UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q





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





For the
quarterly period ended September 30, 2009





OR




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





For the
transition period from to




Commission
file number:1-10768




MEDIWARE
INFORMATION SYSTEMS, INC.


(Exact
name of registrant as specified in its charter)





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





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





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







1


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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  Yes o     No
o





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





Large
      accelerated filer      o
            Accelerated
      Filer                     
       oNon-accelerated
      filer        o
            Smaller
      reporting company      x(Do
      not check if a smaller reporting
company)





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





APPLICABLE
ONLY TO CORPORATE ISSUERS:





As of
October 27, 2009, there were 7,798,000 shares of Common Stock, $0.10 par value,
of the registrant outstanding.


2


MEDIWAREINFORMATION SYSTEMS, INC.




INDEX




PagePART
      I
            Financial
      InformationITEM
      1.
            Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2009
      (Unaudited) and June 30, 2009
            4Condensed Consolidated Statements of Operations and
      Comprehensive Income (Loss) (Unaudited) for the Three Months Ended
      September 30, 2009 and 2008
            5Condensed Consolidated Statement of Stockholders’ Equity
      (Unaudited) for the Three Months Ended September 30,
    2009
            6Condensed Consolidated Statements of Cash Flows (Unaudited) for
      the Three Months Ended September 30, 2009 and 2008
            7Notes to Unaudited Condensed Consolidated Financial
      Statements
            8Review Report of Independent Registered Public Accounting
      Firm
            19ITEM
      2.
            Management's Discussion and Analysis of Financial Condition and
      Results of Operations
            20ITEM
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            29ITEM
      4.
            Controls and Procedures
            30PART
      II
            Other
      InformationITEM
      1.
            Legal Proceedings
            30ITEM
      1A.
            Risk Factors
            30ITEM
      6.
            Exhibits
            31Signatures
            32


3
 Index


PARTIFINANCIAL
INFORMATION





1.
            FINANCIAL
      STATEMENTS





MEDIWARE
INFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts
in thousands except shares)





(Unaudited)September
      30,
            
            
            June
      30,2009
            
            
            2009ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            21,904
            
            
            $
            20,865Accounts
      receivable (net of allowance of $786 and $754)
            
            
            9,556
            
            
            
            8,812Inventories
            
            
            200
            
            
            
            200Deferred
      income taxes
            
            
            543
            
            
            
            528Prepaid
      expenses and other current assets
            
            
            1,416
            
            
            
            1,152Total
      current assets
            
            
            33,619
            
            
            
            31,557Fixed
      assets, net
            
            
            1,624
            
            
            
            1,792Capitalized
      software costs, net
            
            
            12,974
            
            
            
            13,498Goodwill,
      net
            
            
            9,885
            
            
            
            9,843Other
      intangible assets, net
            
            
            3,216
            
            
            
            3,381Other
      long-term assets
            
            
            49
            
            
            
            48Total
      Assets
            
            $
            61,367
            
            
            $
            60,119LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
            
            $
            705
            
            
            $
            933Advances
      from customers
            
            
            10,236
            
            
            
            8,769Income
      taxes payable
            
            
            473
            
            
            
            341Accrued
      expenses and other current liabilities
            
            
            2,341
            
            
            
            3,241Total
      current liabilities
            
            
            13,755
            
            
            
            13,284Deferred
      income taxes
            
            
            4,871
            
            
            
            4,938Total
      liabilities
            
            
            18,626
            
            
            
            18,222Stockholders'
      EquityPreferred
      stock, $.01 par value; authorized 10,000,000 shares; none
      issued
            
            
            -
            
            
            
            -Common
      stock, $.10 par value; authorized 25,000,000 shares; 8,387,000 and
      8,283,000 shares issued as of September 30, 2009 and June 30, 2009,
      respectively
            
            
            839
            
            
            
            828Additional
      paid-in capital
            
            
            32,644
            
            
            
            32,325Treasury
      stock, 590,000 shares at September 30, 2009 and June 30, 2009,
      respectively
            
            
            (3,503
            )
            
            
            (3,503
            )Retained
      earnings
            
            
            13,056
            
            
            
            12,437Accumulated
      other comprehensive (loss)
            
            
            (295
            )
            
            
            (190
            )Total
      stockholders' equity
            
            
            42,741
            
            
            
            41,897Total
      Liabilities and Stockholders' Equity
            
            $
            61,367
            
            
            $
            60,119





See Notes
to Unaudited Condensed Consolidated Financial Statements.


4
 Index


MEDIWAREINFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)


(Amounts
in thousands, except earnings per share)





Three
      Months EndedSeptember
      30,(Unaudited)2009
            
            
            2008RevenueSystem
      sales
            
            $
            2,802
            
            
            $
            2,429Services
            
            
            7,942
            
            
            
            7,404Total
      revenue
            
            
            10,744
            
            
            
            9,833Cost
      and ExpensesCost
      of systems (1)
            
            
            780
            
            
            
            740Cost
      of services (1)
            
            
            2,573
            
            
            
            2,657Amortization
      of capitalized software costs
            
            
            1,443
            
            
            
            1,486Software
      development costs
            
            
            1,048
            
            
            
            876Selling,
      general and administrative
            
            
            3,891
            
            
            
            3,862Total
      costs and expenses
            
            
            9,735
            
            
            
            9,621Operating
      income
            
            
            1,009
            
            
            
            212Interest
      and other income
            
            
            19
            
            
            
            138Interest
      and other expense
            
            
            (16
            )
            
            
            10Income
      before income taxes
            
            
            1,012
            
            
            
            360Income
      tax provision
            
            
            (393
            )
            
            
            (142
            )Net
      income
            
            
            619
            
            
            
            218Other
      comprehensive (loss)Foreign
      currency translation adjustment
            
            
            (105
            )
            
            
            (232
            )Comprehensive
      income (loss)
            
            $
            514
            
            
            $
            (14
            )Net
      income per Common ShareBasic
            
            $
            0.08
            
            
            $
            0.03Diluted
            
            $
            0.08
            
            
            $
            0.03Weighted
      Average Common Shares OutstandingBasic
            
            
            7,723
            
            
            
            7,643Diluted
            
            
            7,890
            
            
            
            8,000





(1)
Excludes amortization of Capitalized Software Costs





See Notes
to Unaudited Condensed Consolidated Financial Statements.


5
 Index


MEDIWAREINFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


(Amounts
in thousands)




Common Stock
            
            
            Additional
      Paid-In
            
            
            Treasury
            
            
            Retained
            
            
            Accumulated
      Other Comprehensive IncomeShares
            
            
            Amount
            
            
            Capital
            
            
            Stock
            
            
            Earnings
            
            
            (Loss)
            
            
            TotalBalance
      at June 30, 2009
            
            
            8,283
            
            
            $
            828
            
            
            $
            32,325
            
            
            $
            (3,503
            )
            
            $
            12,437
            
            
            $
            (190
            )
            
            $
            41,897Exercise
      of stock options
            
            
            36
            
            
            
            4
            
            
            
            104
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            108Stock
      based compensation expense
            
            
            68
            
            
            
            7
            
            
            
            181
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            188Tax
      benefit from exercise of stock options
            
            
            
            
            
            
            
            
            
            
            34
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            34Foreign
      currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (105
            )
            
            
            (105
            )Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            619
            
            
            
            
            
            
            
            619Balance
      at September 30, 2009
              (Unaudited)
            
            
            8,387
            
            
            $
            839
            
            
            $
            32,644
            
            
            $
            (3,503
            )
            
            $
            13,056
            
            
            $
            (295
            )
            
            $
            42,741





See Notes
to Unaudited Condensed Consolidated Financial Statements.


6
 Index


MEDIWAREINFORMATION SYSTEMS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands)




(Unaudited)Three
      Months EndedSeptember 30,2009
            
            
            2008Cash
      Flows From Operating ActivitiesNet
      income
            
            $
            619
            
            
            $
            218Adjustments
      to reconcile net income, to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            1,783
            
            
            
            1,725Stock
      based compensation expense
            
            
            188
            
            
            
            252Deferred
      tax provision
            
            
            -25
            
            
            
            62Provision
      for doubtful accounts
            
            
            125
            
            
            
            75Changes
      in operating assets and liabilities, net of effect of
      acquisition:Accounts
      receivable
            
            
            -948
            
            
            
            -2,139Inventories
            
            
            -2
            
            
            
            -7Prepaid
      expenses and other assets
            
            
            -274
            
            
            
            -218Accounts
      payable, accrued expenses and advances from customers
            
            
            578
            
            
            
            1,070Net
      cash provided by operating activities
            
            
            2,044
            
            
            
            1,038Cash
      Flows From Investing ActivitiesAcquisition
      of fixed assets
            
            
            -13
            
            
            
            -128Capitalized
      software costs
            
            
            -919
            
            
            
            -1,004Acquisition
      of SciHealth
            
            
            -100
            
            
            
            -Acquisition
      of Integrated Marketing Solutions, LLC
            
            
            -
            
            
            
            -314Net
      cash used in investing activities
            
            
            -1,032
            
            
            
            -1,446Cash
      Flows From Financing ActivitiesProceeds
      from exercise of stock options
            
            
            108
            
            
            
            -Excess
      tax benefits from exercise of stock options
            
            
            34
            
            
            
            -Net
      cash used in financing activities
            
            
            142
            
            
            
            -Foreign
      currency translation adjustments
            
            
            -115
            
            
            
            -232Net
      increase (decrease) in cash and cash equivalents
            
            
            1,039
            
            
            
            -640Cash
      at beginning of period
            
            
            20,865
            
            
            
            22,741Cash
      at end of period
            
            $
            21,904
            
            
            $
            22,101Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Income
      taxes
            
            $
            218
            
            
            $
            32





See Notes
to Unaudited Condensed Consolidated Financial Statements.


