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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549
                         ------------------------------
                                  FORM 10-KSB/A

/x/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
                   For the fiscal year ended December 31, 1997

/ /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                               EXCHANGE ACT OF 1934
               For the transition period from ________ to ________
                         ------------------------------

                          Commission File No.: 0-22073
                               DAOU SYSTEMS, INC.
                 (Name of small business issuer in its charter)

                Delaware                               330284454
     (State or other jurisdiction of        (IRS Employer Identification No.)
     incorporation or organization)

                               5120 Shoreham Place
                          San Diego, California  92122
                                 (619) 452-2221
   (Address of principal executive offices and Registrant's telephone number)
                         ------------------------------

   Securities registered pursuant to Section 12(b) of the Exchange Act:  None

  Securities registered pursuant to Section 12(g) of the Exchange Act:  Common
                     Stock, $0.001 par value per share

     Indicate by check mark whether 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 periods that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.                           YES /X/    NO / /

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

     The Registrant's revenues for the year ended December 31, 1997 were: $41.7
million.

     The aggregate market value of Registrant's voting and non-voting common
equity, held by non-affiliates, computed by reference to the average of the
closing bid and asked prices of the Common Stock as reported by Nasdaq on March
6, 1998, was $185,572,073.  Shares of Common Stock held by officers and
directors of Registrant and by persons who hold 5% or more of the outstanding
shares of Common Stock have been excluded from the calculation of this amount in
that such persons may be deemed to be affiliates.  This determination of
affiliate status is not necessarily conclusive.

     As of March 6, 1998, the number of issued and outstanding shares of
Registrant's Common Stock was 11,826,654.
                         ------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

     Registrant's definitive Proxy Statement which will be filed with the
Securities and Exchange Commission on or before April 30, 1998 in connection
with Registrant's annual meeting of stockholders to be held on May 19, 1998 is
incorporated by reference into Part III of this Report.

     Transitional Small Business Disclosure Format:           YES / /    NO /X/
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     The undersigned Registrant hereby amends the following items, financial
statement, exhibits or other portions of its Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997 as set forth in the pages attached
hereto:

     1.   Item 13 (Exhibits and Reports on Form 8-K)   Pages 2-4

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ITEM 13:  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  CURRENT REPORTS ON FORM 8-K.  The Registrant filed the following
Current Reports on Form 8-K with the Commission during the fourth quarter of
the year ended December 31, 1997:

          (1)  Current Report on Form 8-K, filed on October 29, 1997,
reporting the Registrant's acquisition on October 15, 1997 of all of the
issued and outstanding shares of On-Line Networking, Inc., a New Jersey
corporation ("On-Line"), through the issuance of 150,000 shares of the
Registrant's Common Stock. The acquisition was accomplished by means of a
pooling-of-interests merger (the "On-Line Merger") of On-Line with DAOU
On-Line, Inc., a Delaware corporation and wholly-owned subsidiary of the
Registrant ("DAOU On-Line").

          (2)  Current Report on Form 8-K, filed on November 17, 1997,
reporting the Registrant's revenue and net income of $4,100,000 and $180,000,
respectively, for the 30-day period ended November 14, 1997.  Such revenue
and net income amounts include 30 days of combined operations of the
Registrant and DAOU On-Line.

          (3)  Current Report on Form 8-K/A, filed on November 26, 1997,
amending and completing the Registrant's Current Report on Form 8-K, filed on
October 29, 1997.  This Current Report on Form 8-K/A contained (i) audited
financial statements of On-Line for the years ended December 31, 1996 and
1995, and (ii) certain unaudited pro forma combined financial statements of
the Registrant and On-Line for the nine months ended September 30, 1997 and
1996 and for the years ended December 31, 1996 and 1995.

     (b)  EXHIBITS.

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           EXHIBIT
           NUMBER          EXHIBIT
           -------         --------
           <S>             <C>

           2.1(1)       -- Agreement and Plan of Merger, dated January 9, 1997, by and
                           between the Registrant and DAOU Systems, Inc., a California
                           corporation.
           2.2(2)       -- Agreement and Plan of Merger, dated as of July 8, 1997, by
                           and among the Registrant, DAOU-Integrex, Inc., a Delaware
                           corporation and wholly-owned subsidiary of the Registrant,
                           Integrex Systems Corporation, a Delaware corporation, and the
                           stockholders of Integrex Systems Corporation.
           2.3+(3)      -- Agreement and Plan of Merger, dated as of September 25, 1997,
                           by and among the Registrant, DAOU On-Line, On-Line and the
                           stockholders of On-Line.
           3.1(1)       -- Amended and Restated Certificate of Incorporation of the Registrant.
           3.2(1)       -- Bylaws of the Registrant.
           4.1          -- Reference is made to Exhibits 3.1 and 3.2.
           4.2(1)       -- Specimen stock certificate.

