**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-Q**
 
 x**QUARTERLY
        REPORT PURSUANT TO
        SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
  For
        the
        quarterly period ended March 31, 2007
  OR
 o******TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
  For
          the
          transition period
          from
          to
 Commission
        file number:**1-10768
  **MEDIWARE
        INFORMATION SYSTEMS, INC.**
 (Exact
        name of registrant as specified in its charter)
  **New
                  York**
              
              **11-2209324****(State
                  or other jurisdiction of incorporation or
                  organization)**
              
              **(I.R.S.
                  Employer Identification No.)****11711
                  West 79th Street****Lenexa,
                  Kansas**
              
              **66214****(Address
                  of principal executive offices)**
              
              **(Zip
                  Code)**
  **(Registrant's
        telephone number,
        including area code):****(913)
        307-1000**
  **(Former
        name, former address and former fiscal year, if changed since last
        report)**
  
 1
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 x
        Yes     ̈ No
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer or a non-accelerated filer. See definition of “accelerated
        filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
        Act).
  Large
                    accelerated filer  ̈
                Accelerated
                    Filer x
                Non-accelerated
                    filer  ̈
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
  ̈
        Yes    x No
  APPLICABLE
        ONLY TO CORPORATE ISSUERS:
  As
        of
May
        2, 2007, there were 8,148,000 shares of Common Stock, $0.10 par value,
        of
        the registrant outstanding.
  2
  **MEDIWARE
        INFORMATION SYSTEMS, INC.**
  **INDEX**
  **Page****PART
                  I**
              
              **Financial
                  Information****ITEM
                  1.**
              
              **Financial
                  Statements**Condensed
                  Consolidated Balance Sheets as of March 31, 2007
                  (Unaudited) and June 30, 2006
              4Condensed
                  Consolidated Statements of Operations and
                  Comprehensive Income (Unaudited) for the Three and Nine Months
                  Ended March
                  31, 2007 and 2006
              5Condensed
                  Consolidated Statements of Cash Flows
                  (Unaudited) for the Nine Months Ended March 31, 2007 and
                  2006
              6Notes
                  to Unaudited Condensed Consolidated Financial
                  Statements
              7Review
                  Report of Independent Registered Public Accounting
                  Firm
              11**ITEM
                  2.**
              
              **Management's
                  Discussion and Analysis of Financial Condition
                  and Results of Operations**
              12**ITEM
                  3.**
              
              **Quantitative
                  and Qualitative Disclosures About Market
                  Risk**
              19**ITEM
                  4.**
              
              **Controls
                  and Procedures**
              19**PART
                  II**
              
              **Other
                  Information**
              20**ITEM
                  1**
              
              **Legal
                  Proceedings**
              20**ITEM
                  1A.**
              
              **Risk
                  Factors**
              20**ITEM
                  6.**
              
              **Exhibits**
              21**Signatures**
              
              
              22
  3
 ***Index***
  **PART
                      I**
                  **FINANCIAL
                      INFORMATION**
  **1.**
                  **FINANCIAL
                      STATEMENTS**
 **MEDIWARE
        INFORMATION SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(Amounts
        in thousands except shares)**
 
 **March
                  31,**
                **2007**
              
              
              **June
                  30,****(Unaudited)**
              
              
              **2006**ASSETSCurrent
                  AssetsCash
                  and cash equivalents
              
              $
              21,333
              
              
              $
              18,996Accounts
                  receivable (net of allowance of $1,023 and $923)
              
              
              13,088
              
              
              
              8,748Inventories
              
              
              125
              
              
              
              160Deferred
                  income taxes
              
              
              849
              
              
              
              481Prepaid
                  expenses and other current assets
              
              
              951
              
              
              
              746Total
                  current assets
              
              
              36,346
              
              
              
              29,131Fixed
                  assets, net
              
              
              1,213
              
              
              
              1,220Capitalized
                  software costs, net
              
              
              18,344
              
              
              
              19,286Goodwill,
                  net
              
              
              3,797
              
              
              
              3,971Other
                  long-term assets
              
              
              120
              
              
              
              115Total
                  Assets
              
              $
              59,820
              
              
              $
              53,723LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              1,196
              
              
              $
              1,084Current
                  portion of note payable
              
              
              11
              
              
              
              25Advances
                  from customers
              
              
              8,318
              
              
              
              7,767Accrued
                  expenses and other current liabilities
              
              
              3,861
              
              
              
              2,160Total
                  current liabilities
              
              
              13,386
              
              
              
              11,036Note
                  payable
              
              
              -
              
              
              
              4Deferred
                  income taxes
              
              
              5,267
              
              
              
              4,182Total
                  liabilities
              
              
              18,653
              
              
              
              15,222Stockholders'
                  EquityPreferred
                  stock, $.01 par value; authorized 10,000,000 shares; none
                  issuedCommon
                  stock, $.10 par value; authorized 25,000,000 shares; 8,148,000
                  and
                  8,078,000 shares issued and Outstanding at March 31, 2007 and June
                  30,
                  2006, respectively
              
              
              813
              
              
              
              808Additional
                  paid-in capital
              
              
              30,286
              
              
              
              29,617Retained
                  earnings
              
              
              9,987
              
              
              
              8,087Accumulated
                  other comprehensive income (loss)
              
              
              81
              
              
              
              (11
              )Total
                  stockholders' equity
              
              
              41,167
              
              
              
              38,501Total
                  Liabilities and Stockholders' Equity
              
              $
              59,820
              
              
              $
              53,723
 
 See
        Notes
        to Unaudited Condensed Consolidated Financial Statements.
  4
 ***Index***
  **MEDIWARE
        INFORMATION SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
        INCOME**
 **(Amounts
        in thousands, except earnings per share)**
 
 **(Unaudited)**
                **Three
                  months ended**
                **March
                  31,**
              
              
              **(Unaudited)**
                **Nine
                  Months ended**
                **March
                  31,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Revenue**System
                  sales
              
              $
              4,887
              
              
              $
              3,340
              
              
              $
              12,100
              
              
              $
              9,487Services
              
              
              6,170
              
              
              
              6,628
              
              
              
              18,694
              
              
              
              19,277Total
                  revenue
              
              
              11,057
              
              
              
              9,968
              
              
              
              30,794
              
              
              
              28,764**Cost
                  and Expenses**Cost
                  of systems (1)
              
              
              802
              
              
              
              519
              
              
              
              2,133
              
              
              
              1,679Cost
                  of services
              
              
              2,198
              
              
              
              2,047
              
              
              
              6,118
              
              
              
              5,793Amortization
                  of capitalized software costs
              
              
              1,354
              
              
              
              1,220
              
              
              
              3,982
              
              
              
              3,571Software
                  development costs
              
              
              999
              
              
              
              1,170
              
              
              
              2,983
              
              
              
              3,326Selling
                  general and administrative
              
              
              4,729
              
              
              
              4,167
              
              
              
              13,408
              
              
              
              12,098Total
                  costs and expenses
              
              
              10,082
              
              
              
              9,123
              
              
              
              28,624
              
              
              
              26,467Operating
                  income
              
              
              975
              
              
              
              845
              
              
              
              2,170
              
              
              
              2,297Interest
                  and other income
              
              
              250
              
              
              
