Exhibit 1.2



Consolidated Financial Statements

(Expressed in United States dollars)



CRH
MEDICAL CORPORATION



Years ended December 31, 2016 and
2015











MANAGEMENT’S
REPORT



The accompanying consolidated financial statements
of CRH Medical Corporation are the responsibility of management and have been approved by the Board of Directors. The consolidated
financial statements have been prepared by management in accordance with International Financial Reporting Standards, as issued
by the International Accounting Standards Board, and where appropriate, reflect management’s best estimates and assumptions
based upon information available at the time that these estimates and assumptions were made.



Management is responsible for establishing
and maintaining a system of internal controls over financial reporting designed to provide reasonable assurance as to the reliability
of financial information and the safeguarding of assets.



The Board of Directors is responsible for ensuring
that management fulfills its responsibility for financial reporting and internal control. The Board of Directors exercises this
responsibility principally through the Audit Committee. The Audit Committee consists of directors not involved in the daily operations
of the Company. The Audit Committee is responsible for engaging the external auditor, and meets with management and the external
auditors to satisfy itself that management’s responsibilities are properly discharged and to review the financial statements
prior to their presentation to the Board of Directors for approval.



The Company’s external auditors, who
are appointed by the shareholders, conducted an independent audit in accordance with Canadian generally accepted auditing standards
and express their opinion thereon.



|Chief Executive Officer  |  | Chief Financial Officer
|------------------------ |  | -----------------------
|(signed) “Edward Wright” |  | (signed) “Richard Bear”
|                         |  |                        
|February 22, 2017        |  | February 22, 2017      















KPMG LLP

PO Box 10426 777 Dunsmuir Street

Vancouver BC V7Y 1K3

Canada

Telephone (604) 691-3000

Fax (604) 691-3031



Independent
auditors’ Report



To the Shareholders
of CRH Medical Corporation



We have audited the accompanying
consolidated financial statements of CRH Medical Corporation, which comprise the consolidated balance sheets as at December 31,
2016 and December 31, 2015, the consolidated statements of operations and comprehensive income, changes in equity and cash flows
for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.



Management’s
Responsibility for the Consolidated Financial Statements



Management is responsible for the
preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is
necessary to enable the preparation of consolidated 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 consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian
generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated 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. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.



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



KPMG LLP is a Canadian limited liability partnership
and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

KPMG Canada provides services to
KPMG LLP.















CRH Medical Corporation

Page 2



Opinion



In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of CRH Medical Corporation as at December 31,
2016 and December 31, 2015, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board.







Chartered Professional Accountants



February 22, 2017

Vancouver, Canada











CRH
MEDICAL CORPORATION

Consolidated Balance Sheets

(Expressed in United States dollars)



As at December 31, 2016 and 2015








|                                                         |  | Notes |  | 2016 |             |   | 2015 |  
|-------------------------------------------------------- |  | ----- |  | ---- | ----------- | - | ---- | -
|                                                         |  |       |  |      |             |   |      |  
|Assets                                                   |  |       |  |      |             |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Current assets:                                          |  |       |  |      |             |   |      |  
|Cash and cash equivalents                                |  |       |  | $    | 9,507,004   |   |      | $
|Trade and other receivables                              |  | 8     |  |      | 9,836,739   |   |      |  
|Current tax assets                                       |  |       |  |      | 1,551,140   |   |      |  
|Prepaid expenses and deposits                            |  |       |  |      | 550,811     |   |      |  
|Inventories                                              |  |       |  |      | 300,760     |   |      |  
|                                                         |  |       |  |      | 21,746,454  |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Non-current assets:                                      |  |       |  |      |             |   |      |  
|Property and equipment                                   |  | 10    |  |      | 324,198     |   |      |  
|Intangible assets                                        |  | 11    |  |      | 133,667,311 |   |      |  
|Derivative asset                                         |  | 12    |  |      | 1,261,298   |   |      |  
|Deferred tax assets                                      |  | 16    |  |      | 6,539,621   |   |      |  
|                                                         |  |       |  |      | 141,792,428 |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Total assets                                             |  |       |  | $    | 163,538,882 |   |      | $
|                                                         |  |       |  |      |             |   |      |  
|Liabilities                                              |  |       |  |      |             |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Current liabilities:                                     |  |       |  |      |             |   |      |  
|Trade and other payables                                 |  | 9     |  | $    | 3,229,685   |   |      | $
|Employee benefits                                        |  |       |  |      | 226,874     |   |      |  
|Current tax liabilities                                  |  |       |  |      | 2,067,671   |   |      |  
|Notes payable and bank indebtedness                      |  | 13    |  |      | 5,791,787   |   |      |  
|Deferred consideration                                   |  | 4     |  |      | 773,134     |   |      |  
|Loan                                                     |  |       |  |      | -           |   |      |  
|                                                         |  |       |  |      | 12,089,151  |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Non-current liabilities:                                 |  |       |  |      |             |   |      |  
|Deferred consideration                                   |  | 4     |  |      | 3,133,694   |   |      |  
|Notes payable and bank indebtedness                      |  | 13    |  |      | 38,138,774  |   |      |  
|Earn-out obligation                                      |  | 19    |  |      | 13,149,130  |   |      |  
|Deferred tax liabilities                                 |  | 16    |  |      | 101,846     |   |      |  
|                                                         |  |       |  |      | 54,523,444  |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Equity                                                   |  |       |  |      |             |   |      |  
|Share capital                                            |  | 15    |  |      | 52,706,484  |   |      |  
|Contributed surplus                                      |  |       |  |      | 7,142,964   |   |      |  
|Accumulated other comprehensive income loss              |  |       |  |      | (66,772     | ) |      |  
|Retained earnings (deficit)                              |  |       |  |      | 733,155     |   |      |  
|Total equity attributable to shareholders of the Company |  |       |  |      | 60,515,831  |   |      |  
|Non-controlling interest                                 |  |       |  |      | 36,410,456  |   |      |  
|Total equity                                             |  |       |  |      | 96,926,287  |   |      |  
|                                                         |  |       |  |      |             |   |      |  
|Total liabilities and equity                             |  |       |  | $    | 163,538,882 |   |      | $



Commitments and contingencies (note 20)

Related party transactions (note 21)

Subsequent event (note 23)



See accompanying notes to consolidated
financial statements.



Approved on behalf of the Board:



|(signed) “Edward Wright” | Director | (signed) “Anthony Holler” | Director
|------------------------ | -------- | ------------------------- | --------
|Edward Wright            |          | Anthony Holler            |         



1







CRH
MEDICAL CORPORATION

Consolidated Statements of Operations and Comprehensive
Income

(Expressed in United States dollars, except for
number of shares)



Years ended December 31, 2016 and 2015






|                                                |  | Notes |  | 2016 |            |   | 2015 |  
|----------------------------------------------- |  | ----- |  | ---- | ---------- | - | ---- | -
|                                                |  |       |  |      |            |   |      |  
|Revenue:                                        |  |       |  |      |            |   |      |  
|Anesthesia services                             |  | 22    |  | $    | 67,821,879 |   |      | $
|Product sales                                   |  | 22    |  |      | 10,532,753 |   |      |  
|                                                |  |       |  |      | 78,354,632 |   |      |  
|                                                |  |       |  |      |            |   |      |  
|Expenses:                                       |  |       |  |      |            |   |      |  
|Anesthesia services expense                     |  | 5     |  |      | 45,229,986 |   |      |  
|Product sales expense                           |  | 6     |  |      | 4,503,110  |   |      |  
|Corporate expense                               |  | 7     |  |      | 3,866,696  |   |      |  
|                                                |  |       |  |      | 53,599,792 |   |      |  
|                                                |  |       |  |      |            |   |      |  
|Operating income                                |  |       |  |      | 24,754,840 |   |      |  
|                                                |  |       |  |      |            |   |      |  
|Finance income                                  |  | 18    |  |      | (1,007,673 | ) |      |  
|Finance expense                                 |  | 18    |  |      | 5,431,035  |   |      |  
|                                                |  |       |  |      | 4,423,362  |   |      |  
|                                                |  |       |  |      |            |   |      |  
|Income before tax                               |  |       |  |      | 20,331,478 |   |      |  
|                                                |  |       |  |      |            |   |      |  
|Income tax expense (recovery)                   |  | 16    |  |      | 4,255,150  |   |      |  
|                                                |  |       |  |      |            |   |      |  
|Net and comprehensive income                    |  |       |  | $    | 16,076,328 |   |      | $
|                                                |  |       |  |      |            |   |      |  
|Attributable to:                                |  |       |  |      |            |   |      |  
|Shareholders of the Company                     |  |       |  | $    | 10,564,233 |   |      | $
|Non-controlling interest                        |  |       |  |      | 5,512,095  |   |      |  
|                                                |  |       |  | $    | 16,076,328 |   |      | $
|                                                |  |       |  |      |            |   |      |  
|Earnings per share attributable to shareholders |  |       |  |      |            |   |      |  
|Basic                                           |  | 15(e) |  | $    | 0.147      |   |      | $
|Diluted                                         |  | 15(e) |  | $    | 0.142      |   |      | $
|                                                |  |       |  |      |            |   |      |  
|Weighted average shares outstanding:            |  |       |  |      |            |   |      |  
|Basic                                           |  |       |  |      | 71,826,884 |   |      |  
|Diluted                                         |  |       |  |      | 74,203,830 |   |      |  



See accompanying notes to consolidated
financial statements.



2







CRH
MEDICAL CORPORATION

Consolidated Statements of Changes in
Equity

(Expressed in United States dollars,
except for number of shares)



For the years ended December 31, 2016
and 2015






|                                                                                           |  | Number of 
    shares |            |  | Share capital |   |            | Contributed
    surplus |  |   | Accumulated
    other  comprehensive  loss |   |  | Retained 
    earnings  (deficit) |         |   | Non-
controlling
     interest |   |             | Total equity | 
|------------------------------------------------------------------------------------------ |  | --------------------- | ---------- |  | ------------- | - | ---------- | ----------------------- |  | - | ------------------------------------------ | - |  | --------------------------------- | ------- | - | ------------------------------ | - | ----------- | ------------ | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Balance as at January 1, 2015                                                              |  |                       | 60,881,947 |  |               |   | 25,913,839 |                         |  |   | 5,847,564                                  |   |  |                                   | (66,772 | ) |                                |   | (12,907,269 | )            | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Total net and comprehensive income for the year                                            |  |                       | -          |  |               |   | -          |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | 3,076,191   |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Transactions with owners, recorded directly in equity:                                     |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Stock-based compensation
    expense                                                       |  |                       | -          |  |               |   | -          |                         |  |   | 2,749,452                                  |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Common shares purchased on exercise of
    options                                         |  |                       | 758,193    |  |               |   | 1,051,233  |                         |  |   | (393,960                                   | ) |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Common shares issued
    on vesting of share units                                         |  |                       | 1,000,000  |  |               |   | 1,750,000  |                         |  |   | (1,750,000                                 | ) |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Shares issued through share offering, net of fees (note 15)                                |  |                       | 8,050,000  |  |               |   | 20,254,709 |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Deferred tax recovery on share issuance costs (note 15)                                    |  |                       | -          |  |               |   | 420,511    |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Broker warrants issued in share offering (note 15)                                         |  |                       | -          |  |               |   | (249,149   | )                       |  |   | 249,149                                    |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Exercise of broker warrants (note 15)                                                      |  |                       | 140,795    |  |               |   | 508,413    |                         |  |   | (145,254                                   | ) |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Common shares issued in connection with acquisition, net of transaction
    costs (note 4) |  |                       | 375,612    |  |               |   | 1,416,488  |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Acquisition of non-controlling interest (note
    4)                                       |  |                       | -          |  |               |   | -          |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Balance as at December 31, 2015                                                            |  |                       | 71,206,547 |  |               | $ | 51,066,044 |                         |  | $ | 6,556,951                                  |   |  | $                                 | (66,772 | ) |                                | $ | (9,831,078  | )            | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Total net and comprehensive income for the year                                            |  |                       | -          |  |               |   | -          |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | 10,564,233  |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Transactions with owners, recorded directly in equity:                                     |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Stock based compensation
    expense                                                       |  |                       | -          |  |               |   | -          |                         |  |   | 1,376,674                                  |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Common shares purchased on exercise of
    options                                         |  |                       | 1,358,687  |  |               |   | 1,044,077  |                         |  |   | (457,389                                   | ) |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Common shares issued
    on vesting of share units                                         |  |                       | 80,000     |  |               |   | 229,378    |                         |  |   | (229,378                                   | ) |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Exercise of broker warrants (note 15)                                                      |  |                       | 100,705    |  |               |   | 366,985    |                         |  |   | (103,894                                   | ) |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Distributions to members                                                                   |  |                       | -          |  |               |   | -          |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Acquisition of non-controlling interest (note
    4)                                       |  |                       | -          |  |               |   | -          |                         |  |   | -                                          |   |  |                                   | -       |   |                                |   | -           |              | 
|                                                                                           |  |                       |            |  |               |   |            |                         |  |   |                                            |   |  |                                   |         |   |                                |   |             |              | 
|Balance as at December 31, 2016                                                            |  |                       | 72,745,939 |  |               | $ | 52,706,484 |                         |  | $ | 7,142,964                                  |   |  | $                                 | (66,772 | ) |                                | $ | 733,155     |              | 



See accompanying notes to consolidated
financial statements.



