SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB

|X|             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1999

                                       OR

|_|         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             For the Transition period from __________ to __________

                         COMMISSION FILE NUMBER 0-14039

                                  NUCLEUS, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)



             NEVADA                                     11-2714721
  (STATE OR OTHER JURISDICTION             (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

                      150 NORTH MICHIGAN AVENUE, SUITE 3610
                                CHICAGO, IL 60601
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

        Registrant telephone number, including area code: (312) 683-9000

     Check whether the Registrant (l) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act during the past 12 months
(or for such shorter periods 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 |_|

     The number of shares outstanding of the Company's only class of common
stock, as of November 15, 1999 was 9,233,604 shares of its $.001 par value
common stock.

     Transitional Small Business Disclosure Format (check one) Yes |_| No |X|

<PAGE>

                                     PART I
                              FINANCIAL INFORMATION


ITEM 1.   Financial Statements



                                     PART II
                                OTHER INFORMATION

ITEM 1.        Legal Proceedings

ITEM 2.        Changes in Securities and Use of Proceeds

ITEM 3.        Defaults Upon Senior Securities

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

ITEM 5.        Other Information

ITEM 6.        Exhibits and Reports on Form 8-K

Form 10-QSB    Signature Page


<PAGE>

ITEM 1.   FINANCIAL STATEMENTS

          Balance Sheets as of September 30, 1999 and December 31, 1998
          Statements of Operations for the nine months ended September 30, 1999
             and 1998 and for the three months ended September 30,1999 and 1998
          Statements of Cash Flows for the nine months ended September 30, 1999
             and 1998
          Notes to Financial Statements

<PAGE>

                                  NUCLEUS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,    DECEMBER 31,
                                                                           1999             1998
                                                                       -------------    -----------
<S>                                                                     <C>             <C>
                             ASSETS
--------------------------------------------------------------------
Current assets:
   Cash.............................................................    $    67,370     $    25,217
   Accounts receivable..............................................        849,701         171,312
   Due from related party...........................................           --           115,383
   Unbilled revenue.................................................        108,324         167,977
   Inventory........................................................        113,495          34,690
   Other current assets.............................................        239,094          58,829
                                                                        -----------     -----------
        Total current assets........................................      1,377,984         573,408

Property, plant and equipment, net..................................        213,628          67,315
Other assets........................................................        500,000              --
Intangibles, net....................................................      6,905,080          20,195
                                                                        -----------     -----------
        Total assets................................................    $ 8,996,692     $   660,918
                                                                        ===========     ===========

               LIABILITIES AND STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------
Current liabilities:
   Bank line of credit..............................................    $   258,037     $        --
   Notes payable current............................................          6,137           3,310
   Accounts payable.................................................      1,692,333         765,369
   Accrued expenses.................................................        630,883         323,056
   Due to former owners.............................................      1,105,282              --
   Due to related party.............................................        330,038         175,000
                                                                        -----------     -----------
        Total current liabilities...................................      4,022,710       1,266,735

Notes payable.......................................................             --           9,142

Stockholders' (deficit) equity:
   Common stock and paid in capital.................................     10,260,082       2,783,657
   Retained (deficit) earnings......................................     (5,286,100)     (3,398,616)
                                                                        -----------     -----------
        Total stockholders' (deficit) equity........................      4,973,982        (614,959)
                                                                        -----------     -----------
        Total liabilities and stockholders' equity..................    $ 8,996,692     $   660,918
                                                                        ===========     ===========
</TABLE>

<PAGE>

                                  NUCLEUS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                      THREE MONTHS   THREE MONTHS    NINE MONTHS    NINE MONTHS
                                         ENDED          ENDED           ENDED          ENDED
                                      SEPTEMBER 30,  SEPTEMBER 30,  SEPTEMBER 30,  SEPTEMBER 30,
                                          1999           1998           1999           1998
                                      -------------  -------------  -------------  -------------

