UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


**Washington,
      D.C. 20549**





**FORM
      10-Q**





T
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      quarterly period ended September 30, 2006





OR


£
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      transition period from ________________ to ________________





Commission
      file 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 Street****Lenexa,
                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)**







1


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. T Yes £ No




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
      Act).





Large
                accelerated filer£
            Accelerated
                FilerT
            Non-accelerated
                filer£





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). £ Yes T No





APPLICABLE
      ONLY TO CORPORATE ISSUERS:




As
      of
      October 20, 2006, there were 8,116,000 shares of Common Stock, $0.10 par value,
      of the registrant outstanding.


2




**MEDIWARE
      INFORMATION SYSTEMS, INC.**





**INDEX**





**Page****PART
                I**
            **Financial
                Information****ITEM
                1.**
            **Financial
                Statements**Condensed
                Consolidated Balance Sheets as of September
                30, 2006 (Unaudited) and June 30, 2006
            4Condensed
                Consolidated Statements of Operations and
                Comprehensive Income (Unaudited) for the Three Months Ended September
                30,
                2006 and 2005
            5Condensed
                Consolidated Statements of Cash Flows
                (Unaudited) for the Three Months Ended September 30, 2006 and
                2005
            6Notes
                to Unaudited Condensed Consolidated Financial
                Statements
            7Review
                Report of Independent Registered Public
                Accounting Firm
            11**ITEM
                2.**
            **Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations**
            12**ITEM
                3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**
            16**ITEM
                4.**
            **Controls
                and Procedures**
            16**PART
                II**
            **Other
                Information****ITEM
                1.**
            **Legal
                Proceedings**
            17**ITEM
                1A.**
            **Risk
                Factors**
            17**ITEM
                6.**
            **Exhibits**
            18**Signatures**
            
            19





3
 *Index*


**PART
                  I**
              **FINANCIAL
                  INFORMATION**
 
 **1.**
              **FINANCIAL
                  STATEMENTS**




**MEDIWARE
      INFORMATION SYSTEMS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Amounts
      in thousands except shares)**





September
                30,
              2006
              (Unaudited)
            
            June
                30,
              2006ASSETSCurrent
                AssetsCash
                and cash equivalents
            
            $
            20,939
            
            $
            18,996Accounts
                receivable (net of allowance of $938 and $923)
            
            
            8,286
            
            
            8,748Inventories
            
            
            146
            
            
            160Deferred
                income taxes
            
            
            461
            
            
            481Prepaid
                expenses and other current assets
            
            
            1,031
            
            
            746Total
                current assets
            
            
            30,863
            
            
            29,131Fixed
                assets, net
            
            
            1,154
            
            
            1,220Capitalized
                software costs, net
            
            
            18,903
            
            
            19,286Goodwill,
                net
            
            
            3,913
            
            
            3,971Other
                long-term assets
            
            
            115
            
            
            115Total
                Assets
            
            $
            54,948
            
            $
            53,723LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                LiabilitiesAccounts
                payable
            
            $
            1,407
            
            $
            1,084Current
                portion of note payable
            
            
            24
            
            
            25Advances
                from customers
            
            
            8,168
            
            
            7,767Accrued
                expenses and other current liabilities
            
            
            2,062
            
            
            2,160Total
                current liabilities
            
            
            11,661
            
            
            11,036Note
                payable
            
            
            -
            
            
            4Deferred
                income taxes
            
            
            4,223
            
            
            4,182Total
                liabilities
            
            
            15,884
            
            
            15,222Stockholders'
                EquityPreferred
                stock, $.01 par value; authorized 10,000,000 shares; none
                issuedCommon
                stock, $.10 par value; authorized 25,000,000 shares; 8,116,000 and
                8,078,000 shares issued and outstanding at September 30,2006 and
                June 30,
                2006, respectively
            
            
            811
            
            
            808Additional
                paid-in capital
            
            
            29,974
            
            
            29,617Retained
                earnings
            
            
            8,251
            
            
            8,087Accumulated
                other comprehensive income (loss)
            
            
            28
            
            
            (11
            )Total
                stockholders' equity
            
            
            39,064
            
            
            38,501Total
                Liabilities and Stockholders' Equity
            
            $
            54,948
            
            $
            53,723





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.




