Medical Information Technology, Inc.

Financial Statements

Years Ended December 31, 2019 and 2020

Table of Contents

Independent Auditors’ Report 1
Financial Statements 
  Balance Sheets 2
  Statements of Income 3
  Statements of Shareholder Equity 4
  Statements of Cash Flows 5
Notes to Financial Statements 
  1. Description of Busines 6
  2. Significant Accounting Policies 6
  3. Marketable Securities 8
  4. Accrued Expenses 9
  5. Leases 9
  6. Common Stock10
  7. Income Taxes10
  8. Other Income and Expene11
  9. Qualified Profit Sharing Plan12
 10. Contingencies12
 11. Sunsequent Events12

Independent Auditors’ Report

To the Shareholders and the Board of Directors of Medical Information Technology, Inc.:

Report on the Financial Statements

We have audited the accompanying financial statements of Medical Information Technology, Inc., which comprise the balance sheets as of December 31, 2019 and 2020, and the related statements of income, shareholder equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit as of and for the year ended December 31, 2019, in accordance with standards of the Public Company Accounting Oversight Board (United States). We conducted our audit as of and for the year ended December 31, 2020, in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. These procedures include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medical Information Technology, Inc. as of December 31, 2019 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Wolf & Company, P.C.

Boston, Massachusetts
January 29, 2021

Page 1 of 12

Medical Information Technology, Inc.
Balance Sheets
as of December 31, 2019 and 2020

 Dec 31, 2019Dec 31, 2020

Cash and equivalents$14,997,613$40,504,119
Marketable securities421,554,499323,777,971
Trade receivables, net of reserve36,575,02840,812,984
Contract assets, prepaid and other14,223,03716,089,907

  Current assets487,350,177421,184,981
Computer equipment13,339,42512,937,048
Furniture and fixtures76,135,67576,366,841
Accumulated depreciation(138,527,057)(146,741,211)

  Fixed assets167,771,137159,385,772
Other assets7,193,9987,101,280
Deferred tax assets7,160,0378,140,309

  Total assets$669,475,349$595,812,342

Accounts payable$211,391$168,728
Taxes payable3,111,8782,865,409
Accrued expenses24,327,70927,927,555
Deferred revenue39,711,20743,361,221

  Current liabilities67,362,18574,322,913
Deferred tax liabilities
Tax reserves

  Total liabilities111,724,941114,870,600
Common stock, $1.00 par value, authorized,  
  40,000,000 shares, outstanding 37,190,854  
  in 2019 and authorized 8,000 shares, issued  
  & outstanding 7,106 in 2020 (see note 6)37,190,8547,106
Additional paid-in capital122,907,95985,353,277
Retained income397,651,595395,581,359

  Shareholder equity557,750,408480,941,742

  Total liabilities and shareholder equity$669,475,349$595,812,342

Shares outstanding37,190,8547,106
Shareholder equity per share$15.00$67,681.08

The accompanying notes are an integral part of these financial statements.

Page 2 of 12

Medical Information Technology, Inc.
Statements of Income
for the Years Ended December 31, 2019 and 2020

 Dec 31, 2019Dec 31, 2020

Product revenue
Service revenue
Subscription revenue

  Total revenue493,844,632502,851,197
Operations, development
Selling, G & A

  Operating expense429,364,970415,606,687

  Operating income64,479,66287,244,510
Other income
Gain on sale of property
Change in unrealized gains
Other expense

  Pretax income226,588,79980,506,501
State income tax
Federal income tax

  Income tax46,431,6065,963,578

  Net income$180,157,193$74,542,923

Average shares outstanding
Net income per share

The accompanying notes are an integral part of these financial statements.

Page 3 of 12

Medical Information Technology, Inc.
Statements of Shareholder Equity
for the Years Ended December 31, 2019 and 2020

 Common stock   Retained Shareholder
 Paid-in capital    Income     Equity

Balance at Dec 31, 2018 $160,098,813$300,801,915$460,900,728
Net income--180,157,193180,157,193
Dividends paid--(83,307,513)(83,307,513)

Balance at Dec 31, 2019160,098,813397,651,595557,750,408
Net income--74,542,92374,542,923
Dividends paid--(76,613,159)(76,613,159)
Reverse stock split (see note 6)(74,738,430)--(74,738,430)

Balance at Dec 31, 2020$85,360,383$395,581,359$480,941,742

The accompanying notes are an integral part of these financial statements.

