UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





TQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
quarterly period ended September 30, 2008





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 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)







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, 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
                                T(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   T
No





APPLICABLE
ONLY TO CORPORATE ISSUERS:





As of
October 20, 2008, there were 7,672,000 shares of Common Stock, $0.10 par value,
of the registrant outstanding.





2





MEDIWARE INFORMATION SYSTEMS, INC.





INDEX








PagePART
      I
                  Financial
      InformationITEM
      1.
                  Financial
      StatementsCondensed Consolidated Balance Sheets as of September 30, 2008
      (Unaudited) and June 30, 2008
                  4Condensed Consolidated Statements of Operations and
      Comprehensive Income (Unaudited) for the Three Months Ended September 30,
      2008 and 2007
                  5Condensed Consolidated Statement of Stockholders’ Equity
      (Unaudited) for the Three Months Ended September 30,
    2008
                  6Condensed Consolidated Statements of Cash Flows (Unaudited) for
      the Three Months Ended September 30, 2008 and 2007
                  7Notes to Unaudited Condensed Consolidated Financial
      Statements
                  8Review Report of Independent Registered Public Accounting
      Firm
                  17ITEM
      2.
                  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                  18ITEM
      3.
                  Quantitative and Qualitative Disclosures About Market
      Risk
                  27ITEM
      4.
                  Controls and Procedures
                  28PART
      II
                  Other
      InformationITEM
      1.
                  Legal Proceedings
                  28ITEM
      1A.
                  Risk Factors
                  28ITEM
      6.
                  Exhibits
                  30Signatures
                  31





3
 Index





PART
I     FINANCIAL INFORMATION





1.      FINANCIAL
STATEMENTS





MEDIWARE INFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts
in thousands except shares)





(Unaudited)September 30,
                
                
                June 30,2008
                
                
                2008ASSETSCurrent
      AssetsCash
      and cash equivalents
                
                $
                22,101
                
                
                $
                22,741Accounts
      receivable (net of allowance of $637 and $748)
                
                
                8,841
                
                
                
                6,812Inventories
                
                
                109
                
                
                
                102Deferred
      income taxes
                
                
                606
                
                
                
                872Prepaid
      expenses and other current assets
                
                
                1,162
                
                
                
                937Total
      current assets
                
                
                32,819
                
                
                
                31,464Fixed
      assets, net
                
                
                1,779
                
                
                
                1,831Capitalized
      software costs, net
                
                
                15,030
                
                
                
                15,512Goodwill,
      net
                
                
                7,320
                
                
                
                7,378Other
      intangible assets, net
                
                
                1,320
                
                
                
                1,386Other
      long-term assets
                
                
                57
                
                
                
                57Total
      Assets
                
                $
                58,325
                
                
                $
                57,628LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                
                $
                1,327
                
                
                $
                1,044Advances
      from customers
                
                
                9,069
                
                
                
                7,718Accrued
      expenses and other current liabilities
                
                
                2,794
                
                
                
                3,707Total
      current liabilities
                
                
                13,190
                
                
                
                12,469Deferred
      income taxes
                
                
                5,006
                
                
                
                5,268Total
      liabilities
                
                
                18,196
                
                
                
                17,737Stockholders'
      EquityPreferred
      stock, $.01 par value; authorized 10,000,000 shares; none
      issued
                
                
                -
                
                
                
                -Common
      stock, $.10 par value; authorized 25,000,000 shares; 8,219,000 and
      8,180,000 shares issued as of September 30, 2008 and June 30, 2008,
      respectively
                
                
                822
                
                
                
                818Additional
      paid-in capital
                
                
                31,667
                
                
                
                31,419Treasury
      stock, 549,000 shares at September 30, 2008 and June 30, 2008,
      respectively
                
                
                (3,318
                )
                
                
                (3,318
                )Retained
      earnings
                
                
                11,081
                
                
                
                10,863Accumulated
      other comprehensive income (loss)
                
                
                (123
                )
                
                
                109Total
      stockholders' equity
                
                
                40,129
                
                
                
                39,891Total
      Liabilities and Stockholders' Equity
                
                $
                58,325
                
                
                $
                57,628





See Notes
to Unaudited Condensed Consolidated Financial Statements.





4
 Index





MEDIWARE INFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)


(Amounts
in thousands, except earnings per share)





Three
      Months EndedSeptember 30,(Unaudited)2008
                  
                  
                  2007RevenueSystem
      sales
                  
                  $
                  2,429
                  
                  
                  $
                  4,190Services
                  
                  
                  7,404
                  
                  
                  
                  6,554Total
      revenue
                  
                  
                  9,833
                  
                  
                  
                  10,744Cost
      and ExpensesCost
      of systems (1)
                  
                  
                  740
                  
                  
                  
                  689Cost
      of services (1)
                  
                  
                  2,657
                  
                  
                  
                  2,216Amortization
      of capitalized software costs
                  
                  
                  1,486
                  
                  
                  
                  1,440Software
      development costs
                  
                  
                  876
                  
                  
                  
                  983Selling,
      general and administrative
                  
                  
                  3,862
                  
                  
                  
                  4,584Total
      costs and expenses
                  
                  
                  9,621
                  
                  
                  
                  9,912Operating
      income
                  
                  
                  212
                  
                  
                  
                  832Interest
      and other income
                  
                  
                  138
                  
                  
                  
                  290Interest
      and other expense
                  
                  
                  10
                  
                  
                  
                  (27
                  )Income
      before income taxes
                  
                  
                  360
                  
                  
                  
                  1,095Income
      tax provision
                  
                  
                  (142
                  )
                  
                  
                  (632
                  )Net
      income
                  
                  
                  218
                  
                  
                  
                  463Other
      comprehensive incomeForeign
      currency translation adjustment
                  
                  
                  (232
                  )
                  
                  
                  35Comprehensive
      income (loss)
                  
                  $
                  (14
                  )
                  
                  $
                  498Net
      income per Common ShareBasic
                  
                  $
                  0.03
                  
                  
                  $
                  0.06Diluted
                  
                  $
                  0.03
                  
                  
                  $
                  0.05Weighted
      Average Common Shares OutstandingBasic
                  
                  
                  7,643
                  
                  
                  
                  8,151Diluted
                  
                  
                  8,000
                  
                  
                  
                  8,458(1)
      Excludes amortization of Capitalized Software Costs





See Notes
to Unaudited Condensed Consolidated Financial Statements.





5
 Index





MEDIWARE INFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


(Amounts
in thousands)





Common Stock
                                                                    
                                                                    
                                                                    Additional
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Accumulated
      OtherShares
                                                                    
                                                                    
                                                                    Amount
                                                                    
                                                                    
                                                                    Paid-In
      Capital
                                                                    
                                                                    
                                                                    Treasury
      Stock
                                                                    
                                                                    
                                                                    Retained
      Earnings
                                                                    
                                                                    
                                                                    Comprehensive
      Income (Loss)
                                                                    
                                                                    
                                                                    TotalBalance
      at June 30, 2008
                                                                    
                                                                    
                                                                    8,180
                                                                    
                                                                    
                                                                    $
                                                                    818
                                                                    
                                                                    
                                                                    $
                                                                    31,419
                                                                    
                                                                    
                                                                    $
                                                                    (3,318
                                                                    )
                                                                    
                                                                    $
                                                                    10,863
                                                                    
                                                                    
                                                                    $
                                                                    109
                                                                    
                                                                    
                                                                    $
                                                                    39,891Issuance
      of common stock on vesting of restricted shares
                                                                    
                                                                    
                                                                    39
                                                                    
                                                                    
                                                                    
                                                                    4
                                                                    
                                                                    
                                                                    
                                                                    (4
                                                                    )
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -Stock
      based compensation expense
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    252
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    252Foreign
      currency translation adjustment
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (232
                                                                    )
                                                                    
                                                                    
                                                                    (232
                                                                    )Net
      income
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    218
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    218Balance
      at September 30, 2008 (Unaudited)
                                                                    
                                                                    
                                                                    8,219
                                                                    
                                                                    
                                                                    $
                                                                    822
                                                                    
                                                                    
                                                                    $
                                                                    31,667
                                                                    
                                                                    
                                                                    $
                                                                    (3,318
                                                                    )
                                                                    
                                                                    $
                                                                    11,081
                                                                    
                                                                    
                                                                    $
                                                                    (123
                                                                    )
                                                                    
                                                                    $
                                                                    40,129





See Notes
to Unaudited Condensed Consolidated Financial Statements.





