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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended September 30, 2003



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 No.: 000-22073



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Daou Systems, Inc.

(Exact name of registrant as specified in its charter)



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|Delaware                                                       |  | 33-0284454                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



412 Creamery Way,
Suite 300

Exton, Pennsylvania 19341

(Address of principal executive offices) (Zip Code)



(610) 594-2700

(Registrants telephone number, including area code)



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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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



The number of shares of Registrants Common Stock, par value $.001 per
share, outstanding as of November 3, 2003: 21,542,708.



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##### Table of Contents

Daou Systems, Inc.



Index to Form 10-Q



|         |  |                                                                                                                       |  | Page
|-------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I.  |  | FINANCIAL INFORMATION                                                                                                 |  |     
|         |  |                                                                                                                      
|Item 1.  |  | Condensed Financial Statements                                                                                        |  | 2   
|         |  |                                                                                                                      
|         |  | Condensed Balance Sheets at September 30, 2003 (unaudited) and December 31, 2002                                      |  | 2   
|         |  |                                                                                                                      
|         |  | Condensed Statements of Operations (unaudited) for the Three Months and Nine Months Ended September 30, 2003 and 2002 |  | 3   
|         |  |                                                                                                                      
|         |  | Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2003 and 2002                  |  | 4   
|         |  |                                                                                                                      
|         |  | Notes to Condensed Financial Statements (unaudited)                                                                   |  | 5   
|         |  |                                                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 10  
|         |  |                                                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosure about Market Risk                                                             |  | 17  
|         |  |                                                                                                                      
|Item 4.  |  | Controls and Procedures                                                                                               |  | 17  
|         |  |                                                                                                                      
|PART II. |  | OTHER INFORMATION                                                                                                     |  |     
|         |  |                                                                                                                      
|Item 1.  |  | Legal Proceedings                                                                                                     |  | 18  
|         |  |                                                                                                                      
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                             |  | 18  
|         |  |                                                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                                                       |  | 18  
|         |  |                                                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                   |  | 18  
|         |  |                                                                                                                      
|Item 5.  |  | Other Information                                                                                                     |  | 18  
|         |  |                                                                                                                      
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                      |  | 19  
|         |  |                                                                                                                      
|         |  | SIGNATURES                                                                                                            |  | 20  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Condensed Financial Statements



Daou Systems, Inc.

Condensed Balance Sheets

(In thousands, except per share data)



|                                                                                                                                                                                                                                                                       |  | September 30,2003 (unaudited) |         |   | December 31,2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---------------- | -
|Assets                                                                                                                                                                                                                                                                 |  |                               |         |   |                  |  
|Current assets:                                                                                                                                                                                                                                                        |  |                               |         |   |                  |  
|Cash and cash equivalents                                                                                                                                                                                                                                              |  | $                             | 11,409  |   |                  | $
|Investments, available-for-sale                                                                                                                                                                                                                                        |  |                               | 98      |   |                  |  
|Accounts receivable, net of allowance for doubtful accounts of $972 and $732 at September 30, 2003 and December 31, 2002,
respectively                                                                                                                                 |  |                               | 8,781   |   |                  |  
|Contract work in progress                                                                                                                                                                                                                                              |  |                               | 2,987   |   |                  |  
|Other current assets                                                                                                                                                                                                                                                   |  |                               | 815     |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  
|Total current assets                                                                                                                                                                                                                                                   |  |                               | 24,090  |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                              
|Equipment, furniture and fixtures, net                                                                                                                                                                                                                                 |  |                               | 705     |   |                  |  
|Other assets                                                                                                                                                                                                                                                           |  |                               | 587     |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  
|Total Assets                                                                                                                                                                                                                                                           |  | $                             | 25,382  |   |                  | $
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  
|Liabilities and Stockholders Equity                                                                                                                                                                                                                                   |  |                               |         |   |                  |  
|Current liabilities:                                                                                                                                                                                                                                                   |  |                               |         |   |                  |  
|Accounts payable and other accrued liabilities                                                                                                                                                                                                                         |  | $                             | 2,069   |   |                  | $
|Accrued salaries and benefits                                                                                                                                                                                                                                          |  |                               | 3,587   |   |                  |  
|Deferred revenue                                                                                                                                                                                                                                                       |  |                               | 3,075   |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  
|Total current liabilities                                                                                                                                                                                                                                              |  |                               | 8,731   |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                              
|Long-term liabilities                                                                                                                                                                                                                                                  |  |                               | 34      |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                              
|Commitments and contingencies                                                                                                                                                                                                                                          |  |                               |        |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                              
|Stockholders equity:                                                                                                                                                                                                                                                  |  |                               |         |   |                  |  
|Convertible preferred stock, $.001 par value. 3,520 shares authorized; 2,182 shares issued and outstanding at September 30, 2003
and December 31, 2002, with a liquidation preference of $15,875 and $14,966 at September 30, 2003 and December 31, 2002, respectively |  |                               | 2       |   |                  |  
|Common stock, $.001 par value. 50,000 shares authorized; 22,828 and 22,729 shares issued at September 30, 2003 and December 31,
2002, respectively and 21,536 and 21,737 shares outstanding at September 30, 2003 and December 31, 2002, respectively                  |  |                               | 22      |   |                  |  
|Additional paid-in capital                                                                                                                                                                                                                                             |  |                               | 55,941  |   |                  |  
|Treasury stock, at cost, 1,292 and 992 shares at September 30, 2003 and December 31, 2002, respectively                                                                                                                                                                |  |                               | (394    | ) |                  |  
|Notes receivable from stockholders                                                                                                                                                                                                                                     |  |                               | (1,160  | ) |                  |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                                   |  |                               | (33     | ) |                  |  
|Accumulated deficit                                                                                                                                                                                                                                                    |  |                               | (37,761 | ) |                  |  
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  
|Total stockholders equity                                                                                                                                                                                                                                             |  |                               | 16,617  |   |                  |  
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  
|Total Liabilities and Stockholders Equity                                                                                                                                                                                                                             |  | $                             | 25,382  |   |                  | $
|                                                                                                                                                                                                                                                                       |  |                               |         |   |                  |  



