Nutrisystem 2009 Annual Report Download - page 19

We may be subject to health-related claims from our customers.
Our weight loss program does not include medical treatment or medical advice, and we do not engage
physicians or nurses to monitor the progress of our customers. Many people who are overweight suffer from
other physical conditions, and our target consumers could be considered a high-risk population. A customer who
experiences health problems could allege or bring a lawsuit against us on the basis that those problems were
caused or worsened by participating in our weight management program. For example, our predecessor
businesses suffered substantial losses due to health-related claims and related publicity. Currently, we are neither
subject to any such allegations nor have we been named in any such litigation. However, if we were, we would
defend ourselves against such claims. Defending ourselves against such claims, regardless of their merit and
ultimate outcome, would likely be lengthy and costly, and adversely affect our results of operations. Further, our
general liability insurance may not cover claims of these types.
The weight management industry is highly competitive. If any of our competitors or a new entrant into the
market with significant resources pursues a weight management program similar to ours, our business
could be significantly affected.
Competition is intense in the weight management industry and we must remain competitive in the areas of
program efficacy, price, taste, customer service and brand recognition. Some of our competitors are significantly
larger than we are and have substantially greater resources. Our business could be adversely affected if someone
with significant resources decided to imitate our weight management program. For example, if a major supplier
of pre-packaged foods decided to enter this market and made a substantial investment of resources in advertising
and training diet counselors, our business could be significantly affected. Any increased competition from new
entrants into our industry or any increased success by existing competition could result in reductions in our sales
or prices, or both, which could have an adverse effect on our business and results of operations.
New weight loss products or services may put us at a competitive disadvantage.
On an ongoing basis, many existing and potential providers of weight loss solutions, including many
pharmaceutical firms with significantly greater financial and operating resources than we have, are developing
new products and services. The creation of a weight loss solution, such as a drug therapy, that is perceived to be
safe, effective and “easier” than a portion-controlled meal plan would put us at a disadvantage in the marketplace
and our results of operations could be negatively affected.
If we pursue competitive advertising, we may be subject to litigation from our competitors.
If we pursue competitive advertising, our competitors may pursue litigation regardless of its merit and
chances of success. Competitive advertising may include advertising that directly or indirectly mentions a
competitor or a competitor’s weight loss program in comparison to our program. Defending such litigation may
be lengthy and costly, strain our resources and divert management’s attention from their core responsibilities,
which would have a negative impact on our business.
Our business is subject to online security risks, including security breaches and identity theft.
To succeed, online commerce and communications must provide a secure transmission of confidential
information over public networks. Currently, a significant number of our customers authorize us to bill their
credit cards directly for all fees charged by us. We rely on third party software products to secure our credit card
transactions. Although we have developed systems and processes that are designed to protect consumer
information and prevent fraudulent payment transactions and other security breaches, failure to prevent or
mitigate such fraud or breaches may adversely affect our operating results.
We may experience fluctuations in our operating results which may cause our stock price to be volatile.
In view of the rapidly evolving nature of our business and the seasonality inherent in the weight loss
industry, our operating results may fluctuate significantly. The market price of our common stock is subject to
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