<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                 FORM 10-K/A-1

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the fiscal year ended December 31, 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 No.: 0-22073

                              DAOU SYSTEMS, INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
            Delaware                                                  33-0284454
<S>                                                        <C>
(State or other jurisdiction of                            (IRS Employer Identification No.)
incorporation or organization)

5120 Shoreham Place, San Diego, California                              92122
(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:                (858) 452-2221

Securities registered pursuant to Section 12(b) of the Act:
</TABLE>

                                     None

Securities registered pursuant to Section 12(g) of the Act:

                   Common Stock, $0.001 par value per share
                               (Title of Class)

          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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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 Form 10-K or any
amendment to this Form 10-K.  [_]

          The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 23, 2001 was $4,502,919.

          As of March 23, 2001, the number of issued and outstanding shares of
the Registrant's Common Stock was 17,830,634.
<PAGE>

Part III

Item 10:   Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

Information concerning the Company's current executive officers and directors is
set forth below.

Name                                    Age  Position
----                                    ---  --------
Georges J. Daou (1).................    40   Chairman of the Board
James T. Roberto (1)................    59   Chief Executive Officer, President
                                             and Director
Neil R. Cassidy.....................    36   Executive Vice President, Chief
                                             Financial Officer and Secretary
Stephen M. Casey....................    41   President of Technology Services
Vincent K. Roach....................    56   President of Application Services
                                             and Director
Eric S. Ringwall....................    36   Chief Technology Officer
Kevin M. Fickenscher (2), (4), (5)..    50   Director
David W. Jahns (3), (4), (5)........    35   Director

___________

(1) Class I director, term expires at 2001 annual meeting of stockholders.
(2) Class II director, term expires at 2003 annual meeting of stockholders.
(3) Class III director, term expires at 2002 annual meeting of stockholders.
(4) Member of the Audit Committee.
(5) Member of the Compensation Committee.

     Mr. Daou, a founder of the Company, has served as Chairman of the Board
since the Company's inception in 1987 and as Chief Executive Officer from the
Company's inception in 1987 until June 1999. Since September 1999, Mr. Daou has
served as Chairman of the Board of eAssist.com, which specializes in Internet
based customer support and demand creation services with headquarters in San
Diego, California. Mr. Daou sits on the boards of various healthcare and
community organizations, including the College of Healthcare Management
Executives and the Healthcare Information Managers Association. He holds a B.S.
in Electrical Engineering and an M.S. in Information and Communication Theory
from the University of California, San Diego.

     Mr. Roberto has served as a Director, President and Chief Executive Officer
since November 2000. From November 1998 to October 2000, he served as a
professional consultant to several healthcare information technology companies,
focusing on
                                       2
<PAGE>

strategic planning, funding, due diligence and turnaround management
initiatives. From 1993 to 1998, Mr. Roberto served as the Chief Executive
Officer of Prompt Associates, a high-technology hospital billing review and
analysis firm, where he successfully executed a turnaround and restructuring of
the company. Prompt was acquired by Concentra Managed Care in late 1996, and Mr.
Roberto continued as Prompt's CEO and served as a member of Concentra's mergers
and acquisition team for the next two years. Mr. Roberto holds a B.S. with
honors in Finance and a Master of Business Administration from The Pennsylvania
State University.

     Mr. Cassidy has served as Executive Vice President, Chief Financial Officer
and Secretary since October 2000. From November 1997 to October 2000, Mr.
Cassidy served as Vice President of Field Administrative Services.  From June
1996 to October 1997, he was Vice President of Finance.  From May 1992 to May
1996, Mr. Cassidy was Director of Finance.  Mr. Cassidy holds a B.A. in Business
Economics from the University of California at Santa Barbara.

     Mr. Casey has served as President of the Company's Technology Services
Division since January 2001. Mr. Casey served as Senior Vice President of
Integration from January 1999 to December 2000, as President, Chief Executive
Officer and a Director of DAOU-Sentient, Inc., a former wholly-owned subsidiary
of the Company, from April 1998 to December 2000, and as President and Chief
Executive Officer of Enosus, Inc., a former wholly-owned subsidiary of the
Company, from February 2000 to December 2000. Prior thereto, from August 1993 to
March 1998, Mr. Casey was President of Sentient Systems, Inc., a technical
services firm for the healthcare industry that the Company acquired in March
1998. Mr. Casey holds a B.S. in Business Administration from the University of
Maryland University College, and is currently enrolled in the M.B.A. program at
the Wharton School of Business at the University of Pennsylvania.

     Mr. Roach has served as President of the Company's Application Services
Division, since January 2001, and as President of DAOU-TMI, Inc., a former
wholly-owned subsidiary of the Company, from June 1998 to December 2000. From
December 1983 to June 1998, Mr. Roach was President of Technology Management,
Inc., a management consulting and applications implementation firm that the
Company acquired in June 1998. He holds a B.A. from Wabash College.

