<PAGE>

                               Daou Systems, Inc.
                     Notes to Condensed Financial Statements
                                   (unaudited)


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

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2002

                                       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

                               Daou Systems, Inc.
             (Exact name of registrant as specified in its charter)

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

                           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)

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 ____
                                       ---

The number of shares of Registrant's Common Stock, par value $.001 per share,
outstanding as of November 8, 2002: 21,627,466

<PAGE>

                               Daou Systems, Inc.

                               Index to Form 10-Q
<TABLE>
<CAPTION>

PART I.   FINANCIAL INFORMATION                                                                        Page
                                                                                                     ----------
<S>                                                                                                  <C>
Item 1.   Condensed Financial Statements                                                                 2

          Condensed Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001               2

          Condensed Statements of Operations (unaudited) for the Three Months and Nine Months
          Ended September 30, 2002 and 2001                                                              3

          Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended September 30,
          2002 and 2001                                                                                  4

          Notes to Condensed Financial Statements (unaudited)                                            5

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations         11

Item 3.   Quantitative and Qualitative Disclosure about Market Risk                                     16

Item 4.   Controls and Procedures                                                                       16

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                                                             17

Item 6.   Exhibits and Reports on Form 8-K                                                              18

          SIGNATURES                                                                                    19
</TABLE>

                                       1

<PAGE>

PART I.    FINANCIAL INFORMATION

Item 1.    Condensed Financial Statements

                               Daou Systems, Inc.
                            Condensed Balance Sheets
                 (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                                    September 30,     December 31,
                                                                                        2002             2001
                                                                                     (unaudited)
                                                                                  -------------------------------
<S>                                                                               <C>               <C>
Assets
Current assets:
  Cash and cash equivalents                                                        $    11,260      $    14,868
  Restricted cash                                                                            -              147
  Short-term investments, available-for-sale                                                60               59
  Accounts receivable, net of allowance for doubtful accounts
    of $674 and $715 at September 30, 2002 and December 31, 2001, respectively           8,990            7,572
  Contract work in progress                                                                264              310
  Other current assets                                                                     983              328
                                                                                   ----------------------------
Total current assets                                                                    21,557           23,284

Equipment, furniture and fixtures, net                                                   1,014              970
Other assets                                                                               155              130
                                                                                   ----------------------------
Total Assets                                                                       $    22,726      $    24,384
                                                                                   ============================

Liabilities and Stockholders' Equity
Current liabilities:

  Trade accounts payable and other accrued liabilities                             $     2,358      $     2,933
  Accrued salaries and benefits                                                          3,918            3,254
  Deferred revenue                                                                         552              585
  Current portion of severance payable                                                      35              193
                                                                                   ----------------------------
Total current liabilities                                                                6,863            6,965

Long-term liabilities                                                                       40               51

Commitments and contingencies

Stockholders' equity:
  Convertible preferred stock, $.001 par value. Authorized 3,520,000
   shares; issued and outstanding 2,182,000 shares at September 30,
   2002 and December 31, 2001, with a liquidation preference of
   $14,676 and $13,912 at September 30, 2002 and December 31, 2001                           2                2
  Common stock, $.001 par value.  Authorized 50,000,000 shares; issued
   and outstanding 21,625,000 shares at September 30, 2002 and
   21,555,000 shares at December 31, 2001                                                   22               22
  Additional paid-in capital                                                            54,799           53,989
  Notes receivable from stockholders                                                    (1,281)          (1,281)
  Deferred compensation                                                                   (179)            (261)
  Accumulated other comprehensive loss                                                     (71)             (72)
  Accumulated deficit                                                                  (37,469)         (35,031)
                                                                                   ----------------------------
Total stockholders' equity                                                         $    15,823           17,368
                                                                                   ----------------------------
Total Liabilities and Stockholders' Equity                                         $    22,726      $    24,384
                                                                                   ============================

</TABLE>

          See accompanying notes to the condensed financial statements.

                                       2

<PAGE>

                               Daou Systems, Inc.
                       Condensed Statements of Operations
                      (In thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended       Nine Months Ended
                                                       September 30,            September 30,
                                                    2002          2001      2002           2001
                                                 -----------------------------------------------
<S>                                              <C>           <C>        <C>           <C>
Revenues before reimbursements (net revenues)    $  9,493      $ 9,129    $ 28,331      $ 32,010
Out-of-pocket reimbursements                          825          723       2,430         2,483
                                                 -----------------------------------------------
 Total revenues                                    10,318        9,852      30,761        34,493


Cost of revenues before reimbursable
expenses                                            7,129        7,402      20,994        26,165
Out-of-pocket reimbursable expenses                   825          723       2,430         2,483
                                                 -----------------------------------------------
   Total cost of revenues                           7,954        8,125      23,424        28,648
                                                 -----------------------------------------------
Gross profit                                        2,364        1,727       7,337         5,845

Operating expenses:
   Sales and marketing                              1,388          723       3,815         2,375
   General and administrative                       1,645        1,886       5,382         5,848
                                                 -----------------------------------------------
                                                    3,033        2,609       9,197         8,223
                                                 -----------------------------------------------
Loss from operations                                 (669)        (882)     (1,860)       (2,378)
Other income, net                                      75          143         186           346
                                                 -----------------------------------------------
Net loss                                             (594)        (739)     (1,674)       (2,032)

Accrued dividends on preferred stock                 (277)        (226)       (764)         (618)
                                                 -----------------------------------------------
Net loss available to common stockholders        $   (871)     $  (965)   $ (2,438)     $ (2,650)
                                                 ===============================================

Basic and diluted net loss per share             $  (0.05)     $ (0.06)   $  (0.13)     $  (0.15)
                                                 ===============================================

Shares used in computing basic and diluted
   net loss per share                              19,282       17,372      18,883        17,465
                                                 ===============================================
</TABLE>

          See accompanying notes to the condensed financial statements.

