  16,367,773
                  
                  
                  
                  15,001,911Operating
      expenses:Fulfillment
                  
                  
                  3,203,107
                  
                  
                  
                  1,706,160Sales
      and marketing
                  
                  
                  3,749,271
                  
                  
                  
                  3,147,167General
      and administrative
                  
                  
                  5,626,936
                  
                  
                  
                  4,061,88512,579,314
                  
                  
                  
                  8,915,212Operating
      income
                  
                  
                  3,788,459
                  
                  
                  
                  6,086,699Other
      income (expense):Interest
      income
                  
                  
                  28,509
                  
                  
                  
                  21,127Interest
      expense
                  
                  
                  (127,120
                  )
                  
                  
                  (182,260
                  )Other
      income (expense)
                  
                  
                  11,598
                  
                  
                  
                  22,605(87,013
                  )
                  
                  
                  (138,528
                  )Income
      before income taxes
                  
                  
                  3,701,446
                  
                  
                  
                  5,948,171Income
      tax (expense)
                  
                  
                  (1,196,123
                  )
                  
                  
                  (2,297,685
                  )Net
      income
                  
                  
                  2,505,323
                  
                  
                  
                  3,650,486Basic
      per share information:Net
      income available to common stockholders
                  
                  $
                  0.09
                  
                  
                  $
                  0.16Weighted
      average shares outstanding
                  
                  
                  27,552,122
                  
                  
                  
                  23,188,380Diluted
      per share information:Net
      income available to common stockholders
                  
                  $
                  0.09
                  
                  
                  $
                  0.15Weighted
      average shares outstanding
                  
                  
                  28,528,604
                  
                  
                  
                  23,914,035
 
 See Notes
to Consolidated Financial Statements.
  2
 
 Vitacost.com,
Inc.
 
 Consolidated
Statements of Stockholders' Equity
 For
the Three Months Ended March 31, 2010 (unaudited)
 
 Additional
                          
                          
                          Accumulated
      OtherCommon Stock
                          
                          
                          Paid-In
                          
                          
                          Comprehensive
                          
                          
                          RetainedShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Income (Loss)
                          
                          
                          Earnings
                          
                          
                          TotalBalance,
      December 31, 2009
                          
                          
                          27,488,353
                          
                          
                          $
                          275
                          
                          
                          
                          71,932,256
                          
                          
                          
                          -
                          
                          
                          $
                          2,567,111
                          
                          
                          
                          74,499,642Stock
      options exercised
                          
                          
                          212,100
                          
                          
                          
                          2
                          
                          
                          
                          755,054
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          755,056Stock
      based compensation expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          156,470
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          156,470Income
      tax benefit on stock options exercised
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          388,160
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          388,160Change
      related to securities available for sale
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (3,436
                          )
                          
                          
                          -
                          
                          
                          
                          (3,436
                          )Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,505,323
                          
                          
                          
                          2,505,323Balance,
      March 31, 2010
                          
                          
                          27,700,453
                          
                          
                          $
                          277
                          
                          
                          $
                          73,231,940
                          
                          
                          $
                          (3,436
                          )
                          
                          $
                          5,072,434
                          
                          
                          $
                          78,301,215
 
 See Notes
to Consolidated Financial Statements.
  3
 
 Vitacost.com,
Inc.
 
 Consolidated
Statements of Cash Flows
 For
the Three Months Ended March 31, 2010 and 2009 (unaudited)
 
 2010
                    
                    
                    2009Cash
      Flows From Operating ActivitiesNet
      income
                    
                    $
                    2,505,323
                    
                    
                    $
                    3,650,486Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                    
                    
                    1,081,691
                    
                    
                    
                    838,585Amortization
      of intangibles
                    
                    
                    1,125
                    
                    
                    
                    751Amortization
      of premium on securities available for sale
                    
                    
                    154,472
                    
                    
                    
                    -Change
      in fair value of interest rate swap
                    
                    
                    13,327
                    
                    
                    
                    (36,327
                    )Stock
      based compensation expense
                    
                    
                    156,470
                    
                    
                    
                    100,000Deferred
      taxes
                    
                    
                    393,889
                    
                    
                    
                    950,000Provision
      for inventory reserve
                    
                    
                    (94,648
                    )
                    
                    
                    -(Gain)
      loss on disposition of property and equipment and other
    assets
                    
                    
                    -
                    
                    
                    
                    (1,078
                    )Changes
      in assets and liabilities:(Increase)
      decrease in:Accounts
      receivable
                    
                    
                    (246,166
                    )
                    
                    
                    (219,829
                    )Other
      receivables
                    
                    
                    (146,345
                    )
                    
                    
                    (261,636
                    )Inventory
                    
                    
                    190,740
                    
                    
                    
                    (196,334
                    )Prepaid
      expenses
                    
                    
                    (944,422
                    )
                    
                    
                    (68,319
                    )Increase
      (decrease) in:Accounts
      payable
                    
                    
                    2,013,555
                    
                    
                    
                    (2,057,451
                    )Deferred
      revenue
                    
                    
                    (1,029,434
                    )
                    
                    
                    76,766Accrued
      expenses
                    
                    
                    1,085,094
                    
                    
                    
                    335,907Income
      taxes payable
                    
                    
                    315,274
                    
                    
                    
                    1,346,776Net
      cash provided by operating activities
                    
                    
                    5,449,945
                    
                    
                    
                    4,458,297Cash
      Flows From Investing ActivitiesProceeds
      from disposition of property, equipment  and intangible
      assets
                    
