10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 (Mark One)

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

For the fiscal year ended June 30, 2006

OR

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

For the transition period from ________ to ________

Commission file number: 1-10768

MEDIWARE INFORMATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $ .10 per share	The Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨    No x

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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.  Yes x     No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes ¨     No x

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sales price of its common stock on December 31, 2005 as reported on the Nasdaq Small Cap Market (now the Nasdaq Capital Market), was approximately $64,445,000.

The number of shares outstanding of the registrant's common stock, as of August 11, 2006, was 8,098,000 shares.

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DOCUMENTS INCORPORATED BY REFERENCE

The information required for Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant's Proxy Statement for its 2006 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year.

PART I

Item 1. Business.

Overview

Mediware Information Systems, Inc. (including its subsidiaries, “Mediware” or the “Company”) is a New York corporation incorporated in 1970 with its corporate headquarters at 11711 West 79th Street, Lenexa, Kansas. The Company maintains an Internet website at www.mediware.com, at which reports filed with the Securities Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”) can be obtained under “Investor Relations” without charge as soon as reasonably practicable after filed or furnished with the SEC.

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

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

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

The Company believes that it has the largest number of stand-alone, departmental systems installed in the departmental pharmacy and blood bank systems markets and that these products gained their leadership position because of rich functionality, ease of integration and a focus on customer service. 

The Company continues to invest in its products and to expand the functionality it offers its customers.  The Company’s strategy is to provide products that address not only the traditional workflows in the pharmacy, blood bank and perioperative departments but also to provide products that address other important workflow needs throughout the applicable clinical suite. The Company believes this strategy, the “Best of Suite” approach, differentiates it from the industry’s catalog and “best of breed” vendors.

The Company also believes this strategy will create new opportunities to sell products within the Company’s established customer base and to new customers as well.  For example, in Medication Management the Company’s offering includes products for clinician order, pharmacy fulfillment, medication reconciliation and bedside administration. The Blood Management Division provides products encapsulating donor and transfusion management as well as the management of emerging biologics such as stem cells. The Perioperative Management Division’s strategy has expanded to include the functional and operational management of Pre-Op, Post-Op, and Post-Anesthesia Care Unit environments.

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In order to better align the names of its divisions with the “Best of Suite” approach, the Blood Bank Division was renamed the Blood Management Division and the Operating Room Division was renamed the Perioperative Management Division.

The Healthcare Information Systems Industry

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

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

For example:

· In February 2001, the Food and Drug Administration (“FDA”) published a report entitled "Doing What Counts for Patient Safety; Federal Actions to Reduce Medical Errors and Their Impact." This report enumerated the high level of human error in healthcare and underscored the potential tainting of the U.S. blood supply.

· The Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”), which has oversight responsibility for hospitals, has the authority to revoke the accreditation of hospitals that fail to meet JCAHO standards of care. A hospital’s failure to meet JCAHO’s standards could result in the loss of critical Medicare and Medicaid reimbursement revenue.

· In 2004, President George W. Bush appointed a National Health IT Coordinator. The National Health IT Coordinator reports directly to the Secretary of Health and Human Services, and is responsible for promoting the expanded use of information technology in healthcare. The President continues to support legislative initiatives related to the use of IT systems in healthcare.

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

The Company believes that in addition to healthcare industry evolution, the impact of regulatory developments and patient safety initiatives which will drive the need for improved management information systems, specific potential health threats such as the variant Creutzfeldt-Jakob (mad cow) virus, and patient medication safety will require organizations to re-examine their ability to track and analyze patients, donors, procedures and outcomes. Mediware's products, which integrate operating and clinical systems, are targeted to facilitate solutions to these healthcare industry issues.

The Company anticipates that the continued increase in government regulation, public and competitive pressure regarding errors occurring in hospitals, and growing concern over clinical outcomes, will increase the industry’s expenditures on clinical information systems. This belief is supported by the fact that the Leapfrog Group, a consortium of large employers that spends approximately $40 billion annually on healthcare, has called for investment into computerized information systems. Further, President Bush pledged financial support for increased healthcare IT standards and incentives to make IT investments for hospitals more appealing. Mediware believes that its products can play a role in moving healthcare IT standards forward, and can deliver significant results for customers.

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

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

Blood Management Division

The Blood Management Division is a supplier of information and management software systems to blood donor and transfusion centers. Hospitals and blood centers face pressures to improve the safety of the blood supply by reducing errors, improving screening and increasing throughput and cost efficiencies. These pressures exist despite pressures across healthcare to reduce costs and to address ongoing personnel shortages. Mediware's user-friendly blood bank 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 and the productivity of blood center personnel through the use of user-defined truth tables and automatic linking to donors' historical records, among other features. Donor recruitment programs may also be enhanced though Mediware’s donor software by making tele-recruiters more productive.

In fiscal 2003, the Company received 510(k) clearance from the FDA on its next generation blood transfusion product - HCLL™ and began marketing the HCLL software to new and existing customers. The first shipment of the new software was in June 2003. In 2004, the first site “went live” with HCLL software. During 2005, the full HCLL product roll-out commenced and started to develop momentum. During fiscal 2005, the Company also received 510(k) clearance for its complementary HCLL donor software product. This new product addresses the donor needs of hospitals and smaller blood centers. HCLL Transfusion and HCLL Donor are clinical applications that address 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 identified as a key to controlling the rising cost of blood products.

The Blood Management Division, through its LifeTrakâ software, also provides large complex blood centers full function tools for blood collection and processing, donor recruitment, testing and inventory control. LifeTrak software can operate in multiple operating environments enabling each customer to configure hardware according to its own needs and budgetary constraints. The Unix-based LifeTrak software system is more suitable for larger complex customer donor sites, while the HCLL Donor system is generally a more cost effective solution for hospitals and smaller donor centers.

In the spring of 2004, the Blood Management Division started migrating the users of its two legacy products, Hemocareâ and LifeLine™, which were originally installed in the early 1980s, to Mediware’s HCLL software product. The two legacy products had a large installed base within the transfusion management market and represent an important opportunity for new sales for the Division. The Company is coordinating with these customers to support their migration to HCLL software, and the Company expects the contracting phase of this migration program to be largely completed by the end of its fiscal year ended June 30, 2007. The Company has already licensed the HCLL software product for use at more than 200 customer sites. The Company anticipates, but cannot assure, that the sales of its HCLL software products will increase through the end of the 2007 fiscal year as the migration of legacy customers continues.

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The Division is also looking to new products and markets to continue its growth. The Division believes it is positioned to benefit from cord blood stem cell initiatives emerging both in the private and public sectors. The Division is developing software products, based on its core products and knowledge of FDA requirements that address tracking, documentation and cord blood stem cell management. The Division is also working to expand its product offerings into the broader market for biologic products, including, for example bone and tissue related software solutions. The Division is also working to provide a bedside tool to support hand-held computer tools at the patient bedside to reduce the occurrence of medical errors. Bedside transfusions are complex and require extensive checking to ensure the right blood product is transfused to the right patient at the right time and in proper quantity and quality. Once the transfusion is completed, extensive documentation in the form of a transfusion administration record must be completed to ensure proper continuity of care and avoid liability.

In addition to its initial sale of software, the Division generates revenue from professional services and post-contract support. These ongoing support contracts currently account for over 50% of this Division's revenue and are recurring in nature. As customers transition from the Division’s legacy products to HCLL software, the Company expects revenue from systems sales to increase and to represent more than 50% of the Division’s total revenue until the completion of the sunset program in June 2007.

The Blood Management Division markets its products primarily through a direct sales force. Additionally, the Division is working to develop complementary reseller relationships for certain of its ancillary products.

The Blood Management Division competes 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. 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 Blood Management Division customers, including many multi-facility health care systems for high quality service.

Medication Management Division

The Medication Management Division is a supplier of clinical information and management software systems to hospitals, mental health facilities, penal institutions and other institutions that require the administration and management of medication. The Division’s software products and the supporting processes are intended to help customers improve patient safety while reducing costs and improving clinical documentation. Additionally, the software helps medical facilities address the increasing number of government mandates including security and documentation requirements. The software can improve patient safety by providing intelligent alerts and warnings and can reduce costs and improve records by automating workflow for bedside drug administration and ordering. In short, the Medication Management Division’s software provides specialized tools for the management of the primary aspects of pharmaceutical care including order entry, billing, education, utilization, administration, and reconciliation.

The Medication Management Division’s WORxâ drug therapy software is designed for the in-patient and outpatient pharmacy. It can serve as the hub for a customer’s drug therapy management. This includes integration with automated drug dispensing cabinets and dispensing devices and providing access to clinical data via the Internet/intranet using a standard web browser on multiple platforms, including hand-held and wireless devices.

Since its introduction, WORx has been licensed to approximately 250 customer sites. The product's market acceptance encompasses hospitals of all sizes, including strategically important multi-site hospitals. The Medication Management Division has developed features and functions designed to help improve patient safety and manage pharmacy operations effectively. The Company has implemented bi-directional orders interfaces between WORx and some of the major Health Information Systems ("HIS") vendors. These interfaces allow WORx to populate the HIS systems with complete, accurate, and up-to-the-minute patient medication profiles. In addition, these interfaces allow pharmacists to effectively manage medication orders input into third party systems by nurses and other healthcare professionals. This interfacing ability provides a valuable utility for assuring medication orders are interpreted and dispensed correctly.

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The software also includes a sophisticated inventory management module, designed to assist pharmacy managers in their effort to control drug therapy costs and an ambulatory care module that is fully integrated with the WORx inpatient modules. The inventory management module has been designed to meet the challenges of inventory control, purchasing, receiving, and contract administration in a hospital setting. The inventory management module uses bar code and Electronic Data Interchange technologies to simplify processes.

The Medication Management Division released two new products, MediCOE^TM and MediMAR^® in fiscal 2004. These products are fully integrated with the WORx software and provide a complete 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. The MediCOE software’s internet technology allows clinicians to make orders from any secure internet location anytime. 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 and notes or 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. Both the MediCOE and MediMAR software have been successfully installed at customer sites. Based on those successes, the Company is targeting its large WORx software customer base and net new customers with the MediCOE and MediMAR products.

Like the Blood Management Division, the Medication Management Division generates revenue from software sales, professional services and post-contract support. In the Medication Management Division, support contracts currently account for over half of the Division’s revenue. As the MediCOE and MediMAR products progress, the Company expects that license fees will increase and support contracts will make up a smaller portion of the Division’s revenue.

The Medication Management Division competes against the largest providers of healthcare information technology, including Cerner, General Electric, Siemens and others. It also competes against other niche competitors. 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 continued growth for the Division. The Medication Management Division markets directly through a sales force and other marketing channels utilized by the Medication Management Division, including reseller agreements with distribution partners and focused sales channels.

The Medication Management Division also includes the Company's United Kingdom operating business JAC Computer Services, Ltd. (“JAC”). JAC markets and supports its pharmacy and stock control system to pharmacy departments of hospitals throughout the U.K. and Ireland. The Company’s U.K. division includes an installed base of over 250 customer sites, representing over 80 National Health Service (“NHS”) trusts. JAC’s product offering includes WORx JAC System, a prescribing module and an inventory control module (“Stock Control”). The prescribing module is a medication management solution complete with physician medication order entry and nursing medication administration. This module has been installed in 14 U.K. customer sites and allows hospitals to comply with Level 3 patient records standards required by U.K. law. The Company’s Stock Control product handles medication tracking from ordering and delivery to dispensing. The installed base is approximately 36% of the acute beds within the NHS.

In the beginning of 2004, the NHS in England undertook a historic national program to purchase and update England’s NHS health care IT, which the government has identified as the “Connecting for Health” program. This program is designed to develop an integrated clinical software solution for hospitals in order to support the modernization of patient care in England. The NHS has entered into contracts to license software and services. JAC is designated as a preferred supplier of pharmacy stock control for a subcontractor in the program.

Perioperative Management Division

Mediware’s Perioperative Management Division supplies information and management software systems to hospitals for use in the operating room setting. In recent years, hospital surgical suites and operating rooms have been pressured to better manage their costs and expenses. The Perioperative Management Division’s software provides scheduling tools, which help ensure efficient use of hospital facilities, as well as other important tools needed to capture and document the entire operating room event. The software also offers a comprehensive database that can assist operating room management personnel with management tools, information and reports that are needed to identify performance improvement opportunities.

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The Division’s lead product is Perioperative Solutions™ which provides the operating room the broad scope of software functionality needed in a well-managed perioperative department. Perioperative Solutions provides the full functionality necessary to manage an operating room and its associated functions while supporting and documenting the entire perioperative clinical event, providing information that is crucial for compliance with insurance and regulatory reporting, and identifying potential opportunities for improvement throughout the entire process.

Development activities are focused on adding features to the software that enhance these benefits. The Perioperative Management Division also offers PS Tracker™ and PS Clinical Intelligence™. These software modules allow Perioperative Solutions customers to identify, execute, and measure specific initiatives to benefit from both their investment in Perioperative Solutions and from the new practices it enables. PS Tracker has been designed so that operating room management and hospital administrators can intuitively mine the comprehensive database created by Perioperative Solutions to improve operations and manage costs. PS Clinical Intelligence addresses one of the most pressing issues with operating room information systems: keeping the thousands of surgeon-specific preferences up to date. It automates this process by analyzing case histories and making recommendations for improvements in specific preferences. Other features under development are expected to provide new capabilities to enable hospitals to better comply with recent regulatory and accreditation requirements.

The Perioperative Management Division generates revenue from new software sales and post-contract support. Support contracts relating to legacy Perioperative Solutions customers are anticipated to comprise a significant percentage of its revenue during fiscal 2007.

The Perioperative Management Division markets on a direct sales basis. It is also pursuing strategic reseller arrangements. Like the other Divisions, it also competes against other best of breed vendors and enterprise-wide vendors with significantly more resources than the Company. The Division, however, believes that the quality and functionality of its products are positioned well to succeed in the market.

Research and Development

Expenditures for software development include amounts paid for both capitalizable and noncapitalizable development projects. Expenditures for software development for fiscal 2006, 2005, and 2004 were $8,820,000, $8,840,000 and $8,875,000, respectively. Of the total expenditures during fiscal 2006, 2005 and 2004, $4,565,000, $5,300,000 and $5,804,000, respectively, were capitalized. The Company plans to continue to commit substantial resources to the development of its products.

Employees

As of June 30, 2006, the Company had 202 full-time employees of which 182 were employed domestically. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its employee relations are good.

The Company also relies on the services of a number of consultants to supplement its employee base. The number of consultants varies from time to time based on the Company's needs and the various stages of its development projects. At June 30, 2006, there were 14 consultants working on various projects.

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Seasonality

The Company's operations are not subject to seasonal fluctuations.

Geographic Information
(Amounts in thousands)
	For Year Ended June 30,
	2006		2005		2004
Revenue
United States	$	33,607	$	32,777	$	33,569
United Kingdom		4,264		3,782		3,085
Total	$	37,871	$	36,559	$	36,654

	For Year Ended June 30,
	2006		2005		2004
Long-lived assets
United States	$	24,012	$	24,622	$	23,981
United Kingdom		580		607		440
Total	$	24,592	$	25,229	$	24,421

The Company believes that the principal risks distinguishing its foreign operations are fluctuations in the exchange rates between British pounds and U.S. dollars, the distinct medical regulatory environment of the United Kingdom and the market involvement of the NHS.