7
 Index


MEDIWAREINFORMATION SYSTEMS, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.     BASIS
OF PRESENTATION





In the
opinion of management, the accompanying unaudited, condensed, consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Mediware Information Systems, Inc. (“Mediware” or the
“Company”) and its results of operations and cash flows for the interim periods
presented. Such financial statements have been condensed in accordance with the
applicable regulations of the Securities and Exchange Commission and, therefore,
do not include all disclosures required by accounting principles generally
accepted in the United States of America. These financial statements should be
read in conjunction with Mediware's audited financial statements for the fiscal
year ended June 30, 2009, included in Mediware's Annual Report filed on Form
10-K for such fiscal year.





The
results of operations for the three months ended September 30, 2009 are not
necessarily indicative of the results to be expected for the entire fiscal
year.





2.     EARNINGS
PER SHARE





Basic
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding, par value $0.10 (“Common Stock”),
of Mediware.  For the three months ended September 30, 2009 and 2008,
the dilutive effect of Common Stock equivalents is included in the calculation
of diluted earnings per share using the treasury stock method.





3.     TREASURY
STOCK





In
February 2008, the Board of Directors of the Company authorized Mediware to
repurchase up to $4,000,000 of its Common Stock, at times and prices as the
President and Chief Executive Officer or the Chief Financial Officer of the
Company shall determine to be appropriate (the “Share Repurchase
Program”).  In October 2008, the Board of Directors expanded the Share
Repurchase Program by $3,318,000, bringing the total amount authorized under the
Share Repurchase Program to $7,318,000.  The program has no expiration
date, and Mediware has no obligation to purchase shares under the Share
Repurchase Program.





As of
September 30, 2009, the Company has repurchased a total of 590,000 shares of
Common Stock at a cost of $3,503,000 under the Share Repurchase
Program.  As of September 30, 2009, the Company is authorized to
purchase up to an additional $3,815,000 of Common Stock under the Share
Repurchase Program.





Shares of
Common Stock repurchased by the Company are recorded at cost as treasury stock
and result in a reduction of stockholders' equity in the accompanying
consolidated balance sheets. When shares are reissued, the Company will use the
weighted average cost method for determining cost. The difference between the
cost of the shares and the issuance price is added or deducted from additional
paid-in capital.





4.     ACQUISITIONS





SciHealth


On June
19, 2009, Mediware acquired substantially all of the assets of SciHealth, Inc
(“SciHealth”).  SciHealth developed and marketed InsightTM, a business and clinical
intelligences software package used to manage performance
metrics.  Mediware believes that this product offering will strengthen
its clinical suite offerings in its existing medication management and blood and
biologics markets, as well as acquired tools to broaden its customer base to
include the broader healthcare market.


8
 Index


The
purchase price paid for the assets of SciHealth consisted of an initial purchase
price of $1,702,000 paid in cash at the closing, plus contingent consideration
up to $6,445,000 based upon the achievement of certain revenue and contractual
milestones through June 2010.  During the quarter ended September 30,
2009, the Company paid an additional $100,000 relating to SciHealth attaining
certain contractual milestones.  The Company believes the likelihood
of SciHealth achieving the revenue milestone resulting in payment of the full
contingent consideration is remote.  The purchase price is also
subject to a working capital adjustment.  The Company incurred $71,000
of legal, accounting and other professional fees related to this transaction,
which have been included in goodwill.  The Company expects to finalize
the purchase price, including all contingent consideration, in June
2010.  The results of the SciHealth operations are included in the
accompanying consolidated financial statements from the date of
acquisition.





The
Company has accounted for the acquisition of SciHealth as the purchase of a
business under U.S. Generally Accepted Accounting Principles.  The
assets and liabilities of SciHealth were recorded as of the acquisition date, at
their respective fair values.  The purchase price allocation is based
on the estimated fair value of assets acquired and liabilities
assumed.  The preparation of the valuation required the use of
significant assumptions and estimates.  These estimates were based on
assumptions that the Company believes to be reasonable.  However,
actual results may differ from these estimates.





The
following summarizes the preliminary purchase price allocation (in
thousands):





Purchase
      Price
              AllocationAccounts
      receivable
            
            $
            402Fixed
      assets
            
            
            36Intangible
      assets subject to amortization
            
            
            983Goodwill
            
            
            696Advances
      from customers
            
            
            (244
            )Total
      Purchase Price
            
            $
            1,873





The
excess of the purchase price over the fair value of net tangible assets acquired
was allocated to specific intangible asset categories as follows (in
thousands):





Amount
              Assigned
            
            Weighted
              Average
              Amortization
              Period
            
            Risk-Adjusted
              Discount
      Rate
              Used
      in Purchase Price
              AllocationAmortizable
      Intangible AssetsPurchased
      technology
            
            $
            232
            
            5.0
      years
            
            
            20.9
            %Customer
      relationships
            
            
            751
            
            7.0
      years
            
            
            20.9
            %$
            983Goodwill
            
            $
            696





The
Company believes that the estimated tangible assets represent fair value at the
date of acquisition.  The fair value of an asset is defined as the
amount for which an asset or liability could be bought or sold in a current
transaction between knowledgeable, unrelated willing parties when neither party
is acting under compulsion.





The
Company valued the purchased technology using the cost to recreate method of the
income approach.  Utilizing this approach the Company estimated the
cost to recreate the software.  This method requires the use of
certain estimates, including the fully burdened labor rates for software
engineers, the amount of time and effort required to recreate the software,
income tax rates and discount rates.  Based on this methodology the
Company assigned the value of purchased technology at $232,000.  The
Company will amortize this amount over the estimated useful life of five
years.


9
 Index


The
Company valued the customer relationships using the excess earnings method of
the income approach.  Utilizing this approach, the Company projected
revenue and related expenses.  These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value.  This method requires the use of certain estimates, including
revenue growth rates, customer attrition, expenses, contributory asset charges
and discount rates.  Based on this methodology the Company assigned
the value of customer relationships at $751,000.  The Company will
amortize this amount over the estimated useful life of seven years.





Goodwill
is expected to be deductible for tax purposes.





Unaudited
proforma information for the acquisition of SciHealth has not been presented as
the acquisition is not significant.





Hann’s On
Software


On
November 20, 2008, Mediware acquired substantially all of the assets of Hann’s
On Software, Inc. (“HOS”).  HOS provided medication management
solutions to the small hospital, specialty pharmacy and home infusion markets
through integrated software solutions that address the complex work flow and
patient safety needs of these markets.





Mediware
expects the HOS products to generate revenue by licensing its proprietary
software, and by providing professional services and support for its product
lines.  Generally, HOS customers are charged an initial start-up fee
along with monthly fees for the continued use and support of the
software.  Software license fees are recognized up front, subject to
the requirements of FASB issued Accounting Standards Codification (“ASC”)
985-605, “Revenue Recognition.”  Professional services and support
revenues are recognized as the service is delivered.





The
purchase price paid for the assets of HOS consisted of an initial purchase price
of $3,455,000 paid in cash at the closing, plus contingent consideration up to
$645,000 based upon the achievement of certain revenue and contractual
milestones through December 2009.  The purchase price is also subject
to a working capital adjustment.  The Company incurred $28,000 of
legal, accounting  and other professional fees related to this
transaction which have been included in goodwill.  The Company expects
to finalize the purchase price, including all contingent consideration, by
December 2009.  The results of the HOS operations are included in the
accompanying financial statements from the date of acquisition.





The
Company has accounted for the acquisition of HOS as the purchase of a business
under U.S. Generally Accepted Accounting Principles.  The assets and
liabilities of HOS were recorded as of the acquisition date, at their respective
fair values.  The purchase price allocation is based on the estimated
fair value of assets acquired and liabilities assumed.  The
preparation of the valuation required the use of significant assumptions and
estimates.  These estimates were based on assumptions that the Company
believes to be reasonable.  However, actual results may differ from
these estimates.