3







CRH
MEDICAL CORPORATION

Consolidated Statements of Cash Flows

(Expressed in United States dollars)



For the years ended December 31, 2016
and 2015






|                                                                          |  | Notes |  | 2016 |             |   | 2015 |  
|------------------------------------------------------------------------- |  | ----- |  | ---- | ----------- | - | ---- | -
|Cash provided by (used in)                                                |  |       |  |      |             |   |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Operating activities:                                                     |  |       |  |      |             |   |      |  
|Net income                                                                |  |       |  | $    | 16,076,328  |   |      | $
|Adjustments for:                                                          |  |       |  |      |             |   |      |  
|Depreciation of property, equipment and intangibles                       |  |       |  |      | 14,932,118  |   |      |  
|Write-off of intangible asset                                             |  |       |  |      | -           |   |      |  
|Write-off of inventory                                                    |  |       |  |      | -           |   |      |  
|Stock-based compensation                                                  |  | 15    |  |      | 1,376,674   |   |      |  
|Unrealized foreign exchange                                               |  |       |  |      | (1,104,700  | ) |      |  
|Finance expense                                                           |  | 18    |  |      | 5,431,035   |   |      |  
|Income tax expense (recovery)                                             |  | 16    |  |      | 4,255,150   |   |      |  
|Operating activity before changes in operating assets and liabilities     |  |       |  |      | 40,966,605  |   |      |  
|Taxes paid                                                                |  |       |  |      | (5,466,601  | ) |      |  
|Change in trade and other receivables                                     |  |       |  |      | (2,745,190  | ) |      |  
|Change in prepaid expenses                                                |  |       |  |      | (66,016     | ) |      |  
|Change in inventories                                                     |  |       |  |      | (45,836     | ) |      |  
|Change in trade and other payables                                        |  |       |  |      | 195,322     |   |      |  
|Change in employee benefits                                               |  |       |  |      | 84,298      |   |      |  
|Change in short term advances                                             |  |       |  |      | -           |   |      |  
|Cash provided by operating activities                                     |  |       |  |      | 32,922,582  |   |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Financing activities                                                      |  |       |  |      |             |   |      |  
|Net proceeds on the issuance of shares                                    |  | 15    |  |      | -           |   |      |  
|Proceeds from loans                                                       |  | 4     |  |      | -           |   |      |  
|Repayment of loans                                                        |  | 4     |  |      | (266,994    | ) |      |  
|Repayment of notes payable and bank indebtedness interest                 |  | 13    |  |      | (3,135,765  | ) |      |  
|Repayment of notes payable and bank indebtedness                          |  | 13    |  |      | (14,000,000 | ) |      |  
|Payment of financing fees                                                 |  | 13    |  |      | (579,460    | ) |      |  
|Proceeds on bank indebtedness                                             |  | 13    |  |      | 26,000,000  |   |      |  
|Distributions to non-controlling interest                                 |  |       |  |      | (5,685,180  | ) |      |  
|Proceeds from the exercise of broker warrants                             |  |       |  |      | 263,091     |   |      |  
|Proceeds from the issuance of shares relating to stock-based compensation |  |       |  |      | 586,688     |   |      |  
|Cash provided by financing activities                                     |  |       |  |      | 3,182,380   |   |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Investing activities                                                      |  |       |  |      |             |   |      |  
|Acquisition of property and equipment                                     |  |       |  |      | (113,196    | ) |      |  
|Acquisition of anesthesia services providers                              |  | 4     |  |      | (30,062,239 | ) |      |  
|Cash used in investing activities                                         |  |       |  |      | (30,175,435 | ) |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Effects of foreign exchange on cash and cash equivalents                  |  |       |  |      | 5,133       |   |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Increase (decrease) in cash and cash equivalents                          |  |       |  |      | 5,934,660   |   |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Cash and cash equivalents, beginning of year                              |  |       |  |      | 3,572,344   |   |      |  
|                                                                          |  |       |  |      |             |   |      |  
|Cash and cash equivalents, end of year                                    |  |       |  | $    | 9,507,004   |   |      | $



See accompanying notes to consolidated
financial statements.



4







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015






| | 1. | Reporting entity:
| | -- | -----------------



CRH Medical Corporation (“CRH”
or “the Company”) was incorporated on April 21, 2001 and is incorporated under the Business Corporations Act (British
Columbia). The Company provides anesthesiology services to gastroenterologists in the United States through its subsidiaries and
also specializes in the treatment of hemorrhoids utilizing its treatment protocol and patented proprietary technology.



CRH principally operates in the
United States and is headquartered from its registered offices located at Unit 578, 999 Canada Place, Vancouver, British Columbia,
Canada.



| | 2. | Basis of preparation:
| | -- | ---------------------



| | (a) | Statement of compliance:
| | --- | ------------------------



These consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).



The consolidated financial statements
were authorized for issue by the Board of Directors on February 22, 2017.



| | (b) | Basis of measurement:
| | --- | ---------------------



The Company’s consolidated
financial statements have been prepared on a going concern and historical cost basis except for certain financial instruments which
are recorded at fair value.



| | (c) | Functional and presentation currency:
| | --- | -------------------------------------



These consolidated financial statements
are presented in United States dollars, which is the Company’s presentation currency. The functional currency of the Company’s
parent company and subsidiaries is the United States dollar.



5







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 2. | Basis of preparation (continued):
| | -- | ---------------------------------



| | (d) | Use of estimates, assumptions and judgments:
| | --- | --------------------------------------------



The preparation of the Company’s
consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application
of accounting policies, the reported amounts of assets and liabilities, the 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.



Reported amounts and note disclosures
reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual
results could differ from those estimates.



| | (i) | Use of estimates and assumptions:
| | --- | ---------------------------------



Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.



Significant areas requiring the
use of management estimates relate to the assessment for impairment and useful lives of intangible assets, determining the fair
value of share units, estimates supporting reported anesthesia revenues, the recoverability of trade receivables, the valuation
of certain long term liabilities and other assets, including liabilities relating to contingent consideration, the vesting term
for share units with market and non-market based performance targets, the valuation of acquired intangibles, the valuation of deferred
tax assets and the allocation of purchase consideration to the fair value of assets acquired and liabilities assumed.



Information relating to these estimates
and how they are determined may be found in notes 4, 12, 13, 15 and 19.



| | (ii) | Judgments:
| | ---- | ----------



Significant judgments made by management
in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated
financial statements includes the determination of functional currency and the accounting classification of financial instruments.
In conjunction with the Company’s business acquisitions, these judgments also include the Company’s determination of
control for the purposes of consolidation and the Company’s definition of a business.



Information relating to significant
judgment areas may be found in notes 2, 4 and 12.



6







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies:
| | -- | --------------------------------



The accounting policies have been
applied consistently by the subsidiaries of the Company.



| | (a) | Basis of consolidation:
| | --- | -----------------------



These consolidated financial statements
include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when
the Company has power over an investee, when the Company is exposed, or has rights, to variable returns from the investee and when
the Company has the ability to affect those returns through its power over the investee. Subsidiaries are included in the consolidated
financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control.



| | (b) | Cash equivalents:
| | --- | -----------------



The Company considers all highly
liquid investments with an original maturity of 90 days or less, when acquired, to be cash equivalents, which are carried at amortized
cost and are classified as loans and receivables.



| | (c) | Foreign currency:
| | --- | -----------------



Transactions in foreign currencies
are translated to the respective functional currencies of the subsidiaries of the Company at exchange rates at the dates of the
transactions.



Period end balances of monetary assets
and liabilities in foreign currency are translated to the respective functional currencies using period end foreign currency rates.
Foreign currency gains and losses arising from settlement of foreign currency transactions are recognized in earnings. Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency
at the exchange rate at the date on which the fair value was determined. Non-monetary items that are measured at historical cost
in a foreign currency are translated using the exchange rate at the date of the transaction.



| | (d) | Revenue recognition:
| | --- | --------------------



Revenue from product sales and anesthesia
services in the normal course of activities is measured at the fair value of the consideration received or receivable, net of returns,
trade discounts and contractual adjustments. The Company recognizes revenue from product sales at the time the product is shipped,
which is when title passes to the customer, and when all significant contractual obligations have been satisfied, collection is
probable and the amount of revenue can be estimated reliably. Revenue from the performance of anesthesia services is measured at
the fair value of the consideration received or receivable, net of contractual allowances and other discounts. The Company recognizes
net patient revenue at the time the anesthesia services are performed; this aligns with when all significant contractual obligations
related to the anesthesia services have been satisfied, collection is probable and the amount of revenue can be estimated reliably.
Provisions for contractual allowances and discounts are recognized on an accrual basis. These amounts are deducted from gross service
revenue to determine net service revenue.



7







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (e) | Employee benefits:
| | --- | ------------------



Salaries and short-term employee
benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized
for the amount expected to be paid under cash bonus plans if the Company has a legal or constructive obligation to pay an amount
as a result of services rendered by an employee and the obligation can be estimated reliably.



| | (f) | Inventories:
| | --- | ------------



Inventories are measured at the lower
of cost, determined using the first-in first-out method, and net realizable value. Inventory costs include the purchase price and
other costs directly related to the acquisition of inventory, and bringing the inventories to their present location and condition.



Net realizable value is the estimated
selling price in the Company’s ordinary course of business, less the estimated costs of completion and selling expenses.



| | (g) | Property and equipment:
| | --- | -----------------------



Property and equipment are measured
at cost less accumulated depreciation and accumulated impairment losses. Where the costs of certain components of an item of property
and equipment are significant in relation to the total cost of the item and have different useful lives, they are accounted for
and depreciated separately.



The estimated useful lives and the
methods of depreciation for the current and comparative periods are as follows:



|Asset                   |  | Basis             |  | Rate                    
|----------------------- |  | ----------------- |  | ------------------------
|                        |  |                   |  |                         
|Computer equipment      |  | Declining balance |  | 30%                     
|Computer software       |  | Declining balance |  | 100%                    
|Furniture and equipment |  | Declining balance |  | 20%                     
|Leasehold improvements  |  | Straight-line     |  | Shorter of initial lease
|                        |  |                   |  | term or useful life     
|Injection mold          |  | Straight-line     |  | 5 years                 



These depreciation methods most closely
reflect the expected pattern of consumption of the future economic benefits embodied in the asset.



Estimates for depreciation methods,
useful lives and residual values are reviewed at each reporting period-end and adjusted if appropriate.



8







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (h) | Intangible assets:
| | --- | ------------------



Intangible assets, consisting of
acquired exclusive professional service agreements to provide anesthesia services and the cost of acquiring patents, are recorded
at historical cost. For patents, costs also include legal costs involved in expanding the countries in which the patents are recognized
to the extent expected cash flows from those countries exceed these costs over the amortization period and costs related to new
patents. The amortization term for professional services agreements are based on the contractual terms of the agreements. Intangible
assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are measured at cost less
accumulated amortization and accumulated impairment losses. Intangible assets with finite lives are amortized over the following
periods:



|Asset                                               |  | Basis         |  | Rate           
|--------------------------------------------------- |  | ------------- |  | ---------------
|                                                    |  |               |  |                
|Intellectual property rights the CRH O’Regan System |  | Straight-line |  | 15 years       
|                                                    |  |               |  |                
|Intellectual property new technology                |  | Straight-line |  | 20 years       
|                                                    |  |               |  |                
|Exclusive professional services agreements          |  | Straight-line |  | 2.8 to 12 years



| | (i) | Financial instruments:
| | --- | ----------------------



Financial assets and financial liabilities
are initially measured at fair value and are subsequently measured based on their classification as described below. Transaction
costs that are directly attributable to the acquisition or issuance of a financial asset or liability, other than financial assets
and liabilities classified at fair value through earnings, are added or deducted from the fair value of the respective financial
asset or financial liability on initial recognition. Transaction costs that are directly attributable to the acquisition of a financial
asset or financial liability classified at fair value through earnings are recognized immediately in earnings.



