UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
_______________________

FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period Ended SEPTEMBER 30, 2000

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

For the Transition Period From _________ to _________

COMMISSION FILE NUMBER 0-28551
______________________

NUTRI/SYSTEM, INC.
------------------

(Exact name of Registrant as specified in its charter)

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

202 WELSH ROAD,
HORSHAM, PENNSYLVANIA 19044
--------------------- -----
(Address of principal executive offices) (Zip Code)

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

NUTRISYSTEM.COM INC.
-------------------
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No __
-

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 10, 2000:

Common Stock,$.001 par value 28,734,128 shares

NUTRI/SYSTEM, INC.

INDEX TO FORM 10-Q

Page
----
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements (Unaudited)

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

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

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

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

Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 11

Item 3 - Quantitative and Qualitative Disclosure About Market Risk.. 18

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings.......................................... 19

Item 2 - Changes in Securities and Use of Proceeds.................. 19

Item 3 - Defaults Upon Senior Securities............................ 19

Item 4 - Submission of Matters to a Vote of Security Holders........ 19

Item 5 - Other Information.......................................... 19

Item 6 - Exhibits and Reports on Form 8-K........................... 19

SIGNATURES........................................................... 20

NUTRI/SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited, dollars in thousands, except share data)

December 31, September 30,
1999 2000
------------ -------------

ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 2,902 $ 2,143
Restricted cash 360 625
Trade receivables, less allowance of
$80 and $36 in 1999 and 2000, respectively 140 445
Inventories 769 3,122
Prepaid expenses and other current assets 670 265
------------ -------------
Total current assets 4,841 6,600

FIXED ASSETS, net 295 1,051
INTANGIBLES, net 500 7,939
OTHER ASSETS 220 470
------------ -------------
$ 5,856 $ 16,060
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 870 $ 2,303
Accrued payroll and related benefits 65 201
Other current liabilities 397 410
------------ -------------
Total current liabilities 1,332 2,914
NON-CURRENT LIABILITIES 133 150
------------ -------------
Total liabilities 1,465 3,064
------------ -------------

COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value
(5,000,000 shares authorized, no shares outstanding) -- --
Common stock, $.001 par value (100,000,000 shares
authorized; shares issued - 27,176,737 at December 31, 1999 and
28,711,737 at September 30, 2000) 27 29
Additional paid-in capital 16,760 29,259
Warrants exercisable at $1 per share 344 335
Accumulated deficit (12,740) (16,627)
------------ -------------
Total stockholders' equity 4,391 12,996
------------ -------------
$ 5,856 $ 16,060
============ =============

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

NUTRI/SYSTEM, INC. AND SUBSIDIARIES
-----------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------

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

Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- ---------------------------------
1999 2000 1999 2000
-------------- -------------- --------------- ---------------

REVENUES:
Food sales $ 1,903 $ 6,448 $ 6,345 $16,980
Franchise royalty fees 78 10 346 138
Other 31 2 212 34
-------------- -------------- --------------- ---------------
2,012 6,460 6,903 17,152
-------------- -------------- --------------- ---------------
COSTS AND EXPENSES:
Cost of revenues 1,454 3,751 5,014 9,624
Advertising and marketing 21 1,806 70 6,926
General and administrative 722 1,655 1,996 4,278
Depreciation and amortization 16 308 50 419
Other 108 -- 121 --
Non-cash compensation expense 8,200 10 8,200 20
-------------- -------------- --------------- ---------------
10,521 7,530 15,451 21,267
-------------- -------------- --------------- ---------------
Operating loss (8,509) (1,070) (8,548) (4,115)
OTHER INCOME - 84 -- 84
INTEREST INCOME 4 43 16 144
-------------- -------------- --------------- ---------------
Loss before minority interest (8,505) (943) (8,532) (3,887)
MINORITY INTEREST 208 -- 208 --
-------------- -------------- --------------- ---------------
Net loss $(8,297) $ (943) $(8,324) $(3,887)
============== ============== =============== ===============

BASIC AND DILUTED
LOSS PER SHARE $(0.42) $(0.03) $(0.43) $(0.14)
============== ============== =============== ===============
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING 19,539 28,149 19,539 27,761
-------------- -------------- --------------- ---------------

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

NUTRI/SYSTEM, INC. AND SUBSIDIARIES
-----------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------

(unaudited, dollars in thousands)