                                       3

<PAGE>

                               Daou Systems, Inc.
                       Condensed Statements of Cash Flows
                                 (In thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30,
                                                                        2002                     2001
                                                                     ----------               ----------
<S>                                                                  <C>                      <C>
Operating activities
Net loss                                                             $   (1,674)              $   (2,032)
Adjustments to reconcile net loss to net cash (used in) provided
     by operating activities:
     Depreciation and amortization                                          769                    1,038
     Stock based compensation                                                --                       35
     Provision for uncollectible accounts                                   139                      447
     (Gain) loss on retirement of fixed assets                              (10)                     350
  Changes in operating assets and liabilities:
     Restricted cash                                                        147                        -
     Accounts receivable                                                 (1,557)                   3,728
     Contract work in process                                                46                      631
     Other current assets                                                  (655)                      58
     Accounts payable and accrued liabilities                              (575)                  (1,522)
     Accrued salaries and benefits                                          664                      652
     Deferred revenue                                                       (33)                     275
     Other long-terms liabilities                                          (169)                    (150)
                                                                     ----------               ----------
Net cash (used in) provided by operating activities                      (2,908)                  3,510

Investing activities
Purchases of equipment, furniture and fixtures, net                        (724)                   (177)
Changes in other assets                                                     (25)                     94
                                                                     ----------               ----------
Net cash used in investing activities                                      (749)                    (83)

Financing activities
Proceeds from issuance of common stock                                       49                      54
Purchase of treasury stock                                                    -                    (198)
                                                                     ----------               ----------
Net cash provided by (used in) financing activities                          49                    (144)

(Decrease) increase in cash and cash equivalents                         (3,608)                  3,283
Cash and cash equivalents at beginning of period                         14,868                  10,504
                                                                     ----------               ----------
Cash and cash equivalents at end of period                           $   11,260               $   13,787
                                                                     ==========               ==========

Supplemental disclosure of non-cash activities:
Common stock issued for services                                     $        -               $       25
                                                                     ==========               ==========
Unrealized loss on investments                                       $        1               $        5
                                                                     ==========               ==========
Common stock issued for settlement                                   $        -               $       10
                                                                     ==========               ==========
Common stock issuable for notes receivable from stockholder          $        -               $    1,204
                                                                     ==========               ==========
Accrued preferred stock dividends                                    $      764               $      618
                                                                     ==========               ==========
</TABLE>

          See accompanying notes to the condensed financial statements.

                                       4

<PAGE>

                               Daou Systems, Inc.
                    Notes to Condensed Financial Statements
                                  (unaudited)

1. Basis of Presentation

The unaudited condensed financial statements of Daou Systems, Inc. ("Daou" or
the "Company") at September 30, 2002 and for the three- and nine-month periods
ended September 30, 2002 and 2001 have been prepared in accordance with
generally accepted accounting principles ("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 present fairly the financial
position of the Company at September 30, 2002 and the results of operations for
the three- and nine-month periods ended September 30, 2002 and 2001. The results
of operations for the three- and nine-months ended September 30, 2002 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002. 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, 2001 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles 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 April 1, 2002.

In late 2001, the Company further defined the mission and focus of each of its
business units and has assigned profit responsibilities to each business unit
leader. Effective January 1, 2002, certain overhead expenses directly
attributable to the business units and formerly recorded as general and
administrative expenses are now recorded as cost of revenues before reimbursable
expenses. The prior period amounts have been reclassified to conform to their
current period presentation.

2. New Accounting Standard

On January 1, 2002, the Company adopted the provisions of the Emerging Issues
Task Force ("EITF") Topic D-103, Income Statement Characterization of
Reimbursements for "Out-of-Pocket" Expenses Incurred. In accordance with the
provisions of EITF Topic D-103, the Company adjusted revenues and cost of
revenues for all periods reported to include out-of-pocket expenses. The Company
has reclassified its prior period financial statements in accordance with this
accounting pronouncement. Adoption of the provisions of EITF Topic D-103 had no
impact on reported net loss, net loss available to common stockholders or net
loss per share for the periods presented.

3. Use of Estimates

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

                                       5

<PAGE>

                               Daou Systems, Inc.
                    Notes to Condensed Financial Statements
                                  (unaudited)

4. Net Loss Per Share

Net loss per share is computed in accordance with FASB Statement No. 128,
Earnings Per Share. Basic net loss per share is computed using the weighted
average number of common shares outstanding during each period. Diluted net loss
per share includes the dilutive effect of common shares potentially issuable
upon the exercise of stock options and warrants. For the three and nine months
ended September 30, 2002 and 2001, diluted loss per share is unchanged from
basic loss per share because the effects of the assumed conversion of Series A
Preferred Stock, stock options and warrants would be anti-dilutive.

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

                  (In thousands, except per share information)

<TABLE>
<CAPTION>
                                                      Three Months Ended       Nine Months Ended
                                                         September 30,           September 30,
                                                       2002         2001       2002        2001
                                                     --------------------------------------------
        Numerator:
<S>                                                  <C>        <C>        <C>        <C>
           Net loss available to common
               stockholders                          $    (871)  $   (965) $  (2,438) $  (2,650)
        Denominator:
           Weighted average common shares
             outstanding                                21,624     21,293     21,580     19,249
           Weighted average unvested common
             shares subject to repurchase
             agreements                                 (2,342)    (3,921)    (2,697)    (1,784)
                                                     ------------------------------------------
        Denominator for basic and diluted
             calculation                                19,282     17,372     18,883     17,465
                                                     ==========================================

        Basic and diluted net loss per share         $   (0.05)  $  (0.06) $   (0.13) $   (0.15)
</TABLE>

5. Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan ("ESPP"), employees are allowed
to purchase the Company's common stock at six month intervals at the lower of
85% of the fair market value at the beginning of the measurement period. On June
30, 2002, the Company issued 54,237 shares of common stock at $0.8415 per share.
At September 30,2002, 1,009,719 shares remained available for issuance under the
ESPP.

