**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 December 31, 2005





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**
              **(State
                or other jurisdiction**
              **of
                incorporation or organization)**
            **11-2209324**
              **(I.R.S.
                Employer Identification No.)****11711
                West 79th Street**
              **Lenexa,
                Kansas**
              **(Address
                of principal executive offices)**
            **66214**
              **(Zip
                Code)**








**(Registrant’s
      telephone number, including area code): (913) 307-1000**





**(Former
      name, former address and former fiscal year, if changed since last
      report)**













Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. x Yes  ̈ No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated file, 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





As
      of
      January 20, 2006, there were 8,045,000 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 December
                31, 2005 (Unaudited) and June 30, 2005
            4Condensed
                Consolidated Statements of Operations
                and Comprehensive Income (Unaudited) for the Three and Six Months
                Ended
                December 31, 2005 and 2004
            5Condensed
                Consolidated Statements of Cash Flows
                (Unaudited) for the Six Months Ended December 31, 2005 and
                2004
            6Notes
                to Unaudited Condensed Consolidated
                Financial Statements
            7Review
                Report of Independent Registered Public Accounting
                Firm
            10**ITEM
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations**
            11**ITEM
                3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**
            17**ITEM
                4.**
            **Controls
                and Procedures**
            18**PART
                II**
            **Other
                Information****ITEM
                1.**
            **Legal
                Proceedings**
            19**ITEM
                1A.**
            **Risk
                Factors**
            19**ITEM
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**
            25**ITEM
                5.**
            **Other
                Information**
            26**ITEM
                6.**
            **Exhibits**
            27**Signatures**
            28





3
 *Index*





**PART
      1 FINANCIAL INFORMATION**





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





**MEDIWARE
      INFORMATION SYSTEMS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Amounts
      in thousands except shares)**





**(Unaudited)**
              **December
                31,**
              **2005**
            
            **June
                30,**
              **2005****ASSETS**Current
                AssetsCash
                and cash equivalents
            
            $
            17,026
            
            $
            14,839Accounts
                receivable (net of allowance of $728 and $626)
            
            
            8,594
            
            
            8,066Inventories
            
            
            162
            
            
            208Deferred
                income taxes
            
            
            447
            
            
            452Prepaid
                expenses and other current assets
            
            
            838
            
            
            739Total
                current assets
            
            
            27,067
            
            
            24,304Fixed
                assets, net
            
            
            1,314
            
            
            1,361Capitalized
                software cots, net
            
            
            19,577
            
            
            19,548Goodwill,
                net
            
            
            4,087
            
            
            4,203Other
                long-term assets
            
            
            117
            
            
            117Total
                assets
            
            $
            52,162
            
            $
            49,533**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Current
                LiabilitiesAccounts
                payable
            
            $
            1,690
            
            $
            1,742Current
                portion of note payable
            
            
            25
            
            
            24Advances
                from customers
            
            
            7,701
            
            
            7,489Accrued
                expenses and other current liabilities
            
            
            2,226
            
            
            2,132Total
                current liabilities
            
            
            11,642
            
            
            11,387Note
                payable
            
            
            17
            
            
            30Deferred
                income taxes
            
            
            3,808
            
            
            3,578Total
                liabilities
            
            
            15,467
            
            
            14,995Shareholders’
                EquityPreferred
                stock, $.01 par value; authorized 10,000,000 Shares; none
                issuedCommon
                stock, $.10 par value; authorized 25,000,000 Shares; 8,043,000 and
                7,881,000 shares issued and outstanding at December 31, 2005 and
                June 30,
                2005, respectively
            
            
            804
            
            
            788Additional
                paid-in capital
            
            
            29,492
            
            
            27,932Deferred
                compensation
            
            
            (443
            )
            
            -Retained
                earnings
            
            
            6,894
            
            
            5,759Accumulated
                other comprehensive income (loss)
            
            
            (52
            )
            
            59Total
                shareholders’ equity
            
            
            36,695
            
            
            34,538Total
                Liabilities and Shareholders’ Equity
            
            $
            52,162
            
            $
            49,533





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**
              **December
                31,**
            
            **(Unaudited)**
              **Six
                Months ended**
              **December
                31,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Revenue**System
                sales
            
            $
            2,967
            
            $
            2,676
            
            $
            6,147
            
            $
            5,217Service
            
            
            6,421
            
            
            6,550
            
            
            12,649
            
            
            12,489Total
                revenue
            
            
            9,388
            
            
            9,226
            
            
            18,796
            
            
            17,706**Cost
                and Expenses**Cost
                of systems (1)
            
            
            629
            
            
            506
            
            
            1,160
            
            
            956Cost
                of services
            
            
            1,879
            
            
            1,845
            
            
            3,746
            
            
            3,704Amortization
                of capitalized software costs
            
            
            1,210
            
            
            1,008
            
            
            2,351
            
            
            1,966Software
                development costs
            
            
            1,045
            
            
            783
            
            
            2,156
            
            
            1,650Selling
                general and administrative
            
            
            4,242
            
            
            3,575
            
            
            7,931
            
            
            6,889Total
                costs and expenses
            
            
            9,005
            
            
            7,717
            
            
            17,344
            
            
            15,165Operating
                income
            
            
            383
            
            
            1,509
            
            
            1,452
            
            
            2,541Interest
                and other income
            
            
            158
            
            
            53
            
            
            284
            
            
            120Interest
                and other expense
            
            
            (2
            )
            
            (4
            )
            
            (6
            )
            
            (18
            )Income
                before income taxes
            
            
            539
            
            
            1,558
            
            
            1,730
            
            
            2,643Income
                tax provision
            
            
            (141
            )
            
            (609
            )
            
            (595
            )
            
            (1,051
            )Net
                income
            
            
            398
            
            
            949
            
            
            1,135
            
            
            1,592**Other
                comprehensive income**Foreign
                currency translation adjustment
            
            
            (5
            )
            
            78
            
            
            (111
            )
            
            74**Comprehensive
                income**
            
            $
            393
            
            $
            1,027
            
            $
            1,024
            
            
            1,666**Net
                income per Common Share**Basic
            
            $
            0.05
            
            $
            0.12
            
            $
            0.14
            
            $
            0.20Diluted
            
            $
            0.05
            
            $
            0.12
            
            $
            0.14
            
            $
            0.20Weighted
                Average Common Shares OutstandingBasic
            
            
            7,996
            
            
            7,813
            
            
            7,963
            
            
            7,767Diluted
            
            
            8,183
            
            
            8,187
            
            
            8,160
            
            
            8,153





(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)**





**(Unaudited)**
              **Six
                Months Ended**
              **December
                31,****2005**
            
            **2004****Cash
                Flows From Operating Activities**Net
                income
            
            $
            1,135
            
            $
            1,592Adjustments
                to reconcile net income, to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            2,659
            
            
            2,465Deferred
                tax provision
            
            
            351
            
            
            1,024Deferred
                compensation
            
            
            95
            
            
            88Provision
                for doubtful accounts
            
            
            134
            
            
            182Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (662
            )
            
            (538
            )Inventories
            
            
            46
            
            
            12Prepaid
                expenses and other assets
            
            
            (99
            )
            
            (127
            )Accounts
                payable, accrued expenses and advances from customers
            
            
            254
            
            
            (836
            )Net
                cash provided by operating activities
            
            
            3,913
            
            
            3,862**Cash
                Flows From Investing Activities**Acquisition
                of fixed assets
            
            
            (261
            )
            
            (508
            )Capitalized
                software costs
            
            
            (2,380
            )
            