See accompanying
notes to the condensed financial statements.



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##### Table of Contents

Daou Systems, Inc.

Condensed Statements of Operations

(In thousands, except per share data)

(unaudited)



|                                                           |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|---------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                           |  | 2003                            |        |   | 2002                           |  
|Revenue before reimbursements (net revenue)                |  | $                               | 10,127 |   |                                | $
|Out-of-pocket reimbursements                               |  |                                 | 761    |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Total revenue                                              |  |                                 | 10,888 |   |                                |  
|                                                           |  |                                 |        |  
|Cost of revenue before reimbursable expenses               |  |                                 | 7,014  |   |                                |  
|Out-of-pocket reimbursable expenses                        |  |                                 | 761    |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Total cost of revenue                                      |  |                                 | 7,775  |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Gross profit                                               |  |                                 | 3,113  |   |                                |  
|                                                           |  |                                 |        |  
|Operating expenses:                                        |  |                                 |        |   |                                |  
|Sales and marketing                                        |  |                                 | 1,112  |   |                                |  
|General and administrative                                 |  |                                 | 1,659  |   |                                |  
|Restructuring charges (credits)                            |  |                                 | (252   | ) |                                |  
|                                                           |  |                                 |        |   |                                |  
|                                                           |  |                                 | 2,519  |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Income (loss) from operations                              |  |                                 | 594    |   |                                |  
|Other income, net                                          |  |                                 | 54     |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Income (loss) before income taxes                          |  |                                 | 648    |   |                                |  
|Provision for income taxes                                 |  |                                 | 8      |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Net income (loss)                                          |  |                                 | 640    |   |                                |  
|Accrued dividends on preferred stock                       |  |                                 | (309   | ) |                                |  
|                                                           |  |                                 |        |   |                                |  
|Net income (loss) available to common stockholders         |  | $                               | 331    |   |                                | $
|                                                           |  |                                 |        |   |                                |  
|Earnings (loss) per common share:                          |  |                                 |        |   |                                |  
|Basic                                                      |  | $                               | 0.02   |   |                                | $
|                                                           |  |                                 |        |   |                                |  
|Diluted                                                    |  | $                               | 0.01   |   |                                | $
|                                                           |  |                                 |        |   |                                |  
|Shares used in computing earnings (loss) per common share: |  |                                 |        |   |                                |  
|Basic                                                      |  |                                 | 20,842 |   |                                |  
|                                                           |  |                                 |        |   |                                |  
|Diluted                                                    |  |                                 | 26,682 |   |                                |  
|                                                           |  |                                 |        |   |                                |  



See accompanying
notes to the condensed financial statements.



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##### Table of Contents

Daou Systems, Inc.

Condensed Statements of Cash Flows

(In thousands)

(unaudited)



|                                                                                     |  | Nine Months EndedSeptember 30, |       
|------------------------------------------------------------------------------------ |  | ------------------------------ | ------
|                                                                                     |  | 2003                           |       
|Operating activities                                                                 |  |                                |       
|Net income (loss)                                                                    |  | $                              | 2,172 
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                                |       
|Depreciation and amortization                                                        |  |                                | 511   
|Provision for uncollectible accounts                                                 |  |                                | 143   
|Non-cash compensation charge                                                         |  |                                | 10    
|Gain on retirement of fixed assets                                                   |  |                                |      
|Changes in operating assets and liabilities:                                         |  |                                |       
|Restricted cash                                                                      |  |                                |      
|Accounts receivable                                                                  |  |                                | (1,002
|Contract work in process                                                             |  |                                | (840  
|Other current assets                                                                 |  |                                | (261  
|Accounts payable and accrued liabilities                                             |  |                                | (3,369
|Accrued salaries and benefits                                                        |  |                                | (741  
|Deferred revenue                                                                     |  |                                | 2,710 
|Other                                                                                |  |                                | (6    
|                                                                                     |  |                                |       
|Net cash used in operating activities                                                |  |                                | (673  
|                                                                                     |  |                               
|Investing activities                                                                 |  |                                |       
|Purchases of equipment, furniture and fixtures, net                                  |  |                                | (210  
|Changes in other assets                                                              |  |                                | 30    
|                                                                                     |  |                                |       
|Net cash used in investing activities                                                |  |                                | (180  
|                                                                                     |  |                               
|Financing activities                                                                 |  |                                |       
|Proceeds from issuance of common stock                                               |  |                                | 17    
|Repurchase of restricted stock, net of notes receivable                              |  |                                | (74   
|                                                                                     |  |                                |       
|Net cash (used in) provided by financing activities                                  |  |                                | (57   
|                                                                                     |  |                               
|Decrease in cash and cash equivalents                                                |  |                                | (910  
|Cash and cash equivalents at beginning of period                                     |  |                                | 12,319
|                                                                                     |  |                                |       
|Cash and cash equivalents at end of period                                           |  | $                              | 11,409
|                                                                                     |  |                                |       



See accompanying
notes to the condensed financial statements.