6. Restructuring Plan

In connection with the Company's decision to close and combine certain
facilities, the Company recorded restructuring charges totaling $1.3 million
during the fourth quarter of 2001. These charges include severance costs related
to a reduction in workforce of approximately 28 employees and the costs
estimated to be incurred in connection with the closure of certain facilities.
Such charges were determined in accordance with SEC SAB No. 100, Restructuring
And Impairment Charge, and EITF No. 94-3, Liability Recognition For Certain
Employee Termination Benefits And Other Costs To Exit An Activity (Including
Certain Cost Incurred In A Restructuring).

In 2000, the Company recorded restructuring charges totaling approximately $2.1
million in connection with the various actions to reduce the cost structure of
the Company. These charges, which were recorded in accordance with SEC SAB No.
100 and EITF No. 94-3, included severance costs related to a reduction in
workforce of approximately 50 employees and the closure of certain facilities.

The future lease obligations relating to the closure of certain facilities are
payable during the remainder of 2002 and during 2003.

                                       6

<PAGE>

                               Daou Systems, Inc.
                    Notes to Condensed Financial Statements
                                  (unaudited)

6. Restructuring Plan (continued)

The following table summarizes the restructuring and other related charges paid
in 2002 and remaining charges in accrued liabilities as of September 30, 2002.

<TABLE>
<CAPTION>
                                                                               Restructuring Charges
                                                               ------------------------------------------------------
                                                                                   Paid in Nine
                                                                Accrued as of      Months Ended      Accrued as of
                                                                December 31,       September 30,     September 30,
                                                                    2001               2002              2002
                                                               ------------------------------------------------------
<S>                                                             <C>                <C>              <C>
    Severance costs for involuntary employee terminations         $   151,000       $   151,000        $         -
    Costs related to closure and combination of facilities          1,161,000           943,000            218,000
                                                               ------------------------------------------------------
                                                                  $ 1,312,000       $ 1,094,000        $   218,000
                                                               ======================================================
</TABLE>

7. Disclosure of Segment Information

For internal management and marketing/sales synergy purposes, the Company
continues to group its business units within two divisions - Technology Services
Division ("TSD") and Application Services Division ("ASD"). Externally, with
respect to marketing/sales and related customer service, the Company's
interaction with customers will take place at the business unit level. TSD
consists of the following three business units: (i) Infrastructure Services
Group ("ISG"), which designs and deploys HIT infrastructure components essential
to delivering and securing access to applications across the enterprise; (ii)
Sentient ("Sentient"), which builds and supports M/MUMPS-based systems typically
used by government healthcare organizations; and (iii) Daou Technology Center
(the "DTC", formerly "RTC"), which provides Help Desk services to mitigate risk
via systems support of the desktop, network, server and security environments.
ASD is comprised of the following two business units: (i) Technology Management
("TMI"), which provides strategic consulting services to payers and providers,
including those related to the Health Insurance Portability & Accountability Act
of 1996 ("HIPAA") and provides application planning, implementation and support
of payer-based HIT applications to insurance companies and managed care
organizations; and (ii) Resources in Healthcare Innovation ("RHI"), which
provides temporary staffing resources to hospitals, IDNs and third-party vendors
focused on the implementation and support of provider-based HIT applications.

The Company manages segment reporting at a gross margin level. Selling, general
and administrative expenses, and assets are managed at the corporate level
separately from the segments and, therefore, are not separately allocated to the
segments. The Company's segments are managed on an integrated basis in order to
serve clients by assembling multi-disciplinary teams, which provide
comprehensive services across its principal services.

<TABLE>
<CAPTION>
         (in thousands)
                                                       Application    Technology
                                                        Services       Services
                                                        Division       Division       Total
<S>                                                   <C>            <C>           <C>
        Three months ended September 30, 2002
        -------------------------------------
        Revenues before reimbursements (net
        revenues)                                         $ 5,291       $ 4,202      $ 9,493
        Cost of revenues before reimbursable
        expenses                                            3,606         3,523        7,129
                                                      ----------------------------------------
        Gross profit                                        1,685           679        2,364
        Gross profit percent                                   32%           16%          25%

        Sales and marketing                                                            1,388
        General and administrative                                                     1,645
                                                                                   -----------
        Loss from operations                                                         $  (669)
                                                                                   ===========
</TABLE>

                                        7

<PAGE>

                               Daou Systems, Inc.
                    Notes to Condensed Financial Statements
                                  (unaudited)

7. Disclosure of Segment Information (continued)

<TABLE>
<CAPTION>
                                                               Application    Technology
                                                                Services       Services
                                                                Division       Division       Total
                                                              ----------------------------------------
<S>                                                           <C>            <C>           <C>
        Three months ended September 30, 2001
        -------------------------------------
        Revenues before reimbursements (net revenues)            $  4,065      $  5,064       $  9,129
        Cost of revenues before reimbursable expenses               3,467         3,935          7,402
                                                              ----------------------------------------
        Gross profit                                                  598         1,129          1,727
        Gross profit percent                                           15%           22%            19%