                    
                    -
                    
                    
                    
                    12,932Payments
      for the purchase of property and equipment
                    
                    
                    (2,053,248
                    )
                    
                    
                    (1,455,853
                    )Increase
      in deposits
                    
                    
                    (4,264,246
                    )
                    
                    
                    -Purchase
      of securities available for sale
                    
                    
                    (3,688,550
                    )
                    
                    
                    -Proceeds
      from sale of securities available for sale
                    
                    
                    3,700,000
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (6,306,044
                    )
                    
                    
                    (1,442,921
                    )Cash
      Flows From Financing ActivitiesPrincipal
      payments on note payable
                    
                    
                    (273,943
                    )
                    
                    
                    (275,283
                    )Net
      borrowings on line of credit
                    
                    
                    (19,001
                    )
                    
                    
                    (2,724,140
                    )Repayments
      on capital lease obligation
                    
                    
                    (16,739
                    )
                    
                    
                    (7,044
                    )Proceeds
      from the exercise of stock options
                    
                    
                    755,056
                    
                    
                    
                    -Stock
      based tax benefit
                    
                    
                    388,160
                    
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    
                    833,533
                    
                    
                    
                    (3,006,467
                    )Net
      (decrease) increase
                    
                    
                    (22,566
                    )
                    
                    
                    8,909Cash
      and cash equivalents:Beginning
                    
                    
                    8,658,157
                    
                    
                    
                    61,326Ending
                    
                    $
                    8,635,591
                    
                    
                    $
                    70,235
 
 (Continued)
  4
 
 Vitacost.com,
Inc.
 
 Consolidated
Statements of Cash Flows (Continued)
 For
the Three Months Ended March 31, 2010 and 2009 (unaudited)
 
 2010
                  
                  
                  2009Supplemental
      Disclosures of Cash Flow InformationCash
      payments for:Interest
                  
                  $
                  113,793
                  
                  
                  $
                  218,587Income
      taxes
                  
                  $
                  100,000
                  
                  
                  $
                  70,000Supplemental
      Schedule of Noncash Investing and Financing ActivitiesProperty
      and equipment purchased through notes payable
                  
                  $
                  -
                  
                  
                  $
                  249,571
 
 See Notes
to Consolidated Financial Statements.
  5
  Note
1.      Nature of Business and Significant Accounting
Policies
  Nature of
business:  Vitacost.com, Inc.  (“Vitacost” or the “Company”)
is involved in the distribution of nutritional supplements as an internet-based
retailer.  Vitacost was incorporated in 1994 and entered the
internet-based retailing area in 1999.  Vitacost sells a proprietary
and internally developed line of nutraceuticals as well as a selection of other
manufacturers’ brand-name vitamin products.  The Company distributes
products from two primary locations in North Carolina and Nevada.
 
 Basis of
Presentation:  The accompanying unaudited consolidated financial
statements have been prepared by the Company in accordance with accounting
principles generally accepted in the United States of America for interim
financial reporting and Rule 10-01 of Regulation SX.  Accordingly,
they do not include all of the information and related footnotes that would
normally be required by accounting principles generally accepted  in
the United States of America for complete financial reporting.  These
unaudited consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements for the year ended
December 31, 2009.
 
 The
accompanying unaudited consolidated financial statements include all adjustments
(consisting of a normal recurring nature) that management considers necessary
for a fair statement of financial information for the interim
periods.  Interim results are not necessarily indicative of the
results that may be expected for the remainder of the year ending December 31,
2010.
 
 Principals of
consolidation:  The consolidated financial statements include
the accounts of Vitacost and any wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
 
 Earnings per
share:  The Company computes earnings per share by dividing net
income by the weighted-average number of common shares outstanding during the
period.  Diluted earnings per share is computed by giving effect to
all potentially dilutive common shares, including stock options. There were no
common stock equivalents excluded from the weighted-average diluted shares
outstanding as their exercise price did not exceed market value. The following
table reconciles basic weighted-average shares outstanding to diluted
weighted-average shares outstanding for three months ended March 31, 2010 and
2009:
 
 Three
      Months Ended March 31,2010
                  
                  
                  2009Weighted-average
      shares outstanding — basic
                  
                  
                  27,552,122
                  
                  
                  
                  23,188,380Stock
      options
                  
                  
                  976,482
                  
                  
                  
                  725,655Weighted-average
      shares outstanding — diluted
                  
                  
                  28,528,604
                  
                  
                  
                  23,914,035
 
 Securities available for
sale: Available-for-sale securities consist of investment grade municipal
debt securities not classified as trading or
held-to-maturity.  Available-for-sale securities are stated at fair
value and unrealized holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of stockholders'
equity.  The aggregate fair value of securities available for sale as
of March 31, 2010 and December 31, 2009 was $35,617,869 and $35,787,227
respectively, which approximates cost.   The fair value of
available-for-sale securities by contractual maturity as of March 31, 2010, was
as follows:
 
