<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 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, 2001

                                      OR

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

             For the Transition Period From _________ to _________

                        Commission File Number 0-28551

                            ______________________


                              Nutri/System, Inc.
                              ------------------

            (Exact name of Registrant as specified in its charter)

                    Delaware                          23-3012204
                    --------                          -----------
        (State or other jurisdiction of            (I.R.S. Employer
         incorporation or organization)           Identification No.)

                202 Welsh Road,
             Horsham, Pennsylvania                       19044
             ---------------------                       -----
    (Address of principal executive offices)          (Zip Code)

                                (215) 706-5300
                                ---------------
             (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  __
                                     -

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 25, 2001:

      Common Stock, $.001 par value                28,545,394 shares
<PAGE>

                              Nutri/System, Inc.

                              INDEX TO FORM 10-Q



                                                                      Page
                                                                      ----
PART I - FINANCIAL INFORMATION

 Item 1 - Financial Statements (Unaudited)

    Consolidated Balance Sheets......................................   1

    Consolidated Statements of Operations............................   2

    Consolidated Statements of Cash Flows............................   3

    Notes to Consolidated Financial Statements.......................   4

 Item 2 - Management's Discussion and Analysis of Financial
    Condition and Results of Operations..............................   9

 Item 3 - Quantitative and Qualitative Disclosure About Market Risk..  13

PART II - OTHER INFORMATION

 Item 1 - Legal Proceedings..........................................  14

 Item 2 - Changes in Securities and Use of Proceeds..................  14

 Item 3 - Defaults Upon Senior Securities............................  14

 Item 4 - Submission of Matters to a Vote of Security Holders........  14

 Item 5 - Other Information..........................................  14

 Item 6 - Exhibits and Reports on Form 8-K...........................  14

SIGNATURES...........................................................  15

<PAGE>

                      NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

             (Unaudited, dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                         December 31,           March 31,
                                                                            2000                  2001
                                                                         ------------           ---------
<S>                                                                       <C>                   <C>
ASSETS
------
CURRENT ASSETS:
 Cash and cash equivalents                                               $      1,638           $   1,901
 Restricted cash                                                                  525                 528
 Trade receivables, less allowance of
    $36 and $4 in 2000 and 2001, respectively                                     284                 186
 Inventories                                                                    1,435               1,757
 Net assets of discontinued operation                                              --                 184
 Prepaid expenses and other current assets                                        414                 233
                                                                         ------------           ---------
                 Total current assets                                           4,296               4,789

FIXED ASSETS, net                                                               1,054               1,003
INTANGIBLES, net                                                                  395                 369
OTHER ASSETS                                                                      163                 212
                                                                         ------------           ---------
                                                                         $      5,908           $   6,373
                                                                         ============           =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
 Accounts payable                                                        $      1,892           $   2,195
 Accrued payroll and related benefits                                             131                 200
 Net liabilities of discontinued operation                                        433                  --
 Other current liabilities                                                        406                 390
                                                                         ------------           ---------
        Total current liabilities                                               2,862               2,785

NON-CURRENT LIABILITIES                                                           145                 139
                                                                         ------------           ---------
          Total liabilities                                                     3,007               2,924
                                                                         ------------           ---------

COMMITMENTS AND CONTINGENCIES                                                      --                  --
STOCKHOLDERS' EQUITY:
 Preferred stock $.001 par value
    (5,000,000 shares authorized, no shares outstanding)                           --                  --
 Common stock, $.001 par value (100,000,000 shares
    authorized; shares issued - 28,735,794 at December 31, 2000 and
    28,735,794 at March 31, 2001)                                                  29                  29
 Additional paid-in capital                                                    29,272              29,280
 Warrants exercisable at $1 per share                                             324                 324
 Accumulated deficit                                                          (26,724)            (26,087)
 Treasury stock, at cost (107,000 shares at March 31, 2001)                        --                 (97)
                                                                         ------------           ---------
          Total stockholders' equity                                            2,901               3,449
                                                                         ------------           ---------
                                                                         $      5,908           $   6,373
                                                                         ============           =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       1
<PAGE>

                      NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

          (Unaudited, dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                            Three Months Ended
                                                                                                  March 31
                                                                                      ------------------------------
                                                                                         2000                   2001
                                                                                      -------                -------
<S>                                                                                   <C>                    <C>
REVENUES:
  Food sales                                                                          $ 5,066                $ 6,966
  Other                                                                                   105                     15
                                                                                      -------                -------
                                                                                        5,171                  6,981
                                                                                      -------                -------
COSTS AND EXPENSES:
  Cost of revenues                                                                      2,835                  3,829
  Advertising and marketing                                                             2,605                  1,357
  General and administrative                                                            1,203                  1,620
  Depreciation and amortization                                                            49                    102
  Non-cash compensation expense                                                             5                      8
                                                                                      -------                -------
                                                                                        6,697                  6,916
                                                                                      -------                -------
        Operating income (loss) from continuing operations                             (1,526)                    65