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##### Table of Contents

Daou Systems, Inc.

Notes to Condensed Financial Statements - continued

(unaudited)



1. Basis of Presentation



The unaudited condensed financial statements of Daou Systems, Inc. (Daou or the Company) at September 30, 2003 and for the three- and nine-month
periods ended September 30, 2003 and 2002 have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information. Accordingly, they do not include all information and
footnotes required by GAAP for a complete set of financial statements. These financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to fairly present the financial
position of the Company at September 30, 2003 and the results of operations for the three-and nine-month periods ended September 30, 2003 and 2002. The results of operations for the three and nine months ended September 30, 2003 are not necessarily
indicative of the results to be expected for the year ending December 31, 2003. The Company has experienced significant quarterly fluctuations in operating results and it expects that these fluctuations in revenues, expenses and net income or losses
will continue. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.



The financial statements and related disclosures have been prepared with the presumption that
users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and
the related notes thereto contained in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 31, 2003.



Certain prior period amounts have been reclassified to conform to the current periods presentation.



2. Recent Pronouncements



In September 2002, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance related to accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or
restructuring activities previously covered by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that costs related to exiting an activity or to a restructuring not be recognized until the liability is incurred. SFAS No. 146 will be applied prospectively to exit or disposal
activities that are initiated after December 31, 2002. The adoption of this method is not expected to have a material impact on the Companys results of operations or financial condition.



3. Use of Estimates



The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions about the future that affect the amounts reported in the financial statements and disclosures made in these accompanying notes to the financial statements. The actual results could differ from those estimates.



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4. Earnings Per Share



The following table details the computation of basic and diluted earnings per share:



(In thousands, except per share information)



|                                                                                                          |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                                                                          |  | 2003                            |        |   | 2002                           |  
|Numerator:                                                                                                |  |                                 |        |   |                                |  
|Net income (loss)                                                                                         |  | $                               | 640    |   |                                | $
|Preferred stock dividends                                                                                 |  |                                 | 309    |   |                                |  
|                                                                                                          |  |                                 |        |   |                                |  
|Numerator for basic and diluted earnings(loss) per share - income (loss) available to common stockholders |  |                                 | 331    |   |                                |  
|                                                                                                          |  |                                 |        |  
|Denominator:                                                                                              |  |                                 |        |   |                                |  
|Weighted-average common shares outstanding                                                                |  |                                 | 21,542 |   |                                |  
|Weighted-average unvested common shares subject to repurchase agreements                                  |  |                                 | (700   | ) |                                |  
|                                                                                                          |  |                                 |        |   |                                |  
|Denominator for basic earnings (loss) per share                                                           |  |                                 | 20,842 |   |                                |  
|                                                                                                          |  |                                 |        |  
|Effect of dilutive securities:                                                                            |  |                                 |        |   |                                |  
|Unvested common shares subject to repurchase agreements                                                   |  |                                 | 700    |   |                                |  
|Employee stock options                                                                                    |  |                                 | 1,649  |   |                                |  
|Warrants                                                                                                  |  |                                 | 3,491  |   |                                |  
|                                                                                                          |  |                                 |        |   |                                |  
|Dilutive potential common shares                                                                          |  |                                 | 5,840  |   |                                |  
|                                                                                                          |  |                                 |        |   |                                |  
|Denominator for diluted earnings (loss) per share                                                         |  |                                 | 26,682 |   |                                |  
|                                                                                                          |  |                                 |        |   |                                |  
|Basic earnings (loss) per share                                                                           |  | $                               | 0.02   |   |                                | $
|                                                                                                          |  |                                 |        |   |                                |  
|Diluted earnings (loss) per share                                                                         |  | $                               | 0.01   |   |                                | $
|                                                                                                          |  |                                 |        |   |                                |  



Options to purchase an additional
1,496,247 and 1,499,747 shares of common stock were outstanding during the three- and nine- month periods ended September 30, 2003, respectively, but were not included in the computation of diluted earnings per share for their respective periods
because the options exercise prices were greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. In addition, the Series A Convertible Preferred Stock and accrued dividends were excluded
from diluted earnings per share for the three- and nine-month periods ended September 30, 2003 as the assumed conversion would be anti-dilutive.



For the three- and nine-month periods ended September 30, 2002, diluted loss per share is unchanged from basic loss per share because the effects of the unvested common
shares subject to repurchase agreements and the assumed conversions of Series A Convertible Preferred Stock, stock options and warrants would be anti-dilutive.



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5. Stock-Based Compensation



SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, contains
a fair value-based method for valuing stock-based compensation that entities may use, and measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. Entities
that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied.



