<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 for the fiscal year ended December 31, 2001

[_]  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)

       Registrant's telephone number, including area code: (215) 706-5300

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value

     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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

     Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 1, 2002: $7,525,421

     Number of shares outstanding the Registrant's Common Stock, $.001 par
value, as of March 1, 2002: 27,065,394

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement for Nutri/System, Inc.'s Annual
Meeting of Stockholders to be held on April 22, 2002 are incorporated by
reference into Part III of this Form 10-K.
<PAGE>

                               Nutri/System, Inc.

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>         <C>                                                                              <C>
Item 1.     Business......................................................................    3

Item 2.     Properties....................................................................    9

Item 3.     Legal Proceedings.............................................................    9

Item 4.     Submission of Matters to a Vote of Security Holders...........................    9

            Executive Officers of the Registrant..........................................    9

Item 5.     Market for the Registrant's Common Stock and Related
            Stockholder Matters...........................................................   11

Item 6.     Selected Consolidated Financial Data..........................................   11

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations...........................................   14

Item 7a.    Quantitative and Qualitative Disclosure About Market Risk.....................   19

Item 8.     Financial Statements and Supplementary Data...................................   19

Item 9.     Changes In and Disagreements with Accountants on
            Accounting and Financial Disclosure...........................................   19

Item 10.    Directors and Executive Officers of the Registrant............................   20

Item 11.    Executive Compensation........................................................   20

Item 12.    Securities Ownership of Certain Beneficial Owners and Management..............   20

Item 13.    Certain Relationships and Related Transactions................................   20

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K...............   21
</TABLE>


                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS

Background

     Nutri/System, Inc. (a Delaware corporation) together with its subsidiaries
("Nutri/System" or the "Company") 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, including Nutri/System L.P. and Nutri/System
Direct, L.L.C. (collectively, the "Predecessor Busisnesses"), that operated
through company-owned and franchised weight loss centers. Currently, 9 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. In 2001, the Company began selling
foods through QVC, a shopping television network. The Company's pre-packaged
foods are now sold to weight loss program participants through the Internet,
QVC, 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 million and a Stock Exchange and Purchase Agreement to
acquire the beneficial interests in NutriSystem Direct, L.L.C. for $400,000 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.

     On August 25, 2000, the Company acquired certain assets of the Sweet
Success line of diet meal replacement products. In December 2000, the Company
determined that it would be unable to obtain the funding required to rebuild the
Sweet Success brand, and it discontinued sales of the products in the second
quarter of 2001. Sweet Success is reflected in the Consolidated Financial
Statements as a discontinued operation.

Industry

     Weight loss is a challenge for a significant portion of the American
population. Recent studies cited by the Journal of the American Medical
Association reported that approximately 100 million Americans are overweight.
Furthermore, the incidence of obesity in the United States, as defined by
federal guidelines, increased between 1991 and 2000 from 12% to 20% of the adult
population. Many medical studies have documented a link between obesity and a
variety of health concerns. With obesity rates escalating, Americans are
increasingly at risk for diseases such as diabetes, certain cancers and various
forms of heart disease that may be linked to obesity.

     The weight loss industry consists of a wide variety of diet foods and meal
replacement bars and shakes, appetite suppressants, nutritional supplements,
pharmaceutical products and weight loss programs. The domestic market for weight
loss programs, diet foods and diet related books and other information,
excluding vitamins, supplements and minerals, was estimated by Market Data
Enterprises, Inc. to be in excess of $7 billion in the year 2000.

Products and Services

     For 30 years, the Nutri/System name has been recognized as a leader in the
weight loss industry. Through its web site, www.nutrisystem.com, Nutri/System
provides a comprehensive weight management program, consisting of support for
dieters and a pre-packaged food program. Online support for dieters includes
individualized diet and exercise plans, online counseling, support groups,
bulletin boards and chat rooms. Trained counselors are available 117 hours a
week to answer questions and custom design and recommend an exercise program to
help each member achieve his or her weight loss and fitness goals. Members share
information and encouragement to each other through hosted chat rooms and
bulletin boards. These services are complemented with relevant information on
diet, nutrition, exercise and well-being provided on the web site and in a
weekly newsletter. Nutri/System provides free membership and access to online
support.


                                       3
<PAGE>

     The Company's program incorporates a line of pre-packaged,
portion-controlled food sold under the Nutri/System brand. Nutri/System
currently offers menu customization from over 100 food selections, which have
been developed under the guidance of its team of registered nutritionists.
Generally, dieters chose among a variety of weekly food packages containing 7
breakfasts, lunches, dinners and snacks, which they supplement with fresh milk,
fruit and vegetables. A full day's supply of entrees and snacks currently are
priced at less than $8.00 a day. The food is shelf stable at room temperature,
making it relatively inexpensive to ship and store. On the web site, members can
order food 24 hours a day, seven days a week.

     The Company's online program addresses many of the most common limitations
of traditional weight loss programs, including high initiation and recurring
membership fees, the inconvenience of traveling to weight loss centers for
scheduled appointments and lack of privacy. In addition, the Company's program
allows members to participate conveniently and privately from their own homes or
offices.

     The Company's pre-packaged foods are also sold to weight loss program
participants through QVC, independent distributors and the remaining franchised
weight loss centers.

Marketing and Advertising

     The Company's primary marketing objective is to leverage Nutri/System's
established brand cost effectively to build participation in the Company's web
site and sales of its food program. The Company uses a combination of online and
traditional offline marketing and advertising strategies, including a
before-and-after campaign.

     Offline advertising. Offline advertising is used to drive qualified
customers to the Company's web site and increase awareness of the online
program. Nutri/System reaches its target audience through a combination of
television, direct mail and radio. On television, direct response-focused
advertisements capitalize on the Nutri/System brand name and use the proven
"before and after" promotional message. Direct mail is a companion to the media
advertising and consists of mailings to the Nutri/System database of more than
500,000 customers of the Predecessor Businesses as well as members who have
visited the Company's web site previously.

     Online advertising. The Company's online advertising strategy includes the
use of banner, keyword and sponsorship placements, email newsletters and
targeted direct email programs, primarily to its own email database current and
prior members. Since the start of its online advertising activities, the Company
has moved aggressively to eliminate sites that have not proven cost effective,
and currently places the bulk of its online banner advertising with affiliate
programs that are compensated on a cost per customer acquired (CPA) basis.

Fulfillment

     Nutri/System currently operates a 27,000 square foot order fulfillment
center in Horsham, Pennsylvania and a 37,000 square foot order fulfillment
center in Reno, Nevada. At both locations, the Company operates an integrated
order receipt, billing, picking, shipping and delivery tracking system comprised
of proprietary and third party components. This system integrates the front end,
or web site customer interface, with order processing and shipping, and allows
Internet customers to access shippers' order tracking numbers online. The
Company's computer-assisted picking system allows for virtually paperless order
picking.

     The Company believes that virtually all Internet customer orders received
by 5:00 p.m. weekdays are shipped on the day received. Internet customers are
not charged for their orders until the ordered product is shipped. By locating
distribution centers near the East and West Coasts, the Company estimates that
90% of the domestic population can be reached by its shippers within three
business days using standard ground transportation. The Company ships to its
members using either Federal Express or United Parcel Service. It does not
currently charge customers for shipping and handling on food orders of four
weeks or more.

Technology

     Physical web site hosting is maintained in two locations by hosting service
providers. These third parties provide technologically advanced physical and
fire security and electric power back-up for the equipment on which the
Company's web site operates. They also monitor the Company's servers and their
network connections 24 hours a day, seven days a week. Servers at both sites are
connected on a real-time basis using advanced clustering technology., which
provides the Company with continuous back-up and fail-over protection in the
unlikely event that either system should fail.

                                       4
<PAGE>

Competition

     The weight loss industry consists of pharmaceutical products and weight
loss programs, as well as a wide variety of diet foods and meal replacement bars
and shakes, appetite suppressants and nutritional supplements. The weight loss
market is served by a diverse array of competitors. Potential customers seeking
to manage their weight can turn to traditional center-based competitors,
medically supervised programs, online diet-oriented sites or other
self-administered products and programs.

     The principal competitive factors in the online market are:

     .    the ability to attract and retain customers through promotion and
          personal referral;

     .    the availability, convenience and effectiveness of the weight
          reduction program;

     .    brand recognition and trustworthiness; and

     .    program pricing.

     The Company believes it can compete effectively on these factors. However,
it has no control over how successful competitors will be in addressing these
factors. By migrating a well-recognized center-based program to the Internet,
the Company believes it has gained a competitive advantage in that market.

     Many current and potential competitors have larger customer bases, similar
or greater brand recognition and significantly greater financial, marketing and
other resources than the Company's. Competitors have and are expected to
continue to adopt aggressive pricing schemes and innovative product and service
offerings. Increased competition may result in reduced operating margins, an
inability to increase market share and a diminished brand franchise for
Nutri/System and its competitors.

Seasonality

     Typically, revenues of weight loss business, including the Company and the
Predecessor Businesses, are lowest in the fourth calendar quarter and during the
summer months.

Employees

     As of March 1, 2002, the Company had 137 full-time employees. None of the
Company's employees are represented by a labor union and the Company considers
its relations with its employees to be good.


                                       5
<PAGE>

                                  RISK FACTORS

     You should consider carefully the following risks and uncertainties when
reading this Annual Report on Form 10-K. If any of the events described below
actually occur, the Company's business, financial condition and operating
results could be materially adversely affected.