            (2.651
            )Net
                cash used in investing activities
            
            
            (2,641
            )
            
            (3,159
            )**Cash
                Flows From Financing Activities**Proceeds
                from exercise of stock options
            
            
            811
            
            
            661Excess
                tax benefit from exercise of stock options
            
            
            227
            
            
            -Principal
                payments on note payable
            
            
            (12
            )
            
            (11
            )Principal
                payments on note payable to related party
            
            
            -
            
            
            (1,419
            )Net
                cash provided by (used in) financing activities
            
            
            1,026
            
            
            (769
            )Foreign
                currency translation adjustments
            
            
            (111
            )
            
            74Net
                increase in cash and cash equivalents
            
            
            2,187
            
            
            8Cash
                and cash equivalents at beginning of period
            
            
            14,839
            
            
            10,213Cash
                and cash equivalents at end of period
            
            $
            17,026
            
            $
            10,221**Supplemental
                disclosures of cash flow information**Cash
                paid during the period for:Interest
            
            $
            7
            
            $
            716Income
                taxes
            
            $
            28
            
            $
            27**Supplemental
                disclosures of noncash financing activities**Deferred
                compensation from issuance of restricted common stock
            
            
            -
            
            $
            252Deferred
                compensation related to adoption of SFAS 123R
            
            $
            59
            
            
            -Deferred
                compensation related to issuance of stock options
            
            $
            479
            
            
            -Additional
                paid-in capital recorded for excess tax benefit from exercise of
                stock
                options prior to the adoption of SFAS 123R
            
            
            -
            
            $
            250Reduction
                of goodwill recorded for tax benefit of related
                amortization
            
            $
            116
            
            $
            116





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, 2005 included in Mediware’s Annual Report
      filed on Form 10-K for such year.





The
      results of operations for the three and six months ended December 31, 2005
      are
      not necessarily indicative of the results to be expected for the entire fiscal
      year.





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





**2.**
            **SYSTEM
                SALES**





In
      July
      2004, Mediware initiated a program to monitor customer usage, which resulted
      in
      the sale of additional proprietary user licenses and related third party
      software under the terms of their existing license agreements. As a result,
      Mediware recognized system sales of $76,000 and $1,262,000 during the three
      and
      six months ended December 31, 2004, respectively. There were no system sales
      resulting from such program during the three and six months ended December
      31,
      2005.





**3.**
            **EARNINGS
                PER SHARE**





Basic
      earnings per share is computed by dividing the net income by the weighted
      average number of common shares, par value $0.10 (“Common Stock”), of Mediware
      outstanding. For the three and six months ended December 31, 2005 and 2004,
      the
      dilutive effect of Common Stock equivalents is included in the calculation
      of
      diluted earnings per share using the treasury stock method.





**4.**
            **STOCK
                BASED COMPENSATION PLANS**




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 December 2005, the shareholders approved an
        amendment to increase the number of shares that may be issued under such
        plan
        from 1,000,000 to 2,000,000 shares. 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 of such shares would be issuable as any combination of options,
        restricted stock and restricted stock unit awards.  The additional 300,000
        shares of common stock would be restricted to option awards. As of December
        31,
        2005, options equal to 1,245,000 shares were available to be issued 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
        December 31, 2005 no options were available to be issued under this
        plan.
 
 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'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.
 
 Commencing
        July 1, 2005, Mediware adopted Statement of Financial Accounting Standard
        No.
        123R, “Share Based Payment” (“SFAS 123R”), which requires all share-based
        payments, including grants of stock options, to be recognized in the income
        statement as an operating expense, based on their fair values.
 
 Prior
        to
        adopting SFAS 123R, Mediware accounted for stock-based employee compensation
        under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
        to Employees.” Mediware has applied the modified prospective method in adopting
        SFAS 123R. Accordingly, periods prior to adoption have not been restated.
  7
  The
        following table illustrates the effect on net income and earnings per share
        if
        the fair value based method had been applied to the prior period.
 
 **Three
                  Months Ended December 31, 2004**
              
              **Six
                  Months Ended December 31, 2004**Reported
                  net income
              
              $
              949,000
              
              $
              1,592,000Stock-based
                  employee compensation determined under the fair value based method
                  prior
                  to adoption of SFAS 123R, net of related tax effects
              
              
              (248,000
              )
              
              (490,000
              )Pro
                  Forma net income
              
              $
              701,000
              
              $
              1,102,000Income
                  per share:Basic
                  - as reported
              
              $
              0.12
              
              $
              0.20Basic
                  - pro forma
              
              $
              0.09
              
              $
              0.14Diluted
                  - as reported
              
              $
              0.12
              
              $
              0.20Diluted
                  - pro forma
              
              $
              0.09
              
              $
              0.14
 
 Stock
        option compensation expense was $78,000 and $95,000 for the three and six
        months
        ended December 31, 2005, respectively. In June 2005, the Company modified
        the
        terms of 160,000 existing stock options to minimize the impact of SFAS 123R
        on
        the Company’s results of operations subsequent to its adoption.
 
 The
        following summarizes the activity of the Company’s stock options for the six
        months ended December 31, 2005:
  **Shares**
              
              **Weighted
                  Average Exercise Price**
              
              **Weighted
                  Average Remaining Contractual Term**
              
              **Aggregate
                  Intrinsic Value**Number
                  of shares under option:Outstanding
                  at July 1, 2005
              
              
              1,354,000
              
              $
              8.81Granted
              
              
              130,000
              
              
              8.22Exercised
              
              
              (163,000
              )
              
              4.98Canceled
                  or expired
              
              
              (103,000
              )
              
              10.53Outstanding
                  at December 31, 2005
              
              
              1,218,000
              
              $
              9.11
              
              
              4.8
              
              $
              3,551,000Exercisable
                  at December 31, 2005
              
              
              1,057,000
              
              $
              9.21
              
              
              4.8
              
              $
              3,012,000
 
 The
        total
        intrinsic value of options exercised during the six-months ended December
        31,
        2005 was $781,000.
 
 The
        following summarizes the activity of the Company’s stock options that have not
        vested for the six months ended December 31, 2005.
  **Shares**
              
              **Weighted
                  Average Fair Value**Nonvested
                  at July 1, 2005
              
              
              78,000
              
              $
              4.08Granted
              
              
              130,000
              
              
              3.69Canceled
                  or expired
              
              
              (3,000
              )
              
              3.63Vested
              
              
              (44,000
              )
              
              3.90Nonvested
                  at December 31, 2005
              
              
              161,000
              
              $
              3.82
 8
  As
        of
        December 31, 2005, there was $443,000 of total unrecognized compensation
        cost
        related to nonvested share-based compensation arrangements granted under
        existing stock option plans. This cost is expected to be recognized over
        a
        weighted-average period of 2.9 years. The total measurement fair value of
        shares
        vested during the six-months ended December 31, 2005 was $172,000.
 
