<PAGE>

                                  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 JUNE 30, 2000

                                       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)

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

                                 (858) 452-2221
              (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 August 11, 2000: 17,712,768


<PAGE>

                               DAOU SYSTEMS, INC.


                               Index to Form 10-Q

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

                Condensed Consolidated Balance Sheets at June 30, 2000 (unaudited) and
                  December 31, 1999                                                                         2

                Condensed Consolidated Statements of Operations (unaudited) for the Three Months
                and Six Months Ended June 30, 2000 and 1999                                                 3

                Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months
                Ended June 30, 2000 and 1999                                                                4

                Notes to Condensed Consolidated Financial Statements                                        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                                  14

PART II.        OTHER INFORMATION

Item 1.         Legal Proceedings                                                                          15
Item 4.         Submission of Matters to a Vote of Security Holders                                        15
Item 6.         Exhibits and Reports on Form 8-K                                                           16

                SIGNATURES                                                                                 17
</TABLE>


<PAGE>

PART I.    FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

                               DAOU Systems, Inc.
                      Condensed Consolidated Balance Sheets
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                           JUNE 30,        DECEMBER 31,
                                                                             2000              1999
                                                                          (UNAUDITED)
                                                                       ------------------------------------
<S>                                                                     <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                             $      12,822    $      15,480
   Short-term investments, available-for-sale                                       64               68
   Accounts receivable, net of allowance for doubtful accounts of
     $1,771 and $1,868 at June 30, 2000 and December 31, 1999, respectively     14,692           21,912
   Contract work in progress                                                     1,456            2,816
   Income tax receivable                                                             -              378
   Other current assets                                                          1,692              670
                                                                       ------------------------------------
Total current assets                                                            30,726           41,324

Due from officers/stockholders                                                      96               98
Equipment, furniture and fixtures, net                                           4,032            4,319
Other assets                                                                       171              319
                                                                       ------------------------------------
TOTAL ASSETS                                                           $         35,025 $          46,060
                                                                       ====================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Trade accounts payable and other accrued liabilities                  $       2,287    $       4,698
   Accrued salaries and benefits                                                 3,505            4,248
   Current portion of severance payable                                            210              210
                                                                       ------------------------------------
Total current liabilities                                                        6,002            9,156

Long-term liabilities                                                              471              548

Commitments and contingencies


Redeemable convertible preferred stock, $.001 par value. Authorized 3,520
   shares; issued and outstanding 2,182 shares at June 30, 2000
   and December 31, 1999                                                        11,751           11,382
Stockholders' equity:
   Common stock, $.001 par value. Authorized shares 50,000 shares; issued and
     outstanding 17,713 shares at June 30, 2000 and 17,712
     shares at December 31, 1999                                                    18               18
   Additional paid-in capital                                                   37,396           37,395
   Deferred compensation                                                          (117)            (192)
   Accumulated other comprehensive income                                          (47)             (43)
   Retained deficit                                                            (20,449)         (12,204)
                                                                       ------------------------------------
Total stockholders' equity                                                      16,801           24,974
                                                                       ------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $         35,025 $         46,060
                                                                       ====================================
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       2
<PAGE>

                               DAOU Systems, Inc.
                 Condensed Consolidated Statements of Operations
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED JUNE 30,            SIX MONTHS ENDED JUNE 30,
                                                   2000               1999              2000                 1999
                                             ------------------ -----------------  ----------------    -----------------
<S>                                           <C>               <C>                <C>                 <C>
Revenues                                      $       16,127    $        27,051     $       33,702     $        54,373
Cost of revenues                                      13,045             19,117             29,001              40,936
                                             ------------------ -----------------  ----------------    -----------------
Gross profit                                           3,082              7,934              4,701              13,437

Operating expenses:
   Sales and marketing                                 1,651              2,414              3,441               5,319
   General and administrative                          4,178              5,325              8,642              10,661
   Restructuring charges                                 827                  -                827                   -
                                             ------------------ -----------------  ----------------    -----------------
                                                       6,656              7,739             12,910              15,980
                                             ------------------ -----------------  ----------------    -----------------

Income (loss) from operations                         (3,574)               195             (8,209)             (2,543)
Interest income (expense), net                           164                (95)               333                (181)
                                             ------------------ -----------------  ----------------    -----------------