The
following summarizes the preliminary purchase price allocation (in
thousands):





Purchase
      Price
              AllocationAccounts
      receivable
            
            $
            197Inventories
            
            
            5Prepaid
      and other current assets
            
            
            38Fixed
      assets
            
            
            48Intangible
      assets subject to amortization
            
            
            1,441Goodwill
            
            
            2,101Other
      long-term assets
            
            
            9Accounts
      payable
            
            
            (25
            )Advances
      from customers
            
            
            (263
            )Accrued
      expenses and other current liabilities
            
            
            (68
            )Total
      Purchase Price
            
            $
            3,483


10
 Index


The
excess of the purchase price over the fair value of net tangible assets acquired
was allocated to specific intangible asset categories as follows (in
thousands):





Amount
              Assigned
            
            Weighted
              Average
              Amortization
              Period
            
            Risk-Adjusted
              Discount
      Rate
              Used
      in Purchase Price
              AllocationAmortizable
      Intangible AssetsPurchased
      technology
            
            $
            403
            
            5.0
      years
            
            
            16.0
            %Customer
      relationships
            
            
            958
            
            7.0
      years
            
            
            16.0
            %Non-compete
      agreements
            
            
            80
            
            2.0
      years
            
            
            16.0
            %$
            1,441Goodwill
            
            $
            2,101





The
Company believes that the estimated tangible assets represent fair value at the
date of acquisition.  The fair value of an asset is defined as the
amount for which an asset or liability could be bought or sold in a current
transaction between knowledgeable, unrelated willing parties when neither party
is acting under compulsion.





The
Company valued the purchased technology using the excess earnings method of the
income approach.  Utilizing this approach, the Company projected
revenue and related expenses.  These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value.  This method requires the use of certain estimates, including
revenue growth rates, technology replacement rates, customer attrition,
expenses, contributory asset charges and discount rates.  Based on
this methodology the Company assigned the value of purchased technology at
$403,000.  The Company will amortize this amount over the estimated
useful life of five years.





The
Company valued the customer relationships using the excess earnings method of
the income approach.  Utilizing this approach, the Company projected
revenue and related expenses.  These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value.  This method requires the use of certain estimates, including
revenue growth rates, customer attrition, expenses, contributory asset charges
and discount rates.  Based on this methodology the Company assigned
the value of customer relationships at $958,000.  The Company will
amortize this amount over the estimated useful life of seven years.





The
Company valued the non-compete agreements using the with/without method of the
income approach.  This methodology determines the impact on discounted
net cash flow should the restricted parties decide to compete directly against
the Company.  This method requires the use of certain estimates,
including projected cash flows, discount rates and probability factors related
to the likelihood of future competition.  Based on this methodology
the Company assigned the value of non-compete agreements at
$80,000.  The Company will amortize this amount over the estimated
useful life of two years.





Goodwill
is expected to be deductible for tax purposes.





Unaudited
proforma information for the acquisition of HOS has not been presented as the
acquisition is not significant.





5.
GOODWILL AND OTHER INTANGIBLE ASSETS





Goodwill





The
change in the carrying amount of our goodwill during the three-months ended
September 30, 2009 is as follows (in thousands):





Carrying
      amount as of June 30, 2009
            
            $
            9,843Increase
      from acquisition of business - SciHealth
            
            
            100Tax
      benefit of amortization
            
            
            (58
            )Carrying
      amount as of September 30, 2009
            
            $
            9,885


11
 Index


Other
Intangible Assets





The
carrying amount of our other intangible assets as of September 30, 2009 is as
follows (in thousands):





Gross
      Carrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            Net
      Carrying Amount
            
            
            Weighted
      Average
              Remaining
              Useful
      Life
              (in
      years)Purchased
      technology
            
            $
            1,108
            
            
            $
            (265
            )
            
            $
            843
            
            
            
            3.8Customer
      relationships
            
            
            2,765
            
            
            
            (437
            )
            
            
            2,328
            
            
            
            5.9Non-compete
      agreements
            
            
            115
            
            
            
            (70
            )
            
            
            45
            
            
            
            0.7$
            3,988
            
            
            $
            (772
            )
            
            $
            3,216





Amortization
expense for other intangible assets amounted to $165,000 for the three months
ended September 30, 2009 and $66,000 for the three months ended September 30,
2008.  The following represents the expected amortization in future
periods (in thousands):





Fiscal
              Year
            
            Expected
              Amortization2010
            
            
            4912011
            
            
            6312012
            
            
            6172013
            
            
            5522014
            
            
            469Thereafter
            
            
            456$
            3,216





6.     STOCK
BASED COMPENSATION





The
Company accounts for stock-based compensation in accordance with FASB ASC 718
“Compensation-Stock Compensation,” which is a fair value-based method of
accounting for stock-based compensation.  The aggregate noncash stock
based compensation expense totaled $188,000 and $252,000 for the three-months
ended September 30, 2009 and 2008, respectively.





Stock
Based Plans





The
Company's 2003 Equity Incentive Plan, approved by the shareholders in December
2003, provides additional compensation incentives to encourage high levels of
performance and employee retention.  Key employees of the Company,
directors, and persons who render services to the Company as consultants,
advisors or independent contractors are eligible to receive grants under this
plan.  The number of shares that may be issued under this plan is
2,000,000.  Shares may be issued as either incentive stock options,
nonqualified stock options, or restricted common stock.  Options may
be granted for a period of up to ten years.  Restricted common stock
awards may be subject to vesting restrictions and may be forfeited if certain
performance factors are not maintained.  The plan provides that a
maximum of 1,700,000 shares may be issued as any combination of restricted
stock, options and restricted stock unit awards.  The additional
300,000 shares of common stock can only be granted as option
awards.  As of September 30, 2009, there were 1,050,000 shares
available for issuance under this Plan.





12
 Index


The
Company's 2001 Stock Option Plan, approved by the shareholders in January 2002,
provides additional compensation incentives for high levels of performance and
productivity by management, other key employees of the Company, directors, and
persons who render services to the Company as consultants, advisors or
independent contractors.  Up to 900,000 shares may be issued and sold
under such plan and may be issued as either incentive stock options, to eligible
persons, or nonqualified stock options.  Options may be granted for a
period of up to ten years, with option prices not less than fair market value on
the date of grant for incentive stock options, not less than 85% of fair market
value for nonqualified stock options, and not less than 110% of fair market
value for owners of more than 10% of the Company's outstanding voting
stock.  As of September 30, 2009 no options were available to be
issued under this Plan.





Restricted
Common Stock Awards





Beginning
in fiscal 2007, the Company entered into agreements to provide long-term
incentive compensation opportunities to certain employees.  Under the
terms of these agreements, the Company granted the employees 35,000 restricted
shares of common stock (the “Time-Based Shares”).  The Time-Based
Shares vest over a three-year period based upon the continued employment of the
key employee.  For the three months ended September 30, 2009 and 2008,
the Company recorded compensation expense of $4,000 and $1,000, respectively
related to the Time-Based Shares, net of $11,000 related to the forfeiture of
5,000 unvested Time-Based Shares during the three-months ended September 30,
2008.  The Time-Based Shares will result in compensation expense in
future periods of up to $9,000, representing the fair value on the date of the
grant less the amount of compensation expense already recorded.





Beginning
in fiscal 2007, each member of the Company’s Board of Directors received an
annual grant of $10,000 of restricted common stock (the “Director Shares”) as
part of their compensation for serving on the Company’s Board of
Directors.  The number of shares granted is determined based upon the
fair market value of the Company’s stock on January 1 of each
year.  These Director Shares vest on June 30 of each fiscal year based
upon the director’s continued service on the Company’s Board of
Directors.  The Company recorded compensation expense related to these
Director Shares of $18,000 for the three-months ended September 30, 2009 and
2008, respectively.    The Director Shares will result in
compensation expense in future periods of up to $52,000, representing the fair
value on the date of the grant less the amount of compensation expense already
recorded.





During
fiscal 2008, the Company entered into agreements to provide long-term incentive
compensation opportunities to certain employees.  Under the terms of
these agreements, the Company granted the employees 220,000 restricted shares of
common stock (the “Performance Shares”).  The Performance Shares vest
partially upon continued employment of the key employees and partially upon the
achievement of certain performance goals.  For the three-months ended
September 30, 2009 and 2008, the Company recorded $128,000 and $176,000,
respectively of compensation expense related to the Performance
Shares.  The Company will continue to assess whether or not the
achievement of any performance goals is probable at each reporting period, and
will recognize the related expense if and when the performance conditions become
probable.The
Performance Shares may result in compensation expense in future periods of up to
$364,000, representing the fair value on the date of the grant less the amount
of compensation expense already recorded.  This amount includes
$50,000 of unrecognized time-based compensation expense related to the continued
employment of the key employees.





