UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended March 31, 2011
  OR
  oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from to
  Commission file number:1-10768
  MEDIWARE INFORMATION SYSTEMS, INC.
 (Exact name of registrant as specified in its charter)
  New York

11-2209324(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)11711 West 79th StreetLenexa, Kansas

66214(Address of principal executive offices)

(Zip Code)
   (Registrant's telephone number, including area code):(913) 307-1000
   (Former name, former address and former fiscal year, if changed since last report)
  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.   [X] Yes [_] No
  Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes []     No []
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
  Large accelerated filer                                           [  ]                                         Accelerated Filer              [  ]
 Non-accelerated filer                                           [  ]                                           Smaller reporting company[X]
 (Do not check if a smaller reporting company)
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      [ ] Yes   [X] No
  APPLICABLE ONLY TO CORPORATE ISSUERS:
  As of April 29, 2011, there were 8,016,000 shares of Common Stock, $0.10 par value, of the registrant outstanding.
  1
  MEDIWARE INFORMATION SYSTEMS, INC.
   INDEX
  
  PagePART I
Financial InformationITEM 1.
Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and June 30, 2010
3Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) for the Three and Nine Months Ended March 31, 2011 and 2010
4Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Nine Months Ended March 31, 2011
5Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended March 31, 2011 and 2010
6Notes to Unaudited Condensed Consolidated Financial Statements
7Review Report of Independent Registered Public Accounting Firm
20ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
21ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
29ITEM 4.
Controls and Procedures
29PART II
Other Information
30ITEM 1.
Legal Proceedings
30ITEM 1A.
Risk Factors
30ITEM 6.
Exhibits
31Signatures

32
 
 
 2
 PART I     FINANCIAL INFORMATION
  1.      FINANCIAL STATEMENTS
  MEDIWARE INFORMATION SYSTEMS, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands except shares)
  (Unaudited)March 31,


June 30,2011


2010 (Note 1)ASSETSCurrent AssetsCash and cash equivalents

$
30,101


$
23,340Accounts receivable (net of allowance of $1,382 and $1,090)


11,965



13,334Inventories


350



375Deferred income taxes


854



748Prepaid expenses and other current assets


1,133



986Total current assets


44,403



38,783Fixed assets, net


1,103



1,369Capitalized software costs, net


13,158



12,352Goodwill, net


13,014



13,188Other intangible assets, net


4,500



5,403Other long-term assets


90



90Total Assets

$
76,268


$
71,185LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable

$
1,044


$
1,409Advances from customers


14,222



12,715Income taxes payable


757



613Contingent consideration payable


-



1,432Accrued expenses and other current liabilities


3,748



3,888Total current liabilities


19,771



20,057Deferred income taxes


4,454



4,428Total liabilities


24,225



24,485Commitments and Contingencies (Note 9)Stockholders' EquityCommon stock, $.10 par value; authorized 25,000,000shares; 8,623,000 and 8,557,000 shares issuedas of March 31, 2011 and June 30, 2010, respectively


862



855Additional paid-in capital


35,241



34,108Treasury stock, 608,000 and 590,000 shares at March 31, 2011and June 30, 2010, respectively


(3,698
)


(3,503
)Retained earnings


19,869



15,679Accumulated other comprehensive loss


(231
)


(439
)Total stockholders' equity


52,043



46,700Total Liabilities and Stockholders' Equity

$
76,268


$
71,185
 
 See Notes to Unaudited Condensed Consolidated Financial Statements.
 
 3
 MEDIWARE INFORMATION SYSTEMS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (Amounts in thousands, except earnings per share)
  (Unaudited)


(Unaudited)Three months ended


Nine Months endedMarch 31,


March 31,2011


2010


2011


2010RevenueSystem sales

$
3,360


$
2,525


$
9,594


$
7,739Services


10,414



10,281



29,953



26,627Total revenue


13,774



12,806



39,547



34,366Cost and ExpensesCost of system sales (1)


848



930



2,368



2,638Cost of services (1)


3,725



3,363



10,616



8,637Amortization of capitalized software costs


1,112



1,110



3,372



3,862Software development costs


1,207



1,463



2,955



3,591Selling general and administrative


4,654



4,671



14,262



12,633Total costs and expenses


11,546



11,537



33,573



31,361Operating income


2,228



1,269



5,974



3,005Interest and other income


14



10



48



121Interest and other (expense)


(22
)


(40
)


(97
)


(62
)Income before income taxes


2,220



1,239



5,925



3,064Income tax (expense)


(817
)


(348
)


(1,735
)


(771
)Net income


1,403



891



4,190



2,293Other comprehensive income (loss)Foreign currency translation adjustment


132



(150
)


208



(252
)Comprehensive income

$
1,535


$
741


$
4,398


$
2,041Net income per Common ShareBasic

$
0.18


$
0.11


$
0.52


$
0.29Diluted

$
0.17


$
0.11


$
0.51


$
0.29Weighted Average Common Shares OutstandingBasic


8,015



7,889



8,003



7,819Diluted


8,220



7,984



8,170



7,927
  (1) Excludes amortization of Capitalized Software Costs
  See Notes to Unaudited Condensed Consolidated Financial Statements.
 
 4
 MEDIWARE INFORMATION SYSTEMS, INC.
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 (Amounts in thousands)
  Common Stock


Additional

Paid-In

Capital


Treasury

Stock


Retained

Earnings


Accumulated Other Comprehensive Income (Loss)


TotalShares


AmountBalance at June 30, 2010


8,557


$
855


$
34,108


$
(3,503
)

$
15,679


$
(439
)

$
46,700Issuance of common stock on vesting ofrestricted shares


66



7



(7
)














-Repurchase of common stock














(195
)










(195
)Stock based compensation expense










1,047















1,047Tax benefit related to stock-based compensation







93















93Foreign currency translation adjustment






















208



208Net income


















4,190







4,190Balance at March 31, 2011


8,623


$
862


$
35,241


$
(3,698
)

$
19,869


$
(231
)

$
52,043(Unaudited)
 
 See Notes to Unaudited Condensed Consolidated Financial Statements.
 
 5
 MEDIWARE INFORMATION SYSTEMS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands)
  (Unaudited)Nine Months EndedMarch 31,2011


2010 (Note 1)Cash Flows From Operating ActivitiesNet income

$
4,190


$
2,293Adjustments to reconcile net income, tonet cash provided by operating activities:Depreciation and amortization


4,721



5,066Gain on disposal of fixed assets


22



-Stock based compensation expense


1,047



464Deferred tax provision


92



(393
)Provision for doubtful accounts


478



192Changes in operating assets and liabilities, net ofeffect of acquisitions:Accounts receivable


1,013



(612
)Inventories


32



(138
)Prepaid expenses and other assets


(133
)


(131
)Accounts payable, accrued expenses andadvances from customers


980



2,197Net cash provided by operating activities


12,442



8,938Cash Flows From Investing ActivitiesAcquisition of fixed assets


(190
)


(136
)Capitalized software costs


(4,178
)


(2,566
)Acquisition of businesses, net of cash acquired


(1,500
)


(6,080
)Net cash used in investing activities


(5,868
)


(8,782
)Cash Flows From Financing ActivitiesProceeds from exercise of stock options


-



471Excess tax benefits from exercise of stock optionsand vesting of restricted stock


93



139Repurchase of common stock


(195
)


-Net cash (used in) provided by  financing activities


(102
)


610Foreign currency translation adjustments


289



(289
)Net change in cash and cash equivalents


6,761



477Cash and cash equivalents at beginning of period


23,340



20,865Cash and cash equivalents at end of period

$
30,101


$
21,342Supplemental disclosures of cash flow information:Cash paid during the period for:Income taxes

$
1,363


$
664
 
 See Notes to Unaudited Condensed Consolidated Financial Statements.
 6
 MEDIWARE INFORMATION SYSTEMS, INC.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
 
 1.     BASIS OF PRESENTATION
 
 In the opinion of management, the accompanying unaudited, condensed, consolidated financial statements contain all adjustments necessary to present fairly the financial position of Mediware Information Systems, Inc. (“Mediware” or the “Company”) and its results of operations and cash flows for the interim periods presented. Such financial statements have been condensed in accordance with the applicable regulations of the Securities and Exchange Commission and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with Mediware's audited financial statements for the fiscal year ended June 30, 2010, included in Mediware's Annual Report filed on Form 10-K for such fiscal year.
   
 The results of operations for the three and nine months ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year.
 
 
 2.     EARNINGS PER SHARE
 
 Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, par value $0.10 (“Common Stock”), of Mediware.  For the three and nine months ended March 31, 2011 and 2010, the dilutive effect of Common Stock equivalents is included in the calculation of diluted earnings per share using the treasury stock method.
 
 
 3.     TREASURY STOCK
 
 In February 2008, the Board of Directors of the Company authorized Mediware to repurchase up to $4,000,000 of its Common Stock, at times and prices as the President and Chief Executive Officer or the Chief Financial Officer of the Company shall determine to be appropriate (the “Share Repurchase Program”).  In October 2008, the Board of Directors expanded the Share Repurchase Program by $3,318,000, bringing the total amount authorized under the Share Repurchase Program to $7,318,000.  The program has no expiration date, and Mediware has no obligation to purchase shares under the Share Repurchase Program.
 
