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<div>Note 1. Significant Accounting Policies<br /></div> <br /> <div>MEDITECH is engaged in the development, manufacture, licensing and support of computer software products for the hospital market. The principal market for its products consists of healthcare providers located primarily in the United States and Canada.<br /></div> <br /> <div>The accompanying financial statements reflect the application of certain accounting policies discussed below. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.<br /></div> <br /> <div>(a) Revenue Recognition<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 606, Revenue from Contracts with Customers. MEDITECH enters into perpetual software license contracts which provide for a customer deposit upon contract execution, milestone billings during the implementation phase and fixed monthly support fees thereafter.<br /></div> <br /> <div>MEDITECH considers software fees and related implementation fees together as a single performance obligation and classifies it as product revenue in the statement of income. Such revenue is recognized over time with the transfer of promised goods and services to the customer. MEDITECH considers post-implementation support fees as a separate performance obligation and classifies it as service revenue in the statement of income. Such revenue is recognized over time as the related services are rendered.<br /></div> <br /> <div>MEDITECH identifies the performance obligations for each contract, determines the transaction price, allocates the price to the performance obligations, and recognizes revenue when (or as) a performance obligation is satisfied on the percent completion method based on completion of specific events. The primary factors taken into consideration involve tracking and measuring the progress of events needed to complete software delivery, training on software usage, interfacing the software with other vendor software, and bringing the software operational at the customer's site. Events identified are estimated at the outset of a contract and the transaction price is allocated equally over said events. Annual studies are conducted on the events required to complete contracted performance obligations and to verify the validity of total events required. Variable consideration is reviewed at the outset of a contract and if present, included in the percentage completion allocation.<br /></div> <br /> <div>At December 31, 2019, outstanding performance obligations amounted to $181.7 million, with revenue to be recognized over the next 12-36 months as MEDITECH works with respective customers to schedule the corresponding software delivery and implementation events.<br /></div> <br /> <div>MEDITECH's invoices are issued as per contract terms and are typically paid by customers within one month of invoice date. Differences between timing of MEDITECH's invoicing and timing of completed performance obligations are categorized as Deferred Revenues and Contract Assets. Deferred Revenues represent invoices rendered in advance of revenue recognition. Contract Assets represent revenue recognized for which invoices have not yet been rendered.<br /></div> <br /> <div>Deferred product revenue was $42.9 million and $29.0 million at December 31, 2018 and December 31, 2019 respectively. During the year a total of $32.7 million was removed and recognized as revenue when specific events were completed. Also, Contract Assets were $5.9 million and $8.6 million at December 31, 2018 and December 31, 2019 respectively.<br /></div> <br /> <div>During 2017, 2018 and 2019, additional revenue of $9.1 million, $2.1 million and $4.7 million respectively was claimed based on adoption of the new revenue standard ASC 606 as specific events were attained over time under the new percentage of completion as compared to a point in time using the contract milestone approach previously followed under ASC 985-605.<br /></div> <br /> <div>During 2019 MEDITECH delivered and began installation services on a license agreement for which collectability of substantially all of the consideration was not deemed to be probable at the outset of the arrangement. As a result, MEDITECH did not recognize revenue on delivery of product and installation services amounting to $16.5M. All costs incurred for delivery of product and installation services under this arrangement were expensed as incurred.