If consumers do not widely accept an online source for weight loss products and
services, the Company will be unable to increase its customer base.

     The Company's success depends on attracting and retaining a high volume of
online customers. Factors that could prevent or delay the widespread consumer
acceptance of purchasing weight loss products and services online include
problems with or customer concerns about:

     .    the security of online transactions;

     .    the loss of privacy with respect to personal weight and health
          information;

     .    delays in responses to inquiries;

     .    delivery time associated with online orders, compared to the immediate
          receipt of products at a store or weight loss center;

     .    shipping charges, which do not apply to shopping at stores or
          traditional weight loss centers;

     .    the ability to return or exchange orders; o the absence of personal
          contact with counselors and other dieters; and

     .    the loss of the discipline, accountability and support associated with
          group sessions.

If the Company does not receive adequate supply from its food and other
manufacturers, revenues and earnings could suffer.

     The Company relies solely on contract manufacturers to supply all of the
food and other products it sells. The Company does not have written contracts
with any suppliers and it is subject to numerous risks associated with these
suppliers' businesses, including labor disruptions, delivery problems, shortages
of ingredients and equipment failure. If the Company cannot supply a sufficient
quantity, quality and variety of products to its customers on acceptable
commercial terms, it would lose revenues and market share or incur higher costs.

The Company is dependent on its chief executive officer and other key managers
for future success and these persons are not obligated to stay with the Company.

     The Company's future success depends to a significant degree on the skills,
experience and efforts of Brian D. Haveson, our Chief Executive Officer, and
other key managerial personnel. The loss of the services of any of these
individuals could harm the business. The Company does not have an employment
agreement with Mr. Haveson or any other key personnel. In addition, the Company
has not obtained key person life insurance on any key employees. If any key
employees left Nutri/System or were seriously injured and became unable to work,
the business could be harmed.

The Company may be subject to health-related claims from members or customers.

     The Company's weight loss program does not include medical treatment or
advice, and the Company does not engage physicians or nurses to monitor the
progress of its members. Many persons who are overweight suffer from other
physical conditions, and Nutri/System's target consumers could be considered a
high-risk population in some respects. A member who experiences health problems
could bring a lawsuit against the Company alleging that such problems were
caused by participation in the weight loss program because certain side effects
can be associated with weight loss. For example, the Company's Predecessor
Businesses suffered substantial losses due to allegations that their weight loss
programs led to gall bladder disease, even though no medical link was proven.
Persons who suffer side effects while participating in the program may assert
claims against the Company whether or not the program was responsible for
causing the effects. Although the Company carries general liability insurance,
its insurance does not cover claims of these types.

The weight loss industry is subject to adverse publicity, which could harm the
business.

     The weight loss industry receives adverse publicity from time to time, and
the occurrence of such publicity could harm the Company, even if the adverse
publicity is not directly related to Nutri/System. In the early 1990s, the

                                       6
<PAGE>

Predecessor Businesses were subject to extremely damaging adverse publicity
relating to a large number of lawsuits alleging that the Nutri/System weight
loss program led to gall bladder disease. This publicity was a factor that
contributed to the bankruptcy of our Predecessor Businesses in 1993. More
recently, the Predecessor Businesses were severely impacted by significant
litigation and damaging publicity related to the use by members of the weight
loss program of fen-phen as an appetite suppressant, which the Food and Drug
Administration (the "FDA") ordered withdrawn from the market in September 1997.
The significant decline in business resulting from the fen-phen problems caused
the Predecessor Businesses to close all of their company-owned weight loss
centers. Congressional hearings about certain practices in the weight loss
industry have also resulted in adverse publicity and a consequent decline in the
revenues of weight loss businesses. Future research reports or publicity that
are perceived as unfavorable or that question certain weight loss programs,
products or methods could result in a decline in the Company's revenues. Because
of the Company's dependence on consumer perceptions, adverse publicity
associated with illness or other undesirable effects resulting from the
consumption of the Company's products or competitors' similar products, whether
or not accurate, could also damage customer confidence in the Nutri/System
weight loss program and result in a decline in revenues. Adverse publicity could
arise even if the unfavorable effects associated with weight loss products or
services resulted from the user's failure to use such products or services
appropriately.

The weight loss industry is subject to governmental regulation that could
increase in severity and hurt results of operations.

     Certain advertising practices in the weight loss industry have led to
investigations from time to time by the Federal Trade Commission (the "FTC") and
other governmental agencies. Many companies in the weight loss industry,
including the Predecessor Businesses, have entered into consent decrees with the
FTC relating to weight loss claims and other advertising practices. The Company
continues to be subject to such consent decrees. These consent decrees restrict
the manner in which the Company's advertising describes the success members have
achieved in losing weight through the program and require the Company to include
the phrase "results not typical" in such advertisements. The Company cannot be
sure that this regulation will not increase in scope or severity in the future,
which could have a material adverse impact on its business. Remedies available
in administrative actions may include requiring the Company to refund amounts
paid by all affected customers or pay other damages, which could be substantial.

The Company may be subject to health-related claims or other liabilities by
customers of the Predecessor Businesses, and such claims or liabilities could
adversely affect results of operations.

     The Predecessor Businesses were subject to numerous claims based on various
health-related concerns during their 30-year operating history, including most
recently, claims related to the use of fen-phen. Although American Home Products
has agreed to indemnify the Company against the fen-phen claims, it may need to
defend itself against such claims. Such litigation, regardless of its merit and
ultimate outcome, is often lengthy and costly. Therefore, if the Company becomes
involved in any such litigation, results of operations could be negatively
affected.

The sale of ingested products involves product liability and other risks.

     Like any other distributor of products that are ingested, the Company faces
an inherent risk of exposure to product liability claims if the use of its
products results in illness or injury. The food that the Company resells is
subject to certain laws and regulations of the FDA, which establishes
manufacturing practices and quality standards for food products. If the Company
does not have adequate insurance or contractual indemnification from its
suppliers, product liability claims could have a material adverse effect on the
business. Distributors of weight loss food products, vitamins, nutritional
supplements and minerals, including the Predecessor Businesses, have been named
as defendants in product liability lawsuits from time to time. The successful
assertion or settlement of an uninsured claim, a significant number of insured
claims or a claim exceeding the limits of the Company's insurance coverage would
harm it by adding costs to the business and by diverting the attention of senior
management from the operation of the business. The Company may also be subject
to claims that its products contain contaminants, are improperly labeled,
include inadequate instructions as to use or inadequate warnings covering
interactions with other substances. Product liability litigation, even if not
meritorious, is very expensive and could also entail adverse publicity for the
Company and reduce its revenues.

The Company may be subject to claims that its personnel are unqualified to
provide proper weight loss advice.

     Most of the Company's counselors for our online diet program do not have
extensive training or certification in nutrition, diet or health fields and have
only undergone the training they receive from the Company. Nutri/System may be
subject to claims from its members alleging that its personnel do not have the
qualifications necessary to provide proper advice regarding weight loss. The
Company may also be subject to claims that its personnel have provided


                                       7
<PAGE>

inappropriate advice or have inappropriately referred or failed to refer members
for matters other than weight loss. Although the Company carries relevant
liability insurance, such claims could result in damage the Company's
reputation.

Nutri/System has a history of operating losses and an accumulated deficit and it
may become unprofitable.

     The Company and its Predecessor Businesses have incurred losses in four of
the last five years. At December 31, 2001, the Company had an accumulated
deficit of $25.5 million. The Company needs to continue to generate significant
revenues to maintain profitability, and it may not be able to do so.

The Company's stock price has been volatile and its trading volume has been low.
These conditions may continue or worsen.

     The Company's common stock was delisted from the Nasdaq National Market on
May 25, 2001 and before and since it has been trading at very low volumes. The
Company cannot predict when a more liquid trading market may develop. In
addition, the Company's share price may decline for reasons related, or
unrelated, to future operating results. For example, in October 2000, the
Company's share price declined substantially for reasons it believes are
unrelated to operating performance. There are many factors, including the risk
factors described in this Annual Report on Form 10-K, that may cause operating
results to fluctuate or have a significant adverse effect on the market price of
the Company's common stock.

Certain anti-takeover provisions in the Company's certificate of incorporation
and Delaware law may deter or prevent a change in control of the Company, even
if that change would be beneficial to its stockholders.

     Provisions of the Company's certificate of incorporation, bylaws and
Delaware law may have the effect of deterring unsolicited takeovers or delaying
or preventing changes in control of the Company, including transactions in which
its stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests.

     The Company's certificate of incorporation permits its Board of Directors
to issue preferred stock without stockholder approval upon such terms as its
Board of Directors may determine. The rights of the holders of its common stock
will be junior to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the Company's outstanding common
stock. The issuance of a substantial number of preferred shares could adversely
affect the price of the Company's common stock.