INTEREST INCOME, net                                                                       48                     39
                                                                                      -------                -------
        Income (loss) before discontinued operation                                    (1,478)                   104

DISCONTINUED OPERATION
   Income from discontinued operation                                                      --                    533
                                                                                      -------                -------
        Net income (loss)                                                             $(1,478)               $   637
                                                                                      =======                =======

BASIC AND DILUTED INCOME (LOSS) PER SHARE
   Continuing operations                                                                (0.05)                  0.00

   Discontinued operation                                                                  --                   0.02
                                                                                      -------                -------
                                                                                       $(0.05)               $  0.02
                                                                                      =======                =======

BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                                  27,363                 28,706
                                                                                      -------                -------
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       2
<PAGE>

                      NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                       (Unaudited, dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                         March 31
                                                                                ---------------------------
                                                                                   2000                2001
                                                                                -------              ------
<S>                                                                             <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                             $(1,478)             $  637
  Adjustments to reconcile net income (loss) to net cash (used in)
       provided by operating activities-
       Discontinued operation net income                                             --                (533)
       Net cash from discontinued operation                                          --                 (84)
       Depreciation and amortization                                                 49                 102
       Other non-cash expense                                                       330                   8

  Changes in operating assets and liabilities-
     Restricted cash                                                               (349)                 (3)
     Trade receivables                                                             (194)                 98
     Inventories                                                                   (228)               (322)
     Prepaid expenses and other assets                                              (27)                132
     Accounts payable                                                             1,116                 303
     Accrued payroll and related benefits                                            92                  69
     Other liabilities                                                               --                 (19)
                                                                                -------              ------

              Net cash (used in) provided by operating activities                  (689)                388
                                                                                -------              ------
CASH FLOWS FROM INVESTING ACTIVITIES:
            Capital additions                                                      (184)                (28)
                                                                                -------              ------

              Net cash used in investing activities                                (184)                (28)
                                                                                -------              ------
CASH FLOWS FROM FINANCING ACTIVITIES:
              Issuance of common shares, net of costs                             2,465                  --
              Stock purchases of common shares, at cost                              --                 (97)
                                                                                -------              ------

              Net cash provided by (used in) financing activities                 2,465                 (97)
                                                                                -------              ------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                           1,592                 263

CASH AND CASH EQUIVALENTS,
  beginning of period                                                             2,902               1,638
                                                                                -------              ------
CASH AND CASH EQUIVALENTS,
  end of period                                                                 $ 4,494              $1,901
                                                                                =======              ======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>

                      NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     (In thousands, except share amounts)

                                  (Unaudited)


1.     BACKGROUND

Nature of the Business

Nutri/System, Inc. (a Delaware corporation) together with its subsidiaries (the
"Company") provides weight loss programs and distributes pre-packaged foods.  As
discussed below, the Company was formed to combine the well-established
Nutri/System name and proven weight loss program with the Internet as a medium
of communication.  In September 2000, the Company changed its name from
nutrisystem.com inc. to Nutri/System, Inc.

Nutri/System, Inc. and its predecessor businesses, including Nutri/System L.P.
and NutriSystem Direct, L.L.C. (collectively, the "Predecessor Businesses"),
have historically operated through Company-owned and franchised weight loss
centers.  Currently, the territories of the remaining independent franchised
weight loss centers encompass less than 1% of the United States population and
there are no Company-operated centers.  The Company's pre-packaged foods are
sold to weight loss program participants through the Internet, independent
distribution and through franchised weight loss centers.

Since the inception of the Nutri/System business in 1972, the Company and its
predecessors have operated in various organizational and legal structures.  In
early 1993, the business was party to a bankruptcy proceeding.  This case was
converted to a Chapter 11 proceeding effective June 4, 1993.  One of the
Company's predecessors operated as a debtor in possession through December 1993.
In 1999, the Company acquired the Predecessor Businesses for cash of $3,400 plus
17,500,000 shares of common stock.  In order to fund the Company's purchase of
the Predecessor Businesses and planned investments, the Company completed a
private placement that raised net proceeds of approximately $7,574.  The company
completed another private placement in 2000 that raised net proceeds of $2,462.