Financing fees related to debt are
recorded as a reduction to the debt balance and amortized to finance expense using the effective interest rate method.



Financial assets and liabilities
are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized
amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.



The Company’s financial instruments
are classified into the following categories: at fair value through earnings, loans and receivables, available-for-sale financial
assets and other financial liabilities. The classification depends on the nature and purpose of the financial instrument and is
determined at the time of initial recognition.



The Company has classified cash and
cash equivalents, trade and other receivables as loans and receivables. Loans and receivables are initially measured at fair value
and are subsequently re-measured at amortized
cost using the effective interest method, less any impairment losses.



9







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015










| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (i) | Financial instruments (continued):
| | --- | ----------------------------------



Financial assets at fair value through
earnings are financial assets that are held for trading and include derivative instruments that are not included in a qualifying
hedging relationship. Financial assets classified as financial assets at fair value through earnings are initially measured at
fair value with any gains or losses arising on re-measurement recognized in earnings.



Financial liabilities classified
at fair value through earnings are financial liabilities that are held for trading or designated into this category at inception.
Financial liabilities classified as financial liabilities at fair value through earnings include contingent consideration and are
initially measured at fair value with any gains or losses arising on re-measurement recognized through earnings. The Company has
classified its earn-out obligation as financial liabilities at fair value through earnings.



Other financial liabilities includes
trade payables, other payables, note payables and bank indebtedness and are initially measured at fair value and are subsequently
measured at amortized cost using the effective interest method.



The Company has classified trade
and other payables, employee benefit obligations, short term advances, loans, notes payable and bank indebtedness as other financial
liabilities.



Available-for-sale financial assets
are non-derivative financial assets that are designated as available-for-sale and that are not classified in any of the other categories.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign
currency differences on available-for-sale debt instruments, are recognized in other comprehensive income and presented within
equity. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to earnings.
The Company has no instruments classified as available-for-sale.



Financial assets are derecognized
when the rights to receive cash flows from the assets have expired or have been transferred, and the Company has transferred substantially
all of the risks and rewards of ownership.



10







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015






| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (j) | Impairment:
| | --- | -----------



Financial assets:



Financial assets not carried at fair
value through earnings are assessed at each reporting date to determine whether there is objective evidence that they are impaired.
The Company considers that a financial asset is impaired if objective evidence indicates that a loss event which negatively affected
the estimated future cash flows has occurred after initial recognition of the asset.



An impairment test is performed,
on an individual basis, for each material financial asset. Other individually non-material financial assets are tested as groups
of financial assets with similar risk characteristics. Impairment losses are recognized in earnings.



An impairment loss in respect of
a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognized in earnings
and reflected in an allowance account against the respective financial asset. When a subsequent event causes the amount of impairment
loss to decrease, the decrease in impairment loss is reversed through earnings.



A permanent impairment loss for an
available-for-sale investment is recognized by transferring the cumulative loss previously recognized in other comprehensive income
to earnings.



Non-financial assets:



The carrying amounts of the Company's
non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there
is any indication of impairment. If such an indication exists, the recoverable amount is estimated.



The recoverable amount of an asset
or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of cash
inflows from other assets or groups of assets (cash-generating unit). Impairment losses recognized in prior periods are assessed
at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An asset’s carrying amount, increased through
reversal of an impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization,
if no impairment loss had been recognized.



11







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (k) | Income taxes:
| | --- | -------------



Income tax expense is comprised of
current and deferred tax. Current tax and deferred tax are recognized into earnings except to the extent that it relates to a business
combination, or items recognized directly in other comprehensive income.



Current tax is the expected tax payable
or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax payable in respect of previous years.



Deferred tax is recognized in respect
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of
assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable earnings,
and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that
they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences
arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred
tax assets and liabilities are offset if there is a legally enforceable right to offset and they relate to income taxes levied
by the same tax authority on the same taxable entity, or on different tax entities but are intended to be settled on a net basis
or the tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax
credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realized.



| | (l) | Share-based compensation:
| | --- | -------------------------



The Company records share-based compensation
related to stock options and share units granted using the fair value based method estimated using either the Black-Scholes model
or Binomial method. Under this method, compensation cost is measured at fair value at the date of grant and expensed as employee
benefits over the period in which employees unconditionally become entitled to the award. The amount recognized as an expense is
adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount
ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance
conditions at the vesting date.



| | (m) | Share capital:
| | --- | --------------



Common shares are classified as equity.
Incremental costs directly attributable to the issue of common shares, stock options and share options are recognized as a deduction
from equity, net of any tax effects.



12







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (n) | Earnings per share:
| | --- | -------------------



The Company presents basic and diluted
earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the net income or loss attributable to
common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for
own shares held, if applicable. Diluted EPS is determined by adjusting the income or loss attributable to common shareholders and
the weighted average number of common shares outstanding, adjusted for own shares held if applicable, for the effects of all dilutive
potential common shares.



| | (o) | Provisions:
| | --- | -----------



Provisions are recognized if, as
a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of resources will be required to settle the obligation. Provisions are determined by discounting expected
future cash outflows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the liability. Management uses judgment to estimate the amount, timing and probability of the liability based on facts known
at the reporting date. The unwinding of the discount is recognized as a finance expense.



| | (p) | Segment reporting:
| | --- | ------------------



The Company’s operating segments
consist of the sale of medical products and the provision of anesthesia services.



| | (q) | Finance costs:
| | --- | --------------



Finance cost is primarily comprised
of interest on the Company’s notes payable and bank indebtedness and also includes the amortization of costs incurred to
obtain loan financing and any fees in respect of arranging loan financing. Deferred finance costs are amortized using the effective
interest method over the term of the related loan financing. Deferred finance costs are presented as a reduction to the related
liability.



Foreign exchange gains and losses
are reported on a net basis as either finance income or finance expense as the finance costs relate to Canadian dollar denominated
debt.



13







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (r) | Business combinations:
| | --- | ----------------------



Business combinations are accounted
for using the acquisition method. The consideration for an acquisition is measured at the fair values of the assets transferred,
the liabilities assumed and the equity interests issued at the acquisition date. The excess of the consideration over the fair
value of the identifiable net assets acquired is recorded as goodwill. Transaction costs that are incurred in connection with a
business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred. On
an acquisition-by-acquisition basis, any non-controlling interest is measured either at fair value of the non-controlling interest
or at the fair value of the proportionate share of the net assets acquired.



Contingent consideration is measured
at fair value on acquisition date and is included as part of the consideration transferred. The fair value of the contingent consideration
liability is re-measured at each reporting date with the corresponding gain or loss being recognized in earnings.



| | (s) | Adoption of new accounting standards:
| | --- | -------------------------------------



The Company has not early adopted
any amendment, standard or interpretation that has been issued by the IASB but is not yet effective. Amendments, standards and
interpretations that are issued but not yet effective are described in note 3(u).



| | (t) | New standards and interpretations not yet applied:
| | --- | --------------------------------------------------



| | (i) | IFRS 9- Financial Instruments:
| | --- | ------------------------------



On July 24, 2014 the IASB issued
the complete IFRS 9 (IFRS 9 (2014)). IFRS 9 (2014) introduces new requirements for the classification and measurement of financial
assets. Under IFRS 9 (2014), financial assets are classified and measured based on the business model in which they are held and
the characteristics of their contractual cash flows. The standard also introduces additional changes relating to financial liabilities
and amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment.



14







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 3. | Significant accounting policies (continued):
| | -- | --------------------------------------------



| | (u) | New standards and interpretations not yet applied:
| | --- | --------------------------------------------------



| | (i) | IFRS 9- Financial Instruments:
| | --- | ------------------------------



IFRS 9 (2014) aligns hedge accounting
more closely with risk management. This does not fundamentally change the types of hedging relationships or the requirement to
measure and recognize ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify
for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. Special transitional requirements
have been set for the application of the new general hedging model.



The Company intends to adopt IFRS
9 (2014) in its financial statements for the annual period beginning on January 1, 2018. The extent of the impact of adoption of
the standard has not yet been determined.



| | (iv) | IFRS 15 - Revenue Recognition:
| | ---- | ------------------------------



On May 28, 2014 the IASB issued
IFRS 15 Revenue from Contracts with Customers. The new standard is effective for annual periods beginning on or after January
1, 2018. Earlier application is permitted.



IFRS 15 will replace IAS 11 Construction
Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction
of Real Estate, IFRIC 18 Transfer of Assets from Customers, and SIC 31 Revenue – Barter Transactions Involving
Advertising Services.



The standard contains a single model
that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New
estimates and judgmental thresholds have been introduced which may affect the amount and/or timing of revenue recognized.



The new standard applies to contracts
with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of
other standards.



The Company intends to adopt IFRS
15 in its financial statements for the annual period beginning on January 1, 2018. The extent of the impact of adoption of the
standard has not yet been determined.



| | (v) | In January 2016, the IASB issued IFRS 16 – Leases, which
supersedes IAS 17 – Leases. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure
of leases. The standard establishes a single model for lessees to bring leases on-balance sheet while lessor accounting remains
largely unchanged and retains the finance and operating lease distinctions. IFRS 16 is effective for annual periods beginning on
or after January 1, 2019, with earlier adoption permitted, but only if also applying IFRS 15 – Revenue from contracts with
Customers. The Company is currently evaluating the impact on IFRS 16 on its financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 4. | Business combinations:
| | -- | ----------------------



During the year ended December 31,
2016, the Company completed three business combinations. All business combinations completed during the year have been included
in the anesthesia segment of the Company and include the following:



|Acquired Operation                                                |  | Date Acquired |  | Consideration |           
|----------------------------------------------------------------- |  | ------------- |  | ------------- | ----------
|Austin Gastroenterology Anesthesia Associates, PLLC (“AGAA”)      |  | May 2016      |  | $             | 16,821,896
|Community Anesthesia, PLLC (“Community”)                          |  | June 2016     |  | $             | 13,636,639
|Arapahoe Gastroenterology Anesthesia Associates, LLC (“Arapahoe”) |  | June 2016     |  | $             | 3,700,000 



The results of operations of the
acquired businesses have been included in the Company’s consolidated financial statements from the date of acquisition.



The following table summarizes
the fair value of the consideration transferred and the preliminary estimated fair values of the assets and liabilities acquired
at the acquisition date. Certain of the estimates of fair value, most notably the professional services agreements, are preliminary
and may be subject to further adjustments.



|                                                               |  | Austin |            |  | Community |   |            | Arapahoe |  |   | Total     | 
|-------------------------------------------------------------- |  | ------ | ---------- |  | --------- | - | ---------- | -------- |  | - | --------- | 
|Cash                                                           |  | $      | 13,000,000 |  |           | $ | 13,636,639 |          |  | $ | 3,700,000 | 
|Deferred consideration                                         |  |        | 3,821,895  |  |           |   | -          |          |  |   | -         | 
|Purchase consideration                                         |  |        | 16,821,895 |  |           |   | 13,636,639 |          |  |   | 3,700,000 | 
|Non-controlling interest                                       |  |        | 16,162,214 |  |           |   | 7,342,806  |          |  |   | 3,554,902 | 
|                                                               |  | $      | 32,984,109 |  |           | $ | 20,979,445 |          |  | $ | 7,254,902 | 
|                                                               |  |        |            |  |           |   |            |          |  |   |           | 
|Assets and liabilities acquired:                               |  |        |            |  |           |   |            |          |  |   |           | 
|Exclusive professional services agreements                     |  |        | 32,984,109 |  |           |   | 20,979,445 |          |  | $ | 7,254,902 | 
|Pre-close trade receivables                                    |  |        | -          |  |           |   | 917,998    |          |  |   | -         | 
|Pre-close trade payables                                       |  |        | -          |  |           |   | (917,998   | )        |  |   | -         | 
|Fair value of net identifiable assets and liabilities acquired |  | $      | 32,984,109 |  |           | $ | 20,979,445 |          |  | $ | 7,254,902 | 
|                                                               |  |        |            |  |           |   |            |          |  |   |           | 
|Exclusive professional services agreements – amortization term |  |        | 10 years   |  |           |   | 5 years    |          |  |   | 5 years   | 
|Acquisition costs expensed in relation to above acquisitions   |  |        |            |  |           |   |            |          |  |   |           | 



The value of the acquired intangible
assets, being exclusive professional services agreements, have been determined on a provisional basis and relates to the acquisition
of exclusive professional services agreements to provide professional anesthesia services. As at the acquisition dates, the exclusive
professional services agreements had various terms and after the initial term renew annually unless notice of termination is received.
The amortization terms for the agreements are based upon contractual terms within the acquisition agreements.