              173
              
              
              
              735
              
              
              
              457Interest
                  and other (expense)
              
              
              6
              
              
              
              -
              
              
              
              52
              
              
              
              (6
              )Income
                  before income taxes
              
              
              1,231
              
              
              
              1,018
              
              
              
              2,957
              
              
              
              2,748Income
                  tax provision
              
              
              (400
              )
              
              
              (386
              )
              
              
              (1,057
              )
              
              
              (981
              )Net
                  income
              
              
              831
              
              
              
              632
              
              
              
              1,900
              
              
              
              1,767**Other
                  comprehensive income**Foreign
                  currency translation adjustment
              
              
              64
              
              
              
              17
              
              
              
              92
              
              
              
              (94
              )**Comprehensive
                  income**
              
              $
              895
              
              
              $
              649
              
              
              $
              1,992
              
              
              $
              1,673**Net
                  income per Common Share**Basic
              
              $
              0.10
              
              
              $
              0.08
              
              
              $
              0.23
              
              
              $
              0.22Diluted
              
              $
              0.10
              
              
              $
              0.08
              
              
              $
              0.23
              
              
              $
              0.22**Weighted
                  Average Common Shares Outstanding**Basic
              
              
              8,122
              
              
              
              8,048
              
              
              
              8,110
              
              
              
              7,991Diluted
              
              
              8,440
              
              
              
              8,274
              
              
              
              8,391
              
              
              
              8,192
 
 (1)
        Excludes amortization of capitalized software costs
 
 See
        Notes
        to Unaudited Condensed Consolidated Financial Statements.
  5
 ***Index***
  **MEDIWARE
        INFORMATION SYSTEMS, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Amounts
        in thousands)**
 
 **Nine
                  Months Ended****March
                  31,****(Unaudited)****2007**
              
              
              **2006**Cash
                  Flows From Operating ActivitiesNet
                  income
              
              $
              1,900
              
              
              $
              1,767Adjustments
                  to reconcile net income, to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              4,435
              
              
              
              4,058Stock
                  Option compensation expense
              
              
              200
              
              
              
              624Deferred
                  tax provision
              
              
              891
              
              
              
              173Provision
                  for doubtful accounts
              
              
              327
              
              
              
              324Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (4,667
              )
              
              
              (729
              )Inventories
              
              
              35
              
              
              
              52Prepaid
                  expenses and other assets
              
              
              (210
              )
              
              
              1Accounts
                  payable, accrued expenses and advances from customers
              
              
              2,364
              
              
              
              236Net
                  cash provided by operating activities
              
              
              5,275
              
              
              
              6,506Cash
                  Flows From Investing ActivitiesAcquisition
                  of fixed assets
              
              
              (446
              )
              
              
              (349
              )Capitalized
                  software costs
              
              
              (3,040
              )
              
              
              (3,404
              )Net
                  cash used in investing activities
              
              
              (3,486
              )
              
              
              (3,753
              )Cash
                  Flows From Financing ActivitiesProceeds
                  from exercise of stock options
              
              
              439
              
              
              
              836Excess
                  tax benefit from exercise of stock options
              
              
              35
              
              
              
              257Principal
                  payments on note payable
              
              
              (18
              )
              
              
              (18
              )Net
                  cash provided by financing activities
              
              
              456
              
              
              
              1,075Foreign
                  currency translation adjustments
              
              
              92
              
              
              
              (94
              )Net
                  increase in cash and cash equivalents
              
              
              2,337
              
              
              
              3,734Cash
                  at beginning of period
              
              
              18,996
              
              
              
              14,839Cash
                  at end of period
              
              $
              21,333
              
              
              $
              18,573Supplemental
                  disclosures of cash flow information:Cash
                  paid during the period for:Interest
                  on notes payable
              
              $
              1
              
              
              $
              7Income
                  taxes paid (received)
              
              $
              (49
              )
              
              $
              28Supplemental
                  disclosures of noncash financing activities:Reduction
                  of goodwill recorded for tax benefit of related
                  amortization
              
              $
              174
              
              
              $
              174
  6
 ***Index***
  **MEDIWARE
        INFORMATION SYSTEMS, INC.**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **1.**
              **FINANCIAL
                  STATEMENTS**
 
 In
        the
        opinion of management, the accompanying unaudited, condensed, consolidated
        financial statements contain all adjustments necessary to present fairly
        the
        financial position of Mediware and its results of operations and cash flows
        for
        the interim periods presented. Such financial statements have been condensed
        in
        accordance with the applicable regulations of the Securities and Exchange
        Commission and, therefore, do not include all disclosures required by accounting
        principles generally accepted in the United States of America. These financial
        statements should be read in conjunction with Mediware's audited financial
        statements for the year ended June 30, 2006 included in Mediware's Annual
        Report
        filed on Form 10-K for such year.
 
 The
        results of operations for the nine months ended March 31, 2007 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, par value $0.10 (“Common Stock”), of Mediware
        outstanding.  For the three
        andnine months ended March 31, 2007 and 2006, the dilutive effect of
        Common
        Stock equivalents is included in the calculation of diluted earnings per
        share
        using the treasury stock method.
 
 **3.**
              **STOCK
                  BASED COMPENSATION**
 
 The
        Company's 2003 Equity Incentive Plan, approved by the shareholders in December
        2003, provides additional compensation incentives for high levels of performance
        and productivity by management, other key employees of the Company, directors,
        and persons who render services to the Company as consultants, advisors or
        independent contractors.  In February 2005, the shareholders approved
        increasing the number of shares that may be issued under such plan from 500,000
        to 1,000,000.  In December 2005, the shareholders approved increasing
        the number of shares that may be issued under such plan from 1,000,000 to
        2,000,000.  Shares may be issued as either incentive stock options,
        nonqualified stock options, restricted stock units or restricted common
        stock.  Options may be granted for a period of up to ten
        years.  Restricted common stock awards may be subject to vesting
        restrictions and may be forfeited if certain performance factors are not
        maintained.  The plan provides that a maximum of 1,700,000 shares may
        be issued as any combination of restricted stock, options and restricted
        stock
        unit awards.  The additional 300,000 shares of common stock can only
        be granted as option awards.  As of March 31, 2007, 1,229,000 shares
        were available for issuance under this plan.
 
 The
        Company's 2001 Stock Option Plan, approved by the shareholders in January
        2002,
        provides additional compensation incentives for high levels of performance
        and
        productivity by management, other key employees of the Company, directors,
        and
        persons who render services to the Company as consultants, advisors or
        independent contractors.  Up to 900,000 shares may be issued and sold
        under such plan and may be issued as either incentive stock options, to eligible
        persons, or nonqualified stock options.  Options may be granted for a
        period of up to ten years, with option prices not less than fair market value
        on
        the date of grant for incentive stock options, not less than 85% of fair
        market
        value for nonqualified stock options, and not less than 110% of fair market
        value for owners of more than 10% of the Company's outstanding voting
        stock.  As of March 31, 2007 no options were available to be issued
        under this plan.
 