Backlog

At June 30, 2006, the Company had a backlog of approximately $18,288,000, of which approximately $852,000 related to contracted software and hardware sales and approximately $17,436,000 related to implementation, training and deferred support and maintenance services. Software sales and services backlog consist of products and services sold under signed contracts, which have not yet been recognized as revenue. At June 30, 2005, the Company had a backlog of approximately $16,852,000, of which approximately $1,032,000 related to contracted software and hardware sales and approximately $15,820,000 related to implementation, training and deferred support and maintenance services.

Item 1A. Risk Factors.

This Annual Report on Form 10-K contains forward-looking statements.

This Annual Report on Form 10-K contains forward-looking statements. Statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. The words “believes,” “anticipates,” “plans,” “seeks,” “expects,” “intends” and similar expressions identify some of our forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. Factors discussed elsewhere in this Form 10-K could also cause actual results to differ materially. Set forth below are some of the risks and uncertainties that, if they were to occur, could materially adversely affect our business or that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements we make. We undertake no obligation to publicly update or revise any forward-looking statements.

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

Our senior management team has recently undergone significant changes. Our chief executive officer, James Burgess, joined Mediware in October 2005. We also hired Paul O’Toole in January 2006 as general manger for our Perioperative Management Division. On February 2006, Mary Truvillion was hired as vice president of human resources, a new position expected to centralize HR functions for the Company. Also in February 2006, John Van Blaricum was hired as vice president of marketing and communications to centralize Mediware’s marketing activities. In March 2006, John Damgaard was promoted to general manager of the Blood Management Division after serving as the Division’s chief operating officer for the preceding three years. Kevin Ketzel, who joined Mediware in October 2005, became the general manager of our Medication Management Division in April 2006. Mr. Ketzel’s promotion enabled the planned transition of Mike Crabtree, who led the Medication Management Division for 5 years, to transition to a consulting role focused on establishing growth oriented strategic partnerships. On June 30, 2006, the Company’s CFO, Jill Suppes, resigned. The Company has commenced a search for a new Chief Financial Officer. Mr. Mark Williams, the Company’s controller, is acting as the Company’s principal accounting and financial officer until a replacement is found. As the new management team gains an understanding of our business and products and new roles in the Company are defined, our short-term and long-term direction may change and the changes may not improve our future results of operations or financial condition.

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If we do not manage our strategic changes effectively, our financial performance could be harmed.

We have recently made strategic changes that have placed, and will continue to place, pressures on our management, administrative and operational infrastructure as well as on our results of operations. Mediware has changed and added to its senior management team, added marketing infrastructure and added implementation personnel. These employees have limited experience with us and may have a limited understanding of our systems and controls. We also reduced our workforce by approximately 10% on February 17, 2006. These departed employees possessed knowledge of our business, relationships with our customers and other employees and skills that were not replaced. These personnel changes may make it more difficult for us to ensure that we operate efficiently and effectively. Furthermore, we have incurred and will continue to incur expense to hire and train our new personnel even though their immediate productivity is uncertain and there is no guarantee that they will have a positive impact on our revenues, operations or results of operations.

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

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

· government spending

· regulation of our products, customers and employees

· uncertain contract terms and conditions

· trade protection regulation

· taxation

· economic conditions

· customer demands and payment practices and

· changing competitors.

Additionally, foreign operations expose us to foreign currency fluctuations that could impact our results of operations and financial condition based on the movements of the applicable foreign currency exchange rates in relation to the U.S. Dollar. Mediware has not entered into any derivative financial instrument to manage foreign currency risk and is currently not evaluating the future use of any such financial instruments.

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

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

· spend significant sums in litigation

· pay damages

· develop non-infringing intellectual property and

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

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

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

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

· our software to become inoperable

· features and functions to become unavailable or

· materially reduced product performance.

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

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

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

Hospital networks reduce our sales opportunities and may reduce profitability.

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

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Significant competition may reduce our profit margin.

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

· functionality of software products

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

· underlying technical architecture

· financial stability of the software provider

· ongoing support of the system and

· the quality and quantity of the sales organization.

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

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

While we believe that each of our “best of suite” products is positioned to succeed in the market place, there is no assurance that customers will accept our “best of suite” strategy or accept our products to the extent that we expect. If our customers instead select a single-vendor, enterprise-wide system that automates all functions of the hospital, rather than the discrete functions targeted by our products, our sales will decrease.

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

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

Our license fee revenue will be adversely affected after June 2007 if we do not successfully implement a near-term strategy to replace the revenue derived from the migration of the Blood Management Division’s legacy products.

Over the last few years, our Blood Management Division has experienced increased license fee revenue as a result of the migration of its customers from our legacy blood bank products to our HCLL software product, and we expect that our license fee revenues will continue to benefit from the migration through fiscal year 2007. However, after June 30, 2007, Mediware will experience decreased license revenue unless we develop and implement a near-term strategy to replace that revenue.

12

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

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

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

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

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

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

New and changing government regulation creates compliance challenges.

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

Increasing government regulation may increase costs and reduce profitability.

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

In addition, our Blood Management products are regulated as medical devices by the FDA. Blood bank software vendors are also subject to the FDA’s Quality Systems Regulations. Although we try to ensure that our internal quality system complies with federal guidelines, full compliance with existing or any future guidelines, or inspection procedures is unpredictable. We have dedicated substantial time and resources to comply with guidelines and regulations applicable to the products of our Blood Management Division. The FDA enforces compliance by using recalls, seizures, injunctions, civil fines and criminal prosecutions. Unsatisfactory compliance and the inability to timely remedy any non-compliance, resulting in any of the above actions, would likely have a material adverse effect on our business, financial condition and results of operations. If the FDA expands its scope of regulation of our Medication Management or Perioperative Management Division products, it would be costly to implement the FDA Quality Systems Regulation procedures. Furthermore, any new products of the Blood Management Division may not be approved by the FDA, which would diminish the value of our research and development for those products and could impair the future financial performance of the Division.

13

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

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

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

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

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

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

· delays in product delivery

· poor client references

· payment disputes

· contract cancellations

· contract disputes, including warranty claims and lawsuits and/or

· additional expenses and payments to rectify problems.

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

Our operating results can fluctuate due to irregular system sales.

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

· contract activity

· demand for our products and services

· lengthy and complex sales cycles

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

· customers’ personnel availability.

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

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

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

· Customer-specific acceptance criteria and

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

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

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

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

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

The Company's corporate headquarters are located in Lenexa, Kansas, where it occupies approximately 18,000 square feet of leased space. The Company also leases office space in Melville, New York (8,000 square feet), Scotts Valley, California (9,000 square feet), Dallas, Texas (5,000 square feet), Oak Brook, Illinois (15,000 square feet) and Portland, Oregon (1,000 square feet). The Company's United Kingdom operations are headquartered in Basildon, Essex where it occupies leased space totaling approximately 6,000 square feet.

Item 3. Legal Proceedings.

On March 6, 2006, Triad Laboratory Alliance, LLC d/b/a Spectrum Laboratory Network (“Spectrum”) filed suit against Mediware in the General Court for Justice, Superior Court Division, County of Guilford, North Carolina. The case has been removed from North Carolina state court to the United States District Court for the Middle District of North Carolina. Spectrum seeks an unspecified amount of damages (exceeding $300,000) due to, among other things, the alleged breach by Mediware of certain of its representations and warranties under its license agreement and the violation of certain unfair trade practices under North Carolina law that could require Mediware to pay treble damages.

On June 9, 2005, the Company filed a breach of contract action in the United States District Court for the Eastern District of North Carolina for approximately $285,000 against WakeMed, a hospital corporation based in North Carolina (“WakeMed”). Mediware alleges that WakeMed has breached its payment and related obligations under its software license agreement for software licensed from Mediware. On June 17, 2005, the Company removed from North Carolina state court to the Eastern District Court a suit filed by WakeMed on June 8, 2005. These actions have been consolidated into a single action in federal court.  WakeMed has sought repayment of all of its license fees totaling $395,000 alleging that Mediware violated its representations, warranties and certain unfair trade practices under North Carolina law that could require Mediware to pay treble damages. 

In October 2004, the Superior Court of El Dorado County, California granted summary judgment on behalf of Donnie L. Jackson, Jr. against Global Med Technologies, Inc. (“Global Med”) and awarded Mr. Jackson, among other things, the reimbursement of attorneys’ fees, costs and interest. The Company has incurred attorneys’ fees and costs on behalf of Mr. Jackson, a former officer of the Company, in connection with this case, which was commenced on September 23, 2002 by Global Med. Global Med accused Mr. Jackson of breaching contractual obligations and covenants to Global Med. Global Med has appealed this summary judgment and has been ordered to deposit into escrow amounts required by the court to cover the awarded fees, costs and interest. In the event that Mr. Jackson ultimately prevails in this case, the Company anticipates that it will be reimbursed for the attorneys’ fees and costs plus interest advanced to Mr. Jackson in an amount in excess of $670,000.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company's common stock is traded on the Nasdaq Capital Market (formerly the Nasdaq Small Cap Market) under the symbol MEDW.

The following table sets forth the high and low sales prices for the Company's common stock for each quarterly period of the fiscal years ended June 30, 2006 and 2005, as reported by Nasdaq.

	2006				2005
	High		Low		High		Low
First Quarter	$	10.57	$	7.82	$	13.00	$	9.00
Second Quarter	$	12.13	$	7.68	$	13.95	$	9.50
Third Quarter	$	13.35	$	9.75	$	13.50	$	9.77
Fourth Quarter	$	10.68	$	8.65	$	13.59	$	9.76

As of August 11, 2006, there were approximately 185 shareholders of record of the Company's common stock. To date, the Company has not paid dividends to its shareholders. The Company does not currently intend to pay dividends, but it may review the benefits of paying dividends in the future.

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		1,140,000	$	9.12		1,231,000
Equity compensation plans not approved by security holders		-0-		-0-		-0-
Total		1,140,000	$	9.12		1,231,000

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Item 6. Selected Financial Data.

(In thousands, except per share data)

Statements of Operations Data
For the years ended June 30,
	2006			2005			2004			2003			2002
Revenue
System sales	$	12,164		$	11,731		$	12,421		$	12,564		$	11,541
Services		25,707			24,828			24,233			20,419			18,544
Total revenue		37,871			36,559			36,654			32,983			30,085
Cost of sales
Cost of systems (1)		2,197			2,262			2,392			2,487			2,885
Cost of services (1)		7,483			7,441			7,331			6,263			5,588
Total cost of sales		9,680			9,703			9,723			8,750			8,473
Gross profit (1)		28,191			26,856			26,931			24,233			21,612
Amortization of capitalized software		4,828			4,247			3,710			2,199			1,844
Software development costs		4,255			3,540			3,071			2,757			3,269
Selling, general and administrative		16,114			14,584			14,507			12,939			12,072
Proceeds from settlement											(614	)
Net interest and other income		(677	)		(235	)		(235	)		(56	)		(3	)
Income before income taxes		3,671			4,720			5,878			7,008			4,430
Income tax expense		(1,343	)		(1,784	)		(2,271	)		(2,619	)		(1,799	)
Net income	$	2,328		$	2,936		$	3,607		$	4,389		$	2,631
Net income per common share
Basic	$	0.29		$	0.38		$	0.48		$	0.60		$	0.36
Diluted	$	0.28		$	0.36		$	0.44		$	0.56		$	0.35
Weighted average common shares outstanding
Basic		8,009			7,790			7,463			7,300			7,228
Diluted		8,288			8,152			8,174			7,844			7,611
Balance Sheet Data
As of June 30,
Cash and cash equivalents	$	18,996		$	14,839		$	10,213		$	7,525		$	3,228
Working capital (deficit)		18,095			12,917			9,783			4,241			(718	)
Total assets		53,723			49,533			46,202			38,806			32,188
Debt		29			54			1,494			1,387			1,352
Common stock and APIC		30,425			28,720			27,193			24,735			24,104
Retained Earnings (accumulated deficit)		8,087			5,759			2,823			(784	)		(5,173	)
Total stockholders' equity		38,501			34,538			30,065			23,935			18,864

(1) Excludes amortization of capitalized software costs

18

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.

Results of Operations

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an on-going basis, we evaluate these estimates, including those related to revenue recognition, capitalized software costs and goodwill. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of the financial statements.

Revenue Recognition

The Company derives revenue from licensing its proprietary applications software and sub-licensed software, sale of computer hardware and the services performed related to the installation, training, consultation and ongoing support of the software. License fee revenue is generally recognized when evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. Revenue from the sale of hardware is generally recognized upon shipment. Fees for installation, training and consultation are recognized as the services are provided. If the Company enters into arrangements with a client requiring significant customization of the software or services that are essential to the functionality of the software, the Company recognizes revenue derived from the sale of licensed software, sub-licensed software and services over the period the services are performed, in accordance with the American Institute of Certified Public Accountants Statement of Position (“SOP”) 97-2, "Software Revenue Recognition" as amended by SOP No. 98-4, SOP 98-9 and clarified by Staff Accounting Bulletin (“SAB”) 101, SAB No. 104 and Emerging Issues Task Force 00-21. Support and maintenance fees, typically sold on an annual renewal basis, are recognized ratably over the period of the support contract.

Capitalized Software Costs

Capitalized computer software costs consist of certain costs incurred to create and develop computer software products. The Company accounts for capitalized software costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Software to be Sold, Leased or Otherwise Marketed.” As such, the Company capitalizes all software production costs incurred upon the establishment of technological feasibility for the product or enhancement, which ceases upon its general release.

Technological feasibility occurs upon the completion of the planning, designing, coding and testing activities that are necessary to establish that the product or enhancement can be produced to meet its design specifications, including its functions, features and technical performance requirements.

The Company amortizes capitalized software development costs for each product and enhancement over the estimated useful life of the product or enhancement, which ranges from 5 to 7 years. These estimates are based on available information, including product life cycles, past history with similar products, the market and anticipated market share for the product and other factors unique to the product.

The Company reports capitalized software costs at the lower of unamortized cost or net realizable value. Net realizable value for capitalized software costs for each product or enhancement is determined by subtracting the estimated costs of completing and disposing of the product from the estimated future revenue of the product. These estimates are based on available information, including product life cycles, past history and market for the products or enhancement, the market share the Company expects to achieve, current and future pricing of the products, the existing customer base, and other factors unique to each product.

19

The evaluation of net realizable value is inherently very subjective. However, the Company believes its calculation of net realizable value has historically been accurate in all material respects. Due to the size of our customer base, which generates a recurring support revenue stream, combined with anticipated system sales from our new products, the Company has not historically experienced, and does not anticipate, any significant changes to the net realizable value of our current capitalized software development costs.

Goodwill

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. These business acquisitions include Digimedics Corporation in May 1990, certain assets of Information Handling Services Group, including its Pharmakon and JAC divisions in June 1996, and Informedics, Inc. in September 1998. Commencing July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," and evaluates for impairment utilizing undiscounted projected cash flows. As of June 30, 2006, the Company believes that no such impairment has occurred. Accumulated amortization for goodwill was $2,336,000 at June 30, 2006 and 2005. Goodwill was reduced by the recognition of related income tax benefit during fiscal 2006 and 2005.

Material Changes in Results of Operations: fiscal 2006 versus fiscal 2005

Total revenue increased in fiscal 2006 compared to fiscal 2005 and the Company’s gross profit improved as well. However, net income decreased in fiscal 2006 compared to fiscal 2005 because of increases in non-capitalized software development costs, amortization of capitalized software costs and selling, general and administrative expenses.