<br /></div> <br /> <div>(b) Software Development Costs<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased or Marketed. ASC 985-20 establishes standards for capitalizing software development costs incurred after technological feasibility of the software development projects is established and the realizability of such capitalized costs through future operations is expected, if such costs become material. MEDITECH's development cost after technological feasibility has been established was immaterial and charged to operations as incurred.<br /></div> <br /> <div>(c) Cash and Equivalents<br /></div> <br /> <div>MEDITECH considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents.<br /></div> <br /> <div>(d) Common Stock Dividend Policy<br /></div> <br /> <div>MEDITECH's Board of Directors has full discretion regarding the timing and amounts of dividends paid.<br /></div> <br /> <div>(e) Fair Value of Financial Instruments and Concentration of Credit Risk<br /></div> <br /> <div>The carrying value of MEDITECH's cash and cash equivalents, accounts receivable and accounts payable approximates their fair value due to the short-term nature of these financial instruments. MEDITECH's marketable securities are carried at fair value.<br /></div> <br /> <div>Financial instruments that potentially subject MEDITECH to concentrations of credit risk are principally cash, cash equivalents, marketable securities and accounts receivable. MEDITECH places its cash and cash equivalents in highly rated institutions. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom MEDITECH makes substantial sales. To reduce risk, MEDITECH routinely assesses the financial strength of its customers and, as a result, believes that its accounts receivable credit risk exposure is limited. MEDITECH maintains a reserve for doubtful accounts but historically has not experienced any significant credit losses related to an individual customer or groups of customers.<br /></div> <br />

<div>Note 2. Marketable Securities<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 321, Investments - Equity Securities, which requires marketable securities to be recorded at fair value and records the unrealized change in marketable securities gains within the income statement.<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures, which provides for expanded disclosure and guidelines to determine fair value of assets and liabilities. ASC 820-10 applies whenever other standards require or permit assets and liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. MEDITECH's marketable securities represent assets measured at fair value on a recurring basis, and are considered Level 1 assets as defined by ASC 820-10.<br /></div> <br /> <div>The following table indicates the original cost, unrealized pretax gains and losses, and fair value of MEDITECH's securities for the three years ended December 31. The change in unrealized after-tax security gains for 2017 have been accounted for within comprehensive income. The change in unrealized pre-tax security gains for 2018 are now reported within the income statement with the adoption of ASU 2016-01 on January 1, 2018.<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Original cost</td><td align="right">$227,405,667</td><td align="right">$217,169,354</td><td align="right">$309,435,273</td></tr> <tr><td>Unrealized pretax gains</td><td align="right">78,907,615</td><td align="right">62,156,967</td><td align="right">113,038,406</td></tr> <tr><td>Unrealized pretax losses</td><td align="right">(226,853)</td><td align="right">(10,687,962)</td><td align="right">(919,180)</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Fair value</td><td align="right">$306,086,429</td><td align="right">$268,638,359</td><td align="right">$421,554,499</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 3. Reserve for Doubtful Accounts<br /></div> <br /> <div>The components of the reserve for doubtful accounts for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Reserve at beginning of year</td><td align="right">$1,575,000</td><td align="right">$1,100,000</td><td align="right">$1,100,000</td></tr> <tr><td>Amounts charged to expense</td><td align="right">848,739</td><td align="right">44,162</td><td align="right">1,143,187</td></tr> <tr><td>Amounts written off</td><td align="right">(1,323,739)</td><td align="right">(44,162)</td><td align="right">(1,143,187)</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Reserve at end of year</td><td align="right">$1,100,000</td><td align="right">$1,100,000</td><td align="right">$1,100,000</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 4. Deferred Taxes<br /></div> <br /> <div>Deferred taxes relate to the earlier recognition of certain revenue and the later recognition of certain expense for tax purposes. Deferred tax assets consist primarily of prepaid tax on accrued expenses, prepaid tax on deposits, deferred revenues, and Federal benefit for tax reserves. Deferred tax liabilities consist primarily of tax on unrealized pretax gains. The deferred tax assets and liabilities for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Deferred tax assets</td><td align="right">$9,223,246</td><td align="right">$8,257,144</td><td align="right">$7,160,037</td></tr> <tr><td>Deferred tax liabilities</td><td align="right">19,154,929</td><td align="right">12,409,407</td><td align="right">26,951,474</td></tr> </table></div> <br />