     Mr. Ringwall has served as Chief Technology Officer of the Company since
January 1999. He also has served as Executive Vice President and Chief Operating
Officer of Enosus, Inc., a former wholly-owned subsidiary of the Company from
February 2000 to December 2000. From January 1997 to January 1999, Mr. Ringwall
was Vice President of Technology Services; from January 1996 to January 1997 he
served as Vice President of Strategic Network Services; and from January 1995 to
January 1996 he served as Director of Consulting Services. Mr. Ringwall holds a
Bachelor of Arts from Cornell University and a Masters of Science from the Naval
Postgraduate School.

     Dr. Fickenscher has been a Director of the Company since March 1999. Dr.
Fickenscher is Senior Vice President of WebMD Corporation, a publicly traded
transaction based company that provides connectivity services for the health
care industry. Prior to joining WebMD Corporation in February 2000, he served as
the Senior Vice President and Chief Medical Officer at Catholic Healthcare West,
a
                                       3
<PAGE>

regional, integrated healthcare system since April 1997. From April 1994 to
April 1997, he was Senior Vice President and Chief Medical Officer at Aurora
Health Care, a regional, vertically integrated healthcare system. Dr.
Fickenscher holds a B.A. in Psychology at the University of North Dakota, and an
M.D. from the University of North Dakota School of Medicine. He obtained his
residency in Family Practice through Montefiore Hospital and Medical Center and
the University of North Dakota.

     Mr. Jahns has been a Director of the Company since October 1995. Mr. Jahns
joined Galen Associates, a venture capital investment firm, in January 1993, and
has served as Vice President since January 1994. He also serves as General
Partner of Galen Partners III, L.P. and Galen Partners International III, L.P.
Mr. Jahns currently serves on the board of directors of various private
healthcare services and technology companies. He holds a B.A. in Political
Science and Economics from Colgate University and an M.B.A. from the J.L.
Kellogg Graduate School of Business.

Section 16(a) Beneficial Ownership reporting Compliance

     Section 16(a) under the Securities Exchange Act of 1934, requires the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the SEC.  Officers, directors and
greater than ten percent (10%) stockholders are required by regulations of the
SEC to furnish the Company with copies of all Section 16(a) forms that they
file.

     To the Company's knowledge, based solely on conversations with the
Company's officers and directors and a review of such reports filed with the
SEC, the Company is unaware of any instances of noncompliance or late compliance
with filings during Fiscal 2000 by its directors, officers or 10 percent
stockholders, with the exception of the following: Messrs. Ringwall and Roach,
each of whom filed a late Form 3 upon being named executive officers of the
Company; Messrs. Ringwall, Hinshaw, Casey, Jaffe, Jahns, Moragne, Fickenscher,
Bollinger, Zielazinski, Georges Daou and Daniel Daou, each of whom did not file
a Form 4 in connection with transactions requiring such filing; and Messrs.
Larry Grandia and Donald Myll each of whom did not file a Form 5 upon leaving
the employment of the Company.


Item 11:  Executive Compensation.

Director Compensation

     In November 2000, the Company elected to begin compensating outside
directors $1,000 for each board of directors or committee meeting attended in
person and $500 for participation on conference calls.  Prior to November 2000,
directors of the Company had not historically received cash for services that
they provided as directors or as committee members.  As consideration for
serving on the Board, the Company granted to each of the following outside
directors (at the time of grant) options to purchase shares of Common Stock, in
each case vesting over three years from the date of issuance: Mr. Daou (8,000
options granted in 1999); Dr. Fickenscher (18,000 options, 8,000 of which were
granted in 1999); and Mr. Jahns (29,045

                                       4
<PAGE>

options, 8,000 of which were granted in 1999). There were no options granted to
outside directors in 2000. The Company may elect to change the cash compensation
amounts or grant additional options to directors in the future.

Executive Compensation

     The following table shows for the three (3) years ended December 31, 2000
the cash and other compensation awarded to, earned by or paid to the following
individuals (collectively, the "Named Executive Officers"):

     (i)   each of the individuals who served as Chief Executive Officer during
     Fiscal 2000;

     (ii)  each of the four most highly compensated executive officers (other
     than the Chief Executive Officers) who were serving as executive officers
     at the end of Fiscal 2000; and

     (iii) the two individuals that would have been included in the table but
     for the fact that they were not serving as an executive officer of the
     Company at the end of Fiscal 2000.