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           EXHIBIT
           NUMBER          EXHIBIT
           -------         --------
           <S>             <C>
            4.3(1)       -- Investors'  Rights  Agreement, dated October 26,
                            1995, between the Registrant and the parties
                            named therein.
            4.4(1)       -- Series A Preferred Stock Purchase Warrant No. 1,
                            dated October 26, 1995, between the Registrant
                            and Needham & Company, Inc.
            4.5(1)       -- Series A Preferred Stock Purchase Warrant No. 2,
                            dated October 26, 1995, between the Registrant
                            and Needham Capital S.B.I.C., L.P.
           10.1(1)       -- Form of Indemnification Agreement.
           10.2(1)(4)     - DAOU Systems, Inc. 1996 Stock Option Plan, as
                            amended.
           10.3(1)(4)     - Form of Incentive Stock Option Agreement under
                            the 1996 Stock Option Plan.
           10.4(1)(4)     - Form of Nonstatutory Stock Option Agreement under
                            the 1996 Stock Option Plan.
           10.5(1)(4)    -- Employment  Agreement,  effective  as  of
                            November  11,  1996,  between  Robert C. McNeill
                            and the Registrant.
           10.6(1)       -- Sublease Agreement, dated March 1, 1996,
                            between the Registrant and Adobe Systems
                            Incorporated.
           10.7+(1)      -- Information  Management  Agreement,  dated April
                            1, 1996, between the Registrant and Candler
                            Health System.
           10.8+(1)      -- Principle  Agreement,  dated  June  18, 1996,
                            between the Registrant and Catholic Medical
                            Center of Brooklyn & Queens, Inc.
           10.9+(1)      -- Principal Agreement, dated June 29, 1995, between
                            the Registrant and Mercy Health Services.
           10.10+(1)     -- Master Agreement, dated June 4, 1996, between
                            the Registrant and Atlantic Health System.
           10.11(1)      -- Form of Master Services Agreement.
           21*           -- Subsidiaries of the Registrant.
           23*           -- Consent of Ernst & Young LLP, independent auditors.
           24*           -- Power of Attorney.
           27.1*         -- Financial Data Schedule for year ended December 31,
                            1997.

           27.2          -- Financial  Data for the year ended December 31,
                            1996 and each of the quarters ended March 31,
                            1997 and June 30, 1997.

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*    Previously filed.
+    Confidential treatment has been granted with respect to certain portions of
     this exhibit.
(1)  Incorporated by reference to the similarly described exhibits filed in
     connection with the Registrant's Registration Statement on Form SB-2, File
     No. 333-18155, declared effective by the Commission on February 12, 1997.
(2)  Incorporated by reference to the exhibit filed in connection with the
     Registrant's Current Report on Form 8-K filed with the Commission on July
     18, 1997.


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(3)  Incorporated by reference to the exhibit filed in connection with the
     Registrant's Current Report on Form 8-K with the Commission filed on
     October 29, 1997.
(4)  Identifies a management contract or compensatory plan or arrangement of the
     Registrant.


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                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Amendment No. 1 to Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated: March 31, 1998                       DAOU SYSTEMS, INC.


                                            By: /s/  DANIEL J. DAOU
                                                ------------------------------
                                                Daniel J. Daou
                                                President

     In accordance with the Exchange Act, this Amendment No. 1 to Form 10-KSB
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

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              Signature                           Title                                              Date
              ---------                           -----                                              ----
<S>                                   <C>                                                         <C>

                *
-----------------------------------   Chief Executive Officer and Chairman of the Board
         Georges J. Daou              (Principal Executive Officer)

       /s/ DANIEL J. DAOU
-----------------------------------   President and Director
         Daniel J. Daou                                                                            March 31, 1998

                *
-----------------------------------   Senior Vice President, Chief Financial Officer and
         Fred C. McGee                Secretary (Principal Financial and Accounting  Officer)
                *
-----------------------------------   Director
         Richard B. Jaffe

                *
-----------------------------------   Director
         David W. Jahns

                *
-----------------------------------   Director
         John H. Moragne

*By:   /s/ DANIEL J. DAOU
    --------------------------------
    Daniel J. Daou, Attorney-in-Fact                                                               March 31, 1998

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