16







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 4. | Business combinations (continued):
| | -- | ----------------------------------



AGAA



In May 2016, a subsidiary of the
Company entered into an asset contribution and exchange agreement to acquire 51% of the ownership interest in Austin Gastroenterology
Anesthesia Associates, PLLC (“AGAA”), an anesthesia services provider in Texas. The total purchase price under the
asset contribution and exchange agreement was $17,200,000 and was paid via a combination of cash ($13,000,000) and deferred cash
consideration ($4,200,000). The deferred consideration is payable annually over a period of four years. At the date of acquisition,
the deferred consideration was discounted to its fair value ($3,821,895) using a discount rate consistent with the Company’s
underlying credit risk at the time of the transaction. This resulted in total consideration of $16,821,895 for this transaction.
As part of the transaction, the Company also entered into an operating agreement between it and the non-controlling interest shareholders
of AGAA which governs the operation of AGAA. As a result of the 51% ownership interest acquired and the operating agreement, the
Company has acquired control of AGAA and, as a result, 100% of the financial results of AGAA have been included in the Company’s
consolidated financial statements from the date of acquisition, being May 31, 2016. The non-controlling interest of $16,162,214
was determined based on 49% of the fair value of AGAA’s net identifiable assets as estimated by the Company. The deferred
consideration has been presented as $773,134 as a current liability and $3,133,694 as a long-term liability in the balance sheet.



In conjunction with the acquisition,
both the Company and the non-controlling interest shareholder contributed additional member contributions of $285,600 and $274,400,
respectively.



Community



In June 2016, a subsidiary of the
Company entered into an membership interest purchase agreement to acquire 65% of the ownership interest in Community Anesthesia,
PLLC (“Community”), an anesthesia services provider in Massachusetts. The total purchase price under the asset contribution
and exchange agreement was $13,636,639 and was paid via cash. As part of the transaction, the Company also entered into an operating
agreement between it and the non-controlling interest shareholders of Community which governs the operation of the acquired business.
As a result of the 65% ownership interest acquired and the operating agreement, the Company has acquired control of Community and,
as a result, 100% of the financial results of Community have been included in the Company’s consolidated financial statements
from the date of acquisition, being June 15, 2016. The non-controlling interest of $7,342,806 was determined based on 35% of the
fair value of Community’s net identifiable assets as estimated by the Company.



In conjunction with the acquisition,
the non-controlling interest shareholder of Community provided a working capital advance to Community totaling $100,000 at September
30, 2016. This working capital advance has since been repaid at December 31, 2016.



17







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 4. | Business combinations (continued):
| | -- | ----------------------------------



Arapahoe



In June 2016, a subsidiary of the
Company entered into an asset contribution and exchange agreement to acquire 51% of the ownership interest in Arapahoe Gastroenterology
Anesthesia Associates, LLC (“Arapahoe”), an anesthesia services provider in Colorado. The total purchase price under
the asset contribution and exchange agreement was $3,700,000 and was paid via cash. As part of the transaction, the Company also
entered into an operating agreement between it and the non-controlling interest shareholders of Arapahoe which governs the operation
of the acquired entity. As a result of the 51% ownership interest acquired and the operating agreement, the Company has acquired
control of Arapahoe and, as a result, 100% of the financial results of Arapahoe have been included in the Company’s consolidated
financial statements from the date of acquisition, being June 30, 2016. The non-controlling interest of $3,554,902 was determined
based on 49% of the fair value of Arapahoe’s net identifiable assets as estimated by the Company.



In conjunction with the acquisition,
both the Company and the non-controlling interest shareholder contributed loans of $107,100 and $102,900, respectively. These loans
have been repaid as at December 31, 2016.



In the year ended December 31, 2016,
the above noted acquisitions contributed revenue and net earnings before tax as follows:



|                               |  | Year ended December 31, 2016 |           
|------------------------------ |  | ---------------------------- | ----------
|                               |  | AGAA                         |           
|                               |  |                              |           
|Revenue                        |  | $                            | 11,593,180
|Net earnings (loss) before tax |  | $                            | 5,643,814 
|Amortization                   |  | $                            | 1,924,073 



The following unaudited supplemental
pro forma financial information presents information as if the acquisitions had been completed on January 1, 2016. The pro forma
financial information presented below (unaudited) is for informational purposes only and is not indicative of the results of operations
that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2016. The pro forma financial information
(unaudited) presented includes amortization charges for acquired intangible assets based on the values assigned in the purchase
price allocation. Were the acquisitions completed on January 1, 2016, revenue for the Company would have been approximately $90.8
million and net income before tax would have been approximately $24.3 million.



|                                  |  | Year ended December 31, 2016 |           
|--------------------------------- |  | ---------------------------- | ----------
|Pro Forma Information (unaudited) |  |                              |           
|                                  |  | AGAA                         |           
|Revenue                           |  | $                            | 18,573,853
|Net earnings before tax           |  | $                            | 9,042,159 
|Amortization                      |  | $                            | 3,298,411 



18







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 4. | Business combinations (continued):
| | -- | ----------------------------------



During the year ended December 31,
2015, the Company completed five business combinations. All business combinations completed during the year have been included
in the anesthesia segment of the Company and include the following:



|Acquired Operation                                                                        |  | Date Acquired  |  | Consideration |          
|----------------------------------------------------------------------------------------- |  | -------------- |  | ------------- | ---------
|Anesthesia Healthcare Providers of Florida and AHP of North Carolina (collectively “AHP”) |  | March 2015     |  | $             | 600,000  
|Associates in Digestive Health LLC (“ADH”)                                                |  | August 2015    |  | $             | 6,600,000
|Knoxville Gastroenterology Anesthesia Associates LLC (“KGAA”)                             |  | September 2015 |  | $             | 6,818,352
|Macon Gastroenterology Anesthesia Associates LLC (“MGAA”)                                 |  | December 2015  |  | $             | 4,670,000
|John’s Creek Anesthesia LLC (“John’s Creek”)                                              |  | December 2015  |  | $             | 1,200,000



The results of operations of the
acquired businesses have been included in the Company’s consolidated financial statements from the date of acquisition.



The following table summarizes
the fair value of the consideration transferred and the estimated fair values of the assets and liabilities acquired at the acquisition
date.



|                                                               |  | AHP |                  |  | ADH |   |           | KGAA |  |   | MGAA       |  |  | John’s
 Creek |           |  | Total |  
|-------------------------------------------------------------- |  | --- | ---------------- |  | --- | - | --------- | ---- |  | - | ---------- |  |  | ------------- | --------- |  | ----- | -
|Cash                                                           |  | $   | 600,000          |  |     | $ | 6,600,000 |      |  | $ | 5,395,700  |  |  | $             | 4,670,000 |  |       | $
|Common shares                                                  |  |     | -                |  |     |   | -         |      |  |   | 1,422,652  |  |  |               | -         |  |       |  
|Purchase consideration                                         |  |     | 600,000          |  |     |   | 6,600,000 |      |  |   | 6,818,352  |  |  |               | 4,670,000 |  |       |  
|Non-controlling interest                                       |  |     | -                |  |     |   | -         |      |  |   | 6,550,968  |  |  |               | 2,514,615 |  |       |  
|                                                               |  | $   | 600,000          |  |     | $ | 6,600,000 |      |  | $ | 13,369,320 |  |  | $             | 7,184,615 |  |       | $
|                                                               |  |     |                  |  |     |   |           |      |  |   |            |  |  |               |           |  |       |  
|Assets and liabilities acquired:                               |  |     |                  |  |     |   |           |      |  |   |            |  |  |               |           |  |       |  
|Exclusive professional services agreements                     |  |     | 600,000          |  |     |   | 6,600,000 |      |  | $ | 13,369,320 |  |  | $             | 7,152,308 |  |       | $
|Inventory                                                      |  |     | -                |  |     |   | -         |      |  |   | -          |  |  |               | 32,307    |  |       |  
|Fair value of net identifiable assets and liabilities acquired |  | $   | 600,000          |  |     | $ | 6,600,000 |      |  | $ | 13,369,320 |  |  | $             | 7,184,615 |  |       | $
|                                                               |  |     |                  |  |     |   |           |      |  |   |            |  |  |               |           |  |       |  
|Exclusive professional services agreements – amortization term |  |     | 0.7 to 2.8 years |  |     |   | 7 years   |      |  |   | 7 years    |  |  |               | 5 years   |  |       |  
|Acquisition costs expensed                                     |  | $   | 16,083           |  |     | $ | 110,727   |      |  | $ | 110,727    |  |  | $             | 61,715    |  |       | $



The value of the acquired intangible
assets, being exclusive professional services agreements, have been determined on a provisional basis and relates to the acquisition
of exclusive professional services agreements to provide professional anesthesia services. As at the acquisition dates, except
for the AHP and John’s Creek acquisitions, the exclusive professional services agreements renew annually unless notice of
termination is received. For the AHP acquisition, as at the acquisition date, the exclusive professional services agreements had
estimated remaining contractual terms varying from 0.7 to 2.8 years. For the John’s Creek acquisition, the exclusive professional
services agreement has an estimated remaining contractual term of 10 years and 11 months. The amortization terms for the remaining
agreements are based upon contractual terms within the acquisition agreements.



19







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 4. | Business combinations (continued):
| | -- | ----------------------------------



AHP



In March 2015, a subsidiary of the
Company entered into an asset purchase agreement to purchase certain assets of two anesthesia services providers in the Southeastern
United States (hereinafter referred to as “AHP”). The total purchase price under the asset purchase agreement was $600,000.
The Company has obtained control over the business through its contractual ability to direct the relevant activities of the assets
acquired.



Subsequent to completion of the
acquisition, the Company received notice of the closure, effective August 1, 2015, of one of the endoscopy centers to which the
Company provides anesthesia services under an exclusive professional services agreement acquired through this acquisition. As a
result of the closure, the Company has recorded an impairment charge for the full value of the affected professional services agreement
intangible totaling $389,693 during the year ended December 31, 2015



ADH



In August 2015, a subsidiary of
the Company entered into an asset purchase agreement to purchase certain assets of Associates in Digestive Health LLC (“ADH”),
an anesthesia services provider in the Southeastern United States. The total purchase price under the asset purchase agreement
was $6,600,000 and was paid via cash. The Company has obtained control over the business through its contractual ability to direct
the relevant activities of the assets acquired.



KGAA



In September 2015, a subsidiary
of the Company entered into an asset contribution and exchange agreement to acquire 51% of the ownership interest in Knoxville
Gastroenterology Anesthesia Associates LLC (“KGAA”), an anesthesia services provider in the Southeastern United States.
The total purchase price under the asset contribution and exchange agreement was $6,818,352 and was paid via a combination of cash
($5,395,700) and common shares (375,612 common shares with a value at acquisition of $1,422,652). As part of the transaction, the
Company also entered into an operating agreement between it and the non-controlling interest shareholders of KGAA which governs
the operation of KGAA. As a result of the 51% ownership interest acquired and the operating agreement, the Company has acquired
control of KGAA and, as a result, 100% of the financial results of KGAA has been included in the Company’s consolidated financial
statements from the date of acquisition. The non-controlling interest of $6,550,968 was determined based on 49% of the fair value
of KGAA’s net identifiable assets as estimated by the Company. One of the directors of the Company is an indirect shareholder
of KGAA.



In conjunction with the acquisition,
both the Company and the non-controlling interest shareholder contributed loans of $173,810 and $166,994, respectively. The terms
of the loans are such that they will be repaid first, prior to any future distributions. The loan for $173,810 was repaid in December
2015 and the $166,994 loan was repaid in January 2016.