                                       5
<PAGE>

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                  Long Term
                                                                                                 Compensation
                                                                                            ---------------------
                                                                                                   Awards
                                                                    Annual Compensation     ---------------------
                                                                --------------------------  Securities Underlying     All Other
Name and Principal Position                             Year       Salary          Bonus        Options/SARs        Compensation
-------------------------------------------------     -------  --------------   ----------  ----------------------  ----------------
<S>                                                   <C>      <C>              <C>                                 <C>
James T. Roberto                                        2000    $    41,538      $       -         1,500,000        $       -
  Chief Executive Officer and President
   and Director (1)

Larry D. Grandia                                        2000        226,610         34,660                 -          236,164 (2)(3)
  Former Chief Executive Officer and                    1999        122,962        100,000           550,000                -
  President and former Director (2)

Vincent K. Roach                                        2000        460,000        472,867                 -                -
    Senior Vice President of Consulting Services        1999        460,000        983,500                 -                -
                                                        1998        249,167        362,546            60,000                -

Stephen M. Casey                                        2000        170,000         46,263            70,000                -
     President of Technology Services                   1999        170,000         81,543                 -                -
                                                        1998        127,500        142,114            60,000                -

Eric S. Ringwall                                        2000        178,365         25,631            70,000                -
    Chief Technology Officer                            1999        131,019         12,023            25,000                -

Neil R. Cassidy                                         2000        134,053         12,350           150,000                -
    Executive Vice President, Chief Financial
    Officer and Secretary (4)

D. Parker Hinshaw                                       2000        304,800 (5)     11,016            70,000                -
  Former Senior Vice President (5)                      1999        177,872         35,717                 -                -
                                                        1998        162,504        202,000            42,354                -

Darryl J. Bollinger                                     2000        291,158 (6)          -                 -                -
    Former Senior Vice President of Application         1999        175,000         78,015                 -                -
    Implementation Services (6)                         1998        119,175              -            40,000                -
</TABLE>

______________



(1)  Mr. Roberto was appointed Chief Executive Officer and President of the
     Company on November 9, 2000.

(2)  Mr. Grandia resigned as Chief Executive Officer and President of the
     Company effective November 11, 2000.  As part of his separation agreement,
     the Company released Mr. Grandia from his obligation to repay principal and
     interest of $205,880 from a loan payable to the Company and transferred
     ownership of an automobile valued at $24,889. Mr. Grandia resigned as a
     Director on April 18, 2001.

(3)  Includes $5,395 of contributions made by the Company under its 401(k) plan.

(4)  Mr. Cassidy was appointed Executive Vice President, Chief Financial Officer
     and Secretary on October 2, 2000.

                                       6
<PAGE>

(5)  Mr. Hinshaw resigned as Senior Vice President effective June 30, 2000.  As
     part of his separation agreement, the Company paid Mr. Parker $175,000.

(6)  Mr. Bollinger resigned as Senior Vice President of Application
     Implementation Services of the Company effective March 15, 2000. As part of
     his separation agreement, the Company paid Mr. Bollinger $255,000.

1996 Stock Option Plan

     The 1996 Stock Option Plan (the "1996 Option Plan") provides for the grant
of ISOs to employees and nonstatutory stock options to employees, directors and
consultants.  A total of 5,000,000 shares of Common Stock have been reserved for
issuance under the 1996 Option Plan, under which options to purchase 3,020,995
shares of Common Stock were outstanding as of April 20, 2001.  On May 25, 2000,
stockholders approved an amendment to the 1996 Option Plan to increase the
number of shares reserved for issuance thereunder to from 4,000,000 to 5,000,000
shares of Common Stock.  The number of shares of Common Stock underlying options
issued under the 1996 Option Plan cannot exceed twenty-five percent (25%) of the
number of the Company's outstanding shares of Common Stock at the end of the
immediately preceding fiscal quarter.

     A committee (the "Option Committee") consisting solely of outside directors
within the meaning of Section 162(m) of the Internal Revenue Code is currently
responsible for administering the 1996 Option Plan and determining the exercise
price of options granted thereunder to executive officers of the Company.  The
Option Committee has delegated to David W. Jahns, a member of the Board of
Directors, and to James T. Roberto, the Company's President, Chief Executive
Officer and Director, the administration of the 1996 Option Plan with respect to
employees (except for executive officers) and consultants (except for
directors).

     Options granted under the 1996 Option Plan typically vest over three or
five year periods.  The exercise price of ISOs must be at least equal to the
fair market value of the Common Stock on the date of grant.  In addition, the
exercise price of any stock option granted to an optionee who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company must equal at least 110% of the fair market value of the Common Stock on
the date of grant.  The exercise price may be paid in such consideration as
determined by the Board.  No individual may receive options to purchase more
than a total of 150,000 shares of Common Stock under the 1996 Option Plan during
any year.  With respect to any participant who owns stock representing more than
10% of the voting power of all classes of stock of the Company, the term of the
option is limited to five years or less. The term for all other options may not
exceed ten years.