 Mediware
        uses the Black-Scholes option pricing model to determine the weighted average
        fair value of options. The fair value of options at date of grant and the
        assumptions utilized to determine such values are indicated in the following
        table:
  **Three
                  Months Ended December 31,**
              
              **Six
                  Months Ended December 31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Weighted
                  average fair value at date of grant for options granted during
                  the
                  period
              
              $
              3.69
              
              
              No
                  grants during period
              
              $
              3.69
              
              $
              4.85Risk-free
                  interest rates
              
              
              4.39%
              
              
              
              
              
              4.39%
              
              
              4.30%Expected
                  option life in years
              
              
              6-7
              
              
              
              
              
              5-7
              
              
              5Expected
                  stock price volatility
              
              
              35%
              
              
              
              
              
              35%
              
              
              83%Expected
                  dividend yield
              
              
              -0-
              
              
              
              
              
              -0-
              
              
              -0-
 
 Under
        SFAS 123(R) forfeitures are estimated at the time of valuation and reduce
        expense ratably over the vesting period. This estimate is adjusted periodically
        based on the extent to which actual forfeitures differ, or are expected to
        differ, from the previous estimate. Under SFAS 123 and APB 25, the Company
        elected to account for forfeitures when awards were actually forfeited, at
        which
        time all previous pro forma expense was reversed to reduce pro forma expense
        for
        that period. As of December 31, 2005, the company anticipates all outstanding
        options will vest.
 
 In
        October 2005, Mediware entered into an employment agreement with the new
        Chief
        Executive Officer of Mediware. Under the terms of this agreement, Mediware
        granted the officer 100,000 restricted shares (the “Performance Shares”) of
        Common Stock. 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 $794,000, the fair value on the date of grant. The probability
        of achieving these performance goals is not currently determinable. Accordingly,
        Mediware has not recognized any related compensation expense for the three
        and
        six months ended December 31, 2005.




9
 *Index*




**REVIEW
        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
  To
        The
        Board of Directors and Stockholders 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
        December 31, 2005, and the related condensed consolidated statements of
        operations and comprehensive income for the three- and six-month periods
        ended
        December 31, 2005 and 2004 and the related condensed consolidated
        statements of cash flows for the six-month periods ended December 31, 2005
        and 2004. 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, 2005, 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 5, 2005, 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, 2005 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
 January
        25, 2006


10
 *Index*





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





**Forward-Looking
      Statements**





*This
      Report on Form 10-Q contains forward-looking statements. Any statements
      contained herein that are not statements of historical fact may be deemed to
      be
      forward-looking statements within the meaning of Section 21E of the Securities
      Exchange Act. The words “believes,” “anticipates,” “plans,” “seeks,” “expects,”
“intends” and similar expressions identify some of the forward-looking
      statements. Forward-looking statements are not guarantees of performance or
      future results and involve risks, uncertainties and assumptions. The factors
      discussed below and in Item 1A of this Report on Form 10-Q, could 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. Mediware develops and
      sells clinical management information software systems. The Company’s software
      systems are designed to automate three separate clinical operations within
      the
      hospital environment: medication management, including the hospital pharmacy;
      blood bank (and stand alone blood centers); and the surgical suite. Each
      software system typically consists of the Company’s proprietary application
      software, third-party licensed software and third-party computer hardware.
      Each
      system is intended as the “best of breed” for its function within the hospital
      and stand alone blood centers. 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: Medication Management Systems, Blood Bank Systems and
      Operating Room Systems. The Blood Bank and Operating Room Divisions operate
      primarily in the United States. The Medication Management Division, including
      JAC, which was previously named the Pharmacy Division, operates both in the
      United States and in the United Kingdom. The Operating Room Division has
      historically been a smaller part of Mediware’s operations than the other
      divisions.





The
      Company believes the healthcare industry has historically under-invested in
      information technology, but the Company anticipates that with the continued
      increase in government regulation and concern over clinical outcomes, the
      healthcare industry’s expenditures on clinical information systems will increase
      as they modernize and update their clinical information systems. In fact, the
      Leapfrog Group, a consortium of large employers that spends approximately $40
      billion annually on healthcare, has called for investment into computerized
      information systems.





Recently,
      President George W. Bush pledged financial support for increased healthcare
      IT
      standards and incentives to make IT investments for hospitals more appealing.
      Mediware believes but cannot assure that it will benefit if the U.S. healthcare
      industry invests more money in clinical information technology
      systems.





In
      the
      beginning of 2004, the National Health Service (NHS) in England undertook a
      historic national program to purchase and update England’s NHS health care IT,
      which the government has identified 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 that total
      approximately 6.3 billion pounds.





11
 *Index*





Competition
      in the market for clinical information systems is intense and takes many forms.
      Currently the Company believes the principal competitive factors the Company
      faces are the functionality of the system, its design and capabilities, site
      references, reputation for ongoing support, the potential for enhancements,
      price, “best-of-breed” products such as the Company’s vs. enterprise wide
      products. 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.
      Additionally, the Company believes that software infringement claims, among
      its
      competitors and others, are becoming increasingly common in the software
      industry and that patents, copyrights and other proprietary rights are being
      used within the industry to gain competitive advantages. As a result, costs
      of
      litigation may increase in the future, especially if competitors are able to
      successfully obtain patents for software products.





Over
      the
      last several months, Mediware’s senior management has significantly changed.
      Mediware named a new Chief Executive Officer, James Burgess in October 2005.
      Paul O’ Toole became the general manager of the Operating Room Division in
      January 2006 and the Company recently announced that Kevin Ketzel, will become
      the general manager of the Medication Management Division on March 31, 2006.
      Mr.
      Crabtree, the current President of the Medication Management division will
      become Executive Vice President of Corporate Business Development. Mediware
      believes that its senior management team is now well-positioned and structured
      to manage the expected future growth of the Company.





The
      Company will seek (but cannot provide assurance that it will be able) to develop
      strategic relationships that are complimentary to its core markets and product
      set, that provide a greater value proposition to the customer than could be
      realized without the strategic relationship. The Company’s business strategy
      includes the possibility of growth through acquisitions and other corporate
      transactions. In fact, the Company will review and consider corporate
      transaction possibilities on an ongoing basis, but there can be no assurance
      that the Company will be able to identify or reach mutually agreeable terms
      with
      any transaction candidate.





The
      Blood
      Bank Division’s current blood transfusion product is HCLLTM. The Company received
      510(k) clearance from the FDA on HCLL in fiscal 2003. During fiscal 2005, the
      Company also received 510(k) clearance for its complementary HCLL donor software
      product. In October 2005, the Blood Bank Division officially announced the
      “sunset” of Hemocare® and LifeLineTM, its two legacy blood transfusion products,
      which were originally installed in the early 1980s. The two legacy products
      have
      a large installed base within the transfusion management market and represent
      an
      important opportunity for new sales for the Division. The Company has entered
      into more than 90 license agreements with current customers to replace
      Mediware’s legacy software with the HCLL software. The Company anticipates, but
      cannot assure, that the HCLL software will continue to be accepted by the legacy
      product users and the sales of HCLL software will increase as the current legacy
      customer base and as new customers adopt the new software.





The
      Medication Management Division’s current WORx® drug therapy software has been
      licensed to over 125 hospital organizations encompassing approximately 250
      hospital sites. The product’s market acceptance encompasses hospitals of all
      sizes, including strategically important multi-site hospitals. The Medication
      Management Division released two new products, MediCOETM and MediMAR® in fiscal
      2004. These products can be fully integrated with WORx and provide a complete
      drug therapy management system with a clinician order entry module (MediCOE)
      and
      nurse point of care administration module (MediMAR). Both MediCOE and MediMAR
      have been installed at 2 and 5 separate customer sites,
      respectively.