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




Fiscal Years Ending June
30,
            
            Time-Based
      Shares
            
            
            Performance
      Shares (Time-Based Portion)
            
            
            Director
              Shares
            
            
            Total2010
            
            $
            6
            
            
            $
            44
            
            
            $
            52
            
            
            $
            1022011
            
            
            3
            
            
            
            6
            
            
            
            -
            
            
            
            9Total
      estimated future stock-based compensation expense
            
            $
            9
            
            
            $
            50
            
            
            $
            52
            
            
            $
            111


13
 Index


A summary
of the status of the Company’s nonvested restricted common stock as of September
30, 2009, and changes during the three-months ended September 30, 2009, is
presented below (shares amounts in thousands):





Time-Based
      Shares
            
            
            Weighted
      Average
              Grant
      Date
              Fair
      Value
            
            
            Performance
      Shares
            
            
            Weighted
      Average
              Grant
      Date
              Fair
      ValueNonvested
      at June 30, 2009
            
            
            5
            
            
            $
            7.65
            
            
            
            158
            
            
            $
            6.67Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Canceled
      or forfeited
            
            
            
            
            
            
            
            
            
            
            (7
            )
            
            
            6.65Vested
            
            
            (2
            )
            
            
            8.50
            
            
            
            (66
            )
            
            
            6.69Nonvested
      at September 30, 2009
            
            
            3
            
            
            $
            7.23
            
            
            
            85
            
            
            $
            6.65





The fair
value of the restricted shares is determined based on the average trading price
of the Company’s shares on the grant date, except for the Director Shares which
is determined based on the average trading price of the Company’s shares as of
January 1 of each year, pursuant to the directors’ compensation
plan.





Stock
Option Awards





The fair
value of the stock options granted during the three months ended September 30,
2009 was determined at the date of grant and is charged to compensation expense
over the vesting period of the options.  There were no options granted
during the three months ended September 30, 2008.   The fair
value of options granted at the date of the grant was estimated using the
Black-Scholes option pricing model utilizing the following
assumptions:





For
      the Three Months Ended September 30, 2009Risk-free
      interest rates
            2.3%Expected
      option life in years
            3Expected
      stock price volatility
            66%Expected
      dividend yield
            0%





The
risk-free interest rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of the
grant.  The Company uses historical data to estimate option exercise
and employee and director termination within the valuation model; separate
groups of employees and directors that have similar historical exercise behavior
are considered separately for valuation purposes.  The expected term
of options granted represents the period of time that options granted are
expected to be outstanding; the range given above results from groups of
employees and directors exhibiting different behavior.  Expected
volatilities are based on historical volatility of the Company’s
stock.  The Company has not paid any dividends in the past and does
not expect to pay any in the near future.


14
 Index


The
following table sets forth summarized information concerning the Company's stock
options as of September 30, 2009 (share and aggregate intrinsic value amounts in
thousands):





Shares
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Term
            
            
            Aggregate
      Intrinsic ValueOutstanding
      at June 30, 2009
            
            
            913
            
            
            $
            8.59Granted
            
            
            55
            
            
            
            5.46Exercised
            
            
            (36
            )
            
            
            3.00Forfeited
      or expired
            
            
            -
            
            
            
            -Outstanding
      at September 30, 2009
            
            
            932
            
            
            $
            8.62
            
            
            
            3.2
            
            
            $
            531Expected
      to vest atSeptember
      30, 2009
            
            
            932
            
            
            $
            8.62
            
            
            
            3.2
            
            
            $
            531Options
      exercisable atSeptember
      30, 2009
            
            
            726
            
            
            $
            9.31
            
            
            
            2.6
            
            
            $
            321





The
strike price of the options is determined based on the average trading price of
the Company’s shares on the grant date.





Cash
received from the options exercised under all stock-based payment arrangements
for the three months ended September 30, 2009 was $108,000.  The
aggregate intrinsic value of options exercised during the three-months ended
September 30, 2009 was $79,000.  There were no stock options exercised
for the three months ended September 30, 2008.  Historically, the
Company has issued new shares upon the exercise of stock options.





The
weighted average fair value at date of grant for options granted during the
three months ended September 30, 2009 was $2.26 per option.  The
Company recorded $40,000 and $57,000 of compensation expense for stock option
plans for the three months ended September 30, 2009 and 2008,
respectively.





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





Fiscal Years Ending June
30,
            
            Future
              Stock
      Option
              Compensation
              Expense2010
            
            $
            1252011
            
            
            882012
            
            
            322013
            
            
            62014
            
            
            3Total
      estimated future stock-based compensation expense
            
            $
            254


15
 Index


A summary
of the status of the Company’s nonvested options as of September 30, 2009, and
changes during the three months ended September 30, 2009, is presented below
(share amounts in thousands):





Nonvested Options
            
            Shares
            
            
            Weighted
      Average
              Grant
      Date
              Fair ValueNonvested
      at July 1, 2009
            
            
            176
            
            
            $
            2.15Granted
            
            
            55
            
            
            
            2.26Canceled
      or expired
            
            
            -
            
            
            
            -Vested
            
            
            (25
            )
            
            $
            2.59Nonvested
      at September 30, 2008
            
            
            206
            
            
            $
            2.13





The total
fair value of shares vested during the three months ended September 30, 2009 was
$65,000.





The
following table presents information relating to stock options at September 30,
2009 (share amounts in thousands):





Options
      Outstanding
            
            
            Options
      ExercisableRange
      of Exercise Prices
            
            
            Shares
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Life in Years
            
            
            Shares
            
            
            Weighted
      Average Exercise Price$
            0.00
      - $ 4.49
            
            
            
            100
            
            
            $
            4.02
            
            
            
            .9
            
            
            
            90
            
            
            $
            4.03$
            4.50
      - $ 7.49
            
            
            
            294
            
            
            $
            6.52
            
            
            
            6.6
            
            
            
            98
            
            
            $
            6.90$
            7.50
      - $ 8.99
            
            
            
            119
            
            
            $
            8.19
            
            
            
            1.8
            
            
            
            119
            
            
            $
            8.19$
            9.00
      - $ 10.49
            
            
            
            172
            
            
            $
            10.13
            
            
            
            3.6
            
            
            
            172
            
            
            $
            10.13$
            10.50
      - $11.99
            
            
            
            85
            
            
            $
            10.89
            
            
            
            1.4
            
            
            
            85
            
            
            $
            10.89$
            12.00
      - $13.49
            
            
            
            117
            
            
            $
            12.45
            
            
            
            3.6
            
            
            
            117
            
            
            $
            12.45$
            13.50
      - $14.99
            
            
            
            45
            
            
            $
            13.74
            
            
            
            5.1
            
            
            
            45
            
            
            $
            13.74932
            
            
            
            
            
            
            
            
            
            
            
            726





7.   INCOME
TAXES





The
Company accounts for income taxes under the asset and liability approach in
accordance with FASB ASC 740 Income Taxes.  Deferred tax assets and
liabilities are recognized for the expected future tax consequences attributed
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.  Deferred tax
assets and liabilities are measured using the enacted rates expected to apply to
taxable income in the years in which those temporary differences are expected to
reverse.  A valuation allowance is provided against net deferred tax
assets when it is not more likely than not that a tax benefit will be
realized.  Income taxes include U.S. and foreign taxes.





As of
September 30, 2009, as required by FIN 48, the Company’s unrecognized tax
benefits totaled $371,000.  Accrued interest and penalties at
September 30, 2009 amounted to $18,000,  The Company recognizes
accrued interest and penalties in income tax expense.





The
Company files income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions.  In general, the Company’s filed
income tax returns are no longer subject to examination by the respective taxing
authorities for years ending before June 30, 2006.  The Company’s
fiscal 2007 federal income tax returns are being examined by the Internal
Revenue Service and its outcome cannot be determined at this time.





16
 Index





8.
SEGMENT INFORMATION




The
Company has four distinct product lines:  Medication Management
systems, Blood Management systems, Performance Management systems and
Perioperative Management systems.   Based on similar economic
characteristics, as well as the nature of products, production processes,
customers and distribution methods, the Company has aggregated these operating
divisions into one reporting segment.  Revenue by product line is as
follows (in thousands):





For
      the Three Months Ended September 30,2009
            
            
            2008Medication
      Management Systems
            
            $
            5,317
            
            
            $
            4,598Blood
      Management Systems
            
            
            4,823
            
            
            
            5,036Performance
      Management Systems
            
            
            343
            
            
            
            -Perioperative
      Management Systems
            
            
            261
            
            
            
            199Total
            
            $
            10,744
            
            
            $
            9,833





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





For
      the Three Months Ended September 30,2009
            
            
            2008Revenue
      from Unaffiliated Customers:United
      States
            
            $
            9,122
            
            
            $
            8,365United
      Kingdom
            
            
            1,622
            
            
            
            1,468Total
            
            $
            10,744
            
            
            $
            9,833Net
      Income:United
      States
            
            $
            306
            
            
            $
            147United
      Kingdom
            
            
            313
            
            
            
            71Total
            
            $
            619
            
            
            $
            218





September
      30,2009
            
            
            2008Identifiable
      Assets:United
      States
            
            $
            55,784
            
            
            $
            53,174United
      Kingdom
            
            
            5,583
            
            
            
            5,151Total
            
            $
            61,367
            
            
            $
            58,325





9.     CONTINGENCIES





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


17
 Index


In
addition to the foregoing, from time to time, Mediware becomes involved in
routine litigation incidental to the conduct of its business, including
employment disputes and litigation alleging product defects, intellectual
property infringements, violations of law and breaches of contract and
warranties.  Mediware believes that such routine litigation, if adversely
determined, would not have a material adverse effect on its business,
financial condition, results of operations or cash flows.