 As of March 31, 2011, the Company has repurchased a total of 590,000 shares of Common Stock at a cost of $3,503,000 under the Share Repurchase Program. As of March 31, 2011, the Company is authorized to purchase up to an additional $3,815,000 of Common Stock under the Share Repurchase Program.
 
 The Company may, from time to time, permit a net exercise for equity-based awards made to employees and directors.  In September 2010, an executive surrendered 18,675 shares of Common Stock with a fair value of $195,000 in order to pay taxes due in connection with the vesting of a stock-based compensation award.  This surrender was accounted for as a repurchase of Common Stock, this transaction is not included in the Share Repurchase Program.
  Shares of Common Stock repurchased by the Company are recorded at cost as treasury stock and result in a reduction of stockholders' equity in the accompanying condensed consolidated balance sheets. When shares are reissued, the Company will use the weighted average cost method for determining cost. The difference between the cost of the shares and the issuance price is added or deducted from additional paid-in capital.
 
 7
 4.     FAIR VALUE OF FINANCIAL INSTRUMENTS
 
 The carrying value of certain financial instruments, such as accounts receivable and accounts payable, approximate their fair value due to the short-term nature of their underlying terms.
 
 5.     ACQUISITIONS
 
 Healthcare Automation, Inc.
 On December 11, 2009, Mediware acquired all of the common stock of Healthcare Automation, Inc., a Delaware corporation (“HAI”).  HAI provides medication management solutions to home infusion, specialty pharmacy and alternate care markets through integrated software solutions that address the complex work flow and patient safety needs of these markets. This acquisition became part of the Alternate Care Solutions (ACS) business group.
 
 Mediware believes the acquisition of HAI has expanded its medication management offering by expanding its presence in the home infusion, specialty pharmacy and alternate care markets.
 
 The HAI products generate revenue by licensing its proprietary software and by providing professional services and support for the product lines.  Generally, HAI customers are charged an initial start-up fee along with monthly fees for the continued use and support of the proprietary software.  Software license fees are recognized when the license is initially executed, subject to the revenue recognition principles for software.  Professional services and support revenues are recognized as the services are delivered.
 
 The purchase price paid for HAI consists of an initial purchase price of $3,501,000 in cash, net of $5,000 cash acquired at the closing, plus contingent consideration of $954,000 deposited into the sellers’ escrow account in December 2010 based upon the achievement of certain revenue milestones through December 11, 2010.  This amount is disbursable to the sellers of HAI on September 30, 2011, subject to any indemnity claims by Mediware.  The Company will receive $22,000 from the seller as part of the final working capital adjustment.  The Company estimated the fair value of the contingent consideration at the acquisition date to be $871,000 using a probability-weighted discounted cash flow model.  This fair value was based on significant inputs not observable in the markets and thus represents a Level 3 measurement as defined in ASC 820.   The Company incurred $40,000 of legal, accounting and other professional fees related to this transaction, which were expensed.  The results of the HAI operations are included in the accompanying financial statements from the date of acquisition.
 
 The Company has accounted for the HAI transaction as a business acquisition under the accounting guidance.  The assets acquired and liabilities assumed of HAI were recorded as of the acquisition date, at their respective fair values.  The preparation of the valuation required the use of significant assumptions and estimates.  These estimates were based on assumptions that the Company believes to be reasonable.
 
 The following summarizes the final purchase price allocation, net of cash acquired and reflecting the working capital adjustment (in thousands):
 
 8
  Purchase Price

AllocationAccounts receivable

$
743Prepaid and other current assets


64Fixed assets


14Intangible assets subject to amortization


2,199Goodwill


1,860Accounts payable


(57
)Advances from customers


(240
)Accrued expenses and other current liabilities


(233
)Other long term liabilities - contingent consideration


(871
)Contingent consideration paid


954Total purchase price, net of cash acquired

$
4,433
  Details of acquired intangibles and goodwill are as follows (in thousands):
 Amount

Assigned

Weighted

Average

Amortization

Period

Risk-Adjusted

Discount Rate

Used in Purchase Price

AllocationAmortizable Intangible AssetsPurchased technology

$
756

5.0 years


19.1
%Customer relationships


1,285

6.0 years


19.1
%Customer backlog


158

13 months


19.1
%$
2,199Goodwill

$
1,860
  The Company valued the purchased technology using the excess earnings method of the income approach.  Utilizing this approach, the Company projected revenue and related expenses.  These projected income amounts were then reduced by the return on contributory assets and discounted to present value.  This method requires the use of certain estimates, including revenue growth rates, technology replacement rates, customer attrition, expenses, contributory asset charges and discount rates.  Based on this methodology the Company assigned the value of purchased technology at $756,000.  The Company is amortizing this amount over the estimated useful life of five years.
 
 The Company valued the customer relationships and contracted backlog using the excess earnings method of the income approach.  Utilizing this approach, the Company projected revenue and related expenses.  These projected income amounts were then reduced by the return on contributory assets and discounted to present value.  This method requires the use of certain estimates, including revenue growth rates, customer attrition, expenses, contributory asset charges and discount rates.  Based on this methodology the Company assigned the value of customer relationships at $1,285,000 and contracted backlog at $158,000.  The Company is amortizing customer relationships over the estimated useful life of six years and the contracted backlog over the estimated useful life of thirteen months.
 
 The Company has made an election under the Internal Revenue code section 338(h)(10).  Accordingly, goodwill is expected to be deductible for tax purposes.
 
 Proforma information for the acquisition of HAI has not been presented as the acquisition is not significant.
 
 9
 
 Advantage Reimbursement, Inc.
 On December 11, 2009, Mediware, through its newly formed wholly owned subsidiary Advantage Reimbursement, LLC, a Delaware limited liability company (“ARL”),  acquired substantially all of the assets of Advantage Reimbursement, Inc., a Massachusetts corporation (“ARI”).  ARI was a provider of billing and collection services for home infusion and alternate care enterprises. This acquisition became part of the Alternative Care Solutions (ACS) business group.
 
 The acquisition of ARI expanded the scope of services that Mediware can provide to its current and potential home infusion, specialty pharmacy and alternate care customers.
 
 ARL services generate revenue by providing collection and billings services and expertise to Mediware’s home infusion, specialty pharmacy and alternate care customers and may be provided to other software providers’ customers as well.   Customers are charged a percentage of the third party fees that are collected.  The Company records revenue as the third party fees are collected.
 
 The purchase price paid for the assets of ARI consisted of an initial purchase price of $2,061,000 paid in cash at the closing, plus contingent consideration of $546,000 deposited into the sellers’ escrow account in December 2010 based upon the achievement of certain revenue milestones through December 11, 2010.   This amount is disbursable to the sellers of ARI’s assets on September 30, 2011, subject to any indemnity claims by Mediware.  In addition, the Company will pay $14,000 to the sellers as part of the final working capital adjustment.  We estimated the fair value of the contingent consideration at the acquisition date to be $498,000 using a probability-weighted discounted cash flow model.  This fair value was based on significant inputs not observable in the markets and thus represents a Level 3 measurement as defined in ASC 820.  The Company incurred $21,000 of legal, accounting and other professional fees related to this transaction, which were expensed.  The results of the ARI operations are included in the accompanying financial statements from the date of acquisition.
 
 The Company has accounted for the acquisition of ARI as the purchase of a business under the accounting guidance.  The assets acquired and liabilities assumed of ARI were recorded as of the acquisition date, at their respective estimated fair values.  The preparation of the valuation required the use of significant assumptions and estimates.  These estimates were based on assumptions that the Company believes to be reasonable.
 
 The following summarizes the final purchase price allocation, reflecting the working capital adjustment (in thousands):
  Purchase PriceAllocationAccounts receivable

$
549Prepaid expenses


38Fixed assets


1Intangible assets subject to amortization


763Goodwill


1,317Accounts payable


(16
)Accrued expenses and other liabilities


(79
)Other long term liabilities - contingent consideration


(498
)Contingent consideration paid


546Total Purchase Price

$
2,621
 
 10
 Details of acquired intangible assets and goodwill are as follows (in thousands):
 Amount

Assigned

Weighted

Average

Amortization

Period

Risk-Adjusted

Discount Rate

Used in Purchase Price

AllocationAmortizable Intangible AssetsCustomer relationships


763

6.0 years


17.0
%$
763Goodwill

$
1,317
 
 The Company valued the customer relationships using the excess earnings method of the income approach.  Utilizing this approach, the Company projected revenue and related expenses.  These projected income amounts were then reduced by the return on contributory assets and discounted to present value.  This method requires the use of certain estimates, including revenue growth rates, customer attrition, expenses, contributory asset charges and discount rates.  Based on this methodology the Company assigned the value of customer relationships at $763,000.  The Company is amortizing this amount over the estimated useful life of six years.
 
 Goodwill is expected to be deductible for tax purposes.
 
 Proforma information for the acquisition of ARI has not been presented as the acquisition is not significant.
  