The Company has several products that are maturing in their life cycle. As a result, a greater portion of the continuing development costs are required to be expensed in fiscal 2006 as compared to fiscal 2005 even though the total expenditures for research and development costs remained relatively constant between the two years. Additionally, recent software releases have also resulted in greater amortization of capitalized software costs in fiscal 2006 compared to fiscal 2005. The Company expects amortization of capitalized software costs and software development costs to continue to increase during fiscal 2007 because of the development cycle of its products.

Increased selling, general and administrative costs are the result of several factors. Compensation expense is recognized under SFAS 123R in fiscal 2006 but was not in the prior year. Since October 2005, the Company has changed and added to its senior management team and added marketing infrastructure and implementation personnel. The Company believes that its additional management, sales and marketing resources will enable Company to participate in more sales opportunities and broaden the Company’s potential base of customers. In an effort to help offset the additional costs of the foregoing, Mediware reduced its workforce by approximately 10% on February 17, 2006. The reductions primarily effected employees supporting the Company’s sunset, legacy blood bank products and various administrative resources whose functions were centralized at the Company’s headquarters in Lenexa, Kansas.

Total revenue for fiscal 2006 is $37,871,000 compared to $36,559,000 in fiscal 2005, an increase of $1,312,000 or 3.6%. Revenue in the Blood Management Division increased $1,844,000, or 10.3%, to $19,781,000 in fiscal 2006 compared to $17,937,000 in fiscal 2005. The Medication Management Division (excluding JAC) recorded a decrease of $308,000, or 2.5%, to $12,210,000 in fiscal 2006 from $12,518,000 in fiscal 2005. JAC recorded an increase of $482,000, or 12.7%, to $4,264,000 in fiscal 2006 compared to $3,782,000 in fiscal 2005. The Perioperative Management Division recorded a decrease of $706,000, or 30.4%, to $1,616,000 in fiscal 2006 compared to $2,322,000 in fiscal 2005.

System sales, which include proprietary software, third party software and hardware revenue, were $12,164,000 in fiscal 2006, an increase of $433,000, or 3.7%, from $11,731,000 in fiscal 2005. System sales for the Blood Management Division were $6,475,000, an increase of $456,000, or 7.6%, from $6,019,000 in fiscal 2005. The increase reflects increased licensing activity as the Division’s legacy Hemocare and LifeLine product customers migrate to the next generation HCLL product. Mediware believes, but cannot give any assurance, that HCLL system sales will continue to grow, as customers continue the migration from legacy systems to the next generation HCLL product through the end of fiscal 2007, after which system sales from the migration will substantially decline. System sales in the Medication Management Division (excluding JAC) decreased $19,000, or 0.5%, from $4,063,000 in fiscal 2005 to $4,044,000 in fiscal 2006. The decrease resulted from a decrease in sales associated with an initiative that commenced in fiscal 2005 to sell additional proprietary user licenses and third-party software licenses to current customers to ensure compliance with the terms of the customers’ existing license agreements. System sales resulting from that program decreased from $1,276,000 in fiscal 2005 compared to $63,000 in fiscal 2006. Mediware does expect sales from this program to continue in future years, at levels that are consistent with fiscal 2006 sales levels. The decrease in system sales was partially offset by increased system sales of the MediMAR and MediCOE products in fiscal 2006. The Company believes, but cannot give any assurance, that system sales of the MediMAR and MediCOE products will continue to improve as the Company’s sales and marketing efforts associated with the products continue. JAC recorded an increase in system sales of $447,000, or 46.7%, from $957,000 in fiscal 2005 to $1,404,000 in fiscal 2006. The increase reflects additional sales activity resulting from JAC’s current status as a preferred supplier of pharmacy stock control for a subcontractor in the United Kingdom’s “Connecting for Health” program. While the Company believes system sales at JAC will continue to increase, the third party vendors with whom JAC has business relationships may not continue to act as service providers for the Connecting for Health Program. If this occurs, JAC may not continue to be a preferred supplier for the Stock Control system, and JAC’s sales could be adversely impacted. The Perioperative Management Division experienced a decrease in system sales of $451,000 or 65.2% from $692,000 in fiscal 2005 to $241,000 in fiscal 2006. The decrease reflects the fact that the migration of its customers from the legacy Surgiware system to the Perioperative Solution product has been largely completed, but the decrease was partially offset by the purchase of Perioperative Solutions by new customers.

20

Service revenue, which includes recurring software support, implementation and training services increased $879,000, or 3.5%, from $24,828,000 in fiscal 2005 to $25,707,000 in fiscal 2006. Service revenue for the Blood Management Division increased $1,388,000, or 11.6%, from $11,918,000 in fiscal 2005 to $13,306,000 in fiscal 2006. The increase in service revenue is primarily due to increased rates on renewing support contracts with existing customers as well as increased implementation activity on HCLL contracts signed within the last year. Service revenue in the Medication Management Division (excluding JAC) decreased $289,000, or 3.4%, from $8,455,000 in fiscal 2005 to $8,166,000 in fiscal 2006. The decrease in service revenue is primarily due to a decline in ongoing implementation projects. Service revenue for JAC increased $35,000, or 1.2%, from $2,825,000 in fiscal 2005 to $2,860,000 in fiscal 2006. This increase in service revenue is primarily due to increased implementation activity on contracts signed within the last fiscal year. Service revenue in the Perioperative Management Division decreased $255,000, or 15.6%, from $1,630,000 in fiscal 2005 to $1,375,000 in fiscal 2006. The decrease in service revenue reflects a decline in ongoing implementation projects.

Cost of systems includes the cost of computer hardware and sublicensed software purchased from computer and software manufacturers by the Company as part of its integrated 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 decreased $65,000, or 2.9%, from $2,262,000 in fiscal 2005 to $2,197,000 in fiscal 2006. Gross margin on system sales, excluding amortization of capitalized software costs, was 81.9% in fiscal 2006 compared with 80.7% in fiscal 2005. The increase in gross margin reflects reduced sales of lower margin computer hardware and sublicensed software components.

Cost of services includes the salaries of client service personnel and direct expenses of the client service departments. Cost of services for fiscal 2006 increased $42,000, or 0.6%, over the previous year. The increase in cost of services primarily reflects increased staff levels to support the rollout of the HCLL products. Despite the increase in cost of services, gross margin on service revenue improved from 70.0% in fiscal 2005 to 70.9% in fiscal 2006. The Company believes, but cannot assure, that cost of services as a percentage of service revenue will remain consistent with its current rates.

Amortization of capitalized software increased $581,000, or 13.7%, from $4,247,000 in fiscal 2005 to $4,828,000 in fiscal 2006. This increase is primarily due to increased amortization of capitalized software costs related to recent releases of the HCLL and MediMAR products.

Software development costs include the non-capitalizable portions of salaries, consulting, documentation, office and other direct expenses incurred in product development activities. Software development costs increased $715,000, or 20.2%, from $3,540,000 in fiscal 2005 to $4,255,000 in fiscal 2006. This increase represents the Company’s focus on the design of new enhancements and development efforts on software previously released to the market. Expenditures for this type of development are generally expensed and not capitalized. Total expenditures for software development include amounts paid for both capitalizable and noncapitalizable development projects. Total expenditures for software development were $8,820,000 in fiscal 2006, compared to $8,840,000 in fiscal 2005, a decrease of $20,000 or 0.2%. The Company expects continued product development investment in all of its Divisions.

21

Selling, general and administrative (“SG&A”) expenses include marketing and sales salaries, commissions, travel and advertising expenses. Also included is bad debt expense; legal, accounting and professional fees including costs associated with Sarbanes-Oxley; salaries and bonus expenses for corporate, divisional, financial and administrative staffs; utilities, rent, communications and other office expenses; and other related direct administrative expenses. SG&A expenses increased $1,531,000, or 10.5%, from $14,584,000 in fiscal 2005 to $16,114,000 in fiscal 2006. This increase reflects increases in labor and related benefit costs and marketing related activities as well as payments of bonuses, recruiting and transition costs associated with changes to the senior management team and non-cash stock option compensation expense required by SFAS 123R. These increases were partially offset by reductions in legal and accounting expenses, and the completion of the amortization of the LifeTrak products which ended in fiscal 2005.

Net income for fiscal year 2006 was $2,328,000 compared to a net income for fiscal year 2005 of $2,936,000.

Material Changes in Results of Operations: fiscal 2005 versus fiscal 2004

Total revenue for fiscal 2005 was $36,559,000 compared to $36,654,000 in fiscal 2004, a decrease of $95,000 or 0.3%. The Perioperative Management Division recorded a decrease of $151,000, or 6.1%, to $2,322,000 in fiscal 2005 compared to $2,473,000 in fiscal 2004. JAC recorded an increase of $697,000, or 22.6%, to $3,782,000 in fiscal 2005 compared to $3,085,000 in fiscal 2004. The Medication Management Division (excluding JAC) recorded a decrease of $3,128,000, or 20.0%, to $12,518,000 in fiscal 2005 from $15,646,000 in fiscal 2004. Revenue in the Blood Management Division increased $2,486,000, or 16.1%, to $17,937,000 in fiscal 2005 compared to $15,451,000 in fiscal 2004.

System sales were $11,731,000 in fiscal 2005, a decrease of $690,000, or 5.6%, from $12,421,000 in fiscal 2004. The Perioperative Management Division experienced a decrease in system sales of $86,000, or 11.1%, from $778,000 to $692,000. The decrease reflects the near completion of the Division’s heritage customer migration to Perioperative Solutions. JAC recorded an increase of $223,000, or 30.4%, to $957,000 in fiscal 2005. The increase reflects additional sales activity resulting from JAC being named as a preferred supplier of pharmacy stock control for a subcontractor as part of the United Kingdom’s new national program for information technologies, which the government has identified as the “Connecting for Health” program. System sales in the Medication Management Division decreased $2,465,000, or 37.8%, to $4,063,000 from $6,528,000. The decrease reflects lower sales of the base WORx system. During fiscal 2005, the Company commenced an initiative to sell additional proprietary user licenses and related third-party software licenses to certain customers, based on their current usage levels, pursuant to the terms of customers’ existing license agreements. During fiscal 2005, the Company reported system sales of $1,276,000 resulting from this initiative. During fiscal 2005, the Company restructured the Medication Management division to reflect the integration of its three primary products, WORx, MediMAR and MediCOE into a single medication management solution. The restructuring better aligns the identity of our clinical solution with the needs of potential customers. During fiscal 2005, the Division met two significant milestones as it migrates from a WORx stand-alone base sale to an integrated medication management sale. The Division made an early adopter sale of its integrated medication management solution, and the Division gained separate reference sites for both the MediCOE and MediMAR products. System sales for the Blood Management Division were $6,019,000, an increase of $1,638,000, or 37.4%, from $4,381,000 in fiscal 2004. The increase reflected the initial customer migration from the Division’s heritage products to the HCLL software, the Division’s next generation blood transfusion system.

Service revenue increased $595,000, or 2.5%, to $24,828,000 in fiscal 2005 from $24,233,000 in fiscal 2004. Service revenue in the Perioperative Management division decreased $65,000, or 3.8%, to $1,630,000 in fiscal 2005 from $1,695,000 in fiscal 2004. The decrease in service revenue was primarily due to a decline in ongoing implementation projects. Service revenue for JAC increased $475,000, or 20.2%, to $2,825,000 in fiscal 2005 compared to $2,350,000 in fiscal 2004. This increase in service revenue is primarily due to increased implementation activity on contracts signed within the last fiscal year. Service revenue in the Medication Management division (excluding JAC) decreased $663,000, or 7.3%, to $8,455,000 in fiscal 2005 from $9,118,000 in fiscal 2004. The decrease in service revenue is primarily due to lower utilization rates on a specific contract and a decline in ongoing implementation projects. Service revenue for the Blood Management division increased $848,000, or 7.7%, to $11,918,000 in fiscal 2005 compared to $11,070,000 in fiscal 2004. This increase in service revenue was primarily due to increased rates on renewing support contracts with existing customers as well as increased implementation activity on HCLL contracts signed within the last year.

22

Cost of systems decreased $130,000, or 5.4%, during fiscal 2005 due to the overall decrease in system revenue during fiscal 2005. The gross margin, excluding amortization of capitalized software costs, on system sales was 80.7% in both fiscal 2005 and fiscal 2004.

Cost of services increased $110,000, or 1.5%, in 2005 over the previous year. The increase in cost of services was primarily attributed to increases in implementation personnel as the Company increased staff levels for the rollout of its new MediMAR, MediCOE and HCLL products. Despite the increase in cost of services, gross margin on service revenue improved to 70.0% for fiscal 2005 compared to 69.7% for fiscal 2004.

Amortization of capitalized software increased $537,000, or 14.5%, to $4,247,000 in fiscal 2005 compared to $3,710,000 in fiscal 2004. This increase is primarily due to increased amortization of capitalized software costs related to the HCLL product, as well as the first full year of amortization costs related to the MediCOE and MediMAR products released by the Medication Management Division during fiscal year 2004.

Software development increased $469,000 in fiscal 2005 to $3,540,000 compared to $3,071,000 in fiscal 2004, which represents the Company’s focus on functional improvements and new enhancement designs. Total expenditures for software development were $8,840,000 in fiscal 2005, compared to $8,875,000 in fiscal 2004, a decrease of $35,000 or 0.4%. This decrease primarily reflected decreased expenditures of $199,000 and $54,000 in the Blood Management Division and Medication Management Division (excluding JAC), respectively, partially offset by increases of $107,000 and $111,000 in the Perioperative Management Division and JAC, respectively.

SG&A expenses increased $77,000, or 0.5%, from $14,507,000 in fiscal 2004 to $14,584,000 in fiscal 2005. This increase reflects increased marketing expenses and consulting services relating to compliance with Sarbanes-Oxley. These increases are partially offset by decreases in legal expense and health care costs.

Net income for fiscal year 2005 was $2,936,000 compared to a net income for fiscal year 2004 of $3,607,000.

Liquidity and Capital Resources at June 30, 2006 and 2005

As of June 30, 2006, the Company had cash and cash equivalents of $18,996,000 and working capital of $18,095,000, compared to cash and cash equivalents of $14,839,000 and a working capital of $12,917,000 at June 30, 2005. The current ratio at June 30, 2006 was 2.6 to 1 compared to 2.1 to 1 at June 30, 2005. Cash provided by operating activities was $7,966,000 and $11,183,000 for the fiscal years ended June 30, 2006 and 2005, respectively. The decrease in cash provided by operating activities in fiscal 2006 is primarily due to reduced net income and changes in accounts receivable, accounts payable, accrued expenses and customer advances.

Accounts receivable increased $682,000 from $8,066,000 at June 30, 2005 to $8,748,000 at June 30, 2006. Days sales outstanding was 84 and 81 at June 30, 2006 and 2005, respectively, which is near the Company’s current internal target of 80 days. The principal uses of cash for investing activities during the fiscal years ended June 30, 2006 and 2005 included purchases of fixed assets and investments in product development. During fiscal 2006, the Company purchased $519,000 of fixed assets as part of routine improvements and replacements to its internal systems, compared to $849,000 for fiscal 2005. The Company capitalized new product development of $4,565,000 and $5,300,000 for fiscal years 2006 and 2005, respectively. The investments in product development were related to the Company's ongoing efforts to enhance its products for the Blood Management, Medication Management and Perioperative Management Divisions. The Company plans to continue to review market expansion opportunities through internal development and/or the acquisition of products/companies that complement or augment the existing line of products.

The Company received $1,020,000 and $1,023,000 in fiscal 2006 and 2005 related to the exercise of stock options. During fiscal 2005, the Company repaid all outstanding principal and accrued interest in the amount of $1,419,000 on a note payable to the Chairman of the Board of Directors of the Company.