12
 *Index*





The
      Company is now targeting its large WORx customer base for the sale of the
      MediCOE and MediMAR products, and the new products are expected to attract
      new
      customers as well. In December 2005, the Medication Management Division
      successfully closed a significant contract for its MediMAR® and MediCOETM
products at a prestigious hospital in New England. Mediware continues to believe
      that a fully referenceable site, utilizing all three integrated products, is
      necessary to achieve the expected product acceptance and contract closure rates.
      The sales for the Medication Management’s full suite of products involve more
      hospital departments and longer implementation cycles. As a result, the Company
      expect longer sales, contracting and implementation cycles for these customers.
      In fiscal 2005, JAC was named as a preferred supplier of pharmacy stock control
      for a subcontractor as part of the United Kingdom’s “Connecting for Health”
program. Additional sales activity has resulted and is expected to
      continue.





**Results
      of Operations for the Three Months Ended December 31, 2005 as Compared to the
      Three Months Ended December 31, 2004**





Total
      revenue for the second quarter of fiscal 2006 is $9,388,000 compared to
      $9,226,000 in the comparable quarter of fiscal 2005, an increase of $162,000
      or
      1.8%. JAC recorded an increase of $214,000, or 28.3%, to $971,000 in the most
      recent quarter compared to $757,000 in fiscal 2005. The Medication Management
      Division (excluding JAC) recorded a decrease of $594,000, or 16.8%, to
      $2,933,000 in the second quarter of fiscal 2006 from $3,527,000 in the second
      quarter of fiscal 2005. The Operating Room Division recorded a decrease of
      $305,000, or 45.9%, to $360,000 in the quarter just ended compared to $665,000
      in the same quarter in fiscal 2005. Revenue in the Blood Bank Division increased
      $847,000, or 19.8%, to $5,124,000 in the second quarter of fiscal 2006 compared
      to $4,277,000 in the same period in fiscal 2005.





System
      sales, which include proprietary software, third party software and hardware
      revenue, were $2,967,000 in the quarter ended December 31, 2005, an increase
      of
      $291,000, or 10.9%, from $2,676,000 in the same period in fiscal 2005. JAC
      recorded an increase of $139,000, or 139.0%, to $239,000 in the second quarter
      of fiscal 2006. Mediware believes, but cannot give any assurance, that system
      sales will continue to increase as JAC is able to establish itself as part
      of
      the United Kingdom’s “Connecting for Health” program. System sales in the
      Medication Management Division (Excluding JAC) decreased $133,000, or 12.4%,
      to
      $940,000 from $1,073,000. While system sales decreased during the second quarter
      of fiscal 2006 compared to the same quarter of fiscal 2005, the division
      successfully closed a significant contract during the current quarter for its
      MediMAR and MediCOE suite of products. System sales associated with this
      contract will be recognized over an extended period of time due to the nature
      of
      the contract. The Operating Room Division experienced a decrease in system
      sales
      of 83.2%, or $164,000, from $197,000 to $33,000. The decrease reflects the
      completion of the Division’s legacy customer migration to Perioperative
      Solutions. System sales for the Blood Bank Division were $1,755,000, an increase
      of $449,000, or 34.4%, from $1,306,000 in the comparable quarter in fiscal
      2005.
      The increase reflects the continued customer migration from the Division’s
      legacy products to the HCLL software. With the Hemocare and LifeLine legacy
      product sunset date announcement to its base of installed customers, Mediware
      believes, but cannot give any assurance, that HCLL system sales will continue
      to
      grow.





13
 *Index*





Service
      revenue, which includes recurring software support, implementation and training
      services, decreased 2.0%, or $129,000, to $6,421,000 in the second quarter
      of
      fiscal 2006 from $6,550,000. Service revenue for JAC increased 11.4%, or
      $75,000, to $732,000 in the second quarter of fiscal 2006 compared to $657,000
      in the second quarter of fiscal 2005. This increase in service revenue is
      primarily due to increased implementation activity on contracts signed within
      the last fiscal year. Service revenue in the Medication Management Division
      (excluding JAC) decreased $461,000 or 18.8% to $1,993,000 in the second quarter
      of fiscal 2006 from $2,454,000 in the second quarter of fiscal 2005. The
      decrease in service revenue is primarily due to lower utilization rates on
      a
      specific contract and a smaller number of ongoing WORx implementation projects.
      Management anticipates service revenues will begin to increase with the recent
      new product sales. Service revenue in the Operating Room Division decreased
      $141,000 or 30.1% to $327,000 in the second quarter of fiscal 2006 from $468,000
      in the second quarter of fiscal 2005. The decrease in service revenue is
      primarily due to a decline in ongoing implementation projects. Service revenue
      for the Blood Bank Division increased 13.4%, or $398,000, to $3,369,000 in
      the
      second quarter of fiscal 2006 compared to $2,971,000 in the second quarter
      of
      fiscal 2005. This increase in service revenue is primarily due to increased
      rates on renewing support contracts with existing customers as well as increased
      implementation activity on HCLL contracts signed within the last
      year.





Cost
      of
      systems includes the cost of 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 hardware and sublicensed software
      components. Cost of systems increased $123,000, or 24.3%, due to the overall
      hardware sales increase during the second quarter of fiscal 2006. The gross
      margin, excluding amortization of capitalized software costs, on system sales
      was 78.8% in the second quarter of fiscal 2006 compared to 81.1% in the same
      quarter in fiscal 2005.





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 $34,000, or 1.8%, in the second quarter of 2006 over the
      same
      period in the previous year. The increase in cost of services is primarily
      attributed to increases in implementation personnel as Mediware increased staff
      levels for the rollout of its new MediMAR, MediCOE and HCLL products. Gross
      margin on service revenue were 70.7% for the second quarter of fiscal 2006
      compared to 71.8% for the second quarter of fiscal 2005. Mediware believes,
      but
      cannot assure, that cost of services as a percentage of service revenue will
      remain consistent with its current utilization rates which are defined as the
      percentage of billed hours to worked hours of its service
      personnel.





Amortization
      of capitalized software increased $202,000, or 20.0%, to $1,210,000 in the
      second quarter of fiscal 2006 compared to $1,008,000 in the second quarter
      of
      fiscal 2005. This increase is primarily due to increased amortization of
      capitalized software costs related to the Company’s HCLL and MediMAR
      products.





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 increased $262,000 or 33.5%
      in the second quarter of fiscal 2006 to $1,045,000 compared to $783,000 in
      the
      second quarter of fiscal 2005, which represents Mediware’s focus on functional
      improvements and new enhancement designs. Expenditures for software development
      include amounts paid for both capitalizable and noncapitalizable development
      projects. Total expenditures for software development were $2,249,000 the second
      quarter of fiscal 2006, compared to $2,148,000 the second quarter of fiscal
      2005, an increase of $101,000 or 4.7%. This increase primarily reflects
      increased expenditures in the Medication Management Division (excluding JAC).
      Mediware expects continued product development investment in all of its
      Divisions.





14
 *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 including costs associated
      with Sarbanes-Oxley; salaries and bonus expenses for corporate, divisional,
      financial and administrative staffs; utilities, rent, communications and other
      office expenses; and other related direct administrative SG&A expenses
      increased $667,000 or 18.7%, from $3,575,000 in the second quarter of fiscal
      2005 compared to $4,242,000 in the second quarter of fiscal 2006. This increase
      reflects payments of bonuses, recruiting and transition costs associated with
      hiring a new chief executive officer as well as non-cash stock option
      compensation expense required by SFAS 123R. Additionally, the Company
      participated in two of its largest trade shows during the quarter. Management
      anticipates that SG&A costs will decrease in the short term and increase
      when the Company invests in marketing, sales and other infrastructure
      resources.





In
      December 2005, Mediware resolved two separate tax matters related to its JAC
      division in the United Kingdom, resulting in a one-time net refund of $101,000.
      This amount is included in the income tax provision for the three months ended
      December 31, 2005, reducing the effective tax rate to 26.2%.