<S>                                   <C>            <C>            <C>            <C>
Revenue............................   $ 4,657,317    $1,115,723     $ 5,954,945    $2,693,625
Cost of sales......................     3,861,318       806,426       4,848,785     1,892,977
Selling, general and administrative
   expenses........................     1,489,177       178,387       2,680,082       652,846
Stock-based and other compensation.       104,000        48,700         104,000       120,803
Amortization and appreciation
    expense........................       157,871         5,799         171,374        16,464
                                      -----------    ----------     -----------    ----------
   Income (loss) from operations...      (955,049)       76,411      (1,849,296)       10,535

Other income (expense).............       (46,829)       (3,157)        (38,149)        7,143
                                      -----------    ----------     -----------    ----------
Net income (loss)..................   $(1,001,878)   $   73,254     $(1,887,445)   $   17,678
                                      ===========    ==========     ===========    ==========

   Diluted earnings (loss) per share  $     (0.11)   $     0.01     $     (0.25)   $    (0.00)
                                      ===========    ==========     ===========    ==========
   Diluted weighted average shares
      outstanding..................     9,052,753     6,413,165       7,491,181     6,413,165
                                      ===========    ==========     ===========    ==========
</TABLE>

<PAGE>

                                  NUCLEUS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       NINE MONTHS    NINE MONTHS
                                                                          ENDED          ENDED
                                                                      SEPTEMBER 30,  SEPTEMBER 30,
                                                                          1999           1998
                                                                      -------------  -------------

<S>                                                                   <C>             <C>
Net income (loss)..................................................   $(1,887,445)    $  17,678
Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
   Depreciation and amortization...................................       171,374        16,464
   Compensation expense related to issuance of equity securities...       104,000       120,803
   Stock issued for services.......................................            --        61,955
   Loss on disposal of fixed assets................................        17,536            --
   Changes in operating assets and liabilities
      net of acquisitions..........................................       870,469       135,762
                                                                      -----------     ---------
        Total adjustments..........................................     1,163,379       334,984
                                                                      -----------     ---------

   Net cash provided (used) by operating activities................      (724,066)      352,662
                                                                      -----------     ---------

Cash flows used for investing activities
   Deposits on acquisition.........................................      (500,000)           --
   Capital expenditures............................................       (50,188)       (9,127)
                                                                      -----------     ---------
      Net cash used for investing activities.......................      (550,188)       (9,127)
                                                                      -----------     ---------
Cash flows from financing activities:
   Borrowings (repayments) on notes payable........................       (56,254)       89,952
   Proceeds from the sale of common stock..........................     1,595,000           704
   Payments to former owners.......................................      (222,339)           --
   Increase (decrease) in officer loans............................            --      (364,571)
                                                                      -----------     ---------

      Net cash provided by (used in) financing activities..........     1,316,407      (273,915)
                                                                      -----------     ---------

Increase in cash...................................................        42,153        69,620
Cash and cash equivalents, beginning period........................        25,217         2,819
                                                                      -----------     ---------
Cash and cash equivalents, end of period...........................   $    67,370     $  72,439
                                                                      ===========     =========

</TABLE>

<PAGE>

                                  NUCLEUS, INC.
        NOTES TO CONDENSED CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999

NOTE 1.   GENERAL

          We are a professional services organization delivering Internet-based
information technology solutions to middle market companies. Our goal is to
provide our clients with Internet-based technology to improve and simplify core
business processes, enhance revenue capabilities, lower the cost of technology
and shorten product and service cycle times. We began business operations in
1987 in Colorado Springs, Colorado, as a provider of computer systems and
componentry. We adopted the name Nucleus, Inc. in December 1998 and reorganized
in April 1999 when Nucleus merged with Nucleus Holding Corporation ("Holdings"),
a privately-held Illinois corporation based in Chicago, Illinois. At that time,
we installed a new management team and formulated our current goals and
operating strategies. We now maintain our headquarters in Chicago. An integral
component of our business strategy is to make targeted acquisitions of IT and
e-commerce service companies in the United States. We intend to use these
strategic acquisitions as a platform for creating an enterprise that can deliver
a branded Internet-based IT solution to middle market companies nationwide.