Income (loss) before income taxes                     (3,410)               100             (7,876)             (2,724)
Provision (benefit) for income taxes                       -                 40                  -              (1,116)
                                             ------------------ -----------------  ----------------    -----------------
Net income (loss)                                     (3,410)                60             (7,876)             (1,608)

Accrued dividends on preferred stock                    (185)                 -               (369)                  -
                                             ------------------ -----------------  ----------------    -----------------
Net income (loss) available to common
stockholders                                 $        (3,595)   $            60    $        (8,245)    $        (1,608)
                                             ================== =================  ================    =================

Net income (loss) per common share:
Basic                                        $         (0.20)   $          0.00    $         (0.47)    $         (0.09)
                                             ================== =================  ================    =================
Diluted                                      $         (0.20)   $          0.00    $         (0.47)    $         (0.09)
                                             ================== =================  ================    =================

Shares used in computing net income (loss)
per share:
Basic                                                 17,713             17,691             17,712              17,691
                                             ================== =================  ================    =================
Diluted                                               17,713             17,918             17,712              17,691
                                             ================== =================  ================    =================
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL statements.


                                       3
<PAGE>

                               DAOU Systems, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED JUNE 30,
                                                                2000                  1999
                                                          -----------------     ------------------
<S>                                                       <C>                    <C>
OPERATING ACTIVITIES
Net loss                                                   $       (7,876)       $       (1,608)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
   Depreciation and amortization                                    1,156                   734
    Provision for uncollectible accounts                              197                    90
    Deferred income taxes                                               -                (1,560)
  Changes in operating assets and liabilities:
     Accounts receivable                                            7,023                 2,890
     Contract work in process                                       1,360                 3,666
     Other current assets                                            (644)                  184
     Accounts payable and accrued liabilities                      (2,411)               (2,092)
     Accrued salaries and benefits                                   (743)                1,594
     Other accounts                                                   103                   234
                                                          -----------------     ------------------
Net cash provided by (used in) operating activities                (1,835)                4,132


INVESTING ACTIVITIES:
Purchases of equipment, furniture and fixtures                       (869)                 (699)
Maturities of short-term investments                                    -                    52
Changes in other assets                                               150                    10
                                                          -----------------     ------------------
Net cash used in investing activities                                (719)                 (637)

FINANCING ACTIVITIES:
Repayments of long-term debt and line of credit                      (105)                 (901)
Proceeds from inssuance of common stock                                 1                    11
                                                          -----------------     ------------------
Net cash used in financing activities                                (104)                 (890)
                                                          -----------------     ------------------


Increase (decrease) in cash and cash equivalents                   (2,658)                2,605
Cash and cash equivalents at beginning of period                   15,480                 6,756
                                                          -----------------     ------------------
Cash and cash equivalents at end of period                $        12,822       $         9,361
                                                          =================     ==================
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       4
<PAGE>

DAOU SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. Basis of Presentation

The unaudited condensed consolidated financial statements of DAOU Systems, Inc.
("DAOU" or the "Company") at June 30, 2000 and for the three and six month
periods ended June 30, 2000 and 1999 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 fairly present the financial
position of the Company at June 30, 2000 and the results of operations for the
three and six month periods ended June 30, 2000 and 1999. The results of
operations for the three and six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the year ending December 31, 2000.
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 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 financials 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 30, 2000 and in the Company's Proxy Statement Schedule 14A
Information filed with the SEC on May 1, 2000.

2. Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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.


3. Lines of Credit

On June 29, 1999, the Company secured a replacement $8.0 million revolving line
of credit, which expires June 29, 2001. The line of credit bears interest at
prime plus 1% per annum and is secured by substantially all of the assets of the
Company and contains customary covenants and restrictions. There are no
compensating balance requirements and borrowings under the line of credit are
limited to 80% of qualifying receivables. No amounts were outstanding under this
revolving line of credit as of June 30, 2000.


4. Related Party Transactions

The Company provides implementation services to a company in which the Chairman
of the Board is an investor. At June, 30, 2000, the Company has approximately
$30,000 in accounts receivable outstanding related to these implementation
services.