<div>Note 5. Fixed Assets<br /></div> <br /> <div>MEDITECH carries all fixed assets on a cost basis and provides for depreciation in amounts estimated to allocate the costs thereof under the following estimated useful lives. Maintenance costs are expensed as incurred. Improvements are capitalized and depreciated over the asset's useful life.<br /></div> <br /> <div align="center"><table> <tr><td>Description</td><td>Useful Life</td></tr> <tr><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Computer equipment</td><td align="right">3-5 years</td></tr> <tr><td>Furniture and fixtures</td><td align="right">7-10 years</td></tr> <tr><td>Buildings</td><td align="right">31.5-40 years</td></tr> </table></div> <br />

<div>Note 6. Equity Method Investments<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 323-10, Investments - Equity Method and Joint Ventures, and as such, accounts for the equity investment in Meditech South Africa in accordance with the cost method. Meditech South Africa licenses MEDITECH's software technology and re-licenses it to its respective customers. Meditech South Africa serves a market niche which is part of the overall medical market but is outside of the hospital market which MEDITECH serves. MEDITECH believes the fair value of this investment approximates its December 31, 2019 carrying value.<br /></div> <br /> <div>During the 2nd quarter 2007 MEDITECH acquired Patient Care Technologies, Inc. (PtCT), a company engaged in the development, manufacture, licensing and support of computer software products for the home healthcare market. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with ASC 805-10, Business Combinations. PtCT merged with and into MEDITECH effective December 31, 2009.<br /></div> <br /> <div>During the 1st quarter 2011 MEDITECH acquired LSS Data Systems, Inc. (LSS), a company engaged in the development, manufacture, licensing and support of ambulatory information system software for physician practices. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with ASC 805-10, Business Combinations. LSS merged with and into MEDITECH effective December 31, 2013.<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 350-20-35 Intangibles, Goodwill and Other. MEDITECH annually assesses qualitative factors of its goodwill assets for impairment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The evaluation assesses all relevant economic, industry, regulatory, and legal facts and circumstances as well as overall performance. If, after assessing the totality of such facts and circumstances, MEDITECH determines that it is more likely than not that the fair value of a reporting unit is not less than its carrying amount, then no further goodwill impairment testing is necessary. In accordance with ASC 805-10 and ASC 350-20-35, on December 31, 2019, MEDITECH concluded no impairment was needed on a qualitative testing basis. The components of other assets for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Investments</td><td align="right">$1,260,054</td><td align="right">$1,260,054</td><td align="right">$1,284,737</td></tr> <tr><td>Mortgage notes</td><td align="right">130,400</td><td align="right">-</td><td align="right">-</td></tr> <tr><td>Goodwill & intangibles</td><td align="right">3,577,533</td><td align="right">5,985,033</td><td align="right">5,828,565</td></tr> <tr><td>Other</td><td align="right">4,498,351</td><td align="right">1,185,428</td><td align="right">80,696</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Other assets</td><td align="right">$9,466,338</td><td align="right">$8,430,515</td><td align="right">$7,193,998</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 7. Accrued Expenses<br /></div> <br /> <div>The components of accrued expenses for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Accrued bonuses</td><td align="right">$15,000,000</td><td align="right">$15,000,000</td><td align="right">$15,000,000</td></tr> <tr><td>Accrued vacation</td><td align="right">5,115,000</td><td align="right">5,260,000</td><td align="right">5,100,000</td></tr> <tr><td>Accrued