Since 1993, the Company, including its Predecessor Businesses, has incurred
significant losses and, as of March 31, 2001, has an accumulated deficit of
$26,087.  The Company intends to continue to invest in marketing and promotion
and in the development of its web site and its administrative organization.  As
a result, the Company believes that it may incur further operating losses in the
foreseeable future.  In order to make the future investments necessary to expand
its business as described above and to meet its cash flow requirements, the
Company may need to raise capital through the sale of additional equity in a
private offering.  Based on the variable nature of a portion of the Company's
expenditures, the cash balance at March 31, 2001 and management's belief that
additional equity financing can be raised, the Company believes that it has the
ability to continue in operations into 2002.  Achieving profitability depends
upon the Company's ability to: (1) continue to reduce advertising and marketing
spending per customer acquired, and (2) generate and sustain increased revenue
levels.  There can be no assurance that the Company will be able to obtain the
necessary capital to fund operating and investment needs or to generate
sufficient revenues to achieve or sustain profitability in the future.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Presentation of Financial Statements

As of December 31, 2000 and March 31, 2001, the Company's consolidated financial
statements include the accounts of Nutri/System, Inc. and its wholly owned
subsidiaries.

All significant intercompany accounts and transactions have been eliminated.

Interim Financial Statements (Unaudited)

The accompanying consolidated financial statements as of March 31, 2001 and for
the three months ended March 31, 2000 and 2001 are unaudited and, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position and results of operations for

                                       4
<PAGE>

those interim periods. The results of operations for the three months ended
March 31, 2000 and 2001 are not necessarily indicative of the results to be
expected for any other interim period or the year ending December 31, 2001.

Cash Flow Information

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of three months
or less as cash equivalents.  The Company made no payments for income taxes
during the three months ended March 31, 2000 or 2001.  Payments for interest
were $0 and $2 for the three months ended March 31, 2000 and 2001.

Restricted Cash

Restricted cash represents minimum cash deposited in banks required under
certain vendor arrangements.

Inventories

Inventories consist principally of packaged food held in the Company's
warehouses.  Inventories are priced using the lower of cost or market for which
cost is determined using the first-in, first-out (FIFO) method.

Intangibles

Intangible assets consist of goodwill which represents the excess of the
consideration paid over the fair value of net assets, and was generated from the
acquisition of the minority interest by the Company.  Goodwill is stated at cost
and amortized on a straight-line basis over five years.  Goodwill was $527 at
December 31, 2000 and March 31, 2001 and accumulated amortization was $131 and
$158, respectively.

Advertising Costs

The Company follows the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP"), 93-7 "Reporting for Advertising Costs"
to account for its Internet site linking agreements.  Under SOP 93-7, the
Company amortizes the costs associated with its linking agreements over the
contract terms, with the amortization method primarily based on the rate of
delivery of a guaranteed number of impressions to be received during the
contract term.  To the extent additional payments are required to be made based
on factors such as click-throughs and new customers generated, such payments are
charged to expense as incurred.  All other advertising costs are expensed as
incurred.  At December 31, 2000 and March 31, 2001, $254 and $101, respectively,
of prepaid advertising were included in prepaid expenses.  Advertising expense
was $2,588 and $1,313 during the three months ended March 31, 2000 and 2001,
respectively.

Web Site Development Costs

Web site development costs are accounted for in accordance with SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use."  No website development costs were capitalized in the three
months ended March 31, 2000 and 2001.

Fixed Assets

Fixed assets are stated at cost.  Depreciation, including amortization of
capital leases, is provided using the straight-line method over the estimated
useful lives of the related assets, which are generally three to seven years.
Leasehold improvements and equipment under capital leases are amortized on a
straight-line basis over the related lease terms.  Expenditures for repairs and
maintenance are charged to expense as incurred while major renewals and
improvements are capitalized.

                                       5
<PAGE>

Valuation of Long-Lived Assets

The Company continually evaluates whether events or circumstances have occurred
that indicate that the remaining useful lives of its long-lived assets,
primarily fixed assets and intangibles, should be revised or that the remaining
balance of such assets may not be recoverable using objective methodologies.
Such methodologies include evaluations based on the undiscounted cash flows
generated by the underlying assets or other determinants of fair value.  As of
December 31, 2000 and March 31, 2001, management believes that no reductions to
the remaining useful lives or write-downs of long-lived assets are required
other than those recorded in connection with the discontinued operation.  See
Note 3.

Revenue Recognition

Revenues, which are generally related to food sales, are recognized when
products are shipped. Food sales include amounts billed for shipping and
handling and are presented net of free food products provided to consumers.

Income Taxes

Nutri/System, Inc. is a "C" corporation, which is subject to corporate level
income taxes. The Company provides for income taxes in the accompanying
consolidated financial statements in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."  SFAS No.
109 requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities.

