<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 June 30, 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 July 31, 2001:

     Common Stock, $.001 par value                      28,045,394 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...... 14

PART II - OTHER INFORMATION

    Item 1 - Legal Proceedings.............................................. 15

    Item 2 - Changes in Securities and Use of Proceeds ..................... 15

    Item 3 - Defaults Upon Senior Securities................................ 15

    Item 4 - Submission of Matters to a Vote of Security Holders............ 15

    Item 5 - Other Information.............................................. 15

    Item 6 - Exhibits and Reports on Form 8-K............................... 15

SIGNATURES.................................................................. 16
<PAGE>

                      NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

             (Unaudited, dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                         December 31,      June 30,
                                                                             2000            2001
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
ASSETS
------
CURRENT ASSETS:
   Cash and cash equivalents                                               $  1,638       $  1,722
   Restricted cash                                                              525            528
   Trade receivables, less allowance of
      $36 and $3 in 2000 and 2001, respectively                                 284            497
   Inventories                                                                1,435          2,036
   Prepaid expenses and other current assets                                    414            236
                                                                           --------       --------
                   Total current assets                                       4,296          5,019

FIXED ASSETS, net                                                             1,054            952
INTANGIBLES, net                                                                395            342
OTHER ASSETS                                                                    163            212
                                                                           --------       --------

                                                                           $  5,908       $  6,525
                                                                           ========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
   Accounts payable                                                        $  1,892       $  2,299
   Accrued payroll and related benefits                                         131            135
   Net liabilities of discontinued operation                                    433            146
   Other current liabilities                                                    406            389
                                                                           --------       --------
               Total current liabilities                                      2,862          2,969

NON-CURRENT LIABILITIES                                                         145            134
                                                                           --------       --------
                  Total liabilities                                           3,007          3,103
                                                                           --------       --------

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 outstanding - 28,735,794 at December 31, 2000
     and 28,045,394 at June 30, 2001)                                            29             29
   Additional paid-in capital                                                29,272         29,289
   Warrants exercisable at $1 per share                                         324            324
   Accumulated deficit                                                      (26,724)       (25,898)
   Treasury stock, at cost (690,400 shares at June 30, 2001)                     --           (322)
                                                                           --------       --------
                  Total stockholders' equity                                  2,901          3,422
                                                                           --------       --------
                                                                           $  5,908       $  6,525
                                                                           ========       ========
</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              Six Months Ended
                                                                         June 30                         June 30
                                                              ------------------------------------------------------------
                                                                    2000            2001            2000           2001
                                                              -------------   -------------   -------------  -------------
<S>                                                           <C>             <C>             <C>            <C>
REVENUES:
   Food sales                                                 $       5,466   $       6,209   $      10,532  $      13,175
   Other                                                                 55              12             160             27
                                                              -------------   -------------   -------------  -------------

                                                                      5,521           6,221          10,692         13,202
                                                              -------------   -------------   -------------  -------------
COSTS AND EXPENSES:
   Cost of revenues                                                   3,038           3,410           5,873          7,239
   Advertising and marketing                                          2,515           1,157           5,120          2,514
   General and administrative                                         1,420           1,664           2,623          3,284
   Depreciation and amortization                                         62             103             111            205
   Non-cash compensation expense                                          5               9              10             17
                                                              -------------   -------------   -------------  -------------
                                                                      7,040           6,343          13,737         13,259
                                                              -------------   -------------   -------------  -------------
        Operating  loss from continuing operations                   (1,519)           (122)         (3,045)           (57)

INTEREST INCOME, net                                                     53              31             101             70
                                                              -------------   -------------   -------------  -------------
        Income (loss) before discontinued operation                  (1,466)            (91)         (2,944)            13

DISCONTINUED OPERATION
   Income from discontinued operation                                    --             280              --            813
                                                              -------------   -------------   -------------  -------------
        Net income (loss)                                     $      (1,466)  $         189   $      (2,944) $         826
                                                              -------------   -------------   -------------  -------------
BASIC AND DILUTED INCOME (LOSS) PER SHARE

   Continuing operations                                              (0.05)           0.00          ( 0.11)          0.00
   Discontinued operation                                                --            0.01              --           0.03
                                                              -------------   -------------   -------------  -------------
                                                              $       (0.05)  $        0.01   $       (0.11) $        0.03
                                                              -------------   -------------   -------------  -------------
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                27,768          28,508          27,565         28,606
                                                              -------------   -------------   -------------  -------------
</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>
                                                                                Six Months Ended
                                                                                   June 30
                                                                          --------------------------
                                                                            2000              2001
                                                                          ---------         --------
<S>                                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                        $(2,944)         $   826
   Adjustments to reconcile net income (loss) to net cash (used in)
     provided by operating activities-
       Discontinued operation net income                                         --             (813)
       Net cash from discontinued operation                                      --              526
       Depreciation and amortization                                            111              205
       Loss on disposals                                                          7               --
       Other non-cash expense                                                   635               17