Nine Months Ended
September 30
--------------------------------
1999 2000
------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,324) $(3,887)
Adjustments to reconcile net loss to net cash used in operating
activities-
Non-cash compensation expense 8,200 -
Minority interest (208) -
Other non-cash expense - 645
Depreciation and amortization 50 419
Loss on disposals 167 7

Changes in operating assets and liabilities-
Restricted cash 43 (265)
Trade receivables 186 (305)
Inventories 119 (618)
Prepaid expenses and other assets 196 155
Accounts payable (485) 1,433
Accrued payroll and related expenses 44 36
Other current liabilities (203) 39
------------- -------------
Net cash used in operating activities (215) (2,341)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (58) (900)
------------- -------------

Net cash used in investing activities (58) (900)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares, net of costs 964 2,482
------------- -------------
Net cash provided by financing activities 964 2,482
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 691 (759)
CASH AND CASH EQUIVALENTS, beginning of period 361 2,902
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 1,052 $ 2,143
============= =============

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

NUTRI/SYSTEM, INC. AND SUBSIDIARIES
-----------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

(In thousands, except share amounts)

(Unaudited)

1. BACKGROUND:

Nature of the Business

Nutri/System, Inc. (a Delaware corporation) together with its subsidiaries (the
"Company") is a provider of weight loss programs and a distributor of 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. On September 14, 2000, the Company changed its
name from nutrisystem.com inc. to Nutri/System, Inc.

Nutri/System, Inc. and its predecessor businesses, including Nutri/System L.P.
and NutriSystem Direct, L.L.C. (collectively, the "Predecessor Businesses"),
have historically operated through Company-owned and franchised weight loss
centers. Currently, the territories of the remaining independent franchised
weight loss centers encompass less than 2% of the United States population and
there are no Company-operated centers. The Company's pre-packaged foods are sold
to weight loss program participants through the Internet, independent
distribution and through franchised weight loss centers.

To complement the online weight loss program, in August 2000 the Company
acquired certain assets of the Sweet Success diet meal replacement product line
consisting primarily of ready to drink shakes. The Company intends to continue
to sell this product line nationwide through grocery chains, drug stores, price
club discounters and other mass market retailers. The Company will market these
products under the Nutri/System brand. In 1999, the Sweet Success product line
generated revenue net of price promotions of $34 million.

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

Since 1993, the Company, including its Predecessor Businesses, has incurred
significant losses and, as of September 30, 2000, has an accumulated deficit of
$16,627. The Company intends to invest heavily in marketing and promotion and in
the development of its web site and its administrative organization. As a
result, the Company believes that it will incur further operating losses for the
foreseeable future. In order to make the future investments necessary to expand
its business as described above and to meet its cash flow requirements, the
Company plans to raise capital through the sale of additional equity in private
and/or public offerings. Based on the variable nature of a portion of the
Company's expenditures, the cash balance at September 30, 2000 and management's

belief that additional equity financing can be raised, the Company believes that
it has the ability to continue in operations through the end of 2001. Achieving
profitability depends upon the Company's ability to: (1) raise the necessary
capital to fund operating needs and finance the planned marketing programs and
technology investment, and (2) generate and sustain substantially increased
revenue levels. There can be no assurance that the Company will be able to
obtain the necessary capital to fund operating and investment needs to generate
sufficient revenues to achieve or sustain profitability in the future.

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
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.

Acquisition of the Sweet Success Product Line

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. 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 also acquired the right to sell Sweet Success using
the Nestle trademark for up to six months to facilitate the transition of
product labeling to Nutri/System Sweet Success. Based upon a preliminary
analysis, the Company allocated the $9.5 million purchase price to inventory
($1.8 million) and intellectual property ($7.7 million). 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. Prior to the acquisition, there were no
employees of the Seller dedicated solely to the product line, and the Company
did not hire any of the Seller's employees at the time of the acquisition. The
shares of common stock issued to the Seller are unregistered and restricted. The
Company did enter into a
5

registration rights agreement with the Seller that provides demand registration
rights after April 15, 2001 and piggy-back registration rights prior to that
date. See Item 2, Management's Discussion and Analysis, below for a discussion
of the operating results of the Sweet Success product line.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Presentation of Financial Statements

As of December 31, 1999 and September 30, 2000, 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.