10.     RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





In June 2009, the FASB issued Accounting Standards
CodificationTM (“ASC”) Topic 105,“Generally Accepted Accounting
Principleswhich establishes ASC as
the source of authoritative generally accepted accounting principles recognized
by the FASB to be applied by nongovernmental entitiesin the preparation offinancial statements in accordance with GAAP. All
existing accounting standard documents are superseded by the Codification.
However, rules and interpretive releases of the SEC issued under the authority
of federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. ASC Topic 105 was effective for the Company for the period
ended  September 30, 2009.  Pursuant to the provisions of
ASC Topic 105, the Company has updated references to GAAP in its financial
statements issued effective for the period ended September 30,
2009





In December 2007, the FASB issued ASC Topic 805“Business
Combinations”.ASC Topic 805
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. ASC Topic 805 also provides guidance for recognizing and measuring the
goodwill acquired in the business combination, requires that acquisition costs
be expensed and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. ASC Topic 805 is effective for the Company beginning July
1, 2009. ASC Topic 805 will have an impact on the Company’s accounting for
future business combinations, once adopted, but the effect is dependent upon
acquisitions that are made in the future.





In June2009, the
FASB finalized SFAS No.167, Amending FASB interpretation No.46(R). The provisions of SFAS No.
167 provide guidance in determining whether an enterprise has a controlling
financial interest in a variable interest entity. This determination identifies
the primary beneficiary of a variable interest entity as the enterprise that has
both the power to direct the activities of a variable interest entity that most
significantly impacts the entity’s economic performance, and the obligation to
absorb losses or the right to receive benefits of the entity that could
potentially be significant to the variable interest entity. This pronouncement
also requires ongoing reassessments of whether an enterprise is the primary
beneficiary and eliminates the quantitative approach previously required for
determining the primary beneficiary. New provisions of this pronouncement are
effective for the Company on July 1, 2010.
The Company is currently evaluating the impact of adopting this
pronouncement.




In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted.  Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance.  Additionally, the FASB issued authoritative
guidance on revenue arrangements with multiple deliverables that are outside the
scope of the software revenue recognition guidance.  Under the new
guidance, when vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method.  The new
guidance includes new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue
recognition.  The Company is presently assessing the impact, if any,
of this new guidance on our financial statements.




11.     SUBSEQUENT
EVENTS





The
Company has performed its subsequent events review through November 3, 2009,
which is the date the financial statements are issued.


18
 Index


REVIEWREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To The
Board of Directors and Shareholders of


Mediware
Information Systems, Inc.





We have
reviewed the accompanying condensed consolidated balance sheet of Mediware
Information Systems, Inc. and subsidiaries (the "Company") as of September 30,
2009, and the related condensed consolidated statements of operations and
comprehensive income (loss) and cash flows for the three-month periods ended
September 30, 2009 and 2008.  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, 2009, and the related consolidated statements of
operations and comprehensive income, stockholders’ equity, and cash flows for
the year then ended (not presented herein), and in our report dated September 9,
2009, 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, 2009 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


November
3, 2009


19
 Index




ITEM2.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Forward-Looking
Statements





This
Quarterly Report on Form 10-Q contains forward-looking statements. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act. The words “believes,” “anticipates,” “plans,”
“expects,” “intends” and similar expressions identify some of the
forward-looking statements. Forward-looking statements are not guarantees of
performance or future results and involve risks, uncertainties and assumptions.
The factors discussed elsewhere in this Form 10-Q and in Mediware’s Form 10-K
for the year ended June 30, 2009 and in subsequent Quarterly Reports on Form
10-Q, could also cause actual results to differ materially from those indicated
by the Company’s forward-looking statements.  Mediware undertakes no
obligation to publicly update or revise any forward-looking
statements.





Mediware
Information Systems, Inc. (including its subsidiaries, “Mediware” or the
“Company”) is a New York corporation incorporated in 1970 with its corporate
headquarters at 11711 West 79th Street, Lenexa, Kansas.  The Company
maintains an Internet website at www.mediware.com, at which reports filed with
the Securities Exchange Commission (“SEC”) under the Securities Exchange Act of
1934 (the “Securities Exchange Act”) can be obtained under “Investor Relations”
without charge as soon as reasonably practicable after filed or furnished with
the SEC.  The Company may post at its website additional information
important to its shareholders and to potential investors.  Information
on or linked to the Company website is not incorporated by reference into this
Quarterly Report on Form 10-Q.  Filings with the SEC can also be
obtained at the SEC’s website, www.sec.gov.





Mediware
develops, markets, licenses, implements, services and supports clinical
management information solutions-including: blood and biologics management
solutions, medication management solutions, and performance management
solutions.  The Company licenses and sells its blood and biologics
management solutions to hospitals and blood donor and plasma
centers.  We license our medication management solutions to hospitals,
long-term care and behavioral health facilities.   Mediware
licenses and sells its blood donor recruitment and management solutions to blood
and plasma donor centersthrough its Blood
Center Technologies (“BCT”) business group.  Performance management
solutions can be licensed and sold to Mediware’s current and future blood
management and medication management customers as well as to hospitals, donor
centers, and long-term care and behavioral health facilities that have not
licensed our other products.





The
software systems that Mediware provides to its customers typically consist of
the Company's proprietary application software, third-party licensed software
and third-party hardware.  Mediware licenses its software systems to
customers on either a perpetual basis or a monthly subscription
basis.  Customers that license the software on a perpetual basis
typically make an up-front payment for the software license fees and payments
for support services on an annual basis.     In
contrast, those customers that license software on a monthly subscription basis
pay Mediware an initial start-up fee and a monthly fee for use and support of
Mediware’s proprietary software.  Under both payment models, customers
may purchase services, including implementation and additional consultation
services, for additional fees which are generally billed as
incurred.  Historically, Mediware’s
medication management and blood management and biologics management software
systems have been licensed on a perpetual basis and the blood center and plasma
solutions and medication management products acquired through our acquisition on
November 20, 2008 of assets of Hann’s On Software (“HOS”) have been licensed on
a subscription basis.  The performance management software is licensed
on both perpetual and subscription bases.  Mediware intends to
continue offering its customers the opportunity to license the software on
either a perpetual or subscription basis, but anticipates that over time
an increased number of its systems will be licensed on a subscription
basis.





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


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 Index


Market
Positioning





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





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





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





By adding a performance management solution to our
product offerings in June 2009 through the acquisition of the assets of
SciHealth, Inc. (“SciHealth”), we believe that we strengthened our clinical
suite offerings in our existing medication management and blood and biologics
markets, as well as acquired tools to broaden our customer base to include the
broader healthcare market.    Our new performance management
softwarecan
aggregate information stored in Mediware’s blood, biologics and medication
management products for easy reporting and analysis at the departmental level,
thereby further strengthening our product offering in our historic
market.  The software can also draw information from disparate systems
across a healthcare enterprise beyond Mediware’s historic blood and medication
management customers.





The
Healthcare Information Systems Industry




The
healthcare industry, like other United States
industries, has been impacted by the global economic
downturn.   Consequently, we believe our customers have been more
cautious with their capital investments.  When health care
organizations make significant investments, we believe they are more focused on
ensuring that their spending has a demonstrable return on investment or can
provide clear improvements to patient safety.





We believe healthcare information technology solutions,
like our products, are generally considered by customers to be tools that can
provide a positive return on investment and improve patient safety, and,
therefore, we believe the healthcare information systems industry will not
suffer to the same extent as other industries.   In fact,
President Obama has focused significant attention on the use of information
technology systems as part of his healthcare reform
initiatives.   The American Recovery and Reinvestment Act, which
became law on February 17, 2009, includes more than $35 billion of incentives to
help healthcare organizations modernize operations through the acquisition and
use of information technology solutions.  We believe other healthcare
reform legislation could, if passed, further require many hospitals and
healthcare institutions to modernize and update their healthcare information
systems. While Mediware does not anticipate direct, near-term benefits from
pending legislation or the Obama administration’s policies, we believe that over
time the additional government spending on healthcare information technology,
and certain health reform legislation could, drive the adoption of healthcare
information technology solutions, and have a positive impact on the
Company.





Mediware
believes that its product strategy and offerings meet many of the needs of health care institutions and
that its products will play a role in moving healthcare information
technology standards forward to deliver significant results for patients and
customers.


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 Index


Competition
in the market for clinical information systems is intense and increased
government spending may entice more companies to enter the marketplace. 
The principal competitive factors are the functionality of the system, its
design and capabilities, site references, the demonstrated need, ability to
install, process redesign capabilities, reputation, software platform, the
potential for enhancements, price, departmental versus enterprise sales and
salesmanship.  Another key factor is the strategic position the incumbent,
or major healthcare information systems vendor, has in the customer site.
Different dynamics and competitors, however, affect each of the Company's
products and each sale.