5. 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


                                       5
<PAGE>

stock options and warrants. In 2000 and for the six months ended June 30, 1999,
diluted loss per share is unchanged from basic loss per share because the
effects of the assumed conversion of stock options and warrants would be
antidilutive.

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

(In thousands, except per share information)
(unaudited)

<TABLE>
<CAPTION>
                                                              Three Months Ended            Six Months Ended
                                                                   June 30,                     June 30,
                                                              2000         1999            2000             1999
                                                           -------------------------    -----------------------------
<S>                                                            <C>          <C>         <C>                <C>
Numerator:
   Net income (loss) available to common stockholders          $(3,595)         $60        $ (8,245)       $ (1,608)

Denominator:
   Denominator for basic net loss per share - weighted
     average common shares outstanding                          17,713       17,691          17,712          17,691

Effect of dilutive securities:
      Warrants                                                       -           15               -               -
      Common stock options                                           -          212               -               -
                                                           -------------------------    -----------------------------
                                                                     -          227               -               -
                                                           -------------------------    -----------------------------
   Denominator for diluted net loss per share -adjusted
   weighted average common shares outstanding                  17,713        17,918         17, 712          17,691
                                                           ========================    =============================


Basic net loss per share                                        (0.20)         0.00           (0.47)          (0.09)
                                                           ========================    =============================

Diluted net loss per share                                      (0.20)         0.00           (0.47)          (0.09)
                                                           ========================    =============================
</TABLE>

6. Comprehensive Loss

Comprehensive income (loss) for the three months ended June 30, 2000 and 1999
totaled $(3,598,000) and $137,000, respectively. Comprehensive loss for the six
months ended June 30, 2000 and 1999 totaled $(8,249,000) and $(1,477,000),
respectively. The difference from reported net loss arises from the unrealized
gains and losses on short-term investments.


7.   Series A Preferred Stock

Holders of the Series A Preferred Stock are entitled to receive cumulative
dividends at the rate of six percent per annum, payable in the form of shares of
Series A Preferred Stock. Such dividend rate shall increase an additional
one-percent per annum for each successive year after the second anniversary of
the purchase date. As of June 30, 2000, the Company has accrued but undeclared
preferred stock dividends of $677,000, payable in shares of Series A Preferred
Stock.


8.  Restructuring Charges

In connection with the Restructuring Plan, the Company has undertaken various
actions to reduce the cost structure of the Company. As a result, the Company
recorded restructuring charges in the period ending June 30, 2000, totaling
approximately $827,000. Such charges were determined in accordance with Staff
Accounting Bulletin No.


                                       6
<PAGE>

100, RESTRUCTURING AND IMPAIRMENT CHARGES, and Emerging Issues Task Force No.
94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER
COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING).
These charges include severance costs related to a reduction in work force and
the closure and combination of certain facilities.

The following table summarizes the restructuring and other related charges
recorded in the period ended June 30, 2000, of which $107,000 are included in
accrued liabilities at June 30, 2000.

<TABLE>
<S>                                                                                 <C>
       Severance costs for involuntary employee terminations                        $          752,000
       Costs related to closure and combination of facilities                                   75,000
                                                                                    -------------------
                                                                                    $          827,000
                                                                                    ===================
</TABLE>

9.   Disclosure of Segment Information

For the three months and six months ended June 30, 2000 and 1999, the Company
has the following five reportable segments: information technology (IT)
consulting and managed care implementation, communications infrastructure,
applications implementation, integration services, and outsourcing. Beginning in
early 2000, the Company formed a new segment, Enosus. The IT consulting and
managed care implementation group focuses on providing senior consultants to
assist healthcare management to plan and meet their business and IT objectives.
The communications infrastructure group installs, implements and maintains IT
infrastructure for healthcare organizations. The applications implementation
group provides IT consulting resources to hospitals and other healthcare
organizations. The integration services group concentrates on integration of
existing healthcare systems (financial, clinical and management) to reduce
overall costs and improve the quality of care. The outsourcing group performs a
full range of IT outsourcing services including co-source or outsource of call
centers, help desks, desktop support, server management, network management,
voice management and complete IT department outsourcing. Enosus provides
Internet professional services and solutions to organizations executing an
eBusiness strategy.