4
 *Index*




**MEDIWARE
      INFORMATION SYSTEMS, INC**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      INCOME**


**(Amounts
      in thousands, except earnings per share)**





Three
                Months Ended
              September
                30,
              (Unaudited)2006
            
            2005RevenueSystem
                sales
            
            $
            2,323
            
            $
            3,180Services
            
            
            6,152
            
            
            6,228Total
                revenue
            
            
            8,475
            
            
            9,408Cost
                and ExpensesCost
                of systems (1)
            
            
            559
            
            
            531Cost
                of services (1)
            
            
            1,968
            
            
            1,867Amortization
                of capitalized software costs
            
            
            1,266
            
            
            1,141Software
                development costs
            
            
            1,043
            
            
            1,111Selling,
                general and administrative
            
            
            3,603
            
            
            3,689Total
                costs and expenses
            
            
            8,439
            
            
            8,339Operating
                income
            
            
            36
            
            
            1,069Interest
                and other income
            
            
            235
            
            
            126Interest
                and other expense
            
            
            2
            
            
            (4
            )Income
                before income taxes
            
            
            273
            
            
            1,191Income
                tax provision
            
            
            (109
            )
            
            (454
            )Net
                income
            
            
            164
            
            
            737Other
                comprehensive income (loss)Foreign
                currency translation adjustment
            
            
            39
            
            
            (106
            )Comprehensive
                income
            
            $
            203
            
            $
            631Net
                income per Common ShareBasic
            
            $
            0.02
            
            $
            0.09Diluted
            
            $
            0.02
            
            $
            0.09Weighted
                Average Common Shares OutstandingBasic
            
            
            8,092
            
            
            7,930Diluted
            
            
            8,349
            
            
            8,136(1)
                Excludes amortization of Capitalized Software Costs





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.


5
 *Index*




**MEDIWARE
      INFORMATION SYSTEMS,
      INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Amounts
      in thousands)**





Three
                Months Ended
              September
                30,
              (Unaudited)2006
            
            2005Cash
                Flows From Operating ActivitiesNet
                income
            
            $
            164
            
            $
            737Adjustments
                to reconcile net income, tonet
                cash provided by operating activities:Depreciation
                and amortization
            
            
            1,432
            
            
            1,297Stock
                Option compensation expense
            
            
            90
            
            
            17Deferred
                tax provision
            
            
            119
            
            
            185Provision
                for doubtful accounts
            
            
            58
            
            
            134Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            404
            
            
            (350
            )Inventories
            
            
            14
            
            
            30Prepaid
                expenses and other assets
            
            
            (285
            )
            
            (262
            )Accounts
                payable, accrued expenses and advances from customers
            
            
            626
            
            
            1,882Net
                cash provided by operating activities
            
            
            2,622
            
            
            3,670Cash
                Flows From Investing ActivitiesAcquisition
                of fixed assets
            
            
            (100
            )
            
            (181
            )Capitalized
                software costs
            
            
            (883
            )
            
            (1,184
            )Net
                cash used in investing activities
            
            
            (983
            )
            
            (1,365
            )Cash
                Flows From Financing ActivitiesProceeds
                from exercise of stock options
            
            
            246
            
            
            328Excess
                tax benefit from exercise of stock options
            
            
            24
            
            
            213Principal
                payments on note payable
            
            
            (5
            )
            
            (6
            )Net
                cash provided by financing activities
            
            
            265
            
            
            535Foreign
                currency translation adjustments
            
            
            39
            
            
            (106
            )Net
                increase in cash and cash equivalents
            
            
            1,943
            
            
            2,734Cash
                at beginning of period
            
            
            18,996
            
            
            14,839Cash
                at end of period
            
            $
            20,939
            
            $
            17,573Supplemental
                disclosures of cash flow information:Cash
                paid during the period for:Interest
                on notes payable
            
            $
            2
            
            $
            1Income
                taxes paid (received)
            
            $
            (52
            )
            $
            9Supplemental
                disclosures of noncash financing activities:Reduction
                of goodwill recorded for tax benefit of related
                amortization
            
            $
            58
            
            $
            58


6
 *Index*




**MEDIWARE
      INFORMATION SYSTEMS, INC.**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**1.**
            **FINANCIAL
                STATEMENTS**





In
      the
      opinion of management, the accompanying unaudited, condensed, consolidated
      financial statements contain all adjustments necessary to present fairly the
      financial position of Mediware 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 year ended June 30, 2006 included in Mediware's Annual Report
      filed on Form 10-K for such year.





The
      results of operations for the three months ended September 30, 2006 are not
      necessarily indicative of the results to be expected for the entire fiscal
      year.





Certain
      prior year amounts have been reclassified to conform to the current
      presentation.





**2.**
            **EARNINGS
                PER SHARE**





Basic
      earnings per share is computed by dividing net income by the weighted average
      number of shares of common stock, par value $0.10 (“Common Stock”), of Mediware
      outstanding. For the three months ended September 30, 2006 and 2005, the
      dilutive effect of Common Stock equivalents is included in the calculation
      of
      diluted earnings per share using the treasury stock method.