Net
      income the second quarter of fiscal 2006 was $398,000, a decrease of $551,000
      or
      58.1%, compared to a net income of $949,000 the second quarter of fiscal
      2005.





**Results
      of Operations for the Six Months Ended December 31, 2005 as Compared to the
      Six
      Months Ended December 31, 2004**





Total
      revenue for the six months ended December 31, 2005 is $18,796,000 compared
      to
      $17,706,000 in the comparable period of fiscal 2005, an increase of $1,090,000
      or 6.2%. JAC recorded an increase of $308,000, or 19.9%, to $1,857,000 in the
      six months ended December 31, 2005 compared to $1,549,000 in the same period
      in
      fiscal 2005. The Medication Management Division (excluding JAC) recorded a
      decrease of $1,359,000, or 18.6%, to $5,947,000 in the first six months of
      fiscal 2006 from $7,306,000 in the same period in fiscal 2005. The Operating
      Room Division recorded a decrease of $455,000, or 37.6%, to $754,000 in the
      six
      months just ended compared to $1,209,000 in the same period in fiscal 2005.
      Revenue in the Blood Bank Division increased $2,596,000, or 34.0%, to
      $10,238,000 in the six months ended December 31, 2005 compared to $7,642,000
      in
      the same period in fiscal 2005.





System
      sales were $6,147,000 for the six months ended December 31, 2005, an increase
      of
      $930,000, or 17.8%, from $5,217,000 in the same period in fiscal 2005. JAC
      recorded an increase in system sales of $176,000, or 73.0%, to $417,000 for
      the
      six months ended December 31, 2005, compared to $241,000 in the same period
      in
      fiscal 2005. The increase reflects additional sales activity resulting from
      JAC
      being named as a preferred supplier of pharmacy stock control for a
      subcontractor as part of the United Kingdom’s “Connecting for Health” program.
      System sales in the Medication Management Division decreased $758,000, or 27.5%,
      to $1,998,000 for the six months ended December 31, 2005 from $2,756,000 in
      the
      same period in fiscal 2005. During the first six months of fiscal 2005, Mediware
      commenced an initiative to sell additional proprietary user licenses and related
      third-party software licenses to certain customers, based on their current
      usage
      levels, pursuant to the terms of customers’ existing license agreements.
      Mediware reported system sales of $1,262,000 resulting from this initiative
      in
      the six months ended December 31, 2005. Mediware did not report any system
      sales
      as a result of this initiative for the first six months of fiscal 2006 and
      Mediware does not expect future sales as a result of this initiative to be
      significant. While system sales decreased during the first half of fiscal 2006
      compared to the first half of fiscal 2005, the division successfully closed
      several contracts for its MediMAR and MediCOE suite of products. Additionally,
      system sales associated with one contract signed in the first half of fiscal
      2006 is expected to be recognized over an extended period of time due to the
      nature of the contract. Management believes the timeframe for the recognition
      of
      systems revenue on the sales of the full suite of Medication Management products
      may become more extended compared to its historical contracting experience.
      The
      decrease in system sales also reflects lower sales of the base WORx system.
      The
      Operating Room Division experienced a decrease in system sales of 87.1 %, or
      $290,000, from $333,000 to $43,000. The decrease reflects the completion of
      the
      Division’s legacy customer migration to Perioperative Solutions. System sales
      for the Blood Bank Division were $3,689,000, an increase of $1,802,000, or
      95.5%, from $1,887,000 in the comparable period in fiscal 2005. The increase
      reflects the continued customer migration from the Division’s legacy products to
      the HCLL software.





15
 *Index*





Service
      revenue increased 1.3%, or $160,000, to $12,649,000 in the first six months
      of
      fiscal 2006 from $12,489,000 in the same period in fiscal 2005. Service revenue
      for JAC increased 10.1%, or $132,000, to $1,440,000 in the six months ended
      December 31, 2005 compared to $1,308,000 in the same period of fiscal 2005.
      This
      increase in service revenue is primarily due to increased implementation
      activity on contracts signed within the last fiscal year. Service revenue in
      the
      Medication Management Division (excluding JAC) decreased $601,000 or 13.2%
      to
      $3,949,000 in the first six months of 2006 from $4,550,000 in the same period
      in
      fiscal 2005. The decrease in service revenue is primarily due to lower
      utilization rates on a specific contract and a decline in ongoing implementation
      projects. Service revenue in the Operating Room Division decreased $165,000
      or
      18.8% to $711,000 for the six months ended December 31, 2005 from $876,000
      in
      the same period in fiscal 2005. The decrease in service revenue is primarily
      due
      to a decline in ongoing implementation projects. Service revenue for the Blood
      Bank Division increased 13.8%, or $794,000, to $6,549,000 in the six months
      ended December 31, 2005 compared to $5,755,000 in the same period of fiscal
      2005. This increase in service revenue is primarily due to increased rates
      on
      renewing support contracts with existing customers as well as increased
      implementation activity on HCLL contracts signed within the last
      year.





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 $204,000, or 21.3%, due to the overall hardware sales
      increase during the six months ended December 31, 2005. The gross margin,
      excluding amortization of capitalized software costs, on system sales was 81.1
      %
      in the first six months of fiscal 2006 compared to 81.7% in the same period
      in
      fiscal 2005.





Cost
      of
      services increased $42,000, or 1.1 %, in the six months ended December 31,
      2005
      over the same period in the previous year. The increase in cost of services
      is
      primarily attributed to increases in implementation personnel as Mediware
      increased staff levels for the rollout of its MediMAR, MediCOE and HCLL
      products. Gross margin on service revenue were 70.4% for the six months ended
      December 31, 2005 compared to 70.3% for the same period in fiscal 2005. Mediware
      believes, but cannot assure, that cost of services as a percentage of service
      revenue will remain consistent with its current utilization rates which are
      defined as the percentage of billed hours to worked hours of its service
      personnel.





Amortization
      of capitalized software increased $385,000, or 19.6%, to $2,351,000 in the
      six
      months ended December 31, 2005 compared to $1,966,000 in the same period in
      fiscal 2005. This increase is primarily due to increased amortization of
      capitalized software costs related to the Company’s HCLL and MediMAR
      products.





Software
      development costs increased $506,000 or 30.7% in the six months ended December
      31, 2005 to $2,156,000 compared to $1,650,000 in the same period in fiscal
      2005,
      which represents Mediware’s focus on functional improvements and new enhancement
      designs. Expenditures for software development include amounts paid for both
      capitalizable and noncapitalizable development projects. Total expenditures
      for
      software development were $4,536,000 the six months ended December 31, 2005,
      compared to $4,301,000 the same period in fiscal 2005, an increase of $235,000
      or 5.5%. This increase primarily reflects increased expenditures in the
      Medication Management Division (excluding JAC). Mediware expects continued
      product development investment in all of its Divisions **.**





SG&A
      expenses increased $1,042,000 or 15.1%, from $6,889,000 in the six months ended
      December 31, 2005 compared to $7,931,000 in the same period in fiscal 2006.
      This
      increase reflects payments of bonuses, recruiting and transition costs
      associated with hiring a new chief executive officer as well as non-cash stock
      option compensation expense required by SFAS 123R. Additionally, the Company
      participated in two of its largest trade shows during the current six months
      related to its expanded marketing activities for HCLL, MediMAR and MediCOE.
      Management anticipates that SG&A costs will increase as the Company
      increases its marketing, sales and infrastructure resources.