 6.      GOODWILL AND OTHER INTANGIBLE ASSETS
 
 Goodwill
 
 The change in the carrying amount of our goodwill during the nine months ended March 31, 2011 is as follows (in thousands):
 
 Carrying amount as of June 30, 2010

$
13,188Tax benefit of amortization


(174
)Carrying amount as of March 31, 2011

$
13,014
 
 Other Intangible Assets
 
 The carrying amount of our other intangible assets as of March 31, 2011 is as follows (in thousands):
  Gross Carrying

Amount


Accumulated

Amortization


Net Carrying

Amount


Weighted Average Remaining Useful Life (in years)Purchased technology

$
1,932


$
(807
)

$
1,125



2.9Customer relationships


4,883



(1,513
)


3,370



4.4Contract backlog


158



(158
)


-



-Non-compete agreements


124



(119
)


5



0.1$
7,097


$
(2,597
)

$
4,500
 
 Amortization expense for other intangible assets amounted to $290,000 and $903,000 for the three and nine months ended March 31, 2011, and $282,000 and $644,000 for the three and nine months ended March 31, 2010.  The following represents the expected amortization in future periods (in thousands):
 
 11
 
 Fiscal

ExpectedYear

Amortization2011 (Remainder)

$
2912012


1,1512013


1,0572014


9752015


717Thereafter


309$
4,500
 7.     STOCK BASED COMPENSATION
 
 The aggregate noncash stock based compensation expense totaled $299,000 and $163,000 for the three months ended March 31, 2011 and 2010, respectively, and $1,047,000 and $464,000 for the nine months ended March 31, 2011 and 2010, respectively.
 
 Stock Based Plans
 
 The Company's 2003 Equity Incentive Plan, approved by the shareholders in December 2003, provides additional compensation incentives to encourage high levels of performance and employee retention.  Key employees of the Company, directors, and persons who render services to the Company as consultants, advisors or independent contractors are eligible to receive grants under this plan.  The number of shares that may be issued under this plan is 2,000,000.  Shares may be issued as either incentive stock options, nonqualified stock options, or restricted common stock.  Options may be granted for a period of up to ten years.  Restricted common stock awards may be subject to vesting restrictions and may be forfeited if certain performance factors are not maintained.  The plan provides that a maximum of 1,700,000 shares may be issued as any combination of restricted stock, options and restricted stock unit awards.  The additional 300,000 shares of common stock can only be granted as option awards.  As of March 31, 2011, there were 842,000 shares available for issuance under this Plan.
 
 The Company's 2001 Stock Option Plan, approved by the shareholders in January 2002, provides additional compensation incentives for high levels of performance and productivity by management, other key employees of the Company, directors, and persons who render services to the Company as consultants, advisors or independent contractors.  Up to 900,000 shares may be issued and sold under such plan and may be issued as either incentive stock options, to eligible persons, or nonqualified stock options.  Options may be granted for a period of up to ten years, with option prices not less than fair market value on the date of grant for incentive stock options, not less than 85% of fair market value for nonqualified stock options, and not less than 110% of fair market value for owners of more than 10% of the Company's outstanding voting stock.  As of March 31, 2011, no options were available to be issued under this Plan.
 
 The Company may from time to time permit net share exercises of awards made to employees and directors.  Shares reacquired under net share exercises are included within treasury stock.
 
 Restricted Common Stock Awards
 
 Beginning in fiscal 2007, the Company entered into agreements to provide long-term incentive compensation opportunities to certain key employees.  Under the terms of these agreements, the Company granted the employees 35,000 restricted shares of common stock (the “Time-Based Shares”).  The Time-Based Shares vest over a three-year period based upon the continued employment of the key employee.  With respect to the Time-Based Shares, the Company recorded compensation expense of $1,000 and $2,000 for the three months ended March 31, 2011 and 2010, respectively, and compensation expense of $3,000 and $8,000 for the nine months ended March 31, 2011 and 2010, respectively.  At March 31, 2011, all compensation expense related to the Time-Based Shares had been recognized.
 
 12
 Beginning in fiscal 2007, each member of the Company’s Board of Directors received an annual grant of $10,000 of restricted common stock (the “Director Shares”) as part of their compensation for serving on the Company’s Board of Directors.  The number of Director Shares granted is determined based upon the fair market value of the Company’s stock on the first trading day of each calendar year.  The Director Shares vest on June 30 of each fiscal year based upon the director’s continued service on the Company’s Board of Directors.  The Company recorded compensation expense related to the Director Shares of $18,000 for the three months ended March 31, 2011 and 2010, respectively, and $53,000 for each of the nine months ended March 31, 2011 and 2010, respectively.  The Director Shares will result in compensation expense in future periods of up to $17,000, representing the fair value on the date of the grant less the amount of compensation expense already recorded.
 
 During fiscal 2008, the Company entered into agreements to provide long-term incentive compensation opportunities to certain employees.  Under the terms of these agreements, the Company granted the employees 220,000 restricted shares of common stock (the “2008 Enhanced Performance Shares”).  The 2008 Enhanced Performance Shares vest partially upon continued employment of the key employees and partially upon the achievement of certain performance goals.  The Company recorded no compensation expense related to the 2008 Enhanced Performance Shares for the three months ended March 31, 2011 and $89,000 in compensation expense for the three months ended March 31, 2010.  The Company recorded $60,000 and $291,000 for the nine months ended March 31, 2011 and 2010, respectively, for such expenses.  At March 31, 2011, all compensation expense related to the 2008 Enhanced Performance Shares had been recognized.
 
 During fiscal 2010, the Company entered into agreements to provide long-term incentive compensation opportunities to certain employees.  Under the terms of these agreements, the Company will grant up to a total of 168,750 restricted shares of common stock (the “2010 Enhanced Performance Shares”) in three annual tranches.  The 2010 Enhanced Performance Shares vest upon both continued employment and upon the achievement of certain performance goals.  Each tranche is deemed to be granted upon the annual establishment of the performance criteria.  In the three and nine months ended March 31, 2011 the Company recorded compensation expense related to the 2010 Enhanced Performance Shares of $127,000 and $386,000, respectively.  The Company will continue to assess whether or not the achievement of any performance goals is probable at each reporting period, and will recognize the related expense if and when the performance conditions become probable.The first tranche of 56,250 shares awarded under the 2010 Enhanced Performance Shares were valued at $512,000 based on the grant date fair value.  At March 31, 2011, there was $108,000 of unrecognized compensation expense related to this annual tranche of 2010 Enhanced Performance Shares.  Also under the terms of these agreements, the Company will grant up to a total of 56,250 restricted shares of common stock (the “Market Condition Shares”) in three annual tranches.  The Market Condition Shares vest upon the achievement of certain market condition criteria and the continued employment of the key employees.  Following the grants of the initial tranches, each tranche of the Market Condition Shares is deemed to be granted upon the annual reset of the market condition criteria. For the three and nine months ended March 31, 2011 the Company recorded $21,000 and $60,000, respectively, of compensation expense related to the Market Condition Shares.  The first tranche of 18,750 shares awarded as Market Condition Shares were valued at $85,000 based on the grant date fair value.  At March 31, 2011, there was $18,000 of unrecognized compensation expense related to this first tranche of Market Condition Shares.
 
 A summary of nonvested share activity for the nine months ended March 31, 2011, is presented below (share amounts in thousands):
 
 13
 
 Market Condition Shares


Weighted Average Grant Date Fair Value


Time-Based Shares


Weighted Average Grant Date Fair Value


Directors Shares


Weighted Average Grant Date Fair ValueNonvested at June 30, 2010


6


$
4.86



2


$
5.96



-



-Granted


13



4.40



-



-



7


$
10.90Canceled or forfeited


-



-



-



-



-



-Vested


-



-



-



-



-



-Nonvested at March 31, 2011


19


$
4.55



2


$
5.96



7


$
10.90
  2008 Enhanced Performance Shares


Weighted Average Grant Date Fair Value


2010 Enhanced Performance Shares


Weighted Average Grant Date Fair ValueNonvested at June 30, 2010


66


$
6.74



19


$
9.12Granted


-



-



37



9.11Canceled or forfeited


-



-



-



-Vested


(66
)


6.74



-



-Nonvested at March 31, 2011


-



-



56


$
9.11
 The foregoing information does not reflect any shares that are deemed not granted as described above.
 
 The fair value of the restricted shares is determined based on the average trading price of the Company’s shares on the grant date, except for the Director Shares which is determined based on the average trading price of the Company’s shares as of the first trading day of each calendar year, pursuant to the directors’ compensation plan and the Market Condition Shares which were valued by an outside party to take into account the market condition criteria.
 
 Stock Option Awards
 
 The fair value of stock options is determined at the date of grant and is charged to compensation expense over the vesting period of the options.  The fair value of options at date of grant was estimated using the Black-Scholes option pricing model utilizing the following assumptions:
  For the Three Months

Ended March 31,
For the Nine Months

Ended March 31,2011
2010
2011
2010Risk-free interest rates
-
2.40%
1.70%
2.3-2.4%Expected option life in years
-
2 – 3
2.5
2 – 3Expected stock price volatility
-
45%
54%
45 - 66%Expected dividend yield
-
0%
0%
0%
 
 There were no stock options granted in the three months ended March 31, 2011.
 
 The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.  The Company uses historical data to estimate option exercise and employee and director termination within the valuation model; separate groups of employees and directors that have similar historical exercise behavior are considered separately for valuation purposes.  The expected term of options granted represents the period of time that options granted are expected to be outstanding; the ranges above result from groups of employees and directors exhibiting different behavior.  Expected volatilities are based on historical volatility of the Company’s stock.  The Company has not paid any dividends in the past and does not expect to pay any in the near future.
 