Page 4 of 12

Medical Information Technology, Inc.
Statements of Cash Flows
for the Years Ended December 31, 2019 and 2020

 Dec 31, 2019Dec 31, 2020

Net income$180,157,193$74,542,923
Depreciation and amortization expense13,344,74611,959,767
Gain on sale of marketable securities(2,945,147)(4,698,315)
Gain on sale of fixed assets(88,416,610)--
Change in marketable securities(57,809,294)29,254,818
Change in trade receivables, net of reserve185,784(4,237,956)
Change in contract assets, prepaid and other(2,145,102)(1,866,870)
Change in deferred tax assets1,097,107(980,272)
Change in accounts payable(490,133)(42,663)
Change in taxes payable1,286,350(246,469)
Change in accrued expenses410,8773,599,846
Change in deferred revenue(12,955,444)3,650,014
Change in deferred tax liabilities14,542,067(1,707,180)
Change in tax reserves372,000(2,107,889)

  Net cash from operations activities46,634,394107,119,754
Purchases of marketable securities(172,879,796)--
Sales of marketable securities80,718,09773,220,025
Purchases of fixed assets(5,382,609)(3,574,402)
Sales of fixed assets125,163,796--
Change in other assets955,26792,718

  Net cash from investing activities28,574,75569,738,341
Dividends Paid(83,307,513)(76,613,159)
Fractional Shares redeemed (see note 6)--(74,738,430)

  Net cash used in financing activities(83,307,513)(151,351,589)

Net change in cash and equivalents(8,098,364)25,506,506
Cash and equivalents at beginning of year23,095,97714,997,613

  Cash and equivalents at end of year$14,997,613$40,504,119

Cash paid for income taxes$29,057,328$14,374,018

The accompanying notes are an integral part of these financial statements.

Page 5 of 12

Medical Information Technology, Inc.
Notes to Financial Statements


Medical Information Technology, Inc., (“MEDITECH” or the “Company”) 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.


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.

Cash and Equivalents

MEDITECH considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents.

Concentration of Credit Risk

The carrying value of MEDITECH's cash and 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.

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.

Investment Valuation and the Fair Value Hierarchy

Investments are made in marketable equity securities, such as common and preferred stock, with readily determinable fair values and are reported at their fair values in the balance sheet with realized and unrealized gains and losses included in the statement of income. Marketable equity securities are measured at fair value on a recurring basis. Valuations are based on quoted prices in active markets for identical assets which are obtained from readily available pricing sources for market transactions involving identical assets.

Fixed Assets

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.

DescriptionUseful Life

Computer equipment3-5 years
Furniture and fixtures7-10 years
Buildings31.5-40 years

Page 6 of 12

Medical Information Technology, Inc.
Notes to Financial Statements

Software Development Costs

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.

Revenue Recognition

MEDITECH follows the provisions of ASC 606, Revenue from Contracts with Customers for the three primary categories of revenue reported. Product revenue, Service revenue, and Subscription revenue are described briefly below:

Product Revenue: A customer enters into perpetual software license which provides for a customer deposit upon contract execution and milestone billings during the implementation phase.

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 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.

Service Revenue: 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.

Subscription Revenue: MEDITECH now offers our products as a subscription to customers. Subscriptions, including any implementation services, are considered a single performance obligation. Subscription revenue is generally billed monthly and recognized either monthly or over the minimum contractual period. As the principal in the customer arrangement, MEDITECH records the gross amount of consideration to be received as subscription revenue in the statement of income.

At December 31, 2020, outstanding product performance obligations amounted to $85.8 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.

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 for Product revenue 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.

Page 7 of 12

Medical Information Technology, Inc.
Notes to Financial Statements

Deferred product revenue was $29.0 million and $40.2 million at December 31, 2019 and December 31, 2020 respectively. During the year a total of $15.7 million was removed and recognized as revenue when specific events were completed. Also, Contract Assets were $8.6 million and $7.7 million at December 31, 2019 and December 31, 2020 respectively.

During 2019 additional revenue of $4.7 million was recognized 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. No such additional revenues were recognized in 2020.

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 $16.5 million during 2019. All costs incurred for delivery of product and installation services under this arrangement were expensed as incurred. MEDITECH recorded the $16.5 million in product revenues during 2020 once collectability was deemed probable.

Income Taxes

For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statements and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, MEDITECH provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are realizable.

Tax positions taken or expected to be taken in the course of preparing MEDITECH’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. Generally, MEDITECH is no longer subject to federal and state tax estimations by tax authorities for tax filings prior to 2017.