   Changes in operating assets and liabilities-
     Restricted cash                                                           (424)              (3)
     Trade receivables                                                          (18)            (213)
     Inventories                                                               (654)            (601)
     Prepaid expenses and other assets                                         (374)             129
     Accounts payable                                                         1,261              407
     Accrued payroll and related benefits                                        46                4
     Other liabilities                                                           (1)             (22)
                                                                            -------          -------

              Net cash (used in) provided by operating activities            (2,355)             462
                                                                            -------          -------

CASH FLOWS FROM INVESTING ACTIVITIES:
            Capital additions                                                  (497)             (56)
                                                                            -------          -------

         Net cash used in investing activities                                 (497)             (56)
                                                                            -------          -------

CASH FLOWS FROM FINANCING ACTIVITIES:
             Issuance of common shares, net of costs                          2,465               --
              Stock purchases of common shares, at cost                          --             (322)
                                                                            -------          -------

              Net cash provided by (used in) financing activities             2,465             (322)
                                                                            -------          -------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                        (387)              84

CASH AND CASH EQUIVALENTS,
   beginning of period                                                        2,902            1,638
                                                                            -------          -------

CASH AND CASH EQUIVALENTS,
   end of period                                                            $ 2,515          $ 1,722
                                                                            =======          =======
</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. Generally, the Company's pre-packaged
foods are sold to weight loss program participants through the Internet,
independent distribution and through franchised weight loss centers. In the
second quarter of 2001, the Company also sold foods through QVC, a shopping
television network.

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 June 30, 2001, has an accumulated deficit of
$25,898. 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 June 30, 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 and maintaining
profitability depends upon the Company's ability to: (1) 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 June 30, 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


                                        4
<PAGE>

The accompanying consolidated financial statements as of June 30, 2001 and for
the three and six months ended June 30, 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 those interim periods. The
results of operations for the three and six months ended June 30, 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 six months ended June 30, 2000 or 2001. Payments for interest were $1
and $2 for the six months ended June 30, 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 June 30, 2001 and accumulated amortization was $132 and
$185, 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 June 30, 2001, $254 and $74, respectively, of prepaid advertising
were included in prepaid expenses. Advertising expense was $5,034 and $2,433
during the six months ended June 30, 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 six months
ended June 30, 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 June 30, 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 promotional 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.

As a result of a determination made in December 2000, the Company discontinued
sales of the Sweet Success product line in June 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 six months ending June 30, 2001, Sweet Success generated
sales of $3,350 and generated operating income of $813. 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 June 30, 2001 consist of the following:


                                           December 31, 2000      June 30, 2001

Receivables                                     $    --              $   102
Inventories                                       1,544                   --
Other assets                                         24                   --
                                                -------              -------
     Total assets                                 1,568                  102

Accounts payable                                     41                   82
Other current liabilities                         1,960                  166
                                                -------              -------
     Total liabilities                            2,001                  248
                                                -------              -------
      Net assets (liabilities) of
          discontinued operation                $  (433)             $  (146)
                                                =======              =======


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 the first six months
of 2001, the Company repurchased 690,400 shares of common stock for an aggregate
cost of $322 (an average price of $0.47 per share) and accounted for the
repurchased shares as treasury stock.

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 the second quarter of 2001, the Company also sold foods
through QVC, a shopping television network. 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. In the first six months of 2001, the Company repurchased 690,400
shares of common stock for an aggregate cost of $322 (an average price of $0.46
per share).

     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 June 30, 2001, had an accumulated
deficit of $25,898. 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 June 30, 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 and
maintaining profitability depends primarily upon the Company's ability to: (1)
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,

                                       9
<PAGE>

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 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.

     As a result of a determination made in December 2000, the Company
discontinued sales of the Sweet Success product line in June 2001. 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 half of 2001, the Sweet Success product line
resulted a positive $526 net cash flow as cash generated through the disposal of
inventory exceeded payments related to the operation and shut down of the
product line.

     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 quarters ending March 31, and
June 30, 2001, Sweet Success generated sales of $3,082 and $268, respectively.

Results of Operations

     In pursuing its business strategy, the Company's primary financial
objectives are to generate growth while maintaining 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 are 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.