Blood
and Biologics Management Products





Hospital
Transfusion and Donor Products





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





The
Company’s flagship blood transfusion product is the HCLLTM transfusion
software.  Mediware also provides its hospital customers its
complementary HCLLTM donor software module for use in hospital-based donor
centers. The HCLL software (HCLL Transfusion and HCLL Donor) addresses blood
donor recruitment, blood processing and transfusion activities for hospitals and
medical centers.  These systems are designed to be user intuitive,
scalable, and support product management, resource management, quality control
and testing.  They include advanced data mining and data management
intelligence capabilities, which can be utilized by facilities of all sizes,
including, small hospitals, large medical centers, multi-facility enterprises
and central transfusion services.  HCLL software also can address the needs
of hospitals for operating centralized transfusion services, an area that is as
a key to controlling the rising cost of blood products.  As of September
30, 2009, the HCLL software was in productive use at over 230 sites. The Company
has licensed the software for use at approximately 300 facilities.





The
Company is also looking to new products and markets to continue its growth in
blood management.  In early fiscal year 2008, the Company announced
its new BloodSafeTM suite of products.  The BloodSafe suite includes
hardware and software which enable healthcare facilities to securely store,
monitor, distribute and track blood products from locations removed from the
hospital’s physical blood bank. Components of the BloodSafe suite include blood
tracking and monitoring software, computer controlled refrigerators, and
handheld point of care tools to verify accurate patient identification and
document transfusion activities. BloodSafe can be integrated with Mediware’s
HCLL software or operate on a stand-alone basis.  Mediware licensed
BloodSafe to its first customer in August 2008 and its first customer began
using the fully functional BloodSafe system with the HCLL transfusion software
in June 2009.  As of September 30, 2009, BloodSafe is licensed for use
at three facilities.





Blood
Center Technologies





To
capitalize on the integration of IMS and to focus on the unique needs of the
blood center market segment, on July 8, 2008 Mediware announced the launch of
BCT.  Mediware’s BCT business unit is a customer focused team intended
to drive growth as Mediware expands its focus in the blood donor
market.  Through BCT, the Company also provides software tools and
services to large, complex blood centers for donor targeting, donor recruitment,
donation management, unit testing, blood component manufacturing, inventory
control, sales and distribution. This is accomplished through a combination of
the Company’s 510(k) cleared LifeTrak® software and the products and
capabilities acquired in Mediware’s November 1, 2007 acquisition of
substantially all of the business assets of Integrated Marketing Solutions, Inc
(“IMS”).  The addition of IMS to Mediware’s blood center strategies
enables the Company to deliver an integrated software solution for blood centers
to improve collections and efficiency throughout the entire process from blood
donor recruitment to hospital distribution.  Since the acquisition of
IMS, Mediware has been aggressively integrating software and capabilities to
streamline the effectiveness of blood centers, from donor recruitment, through
the clinical laboratory, to hospital management. With the addition of the IMS
components, LifeTrak has robust clinical capabilities with modern and effective
CRM technologies that enable blood centers to improve the effectiveness of
coordinated blood drive campaigns while still meeting the strict FDA regulations
for safe blood management.


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 Index


It is
estimated that Mediware products support over 50% of the U.S. blood supply at
some point in the collection, testing and distribution processes.  As
of September 30, 2009, the BCT business unit had software in productive use at
over 350 facilities.





Biologics
Products





Hospitals
are beginning to face the same pressures to manage biologic product inventory
and improve safety by reducing errors, improving screening and increasing
throughput and cost efficiencies as they have faced with blood products for
years.    In June 2008, Mediware released BiologiCare, the
Company’s first generation bone, tissue and cellular product tracking
software.  The software leverages the HCLL software platform and
Mediware’s blood banking expertise to address the important needs of hospitals
as they begin to manage bone, tissue, cord blood stem cells and other biologic
products.     BiologiCare is designed specifically to
track and manage transplantable materials in hospitals, surgery centers and
other healthcare facilities. The products enable users to document donors,
tissue vendors and tissue recipients and to comply with current regulations
regarding transplantable materials.  With the introduction of
BiologiCare, Mediware believes it is positioned to benefit from the emerging
biologics market, which includes, among other things, bone, tissue and cord
blood stem cells.  BiologiCare can be integrated with Mediware’s HCLL
software or operate on a stand-alone basis.  Mediware licensed its
first BiologiCare customer in June 2008.  As of September 30, 2009,
BiologiCare is licensed for use at one facility.





The
Company continues to concentrate on growing all aspects of its blood management
business: hospital transfusion and donor products, biologics products and blood
center technology products.  The blood management products are
marketed primarily through the Company’s direct sales force, and the Company is
working to develop complementary reseller relationships.  In addition to
its sale of software, the Company generates revenue from professional services
and post-contract support.  These ongoing support contracts have accounted
for nearly 40% of revenue from blood management operations and are recurring in
nature.





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





Medication
Management Products





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





The
Company’s medication management software product for larger and medium sized
hospitals and healthcare institutions is WORx, a core pharmacy information
system designed to manage inpatient and outpatient pharmacy operations. 
WORx software has features and functions designed to help improve patient safety
and manage pharmacy operations effectively.  As of September 30, 2009, the
WORx software was in productive use at approximately 175 sites.  The
product's market acceptance encompasses multi-facility healthcare systems,
university hospitals and large state behavioral health
institutions.  The acquisition of substantially all of the HOS assets
in November 2008 expanded Mediware’s product offering by adding a pharmacy
solution that meets the needs of small and medium size hospital, specialty
pharmacy and home infusion facilities.  The Company currently plans to
continue offering the WORx product line to larger acute care hospitals and state
behavioral health facilities, while the HOS product line offers a comprehensive
solution for the small and medium size hospital, specialty pharmacy and home
infusion markets.   The HOS acquisition added approximately 300
hospital and home infusion sites to Mediware’s medication management customer
base.  The Company believes that the
home infusion and specialty pharmacy market may provide additional opportunities
to extend beyond the hospital market into alternate care
settings.


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 Index


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





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





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





As of
September 30, 2009, the MediCOE and MediMAR products have been licensed for use
in 3 and 18 separate customer sites, respectively.





To expand
the Company’s capabilities and address a new industry mandate, the Company
introduced MediREC in March 2007.  This medication management product
assists in achieving compliance with a recent JCAHO mandate, which requires
hospitals to document all of a patient’s home medications when a patient is
admitted or enters the emergency room, and to reconcile that list with the
medications prescribed in the hospital.  That process must be repeated each
time the patient is transferred within the hospital and again when the patient
is discharged. At September 30, 2009, MediREC was licensed for use at 7 customer
sites.





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





Selling
the Company’s full suite of medication management products (WORx, MediMAR,
MediCOE and MediREC) is a complex process involving multiple hospital
departments and, therefore, results in substantially longer sales cycles
compared to stand-alone WORx sales.  This has resulted in less predictable
contract closures and a need to recognize software license revenue over multiple
quarters (in some cases).  On the other hand, the HOS software requires
substantially smaller financial commitments from hospitals, specialty
pharmacies, and home infusion facilities and is priced based on a subscription
pricing model.  Consequently, Mediware anticipates that sales of these
products will be more predictable and have shorter sales cycles.  The
MediREC software is also being licensed to customers on a recurring, transaction
basis, and Mediware expects that as the adoption of MediREC increases, the sale
and implementation cycles for MediREC to be shorter than for the full suite of
products.





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


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 Index


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





The
Company's United Kingdom operating business is JAC Computer Services, Ltd.
(“JAC”).   JAC markets and provides support for its pharmacy
management and electronic prescribing systems throughout the U.K., Ireland and
South Africa.  JAC includes an installed base of approximately 200 customer
sites, representing over 100 National Health Service (“NHS”) acute hospitals or
trusts in the U. K. JAC’s product offering includes JAC’s Pharmacy Management
System and Electronic Prescribing module.  The prescribing module is a
medication management solution complete with physician medication order entry
and nursing medication administration.  This module has been installed in
approximately 20 U.K. customer sites as of  September 30, 2009, and
allows hospitals to improve patient safety relevant to medication
management.  The Company’s Pharmacy Management system product handles
medication tracking from ordering and delivery to dispensing.  The
installed base includes approximately 50% of the trusts within the
NHS.





The NHS
in England initiated a national program to purchase healthcare information
technology in 2004.  The program  is identified as the
“Connecting for Health” program (the “National Program”).  The NHS has
entered into contracts to license software and services, but the National
Program has experienced delays.  JAC has been able to work with the
integrated service providers and the government to position itself favorably as
a provider of software.  In July 2008, JAC was appointed to the ASCC
(Additional Supply Capability and Capacity) framework contract in both the
e-prescribing and pharmacy (stock control) categories.  Appointment to
the ASCC framework provides healthcare organizations with a contracting vehicle
to work directly with JAC to procure specialist e-prescribing and/or pharmacy
stock control services as an alternative to the National Program.  The
JAC products are marketed directly through JAC’s sales force and other marketing
channels, including reseller agreements in South Africa.   JAC
recently entered into a multi-year contract in South Africa under which JAC will
license its software to as many as 40 public sector hospitals for the Provincial
Government of the Western Cape.