          The merger between Nucleus and Holdings was accounted for as a
pooling-of-interests for financial reporting purposes. Accordingly, our
consolidated financial statements have been restated for all periods prior to
the merger to include the results of operations, financial position and cash
flows of both Nucleus and Holdings. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.

          Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. The condensed consolidated balance sheet at December
31, 1998 has been derived from the audited consolidated financial statements at
that date for both Nucleus and Holdings, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For additional information with respect to
Nucleus, refer to the consolidated financial statements and footnotes for the
year ended December 31, 1998 that are included in our annual report on Form
10-KSB and our proxy dated March 19, 1999.

NOTE 2.   BUSINESS ACQUISITIONS

          Effective June 30, 1999, we acquired one-hundred percent of the
capital stock of Innovative Technology Solutions, Inc. ("ITS"). ITS is a
provider of multifaceted technology solutions to middle market companies
throughout the Pacific Northwest. To consummate the transaction, we issued
1,000,000 shares of our common stock and a $1,000,000 subordinated note. The
note bears interest at the rate of prime plus one percent, with interest and
principal payable on demand and is secured by 400,000 shares of the common stock
owned by our president John C. Paulsen.

          The ITS acquisition has been accounted for as a purchase business
combination, and, accordingly has been included in our unaudited condensed
statement of operations for the nine month period ended September 30, 1999 from
the date of acquisition. The following table presents the purchase consideration
(a) in cash and (b) in shares of our common stock to ITS' shareholders, the
estimated fair value of the net assets acquired, and resulting goodwill. The
purchase price has been allocated to the company's assets and liabilities based
on their respective carrying values, as these carrying values are deemed to
represent fair market value of these assets and liabilities. The allocation of
purchase price is preliminary, but we do not expect that the final allocation of
purchase price will differ significantly. Goodwill recorded in connection with
this acquisition will be amortized over fifteen years.

<PAGE>

             SHARES OF
               COMMON     VALUE OF        TOTAL       NET ASSETS
   CASH        STOCK       SHARES     CONSIDERATION    ACQUIRED     GOODWILL
----------   ---------   ----------   -------------   ----------   ----------
$1,000,000   1,000,000   $3,875,000    $4,875,000      $56,845     $4,818,155

          The following unaudited pro forma data presents the combined results
of operations of Nucleus, the ITS acquisition described above, and the three
additional acquisitions we have completed to date (Comp-Pro Computer, Inc.,
Telos Distributing, Inc. and Young Data Systems) as if they occurred at the
beginning of the periods presented. Such unaudited pro forma data do not reflect
the effects of any anticipated changes to be made by Nucleus in its operations
from the historical operations, are presented for informational purposes only
and should not be construed to be indicating (i) the results of operations or
the financial position of Nucleus that actually would have occurred had the
acquisition been consummated as of the dates indicated or (ii) the results of
operation or the financial position of Nucleus in the future.


                              THREE MONTHS ENDED   NINE MONTHS ENDED
                              SEPTEMBER 30, 1999   SEPTEMBER 30, 1999
                              ------------------   ------------------

Sales......................      $ 4,657,317          $16,881,302
Net loss...................       (1,581,879)          (2,056,931)
Diluted loss per share.....      $     (0.17)         $     (0.24)

NOTE 3.   SEGMENT INFORMATION

          During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes new
standards for reporting information about operating segments in interim and
annual financial statements. We adopted this pronouncement in 1998.