The Company manages segment reporting at a gross margin level. Selling, general
and administrative expenses, and fixed 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>
                          IT Consulting
                               and
                          Managed Care    Communications   Application    Integration
                          Implementation  Infrastructure  Implementation   Services    Outsourcing   Enosus      Total
                          -------------- --------------- --------------- ------------ ------------ ---------- -----------

THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------
<S>                    <C>                 <C>              <C>         <C>         <C>         <C>         <C>
Total revenues         $  1,709            $  2,493         $  3,763    $  2,502    $  5,323    $    337    $ 16,127
Cost of services          1,482               2,311            2,511       1,709       4,573         459      13,045
                       --------            --------         --------    --------    --------    --------    --------
Gross profit                227                 182            1,252         793         750        (122)      3,082
Gross profit percent         13%                  7%              33%         32%         14%        -36%         19%


Sales and marketing
                                                                                                               1,651
General and
  administrative
                                                                                                               4,178
Restructuring charges
                                                                                                                 827
                                                                                                            -----------
Loss from operations                                                                                        $ (3,574)
                                                                                                            ===========
</TABLE>


                                       7
<PAGE>

<TABLE>
<CAPTION>
                          IT Consulting
                               and
                          Managed Care    Communications   Application    Integration
                          Implementation  Infrastructure  Implementation   Services    Outsourcing   Enosus      Total
                          -------------- --------------- --------------- ------------ ------------ ---------- -----------
<S>                        <C>            <C>             <C>             <C>          <C>          <C>        <C>
THREE MONTHS ENDED
JUNE 30, 1999

Total revenues                     $  3,052   $    4,638    $   9,060    $  3,437    $  6,864    $   --         27,051
Cost of services                      1,699        4,365        4,647       2,162       6,244        --         19,117
                                   ------------------------------------------------------------------------------------
Gross profit                          1,353          273        4,413       1,275         620        --          7,934
Gross profit percent                     44%           6%          49%         37%          9%       --             29%

Sales and marketing                                                                                               2,414
General and
  administrative                                                                                                  5,325
Restructuring charges                                                                                                --
                                                                                                               --------
Income from operations                                                                                         $    195
                                                                                                               ========

SIX MONTHS ENDED JUNE 30, 2000
Total revenues                     $  3,126     $  6,441     $  8,144    $  5,014    $ 10,594    $    383     $ 33,702
Cost of services                      2,822        5,764        6,849       3,885       9,062         619       29,001
                                   ------------------------------------------------------------------------------------
Gross profit                            304          677        1,295       1,129       1,532        (236)       4,701
Gross profit percent                     10%          11%          16%         23%         14%        -62%          14%

Sales and marketing                                                                                              3,441
General and administrative                                                                                       8,642
Restructuring charges                                                                                              827
                                                                                                              --------
Loss from operations                                                                                         $ (8,209)
                                                                                                              ========

SIX MONTHS ENDED
JUNE 30, 1999
Total revenues                     $  5,394     $ 13,088     $ 16,410    $  6,858    $ 12,623    $  --        $ 54,373
Cost of services                      3,195       15,062        8,700       4,340       9,639        --         40,936
                                   ------------------------------------------------------------------------------------
Gross profit                          2,199       (1,974)       7,710       2,518       2,984        --         13,437
Gross profit percent                     41%         -15%          47%         37%         24%       --             25%

Sales and marketing                                                                                              5,319
General and
  administrative                                                                                                10,661
Restructuring charges                                                                                          -------
Loss from operations                                                                                          $ (2,543)
                                                                                                               ========
</TABLE>

10.  Contingencies

On August 24, 1998, August 31, 1998, September 14, 1998 and September 23, 1998,
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. A group of shareholders has been appointed the lead plaintiffs and
they filed an amended consolidated complaint on February 24, 1999. The new
complaint realleges the same theory of liability previously asserted, namely the
alleged improper use of the percentage-of-completion accounting method for
revenue recognition. These complaints were brought on behalf of a purported
class of investors in the Company's Common Stock and do not allege specific
damage amounts. In addition, on October 7, 1998 and October 15, 1998, separate
complaints were filed in the Superior Court of San Diego, California. These
additional complaints mirror the allegations set forth in the federal complaints
and assert common law fraud and the violation of certain California statutes. By
stipulation of the parties, the state court litigation has been stayed pending
the resolution of a motion to dismiss, which was filed on February 22, 2000 in
the federal litigation. That motion has been fully briefed and


                                       8
<PAGE>

awaits the Court's ruling which will occur at the November 20, 2000 hearing on
the matter. The Company believes that the allegations set forth in all of the
foregoing complaints are without merit and intends to defend against these
allegations 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>

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 Form 10-K for the
year ended December 31, 1999 on file with the SEC, and in the Company's Proxy
Statement Schedule 14A Information filed with the SEC on May 1, 2000. 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.