                                       8
<PAGE>

ITEM 2. PROPERTIES

     The Company currently leases approximately 48,500 square feet of office and
warehouse space in Horsham, Pennsylvania pursuant to a lease expiring in 2004 at
an annual rent of $350,000 and approximately 37,000 square feet of warehouse
space in Reno, Nevada pursuant to a lease expiring in 2003 at an annual rent of
$124,000. The Company believes these facilities are adequate for its needs for
the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     The Company is not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held its Annual Meeting of Stockholders on May 11, 2001. The
following table lists all the director nominees set forth in the Notice of
Annual Meeting and the details of the votes cast for each:

Nominee                     Votes For               Votes  Withheld
-------                     ---------               ---------------
Brian D. Haveson           20,488,707                   53,570
Michael E. Heisley         20,488,707                   53,570
Frederick C. Tecce         20,488,707                   53,570
Donald R. Caldwell         20,488,707                   53,570
Dean J. Bozzano            20,488,707                   53,570

                        EXECUTIVE OFFICERS OF THE COMPANY

     The Company's executive officers and their respective ages and positions
are as follows:

<TABLE>
<CAPTION>
Name                                    Age                                  Position
-----------------------------        -----------     -----------------------------------------------
<S>                                      <C>         <C>
Brian D. Haveson                         38          President, Chief Executive Officer and Director

James D. Brown                           44          Chief Financial Officer and Treasurer

Brendon Perero                           25          Chief Information Officer

Deborah A. Gallen                        43          Vice President, E-Commerce

Joseph J. DiBartolomeo, Ph.D.            50          Vice President, Scientific Affairs
</TABLE>

     Brian D. Haveson has served as President, Chief Executive Officer and as a
member of the Board of Directors of the Company since its formation in August
1999. Mr. Haveson was President of Nutri/System L.P. (the "Partnership"), a
predecessor of the Company, from 1997 until 1999 and was Chief Financial Officer
of the Partnership from 1993 until 1997. For five years prior thereto, Mr.
Haveson was a Manager in the Corporate Recovery Services Practice of Arthur
Andersen LLP. His work encompassed numerous industries, including retail,
manufacturing, trucking, printing, financial services and health care, assisting
with turnarounds and restructurings for over 20 companies.

     James D. Brown has been the Company's Chief Financial Officer since
December 1999 and its Treasurer since February 2000. Prior to joining
Nutri/System, Mr. Brown was Chief Financial Officer of ImageMax, Inc., a
document management company, from 1997 to 1999, and Chief Financial Officer of
LMR Holdings, a holding company for textile component manufacturers, from 1996
to 1997. During 1995, Mr. Brown was President of Main Line Management, a
management consulting firm, and from 1990 to 1994 he was Chief Financial Officer
of Liberty Broadcasting Group, a consolidator of radio broadcasting properties,
and Controller of Lancer Industries, Inc., a diversified manufacturer.


                                       9
<PAGE>

     Brendon R. Perero has been Nutri/System's Chief Information Officer since
August 1999. From 1997 to 1999, Mr. Perero was a Vice President and Senior
Programmer/Developer of INetU, Inc., a firm engaged in Internet hosting and
consulting. From 1997 to 1998, Mr. Perero was also a member of the Design
Council for IBM Net.Commerce and collaborated with IBM for third party
development of e-commerce software. Prior to 1997, Mr. Perero was a college
student.

     Deborah A. Gallen has served as the Company's Vice President, E-Commerce
since August 1999. She was Vice President, Operations for Nutri/System's
predecessor from 1995 until 1999 and was Director of Health Care Services for
the predecessor from 1994 to 1995. Previously, Ms. Gallen was Director of
Outpatient Care for the Mercy Health System in Philadelphia, Pennsylvania. Ms.
Gallen is also a registered nurse.

     Joseph J. DiBartolomeo, Ph.D. has been employed by Nutri/System since
January 2000 and has been Vice President, Scientific Affairs since May 2000. Dr.
DiBartolomeo was Vice President of Product Development for Nutrx Natural
Therapies Inc., a developer and marketer of nutraceuticals, from 1998 to 1999.
From 1997 to 1998, Dr. DiBartolomeo was Special Assistant to the President of
the Temple University Health System in Philadelphia, Pennsylvania. From 1981 to
1996, Dr. DiBartolomeo was with the Company's predecessor, where he initially
served as Director of Nutrition and later as Vice President of Scientific
Affairs.


                                       10
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Company's common stock traded on the Nasdaq National Market from June
16, 2000 to May 25, 2001 and currently trades on the Nasdaq OTC Bulletin Board.
The Company's common stock trades under the symbol "THIN." From October 1999
until June 16, 2000, the Company's common stock traded infrequently and in
limited volumes in the over-the-counter market. The following table sets forth,
for the periods indicated, the high and low closing prices for the Company's
common stock as reported on the Nasdaq National Market and the Nasdaq OTC
Bulletin Board since June 16, 2000. Because of the extremely limited trading in
the stock in the over-the-counter market prior to that date, the Company does
not consider trading price information prior to June 16, 2000 meaningful.

                                                 High              Low
                                               -------          --------

2000 Second Quarter (from June 16)             $ 14.00          $ 13.25
2000 Third Quarter                               14.00             9.25
2000 Fourth Quarter                               8.00             0.81
2001 First Quarter                                0.88             0.56
2001 Second Quarter                               0.76             0.41
2001 Third Quarter                                0.64             0.35
2001 Fourth Quarter                               0.37             0.12

     On March 1, 2002, the closing bid price of the Company's common stock on
the Nasdaq OTC Bulletin Board was $0.75. As of March 1, 2002, the Company had
approximately 457 record holders of its common stock.

     On February 26, 2001, the Company announced that its Board of Directors had
authorized a stock repurchase program under which the Company may repurchase up
to 250,000 shares of its outstanding common stock. On June 26, 2001 and January
14, 2002, the Company announced that its Board of Directors had authorized
expansions of its stock repurchase program to 1,500,000 and 5,000,000 shares of
its outstanding common stock, respectively. The shares may be purchased at the
Company's discretion from time to time in open market transactions at prevailing
prices or in private transactions at negotiated prices. Through March 1, 2002,
the Company had repurchased a total of 1,670,400 shares of its common stock.

     The Company has not paid any dividends since its inception and currently
has no plans to begin paying dividends. The declaration and payment of dividends
in the future will be determined by the Company's Board of Directors in light of
conditions then existing, including the Company's earnings, financial condition,
capital requirements and other factors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial data presented below have been derived
from the Company's consolidated financial statements for each of the periods
indicated. The data set forth below is qualified by reference to and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements included as Items 7 and 8 in this Annual Report on Form 10-K.


                                       11
<PAGE>

                      Selected Consolidated Financial Data
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                         -------------------------------------------------------------
                                           1997           1998        1999        2000           2001
                                         --------       --------    --------    --------       -------
<S>                                      <C>            <C>         <C>         <C>            <C>
Statement of Operations Data:

Revenues: (a)
  Food sales .........................   $ 23,698       $  8,415    $  7,910    $ 20,011       $23,749
  Other revenues .....................     22,105            870         674         191            49
    Total revenues ...................     45,803          9,285       8,584      20,202        23,798

Costs and expenses:
    Cost of revenues .................     41,920          7,101       6,196      11,055        13,114
    Advertising and marketing ........      5,766            113         520       8,432         3,565
    General and administrative .......      1,056          2,140       3,464       6,068         6,379
    Other items ......................     (1,828)(b)         --       8,202(c)       20            61
    Other operating expenses .........      1,817             79          99         307           418

Operating income (loss) ..............     (2,928)          (148)     (9,897)     (5,680)          261

Discontinued operation ...............         --             --          --      (8,586)(d)       813(d)

Net income (loss) ....................     (1,598)           (42)     (9,633)    (13,984)        1,249

Basic and diluted earnings per share:
 Continuing operations ...............   $  (0.08)      $  (0.00)   $  (0.45)   $  (0.19)      $  0.01
 Discontinued operation ..............         --             --          --    $  (0.03)      $  0.03
 Disposal of discontinued operation ..         --             --          --    $  (0.28)           --
                                                                                --------       -------
  Basic and diluted ..................   $  (0.08)      $  (0.00)   $  (0.45)   $  (0.50)      $  0.04

Weighted average shares outstanding
  Basic ..............................     19,539         19,539      21,449      28,006        28,156
  Diluted ............................     19,539         19,539      21,449      28,006        28,201
</TABLE>

<TABLE>
<CAPTION>
                                                                  December 31,
                                         -------------------------------------------------------------
                                           1997           1998        1999        2000           2001
                                         --------       --------    --------    --------       -------
<S>                                      <C>            <C>         <C>         <C>            <C>
Balance Sheet Data:

Cash, cash equivalents and
  short-term investments..............   $    843       $    361    $  2,902    $  1,638       $ 1,118
Working capital.......................      1,235          1,047       3,509       1,434         2,310
Total assets..........................      4,826          2,930       5,856       5,908         6,387
Stockholders' equity..................        565            523       4,391       2,901         3,488
</TABLE>

----------
(a)  In 1997, the Company sold its company-owned weight loss centers. As a
     result, beginning in 1998, the Company experienced a significant decrease
     in revenues associated with food sales and weight loss programs. Revenues
     generated from the weight loss centers owned by the Company in 1997 were
     $33,484.


                                       12
<PAGE>

(b)  In 1997, the Company sold its company-owned weight loss centers (see note
     (a)) at a loss of $5,347. In addition, in 1997, the Company received
     proceeds from its insurance carrier associated with products liability
     litigation which generated a net gain of $7,175.

(c)  Compensation charges of $8,202 were recorded in 1999. See discussion
     relating thereto in Note 1 of the Notes to the Consolidated Financial
     Statements.

(d)  In 2000 and 2001, the Company recorded a loss from discontinued operation
     of $713 and an operating profit of $813, respectively. Also in 2000, the
     Company recorded a loss on disposal of $7,873 consisting of a write off of
     intangibles of $7,650 and $223 of other shutdown related costs. See
     discussion relating thereto in Note 3 of the Notes to the Consolidated
     Financial Statements.