         We operate our Internet-based consulting business primarily in two
segments: Internet and Telecommunications through the resale of long distance
and Internet access (CTI) and IT consulting through strategic technology
consulting, professional services, and information technology procurement and
infrastructure (IT). Summarized financial information is shown in the following
table:

<TABLE>
<CAPTION>
                                             NINE MONTHS ENDED                           NINE MONTHS ENDED
                                            SEPTEMBER 30, 1999                          SEPTEMBER 30, 1998
                                -------------------------------------------   --------------------------------------
                                    CTI            IT             TOTAL           CTI           IT           TOTAL
                                ----------    -------------   -------------   ----------    -----------   ----------

<S>                             <C>           <C>             <C>             <C>           <C>           <C>
Revenues.....................   $1,315,908    $  4,639,037    $  5,954,945    $2,049,152    $  644,473    $2,693,625
Operating income (loss)......       81,913      (1,931,209)     (1,849,296)      246,739      (236,204)       10,535
Identifiable assets..........      248,388       1,743,224       1,991,612       460,923       379,113       840,036
Depreciation expense.........        4,216         167,158         171,374         4,684        11,780        16,464
Capital expenditures.........           --          50,188          50,188            --         9,127         9,127
</TABLE>

NOTE 4.   COMMON AND PREFERRED STOCK

          Authorized, issued and outstanding shares and par value of our common
and preferred stock are as follows:

<TABLE>
<CAPTION>
                                                                     Shares Outstanding
                                                                ----------------------------
                                                                December 31,   September 30,
                          Authorized Shares      Par Value         1998            1999
                          -----------------   ---------------   ------------   -------------
<S>                         <C>               <C>                <C>             <C>
Preferred stock..........     8,000,000       no stated value          --               --
Common stock.............   900,000,000            $0.001        1,129,827       9,082,771
</TABLE>

<PAGE>

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

INTRODUCTION

          We are a professional services organization delivering Internet-based
IT solutions to middle market companies. Our goal is to provide our clients with
Internet-based technology to improve and simplify core business processes,
enhance revenue capabilities, lower the cost of technology and shorten product
and service cycle times.

          We are pursuing an aggressive acquisition strategy to acquire
companies whose higher margin service offerings can complement our existing
products and services and enable us to offer a comprehensive range of
Internet-based technology solutions to our clients.

          We presently earn revenues from the following IT services: strategic
technology consulting, professional services, Internet and telecommunications,
and information technology procurement and infrastructure. We recognize revenue
from strategic technology consulting and professional services as services are
performed. Clients are billed over the course of an engagement on either a time
and materials basis or a fixed-price basis. Billable rates vary by the service
provided and geographical region and typically range from $75 to $250 per hour.
The pricing, management and execution of individual engagements are the
responsibility of the consulting office that performs or coordinates the
services. Revenues from procurement and assembly of computer and network systems
are recognized upon shipment or acceptance of equipment.

          To date, we have had only limited experience with fixed-price
engagements. The failure to estimate accurately the resources and time required
for an engagement, to manage effectively client expectations regarding the scope
of services to be delivered for the estimated fees or to complete fixed-price
engagements within budget, on time and to client's satisfaction would expose us
to risks associated with cost overruns and, in certain cases, penalties, any of
which could have a material adverse effect on our revenues or operating income.
There are no significant post-sales support obligations related to our revenues.

          Cost of revenues includes the costs of services and material directly
related to the revenues including direct labor and benefits, subcontracted labor
or other outside services, and other direct costs associated with revenues, as
well as an allocation of certain indirect costs, the cost to purchase computer
and network equipment sold to clients.

          Selling, general and administrative costs include salaries, benefits,
commissions payable to our sales personnel, marketing, advertising, and
administrative costs.

          Amortization expenses relate to intangible assets recorded in
connection with our acquisitions.

ACQUISITIONS

          An integral component of our business strategy is to make targeted
acquisitions of IT and e-commerce service companies in the United States. In
April 1999, we began to acquire IT and e-commerce service companies in select
geographic regions. The primary services offered by these businesses include
traditional information technology solutions. These initial acquisitions will
provide us with an installed client base, a highly motivated sales force and an
operating framework and infrastructure.

          Our acquisition program to date has resulted in the acquisition of
four companies. Each of the four acquisitions we have completed to date have
been accounted for as purchase business combinations. For each acquisition, a
portion of the purchase price is allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective
fair values on the acquisition date. The portion of the purchase price in excess
of tangible and identifiable intangible assets and liabilities assumed for the
these acquisitions total approximately $6.9 million and is recorded as goodwill
on our unaudited consolidated balance sheet as of September 30, 1999. Goodwill
will be amortized over a period from one to fifteen years for book purposes.