 14
 
 The following table sets forth summarized information concerning the Company's stock options as of March 31, 2011 (share and aggregate intrinsic value amounts in thousands):
 
 Shares


Weighted Average Exercise Price


Weighted Average Remaining Contractual Term


Aggregate Intrinsic ValueOutstanding at June 30, 2010


846


$
8.69Granted


100



9.11Exercised


-



-Forfeited or expired


(43
)


8.39Outstanding at March 31, 2011


903


$
8.75



3.6


$
3,211Options exercisable at March 31, 2011


502


$
9.32



3.2


$
1,531Nonvested at March 31, 2011


401


$
8.04



4.0


$
1,680
 
 The strike price of the options is determined based on the average trading price of the Company’s shares on the grant date.
 
 There were no stock options exercised in the nine months ended March 31, 2011.  Cash received from the options exercised under all stock-based payment arrangements for the nine months ended March 31, 2010 was $471,000.  The aggregate intrinsic value of options exercised during the nine months ended March 31, 2010 was $353,000.  Historically, the Company has issued new shares upon the exercise of stock options.
 
 For the nine months ended March 31, 2011 the weighted average fair value at date of grant for options granted was $4.12 per option.  The weighted average fair value at date of grant for options granted during the three and nine months ended March 31, 2010 was $2.17 and $2.28 per option, respectively.  The Company recorded  $132,000 and $54,000 of compensation expense for stock options for the three months ended March 31, 2011 and 2010, respectively, and $485,000 and $111,000 for the nine months ended March 31, 2011 and 2010, respectively.
  Estimated future stock-based compensation expense relating to outstanding stock options is as follows (in thousands):
 
 Fiscal Years Ending June 30,

Future Stock Option Compensation Expense2011 (Remainder)

$
1072012


2942013


1422014


512015


-Total estimated future stock-based compensation expense

$
594
 15
 The following table presents information relating to stock options at March 31, 2011 (share amounts in thousands):
 
 Options Outstanding


Options ExercisableRange of Exercise Prices

Shares


Weighted Average Exercise Price


Weighted Average Remaining Life in Years


Shares


Weighted Average Exercise Price$ 0.00 - $ 4.49


10



$3.89



2.6



6



$3.89$ 4.50 - $ 7.49


339



$6.63



4.3



196



$6.75$ 7.50 - $ 8.99


139



$8.79



3.8



10



$8.08$ 9.00 - $ 10.49


298



$9.71



2.9



173



$10.13$ 10.50 - $11.99


-



-



-



-



-$12.00 - $13.49


87



$12.56



3.0



87



$12.56$13.50 - $14.99


30



$13.73



2.8



30



$13.73903











502
 
 8.   INCOME TAXES
 
 Deferred tax assets and liabilities are recognized for the expected future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using the enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.  A valuation allowance is provided against net deferred tax assets when it is not more likely than not that a tax benefit will be realized.  Income taxes include U.S. and foreign taxes.
 
 As of March 31, 2011, as required by accounting guidance, the Company’s unrecognized tax benefits totaled $489,000.  Accrued interest and penalties at March 31, 2011 amounted to $24,000.  The Company recognizes accrued interest and penalties in income tax expense.
 
 The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  In general, the Company’s filed income tax returns are no longer subject to examination by the respective taxing authorities for years ending before June 30, 2007.  However, to the extent utilized, the Company’s net operating loss carryforwards originating in closed years remain subject to examinations.
 
 9. SEGMENT INFORMATION
 
 The Company has four distinct product lines:  Medication Management systems, Blood and Biologics Management systems, Performance Management systems and Perioperative Management systems.   Based on similar economic characteristics, as well as the nature of products, production processes, customers and distribution methods, the Company has aggregated these product lines into one reporting segment.  Revenue by product line is as follows (in thousands):
 
 16
 For the Three Months Ended


For the Nine Months EndedMarch 31,


March 31,2011


2010


2011


2010Medication Management Systems:System sales

$
1,466


$
1,690


$
5,369


$
4,356Services


4,615



5,420



13,934



12,904Billing and collections


990



937



3,030



1,1537,071



8,047



22,333



18,413Blood and Biologics Management Systems:System sales


1,776



778



3,958



3,044Services


4,374



3,455



11,684



11,1096,150



4,233



15,642



14,153Performance Management SystemsSystem sales


118



57



267



284Services


261



265



771



842379



322



1,038



1,126Perioperative Management SystemsSystem sales


-



-



-



55Services


174



204



534



619174



204



534



674Total

$
13,774


$
12,806


$
39,547


$
34,366
 Billing and collections revenue is generated from the acquired assets of ARI.
 
 Selected financial information by geographic area is as follows (in thousands):
 
 For the Three Months Ended March 31,


For the Nine Months Ended March 31,2011


2010


2011


2010Revenue from Unaffiliated Customers:United States

$
12,469


$
10,888


$
35,063


$
29,550United Kingdom


1,305



1,918



4,484



4,816Total

$
13,774


$
12,806


$
39,547


$
34,366Net Income (Loss):United States

$
1,472


$
588


$
3,901


$
1,710United Kingdom


(69
)


303



289



583Total

$
1,403


$
891


$
4,190


$
2,293
 
 17
 
 For the Three Months Ended March 31,2011


2010Identifiable Assets:United States

$
68,374


$
61,673United Kingdom


7,894



7,145Total


76,268



68,818
 
 10.     CONTINGENCIES
 
 From time to time, Mediware becomes involved in routine litigation incidental to the conduct of its business, including employment disputes and litigation alleging product defects, intellectual property infringements, violations of law and breaches of contract and warranties.  Mediware believes that such routine litigation, if adversely determined, would not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
 
 Mediware is working with a longstanding vendor of third-party software to confirm that Mediware has been appropriately invoiced for its use of the vendor’s product.  The vendor prices its software licenses on a per-unit basis.  The vendor is currently investigating whether it should price the software licensed to Mediware on a basis different than the vendor has invoiced Mediware over the past several years.  An estimate of the possible loss or range of loss resulting from an unfavorable outcome, if any, could not be established and no provision has been recorded.
 
 11.     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
 In October 2009, the FASB issued authoritative guidance on revenue recognition that became effective for the Company beginning July 1, 2010.  Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance.  Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance.  Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method.  The guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition.  The adoption of this new guidance did not have a material impact on the Company’s consolidated financial position and results of operations.
 
 In June 2009, the FASB finalized guidance in determining whether an enterprise has a controlling financial interest in a variable interest entity. This determination identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity's economic performance, and the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the variable interest entity. This guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. New provisions of this guidance were effective July 1, 2010.  These changes did not have a material impact on the Company's consolidated financial position and results of operations as the Company does not have variable interest entities.
 
 In June 2009, the FASB issued guidance to improve transparency about transfers of financial assets and a transferor's continuing involvement, if any, with transferred financial assets. This guidance removes the concept of a qualifying special-purpose entity and removes the exception from applying previous guidance to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosures.  This guidance was adopted for the Company beginning July 1, 2010 and did not have a material impact on the Company's consolidated financial position and results of operations.
  18
 12.     SUBSEQUENT EVENTS
 
 The Company has performed its subsequent events review through the filing of these financial statements.
  On April 11, 2011, the Company acquired certain assets of the home medical equipment, home health, home infusion and billing and collections businesses of CareCentric National, LLC  (“CareCentric”).  The acquisition expands the Company’s Alternate Care Solutions business line.  The acquisition price was approximately $3.0 million composed of $2.1 million in cash and the assumption of $0.9 million in net current liabilities subject to a working capital adjustment.  The acquired businesses will be included with the results of the Company from the effective date of the acquisition, April 11, 2011.
 
 
 19
  REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To The Board of Directors and Shareholders of
 Mediware Information Systems, Inc.
 
 We have reviewed the accompanying condensed consolidated balance sheet of Mediware Information Systems, Inc. and subsidiaries (the "Company") as of March 31, 2011, and the related condensed consolidated statements of operations and comprehensive income for the three and nine month periods ended March 31, 2011 and 2010, and cash flows for the nine month periods ended March 31, 2011 and 2010.  These interim condensed consolidated financial statements are the responsibility of the Company's management.
 
 We conducted our reviews in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
 Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.
 
 We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of June 30, 2010, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated September 8, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2010 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived including the reclassification described in Note 1 of the March 31, 2011 condensed consolidated financial statements.
 
 
 /s/ EisnerAmperLLP
 
 EisnerAmperLLP
 New York, New York
  May 2, 2011
  
  The  “Review Report of Independent Registered Public Accounting Firm” included above is not a ‘Report as part of Registration Statement’ prepared or certified by an independent accountant within the meanings of Section 7 and 11 of the Securities Act of 1933, and the accountants’ Section 11 liability does not extend to such report.
 
 20
  ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Forward-Looking Statements
 
 This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. The words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions identify some of the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. The factors discussed elsewhere in this Form 10-Q and in Mediware’s Form 10-K for the year ended June 30, 2010 and in subsequent Quarterly Reports on Form 10-Q, could also cause actual results to differ materially from those indicated by the Company’s forward-looking statements.  Mediware undertakes no obligation to publicly update or revise any forward-looking statements.
 