At September 30, 2003, the Company has stock-based employee compensation plans. The Company
accounts for the plans under the recognition and measurement principles of APB Opinion 25, and related interpretations. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share amounts):



|                                                                                                                 |  | Three Months EndedSeptember 30, |      |   | Nine Months Ended September 30, |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------- | -
|                                                                                                                 |  | 2003                            |      |   | 2002                            |  
|Net income (loss) before stock-based employee compensation                                                       |  | $                               | 331  |   |                                 | $
|Add total stock-based employee compensation determined under APB No. 25                                          |  |                                 |     |   |                                 |  
|                                                                                                                 |  |                                 |      |   |                                 |  
|                                                                                                                 |  |                                 | 331  |   |                                 |  
|                                                                                                                 |  |                                 |      |  
|Deduct total stock-based employee compensation determined under the fair value method for all awards, net of tax |  |                                 | (419 | ) |                                 |  
|                                                                                                                 |  |                                 |      |   |                                 |  
|Pro forma net income (loss)                                                                                      |  |                                 | (88  | ) |                                 |  
|                                                                                                                 |  |                                 |      |  
|Earnings (loss) per share:                                                                                       |  |                                 |      |   |                                 |  
|Basic  as reported                                                                                              |  | $                               | 0.02 |   |                                 | $
|                                                                                                                 |  |                                 |      |   |                                 |  
|Diluted  as reported                                                                                            |  | $                               | 0.01 |   |                                 | $
|                                                                                                                 |  |                                 |      |   |                                 |  
|Basic  pro forma                                                                                                |  | $                               |     |   |                                 | $
|                                                                                                                 |  |                                 |      |   |                                 |  
|Diluted  pro forma                                                                                              |  | $                               |     |   |                                 | $
|                                                                                                                 |  |                                 |      |   |                                 |  



The fair value of each option grant is
estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 2003: expected volatility of 138%; risk-free interest rate of 6%; no dividend payout and expected lives
of 5 years.



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6. Restructuring Plan



The Company recorded restructuring charges for each of the years ended December 31, 2002, 2001 and 2000, related to the reorganization of
the Companys management structure, consolidation of operations, closure and combination of certain facilities and elimination of certain non-strategic services. Restructuring charges were $1.6 million, $1.3 million, and $2.1 million,
respectively, for the years ended December 31, 2002, 2001 and 2000. These charges included severance costs related to a reduction in workforce of approximately 16, 28 and 50 employees, respectively. Such charges were determined in accordance with
SAB No. 100, Restructuring and Impairment Charges, and EITF No. 94-3, Liability Recognition For Certain Employee Termination Benefits And Other Costs To Exit An Activity (Including Certain Costs Incurred In A Restructuring).



The future lease obligations relating to the closure of certain facilities are payable
through June 2005. Severance costs for involuntary employee terminations are payable during the remainder of 2003.



The following table summarizes the restructuring and other related charges paid in 2003 and remaining charges included in accrued liabilities as of September 30, 2003.



|                                                       |  | Restructuring Charges          
|------------------------------------------------------ |  | -------------------------------
|                                                       |  | Accrued as of December 31, 2002
|Severance costs for involuntary employee terminations  |  | $                              
|Costs related to closure and combination of facilities |  |                                
|                                                       |  |                                
|                                                       |  | $                              
|                                                       |  |                                

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|(a) | In the third quarter of 2003, the Company was able to reduce its obligations relating to unused office space.
|--- | -------------------------------------------------------------------------------------------------------------



7. Income Taxes



At December 31, 2002, the Company had federal and state net operating loss carryforwards
(NOLs) of approximately $27.3 million and $8.4 million, respectively. The federal loss carryforwards will begin to expire in 2018, unless previously utilized, and the state loss carryforwards began to expire in 2002. The Companys
provision for income taxes for the nine months ended September 30, 2003 represents the estimated federal alternative minimum tax for the period.



8. Repurchase of Restricted Stock



On July 9, 2003, the Company repurchased 300,000 shares of its common stock in private transactions with its President and Chief Executive Officer and its former Chief
Financial Officer. The aggregate cost to the Company was $196,000. In connection with the repurchases, the Company received an aggregate amount of $139,000 for repayment of promissory notes, including principal and interest, relating to the original
purchase in 2001 of the shares from the Company. The related stock pledge and registration rights agreements between each person and the Company were terminated.



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##### Table of Contents

9. Expiration of Long-Term Customer Contracts



The Company provides support, management and help-desk services to two customers under
long-term contracts. One contract commenced on January 27, 1998 and is scheduled to expire on February 26, 2004 and the other commenced on March 18, 1999 and will be terminated by mutual agreement on December 31, 2003. Revenues from these two
customers were 11% of the Companys total net revenue for each of the three- and nine-month periods ending September 30, 2003. The Company is assisting these customers in their evaluation of the potential for transitioning up to 46 of the
Companys employees to the customers full-time employees or their third party vendors, licensing certain intellectual property, and acquiring certain assets related to the delivery of these services to the customer. The financial impact
to the Company will be dependent on the outcome of the customers final decisions related to this matter.



10. Contingencies



As previously disclosed, the Company is a party to certain litigation and arbitration matters. There have been no material developments in these matters during the
quarter.



The Company believes that the allegations set forth in such matters
are without merit, and the Company intends to defend against these lawsuits vigorously. No assurance as to the outcome of these matters can be given, however, and an unfavorable resolution of these matters could have a material adverse effect on the
Companys business, results of operations, and financial condition.