        Sales and marketing                                                                        723
        General and administrative                                                               1,886
                                                                                              --------
        Loss from operations                                                                  $   (882)
                                                                                              ========

<CAPTION>
                                                               Application    Technology
                                                                Services       Services
                                                                Division       Division       Total
                                                              ----------------------------------------
<S>                                                           <C>            <C>           <C>
        Nine months ended September 30, 2002
        ------------------------------------
        Revenues before reimbursements (net revenues)            $ 14,683      $ 13,648       $ 28,331
        Cost of revenues before reimbursable expenses              10,373        10,621         20,994
                                                              ----------------------------------------
        Gross profit                                                4,310         3,027          7,337
        Gross profit percent                                           29%           22%            26%

        Sales and marketing                                                                      3,815
        General and administrative                                                               5,382
                                                                                              --------
        Loss from operations                                                                  $ (1,860)
                                                                                              ========

        Nine months ended September 30, 2001
        ------------------------------------
        Revenues before reimbursements (net revenues)            $ 13,015      $ 18,995      $  32,010
        Cost of revenues before reimbursable expenses              10,660        15,505         26,165
                                                              ----------------------------------------
        Gross profit                                                2,355         3,490          5,845
        Gross profit percent                                           18%           18%            18%

        Sales and marketing                                                                      2,375
        General and administrative                                                               5,848
                                                                                             ---------
        Loss from operations                                                                 $  (2,378)
                                                                                             =========
</TABLE>

                                       8

<PAGE>

                               Daou Systems, Inc.
                     Notes to Condensed Financial Statements
                                  (unaudited)

8. Termination of Outsourcing Agreement

The Company provided on-site outsourcing services to a customer under a
five-year outsourcing agreement which began January 1, 1999. On March 30, 2001,
the Company entered into a termination agreement in which the outsourcing
agreement terminated as of March 31, 2001. Under the termination agreement, all
of the Company's on-site employees transferred to the customer effective April
1, 2001 and the customer paid the Company a transition fee of $643,000, of which
$386,000 was recorded in net revenues in the second quarter of 2001 and $257,000
was recorded in the third quarter of 2001.

9. Contingencies

On August 24, 1998, August 31, 1998, September 14, 1998 and September 23, 1998,
four separate complaints were filed against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of California. On October 15, 2002, the Court granted the Company's
Motion to Dismiss the class action complaint, with prejudice. Now that the
federal court has granted the motion, the plaintiffs are determining whether to
appeal and how to proceed with the state court litigation.

As background, a group of shareholders were appointed the lead plaintiff in this
federal litigation, and they filed a second amended consolidated class action
complaint on January 21, 2000. This new complaint realleges that the Company
improperly used the "percentage-of-completion" accounting method for revenue
recognition. Claims are pleaded under both the 1933 Securities Act (relating to
the Company's initial public offering) and Section 10b of the 1934 Securities
Act. The complaint was brought on behalf of a purported class of investors who
purchased the Company's common stock between February 13, 1997 and October 28,
1998, but it does not allege specific damage amounts. A Motion to Dismiss the
second amended consolidated class action complaint was filed on February 23,
2000. On March 27, 2002, the Court granted the Motion but extended to plaintiffs
the opportunity to file a Third Amended Complaint. The plaintiffs filed their
Third Amended Complaint on May 16, 2002, to which the Company responded with
another Motion to Dismiss. The Motion was filed on June 24, 2002 and challenged
the legal sufficiency of the allegations. On October 15, 2002, the Court granted
that Motion, this time with prejudice. On October 7, 1998 and October 15, 1998,
two separate complaints were filed in the Superior Court of San Diego County,
California. These state court complaints mirror the allegations set forth in the
federal complaints. They also assert claims for common law fraud and the
violation of certain California statutes. As with their federal counterparts,
they do not allege specific damage amounts. On April 1, 1999, a Consolidated
Amended Class Action was filed on behalf of the same state court plaintiffs, and
this new complaint alleges the same factual basis as is asserted in the federal
litigation. The state litigation pleads claims for fraud and violations of
certain California Corporation Code provisions. By stipulation of the parties
and order of the court, this state court litigation was stayed pending the
outcome of the motion to dismiss the federal lawsuits. Now that the federal
court has granted the motion, the plaintiffs are determining whether to appeal
and how to proceed with the state court litigation. The Company believes that
the allegations set forth in the federal and state complaints are without merit,
and the Company intends to defend against these lawsuits vigorously. No
assurance as to the outcome of this matter can be given, however, and an
unfavorable resolution of this matter could have a material adverse effect on
the Company's business, results of operations, and financial condition.

                                        9

<PAGE>

                               Daou Systems, Inc.
                     Notes to Condensed Financial Statements
                                   (unaudited)

9. Contingencies (continued)

On February 27, 2002, a Complaint was filed against certain of the company's
former officers and directors as well as Daou On-Line, Inc. in the Superior
Court of New Jersey located in Bergen County. The Court conducted a hearing on
June 7, 2002 and granted the Company's Motion to Dismiss. The plaintiff
abandoned his appeal and intends to proceed to arbitration in California.