<PAGE>

          We anticipate that we will realize savings, with respect to these
acquisitions, from greater volume discounts from suppliers, and consolidation of
finance, administration and marketing functions. The integration process for
these acquisitions may also present opportunities to reduce costs through the
elimination of duplicative functions and through economies of scale, but may
necessitate additional costs and expenditures for corporate management and
administration, systems integration and facilities expansion. These various
costs and possible cost savings may make historical operating results not
comparable to, or indicative of, future performance. There can be no assurance
that we will achieve any cost savings.

RESULTS OF OPERATIONS

          Revenues. For the September quarter, revenues increased by $3.5
million, or 317%, from $1.1 million, in 1998 to $4.7 million in 1999. On a year
to date basis, revenues increased approximately $3.3 million, or 121%, from $2.7
million in 1998 to $6.0 million in 1999. The increase in revenue was primarily a
result of a inclusion of sales from the four acquired companies since
acquisition which accounted for approximately $4.6 million of 1999 sales to
date, primarily in IT consulting services. As a percentage of revenue, 26% and
78% was derived from our IT consulting services for the year to date period in
1998 and 1999, respectively and 74% and 22% was derived from our Internet and
telecommunications service for the year to date period in 1998 and 1999,
respectively.

          Cost of revenues. For the September quarter, cost of revenues
increased by $3.1 million, or 379%, from $806,000 in 1998 to $ 3.9 million in
1999, or 72% compared to 83% of revenue, respectively. On a year to date basis,
cost of revenues increased approximately $3.0 million, or 256%, from $1.9
million in 1998 to $4.9 million during 1999, or 70% compared to 81% of revenue,
respectively. The increase in cost of revenue is primarily a result of a
reduction in volume generated by our Internet and telecommunication services,
from which we have historically recognized higher margins as compared to our IT
consulting services.

          Selling, general and administrative expenses. For the September
quarter, selling, general and administrative expenses increased $1.3 million, or
793%, from $178,000 in 1998 to $1.5 million in 1999. For the year to date
period, selling, general, and administrative expenses increased $2.0 million, or
411%, from $652,000 in 1998 to $2.7 million in 1999, or 45% compared to 37% of
revenue, respectively. The increase is related to professional fees and travel
incurred in connection with our acquisition strategy and compensation expense
and related benefits, resulting from hiring additional personnel at our
corporate headquarters.

          Stock-based and other compensation. For the September quarter,
stock-based and other compensation expenses increased $25,000 or 212%, from
$49,000 in 1998 to $104,000 in 1999. For the year to date period, stock-based
and other compensation expenses decreased $17,000, or 14%, from $121,000 in
1998 to $104,000 in 1999, or 5% compared to 2% of revenue, respectively.

          Loss from operations. For the September quarter, loss from operations
increased $1.1 million from income of $76,000 in 1998 to a loss of $1.0 million
in 1999. For the year to date period, loss from operations increased $1.9
million, from income of $10,000 in 1998 to a loss of $1.8 million in 1999. As a
percentage of revenues, our operating income/loss decreased from income of 1% in
1998 to a loss of 31% in 1999. The increase in loss from operations was a result
of increased selling, general, and administrative expenses and stock-based and
other compensation expenses incurred during 1999.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

          Our working deficit increased by $2.0 million from $693,000 at
December 31, 1998, compared to $2.6 million at September 30, 1999. This increase
is attributable to professional fees and other expenses we have incurred in
connection with the acquisition we have consummated during 1999, increased costs
incurred with the hiring of additional personnel and the note payable
outstanding related to the acquisition of ITS which is due upon demand.