     The Board may amend or modify the 1996 Option Plan at any time without the
consent of the optionees, so long as such action does not adversely affect their
outstanding options.  The 1996 Option Plan will terminate in 2006, unless
terminated earlier by the Board.  Each outstanding option provides that, in the
event of a "change in control," including the dissolution or liquidation of the
Company or a merger of the Company with or into another corporation, each
optionee will be entitled to exercise up to 70% of the shares of Common Stock
underlying his unvested options immediately prior to the consummation of such
"change in control" event.

                                       7
<PAGE>

Mr. James T. Roberto was granted 1,000,000 options under the 1996 Stock Option
Plan on December 1, 2000, pursuant to an employment agreement. The options vest
over a three year period and provide that, in the event of a "change in
control", including the dissolution or liquidation of the Company or a merger of
the Company with or into another corporation, Mr. Roberto will be entitled to
exercise up to 100% of the shares of Common Stock underlying his unvested
options immediately prior to the consummation of such "change in control" event.


                       Option Grants in Last Fiscal Year

     The following table sets forth information concerning stock options awarded
to each of the Named Executive Officers during Fiscal 2000.  Except for options
to purchase 500,000 shares of Common Stock granted to James T. Roberto on
December 1, 2000, all such options were awarded under the 1996 Option Plan.

<TABLE>
<CAPTION>
                                                        Individual Grants
                         -----------------------------------------------------------
                            Number       Percent of                                     Potential Realizable Value at
                              of            Total                                       Assumed Annual Rates of Stock
                          Securities       Options                                                  Price
                            Under-        Granted to                                     Appreciation for Option Term(3)
                                                                                       ----------------------------------
                             lying        Employees       Exercise
                            Options          in            Price
                            Granted      Fiscal 2000      ($/SH)       Expiration
Name                          (#)            (1)            (2)           Date              5%($)              10%($)
---------------------    ------------  ---------------  -----------   --------------   ----------------   ---------------
<S>                      <C>           <C>              <C>           <C>              <C>                <C>
James T. Roberto           1,500,000         72%           $ 0.50        12/1/10           $ 471,671        $ 1,195,307

Stephen M. Casey              70,000          3%           $ 4.75        3/13/10           $ 209,107        $   529,919

Eric S. Ringwall              70,000          3%           $ 4.75        3/13/10           $ 209,107        $   529,919

Neil R. Cassidy              150,000          7%           $ 0.50        12/1/10           $  47,167        $   119,531
</TABLE>

_________________________
*    Less than one percent.

(1)  Percentages include options to purchase 1,051,500 shares of Common Stock.

(2)  The exercise price is to be paid in cash, by surrendering shares of Common
     Stock held by optionee for more than 12 months, or in any combination of
     such consideration or such other consideration and method of payment
     permitted under applicable law. The exercise price equaled the fair market
     value on the date of grant.

(3)  The 5% and 10% assumed annual rates of compounded stock price appreciation
     are mandated by rules of the Securities and Exchange Commission. There can
     be no assurance that the actual stock price appreciation over the ten-year
     option term will be at the assumed 5% or 10% levels or at any other defined
     level.

                                       8
<PAGE>

     The following table sets forth certain information regarding options to
purchase shares of Common Stock held as of December 31, 2000 by each of the
Named Executive Officers.


<TABLE>
<CAPTION>
                                                                   Number of Securities             Value of Unexercised
                                                                  Underlying Unexercised                In-the-Money
                            Shares                                      Options at                       Options at
                          Acquired on           Value               December 31, 2000              December 31, 2000 (1)
Name                     Exercise (#)        Realized ($)      (Exercisable/Unexercisable)      (Exercisable/Unexercisable)
---------------------    -------------      -------------     ----------------------------     ----------------------------
<S>                      <C>                <C>               <C>                              <C>
James T. Roberto              -                   -                    0 / 1,500,000                      $0 / $46,500
Neil R. Cassidy               -                   -                  25,319 / 176,207                     $0 / $4,650
Eric S. Ringwall              -                   -                  54,419 / 79,802                         $0 / $0
Vincent K. Roach              -                   -                  24,000 / 60,000                         $0 / $0
Stephen M. Casey              -                   -                  24,000 / 130,000                        $0 / $0
</TABLE>

______________

(1) Calculated by determining the difference between the closing bid price of
    the Common Stock underlying the option as quoted on the Nasdaq National
    Market System on December 29, 2000 at $0.531 per share and the exercise
    price of the option.