 March
      31,2009Due
      within one year
                  
                  $
                  6,318,357Due
      after one year through three years
                  
                  
                  3,952,390Due
      after three years
                  
                  
                  25,347,122$
                  35,617,869
  6
 
 Derivative financial
instruments:  The Company’s risk management policy is to use
derivative financial instruments, as appropriate, to manage the interest expense
related to the debt with variable interest rates.  These instruments
are not designated as hedges for financial reporting purposes; accordingly,
gains and losses related to fair value are reflected in the statement of
operations at each reporting date.  During 2007, the Company entered
into two interest rate swap agreements with initial notional amounts of
$3,360,000 and $1,849,263, respectively.  These swaps require the
Company to pay a fixed rate of 6.81% and 6.85%, respectively, and receive a
floating interest payment based on LIBOR plus 1.4% and 1.75%,
respectively.  During 2008, the Company entered into another interest
rate swap agreement with an initial notional amount of $2,573,884, which
requires the Company to pay a fixed rate of 6.03%, and receive a floating
interest payment based on LIBOR plus 2.5%.  As of March 31, 2010 and
December 31, 2009, these interest rate swaps had a fair value of ($482,046) and
($468,719), respectively.  Changes in fair value are included in
interest expense in the accompanying statements of operations.  The
fair value of the interest rate derivatives is based on valuation models that
take into account items such as maturity dates, interest rate yield curves, our
creditworthiness and that of the counterparty and other data.  The
data sources that are significant are level 2 in the fair value hierarchy as
defined by the relevant accounting literature.
 
 Fair value of financial
instruments:  In September 2006, the Financial Accounting
Standards Board (FASB) issued authoritative guidance which defines fair value,
establishes a framework and gives guidance regarding the methods used for
measuring fair value, and expands disclosures about fair value
measurements.  The Company adopted the guidance at the beginning of
fiscal year 2008.  The guidance applies to all assets and liabilities
that are being measured and reported on a fair value basis.  It
requires new disclosure that establishes a framework for measuring fair value in
GAAP and expands disclosure about fair value measurements.  This
statement enables the reader of the financial statements to assess the inputs
used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair
values.  The statement requires that assets and liabilities carried at
fair value will be classified and disclosed in one of the following three
categories:
  Level
      1:
              Quoted
      market prices in active markets for identical assets or
      liabilities.
  Level
      2:
              Observable
      market based inputs or unobservable inputs that are corroborated by market
      data.
  Level
      3:
              Unobservable
      inputs that are not corroborated by market
data.
  In
determining the appropriate levels, the Company performs a detailed analysis of
the assets and liabilities that are subject to the guidance.
 
 The
Company’s investment in securities available for sale are valued based on
observable market based inputs that are corroborated by market data and are
therefore considered a level 2 item.
 
 The
Company’s interest rate swaps are pay-fixed, receive-variable interest rate
swaps based on LIBOR swap rate.  The LIBOR swap rate is observable at
commonly quoted intervals for the full term of the swaps and therefore is
considered a level 2 item.  For the period March 31, 2010, the
application of valuation techniques applied to similar assets and liabilities
has been consistent.
 
 The
carrying amounts of other financial instruments, including cash, cash
equivalents, accounts receivable, other receivables, accounts payable and
short-term borrowings approximate fair value due to the short maturity of these
instruments.  The carrying amount of long-term debt approximates fair
value because the interest rates fluctuate with market interest rates or the
fixed rates are based on current rates offered to the Company for debt with
similar terms and maturities.
  Concentration of credit
risk:  The Company’s cash and cash equivalents are held by one
major financial institution; however, risk of loss is mitigated by the size and
financial health of the institution.
  Recent accounting
pronouncements: In January 2010, authoritative guidance was issued
requiring enhanced disclosures for fair value measurements.  Entities
are required to separately disclose the amounts and reasons of significant
transfers in and out of the first two levels of the fair value hierarchy.
Entities are also required to present information about purchases, sales,
issuance and settlements of fair value measurements within the third level of
the fair value hierarchy on a gross basis.  The adoption of this
guidance did not have a material impact on our consolidated financial
statements.
  7
  Note
2.      Inventory
  Inventory
consists of the following as of March 31, 2010 and December 31,
2009
 
 March 31,
                      
                      
                      December 31,2010
                      
                      
                      2009Raw
      materials
                      
                      $
                      4,303,504
                      
                      
                      $
                      4,734,772Work
      in process
                      
                      
                      3,839,051
                      
                      
                      
                      3,687,426Finished
      goods
                      
                      
                      20,115,346
                      
                      
                      
                      20,026,44328,257,901
                      
                      
                      
                      28,448,641Less:
      Inventory reserve
                      
                      
                      257,109
                      
                      
                      
                      351,757$
                      28,000,792
                      
                      
                      $
                      28,096,884
  Note
3.      Property and Equipment
  Property
and equipment consists of the following as of March 31, 2010 and December 31,
2009:
 
 March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Buildings
      and building improvements
                  
                  $
                  7,917,015
                  
                  
                  $
                  7,904,870Furniture,
      fixtures and equipment
                  
                  
                  13,363,791
                  
                  
                  
                  12,912,917Computers
                  
                  
                  3,841,312
                  
                  
                  
                  3,644,992Software
                  
                  
                  5,696,807
                  
                  
                  
                  4,800,157Leasehold
      improvements
                  
                  
                  1,508,158
                  
                  
                  
                  1,117,712Land
                  
                  
                  460,000
                  
                  
                  
                  460,00032,787,083
                  
                  
                  
                  30,840,648Less
      accumulated depreciation
                  
                  
                  10,455,711
                  
                  
                  
                  9,374,01922,331,372
                  
                  
                  
                  21,466,629Construction-in-progress
                  
                  
                  602,088
                  
                  
                  