                                      10
<PAGE>

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

     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

<TABLE>
<CAPTION>
                                                    Three Months Ended               Six Months Ended
                                                          June 30                         June 30

                                                  2000              2001           2000            2001
                                              -------------     -------------  -------------   -----------

<S>                                                <C>              <C>            <C>            <C>
  Revenues (000's)                                 $3,700           $5,008         $6,883         $10,606
  Cost of revenues (000's)                          1,747            2,502          3,173           5,268
                                                ----------        ---------     ----------      ----------

    Gross margin (000's)                           $1,953           $2,506         $3,710           $5338
      % of revenue                                   52.8%            50.0%          53.9%           50.3%

  Advertising and marketing (000's)                $2,515           $1,157         $5,120          $2,514
   % of revenue                                      68.0%            23.1%          74.4%           23.7%

  New customers (1)                                12,448           10,565         25,832          26,950

  Advertising and marketing/new customer (1)         $202             $110           $198            $ 93

  Revenues/new customer (1)                          $297             $396           $266            $363
</TABLE>

Note (1): The indicated statistics exclude any customers and revenues associated
          with sales to QVC.

     In the second quarter of 2001, the Company began distribution of its
proprietary prepackaged food through QVC, the shopping television network. On
the QVC network, the Company reaches a large, incremental audience in a 50
minute, infomercial format that enables the Company to convey fully the benefits
of the Nutri/System diet foods. Under the terms of the Company's agreement with
QVC, QVC viewers purchase Nutri/System products directly from QVC and are not
directed to the Nutri/System web site. Retail prices (including shipping and
handling) offered on QVC to consumers are similar to prices offered on the web
site. The Company generates a lower gross margin (as a percent of sales) on
sales to QVC relative to web site sales, but QVC sales require no incremental
advertising and marketing expense and, the Company believes, exposure on QVC
raises consumer awareness of the Nutri/System brand. Reflected in second quarter
2001 results is $828 in QVC sales (valued at the Company's selling price to QVC)
generated from three 50 minute QVC shows.

                                      11
<PAGE>

     Over the course of 2001, the Company also increased its marketing to
dieters that prefer ordering food by telephone rather than through the Internet.
Currently, approximately 10% of new customers interact with Nutri/System by
telephone. Margins on telephone sales are approximately the same as
Internet-generated sales.

     Revenues generated through Internet operations, including QVC and telephone
orders discussed above, increased 35% from the second quarter of 2000 to the
second quarter of 2001. The spending on advertising and marketing required to
generate those sales declined 54% in the same period, resulting in a decline in
advertising and marketing cost as a percentage of revenues from 68.0% in the
second quarter of 2000 to 23.1% in the second quarter of 2001. Revenues
increased as a result of greater advertising effectiveness and the addition of
QVC as a distribution channel. Advertising and marketing per new customer
(customer acquisition cost) declined 46% from $202 to $110 from the second
quarter 2000 to 2001. The Company believes the sharp increase in 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) greater brand awareness among likely consumers in 2001, e) the
acquisition of customers through word-of-mouth referrals generated by the
expanding base of former clients, and f) clients returning to the program in
2001 after having success with the online program earlier in 2000.

     Relative to the second quarter of 2000, the Company spent approximately
$1,600 less in Internet and direct mail advertising and $270 more in television
advertising in the second 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.

     Excluding QVC-related sales, total revenue per new customer acquired
increased 33% from $297 in the second quarter of 2000 to $396 in the second
quarter of 2001. Total revenue per new customer acquired increased as the
Company generated high repeat sales from new customers and obtained sales from
an ever increasing pool of existing customers returning to start new diets.

     While Internet revenues increased, gross margin as a percentage of sales
decreased from 52.8% in the second quarter of 2000 to 50.0% in the second
quarter of 2001. This decline is primarily related to the lower margins
generated from the $828 in sales to QVC. Offsetting its lower margins, QVC sales
require no incremental advertising and increase exposure to the Nutri/System
brand.

     Internet results for the first half of 2001 also showed significant
improvement over the same period in 2000. Revenues increased 54% from the first
half of 2000 to the first half of 2001. The spending on advertising and
marketing declined 51% in the same period, resulting in a decline in advertising
and marketing cost as a percentage of revenues from 74.4% in the first half of
2000 to 23.7% in the first half of 2001. Advertising and marketing per new
customer (customer acquisition cost) declined 53% from $198 to $93 from the half
2000 to 2001. Gross margin as a percentage of sales decreased from 53.9% in the
first half of 2000 to 50.3% in the first half of 2001, primarily as a result of
QVC and promotional sales.

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 2001

     Revenues. Revenues increased from $5,521 for the quarter ended June 30,
2000 to $6,221 for the quarter ended June 30, 2001. The revenue increase of
$700, or 12.7%, resulted primarily from the growth of Internet food sales,
including sales to QVC, of $1,308 offset partially by lower franchise and Direct
food sales and franchise royalty revenue.