6
 Index





MEDIWARE INFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands)





(Unaudited)Three
      Months EndedSeptember 30,2008
                
                
                2007Cash
      Flows From Operating ActivitiesNet
      income
                
                $
                218
                
                
                $
                463Adjustments
      to reconcile net income, to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                1,725
                
                
                
                1,600Loss
      on write-off of fixed assets
                
                
                -
                
                
                
                10Stock
      based compensation expense
                
                
                252
                
                
                
                153Deferred
      tax provision
                
                
                62
                
                
                
                619Provision
      for doubtful accounts
                
                
                75
                
                
                
                179Changes
      in operating assets and liabilities, net of effect of
      acquisition:Accounts
      receivable
                
                
                (2,139
                )
                
                
                (1,626
                )Inventories
                
                
                (7
                )
                
                
                96Prepaid
      expenses and other assets
                
                
                (218
                )
                
                
                (282
                )Accounts
      payable, accrued expenses and advances from customers
                
                
                1,070
                
                
                
                1,913Net
      cash provided by operating activities
                
                
                1,038
                
                
                
                3,125Cash
      Flows From Investing ActivitiesAcquisition
      of fixed assets
                
                
                (128
                )
                
                
                (195
                )Capitalized
      software costs
                
                
                (1,004
                )
                
                
                (928
                )Acquisition
      of Integrated Marketing Solutions, LLC
                
                
                (314
                )
                
                
                -Net
      cash used in investing activities
                
                
                (1,446
                )
                
                
                (1,123
                )Cash
      Flows From Financing ActivitiesPrincipal
      payments on note payable
                
                
                -
                
                
                
                (4
                )Net
      cash used in financing activities
                
                
                -
                
                
                
                (4
                )Foreign
      currency translation adjustments
                
                
                (232
                )
                
                
                35Net
      (decrease) increase in cash and cash equivalents
                
                
                (640
                )
                
                
                2,033Cash
      at beginning of period
                
                
                22,741
                
                
                
                22,789Cash
      at end of period
                
                $
                22,101
                
                
                $
                24,822Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Income
      taxes paid
                
                $
                32
                
                
                $
                72





See Notes
to Unaudited Condensed Consolidated Financial Statements.





7
 Index





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, 2008, included in Mediware's Annual Report filed on Form
10-K for such fiscal year.





The
results of operations for the three months ended September 30, 2008 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 months ended September 30, 2008 and 2007,
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 approved a share repurchase
program, authorizing Mediware to repurchase up to $4.0 million 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 program has no expiration date, and Mediware has no
obligation to purchase shares under the program.  As of September 30,
2008, the Company has repurchased 549,000 shares at a cost of $3.3 million under
this share repurchase program.  Subsequent to September 30, 2008, the
Board of Directors expanded the share repurchase program by $3.3 million. The
Company is authorized to repurchase an additional $4.0 million of its Common
Stock under the same terms and conditions under the original share repurchase
program.  In total, (including previous repurchases) the Company has been
authorized to repurchase approximately $7.3 million of its Common
Stock.





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
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.








4.     ACQUISITIONS





On
October 31, 2007, Mediware acquired substantially all of the assets of
Integrated Marketing Solutions, LLC, a Maryland limited liability company
(“IMS”).  IMS is a provider of software products and services to blood
and plasma donation centers.  IMS services the blood donor center
industry by providing integrated software, programs and services to support
donor recruitment, call centers, customer service, hospital services, sales and
prospecting.   Following the acquisition, the Company began
providing software products and services targeting blood and plasma donation
centers in North America and Europe.  This software addresses the
competitive nature of the blood supply market by enabling blood and plasma
collection facilities with web-based tools to better manage relationships with
donors, staffing and hospitals.  These products facilitate blood and
plasma donor centers’ donor recruitment and retention, improve blood drives, and
enable hospitals with electronic tools to order, ship and track
products.





8
 Index





The
acquired IMS assets generate revenue through subscription sales of web-based
applications and by providing professional and promotional services to its
customers.  Subscription revenue is recognized evenly over the
subscription period.  Professional and promotional revenue are
recognized as the services are rendered.





The
purchase price paid for the assets of IMS consists of an initial purchase price
of $5,458,000 paid in cash at the closing.  Additionally, the Company
paid contingent consideration of $369,000 based on the successful achievement of
certain revenue milestones.  The Company also received $55,000 from
the seller as part of the final working capital adjustment.  The
contingent consideration and the final working capital adjustment were fully
accrued at June 30, 2008, and paid in July 2008.  The Company incurred
$66,000 of legal and accounting fees related to this transaction which have been
included in the total purchase price.  The results of the IMS
acquisition are included in the accompanying consolidated financial statements
from the date of acquisition.







5.
GOODWILL AND OTHER INTANGIBLE ASSETS





Goodwill





The
change in the carrying amount of our goodwill during the three-months ended
September 30, 2008 is as follows (in thousands):





Carrying
      amount as of June 30, 2008
                  
                  $
                  7,378Tax
      benefit of amortization
                  
                  
                  (58
                  )Carrying
      amount as of September 30, 2008
                  
                  $
                  7,320








Other
Intangible Assets





The
carrying amount of our other intangible assets as of September 30, 2008 is as
follows (in thousands):





Gross Carrying Amount
                                            
                                            
                                            Accumulated Amortization
                                            
                                            
                                            Net Carrying Amount
                                            
                                            
                                            Weighted Average Useful Life (in
      years)Purchased
      technology
                                            
                                            $
                                            473
                                            
                                            
                                            $
                                            (87
                                            )
                                            
                                            $
                                            386
                                            
                                            
                                            
                                            5.0Customer
      relationships
                                            
                                            
                                            1,056
                                            
                                            
                                            
                                            (138
                                            )
                                            
                                            
                                            918
                                            
                                            
                                            
                                            7.0Non-compete
      agreements
                                            
                                            
                                            35
                                            
                                            
                                            
                                            (19
                                            )
                                            
                                            
                                            16
                                            
                                            
                                            
                                            1.5$
                                            1,564
                                            
                                            
                                            $
                                            (244
                                            )
                                            
                                            $
                                            1,320





9
 Index





Amortization
expense for other intangible assets amounted to $66,000 for the three months
ended September 30, 2008.  The following represents the expected
amortization in future periods (in thousands):





Fiscal Year
                    
                    Expected Amortization2009
                    
                    
                    2012010
                    
                    
                    2452011
                    
                    
                    2452012
                    
                    
                    2452013
                    
                    
                    182Thereafter
                    
                    
                    202$
                    1,320








6.     STOCK
BASED COMPENSATION








The
Company accounts for stock-based compensation in accordance with SFAS 123R,
which establishes a fair value-based method of accounting for stock-based
compensation.  The aggregate noncash stock based compensation expense
totaled $252,000 and $153,000 for the three-months ended September 30, 2008 and
2007, 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 September 30, 2008, there were 1,044,000 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 September 30, 2008 no options were available to be
issued under this Plan.