                                       13
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     Except for the historical information contained herein, this Report on Form
10-K 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." 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 Form 10-K Annual Report. 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, nine 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. In
2001, the Company began selling foods through QVC, a shopping television
network. The Company's pre-packaged foods are now sold to weight loss program
participants through the Internet, QVC, 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. In 2001, the Company repurchased 1,670,400 shares of common stock for
an aggregate cost of $723 (an average price of $0.43 per share).

     Since 1993, the Company, together with its Predecessor Businesses, incurred
significant losses, including net losses of $9,633 and $13,984 in 1999 and 2000,
respectively. In 2001, the Company generated net income of $1,249 (including
income from discontinued operations of $813). There can be no assurance that the
Company will be able to sustain profitability or, if necessary, obtain the
capital to fund operating and investment needs in the future. However, based on
the Company's ability to generate earnings in the last year, the variable nature
of a portion of the Company's expenditures, the cash balance at December 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 operations
into 2003.

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 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


                                       14
<PAGE>

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,
over the course of 2000 and 2001 the Company was able to generate $1,753 in net
positive cash flow from the product line, consisting of $7,773 in operating
losses offset by $8,197 in non-cash expenses and a positive $1,329 in cash
generated from reductions in working capital. In 2000 and 2001, the Sweet
Success product line resulted a positive $1,212 and $541 net cash flow,
respectively, as cash generated through the operation of the product line and
the disposal of inventory exceeded payments related to the 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 in 2000 and 2001, Sweet Success
generated sales of $4,215 and $3,350, respectively, and incurred an operating
loss of $713 and an operating profit of $813, respectively. In conjunction with
the discontinuance of operation, in 2000 the Company recorded a loss on
disposition of $7,873, of which $7,650 related to the write down of intangible
assets and the remaining $223 related to various shut down costs.

Results of Operations

     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, 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. Internet advertising expense is recognized based on
either the rate of delivery of a guaranteed number of impressions over the
advertising contract term or on a cost per customer acquired, depending upon the
payment terms. 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. In 1999, non-cash compensation expense is associated
almost entirely with equity interests granted to an executive pursuant to the
Stock Exchange and Purchase Agreement to acquire the beneficial interest in
NutriSystem Direct, L.L.C.

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

     Income taxes. The Predecessor Businesses were flow-through entities, which
were not subject to federal or state income taxes and, consequently, none have
been reflected in the financial statements for the historical periods prior to
September 30, 1999. For purposes of pro forma presentation, given the
uncertainty of future operating results, no pro forma tax benefit was recorded
during the year ended December 31, 1999. Effective with the Merger on September
27, 1999, the Company became subject to corporate level income taxes. No income
tax benefit on the excess of the tax basis


                                       15
<PAGE>

of assets over the financial reporting carrying amount has been recorded from
September 1999 through 2001, again in light of the uncertainty of future
operating results.

     Internet Operations

     The Company launched its web site on October 15, 1999. In pursuing its
Internet 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.

                   SELECTED FINANCIAL AND OPERATING STATISTICS

                                           2000        2001
                                         --------    --------
Revenues (000's)                         $ 13,986    $ 16,578

Cost of revenues (000's)                    6,534       7,743
                                         --------    --------

  Gross margin (000's)                   $  7,452    $  8,835
    % of revenue                             53.3%       53.3%

Advertising and marketing (000's)        $  8,432    $  3,565
    % of  revenue                            60.3%       21.5%

New customers                              48,122      42,256

Advertising and marketing/               $    175    $     84
   new customer

Total revenues/new customer              $    291    $    392

     Internet revenues increased 18.5% from 2000 to 2001. Internet revenues are
largely a function of the number of new customers acquired, the revenues
generated from each new customer and the revenues generated from returning
customers (customers that initially purchased food in a prior year). From 2000
to 2001, the number of new customers acquired dropped by 5,866 or 12.2%. The
decline in new customers was caused by a large reduction in advertising and
marketing spending, which declined by $4.9 million or 58.0% from 2000 to 2001.
Total revenues per new customer increased 35% from $291 in 2000 to $392 in 2001.
The increase in total revenues per new customer is primarily attributable to a)
an increase in the average weeks on program per new customer and b) revenues
generated by returning customers that totaled approximately $3 million. There
was very little revenue generated from returning customers in 2000 because
Internet operations started in October 1999.

     The 58% decline in advertising spending from 2000 to 2001 was attributable
to the virtual elimination of cost per impression Internet banner advertising,
which the Company determined was not cost effective. In 2001, the Company
increased spending for television advertising and for Internet advertising
purchased on a cost per sale basis. Overall advertising effectiveness improved
sharply from 2000 to 2001; advertising spending as a percent of sales declined
from 60.3% in 2000 to 21.5% in 2001, and advertising spending per new customer
acquired declined from $175 in 2000 to $84 in 2001, a drop of 52.0%. The Company
believes the sharp increase in advertising effectiveness was a result of a)
curtailing spending for ineffective advertising, particularly Internet banners,
b) higher spending for effective advertising media, c) greater brand awareness
among likely consumers in 2001, d) the acquisition of customers through
word-of-mouth referrals generated by the expanding base of former clients, and
e) clients returning to the program in 2001 after having success with the online
program earlier in 2000.


                                       16
<PAGE>

     Television Infomercial Distribution

     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 Internet 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.

     Year Ended December 31, 2000 Compared to Year Ended December 31, 2001

     Revenues. Revenues increased from $20,202 for the year ended December 31,
2000 to $23,798 for the year ended December 31, 2001. The revenue increase of
$3,596, or 17.8%, resulted from higher Internet food sales ($2,592) and the
initiation of sales to QVC ($2,682). Offset these increases was a decline in
sales of $1,678 through the franchise network and N/S Direct. In 2001, Internet
sales accounted for 70% of total revenues, while QVC, N/S Direct and franchise
revenues accounted for 11%, 10% and 9% of total revenues, respectively.

     Costs and Expenses. Cost of revenues increased $2,059 from $11,055 to
$13,114 for the years ended December 31, 2000 and 2001, respectively. Gross
margin as a percent of revenues was 45% in both years. In 2000 and 2001,
Internet share of total revenues and gross margin as a percent of sales remained
approximately the same. Advertising and marketing expenses decreased $4,867 from
$8,432 to $3,565 from 2000 to 2001. All advertising spending promoted the
Internet operations, and, as discussed above, the decline in advertising is
attributable to the elimination of Internet banner advertising that the Company
determined was not cost effective. General and administrative expenses ($6,068
and $6,379 in 2000 and 2001, respectively) increased $311 but declined as a
percent of sales from 30% to 27% from 2000 to 2001. The Company incurred high
expenses in a variety of areas related to expanded operations including
compensation, rent and insurance offset by lower spending in other areas
including professional services. In 2001, the Company also reduced a reserve
associated with closing of company-owned weight loss centers in 1997, which
resulted in a $235 reduction in general and administrative expense.

     Interest Income. Interest income net of interest expense decreased $100
from $198 in 2000 to $98 in 2001 primarily due to lower average cash balances
and interest rates.

     Net Income/Loss. From 2000 to 2001, the Company improved its net results
from a net loss of $13,984 to a net income of $1,249. The net loss in 2000
included losses from a discontinued operation of $8,586, including a $7,650
write off on intangibles. In 2000, the operating loss from continuing operations
of $5,680 is primarily attributable to high advertising and marketing expenses.
In 2001, the Company's net income included income from discontinued operations
of $813, and the Company generated operating income from continuing operations
of $261.

     Year Ended December 31, 1999 Compared to Year Ended December 31, 2000

     Revenues. Revenues increased from $8,584 for the year ended December 31,
1999 to $20,202 for the year ended December 31, 2000. The revenue increase of
$11,618, or 135%, resulted primarily from sales related to the commencement of
Internet operations ($13,986), partially offset by lower franchise food sales
and royalties.

     Costs and Expenses. Cost of revenues increased $4,859 from $6,196 to
$11,055 for the years ended December 31, 1999 and 2000, respectively. Gross
margin increased from 28% to 45% for the years ended December 31, 1999 and 2000,
respectively. This increase is due primarily to the shift in mix toward
higher-margin Internet food sales and away from franchise and independent
distribution food sales. Advertising and promotional expenses increased $7,912
from $520 to $8,432 from 1999 to 2000. All advertising spending in 2000 promoted
the Internet program. General and administrative expenses increased from $3,464
to $6,068 from 1999 compared to 2000. This increase of $2,604 is due primarily
to an increase in compensation expense ($1,969), professional services ($288),
rent ($237), and other costs which were connected to establishing the Internet
business. In the fourth quarter of 2000 the Company made a determination to
expense $347 of professional fees incurred over the course of the year in
connection with unsuccessful fundraising efforts.

     Interest Income. Interest income net of interest expense increased $142
from $56 in 1999 to $198 in 2000 primarily due to higher cash balances.


                                       17
<PAGE>

     Net Loss. The Company incurred net losses of $9,633 and $13,984 for 1999
and 2000, respectively. The net loss in 1999 included an $8,200 non-cash
compensation charge arising from the merger in August 1999. Excluding this
one-time compensation charge, operating losses were $1,697 in 1999. The net loss
in 2000 included losses from a discontinued operation of $8,586, including a
$7,650 write off on intangibles. In 2000, the operating loss from continuing
operations of $5,680 arose as increases in advertising and marketing and, to a
lesser extent, general and administrative expenses more than offset higher sales
and gross margins.