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

23

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to the Company.

Tabular Disclosure of Contractual Obligations

The Company's contractual obligations at June 30, 2006 for long-term debt and for operating leases are as follows (amounts in thousands):

Contractual Obligations
	Payments Due by Year
	Total		2007		2008		2009		2010		2011		After 2011
Long-Term Debt Obligations	$	29	$	25	$	4	$	0	$	0	$	0	$	0
Operating Lease Obligations		1,654		1,174		207		137		68		68		0
Total	$	1,683	$	1,199	$	211	$	137	$	68	$	68	$	0

The Company does not have any material capital lease obligations, purchase obligations or other long-term liabilities.

New Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections a replacement of APB No. 20 and FAS No. 3” (“SFAS No.154”). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle.  SFAS 154 also applies to all voluntary changes in accounting principle.  It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for all accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company believes the adoption of SFAS 154 will not have an impact on its financial condition and results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”  (“SFAS No. 133”) and SFAS No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 140”). This statement amends SFAS No. 133 to permit fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation. This statement also eliminates the interim guidance in SFAS No. 133 Implementation Issue D-1, which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133. Finally, this statement amends SFAS No. 140 to eliminate the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. This statement is effective for all financial instruments acquired or issued in first fiscal years beginning after September 15, 2006. Management is assessing the potential impact of SFAS No. 155 on the Company’s financial condition and results of operations.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS No. 156”), that provides guidance on accounting for separately recognized servicing assets and servicing liabilities. In accordance with the provisions of SFAS No. 156, separately recognized servicing assets and servicing liabilities must be initially measured at fair value, if practicable. Subsequent to initial recognition, the Company may use either the amortization method or the fair value measurement method to account for servicing assets and servicing liabilities within the scope of this Statement. The Company will adopt SFAS No. 156 in fiscal year 2007. The adoption of this Statement is not expected to have a material effect on the Company’s financial condition and results of operations.

24

In April 2006, the FASB issued FSP FIN 46R-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46R” which requires the variability of an entity to be analyzed based on the design of the entity. The nature and risks in the entity, as well as the purpose for the entity’s creation are examined to determine the variability in applying FIN 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). The variability is used in applying FIN 46R to determine whether an entity is a variable interest entity, which interests are variable interests in the entity, and who is the primary beneficiary of the variable interest entity. This statement is effective for all reporting periods beginning after June 15, 2006. Management does not expect this statement to have a significant impact on the Company’s financial condition and results of operations.

In July 2006, the FASB issued FASB Interpretation Number 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes. The interpretation clearly scopes out income tax positions related to FASB Statement No. 5, Accounting for Contingencies. We will adopt the provisions of this statement on July 1, 2007. The cumulative effect of applying the provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings on July 1, 2007. We do not anticipate that the adoption of this statement will have a material effect on the Company’s financial condition and results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 8. Financial Statements and Supplemental Data.

The Financial Statements and Notes required by this Item are included in this Report starting on page 35.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer and Principal Accounting Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2006. Disclosure controls and procedures are defined in the Securities Exchange Act as controls and other procedures of the Company designed to ensure that information required to be disclosed by the Company 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 the Company in the reports that it files or submits to the SEC is accumulated and communicated to the Company’s management, including the CEO and Principal Accounting Officer, to allow timely decisions regarding required disclosure. Based on its review and evaluation, the Company’s management has concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2006.

25

There were no material changes in Mediware’s internal controls over the financial reporting that occurred during the three months ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. Notwithstanding the foregoing, Mediware recently reported the resignation of Ms. Jill Suppes, the company’s chief financial officer. Mr. Mark Williams, the Company’s controller, is acting 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.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in the Securities Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The Company’s management, under the supervision and with the participation of the Company’s CEO and Principal Accounting Officer, carried out an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2006. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has concluded that the Company’s internal control over financial reporting was effective as of June 30, 2006.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Mediware Information Systems, Inc.

We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Mediware Information Systems, Inc. ("Mediware") maintained effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Mediware's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of Mediware's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Mediware maintained effective internal control over financial reporting as of June 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the COSO. Also, in our opinion, Mediware maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control - Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Mediware Information Systems, Inc. as of June 30, 2006 and 2005, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2006, and our report dated August 4, 2006 expressed an unqualified opinion on those consolidated financial statements.

Eisner LLP

New York, New York

August 4, 2006

27

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2006, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

None

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PART III

Item 10. Directors and Executive Officers of the Registrant.

The information concerning the Company's executive officers required by this item is incorporated by reference to the Company's Proxy Statement under the heading "Executive Officers." The information concerning the Company's directors required by this item is incorporated by reference to the Company's Proxy Statement under the heading "Election of Directors." Information concerning the Company's officers’, directors’ and 10% shareholders’ required compliance with Section 16(a) of the Exchange Act is incorporated by reference to the Company's Proxy Statement under the heading "Section 16(a) Beneficial Ownership Reporting Compliance."

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the Company’s Proxy Statement under the heading “Executive Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to the Company’s Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters.”

Item 13. Certain Relationships and Related Transactions.

The information required by this item is incorporated by reference to the Company’s Proxy Statement under the heading “Certain Relationships and Related Transactions.”

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference to the Company’s Proxy Statement under the heading “Fees Paid to Independent Auditors.”

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this Report:

1. Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at June 30, 2006 and 2005

Consolidated Statements of Operations and Comprehensive Income for the years ended

June 30, 2006, 2005, and 2004

Consolidated Statements of Stockholders' Equity for the years ended June 30, 2006, 2005 and 2004

Consolidated Statements of Cash Flows for the years ended June 30, 2006, 2005 and 2004

Notes to Consolidated Financial Statements

Schedule II - Valuation and Qualification Accounts

EXHIBIT INDEX

3.1	Restated Certificate of Incorporation	Incorporated by reference to Exhibit No. 4 to the Registration Statement on Form S-8, filed on July 3, 1996.
3.2	Certificate of Amendment of the Certificate of Incorporation	Incorporated by reference to Exhibit No. 4.2 to the Registration Statement on Form S-8, filed on October 4, 2004.
3.3	Certificate of Correction of Restated Certificate of Incorporation
3.4	Certificate of Amendment of the Certificate of Incorporation
3.5	By-laws
10.1	Agreement between the Company and Intellimed Corporation dated September 25, 1990.	Incorporated by reference to Exhibit 10.1 in the Company’s Registration Statement on Form S-18.
10.2	Employment Agreement between Mediware Information Systems, Inc. and George J. Barry dated August 25, 2004.	Incorporated by reference to Exhibit 10.53 in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004.
10.3	Employment Agreement between Mediware Information Systems, Inc. and Michael L. Crabtree dated June 5, 2004.	Incorporated by reference to Exhibit 10.54 in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004.
10.4	Employment Agreement between Mediware Information Systems, Inc, and Frank Poggio dated August 16, 2004	Incorporated by reference to Exhibit 10.55 in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004.
10.5	Employment Agreement between Mediware Information Systems, Inc. and Jill Suppes dated May 20, 2005.	Incorporated by reference to Exhibit 10.56 in the Current Report on Form 8-K, filed on May 23, 2005.

30

10.6	Employment Agreement between Mediware Information Systems, Inc, and Rob Weber dated May 20, 2005.	Incorporated by reference to Exhibit 10.57 in the Current Report on Form 8-K, filed on May 23, 2005.
10.7	Employment Agreement between Mediware Information Systems, Inc. and Matthew Peterson dated June 27, 2005.	Incorporated by reference to Exhibit 10.58 in the Current Report on Form 8-K, filed on July 1, 2005.
10.8	Form of Amendment to 2003 Mediware Information Systems, Inc. Equity Incentive Plan Stock Option Agreement.	Incorporated by reference to Exhibit 10.58 in the Current Report on Form 8-K, filed on March 25, 2005.
10.9	Form of Amendment to 2001 Mediware Information Systems, Inc. Stock Option Plan Stock Option Agreement.	Incorporated by reference to Exhibit 10.59 in the Current Report on Form 8-K, filed on March 25, 2005.
10.10	Amended and Restated Employment Agreement, dated as of December 13, 2004,  between Mediware Information Systems, Inc. and Donnie L. Jackson.	Incorporated by reference to Exhibit 10.56 in the Current Report on Form 8-K, filed on December 13, 2004.
10.11	Agreement, dated as of December 13, 2004, by and between Mediware  Information Systems, Inc. and Donnie L. Jackson, Jr.	Incorporated by reference to Exhibit 10.57 in the Current Report on Form 8-K, filed on December 13, 2004.
10.12	Mediware Information Systems, Inc. 2003 Equity Incentive Plan.	Incorporated by reference to Appendix A in the Proxy Statement on Schedule 14A, file on November 10, 2003.
10.13	Form 2003 Mediware Information Systems, Inc. Equity Incentive Plan Stock Option Plan Agreement.	Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005.
10.14	Mediware Information Systems, Inc. 2001 Stock Option Plan.	Incorporated by reference to Appendix A in the Proxy Statement on Schedule 14A, filed on December 31, 2001.
10.15	Form of 2001 Mediware Information Systems, Inc. Stock Option Plan Stock Option Agreement.	Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005.
10.16	Employment Agreement dated as of April 18, 2003 between Mediware Information Systems, Inc. and Robert Tysall-Blay.	Incorporated by reference to Exhibit 10.2 in the Company’s Quarterly Report filed on Form 10-Q for the fiscal quarter ended September 30, 2005.
10.17	Employment Agreement between Mediware Information Systems, Inc. and James F. Burgess dated October 10, 2005.	Incorporated by reference to Exhibit 10.1 in the Current Report on Form 8-K, filed on October 12, 2005.
10.18	Employment Agreement between Mediware Information Systems, Inc. and Kevin Ketzel dated as of April 1, 2006.	Incorporated by reference to Exhibit 10.1 in the Company’s Quarterly Report filed on Form 10-Q for the fiscal quarter ended March 31, 2006.
10.19	Employment Agreement between Mediware Information Systems, Inc. and John Damgaard dated March 16, 2006.	Incorporated by reference to Exhibit 10.2 in the Company’s Quarterly Report filed on Form 10-Q for the fiscal quarter ended March 31, 2006.
10.20	Letter Agreement dated as of July 1, 2006 between Mediware Information Systems, Inc. and Jill H. Suppes.	Incorporated by reference to Exhibit 10.1 in the Current Report on Form 8-K, filed on July 7, 2006.

31

10.21	Employment Agreement dated as of June 30, 2006 between Mediware Information Systems, Inc. and Mark Williams.	Incorporated by reference to Exhibit 10.2 in the Current Report on Form 8-K, filed July 7, 2006.
11	Mediware Information Systems, Inc. and Subsidiaries Computation of Net Earnings Per Share.
21	List of Subsidiaries.
23	Consent of Eisner LLP.
31.1	Rule 13a-14(a)/15d-14(a) Certification.
31.2	Rule 13a-14(a)/15d-14(a) Certification.
32.1	Section 1350 Certification.
32.2	Section 1350 Certification.

32

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date:	September 6, 2006	BY: /s/ JAMES F. BURGESS
		JAMES F. BURGESS
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title
/s/ JAMES F. BURGESS	President, Chief Executive Officer & Director	September 6, 2006
JAMES F. BURGESS	(Principal Executive Officer)
/s/ MARK B. WILLIAMS	Acting Chief Accounting Officer	September 6, 2006
MARK B. WILLIAMS	(Principal Accounting Officer)
/s/ LAWRENCE AURIANA	Chairman of the Board	September 6, 2006
LAWRENCE AURIANA
/s/ JONATHAN CHURCHILL	Director	September 6, 2006
JONATHAN CHURCHILL
/s/ ROGER CLARK	Director	September 6, 2006
ROGER CLARK
/s/ JOSEPH DELARIO	Director	September 6, 2006
JOSEPH DELARIO
	Director	September 6, 2006
DR. JOHN GORMAN
	Director	September 6, 2006
IRA NORDLICHT
/s/ ROBERT SANVILLE	Director	September 6, 2006
ROBERT SANVILLE
/s/ DR. CLINTON WEIMAN	Director	September 6, 2006
DR. CLINTON WEIMAN

33

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Mediware Information Systems, Inc.

We have audited the accompanying consolidated balance sheets of Mediware Information Systems, Inc. as of June 30, 2006 and 2005 and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mediware Information Systems, Inc. as of June 30, 2006 and 2005, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended June 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

In connection with our audits of the financial statements referred to above, we audited Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended June 30, 2006. In our opinion, this schedule, when considered in relation to the financial statements taken as a whole, presents fairly, in all material respects, the information stated therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Mediware Information Systems, Inc.’s internal control over financial reporting as of June 30, 2006, based on criteria established in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 4, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Eisner LLP

New York, New York

August 4, 2006

34

MEDIWARE INFORMATION SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except shares)

	June 30,			June 30,
	2006			2005
ASSETS
Current Assets
Cash and cash equivalents	$	18,996		$	14,839
Accounts receivable (net of allowance of $923 and $626)		8,748			8,066
Inventories		160			208
Deferred income taxes		481			452
Prepaid expenses and other current assets		746			739
Total current assets		29,131			24,304
Fixed assets, net		1,220			1,361
Capitalized software costs, net		19,286			19,548
Goodwill, net		3,971			4,203
Other long-term assets		115			117
Total Assets	$	53,723		$	49,533
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	1,084		$	1,742
Current portion of note payable		25			24
Advances from customers		7,767			7,489
Accrued expenses and other current liabilities		2,160			2,132
Total current liabilities		11,036			11,387
Note payable		4			30
Deferred income taxes		4,182			3,578
Total liabilities		15,222			14,995
Commitments and contingencies (Note 12)
Stockholders' Equity
Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued		-			-
Common stock, $.10 par value; authorized 25,000,000 shares; 8,078,000 and 7,881,000 shares issued and outstanding in 2006 and 2005, respectively		808			788
Additional paid-in capital		29,617			27,932
Retained earnings		8,087			5,759
Accumulated other comprehensive income (loss)		(11	)		59
Total stockholders' equity		38,501			34,538
Total Liabilities and Stockholders' Equity	$	53,723		$	49,533

See Notes to Consolidated Financial Statements.

35

MEDIWARE INFORMATION SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except earnings per share)

	For the Years Ended June 30,
	2006			2005			2004
Revenue
System sales	$	12,164		$	11,731		$	12,421
Services		25,707			24,828			24,233
Total revenue		37,871			36,559			36,654
Cost and Expenses
Cost of systems (1)		2,197			2,262			2,392
Cost of services (1)		7,483			7,441			7,331
Amortization of capitalized software costs		4,828			4,247			3,710
Software development costs		4,255			3,540			3,071
Selling, general and administrative		16,114			14,584			14,507
Total costs and expenses		34,877			32,074			31,011
Operating income		2,994			4,485			5,643
Interest and other income		685			260			280
Interest and other expense		(8	)		(25	)		(45	)
Income before income taxes		3,671			4,720			5,878
Income tax provision		(1,343	)		(1,784	)		(2,271	)
Net income		2,328			2,936			3,607
Other comprehensive income (loss)
Foreign currency translation adjustment		(70	)		10			65
Comprehensive income	$	2,258		$	2,946		$	3,672
Net income per Common Share
Basic	$	0.29		$	0.38		$	0.48
Diluted	$	0.28		$	0.36		$	0.44
Weighted Average Common Shares Outstanding
Basic		8,009			7,790			7,463
Diluted		8,288			8,152			8,174

(1) Excludes amortization of Capitalized Software Costs

See Notes to Consolidated Financial Statements.