 The
        Company's 1997 Stock Option Plan for Non-Employee Directors, which provided
        compensation to directors for their services without the expenditure of cash,
        was intended to increase ownership interest of the non-employee directors.
        Options granted under this plan were exercisable at 100% of the fair market
        value on the date of grant and were for terms of eight years and vested in
        two
        equal installments during the year issued. Shares granted under this plan
        were
        limited to 500,000. This plan was terminated effective January 2002, and
        no
        additional options are available to be issued under this plan.
  7
 ***Index***
 
 The
        Company's Equity Incentive Plan, approved by its shareholders in January
        1992
        and amended in March 2000, provided additional compensation incentives for
        high
        levels of performance and productivity by management and other key employees
        of
        the Company. The combined number of shares issued or available for issuance
        under this plan could not exceed thirty percent of the issued and outstanding
        common stock of the Company and not more than 700,000 shares could have been
        issued as incentive stock options. Options could have been granted for a
        period
        up to ten years, with option prices not less than fair market value on the
        date
        of grant for incentive stock options, not less than 50% of fair market value
        for
        nonqualified stock options, and not less than 110% of fair market value for
        owners of more than 10% of the Company's outstanding voting stock. This plan
        was
        terminated effective January 2002, and no additional options are available
        to be
        issued under this plan.
 
 The
        Company accounts for stock-based compensation following the provisions of
        SFAS
        123R, which establishes a fair value-based method of accounting for stock-based
        compensation.  The fair value of stock options is determined at the
        date of grant and is charged to compensation expense over the vesting period
        of
        the options.  The aggregate noncash stock based compensation expense
        amounted to $53,000 and $200,000 for the three and nine month periods ended
        March 31, 2007, respectively.
 
 The
        fair
        value of options at date of grant is estimated using the Black-Scholes option
        pricing model.  The risk-free rate for periods within the contractual
        life of the option is based on the U.S. Treasury yield curve in effect at
        the
        time of the grant.  The Company uses historical data to estimate
        option exercise and employee and director termination within the valuation
        model; separate groups of employees and directors that have similar historical
        exercise behavior are considered separately for valuation
        purposes.  The expected term of options granted represents the period
        of time that options granted are expected to be outstanding for each group
        of
        employees and directors exhibiting different behavior.  Expected
        volatilities are based on historical volatility of the Company’s
        stock.  The Company has not paid any dividends in the past and does
        not expect to pay any dividends in the near future.
 
 The
        following table sets forth summarized information concerning the Company's
        stock
        options for the nine months ended March 31, 2007:
 
 **Shares**
              
              
              **Weighted**
                **Average**
                **Exercise
                  Price**
              
              
              **Weighted
                  Average**
                **Remaining**
                **Contractual
                  Term**
              
              
              **Aggregate**
                **Intrinsic**
                **Value**Outstanding
                  at June 30, 2006
              
              
              1,140,000
              
              
              $
              9.12Granted
              
              
              35,000
              
              
              $
              8.42Exercised
              
              
              (61,000
              )
              
              $
              7.25Forfeited
                  or expired
              
              
              (88,000
              )
              
              $
              11.84Outstanding
                  at March 31, 2007
              
              
              1,026,000
              
              
              $
              8.97
              
              
              
              3.9
              
              
              $
              1,221,000Expected
                  to vest at March 31, 2007
              
              
              1,026,000
              
              
              $
              8.97
              
              
              
              3.9
              
              
              $
              1,221,000Options
                  exercisable at March 31, 2007
              
              
              879,000
              
              
              $
              9.00
              
              
              
              3.9
              
              
              $
              1,128,000
 
 The
        total
        intrinsic value of options exercised during the nine months ended March 31,
        2007
        and 2006, was $93,000 and $676,000, respectively.  The fair value of
        the nonvested shares is determined based on the average trading price of
        the
        Company’s shares on the grant date.
 
 The
        Company generally issues new shares upon the exercise of stock
        options.
 
 Cash
        received from options exercised under all share-based payment arrangements
        for
        the nine months ended March 31, 2007 and 2006 was $439,000 and $836,000,
        respectively.  The excess tax benefit realized for the tax deductions
        related to option exercises of the share-based payment arrangements totaled
        $35,000 and $257,000 for the nine months ended March 31, 2007 and 2006,
        respectively.
  8
 ***Index***
 
 A
        Summary
        of the status of the Company’s nonvested options as of March 31, 2007, and
        changes during the nine months ended March 31, 2007, is presented
        below:
  **Nonvested
                  Options**
              
              **Shares**
              
              
              **Weighted**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value**Nonvested
                  at June 30, 2006
              
              
              167,000
              
              
              $
              4.00Granted
              
              
              35,000
              
              
              
              2.30Canceled
                  or expired
              
              
              -
              
              
              
              -Vested
              
              
              (55,000
              )
              
              
              4.08Nonvested
                  at March 31, 2007
              
              
              147,000
              
              
              $
              3.57
 
 As
        of
        March 31, 2007, there was $257,000 of total unrecognized compensation cost
        related to nonvested options granted under existing stock option
        plans.  This cost is expected to be recognized over a weighted average
        period of 1.1 years.  The total fair value of options vested during
        the nine months ended March 31, 2007 amounted to $224,000.
 
 The
        following table presents information relating to stock options at March 31,
        2007:
 
 **Options
                  Outstanding**
              
              
              **Options
                  Exercisable****Range
                  of**
                **Exercise
                  Prices**
              
              **Shares**
              
              
              **Weighted**
                **Average**
                **Exercise
                  Price**
              
              
              **Weighted
                  Average**
                **Remaining
                  Life in**
                **Years**
              
              
              **Shares**
              
              
              **Weighted**
                **Average**
                **Exercise
                  Price**$0.00
                  - $4.49
              
              
              163,000
              
              
              $
              3.61
              
              
              
              2.5
              
              
              
              163,000
              
              
              $
              3.61$4.50
                  - $7.49
              
              
              65,000
              
              
              $
              6.74
              
              
              
              1.0
              
              
              
              65,000
              
              
              $
              6.74$7.50
                  - $8.99
              
              
              234,000
              
              
              $
              8.04
              
              
              
              3.4
              
              
              
              124,000
              
              
              $
              7.99$9.00
                  - $10.49
              
              
              248,000
              
              
              $
              9.96
              
              
              
              4.9
              
              
              
              225,000
              
              
              $
              10.00$10.50
                  - $11.99
              
              
              124,000
              
              
              $
              10.89
              
              
              
              3.2
              
              
              
              124,000
              
              
              $
              10.89$12.00
                  - $13.49
              
              
              137,000
              
              
              $
              12.51
              
              
              
              5.9
              
              
              
              122,000
              
              
              $
              12.47$13.50 -
                  $14.99
              
              
              45,000
              
              
              $
              13.74
              
              
              
              6.0
              
              
              
              45,000
              
              
              $
              13.74$15.00 -
                  $16.50
              
              
              10,000
              
              
              $
              15.00
              
              
              
              6.7
              
              
              
              10,000
              
              
              $
              15.001,026,000
              
              
              
              
              
              
              
              
              
              
              