16
 *Index*





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 six months ended December
      31, 2005, reducing the effective tax rate to 34.4%.





Net
      income the six months ended December 31, 2005 was $1,135,000, a decrease of
      $457,000 or 28.7%, compared to a net income of $1,592,000 the same period of
      fiscal 2005.





**Liquidity
      and Capital Resources**





As
      of
      December 31, 2005, Mediware had cash and cash equivalents of $17,026,000
      compared to cash and cash equivalents of $14,839,000 at June 30, 2005. Working
      capital was $15,425,000 and $12,917,000 at December 31, 2005 and June 30, 2005,
      respectively. The current ratio was 2.3 to 1 at December 31, 2005 compared
      to
      2.1 to 1 at June 30, 2005.





Cash
      provided by operating activities was $3,913,000 during the first six months
      of
      fiscal 2006 compared to $3,862,000 during the same period a year ago. The
      increased cash provided by operating activities is primarily due to the change
      in accounts payable, accrued expenses and advances from customers, partially
      offset by the decrease in net income and the deferred tax
      provision.





Cash
      used
      in investing activities was $2,641,000 during the first six months of fiscal
      2006 compared to $3,159,000 during the same period a year ago. The decrease
      relates to a reduction in Mediware’s capitalized software costs and fixed asset
      additions.





Cash
      provided by financing activities was $1,026,000 during the first six months
      of
      fiscal year 2006 compared to cash used by financing activities of $769,000
      during the same period a year ago. Mediware repaid its note payable and accrued
      interest to a related party in the amount of $1,419,000 during the first six
      months of fiscal 2005.





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





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





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





17
 *Index*





**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 December 31, 2005.





There
      were no material changes’ in Mediware’s internal controls over financial
      reporting that occurred during the three months ended December 31, 2005 that
      have materially affected, or are reasonably likely to materially affect, its
      internal controls over financial reporting. Notwithstanding the foregoing,
      Mediware recently reported several management changes including the resignation
      of the Blood Bank General Manager, the change of the Operating Room General
      Manager and the realignment of senior management within the Medication
      Management Division. Additionally, the Company hired a new Chief Executive
      Officer. Inherent with changes in management is a change in understanding of
      the
      control environment, the business processes and internal controls. Mediware
      believes that a control system, no matter how well designed and operated, cannot
      provide absolute assurance that the objectives of the control system are met,
      and no evaluation of controls can provide absolute assurance that all control
      issues and instances of fraud, if any, within any company have been
      detected.





18
 *Index*





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





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





Other
      than reported in “Item 3. Legal Proceedings” of our Annual Report on Form 10-K
      for the fiscal year ended June 30, 2005, we are not currently a party to any
      material pending legal proceedings other than routine matters incidental to
      our
      business and no material developments have occurred in any proceedings described
      in such Form 10-K.





**Item
      1A.  Risk Factors**





Set
      forth
      below are some of the 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.
      Statements contained herein that are not statements of historical fact may
      be
      deemed to be forward-looking statements within the meaning of Section 21E of
      the
      Securities Exchange Act. The words “believes,” “anticipates,” “plans,” “seeks,”
“expects,” “intends” and similar expressions identify some of our
      forward-looking statements. Forward-looking statements are not guarantees of
      performance or future results and involve risks, uncertainties and assumptions.
      We undertake no obligation to publicly update or revise any forward-looking
      statements.





**The
      new members of our senior management team create special risks for
      us.**





Our
      senior management team has undergone significant changes over the last twelve
      months. Our chief executive officer, Mr. James Burgess, joined Mediware in
      October 2005. Beginning in April 2006, the General Manager of our Medication
      Management Division is expected to be Kevin Ketzel, who also joined Mediware
      in
      October 2005. We also hired in January 2006 Paul O’Toole as general manager for
      our Operating Room System Division. As the new management team gains an
      understanding of our business and products, our short-term and long-term
      direction may change and the changes may not improve our future results of
      operations or financial condition.





**Our
      United Kingdom business is subject to risks that are different from our other
      businesses** .





A
      significant portion of the business of our Medication Management Division is
      based in the United Kingdom. These foreign operations encounter risks and
      uncertainties specific to the United Kingdom such as:





·
            government
                spending





·
            regulation
                of our products, customers and
                employees





·
            uncertain
                terms and conditions





·
            trade
                protection regulation





·
            taxation





·
            economic
                conditions





·
            customer
                demands and payment practices and





·
            competitors.





19
 *Index*





Additionally,
      foreign operations expose us to foreign currency fluctuations that could impact
      our results of operations and financial condition based on the movements of
      the
      applicable foreign currency exchange rates in relation to the U.S. Dollar.
      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.





**Our
      proprietary information could be misappropriated, and we may be subjected to
      costly third party intellectual property claims** .





We
      rely
      upon a combination of trade secret, copyright and trademark laws, license and
      marketing agreements, and nondisclosure agreements to protect our proprietary
      information, including our software. Generally, we have not historically filed
      patent applications covering our software. As a result, we may not be able
      to
      protect against the misappropriation of our intellectual property. Furthermore,
      we could be subject to claims, by third parties including competitors and
      creators of open-source code, that we are misappropriating or infringing
      intellectual property or other proprietary rights of others. These claims,
      even
      if not meritorious could require us to:





·
            spend
                significant sums in litigation





·
            pay
                damages





·
            develop
                non-infringing intellectual property
                and





·
            acquire
                costly licenses to the intellectual property that is the subject
                of
                asserted infringement.





We
      may be
      unable to develop non-infringing products or services or obtain a license on
      commercially reasonable terms, or at all. We may also be required to indemnify
      our customers if they become subject to third-party claims relating to
      intellectual property that we license or otherwise provide to them, which could
      be costly.





**Termination
      of licenses or modifications of third party software licenses we rely upon
      could
      adversely affect our products** .





We
      license third-party software products that we incorporate into our own software
      products. These products may include operating systems, relational database
      management systems, knowledge/clinical databases and other key systems. The
      termination by any third-party vendor of our licenses to use these products,
      or
      a significant change to a relied upon product, could have a material adverse
      effect on our operations. Changes to the third-party products that could
      cause:





·
            our
                software to become inoperable





·
            features
                and functions to become unavailable
                or





·
            materially
                reduced product performance.





Although
      alternate software products may be available, we could incur substantial costs
      if we are required to adapt our products to alternative third-party software
      products. Furthermore, adaptation would take time and initial adaptations may
      be
      imperfect and/or products may be inoperable or perform poorly as a
      result.





**If
      we are unable to enhance our relationships with our third party resellers,
      our
      ability to market products may be adversely affected** .





20
 *Index*





We
      currently have important relationships with third party resellers of our
      products. If we are not able to continue or enhance our current relationships
      or
      develop new relationships, our future revenues could decrease.





**Hospitals’
      networks reduce our sales opportunities and may reduce
      profitability** .





Many
      hospitals are consolidating and forming (or becoming part of) integrated
      healthcare delivery networks. The formation of these networks might reduce
      the
      number of discrete prospects we may target on a “best-of-breed” basis and could
      provide more negotiating leverage to our prospective customers. These events,
      could reduce our sales prices, increase the length of our sales cycle, and
      otherwise could negatively affect our revenue and income.