36

MEDIWARE INFORMATION SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Years Ended June 30, 2006, 2005 and 2004

(Amounts in thousands)

	Common Stock				Additional Paid-In		Deferred			Retained Earnings Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital		Compensation			(Deficit)			Income (Loss)			Total
Balance at June 30, 2003		7,358	$	736	$	23,999	$	-		$	(784	)	$	(16	)	$	23,935
Exercise of stock options		306		30		1,158											1,188
Tax benefit from exercise of stock options						1,270											1,270
Foreign currency translation adjustment														65			65
Net income											3,607						3,607
Balance at June 30, 2004		7,664		766		26,427		-			2,823			49			30,065
Exercise of stock options		217		22		1,001											1,023
Issuance of restricted common stock								(183	)								(183	)
Surrendered restricted common stock								183									183
Tax benefit from exercise of stock options						504											504
Foreign currency translation adjustment														10			10
Net income											2,936						2,936
Balance at June 30, 2005		7,881		788		27,932		-			5,759			59			34,538
Exercise of stock options		197		20		1,000											1,020
Stock based compensation expense						335											335
Tax benefit from exercise of stock options						350											350
Foreign currency translation adjustment														(70	)		(70	)
Net income											2,328						2,328
Balance at June 30, 2006		8,078	$	808	$	29,617	$	-		$	8,087		$	(11	)	$	38,501

See Notes to Consolidated Financial Statements.

37

MEDIWARE INFORMATION SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	For the Years Ended June 30,
	2006			2005			2004
Cash Flows From Operating Activities
Net income	$	2,328		$	2,936		$	3,607
Adjustments to reconcile net income, to net cash provided by operating activities:
Depreciation and amortization		5,485			5,091			4,890
Deferred tax provision		809			1,599			2,232
Stock based compensation expense		335			-			-
Provision for doubtful accounts		620			398			328
Changes in operating assets and liabilities:
Accounts receivable		(1,302	)		1,758			(3,370	)
Inventories		48			19			19
Prepaid and other assets		(5	)		51			(242	)
Accounts payable, accrued expenses and advances from customers		(352	)		(669	)		432
Net cash provided by operating activities		7,966			11,183			7,896
Cash Flows From Investing Activities
Acquisition of fixed assets		(519	)		(849	)		(733	)
Capitalized software costs		(4,565	)		(5,300	)		(5,804	)
Net cash used in investing activities		(5,084	)		(6,149	)		(6,537	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		1,020			1,023			1,188
Excess tax benefit from exercise of stock options		350			-			-
Proceeds from issuance of note payable		-			-			89
Principal payments on note payable		(25	)		(22	)		(13	)
Principal payments on note payable to related party		-			(1,419	)		-
Net cash (used in) provided by financing activities		1,345			(418	)		1,264
Foreign currency translation adjustments		(70	)		10			65
Net increase in cash and cash equivalents		4,157			4,626			2,688
Cash at beginning of year		14,839			10,213			7,525
Cash at end of year	$	18,996		$	14,839		$	10,213
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	40		$	123		$	149
Interest on note payable	$	2		$	728		$	3
Supplemental disclosures of noncash financing activities:
Additional paid-in capital recorded for excess tax benefit from exercise of stock options prior to the adoption of SFAS 123(R)		-		$	504		$	1,270
Reduction of goodwill recorded for tax benefit of related amortization	$	232		$	232		$	232

See Notes to Consolidated Financial Statements.

38

MEDIWARE INFORMATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Mediware Information Systems, Inc. and Subsidiaries ("Mediware" or the "Company") develops, markets, licenses, implements and supports clinical management information software systems used by hospitals. The Company's systems are generally designed to automate departments of a hospital, namely, the blood bank, the pharmacy, and the operating room, and to serve blood centers. A system consists of the Company's proprietary application software, third-party licensed software, computer hardware and implementation services, training and annual software support.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Mediware Information Systems, Inc. and its wholly owned subsidiaries Digimedics Corporation ("Digimedics") and Informedics, Inc. ("Informedics") and Digimedics' wholly owned subsidiary J.A.C. Computer Services Limited ("JAC"). All significant inter-company transactions and balances have been eliminated in consolidation.

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 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 is impaired.

Revenue Recognition

The Company derives revenue from licensing its proprietary applications software and sub-licensed software, sale of computer hardware and the services performed related to the installation, configuration, training and ongoing support of the software. Software license revenue is generally recognized when evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. Revenue from the sale of hardware is generally recognized upon shipment. Fees for installation, training and consultation are recognized as the services are provided. If the Company enters into arrangements with a client requiring significant customization of the software or services that are essential to the functionality of the software, the Company recognizes revenue derived from the sale of licensed software, sub-licensed software and services over the period the services are performed, in accordance with the American Institute of Certified Public Accountants Statement of Position (“SOP”) 97-2, "Software Revenue Recognition" as amended by SOP No. 98-4, SOP 98-9 and clarified by Staff Accounting Bulletin (“SAB”) 101, SAB No. 104 and Emerging Issues Task Force (“EITF”) 00-21. Support and maintenance fees, typically sold on an annual renewal basis, are recognized ratably over the period of the support contract.

Advertising Costs

Costs of advertising are expensed as incurred and amounted to $572,000, $464,000 and $310,000 for the years ended June 30, 2006, 2005 and 2004, respectively.

Presentation

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

Cash and Cash Equivalents

Cash equivalents include time deposits with maturities of three months or less when purchased.

Accounts Receivable

The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Generally, the Company does not require collateral when trade credit is granted to customers. Credit losses are provided for in the Company’s financial statements and consistently have been within management’s expectations.

39

Inventory

Inventory consists primarily of third-party software licenses held for resale and computer hardware. Both are valued at the lower of cost or market. Cost is determined based on the specific identification method. Inventory consists of the following at June 30:

	2006		2005
Software Licenses	$	113,000	$	136,000
Computer Hardware		47,000		72,000
	$	160,000	$	208,000

Fixed Assets

Furniture, equipment and leasehold improvements are valued at cost. Depreciation for furniture and equipment is provided on the straight-line method over their estimated useful lives. Leasehold improvements are amortized over their estimated useful lives or the remaining lease period, whichever is shorter.

Capitalized Software Costs

Capitalized computer software costs consist of expenses incurred in creating and developing computer software products. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Software to be Sold, Leased or Otherwise Marketed," once technological feasibility has been established the costs associated with software development are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on estimated current and future revenue for each product with an annual minimum equal to the straight-line amortization over the estimated economic life of the software, which ranges from five to seven years. Amortization expense for the years ended June 30, 2006, 2005 and 2004 was $4,828,000, $4,247,000 and $3,710,000, respectively. Capitalized software costs consisted of the following activity (in thousands):

	For the Year Ended June 30,
	2006		2005
Capitalized software costs
Beginning of year	$	38,176	$	32,876
Additions		4,565		5,300
		42,741		38,176
Less accumulated amortization		23,455		18,628
	$	19,286	$	19,548

Goodwill

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. These business acquisitions include Digimedics in May 1990, Informedics in September 1998 and certain assets of Information Handling Services Group, including its Pharmakon and JAC divisions, in June 1996. Accumulated amortization for goodwill was $2,336,000 at June 30, 2006 and 2005. There was no amortization expense for the years ended June 30, 2006, 2005 or 2004. Goodwill was reduced by certain income tax benefits amounting to $232,000 for each of the years ending June 30, 2006 and 2005.

Commencing July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," and evaluates for impairment utilizing undiscounted projected cash flows. As of June 30, 2006, management believes no such impairment has occurred.

40

Software Products Acquired and Purchased Technology

As a part of the acquisition of Informedics in September 1998, the Company obtained certain software products as well as technologies under development. A portion of the acquisition price of Informedics was allocated to software products based on the net present value of the projected income stream over the expected economic life of the specific products, which the Company expected to continue to market. This amount, totaling $498,000, was amortized over 5 years using the straight-line method. Purchased technology costs of $1,541,000 related to the acquisition of rights to LifeTrak, a comprehensive donor blood center software package, from Carter BloodCare in November 1999 was amortized over 5 years. In July 2001, the Company entered into an intellectual property agreement with Ortho Clinical Diagnostics, Inc. to purchase for $325,000 the rights to market an integrated testing module that was developed as part of the LifeTrak product. Purchased technology was fully amortized at June 30, 2005. Amortization costs for purchased technology charged to operations were $135,000 and $456,000 during fiscal years 2005 and 2004, respectively.

Foreign Currency Translations

The functional currency for the Company's JAC subsidiary is the British pound. The translation to U.S. dollars is consistent with SFAS No. 52, “Foreign Currency Translation.” The net gain or loss resulting from these foreign currency translations is reported as other comprehensive income or loss in the accompanying financial statements. The Company recorded a foreign currency translation loss of $70,000 in 2006 and foreign currency translation gains of $10,000 and $65,000 in 2005 and 2004, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." Accordingly, the provision for income taxes includes deferred income tax resulting from items reported in different periods for income tax and financial statement purposes. Deferred tax assets and liabilities represent the expected future tax consequences of the 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 enacted tax rates in effect at the balance sheet date. The resulting asset or liability is adjusted to reflect enacted changes in the tax law.

Earnings Per Common Share

Basic earnings per share is computed by dividing the income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effect, if any, from the potential exercise of stock options using the treasury stock method. The weighted average shares outstanding used in the calculations of earnings per share were as follows (in thousands):

	For the Year Ended June 30,
	2006		2005		2004
Shares outstanding, beginning		7,881		7,664		7,358
Weighted average shares issued		128		126		105
Weighted average shares outstanding - basic		8,009		7,790		7,463
Effect of dilutive securities		279		362		711
Weighted average shares outstanding - diluted		8,288		8,152		8,174

Potential common shares not included in the calculation of net income per share, as their effect would be anti-dilutive, are as follows (in thousands):

	For the Year Ended June 30,
	2006		2005		2004
Stock Options		595		192		75

41

Fair Value of Financial Instruments

The Company estimates its fair value disclosures for financial instruments, using the following methods and assumptions. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their relatively short maturity. Fixed-rate long-term obligations are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. At June 30, 2006 and 2005, the fair value of the Company's long-term obligations approximated its carrying value.

Stock-Based Compensation

Commencing July 1, 2005, Mediware adopted SFAS No. 123R, “Share Based Payment” (“SFAS 123R”), which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their grant date fair values.

Prior to adopting SFAS 123R, Mediware accounted for stock-based employee compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“Opinion 25”). Mediware has applied the modified prospective method in adopting SFAS 123R. Accordingly, periods prior to adoption have not been restated.

Under SFAS 123R forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. Under SFAS 123 and Opinion 25, the Company elected to account for forfeitures when awards were actually forfeited, at which time all previous pro forma expense was reversed to reduce pro forma expense for that period. As of June 30, 2006, the Company anticipates all outstanding options will vest.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to the prior periods:

	For the Year Ended June 30,
	2005			2004
Reported net income	$	2,936,000		$	3,607,000
Stock-based employee compensation determined under the fair value based method under FAS 123, net of related tax effects		(1,992,000	)		(727,000	)
Pro forma net income	$	944,000		$	2,880,000
Income per share:
Basic - as reported	$	0.38		$	0.48
Basic - pro forma	$	0.12		$	0.39
Diluted - as reported	$	0.36		$	0.44
Diluted - pro forma	$	0.12		$	0.35

As a result of adopting SFAS 123R on July 1, 2005, the Company’s income before income taxes and net income for the year ended June 30, 2006, are $335,000 and $208,000 lower, respectively, than if it had continued to account for share based compensation under Opinion 25. Basic and diluted earnings per share for the year ended June 30, 2006 would have been $0.32 and $0.31, respectively, if the Company had not adopted SFAS 123R, compared to reported basic and diluted earnings per share of $0.29 and $0.28, respectively.

Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS 123R requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The $350,000 excess tax benefit classified as a financing cash inflow would have been classified as an operating cash inflow if the Company had not adopted SFAS 123R.

42

New Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections a replacement of APB No. 20 and FAS No. 3” (“SFAS No.154”). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle.  SFAS 154 also applies to all voluntary changes in accounting principle.  It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for all accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company believes the adoption of SFAS 154 will not have an impact on its financial condition and results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”  (“SFAS No. 133”) and SFAS No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 140”). This statement amends SFAS No. 133 to permit fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation. This statement also eliminates the interim guidance in SFAS No. 133 Implementation Issue D-1, which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133. Finally, this statement amends SFAS No. 140 to eliminate the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. This statement is effective for all financial instruments acquired or issued in first fiscal years beginning after September 15, 2006. Management is assessing the potential impact of SFAS No. 155 on the Company’s financial condition and results of operations.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS No. 156”), that provides guidance on accounting for separately recognized servicing assets and servicing liabilities. In accordance with the provisions of SFAS No. 156, separately recognized servicing assets and servicing liabilities must be initially measured at fair value, if practicable. Subsequent to initial recognition, the Company may use either the amortization method or the fair value measurement method to account for servicing assets and servicing liabilities within the scope of this Statement. The Company will adopt SFAS No. 156 in fiscal year 2007. The adoption of this Statement is not expected to have a material effect on the Company’s financial condition and results of operations.

In April 2006, the FASB issued FSP FIN 46R-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46R” which requires the variability of an entity to be analyzed based on the design of the entity. The nature and risks in the entity, as well as the purpose for the entity’s creation are examined to determine the variability in applying FIN 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). The variability is used in applying FIN 46R to determine whether an entity is a variable interest entity, which interests are variable interests in the entity, and who is the primary beneficiary of the variable interest entity. This statement is effective for all reporting periods beginning after June 15, 2006. Management does not expect this statement to have a significant impact on the Company’s financial condition and results of operations.

In July 2006, the FASB issued FASB Interpretation Number 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes. The interpretation clearly scopes out income tax positions related to FASB Statement No. 5, Accounting for Contingencies. We will adopt the provisions of this statement on July 1, 2007. The cumulative effect of applying the provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings on July 1, 2007. We do not anticipate that the adoption of this statement will have a material effect on the Company’s financial condition and results of operations.

43

2. ACQUISITION OF SOFTWARE LICENSE

In November 1999, the Company acquired the rights to LifeTrak, a comprehensive donor blood center software package, from Carter BloodCare for $1,541,000 including $41,000 of expenses related to the purchase. The Company also entered into a license agreement granting Carter BloodCare the right to continue use of the software in their blood center and laboratory facilities, and providing for royalty payments to Carter BloodCare by the Company in an amount equivalent to 5% of LifeTrak software sales for a five-year term. The software was capitalized as purchased technology and amortized over its expected useful life of five years.

In July 2001, the Company entered into an intellectual property agreement with Ortho Clinical Diagnostics, Inc. to purchase for $325,000 the rights to market an integrated testing module that was developed as part of the LifeTrak product. The Company amortized that purchase over the remaining life of LifeTrak.

3. SYSTEM SALES

In July 2004, the Company initiated a program to monitor customer usage, which resulted in the sale of additional proprietary user licenses and related third party software under the terms of customers’ existing license agreements. As a result, the Company recognized system sales of $63,000 and $1,276,000 for the fiscal years ending June 30, 2006 and 2005, respectively.

4. FIXED ASSETS

Fixed assets at cost less accumulated depreciation and amortization are summarized as follows (in thousands):

	As of June 30,
	2006		2005		Estimated Useful Life
Computers and office equipment	$	6,667	$	6,182	3-5 Years
Furniture and fixtures		1,059		1,043	5 Years
Leasehold improvements		385		367	5-7 Years
		8,111		7,592
Less accumulated depreciation		6,891		6,231
	$	1,220	$	1,361

Depreciation expense was $660,000, $709,000 and $724,000 in 2006, 2005 and 2004, respectively.