The
Company is party to other various claims and legal actions arising in the normal course of business. Although the ultimate outcome of the matters is not presently determinable, management believes that the resolution of all such pending matters, net
of amounts accrued, will not have a material adverse effect on the Companys business, results of operations or financial condition; however, there can be no assurance that the ultimate resolution of these matters will not have a material
impact on the Companys business, results of operations or financial condition.



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



This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Prospective investors are cautioned that such statements are only predictions and actual events or results may differ materially. Forward-looking statements usually contain the words estimate,
anticipate, believe, expect or similar expressions. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and are subject to
numerous known and unknown risks and uncertainties. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties such as those set forth herein and in Daous other SEC filings,
including those more fully set forth in the Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and other sections of Daous Form 10-K for the year ended December 31,
2002 on file with the SEC. These risks and uncertainties could cause our actual results to differ materially from those projected in the forward-looking statements. Daou disclaims any obligation to update or publicly announce revisions to any such
statements to reflect future events or developments.



Overview



We provide expert consulting and management services to healthcare
organizations in the design, deployment, and support of IT infrastructure and application systems. We offer a range of comprehensive services, from strategic consulting, to IT application design and implementation, to government and integration
services, to best practices expertise in help desk, break/fix, and desk top support. We have provided services to more than 1,600 healthcare organizations, including government healthcare and leading private and public hospitals, managed care
organizations on both the payer and provider sides of the market, as well as integrated healthcare delivery networks (IDNs). At September 30, 2003, we had 216 employees.



We are principally focused on providing IT services and solutions to healthcare providers, payers and health plans and government healthcare
organizations. We design and implement solutions to help healthcare organizations navigate the intersection of legacy systems with emerging technologies such as web portals, wireless and other portable computing solutions.



We remarket certain third-party applications and solutions, such as emPOWERnet  portals, through our Strategic Partner Program. We
sell no proprietary hardware, although our network solutions may include the resale of certain third-party products.



We generate substantially all of our revenue from professional services, primarily on a time and expense project basis, under which revenue is recognized as
the services are performed. Billings for these services occur on a semi-monthly or monthly basis as specified by the contract with a particular customer. Our billing rates are commensurate with the healthcare-domain IT expertise, know-how and skills
of our consultants. Our time and expense projects generally range from three to six months, although certain projects have been for periods in excess of one year. Our network system and payer application system implementation engagements typically
average six months but may vary depending on the size and complexity of the project. We also provide support, management and help desk services, under multi-year engagements, in which revenue is recognized ratably over the period that these services
are provided. Our help desk services are generally provided in multi-year engagements on a price per call or price per node basis. To a much lesser extent, we also earn revenue if a client hires one of our consultants onto its permanent payroll.
This type of contractually non-refundable revenue is generally recognized at the time our client completes the hiring process.



Revenue on fixed-fee contracts is recognized related to the level of service performed based upon the amount of labor cost incurred on the project versus the total labor
costs to complete the project. Our gross margin with respect to fixed fee contracts varies significantly depending on the percentage of such services consisting of third-party products (with respect to which we obtain a lower margin) versus
professional services.



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We bill our customers for out-of-pocket expenses, primarily travel and related expenses incurred with respect to services
provided to customers, and have adopted the provisions of the Emerging Issues Task Force (EITF) Topic D-103, Income Statement Characterization of Reimbursements for Out-of-Pocket Expenses Incurred. Out-of-pocket expenses
billed and reimbursed by clients are included in total revenue, and then deducted to determine net revenue. For purposes of analysis, all percentages in this discussion are stated as a percentage of net revenue (rather than total revenue), since we
believe that this is the more relevant measure of our business over time.



Payments received in advance of services performed are recorded as deferred revenue. Certain contract payment terms may result in customer billing occurring at a pace slower than revenue recognition. The resulting revenue recognized in
excess of amounts billed and project costs is included in contract work in progress on our balance sheet. Revenue recognized in excess of amounts billed may have the effect of temporarily reducing the Companys Days Sales Outstanding until such
time as the revenue is ultimately billed and included in accounts receivable.



Cost of revenue primarily consists of all expenses that are directly attributable to our service lines and include the salaries, bonuses and related benefits of our consultants as well as non-billable managers and support staff,
subcontractor expenses, third-party product costs, training costs and unit-specific office space costs. Our consultant-related costs are relatively fixed, therefore, fluctuations in our gross margin may occur due to changes in project margins and
utilization rates of our professional staff.



Sales and marketing expenses
primarily consist of the salaries, benefits, travel and other costs of our sales and marketing teams, as well as marketing initiatives and business development expenses. General and administrative expenses primarily consist of the costs attributable
to the support of our consultants, such as: investments in information systems, salaries, expenses and office space costs for executive management, financial accounting, purchasing, administrative and human resources personnel, recruiting fees,
legal and other professional services.