Restricted
Common Stock Awards





During
fiscal 2006, 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 200,000 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 Company has not
recorded any compensation expense related to the Performance Shares because it
is not probable the performance goals will be met.  The Company will
continue to assess whether or not the achievement of any performance goals are
probable at each reporting period, and will begin recognizing the related
expense if and when the performance conditions become probable.  As of
September 30, 2008, 75,000 of these Performance Shares were
outstanding.  The Performance Shares may result in compensation
expense in future periods of up to $699,000, representing the fair value on the
date of the grant, if it becomes probable the performance goals will be
met.





10
 Index





Beginning
in fiscal 2007, 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 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.  For the three months ended September 30, 2008 and 2007,
the Company recorded compensation expense of $1,000 and $70,000, respectively
related to the Time-Based Shares, net of a benefit of $11,000 related to the
forfeiture of 5,000 unvested Time-Based Shares during the three-months ended
September 30, 2008.  The Time-Based Shares will result in compensation
expense in future periods of up to $37,000, representing the fair value on the
date of the grant less the amount of compensation expense already
recorded.





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 shares granted is determined based upon the
fair market value of the Company’s stock on January 1 of each fiscal
year.  These shares vested 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 these
shares of $18,000 for the three-months ended September 30, 2008 and 2007,
respectively.    The Director Shares will result in
compensation expense in future periods of up to $52,000, 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 “Enhanced Performance Shares”).  The Enhanced
Performance Shares vest partially upon continued employment of the key employees
and partially upon the achievement of certain performance goals.  For
the three-months ended September 30, 2008 and 2007, the Company recorded
$176,000 and $59,000 of compensation expense related to the Enhanced Performance
Shares.  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
Enhanced Performance Shares may result in compensation expense in future periods
of up to $898,000, representing the fair value on the date of the grant less the
amount of compensation expense already recorded.  This amount includes
$185,000 of unrecognized time-based compensation expense related to the
continued employment of the key employees.





Estimated
future stock-based compensation expense related to time-based restricted stock
is as follows (in thousands):





Fiscal Years Ending June
30,
                  
                  Time-Based Shares
                  
                  
                  Enhanced Performance Shares (Time-Based
      Portion)
                  
                  
                  Director Shares
                  
                  
                  Total2009
                  
                  $
                  23
                  
                  
                  $
                  112
                  
                  
                  $
                  52
                  
                  
                  $
                  1872010
                  
                  
                  10
                  
                  
                  
                  67
                  
                  
                  
                  -
                  
                  
                  
                  772011
                  
                  
                  4
                  
                  
                  
                  6
                  
                  
                  
                  -
                  
                  
                  
                  10Total
      estimated future stock-based compensation expense
                  
                  $
                  37
                  
                  
                  $
                  185
                  
                  
                  $
                  52
                  
                  
                  $
                  274





11
 Index





A summary
of the status of the Company’s nonvested restricted common stock as of September
30, 2008, and changes during the three-months ended September 30, 2008, is
presented below (shares amounts in thousands):





Performance Shares
                                                    
                                                    
                                                    Weighted Average Grant Date Fair
      Value
                                                    
                                                    
                                                    Time-Based Shares
                                                    
                                                    
                                                    Weighted Average Grant Date Fair
      Value
                                                    
                                                    
                                                    Enhanced Performance Shares
                                                    
                                                    
                                                    Weighted Average Grant Date Fair
      ValueNonvested
      at June 30, 2008
                                                    
                                                    
                                                    75
                                                    
                                                    
                                                    $
                                                    9.32
                                                    
                                                    
                                                    
                                                    20
                                                    
                                                    
                                                    $
                                                    7.29
                                                    
                                                    
                                                    
                                                    208
                                                    
                                                    
                                                    $
                                                    6.63Granted
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Canceled
      or forfeited
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (5
                                                    )
                                                    
                                                    
                                                    6.21
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Vested
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (2
                                                    )
                                                    
                                                    
                                                    8.50
                                                    
                                                    
                                                    
                                                    (37
                                                    )
                                                    
                                                    
                                                    6.53Nonvested
      at September 30, 2008
                                                    
                                                    
                                                    75
                                                    
                                                    
                                                    $
                                                    9.32
                                                    
                                                    
                                                    
                                                    13
                                                    
                                                    
                                                    $
                                                    7.55
                                                    
                                                    
                                                    
                                                    171
                                                    
                                                    
                                                    $
                                                    6.65





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
January 1 of each year, pursuant to the directors’ compensation
plan.








Stock
Option Awards





There
were no options granted during the three months ended September 30,
2008.





The fair
value of the stock options granted during the three months ended September 30,
2007 was determined at the date of grant and is charged to compensation expense
over the vesting period of the options.  The fair value of options
granted at the date of the grant was estimated using the Black-Scholes option
pricing model utilizing the following assumptions:





For the Three Months Ended September 30,
      2007Risk-free
      interest rates
                  
                  
                  4.6%
      - 4.8
                  %Expected
      option life in years
                  
                  
                  1-5Expected
      stock price volatility
                  
                  
                  34%
      - 35
                  %Expected
      dividend yield
                  
                  
                  -0-





The
risk-free interest 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 range given above results 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.





12
 Index





The
following table sets forth summarized information concerning the Company's stock
options as of September 30, 2008 (share and aggregate intrinsic value amounts in
thousands):





Shares
                                                        
                                                        
                                                        Weighted Average Exercise
    Price
                                                        
                                                        
                                                        Weighted Average Remaining Contractual
      Term
                                                        
                                                        
                                                        Aggregate Intrinsic ValueOutstanding
      at June 30, 2008
                                                        
                                                        
                                                        976
                                                        
                                                        
                                                        $
                                                        8.42Granted
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Exercised
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Forfeited
      or expired
                                                        
                                                        
                                                        (45
                                                        )
                                                        
                                                        
                                                        6.64Outstanding
      at September 30, 2008
                                                        
                                                        
                                                        931
                                                        
                                                        
                                                        $
                                                        8.51
                                                        
                                                        
                                                        
                                                        3.8
                                                        
                                                        
                                                        $
                                                        286Expected
      to vest at September 30,
      2008
                                                        
                                                        
                                                        931
                                                        
                                                        
                                                        $
                                                        8.51
                                                        
                                                        
                                                        
                                                        3.8
                                                        
                                                        
                                                        $
                                                        286Options
      exercisable at September30,
      2008
                                                        
                                                        
                                                        741
                                                        
                                                        
                                                        $
                                                        8.94
                                                        
                                                        
                                                        
                                                        3.1
                                                        
                                                        
                                                        $
                                                        286





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 for the three months ended September 30, 2008
and 2007.  Historically, the Company has issued new shares upon the
exercise of stock options.





The
weighted average fair value at date of grant for options granted during the
three months ended September 30, 2007 was $2.38 per option.  The
Company recorded $57,000 and $24,000 of compensation expense for stock option
plans for the three months ended September 30, 2008 and 2007,
respectively.





Estimated
future stock-based compensation expense relating to stock options is as follows
(in thousands):





Fiscal Years Ending June
30,
                    
                    Future Stock Option Compensation
      Expense2009
                    
                    $
                    1182010
                    
                    
                    902011
                    
                    
                    392012
                    
                    
                    10Total
      estimated future stock-based compensation expense
                    
                    $
                    257





13
 Index





A summary
of the status of the Company’s nonvested options as of September 30, 2008, and
changes during the three months ended September 30, 2008, is presented below
(share amounts in thousands):





Nonvested Options
                      
                      Shares
                      
                      
                      Weighted
      Average Grant Date Fair
      ValueNonvested
      at June 30, 2008
                      
                      
                      215
                      
                      
                      $
                      2.22Granted
                      
                      
                      -
                      
                      
                      
                      -Canceled
      or expired
                      
                      
                      -
                      
                      
                      
                      -Vested
                      
                      
                      (25
                      )
                      
                      $
                      2.59Nonvested
      at September 30, 2008
                      
                      
                      190
                      
                      
                      $
                      2.17





The total
fair value of shares vested during the three months ended September 30, 2008 was
$65,000.