5. ADVANCES FROM CUSTOMERS

Advances from customers represent contractual payments received by the Company. It is principally comprised of support and maintenance revenue that is paid by customers in advance monthly, quarterly or annually in accordance with support contracts. Support revenue is recognized ratably over the terms of the support contracts.

6. ACCRUED EXPENSES AND LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

	As of June 30,
	2006		2005
Payroll and related benefits	$	856	$	809
Accounting, legal and other professional fees		393		389
Contract labor		160		114
Royalties		254		257
Deferred rent		118		176
Other		379		387
	$	2,160	$	2,132

44

7. NOTES PAYABLE

The Company owed $1,419,000 to its Chairman of the Board of Directors, including accrued interest at prime plus 0.25%. In August 2004, the Company repaid the note and accrued interest.

In November 2003, the Company entered into a note payable agreement in the amount of $100,000. The note is secured by certain furniture and equipment and is payable in monthly installments of $2,222through August2007.The note does not bear interest, and the related implied discount of $11,000 is being amortized over the life of the agreement.

Future maturities of notes payable are as follows:

For the Year Ended June 30,
2007		25,000
2008		4,000
	$	29,000

8. STOCK BASED COMPENSATION

Share Option Plan

The Company's 2003 Equity Incentive Plan, approved by the shareholders in December 2003, provides additional compensation incentives for high levels of performance and productivity by management, other key employees of the Company, directors, and persons who render services to the Company as consultants, advisors or independent contractors. In February 2005, the shareholders approved increasing the number of shares that may be issued under such plan from 500,000 to 1,000,000. In December 2005, the shareholders approved increasing the number of shares that may be issued under such plan from 1,000,000 to 2,000,000. Shares may be issued as either incentive stock options, nonqualified stock options, or restricted common stock. Options may be granted for a period of up to ten years. Restricted common stock awards may be subject to vesting restrictions and may be forfeited if certain performance factors are not maintained. The plan provides that a maximum of 1,700,000 shares may be issued as any combination of restricted stock, options and restricted stock unit awards. The additional 300,000 shares of common stock can only be granted as option awards. As of June 30, 2006, 1,231,000 shares were available for issuance under this plan.

The Company's 2001 Stock Option Plan, approved by the shareholders in January 2002, provides additional compensation incentives for high levels of performance and productivity by management, other key employees of the Company, directors, and persons who render services to the Company as consultants, advisors or independent contractors. Up to 900,000 shares may be issued and sold under such plan and may be issued as either incentive stock options, to eligible persons, or nonqualified stock options. Options may be granted for a period of up to ten years, with option prices not less than fair market value on the date of grant for incentive stock options, not less than 85% of fair market value for nonqualified stock options, and not less than 110% of fair market value for owners of more than 10% of the Company's outstanding voting stock. As of June 30, 2006 no options were available to be issued under this Plan.

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

The Company's Equity Incentive Plan, approved by its shareholders in January 1992 and amended in March 2000, provided additional compensation incentives for high levels of performance and productivity by management and other key employees of the Company. The combined number of shares issued or available for issuance under this plan could not exceed thirty percent of the issued and outstanding common stock of the Company and not more than 700,000 shares could have been issued as incentive stock options. Options could have been granted for a period up to ten years, with option prices not less than fair market value on the date of grant for incentive stock options, not less than 50% of fair market value for nonqualified stock options, and not less than 110% of fair market value for owners of more than 10% of the Company's outstanding voting stock. This plan was terminated effective January 2002, and no additional options are available to be issued under this plan.

45

The Company accounts for stock-based compensation following the provisions of SFAS 123R, which establishes a fair value-based method of accounting for stock-based compensation. The fair value of stock options is determined at the date of grant and is charged to compensation expense over the vesting period of the options. The aggregate noncash stock based compensation expense amounted to $335,000 for the year ended June 30, 2006.

The fair value of options at date of grant was estimated using the Black-Scholes option pricing model utilizing the following assumptions:

	For the Year Ended June 30,
	2006	2005	2004
Risk-free interest rates	4.18% - 5.11%	4.00% - 4.50%	3.83% - 4.73%
Expected option life in years	6 - 7	5 - 7	4 - 8
Expected stock price volatility	35%	39%	70%
Expected dividend yield	-0-	-0-	-0-

The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company uses historical data to estimate option exercise and employee and director termination within the valuation model; separate groups of employees and directors that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that options granted are expected to be outstanding; 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.

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

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at July 1, 2005		1,354,000		$	8.81
Granted		150,000			8.84
Exercised		(198,000	)		5.16
Forfeited or expired		(166,000	)		11.03
Outstanding at June 30, 2006		1,140,000		$	9.12		4.3	$	535,000
Expected to vest at June 30, 2006		1,140,000		$	9.12		4.3	$	535,000
Options exercisable at June 30, 2006		973,000		$	9.16		4.4	$	420,000

The weighted average fair value at date of grant for options granted during the years ended June 30, 2006, 2005 and 2004 was $3.95, $4.80 and $6.92 per option, respectively. The total intrinsic value of options exercised during the years ended June 30, 2006, 2005 and 2004, was $693,000, $1,391,000 and $3,340,000, respectively. The fair value of the nonvested shares is determined based on the average trading price of the Company’s shares on the grant date.

46

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

Cash received from options exercised under all share-based payment arrangements for the years ended June 30, 2006, 2005 and 2004 was $1,020,000, $1,023,000 and $1,188,000, respectively. The actual tax benefit realized for the tax deductions related to option exercises of the share-based payment arrangements totaled $350,000, $504,000 and $1,270,000 for the years ended June 30, 2006, 2005 and 2004, respectively.

A Summary of the status of the Company’s nonvested options as of June 30, 2006, and changes during the year ended June 30, 2006, is presented below:

Nonvested Options	Shares			Weighted Average Grant Date Fair Value
Nonvested at July 1, 2005		78,000		$	3.92
Granted		150,000			3.95
Canceled or expired		(3,000	)		4.59
Vested		(58,000	)		3.79
Nonvested at June 30, 2006		167,000		$	4.00

As of June 30, 2006, there was $377,000 of total unrecognized compensation cost related to nonvested options granted under existing stock option plans. This cost is expected to be recognized over a weighted-average period of 4.0 years. The total fair value of shares vested during the years ended June 30, 2006, 2005 and 2004 was $220,000, $1,296,000 and $5,480,000, respectively.

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

Options Outstanding			Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Exercise Price	Weighted Average Remaining Life in Years	Shares	Weighted Average Exercise Price
$ 0.00 - $ 4.49	168,000	$3.62	3.2	168,000	$3.62
$ 4.50 - $ 7.49	102,000	$6.79	1.4	102,000	$6.79
$ 7.50 - $ 8.99	219,000	$8.03	3.6	114,000	$8.09
$ 9.00 - $ 10.49	247,000	$9.96	5.7	205,000	$10.08
$ 10.50 - $11.99	182,000	$10.89	2.9	182,000	$10.89
$11.99 - $13.49	137,000	$12.51	6.6	117,000	$12.45
$13.50 - $14.99	85,000	$13.87	7.2	85,000	$13.87
	1,140,000			973,000

47

During fiscal 2005, the Company entered into an employment agreement with an officer of the Company. Under the terms of this agreement, the Company granted the officer 25,000 shares of restricted common stock. The shares were subject to certain restrictions and scheduled to vest in August 2005. The fair value of the related common stock on the grant date was $252,000. The related compensation expense was being recognized in the financial statements over the vesting period. Under the terms of the same employment agreement, an additional 25,000 shares of restricted common stock were granted to the officer, subject to shareholder approval, which was obtained in February 2005.These shares were subject to certain restrictions and scheduled to vest in August 2006. The fair value of the related common stock on the approval date was $308,000. The related compensation expense was being recognized in the financial statements over the vesting period. In May 2005, the officer returned the 50,000 shares of restricted common stock. Accordingly, compensation expense of $183,000 previously recorded was reversed.

During fiscal 2005, the Company entered into agreements with five employees to modify the terms of 160,000 existing stock options. Under the terms of those agreements, the related out-of-the-money stock options immediately vested. Additionally, certain restrictions were added to limit when employees can sell the underlying stock. The restrictions correspond with the original option vesting periods. The agreements were entered into to minimize the impact of SFAS 123R of the Company’s results of operations for future periods.

During fiscal 2006, the Company modified the existing terms of options held by two former members of the Board of Directors. Under the terms of those modifications, the lives of the options were extended. The Company recorded $60,000 of noncash compensation expense related to these agreements for the year ended June 30, 2006, with a corresponding credit to paid in capital.

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

A Summary of the status of the Company’s nonvested restricted common stock as of June 30, 2006, and changes during the year ended June 30, 2006, is presented below:

Nonvested Restricted Common Stock	Shares		Weighted Average Grant Date Fair Value
Nonvested at July 1, 2005		-	$	-
Granted		155,000		8.93
Canceled or expired		-		-
Vested		-		-
Nonvested at June 30, 2006		155,000	$	8.93

9. INCOME TAXES

Income tax expense (benefit) is as follows (in thousands):

	For the Year Ended June 30,
	2006		2005		2004
Current:
State	$	60	$	127	$	86
Foreign		124		58		(47	)
		184		185		39
Deferred:
Federal		1,037		1,431		1,998
State		122		168		234
		1,159		1,599		2,232
	$	1,343	$	1,784	$	2,271

The deferred income tax provision does not include $232,000 for each of the years ended June 30, 2006, 2005 and 2004 relating to the income tax benefit realized on goodwill amortized for tax purposes. The deferred income tax provision also does not include an income tax benefit relating to the exercise of certain stock options amounting to $350,000, $504,000 and $1,270,000 for the years ended June 30, 2006, 2005 and 2004, respectively.

48

The principal components of the net deferred income taxes are as follows:

	2006			2005
Deferred tax asset:
Net operating loss carryforwards	$	2,726		$	3,574
Business tax credit carryforwards		278			278
Stock-based compensation		122			-
Valuation reserves and accruals deductible in different periods		479			455
Alternative minimum tax		176			176
Deferred tax liability:
Depreciation and amortization		(153	)		(181	)
Software cost capitalization		(7,329	)		(7,428	)
Net deferred tax liability	$	(3,701	)	$	(3,126	)

Domestic and foreign income before income taxes is:

	For the Year Ended June 30,
	2006		2005		2004
Domestic	$	2,987	$	4,517	$	6,090
Foreign		684		203		(212	)
	$	3,671	$	4,720	$	5,878

The difference between the tax expense reflected on the financial statements and the amounts calculated using the federal statutory income tax rates are as follows (in thousands):

	For the Year Ended June 30,
	2006			2005			2004
Federal income tax at statutory rate	$	1,249		$	1,605		$	1,999
State income tax		179			195			235
Foreign tax (benefit)		(109	)		(11	)		(47	)
Other, including non-deductible expenses		24			(5	)		84
	$	1,343		$	1,784		$	2,271

As of June 30, 2006, the Company has net operating loss ("NOL") carryforwards of approximately $8,582,000 available to reduce future federal taxable income of which $1,408,000 is subject to limitations in accordance with Section 382 of the Internal Revenue Code of 1986, as amended. Additionally, the NOL carryforwards may be subject to further limitations should certain futureownership changes occur. The Company also has available general business tax credit carryforwards of $278,000 and alternative minimum tax credits of $176,000 to reduce future federal income tax expense. The NOL and business tax credit carryforwards expire in various amounts from 2007 to 2025.

10. RETIREMENT PLAN

The Company implemented a 401(k) Retirement Plan (the "Retirement Plan") in 1995, which was amended in June 1998, and covers all eligible employees. Participants may contribute up to the maximum allowable per the Internal Revenue Service regulations. In addition, the Company may make discretionary contributions to the Retirement Plan, subject to certain limitations. The Company contribution to the Retirement Plan was $196,000, $163,000 and $161,000 for the years ended June 30, 2006, 2005 and 2004, respectively.

49

11. RELATED PARTY TRANSACTIONS

During 2006, 2005 and 2004, expenses totaling $15,000 each year were paid for consulting services provided by a director/stockholder of the Company.

12. COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

Rental commitments for the remaining terms of non-cancelable leases, which relate to office space, expire at various dates through 2011. Under these leases, minimum commitments are as follows (in thousands):

For the Year Ended June 30,
2007		1,174
2008		207
2009		137
2010		68
2011		68
	$	1,654

Certain leases provide for additional payments for real estate taxes and insurance and contain escalation clauses related to increases in utilities and services. Rent expense for the years ended June 30, 2006, 2005 and 2004 amounted to $1,417,000, $1,335,000 and $1,130,000, respectively.

(b) Royalties

In September 1990, the Company entered into an agreement to acquire a perpetual license for a computerized information system for hospital operating rooms. Under this agreement, the Company is required to pay royalties of 5% to 15% on sales of this software product. Upon request, the Company is required to assist with a royalty audit.

(c) Other Contingencies and Uncertainties

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

13. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with major financial institutions which may exceed the federal depository insurance limits.

14. FOREIGN CURRENCY RISK

The Company has exposure to exchange rate fluctuations arising from obligations settled in foreign currencies. The Company has approximately $1,535,000 subject to such risk at June 30, 2006.

15. SEGMENT INFORMATION

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

50

	Years Ended June 30,
	2006		2005		2004
Medication Management Systems	$	16,474	$	16,300	$	18,730
Blood Management Systems		19,781		17,937		15,452
Perioperative Management Systems		1,616		2,322		2,472
Total	$	37,871	$	36,559	$	36,654

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

	For the Year Ended June 30,
	2006		2005		2004
Revenue from Unaffiliated Customers:
United States	$	33,607	$	32,777	$	33,569
United Kingdom		4,264		3,782		3,085
Total	$	37,871	$	36,559	$	36,654
Net Income:
United States	$	1,844	$	2,789	$	3,772
United Kingdom		484		147		(165	)
Total	$	2,328	$	2,936	$	3,607

	As of June 30,
	2006		2005		2004
Identifiable Assets:
United States	$	50,068	$	46,651	$	43,612
United Kingdom		3,655		2,882		2,590
Total	$	53,723	$	49,533	$	46,202

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for fiscal 2006 and 2005 is as follows (table in thousands, except per share amounts):

	Fiscal Quarter Ended 2006
	Sep. 30, 2005		Dec. 31, 2005		Mar. 31, 2006		Jun. 30, 2006
Net sales and service	$	9,408	$	9,388	$	9,968	$	9,107
Gross profit (1)		7,010		6,880		7,402		6,899
Net income		737		398		632		561
Net income per share, diluted	$	0.09	$	0.05	$	0.08	$	0.07

	Fiscal Quarter Ended 2005
	Sep. 30, 2004		Dec. 31, 2004		Mar. 31, 2005		Jun. 30, 2005
Net sales and service	$	8,480	$	9,226	$	9,881	$	8,972
Gross profit (1)		6,171		6,875		7,305		6,505
Net income		643		949		830		514
Net income per share, diluted	$	0.08	$	0.12	$	0.10	$	0.06

(1) Excludes amortization of capitalized software costs

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MEDIWARE INFORMATION SYSTEMS, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions			Balance at End of Period
Year ended June 30, 2006 allowance for doubtful accounts	$	626	$	620	$	--	$	(323	)	$	923
Year ended June 30, 2005 allowance for doubtful accounts	$	657	$	398	$	--	$	(429	)	$	626
Year ended June 30, 2004 allowance for doubtful accounts	$	557	$	328	$	--	$	(228	)	$	657

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EX-3.3

EXHIBIT 3.3

CERTIFICATE OF CORRECTION OF

RESTATED CERTIFICATE OF INCORPORATION OF

MEDIWARE INFORMATION SYSTEMS, INC.