              878,000
 
 The
        Company has entered into agreements with certain key employees.  Under
        the terms of these agreements, the Company granted the employees, in aggregate,
        210,000 restricted shares of Common Stock (the “Performance
        Shares”).  The Performance Shares vest in fiscal 2007, 2008 and 2009
        only if Mediware achieves certain performance goals based on revenue and
        earnings per share.  The Performance Shares may result in compensation
        expense in future periods of up to $1,839,000,
        the fair value on the date of grant.  The probability of achieving
        these performance goals is remote.  Accordingly, Mediware has not
        recognized any related compensation expense for previous periods or for the
        three and nine months ended March 31, 2007.  Mediware will reassess at
        each reporting period whether achievement of any performance condition is
        probable and will begin recognizing the related costs if and when the
        performance conditions become probable.
  9
 ***Index***
  A
        Summary
        of the status of the Company’s nonvested restricted common stock as of March 31,
        2007, and changes during the nine months ended March 31, 2007, is presented
        below:
 
 **Nonvested
                  Restricted Common Stock**
              
              **Shares**
              
              
              **Weighted
                  Average**
                **Grant
                  Date**
                **Fair
                  Value**Nonvested
                  at June 30, 2006
              
              
              155,000
              
              
              $
              8.93Granted
              
              
              55,000
              
              
              
              8.34Canceled
                  or expired
              
              
              -
              
              
              
              -Vested
              
              
              -
              
              
              
              -Nonvested
                  at March 31, 2007
              
              
              210,000
              
              
              $
              8.76
  **4.**
              **CONTINGENCIES**
 
 The
        Company is subject to legal proceedings and claims that arise in the ordinary
        course of business.  The Company believes that the outcome of all
        pending legal proceedings in the aggregate will not have a material adverse
        effect on its business, financial condition, results of operations or cash
        flows.
  **5.**
              **CONCENTRATION
                  OF REVENUE**
 
 The
        Company recorded $693,000 of revenue related to one contract signed during
        the
        quarter ended March 31, 2007.
  10
 ***Index***
 
 **REVIEW
        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
  To
        The
        Board of Directors and Shareholders of
 Mediware
        Information Systems, Inc.
 
 We
        have
        reviewed the accompanying condensed consolidated balance sheet of Mediware
        Information Systems, Inc. and subsidiaries (the "Company") as of March 31,
        2007,
        and the related condensed consolidated statements of operations and
        comprehensive income for the three and nine-month periods ended March 31,
        2007
        and 2006, and the related condensed consolidated statements of cash flows
        for
        the nine-month periods ended March 31, 2007 and 2006.  These interim
        condensed consolidated financial statements are the responsibility of the
        Company's management.
  We
        conducted our reviews in accordance with standards established by the Public
        Company Accounting Oversight Board (United States). A review of interim
        financial information consists principally of applying analytical procedures
        to
        financial data and making inquiries of persons responsible for financial
        and
        accounting matters. It is substantially less in scope than an audit conducted
        in
        accordance with the standards of the Public Company Accounting Oversight
        Board
        (United States), the objective of which is the expression of an opinion
        regarding the financial statements taken as a whole. Accordingly, we do not
        express such an opinion.
  Based
        on
        our reviews, we are not aware of any material modifications that should be
        made
        to the accompanying interim condensed consolidated financial statements in
        order
        for them to be in conformity with accounting principles generally accepted
        in
        the United States of America.
  We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        of
        the Company as of June 30, 2006, and the related consolidated statements of
        operations and comprehensive income, stockholders' equity, and cash flows
        for
        the year then ended (not presented herein), and in our report dated
        August 4, 2006, we expressed an unqualified opinion on those consolidated
        financial statements. In our opinion, the information set forth in the
        accompanying condensed consolidated balance sheet as of June 30, 2006 is
        fairly stated in all material respects in relation to the consolidated balance
        sheet from which it has been derived.
 
  Eisner
        LLP
 New
        York,
        New York
  April
        26,
        2007
  11
 ***Index***
  **ITEM
                    2.**
                **MANAGEMENT’S
                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                    OPERATIONS**
 **Forward-Looking
        Statements**
 
 *This
        Report on Form 10-Q contains forward-looking statements. Any statements
        contained herein that are not statements of historical fact may be deemed
        to be
        forward-looking statements within the meaning of Section 21E of the Securities
        Exchange Act. The words “believes,” “anticipates,” “expects,” “will,” “intends”
and similar expressions identify some of the forward-looking statements.
        Forward-looking statements are not guarantees of performance or future results
        and involve risks, uncertainties and assumptions. The factors discussed
        elsewhere in this Form 10-Q and in Mediware’s Form 10-K for the year ended June
        30, 2006, could also cause actual results to differ materially from those
        indicated by the Company’s forward-looking statements.  Mediware
        undertakes no obligation to publicly update or revise any forward-looking
        statements.*
 
 **Overview**
 
 Mediware
        Information Systems, Inc. (including its subsidiaries, “Mediware” or the
“Company”) is a New York corporation incorporated in 1970 with its corporate
        headquarters at 11711 West 79th Street, Lenexa, Kansas. The Company maintains
        an
        Internet website at www.mediware.com, at which reports filed with the Securities
        Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as
        amended (the “Securities Exchange Act”) can be obtained under “Investor
        Relations” without charge as soon as reasonably practicable after filed or
        furnished with the SEC.
 
 Mediware
        develops, markets, licenses, implements and supports clinical management
        information software.  The Company's software systems are designed to
        automate three separate clinical operations within the hospital environment:
        medication management, including the hospital pharmacy; blood management,
        including the blood bank; and the perioperative management, including the
        surgical suite.  The Blood Management Division products are also
        designed to automate clinical operations in free-standing blood
        centers.  Each software system typically consists of the Company's
        proprietary application software, third-party licensed software and third-party
        computer hardware.  Mediware sells implementation, training, and
        annual software support services with each software system.
 
 Mediware
        is organized into three operating divisions that correspond with the software
        systems it markets.  Each division markets distinct product lines:
        Medication Management Systems, Blood Management Systems and Perioperative
        Management Systems.  The Blood Management and Perioperative Management
        Divisions operate primarily in the United States.  The Medication
        Management Division operates both in the United States and in the United
        Kingdom
        with different software systems designed for the specific requirements of
        each
        market.
 
 The
        Company's products are designed to improve operational efficiency by improving
        the availability, quality and timeliness of clinical information while enabling
        health care facilities to decrease expenses associated with managing these
        clinical processes.  These benefits are of critical importance to
        clinicians and administrators who face increasing financial, regulatory and
        patient safety pressures.
 
 The
        healthcare industry in the United States is highly fragmented, complex, and
        inefficient. Comparatively, the healthcare industry has invested less in
        information technology than many other industries. While advances in medical
        technology have provided physicians, nurses and other caregivers with leading
        edge diagnostic and therapeutic technologies, the information systems supporting
        the management and clinical processes of these complex healthcare organizations
        have made insufficient progress. A substantial portion of clinical workflow
        still depends upon manual paper-based systems interfaced with various automated
        or semi-automated systems.
 
 As
        a
        result, the health care industry is often economically inefficient and produces
        significant variances in medical outcomes. While waste and utilization
        rates are rarely made public, patient safety and the publicity surrounding
        medical errors have focused a tremendous amount of scrutiny on hospitals
        and
        care providing institutions. Recent news reports and professional studies
        have
        highlighted patient safety errors and influenced governmental
        activity.
  12
 ***Index***
 
 The
        Company anticipates that the continued increase in government regulation,
        public
        and competitive pressure regarding errors occurring in hospitals, and growing
        concern over clinical outcomes, will cause the industry’s expenditures on
        clinical information systems to continue.  Mediware believes that its
        products can play a role in moving healthcare IT standards forward, and can
        deliver significant results for customers.
 
