Nutrisystem 2003 Annual Report Download - page 16

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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 NutriSystem, 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 Annual Report on Form 10-K. Dollar amounts are stated in thousands, except per share data.
Background
NutriSystem, Inc. provides weight loss programs and distributes pre-packaged foods. The NutriSystem diet
program was originally developed by the Companys predecessor businesses that operated through company-owned and
franchised weight loss centers. Currently, there are no Company-operated centers and the Company terminated its last
franchise agreements in 2003. There are 24 independent center-based distributors who operate without franchise
agreements (Case Distributors). In 1998, the Company initiated Nutri/System Direct, L.L.C., a marketing program
using independent commissioned representatives. In late 1999, the Company began selling directly to the consumer
through the Internet and by telephone. In 2001, the Company began selling foods through QVC, a television shopping
network. The Companys pre-packaged foods are now sold to weight loss program participants directly via the Internet
and telephone (the Direct channel) and through independent commissioned representatives (Field Sales), Case
Distributors and QVC. In September 2000, the Company changed its name from nutrisystem.com inc. to Nutri/System,
Inc. and in 2003 the Company changed its name to NutriSystem, Inc.
Since the NutriSystem businesses began in 1972, the businesses have operated in various organizational and
legal structures and 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 September 2003, the Company completed a private
placement that raised $2,300 from the sale of 2,300,000 shares of common stock. The Company issued a total of
115,000 and 41,000 shares of common stock valued at an aggregate of $625 and $61 to service providers in 2000 and
2003, respectively. In 2001, 2002, and 2003, the Company repurchased 2,760,291 shares of common stock for an
aggregate cost of $1,541 (an average price of $0.56 per share).
In December 2002, HJM Holdings LLC and NewSpring Ventures, L.P. collectively acquired 58.4% of the
outstanding shares of common stock from existing stockholders effecting a change in control of the Company. The
Company was not a party to the transaction.
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
connection with the acquisition. The shares of common stock issued to the Seller were included in a registration