MEDIWARE INFORMATION SYSTEMS, INC. (hereinafter called the “Corporation”), a corporation organized and existing under and by virtue of the Business Corporation Law of the State of New York, does hereby certify:

1. The name of the Corporation is Mediware Information Systems, Inc.

2. The Restated Certificate of Incorporation of the Corporation, which was filed by the Secretary of State of New York on July 1, 1996, is hereby corrected.

3. The nature of the error is that the par value of the Corporation’s common stock, as set forth in the definition of “Common Stock” which appears in Article NINTH of the Restated Certificate of Incorporation is incorrectly stated as $.01 per share. The correct par value is $.10 per share.

4. The definition of “Common Stock” which appears in Article NINTH of the Restated Certificate of Incorporation, as corrected, is as follows:

“Common Stock”: means the Corporation’s Common Stock, par value $.10 per share, and, except for purposes of the shares obtainable upon conversation of shares of Preferred Stock, any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the Holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation.

Executed on this 10^th day of May, 2002.

/s/ G. J. Barry

George Barry

President and CEO

Mediware Information Systems, Inc.

EX-3.4

EXHIBIT 3.4

CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION

OF

MEDIWARE INFORMATION SYSTEMS, INC.

UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW

It is hereby certified that:

FIRST: The name of the corporation is Mediware Information Systems, Inc. The name under which the corporation was formed is Binary Systems, Inc.

SECOND: The certificate of incorporation of the corporation was filed by the Department of State on January 22, 1970.

THIRD: The amendment of the certificate of incorporation of the corporation effected by this certificate of amendment is as follows:

To decrease the minimum number of the members of the Board of Directors to three from nine and to eliminate any minimum number of members for any class.

FOURTH: To accomplish the foregoing amendment, the first three sentences of Article THIRTEENTH: A of the certificate of incorporation of the corporation, relating to the number and classification of the directors of the corporation, is hereby amended to read as follows:

“THIRTEENTH: A. The Board of Directors of the Corporation shall consist of not less than three Directors as may be fixed in accordance with the By-Laws. The Directors of the Corporation shall be divided into three classes, designated Class I, Class II and Class III. All classes shall be as nearly equal in number as possible.”

FIFTH: The foregoing amendment of the certificate of incorporation of the corporation was authorized at a meeting of the members of the Board of Directors of the corporation, followed by the authorization at a meeting of the shareholders of the corporation by the affirmative vote of 88% of the votes cast on the said amendment of the certificate of incorporation.

IN WITNESS WHEREOF, I have subscribed this document on the date set forth below and do hereby affirm, under the penalties of perjury, that the statements contained therein have been examined by me and are true and correct.

Dated: December 8, 2005

/s/ James Burgess

James Burgess

President and Chief Executive Officer

EX-3.5

EXHIBIT 3.5

BY-LAWS

OF

MEDIWARE INFORMATION SYSTEMS, INC.

ARTICLE I

OFFICES

The principal offices of the Corporation shall be located at such place within the United States as the Board of Directors shall, from time to time, determine. The Corporation may also maintain offices at such other places within or without the United States as the Board of Directors may, from time to time, determine.

ARTICLE II

MEETING OF SHAREHOLDERS

Section 1.     Annual Meetings. The annual meeting of the shareholders of the Corporation shall be held each year on such date as the Board of Directors, from time to time, shall determine, for the purpose of electing directors and transacting such other business as may properly come before the meeting.

Section 2.     Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors or by the President, and shall be called by the President or the Secretary at the written request of the holders of ten percent (10%) of the shares then outstanding and entitled to vote thereat, or as otherwise required under the provisions of the Business Corporation Law.

Section 3.     Place of Meetings. All meetings of shareholders shall be held at the principal office of the Corporation, or at such other places within or without the State of New York as shall be designated in the notices or waivers of notice of such meetings.

Section 4.       Notice of Meetings.

(a) Written notice of each meeting of shareholders, whether annual or special, stating the time when and place where it is to be held, shall be served either personally or by mail, not less than ten nor more than sixty days before the meeting, upon each shareholder of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by, or at the direction of, the person or persons calling the meeting. If, at any meeting, action is proposed to be taken that would, if taken, entitle shareholders to receive payment for their shares pursuant to the Business Corporation Law, the notice of such meeting shall include a statement of that purpose and to that effect. If mailed, such notice shall be directed to each such shareholder at his address, as it appears on the records of the shareholders of the Corporation, unless he shall have previously filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case, it shall be mailed to the address designated in such request.

(b) Notice of any meeting need not be given to any shareholder who attends such meeting, in person or by proxy, or to any shareholder who, in person or by proxy, submits a signed waiver of notice either before or after such meeting. Notice of any adjorned meeting of shareholders need not be given, unless otherwise required by statute.

Section 5.      Quorum.

(a) Except as otherwise provided herein, or by statute, or in the Certificate of Incorporation (such Certificate and any amendments thereof being hereinafter collectively referred to as the "Certificate of Incorporation"), at all meetings of shareholders of the Corporation, the presence at the commencement of such meetings in person or by proxy of shareholders holding of record a majority of the total number of shares of the Corporation then issued and outstanding and entitled to vote, shall be necessary and sufficient to constitute a quorum for the transaction of any business. The withdrawal of any shareholder after the commencement of a meeting shall have no effect on the existence of a quorum after a quorum has been established at such meeting.

(b) Despite the absence of a quorum at any annual or special meeting of shareholders, the shareholders, by a majority of the votes cast by the holders of shares entitled to vote thereon, may adjourn the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been present.

Section 6.      Voting.

(a) Except as otherwise provided by statute or by the Certificate of Incorporation, any corporate action, other than the election of directors, to be taken by vote of the shareholders, shall be authorized by a majority of votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon.

(b) Except as otherwise provided by statute or by the Certificate of Incorporation, at each meeting of shareholders, each holder of record of stock of the Corporation entitled to vote thereat shall be entitled to one vote for each share of stock registered in his name on the books of the Corporation.

(c) Each shareholder entitled to vote or to express consent or dissent without a meeting, may do so by proxy; provided, however, that the instrument authorizing such proxy to act shall have been executed in writing by the shareholder himself, or by his attorney-in-fact thereunto duly authorized in writing. No proxy shall be valid after the expiration of eleven months from the date of its execution, unless the person executing it shall have specified therein the length of time it is to continue in force. Such instrument shall be exhibited to the Secretary at the meeting.

(d) Any resolution in writing, signed by all of the shareholders entitled to vote thereon, shall be and constitute action by such shareholders to the effect therein expressed, with the same force and effect as if the same had been duly passed by unanimous vote at a duly called meeting of shareholders.

ARTICLE III

BOARD OF DIRECTORS

Section 1.      Number, Election and Term of Office.

(a) The Board of Directors of the Corporation shall consist of such number of Directors, but not less than three, as is set by the Board of Directors by resolution from time to time. The Directors of the Corporation shall be divided into three classes, designated Class I, Class II and Class III. All classes shall be as nearly equal as possible.

(b) The terms of office of the Directors initially classified shall be as follows: at the annual meeting of shareholders on January 17, 1992, Class I Directors shall be elected for a one-year term expiring at the next succeeding annual meeting of shareholders, Class II Directors for a two-year term expiring at the second succeeding annual meeting of shareholders and Class III Directors for a three-year term expiring at the third succeeding annual meeting of shareholders. At each annual meeting of shareholders after the January 17, 1992 annual meeting, Directors so classified who are elected to replace those whose terms expire at each such annual meeting shall be elected to hold office for a three-year term until the third succeeding annual meeting following such Director's election. Each Director so classified shall hold office until the annual meeting at which his term expires and until his successor has been elected and qualified.

2

Section 2.     Duties and Powers. The Board of Directors shall be responsible for the control and management of the affairs, property and interests of the Corporation, and may exercise all powers of the Corporation, except as are in the Certificate of Incorporation or by statute expressly conferred upon or reserved to the shareholders.

Section 3.      Annual and Regular Meetings; Notice.

(a) A regular annual meeting of the Board of Directors shall be held immediately following the annual meeting of the shareholders, at the place of such annual meeting of shareholders.

(b) The Board of Directors, from time to time, may provide by resolution for the holding of other regular meetings of the Board of Directors, and may fix the time and place thereof.

(c) Notice of any regular meeting of the Board of Directors shall not be required to be given and, if given, need not specify the purpose of the meeting; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be given to each Director who shall not have been present at the meeting at which such action was taken within the time limited, and in the manner set forth in paragraph (b) of Section 4 of this Article III, with respect to special meetings, unless such notice shall be waived in the manner set forth in paragraph (c) of such Section 4.

Section 4.      Special Meetings; Notice.

(a) Special meetings of the Board of Directors shall be held whenever called by the President or by one of the Directors, at such time and place as may be specified in the respective notices or waivers of notice thereof.

(b) Notice of special meetings shall be mailed directly to each Director, addressed to him at his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegram, radio or cable, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. A notice, or waiver of notice, except as required by Section 8 of this Article III, need not specify the purpose of the meeting.

(c) Notice of any special meeting shall not be required to be given to any Director who shall attend such meeting without protesting prior thereto or at its commencement, the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting.

Section 5.     Chairman. At all meetings of the Board of Directors, the Chairman of the Board, if any and if present, shall preside. If there shall be no Chairman, or he shall be absent, then the President shall preside, and in his absence, a Chairman chosen by the Directors shall preside.

Section 6.      Quorum and Adjournments.

(a) At all meetings of the Board of Directors, the presence of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or by these By-Laws.

(b) A majority of the Directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the same from time to time without notice.

Section 7.      Manner of Acting.

(a) At all meetings of the Board of Directors, each Director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold.

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(b) Except as otherwise provided by statute, by the Certificate of Incorporation, or by these By-Laws, the action of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.

Section 8.     Vacancies. Newly created directorships resulting from an increase in the number of Directors and vacancies occurring on the Board of Directors for any reason may be filled by vote of the Directors (including a majority of Directors then in office if less than a quorum exists), provided, however, that if the number of Directors is changed, (i) any newly created directorships or any decrease in directorships shall be apportioned by the Board among the classes so as to make all classes as nearly equal as possible, and (ii) when the number of Directors is increased by the Board and any newly created directorships are filled by the Board, there shall be no classification of the additional Directors until the next annual meeting of shareholders. Any Director elected by the Board to fill a newly created directorship shall hold office until the next annual meeting of shareholders and until his successor, classified in accordance with Section 1 of this Article III, has been elected and qualified. Any Director elected to fill a vacancy of an existing directorship shall hold office for the remainder of the term of that directorship. No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director.

Section 9.      Resignation. Any Director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or such officer, and the acceptance of such resignation shall not be necessary to make it effective.

Section 10.    Removal of Directors. Except as otherwise provided in the Certificate of Incorporation or in these By-Laws, any Director may be removed, but only for cause, at any time, by the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote for the election of Directors of the Corporation at a meeting of the shareholders called and held for that purpose. Directors may also be removed, but only for cause, by a majority vote of the entire Board of Directors.

Section 11.    Salary. No stated salary shall be paid to Directors, as such, for their services, but by resolution of the Board of Directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided, however, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

Section 12.    Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may from time to time designate from among its members an executive committee and such other committees, and alternate members thereof, as they may deem desirable, each consisting of one or more members, with such powers and authority (to the extent permitted by law) as may be provided in such resolution. Each such committee shall serve at the pleasure of the Board.

Section 13.    Meetings by Conference Telephone. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.

ARTICLE IV

OFFICERS

Section 1.      Number, Qualifications, Election and Term of Office.

(a) The officers of the Corporation may consist of a President, a Secretary, a Treasurer, and such other officers, including a Chairman of the Board of Directors, and one or more Vice Presidents, as the Board of Directors may from time to time deem advisable. Any officer other than the Chairman of the Board of Directors may be, but is not required to be, a Director of the Corporation. Any two or more offices may be held by the same person.

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(b) The officers of the Corporation shall be elected by the Board of Directors at the regular annual meeting of the Board following the annual meeting of shareholders.

(c) Each officer shall hold office until the annual meeting of the Board of Directors next succeeding his election, and until his successor shall have been elected and qualified, or until his death, resignation or removal.

Section 2.      Resignation. Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, or to the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or by such officer, and the acceptance of such resignation shall not be necessary to make it effective.

Section 3.      Removal. Any officer may be removed, either with or without cause, and a successor elected by the Board at any time.

Section 4.      Vacancies. A vacancy in any office by reason of death, resignation, inability to act, disqualification, or any other cause, may at any time be filled for the unexpired portion of the term by the Board of Directors.

Section 5.     Duties of Officers. Officers of the Corporation shall, unless otherwise provided by the Board of Directors, each have such powers and duties as generally pertain to their respective offices as well as such powers and duties as may be set forth in these By-Laws, or may from time to time be specifically conferred or imposed by the Board of Directors. The President shall be the chief executive officer of the Corporation.

Section 6.      Sureties and Bonds. In case the Board of Directors shall so require, any officer, employee or agent of the Corporation shall execute to the Corporation a bond in such sum, and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands.

Section 7.     Shares of Other Corporations. Whenever the Corporation is the holder of shares of any other corporation, any right or power of the Corporation as such shareholder (including the attendance, acting and voting at shareholders' meetings and execution of waivers, consents, proxies or other instruments) may be exercised on behalf of the Corporation by the President, any Vice President, or such other person as the Board of Directors may authorize.

ARTICLE V

SHARES OF STOCK

Section 1.      Certificate of Stock.

(a) The certificates representing shares of the Corporation shall be in such form as shall be adopted by the Board of Directors, and shall be numbered and registered in the order issued. They shall bear the holder's name and the number of shares, and shall be signed by (i) the Chairman of the Board or the President or a Vice President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or Assistant Treasurer, and may bear the corporate seal.

(b) No certificate representing shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law.

(c) The Board of Directors may authorize the issuance of certificates for fractions of a share which shall entitle the holder to exercise voting rights, receive dividends and participate in liquidating distributions, in proportion to the fractional holdings; or it may authorize the payment in cash of the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may authorize the issuance, subject to such conditions as may be permitted by law, of scrip in registered or bearer form over the signature of an officer or agent of the Corporation, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder, except as therein provided.

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Section 2.      Lost or Destroyed Certificates. The holder of any certificate representing shares of the Corporation shall immediately notify the Corporation of any loss or destruction of the certificate representing the same. The Corporation may issue a new certificate in the place of any certificate theretofore issued by it, alleged to have been lost or destroyed. On production of such evidence of loss or destruction as the Board of Directors in its discretion may require, the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond in such sum as the Board may direct, and with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claim, loss, liability or damage it may suffer on account of the issuance of the new certificate. A new certificate may be issued without requiring any such evidence or bond when, in the judgment of the Board of Directors, it is proper so to do.

Section 3.      Transfers of Shares.

(a) Transfers of shares of the Corporation shall be made on the share records of the Corporation only by the holder of record thereof, in person or by his duly authorized attorney, upon surrender for cancellation of the certificate or certificates representing such shares, with an assignment or power of transfer endorsed thereon or delivered therewith, duly executed, with such proof of the authenticity of the signature and of authority to transfer and of payment of transfer taxes as the Corporation or its agents may require.