Results of Operations



The following table sets forth, for the period indicated, certain
statement of operations data as a percentage of net revenue.



|                                             |  | Three MonthsEndedSeptember 30, |   |  | Nine MonthsEndedSeptember 30, |   
|-------------------------------------------- |  | ------------------------------ | - |  | ----------------------------- | --
|                                             |  | 2003                           |   |  | 2002                          |   
|Revenue before reimbursements (net revenue)  |  | 100                            | % |  | 100                           | % 
|Cost of revenue before reimbursable expenses |  | 69                             |   |  | 71                            |   
|                                             |  |                                |   |  |                               |   
|Gross profit                                 |  | 31                             |   |  | 29                            |   
|Operating expenses:                          |  | 25                             |   |  | 36                            |   
|                                             |  |                                |   |  |                               |   
|Income (loss) from operations                |  | 6                              |   |  | (7                            | ) 
|Other income, net                            |  |                               |   |  | 1                             |   
|                                             |  |                                |   |  |                               |   
|Net income (loss)                            |  | 6                              | % |  | (6                            | )%
|                                             |  |                                |   |  |                               |   



Three Months Ended September 30,
2003 and 2002



Daous net revenue increased 7% or $600 thousand to
$10.1 million for the three months ended September 30, 2003 from $9.5 million for the three months ended September 30, 2002. The increase was primarily due to higher professional services revenue from government and integration services and
infrastructure services, as a result of increased customer demand, and the commencement of a large network infrastructure upgrade project that began in the third quarter of 2003 and will continue into the first quarter of 2004, which included the
installation of third party hardware.



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The Company provides support, management and help-desk services to two customers under long-term contracts. One contract
commenced on January 27, 1998 and is scheduled to expire on February 26, 2004 and the other commenced on March 18, 1999 and will be terminated by mutual agreement on December 31, 2003. Revenues from these two customers were 9% and 2%, respectively,
of the Companys total net revenue for the three month period ending September 30, 2003.



Services to our five largest customers accounted for $4.7 million of net revenue for the three months ended September 30, 2003, representing 47% of total net revenue, with one customer accounting for 13% of total net
revenue. Services to our second largest customer, which is the same customer referenced above, accounted for 9% of total net revenue. This compares to net revenue from the five largest customers for the three months ended September 30, 2002 totaling
$3.4 million, or 35% of total net revenue.



Cost of revenue before reimbursable
expenses increased to $7.0 million for the three months ended September 30, 2003 compared to $6.7 million for the three months ended September 30, 2002, while revenue increased $600 thousand for the same period. This was attributable primarily to
increased operating efficiencies and productivity of our workforce, offset by higher costs associated with the implementation of third party hardware.



Gross margin was 31% in the third quarter of 2003, compared to 29% in the third quarter of 2002. We experienced higher margins on professional services related to
government and integration services and infrastructure services. Higher margins were attributable to higher utilization of professional staff as a result of increased demand for these services and effective management of our workforce. The increase
in gross margin from professional services was offset by lower margins on application implementation services, management consulting and the hardware portion of a network upgrade project.



Third quarter 2003 operating results reflect a committed level of marketing and business development expenses in support of executing our
branding and growth strategies for Daou in the healthcare IT market. During the third quarter 2003, sales and marketing expenses declined to $1.1 million compared to $1.4 million in the three months ended September 30, 2002 primarily related to the
difference in timing of certain corporate marketing initiatives.



General and
administrative expenses decreased 20%, or $400 thousand, to $1.7 million for the three months ended September 30, 2003 from $2.1 million for the three months ended September 30, 2002. The reduction in general and administrative expenses for the
three months ended September 30, 2003 was due to savings in employee-related and facilities costs as a result of previously disclosed actions taken in December 2002, as well as the realization of refunds of franchise taxes and other administrative
costs.



In the third quarter of 2003, we were able to reduce our obligations
relating to unused office space resulting in the reversal of $252 thousand of previously expensed restructuring charges by subletting the space and renegotiating terms of the existing lease agreements. The amount has been recorded as a restructuring
credit in the statement of operations as the original provision was recorded as a restructuring expense in the period in which the charge was recorded.



Nine Months Ended September 30, 2003 and 2002



Daous net revenue increased 15% or $4.2 million to $32.5 million for the nine months ended September 30, 2003 from $28.3 million for the nine months ended September
30, 2002. The increase was primarily due to higher professional services revenue from government and integration services and infrastructure services as a result of increased customer demand for these services, the completion of one large network
infrastructure upgrade project that began in late 2002 and the starting of another similar project, both of which included the installation of third party hardware.



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The Company provides support, management and help-desk services to two customers under long-term contracts. One contract
commenced on January 27, 1998 and is scheduled to expire on February 26, 2004 and the other commenced on March 18, 1999 and will be terminated by mutual agreement on December 31, 2003. Revenues from these two customers were 9% and 2%, respectively,
of the Companys total net revenue for the nine month period ending September 30, 2003.



Services to our five largest customers accounted for $14.1 million of net revenue for the nine months ended September 30, 2003, representing 43% of total net revenue, with one customer accounting for 10% of total net
revenue. Services to our second largest customer, which is the same customer referenced above, accounted for 9% of total net revenue. This compares to net revenue from the five largest customers for the nine months ended September 30, 2002 totaling
$9.7 million, or 34% of total net revenue.



Cost of revenue before reimbursable
expenses increased 9%, or $1.9 million, to $21.8 million on revenue of $32.5 million for the nine months ended September 30, 2003, up from $19.9 million on revenue of $28.3 million for the nine months ended September 30, 2002. The increase in cost
of revenue was attributable primarily to the installation of third party hardware, as well as the increase in revenues in the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002.