Interim Financial Statements (Unaudited)

The accompanying consolidated financial statements as of September 30, 2000 and
for the three and nine months ended September 30, 1999 and 2000 are unaudited
and, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position and results of operations for those interim periods. The
results of operations for the three and nine months ended September 30, 1999 and
2000 are not necessarily indicative of the results to be expected for any other
interim period or the year ending December 31, 2000.

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 nine months ended September 30, 1999 or 2000. Payments for interest
were $7 for each of the nine months ended September 30, 1999 and 2000.

Restricted Cash

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

Inventories

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

Intangibles

Intangible assets consist of goodwill and intellectual property. Goodwill
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 amortized over five years. Intellectual property was
generated from the acquisition of certain assets of the Sweet Success product
line and

consists of acquired trademarks and a transitional trademark license. Based upon
a preliminary analysis, the acquired trademarks and the trademark license have
been assigned a 12 year and a six month life, respectively.

Advertising Costs

The Company follows the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP"), 93-7 "Reporting for Advertising Costs"
to account for its Internet site linking agreements. Under SOP 93-7, the Company
amortizes the costs associated with its linking agreements over the contract
terms, with the amortization method primarily based on the rate of delivery of a
guaranteed number of impressions to be received during the contract term. To the
extent additional payments are required to be made based on factors such as
click-throughs and new customers generated, such payments are charged to expense
as incurred. All other advertising costs are expensed as incurred. At December
31, 1999 and September 30, 2000, $587 and $217, respectively, of prepaid
advertising were included in prepaid expenses. Advertising expense was $70 and
$6,770 during the nine months ended September 30, 1999 and 2000, respectively.

Internet Site Development Costs

Internet 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." Internet site development costs totaled $207 in 1999 of which $3
was capitalized and is included in other assets.

Fixed Assets

Fixed assets are stated at cost. Depreciation 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 are amortized on a
straight-line basis over the related lease terms.

Other Assets

Other assets represent security deposits for leased facilities, equipment and
credit card processors.

Revenue Recognition

Revenues from food sales and other are recognized when the related products are
shipped. Food sales are presented net of price promotions and free food products
provided to trade customers and consumers. Other revenues represent primarily
the sale of print materials to franchisees and independent distributors.

Franchise royalty fees 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
Business were required to include their respective share of the profits or
losses in their respective tax returns.

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 consolidated 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 deferred tax asset will not be
realized through future taxable income. To the extent that the existing deferred
tax asset is realized, the related tax benefit will be credited to equity.

Stock Options

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

Fair Value of Financial Instruments

The carrying values of the Company's financial instruments approximate their
fair values.

Net Loss Per Common Share

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

Recently Issued Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued 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 SEC has extended the
implementation date of SAB 101 until the fourth quarter of fiscal years
beginning after December 15, 1999. The Company is evaluating SAB 101 and the
effect it may have on its financial statements. At this time, the Company
believes that SAB 101 will not have a material impact on its financial position
or results of operations.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The Company is required to adopt this statement beginning in 2001. Management
currently believes that the adoption of SFAS No. 133 will have no impact on the
Company's consolidated financial statements.

Use of Estimates

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

Certain Reclassifications

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

3. CAPITAL STOCK:

Common Stock

In June 2000, the Company's certificate of incorporation was amended to increase
the number of shares of common stock authorized for issue to 100 million shares
with a $.001 par value per share. As of December 31, 1999 and September 30,
2000, 27,176,737 and 28,711,737 shares, respectively, were issued and
outstanding.

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 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 $10.41 per share 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.

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.

4. STOCK OPTIONS AND WARRANTS:

Stock Option Plans

In August 1999, the Company adopted the 1999 Equity Incentive Plan and in June
2000, the Company adopted the 2000 Equity Incentive Plan, under which options to
purchase shares of the Company's common stock could be granted to key employees.
Currently 1,000,000 and 4,100,000 shares of common stock may be issued pursuant
to the 1999 Equity Incentive Plan and the 2000 Equity Incentive Plan,
respectively. Under the terms of the 2000 Equity Incentive Plan, the number of
shares reserved will be adjusted quarterly so that the total number of shares
subject to outstanding options plus the shares available for grant will equal
14% of the then-outstanding shares of the Company's common stock. These options
could be either incentive stock options or

nonqualified stock options. In June 2000, the Company also adopted the 2000
Equity Incentive Plan for Outside Directors and Consultants (the "Director
Plan"), under which nonqualified stock options to purchase shares of the
Company's common stock could be granted to non-employee directors and
consultants to the Company. A maximum of 500,000 shares of common stock may be
issued pursuant to the Director Plan. Under each of the plans, the Board of
Directors determines the term of each option, but no option can be exercisable
more than ten years from the date the option was granted. The Board also
determines the option exercise price per share and vesting provisions. No
options were issued prior to 1999.