Performance
Management Products





On June
18, 2009 the Company completed the acquisition of the assets of SciHealth, Inc.
Through this acquisition Mediware added the InsightTM software system to its
portfolio of products.  The Insight system is a business and clinical
intelligence software package used in more than 100 hospitals at September 30,
2009.  The software tracks performance metrics to assist healthcare
managers to actively manage performance and improve the overall efficiency of
their organizations.  The Insight system collects data from the
disparate information systems across a hospital to create understandable
graphical dashboards.  The Insight system is designed to assist users
to improve performance,  better manage their financial and business
obligations; and demonstrate and manage compliance with expanding regulatory
mandates and requirements.





The
Insight system complements Mediware’s medication and blood and biologics product
offerings, and  we expect to market Insight to current customers to
help them manage their medication and blood requirements, We also believe that
Insight may help differentiate our products from other blood management and
medication management systems.For
instance, theCompany is currently
developing integrated dashboard products for our existing applications which can
be sold to our current customer base.  We believe these dashboards
will provide a solid growth platform forthe second half of fiscal 2010 and
beyond.





The
Insight system can also be marketed and sold on an enterprise-wide, stand-alone
basis, which we expect will help us to gain a footprint and customer base
outside of our historical blood and medication markets.





We expect
that selling the Insight system coupled with our other products will have the
same challenges as our other product offering sales, but we have the opportunity
to take advantage of our experienced sales team and resources who have been
selling and marketing products in the blood and medication management markets
for years.   Selling the Insight software on an enterprise-wide
basis is a complex process that requires commitments from the highest level
executives within hospital organizations with longer sales
cycles.


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 Index


The
Company expects revenue from Insight software sales, professional services
and post-contract support.  Support contracts accounted for a
large majority of the SciHealth’s revenue prior to our
acquisition.  If the sale of products increase, the Company
expects that license fee revenue will increase and support revenue will make up
a smaller portion of the Company’s revenue.





The
Company’s Insight products will work in conjunction with Mediware’s other
products and compete against all of the same competitors as our medication
management and blood and biologics products.  On enterprise sales, the
Company expects to compete against products of other small niche vendors, as
well as some of the largest providers of healthcare information technology,
including Cerner, McKesson, General Electric, Siemens, Eclipsys and others
who we expect will begin to provide performance  management
solutions.  These competitors often have significantly greater
resources than Mediware, but the Company believes that its products are well
positioned and have functionality that can lead to growth in this competitive
environment.





Use of
Estimates





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




Results
of Operations for the Three Months Ended September 30, 2009 as Compared to the
Three Months Ended September 30, 2008




Total
revenue for the first quarter of fiscal 2010 was $10,744,000 compared to
$9,833,000 reported in the same quarter of fiscal 2009, an increase of $911,000
or 9%.  The increase in revenue is primarily due to revenue associated
with the recently acquired HOS and SciHealth businesses, neither of which is
included in our results for the same quarter of fiscal 2009.  Blood
management products and services recorded total revenue of $4,823,000 in the
first quarter of fiscal 2010, representing a decrease of $213,000 or 4% compared
to $5,036,000 in the same quarter of fiscal 2009.  Medication
management products and services (excluding JAC) recorded total revenue of
$3,695,000 in the first quarter of fiscal 2010 representing an increase of
$565,000 or 18% compared to $3,130,000 in the same quarter of fiscal 2009,
largely the result of the incremental revenue associated with our recent
acquisition of the HOS business.  JAC recorded total revenues of
$1,622,000 in the first quarter of fiscal 2010, representing an increase of
$154,000, or 10%, compared to $1,468,000 in the same quarter of fiscal
2008.  Performance management products and services, all of which come
from the recently acquired SciHealth business, recorded total revenues of
$343,000 in the first quarter of fiscal 2010.





System
sales revenue, which includes proprietary software, third party software,
hardware revenue and subscription revenue, amounted to $2,802,000 for the first
quarter of fiscal 2010, an increase of $373,000 or 15% compared to $2,429,000 in
the same quarter of fiscal 2009.  System revenue for the blood
management products was $1,013,000 for the first quarter of fiscal 2010, a
decrease of $327,000 or 24% compared to $1,340,000 in the same quarter of fiscal
2009.  This decrease primarily reflects fewer HCLL system sales in the
first quarter of fiscal 2010 compared to the same quarter of fiscal
2009.  TheCompany expects thatnew HCLL system sales will continue to be slower in
fiscal 2010 than in years past because the blood transfusion software market is
a mature, replacement market.  However  The Company
believes its new web-enabled BiologiCare and LifeTrak products will provide a
positive impact on system sales in fiscal 2010.  System sales for the
medication management products (excluding JAC) increased from $547,000 in fiscal
2009 to $994,000 in fiscal 2010, representing an increase of $447,000, or
82%.  This increase reflects incremental revenues associated with our
recent acquisition of the Hann’s On Software business.  JAC recorded
system sales of $684,000 for the first quarter of fiscal 2010, representing an
increase of $142,000, or 26%, compared to $542,000 reported for the same period
in fiscal 2009.  The Company believes its JAC business is well
positioned further expand its leading market share within the Connecting for
Health Program in the United Kingdom.  Performance management recorded
system sales of $56,000 for the first quarter of fiscal 2010.


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 Index


Service
revenue, which includes recurring post contract support revenues, implementation
services, maintenance services and promotional services increased $538,000, or
7%, to $7,942,000 in the first quarter of fiscal 2010 compared to $7,404,000 for
the same period in fiscal 2009.   Service revenue for the blood
management products totaled $3,810,000 for the first quarter of fiscal 2010,
representing an increase of $114,000, or 3%, compared to $3,696,000 in the first
quarter of fiscal 2009.  The increase primarily reflects an increase
in support revenues, partially offset by a decline in implementation revenue for
our HCLL software systems.  Mediware anticipates that service revenue
will decline throughout fiscal 2010 as we near completion of the HCLL
implementation projects associated with the sunset of our legacy
systems.  Service revenue for the medication management products
(excluding JAC) increased $118,000, or 5%, to $2,701,000 in the first quarter of
fiscal 2010 compared to $2,583,000 for the same quarter of fiscal
2009.  This increase reflects an increase in support and maintenance
revenue primarily related to our recent acquisition of Hann’s On
Software.  Service revenue for JAC increased $12,000, or 1%, to
$938,000 in the first quarter of fiscal 2010 compared to $926,000 in the first
quarter of fiscal 2009.    Service revenue for performance
management products amounted to $287,000 for the first quarter of fiscal
2010.





Cost of
systems includes the cost of computer hardware and sublicensed software
purchased from computer and software manufacturers by Mediware as part of its
complete system offering.  These costs can vary as the mix of revenue
varies between high margin proprietary software and lower margin computer
hardware and sublicensed software components.  Cost of systems
increased $40,000, or 5%, to $780,000 in the first quarter of fiscal 2010 as
compared to $740,000 in the same period in fiscal 2009 due to an increase in
third party system sales.  The gross margin, excluding amortization of
capitalized software costs, on system sales was 72% in the first quarter of
fiscal 2010 compared to 70% in the same quarter in fiscal 2009.  The
increase in gross margin is primarily due to the increase in high margin
proprietary system sales during the first quarter of fiscal 2010 compared to the
same period in fiscal 2009.




Cost of
services includes the salaries and direct expenses of client service personnel
and the direct costs associated with providing promotional
services.  Cost of services decreased $84,000, or 3%, to $2,573,000 in
the first quarter of fiscal 2010 as compared to $2,657,000 in the same period of
fiscal 2009.  The decrease in cost of services is primarily attributed
to the decline of ongoing HCLL implementation and WORx upgrade
projects.  This decrease was partially offset by incremental costs
associated with our recent acquisitions of Hann’s On Software and
SciHealth.   Gross margin on service revenue was 68% for the
first quarter of fiscal 2010 compared to 64% for the first quarter of fiscal
2009.  The increase in gross margin on service revenue is largely due
to a change in the mix of support and service revenue for the first quarter of
fiscal 2010.  The Company believes that over the course of fiscal 2010, the
gross margin percentage will be more consistent with historical
levels.





Amortization
of capitalized software decreased $43,000, or 3%, to $1,443,000 in the first
quarter of fiscal 2010 compared to $1,486,000 in the first quarter of fiscal
2009.  This decrease is consistent with our expectation that
amortization of capitalized software costs will decline throughout fiscal
2010.