Gross margin increased to 33% for the nine months ended September 30, 2003 compared to 30%
for the nine months ended September 30, 2002. We experienced higher margins on professional services in our government and integration services, infrastructure services and managed care system implementation services. Higher margins were
attributable to higher utilization of professional staff as a result of increased demand for these services and effective management of our workforce. The increase in gross margin from professional services was offset by lower margins on the
hardware portion of a network upgrade project.



Operating results reflect a
committed level of marketing and business development expenses in support of executing our branding and growth strategies for Daou in the healthcare IT market. During the first nine months of 2003, sales and marketing expenses decreased 6%, or $200
thousand, to $3.4 million compared to $3.6 million in the nine months ended September 30, 2002.



General and administrative expenses decreased 17%, or $1.1 million, to $5.5 million for the nine months ended September 30, 2003 from $6.6 million for the nine months ended September 30, 2002. General and
administrative expenses for the nine months ended September 30, 2002 included certain one-time, non-recurring expenses related to the relocation in 2002 of our corporate offices and other employment related matters, which were not incurred in 2003.
The reduction in general and administrative expenses for the nine months ended September 30, 2003 was also due to savings in employee-related and facilities costs as a result of our previously disclosed actions taken in December 2002, as well as the
realization of refunds of franchise taxes and other administrative costs.



In
the third quarter of 2003, we were able to reduce our obligations relating to unused office space resulting in the reversal of $252 thousand of previously expensed restructuring charges. The amount has been recorded as a restructuring credit in the
statement of operations as the original provision was recorded as a restructuring expense in the period in which the charge was recorded.



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Income Taxes



We have a history of losses, which generated sizeable federal and state tax NOL carryforwards, at December 31, 2002, of approximately $27.3 million and approximately $8.4
million, respectively. The federal loss carryforwards will begin to expire in 2018 unless previously utilized, and the state loss carryforwards began to expire in 2002. Pursuant to generally accepted accounting principles, we previously recorded a
valuation allowance against the deferred tax asset associated with these NOL carryforwards as it is more likely than not that we will not be able to utilize the NOL carryforwards to offset future taxes. Due to the size of the NOL carryforwards in
relation to our history of unprofitable operations, we have not recognized any of this net deferred tax asset. It is possible that we could be profitable in the future at levels which would cause us to conclude that it is more likely than not that
we will be able to realize all or a portion of the NOL carryforwards. Upon reaching such a conclusion, we would record the estimated net realizable value of the deferred tax asset at that time and would then begin to provide for income taxes at a
rate equal to our combined federal and state effective rates, which we believe would approximate 40%. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary
significantly from period to period.



Under Section 382 of the Internal Revenue
Code, the annual use of our net operating loss carryforwards may be limited in the event of a cumulative change in ownership of more that 50%. However, we currently do not believe such a limitation will have a material impact on the ultimate
utilization of these carryforwards.



The income tax provision recorded in the
current year is due to alternative minimum taxes.



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Liquidity and Capital Resources



On September 30, 2003, we had working capital of $15.4 million, an increase of $2.5 million from $12.9 million on December 31, 2002. For the
nine months ended September 30, 2003, net cash used in operating activities was $700 thousand compared to $2.9 million for the nine months ended September 30, 2002. The use of cash during the period was primarily due to a reduction of current
liabilities and an increase in accounts receivable. Days Sales Outstanding (DSO) were 87 for the third quarter of 2003, compared to 93 for the third quarter of 2002. Contract work in progress increased to $3.0 million at September 30,
2003 from $2.1 million at December 31, 2002. Daou had no bank debt or outstanding lines of credit at September 30, 2003.



On July 28, 2003 we entered into a 65 month lease, commencing on December 1, 2003 to relocate our Kensington, Maryland office location to Chevy Chase, Maryland. The move
is expected to provide Daou an improved image and easier access for our government and government subcontractor clients. We expect to spend approximately $630 thousand in the fourth quarter of 2003 in leasehold improvements and other moving costs,
offset by an agreed upon amount of $461 thousand in construction allowances with the landlord.



Although Daou has an accumulated deficit as of September 30, 2003, we believe that our available funds together with anticipated cash from operating activities will be sufficient to meet our foreseeable operating and
capital requirements. However, our cash requirements may vary materially from those now planned due to many factors, including, but not limited to the scope, timing and changes in existing and potential relationships with business partners, the cost
and timing of executing sales and marketing activities, the timing of commencement and completion of large projects, market acceptance of new products or services, competing technological and market developments, and other factors. We may sell
additional equity or debt securities or obtain credit facilities. The sale of equity securities or issuance of equity securities in future acquisitions would result in dilution to our stockholders and the incurrence of debt could result in interest
expense. However, there can be no assurance that we will be able to sell additional equity or debt securities, or be able to obtain financing on acceptable terms, if at all.



Critical Accounting Policies



Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosures. On an on-going basis, we evaluate these estimates, including those related to revenue recognition, long-lived assets, accrued liabilities, stock-based compensation, and income taxes. Estimates are based on historical experience,
information received from third parties and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



We believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our financial statements.