The tax basis of the assets acquired from the Predecessor Businesses exceeded
the financial statement carrying amount by $1,751, resulting in a net deferred
tax asset of $790 as of September 30, 1999.  A valuation allowance of $790 was
recorded based on management's current assessment that the net deferred tax
asset will not be realized given the uncertainty of future operating results.
To the extent that the existing deferred tax asset is realized, the related tax
benefit will be credited to equity.

Stock Options

The Company accounts for stock option plans under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."  See Note 4.

Fair Value of Financial Instruments

The carrying values of the Company's financial instruments, including cash, cash
equivalents, trade receivables, inventories and accounts payable, approximate
their fair values.

Net Income and Loss Per Common Share

The Company has presented net income and loss per common share pursuant to SFAS
No. 128, "Earnings per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98.  Basic income and loss per common share was computed
by dividing net income and loss applicable to common stockholders by the
weighted average number of shares of common stock outstanding.  The impact of
common stock equivalents has not been included in the weighted average shares
for diluted loss per share purposes since its effect would be anti-dilutive.

Recently Issued Accounting Pronouncement

In 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133").  This Statement, as amended by
SFAS No. 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities.  The adoption of SFAS No. 133 did not have
a material impact on the Company's consolidated financial statements.

                                       6
<PAGE>

Use of Estimates

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and operating expenses
during the reporting period.  Actual results could differ from these estimates.

Certain Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation

3.        DISCONTINUED OPERATION

On August 25, 2000, the Company acquired certain assets of the Sweet Success
product line from Nestle USA, Inc. (the "Seller") in return for 900,000 shares
of the Company's common stock, representing 3.1% of the shares outstanding after
the transaction.  The acquisition was recorded using the purchase method of
accounting.  In the transaction, the Company acquired certain assets directly
related to the Sweet Success product line, including inventory, books and
records, contracts and intellectual property such as trademarks and product
specifications.  The Company did not acquire any customer receivables or fixed
assets, and the Company did not assume any liabilities, beyond those obligations
associated with certain contracts, in connection with the acquisition.  The
shares of common stock issued to the Seller are unregistered and restricted.
The Company entered into a registration rights agreement with the Seller that
provides demand registration rights after April 15, 2001 and piggy-back
registration rights prior to that date.

In December 2000, the Company determined it would sell the Sweet Success product
line or discontinue sales of the products by June 30, 2001.  The results of the
Sweet Success product line have been reported separately as a discontinued
operation in the Company's consolidated financial statements.  Under the
Company's ownership for the first quarter ending March 31, 2001, Sweet Success
generated sales of $3,082 and incurred operating income of $533.  The net assets
and liabilities of the discontinued operation have been recorded at their net
realizable value in the accompanying consolidated balance sheet at December 31,
2000 and March 31, 2001 consist of the following:

                                        December 31, 2000        March 31, 2001

     Receivables                            $      --            $   1,029

     Inventories                                1,544                  106
     Other assets                                  24                   --
                                            ---------            ---------

          Total assets                          1,568                1,135

     Accounts payable                              41                  144
     Other current liabilities                  1,960                  807
                                            ---------            ---------

          Total liabilities                     2,001                  951
                                            ---------            ---------
          Net assets (liabilities) of
            discontinued operation          $    (433)           $     184
                                            =========            =========
4.    CAPITAL STOCK

Common Stock

In October 1999, the Company completed a private placement of 7,637,400 shares
of common stock, which, net of related expenses, resulted in proceeds of $7,574.
In October 2000, the vast majority of these shares became eligible for sale
under Rule 144 of the Securities Act of 1933.  In March 2000, the Company
completed a private placement of 500,000 shares of common stock, which resulted
in net proceeds of $2,462.  The Company issued 65,000 shares valued at $5.00 per
share in March 2000 and 50,000 shares valued at $6.00 per share in May 2000 in
payments to service providers.  In August 2000, the Company issued 900,000
shares valued at $9,365 in the aggregate or $10.41 per share (assuming a 10%
discount for illiquity on the closing date) in connection with the acquisition
of certain assets of the Sweet Success product line.  The Company also issued
the following shares of stock in 2000 upon the exercise of

                                       7
<PAGE>

common stock warrants: 3,000 in March, 17,000 in September and 22,391 in
October. The Company issued 1,666 shares upon the exercise of common stock
options in November 2000.

Treasury stock is accounted for using the cost method.  In March 2001, the
Company purchased 107,000 shares of outstanding common stock at an aggregate
cost of  $97.