self insurance</td><td align="right">-</td><td align="right">252,136</td><td align="right">1,039,469</td></tr> <tr><td>Other</td><td align="right">2,716,337</td><td align="right">3,404,706</td><td align="right">3,188,240</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Accrued expenses</td><td align="right">$22,831,337</td><td align="right">$23,916,832</td><td align="right">$24,327,709</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 8. Tax Reserves<br /></div> <br /> <div>Tax reserves relate to state nexus. Key judgments are reviewed annually and additional adjustments to state nexus were made to reflect current assessments. The years 2016 through 2019 are subject to examination by the IRS, and various years are subject to examination by state tax authorities. MEDITECH accounts for the annual change in tax reserves as part of its provision for income taxes. The components of tax reserves for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Potential tax assessment</td><td align="right">$9,362,662</td><td align="right">$8,586,336</td><td align="right">$11,952,402</td></tr> <tr><td>Interest and penalties</td><td align="right">9,222,104</td><td align="right">8,452,946</td><td align="right">5,458,880</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Tax reserves</td><td align="right">$18,584,766</td><td align="right">$17,039,282</td><td align="right">$17,411,282</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 9. Segment Reporting<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 280-10, Segment Reporting. Based on the criteria set forth in ASC 280-10, MEDITECH currently operates in one operating segment, medical software and services. MEDITECH derives its revenue from the sale and support of one group of similar products and services. All of MEDITECH's assets are located within the United States. The following table indicates the percentage of revenue based on customer location plus the percentage of revenue from the largest customer for the three years ended December 31 is as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Total revenue</td><td align="right">$480,903,895</td><td align="right">$488,188,746</td><td align="right">$493,844,632</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>United States</td><td align="right">88%</td><td align="right">87%</td><td align="right">88%</td></tr> <tr><td>Canada</td><td align="right">11%</td><td align="right">11%</td><td align="right">10%</td></tr> <tr><td>All others</td><td align="right">1%</td><td align="right">2%</td><td align="right">2%</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Largest customer</td><td align="right">7%</td><td align="right">8%</td><td align="right">7%</td></tr> </table></div> <br />

<div>Note 10. Other Income<br /></div> <br /> <div>Other income consists primarily of rents, dividends, interest and realized marketable security activity. The components of other income for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Rents</td><td align="right">$7,012,603</td><td align="right">$8,459,277</td><td align="right">$5,038,467</td></tr> <tr><td>Dividends</td><td align="right">13,078,062</td><td align="right">12,004,775</td><td align="right">13,259,412</td></tr> <tr><td>Interest</td><td align="right">203,617</td><td align="right">737,103</td><td align="right">752,533</td></tr> <tr><td>Security gains (losses)</td><td align="right">17,464,043</td><td align="right">(272,229)</td><td align="right">2,945,147</td></tr> <tr><td>Fixed asset gains (losses)</td><td align="right">864,217</td><td align="right">5,051,453</td><td align="right">(532,297)</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Other income</td><td align="right">$38,622,542</td><td align="right">$25,980,379</td><td align="right">$21,463,262</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 11. Leases<br /></div> <br /> <div>On September 19, 2019 MEDITECH sold property including a building, land, furniture, fixtures and equipment for $120 million and recorded a gain of $88.9 million within the Statement of Income. Note that the terms of the sale allow MEDITECH to hold a small short term lease until its staff can be relocated. Prior to the sale, the property was a mixed use facility with the majority of space available for lease. Accordingly, the following disclosures have been updated to reflect the sale.