                                       9
<PAGE>

                     REPORT OF THE COMPENSATION COMMITTEE
                           ON EXECUTIVE COMPENSATION

     The Compensation Committee makes recommendations to the Board regarding
compensation of the Company's officers and directors and oversees the
administration of the Company's employee stock option plans and stock purchase
plans, if any.  All decisions of the Compensation Committee relating to
compensation of the Company's executive officers are reviewed and approved by
the entire Board.

Compensation Policy

     The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers.  The Compensation Committee attempts to
achieve these goals by integrating on an individualized basis competitive annual
base salaries with stock options through the Company's stock option plan and
otherwise.  The Compensation Committee believes that cash compensation in the
form of salary and bonus provides the Company's executives with short term
rewards for success in operations, and that long term compensation through the
award of stock options better coordinates the objectives of management with
those of the stockholders with respect to the long term performance and success
of the Company.  The Compensation Committee generally takes into consideration a
variety of subjective and objective factors in determining the compensation
packages for executive officers, including how compensation compares to that
paid by competing companies and the responsibilities and performance by each
executive and the Company as a whole.  In making its determinations, the
Compensation Committee attempts to address the unique challenges which are
present in the industry in which the Company competes against a number of public
and private companies with respect to attracting and retaining executives and
other key employees.

     The Compensation Committee has relied heavily on the equity/option position
of executives and key employees as an important mechanism to retain and motivate
executives and key employees while at the same time aligning their interests
with those of the stockholders generally.  The Compensation Committee believes
that option grants are instrumental in motivating employees to meet the
Company's future goals.

Base Salary

     The base salary of the Company's executive officers is set at an amount
which the Compensation Committee believes is competitive with the salaries paid
to the executive officers of other companies of comparable size in similar
industries. In evaluating salaries, the Compensation Committee utilizes publicly
available information and surveys of the compensation practices of information
technology companies. The Compensation Committee also relies on information
provided by the Company's Human Resources Department and its knowledge of local
pay practices.  Furthermore, the Compensation

                                       10
<PAGE>

Committee considers the executives' performance of their job responsibilities
and the overall financial performance of the Company. The Compensation Committee
recognized the revenues and earnings generated by the Company during its fiscal
year ended December 31, 1999 when establishing the salaries for Fiscal 2000.

Bonuses

     Each of the Company's executive officers is eligible to receive bonus
compensation according to varying performance standards.  During Fiscal 2000,
the Compensation Committee determined the bonus compensation based on the
achievement of certain quarterly revenue and profit targets.  See "--Summary
Compensation Table".

Stock Option Grants

     The Company provides its executive officers with long-term incentives
through stock option grants of stock options.  An initial grant of options is
made at the time an executive is hired and the Compensation Committee considers
periodically additional grants based on the performance of both the individual
executives and the Company as a whole.  The Compensation Committee takes into
account the executive's position and level of responsibility, existing stock and
unvested option holdings and the potential reward if the stock price appreciates
in the public market.   The exercise price of all options is equal to the
closing market price of the Common Stock on the date of grant and the options
generally vest over a five-year period. The 1996 Option Plan currently qualifies
for exclusion under Section 162(m) of the Internal Revenue Code.

Compensation of Chief Executive Officers

     Larry D. Grandia served as the Chief Executive Officer and President until
November 9, 2000, on which date James T. Roberto became the Company's Chief
Executive Officer and President. Messrs. Grandia and Roberto were compensated
pursuant to the same general criteria. In setting compensation levels for the
Chief Executive Officer, the Compensation Committee reviews competitive
information reflecting compensation practices for similar technology companies
and examines the Chief Executive Officer's performance relative to the Company's
overall financial results.  The Compensation Committee also considers the Chief
Executive Officer's achievements against the same pre-established objectives and
determines whether the Chief Executive Officer's base salary, target bonus and
target total compensation approximate the competitive range of compensation for
chief executive officer positions in the information technology industry.

     In Fiscal 2000, Larry D. Grandia received $226,610 in salary.  Mr. Grandia
was paid a $34,660 annual bonus in fiscal 2000.  No options to purchase stock
were granted to Mr. Grandia in fiscal 2000.

     In Fiscal 2000, James T. Roberto received $41,538 in salary. No bonus was
paid to Mr. Roberto in Fiscal 2000. Mr. Roberto also received a grant of options
to purchase 1,000,000 shares of Common Stock pursuant to the 1996 Option Plan.
In addition, Mr. Roberto received a grant to purchase 500,000 shares of Common
Stock outside of the

                                       11
<PAGE>

1996 Option Plan. All of the Options granted outside of the
Plan will be non-qualified/non-statutory options. The exercise price for the
Options will be the closing price per share of the Company's Common Stock on the
date of grant.