**Significant
      competition may reduce our profit margin** .





The
      market for healthcare information systems is extremely competitive. Some of
      our
      competitors are Siemens AG, McKesson Corporation, Eclypsis Corporation, Misys
      PLC, Global Med Technologies, Inc., SCC Soft Computer, Cerner Corporation and
      GE
      Healthcare, each of which offers products that compete with certain of our
      offerings. Many of our competitors have greater financial, technical, product
      development, sales and marketing resources. A number of factors determine
      success or failure in our markets, including:





·
            functionality
                of software products





·
            quality
                of client references and the availability of client reference
                sites





·
            underlying
                technical architecture





·
            financial
                stability of the software provider





·
            ongoing
                support of the system and





·
            the
                quality and quantity of the sales
                organization.





Our
      ability to maintain a positive stance in all of the above areas will affect
      our
      ability to compete successfully and maintain our profit margin.





**Our
      strategy in all three of our operating divisions includes licensing “best of
      breed” products to customers, which requires customer acceptance of our products
      and strategy** .





While
      we
      believe that each of our “best of breed” products is positioned to succeed in
      the market place, there is no assurance that customers will accept our “best of
      breed” strategy or accept our products to the extent that we expect. If our
      customers instead select a single-vendor, enterprise-wide system that automates
      all functions of the hospital, rather than the discrete functions targeted
      by
      our products do not accept our products, as expected, our sales will
      decrease.





21
 *Index*





**Our
      ability to generate revenue could suffer if we do not continue to update and
      improve our existing products and services and develop new
      ones** .





The
      pace
      of change in the markets we serve is rapid, and there are frequent new product
      and service introductions by our competitors and by vendors whose products
      and
      services we use in providing our own products and services. If we do not respond
      successfully to evolving industry standards, our products and services may
      become obsolete. We must introduce new healthcare information services and
      technology solutions and improve the functionality of our existing products
      and
      services in a timely manner in order to retain existing customers and attract
      new ones. However, we may not be successful in responding to technological
      developments and changing customer needs. Technological changes may also result
      in the offering of competitive products and services at lower prices than we
      are
      charging for our products and services, which could result in our losing sales
      unless we lower the prices we charge.





**Our
      business may be adversely affected by changing technology that may render our
      technology obsolete** .





Changing
      technology will make it necessary for some of our software products to migrate
      to new software platforms in the coming years, which could require significant
      resources, could impact future plans for such products, and could adversely
      affect our ability to sell and develop new and competitive software products.
      In
      addition, new technology not currently in the mainstream could quickly enter
      the
      market and disrupt our existing business and customers’ need for our products.
      We will try to maintain state-of-the-art products, but new technologies in
      the
      marketplace could make our technology obsolete and our products unusable or
      hinder future sales.





**Research
      and development is costly and may not produce successful new
      products** .





Our
      strategy relies on continuing to develop new software products. We currently
      intend to continue investing in research and development of new products.
      However, our investment may not produce marketable product enhancements and
      new
      products. If a product or group of products is not accepted in the marketplace,
      that could adversely affect our business, results of operations and financial
      condition. In addition, the cost of developing new healthcare information
      services and technology solutions is inherently difficult to estimate. Our
      development and implementation of proposed products and services may take longer
      than originally expected, require more testing than originally anticipated
      and
      require the acquisition of additional personnel and other resources. If we
      are
      unable to develop new or updated products and services on a timely basis and
      implement them without significant disruptions to the existing systems and
      processes of our customers, we may lose potential sales and harm our
      relationships with current or potential customers.





**Developing
      new products would be difficult and take longer without the expertise of
      software engineers and third party consultants to develop our
      products** .





Developing
      new products is a complex and difficult process. We rely on the development
      expertise of employed software engineers and third party consultants, who have
      significant product expertise. The departure of certain software engineers
      or
      the election of the consultants not to continue providing Mediware development
      and product services could materially impact Mediware’s software development
      processes and product expertise. In addition, because of the complex nature
      of
      software or the departure of programming personnel or consultants, we could
      encounter difficulties or delays in the development and implementation of new
      products if we lost such expertise. These employees and consultants generally
      can terminate their relationship with us at any time.





22
 *Index*





**New
      and changing government regulation creates compliance
      challenges.**





The
      healthcare industry is highly regulated and is subject to changing political,
      legislative, regulatory and other influences. Existing and new laws and
      regulations affecting the healthcare industry could create unexpected
      liabilities for us, cause us to incur additional costs and could restrict our
      operations. Many healthcare laws are complex and their application to specific
      products and services may not be clear. In particular, many existing healthcare
      laws and regulations, when enacted, did not anticipate the healthcare
      information services and technology solutions that we provide. However, these
      laws and regulations may nonetheless be applied to our products and services.
      Our failure to accurately anticipate the application of these laws and
      regulations, or other failure to comply, could create liability for us, cause
      us
      to breach our contracts and result in adverse publicity and negatively affect
      our businesses.





**Increasing
      government regulation may increase costs and reduce
      profitability** .





The
      hospitals that comprise the primary market for the products of our Blood Bank,
      Medication Management and Operating Room Divisions must comply with various
      U.S.
      and U.K. national, state and local statutes and regulations. The decisions
      and
      actions of various governmental and regulatory bodies advising these laws may
      significantly influence operations of hospitals, blood banks and healthcare
      organizations and could have a material adverse effect on our business, results
      of operations or financial condition.





In
      addition, our Blood Bank products are regulated as medical devices by the FDA.
      Blood bank software vendors are also subject to the FDA’s Quality Systems
      Regulations. Although we try to ensure that our internal quality system complies
      with federal guidelines, full compliance with existing or any future guidelines,
      or inspection procedures is unpredictable. We have dedicated substantial time
      and resources to comply with guidelines and regulations applicable to the
      products of our Blood Bank Division. The FDA enforces compliance by using
      recalls, seizures, injunctions, civil fines and criminal prosecutions.
      Unsatisfactory compliance and the inability to timely remedy any non-compliance,
      resulting in any of the above actions, would likely have a material adverse
      effect on our business, financial condition and results of operations. If the
      FDA expands its scope of regulation and our Medication Management or Operating
      Room Division products, it would be costly to implement the FDA Quality System
      Regulation procedures.





**Recent
      regulations relating to patient confidentiality may increase costs and reduce
      profitability** .





The
      Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) mandated
      significant changes in the regulatory environment governing the security and
      confidentiality of individually identifiable, protected health information.
      Most
      healthcare providers, healthcare clearinghouses and health plans (“Covered
      Entities”) were not required to comply with the standards adopted by the
      Department of Health and Human Services to implement HIPAA for security until
      April 21, 2005 and the standards for privacy until April 14, 2003. Although
      we
      are not a Covered Entity, most of our customers are Covered Entities. As Covered
      Entities, our customers must require their service providers to meet some HIPAA
      obligations. Accordingly, we have been subjected to some of these requirements.
      In addition, we have had increased legal expenses associated with negotiating
      agreements with existing and new customers to implement the new HIPAA
      obligations. In light of the new obligations under HIPAA, Covered Entities
      may
      be required or may choose to reevaluate their technology solutions. We may
      be
      required to invest in our products and procedures to maintain compliance or
      lose
      customers. Furthermore, we are subject to contractual requirements arising
      from
      HIPAA that increase our liability and risks associated with the handling of
      individual protected health information. In addition, many states have passed
      or
      are evaluating local versions of HIPAA and we may not be able to comply with
      the
      terms of such new statutes.





23
 *Index*





**Our
      business is subject to the risk of product-related
      liabilities** .





All
      of
      our products provide data for use by healthcare providers in patient care
      settings. Our license agreements generally contain provisions intended to limit
      our exposure to product-related claims. These provisions, however, may not
      be
      enforceable in some jurisdictions or may not adequately limit our exposure.
      We
      maintain product liability insurance in an amount that we believe to be adequate
      for our intended purpose. However, insurance may not cover a claim brought
      against us. A successful claim brought against us could have a material adverse
      effect upon our business, results of operations or financial
      condition.