<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 842, Leases, which requires improved disclosure on timing and uncertainties of cash flow arising from leases. MEDITECH owns all 8 facilities it occupies, containing 1.1 million square feet of office space. MEDITECH occupies 87% of the space and the remainder is leased to various tenants. All are operating leases. Related operating expense are allocated based on square footage ratio of leased to MEDITECH space. The length of MEDITECH's lease agreements vary and may include a rent-free period, extension options, or escalated lease payment. There are no agreements with termination options or variable payments dependent on outside variables. MEDITECH recognizes lease income and related brokerage fees on a straight-line basis for all agreements. MEDITECH will not consider a lease extended until an amendment is signed by both parties, at which point it is accounted for as a new lease.<br /></div> <br /> <div>When a lease agreement is entered into between MEDITECH (lessor) and another party (lessee), the agreement may include non-lease components, being services such as cleaning, utilities, security and grounds maintenance. The company does not separate the lease and non-lease components and treats all as a single lease component. In all cases there is a provision that requires the lessee to pay a proportional share of real estate taxes on a quarterly basis over and above the base year of the lease. Such costs are considered variable and a reimbursement of costs MEDITECH has paid, which are expensed as incurred.<br /></div> <br /> <div>MEDITECH does not lease other property and equipment in its operations. All contracts the company has with vendors are reviewed annually for identification of lease components and none exist.<br /></div> <br /> <div>Lease income was $7.0 million, $8.5 million and $5.0 million for the years ended on December 31, 2017, 2018 and 2019 respectively. Such income is included within Other Income for financial reporting purpose. Cash Flow projections through the end of all outstanding lease terms for properties currently under lease commitment at December 31, 2019 is as follows:<br /></div> <br /> <div align="center"><table> <tr><td>Year</td><td>Cash Flow</td></tr> <tr><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td align="right">2020</td><td align="right">4,018,000</td></tr> <tr><td align="right">2021</td><td align="right">1,454,000</td></tr> <tr><td align="right">2022</td><td align="right">222,000</td></tr> <tr><td align="right">2023</td><td align="right">44,000</td></tr> <tr><td>After</td><td align="right">0</td></tr> </table></div> <br /> <div>Investments in Operating leases are as follows at December 31, 2019:<br /></div> <br /> <div align="center"><table> <tr><td>Building and Office Space, at cost</td><td align="right">$28,951,486</td></tr> <tr><td>Lease Origination Costs</td><td align="right">216,273</td></tr> <tr><td>Accumulated Depreciation</td><td align="right">(9,376,903)</td></tr> <tr><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>  Net Investment in Operating Leases</td><td align="right">$19,790,856</td></tr> </table></div> <br />

<div>Note 12. Other Expense<br /></div> <br /> <div>Other expense consists primarily of rental costs and charitable contributions. The components of other expense for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Rental costs</td><td align="right">$5,267,922</td><td align="right">$6,305,610</td><td align="right">$5,185,597</td></tr> <tr><td>Charitable contributions</td><td align="right">755,000</td><td align="right">735,000</td><td align="right">755,000</td></tr> <tr><td>Other</td><td align="right">94,975</td><td align="right">84,046</td><td align="right">171,729</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Other expense</td><td align="right">$6,117,897</td><td align="right">$7,124,656</td><td align="right">$6,112,326</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 13. Income Tax Accounting<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 740-10, Accounting for Income Taxes. The current and deferred components of the State and Federal income taxes for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>State current</td><td align="right">$3,225,483</td><td align="right">$443,136</td><td align="right">$5,626,874</td></tr> <tr><td>State deferred</td><td align="right">310,083</td><td align="right">(830,212)</td><td align="right">1,996,529</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>State income tax</td><td align="right">$3,535,566</td><td align="right">($387,076)</td><td align="right">$7,623,403</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> <tr><td>Federal current</td><td align="right">$20,103,177</td><td align="right">$9,336,650</td><td align="right">$24,427,084</td></tr> <tr><td>Federal deferred</td><td align="right">(4,581,540)</td><td align="right">(4,949,208)</td><td align="right">14,381,119</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Federal