20







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 4. | Business combinations (continued):
| | -- | ----------------------------------



MGAA



In December 2015, a subsidiary of
the Company entered into an asset contribution and exchange agreement to acquire 65% of the ownership interest in Macon Gastroenterology
Anesthesia Associates LLC (“MGAA”), an anesthesia services provider in the Southeastern United States. The total purchase
price under the asset contribution and exchange agreement was $4,670,000 and was paid via cash. As part of the transaction, the
Company also entered into an operating agreement between it and the non-controlling interest shareholders of MGAA which governs
the operation of MGAA. As a result of the 65% ownership interest acquired and the operating agreement, the Company has acquired
control of MGAA and, as a result, 100% of the financial results of MGAA has been included in the Company’s consolidated financial
statements from the date of acquisition. The non-controlling interest of $2,514,615 was determined based on 35% of the fair value
of MGAA’s net identifiable assets as estimated by the Company.



In conjunction with the acquisition,
both the Company and the non-controlling interest shareholder contributed loans of $185,714 and $100,000, respectively. The terms
of the loans are such that they will be repaid first, prior to any future distributions. These loans have been repaid as at December
31, 2016.



John’s Creek



In December 2015, a
subsidiary of the Company entered into an asset purchase agreement to purchase certain assets of John’s Creek Anesthesia,
LLC (“John’s Creek”), an anesthesia services provider in the Southeastern United States. The total purchase price
under the asset purchase agreement was $1,200,000 and was paid via cash. The Company has obtained control over the business through
its contractual ability to direct the relevant activities of the assets acquired.



In the year ended December 31, 2015,
the above noted acquisitions contributed revenue and net earnings before tax as follows:



|                               |  | Year ended December 31, 2015 |          
|------------------------------ |  | ---------------------------- | ---------
|                               |  | AHP                          |          
|                               |  |                              |          
|Revenue                        |  | $                            | 1,367,980
|Net earnings (loss) before tax |  | $                            | (295,770 
|Amortization                   |  | $                            | 187,948  



The following unaudited supplemental
pro forma financial information presents information as if the acquisitions had been completed on January 1, 2015. The pro forma
financial information presented below (unaudited) is for informational purposes only and is not indicative of the results of operations
that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2015. The pro forma financial information
(unaudited) presented includes amortization charges for acquired intangible assets based on the values assigned in the purchase
price allocation and excludes the effect of actual impairment charges recorded in the period. Were the acquisitions completed on
January 1, 2015, revenue for the Company would have been approximately $56.0 million and
net income before tax would have been approximately $2.7 million.



21







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015










| | 4. | Business combinations (continued):
| | -- | ----------------------------------



|                                  |  | Year ended December 31, 2015 |          
|--------------------------------- |  | ---------------------------- | ---------
|Pro Forma Information (unaudited) |  |                              |          
|                                  |  | AHP                          |          
|Revenue                           |  | $                            | 1,694,042
|Net earnings before tax           |  | $                            | 85,870   
|Amortization                      |  | $                            | 244,700  



| | 5. | Anesthesia services expense:
| | -- | ----------------------------



For the years ended December 31:



|                                            |  | 2016 |            |  | 2015 |  
|------------------------------------------- |  | ---- | ---------- |  | ---- | -
|                                            |  |      |            |  |      |  
|Employee related                            |  | $    | 19,092,648 |  |      | $
|Depreciation and amortization               |  |      | 14,834,481 |  |      |  
|Bad debt expense                            |  |      | 3,932,374  |  |      |  
|Office related                              |  |      | 5,344,226  |  |      |  
|Write-off of professional services contract |  |      | -          |  |      |  
|Acquisition expense                         |  |      | 426,694    |  |      |  
|Medical supplies                            |  |      | 845,329    |  |      |  
|Stock based compensation                    |  |      | 201,538    |  |      |  
|Professional fees                           |  |      | 443,234    |  |      |  
|Insurance                                   |  |      | 108,637    |  |      |  
|Corporate                                   |  |      | 825        |  |      |  
|Foreign exchange                            |  |      | -          |  |      |  
|                                            |  |      |            |  |      |  
|                                            |  | $    | 45,229,986 |  |      | $



| | 6. | Product sales expense:
| | -- | ----------------------



For the years ended December 31:



|                              |  | 2016 |           |  | 2015 |  
|----------------------------- |  | ---- | --------- |  | ---- | -
|                              |  |      |           |  |      |  
|Employee related              |  | $    | 1,427,602 |  |      | $
|Product cost and support      |  |      | 2,031,707 |  |      |  
|Write-off of inventory        |  |      | -         |  |      |  
|Professional fees             |  |      | 279,013   |  |      |  
|Office related                |  |      | 253,672   |  |      |  
|Stock based compensation      |  |      | 398,388   |  |      |  
|Insurance                     |  |      | 54,326    |  |      |  
|Depreciation and amortization |  |      | 44,863    |  |      |  
|Foreign exchange              |  |      | 13,539    |  |      |  
|                              |  |      |           |  |      |  
|                              |  | $    | 4,503,110 |  |      | $



22







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 7. | Corporate expense:
| | -- | ------------------



For the years ended December 31:



|                            |  | 2016 |           |  | 2015 |  
|--------------------------- |  | ---- | --------- |  | ---- | -
|                            |  |      |           |  |      |  
|Employee related            |  | $    | 1,376,208 |  |      | $
|Professional expenses       |  |      | 533,467   |  |      |  
|Corporate                   |  |      | 437,563   |  |      |  
|Stock based compensation    |  |      | 776,748   |  |      |  
|Travel and entertainment    |  |      | 248,719   |  |      |  
|Office related              |  |      | 180,737   |  |      |  
|Insurance                   |  |      | 244,610   |  |      |  
|Acquisition expenses        |  |      | -         |  |      |  
|Depreciation and write-offs |  |      | 52,772    |  |      |  
|Foreign exchange            |  |      | 15,872    |  |      |  
|                            |  |      |           |  |      |  
|                            |  | $    | 3,866,696 |  |      | $



| | 8. | Trade and other receivables:
| | -- | ----------------------------



|                               |  | 2016 |           |  | 2015 |  
|------------------------------ |  | ---- | --------- |  | ---- | -
|                               |  |      |           |  |      |  
|Trade receivables (note 19(a)) |  | $    | 9,804,920 |  |      | $
|Other receivables              |  |      | 31,819    |  |      |  
|                               |  |      |           |  |      |  
|                               |  | $    | 9,836,739 |  |      | $



| | 9. | Trade and other payables:
| | -- | -------------------------



|                                                       |  | 2016 |           |  | 2015 |  
|------------------------------------------------------ |  | ---- | --------- |  | ---- | -
|                                                       |  |      |           |  |      |  
|Trade payables                                         |  | $    | 372,612   |  |      | $
|Payments due to former owners of business combinations |  |      | 58,667    |  |      |  
|Other payables                                         |  |      | 2,798,406 |  |      |  
|                                                       |  |      |           |  |      |  
|                                                       |  | $    | 3,229,685 |  |      | $



23







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 10. | Property and equipment:
| | --- | -----------------------



|                                |  | Computer  equipment  and  software |        |   | Furniture  and  equipment |   |         | Leasehold  improvements |  |   | Injection mold |  |  | Total |        
|------------------------------- |  | ---------------------------------- | ------ | - | ------------------------- | - | ------- | ----------------------- |  | - | -------------- |  |  | ----- | -------
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Cost                            |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Balance as at January 1, 2015   |  | $                                  | 32,864 |   |                           | $ | 59,586  |                         |  | $ | 2,312          |  |  | $     | 200,777
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Additions                       |  |                                    | 10,448 |   |                           |   | 61,479  |                         |  |   | 2,415          |  |  |       | 110,496
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Dispositions                    |  |                                    | -      |   |                           |   | (4,870  | )                       |  |   | -              |  |  |       | -      
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Balance as at December 31, 2015 |  |                                    | 43,312 |   |                           |   | 116,195 |                         |  |   | 4,727          |  |  |       | 311,273
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Additions                       |  |                                    | 16,016 |   |                           |   | 1,805   |                         |  |   | -              |  |  |       | 95,375 
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Dispositions                    |  |                                    | (3,629 | ) |                           |   | -       |                         |  |   | -              |  |  |       | -      
|                                |  |                                    |        |   |                           |   |         |                         |  |   |                |  |  |       |        
|Balance as at December 31, 2016 |  | $                                  | 55,699 |   |                           | $ | 118,000 |                         |  | $ | 4,727          |  |  | $     | 406,648



|                                |  | Computer  equipment  and  software |        |   | Furniture  and  equipment |   |        | Leasehold  improvements |  |   | Injection  mold |  |  | Total |        
|------------------------------- |  | ---------------------------------- | ------ | - | ------------------------- | - | ------ | ----------------------- |  | - | --------------- |  |  | ----- | -------
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Accumulated depreciation        |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Balance as at January 1, 2015   |  | $                                  | 14,737 |   |                           | $ | 21,711 |                         |  | $ | 2,312           |  |  | $     | 126,915
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Depreciation expense            |  |                                    | 7,425  |   |                           |   | 20,341 |                         |  |   | 282             |  |  |       | -      
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Dispositions                    |  |                                    | -      |   |                           |   | (2,922 | )                       |  |   | -               |  |  |       | -      
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Balance as at December 31, 2015 |  |                                    | 22,162 |   |                           |   | 39,130 |                         |  |   | 2,594           |  |  |       | 126,915
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Depreciation expense            |  |                                    | 7,950  |   |                           |   | 19,893 |                         |  |   | 426             |  |  |       | 42,369 
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Dispositions                    |  |                                    | (563   | ) |                           |   | -      |                         |  |   | -               |  |  |       | -      
|                                |  |                                    |        |   |                           |   |        |                         |  |   |                 |  |  |       |        
|Balance as at December 31, 2016 |  | $                                  | 29,549 |   |                           | $ | 59,023 |                         |  | $ | 3,020           |  |  | $     | 169,284



|                  |  | Computer  equipment  and  software |        |  | Furniture
 and  equipment |   |        | Leasehold  improvements |  |   | Injection  mold |  |  | Total |        
|----------------- |  | ---------------------------------- | ------ |  | ------------------------- | - | ------ | ----------------------- |  | - | --------------- |  |  | ----- | -------
|                  |  |                                    |        |  |                           |   |        |                         |  |   |                 |  |  |       |        
|Net book value    |  |                                    |        |  |                           |   |        |                         |  |   |                 |  |  |       |        
|                  |  |                                    |        |  |                           |   |        |                         |  |   |                 |  |  |       |        
|December 31, 2016 |  | $                                  | 26,150 |  |                           | $ | 58,977 |                         |  | $ | 1,707           |  |  | $     | 237,364
|                  |  |                                    |        |  |                           |   |        |                         |  |   |                 |  |  |       |        
|December 31, 2015 |  | $                                  | 21,150 |  |                           | $ | 77,065 |                         |  | $ | 2,133           |  |  | $     | 184,358



24







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 11. | Intangible assets:
| | --- | ------------------



|                                                 |  | Professional Services  Agreements |             |   | Patents |   |         | Total | 
|------------------------------------------------ |  | --------------------------------- | ----------- | - | ------- | - | ------- | ----- | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Cost                                             |  |                                   |             |   |         |   |         |       | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Balance as at January 1, 2015                    |  | $                                 | 65,962,032  |   |         | $ | 532,598 |       | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Additions through business combinations (note 4) |  |                                   | 28,921,628  |   |         |   | -       |       | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Write-off                                        |  |                                   | (466,968    | ) |         |   | -       |       | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Balance as at December 31, 2015                  |  |                                   | 94,416,692  |   |         |   | 532,598 |       | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Additions through business combinations (note 4) |  |                                   | 61,218,456  |   |         |   | -       |       | 
|                                                 |  |                                   |             |   |         |   |         |       | 
|Balance as at December 31, 2016                  |  | $                                 | 155,635,148 |   |         | $ | 532,598 |       | 



|                                |  | Professional  Services  Agreements |            |   | Patents |   |         | Total | 
|------------------------------- |  | ---------------------------------- | ---------- | - | ------- | - | ------- | ----- | 
|                                |  |                                    |            |   |         |   |         |       | 
|Accumulated depreciation        |  |                                    |            |   |         |   |         |       | 
|                                |  |                                    |            |   |         |   |         |       | 
|Balance as at January 1, 2015   |  | $                                  | 458,070    |   |         | $ | 431,831 |       | 
|                                |  |                                    |            |   |         |   |         |       | 
|Amortization expense            |  |                                    | 6,795,028  |   |         |   | 34,369  |       | 
|                                |  |                                    |            |   |         |   |         |       | 
|Write-off                       |  |                                    | (77,275    | ) |         |   | -       |       | 
|                                |  |                                    |            |   |         |   |         |       | 
|Balance as at December 31, 2015 |  |                                    | 7,175,823  |   |         |   | 466,200 |       | 
|                                |  |                                    |            |   |         |   |         |       | 
|Amortization expense            |  |                                    | 14,823,948 |   |         |   | 34,464  |       | 
|                                |  |                                    |            |   |         |   |         |       | 
|Balance as at December 31, 2016 |  | $                                  | 21,999,771 |   |         | $ | 500,664 |       | 



|                  |  | Professional  Services  Agreements |             |  | Patents |   |        | Total | 
|----------------- |  | ---------------------------------- | ----------- |  | ------- | - | ------ | ----- | 
|                  |  |                                    |             |  |         |   |        |       | 
|Net book value    |  |                                    |             |  |         |   |        |       | 
|                  |  |                                    |             |  |         |   |        |       | 
|December 31, 2016 |  | $                                  | 133,635,377 |  |         |   | 31,934 |       | 
|                  |  |                                    |             |  |         |   |        |       | 
|December 31, 2015 |  | $                                  | 87,240,869  |  |         | $ | 66,398 |       | 