Compensation Arrangements Generally

     Overall, the Compensation Committee believes that the compensation
arrangements for the Company's executives serve the long-term interests of the
Company and its stockholders and that, in particular, equity/option positions
are an important factor in attracting and retaining key executives.  The
Compensation Committee intends to continue to review and analyze its policies in
light of the performance and development of the Company and the environment in
which it competes for executives and to retain outside compensation consultants
from time to time to assist the Compensation Committee in such review and
analysis.

                                           Compensation Committee:

                                           David W. Jahns
                                           Kevin M. Fickenscher


April 23, 2001

     The foregoing reports of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933, or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.

                                       12
<PAGE>

                       [PERFORMANCE GRAPH APPEARS HERE]

          COMPARE CUMULATIVE TOTAL RETURN AMONG DAOU SYSTEMS, INC.,
                   NASDAQ MARKET INDEX AND PEER GROUP INDEX

<TABLE>
<CAPTION>


                              2/13/97   3/31/97   6/30/97   9/30/97   12/31/97
                           ---------------------------------------------------
<S>                          <C>       <C>       <C>       <C>       <C>
DAOU Systems, Inc.           $ 100.00  $  75.00  $ 177.78  $ 347.22  $  347.22

NASDAQ Computer and Data
 Processing Index            $ 100.00     86.50    110.88    121.29     114.51


NASDAQ Market Index U.S.
 Companies                   $ 100.00     89.13    105.47    123.30     115.43


<CAPTION>


                            3/31/98   6/30/98    9/30/98   12/31/98   3/31/99
                           -----------------------------------------------------
<S>                         <C>       <C>        <C>       <C>        <C>
DAOU Systems, Inc.          $ 217.33  $ 254.22   $  63.89  $  68.44   $  65.28

NASDAQ Computer and Data
 Processing Index             151.29    167.58      157.23    204.28    246.39

NASDAQ Market Index U.S.
 Companies                    135.10    138.81      125.25    162.76    182.53

<CAPTION>


                            6/30/99   9/30/99   12/31/99   3/31/00   6/30/00
                          ---------------------------------------------------
<S>                        <C>       <C>       <C>        <C>       <C>
DAOU Systems, Inc.         $  63.89  $  59.72  $   34.03  $  38.89  $  18.76

NASDAQ Computer and Data
 Processing Index            256.31    266.90     449.01    443.55    362.06

NASDAQ Market Index U.S.
 Companies                   199.68    204.65     302.46    339.50    295.18

<CAPTION>
                             9/29/00  12/29/00
                           --------------------
<S>                        <C>       <C>
DAOU Systems, Inc.         $  11.11  $    5.90

NASDAQ Computer and Data
  Processing Index           334.87     206.63


NASDAQ Market Index U.S.
 Companies                   271.60     181.84

</TABLE>


    The above graph assumes that $100.00 was invested in the Common Stock and in
each index on February 13, 1997, the effective date of the Company's initial
Companies public offering. The data used for the Nasdaq returns calculations was
obtained from the Center for Research and Security Prices "CRSP" Total Return
Indexes for the Nasdaq Stock Market. Although the Company has not declared a
dividend on its Common Stock, the total return for each index assumes the
reinvestment of dividends. Stockholder returns over the period presented should
not be considered indicative of future returns. Pursuant to regulations of the
SEC, the graph shall not be deemed to be "soliciting material" or to be "filed"
with the SEC, nor shall it be incorporated by reference into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934.

                                       13
<PAGE>


Item 12:  Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 20, 2001 by:

 . each person who is known by the Company to own beneficially more than five
  percent (5%) of the outstanding shares of Common Stock;

 . each director of the Company;

 . the Company's Chief Executive Officer;

 . the other Named Executive Officers; and

 . all directors and executive officers of the Company as a group.

     Unless otherwise indicated below, to the knowledge of the Company, all
persons listed below have sole voting and investing power with respect to their
shares of Common Stock, except to the extent authority is shared by spouses
under applicable community property laws, and their address is 5120 Shoreham
Place, San Diego, California 92122.


<TABLE>
<CAPTION>
                                                                         Shares Beneficially
                                                                               Owned (1)
                                                                     ------------------------------
Name and Address of Beneficial Owner (1)                               Number              Percent
----------------------------------------------------------------     ----------           ---------
<S>                                                                  <C>                  <C>
Galen Partners III, L.P. (2)....................................      5,908,768             24.9%

Wellington Management  Company LLP (3)..........................      1,601,000              9.0

Georges J. Daou (4) (5).........................................      1,023,711              5.7
    Chairman of the Board

Vincent K. Roach (6)............................................        676,250              3.8
    President of Application Services Division

James T. Roberto (8)............................................        293,398              1.6
    Chief Executive Officer and Director

Larry D. Grandia (7)............................................        214,677              1.2
    Former Chief Executive Officer and Former Director

Stephen M. Casey (9)............................................        104,550               *
    President of Technology Services Division

Eric S. Ringwall (10)...........................................         97,573               *
    Chief Technology Officer

Neil R. Cassidy (13)............................................         34,209               *
    Executive Vice President, Chief Financial Officer
    and Secretary

David W. Jahns (11).............................................         23,232               *
    Director

Kevin M. Fickenscher (12).......................................          8,267               *
    Director

All directors and executive officers as a group (14)............      2,261,190             12.4
    (8 persons)
</TABLE>

*    Less than 1%.