 Competition
        in the market for clinical information systems is intense. The principal
        competitive factors are the functionality of the system, its design and
        capabilities, site references, ability to install, process redesign
        capabilities, reputation for ongoing support, the potential for enhancements,
        price, departmental versus enterprise sales and salesmanship. Also key is
        the
        strategic position the incumbent, or major healthcare information systems
        vendor, has in the customer site. Different dynamics and competitors, however,
        affect each of the Company's products and each sale.
 
 The
        Blood
        Management Division’s current blood transfusion product is HCLLTM. The Company
        received 510(k) clearance from the U.S. Food and Drug Administration (the
“FDA”)
        for its HCLL software in fiscal 2003. During fiscal 2005, the Company received
        510(k) clearance for its complementary HCLL donor software product for use
        in
        hospital-based donor centers.  The Blood Management division, through its
        LifeTrak® software, also provides large complex blood centers full function
        tools for blood collection and processing, donor recruitment, testing and
        inventory control.  In October 2005, the Blood Management Division
        officially announced the “sunset” of Hemocare® and LifeLineTM, its two legacy
        blood transfusion products, which were originally installed in the early
        1980s.
        The final sunset date is June 30, 2007, but Mediware believes that at least
        90%
        of legacy customers made their licensing decision in or before the quarter
        ended
        March 31, 2007.  The Company has entered into license agreements
        representing 300 current and new customer sites for the HCLL software. The
        HCLL
        software is in productive use at approximately 39 sites.   The
        Company has entered into license agreements representing 66 customer sites
        for
        the LifeTrak software.
 
 The
        Blood
        Management Division continues to concentrate on increasing the number of
        users
        and licensees of its HCLL and LifeTrak software, with a focus on large
        sophisticated healthcare institutions that are best positioned to take advantage
        of the robust functionality and enterprise-level capabilities in the software
        and any Hemocare and Lifeline customers that have not yet made a final licensing
        decision.  The Blood Management Division also continues to actively
        investigate product opportunities to the emerging biologics and human
        cell/tissue-based product markets.
 
 The
        Medication Management Division’s current WORx® drug therapy software is
        currently licensed to over 110 hospital organizations encompassing approximately
        227 hospital sites. The product’s market acceptance encompasses hospitals of all
        sizes, including strategically important multi-site hospitals. The Medication
        Management Division released two products, MediCOETM and MediMAR® in fiscal 2004.
        These products are fully integrated with each other and WORx providing a
        complete drug therapy management system with a clinician order entry module
        (MediCOE) and nursing point of care medication administration and documentation
        module (MediMAR). The MediCOE and MediMAR products have been installed and
        are
        in productive use in 2 and 6 separate customer sites,
        respectively.  In March 2007, the Medication Management Division
        licensed a new software product, MediREC.  This new product
        assists hospitals in achieving compliance with a new Joint Commission on
        Accreditation of Healthcare Organizations (JCAHO) mandate, which
        requires  hospitals to document all of a patient’s home medications
        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 whenever the patient is transferred and again when the patient
        is
        discharged.
 
 The
        Medication Management Division continues to target its large WORx software
        customer base for the sale of the MediCOE and MediMAR products and has begun
        marketing MediREC to this customer base as well.   The Medication
        Management Division is also beginning to increase its focus on behavioral
        health
        and other specialty healthcare markets where the integrated features and
        functionality included in the WORx, MediMAR MediREC and MediCOE software
        products can be tailored to meet the unique needs of these markets and
        institutions.
 
 Selling
        the Medication Management Division’s full suite of products (WORx, MediMAR,
        MediREC and MediCOE) involves the development of new markets, and such sales
        are
        larger in size and scope and involve more hospital departments and, therefore,
        substantially longer sales cycles compared to stand-alone WORx
        sales.  The impact of these changes has been slower than expected,
        resulting in less predictable contract closures, and the recognition of license
        software revenue (in some cases) over multiple quarters, in accordance with
        the
        American Institute of Certified Public Accountants Statement of Position
        97-2,
“Software Revenue Recognition.” The Company sold its MediMAR product to
        two customers during the third quarter or three months ended March 31,
        2007, but has not sold  the  MediCOE software during the
        nine months ended March 31, 2007.  Mediware is selling MediREC to its
        customers on a transaction basis and expects the sale and implementation
        cycles for MediREC to be substantially shorter than for the full suite of
        products.  During the three months ended March 31, 2007, Mediware
        executed MediREC agreements for use at two customer sites.
 
 13
 ***Index***
 
 For
        the
        nine months ended March 31, 2007, system sales in the Blood Management Division
        accounted for 71% of all system sales by the Company and service revenues
        for
        the Blood Management Division accounted for 43% of service revenues for the
        Company.  The Blood Management Division has significantly benefited
        from the non-recurring increased revenues associated with the sunset
        program.  The Blood Management Division system sales will
        substantially decline after the completion of the legacy product sunset program
        at the end of fiscal 2007.  Service revenues in the division are
        expected to increase and somewhat offset the reduction in system sales in
        fiscal
        2008 as implementations of HCLL software are completed.  The Company
        believes that contract closures for the Medication Management Division’s suite
        of products will continue to be less predictable over the coming quarters
        and
        the recognition of license software revenue from future sales may be required
        to
        be recognized over multiple quarters. As a result, the Company expects lower
        revenues and net income in fiscal year 2008 compared to fiscal year 2007
        as the
        Company returns to a business cycle that does not include a sunset
        program.
 
 **Results
        of Operations for the Three Months Ended March 31, 2007 as Compared to the
        Three
        Months Ended March 31, 2006**
 
 Total
        revenue for the third quarter of fiscal 2007 is $11,057,000 compared to
        $9,968,000 in the same quarter of the prior year, reflecting an increase
        of
        $1,089,000, or 10.9%.  This increase is primarily the result of an
        increase in revenue in the Blood Management Division.  The Blood
        Management Division recorded total revenue of $6,427,000 in the third quarter
        compared to $4,952,000 in the same period of fiscal 2006, representing an
        increase of $1,475,000, or 29.8%.  The Medication Management Division
        (excluding the United Kingdom operating division, JAC Computer Services,
        Ltd.,
“JAC”) recorded total revenue of $3,058,000 in the third quarter of fiscal 2007
        compared to $3,381,000 in the third quarter of fiscal
        2006.   This represented a decrease of approximately $323,000, or
        9.6%, compared to the same quarter a year ago.   JAC recorded
        total revenues of $1,292,000 in the third quarter of fiscal 2007, representing
        an increase of $94,000, or 7.8%, compared to $1,198,000 in the same period
        of
        fiscal 2006.  The Perioperative Management Division recorded revenues
        of $280,000 in the current quarter, representing a decrease of $157,000,
        or
        35.9%, compared to $437,000 in the same quarter in fiscal 2006.
 