As background, a First Amended Complaint was filed on March 1, 2002, adding the
company and its former Chief Financial Officer as parties-defendant. The
gravamen of the First Amended Complaint is two-fold. First, it alleges Daou's
financial statements were misleading and fraudulently induced the plaintiff to
merge his company with Daou. Second the First Amended Complaint alleges breach
of an indemnification and severance agreement obligating the company to defend
the plaintiff in a lawsuit filed by Traci Melia, a former employee. Neither the
Complaint nor the First Amended Complaint allege specific damage amounts. A
Motion to Dismiss the First Amended Complaint was filed on April 24, 2002. The
Court conducted a hearing on June 7, 2002 and granted the motion. On July 23,
2002, the plaintiff filed a Notice of Appeal and the Appellate Court set a
briefing schedule directing the plaintiff/appellant to file his opening brief no
later than October 21, 2002. The plaintiff/appellant did not file his brief
because he intends to abandon his appeal and proceed to arbitration in
California. The Company believes that the allegations set forth in the original
and First Amended Complaints are without merit, and the Company intends to
defend against the arbitration vigorously. No assurance as to the outcome of
this matter can be given, however, and an unfavorable resolution of this matter
could have a material adverse effect on the Company's business, results of
operations and financial condition.

The Company is party to 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 affect
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 results of operations, cash
flows or financial position.

                                       10

<PAGE>

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 that
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 as those set forth herein and in the
Company'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 the Company's Forms 10-K for the
year ended December 31, 2001 on file with the SEC, and in the Company's Proxy
Statement Schedule 14A Information filed with the SEC on April 30, 2002. These
risks and uncertainties could cause the Company's actual results to differ
materially from those projected in the forward-looking statements. The Company
disclaims any obligation to update or publicly announce revisions to any such
statements to reflect future events or developments.

Recent Developments

In late March of 2002, the Company began moving its corporate headquarters from
San Diego, California to Exton, Pennsylvania and completed the move by mid-April
of 2002. In connection with this move, the Company recorded a one-time charge of
approximately $1.3 million in the fourth quarter of 2001 related to the buyout
of its office lease in San Diego, as well as certain expenses related to the
reduction of staff and consolidation of marketing and administrative staff in
Exton, Pennsylvania.

Overview

Daou Systems, Inc. provides expert consulting and management services to
healthcare organizations in the design, deployment and support of IT
infrastructure and application systems. The firm offers a range of comprehensive
services, from strategic consulting, to IT application design and
implementation, to long-term, outsourced operational management. Daou has
provided services to more than 1,500 healthcare organizations, including 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) and government healthcare. Daou Systems, Inc. is a publicly traded
company listed on the OTC Bulletin Board under the stock symbol DAOU. As of
September 30, 2002 Daou had approximately 232 employees.

The Company's service offerings are segmented into the following operating
divisions and service lines:

         Application Services Division ("ASD") - provides strategic IT
         consulting and planning services, including HIPAA consulting and
         remediation, managed care system implementation, post-implementation
         support, transition management and interim staffing.

                                .   TMI - performs strategic IT consulting,
                                    HIPAA consulting and remediation, managed
                                    care system implementation and
                                    post-implementation support to help
                                    healthcare management meet their business
                                    and IT objectives and anticipate and plan
                                    their future IT needs.

                                .   RHI - supplies hospitals and other
                                    healthcare organizations with temporary,
                                    certified consultants who are capable of
                                    installing and servicing the most common
                                    healthcare software applications.

                                       11

<PAGE>

         Technology Services Division ("TSD") - provides services focused on two
         vital components of a healthcare organization's infrastructure: the
         information technology itself and the resources who manage it. TSD
         provides solutions in key areas, including deployment of the network
         infrastructure, helping clients extend the value of legacy systems and
         enabling them to work with emerging technologies, web development and
         integration projects, and long-term management of complex information
         technologies, including help desk solutions and network management.

                                 .  ISG - focuses on IT infrastructure solutions
                                    for healthcare enterprises, including IDNs,
                                    hospitals and large academic medical
                                    centers. ISG services include the design and
                                    delivery of network infrastructure and the
                                    underlying components essential to
                                    delivering information and securing access
                                    to applications across the healthcare
                                    enterprise. The group supports healthcare
                                    organizations in all stages of
                                    infrastructure design and implementations,
                                    from the requisition and purchase of
                                    hardware to the installation and support of
                                    turn-key data networks.

                                 .  Sentient - Sentient capabilities include
                                    building and supporting the M/MUMPS-based
                                    systems typically used by government-run
                                    healthcare organizations and focuses on
                                    integration of the customers information
                                    systems within government healthcare with
                                    existing or new infrastructure that allow
                                    healthcare organizations to share and access
                                    data housed across multiple platforms and
                                    environments.

                                 .  DTC - performs a full range of IT functional
                                    outsourcing services including co-source or
                                    outsource of call centers, help desks,
                                    desktop support, server management, network
                                    management and voice management.

The Company generates substantially all of its revenues from professional
services, primarily on a "time and expense" project basis, under which revenues
are 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. The Company's billing rates are commensurate with the
healthcare-domain IT expertise, know-how and skills of its consultants. The
Company's time and expense projects generally range from three to six months,
although certain projects have been for periods in excess of a year. The Company
also provides support, management and help desk services, under multi-year
engagements, which revenues are recognized ratably over the period that these
services are provided. Fees for these outsourcing services are typically
determined on a price per call or a price per node basis. Revenues on fixed-fee
contracts are recognized using the percentage-of-completion method with progress
to completion measured by labor costs incurred to date compared to total
estimated labor costs. The Company's 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 the Company obtains a
lower margin) versus professional services.

The Company bills its customers for out-of-pocket expenses, primarily travel and
related expenses incurred with respect to services provided to customers, and
has adopted the provisions of the Emerging Issues Task Force ("EITF") Topic
D-103, Income Statement Characterization of Reimbursements for "Out-of-Pocket"
Expenses Incurred.

Payments received in advance of services performed are recorded as deferred
revenues. Certain contract payment terms may result in customer billing
occurring at a pace slower than revenue recognition. The resulting revenues
recognized in excess of amounts billed and project costs are included in
contract work in progress on the Company's balance sheet.