(1)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission (the "SEC") and generally includes
     voting or investment power with respect to securities. Shares of Common
     Stock subject to options or warrants exercisable within 60 days of April
     20, 2001 are deemed outstanding for computing the

                                       14
<PAGE>

     percentage of the person or entity holding such options but are not deemed
     outstanding for computing the percentage of any other person.

(2)  Includes 2,181,818 Series A convertible preferred shares of which 1,993,234
     shares are held by Galen Partners III, L.P., 180,422 shares are held by
     Galen Partners International III L.P., and 8,162 shares are held by Galen
     Employee Fund III, L.P., issuable upon conversion of Series A preferred
     stock.  Also includes accumulated dividends of 186,950 Series A convertible
     preferred shared issuable upon conversion of Series A preferred stock and
     warrants to purchase 3,540,000 shares of common stock at $.01 per share.
     Mr. Jahns is a General Partner of Galen Partners III, L.P.

(3)  Data based on information contained in a Schedule 13G/A filed with the SEC
     on February 13, 2001 on behalf of Wellington Management Company ("WMC").
     The address of WMC is 75 State Street, Boston Mass. 02109.  WMC may be
     deemed to beneficially own 1,601,000 shares of Common Stock.  WMC has
     neither sole voting power nor sole dispositive power over these shares of
     Common Stock.

(4)  These shares are owned by the Georges J. Daou Trust dated May 2, 1996 of
     which Georges J. Daou is trustee.

(5)  Includes 1,600 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(6)  Includes 24,000 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(7)  Consists of 214,677 shares issuable under stock options exercisable within
     60 days of April 20, 2001.

(8)  Includes 249,998 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(9)  Includes 50,000 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(10) Includes 79,802 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(11) Includes 22,645 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

                                      15
<PAGE>

(12) Includes 8,267 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(13) Includes 30,385 shares issuable under stock options exercisable within 60
     days of April 20, 2001.

(14) Includes 466,697 shares issuable under stock options held by directors and
     executive officers exercisable within 60 days of April 20, 2001.


Employment Agreements

     James T. Roberto. Effective November 9, 2000, the Company entered into an
     ----------------
employment agreement with James T. Roberto for service as the Company's
President and Chief Executive Officer.  Under the agreement, Mr. Roberto will
receive:

     .    an annual base salary of $360,000;

     .    a quarterly bonus at the discretion of the Board and in an amount to
          be determined by the Board, in accordance with the Company's Incentive
          Compensation Plan;

     .    a grant of options to purchase 1,500,000 shares of Common Stock at an
          exercise price equal to the fair market value per share on the date of
          grant; provided that, if a "change in control" of the Company occurs,
          then, in most cases, 100% of the unvested stock options would vest
          immediately;

     Stephen M. Casey.  Effective March 30, 1998, the Company entered into an
     ----------------
employment agreement with Stephen M. Casey, the President of the Company's
Technology Services Division. Under the agreement, Mr. Casey will receive:

                                      16
<PAGE>

     .    an annual base salary of $130,000;

     .    a bonus of $60,000 payable according to the Company's customary
          payroll practices;

     .    up to $20,000 per quarter in bonus compensation; and

     .    a grant of options to purchase 60,000 shares of Common Stock at an
          exercise price equal to the fair market value per share on the date of
          grant.


     Vincent K. Roach.  Effective June 16, 1998, the Company entered into an
     ----------------
employment agreement with Vincent K. Roach, the President of the Company's
Application Services Division. Under the agreement, Mr. Roach will receive:

     .    an annual base salary of $100,000;

     .    a monthly draw equal to $30,000 and a settlement paid annually equal
          to (i) 40% of the aggregate of (a) 15% of all billings submitted by
          the Company to its clients for which Mr. Roach was designated account
          manager, (b) 25% of all billings submitted by the Company to its
          clients for which Mr. Roach was designated engagement manager, and (c)
          60% of all billings submitted by the Company to its clients for
          services performed directly by Mr. Roach; plus (ii) 10% of the
          operating profits (before taxes) of DAOU-TMI, Inc.; less (iii) the
          monthly draws paid to Mr. Roach during the previous fiscal year; and

     .    a grant of options to purchase 60,000 shares of Common Stock at an
          exercise price equal to the fair market value per share on the date of
          grant.