 System
        sales, which include proprietary software, third party software and hardware
        revenue, amounted to $4,887,000 in the third quarter of fiscal 2007, an increase
        of $1,547,000, or 46.3%, from $3,340,000 in the same period in fiscal
        2006.  The increase in system sales is primarily attributable to the
        sunset of the two legacy products of the Blood Management
        Division.  System sales for the Blood Management Division were
        $3,429,000 for the third quarter of fiscal 2007, an increase of $1,968,000,
        or
        134.7%, compared to $1,461,000 in the same quarter of fiscal
        2006.  The System Sales in the Blood Management Division during the
        quarter were stronger than expected as more customers migrated to the HCLL
        software in the third quarter than expected.  As a result of the
        higher level of activity in the third quarter, Mediware expects lower System
        sales in the Blood Management Division in the fourth quarter of fiscal 2007
        than
        in the third quarter of fiscal 2007.    System sales in the
        Medication Management Division (excluding JAC) decreased from $1,305,000
        in the
        third quarter of fiscal 2006 to $1,037,000 in the third quarter of fiscal
        2007,
        representing a decrease of $268,000, or 20.5%.  This decrease is due
        to a decline in third party software sales in fiscal 2007, partially offset
        by
        increased WORx system sales.  JAC recorded system sales of $399,000 in
        the third quarter of fiscal 2007, representing a decrease of $68,000, or
        14.6%,
        compared to $467,000 reported for the same period in fiscal 2006.  The
        decrease is due to a decline in the number of new contracts during the third
        quarter.  However, Mediware expects JAC system sales to continue as
        JAC continues to position itself to benefit from the “Connecting for Health”
program in the UK.  The Perioperative Management Division experienced
        a decrease in system sales of $85,000, or 79.4%, from $107,000 in the third
        quarter of fiscal 2006 to $22,000 in the third quarter of fiscal
        2007.  Mediware intends to continue investing in sales and marketing
        and expects that this additional investment will enable the Company to
        participate in more sales opportunities and broaden the Company’s potential base
        of customers, which is expected to help address the expected lower revenues
        and
        net income in fiscal 2008 compared to fiscal 2007 as the Company returns
        to a
        business cycle that does not include a sunset program.
  14
 ***Index***
 
 Service
        revenue, which includes recurring software support, implementation and training
        services, amounted to $6,170,000 in the third quarter of fiscal 2007, a decrease
        of $458,000, or 6.9%, from $6,628,000 for the same period in fiscal
        2006.  Service revenue for the Blood Management Division totaled
        $2,998,000 in the third quarter of fiscal 2007, representing a decrease of
        $493,000, or 14.1%, compared to $3,491,000 in the third quarter of fiscal
        2006.  This decrease in service revenue is primarily due to decreased
        support revenues from customers electing not to utilize HCLL upon the sunset
        of
        their legacy products, partially offset by increased implementation revenues
        resulting from an increase of implementation projects from customers electing
        to
        utilize HCLL upon the sunset of their legacy product.  Mediware
        believes, but cannot assure, that service revenue will increase as
        implementation revenue from the new HCLL customers continues to
        grow.  Service revenue in the Medication Management Division
        (excluding JAC) decreased $55,000, or 2.6%, to $2,021,000 in the third quarter
        of fiscal 2007 compared to $2,076,000 in the third quarter of fiscal
        2006.  This decrease is primarily due to a decrease in implementation
        revenue resulting from a decline in ongoing implementation projects, partially
        offset by increased rates on support services provided to existing
        customers.  Service revenue for JAC increased $162,000, or 22.0%, to
        $893,000 in the third quarter of fiscal 2007 compared to $731,000 in the
        third
        quarter of fiscal 2006.  This increase in service revenue is due to a
        combination of increased rates on support services provided to existing
        customers and additional support revenue generated from new customers within
        the
        preceding twelve months.  Service revenue in the Perioperative
        Management Division decreased $72,000, or 21.6%, to $258,000 in the third
        quarter of fiscal 2007 compared to $330,000 in the third quarter of fiscal
        2006.  The decrease in service revenue for this division is primarily
        due to a decline in ongoing implementation projects resulting from the
        completion of the migration from Mediware’s legacy Surgiware System to its
        Perioperative Solutions product.
 
 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 $283,000, or 54.8%, from $519,000 in the third quarter of 2006
        to
        $802,000 in the third quarter of fiscal 2007.  The gross margin,
        excluding amortization of capitalized software costs, on system sales was
        83.6%
        in the third quarter of fiscal 2007 compared to 84.5% in the same quarter
        in
        fiscal 2006.   The decrease in gross margin is primarily due to
        the increase in lower margin hardware sales in the Blood Management Division
        during the third quarter of fiscal 2007.
 
 Cost
        of
        services includes the salaries of client service personnel and communications
        expenses along with direct expenses of the client service
        departments.  Cost of services increased $151,000, or 7.4%, from
        $2,047,000 in the third quarter of 2006 to $2,198,000 in the third quarter
        of
        2007.  The increase in cost of services is primarily attributed to
        increases in implementation personnel in the Blood Management Division as
        the
        division prepares for an increasing number of implementation
        projects.  Gross margin on service revenue was 64.4% for the third
        quarter of fiscal 2007 compared to 69.1% for the third quarter of fiscal
        2006.  Management believes, but cannot assure, that cost of services
        as a percentage of service revenue will remain consistent with its current
        rates
        which are defined as the percentage of billed hours to worked hours of its
        service personnel.
 
 Amortization
        of capitalized software increased $134,000, or 11.0%, to $1,354,000 in the
        third
        quarter of fiscal 2007 compared to $1,220,000 in the third quarter of fiscal
        2006.  This increase is primarily due to increased amortization of
        capitalized software costs related to additional product releases of the
        HCLL,
        WORx, MediMAR, MediREC and MediCOE products within the prior fiscal
        year.  Mediware expects amortization to continue to increase during
        fiscal 2007 as new software releases occur.
 
 Software
        development costs include the non-capitalizable portions of salaries,
        consulting, documentation, office and other direct expenses incurred in product
        development activities.  Software development costs decreased
        $171,000, or 14.6%, in the third quarter from $1,170,000 in fiscal 2006 to
        $999,000 in fiscal 2007. Expenditures for software development include amounts
        paid for both capitalizable and noncapitalizable development
        projects.  Total expenditures for software development were $2,055,000
        in the third quarter of fiscal 2007 compared to $2,194,000 in the third quarter
        of fiscal 2006, a decrease of $139,000, or 6.3%.  Mediware believes
        that its near term total investment in product development will remain
        substantially consistent with current levels however the investment among
        divisions may shift due to normal product development life cycles.
  15
 ***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 for corporate, divisional, financial and administrative staffs;
        utilities, rent, communications and other office expenses; and other related
        direct administrative expenses.  SG&A expenses increased $562,000,
        or 13.5%, from $4,167,000 in the third quarter of fiscal 2006 to $4,729,000
        in
        the third quarter of fiscal 2007.  This increase is primarily due to
        increases in labor costs and legal fees, partially offset by reductions in
        other professional fees and bad debt expense.  The Company
        believes that SG&A costs will decline in the near term but will likely
        increase in the longer term as the Company invests in sales, marketing and
        other
        infrastructure costs.
 
 Net
        income in the third quarter of fiscal 2007 was $831,000, an increase of
        $199,000, or 31.5%, compared to a net income of $632,000 in the third quarter
        of
        fiscal 2006.
 