 Mediware Information Systems, Inc. (including its subsidiaries, “Mediware” or the “Company”) is a New York corporation incorporated in 1970 with its corporate headquarters at 11711 West 79th Street, Lenexa, Kansas.  The Company maintains an Internet website at www.mediware.com, at which reports filed with the Securities Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Securities Exchange Act”) can be obtained under “Investor Relations” without charge as soon as reasonably practicable after filed or furnished with the SEC.  The Company may post at its website additional information important to its shareholders and to potential investors.  Information on or linked to the Company website is not incorporated by reference into this Quarterly Report on Form 10-Q.  Filings with the SEC can also be obtained at the SEC’s website, www.sec.gov.
 
 Mediware licenses, implements and supports clinical and performance management information solutions and other services to healthcare facilities.  We license our blood and biologics management solutions to hospitals. We license blood donor recruitment and management solutions to blood donor and plasma donor centers through our Blood Center Technologies business group, formed during the fiscal year ended June 30, 2009.  The Company’s medication management solutions are licensed to hospitals, long-term care, specialty pharmacy, home infusion, home medical equipment, alternate care and behavioral health facilities.  Our home infusion, specialty pharmacy, home medical equipment and alternate care products and services are licensed through the Company’s Alternate Care Solutions (ACS) business group, formed during fiscal 2010.  ACS also provides billing and collection services to the home infusion market.  We license performance management software to hospitals, blood and plasma centers and alternate care facilities.
 
 We generally license our blood and biologics management software systems and certain of our medication management software systems to customers on a perpetual basis.  The customers that license the software on a perpetual basis typically make an up-front payment for the software license fees and payments for support services on an annual basis.  In contrast, we generally provide our blood and plasma center solutions and certain of our medication management software systems and our recently acquired alternate care products on a monthly subscription basis.  These customers pay Mediware an initial start-up fee and a monthly fee for use and support of Mediware’s proprietary software.  Under both payment models, customers may purchase services, including implementation, consultation and other ad hoc services, for additional fees which are generally billed as incurred.  However, beginning in fiscal 2010, we initiated our “maintenance plus” program through which our customers may elect to pay “in advance” on an annual basis for services that had historically been paid on an ad hoc basis.  Performance management software is licensed on both a perpetual and subscription bases.  We currently anticipate that over time an increased number of our systems (in all product lines) will be licensed on a subscription basis.
 
 Blood and Biologics Management Products
 
 Our flagship blood transfusion product is the HCLLTM transfusion software.  We also provide our hospital customers the complementary HCLLTM donor software for use in hospital-based donor centers.  In early fiscal year 2008, we announced our BloodSafeTM suite of products.  As of March 31, 2011, BloodSafeTM is licensed for use at seven facilities.
  21
 In July 2008 we announced the launch of Blood Center Technologies business unit.  Blood Center Technologies is intended to drive growth as we expand our focus in the blood donor and plasma market.  Blood Center Technologies provides software tools and services to large, complex blood centers for donor targeting, donor recruitment, donation management, unit testing, blood component manufacturing, inventory control, sales and distribution. This is accomplished through a combination of our 510(k) cleared LifeTrak® software and a set of robust CRM and recruiting software products and capabilities. These products and capabilities enable us to deliver an integrated software solution for blood centers to improve collections and efficiency throughout the entire process from blood donor recruitment to hospital distribution.  Through an acquisition in the quarter ended March 31, 2010 we added e-learning content and technologies, along with certification tracking tools, to our Blood Center Technologies product offering.  We offer this content, technologies and tracking tools, “KnowledgeTrak,” on a subscription basis.
 
 During the quarter ended December 31, 2010, Mediware contracted with third parties to provide the LifeTrak® and Insight performance management software and related services to the U.S. Military Health Service (“MHS”).   These contracts call for aggregate payments to Mediware of approximately $4.3 million; provided there are no adjustments under the terms of the agreements.  The LifeTrak® and Insight project is expected to extend through the remainder of fiscal 2011 and into the first half of fiscal 2012, and it is being accounted for using the percentage of completion method, which in this case requires us to recognize revenue based upon the ratio of the effort completed during the reporting period compared to our estimate of the total effort required to complete the project.  In April 2011, Mediware contracted with one of the same third parties to provide Mediware’s HCLLTM and KnowledgeTrak software products to the MHS. This contract calls for payment to Mediware of $5.8 million; provided there are no adjustments under the terms of the agreement.   During the fourth quarter of fiscal 2011 we expect to enter into a contract to provide services associated with the MHS’s licensing of the HCLL software.  The HCLLTM and KnowledgeTrak project is expected to commence during the fourth quarter of fiscal 2011 and extend through at least the end of fiscal 2012. Mediware’s financial results for the third quarter do not include any impact of these HCLL and KnowledgeTrak contracts.
 
 In June 2008, we released BiologiCare®, our first generation bone, tissue and cellular product tracking software.  With the introduction of BiologiCare, we believe we are positioned to benefit from the emerging biologics market, which includes, among other things, bone, tissue and cord blood stem cells.  BiologiCare can be integrated with our HCLL software or operate on a stand-alone basis.  As of March 31, 2011, BiologiCare is licensed for use at three facilities.
 
 In addition to our license of blood and biologics management software, we generate revenue from professional services and post-contract support.  These ongoing support contracts accounted for 45% of the total revenue from blood and biologics management operations in both the nine months ended March 31, 2011 and 2010.
 
 Medication Management Products
 
 Mediware’s medication management software product for larger and medium sized hospitals and healthcare institutions is WORx®.  We also offer MediCOE, a physician order entry module, and MediMAR®, a nurse point of care administration and bedside documentation module, that are fully integrated with the WORx software.  An acquisition in November 2008 expanded our product offering by adding Ascend, a solution that meets the needs of small and medium size hospital, specialty pharmacy and home infusion facilities.  To expand our capabilities and address a new industry mandate, we introduced MediREC in March 2007.  As of March 31, 2011, MediREC was licensed for use at seven customer sites.
 
 Selling our full suite of medication management products (WORx, MediMAR, MediCOE and MediREC) is a complex process involving multiple hospital departments.  On the other hand, Ascend requires substantially smaller financial commitments from customers and is priced based on a subscription pricing model.  Consequently, we anticipate that sales of the Ascend software products will be more consistent and have shorter sales cycles than sales of the full suite of medication management products.
 
 We generate revenue from medication management software sales, professional services and post-contract support.  Support contracts have accounted for 49% and 52% of the total revenue from medication management operations in the nine months ended March 31, 2011 and 2010, respectively.
 
 Through two acquisitions consummated on December 11, 2009, Mediware greatly increased our presence in the alternate care market.  Mediware formed an Alternate Care Solutions business unit to capitalize on the growing strength of its product offerings. Our product offerings currently include: home infusion software, specialty pharmacy software, home medical equipment software, and home healthcare software, as well as billing and collections services that are focused on the alternate care markets. These offerings are largely the combination of the home infusion offering that Mediware acquired in 2008 and the home infusion, specialty pharmacy and alternate care products acquired in December 2009.  Mediware expects to integrate the home medical equipment, home health, home infusion and billing and collections businessesacquired from CareCentric following the third quarter of fiscal 2011 with its existing Alternate Care Solutions business.
 
 22
 Our United Kingdom operating business is JAC Computer Services, Ltd. (JAC).  JAC’s product offering includes its Pharmacy Management system and Electronic Prescribing module.  The Electronic Prescribing module has been installed in approximately twenty U.K. customer sites as of March 31, 2011.  The installed base of the Company’s Pharmacy Management system product includes approximately 50% of the trusts within National Health Service (NHS).
 
 The NHS in the U.K. initiated a national program to purchase healthcare information technology in 2004 (the National Program).   JAC worked to position itself favorably as a provider of software under the National Program.  However,  JAC also worked directly with trusts and hospitals to hedge against delays and challenges with the National Program.  As a result of a change in government in the U.K. in 2010, the National Program has been dramatically changed and may be terminated.   We believe that JAC’s efforts to work directly with hospitals and trusts over the last several years will position JAC well as it works to license software and sell services directly to hospitals and trusts that are no longer subject to the limitations of the National Program requirements.
 
 Performance Management Products
 
 Through a business acquisition in June 2009, Mediware added the Insight software system to its portfolio of products. The Insight system is a business and clinical intelligence software package used in more than 100 hospitals at March 31, 2011.  We generate revenue from Insight software sales, professional services and post-contract support.  Support contracts accounted for 58% and 43% of total performance management revenues in the nine months ended March 31, 2011 and 2010, respectively.
 
 Industry and Regulation
 
 The Company believes that its customers’ recent capital investment decisions have been, and future decisions will be, impacted by recently enacted federal laws.
 
 Of specific importance to near term investment is the American Recovery and Reinvestment Act (ARRA), which became effective in 2009. This Act includes more than $38 billion of incentives to help healthcare organizations modernize operations through the acquisition and use of information technology solutions.  A part of ARRA designated the Health Information Technology for Economic and Clinical Health Act (HITECH) provides roughly $2 billion in ‘jump start’ funding that the Department of Health and Human Services is to distribute over a two year time frame beginning in 2011.  ARRA also includes approximately $17 billion in Medicare and Medicaid incentives targeting the ‘meaningful use’ of health record systems, systems interoperability, and the submission of data related to quality improvement initiatives.
 