**System
      errors may delay product acceptance and adversely affect our operations and
      profitability** .





Despite
      testing, software products as complex as those we offer and use in a wide range
      of clinical and health information systems settings contain a number of errors
      or “bugs”, especially early in their product life cycle. Our products are
      clinical information systems used in patient care settings where a low tolerance
      for bugs exists. Testing of products is difficult due to the wide range of
      environments in which the systems are installed. Due to these factors, the
      discovery of defects or errors could cause:





·
            delays
                in product delivery





·
            poor
                client references





·
            payment
                disputes





·
            contract
                cancellations





·
            contract
                disputes, including warranty claims
                and/or





·
            additional
                expenses and payments to rectify
                problems.





Any
      of
      these factors could delay our product sales or have an adverse effect upon
      our
      business, results of operations or financial condition.





**Our
      quarterly operating results can fluctuate due to irregular system
      sales** .





Our
      revenue and results of operations can fluctuate substantially from quarter
      to
      quarter. System sales in any quarter depend substantially upon our sales
      performance and customers’ budgeting and buying practices. System sales in any
      quarter may fluctuate due to:





·
            contract
                activity





·
            demand
                for our products and services





·
            lengthy
                and complex sales cycles





·
            customers’
                internal budgets for new technology systems, customers’ technical
                resources to deploy technology and





·
            customers’
                personnel availability.





24
 *Index*





Additionally,
      our ability to recognize anticipated quarterly revenue may be materially
      affected by the terms of a final contract. Factors that impact contract terns
      and quarterly revenue include the following:





·
            Systems
                contracts may include both currently deliverable and non-deliverable
                software products





·
            Customer
                needs for services that include significant modifications, customization
                or complex interfaces that could delay product delivery or
                acceptance





·
            Customer-specific
                acceptance criteria and





·
            Payment
                terms that are long-term or depend upon
                contingencies.





The
      sales
      for the Medication Management’s full suite of products involve more hospital
      departments and longer implementation cycles. This exacerbates many of the
      foregoing risks.





**Our
      stock price may be volatile due largely as a result of relatively low trading
      volume** .





The
      trading price of Mediware’s common stock may fluctuate significantly from time
      to time. Generally, Mediware’s common stock has relatively low trading volume
      which can cause transactions in a relatively small number of shares to
      significantly impact the price of the stock.





**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





(a)
            Annual
                Meeting of Shareholders, December 7,
                2005





(b)
            Directors
                elected to serve three year term:


James
      Burgess


Joseph
      Delano





Directors
      whose term of office continued after the meeting:


Lawrence
      Auriana


Jonathan
      H. Churchill


John
      Gorman, M.D.


Clinton
      G. Weiman, M.D.


Roger
      Clark


Philip
      H.
      Coelho


Robert
      F.
      Sanville





(c)
            (1) Election
                of Directors





James
                Burgess
            6,000,929
                for
            834,200
                withheldJoseph
                Delario
            6,263,545
                for
            571,584
                withheld





(2) Proposal
      to amend the Company’s 2003 Equity Incentive Plan, as amended, to increase the
      number of shares of common stock, par value $. 10, authorized to be issued
      thereunder from 1,000,000 to 2,000,000 shares.





2,705,642
                for
            218,730
                against
            152,613
                abstained





25
 *Index*





(3) Proposal
      to amend the Company’s certificate of incorporation to reduce the minimum size
      of the Board of Directors to three from nine and to eliminate any numerical
      requirement on the size of each class.





6,716,843
                for
            114,299
                against
            3,987
                abstained





(4) Proposal
      to amend the Company’s restated by-laws to permit the Board to set the number of
      directors by resolution and to eliminate any numerical requirement of the size
      of each class.





6,290,803
                for
            539,924
                against
            4,402
                abstained





(5) Proposal
      to ratify selection of Eisner LLP as independent registered public accounting
      firm for the Company for the year ending June 30, 2006.





6,826,320
                for
            4,796
                against
            4,013
                abstained





**ITEM
                5.**
            **OTHER
                INFORMATION**





On
      January 26, 2006, the Compensation Committee (the “Committee”) of
      Mediware’s Board of Directors (the “Board”) approved two bonus plans for
      Mediware’s executive-level employees. For fiscal 2006, the bonuses of all of
      Mediware’s senior executive officers will be calculated according to these
      plans. Mediware’s President and Chief Executive Officer, James Burgess, Senior
      Vice President and Chief Financial Officer, Jill Suppes, and Senior Vice
      President and General Counsel, Robert Weber are each eligible to receive a
      bonus
      amount up to 50% of base salary under the plan.. Several other senior employees’
will also be subject to the terms of the bonus plan and may earn up to 50%
      of
      their base salary. The bonus paid will be based upon the achievement by Mediware
      of financial performance goals (with applicable weights identified):





·
            Mediware’s
                total revenue for fiscal 2006 (30%)
                and


·
            Mediware’s
                diluted earnings per share for fiscal 2006 (30%)





with
      the
      remaining 40% payable based upon individual overall performance as evaluated
      by
      the CEO or the Committee. However, minimum Mediware total revenue and diluted
      earnings per share targets must be met for any bonus amount to be
      paid.





A
      number
      of divisional employees of Mediware, including the General Managers of our
      divisions, is each eligible to receive a bonus amount up to 50% of base salary.
      The bonus paid will be based upon the achievement of financial performance
      goals
      (with applicable weights identified):





·
            Mediware’s
                total revenue for fiscal 2006 (10%)


·
            Mediware’s
                diluted earnings per share for fiscal 2006 (10%)


·
            Total
                revenue of the employee’s division for fiscal 2006 (25%)


·
            Operating
                income of the employee’s division for fiscal 2006 (25%) and


·
            Average
                accounts receivable aging of the employee’s division for fiscal 2006
                (10%)





with
      the
      remaining 20% payable based upon individual overall performance as evaluated
      by
      the CEO. However, minimum Mediware total revenue and diluted earnings per share
      targets must be met for any bonus amount to be paid.





26
 *Index*





The
      actual bonuses paid (if any) will vary depending on the extent to which actual
      performance meets the goals described above. Extraordinary, non-recurring items
      may be excluded when determining actual performance. In addition, the CEO and
      the Committee each has the discretion to modify the amount that otherwise would
      be payable under the applicable plan. In order to be eligible for any bonus
      under either plan, an executive must remain an employee until the bonus is
      paid.





**ITEM
                6.**
            **EXHIBITS**





Exhibit
                11
            Schedule
                of Computation of Net Earnings Per ShareExhibit
                15
            Consent
                of Independent Registered Public Accounting FirmExhibit
                31.1
            Rule
                13a-14(a)/15d-14(a) CertificationExhibit
                31.2
            Rule
                13a-14(a)/15d-14(a) CertificationExhibit
                32.1
            Certification
                Pursuant to 18 U.S.C. 1350





27
 *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)January
                  31, 2006
              
              
              /s/
                  JAMES F. BURGESSDate
              
              
              JAMES
                  F. BURGESSPRESIDENT
                  AND CHIEF EXECUTIVE OFFICERJanuary
                  31, 2006
              
              
              /s/
                  JILL H. SUPPESDate
              
              
              JILL
                  H. SUPPESCHIEF
                  FINANCIAL OFFICER




28