 **Results
        of Operations for the Nine Months Ended March 31, 2007 as Compared to the
        Nine
        Months Ended March 31, 2006**
 
 Total
        revenue for the nine months ended March 31, 2007 is $30,794,000 compared
        to
        $28,764,000 in the comparable period of fiscal 2006, an increase of $2,030,000,
        or 7.1%.  This increase is primarily the result of an increase in
        revenue in the Blood Management Division. Revenue in the Blood Management
        Division increased $2,943,000, or 19.4%, to $18,133,000 in the nine months
        ended
        March 31, 2007 compared to $15,190,000 in the same period in fiscal
        2006.  The Medication Management Division (excluding JAC) recorded a
        decrease of $828,000, or 8.9%, to $8,500,000 in the first nine months of
        fiscal
        2007 from $9,328,000 in the same period in fiscal 2006. JAC recorded an increase
        of $173,000, or 5.7%, to $3,228,000 in the nine months ended March 31, 2007
        compared to $3,055,000 in the same period in fiscal 2006. The Perioperative
        Management Division recorded a decrease of $258,000, or 21.7%, to $933,000
        in
        the nine months ended fiscal 2007 compared to $1,191,000 in the same period
        in
        fiscal 2006.
 
 System
        sales were $12,100,000 for the nine months ended March 31, 2007, an increase
        of
        $2,613,000, or 27.5%, from $9,487,000 in the same period in fiscal
        2006.  System sales for the Blood Management Division were $8,724,000
        for the nine months ended fiscal 2007, an increase of $3,574,000, or 69.4%,
        from
        $5,150,000 in the comparable period in fiscal 2006. The increase in system
        sales
        is primarily attributable to the sunset of the division’s two legacy
        products.  System sales in the Medication Management Division
        decreased $850,000, or 25.7%, to $2,453,000 for the nine months ended March
        31,
        2007 from $3,303,000 in the same period in fiscal 2006.  The decrease
        is a result of lower System sales during the nine months ending March 31,
        2007.  The decrease in system sales also reflects lower sales of third
        party software as well as the base WORx system.  JAC recorded a
        decrease in system sales of $41,000, or 4.6%, to $843,000 for the nine months
        ended March 31, 2007, compared to $884,000 in the same period in fiscal 2006.
        The decrease reflects a decrease in the number of software contracts sold
        during
        fiscal 2007. The Perioperative Management Division experienced a decrease
        in
        system sales of $70,000, or 46.7%, from $150,000 in fiscal 2006 to $80,000
        in
        fiscal 2007  Mediware intends to continue investing in sales and
        marketing  and expects that this additional investment will enable the
        Company to participate in more sales opportunities and broaden the Company’s
        potential base of customers which is expected to help  address the
        expected lower revenues and net income in fiscal 2008 compared to fiscal
        2007 as
        the Company returns to a business cycle that does not include a sunset
        program.
 
 Service
        revenue decreased $583,000, or 3.0%, to $18,694,000 in the first nine months
        of
        fiscal 2007 from $19,277,000 in the same period in fiscal
        2006.  Service revenue for the Blood Management Division decreased
        $631,000, or 6.3%, to $9,409,000 in the first nine months of fiscal 2007
        compared to $10,040,000 in the same period of fiscal 2006. This decrease
        in
        service revenue is primarily due to decreased support revenues from customers
        electing not to utilize HCLL upon the sunset of their legacy products, partially
        offset by increased implementation revenues from customers electing to utilize
        the HCLL software upon the sunset of their legacy product.  Service
        revenue in the Medication Management Division (excluding JAC) increased $22,000,
        or 0.4%, to $6,047,000 in the first nine months of fiscal 2007 compared to
        $6,025,000 in the same period in fiscal 2006. The increase is primarily due
        to
        increased rates on support services for existing customers, partially offset
        by
        a decrease in implementation revenue resulting from a decline in ongoing
        implementation projects.  Service revenue for JAC increased $214,000,
        or 9.9%, to $2,385,000 in the nine months ended March 31, 2007 compared to
        $2,171,000 in the same period of fiscal 2006.  This increase is
        primarily due to increased rates on support services for existing customers
        and
        an increase in the customer base, offset partially by a decrease in training
        revenues.  Service revenue in the Perioperative Management Division
        decreased $188,000, or 18.1%, from $1,041,000 for the first nine months of
        fiscal 2006 to $853,000 in the same period for fiscal 2007. This decrease
        in
        service revenue is primarily due to a decline in ongoing implementation projects
        due to the completion of the conversion of legacy customers.
  16
 ***Index***
 
 Cost
        of
        systems can vary as the mix of revenue varies between high margin proprietary
        software and lower margin computer hardware and sublicensed software
        components.  Cost of systems increased $454,000, or 27.0%, to
        $2,133,000 in the nine months ended March 31, 2007 compared to $1,679,000
        in the
        same period in fiscal 2006.  The increase is due to overall hardware
        sales increases, primarily in the Blood Management Division. The gross margin,
        excluding amortization of capitalized software costs, on system sales was
        82.4%
        in the first nine months of fiscal 2007 compared to 82.3% in the same period
        in
        fiscal 2006.
 
 Cost
        of
        services increased $325,000, or 5.6%, to $6,118,000 in the nine months ended
        March 31, 2007 compared to $5,793,000 in the same period for fiscal 2006.
        The
        increase in cost of services is primarily attributed to increases in
        implementation personnel as Mediware increased staff levels for the rollout
        of
        its MediMAR, MediCOE and HCLL products.  Gross margin on service
        revenue were 67.3% for the nine months ended March 31, 2007 compared to 69.9%
        for the same period in fiscal 2006. Mediware believes, but cannot assure,
        that
        cost of services as a percentage of service revenue will remain consistent
        with
        its current utilization rates which are defined as the ratio of billed hours
        to
        worked hours of its service personnel.
 
 Amortization
        of capitalized software increased $411,000, or 11.5%, to $3,982,000 in the
        nine
        months ended March 31, 2007 compared to $3,571,000 in the same period in
        fiscal
        2006. This increase is primarily due to increased amortization of capitalized
        software costs related to the Company’s HCLL and MediMAR products.
 Software
        development costs decreased $343,000 or 10.3% in the nine months ended March
        31,
        2007 to $2,983,000 compared to $3,326,000 in the same period in fiscal
        2006.  Expenditures for software development include amounts paid for
        both capitalizable and non-capitalizable development projects. Total
        expenditures for software development were $6,024,000 the nine months ended
        March 31, 2007, compared to $6,730,000 the same period in fiscal 2006, a
        decrease of $706,000 or 10.5%. This decrease primarily reflects decreased
        expenditures in the Blood Management Division and Medication Management Division
        (excluding JAC).   Mediware expects to continue investing in
        product development.
 
 SG&A
        expenses increased $1,310,000, or 10.8%, from $12,098,000 for the nine months
        ended March 31, 2006 compared to $13,408,000 in the same period in fiscal
        2007.
        This increase is primarily due to increases in labor costs, legal fees and
        sales
        and marketing initiatives.  These increases were partially offset by
        reductions in insurance and rent expense. The Company believes that SG&A
        costs will decline in the near term but will likely increase in the longer
        term
        as the Company invests in sales, marketing and other infrastructure
        costs.
 