Liquidity, Capital Resources and Other Financial Data

     At December 31, 2001, the Company had net working capital of $2,310. Cash
and cash equivalents were $1,118. 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 generated in 2001. The Company
currently has no bank debt or term or revolving credit facilities to fund
operating cash flow or investment opportunities.

     In the year ended December 31, 2001, the Company generated a positive cash
flow of $342 from operations, primarily attributable to net income adjusted for
non-cash items partially offset by increases in working capital.

     In the year ended December 31, 2001, net cash used by investing activities
was $139, which primarily consisted of capital expenditures incurred to increase
web site capacity.

     In the year ended December 31, 2001, net cash used in financing activities
amounted to $723, representing common stock purchased in open market and
privately negotiated transactions.

     Over the first nine months of 2001, the Company eliminated virtually all
marketing agreements requiring future minimum fixed fees. As of December 31,
2001, the Company's principal commitments consisted of obligations under
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, it is possible the Company 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
Company's ability to generate earnings in 2001, the variable nature of a portion
of the Company's expenditures, the cash balance at December 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 operations into
2003. However, there can be no assurance that the Company will be able to
sustain profitability or, if necessary, obtain the capital to fund operating and
investment needs 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.


                                       18
<PAGE>

ITEM 7a. 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this Item is set forth on pages 22 through 39
hereto and is incorporated by reference herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.


                                       19
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information contained under the caption "Election of Directors" in the
definitive proxy statement for the Company's 2002 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission (the "Commission") is
incorporated herein by reference. Information regarding the Company's executive
officers is included in Part I of this Form 10-K Annual Report.

ITEM 11. EXECUTIVE COMPENSATION

     The information contained under the caption "Executive Compensation" in the
definitive proxy statement for the Company's 2002 Annual Meeting of Stockholders
to be filed with the Commission is incorporated herein by reference.

ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information contained under the caption "Beneficial Ownership of Common
Stock" in the Company's definitive proxy statement for the Company's 2002 Annual
Meeting of Stockholders to be filed with the Commission is incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information contained under the caption "Certain Related Party
Transactions" in the Company's definitive proxy statement for the Company's 2002
Annual Meeting of Stockholders to be filed with the Commission is incorporated
herein by reference.


                                       20
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  1. Financial Statements

     See Index to the Consolidated Financial Statements which begins on page 22
     of this Annual Report

          2.   Financial Statement Schedules

     None.

          3.   Exhibits

     The exhibits listed in the accompanying index to exhibits are incorporated
by reference as part of this Annual Report on Form 10-K.

     (b) Reports on Form 8-K.

     On September 9, 2001 the registrant filed a Form 8-K reporting under Item 5
that on September 6, 2001, the registrant signed an agreement with QVC, giving
the electronic retailer exclusive rights to promote the registrant's weight loss
products in the United States on direct response television programs.


                                       21
<PAGE>

                       NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants.....................................23

Consolidated Balance Sheets..................................................24

Consolidated Statements of Operations........................................25

Consolidated Statements of Changes in Stockholders' Equity...................26

Consolidated Statements of Cash Flows........................................27

Notes to Consolidated Financial Statements...................................28


                                       22
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Nutri/System, Inc.:

We have audited the accompanying consolidated balance sheets of Nutri/System,
Inc. (formerly nutrisystem.com inc.)(a Delaware corporation) and subsidiaries as
of December 31, 2000 and 2001, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nutri/System, Inc. and
subsidiaries as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

                                                             ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania,
February 13, 2002


                                     23
<PAGE>

                       NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                         December 31
                                                                                     --------------------
                                                                                       2000        2001
                                                                                     --------    --------
<S>                                                                                  <C>         <C>
ASSETS
------
CURRENT ASSETS:
   Cash and cash equivalents                                                         $  1,638    $  1,118
   Restricted cash                                                                        525         528
   Trade receivables, less allowance of $36 and $0 in 2000 and 2001, respectively         284         222
   Inventories, net                                                                     1,435       2,758
   Other current assets                                                                   414         460
                                                                                     --------    --------
                   Total current assets
                                                                                        4,296       5,086

FIXED ASSETS, net                                                                       1,054         852

INTANGIBLES, net                                                                          395         290

OTHER ASSETS                                                                              163         159
                                                                                     --------    --------
                                                                                     $  5,908    $  6,387
                                                                                     ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
   Accounts payable                                                                  $  1,892    $  2,346
   Accrued payroll and related benefits                                                   131         113
   Net liabilities of discontinued operation                                              433         161
   Other current liabilities                                                              406         156
                                                                                     --------    --------
               Total current liabilities                                                2,862       2,776

NON-CURRENT LIABILITIES                                                                   145         123
                                                                                     --------    --------
                        Total liabilities                                               3,007       2,899
                                                                                     --------    --------

COMMITMENTS AND CONTINGENCIES (Note 8)
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; shares outstanding - 28,735,794 at December 31, 2000 and
     27,065,394 at December 31, 2001)                                                      29          29
   Additional paid-in capital                                                          29,272      29,333
   Warrants exercisable at $1 per share                                                   324         324
   Accumulated deficit                                                                (26,724)    (25,475)
   Treasury stock, at cost (1,670,400 shares at December 31, 2001)                         --        (723)
                                                                                     --------    --------
               Total stockholders' equity                                               2,901       3,488
                                                                                     --------    --------
                                                                                     $  5,908    $  6,387
                                                                                     ========    ========
</TABLE>

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


                                       24
<PAGE>

                       NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                      Year Ended December 31
                                                                 -------------------------------
                                                                   1999        2000       2001
                                                                 --------    --------    -------
<S>                                                              <C>         <C>         <C>
REVENUES:
   Food sales                                                    $  7,910    $ 20,011    $23,749
   Other                                                              674         191         49
                                                                 --------    --------    -------
                                                                    8,584      20,202     23,798
                                                                 --------    --------    -------
COSTS AND EXPENSES:
   Cost of revenues                                                 6,196      11,055     13,114
   Advertising and marketing                                          520       8,432      3,565
   General and administrative                                       3,464       6,068      6,379
   Depreciation and amortization                                       99         307        418
   Non-cash compensation expense (Notes 1 and 11)                   8,202          20         61
                                                                 --------    --------    -------
                                                                   18,481      25,882     23,537
                                                                 --------    --------    -------
       Operating income (loss) from continuing operations          (9,897)     (5,680)       261

OTHER INCOME                                                           --          84         77

INTEREST INCOME, net                                                   56         198         98
                                                                 --------    --------    -------
       Income (loss) before minority interest and discontinued
         operation                                                 (9,841)     (5,398)       436

MINORITY INTEREST                                                     208          --         --
                                                                 --------    --------    -------
           Income (loss) before discontinued operation             (9,633)     (5,398)       436

DISCONTINUED OPERATION (Note 3):
     Income (loss) from operation
                                                                       --        (713)       813
     Loss on disposal                                                  --      (7,873)        --
                                                                 --------    --------    -------
       Net income (loss)                                         $ (9,633)   $(13,984)   $ 1,249
                                                                 ========    ========    =======
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
      Continuing operations                                         (0.45)      (0.19)      0.01
      Discontinued operation                                           --       (0.03)      0.03
      Disposal of discontinued operation                               --       (0.28)        --
                                                                 --------    --------    -------
                                                                 $  (0.45)      (0.50)   $  0.04
                                                                 ========    ========    =======
WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic                                                              21,449      28,006     28,156
Diluted                                                            21,449      28,006     28,201
</TABLE>

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


                                       25
<PAGE>

                       NUTRI/SYSTEM, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                Additional     Common
                                        Common       Common      Paid-in        Stock      Accumulated    Treasury
                                        Shares        Stock      Capital      Warrants       Deficit       Stock          Total
                                      ----------     ------     ----------    --------     -----------    --------    -----------
<S>                                   <C>              <C>       <C>           <C>          <C>           <C>           <C>
BALANCE, January 1, 1999              19,539,337       $20       $  3,610        --         $ (3,107)           --      $   523

   Net loss                                   --        --             --        --           (9,633)           --       (9,633)

   Payment to stockholder in excess
     of book value (Note 1)                   --        --         (2,275)       --               --            --       (2,275)

   Capital contribution of shares
     issued to executive (Note 1)             --        --          8,202        --               --            --        8,202

   Issuance of warrants                       --        --           (344)     $344               --            --           --

   Issuance of common stock
     (Notes 1 and 10)                  7,637,400         7          7,567        --               --            --        7,574
                                      ----------       ---       --------      ----         --------      --------      -------

BALANCE, December 31, 1999            27,176,737        27         16,760       344          (12,740)           --        4,391

   Net loss                                   --        --             --        --          (13,984)           --      (13,984)

   Amortization of deferred
     compensation                             --        --             20        --               --            --           20

   Exercise of stock options               1,666        --              2        --               --            --            2

   Exercise of warrants                   42,391        --             40       (20)              --            --           20

   Issuance of common stock
     (Note 10)                         1,515,000         2         12,450        --               --            --       12,452
                                      ----------       ---       --------      ----         --------      --------      -------

BALANCE, December 31, 2000            28,735,794        29         29,272       324          (26,724)           --        2,901

   Net income                                 --        --             --        --            1,249            --        1,249