**3.**
            **STOCK
                BASED COMPENSATION**





The
      Company's 2003 Equity Incentive Plan, approved by the shareholders in December
      2003, 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. In February 2005, the shareholders approved increasing
      the number of shares that may be issued under such plan from 500,000 to
      1,000,000. In December 2005, the shareholders approved increasing the number
      of
      shares that may be issued under such plan from 1,000,000 to 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
      September 30, 2006, 1,231,000 shares were 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
      September 30, 2006 no options were available to be issued under this
      Plan.





The
      Company's 1997 Stock Option Plan for Non-Employee Directors, which provided
      compensation to directors for their services without the expenditure of cash,
      was intended to increase ownership interest of the non-employee directors.
      Options granted under this plan were exercisable at 100% of the fair market
      value on the date of grant and were for terms of eight years and vested in
      two
      equal installments during the year issued. Shares granted under this plan were
      limited to 500,000. This Plan was terminated effective January 2002, and no
      additional options are available to be issued under this plan.


7
 *Index*




The
      Company's Equity Incentive Plan, approved by its shareholders in January 1992
      and amended in March 2000, provided additional compensation incentives for
      high
      levels of performance and productivity by management and other key employees
      of
      the Company. The combined number of shares issued or available for issuance
      under this plan could not exceed thirty percent of the issued and outstanding
      common stock of the Company and not more than 700,000 shares could have been
      issued as incentive stock options. Options could have been granted for a period
      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 50% 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. This plan
      was
      terminated effective January 2002, and no additional options are available
      to be
      issued under this plan.





The
      Company accounts for stock-based compensation following the provisions of SFAS
      123R, which establishes a fair value-based method of accounting for stock-based
      compensation. 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 aggregate noncash stock based compensation expense amounted to $90,000
      and
      $17,000 for the three-months ended September 30, 2006 and 2005, respectively.





The
      fair
      value of options at date of grant is estimated using the Black-Scholes option
      pricing model. 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 for each group 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.





The
      following table sets forth summarized information concerning the Company's
      stock
      options as of September 30, 2006:





Shares
            
            Weighted
              Average
              Exercise
                Price
            
            Weighted
                Average
              Remaining
              Contractual
                Term
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at June 30, 2006
            
            
            1,140,000
            
            $
            9.12Granted
            
            
            -
            
            
            -Exercised
            
            
            (38,000
            )
            
            6.55Forfeited
                or expired
            
            
            -
            
            
            -Outstanding
                at September 30, 2006
            
            
            1,102,000
            
            $
            9.21
            
            
            4.2
            
            $
            777,000Expected
                to vest at September 30, 2006
            
            
            1,102,000
            
            $
            9.21
            
            
            4.2
            
            $
            777,000Options
                exercisable at September 30, 2006
            
            
            940,000
            
            $
            9.26
            
            
            4.3
            
            $
            777,000





The
      total
      intrinsic value of options exercised during the three months ended September
      30,
      2006 and 2005, was $63,000 and $561,000, respectively. The fair value of the
      nonvested shares is determined based on the average trading price of the
      Company’s shares on the grant date.





The
      Company generally issues new shares upon the exercise of stock options.





Cash
      received from options exercised under all share-based payment arrangements
      for
      the three months ended September 30, 2006 and 2005 was $246,000 and $328,000,
      respectively. The excess tax benefit realized for the tax deductions related
      to
      option exercises of the share-based payment arrangements totaled $24,000 and
      $213,000 for the three months ended September 30, 2006 and 2005,
      respectively.


8
 *Index*
  A
      Summary
      of the status of the Company’s nonvested options as of September 30, 2006, and
      changes during the three months ended September 30, 2006, is presented
      below:





**Nonvested
                Options**
            
            **Shares**
            
            **Weighted
                Average**
              **Grant
                Date**
              **Fair
                Value**Nonvested
                at July 1, 2006
            
            
            167,000
            
            $
            4.00Granted
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Vested
            
            
            (5,000
            )
            
            4.88Nonvested
                at September 30, 2006
            
            
            162,000
            
            $
            3.77





As
      of
      September 30, 2006, there was $287,000 of total unrecognized compensation cost
      related to nonvested options granted under existing stock option plans. This
      cost is expected to be recognized over a period of 3.5 years. The total fair
      value of shares vested during the three months ended September 30, 2006 and
      2005
      was $24,000 and $94,000, respectively.