Software
development costs include the non-capitalizable portions of salaries,
consulting, documentation, office and other direct expenses incurred in product
development activities.  Software development costs increased
$172,000, or 20%, to $1,048,000 in the first quarter of fiscal 2010 compared to
$876,000 in the first quarter of fiscal 2009.  Expenditures for
software development include amounts paid for both capitalizable and
noncapitalizable development projects.  Total expenditures for
software development were $1,967,000 in the first quarter of fiscal 2010
compared to $1,880,000 in the first quarter of fiscal 2009, resulting in an
increase of $87,000, or 5%.  This increase primarily reflects
incremental costs associated with our recent acquisitions of the Hann’s On
Software and SciHealth businesses.  The Company expects to maintain
its current investment in product development in its blood management and
medication management products in the near term, and increase development
efforts for our performance management products.


27
 Index


Selling,
general and administrative (“SG&A”) expenses include marketing and sales
salaries, commissions, travel and advertising expenses.  Also included
is bad debt expense; legal, accounting and professional fees; salaries and bonus
expenses; utilities, rent, communications and other office expenses; stock-based
compensation expenses and other related direct administrative
expenses.  SG&A expenses increased $29,000, or 1%, from $3,862,000
in the first quarter of fiscal 2009 to $3,891,000 in the first quarter of fiscal
2010.  This increase primarily reflects incremental costs associated
with our recent acquisition of the Hann’s On Software and SciHealth
businesses.  Also contributing were increases in bad debt and legal
expense, partially offset by lower labor and employee benefit
costs.





Income
tax expense increased from $142,000 in the first quarter of fiscal 2009 to
$393,000 in the same quarter of fiscal 2010, primarily related to the increase
in operating income.  The effective tax rate was 39% for the first
quarter of both fiscal 2010 and fiscal 2009.





Net
income for the first quarter of fiscal 2010 was $619,000, compared to net income
of $218,000 during the first quarter of fiscal 2009, an increase of $401,000 or
184%.  The incremental operating income associated with our recent
purchase of the Hann’s On Software and SciHealth businesses, combined with our
continued improvement on the overall cost structure contributed to the increase
in net income..





Liquidity
and Capital Resources





As of
September 30, 2009, Mediware had cash and cash equivalents of $21,904,000
compared to $20,865,000 at June 30, 2009.  Working capital was
$19,864,000 and $18,273,000 at September 30, 2009 and June 30, 2009,
respectively.  The current ratio was 2.4 to 1 at both September 30,
2009 and June 30, 2009.  The Company does not have any material
capital lease obligations, purchase obligations or long-term
liabilities.





Cash
provided by operating activities was $2,044,000 during the first quarter of
fiscal year 2010 compared to $1,038,000 during the same quarter a year
ago.  The increase in cash provided by operating activities is
primarily due to improved cash collections of our accounts receivable and an
increase in net income, partially offset by changes in accounts payable, accrued
expenses and advances from customers.





Cash used
in investing activities was $1,032,000 during the first quarter of fiscal year
2010 compared to $1,446,000 during the same quarter a year ago.  The
decrease in cash used in investing activities is primarily attributable to the
final settlement payment of the IMS acquisition made during the first quarter of
fiscal 2009.





Cash used in financing activities was immaterial in both
periods.





We
currently use cash flow from operations to fund our capital expenditures and to
support our working capital requirements.  We expect that future cash
requirements will principally be for capital expenditures, working capital
requirements, any additional stock repurchases and other strategic
initiatives.





We
believe that our existing cash balances and cash flow from operations will be
sufficient to meet our projected capital expenditures, working capital,
repurchase of shares, and other cash requirements at least through the end of
fiscal 2010.





Our
liquidity is influenced by our ability to perform on a “Best of Suite” basis in
a competitive industry.  Factors that may affect liquidity include our
ability to penetrate the market for our products, maintain or reduce the length
of the selling cycle, and collect cash from clients as systems are licensed or
implemented and services completed


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 Index


ITEM3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





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





Interest Rate Risk





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





Balance at
              September 30, 2009
              ($ in 000)
            
            
            EffectiveInterest Rate atSeptember 30, 2009
            
            
            Effect of 1% Change
              ($ in 000)Cash Equivalents
            
            $
            21,904
            
            
            
            .3
            %
            
            $
            219





At
September 30, 2009, a 1% decrease in the current per annum interest rate for our
cash equivalents each would result in $219,000 less interest income during the
next fiscal year.  The foregoing calculation assumes an instantaneous
one percentage point decrease in the rates of all of our cash equivalents and
that the equivalents balance is the amount outstanding as of September 30,
2009.  The calculation therefore does not account for any differences
in the market rates upon which the interest rates of our equivalents is based,
or other possible actions, such as reinvestment in higher yielding instruments,
that we might take in response to any rate decrease.





Foreign Currency Exchange Rate Risk





Operating in international markets involves exposure to
the possibility of volatile movements in foreign exchange rates. The currencies
in each of the countries in which JAC operates affect:





•
            the results of Mediware’s international operations
      reported in United States dollars;
and





•
            the value of the net assets of JAC reported in
      United States dollars.





These exposures may impact future earnings or cash
flows. Revenue from JAC represented approximately 15% of Mediware’s consolidated
revenue for both the three months ended September 30, 2009 and 2008. The
economic impact of foreign exchange rate movements is complex because such
changes are often linked to variability in real growth, inflation, interest
rates, governmental actions and other factors. These changes, if material, could
cause Mediware to adjust its financing and operating strategies. Therefore, to
isolate the effect of changes in currency does not accurately portray the effect
of these other important economic factors. As foreign exchange rates change,
translation of the income statements of JAC into United States dollars affects
period-over-period comparability of operating results.  Assets and
liabilities for JAC are matched in the local currency, which reduces the need
for dollar conversion. Any foreign currency impact on translating assets and
liabilities into dollars is included as a component of stockholders’
equity.  Our results for the three months ended September 30, 2009 and
September 30, 2008 were negatively impacted by a $4,000 and $20,000 foreign
currency movement, respectively. These foreign currency adjustments are
primarily due to the currency valuation of the British pound against the United
States dollar.




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 Index


ITEM4.
            CONTROLS AND
      PROCEDURES





Mediware’s
management, under the supervision and with the participation of Mediware’s Chief
Executive Officer and Chief Financial Officer, has reviewed and evaluated the
effectiveness of Mediware’s disclosure controls and procedures as of the end of
the quarter covered by this report.  Disclosure controls and
procedures are defined in the Securities Exchange Act as controls and other
procedures of Mediware designed to ensure that information required to be
disclosed by Mediware in the reports that it files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and include controls and
procedures designed to ensure that information required to be disclosed by
Mediware in the reports that it files or submits to the SEC is accumulated and
communicated to Mediware’s management, including the CEO and CFO, to allow
timely decisions regarding required disclosure.  Based on the
foregoing review and evaluation, Mediware’s CEO and CFO have concluded that
Mediware’s disclosure controls and procedures are effective as of September 30,
2009.





There
were no material changes in Mediware’s internal controls over financial
reporting that occurred during the three months ended September 30, 2009 that
have materially affected, or are reasonably likely to materially affect, its
internal controls over financial reporting.   Notwithstanding the foregoing, Mediware recently
reported the departure of Mr. Mark Williams, the Company’s CFO, effective
November 4, 2009.  Mr. Robert Watkins, the Company’s controller, will
act as the Company’s principal accounting and financial officer until a new CFO
is hired.  Inherent with any change in management is a change in
understanding of the control environment and the 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.





PART
II     OTHER INFORMATION





ITEM1.
            LEGAL
      PROCEEDINGS





Mediware
from time to time becomes involved in routine litigation incidental to the
conduct of its business, including employment disputes and litigation alleging
product defects, intellectual property infringements, violations of law and
breaches of contract and warranties.  Mediware believes that such routine
litigation, if adversely determined, would not have a material adverse effect on
its consolidated financial position, results of operations or cash
flows.





ITEM1A.
            RISK
      FACTORS





You should carefully considerthe risk factors disclosed inour Annual Report on Form 10-K for the year ended
June 30, 2008included under Item 1A “Risk
Factors” in addition to the other information set forth in this report
(including the risk factors identified below). The risks described in our Annual
Report on Form 10-K and ourQuarterly
Reports on Form 10-Qare not the only
risks facing our Company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or operating
results.





The departure of our Chief Financial Officer creates
special risks for us.





The Company’s CFO, Mark Williams, has resigned and will
leave the Company effective November 4, 2009.  The Company has
commenced a search for a new CFO.   Mr. Robert Watkins, the
Company’s controller, will act as the Company’s principal accounting and
financial officer until a replacement is found. As the new CFO gains an
understanding of our business, controls and processes, our short-term and
long-term our business may be impacted.


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 Index


ITEM6.
            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


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 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)November 3, 2009
            
            /s/T.
      KELLY MANNDate
            T.
      KELLY MANNPRESIDENT
      AND CHIEF EXECUTIVE OFFICERNovember 3, 2009
            
            /s/MARK B.
      WILLIAMSDate
            MARK
      B. WILLIAMSCHIEF
      FINANCIAL OFFICER






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