income tax</td><td align="right">$15,521,637</td><td align="right">$4,387,442</td><td align="right">$38,808,203</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 14. Income Tax<br /></div> <br /> <div>During 2017 the Tax Cut and Jobs Act reduced 2018 corporate tax rate from 35% to 21% requiring adjustment to 2017 deferred taxes. The effective income tax for the three years ended December 31 is as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Statutory U.S. income tax</td><td align="right">$33,770,023</td><td align="right">$12,643,294</td><td align="right">$47,583.648</td></tr> <tr><td>State income taxes net of federal benefit</td><td align="right">2,298,117</td><td align="right">(305,790)</td><td align="right">5,718,392</td></tr> <tr><td>Dividend income and FDII exclusion</td><td align="right">(3,868,286)</td><td align="right">(1,755,823)</td><td align="right">(1,803,486)</td></tr> <tr><td>Federal R&D tax credit</td><td align="right">(4,942,682)</td><td align="right">(6,655,571)</td><td align="right">(6,825,117)</td></tr> <tr><td>Tax code revision</td><td align="right">(8,818,896)</td><td align="right">-</td><td align="right">-</td></tr> <tr><td>Other</td><td align="right">618,927</td><td align="right">74,256</td><td align="right">1,758,169</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Income tax</td><td align="right">$19.057,203</td><td align="right">$4,000,366</td><td align="right">$46,431,606</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br />

<div>Note 15. Earnings Per Share<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 260-10, Earnings per Share, which requires reporting both basic and diluted earnings per share. MEDITECH has no common share equivalents such as preferred stock, warrants or stock options which would dilute earnings per share. Thus, earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the three years ended December 31. In general, the average number of shares reflects the annual issuance of shares sold to staff members in February pursuant to the 2004 Stock Purchase Plan and the annual issuance of shares contributed to the MEDITECH Profit Sharing Trust in December.<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td><td align="right">2018</td><td align="right">2019</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Net income</td><td align="right">$77,428,576</td><td align="right">$56,205,796</td><td align="right">$180,157,193</td></tr> <tr><td>Average number of shares</td><td align="right">37,190,854</td><td align="right">37,190,854</td><td align="right">37,190,854</td></tr> <tr><td>Earnings per share</td><td align="right">$2.08</td><td align="right">$1.51</td><td align="right">$4.84</td></tr> </table></div> <br />

<div>Note 16. Comprehensive Income Presentation<br /></div> <br /> <div>Prior to January 1, 2018, MEDITECH followed the provisions of ASU 2011-05, Comprehensive Income, with respect to marketable securities which establishes standards for reporting comprehensive income and its components in financial statements. MEDITECH's Comprehensive income, prior to the adoption of ASU 2016-01, is the total of net income and unrealized after-tax gains or losses on marketable securities classified as available for sale. Results for the year ended December 31, 2017 is as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">2017</td></tr> <tr><td> </td><td><hr size="1" /></td></tr> <tr><td>Unrealized after-tax gains arising during the</td><td> </td></tr> <tr><td>  period on securities existing at period end</td><td align="right">$13,065,056</td></tr> <tr><td>Unrealized after-tax gains arising before the</td><td> </td></tr> <tr><td>  period on securities sold during the period</td><td align="right">(12,285,845)</td></tr> <tr><td> </td><td><hr size="1" /></td></tr> <tr><td>  Change in unrealized after-tax security gains</td><td align="right">$779,211</td></tr> </table></div> <br /> <div>With the adoption of ASU 2016-01, Financial Instruments, Recognition and Measurement and Disclosure of Financial Assets and Liabilities, which updates certain aspects of recognition, measurement and disclosure of financial instruments, on January 1, 2018, MEDITECH has no elements of other comprehensive income. The unrealized change in marketable securities gains is now recorded within the Income Statement, a presentation change. The primary effect is the inclusion of such fluctuations in the period's earnings per share calculation presented in Note 14. Additionally, there is a change in presentation within Shareholder Equity in the Balance Sheets. Lastly the Statements of Cash Flows will separately report such fluctuations.<br /></div> <br /> <div>At December 31, 2017, net unrealized marketable securities gains amounted to $78.7 million. The after-tax portion originally recorded within equity of $47.2 million was reclassified to retained income on January 1, 2018 upon adoption of ASU 2016-01. Unrealized marketable securities gains decreased $23.4 million during 2018 but increased $57.8 million during 2019.<br /></div> <br />