The
following table presents information relating to stock options at September 30,
2008 (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
                
                
                
                157
                
                
                $
                3.59
                
                
                
                1.1
                
                
                
                157
                
                
                $
                3.59$
                4.50
      - $ 7.49
                
                
                
                229
                
                
                $
                6.83
                
                
                
                6.9
                
                
                
                39
                
                
                $
                6.99$
                7.50
      - $ 8.99
                
                
                
                119
                
                
                $
                8.19
                
                
                
                2.1
                
                
                
                119
                
                
                $
                8.19$
                9.00
      - $ 10.49
                
                
                
                172
                
                
                $
                10.13
                
                
                
                3.9
                
                
                
                172
                
                
                $
                10.13$
                10.50
      - $11.99
                
                
                
                92
                
                
                $
                10.89
                
                
                
                1.7
                
                
                
                92
                
                
                $
                10.89$
                12.00
      - $13.49
                
                
                
                117
                
                
                $
                12.45
                
                
                
                3.9
                
                
                
                117
                
                
                $
                12.45$
                13.50
      - $14.99
                
                
                
                45
                
                
                $
                13.74
                
                
                
                5.4
                
                
                
                45
                
                
                $
                13.74931
                
                
                
                
                
                
                
                
                
                
                
                741








7.   INCOME
TAXES





The
Company accounts for income taxes under the asset and liability
approach.  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.





In June
2006, the FASB issued interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN
48”).  FIN 48 seeks to reduce the diversity in practice associated
with certain aspects of measurement and recognition in accounting for income
taxes.  In addition, FIN 48 provides guidance on derecognition,
classification, interest and penalties and accounting in interim periods and
requires expanded disclosures with respect to the uncertainty in income
taxes.  The Company has adopted FIN 48 effective July 1,
2007.





14
 Index





As of
September 30, 2008, the Company’s unrecognized tax benefits totaled $378,000,
including $17,000 relating to accrued interest and penalties, which related to
tax positions which, if recognized, would affect the annual effective tax
rate.  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, 2005.





During
the three months ended September 30, 2007, the Company reduced its deferred tax
assets by approximately $225,000 in connection with fully vested non-qualified
employee stock options which terminated as a result of the departure of certain
employees.








8.
SEGMENT INFORMATION





The
Company has three distinct product lines:  Medication Management
systems, Blood 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 operating divisions into one reporting
segment.  Revenue by product line is as follows (in
thousands):





For the Three Months Ended
      September 30,2008
                    
                    
                    2007Medication
      Management Systems
                    
                    $
                    4,598
                    
                    
                    $
                    5,860Blood
      Management Systems
                    
                    
                    5,036
                    
                    
                    
                    4,675Perioperative
      Management Systems
                    
                    
                    199
                    
                    
                    
                    209Total
                    
                    $
                    9,833
                    
                    
                    $
                    10,744





Selected
financial information by geographic area is as follows (in
thousands):





For the Three Months Ended
      September 30,2008
                    
                    
                    2007Revenue
      from Unaffiliated Customers:United
      States
                    
                    $
                    8,365
                    
                    
                    $
                    9,642United
      Kingdom
                    
                    
                    1,468
                    
                    
                    
                    1,102Total
                    
                    $
                    9,833
                    
                    
                    $
                    10,744Net
      Income:United
      States
                    
                    $
                    147
                    
                    
                    $
                    417United
      Kingdom
                    
                    
                    71
                    
                    
                    
                    46Total
                    
                    $
                    218
                    
                    
                    $
                    463





September 30,2008
                    
                    
                    2007Identifiable
      Assets:United
      States
                    
                    $
                    53,174
                    
                    
                    $
                    57,557United
      Kingdom
                    
                    
                    5,151
                    
                    
                    
                    4,574Total
                    
                    $
                    58,325
                    
                    
                    $
                    62,131





15
 Index





9.     CONTINGENCIES





On March
6, 2006, Triad Laboratory Alliance, LLC d/b/a Spectrum Laboratory Network
(“Spectrum”) filed suit against Mediware in the General Court for Justice,
Superior Court Division, County of Guilford, North Carolina. The case was
subsequently removed from North Carolina state court to the United States
District Court for the Middle District of North Carolina. Spectrum seeks an
unspecified amount of damages (exceeding $300,000) due to, among other things,
Mediware’s alleged misrepresentations and breaches of warranties under its
license agreement and the alleged violation of the North Carolina unfair trade
practices statute.  Mediware filed a counterclaim alleging, among
other things, breach of contract and misappropriation by Spectrum of Mediware’s
intellectual property.  In July 2007, the parties agreed to enter into
binding arbitration.  The lawsuits have been stayed while the case is
proceeding through the arbitration process.





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 tortous interference 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
improperly induced Korchek’s customers to breach their contractual relationship
with Korchek.  In September 2008, the parties entered into a
settlement agreement and mutual releases of claims by the parties against each
other, with no material adverse impact on the company.





In
February 2007, the California Supreme Court denied the petition for a review
filed by former Mediware employee Donnie L. Jackson, Jr. regarding the decision
of the Third Appellate District in Sacramento, California to vacate the award of
attorney’s fees previously obtained by Mr. Jackson and to remand the case to
Superior Court of El Dorado County, California for further
proceedings.  Mr. Jackson had previously successfully moved for
summary judgment on claims by GlobalMed Technologies, Inc. (“Global Med”) that
he misappropriated trade secrets and breached certain contractual
covenants.  The trial court had awarded fees, costs and interest
against Global Med based on Mr. Jackson’s employment contracts. In the event
that Mr. Jackson ultimately prevails in this case, which was commenced on
September 23, 2002 by Global Med, the Company would be eligible to be reimbursed
for certain attorneys’ fees and costs plus interest advanced to Mr. Jackson by
the Company in connection with Global Med’s claims.  If Mr. Jackson
does not prevail, Mediware could be responsible under an agreement with Mr.
Jackson for damages and certain fees and costs awarded to Global Med, which
could be material.





In
addition to the foregoing, 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 business,
financial condition, results of operations or cash flows.








10.     RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements, (“SFAS 157”).  This Standard defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements.  SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years.  The adoption of SFAS 157 on July 1, 2008 did
not have a material impact on the Company’s financial position, results of
operations or cash flows.





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159,The Fair Value Option for
Financial Assets and Financial Liabilities, (“FASB 159”).  This
standard permits an entity to choose to measure many financial instruments and
certain other items at fair value.  The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently with having to apply complex accounting
provisions.  SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007.  The adoption of SFAS
159 on July 1, 2008 did not have a material impact on the Company’s financial
position,.





16
 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,
2008, and the related condensed consolidated statements of operations and
comprehensive income (loss) and cash flows for the three-month periods ended
September 30, 2008 and 2007.  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, 2008, 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 September 2,
2008, 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, 2008 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
27, 2008





17
 Index





ITEM2.
            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, 2008 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.





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 (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
develops, markets, licenses, implements, services and supports clinical
management information solutions.


The
Company develops, licenses and sells its blood and biologics management
solutions to hospitals and its medication management solutions to hospitals,
long-term care and behavioral health facilities.   Mediware
licenses and sells its blood donor recruitment and management solutions to blood
donor and plasma donor centers.





The
software systems that Mediware provides to its customers typically consist of
the Company's proprietary application software, third-party licensed software
and third-party hardware.  Mediware generally licenses its medication
management, blood management and biologics management software systems to
customers on a perpetual basis.   These customers typically make
an up-front payment for the software license fees and payments for support
services on an annual basis.     In contrast, Mediware
generally provides its blood and plasma center solutions and its MediREC
software 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 and additional consultation
services, for additional fees which are generally billed as
incurred.  Mediware currently anticipates that over time an increased
number of its systems will be licensed on a subscription basis.