The
      following table presents information relating to stock options at September
      30,
      2006:





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
            163,000
            $3.61
            
            3.0
            163,000
            $3.61$
                4.50 - $ 7.49
            69,000
            $6.75
            
            1.4
            69,000
            $6.75$
                7.50 - $ 8.99
            219,000
            $8.03
            
            3.4
            119,000
            $8.11$
                9.00 - $ 10.49
            247,000
            $9.96
            
            5.4
            205,000
            $10.08$
                10.50 - $11.99
            182,000
            $10.89
            
            2.7
            182,000
            $10.89$11.99
                - $13.49
            137,000
            $12.51
            
            6.3
            117,000
            $12.45$13.50
                - $14.99
            85,000
            $13.87
            
            6.9
            85,000
            $13.871,102,000
            
            
            
            940,000




During
      fiscal 2006, the Company entered into agreements with certain key employees.
      Under the terms of these agreements, the Company granted the employees 155,000
      restricted shares of Common Stock (the “Performance Shares”). The Performance
      Shares vest in fiscal 2007, 2008 and 2009 only if Mediware achieves certain
      performance goals based on revenue and earnings per share. The Performance
      Shares may result in compensation expense in future periods of up to $1,383,000,
      the fair value on the date of grant. The probability of achieving these
      performance goals is not currently determinable. Accordingly, Mediware has
      not
      recognized any related compensation expense for previous periods or the three
      months ended September 30, 2006. Mediware will reassess at each reporting period
      whether achievement of any performance condition is probable and will begin
      recognizing the related costs if and when the performance conditions become
      probable.


9
 *Index*
  A
      Summary
      of the status of the Company’s nonvested restricted common stock as of September
      30, 2006, and changes during the three months ended September 30, 2006, is
      presented below:





**Nonvested
                Restricted Common Stock**
            
            **Shares**
            
            **Weighted
                Average**
              **Grant
                Date**
              **Fair
                Value**Nonvested
                at June 30, 2006
            
            
            155,000
            
            $
            8.93Granted
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Vested
            
            
            -
            
            
            -Nonvested
                at September 30, 2006
            
            
            155,000
            
            $
            8.93





**4.**
            **NEW
                ACCOUNTING PRONOUNCEMENTS**





In
      September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and
      132(R),” which requires employers to: (a) recognize in its statement of
      financial position an asset for a plan’s overfunded status or a liability for a
      plan’s underfunded status; (b) measure a plan’s assets and its obligations
      that determine its funded status as of the end of the employer’s fiscal year;
      and (c) recognize changes in the funded status of a defined benefit
      postretirement plan in the year in which the changes occur. Those changes will
      be reported in comprehensive income of a business entity. The requirement to
      recognize the funded status of a benefit plan and the disclosure requirements
      are effective as of the end of the fiscal year ending after December 15,
      2006, for entities with publicly traded equity securities. The requirement
      to
      measure plan assets and benefit obligations as of the date of the employer’s
      fiscal year-end statement of financial position is effective for fiscal years
      ending after December 15, 2008. The company believes that the adoption of
      SFAS No. 158 will not have any impact on its result of operations or
      financial position.





Also
      in
      September 2006, FASB issued SFAS No. 157, “ *Fair
      Value Measurements’* ”
which
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles and expands disclosures about fair
      value measurements. This Statement is effective for financial statements issued
      for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years. Earlier application is encouraged provided that
      the
      reporting entity has not yet issued financial statements for that fiscal year
      including financial statements for an interim period within that fiscal year.
      The company is assessing SFAS No. 157 and has not determined yet the impact
      that the adoption of SFAS No. 157 will have on its result of operations or
      financial position.




**5.**
              **CONTINGENCIES**
  The
      Company is subject to legal proceedings and claims that arise in the ordinary
      course of business. The Company believes that the outcome of all pending legal
      proceedings in the aggregate will not have a material adverse effect on its
      business, financial condition, results of operations or cash flows.


10
 *Index*
  **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 September
      30,
      2006, and the related condensed consolidated statements of operations and
      comprehensive income, and cash flows for the three month periods ended September
      30, 2006 and 2005. 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, 2006, and the related consolidated statements of
      operations and comprehensive income, shareholders' equity, and cash flows for
      the year then ended (not presented herein), and in our report dated
      August 4, 2006, 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, 2006 is
      fairly stated in all material respects in relation to the consolidated balance
      sheet from which it has been derived.








Eisner
      LLP


New
      York,
      New York





October
      26, 2006


11
 *Index*




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





**Forward-Looking
      Statements**





*This
      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,” “seeks,” “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, 2006, 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.*





**Overview**





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, as
      amended (the “Securities Exchange Act”) can be obtained under “Investor
      Relations” without charge as soon as reasonably practicable after filed or
      furnished with the SEC.