 The government spending is intended to reduce inefficiencies and improve patient care through the use of technologies. ARRA, and specifically HITECH, increases the pressure on hospitals and care providing institutions to adopt technology. HITECH provides funding for facilities to launch improvement projects associated with the ‘meaningful use’ of key information technologies. Qualifying hospitals can receive payments over a period of approximately four or five years beginning in 2011 based on their use of certified health information technology systems.   HITECH also provides financial penalties to hospitals by reducing Medicare reimbursement payments for hospitals that do not comply with certain “meaningful use” requirements by 2015.
 
 While Mediware does not believe that it has benefited to date from these government initiatives and may see longer sales cycles as a result of the programs, the Company believes that the additional government spending on healthcare information technology and other health reform legislation will stimulate spending across a broad range of healthcare information technology projects. Over time we expect these initiatives to create new opportunities to expand the use of Mediware solutions and to have a positive impact on the Company.  We are working to ensure that our relevant products meet the applicable certification standards so that our customers receive the full benefit of the HITECH Act.  If we fail to achieve the appropriate certification standards, the Company could face adverse consequences as its customers look to other certified vendors.
 
 23
 We do not currently expect the Patient Protection and Affordable Care Act, passed in 2010, to have a material impact on our business.
 
 Strategic Relationships and Acquisitions
 
 We seek to develop strategic relationships that are complementary to our core markets and product set, and that provide a greater value proposition to the customer than could be realized without the strategic relationship. Our business strategy includes the possibility of growth through acquisitions and other corporate transactions.   There can be no assurance that we will be able to identify future strategic partners or reach mutually agreeable terms for a transaction if any such partners are identified.
 
 Sales and Product Initiatives
 
 We have developed a number of tailored programs for fiscal 2011 that are expected to provide opportunities for sales growth in fiscal 2011 or further in the future.  Each of these programs is having varying levels of success, but we intend to continue focusing our efforts on each for the remainder of the fiscal year.
 
 ·
As noted above, we introduced our maintenance plus program in fiscal 2010.  We believe this program will provide our customers the opportunity to plan and budget for higher levels of services, increasing both customer satisfaction and spending in future years.
 
 ·
Although sales of our BloodSafeTM offering in fiscal 2011 have been slower than anticipated, we continue to target increased sales by our internal sales staff in future periods.
 
 ·
Since Mediware acquired the Ascend product line and business in fiscal 2009, substantially all of the business customers have utilized a precursor pharmacy software product rather than the contemporary Ascend software.  While we anticipate that the process will take time, we are actively transitioning customers from the older product to the latest Ascend software platform and expect to continue this effort during fiscal 2012.
 
 ·
Mediware began offering its full suite of products on a remotely hosted basis in the third quarter of fiscal 2011.  The hosting services include installation, upgrades, patches and network configuration and repair as well as remote monitoring and help desk services.  We anticipate that these added services will make our product offerings even more attractive to many of our current and potential customers.
 
 ·
We have initiated a number of different programs for fiscal 2011 to increase sales of our home infusion products acquired in fiscal 2009 and 2010.  We believe that these efforts have contributed to the growth of sales of home infusion products thus far in fiscal 2011, and we expect further growth to result from the integration of the home infusion business acquired from CareCentric following the third quarter of fiscal 2011.
 
 ·
We have created a focused product strategy to make an entry level version of the Insight performance management software easily accessible and available to the users of our core products.  It is our expectation that after using the Insight software, our customers will see the benefit of the product and will expand their use over time.
 
 While there can be no assurance that any of these initiatives will be successful, we believe each of these programs, along with continued focus on our core business, can lead to sales growth in fiscal 2011.
 
 24
 Critical Accounting Policies and Estimates
 
 The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses.  On an on-going basis, we evaluate these estimates, including those related to revenue recognition, capitalized software costs, goodwill, and stock-based compensation.  We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.
 
 Results of Operations for the Three Months Ended March 31, 2011 as Compared to the Three Months Ended March 31, 2010
 
 Total revenue for the third quarter of fiscal 2011 was $13,774,000 compared to $12,806,000 in the third quarter of fiscal 2010, an increase of $968,000, or 8%.  The increase in revenue is primarily due to an increase in revenue in blood and biologics management, partially offset by a decrease in medication management revenue.  Blood and biologics management products and services recorded total revenue of $6,150,000 in the third quarter of fiscal 2011, representing an increase of $1,917,000, or 45%, compared to $4,233,000 in the same quarter of fiscal 2010.  Medication management products and services total revenue decreased 12%, or $976,000 to $7,071,000 in the third quarter of fiscal 2011 compared to $8,047,000 in the same quarter of fiscal 2010.  JAC’s contribution to total revenue of medication management products and services was $1,305,000 in the third quarter of fiscal 2011, representing a decrease of $613,000, or 32%, compared to $1,918,000 in the same quarter of fiscal 2010.  Performance management products and services recorded total revenue of $379,000 in the third quarter of fiscal 2011, an increase of $57,000 or 18% compared to $322,000 in the same quarter of fiscal 2010.
 
 System sales revenue, which includes proprietary software, third party software, hardware revenue and subscription revenue, amounted to $3,360,000 for the third quarter of fiscal 2011, an increase of $835,000 or 33% compared to $2,525,000 of system sales reported in the third quarter of fiscal 2010.  System sales revenue for blood and biologics management products was $1,776,000 for the third quarter of fiscal 2011, an increase of $998,000, or 128%, compared to $778,000 in the same quarter of fiscal 2010.  The increase was primarily attributable to the fees associated with licensing of the LifeTrak® software by the MHS partially offset by fewer BloodSafeTM system sales.  We expect that blood and biologics management system sales will benefit from the licensing of the LifeTrak® and HCLL software by the MHS through our fiscal fourth quarter and into the first half of fiscal 2012.  System sales for medication management products decreased $224,000, or 13% to $1,466,000 in the third quarter of fiscal 2011 compared to $1,690,000 in the same period of fiscal 2010.  This decrease resulted primarily from fewer software sales by our JAC business, partially offset by increases in the Ascend and ACS product lines.  JAC recorded system sales of $168,000 for the third quarter of fiscal 2011, representing a decrease of $656,000, or 80%, compared to $824,000 reported for the same quarter in fiscal 2010.  While we believe that this decrease was primarily a result of delays due to significant changes to the National Program, we believe that JAC’s efforts to work directly with hospitals and trusts over the last several years will position JAC well as it works to license software and sell services directly to hospitals and trusts that are decreasingly subject to the requirements of the National Program, although there is no assurance of any future system sales.  Performance management system sales were $118,000 for the third quarter of fiscal 2011 compared to $57,000 in the third quarter of fiscal 2010.
 
 Service revenue, which includes post contract support revenues, implementation services, maintenance services, including our “maintenance plus” program, reimbursable travel costs, and promotional services increased $133,000, or 1%, to $10,414,000 in the third quarter of fiscal 2011 compared to $10,281,000 for the same quarter in fiscal 2010.   Service revenue for the blood and biologics management products totaled $4,374,000 for the third quarter of fiscal 2011, representing an increase of $919,000 or 27%, compared to $3,455,000 in the third quarter of fiscal 2010.  The increase primarily reflects implementation revenue associated with the ongoing LifeTrak® project with the MHS, partially offset by a decrease in implementation revenue for our HCLL software systems, as implementation projects associated with the sunset of our legacy systems were completed in fiscal 2010. We expect that blood and biologics management service revenue will benefit from the implementation of the LifeTrak® and HCLL software by the MHS through our fiscal fourth quarter and into early fiscal 2012.   Service revenue for the medication management products, which includes billing and collections services, decreased $752,000, or 12%, to $5,605,000 in the third quarter of fiscal 2011 compared to $6,357,000 for the same quarter of fiscal 2010.  This decrease is primarily a result of lower implementation revenue from the WORx product line.  Service revenue for JAC increased $43,000, or 4%, to $1,137,000 in the third quarter of fiscal 2011 compared to $1,094,000 in the third quarter of fiscal 2010.  Service revenue for performance management products amounted to $261,000 for the third quarter of fiscal 2011 compared to $265,000 for the same period in fiscal 2010.
 
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 Cost of systems includes the cost of computer hardware and sublicensed software purchased from computer and software manufacturers by Mediware as part of its complete system offering.  These costs can vary as the mix of revenue varies between high margin proprietary software and lower margin computer hardware and sublicensed software components.  Cost of systems decreased $82,000, or 9%, to $848,000 in the third quarter of fiscal 2011 as compared to $930,000 in the same quarter in fiscal 2010.  The gross margin, excluding amortization of capitalized software costs, on system sales was 75% in the third quarter of fiscal 2011 compared to 63% in the same quarter in fiscal 2010.  The increase in gross margin is primarily due to the increase in high margin proprietary system sales during the third quarter of fiscal 2011 compared to the same period in fiscal 2010.
 