Mediware
markets its blood donor and its blood and biologic management products primarily
in the United States.  The Company markets its medication management
solutions in the United States and in the United Kingdom, with different
software systems designed for the specific requirements of each
market.  The Company has operations in the United Kingdom relating to
the systems licensed and sold primarily in that market as well as Ireland and
South Africa.  All other operations are in the United
States.





18
 Index





Market
Positioning





Mediware
designs, develops and markets software solutions targeting specific processes
within healthcare institutions. Software products are sold to hospitals,
long-term care and behavioral health facilities and stand alone blood and plasma
donation centers. The Company believes that its competitive advantages include
rich product knowledge and a long history of innovation in the areas of
medication and blood software products.





Traditional
healthcare environments leverage disparate information systems and manual
processes throughout the care process. This results in reduced efficiency as
well as increased safety risks due to the potential for human error and delayed
access to patient information and records. Errors and risks associated with
medications, blood, or biologics can often result in tragic consequences, a fact
that can raise the awareness and priority of Mediware solutions.





The
Company’s strategy is to address targeted clinical areas with “suites” of
applications that provide clinicians one data environment for the information
relating to the prescribing, preparation, and administration of drug, blood
and/or biologics therapies. Mediware’s products manage each step of the
therapeutic process in one system environment, including: ordering, fulfillment,
administration, and documentation, to provide care providers a “closed loop”
process for blood and medication therapies.   The process-centric
integrated data environments provided by Mediware’s blood, biologic and
medication management solutions seamlessly extend the discipline and controls of
the pharmacy and blood bank to patient units, operating room suites, and other
venues where adverse events occur. The Company believes this closed loop process
differentiates it from the industry’s catalog and “best of breed”
vendors.





The
Healthcare Information Systems Industry





The
healthcare industry in the United States is highly fragmented, complex, and
inefficient. While advances in medical technology have provided physicians,
nurses and other caregivers leading edge diagnostic and therapeutic
technologies, the information systems supporting the management of clinical
processes in complex healthcare organizations have not made comparable
progress.  Mediware believes that a substantial portion of clinical
workflow still depends upon manual paper-based processes interfaced with various
automated or semi-automated functionally oriented clinical
systems.  Examples of functionally oriented clinical systems include
pharmacy, radiology, blood bank and nursing documentation.





As a
result, the healthcare 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, professional
studies and government actions have highlighted patient safety errors and
influenced governmental activity.





For
example:





·
            In
      July 2006, the Institute of Medicine published a study on medication
      errors.  The study found that on average a patient suffers one
      medication error every day the patient stays in the
      hospital.  The study concluded that 1.5 million people are
      harmed and thousands are killed each year in hospitals due to medication
      errors.  In addition to the patient risk, the study estimated
      that errors cost the nation at least $3.5 billion
  annually.





·
            In
      September 2007, The Joint Commission Journal on Quality and Patient Safety
      included a study on medication errors.  The study found that
      almost 5% of the medication errors identified were attributable to the use
      of medication abbreviations that resulted in
      miscommunication.  It found that 81% of such errors occurred
      during prescribing, 14% occurred during transcribing and 3% occurred
      during dispensing.  The study suggested that electronic
      medication ordering tools can help reduce this source of human
      error.





·
            The
      Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”),
      which has oversight responsibility for hospitals, has the authority to
      revoke the accreditation of hospitals that fail to meet JCAHO standards of
      care.   A hospital’s failure to meet JCAHO’s standards
      could result in the loss of critical Medicare and Medicaid reimbursement
      revenue.  JCAHO’s mandates require hospitals to document all of
      a patient’s home medication when a patient is admitted to the hospital or
      enters the emergency room, and to reconcile that list with the medications
      prescribed in the hospital and repeat this process when the patient is
      transferred in the hospital and when the patient is
      discharged.





19
 Index





·
            The
      Serious Hazards of Transfusion (“SHOT”), an on-going study in the United
      Kingdom, reviewed facilities accounting for 92% of that country’s blood
      supply.  Of the errors identified, 15% resulted from errors
      during requesting, prescription or sample collection; 29% occurred in the
      blood bank and 50% were due to error when collecting and/or administering
      blood.  The study also found that the single most important
      factor in transfusion errors is misidentification of the
      patient.  As a result, the study recommended the evaluation of
      computerized aids and barcode technology to confirm that the correct unit
      of blood is administered to the
patient.





·
            Incidents
      where tissue suppliers distributed products that were improperly acquired
      and fraudulently documented have become public through high profile cases
      involving prestigious hospitals transplanting infected tissues into
      unsuspecting patients. While regulatory changes are difficult to predict,
      hospital oversight of these materials is increasing. Prominent cases
      include the 2005 scandal around Biomedical Tissue Services, a New Jersey
      company that is accused of using stolen bodies and of shipping nearly
      20,000 potentially tainted body parts. In 2006, the FDA shut down Donor
      Referral Services of Raleigh, N.C. due to “serious deficiencies” in its
      processing, donor screening and
record-keeping.





The
Company believes that in addition to healthcare industry evolution and reports,
studies and actions like those identified, the impact of specific potential
health threats such as the variant Creutzfeldt-Jakob (mad cow) virus will
require healthcare organizations to re-examine their ability to track and
analyze patients, donors, procedures and outcomes.  Mediware's
products, which integrate operating and clinical systems, are targeted to
facilitate solutions to these healthcare industry issues.




The
Company anticipates that a continued increase in government regulation, public
and competitive pressure regarding errors occurring in hospitals, as well as new
health threats, will continue to drive the industry’s expenditures on clinical
information systems.  Mediware believes that its product strategy and
offerings provide an alternative to monolithic solution architectures of
disparate systems and can play a role in moving healthcare information
technology standards forward to deliver significant results for patients and
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, the demonstrated need, ability to install,
process redesign capabilities, reputation, software platform, the potential for
enhancements, price, departmental versus enterprise sales and
salesmanship.  Another key factor 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.





Blood
and Biologics Management Products





Hospital
Transfusion and Donor Products





The
Company supplies information and management software systems to hospital blood
banks and transfusion centers.  Hospitals face pressures to manage
blood inventory and improve the safety of the blood supply by reducing errors,
improving screening and increasing throughput and cost
efficiencies.  These pressures exist despite pressures across the
healthcare industry to reduce costs and to address ongoing personnel
shortages.  Mediware's blood management software systems are intended
to help hospitals and blood centers address these issues.  The
software is designed to reduce costs through automatic report production,
decreased paperwork, and automated billing.  The Company's products
are also designed to improve blood supply safety through the use of user-defined
truth tables, among other features.





20
 Index





The
Company’s flagship blood transfusion product is the HCLL transfusion
software.  Mediware also provides its hospital customers its
complementary HCLL donor software module for use in hospital-based donor
centers. The HCLL software (HCLL Transfusion and HCLL Donor) addresses blood
donor recruitment, blood processing and transfusion activities for hospitals and
medical centers.  These systems are designed to be user intuitive,
scalable, and support product management, resource management, quality control
and testing.  They include advanced data mining and data management
intelligence capabilities, which can be utilized by facilities of all sizes,
including, small hospitals, large medical centers, multi-facility enterprises
and central transfusion services.  HCLL software also can address the
needs of hospitals for operating centralized transfusion services, an area that
is as a key to controlling the rising cost of blood products. As of September
30, 2008, the HCLL software was in productive use at  nearly 200
sites. The Company has licensed the software for use at approximately 300
facilities.





The
Company is also looking to new products and markets to continue its growth in
the blood management.  In early fiscal year 2008, the Company
announced its new BloodSafeTM suite of products.  The BloodSafe suite
includes hardware and software which enable healthcare facilities to securely
store, monitor, distribute and track blood products from locations removed from
the hospital’s blood bank. Components of the BloodSafe suite include blood
tracking and monitoring software, computer controlled refrigerators, and
handheld point of care tools to verify accurate patient identification and
document transfusion activities. BloodSafe can be integrated with Mediware’s
HCLL software or operate on a stand-alone basis.  Mediware licensed
BloodSafe to its first customer in August 2008.