Separation and Release Agreements

     Larry D. Grandia.  Effective November 11, 2000, the Company entered into a
     ----------------
separation and release agreement with Larry D. Grandia, its former Chief
Executive Officer and President. Under the agreement:

     .    Mr. Grandia was released from his obligation to repay principal and
          interest on a $200,000 loan paid to Mr. Grandia on March 27, 2000 in
          connection with his employment agreement;

     .    Mr. Grandia received title to the 1999 Infinity Q45 automobile
          utilized during his employment with the Company. The automobile had a
          book value of $24,889 on the date of his termination; and

     .    after the Separation Date and during any period in which Mr. Grandia
          serves on DAOU's Board of Directors, Mr. Grandia will continue vesting
          any Non-Statutory Options covered by the 1996 Stock Option Plan.

     Donald R. Myll.  Effective October 31, 2000, the Company entered into a
     --------------
separation and release agreement with Donald R. Myll, its former Executive Vice
President, Chief Financial

                                       17
<PAGE>

Officer and Secretary. Under the agreement, Mr. Myll received a payment in the
amount of $50,000.

     D. Parker Hinshaw.  Effective June 30, 2000, the Company entered into a
     -----------------
separation and release agreement with Parker Hinshaw, its former Executive Vice
President. Under the agreement, Mr. Hinshaw received a payment in the amount of
$175,000.

     Darryl J. Bollinger.   Effective March 15, 2000 the Company entered into a
     -------------------
separation and release agreement with Darryl J. Bollinger, its former Senior
Vice President of Application Implementation Services. Under the agreement, Mr.
Bollinger received a payment in the amount of $255,000.


Retention and Severance Agreements

     Stephen M. Casey.  Effective March 1, 2000, the Company entered into a
     ----------------
retention and severance agreement with Stephen M. Casey, the President of the
Technology Services Division. Under the agreement, Mr. Casey is entitled to
receive:

     .    Upon the consummation of a change in control transaction, a retention
          bonus in the amount of $275,000; and

     .    If, within 2 years of the consummation of a change in control, Mr.
          Casey is terminated without cause or resigns with good reason, a
          severance payment in the amount of $550,000.


     Eric S. Ringwall. Effective March 1, 2000, the Company entered into a
     ----------------
retention and severance agreement with Eric S. Ringwall, its Chief Technology
Officer. Under the agreement, Mr. Ringwall is entitled to receive:

     .    Upon the consummation of a change in control transaction, a retention
          bonus in the amount of $275,000;

     .    If, within 2 years of the consummation of a change in control, Mr.
          Ringwall is terminated without cause or resigns with good reason, a
          severance payment in the amount of $550,000; and

     .    Gross-up payments equal to the amount of taxes payable by Mr. Ringwall
          in connection with the above retention bonus and severance payment.

Item 13:  Certain Relationships and Related Transactions

Agreement with eAssist.com

     In 1999 the Company provided implementation services to eAssist.com, a
company in which Georges Daou is the Chairman of the Board. Revenues related to
these contracts totaled approximately $1,567,000 during Fiscal 1999. There are
no ongoing contracts with eAssist.com.

     All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board, including a majoriy of the disinterested members of the
Board or, if required by law, a majority of disinterested stockholders, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
                                      18
<PAGE>

Signatures

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Form 10-K/A to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                         Date: April 23, 2001


                                         DAOU SYSTEMS, INC.


                                         By: /s/ Neil R. Cassidy
                                         -----------------------
                                         Neil R. Cassidy
                                         Executive Vice President, Chief
                                         Financial Officer and Secretary

     In accordance with the Securities Exchange Act of 1934, this form 10-K/A
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
SIGNATURE                          TITLE                                                            DATE
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                              <C>
           *                       Chairman of the Board                                            April 23, 2001
--------------------------
Georges J. Daou


           *                       President and Chief Executive Officer and Director               April 23, 2001
--------------------------
James T. Roberto                   (Principal Executive Officer)



 /s/ Neil R. Cassidy               Executive Vice President, Chief Financial Officer                April 23, 2001
--------------------------
Neil R. Cassidy                    and Secretary (Principal Financial and Accounting Officer)


           *                       Director                                                         April 23, 2001
--------------------------
David W. Jahns


           *                       Director                                                         April 23, 2001
--------------------------
Kevin M. Fickenscher, M.D.
</TABLE>


*    By: /s/ Neil R. Cassidy                      April 23, 2001
        ---------------------------------------
         Neil R. Cassidy, Attorney-in-Fact

                                       19