   Amortization of deferred
     compensation                             --        --             61        --               --            --           61

   Purchase of treasury stock         (1,670,400)       --             --        --               --      $   (723)        (723)
                                      ----------       ---       --------      ----         --------      --------      -------

BALANCE, December 31, 2001            27,065,394       $29       $ 29,333      $324         $(25,475)     $   (723)     $ 3,488
                                      ==========       ===       ========      ====         ========      ========      =======
</TABLE>

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


                                       26
<PAGE>

                       NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                              Year Ended
                                                                              December 31
                                                                     ------------------------------
                                                                       1999       2000        2001
                                                                     -------    --------    -------
<S>                                                                  <C>        <C>         <C>
   CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                 $(9,633)   $(13,984)   $ 1,249
   Adjustments to reconcile net income (loss) to net cash provided
     by (used in) operating activities-
     Discontinued operation net (income) loss                             --       8,586       (813)
     Net cash from discontinued operation                                 --       1,212        541
     Loss on disposals                                                   167           9         16
     Minority interest                                                  (208)         --         --
     Non-cash compensation expense                                     8,202          20         61
     Depreciation and amortization                                        99         307        418
     Other non-cash expense                                               --         625         --

   Changes in operating assets and liabilities-
     Restricted cash                                                      41        (165)        (3)
     Trade receivables                                                   387        (144)        62
     Inventories                                                          50        (666)    (1,323)
     Prepaid expenses and other assets                                  (373)        313        (42)
     Accounts payable                                                    108       1,022        454
     Accrued payroll and related benefits                                 19          66        (18)
     Other liabilities                                                  (244)         33       (260)
                                                                     -------    --------    -------

         Net cash provided by (used in) operating activities          (1,385)     (2,766)       342
                                                                     -------    --------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital additions                                                  (248)       (982)      (139)
                                                                     -------    --------    -------

         Net cash used in investing activities                          (248)       (982)      (139)
                                                                     -------    --------    -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Distribution to partners                                         (3,400)         --         --
     Issuance of common shares, net of costs                           7,574       2,484         --

     Treasury stock purchases, at cost                                    --          --       (723)
                                                                     -------    --------    -------

         Net cash provided by (used in) financing activities           4,174       2,484       (723)
                                                                     -------    --------    -------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                2,541      (1,264)      (520)

CASH AND CASH EQUIVALENTS,
      beginning of year                                                  361       2,902      1,638
                                                                     -------    --------    -------

CASH AND CASH EQUIVALENTS,
      end of year                                                    $ 2,902    $  1,638    $ 1,118
                                                                     =======    ========    =======
</TABLE>

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


                                       27
<PAGE>

                       NUTRI/SYSTEM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (in thousands, except share amounts)

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 nine remaining independent franchised
weight loss centers encompass less than 1% of the United States population and
there are no Company-operated centers. In 1998, the Company initiated
NutriSystem Direct, L.L.C., a direct marketing program of independent
distributors of the Company's diet program. In 2001, the Company began selling
foods through QVC, a shopping television network. The Company's pre-packaged
foods are now sold to weight loss program participants through the Internet,
QVC, independent distributors and the remaining 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 in 1999 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, together with its Predecessor Businesses, incurred
significant losses, including net losses of $9,633 and $13,984 in 1999 and 2000,
respectively. In 2001, the Company generated net income of $1,249 (including
income from discontinued operations of $813). There can be no assurance that the
Company will be able to sustain profitability or, if necessary, obtain the
capital to fund operating and investment needs in the future. However, based on
the Company's ability to generate earnings in the last year, the variable nature
of a portion of the Company's expenditures, the cash balance at December 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 operations
into 2003.

Merger Transaction

In August 1999, Ansama Corp. ("Ansama"), a non-operating public company with
minimal assets and liabilities and the sole stockholder of the Company, entered
into: (1) an Asset Purchase Agreement to acquire the operating assets and assume
certain liabilities of Nutri/System L.P. for $3,000 and (2) a Stock Exchange and
Purchase Agreement to acquire the beneficial interest of NutriSystem Direct,
L.L.C. for $400 and 17,500,000 shares of Ansama common stock. The Asset Purchase
Agreement and Stock Exchange and Purchase Agreement are collectively referred to
as the Merger Agreements and the transactions contemplated by the Merger
Agreements are referred to as the Merger. The amount paid to the principal
stockholder in excess of the book value was treated as a dividend. The
consideration paid for the acquisition of the minority interest was allocated to
the Company's assets and liabilities in accordance with Accounting Principles
Board Opinion No. 16, "Business Combinations."

On September 27, 1999, Ansama was merged into the Company and the Company
completed the Merger with proceeds generated from the private placement. As a
result of the Merger, the owners of the Predecessor Businesses obtained a


                                       28
<PAGE>

controlling interest in the common stock of the Company. In addition, the
management team of the Predecessor Businesses became the officers and management
of the Company. The Merger was treated as a recapitalization with the assets and
liabilities of the Predecessor Businesses recorded at historical cost in the
accompanying consolidated financial statements.

In connection with the Merger, the Company issued 8,200,000 shares of common
stock to the president of the Company. This issuance was treated as compensation
expense for accounting purposes. The compensation expense was recorded in 1999
and was based on a fair market value of $1 per share.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Presentation of Financial Statements

As of December 31, 2000 and 2001, the Company's consolidated financial
statements include the accounts of Nutri/System, Inc. and its wholly owned
subsidiaries. The accompanying historical financial statements prior to
September 27, 1999 include the combined accounts of the Predecessor Businesses.
The historical stockholders' equity presented in the accompanying financial
statements has been retroactively restated to give effect to the shares and
consideration issued in the Merger. See Note 1.

All significant intercompany accounts and transactions have been eliminated.

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 years ended December 31, 1999, 2000 or 2001. Payments for interest
were $2, $3, and $4 for the years ended December 31, 1999, 2000 and 2001,
respectively.

Restricted Cash

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

Inventories

Inventories consist principally of packaged food at warehouses owned by the
Company. 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 2001 and accumulated amortization was $132 and $237,
respectively. Intellectual property was generated from the acquisition of
certain assets associated with a now discontinued operation. In December 2000,
the Company wrote off the intellectual property associated with the discontinued
operation.

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,


                                       29
<PAGE>

1999, 2000 and 2001, $587, $254 and $53, respectively, of prepaid advertising
was included in prepaid expenses. Advertising expense was $520, $8,218 and
$3,443 during 1999, 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 significant website development costs were incurred and none
were capitalized in 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.

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 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 from food sales and other are recognized when the related products are
shipped. Food sales include amounts billed for shipping and handling and are
presented net of returns and free food products provided to consumers. Other
revenues represent primarily the sale of print materials to franchisees and
independent distributors as well as franchise royalty fees that are
contractually set at 4% of franchisees' total net sales.

Minority Interest

Minority interest represents the minority stockholders' share of the equity and
results of operations of the Company based on their proportionate share of
capital contributions.

Income Taxes

The Predecessor Businesses were flow-through entities which were not subject to
federal or state income taxes and, consequently, none have been reflected in the
accompanying consolidated financial statements. The owners of the Predecessor
Businesses were required to include their respective share of the profits or
losses in their respective tax returns. See Note 4.

Nutri/System, Inc. is a "C" corporation which is subject to corporate level
income taxes. As a result of the Merger discussed in Note 1, the Company became
subject to corporate income taxes, and began providing for income taxes in the
accompanying financial statements beginning on September 27, 1999 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.

As a result of the Merger discussed in Note 1, 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


                                       30
<PAGE>

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. See Note 12.

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 11.

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 or loss applicable to common stockholders by the weighted
average number of shares of common stock outstanding. For 1999 and 2000, 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. For 2001, the impact of common stock equivalents, consisting of
3,401,183 options and warrants outstanding as of December 31, 2001, resulted in
an increase of 45,426 shares, representing less than 1% of the basic weighted
average shares outstanding in 2001.

Recently Issued Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 changes the accounting for
long-lived assets by requiring that all long-lived assets be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing or discontinued operations. SFAS 144, which replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Assets to Be
Disposed of' is effective for fiscal years beginning after December 15, 2001.
The Company has not fully assessed the potential impact of the adoption of SFAS
144, which is effective for the Company as of January 1, 2002.

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
an impact on the Company's consolidated financial statements.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and
Other Intangible Assets" (effective for the Company on January 1, 2002). SFAS
No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142
specifies that goodwill and some intangible assets will no longer be amortized
but instead will be subject to periodic impairment testing. The Company is in
the process of evaluating the financial statement impact of adoption of SFAS No.
142.

In 2000, the Company adopted the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements",
("SAB 101"). The bulletin draws on existing accounting rules and provides
specific guidance on how those accounting rules should be applied. The adoption
of SAB 101 did not have a material impact on the Company's consolidated
financial position or results of operations.