 Cost of services includes the salaries and direct expenses of client service personnel and the direct costs associated with providing promotional services.  Cost of services increased $362,000, or 11%, to $3,725,000 in the third quarter of fiscal 2011 as compared to $3,363,000 in the same quarter of fiscal 2010.  Gross margin on service revenue was 64% for the third quarter of fiscal 2011 compared to 67% for the third quarter of fiscal 2010.
 
 Amortization of capitalized software remained relatively flat at $1,112,000 in the third quarter of fiscal 2011 compared to $1,110,000 in the third quarter of fiscal 2010.  We anticipate that the amortization of capital software for fiscal 2011 will be below the level recorded for fiscal 2010.
 
 Software development costs include the non-capitalizable portions of salaries, consulting, documentation, office and other direct expenses incurred in product development activities.  Software development costs decreased $256,000, or 17%, to $1,207,000 in the third quarter of fiscal 2011 compared to $1,463,000 in the third quarter of fiscal 2010.  The decrease reflects a higher capitalization rate for software development expenditures in the 2011 fiscal quarter. Expenditures for software development include amounts paid for both capitalizable and noncapitalizable development projects.  Total expenditures for software development were $2,199,000 in the third quarter of fiscal 2011 compared to $2,190,000 in the third quarter of fiscal 2010.  The Company expects to maintain or increase its investment in product development for the next several quarters.
 
 Selling, general and administrative (“SG&A”) expenses include marketing and sales salaries, commissions, acquired intangibles amortization, travel and advertising expenses.  Also included is bad debt expense; legal, accounting and professional fees; salaries and bonus expenses; utilities, rent, communications and other office expenses; stock-based compensation expenses and other related direct administrative expenses.  SG&A expenses decreased slightly to $4,654,000 in the third quarter of fiscal 2011 compared to $4,671,000 in the third quarter of fiscal 2010.
 
 Income tax expense increased to $817,000 in the third quarter of fiscal 2011 compared to $348,000 in the same quarter of fiscal 2010.  This increase is primarily related to higher operating income in fiscal 2011.  In addition, the Company recognized research and development credits of $84,000 during the three months ended March 31, 2010.
 
 Net income for the third quarter of fiscal 2011 was $1,403,000, compared to $891,000 during the third quarter of fiscal 2010, an increase of $512,000 or 57%.  The increase in net income is primarily due to increased blood and biologics management software sales and an increased rate of capitalization of software development expenditures. These were partially offset by an increase in income tax expense.
 
 
 Results of Operations for the Nine Months Ended March 31, 2011 as Compared to the Nine Months Ended March 31, 2010
 
 Total revenue for the nine months ended March 31, 2011 was $39,547,000 compared to $34,366,000 in the same period of fiscal 2010, an increase of $5,181,000 or 15%.  The increase in revenue is largely due to service revenues associated with the medication management businesses we acquired in December 2009, which contributed to our results for only a portion of nine month period ended March 31, 2010.  Blood and biologics management products and services recorded total revenue of $15,642,000 during the first nine months of fiscal 2011, representing an increase of $1,489,000 or 11% compared to $14,153,000 in the same period of fiscal 2010.  Medication management products and services recorded an increase in total revenue of $3,920,000 or 21% to $22,333,000 in the first nine months of fiscal 2011 compared to $18,413,000 in the same period of fiscal 2010.  The increase is largely a result of the incremental revenue associated with the acquired medication management businesses which contributed to our results for only a portion of the first nine months of fiscal 2010.  JAC’s contribution to total revenues of medication management products and services revenue was $4,484,000 during the nine months ended March 31, 2011, representing a decrease of $332,000 or 7%, compared to $4,816,000 in the same period of fiscal 2010.  Performance management products and services recorded total revenues of $1,038,000 in the nine months ended March 31, 2011 compared to $1,126,000 in the same period in fiscal 2010.
 
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 System sales revenue amounted to $9,594,000 for the nine months ended March 31, 2011, an increase of $1,855,000 or 24%, from $7,739,000 in the same period in fiscal 2010.  System sales revenue for the blood biologics management products were $3,958,000 for the first nine months of fiscal 2011, an increase of $914,000 or 30%, compared to $3,044,000 in the same period of fiscal 2010.  The increase was primarily attributable the license fees associated with the licensing of the LifeTrak® software by the MHS, partially offset by fewer BloodSafeTM  system sales in the first nine months of fiscal 2011 compared to the same period of fiscal 2010. System sales for the medication management products increased to $5,369,000 in the first nine months of fiscal 2011 compared to $4,356,000 in the same period of fiscal 2010, representing an increase of $1,013,000, or 23%. This increase reflects incremental revenues associated with the ACS businesses we acquired in December 2009 and increased system sales for Ascend, partially offset by fewer JAC sales.  JAC recorded system sales of $1,235,000 for the nine months ended March 31, 2011, representing a decrease of $580,000, or 32%, compared to $1,815,000 reported for the same period in fiscal 2010.  System sales revenue for performance management was $267,000 and $284,000for the nine months ended March 31, 2011 and 2010, respectively.
 
 Service revenue increased $3,326,000, or 12%, to $29,953,000 in the first nine months of fiscal 2011 compared to $26,627,000 for the same period in fiscal 2010.  Service revenue for the blood and biologics management products totaled $11,684,000 for the first nine months of fiscal 2011 representing an increase of $575,000, or 5%, compared to $11,109,000 in the same period of fiscal 2010.  The increase primarily reflects implementation revenue for our LifeTrak® software related to the project with the MHS, partially offset by a decrease in implementation revenue for our HCLL software systems, as implementation projects associated with the sunset of our legacy systems were completed in fiscal 2010.  Service revenue for the medication management products increased $2,907,000 or 21% to $16,964,000 in the first nine months of fiscal 2011 compared to $14,057,000 for the same period of fiscal 2010.  This increase is a result of the incremental revenues associated with the ACS businesses we acquired in December 2009 and increased support revenue, partially offset by lower services revenues from the WORx product line.  Service revenue for JAC increased $249,000, or 8% to $3,249,000 in the first nine months of fiscal 2011 compared to $3,000,000 for the same period in fiscal 2010.  Service revenue for performance management products was $771,000 and $842,000 for the nine months ended March 31, 2011 and 2010, respectively.
 
 Cost of systems can vary as the mix of revenue varies between high margin proprietary software and lower margin computer hardware and sublicensed software components.  Cost of systems decreased $270,000, or 10%, to $2,368,000 for the first nine months of fiscal 2011 compared to $2,638,000 in the same period in fiscal 2010.  The gross margin, excluding amortization of capitalized software costs, on system sales was 75% in the first nine months of fiscal 2011 compared to 66% in the same period in fiscal 2010.   The increase in gross margin is primarily due to an improvement in the mix of higher margin proprietary system sales relative to lower margin third party sales during the first nine months of fiscal 2011 compared to the same period in fiscal 2010.
 
 Cost of services increased $1,979,000, or 23%, to $10,616,000 during the first nine months of fiscal 2011 as compared to $8,637,000 in the same period of fiscal 2010.  The increase in cost of services is primarily attributed to incremental costs associated with our recent business acquisitions in medication management. Gross margin on service revenue was 65% for the first nine months of fiscal 2011 compared to 68% for the same period of fiscal 2010.
 
 Amortization of capitalized software decreased $490,000, or 13%, to $3,372,000 in the first nine months of fiscal 2011 compared to $3,862,000 in the same period of fiscal 2010.  The decrease occurred as past software development efforts became fully amortized.
 
 Software development costs decreased $636,000, or 18%, to $2,955,000 in the first nine months of fiscal 2011 compared to $3,591,000 in the same period of fiscal 2010.  This decrease reflects a higher capitalization rate for product development activities in the first nine months of fiscal 2011 compared to the same period of fiscal 2010.  Expenditures for software development include amounts paid for both capitalizable and noncapitalizable development projects.  Total expenditures for software development were $7,132,000 in the first nine months of fiscal 2011 compared to $6,158,000 in the same period of fiscal 2010, an increase of $974,000, or 16%.  The percentage of development spending subject to capitalization increased in the first nine months of fiscal 2011 due largely to our efforts to further expand our product offerings into the blood plasma market, and we anticipate a lower capitalization rate for the remainder of fiscal 2011.  The Company expects to maintain or increase its investment in product development products over the next several quarters.
 
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 SG&A expenses increased $1,629,000, or 13%, to $14,262,000 in the first nine months of fiscal 2011 compared to $12,633,000 in the same period of fiscal 2010.  This increase is primarily due to incremental costs associated with ACS businesses acquired in December 2009.
  Income tax expense increased to $1,735,000 during the first nine months of fiscal 2011 compared to $771,000 in the same period of fiscal 2010.  Income taxes increased primarily as a result of higher operating income in the fiscal 2011 period.  Research and development tax credits were taken in the both periods reducing the effective tax rate.  During the second quarter of fiscal 2011, the Company recognized tax credits for the full calendar year 2010 as a result of the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 which extended research and development credits to calendar years 2010 and 2011.  The Company expects its future effective tax rate will trend higher and more closely approximate statutory rates.  The Company expects to claim additional credits to the extent that it has allowable qualifying research and development activities.
 