MERGER DISCUSSIONS

On August 10, 2000, DAOU announced that it is seeking strategic alternatives
designed to maximize shareholder value and that it is currently holding
discussions with Perot Systems Corporation, a Delaware Corporation, regarding
the possible sale of the Company. Although no definitive agreement has been
signed and a price has not been agreed to, the price currently being discussed
would not be at a substantial premium over the current market price. There can
be no assurance that an agreement regarding the sale of the Company will be
reached as a result of the current discussions at such a price or at any price,
or that an agreement will be reached with any other company at all.

OVERVIEW

DAOU provides integrated information technology (IT) solutions and services to
the U.S. healthcare and Internet professional services industries. The Company's
capabilities range from strategic planning (using IT to support key business
goals), to the design and integration of IT components (voice, video and data
networks, application implementation, Internet infrastructure, data warehouses),
to the management and delivery of operational services (IT department, desktop
management, ASP services, network management), and to Internet solutions and
professional services supporting organizations executing an eBusiness strategy.

The Company's service offerings are segmented into the following business units:

-    IT CONSULTING AND MANAGED CARE IMPLEMENTATION (IT Consulting) - develops
     business and IT strategic plans and solves execution challenges for managed
     care and healthcare delivery organizations, installs and integrates managed
     care applications, and manages IT systems.

-    COMMUNICATIONS INFRASTRUCTURE - focuses on the IT infrastructure in
     healthcare enterprises, primarily IDNs, hospitals, academic medical centers
     and medical groups, provides networking, desktop, and voice, video and data
     solutions.

-    APPLICATION IMPLEMENTATION - supplies hospitals and other healthcare
     organizations with temporary, certified consultants who are capable of
     installing and servicing approximately 90% of the most common healthcare
     software applications.


                                       10
<PAGE>

-    INTEGRATION SERVICES - focuses on integration of the customers information
     systems with existing or new infrastructure that allow healthcare
     organizations to share and access data housed across multiple platforms and
     environments.

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

-    ENOSUS - provides Internet professional services and solutions to
     organizations executing an eBusiness strategy.

The Company's service offerings represent aggregated end-to-end healthcare IT
solutions. Depending on the specific needs of its customers, the Company's
relationships may begin anywhere along the IT solution process, growing within
one of the groups or developing cohesively across the complete end-to-end IT
solution process from conceptualization to operation.

The Company's gross margin with respect to fixed-fee based service contracts
varies significantly depending on the percentage of third-party products versus
professional services provided by the Company. 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. In 1999, the Company began to focus on providing its professional
services on a "time and expense" basis, under which revenues are recognized as
the services are performed. Billings for these services occur on a semi-monthly
or monthly basis. The Company also provides support and management service
revenues, which are recognized ratably over the period that these services are
provided.

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              Six Months Ended
                                                               June 30,                       June 30,
                                                     ------------------------------  ----------------------------
                                                          2000            1999           2000          1999
                                                     ---------------  -------------  ------------- --------------
<S>                                                   <C>             <C>            <C>           <C>
        Revenues                                          100%            100%           100%          100%
        Cost of revenues                                   81              71             86            75
                                                     ---------------  -------------  ------------- --------------
        Gross profit                                       19              29             14            25
        Selling, general and administrative
        expenses                                           36              29             36            30
        Restructuring charges                               5              -               2             -
                                                     ---------------  -------------  ------------- --------------
        Income (loss) from operations                     (22)             -             (24)           (5)
        Interest income (expense), net                     1               -              1              -
                                                     ---------------  -------------  ------------- --------------
        Income (loss) before income taxes                 (21)             -             (23)           (5)
        Provision (benefit) for income taxes               -               -              -             (2)
                                                     ---------------  -------------  ------------- --------------
        Net income (loss)                                 (21)             -             (23)           (3)
                                                     ===============  =============  ============= ==============
</TABLE>