25







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 12. | Derivative asset:
| | --- | -----------------



On January 21, 2016, the Company
entered into a cross currency swap with the Bank of Nova Scotia (“Scotia”) to lock in the Canadian dollar to U.S. dollar
foreign exchange rate on its Canadian dollar denominated Crown Note (note 13) at 1.448. Under the cross currency swap, Scotia is
committed to payments on the principal amount of the Crown Note of CAD$22,500,000 at a rate of 12% while the Company is committed
to payments on the principal amount of the Crown Note of USD$15,538,674 at 13.17%. Interest rate payments are calculated quarterly
with payment due on the last business day of each quarter.



The Company accounts for the cross
currency swap as a derivative financial instrument at fair value through profit or loss and has recorded the fair value of the
instrument on the balance sheet at December 31, 2016 with changes in the fair value of the instrument recorded through earnings
in the year of $1,261,298. The cross currency swap agreement matures on January 31, 2018.



| | 13. | Notes payable:
| | --- | --------------



|December 31, 2016          |  | Crown Note |            |  | Scotia Facility |   |            | Total | 
|-------------------------- |  | ---------- | ---------- |  | --------------- | - | ---------- | ----- | 
|Current portion            |  | $          | -          |  |                 | $ | 5,791,787  |       | 
|Non-current portion        |  |            | 15,208,256 |  |                 |   | 22,930,518 |       | 
|Total loans and borrowings |  | $          | 15,208,256 |  |                 | $ | 28,722,305 |       | 



|December 31, 2015          |  | Crown Note |            |  | Scotia  Facility |   |            | Total | 
|-------------------------- |  | ---------- | ---------- |  | ---------------- | - | ---------- | ----- | 
|Current portion            |  | $          | -          |  |                  | $ | 3,818,048  |       | 
|Non-current portion        |  |            | 14,179,589 |  |                  |   | 12,740,829 |       | 
|Total loans and borrowings |  | $          | 14,179,589 |  |                  | $ | 16,558,877 |       | 



Crown Capital Fund
III Management Inc. (“Crown Note”)

On December 1, 2014, the Company
entered into an agreement to borrow funds in the form of a subordinated note payable from Crown Capital Fund III Management Inc.At inception, the original amount of the note payable was CAD$22,500,000 (USD$19,863,000). The note bears interest at 12% per
annum with a decrease to 10% upon repayment and performance in full of the Company’s obligations under its senior credit
agreement (see Scotia Facility). Interest on the note is payable on a quarterly basis beginning March 31, 2015, with the payment
of the principal scheduled for June 1, 2018. In compensation for its services, the Company paid Crown a combination of cash CAD$1,350,000
(USD$1,191,780) and shares (2,000,000 common shares) in addition to reimbursement of legal costs in relation to issuance of the
note. The Crown note is subordinate to the Scotia Facility. The note is classified as an other financial liability and recorded
at amortized cost.



On June 15, 2016, the Company amended the Crown Note to accommodate an increase to the Scotia Facility as well as amended the financial
covenants under the agreement to align with the Scotia Facility. The Company paid $174,060 (CAD$225,000) in fees to Crown in respect
of the amendment.



26







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 13. | Notes payable (continued):
| | --- | --------------------------



The Bank of Nova Scotia (“Scotia
Facility”)

On November 24, 2015, the Company
entered into a credit facility with the Bank of Nova Scotia. The facility, which has a maturity date of April 30, 2018, provided
financing of up to $33,000,000. On June 15, 2016, the Company amended the Scotia Facility to provide financing of up to $55,000,000.
In conjunction with this amendment, the Company paid $390,400 in fees to the Bank of Nova Scotia and legal counsel. As at December
31, 2016, the Company had drawn $29,000,000 on the amended Facility (December 31, 2015 - $17,000,000). The Facility is repayable
in full at maturity, with scheduled principal repayments on a quarterly basis beginning March 31, 2016 based upon the outstanding
balance of the Facility. The Facility is a revolving credit facility which the Company may terminate at any time without penalty.
The credit facility bears interest at a floating rate based on the US prime rate, LIBOR or bankers’ acceptance rates plus
an applicable margin. At December 31, 2016, the interest rate on the facility was LIBOR plus 2.75%. The Facility is secured by
the assets of the Company. The Company is required to maintain the following financial covenants in respect of the Facility for
the quarter-ended and year ended December 31, 2016:



|Financial Covenant          |  | Required Ratio
|--------------------------- |  | --------------
|Senior debt to EBITDA ratio |  | 2.25:1.00     
|Total funded debt ratio     |  | 3.00:1.00     
|Fixed charge coverage ratio |  | 1.30:1.00     



The Company is in compliance with
the above covenants at December 31, 2016.



The consolidated minimum loan payments
(principal) for all loan agreements in the future are as follows:



|                           | Minimum Principal
|-------------------------- | -----------------
|At December 31, 2016       |                  
|Not later than one year    |                  
|Between one and five years |                  
|                           |                  



27







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 14. | Subsidiary undertakings:
| | --- | ------------------------



The list below sets out the principal
subsidiaries of the Company. These subsidiaries engage in intercompany transactions, all of which are eliminated on consolidation
within these financial statements.



|Subsidiary                                           |  | Jurisdiction of Incorporation
|---------------------------------------------------- |  | -----------------------------
|CRH Medical Corporation                              |  | British Columbia, Canada     
|CRH Medical Corporation                              |  | Delaware, United States      
|CRH Anesthesia Management LLC                        |  | Delaware, United States      
|Gastroenterology Anesthesia Associates LLC           |  | Georgia, United States       
|Macon Gastroenterology Anesthesia Associates LLC     |  | Georgia, United States       
|NC GAA, PC                                           |  | North Carolina, United States
|CRH Anesthesia of Gainesville LLC                    |  | Florida, United States       
|CRH Anesthesia of Sarasota LLC                       |  | Florida, United States       
|CRH Anesthesia of Cape Coral LLC                     |  | Florida, United States       
|CRH Anesthesia of Knoxville LLC                      |  | Tennessee, United States     
|Knoxville Gastroenterology Anesthesia Associates LLC |  | Tennessee, United States     
|CRH GAA, PC                                          |  | Texas, United States         
|Austin Gastroenterology Anesthesia Associates PLLC   |  | Texas, United States         
|Community Anesthesia PLLC                            |  | Massachusetts, United States 
|CRH Anesthesia of Arapahoe LLC                       |  | Delaware, United States      
|Arapahoe Gastroenterology Anesthesia Associates LLC  |  | Delaware, United States      



| | (a) | The Company holds a 51% controlling interest in Knoxville Gastroenterology Anesthesia Associates
LLC (“KGAA”). As a result of the operating agreement, the Company controls KGAA and 100% of the financial results of
this subsidiary are included in the Company’s consolidated financial results.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following tables summarize the
financial information of KGAA, including fair value adjustments at acquisition but excluding tax and intercompany eliminations,
as at December 31, 2016 and 2015.



|                                         |  | 2016 |            |  | 2015 |  
|---------------------------------------- |  | ---- | ---------- |  | ---- | -
|Cash and cash equivalents                |  | $    | 1,333,289  |  |      | $
|Trade and other receivables              |  |      | 1,048,233  |  |      |  
|Prepaids                                 |  |      | -          |  |      |  
|Intangible assets                        |  |      | 10,822,783 |  |      |  
|                                         |  |      | 13,204,305 |  |      |  
|                                         |  |      |            |  |      |  
|Accounts payable and accrued liabilities |  |      | 237,362    |  |      |  
|Loans                                    |  |      | -          |  |      |  
|                                         |  |      | 237,362    |  |      |  
|                                         |  |      |            |  |      |  
|Member contributions                     |  |      | 7,669,320  |  |      |  
|Retained earnings                        |  |      | 5,297,623  |  |      |  
|                                         |  |      | 12,966,943 |  |      |  
|                                         |  |      |            |  |      |  
|Total liabilities and equity             |  | $    | 13,204,305 |  |      | $



28







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 14. | Subsidiary undertakings (continued):
| | --- | ------------------------------------



| | (a) | KGAA (continued):
| | --- | -----------------



|                            |  | 2016 |            |  | 2015 |  
|--------------------------- |  | ---- | ---------- |  | ---- | -
|Anesthesia revenue          |  | $    | 10,307,361 |  |      | $
|Anesthesia services expense |  |      | 5,573,305  |  |      |  
|Net income before tax       |  | $    | 4,734,056  |  |      | $



As at December 31, 2016, non-controlling
interest (before the effects of tax) relating to this entity was $6,375,722 (December 31, 2015 - $6,827,116). Net income before
tax attributable to non-controlling interest for the year ended December 31, 2016 was $2,319,687 (2015 - $276,148).



| | (b) | The Company holds a 51% controlling interest in Austin Gastroenterology Anesthesia Associates PLLC
(“AGAA”). As a result of the operating agreement, the Company controls AGAA and 100% of the financial results of this
subsidiary are included in the Company’s consolidated financial results.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following tables summarize the
financial information of AGAA, including fair value adjustments at acquisition but excluding tax and intercompany eliminations,
as at December 31, 2016.

|                                         |  | 2016 |           
|---------------------------------------- |  | ---- | ----------
|Cash and cash equivalents                |  | $    | 2,866,916 
|Trade and other receivables              |  |      | 1,403,277 
|Prepaids                                 |  |      | 10,635    
|Intangible assets                        |  |      | 31,060,037
|                                         |  |      | 35,340,865
|                                         |  |      |           
|Accounts payable and accrued liabilities |  |      | 453,759   
|Loans                                    |  |      | -         
|                                         |  |      | 453,759   
|                                         |  |      |           
|Member contributions                     |  |      | 29,244,110
|Retained earnings                        |  |      | 5,642,996 
|                                         |  |      | 34,887,106
|                                         |  |      |           
|Total liabilities and equity             |  | $    | 35,340,865



|                            |  | 2016 |           
|--------------------------- |  | ---- | ----------
|Anesthesia revenue          |  | $    | 11,593,180
|Anesthesia services expense |  |      | 5,949,366 
|Net income before tax       |  | $    | 5,643,814 



As at December 31, 2016, non-controlling
interest relating to this entity was $17,095,082. Net income before tax attributable to non-controlling interest for the year ended
December 31, 2016 was $2,765,469.



29







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 14. | Subsidiary undertakings (continued):
| | --- | ------------------------------------



| | (c) | The Company also holds the following interests:
| | --- | -----------------------------------------------



|Entity                                              |  | Interest |   
|--------------------------------------------------- |  | -------- | --
|Community Anesthesia PLLC                           |  |          | 65
|Macon Gastroenterology Anesthesia Associates LLC    |  |          | 65
|Arapahoe Gastroenterology Anesthesia Associates LLC |  |          | 51



As a result of the operating agreements
with each of the above entities, the Company has control over these entities and thus 100% of the financial results of these subsidiaries
are included in the Company’s consolidated financial results.