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

Except for the historical information contained herein, this Report on Form
10-Q contains certain forward-looking statements that involve substantial risks
and uncertainties. When used in this Report, the words "anticipate," "believe,"
"estimate," "expect", and similar expressions, as they relate to Nutri/System,
Inc. or its management, are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
include those set forth in "Business--Risk Factors" as disclosed in the
Company's Form 10 (Amendment 4) filed March 14, 2000 with the Securities and
Exchange Commission, and risks associated with the results of continuing
operations. Accordingly, there is no assurance that the results in the forward-
looking statements will be achieved.

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

BACKGROUND

Nutri/System, Inc., a Delaware corporation, was formed in August 1999 to
combine the well-established Nutri/System name and proven weight loss program
with the Internet as a medium of communication between the Company and its
members and potential members. 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, 17 owners of independent,
franchised weight loss centers remain, with territories encompassing less than
2% of the United States population. In 1998, the Company initiated NutriSystem
Direct, L.L.C. a direct marketing program of independent distributors of the
Company's diet program. The Company's pre-packaged foods are now sold to weight
loss program participants through the Internet, independent distributors and the
remaining franchised weight loss centers.

To complement the Company's online weight loss program, in August 2000 it
acquired certain assets of the Sweet Success diet meal replacement product line,
which enables the Company to combine its Nutri/System brand with a diet meal
replacement product sold in stores. With Sweet Success, the Company sells a
convenient and trusted line of ready to drink shakes, powdered mixes and snack
bars to dieters nationwide through grocery chains, drug stores, price club
discounters and other mass market retailers.

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 shell 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. The Company also

issued 65,000 shares valued at $5.00 per share in March 2000 and 50,000 shares
valued at $6.00 in May 2000 to service providers.

On August 25, 2000, the Company acquired certain assets of the Sweet
Success product line from 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 consisting of
a ready to drink shake, powdered drink mix and snack bars. 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 also
acquired the right to sell Sweet Success using the Nestle trademark for up to
six months to facilitate transition of product labeling to Nutri/System Sweet
Success. The Company did not acquire any customer receivables or fixed assets,
and it did not assume any liabilities, beyond those obligations associated with
certain contracts. Prior to the acquisition, there were no employees of the
Seller dedicated solely to the product line, and the Company did not hire any of
the Seller's employees at the time of the acquisition. The shares of common
stock issued to the Seller are unregistered and restricted. The Company did
enter into a registration rights agreement with the Seller that provides demand
registration rights after April 15, 2001 and piggy-back registration rights
prior to that date.

The net proceeds of the private placement and other equity sale
transactions described above are being used for working capital and to pursue
the Company's business strategy for the online program and the Sweet Success
product line, including advertising and promotion, web site enhancements and the
development of administrative infrastructure. The Company believes that
potential profit margins and revenue growth justify the expenditures required to
pursue its business strategy. However, achieving these returns depends upon the
Company's ability to raise the necessary funds to execute the strategy. To date
the Company, together with its Predecessor Businesses, has incurred significant
losses and, as of September 30, 2000, had an accumulated deficit of $16,627. In
the nine months ended September 30, 2000, the Company's net loss was $3,887. The
Company anticipates that it will incur additional losses in future periods. The
Company expects future capital needs to be funded through the sale of additional
equity securities in private and/or public offerings. There can be no assurance
that the Company will be able to raise the necessary capital or generate
sufficient revenues to achieve or sustain profitability in the future.

In pursuing its business strategy for the online program, the Company's
primary financial objectives are to generate rapid growth while maintaining and
improving profit margins. For the online program, the Company measures growth in
terms of the number of new customers, revenues per customer and total revenues.
A customer is defined as an individual who has purchased food through the web
site. Profit margins are measured in terms of gross margin (revenues less cost
of revenues as a percentage of revenues), and total advertising and marketing
expense as a percentage of revenues. In order to remove the effects of
seasonality, current period results will be compared to the same period in prior
years. However, because the Internet business started in October 1999,
sequential period comparisons will be used initially.