Mediware
      develops, markets, licenses, implements and supports clinical management
      information software. The Company's software systems are designed to automate
      three separate clinical operations within the hospital environment: medication
      management, including the hospital pharmacy; blood bank; and the surgical suite.
      The Blood Management products are also designed to automate clinical operations
      in free-standing blood centers. Each software system typically consists of
      the
      Company's proprietary application software, third-party licensed software and
      third-party computer hardware. Mediware sells implementation, training, and
      annual software support services with each software system.





Mediware
      is organized into three operating divisions that correspond with the software
      systems it markets. Each division markets distinct product lines: Medication
      Management Systems, Blood Management Systems and Perioperative Management
      Systems. The Blood Management and Perioperative Management Divisions operate
      primarily in the United States. The Medication Management Division operates
      both
      in the United States and in the United Kingdom with different software systems
      designed for the specific requirements of each market.





The
      Company's products are designed to improve operational efficiency by improving
      the availability, quality and timeliness of clinical information while enabling
      health care facilities to decrease expenses associated with managing these
      clinical processes.  These benefits are of critical importance to
      clinicians and administrators who face increasing financial, regulatory and
      patient safety pressures.





The
      healthcare industry in the United States is highly fragmented, complex, and
      inefficient. Comparatively, the healthcare industry has invested less in
      information technology than many other industries. While advances in medical
      technology have provided physicians, nurses and other caregivers with leading
      edge diagnostic and therapeutic technologies, the information systems supporting
      the management and clinical processes of these complex healthcare organizations
      have made insufficient progress. A substantial portion of clinical workflow
      still depends upon manual paper-based systems interfaced with various automated
      or semi-automated systems.





As
      a
      result, the health care industry is generally economically inefficient and
      produces significant variances in medical outcomes. While waste and
      utilization rates are rarely made public, patient safety and the publicity
      surrounding medical errors have focused a tremendous amount of scrutiny on
      hospitals and care providing institutions. Recent news reports and professional
      studies have highlighted patient safety errors and influenced governmental
      activity.


12
 *Index*
  The
      Company anticipates that the continued increase in government regulation, public
      and competitive pressure regarding errors occurring in hospitals, and growing
      concern over clinical outcomes, will increase the industry’s expenditures on
      clinical information systems. President Bush has pledged financial support
      for
      increased healthcare IT standards and incentives to make IT investments for
      hospitals more appealing. Mediware believes that its products can play a role
      in
      moving healthcare IT standards forward, and can deliver significant results
      for
      customers.





Competition
      in the market for clinical information systems is intense. The principal
      competitive factors are the functionality of the system, its design and
      capabilities, site references, ability to install, process redesign
      capabilities, reputation for ongoing support, the potential for enhancements,
      price, departmental versus enterprise sales and salesmanship. Also key is the
      strategic position the incumbent, or major healthcare information systems
      vendor, has in the customer site. Different dynamics and competitors, however,
      affect each of the Company's products and each sale.





The
      Company seeks to develop strategic relationships that are complementary to
      its
      core markets and product set, and that provide a greater value proposition
      to
      the customer than could be realized without the strategic relationship. The
      Company’s business strategy includes the possibility of growth through
      acquisitions and other corporate transactions. There can be no assurance that
      the Company will be able to identify or reach mutually agreeable terms with
      any
      strategic relationship or transaction candidate.





The
      Blood
      Management Division’s current blood transfusion product is HCLLTM. The Company
      received 510(k) clearance from the FDA on HCLL in fiscal 2003. During fiscal
      2005, the Company also received 510(k) clearance for its complementary HCLL
      donor software product. In October 2005, the Blood Bank Division officially
      announced the “sunset” of Hemocare® and LifeLineTM, its two legacy blood
      transfusion products, which were originally installed in the early 1980s. The
      two legacy products have a large installed base within the transfusion
      management market and represent an important opportunity for new sales for
      the
      Blood Management Division. The Company has entered into license agreements
      representing 226 current and new customer sites to replace Mediware’s legacy
      software with the HCLL software. The software is in productive use at
      approximately 30 sites. The Company anticipates, but cannot assure, that the
      HCLL software will continue to be accepted by the legacy product users and
      the
      sales of HCLL software will increase as the current legacy customer base and
      as
      new customers adopt the new software.