Preferred Stock

The Company has also authorized 5,000,000 shares of preferred stock issuable in
series upon resolution of the Board of Directors.  Unless otherwise required by
law, the Board of Directors can, without stockholder approval, issue preferred
stock in the future with voting and conversion rights that could adversely
affect the voting power of the common stock.  The issuance of preferred stock
may have the effect of delaying, averting or preventing a change in control of
the Company.

5.   STOCK OPTIONS AND WARRANTS

Stock Option Plans

In August 1999, the Company adopted the 1999 Equity Incentive Plan and in June
2000, the Company adopted the 2000 Equity Incentive Plan, under which options to
purchase shares of the Company's common stock could be granted to key employees.
Currently 1,000,000 and 4,100,000 shares of common stock may be issued pursuant
to the 1999 Equity Incentive Plan and the 2000 Equity Incentive Plan,
respectively. Under the terms of the 2000 Equity Incentive Plan, the number of
shares reserved can be adjusted quarterly so that the total number of shares
subject to outstanding options plus the shares available for grant will equal
14% of the then-outstanding shares of the Company's common stock.  These options
could be either incentive stock options or nonqualified stock options.  In June
2000, the Company also adopted the 2000 Equity Incentive Plan for Outside
Directors and Consultants (the "Director Plan"), under which nonqualified stock
options to purchase shares of the Company's common stock could be granted to
non-employee directors and consultants to the Company.  A maximum of 500,000
shares of common stock may be issued pursuant to the Director Plan.  Under each
of the plans, the Board of Directors determines the term of each option, but no
option can be exercisable more than ten years from the date the option was
granted.  The Board also determines the option exercise price per share and
vesting provisions.

                                       8
<PAGE>

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations

          Except for the historical information contained herein, this Report on
Form 10-Q contains certain forward-looking statements that involve substantial
risks and uncertainties. When used in this Report, the words "anticipate,"
"believe," "estimate," "expect", and similar expressions, as they relate to
Nutri/System, Inc. or its management, are intended to identify such forward-
looking statements. The Company's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those set forth in "Business--Risk Factors" as disclosed in
the Company's Form 10K filed March 30, 2001 with the Securities and Exchange
Commission. Accordingly, there is no assurance that the results in the forward-
looking statements will be achieved.

          The following discussion should be read in conjunction with the
financial information included elsewhere in this Report on Form 10-Q. Dollar
amounts are stated in thousands.

Background

          Nutri/System provides weight loss programs and distributes pre-
packaged foods. The Company was formed to combine the well-established
Nutri/System name and proven weight loss program with the Internet as a medium
of communication. The Nutri/System diet program was originally developed by the
Company's Predecessor Businesses that operated through company-owned and
franchised weight loss centers. Currently, 11 owners of independent, franchised
weight loss centers remain, with territories encompassing less than 1% of the
United States population. In 1998, the Company initiated NutriSystem Direct,
L.L.C., a direct marketing program of independent distributors of the Company's
diet program. The Company's pre-packaged foods are now sold to weight loss
program participants through the Internet, independent distributors and the
remaining franchised weight loss centers. In September 2000, the Company changed
its name from nutrisystem.com inc. to Nutri/System, Inc.

          Since the Nutri/System businesses began in 1972, they have operated in
various organizational and legal structures and they were subject to a
bankruptcy proceeding in 1993, which was discharged in 1994. In August 1999,
Ansama, a non-operating public corporation, entered into an Asset Purchase
Agreement to acquire the operating assets and certain liabilities of
Nutri/System L.P. for $3,000 and a Stock Exchange and Purchase Agreement to
acquire the beneficial interests in NutriSystem Direct, L.L.C. for $400 and
17,500,000 shares of Ansama common stock. Ansama was subsequently merged into
the Company and the Company assumed the Asset Purchase Agreement and the Stock
Exchange and Purchase Agreement. In order to fund its cash obligations of $3,400
under the Asset Purchase and Stock Exchange and Purchase Agreements and the
planned marketing program and technology investment, the Company completed a
private placement of 7,637,400 shares of common stock in October 1999, which,
net of related expenses, resulted in proceeds of $7,574. In March 2000, the
Company completed a private placement of 500,000 shares of common stock, which
resulted in net proceeds of $2,462. In 2000, the Company also issued a total of
115,000 shares of common stock valued at an aggregate of $625 to service
providers.