Revenues and expenses consist of the following components:

Revenues. Revenues consist of food sales, franchise royalty fees and,
prior to October 1999, other revenues. Food sales include sales of food,
supplements, shipping and handling charges billed to members and sales credits
and adjustments, including product returns. Prior to October 1999, all revenues
were derived from company-owned or franchised weight loss centers and
independent distribution (direct sales) and included program fees and other non-
food revenues included in other

revenues. 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 for the online weight loss program. Revenues for the Sweet Success
product line include food sales net of price promotions provided to trade
customers and consumers. 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 to online members includes products
provided at no charge as part of promotions. Cost of direct sales includes the
fees paid to independent distributors.

Advertising and Marketing Expense. Advertising and marketing expense
includes advertising, market research, marketing and promotional expenses and
payroll related expenses for personnel engaged in these activities. Included in
the above for the Sweet Success product line are fees paid to the Seller for
transitional sales support, the processing cost associated with consumer
coupons, reimbursements to retailers for in-store non-price promotions and
commissions paid to the broker network, which provides field sales support. The
Company follows the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 93-7, "Reporting for Advertising Costs" to account for
Internet site-linking arrangements. Generally Internet advertising expense is
recognized based on the rate of delivery of a guaranteed number of impressions
over the advertising contract term. All other advertising costs are expensed as
incurred.

General and administrative expenses. General and administrative expenses
consist of payroll and related expenses for administrative, information
technology, fulfillment and customer service personnel, facility expenses,
Internet site development costs, professional service fees and other general
corporate expenses. Fees paid for many transition services related to the Sweet
Success product line provided by the Seller are also included in general and
administrative costs, including order processing, warehouse and accounting
services and information systems support. Internet 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." Internet site development cost in 1999 (when the site was
launched) totaled $207, of which $3 was capitalized and the remainder was
expensed.

Non-cash compensation expense. Non-cash compensation expense recorded in
2000 represents the amortization of deferred compensation related to stock
options granted to management over the three-year vesting period. For the nine
months ended September 30, 1999, non-cash compensation expense is associated
with equity interests granted 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, due to the recurring
losses incurred by the Predecessor Businesses and management's assessment of
realization of the related tax deduction, 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

of assets over the financial reporting carrying amount has been recorded based
on management's assessment that the net deferred tax asset is not realizable
through future taxable earnings.

INTERNET OPERATIONS

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

SELECTED FINANCIAL AND OPERATING STATISTICS

1999 2000 2000 2000
Q4 Q1 Q2 Q3
------ ------- ------- -------

Revenue (000's) $ 275 $ 3,183 $ 3,700 $ 3,788
Cost of revenue (000's) 126 1,426 1,747 1,767
------ ------- ------- -------
Gross margin (000's) $ 149 $ 1,757 $ 1,953 $ 2,021
% of revenue 54.2% 55.2% 52.8% 53.4%
Advertising and marketing (000's) $ 465 $ 2,605 $ 2,515 $ 1,662
% of revenue 169.1% 81.8% 68.0% 43.9%

New customers 1,416 13,384 12,448 12,472
Advertising and marketing/
new customer $ 328 $ 195 $ 202 $ 133
Revenue/new customer $ 194 $ 238 $ 297 $ 304

Internet operations have generated increasing revenue in each quarter of
operation. The Company attributes the increase in the first quarter of 2000 from
the fourth quarter of 1999 to a) seasonality (the first quarter of the year is
traditionally the strongest for the weight loss industry), and b) greater
advertising spending. The increase in revenue in the second and third quarter of
2000 over the first quarter was achieved despite the relative seasonal weakness
of these quarters and declining advertising spending. Spending for advertising
and marketing was reduced in the second and third quarters of 2000 compared to
the first quarter to focus spending on more cost effective media. In Internet
advertising in particular, the Company has been successful in eliminating less
effective programs and negotiating better advertising rates. From the first
quarter to the third quarter, advertising and marketing expense per new customer
declined 32%, from $195 to $133, an indication of more effective marketing. This
improvement was generated despite the relative seasonal strength of the first
quarter in weight loss. From the first quarter to the third quarter of 2000,
revenue per customer increased 28% from $238 to $304 primarily because customers
participated the diet program for longer periods on average, which is an
indication that members are

having increasing weight loss success with the program. Gross margin (revenue
less cost of revenue) has fluctuated between 55.2% and 52.8% of revenue in the
four quarters of operation. Fluctuations in gross margin percent have been
caused by food promotions, the mix of products sold and fluctuations in shipping
costs incurred and recouped from customers.