Cost of revenues primarily consist of all expenses that are directly
attributable to the business units and include the salaries, bonuses and related
benefits of client-serving professionals as well as non-billable managers and
support staff, subcontractor expenses, recruiting and training costs and office

                                       12

<PAGE>

space costs. The Company's consultant-related costs are relatively fixed and
therefore fluctuations in the Company's gross margin may occur due to changes in
project margins and utilization rates of its professional staff. Sales and
marketing expenses primarily consist of the salaries, benefits, travel and other
costs of the Company's 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 the Company's client-serving professionals, such as:
investments in information systems, salaries, expenses and office space costs
for executive management, financial accounting and human resources personnel,
legal and other professional services.

Results of Operations

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

<TABLE>
<CAPTION>
                                                 Three Months Ended              Nine Months Ended
                                                    September 30,                  September 30,
                                                2002            2001           2002            2001
                                            ----------------------------------------------  ----------
<S>                                         <C>             <C>             <C>             <C>
Revenues before reimbursements (net
revenues)                                        100%            100%           100%            100%
Cost of revenues before reimbursable
expenses                                          75              81             74              82
                                            --------        --------        -------         -------
Gross profit                                      25              19             26              18
Operating expenses:                               32              29             32              26
                                            --------        --------        -------         -------
Loss from operations                              (7)            (10)            (7)             (7)
Other income, net                                  1               2              1               1
                                            --------        --------        -------        --------
Net loss                                          (6)%            (8)%           (6)%            (6)%
                                            ========        ========        =======        ========
</TABLE>

Three Months Ended September 30, 2002 and 2001

The Company's net revenues increased 4% or $364,000 to $9.5 million for the
three months ended September 30, 2002 from $9.1 million for the three months
ended September 30, 2001. The increase is primarily related to higher
professional services revenues in the Company's managed care system
implementation business as a result of higher levels of customer project
activity. The higher revenues in the period were partially offset by lower
revenues and reduced activity levels in Daou's infrastructure services group and
other business units as a consequence of economic conditions impacting the
provider market.

Services to the Company's five largest customers accounted for $3.4 million of
net revenues for the three months ended September 30, 2002, representing 35% of
total net revenues, with one customer in each of the DTC and the Sentient
business units each accounting for 9% of total net revenues. This compares to
net revenues from the five largest customers for the three months ended
September 30, 2001 totaling $3.2 million, or 35% of total net revenues.

                                       13

<PAGE>

Cost of revenues before reimbursable expenses decreased 4%, or $273,000, to $7.1
million for the three months ended September 30, 2002 from $7.4 million for the
three months ended September 30, 2001. This decrease is attributable primarily
to efforts to eliminate under-performing lines of businesses and a reduction of
costs and more effective management of the Company's workforce, offset by higher
costs in the Company's managed care system implementation business associated
with the higher revenue attainment in that business. At September 30, 2002, the
Company had approximately 232 employees, compared with approximately 243
employees at September 30, 2001.

Gross margin increased to 25% for the three months ended September 30, 2002
compared to 19% for the three months ended September 30, 2001. The increase in
gross profit was attributable primarily to a reduction of costs from the above
referenced exit from certain lines of business that were not profitable and
increased operating efficiencies and billable utilization of our workforce.
Higher margins were partially offset by lower services revenues in the Company's
infrastructure services group as a result of lower levels of customer project
activity.

Third quarter 2002 operating results reflect a higher level of sales, marketing
and business development expenses in support of the Company's goal of reemerging
in the healthcare IT market and increasing future revenues. During the third
quarter 2002, sales and marketing expenses increased 92%, or $665,000, to $1.4
million from $723,000 for the three months ended September 30, 2001. Daou
expects the increase in spending in sales and marketing to continue for the
remainder of 2002 as it re-establishes market presence following a period of
relative inactivity as the Company focused internally to restructure and gain
operating efficiencies.

General and administrative expenses decreased 13%, or $241,000, to $1.6 million
for the three months ended September 30, 2002 from $1.9 million for the three
months ended September 30, 2001. The decrease year over year is primarily the
result of cost reductions the Company made, as well as a decrease in
depreciation, rent and personnel costs as a result of the Company's relocation
of its corporate offices.

Other income, net, was $75,000 and $143,000 for the three months ended September
30, 2002 and 2001, respectively. Other income is primarily interest income on
cash and cash equivalents and short-term investments.

Nine Months Ended September 30, 2002 and 2001

The Company's net revenues decreased 11% or $3.7 million to $28.3 million for
the nine months ended September 30, 2002 from $32.0 million for the nine months
ended September 30, 2001. The decrease is primarily due to the previously
announced termination by the Company of certain large outsourcing contracts, its
decision to exit certain lines of business that were not profitable, a softened
demand for temporary staffing services, and economic uncertainties in the
healthcare market, offset by higher revenues from the Company's managed care
system implementation offerings in the payer market. On March 30, 2001 the
Company entered into an agreement to terminate an outsourcing contract for its
largest customer effective March 31, 2001. Net revenues related to this contract
were $2.9 million for the nine months ended September 30, 2001.

Services to the Company's five largest customers accounted for $9.7 million of
net revenues for the nine months ended September 30, 2002, representing 34% of
total net revenues, with one customer in each of the DTC and the Sentient
business units each accounting for 9% of total net revenues. This compares to
net revenues from the five largest customers for the nine months ended September
30, 2001 totaling $10.8 million, or 33% of total net revenues.