     Costs and Expenses. Cost of revenues increased from $3,038 to $3,410 for
the quarters ended June 30, 2000 and 2001, respectively. Gross margin (revenues
less cost of revenues as a percentage of revenues) was 45% for each of the
quarters ended June 30, 2000 and 2001, respectively. Gross margin was increased
as higher margin Internet revenues made up a larger proportion of total revenues
(81% for the second quarter of 2001 versus 67% in the second quarter of 2000).
Offsetting this was the impact of sales to QVC, which lowered gross margins for
Internet sales. Internet gross margin decreased from 52.8% for the quarter
ending June 30, 2000 to 50.0% for the quarter ending June 30, 2001. Advertising
and marketing expense decreased from $2,515 to $1,157 from the second quarter of
2000 to the second quarter of 2001. Virtually all advertising in these quarters
promoted the Internet program. General and administrative expenses increased
from $1,420 to $1,664 from the second quarter of 2000 compared to the second
quarter of 2001.

                                      12
<PAGE>

This increase of $244 is due primarily to an increase in compensation expense
($211), rent ($39) and other costs that were connected to establishing the
Internet business, offset by a decrease in professional services ($68).

     Interest Income. Interest income (net of interest expense) decreased $22
from $53 in the second quarter of 2000 to $31 in the second quarter of 2001
primarily due to lower cash balances.

     Net Income and Loss. The Company incurred a net loss of $1,466 for the
quarter ended June 30, 2000 as compared to net income of $189 for the quarter
ended June 30, 2001. This variance of $1,655 was due primarily to increased
Internet sales and decreased advertising costs as well as income from the
discontinued Sweet Success product line of $280.

Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 2001

     Revenues. Revenues increased from $10,692 for the for the six months ended
June 30, 2000 to $13,202 for the six months ended June 30, 2001. The revenue
increase of $2,510, or 23%, resulted primarily from the growth of Internet food
sales ($3,723), offset partially by lower franchise and Direct food sales and
franchise royalty revenue.

     Costs and Expenses. Cost of revenues increased from $5,873 to $7,239 for
the six months ended June 30, 2000 and 2001, respectively. Gross margin
(revenues less cost of revenues as a percentage of revenues) was 45% for each of
the six months ended June 30, 2000 and 2001, respectively. Gross margin was
increased as higher margin Internet revenues made up a larger proportion of
total revenues (80% for the first six months of 2001 versus 64% in the first six
months of 2000). Offsetting this was the impact of sales to QVC and price
promotions, which lowered gross margins for Internet sales and to a lesser
degree Direct sales. Advertising and marketing expense decreased from $5,120 to
$2,514 from the first six months of 2000 to the first six months of 2001.
Virtually all advertising in these quarters promoted the Internet program.
General and administrative expenses increased from $2,623 to $3,284 from the
first half of 2000 compared to the first half of 2001. This increase of $661 is
due primarily to an increase in compensation expense ($616), rent ($88) and
other costs that were connected to establishing the Internet business, offset by
a decrease in professional services ($144).

     Interest Income. Interest income (net of interest expense) decreased $31
from $101 in the first half of 2000 to $70 in the first half of 2001 primarily
due to lower cash balances.

     Net Income and Loss. The Company incurred a net loss of $2,944 for the six
months ended June 30, 2000 as compared to net income of $826 for the six months
ended June 30, 2001. This variance of $3,770 was due primarily to increased
Internet sales and decreased advertising costs as well as income from the
discontinued Sweet Success product line of $813.

Liquidity, Capital Resources and Other Financial Data

     At June 30, 2001, the Company had net working capital of $2,050. Cash and
cash equivalents were $1,722. 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 six months 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 six months ended June 30, 2001, the Company generated a positive
cash flow of $462 from operations, primarily attributable to net income adjusted
for non-cash items partially offset by increases in working capital.

     In the six months ended June 30, 2001, net cash used by investing
activities was $56 that primarily consisted of capital expenditures incurred to
increase web site capacity.

     In the six months ended June 30, 2001, net cash used in financing
activities amounted to $322, representing common stock purchased in open market
and privately negotiated transactions.

     Over the first six months of 2001, the Company eliminated virtually all
remaining marketing agreements requiring future minimum fixed fees. As of June
30, 2001, the Company's principal commitments consisted of obligations under
operating leases. Although the Company has no material commitments for capital
expenditures, it

                                      13
<PAGE>

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, 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
June 30, 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.

                                      14
<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

                                      15
<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                                   July 31, 2001
    --------------------                                   -------------
Brian D. Haveson
President and Chief Executive Officer

BY: /S/ JAMES D. BROWN                                     July 31, 2001
    ------------------                                     -------------
James D. Brown
Chief Financial Officer and Principal Accounting Officer

                                      16
<PAGE>

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

     None

                                      17