                  495,274$
                  22,933,460
                  
                  
                  $
                  21,961,903
 
 Note
4.      Notes Payable
 
 In
February 2007 and in connection with the purchase of a new distribution center
in North Carolina, the Company entered into a promissory note agreement in the
amount of $3,360,000.  The promissory note is to be repaid in monthly
payments of principal and interest at a rate equal to one-month LIBOR plus 1.4%
(1.65 % and 1.63% as of March 31, 2010 and December 31, 2009, respectively) with
final payment of $2,699,166 due on February 14, 2014.  The loan is
collateralized by the property purchased with a depreciated cost of $3,783,479
as of March 31, 2010.  The note contains certain restrictive
covenants, which require minimum financial ratios, including funded debt to
EBITDA and a fixed coverage ratio.  As of March 31, 2010, the Company
was in compliance with these covenants.  Borrowings outstanding as of
March 31, 2010 and December 31, 2009 were $3,098,524 and 3,121,903,
respectively.
  On April
23, 2007, the Company entered into a promissory note in the amount of $1,535,467
with a bank to finance the purchase of machinery and equipment.  The note
bears interest at one-month LIBOR plus 1.75% (2.00 % and 1.98% as of March 31,
2010 and December 31, 2009, respectively) and is payable in 60 monthly principal
and interest payments.  The note contains certain restrictive covenants,
which require minimum financial ratios, including funded debt to EBITDA and a
fixed coverage ratio.  The note is collateralized by the equipment that was
purchased with a depreciated cost of $1,090,921 as of March 31, 2010.   On
October 11, 2007, the note was amended to increase borrowings by $313,796,
totaling $1,849,263.  Borrowings outstanding as of March 31, 2010 and
December 31, 2009 were $955,452 and $1,407,916,
respectively.
 8
 
 On
November 13, 2007, the Company entered into a promissory note in the amount of
$2,521,797 with a bank to finance the purchase of machinery and
equipment.  The note bears interest at 1-month LIBOR plus 2.5% (2.75 %
and 2.73% as of March 31, 2010 and December 31, 2009, respectively) and is
payable in 60 monthly principal and interest payments.  The note was
amended on December 19, 2007 to increase the balance to
$2,617,509.  The note is collateralized by equipment purchased with a
depreciated cost of $1,839,174 as of March 31, 2009.  Borrowings
outstanding on the note as of March 31, 2010 and December 31, 2009 were
$1,439,630 and $1,570,506, respectively.
 
 March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Note
      payable to a bank, payable in monthly installments of principal and
      interest at 1-month LIBOR plus 1.4% (1.65% as of March 31, 2010),
      collateralized by land and building.
                  
                  $
                  3,098,524
                  
                  
                  $
                  3,121,903Note
      payable to a bank, bearing interest at 1-month LIBOR plus 1.75%, (2.00% as
      of March 31, 2010), payable in monthly installments of principal and
      interest through March 2012, collateralized by equipment
                  
                  
                  955,452
                  
                  
                  
                  1,047,916Note
      payable to a bank, payable in monthly installments of principal and
      interest at 1-month LIBOR plus 2.5% (2.75% as of March 31, 2010),
      collateralized by equipment
                  
                  
                  1,439,630
                  
                  
                  
                  1,570,506Note
      payable to a financial institution, payable in monthly installments of
      principal and interest through July 2011, at a fixed rate of 6.98%,
      unsecured
                  
                  
                  143,462
                  
                  
                  
                  170,6865,637,068
                  
                  
                  
                  5,911,011Less
      current maturities
                  
                  
                  1,104,776
                  
                  
                  
                  1,090,969$
                  4,532,292
                  
                  
                  $
                  4,820,042
 
 Aggregate
future maturities required on long-term debt as of March 31, 2010 are as
follows:
 
 Year
      EndingDecember 31,2010
                  
                  $
                  817,0282011
                  
                  
                  1,064,1052012
                  
                  
                  940,6442013
                  
                  
                  116,2652014
                  
                  
                  2,699,026Thereafter
                  
                  
                  -$
                  5,637,068
 
 Line of
Credit: On August 3, 2007,
the Company entered into a loan and security agreement with a financial
institution with maximum borrowings equal to the lesser of $8,000,000 or the
borrowing base amount which is based on a percentage of eligible inventories as
outlined in the agreement.  The initial term of the agreement will be
through August 2010 with the option to renew year to year unless terminated by
either party.  The agreement also provides for letters of credit up to
$1,000,000.  Borrowings bear interest at a rate equal to 1-month LIBOR plus
2.75% (3.00% and 2.98% as of March 31, 2010 and December 31, 2009,
respectively).  The line of credit is collateralized by all personal
property of the Company excluding equipment.  Under the agreement, the
Company must maintain certain ratios.   Borrowings outstanding as
of March 31, 2010 and December 31, 2009 were $3,439,182 and $3,458,183,
respectively, which includes $1,284,182 and $753,183, respectively of checks
issued which have not cleared the bank.  Amounts available on the line
of credit as of March 31, 2010 were $4,560,818.
  9
 
 Note
5.      Stock Option Plan
 
 A summary
of our stock option activity related to common stock for the three months ended
March 31, 2010 and 2009 is as follows:
 
 2010
                    
                    
                    2009Weighted-
                    
                    
                    
                    
                    
                    Weighted-Average
                    
                    
                    
                    
                    
                    AverageExercise
                    
                    
                    
                    
                    
                    ExerciseShares
                    
                    
                    Price
                    
                    
                    Shares
                    
                    
                    PriceOutstanding
      at beginning of period
                    
                    
                    2,745,880
                    
                    
                    $
                    5.67
                    
                    
                    
                    3,370,500
                    
                    
                    $
                    3.38Granted
                    
                    
                    247,250
                    
                    
                    
                    9.72
                    
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    (212,100
                    )
                    
                    
                    3.56
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at period end
                    
                    
                    2,781,030
                    
                    
                    
                    6.19
                    
                    
                    
                    3,370,500
                    
                    
                    
                    3.38Exercisable
      at period end
                    
                    
                    2,168,378
                    
                    
                    $
                    5.67
                    
                    
                    
                    2,465,250
                    
                    
                    $
                    3.20
 
 The
weighted average grant date fair value for options granted during the three
months ended March 31, 2010 was $6.52.
 