<div>Note 17. Qualified Profit Sharing Plan<br /></div> <br /> <div>MEDITECH has no obligation for post-employment or post-retirement benefits. MEDITECH maintains a qualified profit sharing plan which provides deferred compensation to substantially all of its staff members. Contributions to the plan are at the discretion of the Board of Directors and may be in the form of cash and shares of MEDITECH stock. The Company has contributed $9 million in cash to the Trust in 2017 and 2018, and $15 million in 2019.<br /></div> <br />

<div>Note 18. Litigation<br /></div> <br /> <div>From time to time, the Company is a party to or may be threatened by litigation in the ordinary course of its business. The Company regularly analyzes current information, including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The Company is not a party to any material legal proceedings.<br /></div> <br />

<div>Note 19. Supplemental Data<br /></div> <br /> <div>Unaudited operating results by quarter for the three years ended December 31 are as follows:<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">1st Quarter</td><td align="right">2nd Quarter</td><td align="right">3rd Quarter</td><td align="right">4th Quarter</td><td align="right">2017 Year</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Total revenue</td><td align="right">$117,152,968</td><td align="right">$116,723,292</td><td align="right">$121,891,463</td><td align="right">$125,136,172</td><td align="right">$480,903,895</td></tr> <tr><td>Operating income</td><td align="right">13,249,937</td><td align="right">13,246,241</td><td align="right">17,215,933</td><td align="right">20,269,023</td><td align="right">63,981,134</td></tr> <tr><td>Net income</td><td align="right">14,507,354</td><td align="right">14,518,974</td><td align="right">17,462,909</td><td align="right">30,939,339</td><td align="right">77,428,576</td></tr> <tr><td>Net income per share</td><td align="right">$0.39</td><td align="right">$0.39</td><td align="right">$0.47</td><td align="right">$0.83</td><td align="right">$2.08</td></tr> <tr><td> </td><td> </td><td> </td><td> </td><td> </td><td> </td></tr> <tr><td> </td><td align="right">1st Quarter</td><td align="right">2nd Quarter</td><td align="right">3rd Quarter</td><td align="right">4th Quarter</td><td align="right">2018 Year</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Total revenue</td><td align="right">$122,368,603</td><td align="right">$125,023,182</td><td align="right">$119,108,936</td><td align="right">$121,688,025</td><td align="right">$488,188,746</td></tr> <tr><td>Operating income</td><td align="right">15,773,695</td><td align="right">17,998,545</td><td align="right">14,184,272</td><td align="right">16,810,761</td><td align="right">64,767,273</td></tr> <tr><td>Net income</td><td align="right">2,822,220</td><td align="right">24,126,675</td><td align="right">19,163,837</td><td align="right">10,093,064</td><td align="right">56,205,796</td></tr> <tr><td>Net income per share</td><td align="right">$0.08</td><td align="right">$0.65</td><td align="right">$0.52</td><td align="right">$0.27</td><td align="right">$1.51</td></tr> <tr><td> </td><td> </td><td> </td><td> </td><td> </td><td> </td></tr> <tr><td> </td><td align="right">1st Quarter</td><td align="right">2nd Quarter</td><td align="right">3rd Quarter</td><td align="right">4th Quarter</td><td align="right">2019 Year</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Total revenue</td><td align="right">$115,359,711</td><td align="right">$119,954,865</td><td align="right">$121,205,017</td><td align="right">$137,325,039</td><td align="right">$493,844,632</td></tr> <tr><td>Operating income</td><td align="right">10,606,958</td><td align="right">15,078,671</td><td align="right">12,882,334</td><td align="right">25,911,699</td><td align="right">64,479,662</td></tr> <tr><td>Net income</td><td align="right">36,147,902</td><td align="right">16,315,075</td><td align="right">90,796,290</td><td align="right">36,897,926</td><td align="right">180,157,193</td></tr> <tr><td>Net income per share</td><td align="right">$0.97</td><td align="right">$0.44</td><td align="right">$2.44</td><td align="right">$0.99</td><td align="right">$4.84</td></tr> </table></div>