          At various times from July 1, 1999 through November 15, 1999 we sold
110,500 shares of our common stock for an aggregate amount of $218,000. The
satisfaction of our cash requirements during 1999 and thereafter will depend in
large part on our ability to successfully generate revenues from operations and
raise capital to fund operations. There can, however, be no assurance that
sufficient cash will be generated from operations or that unanticipated events
requiring the expenditure of funds within our existing operations will not
occur. In addition, we intend to continue to aggressively pursue our strategy of
acquiring IT and e-commerce service companies throughout the United States.
Although we will strive to structure the use of our common stock as currency to
pay for potential acquisition targets, a portion or all of the purchase price
may be in the form of cash. Additionally, because we intend to grow through
acquisition, we may encounter competition in the marketplace for these
acquisitions. This may result in an increase in the purchase price for potential
acquisitions and require us to curtail or modify our acquisition program. As a
result, we expect to aggressively pursue additional sources of funds, the form
of which will vary depending upon prevailing market and other conditions and may
include high yield financing vehicles, short or long-term borrowings or the
issuance of equity securities. We cannot assure you that we will be able to
obtain such funding, or if such funding is available, that it will be on
favorable terms.

          On June 26, 1999, we signed a definitive purchase agreement to acquire
one-hundred percent of the capital stock of Computing Concepts, Inc. ("CCI"), a
New Jersey based full service value added IT firm. CCI offers a wide range of
services including customized help-desk, staff augmentations in most technical
areas, training and network design and implementation. Pursuant to the terms of
the agreement, and in order to prevent CCI from seeking other potential
acquirers, we paid a $500,000 non-refundable earnest money deposit to CCI's
shareholders upon the signing of the agreement and were required to provide
additional non-refundable deposits if the transaction had not been closed by
August 31, 1999. On August 31, 1999, we elected not to provide the additional
deposit monies. The closing of this transaction is contingent upon our ability
to secure financing for this transaction. The earnest money deposit will be
applied toward the purchase price of CCI in the event the transaction closes,
however these monies will be non-refundable if the transaction is not completed.
We are continuing negotiations to acquire CCI and are in discussions with a
number of financial institutions to secure the acquisition financing. We can
make no assurance that this transaction will be completed.

          On July 23, 1999, we entered into a $500,000 secured demand loan
agreement (the "Line of Credit") with Bank of America. The Line of Credit is
secured by our assets and the assets of our president John C. Paulsen, bears and
pays interest monthly at the rate of prime plus one hundred basis points, and
principal is payable on demand. As of November 15, 1999, the entire amount under
the Line of Credit was outstanding, which included $100,000 reserved for a
supplier under a letter of credit. As of November 15, 1999, there were no draws
against the letter of credit.

          We currently have no commitments for capital expenditures and no other
lines of credit upon which to borrow.

YEAR 2000 COMPLIANCE

          We have created a task force comprised of IT, finance, and
administrative personnel to evaluate our internal and external systems as they
relate to Year 2000 issues. Computer and related systems that can be potentially
affected by the Year 2000 issue include our operating systems, financial
reporting systems, and data and communications.

          Additionally, we are assessing the systems of the companies we have
acquired, or plan to acquire, for Year 2000 issues. We have not yet fully
completed review of these systems; however, based on a preliminary review, we do
not believe that significant Year 2000 issues exist at these companies.

<PAGE>

          We will continue to assess internal non-information technology systems
and external systems, including systems used by manufacturers and suppliers of
computer equipment, software programs, telephone systems, and data systems,
systems comprising our enterprise networks and equipment used to provide
services to our clients. To date, we have not identified any Year 2000 issues
with third parties which could have a material adverse effect on our business.
We may identify a significant internal or external Year 2000 issue in the future
which, if not remediated in a timely manner, could have a material adverse
effect on our business, financial condition and results of operations.

Costs

          We have not incurred any significant costs in reviewing Year 2000
compliance other than the opportunity cost of time spent by our personnel and we
do not anticipate any significant further cost in identifying Year 2000 issues.

Contingency Plans

          We have prepared contingency plans, including manual order entry
procedures and identification of potential software modifications, in the event
that there are delays in upgrading the non-ready systems. Costs associated with
our contingency plans, which we do not believe would be material, could include
the hiring of additional personnel to process orders and implement software
modifications. The exact amount of the costs associated with our contingency
plans cannot be determined at this time as a result of not knowing the number of
additional personnel that we may need to hire.