 As of
March 31, 2010 and March 31, 2009, there was approximately $2,480,900 and
$1,215,074, respectively, of total unrecognized compensation cost, net of
estimated forfeitures related to stock options granted under the Company’s stock
incentive plan, which is expected to be recognized over a weighted average
period of .80 years.
  Note
6.     Contingencies
  The
Company is involved in other various legal actions arising in the ordinary
course of business.  In the opinion of management, none of these
claims will have a material, adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
 
 Note
7.      Income Taxes
 
 The
effective tax rate for the period ending March 31, 2010 was 32.3% compared to
38.6% for the period ending March 31, 2009.  The decrease is primarily
related to the disqualifying disposition of the incentive stock options
exercised in the period ending March 31, 2010, which resulted in a related tax
benefit.
  Note
8.      Subsequent Events
  The
Company has evaluated subsequent events through the date that the financial
statements are issued.
  10





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Quarterly Report on
Form 10-Q.




This
quarterly report on Form 10-Q contains forward-looking statements.
Forward-looking statements include statements concerning our plans, objectives,
goals, strategies, future events, future revenue or performance, capital
expenditures, financing needs and other information that is not historical
information. In some cases, you can identify forward-looking statements by
terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,”
“continue,” “seek” or the negative of these terms or other comparable
terminology or by discussions of strategy.




All
forward-looking statements, including, without limitation, our examination of
historical operating trends, are based upon our current expectations and various
assumptions. We believe there is a reasonable basis for our expectations and
beliefs, but they are inherently uncertain. We may not realize our expectations
and our beliefs may not prove correct. Actual results could differ materially
from those described or implied by such forward-looking statements. Important
factors that could cause our actual results to differ materially from the
forward-looking statements are set forth in this quarterly report on Form 10-Q,
under the heading “Risk Factors” and include, among others:





·
            the current global economic
      downturn or recession;





·
            difficulty expanding our
      manufacturing and distribution
  facilities;





·
            significant competition in our
      industry;





·
            unfavorable publicity or consumer
      perception of our products on the
  Internet;





·
            the incurrence of material
      product liability and product recall
  costs;







·
            costs of compliance and our
      failure to comply with government
  regulations;





·
            our inability to defend
      intellectual property
claims;





·
            our failure to keep pace with the
      demands of our customers for new
  products;





·
            disruptions in our manufacturing
      system, including our information technology systems, or losses of
      manufacturing certifications;
and





·
            the lack of long-term experience
      with human consumption of some of our products with innovative
      ingredients.




Overview




We are a
leading online retailer and direct marketer, based on annual sales volume, of
health and wellness products such as vitamins, dietary supplements, minerals,
herbs, anti-oxidants, organic body and personal care products and sports
nutrition and health foods. We offer our customers a selection of over 30,000
SKUs from over 1,600 third-party brands, such as New Chapter, Atkins, Nature’s
Way, Twinlab, Burt’s Bees and Kashi and our own proprietary brands,
Nutraceutical Sciences Institute (NSI), Cosmeceutical Sciences Institute (CSI),
Best of All, Smart Basics and Walker Diet. We sell these products directly to
consumers through our website, www.vitacost.com, as well as through our
catalogs. Our website and catalogs allow customers to easily browse and purchase
products at prices, on average, 30% to 60% lower than manufacturers’ suggested
retail prices. We strive to offer our customers the broadest product selection
of healthy living products at the best value, while providing superior customer
service and timely and accurate delivery.




Our
success is driven primarily by our ability to attract new customers and grow our
product offerings. Our customers are typically individuals seeking value in
their purchases of health and wellness products. Our active customer base, which
we define as customers who have purchased from us within the last 12 months, has
steadily increased from approximately 270,000 at the end of 2005 to
approximately 1,132,064 as of March 31, 2010. For the first quarter of 2010, our
per-customer acquisition cost, determined by dividing our acquisition-related
marketing costs by the number of gross new customers, was $10.05.  On
average, our customers make purchases from us two to three times a year, and
over the last twelve months, our quarterly average order value has ranged
between $73 and $76. Our 2008 customer surveys reveal that over 95% of
respondents are likely to reorder, citing as key factors our product selection
and quality, competitive prices and speed and accuracy of shipment.




11




We began
operations in 1994 as a catalog retailer of third-party vitamins and supplements
under the name Nature’s Wealth Company. In 1999, we launched Vitacost.com and
introduced our proprietary vitamins and supplements under our NSI brand. In
2000, we began operations under the name Vitacost.com, Inc. During 2008, we
began manufacturing certain proprietary products in-house and currently have the
capacity to produce in excess of one billion tablets and capsules annually.
Since our inception, we have shipped over ten million orders to our
customers.