THREE MONTHS ENDED JUNE 30, 2000 AND 1999

The Company's revenues decreased 40% or $11.0 million to $16.1 million for the
three months ended June 30, 2000 from $27.1 million for the three months ended
June 30, 1999, primarily due to continued weakness in the Company's core health
care information technology (IT) business, that management attributes to reduced
demand for such services as compared to fiscal year 1999, in which customers
dedicated more resources to information technology matters in light of Year 2000
issues. Services to DAOU's five largest customers accounted for 33% or $5.3
million of total revenues for the three months ended June 30, 2000.


                                       11
<PAGE>

Cost of revenues decreased 32% or $6.1 million to $13.0 million for the three
months ended June 30, 2000 from $19.1 million for the three months ended June
30, 1999, primarily as a result of a workforce reduction and employee related
expenses in the second quarter driven by the reduced demand for professional
services. Gross margin percentage decreased to 19% for the three months ended
June 30, 2000 from 29% for the three months ended June 30, 1999.

Sales and marketing expenses decreased 32% or $0.7 million to $1.7 million for
the three months ended June 30, 2000 from $2.4 million for the three months
ended June 30, 1999, primarily due to the continued consolidation of sales and
marketing efforts into the corporate office and a reduction of sales
expenditures. Sales and marketing expenses represented approximately 10% and 9%
of total revenues for the three months ended June 30, 2000 and 1999,
respectively.

General and administrative expenses decreased 22% or $1.1 million to $4.2
million for the three months ended June 30, 2000 from $5.3 million for the three
months ended June 30, 1999, primarily as a result of synergies related to the
integration of acquired companies and a workforce reduction and employee related
expenses. General and administrative expenses represented approximately 26% and
20% of total revenues for the three months ended June 30, 2000 and 1999,
respectively.

In connection with the Restructuring Plan, the Company has undertaken various
actions to improve the cost structure of the Company. As a result, the Company
recorded restructuring charges in the three months ended June 30, 2000 totaling
$827,000. These charges result primarily from severance costs related to a
workforce reduction and the costs related to the closure and combination of
certain facilities.

Other income (expense), net, was $164,000 and $(95,000) for the three months
ended June 30, 2000 and 1999, respectively. Other income is primarily interest
income on cash and cash equivalents, and short-term investments. Other expense
consists primarily of interest associated with the Company's business lines of
credit. The increase in net other income (expense), net, was primarily due to
higher average cash reserves available for investment and reduced interest
expense after the payoff of outstanding debt in 1999.

Income taxes provided in 2000 are based on the Company's estimated effective tax
rate. During 1999, the Company was estimating that it would receive tax benefit
for its losses. In the fourth quarter, the tax benefit previously recorded was
reversed due to the total loss in 1999.

SIX MONTHS ENDED JUNE 30, 2000 AND 1999

The Company's revenues decreased 38% or $20.7 million to $33.7 million for the
six months ended June 30, 2000 from $54.4 million for the six months ended June
30, 1999, primarily due to continued weakness in the Company's core health care
information technology (IT) business, that management attributes to reduced
demand for such services as compared to fiscal year 1999, in which customers
dedicated more resources to information technology matters in light of Year 2000
issues. Services to DAOU's five largest customers accounted for 28% or $9.4
million of total revenues for the six months ended June 30, 2000.

Cost of revenues decreased 29% or $11.9 million to $29.0 million for the six
months ended June 30, 2000 from $40.9 million for the six months ended June 30,
1999, primarily as a result of a workforce reduction and employee related
expenses in the second quarter driven by the reduced demand for professional
services. Gross margin percentage decreased to 14% for the six months ended June
30, 2000 from 25% for the six months ended June 30, 1999.

Sales and marketing expenses decreased 35% or $1.9 million to $3.4 million for
the six months ended June 30, 2000 from $5.3 million for the six months ended
June 30, 1999, primarily due to the continued consolidation of sales and
marketing efforts into the corporate office and a reduction of sales
expenditures. Sales and marketing expenses represented approximately 10% total
revenues for the six months ended June 30, 2000 and 1999.