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


                                       31
<PAGE>

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 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 in 2000, Sweet Success generated sales of $4,215 and
incurred an operating loss of $713. The Company recorded a loss on disposal of
$7,873, of which $7,650 related to the write down of intangible assets and the
remaining $223 related to various shut down costs. For the six months ending
June 30, 2001, Sweet Success generated sales of $3,350 and operating income of
$813. The net liabilities of the discontinued operation have been recorded at
their net realizable value under the caption "Net liabilities of discontinued
operation" in the accompanying Consolidated Balance Sheet at December 31, 2000
and 2001 consist of the following:

<TABLE>
<CAPTION>
                                                        December 31, 2000   December 31, 2001
<S>                                                           <C>                 <C>
Inventories                                                  $ 1,544              $  --

Other assets                                                      24                 --
                                                             -------              -----

     Total assets                                              1,568                 --

Accounts payable                                                  41                 --

Other current liabilities                                      1,960                161
                                                             -------              -----
     Total liabilities                                         2,001                161
                                                             -------              -----
       Net liabilities of discontinued operation             $  (433)             $(161)
                                                             =======              =====
</TABLE>


                                       32
<PAGE>

4. PRO FORMA INFORMATION (UNAUDITED)

As discussed in Note 2, on September 27, 1999, the Company became subject to
federal and state income taxes. Disclosure rules of the Securities and Exchange
Commission require companies, for informational purposes, to display a pro forma
adjustment for the income taxes that would have been recorded if the Company had
not been a flow-through entity during the periods presented in the accompanying
statements of operations. Due to the recurring losses incurred by the Company,
and management's assessment of realization of the related tax deduction, no pro
forma tax benefit was recorded during the periods presented.

Also on September 27, 1999, the Company's principal stockholder group purchased
the remaining interest of the minority stockholder, which resulted in goodwill
of $527. The effect of goodwill amortization on results of operations would have
been to increase expenses by $79 in 1999.

5. FIXED ASSETS

Fixed assets consisted of the following:

                                           December 31
                                        ------------------
                                         2000       2001
                                        -------    -------

Furniture and fixtures                   $  149     $  165
Equipment                                 1,126      1,241
Leasehold improvements                      122        124
                                         ------     ------
                                          1,397      1,530
Accumulated depreciation                   (343)      (678)
                                         ------     ------
                                         $1,054     $  852
                                         ======     ======

Depreciation expense was $91, $214 and $325 in 1999, 2000 and 2001,
respectively.

6. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

                                           December 31
                                        ------------------
                                         2000       2001
                                        -------    -------
Lease commitment liability               $375       $120
Other                                      31         36
                                         ----       ----
                                         $406       $156
                                         ====       ====

The lease commitment liability represents remaining rental payment obligation
related to the closing of company-owned weight loss centers during 1997.


                                       33
<PAGE>

7. RELATED-PARTY TRANSACTIONS

During 1999, 2000 and 2001, the Company purchased $113, $286, and $466,
respectively, of food from a vendor that is an affiliate of a member of the
Board of Directors.

For the years ended December 31, 1999, 2000 and 2001, the Company paid retainers
and professional fees of $4, $27 and $18, respectively, to a law firm whose
partner served as a member of the Board of Directors of the Predecessor
Businesses.

For the years ended December 31, 1999, 2000 and 2001, the Company purchased
vitamins and supplements of $17, $56, and $58, respectively, from a vendor that
is owned by a member of the Board of Directors.

At December 31, 2001, the Company had payables to related parties of $95 which
are included in accounts payable.

Included in non-current liabilities as of December 31, 2000 and 2001 is a loan
from a member of the Board of Directors of $100, with interest accrued at the
rate of 7% per annum.

8. COMMITMENTS AND CONTINGENCIES

The Company leases its warehouse, corporate headquarters and certain equipment.
These leases generally have initial terms of three to five years. Certain of the
leases also contain escalation clauses based upon increases in costs related to
the properties. Lease obligations, with initial or remaining terms of one year
or more, consisted of the following at December 31, 2001:

2002                              $   547
2003                                  497
2004                                  409
2005                                   23
2006                                    5
                                  -------
                                  $ 1,481

Total rent expense for the years ended December 31, 1999, 2000 and 2001, was
$227, $464 and $613, respectively.

In September 1997, Nutri/System L.P., one of the Predecessor Businesses, removed
a drug combination from its weight loss program after it was shown to cause
health problems. Numerous suits were subsequently filed against Nutri/System
L.P. Also, in 1997, the Company obtained a settlement from its insurance carrier
for coverage associated with this matter. In September 1999, the supplier of the
drug combination agreed to indemnify Nutri/System L.P. with respect to any
further liability with respect to this matter. In the opinion of management, the
Company has no liability with respect to this matter.

The Company is also involved with certain other claims and routine litigation
matters. In the opinion of management, after consultation with legal counsel,
the outcome of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.

9. EMPLOYEE BENEFIT PLAN

During 1996, the Company adopted a qualified tax deferred defined contribution
retirement plan (the "Plan"). Under the provisions of the Plan, substantially
all employees meeting minimum age and service requirements are entitled to
contribute on a before and after-tax basis a certain percentage of their
compensation. The Company matches 100% of an employee's contribution, up to a
maximum Company match of 3% of the employee's annual salary. Employees vest
immediately in their contributions and vest in the Company contribution over a
three-year period of service. The Company's expense for the years ended December
31, 1999, 2000 and 2001 was $24, $47 and $68, respectively.


                                       34
<PAGE>

10. 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 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. During 2001, the Company
repurchased 1,670,400 shares of common stock for an aggregate cost of $723 (an
average price of $0.43 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.

11. STOCK OPTIONS AND WARRANTS

Stock Option Plan

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, and at December 31, 2001 2,023,200 shares were available for grant
under these plans. 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, and at
December 31, 2001 240,000 shares were available for grant under this 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. To date, all of the options granted expire ten years from the issue
date. The Board also determines the option exercise price per share and vesting
provisions. No options were issued prior to 1999, and no options were
exercisable at December 31, 1999. At December 31, 2000, 155,278 shares were
exercisable under granted options with a weight-average exercise price of $1.32,
and at December 31, 2001, 643,667 shares were exercisable under granted options
with a weight-average exercise price of $2.97.


                                       35
<PAGE>

The following table summarizes the options granted, exercised and cancelled in
1999, 2000 and 2001:

                                                     Average Exercise
                                Number of Shares          Price
1999                            ----------------     ----------------
----
Granted                               494,500            $   1.30
Exercised                                  --                  --
Cancelled                               1,000            $   1.00
                                    ---------
     Outstanding, December 31         493,500            $   1.30

2000
----
Granted                             1,455,300            $   4.26
Exercised                               1,666            $   1.00
Cancelled                             231,000            $   4.73
                                    ---------
     Outstanding, December 31       1,716,134            $   3.35

2001
----
Granted                             1,387,000            $   0.40
Exercised                                  --                  --
Cancelled                             423,300            $   2.15
                                    ---------
     Outstanding, December 31       2,679,834            $   2.01
                                    =========

The following table summarizes information about stock options outstanding as of
December 31, 2001:

                       Number
Range of Exercise        of       Average Remaining    Average Exercise
    Prices             Shares       Life (Years)           Price
-----------------    ---------    -----------------    ----------------

 $ .33 - $  .49      1,202,000           9.7                 $  .37
 $ .50 - $  .99        120,000           9.2                 $  .63
 $1.00 - $ 1.99        724,834           8.2                 $ 1.41
 $2.00 - $ 2.99        174,000           8.3                 $ 2.61
 $3.00 - $ 6.99        362,000           8.2                 $ 5.78
 $7.00 - $13.99         97,000           8.5                 $13.50
                     ---------
                     2,679,834


                                       36
<PAGE>

As permitted under SFAS No. 123, the Company has elected to continue to account
for stock-based compensation using the intrinsic value-based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." If compensation expense had been
determined based on the grant date fair value of the options issued in 1999,
2000 and 2001 in accordance with the provisions of SFAS 123, the Company's net
income (loss) and income (loss) per share would have been reduced to the pro
forma amounts indicated below:

                                         1999       2000       2001
                                       -------    --------    -------
Net income (loss) as reported           (9,633)    (13,984)     1,249
Pro forma net income (loss)             (9,649)    (14,504)       462

Income (loss) per share as reported:
   Basic and diluted                   $ (0.45)   $  (0.50)   $  0.04

Pro forma income (loss) per share:
   Basic and diluted                   $ (0.45)   $  (0.52)   $  0.02

Weighted average shares outstanding:
   Basic                                21,449      28,006     28,156
   Diluted                              21,499      28,006     28,201

In calculating pro forma compensation, the fair value of each stock option grant
is estimated on the date of grant using the Black-Scholes option pricing model
and the following weight average assumptions:

                              1999       2000       2001
                              ----       ----      -----
Dividend yield                None       None       None
Expected volatility            0.1%      34.4%     101.9%
Risk-free interest rate       6.04%      5.87%      4.58%
Expected life (in years)       7.0        7.0        4.3

The weighted average fair value of the options issued in 1999, 2000 and 2001 was
$0.57, $2.19 and $0.28, respectively.

The Company will record $60 in compensation expense related to the options
granted in November 1999 over the option vesting period of three years based on
a fair market value of $2.05 per share. Compensation expense of $2, $20 and $20
associated with these options was recorded in 1999, 2000 and 2001, respectively.
In addition, the Company has issued stock options to non-employees which has
resulted in compensation expense of $41 in 2001.

Common Stock Warrants

In return for services in connection with the October 1999 private placement,
the placement agent received warrants to purchase 763,740 common shares at $1.00
per share. The fair value of the warrants of $344 was recorded as a reduction of
the proceeds from the offering. Fair value was computed using the Black-Scholes
option pricing model. In 2000, warrants for 42,391 common shares were executed.

12. INCOME TAXES

On September 30, 1999, the Company became subject to federal and state income
taxes. At that time, the Company recorded deferred income taxes which represent
the tax effect of the cumulative differences between the financial reporting and
income tax bases of assets and liabilities. See Note 2.