Sources
of Revenue




We derive
our revenue principally through the sale of product and freight billed to
customers associated with the shipment of product. Our primary source of revenue
is the sale of products. For the three months ended March 31, 2010, product net
sales accounted for approximately 93% of our total net sales with freight
comprising the remainder. The ratio of product sales and freight remains
unchanged compared to the three months ended March 31, 2009.




Cost
of Goods Sold and Operating Expenses




Cost of Goods Sold. Cost of
goods sold consists primarily of the cost of the product and the cost of
shipping the product to the customer.




Fulfillment.  Fulfillment
expenses include the costs of warehouse supplies, equipment, maintenance,
employees and rent.




Sales and Marketing. Sales
and marketing expenses include advertising and promotional expenditures, website
referral expenditures, including third-party content license fees, traditional
media advertising, catalog expenses and payroll related expenses for personnel
engaged in marketing, sales, customer service, website development and
maintenance, and new product research, development and introduction. We expense
advertising costs as incurred.




General and Administrative.
General and administrative expenses consist of management and executive
compensation, credit card fees, professional services and general corporate
expenses, such as depreciation, amortization, telephone expenses, office
supplies and repairs and maintenance on office equipment.




Results
of Operations




The
following table sets forth certain condensed consolidated statements of
operation data as a percentage of net sales for the three months ended March 31,
2010 and 2009, respectively:




Three
      Months EndedMarch
      31,(unaudited)2010
                      
                      
                      2009Net
      sales
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %Cost
      of goods sold
                      
                      
                      71.4
                      
                      
                      
                      67.3Gross
      profit
                      
                      
                      28.6
                      
                      
                      
                      32.7Operating
      expenses:Fulfillment
                      
                      
                      5.6
                      
                      
                      
                      3.7Sales
      and marketing
                      
                      
                      6.6
                      
                      
                      
                      6.9General
      and administrative
                      
                      
                      9.8
                      
                      
                      
                      8.8Total
      operating expense
                      
                      
                      22.0
                      
                      
                      
                      19.4Operating
      income
                      
                      
                      6.6
                      
                      
                      
                      13.3Net
      income
                      
                      
                      4.4
                      
                      
                      
                      8.0





Comparison
of Three Months Ended March 31, 2010 to Three Months Ended March 31,
2009




Net Sales .  Net
sales increased by $11.3 million, or 24.6%, to $57.2 million for the three
months ended March 31, 2010 from $45.9 million for the three months ended March
31, 2009.  A summary of net sales for the three months ended March 31,
2010 and 2009 is as follows (in thousands):




12




Three Months EndedMarch 31,(unaudited)
                  
                  
                  $
                  
                  
                  %2010
                  
                  
                  2009
                  
                  
                  Increase
                  
                  
                  IncreaseThird-party
      product (1)
                  
                  $
                  37,147,822
                  
                  
                  $
                  28,373,478
                  
                  
                  $
                  8,774,344
                  
                  
                  
                  30.9
                  %Nutraceutical
      Sciences Institute and other proprietary products
                  
                  
                  15,889,422
                  
                  
                  
                  14,004,453
                  
                  
                  
                  1,884,969
                  
                  
                  
                  13.5
                  %Billed
      shipping and handling
                  
                  
                  4,138,899
                  
                  
                  
                  3,506,102
                  
                  
                  
                  632,797
                  
                  
                  
                  18.0
                  %$
                  57,176,143
                  
                  
                  $
                  45,884,033
                  
                  
                  $
                  11,292,110
                  
                  
                  
                  24.6
                  %





(1)  Third-party
product includes advertising and fees earned from affiliate programs of
approximately $343,000 and $530,000 for the three months ended March 31, 2010
and 2009, respectively.




The
increase in net sales was primarily the result of a net increase in our customer
base and a 19% increase in the number of orders compared to the three months
ended March 31, 2009. We generated approximately 216,000 new customers in the
quarter bringing the total number of active customers to 1,132,064 at the end of
March. We believe the increase in our customer base and number of customer
orders are primarily due to consistently providing good value. We believe that
we will continue to grow our customer base and number of customer orders at
rates at or above the growth rates of the overall health and wellness
market.  During the quarter sales were impacted by approximately
$600,000 due to promotional activity to mitigate the expense of
transferring  inventory from the Company’s former distribution center
in North Las Vegas to its newly opened facility in South Las Vegas.





Net sales
of our proprietary products, including our NSI-branded products, increased by
$1.9 million, or 13.5%, from $14.0 million for the three months ended March 31,
2009 to $15.9 million for the three months ended March 31, 2010, and sales of
third-party products increased by $8.8 million, or 30.9%, from $28.4 million for
the three months ended March 31, 2009 to $37.1 million for the three months
ended March 31, 2010.  During the quarter the Company experienced a
temporary increase in backorders on select proprietary products primarily due to
a manufacturing logistics issue at the Lexington, NC facility which impacted
sales approximately $1.2 million for the quarter.




Cost of Goods Sold. Cost of
goods sold increased by $9.9 million, or 32.1%, to $40.8 million for the three
months ended March 31, 2010 from $30.9 million for the three months ended March
31, 2009. As a percentage of net sales, cost of goods sold
increased  to 71.4% for 2010 from 67.3% for 2009 primarily due to a
shift in product mix to third-party product and higher shipping costs due to an
increased level of split shipped orders to maintain the Company’s high level of
customer service.