                                       12
<PAGE>

General and administrative expenses decreased 19% or $2.1 million to $8.6
million for the six months ended June 30, 2000 from $10.7 million for the six
months ended June 30, 1999, primarily as a result of synergies related to the
integration of acquired companies and a workforce reduction and employee related
expenses. General and administrative expenses represented approximately 26% and
20% of total revenues for the six months ended June 30, 2000 and 1999,
respectively.

In connection with the Restructuring Plan, the Company has undertaken various
actions to improve the cost structure of the Company. As a result, the Company
recorded restructuring charges in the three months ended June 30, 2000 totaling
$827,000. These charges result primarily from severance costs related to a
workforce reduction and the costs related to the closure and combination of
certain facilities.

Other income (expense), net, was $333,000 and $(181,000) for the six months
ended June 30, 2000 and 1999, respectively. Other income is primarily interest
income on cash and cash equivalents, and short-term investments. Other expense
consists primarily of interest associated with the Company's business lines of
credit. The increase in net other income (expense), net, was primarily due to
higher average cash reserves available for investment and reduced interest
expense after the payoff of outstanding debt in 1999.

Income taxes provided in 2000 are based on the Company's estimated effective tax
rate. During 1999, the Company was estimating that it would receive tax benefit
for its losses. In the fourth quarter, the tax benefit previously recorded was
reversed due to the total loss in 1999.

LIQUIDITY AND CAPITAL RESOURCES

On June 30, 2000, the Company had working capital of $24.7 million, a decrease
of $7.5 million from $32.2 million on December 31, 1999. For the six months
ended June 30, 2000, cash used in operating activities was $1.8 million compared
to cash used in operating activities of $4.1 million for the six months ended
June 30, 1999. This change resulted primarily from the loss from operations and
decreases in accounts payable and accrued liabilities offset by decreases in
accounts receivable and contract work in progress.

Net cash used in investing activities was $719,000 in the current period,
compared to net cash used in investing activities of $637,000 in the comparable
prior period. This change resulted primarily from slightly increased equipment
purchases for the six months ended June 30, 2000.

Net cash used in financing activities was $104,000 for the six months ended June
30, 2000, compared to net cash used in financing activities of $890,000 in the
comparable prior period. This change resulted primarily from repayments of debt
and lines of credit during the six months ended June 30, 1999.

On June 29, 1999, the Company secured an $8.0 million revolving line of
credit that expires on June 29, 2001. The line of credit bears interest at
prime plus 1% per annum, is secured by substantially all of the assets of the
Company and contains customary covenants and restrictions. There are no
compensating balance requirements and borrowings under the line of credit are
limited to 80% of qualifying receivables. No amounts are outstanding under
this revolving line of credit and there are no outstanding letters of credit
as of August 11, 2000. This credit facility contains change of control
provisions that will be triggered by a merger involving the Company, such as
the one being discussed with Perot Systems Corporation. If the creditor fails
to consent to this transaction, or any similar transaction, any amounts
outstanding under this facility at that time would have to be repaid and this
facility could be terminated. Although the Company does not have any reason
to believe that such creditor would withhold consent, there can be no
assurance that such consent will be obtained. In addition, if such facility
is terminated, there can be no assurance that the Company will be able to
obtain another facility on similar terms or at all.

Although the Company has an accumulated deficit as of June 30, 2000, the Company
believes that its existing cash and short term investments together with
anticipated cash from operating activities will be sufficient to meet its
capital requirements, including the start-up costs for Enosus, for the
foreseeable future. The Company may draw down its credit facility, 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


                                       13
<PAGE>

Company's stockholders and the incurrence of additional debt could result in
additional interest expense.