          The net proceeds of the private placement and other equity sale
transactions described above are being used for working capital and for
investments consistent with the Company's business strategy, including marketing
and promotion, web site enhancements and the development of administrative
infrastructure. To date the Company, together with its Predecessor Businesses,
has incurred significant losses and, as of March 31, 2001, had an accumulated
deficit of $26,087. The Company believes that potential profit margins and
revenue growth justify the expenditures required to pursue its business
strategy. In order to make the future investments necessary to expand its
business as described above and to meet its cash flow requirements, the Company
may need to raise capital through the sale of additional equity in a private
offering. Based on the variable nature of a portion of the Company's
expenditures, the cash balance at March 31, 2001 and management's belief that
additional equity financing, if required, can be raised, the Company believes
that it has the ability to continue in operations into 2002. Achieving
profitability depends primarily upon the Company's ability to: (1) continue to
reduce advertising and marketing spending per new customer acquired, and (2)
generate and sustain increased revenue levels. There can be no assurance that
the Company will be able to obtain the necessary capital to fund operating and
investment needs or to generate sufficient revenues to achieve or sustain
profitability in the future.

Discontinued Operation

          On August 25, 2000, the Company acquired certain assets of the Sweet
Success product line from Nestle USA, Inc. (the "Seller") in return for 900,000
shares of the Company's common stock, representing 3.1% of the shares
outstanding after the transaction. Sweet Success is a diet meal replacement
product line distributed in traditional retail outlets such as drug and grocery
stores and price clubs. In the transaction, the Company acquired certain assets
directly

                                       9
<PAGE>

related to the Sweet Success product line, including inventory, books and
records, contracts and intellectual property such as trademarks and product
specifications. The Company did not acquire any customer receivables or fixed
assets, and the Company did not assume any liabilities, beyond those obligations
associated with certain contracts, in connection with the acquisition. The
shares of common stock issued to the Seller are unregistered and restricted. The
Company entered into a registration rights agreement with the Seller that
provides demand registration rights after April 15, 2001 and piggy-back
registration rights prior to that date.

     In December 2000, the Company determined it would sell the Sweet Success
product line or discontinue sales of the products by June 30, 2001. In March
2001, the Company ended negotiations to sell the product line and opted to
discontinue the product line. Under existing market conditions, the Company was
unable to obtain the funding required to rebuild the Sweet Success brand through
consumer promotion. However, the Company was able to generate $1,212 in net
positive cash flow in 2000 from the product line, consisting of $8,586 in
operating losses offset by $8,197 in non-cash expenses and a positive $1,601 in
cash generated from reductions in working capital. In the first quarter of 2001,
the Sweet Success product line resulted a negative $84 net cash flow when
operating income of $533 was more than offset by increases in accounts
receivable and reductions in accounts payable.

     The results of the Sweet Success product line have been reported separately
as a discontinued operation in the accompanying consolidated financial
statements. Under the Company's ownership for the quarter ending March 31, 2001,
Sweet Success generated sales of $3,082.

Results of Operations

     In pursuing its business strategy, the Company's primary financial
objectives are to generate rapid growth while maintaining and improving profit
margins. The Company measures growth in terms of the number of new customers,
revenues per customer and total revenues. A customer is defined as an individual
who has purchased food through the web site. Profit margins are measured in
terms of gross margin (revenues less cost of revenues as a percentage of
revenues), and total advertising and marketing expense as a percentage of
revenues. In order to remove the effects of seasonality, current period results
will be compared to the same period in prior years.

     Revenues and expenses consist of the following components:

     Revenues. Revenues consist of food sales and franchise royalty fees. Food
sales include sales of food, supplements, shipping and handling charges billed
to members and sales credits and adjustments, including product returns.
Internet revenues began with the launch of the web site in October 1999. No
revenue is recorded for food products provided at no charge as part of
promotions. Revenues from product sales are recorded when shipped.

     Cost of Revenues. Cost of revenues consists primarily of the cost of the
products sold, incoming and outgoing shipping costs, charge card discounts and
packing material. Cost of products sold includes products provided at no charge
as part of promotions. Cost of direct sales includes the fees paid to
independent distributors.

     Advertising and Marketing Expense. Advertising and marketing expense
includes advertising, market research, marketing and promotional expenses and
payroll related expenses for personnel engaged in these activities. The Company
follows the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 93-7, "Reporting for Advertising Costs" to account for
Internet site-linking arrangements. Generally Internet advertising expense is
recognized based on the rate of delivery of a guaranteed number of impressions
over the advertising contract term. All other advertising costs are expensed as
incurred.

     General and Administrative Expenses. General and administrative expenses
consist of payroll and related expenses for administrative, information
technology, fulfillment and customer service personnel, facility expenses, web
site development costs, professional service fees and other general corporate
expenses. Web site development costs are accounted for in accordance with the
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use."

     Non-cash Compensation Expense. Non-cash compensation expense recorded in
2000 and 2001 represents the amortization of deferred compensation related to
stock options granted to management, directors and consultants over a one to
four-year vesting period.

     Interest Income/Expense. Interest consists of interest income earned on
cash balances, net of interest expense.