The following tables summarize the
aggregate financial information for the above entities, including fair value adjustments at acquisition but excluding tax and intercompany
eliminations, as at December 31, 2016 and 2015.



|                                         |  | 2016 |            |  | 2015 |  
|---------------------------------------- |  | ---- | ---------- |  | ---- | -
|Cash and cash equivalents                |  | $    | 1,742,274  |  |      | $
|Trade and other receivables              |  |      | 2,359,873  |  |      |  
|Prepaids                                 |  |      | 13,821     |  |      |  
|Intangible assets                        |  |      | 30,877,177 |  |      |  
|                                         |  |      | 34,993,145 |  |      |  
|                                         |  |      |            |  |      |  
|Accounts payable and accrued liabilities |  |      | 659,482    |  |      |  
|Loans                                    |  |      | -          |  |      |  
|                                         |  |      | 659,482    |  |      |  
|                                         |  |      |            |  |      |  
|Member contributions                     |  |      | 33,308,961 |  |      |  
|Retained earnings (deficit)              |  |      | 1,024,702  |  |      |  
|                                         |  |      | 34,333,663 |  |      |  
|                                         |  |      |            |  |      |  
|Total liabilities and equity             |  | $    | 34,993,145 |  |      | $



|                             |  | 2016 |            |  | 2015 |  
|---------------------------- |  | ---- | ---------- |  | ---- | -
|Anesthesia revenue           |  | $    | 11,044,835 |  |      | $
|Anesthesia services expense  |  |      | 9,994,210  |  |      |  
|Net income (loss) before tax |  | $    | 1,050,625  |  |      | $



As at December 31, 2016, non-controlling
interest relating to these entities was $13,099,934 (December 31, 2015 - $2,505,542). Net income before tax attributable to non-controlling
interest for the above entities for year ended December 31, 2016 was $503,784 (2015 - $(9,073)).



30







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 15. | Share capital:
| | --- | --------------



| | (a) | Authorized:
| | --- | -----------



100,000,000
common shares without par value.



| | (b) | Issued and outstanding – common shares:
| | --- | ---------------------------------------



On March 29, 2016, the Company issued
46,851 common shares on the exercise of 46,851 broker warrants issued in connection with the Company’s bought deal equity
offering on March 25, 2015. Gross proceeds on exercise were $121,095 (CAD$159,293) and the fair value of the instruments exercised
was $48,332.



On September 7, 2016, the Company
issued 53,854 common shares on the exercise of 53,854 broker warrants issued in connection with the Company’s bought deal
equity offering on March 25, 2015. Gross proceeds on exercise were $141,996 (CAD$183,104) and the fair value of the instruments
exercised was $55,562.



On March 25, 2015, the Company closed
a bought deal equity offering and over-allotment option of 7,000,000 and 1,050,000 common shares, respectively, at a price of $2.72
(CAD$3.40) per common share for gross proceeds of $21,865,893 (CAD$27,370,000). In connection with the offering, the underwriters
were paid a 6% commission totaling approximately $1,311,954 (CAD$1,642,200) and received 241,500 broker warrants with a fair value
of $249,149 (CAD$311,535). The broker warrants expired 18 months from the close date of the bought deal offering and had an exercise
price of CAD$3.40. Additional share issuance costs of $299,230 (CAD$375,059) were incurred in relation to the offering.



On September 10, 2015, the Company
issued 375,612 common shares with a total value of $1,422,652 in connection with its acquisition of Knoxville Gastroenterology
Anesthesia Associates LLC and incurred share issuance costs of $6,164. Refer to note 4.



On September 17, 2015, the Company
issued 140,795 common shares on the exercise of 140,795 broker warrants issued in connection with the Company’s bought deal
equity offering. Gross proceeds on exercise was $363,158 (CAD$478,703) and the fair value of the instruments exercised was $145,254
(CAD$181,625).



The Company has recorded a deferred
tax asset of $420,511 in relation to those share issuance costs incurred in relation to the share offering and issuance of shares
during the year. The deferred tax asset has been offset against share capital.



31







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 15. | Share capital (continued):
| | --- | --------------------------



| | (c) | Stock option plan:
| | --- | ------------------



Under the Company’s Stock Option
Plan, the Company may grant options to its directors, officers, consultants and eligible employees. The plan provides for the granting
of stock options at the fair market value of the Company’s stock at the date of grant, and the term of options range from
two to ten years. The Board of Directors may, in its sole discretion, determine the time during which options shall vest and the
method of vesting. All options under the Plan will be subject to vesting provisions determined by the Board of Directors, over
a period of not less than 18 months, in equal portions on a quarterly basis. Options granted to consultants providing investor
relations activities will vest at the end of 12 months or longer from the date of issuance.



A summary of the status of the plan
as of December 31, 2016 and 2015 is as follows (options are granted in CAD and USD amounts are calculated using prevailing exchange
rates):



|                               |  | Number of 
options |            |   | Weighted average exercise price |  
|------------------------------ |  | ------------------ | ---------- | - | ------------------------------- | -
|                               |  |                    |            |   | CAD                             |  
|                               |  |                    |            |   |                                 |  
|Outstanding, January 1, 2015   |  |                    | 3,763,750  |   |                                 | $
|                               |  |                    |            |   |                                 |  
|Issued                         |  |                    | -          |   |                                 |  
|Exercised                      |  |                    | (758,189   | ) |                                 |  
|Forfeited                      |  |                    | (31,250    | ) |                                 |  
|Expired                        |  |                    | -          |   |                                 |  
|                               |  |                    |            |   |                                 |  
|Outstanding, December 31, 2015 |  |                    | 2,974,311  |   |                                 |  
|                               |  |                    |            |   |                                 |  
|Issued                         |  |                    | -          |   |                                 |  
|Exercised                      |  |                    | (1,358,687 | ) |                                 |  
|Forfeited                      |  |                    | (12,500    | ) |                                 |  
|Expired                        |  |                    | -          |   |                                 |  
|                               |  |                    |            |   |                                 |  
|Outstanding, December 31, 2016 |  |                    | 1,603,124  |   |                                 | $



The following table summarizes information
about the stock options outstanding at December 31, 2016:



|Exercise price |  | Options outstanding |  |                    | Options exercisable | 
|-------------- |  | ------------------- |  | ------------------ | ------------------- | 
|$CAD           |  | $USD                |  | Number of  options |                     | 
|               |  |                     |  |                    |                     | 
|0.28 – 0.58    |  | 0.20 – 0.43         |  |                    | 214,687             | 
|0.59 – 0.70    |  | 0.44 – 0.52         |  |                    | 1,388,437           | 
|               |  |                     |  |                    |                     | 
|               |  |                     |  |                    | 1,603,124           | 



As at December 31, 2015:



|Exercise price |  | Options outstanding |  |                    | Options exercisable | 
|-------------- |  | ------------------- |  | ------------------ | ------------------- | 
|$CAD           |  | $USD                |  | Number  of options |                     | 
|               |  |                     |  |                    |                     | 
|0.28 – 0.58    |  | 0.18 – 0.42         |  |                    | 1,502,124           | 
|0.59 – 0.85    |  | 0.43 – 0.61         |  |                    | 1,432,187           | 
|0.86 – 1.20    |  | 0.62 – 0.86         |  |                    | 40,000              | 
|               |  |                     |  |                    |                     | 
|               |  |                     |  |                    | 2,974,311           | 



32







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 15. | Share capital (continued):
| | --- | --------------------------



| | (c) | Stock option plan (continued):
| | --- | ------------------------------



For the year ended December 31, 2016,
the Company recognized $97,486 (2015 - $291,834), in compensation expense as a result of stock options awarded and vested. Compensation
expense is recorded in the consolidated statement of operations and comprehensive income and is allocated to product sales expenses
(note 6), corporate expenses (note 7) and anesthesia expenses (note 5) on the same basis as the allocations of cash compensation.



During the
years ended December 31, 2016 and 2015, no additional stock options were granted.



| | (d) | Share unit plan:
| | --- | ----------------



In June 2014, the shareholders of
the Company approved a Share Unit Plan. Employees, directors and eligible consultants of the Company and its designated subsidiaries
are eligible to participate in the Share Unit Plan. In accordance with the terms of the plan, the Company will approve those employees,
directors and eligible consultants who are entitled to receive share units and the number of share units to be awarded to each
participant. Each share unit awarded conditionally entitles the participant to receive one common share of the Company upon attainment
of the share unit vesting criteria. The vesting of share units is conditional upon the expiry of time-based vesting conditions
or performance-based vesting conditions. Once the share units vest, the participant is entitled to receive the equivalent number
of underlying common shares.



33







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 15. | Share capital (continued):
| | --- | --------------------------



| | (d) | Share unit plan (continued):
| | --- | ----------------------------



A summary of the status of the plan
as of December 31, 2016 and 2015 is as follows:



|                               |  | Time based  share units |           |   | Performance  based share  units | 
|------------------------------ |  | ----------------------- | --------- | - | ------------------------------- | 
|                               |  |                         |           |   |                                 | 
|Outstanding, January 1, 2015   |  |                         | -         |   |                                 | 
|                               |  |                         |           |   |                                 | 
|Issued                         |  |                         | 509,000   |   |                                 | 
|Exercised                      |  |                         | -         |   |                                 | 
|Forfeited                      |  |                         | -         |   |                                 | 
|Expired                        |  |                         | -         |   |                                 | 
|                               |  |                         |           |   |                                 | 
|Outstanding, December 31, 2015 |  |                         | 509,000   |   |                                 | 
|                               |  |                         |           |   |                                 | 
|Issued                         |  |                         | 704,000   |   |                                 | 
|Exercised                      |  |                         | (80,000   | ) |                                 | 
|Forfeited                      |  |                         | (65,000   | ) |                                 | 
|Expired                        |  |                         | -         |   |                                 | 
|                               |  |                         |           |   |                                 | 
|Outstanding, December 31, 2016 |  |                         | 1,068,000 |   |                                 | 



During the year ended December 31,
2016, the Company issued 704,000 share units (“Time based share units”). The weighted average fair value per unit was
$5.01 (CAD$6.74) based on the market value of the underlying shares at the date of issuance.



The Company also issued 250,000 share
units (“Performance based share units”). These share units vest upon the Company meeting certain performance targets
and expire 10 years after grant. The weighted average fair value of these units at the date of grant was $3.73 (CAD$5.01) per unit.
The fair value of these share units was calculated as of the grant date based on the market value of the underlying shares at the
date of issuance.



In addition to these share units,
the Company also issued 1,100,000 share units (“Performance based share units”) which vest upon the Company meeting
certain market based performance targets and expire ten years after grant. The weighted average fair value of these units at the
date of grant was $4.93 (CAD$6.62) per unit. The fair value of these share units was calculated as of the grant date using a binomial
pricing model with the following weighted average assumptions:



|                             |  | 2016 |         
|---------------------------- |  | ---- | --------
|Risk-free interest rate      |  |      | 1.04    
|Expected volatility          |  |      | 62.0    
|Pre-vest forfeiture rate     |  |      | 0       
|Weighted average share price |  |      | CAD$7.26



34







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 15. | Share capital (continued):
| | --- | --------------------------



| | (d) | Share unit plan (continued):
| | --- | ----------------------------



During the year ended December 31,
2015, the Company issued 509,000 share units (“Time based share units”). The weighted average fair value per unit granted
in the period was $2.90 (CAD$4.03) based on the market value of the underlying shares at the date of grant.



In 2015, the Company granted 2,000,000
share units (“Performance based share units”) which vest upon the Company meeting certain market based performance
targets and expire on February 20, 2020. The weighted average fair value of these units at the date of grant was $1.67 (CAD$2.09)
per unit. The fair value of these share units was calculated as of the grant date using a binomial pricing model with the following
weighted average assumptions:



|                             |  | 2015 |         
|---------------------------- |  | ---- | --------
|Risk-free interest rate      |  |      | 0.61    
|Expected volatility          |  |      | 60.5    
|Pre-vest forfeiture rate     |  |      | 0       
|Weighted average share price |  |      | CAD$2.45



During the year ended December 31,
2015, 1,000,000 of those units which vest upon the Company meeting certain market based performance targets vested. Upon vesting,
the Company recognized the expense relating to these units, in full, and issued 1,000,000 common shares.



During the year ended December 31,
2016, the Company recognized $1,279,188 (2015 - $2,457,618), in compensation expense in relation to the granting and vesting of
share units.