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Revenue Recognition



We recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. SAB 101 requires that the
following criteria be met in determining whether revenue has been earned:



| |  | persuasive evidence of an arrangement,
| | - | --------------------------------------



| |  | services have been delivered,
| | - | -----------------------------



| |  | price is fixed and determinable, and
| | - | ------------------------------------



| |  | collectibility is reasonably assured.
| | - | -------------------------------------



We have the following types of revenue recognition: i) services performed on an hourly basis, ii) services performed on a fixed fee basis and iii) sales of material and
maintenance contracts. In general, we enter into contracts with customers to provide services at a specified fee or rate per hour. Revenue from professional services is recognized primarily on an hourly basis. Revenue from technical support, network
management and help desk services is recognized as the services are performed. Contract revenue for the development and implementation of network solutions under fixed-fee contracts is recognized related to the level of service performed based upon
the amount of labor cost incurred on the project versus the total labor costs to complete the project. Provisions for estimated losses on contracts, if any, are made during the period when the loss becomes probable and can be reasonably estimated.
Revenue recognized in excess of amounts billed and project costs are classified as contract work in progress. Payments received in advance of services performed are recorded as deferred revenue and amortized as the services are performed.



Bad Debt



We are required to estimate the collectibility of our trade accounts receivable. We perform this analysis on a specific customer
identification basis. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the credit worthiness of each customer and the age of the customer balances. We estimate the amount to reserve
for a specific customer by taking into account the age of the receivables and the payment history of the customer. Significant changes in required reserves have been recorded in recent periods and may occur in the future due to the current market
environment and changes in client payment history.



Restructuring Charges



In prior years, we have recorded reserves in connection with our
restructuring program. These reserves include estimates pertaining to the reduction in employee headcount and the costs of exiting facilities and unused equipment. Although we do not anticipate significant changes, the actual costs may differ from
the estimates recorded. When such a situation occurs, we record the reversal of the previously established accrual as a restructuring credit in the statement of operations.



Litigation



As disclosed in Item 1, Note 10 of our financial statements, we are currently involved in legal proceedings regarding shareholder litigation and other general legal
proceedings. Although the ultimate outcome of the matters is not presently determinable, management believes that the resolution of all such pending matters, net of amounts accrued, will not have a material adverse effect on the Companys
business, results of operations or financial condition; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on the Companys business, results of operations or financial condition.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We invest excess cash primarily in U.S. government securities and marketable debt securities of financial institutions and corporations with strong credit ratings. These instruments have maturities of three months or
less when acquired. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the
instruments held are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchanges rates, commodity prices, equity prices or
other market changes that affect market risk sensitive instruments.



ITEM 4. CONTROLS AND PROCEDURES



(a) Evaluation of
Disclosure Controls and Procedures. The Companys management with the participation of the Companys Chief Executive Officer and Acting Chief Financial Officer has evaluated the effectiveness of the Companys disclosure controls and
procedures as of September 30, 2003. Based on that evaluation, the Companys management, including such officers, concluded that the Companys disclosure controls and procedures were effective in timely alerting them to material
information relating to the Company, which is required to be included in its periodic filings with the Securities and Exchange Commission.



(b) Changes in Internal Controls Over Financial Reporting. The evaluation referred to in paragraph (a) of this Item did not identify any change in the Companys
internal controls over financial reporting that occurred during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.



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PART II OTHER INFORMATION



Item 1. Legal Proceedings



As previously
disclosed, the Company is a party to certain pending litigation and arbitration matters. There have been no material developments in these matters during the quarter.



The Company believes that the allegations set forth in such matters are without merit, and the Company intends to defend against these
lawsuits vigorously. No assurance as to the outcome of these matters can be given, however, and an unfavorable resolution of these matters could have a material adverse effect on the Companys business, results of operations, and financial
condition.



The Company is party to other various claims and legal actions
arising in the normal course of business. Although the ultimate outcome of the matters is not presently determinable, management believes that the resolution of all such pending matters, net of amounts accrued, will not have a material adverse
effect on the Companys business, results of operations or financial condition; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on the Companys business, results of
operations or financial condition.



Item 2. Changes in Securities and Use of Proceeds



None.



Item 3. Defaults Upon Senior Securities



None.



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



None.



Item 5. Other Information



None.



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Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|Exhibit No. |  | Description                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        |  | Certification of Daniel J. Malcolm required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended                                                                                                  
|            | 
|31.2        |  | Certification of John A. Roberts required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended                                                                                                    
|            | 
|32.1        |  | Certification of Daniel J. Malcolm required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|            | 
|32.2        |  | Certification of John A. Roberts required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  



(b)
Current Reports on Form 8-K.



The registrant filed or
furnished the following current reports on Form 8-K during the quarter covered by this report:



Form 8-K (item 12), filed on July 11, 2003, covering the repurchase of 300,000 shares of the Companys common stock in private transactions with its
President and Chief Executive Officer and its former Chief Financial Officer.



Form 8-K (item 2), filed on August 7, 2003, covering a press release announcing the Companys financial results for the quarter ended June 30, 2003.



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, this registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.



Date: November 14, 2003



Daou Systems, Inc.By:

/s/ Daniel J. MalcolmDaniel J. MalcolmChief Executive Officer and PresidentBy:

/s/ John A. RobertsJohn A. RobertsActing Chief Financial Officer and Secretary (principal financial and accounting officer)






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