Blood
Center Technologies





The
Company also 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 the Company’s 510(k)
cleared LifeTrak® software and the products and capabilities acquired in
Mediware’s November 1, 2007 acquisition of substantially all of the business
assets of Integrated Marketing Solutions, Inc (“IMS”).  The addition
of IMS to Mediware’s blood center strategies enables the Company 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.  Since the acquisition of IMS, Mediware has
been aggressively integrating software and capabilities to streamline the
effectiveness of blood centers, from donor recruitment, through the clinical
laboratory, to hospital management. With the addition of the IMS components,
LifeTrak has robust clinical capabilities with modern and effective CRM
technologies that enable blood centers to improve the effectiveness of
coordinated blood drive campaigns while still meeting the strict FDA regulations
for safe blood management. Combining IMS and LifeTrak technologies, it is
estimated that Mediware products support over 50% of the U.S. blood supply at
some point in the collection, testing and distribution processes.





To
capitalize on the integration of IMS and to focus on the unique needs of the
blood center market segment, on July 8, 2008 Mediware announced the launch of
Blood Center Technologies (“BCT”).  Mediware’s BCT business unit is a
customer focused team that combines the IMS assets with Mediware LifeTrak assets
to drive growth as Mediware expands its focus in the blood donor
market.  As of September 30, 2008, the BCT business unit had software
in productive use at over 350 facilities.





21
 Index





Biologics
Products





Hospitals
are beginning to face the same pressures to manage biologic product inventory
and improve safety by reducing errors, improving screening and increasing
throughput and cost efficiencies as they have faced with blood products for
years.    In June 2008, Mediware released BiologiCare, the
Company’s first generation bone, tissue and cellular product tracking
software.  The software leverages the HCLL software platform and
Mediware’s blood banking expertise to address the important needs of hospitals
as they begin to manage bone, tissue, cord blood stem cells and other biologic
products.     BiologiCare is designed specifically to
track and manage transplantable materials in hospitals, surgery centers and
other healthcare facilities. The products enable users to document donors,
tissue vendors and tissue recipients and to comply with current regulations
regarding transplantable materials.  With the introduction of
BiologiCare, Mediware believes it is 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 Mediware’s HCLL
software or operate on a stand-alone basis.  Mediware licensed its
first BiologiCare customer at the end of fiscal 2008.





The
Company continues to concentrate on growing all aspects of its blood management
business: hospital transfusion and donor products, biologics products and blood
center technology products.  The blood management products are
marketed primarily through the Company’s direct sales force, and the Company is
working to develop complementary reseller relationships.  In addition
to its sale of software, the Company generates revenue from professional
services and post-contract support.





The blood
management products compete primarily with vendors of laboratory information
systems (“LIS”) providing a blood bank subsystem as a part of their laboratory
product, as well as other companies that market stand-alone blood bank systems.
The LIS vendors are much larger companies with greater technical, marketing,
financial and other resources than the Company.  We believe these
competitors include Cerner, McKesson, and Meditech.   We believe
that stand-alone lab or blood bank vendors include Sunquest, Global Med
Technologies and SCC Soft.  The Company believes, however, that due to
the functionality of the HCLL software, the Company is well-positioned in the
blood bank system market and that it has a good reputation with its customers,
including many of the most sophisticated healthcare systems in the United
States. On the blood donor side of the business, we compete against several of
the companies listed above as well as Haemontics, Blood Bank Computer Services
Company, MAK Software and others.





Medication Management
Products





The
Company also supplies medication management solutions to hospitals, mental
health facilities, penal institutions and other institutions that require the
administration and management of medication.  The Company’s medication
management solutions are designed to help customers improve patient safety while
reducing costs and improving clinical documentation.  Additionally,
the solutions help medical facilities comply with increasing regulatory and
governmental requirements.





The
Company’s principal software product for medication management is WORx, a core
pharmacy information system designed to manage inpatient and outpatient pharmacy
operations.  WORx software has features and functions designed to help
improve patient safety and manage pharmacy operations effectively.  As
of  September 30, 2008, the WORx software was in productive use at
approximately 180 sites.  The product's market acceptance encompasses
hospitals of all sizes, including multi-facility healthcare
systems.





In fiscal
2004, the Company released MediCOETM and
MediMAR®.  These
products are fully integrated with the WORx software and provide a complete
closed loop drug therapy management system with a physician order entry module
(MediCOE) and nurse point of care administration and bedside documentation
module (MediMAR).





The
MediCOE software provides clinicians an efficient, effective method to enter
medication orders and manage drug therapy.  Orders entered in the
MediCOE software undergo a prospective evaluation based on the patient’s current
medical profile to identify potential adverse outcomes.  Potential
problems can be identified by the clinician at order entry and can be corrected
or explained at the point of care.





The
MediMAR software, on the other hand, serves as an electronic medication
administration and bedside documentation record.  It produces a
dynamic and complete representation of the patient’s medication profile,
including clinician orders, medication list, allergies, notes and clinical
alerts to increase patient safety. The MediMAR software uses bar code, wireless,
handheld, and other technologies to allow caregivers efficient and accurate
methods to document patient medication administration and provide nurses
additional safety measures at the point of care.





22
 Index





As of
September 30, 2008, the MediCOE and MediMAR products have been licensed for use
in 3 and 18 separate customer sites, respectively.





To expand
the Company’s capabilities and address a new industry mandate, the Company
introduced MediREC in March 2007.  This new medication management
product assists in achieving compliance with a recent JCAHO mandate, which
requires hospitals to document all of a patient’s home medications when a
patient is admitted or enters the emergency room, and to reconcile that list
with the medications prescribed in the hospital.  That process must be
repeated each time the patient is transferred within the hospital and again when
the patient is discharged. MediREC has been licensed for use at 7 customer
sites.





The
Company continues to target its large WORx software customer base and new
customers with the MediCOE and MediMAR products and has begun marketing MediREC
to this customer base and new customers as well.  The Company has
increased its focus on behavioral health and other specialty healthcare markets
where the integrated features and functionality included in the WORx, MediMAR,
MediCOE and MediREC software products can provide a fully integrated medication
management solution.





Selling
the Company’s full suite of medication management products is a complex process
(WORx, MediMAR, MediCOE and MediREC) involving multiple hospital departments
and, therefore, results in substantially longer sales cycles compared to
stand-alone WORx sales.  This has resulted in less predictable
contract closures and a need to recognize software license revenue over multiple
quarters (in some cases).  Mediware is licensing MediREC to its
customers on a recurring, transaction basis and expects the sale and
implementation cycles for MediREC to be shorter than for the full suite of
products.





The
Company generates revenue from medication management software sales,
professional services and post-contract support.  Support contracts
currently account for over half of the revenue from medication management
operations.  As the sale of MediCOE and MediMAR products increases,
the Company expects that license fee revenue will increase and support revenue
will make up a smaller portion of the Company’s revenue.





The
Company’s medication management products compete against the products of the
other niche competitors’ and some of the largest providers of healthcare
information technology, including Cerner, General Electric, Siemens, Eclipsys
and others.  These competitors often have significantly greater
resources than Mediware, but the Company believes that its products are well
positioned and have functionality that can lead to growth in this competitive
environment.  The medication management products are marketed directly
through the Company’s sales force and other marketing channels, including
reseller agreements with distribution partners and focused sales
channels.