The composition of marketable securities as reported in the balance sheets for the years ended December 31 is as follows:

 Dec 31, 2019Dec 31, 2020

Original cost$309,435,273$218,897,756
Unrealized pretax gains113,038,406105,789,585
Unrealized pretax losses(919,180)(909,370)

Fair value$421,554,499$323,777,971

Page 8 of 12

Medical Information Technology, Inc.
Notes to Financial Statements


The components of accrued expenses for the years ended December 31 are as follows:

 Dec 31, 2019Dec 31, 2020

Accrued bonuses$15,000,000$14,000,000
Accrued vacation5,100,0006,440,000
Accrued self insurance1,039,4695,384,305

Accrued expenses$24,327,709$27,927,555


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. Prior to the sale, the property was a mixed use facility with the majority of space available for lease.

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 expenses 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.

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. MEDITECH 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.

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.

Lease income was $5.0 million and $3.6 million for the years ended on December 31, 2019 and 2020 respectively. Such income is included within Other Income for financial reporting purposes. As a result of the sale of property in September 2019, as discussed above, future rental income is not expected to be material.
Page 9 of 12

Medical Information Technology, Inc.
Notes to Financial Statements


On November 30, 2020, the Company’s Articles of Organization were amended to effect a 1-for-5,000 reverse stock split (the "Reverse Stock Split") of the Company's Common Stock. As a result of the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 40,000,000 to 8,000 shares. All share and per share amounts have been retroactively adjusted to reflect the impact of the Reverse Stock Split.

Immediately following the Reverse Stock Split, there were 7,106 shares of Common Stock issued and outstanding. No fractional shares were issued in connection with the Reverse Stock Split. Each shareholder who would otherwise be entitled to a fraction of a share of Common Stock immediately after the Reverse Stock Split was, in lieu thereof, entitled to receive a cash payment of $45.00 per pre-Reverse Stock Split share of Common Stock. Cash payments totaling $74,738,430 were made to fractional shareholders in December 2020 and are shown as a reduction of common stock, as follows:

  Fractional share  Reverse 
 Dec 31, 2019   RedemptionStock SplitDec 31, 2020

Capital stock, $1.00 par value37,190,854(1,660,854)(35,522,894)7,106
Additional paid-in capital122,907,959(73,077,576)35,522,89485,353,277

MEDITECH's Board of Directors has full discretion regarding the timing and amounts of dividends paid.


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 years ended December 31 are as follows:

 Dec 31, 2019Dec 31, 2020

Deferred tax assets$7,160,037$8,140,309
Deferred tax liabilities26,951,47425,244,294

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 2017
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
years ended December 31 are as follows:

 Dec 31, 2019Dec 31, 2020

Potential tax assessment$11,952,402$10,472,008
Interest and penalties5,458,8804,831,385

Tax reserves$17,411,282$15,303,393

Page 10 of 12

Medical Information Technology, Inc.
Notes to Financial Statements (Continued)

The current and deferred components of the State and Federal income taxes for the years ended December 31 are as follows:

 Dec 31, 2019Dec 31, 2020

State current$5,626,874$1,714,039
State deferred1,996,529(935,668)

State income tax$7,623,403$778,371

Federal current$24,427,084$7,357,987
Federal deferred14,381,119(2,172,780)

Federal income tax$38,808,203$5,185,207

The effective income tax for the years ended December 31 is as follows:

 Dec 31, 2019Dec 31, 2020

Statutory U.S. income tax$47,583,648$16,906,365
State income taxes net of federal benefit5,718,392614,914
Dividend income and FDII exclusion(1,803,486)(2,508,713)
Federal R&D tax credit(6,825,117)(7,004,614)
Rate differential on capital loss carryback --(1,904,924)

Income tax$46,431,606$5,963,578


Other income consists primarily of rents, dividends, interest and realized marketable security activity. The components of other income for the years ended December 31 are as follows:

 Dec 31, 2019Dec 31, 2020

Security gains2,945,1474,698,314
Fixed asset loss(532,297)--

Other income$21,463,262$25,557,030

Other expense consists primarily of rental costs and charitable contributions. The components of other expense for the years ended December 31 are as follows:

 Dec 31, 2019Dec 31, 2020

Rental costs$5,185,597$2,158,642
Charitable contributions755,000765,000

Other expense$6,112,326$3,040,221

Page 11 of 12

Medical Information Technology, Inc.
Notes to Financial Statements


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 $15 million in cash to the Trust in 2019 and $14 million in 2020.


COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The impact of the COVID-19 pandemic on the healthcare industry is a significant unknown. Change in medical procedures and processes will reverberate throughout the industry and could adversely affect the Company’s ability to procure new business and maintain operations as is done today.


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.


Management has evaluated subsequent events through January 29, 2021, which is the date the financial statements were available to be issued. There were no subsequent events that require adjustment to or disclosure in the consolidated financial statements.

Page 12 of 12