SWEET SUCCESS PRODUCT LINE

The financial data presented below for Sweet Success is for periods prior
to its acquisition by the Company and is based on unaudited information provided
by the Seller that was not independently verified by the Company. Presented
below is the financial data that was accumulated by the Seller on a basis
comparable to the Company's financial presentation.

SELECTED FINANCIAL DATA

(IN MILLIONS)

1997 1998 1999 First Half
2000

Revenue before price promotions $ 62 $ 52 $ 40 $ 14
Price promotions 8 8 6 2
----- ----- ----- -----
Net revenue $ 54 $ 44 $ 34 $ 12
===== ===== ===== =====

As indicated above, the Company classifies price promotions (provided to
the trade in the form of credits and offered to consumers in form of "cents off"
coupons) as an offset to arrive at net revenue, which is a change from prior
practice. The Company believes that the level of advertising spending by the
Seller in support of the Sweet Success product line declined significantly in
the second half of 1999 and the first half of 2000. The Company believes the
decline in revenue from 1997 to 1999 is attributable to supply disruptions,
lower spending for advertising and marketing and a highly competitive marketing
environment.

From the acquisition on August 25, 2000 to September 30, 2000, Sweet
Success revenues, net of trade price promotions of $383, were $1,362. Cost of
revenue was $1,036, resulting in a gross margin (revenues less cost of revenues)
of $326 or 23.9% of net revenues. Advertising and marketing in this period,
which consisted primarily of non-price trade promotions and sales support,
amounted to $144. During this period, day-to-day operational functions were
provided by the Seller under a transition services agreement. Operations and
financial results for the period may not be comparable to future periods when
the transition is complete.

THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000

Revenues. Revenues increased from $2,012 for the quarter ended September
30, 1999 to $6,460 for the quarter ended September 30, 2000. The revenue
increase of $4,448, or 221%, resulted primarily from an increase in food sales
related to the commencement of Internet sales

($3,788) and the acquisition of certain assets of the Sweet Success product line
($1,362), offset partially by lower franchise food sales.

Costs and Expenses. Cost of revenues increased from $1,454 to $3,751 for
the quarters ended September 30, 1999 and 2000, respectively. Gross margin
(revenues less cost of revenues as a percentage of revenues) increased from 28%
to 42% for the quarters ended September 30, 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 partially
offset by the lower gross margin of the Sweet Success product line. Advertising
and marketing expense increased from $21 to $1,806 from the third quarter of
1999 to the third quarter of 2000. Virtually all advertising in the third
quarter of 2000 promoted the Internet program. General and administrative
expenses increased from $722 to $1,655 from the third quarter of 1999 compared
to the third quarter of 2000. This increase of $933 is due primarily to an
increase in compensation expense ($563), general and administrative expenses
related to the Sweet Success acquisition ($95), professional services ($81),
rent ($84) and other costs that were connected to establishing the Internet
business.

Interest Income. Interest income (net of interest expense) increased $39
from $4 in the third quarter of 1999 to $43 in the third quarter of 2000
primarily due to higher cash balances.

Net Income and Loss. The Company incurred a net loss of $943 for the
quarter ended September 30, 2000 as compared to a net loss of $8,297 for the
quarter ended September 30, 1999. This variance of $7,354 was due primarily to
$8,200 non-cash compensation expense arising from the merger in August, 1999
offset by an increase in advertising and compensation costs associated with the
launch of the Internet business.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000

Revenues. Revenues increased from $6,903 for the nine months ended
September 30, 1999 to $17,152 for the nine months ended September 30, 2000. The
revenue increase of $10,249, or 148%, resulted primarily from food sales related
to the commencement of Internet sales ($10,671) and net revenue related to the
Sweet Success product line ($1,362), partially offset by lower franchise food
sales.

Costs and Expenses. Cost of revenues increased from $5,014 to $ 9,624 for
the nine months ended September 30, 1999 and 2000, respectively. Gross margin
(revenues less cost of revenues as a percentage of revenues) increased from 27%
to 44% for the nine months ended September 30, 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, partially
offset by the lower gross margin of the Sweet Success product line. Advertising
and promotional expense increased from $70 to $6,926 from the first three
quarters of 1999 to the first three quarters of 2000. Virtually all advertising
in the first three quarters of 2000 promoted the Internet program. General and
administrative expenses increased from $1,996 to $4,278 from the first three
quarters of 1999 compared to the first three quarters of 2000. This increase of
$2,282 is due primarily to an increase in compensation expense ($1,578),
professional services ($272), rent ($181), general and administrative expenses
related to the acquisition of Sweet Success ($95), and other costs which were
connected to establishing the Internet business.

