Summary of MEDIWARE INFORMATION SYSTEMS INC

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. The words "believes," "anticipates," "plans," "expects," "intends" and similar expressions identify some of the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. The factors discussed elsewhere in this Form 10-Q and in Mediware's Form 10-K for the year ended June 30, 2008 and in subsequent Quarterly Reports on Form 10-Q, could also cause actual results to differ materially from those indicated by the Company's forward-looking statements. Mediware undertakes no obligation to publicly update or revise any forward-looking statements.

Overview

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

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

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

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

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Market Positioning

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

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

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

The Healthcare Information Systems Industry

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

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

For example:

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

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

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

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

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

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

The Company anticipates that a continued increase in government regulation, public and competitive pressure regarding errors occurring in hospitals, as well as new health threats, will continue to drive the industry's expenditures on clinical information systems. Mediware believes that its product strategy and offerings provide an alternative to monolithic solution architectures of disparate systems and can play a role in moving healthcare information technology standards forward to deliver significant results for patients and customers.

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

Blood and Biologics Management Products

Hospital Transfusion and Donor Products

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

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

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

Blood Center Technologies

The Company also provides software tools and services to large, complex blood centers for donor targeting, donor recruitment, donation management, unit testing, blood component manufacturing, inventory control, sales and distribution. This is accomplished through a combination of the Company's 510(k) cleared LifeTrak® software and the products and capabilities acquired in Mediware's November 1, 2007 acquisition of substantially all of the business assets of Integrated Marketing Solutions, Inc ("IMS"). The addition of IMS to Mediware's blood center strategies enables the Company to deliver an integrated software solution for blood centers to improve collections and efficiency throughout the entire process from blood donor recruitment to hospital distribution. Since the acquisition of IMS, Mediware has been aggressively integrating software and capabilities to streamline the effectiveness of blood centers, from donor recruitment, through the clinical laboratory, to hospital management. With the addition of the IMS components, LifeTrak has robust clinical capabilities with modern and effective CRM technologies that enable blood centers to improve the effectiveness of coordinated blood drive campaigns while still meeting the strict FDA regulations for safe blood management. Combining IMS and LifeTrak technologies, it is estimated that Mediware products support over 50% of the U.S. blood supply at some point in the collection, testing and distribution processes.

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

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Biologics Products

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

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

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

Medication Management Products

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

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

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

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

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

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

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

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

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

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

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

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

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

Use of Estimates

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

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

Total revenue for the first quarter of fiscal 2009 was $9,833,000 compared to $10,744,000 in the same quarter of fiscal 2008, a decrease of $911,000, or 8%. The decrease in revenue is primarily due to a decline in medication management system sales. Blood management products and services, including . . .