                                       10
<PAGE>

     Income Taxes. The Company is subject to corporate level income taxes. No
income tax benefit on the excess of the tax basis of assets over the financial
reporting carrying amount has been recorded given the uncertainty of future
operating results.

Internet Operations

     The Company launched its web site on October 15, 1999. Developing Internet
operations is central to the Company's business strategy. However, because of
the web site's limited operating history, historical period-to-period
comparisons, while helpful in evaluation, should not be relied upon as an
indication of future performance.


                              INTERNET OPERATIONS

                  SELECTED FINANCIAL AND OPERATING STATISTICS


                                                          2000           2001

                                                           Q1             Q1
                                                          ---            ---

Revenues (000's)                                       $ 3,183        $ 5,598

Cost of revenues (000's)                                 1,426          2,767
                                                       -------        -------

  Gross margin (000's)                                 $ 1,757        $ 2,831
    % of revenue                                          55.2%          50.6%

Advertising and marketing (000's)                      $ 2,605        $ 1,357
 % of revenue                                             81.8%          24.2%

New customers                                           13,384         16,385

Advertising and marketing/new customer                 $   195        $    83

Revenues/new customer                                  $   238        $   342


     Revenues generated through Internet operations increased 76% from the first
quarter of 2000 to the first quarter of 2001. The spending on advertising and
marketing required to generate those sales declined 48% in the same period,
resulting in a decline in advertising and marketing cost as a percentage of
revenues from 81.8% in the first quarter of 2000 to 24.2% in the first quarter
of 2001. Advertising and marketing per new customer (customer acquisition cost)
declined 57% from $195 to $83 from the first quarter 2000 to 2001, while in the
same period total revenue per new customer increased 44% from $238 to $342. The
Company believes this sharp increase in revenues and advertising effectiveness
was a result of a) curtailing spending for ineffective advertising media, b)
higher spending for effective media, c) lower pricing on Internet advertising,
d) selective use of consumer price promotions in 2001, e) greater brand
awareness among likely consumers in 2001, f) the acquisition of customers
through word-of-mouth referrals generated by the expanding base of former
clients, and g) clients returning to the program in 2001 after having success
with the online program earlier in 2000.

     Relative to the first quarter of 2000, the Company spent $1.7 million less
in Internet and radio advertising and $0.4 million more in television
advertising in the first quarter of 2001. Over the course of 2000, the Company
concluded that television advertising was more cost effective than most forms of
Internet and radio advertising. By evaluating a variety of Internet advertising
opportunities and by obtaining more favorable pricing, the Company identified
selected Internet advertising programs that it deems cost effective. Because
target consumers had virtually no awareness of the online version of the
Nutri/System diet plan when it started in October 1999, all promotion in 2000
had the effect of increasing brand awareness that, the Company believes, will
support revenue growth and advertising effectiveness going forward. The growing
base of former clients also supported first quarter 2001 results by generating
word-of-mouth

                                       11
<PAGE>

referrals and repeat business. In addition to the 16,385 new customers making
purchases in 2001, the Company had 1,285 customers return to the program after
not making purchases for over four months.

     While Internet revenues increased, gross margin as a percentage of sales
decreased from 55.2% in the first quarter of 2000 to 50.6% in the first quarter
of 2001. This decline is primarily related to the cost of food provided at no
charge as part of selective consumer price promotion programs. The Company
believes that, carefully managed, price promotion is an effective way to drive
growth in revenues, profits and customer acquisition.

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 2001

     Revenues. Revenues increased from $5,171 for the quarter ended March 31,
2000 to $6,981 for the quarter ended March 31, 2001. The revenue increase of
$1,810, or 35%, resulted primarily from the growth of Internet food sales
($2,415), offset partially by lower franchise and Direct food sales and
franchise royalty revenue.

     Costs and Expenses. Cost of revenues increased from $2,835 to $3,829 for
the quarters ended March 31, 2000 and 2001, respectively. Gross margin (revenues
less cost of revenues as a percentage of revenues) was 45% for each of the
quarters ended March 31, 2000 and 2001, respectively. Gross margin was raised as
higher margin Internet revenues made up a larger proportion of total revenues
(80% for the first quarter of 2001 versus 62% in the first quarter of 2000).
Offsetting this was the impact of price promotions, which lowered gross margins
for Internet and Direct sales. Internet gross margin decreased from 55.2% for
the quarter ending March 31, 2000 to 50.6% for the quarter ending March 31,
2001, while Direct gross margin decreased from 32.5% to 24.0% in the same
period. Advertising and marketing expense decreased from $2,605 to $1,357 from
the first quarter of 2000 to the first quarter of 2001. Virtually all
advertising in these quarters promoted the Internet program. General and
administrative expenses increased from $1,203 to $1,620 from the first quarter
of 2000 compared to the first quarter of 2001. This increase of $417 is due
primarily to an increase in compensation expense ($404), rent ($49) and other
costs that were connected to establishing the Internet business, offset by a
decrease in professional services ($76).