 Net income during the first nine months of fiscal 2011 was $4,190,000, compared to net income of $2,293,000 during the same period of fiscal 2010, an increase of $1,897,000, or 83%.  The increase in net income is primarily due to increased software sales, the incremental operating income with the ACS businesses we acquired in December 2009, combined with decreased amortization of capitalized software costs and an increased rate of capitalization of software development expenditures.
  Liquidity and Capital Resources
  As of March 31, 2011, Mediware had cash and cash equivalents of $30,101,000 compared to $23,340,000 at June 30, 2010.  A portion of the Company’s cash and cash equivalents resides outside of the United States.  Repatriation of these funds could be negatively impacted by taxes.  Our cash and cash equivalents balance was positively affected by collections of accounts receivable and the receipt during the quarter of a contract payment associated with the licensing of the LifeTrak® software by the MHS.  Working capital was $24,632,000 and $18,726,000 at March 31, 2011 and June 30, 2010, respectively.  The current ratio was 2.5 to 1 at March 31, 2011 compared to 2.0 to 1 at June 30, 2010.  The Company does not have any material capital lease obligations, purchase obligations or long-term liabilities, other than deferred tax liabilities.
 
 Cash provided by operating activities was $12,442,000 during the first nine months of fiscal year 2011 compared to $8,938,000 during the same period of fiscal 2010.  The increase in cash provided by operating activities is primarily due to increased net income and changes in receivables, partially offset by changes in accounts payable, accrued expenses and advances from customers.
 
 Cash used in investing activities was $5,868,000 during the first nine months of fiscal 2011 compared to $8,782,000 during the same period a year ago.  The decrease in cash used in investing activities is primarily attributable to a decrease in payments for the acquisition of the ACS businesses we acquired in December 2009, partially offset by increased capitalized software costs.  Cash used for acquisitions was $1,500,000 and $6,080,000 for the first nine months of fiscal 2011 and fiscal 2010, respectively.
 
 Cash used in financing activities was $102,000 during the first nine months of fiscal 2011 compared to cash provided by financing activities of $610,000 during the same period of fiscal 2010.  The cash used for financing activities in the first nine months of fiscal 2011 is primarily attributable to the repurchase of Common Stock that an executive surrendered to the Company in order to pay taxes due in connection with the vesting of a stock-based compensation award, offset by tax benefits related to the vesting of restricted stock. There were no similar payments in connection with compensation awards or vesting of restricted stock during the same period in fiscal 2010.  The cash provided by financing activities in the first nine months of fiscal 2010 was primarily from stock option exercises and related tax benefits. There were no stock options exercised in the first nine months of fiscal year 2011.
 
 28
 We currently use cash flow from operations to fund our capital expenditures and to support our working capital requirements.  We expect that future cash requirements will principally be for capital expenditures, working capital requirements, stock repurchases and other strategic initiatives.  We believe that our existing cash balances and cash flow from operations will be sufficient to meet our projected capital expenditures, working capital needs, any future share repurchases, and other cash requirements at least through the end of fiscal 2011.
 
 Our liquidity is influenced by our ability to execute on our strategies in a competitive industry.  Factors that may affect liquidity include our ability to penetrate the market for our products, maintain or reduce the length of the selling cycle, and collect cash from clients as systems are licensed or implemented and services completed.
 
 
 ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Mediware is subject to market risks from foreign currency fluctuations due to the operations of JAC.  During the last three years, Mediware has not entered into any derivative financial instruments or engaged in other hedging transactions to reduce its exposure to such risks.
  Operating in international markets involves exposure to the possibility of volatile movements in foreign exchange rates. The currencies in each of the countries in which JAC operates affect:
  •           the results of Mediware’s international operations reported in United States dollars; and
 •           the value of the net assets of JAC reported in United States dollars.
  These exposures may impact future earnings or cash flows. Revenue from JAC represented approximately 9% and 15% of Mediware’s consolidated revenue for the three months ended March 31, 2011 and 2010, respectively, and 11% and 14% for the nine months ended March 31, 2011 and 2010, respectively. The economic impact of foreign exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause Mediware to adjust its financing and operating strategies. Therefore, to isolate the effect of changes in currency does not accurately portray the effect of these other important economic factors. As foreign exchange rates change, translation of the income statements of JAC into U.S. dollars affects year-over-year comparability of operating results.  Any foreign currency impact on translating assets and liabilities into dollars is included as a component of stockholders’ equity.  Our net income for the three months ended March 31, 2011 was negatively impacted by $2,000 foreign currency movement, and positively impacted for the nine months ended March 31, 2011, by $9,000 foreign currency movement.  Net income was negatively impacted by a $5,000 and $11,000 foreign currency movement, respectively, for the three months and nine months ended March 31, 2010.  These foreign currency adjustments are primarily due to the currency valuation of the British pound against the United States dollar.
 
 
 ITEM 4.
CONTROLS AND PROCEDURES
 
 Mediware’s management, under the supervision and with the participation of Mediware’s Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of Mediware’s disclosure controls and procedures as of the end of the quarter covered by this report.  Disclosure controls and procedures are defined in the Securities Exchange Act as controls and other procedures of Mediware designed to ensure that information required to be disclosed by Mediware in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and include controls and procedures designed to ensure that information required to be disclosed by Mediware in the reports that it files or submits to the SEC is accumulated and communicated to Mediware’s management, including the CEO and CFO, to allow timely decisions regarding required disclosure.  Based on the foregoing review and evaluation, Mediware’s CEO and CFO have concluded that Mediware’s disclosure controls and procedures are effective as of March 31, 2011.
 
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 There were no changes in Mediware’s internal controls over financial reporting that occurred during the nine months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.   Mediware believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
  PART II     OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS
 
 Mediware from time to time becomes involved in routine litigation incidental to the conduct of its business, including employment disputes and litigation alleging product defects, intellectual property infringements, violations of law and breaches of contract and warranties.  Mediware believes that such routine litigation, if adversely determined, would not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
 
 Item 1A.                      RISK FACTORS
 You should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the year ended June 30, 2010 and in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 included under Item 1A “Risk Factors” in addition to the other information set forth in Item 1A and elsewhere in this report. The risks described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
 
 We have recently consummated a strategic acquisition and may pursue additional strategic acquisitions, investments, and relationships in the future, and we may not be able to successfully manage our operations if we fail to successfully integrate acquired businesses and technologies, which could adversely affect our operating results.
 
 As part of our business strategy, we may seek and complete strategic business acquisitions that that are complementary to our business. On April 11, 2011, we acquired certain assets of CareCentric’s home medical equipment, home health, home infusion and billing and collections business. Acquisitions, such as our acquisition of the CareCentric businesses, have inherent risks which may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to, the following:
 
 ·
failure to successfully integrate the business and financial operations, services, intellectual property, solutions or personnel of the acquired businesses
 
 ·
diversion of management’s attention from other business concerns
 
 ·
failure to achieve projected synergies and performance targets
 
 ·
loss of customers or key personnel of the acquired businesses·
failure to acquire assets or to employ key personnel of the businesses that are necessary for the optimal operation of the businesses following acquisition·
possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, product architecture, product development, intellectual property issues, key personnel issues or legal and financial contingencies, and
 
 ·
a possible write-off of software development costs and amortization of expenses related to intangible assets.
 
 30
 If we fail to successfully integrate the CareCentric businesses or other acquired businesses or fail to implement our business strategies with respect to these acquisitions, we may not be able to achieve projected results or support the amount of consideration paid for such acquired businesses.
 
 We have entered into significant “fixed fee” software development and implementation agreements which rely on estimates.
 
 We have entered into a number of significant “fixed fee” software development and implementation arrangements.  Under the terms of these arrangements, we have committed to provide software or services to customers for a “fixed fee,” even if the actual effort required to complete the project is substantially more than anticipated.   We use estimates to determine the hours of work and fees to charge to complete these projects.   If our estimates are not accurate and our actual costs are more than estimated costs, our operating results would be adversely affected.  In addition, in certain arrangements, it may be appropriate for us to recognize revenue using the percentage of completion method of accounting under Generally Accepted Accounting Principles.  Using this method, we could determine that contract revenue previously recognized in one or more periods was overstated due to changes in our estimated total costs, work progress evaluations or other factors.  If this occurs, revenue recognized in the period in which we make the determination may be reduced by the aggregate amount of the overstatement.  Alternatively, depending on the magnitude of the overstatement, we may be required to restate prior period revenues.  Consequently, our failure to estimate accurately could cause our revenue and results of operations to fluctuate substantially from period to period.
   ITEM 6.      EXHIBITS
 Exhibit 11
Schedule of Computation of Net Earnings Per ShareExhibit 15
Consent of Independent Registered Public Accounting FirmExhibit 31.1
Rule 13a-14(a)/15d-14(a) CertificationExhibit 31.2
Rule 13a-14(a)/15d-14(a) CertificationExhibit 32.1
Certification Pursuant to 18 U.S.C. 1350
 
  31
 SIGNATURES
  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   MEDIWARE INFORMATION SYSTEMS, INC.

(Registrant)May 3, 2011

/s/ T. KELLY MANNDate

T. KELLY MANN

PRESIDENT AND CHIEF EXECUTIVE OFFICERMay 3, 2011

/s/ MICHAEL MARTENSDate

MICHAEL MARTENS

CHIEF FINANCIAL OFFICER