 In
        December 2005, Mediware resolved two separate tax issues related to its JAC
        division in the United Kingdom, resulting in a net refund of
        $101,000.  This amount is included in the income tax provision for the
        nine months ended March 31, 2006, reducing the effective tax rate to
        36%.
 
 Net
        income for the nine months ended March 31, 2007 was $1,900,000, an increase
        of
        $133,000 or 7.5%, compared to a net income of $1,767,000 the same period of
        fiscal 2006.
  **Liquidity
        and Capital Resources**
  As
        of
        March 31, 2007, Mediware had cash and cash equivalents of $21,333,000 compared
        to $18,996,000 at June 30, 2006.  Working capital was $22,960,000 and
        $18,095,000 at March 31, 2007 and June 30, 2006, respectively.  The
        current ratio was 2.7 to 1 at March 31, 2007 compared to 2.6 to 1 at June
        30,
        2006.  The Company does not have any material capital lease
        obligations, purchase obligations or long-term liabilities.
 
 Cash
        provided by operating activities was $5,275,000 during the first nine months
        of
        fiscal 2007 compared to $6,506,000 during the same period a year
        ago.  The decrease in cash provided by operating activities is
        primarily due to changes in accounts payable, deferred income taxes and accounts
        receivable.
  17
 ***Index***
 
 Cash
        used
        in investing activities was $3,486,000 during the first nine months of fiscal
        year 2007 compared to $3,753,000 during the same period a year
        ago.  The decrease primarily relates to less capitalized software
        development costs in the current year.  Mediware capitalized
        $3,040,000 and $3,404,000 of product development costs during the nine months
        ended March 31, 2007 and 2006, respectively.
  Cash
        provided by financing activities was $456,000 during the first nine months
        of
        fiscal year 2007 compared to $1,075,000 during the same period a year ago,
        primarily reflecting a reduction in the amount of proceeds received from
        stock
        option exercises and the decrease in excess tax benefits related to the exercise
        of stock options.
  Factors
        that may affect liquidity are Mediware’s ability to penetrate the market for its
        products, maintain or reduce the length of the selling cycle, collect cash
        from
        clients as systems are implemented and replace revenues associated with the
        sunset program.  Exclusive of activities involving any future
        acquisitions of products or companies that complement or augment Mediware’s
        existing line of products, Mediware believes that current available funds
        and
        cash generated from operations will provide sufficient liquidity to meet
        operating requirements for the foreseeable future.  Mediware continues
        to review its long-term cash needs.  Currently, there are no plans for
        additional outside financing, except that Mediware may consider establishing
        a
        new line of credit.
  18
 ***Index***
  **ITEM
                      3.**
                  **QUANTITATIVE
                      AND QUALITATIVE DISCLOSURES ABOUT MARKET
                      RISK**
 Mediware
        does not currently have any material exposure to foreign currency transaction
        gains or losses.  However, Mediware does have some exposure to foreign
        currency rate fluctuations arising from sales made to customers in the United
        Kingdom.  These transactions are made by JAC which transacts business
        in the British pound.  To date, Mediware has not entered into any
        derivative financial instrument to manage foreign currency risk and is currently
        not evaluating the future use of any such financial instruments.
  **ITEM
                      4.**
                  **CONTROLS
                      AND
                      PROCEDURES**
 Mediware’s
        management, under the supervision and with the participation of Mediware’s Chief
        Executive Officer and Chief Financial Officer, has reviewed and evaluated
        the
        effectiveness of Mediware’s disclosure controls and procedures as of the end of
        the quarter covered by this report.  Disclosure controls and
        procedures are defined in the Securities Exchange Act as controls and other
        procedures of Mediware designed to ensure that information required to be
        disclosed by Mediware in the reports that it files or submits under the
        Securities Exchange Act is recorded, processed, summarized and reported within
        the time periods specified in the SEC’s rules and forms and include controls and
        procedures designed to ensure that information required to be disclosed by
        Mediware in the reports that it files or submits to the SEC is accumulated
        and
        communicated to Mediware’s management, including the CEO and CFO, to allow
        timely decisions regarding required disclosure.  Based on the
        foregoing review and evaluation, Mediware’s CEO and CFO have concluded that
        Mediware’s disclosure controls and procedures are effective as of March 31,
        2007.
 
 There
        were no material changes in Mediware’s internal controls over financial
        reporting that occurred during the three months ended March 31, 2007 that
        have
        materially affected, or are reasonably likely to materially affect, its internal
        controls over financial reporting.
  19
 ***Index***
  **PART
                  II**
              **OTHER
                  INFORMATION**
  **Item
                  1.**
              **LEGAL
                  PROCEEDINGS**
 In
          February 2007, the California Supreme Court denied the petition for 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 the
          El Dorado Superior Court for further proceedings.  Mr. Jackson had
          previously successfully moved for summary judgment on claims he misappropriated
          trade secrets of Global Med Technologies, Inc. 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, 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.
 
 In
        addition to the foregoing case and others reported in our Annual Report on
        Form
        10-K for the year ended June 30, 2006 and any subsequent Quarterly Report
        on
        Form 10-Q, Mediware is from time to time 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 no such routine litigation currently pending against it, if adversely
        determined, would have a material adverse effect on its consolidated financial
        position, results of operations or cash flows.
  **Item
                  1A.**
              **RISK
                  FACTORS**
 
 Risks
        and
        uncertainties that, if they were to occur, could materially adversely affect
        our
        business or that could cause our actual results to differ materially from
        the
        results contemplated by the forward-looking statements contained in this
        report
        and other public statements we make were set forth in the “Item 1A - Risk
        Factors” section of our Annual Report on Form 10-K for the year ended June 30,
        2006 and as updated by our subsequent quarterly reports on Form 10-K. There
        have
        been no material changes from the risk factors disclosed in that Form 10-K
        and
        the subsequent Form 10-Qs except as set forth below.
 
 **Our
        revenue will be adversely affected after June 2007 by the   loss
        of revenue derived from the sunset of the Blood Management Division’s legacy
        products.**
 
 Over
        the
        last few years, our Blood Management Division has experienced increased revenue
        as a result of the migration of its customers from our legacy blood bank
        products to our HCLL software product.   The first of two key
        sunset dates occurred in the second quarter of fiscal 2007 and the second
        such
        date occurs in the fourth quarter of fiscal 2007.  Following fiscal
        2007, Mediware expects decreased revenue in the Blood Management Division.
        As a
        result, Mediware expects lower revenues and net income in fiscal year 2008
        compared to fiscal year 2007.
  20
 ***Index***
 
 **ITEM
                  6.**
              **EXHIBITS**
 
 Exhibit
                  11
              
              Schedule
                  of Computation of Net Earnings Per ShareExhibit
                  15
              
              Awareness
                  LetterExhibit
                  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
  21
 ***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)May
                  8, 2007
              
              /s/
              JAMES
                  F. BURGESSDate
              
              
              JAMES
                  F. BURGESSPRESIDENT
                  AND CHIEF EXECUTIVE OFFICERMay
                  8, 2007
              
              /s/
              MARK
                  B. WILLIAMSDate
              
              
              MARK
                  B. WILLIAMSCHIEF
                  FINANCIAL OFFICER
   22