     Interest Income. Interest income (net of interest expense) decreased $9
from $48 in the first quarter of 2000 to $39 in the first quarter of 2001
primarily due to lower cash balances.

     Net Income and Loss. The Company incurred a net loss of $1,478 for the
quarter ended March 31, 2000 as compared to net income of $637 for the quarter
ended March 31, 2001. This variance of $2,115 was due primarily to increased
Internet sales and decreased advertising costs as well as income from the
discontinued Sweet Success product line of $533.

Liquidity, Capital Resources and Other Financial Data

     At March 31, 2001, the Company had net working capital of $2,004. Cash and
cash equivalents were $1,901. The Company's principal source of liquidity was
the cash obtained from private placement transactions completed in 2000 coupled
with a positive cash flow from operations for the first quarter of 2001. The
Company currently has no bank debt or term or revolving credit facilities to
fund operating cash flow or investment opportunities.

     In the three months ended March 31, 2001, the Company generated a positive
cash flow of $388 from operations, primarily attributable to net income adjusted
for non-cash items and reductions in working capital.

     In the three months ended March 31, 2001, net cash used by investing
activities was $28 that primarily consisted of capital expenditures incurred to
increase web site capacity.

     In the three months ended March 31, 2001, net cash used in financing
activities amounted to $97, representing treasury stock purchased.

     Under marketing agreements as of March 31, 2001, the Company was required
to pay aggregate minimum fixed fees of $121 for the twelve months ending
December 31, 2001. As of March 31, 2001, the Company's principal commitments
consisted of obligations under marketing agreements and operating leases.
Although the Company has no material commitments for capital expenditures, it
anticipates continuing requirements for capital expenditures consistent with
anticipated growth in operations, infrastructure and personnel.

     In pursuing its business strategy, the Company anticipates it may require
additional cash for operating and investing activities. The Company expects
future cash requirements, if any, to be funded from financing activities,

                                       12
<PAGE>

which may include additional private offerings of equity securities. Based on
the variable nature of a portion of the Company's expenditures, the cash balance
at March 31, 2001 and management's belief that additional equity financing can
be raised, the Company anticipates that it has the ability to continue
operations into the year 2002. However, there can be no assurance that the
Company will be able to raise the necessary capital or generate sufficient
revenues to achieve or sustain profitability in the future. There are no credit
facilities available to fund working capital or investment needs.

     There are no current plans or discussions in process relating to any
material acquisition that is probable in the foreseeable future.

Factors Affecting Business and Prospects

     The Company expects to experience significant fluctuations in future
quarterly operating results due to a variety of factors, many of which are
outside its control.

Inflation

     The Company's financial statements are presented on a historical cost basis
and do not fully reflect the impact of prior years' inflation. While the U.S.
inflation rate has been modest for several years, inflation issues may impact
business in the future. The ability to pass on inflation costs is an uncertainty
due to general economic conditions and competitive situations.

Recently Issued Accounting Pronouncements

     See Note 2 to the Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements.


Item 3.  Quantitative and Qualitative Disclosure About Market Risk
------------------------------------------------------------------

     The Company does not hold any investments in market risk sensitive
instruments. Accordingly, the Company believes that it is not subject to any
material risks arising from changes in interest rates, foreign currency exchange
rates, commodity prices, equity prices or other market changes that affect
market risk instruments.

                                       13
<PAGE>

                         PART II -- OTHER INFORMATION


Item 1.  Legal Proceedings
--------------------------

         None

Item 2.  Changes in Securities and Use of Proceeds
--------------------------------------------------

         None

Item 3.  Defaults Upon Senior Securities
----------------------------------------

         None

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         None

Item 5.  Other Information
--------------------------

         None

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

a.  Exhibits:

         None

b.  Reports on Form 8-K:

         None

                                       14
<PAGE>

                                  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.

Nutri/System, Inc.

BY: /s/ BRIAN D. HAVESON                                       April 30, 2001
    --------------------                                       --------------
Brian D. Haveson
President and Chief Executive Officer

BY: /s/ JAMES D. BROWN                                         April 30, 2001
    ------------------                                         --------------
James D. Brown
Chief Financial Officer and Principal Accounting Officer

                                       15
<PAGE>

                                 Exhibit Index
                                 -------------



  None

                                       16