Cost of revenues before reimbursable expenses decreased 20%, or $5.2 million, to
$21.0 million for the nine months ended September 30, 2002 from $26.2 million
for the nine months ended September 30, 2001. This decrease is attributable
primarily to the above-referenced efforts to eliminate under-performing lines of
businesses and a reduction of costs and more effective management of the
Company's workforce, offset by higher costs in the Company's managed care system
implementation business associated with the higher revenue attainment in that
business. At September 30, 2002, the Company had approximately 232 employees,
compared with approximately 243 employees at September 30, 2001.

                                       14

<PAGE>

Gross margin increased to 26% for the nine months ended September 30, 2002
compared to 18% for the nine months ended September 30, 2001. The increase in
gross profit was attributable primarily to the above referenced reduction of
costs resulting in higher billable utilization primarily in our managed care
system implementation and government healthcare integration businesses. Higher
margins were partially offset by lower services revenues in the Company's
infrastructure services group as a result of lower levels of customer project
activity.

Operating results for the first nine months of 2002 reflect a higher level of
sales, marketing and business development expenses in support of the Company's
goal of reemerging in the healthcare IT market and increasing future revenues.
Sales and marketing expenses increased 61%, or $1.4 million, to $3.8 million for
the nine months ended September 30, 2002 from $2.4 million for the nine months
ended September 30, 2001. Daou expects the increase in spending in sales and
marketing to continue for the remainder of 2002 as it re-establishes market
presence following a period of relative inactivity as the Company focused
internally to restructure and gain operating efficiencies.

General and administrative expenses decreased 8%, or $466,000, to $5.4 million
for the nine months ended September 30, 2002 from $5.8 million for the nine
months ended September 30, 2001. The decrease year over year is primarily the
result of the reduction of overhead costs, as well as a decrease in
depreciation, rent and personnel costs as a result of the Company's relocation
of its corporate offices, offset by certain one-time, non-recurring expenses
related to the relocation and other employment related matters.

Other income, net, was $186,000 and $346,000 for the nine months ended September
30, 2002 and 2001, respectively. Other income is primarily interest income on
cash and cash equivalents and short-term investments.

Liquidity and Capital Resources

On September 30, 2002, the Company had cash, cash equivalents and short term
investments available for sale of $11.3 million, a decrease of $3.6 million from
$14.9 million on December 31, 2001. For the nine months ended September 30,
2002, cash used in operating activities was $2.9 million compared to cash
provided by operating activities of $3.5 million for the nine months ended
September 30, 2001. The use of cash during the nine months ended September 30,
2002 is primarily due to an increase in accounts receivable and other current
assets, and includes approximately $1.1 million of previously recorded
restructuring liabilities paid primarily related to the Company's relocation of
its corporate headquarters from San Diego, California to Exton, Pennsylvania.
Days Sales Outstanding were 93 for the quarter ended September 30, 2002 compared
with 84 in the second quarter of 2002 and 89 in the fourth quarter of 2001.

Net cash used in investing activities was $749,000 for the nine months ended
September 30, 2002, compared to net cash used in investing activities of $83,000
for the nine months ended September 30, 2001, primarily due to increased
purchases of equipment related to the Company's relocation of its corporate
headquarters from San Diego, California to Exton, Pennsylvania as well as
investments in equipment used in the Company's help desk service line.

Cash provided by financing activities was $49,000 for the nine months ended
September 30, 2002 and was related to proceeds from the issuance of the
Company's common stock.

On July 27, 1999 the Company issued 2,181,818 shares of Series A Preferred
Stock. The Series A Preferred Stock agreement contained a redemption feature
which was outside of the control of the Company. On November 9, 2000, the
holders of the Series A Preferred Stock permanently waived their redemption
rights in return for $2.0 million in cash and warrants to purchase 3,540,000
shares of the Company's common stock exercisable at $0.01 per share. Even though
the holders of the Series A Preferred Stock have waived their redemption rights,
the Company still has its right to redeem the Series A Preferred Stock anytime
after the fourth anniversary of the purchase date for the issue price and
accrued dividends per share.

                                       15

<PAGE>

The Company intends to continue to find marketing and sales activities and
capital expenditures from cash on hand. There is no assurance that these
expenditures will result in increased sales or additional revenues.

Although the Company has an accumulated deficit as of September 30, 2002, the
Company believes that its available funds together with anticipated cash from
operating activities will be sufficient to meet its capital requirements for the
foreseeable future. The Company may sell additional equity or debt securities or
obtain additional credit facilities. The sale of additional equity securities or
issuance of equity securities in future acquisitions would result in dilution to
the Company's stockholders and the incurrence of additional debt could result in
additional interest expense. However, there can be no assurance that the Company
will be able to sell additional equity or debt securities, or be able to obtain
additional financing on acceptable terms, if at all.

Business Risks

In addition to the factors addressed in the preceding sections, certain dynamics
of the Company's markets and operations create fluctuations in the Company's
quarterly results. Uncertainty and cost containment in healthcare and
competitive conditions present various other risks to operating results which
are more fully described in the Company's Form 10-K filed with the SEC and other
SEC filings.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company invests 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. The Company does not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions in any material fashion. Accordingly, the Company
believes that, while the instruments held are subject to changes in the
financial standing of the issuer of such securities, the Company is 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) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within 90 days of the filing date of this
report. Based on their evaluation, our principal executive officer and principal
accounting officer concluded that Daou's disclosure controls and procedures are
effective.

(b) There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph (a) above.