Interest Income. Interest income (net of interest expense) increased $128
from $16 in the first three quarters of 1999 to $144 in the first three quarters
of 2000 primarily due to higher cash balances.

Net Loss. The Company incurred net losses of $8,324 and $3,887 for the
nine months ended September 30, 1999 and 2000, respectively. This variance of
$4,437 is due primarily to $8,200 non-cash compensation expense arising from the
merger in August, 1999 offset by an increase in advertising and compensation
costs associated with the launch of the Internet business.

LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA

At September 30, 2000, the Company had net working capital of $3,686. Cash
and cash equivalents were $2,143. The Company's principal source of liquidity is
the cash obtained from the private placement transactions. The Company currently
has no bank debt or term or revolving credit facilities to fund operating cash
flow or investment opportunities.

In the nine months ended September 30, 2000, the Company generated a $2,341
cash flow deficit from operations, primarily attributable to net losses.

In the nine months ended September 30, 2000, net cash used by investing
activities was $900 that primarily consisted of capital expenditures incurred to
increase web site and fulfillment capacity.

In the nine months ended September 30, 2000, net cash provided by financing
activities amounted to $2,482. This amount represents funds raised in a private
placement of equity securities and from the exercise of warrants. The proceeds
from these transactions will be used for working capital and to pursue the
Company's business strategy.

Under marketing agreements, the Company is required to pay aggregate
minimum fixed fees of $918 and $1,220 for the three months ending December 31,
2000 and the twelve months ending December 31, 2001, respectively. As of
September 30, 2000, the Company's principal commitments consisted of obligations
under marketing agreements and operating leases. Although the Company has no
material commitments for capital expenditures, it anticipates substantial
increases in capital expenditures consistent with anticipated growth in
operations, infrastructure and personnel.

The Company expects future cash obligations to be funded from financing
activities, which may include additional private and/or public offerings of
equity securities. Based on the variable nature of a portion of the Company's
expenditures, the cash balance at September 30, 2000 and management's belief
that additional equity financing can be raised, the Company anticipates that it
has the ability to continue operations through the end of 2001. However, there
can be no assurance that the Company will be able to raise the necessary capital
or generate sufficient revenues to achieve or sustain profitability in the
future. There are no credit facilities available to fund working capital or
investment needs.

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

FACTORS AFFECTING BUSINESS AND PROSPECTS

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

INFLATION

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

YEAR 2000 MATTERS

The Company has not experienced any computer problems since January 1, 2000
nor does management have any knowledge of any computer problems experienced by
any suppliers since January 1, 2000.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company has no material interest-bearing assets or liabilities, nor
does it have any current exposure for changes in foreign currency exchange
rates. It does not use derivatives or other financial instruments. Financial
instruments consist of cash and receivables. The market values of these
financial instruments approximate book value.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

Item 2. Changes in Securities and Use of Proceeds

The Company sold the following securities that were not registered under
the Securities Act of 1933, as amended (the "Act"), during the period July 1,
2000 through September 30, 2000.

(a) On August 25, 2000, the Company issued 900,000 shares of Common Stock
valued at $10.41 per share (after discounting the NASDAQ closing price by 10%
for illiquidity) to Nestle USA, Inc. in payment for the purchase of certain
assets relating to the Sweet Success diet meal replacement product line. The
issuance of these shares was exempt from registration pursuant to Section 4(2)
of the Act. No underwriters were used in connection with this transaction.

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits:

27.1 Financial data schedule

b. Reports on Form 8-K:

On October 24, 200 the registrant filed a Form 8-K reporting under Item 2
the August 25, 2000 acquisition of certain assets from Nestle USA, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

NUTRI/SYSTEM, INC.

BY: /S/ BRIAN D. HAVESON November 13, 2000
Brian D. Haveson
President and Chief Executive Officer

BY: /S/ JAMES D. BROWN November 13, 2000
James D. Brown
Chief Financial Officer and Principal Accounting Officer

Exhibit Index

27.1 Financial data schedule