The
Company's United Kingdom operating business is JAC Computer Services, Ltd.
(“JAC”).   JAC markets and provides support for its pharmacy
management and electronic prescribing systems throughout the U.K., Ireland and
South Africa.  JAC includes an installed base of approximately 200
customer sites, representing over 100 National Health Service (“NHS”) acute
hospitals or trusts.  JAC’s product offering includes JAC’s Pharmacy
Management System and Electronic Prescribing module.  The prescribing
module is a medication management solution complete with physician medication
order entry and nursing medication administration.  This module has
been installed in 20 U.K. customer sites as of September 30, 2008, and allows
hospitals to improve patient safety relevant to medication
management.  The Company’s Pharmacy Management system product handles
medication tracking from ordering and delivery to dispensing.  The
installed base includes approximately 50% of the trusts within the
NHS.





23
 Index





In the
beginning of 2004, the NHS in England initiated an historic national program to
purchase healthcare information technology.  The government has
identified that program as the “Connecting for Health” program.  This
program is designed to develop an integrated clinical software solution for
hospitals in order to support the modernization of patient care in
England.  The NHS has entered into contracts to license software and
services, but the program has experienced delays.  JAC has been able
to work with the integrated service providers and the government to position
itself favorably as a provider of software.  In July 2008 JAC was
appointed to the ASCC (Additional Supply Capability and Capacity) framework
contract in both the e-prescribing and pharmacy (stock control)
categories.  Appointment to the ASCC framework provides healthcare
organizations with a contracting vehicle to work directly with JAC to procure
specialist e-prescribing and/or pharmacy stock control services as an
alternative to the national program.  The JAC products are marketed
directly through JAC’s sales force and other marketing channels, including
reseller agreements in South Africa.











Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and related notes to financial statements.
Actual results could differ from those estimates.  The Company’s
significant areas of estimation include determining the allowance for
uncollectible accounts, valuing certain accrued liabilities and determining
whether the carrying value of goodwill and capitalized software development
costs and other intangible assets is impaired.








Results
of Operations for the Three Months Ended September 30, 2008 as Compared to the
Three Months Ended September 30, 2007





Total
revenue for the first quarter of fiscal 2009 was $9,833,000 compared to
$10,744,000 in the same quarter of fiscal 2008, a decrease of $911,000, or
8%.  The decrease in revenue is primarily due to a decline in
medication management system sales.  Blood management products and
services, including revenue from the recently acquired IMS products and
services, recorded total revenue of $5,036,000 in the first quarter of fiscal
2009, representing an increase of $361,000, or 8%, compared to $4,675,000 in the
same period of fiscal 2008.  Medication management products and
services (excluding JAC) recorded a decrease in total revenue of $1,628,000, or
34% from $4,758,000 in the first quarter of fiscal 2008 to $3,130,000 in the
same period of fiscal 2009.  JAC recorded total revenues of $1,468,000
in the first quarter of fiscal 2009, representing an increase of $366,000, or
33%, compared to $1,102,000 in the same period of fiscal
2008.  .





System
revenue, which includes proprietary software, third party software, hardware
revenue and subscription revenue, amounted to $2,429,000 for the quarter ended
September 30, 2008, a decrease of $1,761,000, or 42%, from $4,190,000 in the
same period in fiscal 2008.   System revenue for the blood
management products was $1,340,000 for the first quarter of fiscal 2009, an
increase of $186,000, or 16%, compared to $1,154,000 in the same quarter of
fiscal 2008.  This increase is primarily due to increased subscription
revenue resulting from the recently acquired IMS products, partially offset by a
decrease in HCLL system sales.  The Company expects that its new blood
management offerings, BloodSafe and BiologiCare, will have a positive impact on
system sales in fiscal 2009.  System sales for the medication
management products (excluding JAC) decreased from $2,804,000 in fiscal 2008 to
$547,000 in fiscal 2009, representing a decrease of $2,257,000, or
80%.  This decrease reflects a decline in WORx and MediMAR
sales.  The results of the prior year quarter reflect the impact
of  the largest single MediMAR contract in the Company’s history which
was signed in the year ago  quarter.  JAC recorded system
sales of $542,000 for the first quarter of fiscal 2009, representing an increase
of $316,000, or 140%, compared to $226,000 reported for the same period in
fiscal 2008.  The Company believes that ongoing delays and changes to
the Connecting for Health Program in the United Kingdom and changes in
contracting models, including JAC’s appointment to the Additional Supply
Capability and Capacity framework create  opportunities for JAC to
increase software sales.





Service
revenue, which includes recurring post contract support revenues, implementation
services and promotional services increased $850,000, or 13%, to $7,404,000 in
the first quarter of fiscal 2009 compared to $6,554,000 for the same period in
fiscal 2008.   Service revenue for the blood management products
totaled $3,696,000 for the first quarter of fiscal 2009, representing an
increase of $175,000, or 5%, compared to $3,521,000 in the first quarter of
fiscal 2008.  The increase primarily reflects an increase in
implementation activity for the HCLL software systems, along with promotional
revenue resulting from the recently acquired IMS products.  Mediware
anticipates that service revenue will continue to be strong throughout fiscal
2009 as the Company provides services on HCLL implementation
projects.  Service revenue for the medication management products
(excluding JAC) increased $629,000, or 32%, to $2,583,000 in the first quarter
of fiscal 2009 compared to $1,954,000 for the same quarter of fiscal
2008.  This increase reflects an increase in upgrade services as
existing customers upgrade their WORx software systems to the most recent
version of the software, under a program encouraging upgrade prior to December
31, 2008.  Mediware expects upgrade services to remain strong in the
near term as a result.  Service revenue for JAC increased $50,000, or
6%, to $926,000 in the first quarter of fiscal 2009 compared to $876,000 in the
first quarter of fiscal 2008.  This increase is primarily a result of
an increase in the number of ongoing implementation projects compared to the
same quarter in fiscal 2008.





24
 Index





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 $51,000, or 7%, to $740,000 in the first quarter of fiscal 2009 as
compared to $689,000 in the same period in fiscal 2008 due to an increase in
third party system sales.  The gross margin, excluding amortization of
capitalized software costs, on system sales was 70% in the first quarter of
fiscal 2009 compared to 84% in the same quarter in fiscal 2008.  The
decrease in gross margin is primarily due to the decline in high margin
proprietary system sales during the first quarter of fiscal 2009 compared to the
same period in fiscal 2008.





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 $441,000, or 20%, to $2,657,000
in the first quarter of fiscal 2009 as compared to $2,216,000 in the same period
of fiscal 2008.  The increase in cost of services is primarily
attributed to increases in customer service personnel to facilitate the
implementation of new HCLL projects and provide upgrade services to the existing
WORx customers.  Also contributing were the promotional activities
associated with the IMS services.  Gross margin on service revenue was
64% for the first quarter of fiscal 2009 compared to 66% for the first quarter
of fiscal 2008.  Gross margin for the first quarter of fiscal 2009 was
slightly below Mediware’s average of 67% for fiscal 2008 and 2007 largely
because of the higher service revenue as compared to systems revenue during the
quarter.  The Company believes that over the course of fiscal 2009,
the gross margin percentage will be consistent with recent years.





Amortization
of capitalized software increased $46,000, or 3%, to $1,486,000 in the first
quarter of fiscal 2009 compared to $1,440,000 in the first quarter of fiscal
2008.  This increase is primarily due to increased amortization of
capitalized software costs related to recent product releases.





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
$107,000, or 11%, to $876,000 in the first quarter of fiscal 2009 compared to
$983,000 in the first quarter of fiscal 2008.  Expenditures for
software development include amounts paid for both capitalizable and
noncapitalizable development projects.  Total expenditures for
software development were $1,880,000 in the first quarter of fiscal 2009
compared to $1,911,000 in the first quarter of fiscal 2008, resulting in a
decrease of $31,000, or 2%.  This decrease is primarily a result of
efficiencies gained from the operational restructuring announced in July 2007,
partially offset by incremental development costs associated with the IMS
acquisition.  The Company expects to maintain its current investment
in product development in its blood management and medication management
products in the near term.