In July 1999, the Company issued 2,181,818 shares of Series A Preferred Stock.
The Series A Preferred Stock accrues dividends at a six percent annual rate.
Such rate will increase one percent each year after the second anniversary of
the issue date of the Series A Preferred Stock. The dividend is payable in
shares of Series A Preferred Stock except in the case of redemption or
liquidation. The holders of the Series A Preferred Stock have the right to cause
the Company to redeem their stock for an aggregate amount equal to $12 million,
plus accrued dividends, which were $677,000 as of June 30, 2000, upon the
occurrence of certain events that are outside the Company's control. If the
Company is forced to redeem the Series A Preferred Stock, then the Company may
be forced to sell additional equity or debt securities, or draw down its credit
facility. The Company may not be able to raise additional capital on terms
favorable to the Company, 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 is exposed to changes in interest rates, primarily from its
variable-rate long-term debt arrangements and, to a lessor extent, its
investments in certain available-for-sale marketable securities. Under its
current policies, the Company does not use interest rate derivatives instruments
to manage this exposure to interest rate changes. The Company does not have the
option to convert its variable-rate long-term debt arrangement to fixed-rate
debt arrangements for a nominal transaction fee. At August 11, 2000, the Company
had no outstanding balance on its variable-rate debt. A hypothetical 1% adverse
move in the interest rates along the entire interest rate yield curve would not
materially effect the fair value of the Company's financial instruments that are
exposed to changes in interest rates.


                                       14
<PAGE>

PART II OTHER INFORMATION

Item 1.   Legal Proceedings


On August 24, 1998, August 31, 1998, September 14, 1998 and September 23,
1998, 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. A group of shareholders has been appointed the lead
plaintiffs and they filed an amended consolidated complaint on February 24,
1999. The new complaint realleges the same theory of liability previously
asserted, namely the alleged improper use of the percentage-of-completion
accounting method for revenue recognition. These complaints were brought on
behalf of a purported class of investors in the Company's Common Stock and do
not allege specific damage amounts. In addition, on October 7, 1998 and
October 15, 1998, separate complaints were filed in the Superior Court of San
Diego, California. These additional complaints mirror the allegations set
forth in the federal complaints and assert common law fraud and the violation
of certain California statutes. By stipulation of the parties, the state
court litigation has been stayed pending the resolution of a motion to
dismiss, which was filed on February 22, 2000 in the federal litigation. That
motion has been fully briefed and awaits the Court's ruling which will occur
at the November 20, 2000 hearing on the matter. The Company believes that the
allegations set forth in all of the foregoing complaints are without merit
and intends to defend against these allegations 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.

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

The Company's 2000 Annual Meeting of Stockholders was held on May 31, 2000. The
following matters were voted on by the stockholders.

1.   Election of two Class II Directors

     John H. Morange and Kevin Fickenscher were reelected to the Board of
     Directors for terms extending through the 2003 Annual Meeting of
     Stockholders. The vote was 15.9 million in favor of Mr. Morange and 0.5
     million votes withheld, and 15.9 million in favor of Mr. Fickenscher and
     0.5 million votes withheld.

2.   Amend the 1996 Stock Option Plan

     The stockholders adopted an amendment to the Company's 1996 Stock Option
     Plan increasing the aggregate number of shares of common stock which may be
     affected under the plan from 4,000,000 to 5,000,000. The vote was 5.8
     million in favor of the amendment, with 3.7 million votes against and
     21,000 withheld.

3.   Adopt the 2000 Employee Stock Purchase Plan

     The stockholders adopted the 2000 Employee Stock Purchase Plan. An
     aggregate of 1,500,000 shares of common stock may be purchased by eligible
     employees through payroll deductions. The vote was 8.8 million in favor,
     with 0.7 million votes against and 14,000 withheld.

4.   Ratification of Independent Auditors

     The stockholders ratified the selection of Ernst & Young LLP as the
     Company's independent auditors for the fiscal year ending December 31,
     2000. Ernst & Young LLP has audited the Company's financial statements
     annually since March 1995. The vote was 16.1 million in favor, with 0.3
     million votes against and 5,000 withheld.


                                       15
<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

(a)  Exhibits

    Exhibit No.               Description
    --------------            ----------------
       27.1                   Financial Data Schedule


(b)  Current Reports on Form 8-K. The Registrant did not file any Current
     Reports on Form 8-K with the Commission during the quarter ended June 30,
     2000.


                                       16
<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:    August 11, 2000

                                 DAOU SYSTEMS, INC.


                                 By:  /s/ Larry D. Grandia
                                     --------------------------------------
                                     Larry D. Grandia
                                     President and Chief Executive Officer,
                                     Duly authorized officer


                                 By:  /s/ Donald R. Myll
                                     --------------------------------------
                                     Donald R. Myll
                                     Executive Vice President,
                                     Chief Financial Officer, and
                                     Secretary, Principal financial
                                     and accounting officer.


                                       17