(b) The Corporation shall be entitled to treat the holder of record of any share or shares as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

Section 4.     Record Date. In lieu of closing the share records of the Corporation, the Board of Directors may fix, in advance, a date not exceeding sixty days, nor less than ten days, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held; the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the Directors relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided for herein, such determination shall apply to any adjournment thereof, unless the Directors fix a new record date for the adjourned meeting.

ARTICLE VI

DIVIDENDS

Subject to applicable law, dividends may be declared and paid out of any funds available therefor, as often, in such amounts, and at such time or times as the Board of Directors may determine.

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ARTICLE VII

FISCAL YEAR

The fiscal year of the Corporation shall be fixed by the Board of Directors from time to time, subject to applicable law.

ARTICLE VIII

CORPORATE SEAL

The corporate seal, if any, shall be in such form as shall be approved from time to time by the Board of Directors.

ARTICLE IX

AMENDMENTS

Section 1.     By Shareholders. All By-Laws of the Corporation shall be subject to alteration or repeal, and new By-Laws may be made, by a majority vote of the shareholders at the time entitled to vote in the election of Directors.

Section 2.     By Directors. The Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, By-Laws of the Corporation; provided, however, that the shareholders entitled to vote with respect thereto as in this Article IX above-provided may alter, amend or repeal By-Laws made by the Board of Directors, except that the Board of Directors shall have no power to change the quorum for meetings of shareholders. If any By-Law regulating an impending election of Directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of Directors, the By-Law so adopted, amended or repealed, together with a concise statement of the changes made.

Section 3.     Certain Amendments. Notwithstanding anything in this Article IX to the contrary, the provisions of these By-Laws with respect to the number, classification, term of office, quorum for meetings, qualifications, election and removal of Directors and the filling of vacancies and newly created directorships, and the amendment thereof, that is, Sections 1, 6, 8 and 10 of Article III and this Article IX, may be amended or repealed or new By-Laws affecting such provisions may be adopted only by the unanimous resolution of the entire Board of Directors or by the affirmative vote of the holders of at least 80% of the outstanding shares of stock of the Corporation entitled to vote for the election of Directors (except that if such proposed amendment or repeal or adoption of new By-Laws shall be submitted to the shareholders with the unanimous recommendation of the entire Board of Directors, such provisions may be amended or repealed or such new By-Laws may be adopted by the affirmative vote of the holders of a majority of the outstanding shares, and except that if such proposed amendment or repeal or adoption shall not take effect for a period of three years from the date of such action, such provisions may be amended or repealed or such new By-Laws may be adopted by the affirmative vote of the holders of a majority of such stock or by the majority vote of the entire Board of Directors).

ARTICLE X

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 1.     Right of Indemnification. The Corporation shall indemnify to the fullest extent permitted by the Business Corporation Law any person (an "indemnitee") made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, including an action by or in the right of the Corporation or any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise (a "Proceeding"), which any Director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he, his testator or intestate, was a Director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein.

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The right of indemnification conferred by this By-Law shall not be deemed exclusive of any other rights to which an indemnitee may be entitled, whether provided by law or contained in the Certificate of Incorporation or By-Laws, or a resolution of shareholders, a resolution of Directors, or an agreement providing for such indemnification or otherwise.

Section 2.      Deleted as of April 16, 1990.

Section 3.     Advancement of Expenses. All reasonable expenses incurred by or on behalf of the indemnitee in connection with any Proceeding shall be advanced from time to time to the indemnitee by the Corporation promptly after the receipt by the Corporation of a statement from the indemnitee requesting such advance, whether prior to or after final disposition of such Proceeding. The advancement or reimbursement of expenses to an indemnitee shall be made within 20 days after the receipt by the Corporation of a request therefor from the indemnitee. Such request shall reasonably evidence the expenses incurred or about to be incurred by the indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the indemnitee to repay the amounts advanced if it should ultimately be determined that the indemnitee is not entitled to be indemnified against such expenses or to retain the sums so advanced.

Section 4.     Insurance Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any person who is, or may become, an officer, Director, employee, agent, attorney, trustee or representative (any of the foregoing being herein referred to as a "Representative") of the Corporation or, at the request of the Corporation, a Representative of another corporation or entity, against any expenses, liability or loss asserted against him or incurred by him in connection with any Proceeding in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such expenses, liability or loss under the provisions of this By-Law or otherwise. The Corporation may enter into contracts with any Representatives of the Corporation, or any person serving as such at the request of the Corporation for an other corporation or entity, in furtherance of the provisions of this By-Law. Such contracts shall be deemed specifically approved and authorized by the shareholders of the Corporation and not subject to invalidity by reason of any interested Directors. The Corporation may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification of any person entitled thereto.

Section 5.     Severability; Statutory Alternative. If any provisions or provisions of this By-Law shall be held to be invalid, illegal or unenforceable for any reason whatsoever (a) the validity, legality and enforceability of all of the remaining provisions of this By-Law shall not in any way be affected or impaired thereby; and (b), to the fullest extent possible, the remaining provisions of this By-Law shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. In the event that the indemnitee elects, as an alternative to the procedures specified in this By-Law, to follow one of the procedures authorized by applicable corporate law or statute to enforce his right to indemnification and notifies the Corporation of his election, the Corporation agrees to follow the procedure so elected by the indemnitee. If in accordance with the preceding sentence, the procedure therefor contemplated herein or the procedure elected by the indemnitee in any specific circumstances (or such election by the indemnitee) shall be invalid or ineffective in bringing about a valid and binding determination of the entitlement of the indemnitee to indemnification, the most nearly comparable procedure authorized by applicable corporate law or statute shall be followed by the Corporation and the indemnitee.

Section 6.      Procedure for Determination of Entitlement to Indemnification.

(a) To obtain indemnification (except with respect to the advancement of expenses), an indemnitee shall submit to the President or Secretary of the Corporation a written request, including such documentation and information as is reasonably available to the indemnitee and reasonably necessary to determine whether and to what extend the indemnitee is entitled to indemnification (the "Supporting Documentation"). The Secretary of the Corporation shall promptly advise the Board of Directors in writing that the indemnitee has requested indemnification. The determination of the indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Corporation of the written request and Supporting Documentation.

(b) The indemnitee's entitlement to indemnification shall be determined in one of the following ways:

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(i) by a majority vote of the Disinterested Directors (as hereinafter defined) (which term shall mean the Disinterested Director, if there is only one); (ii) by a written opinion of the Independent Counsel (as hereinafter defined) if (x) a majority of the Disinterested Directors so directs; (y) there is no Disinterested Director; or (z) a Change of Control (as hereinafter defined) shall have occurred and the indemnitee so requests, in which case the Disinterested Directors shall be deemed to have so directed; (iii) by the shareholders of the Corporation (but only if a majority of the Disinterested Directors determines that the issue of entitlement of indemnification should be submitted to the shareholders for their determination); or (iv) as provided in Section 7 of this By-Law.

(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) of this By-Law, a majority of the Disinterested Directors shall select the Independent Counsel, but only an Independent Counsel to which the indemnitee does not reasonably object; provided, however, that if a Change of Control shall have occurred, the indemnitee shall select such Independent Counsel, but only an Independent Counsel to which the Board of Directors does not reasonably object.

(d) To the extent required by law or statute, the Corporation shall notify shareholders or any other persons of expenses or other amounts paid by way of indemnification in a timely manner.

Section 7.     Presumptions and Effect of Certain Proceedings. Except as otherwise expressly provided in this By-Law, the indemnitee shall be presumed to be entitled to indemnification upon submission of a request for indemnification together with the Supporting Documentation, and thereafter in any determination or review of any determination, and in any arbitration, proceeding or adjudication, the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section 6(b) of this By-Law to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within 60 days after receipt by the Corporation of the request therefor together with the Supporting Documentation, the indemnitee shall be deemed to be entitled to indemnification, In either case, the indemnitee shall be entitled to such indemnification, unless (a) the indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (b) such indemnification is prohibited by law, in either case as finally determined by adjudication or, at the indemnitee's sole option, arbitration (as provided in Section 8 of this By-Law). The termination of any Proceeding, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the right of the indemnitee to indemnification or create any presumption with respect to any standard of conduct or belief or any other matter which might form a basis for a determination that the indemnitee is not entitled to indemnification. With regard to the right to indemnification for expenses, (a) if and to the extent that the indemnitee has been successful on the merits or otherwise in any Proceeding, or (b) if a Proceeding was terminated without a determination of liability on the part of the indemnitee with respect to any claim, issue or matter therein or without any payments in settlement or compromise being made by the indemnitee with respect to a claim, issue or matter therein, or (c) if and to the extent that the indemnitee was not a party to the Proceeding, the indemnitee shall be deemed to be entitled to indemnification, which entitlement shall not be defeated or diminished by any determination which may be made pursuant to clauses (i), (ii) or (iii) of Section 6(b). The indemnitee shall be presumptively entitled to indemnification in all respects for any act, omission or conduct taken or occurring which (whether by condition or otherwise) is required, authorized or approved by any order issued or other action by any commission or governmental body pursuant to any federal statute or state statute regulating the Corporation.

Section 8.      Remedies of Indemnitee.

(a) In the event that a determination is made pursuant to Section 6 of this By-Law that the indemnitee is not entitled to indemnification under this By-Law, (i) the indemnitee shall be entitled to seek an adjudication of his entitlement to such indemnification either, at the indemnitee's sole option, in an appropriate court of the State of New York or any other court of competent jurisdiction or, to the extent consistent with law, arbitration to be conducted by three arbitrators (or, if the dispute involves less than $100,000, by a single arbitrator) pursuant to the rules of the American Arbitration Association; (ii) any such judicial Proceeding or arbitration shall be de novo and the indemnitee shall not be prejudiced by reason of such adverse determination; and (iii) in any such judicial Proceeding or arbitration the Corporation shall have the burden of proof that the indemnitee is not entitled to indemnification under this By-Law.

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(b) If a determination shall have been made or deemed to have been made, pursuant to Sections 6 or 7 of this By-Law, that the indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination, unless (i) the indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (ii) such indemnification is prohibited by law, in either case as finally determined by adjudication or, at the indemnitee's sole option, arbitration (as provided in Section 8 (a) of this By-Law). In the event that advancement of expenses is not timely made by the Corporation pursuant to this By-Law or payment of indemnification has been made or deemed to have been made pursuant to Section 6 or 7 of this By-Law, the indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligations to pay to the indemnitee such advancement of expense of indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of New York or any other court of competent jurisdiction, contesting the right of the indemnitee to receive indemnification hereunder due to an occurrence or circumstance described in subclause (i) of this Section or a prohibition of law (both of which are herein referred to as a "Disqualifying Circumstance"). In either instance, if the indemnitee shall elect, at his sole option, that such dispute shall be determined by arbitration (as provided in Section 8(a) of this By-Law), the indemnitee and the Corporation shall submit the controversy to arbitration. In any such enforcement action or other proceeding, whether brought by the indemnitee or the Corporation, the indemnitee shall be entitled to indemnification unless the Corporation can satisfy the burden or proof that indemnification is prohibited by reason of a Disqualifying Circumstance.

(c) The Corporation shall be precluded from asserting in any judicial Proceeding or arbitration commenced pursuant to this Section 8 that the procedures and presumptions of this By-Law are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator or arbitrators that the Corporation is bound by all the provisions of this By-Law.

(d) In the event that the indemnitee, pursuant to this By-Law, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this By-Law, or is otherwise involved in any adjudication or arbitration with respect to his right to indemnification, the indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any expenses actually and reasonably incurred by him if the indemnitee prevails in such judicial adjudication or arbitration and such expenses as are allowed by a court or arbitration or otherwise on an interim basis. If it shall be determined in such judicial adjudication or arbitration that the indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by the indemnitee in connection with such judicial adjudication or arbitration shall be prorated accordingly.

Section 9.      Definitions. For purposes of indemnification under this By-Law or otherwise:

(a) A "Change in Control" shall be deemed to have occurred if (i) any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act"), is or becomes the "beneficial owner" (as defined in Rule l3d-3 under the Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such acquisition; (ii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which, members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new Director whose election or nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b) "Disinterested Director" means a Director of the Corporation who is not or was not a material party to the Proceeding in respect of which indemnification is sought by the indemnitee.

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(c) "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent (i) the Corporation or the indemnitee in any matter or (ii) any other party to the Proceeding giving rise to a claim for indemnification under this By-Law. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the law of the State of New York, would have a conflict of interest in representing either the Corporation or the indemnitee in an action to determine the indemnitee's rights under this By-Law.

Section 10.    Amendments. Article X of the By-Laws may be amended by action of the Board of Directors, without action of the shareholders, but only in a manner consistent with the policy of the Company set forth in the Certificate of Incorporation to indemnify its Directors and officers to the fullest extent.

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EX-11

EXHIBIT 11

MEDIWARE INFORMATION SYSTEMS, INC.

Computation of Net Income Per Share

	Years Ended June 30,
	2006		2005		2004
Basic income per share
Net income	$	2,328,000	$	2,936,000	$	3,607,000
Weighted-average shares:
Outstanding		8,009,000		7,790,000		7,463,000
Basic income per share	$	0.29	$	0.38	$	0.48
Diluted income per share
Net income	$	2,328,000	$	2,936,000	$	3,607,000
Weighted-average shares:
Outstanding		8,009,000		7,790,000		7,463,000
Options		190,000		362,000		711,000
Restricted common stock		89,000		-		-
		8,288,000		8,152,000		8,174,000
Diluted income per share	$	0.28	$	0.36	$	0.44

EX-21

EXHIBIT 21

MEDIWARE INFORMATION SYSTEMS, INC.

List of Subsidiaries

Subsidiary Name	State of Incorporation	Business Name
Digimedics Corporation	California	Mediware Information Systems, Inc.
JAC Computer Services, Ltd. (wholly owned subsidiary of Digimedics Corporation)	United Kingdom	JAC Computer Services, Ltd
Informedics, Inc.	Oregon	Mediware Information Systems, Inc.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-07591, No. 333-83016, No. 333-119503, No. 333-123496 and No. 333-130576) pertaining to Mediware Information Systems, Inc.’s equity incentive and stock option plans of our reports dated August 4, 2006 on our audits of the consolidated financial statements and financial statement schedule as of June 30, 2006 and 2005 and for each of the three years in the period ended June 30, 2006, and of management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Mediware Information Systems, Inc. as of June 30, 2006, which are included in the Annual Report on Form 10-K for the year ended June 30, 2006.

Eisner LLP

New York, New York

September 5, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, James F. Burgess, certify that:

1. I have reviewed this annual report on Form 10-K of Mediware Information Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 6, 2006

/s/ James F. Burgess

James F. Burgess

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Mark B. Williams, certify that:

1. I have reviewed this annual report on Form 10-K of Mediware Information Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 6, 2006

/s/ Mark B. Williams

Mark B. Williams

Principal Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Mediware Information Systems, Inc. (the “Company”) on Form 10-K for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James F. Burgess, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ James F. Burgess

James F. Burgess

Chief Executive Officer

September 6, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Mediware Information Systems, Inc. and will be retained by Mediware Information Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Mediware Information Systems, Inc. (the “Company”) on Form 10-K for the period ending June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark B. Williams, Acting Chief Accounting Officer of the Company, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly represents, in all material respects, the financial condition and result of operations of the Company.

/s/ Mark B. Williams

Mark B. Williams

Principal Accounting Officer

September 6, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Mediware Information Systems, Inc. and will be retained by Mediware Information Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request