25
 Index





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; 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 $722,000, or 16%, from
$4,584,000 in the first quarter of fiscal 2008 to $3,862,000 in the first
quarter of fiscal 2009.  This decrease is primarily due to cost
savings associated with the operational restructuring announced during the first
quarter of fiscal 2008, along with lower sales commissions, bad debt and legal
expenses.  This decrease was partially offset by increases in
stock-based compensation expense and incremental costs associated with personnel
in the acquired IMS business.





Income
tax expense decreased from $632,000 in the first quarter of fiscal 2008 to
$142,000 in the same period of fiscal 2009, primarily related to the reduction
in operating income.  The prior year income tax amount also included a
$225,000 non-cash write-off of certain deferred tax assets relating to the
termination of fully vested non-qualified employee stock options.  The
effective tax rate decreased from 58% for the three months ending September 30,
2007 to 39% in the same period of fiscal 2009.





Net
income for the first quarter of fiscal 2009 was $218,000, compared to net income
of $463,000 during the first quarter of fiscal 2008, resulting in a decrease of
$245,000 or 53%.  An increase in service revenue and a decrease in
SG&A expenses in the first quarter of fiscal 2009 compared to the first
quarter of fiscal 2008 were not sufficient to offset the quarterly decrease in
system sales.





Liquidity
and Capital Resources




As of
September 30, 2008, Mediware had cash and cash equivalents of $22,101,000
compared to $22,741,000 at June 30, 2008.  Working capital was
$19,629,000 and $18,995,000 at September 30, 2008 and June 30, 2008,
respectively.  The current ratio was 2.5 to 1 at September 30, 2008
compared to 2.5 to 1 at June 30, 2008.  The Company does not have any
material capital lease obligations, purchase obligations or long-term
liabilities.





Cash
provided by operating activities was $1,038,000 during the first quarter of
fiscal year 2009 compared to $3,125,000 during the same period a year
ago.  The decrease in cash provided by operating activities is
primarily due to slower collections of our accounts receivable, partially offset
by a decrease in net income and changes in accounts payable, accrued expenses
and advances from customers.





Cash used
in investing activities was $1,446,000 during the first quarter of fiscal year
2009 compared to $1,123,000 during the same period a year ago.  The
increase in cash used in investing activities is primarily attributable to the
final settlement payment of the IMS acquisition made during the first quarter of
fiscal 2009.





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, any additional 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,
repurchase of shares, and other cash requirements at least through the end of
fiscal 2009.





The
Company’s liquidity is influenced by its ability to perform on a “Best of Suite”
basis in a competitive industry.  Factors that may affect liquidity
are the Company’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 the Company’s
existing line of products or any additional stock repurchases, the Company
believes that current available funds and cash generated from operations will
provide sufficient liquidity to meet operating requirements for the foreseeable
future.  The Company continues to review its long-term cash
needs.  Currently, there are no plans for additional outside
financing, except that Mediware is considering establishing a new line of
credit.





26
 Index





ITEM3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





Mediware
is subject to market risks from interest rates due to the fluctuating rates paid
on its cash equivalent balances and foreign currency fluctuations due to the
operations of JAC. Mediware has observed increased volatility in market rates as
overall economic conditions have deteriorated.  To date, Mediware has
not entered into any derivative financial instruments or engaged in other
hedging transactions to reduce its exposure to such risks.





Interest
Rate Risk


Mediware
is exposed to the impact of interest rate changes because of its substantial
cash equivalent balances.  These balances are not held for trading
purposes.





Balance at September 30, 2008($ in
      000)
                            
                            
                            Effective Interest Rate at September 30,
      2008
                            
                            
                            Effect of 1% Change($ in
      000)Cash
      Equivalents
                            
                            $
                            22,101
                            
                            
                            
                            2.6
                            %
                            
                            $
                            221





At
September 30, 2008, a 1% decrease in the current per annum interest rate for our
cash equivalents each would result in $221,000 less interest income during the
next fiscal year.  The foregoing calculation assumes an instantaneous
one percentage point decrease in the rates of all of our cash equivalents and
that the equivalents balance is the amount outstanding as of September 30,
2008.  The calculation therefore does not account for any differences
in the market rates upon which the interest rates of our equivalents is based,
or other possible actions, such as reinvestment in higher yielding instruments,
that we might take in response to any rate decrease.





Foreign
Currency Exchange Rate Risk





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 15% and 10% of Mediware’s consolidated revenue for the three
months ended September 30, 2008 and 2007, 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.  Assets and liabilities for JAC are matched in
the local currency, which reduces the need for dollar conversion. Any foreign
currency impact on translating assets and liabilities into dollars is included
as a component of stockholders’ equity.  Our results for the three
months ended September 30, 2008 were negatively impacted by a $20,000 foreign
currency movement, and were positively impacted by an $8,000 foreign currency
movement for the three-months ended September 30, 2007. These foreign currency
adjustments are primarily due to the currency valuation of the British pound
against the United States dollar.





27
 Index





ITEM4.
            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 September 30,
2008.





There
were no material changes in Mediware’s internal controls over financial
reporting that occurred during the three months ended September 30, 2008 that
have materially affected, or are reasonably likely to materially affect, its
internal controls over financial reporting.








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 tortous interference 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
improperly induced Korchek’s customers to breach their contractual relationship
with Korchek.  In September 2008, the parties entered into a
settlement agreement and mutual releases of claims by the parties against each
other.








In
addition to the foregoing, 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, 2008 included under Item 1A “Risk Factors”
in addition to the other information set forth in this report (including the
risk factors identified below). 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.





Our
future growth depends in large part on customer acceptance of our new
products.





While we
believe that each of our new products is positioned to succeed in the
marketplace, there is no assurance that customers will accept our new products
and strategy to the extent that we expect.





28
 Index





Our
latest medication management products are MediMAR, MediCOE and MediREC, and our
newest blood and biologics management products are BiologiCare, BloodSafe and
blood donor center products.  We are now targeting our existing
software customer base and other potential customers for the sale of the new
products, and the new products are attracting new potential customers for our
more established software as well. While we anticipate the adoption of these
products during fiscal 2009 and beyond, there is no assurance that the
marketplace will accept our strategy or these products.  In addition,
the sales for the full suite of medication management products require broad
acceptance throughout the hospital and reflect changes in workflows that create
longer sales cycles than departmental products like HCLL and WORx required.





The
recent deterioration of economic conditions may adversely impact levels of
customer spending, especially for new products.  For example, tight
credit markets may make it more difficult for customers to purchase our
products, particularly those with significant upfront licensing fees, and,
depending on the degree to which this occurs, sales of our new products may be
less than we expect. In the event that our new products are not accepted in the
marketplace, due to adverse economic conditions or otherwise, our system sales
would suffer, our service revenues for these products would be diminished and
our investment in developing, as well as marketing, these products could be
impaired.





29
 Index





ITEM6.
            EXHIBITS





Exhibit
      3
                    By-Laws
      of Mediware Information Systems, Inc. (Restated as of March 18, 2008),
      Incorporated by reference to Exhibit 3.1 to Current Report of Form 8-K
      filed March 20, 2008.Exhibit 10.1
                    Second
      Amended and Restated Employment Agreement dated August 2, 2007 between
      Mediware Information Systems, Inc. and John Damgaard (originally filed on
      a Current Report on Form 8-K filed August 6, 2007).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





30
 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 28, 2008
                                                    
                                                    /s/
                                                    T. KELLY MANNDate
                                                    
                                                    
                                                    T.
      KELLY MANNPRESIDENT
      AND CHIEF EXECUTIVE OFFICEROctober 28, 2008
                                                    
                                                    /s/
                                                    MARK B. WILLIAMSDate
                                                    
                                                    
                                                    MARK
      B. WILLIAMSCHIEF
      FINANCIAL
OFFICER






31