The
      Medication Management Division’s current WORx® drug therapy software is
      currently licensed to over 105 hospital organizations encompassing approximately
      210 hospital sites. The product’s market acceptance encompasses hospitals of all
      sizes, including strategically important multi-site hospitals. The Medication
      Management Division released two new products, MediCOETM and MediMAR® in fiscal
      2004. These products can be fully integrated with WORx and provide a complete
      drug therapy management system with a clinician order entry module (MediCOE)
      and
      nurse point of care administration module (MediMAR). The MediCOE and MediMAR
      products have been installed and are in productive use in 2 and 6 separate
      customer sites, respectively.





The
      Medication Management Division is now targeting its large WORx software customer
      base for the sale of the MediCOE and MediMAR products, and the new products
      are
      attracting new potential WORx software customers as well. The sales for the
      Medication Management’s full suite of products are significantly larger in size
      and scope and involve more hospital departments and therefore, substantially
      longer sales and implementation cycles compared to stand-alone WORx sales.
      The
      impact of these changes has been less predictable contract closures and the
      recognition of license software revenue over multiple quarters, in accordance
      with the American Institute of Certified Public Accountants Statement of
      Position 97-2, “Software Revenue Recognition.”


13
 *Index*
  **Results
      of Operations for the Three Months Ended September 30, 2006 as Compared to
      the
      Three Months Ended September 30, 2005**





Total
      revenue for the first quarter of fiscal 2007 is $8,475,000 compared to
      $9,408,000 in the comparable quarter of fiscal 2006, a decrease of $933,000
      or
      9.9% primarily due to decreased system sales. The Blood Management Division
      recorded total revenue of $4,846,000 in the first quarter, representing a 5.2%
      decrease compared to $5,114,000 in the same period of fiscal 2006. The
      Medication Management Division (excluding the United Kingdom operating division,
      JAC Computer Services, Ltd., “JAC”) recorded a decrease in total revenue of
      $503,000, or 16.7%, from $3,014,000 in fiscal 2006 to $2,511,000 in the first
      quarter of fiscal 2007. JAC recorded total revenues of $801,000 in the current
      quarter, representing a decrease of $85,000 or 9.6% compared to $886,000 in
      the
      same period of fiscal 2006. The Perioperative Management Division recorded
      revenues of $317,000 in the current quarter, representing a decrease of $77,000,
      or 19.5% compared to $394,000 in the same quarter in fiscal 2006.





System
      sales, which include proprietary software, third party software and hardware
      revenue, amounted to $2,323,000 for the quarter ended September 30, 2006, a
      decrease of $857,000, or 26.9%, from $3,180,000 in the same period in fiscal
      2006. System sales in the Medication Management Division (excluding JAC)
      decreased from $1,058,000 in fiscal 2006 to $507,000 in fiscal 2007,
      representing a decrease of $551,000, or 52.1%. The decrease is a result of
      no
      MediMAR or MediCOE sales during the quarter resulting from the longer and more
      complex sales cycle for the MediMAR and MediCOE products than anticipated.
      Mediware is continuing to make investments in sales and marketing to stimulate
      revenue growth for these products in future quarters. System sales for the
      Blood
      Management Division were $1,711,000 for the first quarter of fiscal 2007, a
      decrease of $223,000, or 11.5% compared to $1,934,000 in the same quarter of
      fiscal 2006. While system sales in the Blood Bank Division decreased as compared
      to the same period in fiscal 2006, the sales reflected the end of a
      multi-quarter reduction in system sales in the Blood Bank Division and reflect
      the progression of the sunset process toward the conclusion of the sunset
      program in June 2007. The company expects its remaining legacy customers to
      make
      a licensing decision over the coming quarters in conjunction with their sunset
      dates. The Blood Bank Division is also developing marketing and business
      development efforts focused on expanding market share following the migration
      period. The Perioperative Management Division experienced an increase in system
      sales of $21,000, or 210% from $10,000 in fiscal 2006 to $31,000 in the first
      quarter of fiscal 2007. This quarter’s comparative increase in revenue reflects
      the fluctuations in a business that is in the early stages of a focused
      marketing and business development process. JAC recorded system sales of $74,000
      for the first quarter of fiscal 2007, representing a decrease of $104,000,
      or
      58.4% compared to $178,000 reported for the same period in fiscal 2006. Mediware
      expects JAC system sales to increase as the “Connecting for Health” program
      continues to progress in the UK. Mediware intends to continue investing in
      sales
      and marketing across its business and expects that this additional investment
      will enable the Company to participate in more sales opportunities and broaden
      the Company’s potential base of customers.