Risks of Year 2000 Issues

          Based on the activities outlined above, including the assessment of
the systems of the companies we have acquired, or plan to acquire, we believe we
are fully compliant with Year 2000 requirements. Based on our assessments to
date, we believe that we will not experience any material disruption in internal
systems or information processing as a result of Year 2000 issues. However,
almost all of our systems and products relating to our internal and external
systems and products are manufactured or supplied by third parties which are
outside of our control. Although we have taken steps that we believe should have
identified potential Year 2000 issues, if some or all of our internal or
external systems and products fail, or if any critical systems are overlooked or
are not Year 2000 ready in a timely manner, there could be a material adverse
effect on our business, financial condition and results of operation and on the
price of our common stock. In addition, if a critical provider of services, such
as those supplying electricity, water or other services, or a vendor or
manufacturer supplying products or services sold to our clients, experiences
difficulties resulting in disruption of services to us or the sale of
malfunctioning products to our clients, there could be a material adverse effect
on our financial condition, results of operations and the price of our common
stock.

          Potential risks include:

          o    The disruption of utility services resulting in a closure of the
               affected facility for the duration of the disruption,

          o    The disruption of services we provide to our clients,

          o    The inability to process client billing accurately or in a timely
               manner,

          o    The inability to provide accurate financial reporting to
               management, auditors, investors and others,

          o    Litigation costs associated with potential suits from clients and
               investors, and

          o    Delays in implementing other projects as a result of work by
               internal personnel on Year 2000 issues.

<PAGE>

                                     PART II

ITEM 1.   LEGAL PROCEEDINGS

     We are from time to time a party to various legal actions arising in the
normal course of business. We believe that there is no proceeding threatened or
pending against us which, if determined adversely, would have a material adverse
effect on the financial condition of results of operations of Nucleus.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

     At various times between July 1, 1999 and November 15, 1999, we issued
110,500 shares of our common stock to sophisticated investors in various
transactions not involving a public offering. The sale was exempt from
registration under Section 4(2) of the Securities Act. The recipients of
securities represented their intentions to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof. In each instance, offers and sales were made without any public
solicitation. No underwriter or broker-dealer was involved in the transaction
and no commission was paid. All recipients had adequate access to information
about Nucleus.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     NOT APPLICABLE.

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

     NOT APPLICABLE.

ITEM 5.   OTHER INFORMATION

     NOT APPLICABLE

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (A)  Exhibits

Exhibit No.       Description
-----------       -----------

27.1              Financial Data Schedule

     (B) Reports on Form 8-K

     On August 16, 1999, Nucleus filed a Current Report on Form 8-K relating to
its merger with Young Data Systems, Inc. On August 27, 1999, Nucleus filed an
amendment to such 8-K on Form 8-K/A.

     On July 28, 1999, Nucleus filed a Current Report on Form 8-K relating to
its merger with Innovative Technology Solutions, Inc. On September 13, 1999,
Nucleus filed an amendment to such 8-K on Form 8-K/A.

     On June 7, 1999, Nucleus filed a Current Report on Form 8-K relating to its
merger with Telos Distributing, Inc. On August 16, 1999, Nucleus filed an
amendment to such 8-K on Form 8-K/A.

     On May 12, 1999, Nucleus filed a Current Report on Form 8-K related to its
acquisition of Comp Pro Computers, Inc. On July 13, 1999, Nucleus filed an
amendment to such 8-K on Form 8-K/A.

<PAGE>

                                    SIGNATURE

     In accordance with the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.


                                             NUCLEUS, INC.
Date:    November 15, 1999

                                             /s/   JOHN C. PAULSEN
                                             -----------------------------------
                                             John C. Paulsen, President and
                                                 Chief Executive Officer


                                             /s/   J. THEODORE HARTLEY
                                             -----------------------------------
                                             J. Theodore Hartley, Executive Vice
                                                 President and Chief Financial
                                                 Officer