Gross Profit. As a result of
the changes discussed in net sales and cost of goods sold, gross profit
increased by $1.4 million, or 9.1 %, to $16.4 million for the three months ended
March 31, 2010 from $15.0 million for the three months ended March 31, 2009 and
gross profit as a percentage of net sales decreased to 28.6% in 2010 from 32.7%
in 2009.




Our gross
profit is affected by product mix, consumer and competitor price elasticity, and
increased purchasing power due to higher sales volume of third-party product and
the raw materials used for manufacturing our proprietary products. Our increase
in gross profit for the three months ended March 31, 2010, compared to the three
months ended March 31, 2009, was primarily due to higher sales volume partially
offset by a product mix shift to lower margin third party product sales caused
by a temporary increase in backorders of our proprietary
products,  increased shipping expenses and increased promotional
activity.




Fulfillment. Fulfillment
expense increased $1.5 million, or 87.7%, to $3.2 million for the three months
ended March 31, 2010 from $1.7 million for the three months ended March 31,
2009. As a percentage of net sales, fulfillment expense increased  to
5.6% for 2010 from 3.7% for 2009. The increase in fulfillment expense as a
percentage of net sales was primarily attributable to operating duplicate
distribution centers in Las Vegas in order to ensure there were no disruptions
to our service levels while the new distribution center was officially
opened.




Sales and Marketing. Sales
and marketing expense increased approximately $602,000 or 19.1%, to $3.7 million
for the three months ended March 31, 2010 from $3.1 million for the three months
ended March 31, 2009. As a percentage of sales, sales and marketing expense
decreased to 6.6% for 2010 from 6.9% for 2009. The decrease as a percentage
of revenue was primarily related to the deferral of certain marketing and
promotional campaigns to subsequent quarters and a proactive decision to pull
back marketing spending on the propertary NSI brand due to the manufacturing
issues discussed above.





General and Administrative.
General and administrative expenses increased $1.6 million, or 38.6%, to $5.6
million for the three months ended March 31, 2010 from $4.0 million for the
three months ended March 31, 2009. The increase was primarily due to higher
year-over-year legal expenses and increased costs associated with being a public
company.





Interest Expense. Interest
expense decreased approximately $55,000, or 30.2%, to $127,100 for the three
months ended March 31, 2010 from $182,100 for the three months ended March 31,
2009.




Income Tax Benefit (expense).
Income tax expense decreased  by approximately $1.1 million, or 47.9%,
to $1.2 million for the three months ended March 31, 2010. The change is
primarily the result of  lower income before tax of
$3,701,446  for the three months ended March 31, 2010 compared to
$5,948,171 for the three months ended March 31, 2009 and a decrease in the
effective tax rate to 32.3% from 38.6% primarily related to the disqualifying
disposition of the incentive stock options exercised in the period ending March
31, 2010, which resulted in a related tax benefit.





Liquidity and Capital ResourcesSince our inception through 2006, we had primarily funded our operations
through the sale of equity securities and cash generated from operations. During
2007, we funded operations and investments in manufacturing and distribution
facilities, as well as the related equipment, primarily through entering into
loan agreements, as referenced above, and cash generated from
operations.





13





The
significant components of our working capital are cash and cash equivalents,
inventory and accounts receivable, primarily from credit cards processors,
reduced by accounts payable, accrued expenses and our line of credit. Cash and
cash equivalents consist of cash and money market accounts.  The
working capital characteristics of our business allow us to collect cash from
sales to customers within a few business days of the related sale, while we
typically have extended payment terms with our suppliers. At March 31, 2010, we
had $8,635,591 in cash and cash equivalents and a working capital surplus of
$48.1 million compared with $8,658,157 in cash and cash equivalents and working
capital surplus of approximately $49.6 million at December 31,
2009.




Amounts
deposited with third party financial institutions exceed the Federal Deposit
Insurance Corporation, or FDIC, and Securities Investor Protection Corporation,
or SIPC, insurance limits, as applicable.  These cash and cash
equivalent balances could be impacted if the underlying financial institutions
fail or are subjected to other adverse conditions in the financial
markets.  To date we have experienced no loss or lack of access to our
cash and cash equivalents; however, we can provide no assurances that access to
our invested cash and cash equivalents will not be impacted by adverse
conditions in the financial markets.




We
believe that cash and cash equivalents currently on hand and cash flows from
operations will be sufficient to continue our operations for the next 12 months.
Our future capital requirements will depend on many factors,
including:




·
            the rate of our revenue
      growth;





·
            the timing and extent of
      expenditures to enhance our website, network infrastructure, and
      transaction processing
systems;





·
            the extent of our advertising and
      marketing programs;





·
            the levels of the inventory we
      maintain; and





·
            other factors relating to our
      business.




We may
require additional financing in the future in order to execute our operating
plan. We cannot predict whether future financing, if any, will be in the form of
equity, debt, or a combination of both. We may not be able to obtain additional
funds on a timely basis, on acceptable terms, or at all.




Off-Balance
Sheet Arrangements




We have
no off-balance sheet arrangements.




Critical
Accounting Policies and Estimates




Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles of the U.S.
(GAAP).





The preparation of these financial statements requires estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenue and expenses and related disclosures of contingent assets and
liabilities in the consolidated financial statements and accompanying notes.
Critical accounting policies are those that are the most important portrayal of
our financial condition and results of operations and require our most
difficult, subjective and complex judgments as a result of the need to make
estimates about the effect of matters that are inherently uncertain. Our most
critical accounting policies pertain to revenue recognition, stock based
compensation, inventories, income taxes, goodwill and intangible assets. In
applying such policies, we exercise our best judgment and best estimates. For a
further discussion of these Critical Accounting Policies and Estimates, refer to
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-k, as filed with the Securities and
Exchange Commission on March 30, 2010 for the year ended December 31,
2009.




ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Market
risk represents the risk of changes in the value of market risk sensitive
instruments caused by fluctuations in interest rates, foreign exchange rates and
commodity prices. Changes in these factors could cause fluctuations in the
results of our operations and cash flows. However, we do not believe that a
change in market interest rates would have a material effect on our results of
operations or financial condition. Although we derive a portion of our sales
outside of the U.S., all of our sales are denominated in U.S. dollars. We have
limited exposure to financial market risks, including changes in interest rates
and foreign currency exchange rates.  Inflation generally affects us
by increasing costs of raw materials, labor and equipment. We do not believe
that inflation had any material effect on our results of operations in the
periods presented in our financial statements.




14




ITEM 4T.
            CONTROLS
      AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Our
management, with the participation of our Chief Executive Officer and our Chief
Financial and Accounting Officer, evaluated the effectiveness of our disclosure
controls and procedures as of March 31, 2010. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of March 31, 2010, our Chief Executive Officer and
Chief Financial and Accounting Officer concluded that, as of such date, our
disclosure controls and procedures were effective at the reasonable assurance
level.




Changes
in Internal Control over Financial Reporting




There was
no change in our internal control over financial reporting identified in
connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the
Exchange Act that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.




PART
      II.
            OTHER
      INFORMATION




ITEM
      1.
            LEGAL
      PROCEEDINGS




We are
not subject to any litigation other than routine litigation of a nature
customary for companies of our size. We have had no significant litigation and
have not been the subject of any product liability litigation.





ITEM
1A.          RISK
FACTORS





In addition to the risk factors
included below, please refer to the Risk Factors section of our Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission on March 30,
2010, for a complete explanation for the risk factors affecting our
business.  Other than the risk factors included below, there have been
no material change from the risk factors previously disclosed on our Form 10-K,
as filed with the Securities and Exchange Commission on March 30,
2010.




Complying
with healthcare reform legislation could increase our costs and have a material
adverse effect on our business, financial condition or results of
operations.




The
Patient Protection and Affordable Care Act was signed into law in March,
2010.   This act may require us to make additional contributions
to the health care programs currently offered to our employees, which may have
an adverse impact on our results of operations and cash flows.




ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




Unregistered
Sales of Equity Securities




During
the quarter ended March 31, 2010, we made no sales of unregistered
securities.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES




None.




ITEM
      4.
            [REMOVED
      AND RESERVED.]




ITEM
      5.
            OTHER
      INFORMATION




None.




15





ITEM 6.
            EXHIBITS




Exhibits3(i)
                  
                  Amended
      and Restated Certificate of Incorporation of Vitacost.com, Inc.
      (1)3(i)
                  
                  Amendment
      to Amended and Restated Certificate of Incorporation of Vitacost.com, Inc.
      (2)3(ii)
                  
                  Amended
      and Restated Bylaws of Vitacost.com, Inc. (3)3.1
                  
                  Certificate
      of Designation of Series A Junior Participating Preferred Stock of
      Vitacost.com, Inc. (4)4.1
                  
                  Rights
      Agreement dated as of March 24, 2010 by and between the Registrant and
      Mellon Investor Services LLC, as Rights
    Agent.  (5)31.1
                  
                  Certification
      of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities
      Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                  
                  Certification
      of Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities
      Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                  
                  Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
                  
                  Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.(1)
                  
                  Filed
      as Exhibit 3(i)(1) to Registrant’s Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on June 20,
      2007.(2)
                  
                  Filed
      as Exhibit 3(i)(2) to Amendment No. 5 to Registrant’s Registration
      Statement on Form S-1 filed with the Securities and Exchange Commission on
      August 24, 2009.(3)
                  
                  Filed
      as Exhibit 3(ii) to Amendment No. 5 to Registrant’s Registration Statement
      on Form S-1 filed with the Securities and Exchange Commission on August
      24, 2009.(4)
                  
                  Filed
      as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with her
      Securities and Exchange Commission on March 24, 2010.(5)
                  
                  Filed
      as Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with her
      Securities and Exchange Commission on March 24,
  2010.





SIGNATURES




Pursuant
to the requirements 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.




VITACOST.COM,
      INC./s/
      RICHARD P. SMITHRichard
      P. SmithChief
      Financial OfficerDate:
      May
      17, 2010




16





INDEX
TO EXHIBITS





Exhibits3(i)(1)
              
              Amended
      and Restated Certificate of Incorporation of Vitacost.com, Inc.
      (1)3(i)(2)
              
              Amendment
      to Amended and Restated Certificate of Incorporation of Vitacost.com, Inc.
      (2)3(ii)
              
              Amended
      and Restated Bylaws of Vitacost.com, Inc. (3)31.1
              
              Certification
      of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities
      Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities
      Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              
              Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.(1)
              
              Filed
      as Exhibit 3(i)(1) to Registrant’s Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on June 20,
      2007.(2)
              
              Filed
      as Exhibit 3(i)(2) to Amendments No. 5 to Registrant’s Registration
      Statement on Form S-1 filed with the Securities and Exchange Commission on
      August 24, 2009.(3)
              
              Filed
      as Exhibit 3(ii) to Amendments No. 5 to Registrant’s Registration
      Statement on Form S-1 filed with the Securities and Exchange Commission on
      August 24, 2009.




17