Service
      revenue, which includes recurring software support, implementation and training
      services, decreased 1.2%, or $76,000, to $6,152,000 in the first quarter of
      fiscal 2007 compared to $6,228,000 for the same period in fiscal 2006. Service
      revenue in the Medication Management Division (excluding JAC) increased $48,000
      or 2.5% to $2,004,000 in the first quarter of fiscal 2007 compared to $1,956,000
      for the first quarter of fiscal 2006. The increase is primarily due to ongoing
      implementation projects for MediMAR and MediCOE software licensed in previous
      quarters. Service revenue for the Blood Bank Division totaled $3,135,000 for
      the
      first quarter of fiscal 2007, representing a decrease of $45,000 or 1.4%
      compared to $3,180,000 in the first quarter of fiscal 2006. The service activity
      primarily reflects the implementation activity on HCLL contracts signed within
      the past year. Mediware anticipates that service revenue will increase during
      fiscal 2007 due to the implementation of the HCLL software. Service revenue
      in
      the Perioperative Management Division decreased $98,000 or 25.5% to $286,000
      in
      the first quarter of fiscal 2007 compared to $384,000 in the first quarter
      of
      fiscal 2006. The decrease in service revenue for this division is primarily
      due
      to a decline in ongoing implementation projects resulting from the completion
      of
      the migration from Mediware’s legacy Surgiware System to its Perioperative
      Solutions product. Service revenue for JAC increased 2.7% or $19,000, to
      $727,000 in the first quarter of fiscal 2007 compared to $708,000 in the first
      quarter of fiscal 2006.




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 increased $28,000, or 5.3%
      in
      the first quarter of fiscal 2007. The gross margin, excluding amortization
      of
      capitalized software costs, on system sales was 75.9% in the first quarter
      of
      fiscal 2007 compared to 83.3% in the same quarter in fiscal 2006. The decrease
      in gross margin is primarily due to the decline in higher margin proprietary
      software sales.


14
 *Index*
  Cost
      of
      services includes the salaries of client service personnel and communications
      expenses along with direct expenses of the client service departments. Cost
      of
      services increased $101,000, or 5.4%, in the first quarter of 2007 over the
      same
      period in the previous year. The increase in cost of services is primarily
      attributed to increases in implementation personnel as Mediware increased staff
      levels for the rollout of the HCLL products. Gross margin on service revenue
      was
      68.0% for the first quarter of fiscal 2007 compared to 70.0% for the first
      quarter of fiscal 2006. Mediware believes, but cannot assure, that cost of
      services as a percentage of service revenue will remain consistent with its
      current utilization rates which are defined as the percentage of billed hours
      to
      worked hours of its service personnel.





Amortization
      of capitalized software increased $125,000, or 11.0%, to $1,266,000 in the
      first
      quarter of fiscal 2007 compared to $1,141,000 in the first quarter of fiscal
      2006. This increase is primarily due to increased amortization of capitalized
      software costs related to the HCLL and MediMAR products released by Mediware
      within the prior fiscal year. Mediware expects amortization to continue to
      increase during fiscal 2007 as new software releases occur.





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 $68,000 in the
      first quarter of fiscal 2007 to $1,043,000 compared to $1,111,000 in the first
      quarter of fiscal 2006. Expenditures for software development include amounts
      paid for both capitalizable and noncapitalizable development projects. Total
      expenditures for software development were $1,926,000 the first quarter of
      fiscal 2007 compared to $2,295,000 the first quarter of fiscal 2006, a decrease
      of $369,000 or 16.1%. Mediware believes that its near term total investment
      in
      product development will remain substantially consistent with current levels
      however the investment among divisions may shift due to normal product
      development life cycles.





Selling,
      general and administrative (“SG&A”) expenses include marketing and sales
      salaries, commissions, travel and advertising expenses. Also included is bad
      debt expense; legal, accounting and professional fees including costs associated
      with Sarbanes-Oxley; salaries and bonus expenses for corporate, divisional,
      financial and administrative staffs; utilities, rent, communications and other
      office expenses; and other related direct administrative expenses. SG&A
      expenses decreased $86,000 or 2.3%, from $3,689,000 in the first quarter of
      fiscal 2006 to $3,603,000 in the first quarter of fiscal 2007. This decrease
      is
      primarily due to decreases in labor costs, employee benefits, and facility
      expenses. These reductions were partially offset by increases in legal and
      professional fees.





Net
      income the first quarter of fiscal 2007 was $164,000, a decrease of $573,000
      or
      77.7%, compared to a net income of $737,000 the first quarter of fiscal
      2006.





