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<div>Note 1. Significant Accounting Policies<br /></div> <br /> <div>The unaudited financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2019 included in MEDITECH's Form 10-K filed on January 31, 2020. The unaudited financial statements presented herein have not been audited by our Independent Registered Public Accounting Firm in accordance with the standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management such financial statements include all normal recurring adjustments necessary to present fairly MEDITECH's financial position, operating results and cash flow.<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 recorded at fair value and the unrealized change in marketable securities recorded 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 market value of MEDITECH's securities.<br /></div> <br /> <div align="center"><table> <tr><td> </td><td>Dec 31, 2019</td><td>Mar 31, 2020</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Original cost</td><td align="right">$309,435,273</td><td align="right">$299,435,273</td></tr> <tr><td>Unrealized pretax gains</td><td align="right">113,038,406</td><td align="right">61,328,045</td></tr> <tr><td>Unrealized pretax losses</td><td align="right">(919,180)</td><td align="right">(24,406,463)</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Fair market value</td><td align="right">$421,554,499</td><td align="right">$336,356,855</td></tr> <tr><td> </td><td><hr size="2" /></td><td><hr size="2" /></td></tr> </table></div> <br /> <div>During the first quarter of 2020, the fair value of the Company's investment portfolio decreased as a result of significant declines felt throughout the US stock market with the outbreak of the COVID-19 pandemic. The impact of continued volatility is uncertain.<br /></div> <br />

<div>Note 3. 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 health care market which MEDITECH serves. MEDITECH believes the fair value of this investment approximates its March 31, 2020 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 health care 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.<br /></div> <br />

<div>Note 4. 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 March 31, 2020, outstanding performance obligations amounted to $193.0 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 $29.0 million and $30.3 million at December 31, 2019 and March 31, 2020 respectively. During the quarter a total of $8.4 million was removed and recognized as revenue when specific events were completed. Also, Contract Assets were $8.6 million and $13.5 million at December 31, 2019 and March 31, 2020 respectively.<br /></div> <br />

<div>Note 5. Leases<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. There have been no material changes from the leasing arrangements as discussed in the Company's 2019 financial statements.<br /></div> <br /> <div>Lease income was $2.0 million and $1.1 million for the 3 months ended on March 31, 2019 and March 31, 2020 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 March 31, 2020 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">4,024,000</td></tr> <tr><td align="right">2021</td><td align="right">1,457,000</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 March 31, 2020:<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">170,496</td></tr> <tr><td>Accumulated Depreciation</td><td align="right">(9,537,161)</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">$19,584,821</td></tr> </table></div> <br />

<div>Note 6. Income Tax Accounting<br /></div> <br /> <div>MEDITECH follows the provisions of ASC 740-10, Accounting for Income Taxes. Deferred taxes relate to the earlier recognition of certain revenue and the later recognition of certain expenses for tax purposes. They also relate to the increase in fair market value over the cost basis of marketable securities. Tax reserves relate to the uncertainty of state nexus. Key judgments are reviewed annually and adjusted to reflect current assessments. The years 2017 through 2019 are subject to examination by the IRS, and various years are subject to examination by state tax authorities.<br /></div> <br />

<div>Note 7. 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 applicable period.<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">3 months</td><td>ended on</td></tr> <tr><td> </td><td>Mar 31, 2019</td><td>Mar 31, 2020</td></tr> <tr><td> </td><td><hr size="1" /></td><td><hr size="1" /></td></tr> <tr><td>Net income (loss)</td><td align="right">$36,147,902</td><td align="right">($25,730,168)</td></tr> <tr><td>Average number of shares</td><td align="right">37,190,854</td><td align="right">37,190,854</td></tr> <tr><td>Earnings {loss) per share</td><td align="right">$0.97</td><td align="right">($0.69)</td></tr> </table></div> <br />

<div>Note 8. 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 most of its operating 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 operating revenue percentage based on location of customer.<br /></div> <br /> <div align="center"><table> <tr><td> </td><td align="right">3 months</td><td>ended on</td></tr> <tr><td> </td><td>Mar 31, 2019</td><td>Mar 31, 2020</td></tr> <tr><td> </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">88%</td></tr> <tr><td>Canada</td><td align="right">10%</td><td align="right">11%</td></tr> <tr><td>All others</td><td align="right">2%</td><td align="right">1%</td></tr> </table></div>