                                       37
<PAGE>

The significant items comprising the Company's deferred income tax assets and
liabilities are as follows:

                                          December 31, 2000    December 31, 2001
                                          -----------------    -----------------
Deferred tax asset-
   Reserves                                   $   325            $    61,131
   Goodwill                                     2,655                 (4,009)
   Net operating loss carryforward              2,101              3,938,604
   Other                                          102                118,279
   Valuation allowance                         (5,181)               (23,624)
                                              -------            -----------

                                                    2              4,090,380
                                              -------            -----------

Deferred tax liability-
   Property and equipment                          (2)            (4,090,380)
                                              -------            -----------

                                              $    --            $        --
                                              =======            ===========

The valuation allowance was established 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 deferred tax assets are
realized, $790 of the related tax benefit would be recorded as a credit to
equity. Net operating losses will begin to expire in 2014. See Note 2.

13. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Valuation and qualifying accounts consist of trade receivables allowance for
doubtful accounts. The balance in the allowance for doubtful accounts for the
years 1999, 2000 and 2001 consisted of the following:

                 Balance at                                 Balance
                Beginning of                                End of
Fiscal Year         Year        Write-offs    Deductions     Year
-----------     ------------    ----------    ----------    -------
   1999             $ 341         $(261)         $ --         $80
   2000             $  80         $ (26)         $(18)        $36
   2001             $  36         $ (33)         $ (3)        $ 0


                                       38
<PAGE>

14. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                               Quarter
                                           -----------------------------------------------------
                                            First      Second    Third       Fourth       Year
------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S>                                        <C>        <C>        <C>        <C>         <C>
1999:
     Net revenues                          $ 2,317    $ 2,574    $ 2,012    $  1,681    $  8,584

     Net income (loss)                     $   (99)   $    72    $(8,297)   $ (1,309)   $ (9,633)

     Income/loss per basic and
        diluted share                      $  (.01)   $  0.00    $ (0.42)   $  (0.02)   $  (0.45)
------------------------------------------------------------------------------------------------
2000:
     Net revenues                          $ 5,171    $ 5,521    $ 5,098    $  4,412    $ 20,202

     Loss from continuing                  $(1,478)   $(1,466)   $  (817)   $ (1,637)   $ (5,398)
        operations

     Discontinued operation                $    --    $    --    $  (126)   $ (8,460)   $ (8,586)


     Net loss                              $(1,478)   $(1,466)   $  (943)   $(10,097)   $(13,984)

     Loss per basic and diluted share:
         Continuing operations             $ (0.05)   $ (0.05)   $ (0.03)   $  (0.06)   $  (0.19)

         Discontinued operation            $    --    $    --    $ (0.00)   $  (0.02)   $  (0.03)
         Loss on disposal of
            discontinued operation         $    --    $    --    $    --    $  (0.28)   $  (0.28)
                                           -------    -------    -------    --------    --------
                                           $ (0.05)   $ (0.05)   $ (0.03)   $  (0.36)   $  (0.50)
                                           =======    =======    =======    ========    ========
------------------------------------------------------------------------------------------------
2001:
     Net revenues                          $ 6,981    $ 6,221    $ 6,329    $  4,267    $ 23,798

     Income (loss) from continuing         $   104    $   (91)   $   370    $     53    $    436

        operations

     Discontinued operation                $   533    $   280    $    --    $     --    $    813

     Net income                            $   637    $   189    $   370    $     53    $  1,249

     Income per basic and diluted share:
         Continuing operations             $  0.00    $  0.00    $  0.01    $   0.00    $   0.01
         Discontinued operation            $  0.02    $  0.01    $    --    $   0.00    $   0.03
                                           -------    -------    -------    --------    --------
                                           $  0.02    $  0.01    $  0.01    $   0.00    $   0.04
                                           =======    =======    =======    ========    ========

------------------------------------------------------------------------------------------------
</TABLE>

Net loss for the year ended December 31, 2000 included losses of $8,586 relating
    to the discontinued operation of the Sweet Success product line. The Company
    recorded a loss from discontinued operation of $126 and $587 in the third
    and fourth quarters, respectively, and a loss on disposal of $7,873 in the
    fourth quarter of 2000. For the six months ending June 30, 2001, Sweet
    Success generated sales of $3,350 and operating income of $813.


                                       39
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

      No.     Description
      ---     -----------
<S>           <C>
     *2.1     Agreement  and Plan of Merger  dated August 19, 1999  between  nutrisystem.com  inc. and
              Ansama Corp.

     *2.2     Asset Purchase  Agreement  dated August 16, 1999 between  Ansama Corp. and  Nutri/System
              L.P.

     *2.3     Stock  Exchange and Purchase  Agreement  dated August 16, 1999 among Ansama  Corp.,  HPF
              Holdings,  Inc., Brian D. Haveson and NutriSystem Direct,  L.L.C.  management (comprised
              of Joseph Boileau, Kathleen Simone, Deborah Gallen and Frederick C. Tecce)

     *2.4     Assignments of NutriSystem  Direct,  L.L.C.  Membership  Interests  dated  September 30,
              1999 to  nutrisystem.com  inc. by each of HPF Holdings,  Inc., Brian D. Haveson,  Joseph
              Boileau, Kathleen Simone, Deborah Gallen and Frederick C. Tecce

     *2.5     Operating Agreement of NutriSystem Direct, L.L.C. dated September 30, 1999

     *2.6     Intellectual  Property  Assignment from Nutri/System L.P. to nutrisystem.com  inc. dated
              September 30, 1999

     *2.7     Assignment  of Franchise  Agreements  from  Nutri/System  L.P. to  nutrisystem.com  inc.
              dated September 30, 1999

     *3.1     Certificate of Incorporation of nutrisystem.com inc.

     *3.2     By-laws of nutrisystem.com inc.

     *4.1     Form of Common Stock certificate of nutrisystem.com inc.

     *4.2     Form of warrant to purchase Common Stock of nutrisystem.com inc.

    *10.1     Joint Defense and Indemnification Agreement dated
              September 27, 1999 between Wyeth Ayerst Laboratories
              Division of American Home Products Corporation and
              Nutri/System L.P.

    *10.2     Lease, dated December 11, 1997,  between Teachers Insurance and Annuity  Association and
              nutrisystem.com inc. as amended by First Amendment to Lease dated October 28, 1999

    *10.3     Form of Nutri/System L.P. Franchise Agreement

    *10.4     Form of NutriSystem Direct, L.L.C. Distributor Agreement

    *10.5     1999 Equity Incentive Plan of nutrisystem.com inc.

#   10.12     Stock  Purchase  Agreement  dated March 1, 2000 between C&R  Investments  I, L.P.  (name
              subsequently  retroactively  changed to "CRX  Investments I, L.P.") and  nutrisystem.com
              inc.

#   10.13     Shareholders  Agreement  dated  March 1,  2000  among  C&R  Investments  I,  L.P.  (name
              subsequently  retroactively  changed to "CRX Investments I, L.P."),  HPF Holdings,  Inc.
              and Brian D. Haveson
</TABLE>


                                       40
<PAGE>

<TABLE>
<CAPTION>
      No.     Description
      ---     -----------
<S>           <C>
**  10.14     Asset Purchase  Agreement dated as of August 25, 2000 between  nutrisystem.com  inc. and
              Nestle USA, Inc. and related agreements.

##  10.15     Agreement  dated as of September 6, 2001 between  Nutri/System,  Inc. and QVC,  Inc. and
              related exhibit.

***  21.1     Subsidiaries of nutrisystem.com inc.

     23.1     Consent of Arthur Andersen LLP
</TABLE>

---------------
*    Incorporated by reference to the designated exhibit of the Company's
     Registration Statement on Form 10 filed on December 17, 1999 (file number
     000-28551).

**   Incorporated by reference to the designated exhibit of the Company's Report
     on Form 8-K filed on October 24, 2000 (file number 000-28551).

***  Incorporated by reference to the designated exhibit of Amendment No. 2 of
     the Company's Registration Statement on Form 10 filed on March 8, 2000
     (file number 000-28551).

#    Incorporated by reference to the designated exhibit of Amendment No. 4 of
     the Company's Registration Statement on Form 10 filed on March 14, 2000
     (file number 000-28551).

##   Incorporated by reference to the designated exhibit of the Company's Report
     on Form 8-K filed on September 18, 2001 (file number 000-28551).


                                       41
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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
                                             ----------------------------
                                              Brian D. Haveson, President
                                              and Chief Executive Officer

     Dated:  March 1, 2002

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.


BY: /s/ BRIAN D. HAVESON                                        March 1, 2002
    --------------------
Brian D. Haveson
President and Chief Executive Officer


BY: /s/ JAMES D. BROWN                                          March 1, 2002
    ------------------
James D. Brown
Chief Financial Officer and Principal Accounting Officer


BY: /s/ DEAN J. BOZZANO                                         March 1, 2002
    -------------------
Dean J. Bozzano
Director


BY: /s/ DONALD R. CALDWELL                                      March 1, 2002
    ----------------------
Donald R. Caldwell
Director


BY: /s/ MICHAEL E. HEISLEY                                      March 1, 2002
    ----------------------
Michael E. Heisley
Director


BY: /s/ FREDERICK C. TECCE                                      March 1, 2002
    ----------------------
Frederick C. Tecce
Director


                                       42