**Liquidity
      and Capital Resources**





As
      of
      September 30, 2006, Mediware had cash and cash equivalents of $20,939,000
      compared to $18,996,000 at June 30, 2006. Working capital was $19,202,000 and
      $18,095,000 at September 30, 2006 and June 30, 2006, respectively. The current
      ratio was 2.7 to 1 at September 30, 2006 compared to 2.6 to 1 at June 30,
      2006.





Cash
      provided by operating activities was $2,622,000 during the first three months
      of
      fiscal year 2007 compared to $3,670,000 during the same period a year ago.
      The
      decrease in cash provided by operating activities is primarily due to changes
      in
      net income, accounts receivable, and accounts payable, accrued expenses and
      customer advances.





Cash
      used
      in investing activities was $983,000 during the first three months of fiscal
      year 2007 compared to $1,365,000 during the same period a year ago. The decrease
      primarily relates to lower expenditures on product development and lower
      software capitalization rates. Mediware capitalized $883,000 and $1,184,000
      of
      product development costs during the three months ended September 30, 2007
      and
      2006, respectively.





Cash
      provided by financing activities was $265,000 during the first three months
      of
      fiscal year 2007 compared to $535,000 during the same period a year ago,
      primarily reflecting a reduction in the amount of proceeds received from stock
      option exercises and the decrease in excess tax benefits related to the exercise
      of stock options.





Factors
      that may affect liquidity are Mediware’s ability to penetrate the market for its
      products, maintain or reduce the length of the selling cycle, and collect cash
      from clients as systems are implemented. Exclusive of activities involving
      any
      future acquisitions of products or companies that complement or augment
      Mediware’s existing line of products, Mediware believes that current available
      funds and cash generated from operations will provide sufficient liquidity
      to
      meet operating requirements for the foreseeable future. Mediware continues
      to
      review its long-term cash needs. Currently, there are no plans for additional
      outside financing, except that Mediware may consider establishing a new line
      of
      credit.


15
 *Index*




**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





Mediware
      does not currently have any material exposure to foreign currency transaction
      gains or losses. However, Mediware does have some exposure to foreign currency
      rate fluctuations arising from sales made to customers in the United Kingdom.
      These transactions are made by Mediware’s U.K.-based, wholly owned subsidiary
      which transacts business in the local functional currency. To date, Mediware
      has
      not entered into any derivative financial instrument to manage foreign currency
      risk and is currently not evaluating the future use of any such financial
      instruments.





**ITEM
                4.**
            **CONTROLS
                AND PROCEDURES**





Mediware’s
      management, under the supervision and with the participation of Mediware’s Chief
      Executive Officer and Principal Accounting 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 PAO, to allow timely decisions
      regarding required disclosure. Based on the foregoing review and evaluation,
      Mediware’s CEO and PAO have concluded that Mediware’s disclosure controls and
      procedures are effective as of September 30, 2006.





There
      were no material changes in Mediware’s internal controls over financial
      reporting that occurred during the three months ended September 30, 2006 that
      have materially affected, or are reasonably likely to materially affect, its
      internal controls over financial reporting.


16
 *Index*




**PART
                II**
            **OTHER
                INFORMATION**





**ITEM
                1.**
            **LEGAL
                PROCEEDINGS**





On
      August
      16, 2006, Mediware filed a lawsuit against Korchek Technologies, LLC (“Korchek”)
      in the United States District Court for the Eastern District of New York
      alleging breach of contract and tortious interfere with Mediware's contractual
      relationships with certain customers.  On September 28, 2006, Korchek filed
      an answer to Mediware's lawsuit denying any wrongdoing and filed a counterclaim.
      The counterclaim seeks unspecified damages and alleges, among other things,
      that
      Mediware has improperly interfered with Korchek’s prospective business
      relationships; disparaged Korchek, its president and its products and (iii)
      improperly induced Korchek’s customers to breach their contractual relationship
      with Korchek.





**Item
                1A.**
            **RISK
                FACTORS.**





Risks
      and
      uncertainties that, if they were to occur, could materially adversely affect
      our
      business or that could cause our actual results to differ materially from the
      results contemplated by the forward-looking statements contained in this report
      and other public statements we make were set forth in the “Item 1A - Risk
      Factors” section of our Annual Report on Form 10-K for the year ended June 30,
      2006. There have been no material changes from the risk factors disclosed in
      that Form 10-K.


17
 *Index*




**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


18
 *Index*




**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)October
                31, 2006
            
            /s/  JAMES F. BURGESSDate
            
            JAMES F. BURGESSPRESIDENT AND CHIEF EXECUTIVE OFFICEROctober
                31, 2006
            
            /s/  MARK B. WILLIAMSDate
            
            MARK B. WILLIAMSPRINCIPAL ACCOUNTING OFFICER






19