                                       16

<PAGE>

PART II OTHER INFORMATION

Item 1.   Legal Proceedings

                     IN RE DAOU SYSTEMS SECRITIES LITIGATION

On August 24, 1998, August 31, 1998, September 14, 1998 and September 23, 1998,
four separate complaints were filed against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of California. On October 15, 2002, the court granted the Company's
motion to dismiss the class action complaint, with prejudice. Now that the
federal court has granted the motion, the plaintiffs are determining whether to
appeal and how to proceed with the state court litigation.

As background, a group of shareholders were appointed the lead plaintiff in this
federal litigation, and they filed a second amended consolidated class action
complaint on January 21, 2000. This new complaint realleges that the Company
improperly used the "percentage-of-completion" accounting method for revenue
recognition. Claims are pleaded under both the 1933 Securities Act (relating to
the Company's initial public offering) and section 10b of the 1934 Securities
Act. The complaint was brought on behalf of a purported class of investors who
purchased the Company's Common Stock between February 13, 1997 and October 28,
1998, but it does not allege specific damage amounts. A Motion to Dismiss the
second amended consolidated class action complaint was filed on February 23,
2000. On March 27, 2002, the Court granted the Motion but extended to plaintiffs
the opportunity to file a Third Amended Complaint. The plaintiffs filed their
Third Amended Complaint on May 16, 2002, to which the Company responded with
another Motion to Dismiss. The Motion was filed on June 24, 2002 and challenged
the legal sufficiency of the allegations. On October 15, 2002, the Court granted
that Motion, this time with prejudice. On October 7, 1998 and October 15, 1998,
two separate complaints were filed in the Superior Court of San Diego County,
California. These state court complaints mirror the allegations set forth in the
federal complaints. They also assert claims for common law fraud and the
violation of certain California statutes. As with their federal counterparts,
they do not allege specific damage amounts. On April 1, 1999, a Consolidated
Amended Class Action was filed on behalf of the same state court plaintiffs, and
this new complaint alleges the same factual basis as is asserted in the federal
litigation. The state litigation pleads claims for fraud and violations of
certain California Corporation Code provisions. By stipulation of the parties
and order of the court, this state court litigation was stayed pending the
outcome of the motion to dismiss the federal lawsuits. Now that the federal
court has granted the motion, the plaintiffs are determining whether to appeal
and how to proceed with the state court litigation. The Company believes that
the allegations set forth in the federal and state complaints are without merit,
and the Company intends to defend against these lawsuits vigorously. No
assurance as to the outcome of this matter can be given, however, and an
unfavorable resolution of this matter could have a material adverse effect on
the Company's business, results of operations, and financial condition.

                       DICKSON V DAOU SYSTEMS, INC. ET AL

On February 27, 2002, a Complaint was filed against certain of the company's
former officers and directors as well as Daou On-Line, Inc. in the Superior
Court of New Jersey located in Bergen County. The Court conducted a hearing on
June 7, 2002 and granted the Company's Motion to Dismiss. The plaintiff
abandoned his appeal and intends to proceed to arbitration in California.

As background, a First Amended Complaint was filed on March 1, 2002, adding the
company and its former Chief Financial Officer as parties-defendant. The
gravamen of the First Amended Complaint is two-fold. First, it alleges Daou's
financial statements were misleading and fraudulently induced the plaintiff to
merge his company with Daou. Second the First Amended Complaint alleges breach
of an indemnification and severance agreement obligating the company to defend
the plaintiff in a lawsuit filed by Traci Melia, a former employee. Neither the
Complaint nor the First Amended Complaint allege specific damage amounts. A
Motion to Dismiss the First Amended Complaint was filed on April 24, 2002. The
Court conducted a hearing on June 7, 2002 and granted the motion. On July 23,
2002, the plaintiff filed a Notice of Appeal and the Appellate Court set a
briefing schedule directing the plaintiff/appellant to file his opening brief no
later than October 21, 2002. The plaintiff/appellant did not file his brief
because he intends to abandon his appeal and proceed to arbitration in
California. The Company believes that the allegations set forth in the original
and First Amended Complaints are without merit, and the Company intends to
defend against the arbitration vigorously. No assurance as to the outcome of
this matter can be given, however, and an unfavorable resolution of this matter
could have a material adverse effect on the Company's business, results of
operations and financial condition.

                                       17

<PAGE>

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.

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

    Exhibit No.             Description
    -----------            -------------
     99.1                  Certification Pursuant to 18 U.S.C. Section 1350, as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002
     99.2                  Certification Pursuant to 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 the following Current
     Report on Form 8-K/A-1 with the SEC during the quarter ended September 30,
     2002:

         On September 17, 2002, the Company filed a Current Report on Form
8-K/A-1 to amend Registrant's Form 8-K filed with the SEC on January 11, 1999,
involving a contract between the Registrant and Saint Mary's Health Network of
Reno, Nevada ("SMHN"). This contract was terminated effective as of March 31,
2001 as described in the Registrant's Form 10-Q for the quarter ended March 31,
2001 and filed with the SEC on May 15, 2001. The Registrant no longer provides
services to SMHN.

                                       18

<PAGE>

                                   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, 2002

                                     Daou Systems, Inc.


                                     By: /s/ James T. Roberto
                                         ----------------------------------
                                         James T. Roberto
                                         President and Chief Executive Officer,
                                         duly authorized officer


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

                                       19

<PAGE>

                                 Certifications

I, James T. Roberto, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Daou Systems, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

             a)   designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

             b)   evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

             c)   presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

             a)   all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

             b)   any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: November 14, 2002

/s/ James T. Roberto
------------------------
James T. Roberto
President and Chief Executive Officer

                                       20

<PAGE>

I, Neil R. Cassidy, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Daou Systems, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

             a)   designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

             b)   evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

             c)   presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

             a)   all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

             b)   any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: November 14, 2002

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

                                       21