35







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 15. | Share capital (continued):
| | --- | --------------------------



| | (e) | Earnings per share:
| | --- | -------------------



The calculation of basic earnings
per share for the years ended December 31, 2016 and 2015 is as follows:



|                                           |  | 2016         |            |  | 2015                                                      | 
|------------------------------------------ |  | ------------ | ---------- |  | --------------------------------------------------------- | 
|                                           |  | Net earnings |            |  | Weighted  average  number of  common  shares
 outstanding | 
|                                           |  |              |            |  |                                                           | 
|Net earnings attributable to shareholders: |  |              |            |  |                                                           | 
|                                           |  |              |            |  |                                                           | 
|Earnings per common share:                 |  |              |            |  |                                                           | 
|Basic                                      |  | $            | 10,564,233 |  |                                                           | 
|Share options                              |  |              |            |  |                                                           | 
|Share units                                |  |              |            |  |                                                           | 
|Broker warrants                            |  |              |            |  |                                                           | 
|                                           |  |              |            |  |                                                           | 
|Diluted                                    |  | $            | 10,564,233 |  |                                                           | 



For the year ended December 31, 2016,
315,251 options (2015 – 661,899) and 1,179,073 share units (2015 - 1,755,961) were excluded from the diluted weighted average
number of common shares calculation.



The average market value of the Company’s
shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during
which the options were outstanding. The treasury method is used to determine the calculation of dilutive shares.



36







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 16. | Income taxes:
| | --- | -------------



| | (a) | Income tax expense is comprised of the following:
| | --- | -------------------------------------------------



|                                                             |  | 2016 |           |   | 2015 |  
|------------------------------------------------------------ |  | ---- | --------- | - | ---- | -
|                                                             |  |      |           |   |      |  
|Current tax expense                                          |  | $    | 5,310,454 |   |      | $
|Deferred tax expense (recovery):                             |  |      |           |   |      |  
|Recognition of previously unrecognized temporary differences |  |      | -         |   |      |  
|Origination and reversal of temporary differences            |  |      | (830,584  | ) |      |  
|Change in enacted tax rates and other                        |  |      | (224,720  | ) |      |  
|Total tax expense (recovery)                                 |  | $    | 4,255,150 |   |      | $



The reconciliation of income tax
computed at statutory tax rates to income tax expense, using a 26% (2015 – 26%) statutory rate, is:



|                                                             |  | 2016 |            |   | 2015 |  
|------------------------------------------------------------ |  | ---- | ---------- | - | ---- | -
|                                                             |  |      |            |   |      |  
|Tax expense at statutory income tax rates                    |  | $    | 5,286,493  |   |      | $
|Recognition of previously unrecognized temporary differences |  |      | -          |   |      |  
|Permanent differences                                        |  |      | 159,800    |   |      |  
|Income attributable to non-controlling interest              |  |      | (1,306,217 | ) |      |  
|Foreign income taxed at different rates                      |  |      | 243,256    |   |      |  
|Other                                                        |  |      | (128,182   | ) |      |  
|Total tax expense (recovery)                                 |  | $    | 4,255,150  |   |      | $



| | (b) | Recognized deferred tax assets and liabilities:
| | --- | -----------------------------------------------



During the year ended December 31,
2015, the Company recognized a deferred tax asset of $420,511 with respect to share issuance costs directly within equity. The
Company had the following deferred tax assets and liabilities resulting from temporary differences recognized for financial statement
and income tax purposes.



|                            |  | 2016 |            |   | 2015 |  
|--------------------------- |  | ---- | ---------- | - | ---- | -
|                            |  |      |            |   |      |  
|Deferred tax assets:        |  |      |            |   |      |  
|Non-capital losses          |  | $    | -          |   |      | $
|Property and equipment      |  |      | 141        |   |      |  
|Finance related costs       |  |      | 527,462    |   |      |  
|Reserves                    |  |      | 74,105     |   |      |  
|Share transaction costs     |  |      | 273,332    |   |      |  
|Stock-based compensation    |  |      | 426,051    |   |      |  
|Deferred consideration      |  |      | 1,523,663  |   |      |  
|Earn-out obligation         |  |      | 5,128,162  |   |      |  
|                            |  |      |            |   |      |  
|Deferred tax liabilities:   |  |      |            |   |      |  
|Intangible assets           |  |      | (1,006,371 | ) |      |  
|Property and equipment      |  |      | -          |   |      |  
|Unrealized foreign exchange |  |      | (508,770   | ) |      |  
|Net deferred tax asset      |  | $    | 6,437,775  |   |      | $



37







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 16. | Income taxes (continued):
| | --- | -------------------------



| | (b) | Recognized deferred tax assets and liabilities (continued):
| | --- | -----------------------------------------------------------



|Deferred tax assets by jurisdiction |  | 2016 |            |   | 2015 |  
|----------------------------------- |  | ---- | ---------- | - | ---- | -
|                                    |  |      |            |   |      |  
|Canada:                             |  |      |            |   |      |  
|Deferred tax asset                  |  | $    | 405,108    |   |      | $
|Deferred tax liability              |  |      | (506,954   | ) |      |  
|Net deferred tax asset (liability)  |  | $    | (101,846   | ) |      | $
|                                    |  |      |            |   |      |  
|United States:                      |  |      |            |   |      |  
|Deferred tax asset                  |  | $    | 7,559,797  |   |      | $
|Deferred tax liability              |  |      | (1,020,176 | ) |      |  
|Net deferred tax asset (liability)  |  | $    | 6,539,621  |   |      | $



| | (c) | Unrecognized deferred tax assets and liabilities:
| | --- | -------------------------------------------------



As at December 31, 2016 and
2015, the Company had tax losses of $nil from its Canadian operations. As at December 31, 2016, the Company had tax losses of $nil
(2015 - $2.1 million) from its US operations, available to reduce future years’ income taxes.



Realization of the deferred tax assets
is dependent on several factors, including a presumption of future profitability, which is subject to uncertainty. The Company
has assessed that it is probable that its deferred tax assets will be realized.



| | 17. | Capital disclosures:
| | --- | --------------------



The
Company’s objective in managing capital is to safeguard its ability to continue as a going concern and to sustain future
development of the business. In the management of capital, the Company includes shareholders’ equity, excluding accumulated
other comprehensive loss. The Company’s objective is met by retaining adequate equity to provide for the possibility that
cash flows from assets will not be sufficient to meet future cash flow requirements. In order to maintain or adjust its capital
structure, the Company may issue new shares. The Board of Directors does not establish quantitative return on capital criteria
for management. The Company is not subject to any externally imposed capital requirements, but is subject to debt covenants in
respect of its notes payable and bank indebtedness (note 13). The Company’s overall strategy with respect to capital management
remains unchanged from the year ended December 31, 2015.



|                                                                                        |  | 2016 |            |  | 2015 |  
|--------------------------------------------------------------------------------------- |  | ---- | ---------- |  | ---- | -
|Shareholders’ equity attributable to shareholders, excluding other comprehensive income |  | $    | 60,582,603 |  |      | $



38







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 18. | Net finance expense
| | --- | -------------------



Recognized in earnings in the years
ended December 31:



|                                                                                 |  | 2016 |            |   | 2015 |  
|-------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Finance income:                                                                  |  |      |            |   |      |  
|Foreign exchange gain                                                            |  | $    | (1,007,673 | ) |      | $
|Total finance income                                                             |  | $    | (1,007,673 | ) |      | $
|                                                                                 |  |      |            |   |      |  
|Finance expense:                                                                 |  |      |            |   |      |  
|Interest and accretion expense on borrowings                                     |  | $    | 4,024,240  |   |      | $
|Accretion expense on earn-out obligation and deferred consideration              |  |      | 560,150    |   |      |  
|Amortization of deferred financing fees                                          |  |      | 614,472    |   |      |  
|Net change in fair value of financial liabilities at fair value through earnings |  |      | 204,958    |   |      |  
|Extinguishment of notes payable                                                  |  |      | -          |   |      |  
|Other                                                                            |  |      | 27,215     |   |      |  
|Total finance expense                                                            |  | $    | 5,431,035  |   |      | $
|Net finance expense                                                              |  | $    | 4,423,362  |   |      | $



39







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 19. | Financial instruments:
| | --- | ----------------------



The Company’s financial instruments
consist of cash and cash equivalents, trade and other receivables, derivative assets, trade and other payables, employee benefit
obligations, short term advances, loans, notes payable and bank indebtedness, deferred consideration and the Company’s earn-out
obligation. The fair values of these financial instruments, except the derivative asset, certain of the notes payable balances,
the deferred consideration and the earn-out obligation, approximate carrying value because of their short-term nature. The earn-out
obligation and derivate asset are classified as financial instruments recorded at fair value through earnings. For all other balances,
the fair value of these financial instruments approximates carrying value; the Scotia Facility is a floating rate instrument and
due to the subordinate nature of the Crown Note, management has assessed that the carrying value of this fixed rate instrument
reflects fair value.



An established
fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest
level of input that is available and significant to the fair value measurement. There are three levels of inputs that may be used
to measure fair value:



| | · | Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
| | - | -------------------------------------------------------------------------------------------



| | · | Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
| | - | ---------------------------------------------------------------------------------------------------------------



The Company’s derivative asset
is carried at fair value as disclosed in note 12. The fair value of the derivative asset is determined using models to estimate
the present value of expected future cash flows. The derivative asset is considered a Level 2 instrument because, while observable
inputs are available, they are not quoted in an active market.



The Company’s earn-out obligation
is measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The Earn-Out Obligation relates
to the GAA acquisition in 2014. The total purchase price under the acquisition included an additional $14,655,000 payable within
4.5 years after closing based on the achievement of certain financial performance targets of GAA.  As at December 31, 2016,
the Company had estimated that potential payments in respect of the earn-out obligation will range from $11,981,000 to $14,655,000.
The Company has used a probability weighted valuation technique in calculating the fair value of the earn-out obligation. This
valuation technique included inputs relating to estimated cash outflows under the arrangement and the use of a discount rate appropriate
to the Company. The Company evaluates the inputs into the probability weighted valuation technique at each reporting period. During
the year ended December 31, 2016, the Company revised its assumptions underlying the discount rate used in the calculation of the
fair value of the earn-out obligation to account for changes in the underlying credit risk of the Company. The Company also adjusted
certain of the probabilities underlying the model. The downward adjustment of the discount rate from 4.42% at December 31, 2015
to 3.80% at December 31, 2016, in conjunction with adjustments to certain of





40







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








the probabilities in the model,
resulted in an increase of $204,958 to the fair value of the earn-out obligation. The impact of this adjustment was recorded through
finance expense in the year.



| | 19. | Financial instruments (continued):
| | --- | ----------------------------------



The fair value measurements are
sensitive to the discount rate used in calculating the fair values. A 1% increase in the discount rate would reduce the fair value
of the earn-out obligation by $238,449. During the year ended December 31, 2016, the Company recorded accretion expense of $475,214
in relation to this liability and recorded $1,272,493 in 2015 in relation to this liability and its Knight note obligation (extinguished
in 2015), reflecting the change in fair value of the liabilities that is attributable to credit risk.



Reconciliation of level 3 fair
values:



|                                |  | Earn-out  Obligation |           
|------------------------------- |  | -------------------- | ----------
|Balance as at January 1, 2016   |  | $                    | 12,468,958
|Recorded in finance expense:    |  |                      |           
|Accretion expense               |  |                      | 475,214   
|Fair value adjustment           |  |                      | 204,958   
|Balance as at December 31, 2016 |  | $                    | 13,149,130



The Company’s financial instruments
are exposed to certain financial risks, including credit risk, liquidity risk and market risk.



| | (a) | Credit risk:
| | --- | ------------



Credit risk is the risk of financial
loss to the Company if counterparty to a financial instrument fails to meet its contractual obligations and arises principally
from the Company’s cash and cash equivalents, and trade receivables. The carrying amount of the financial assets represents
the maximum credit exposure.



The Company limits its exposure to
credit risk on cash and cash equivalents by placing these financial instruments with high-credit quality financial institutions
and only investing in liquid, investment grade securities.



The Company has a number of individual
customers and no one customer represents a concentration of credit risk.



The carrying amount of trade receivables
is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement within anesthesia
services expense and product sales expense. When a receivable balance is considered uncollectible it is written off against the
allowance. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement.



No one customer accounts for more
than 10% of the Company’s consolidated revenue. The Company establishes a provision
for losses on accounts receivable if it is determined that all or part of the outstanding balance is uncollectable. Collectability
is reviewed regularly and an allowance is established or adjusted, as necessary, using a combination of the specific identification
method and historic collection patterns.The following table sets forth details of the age of receivables that are not overdue
as well as an analysis of overdue amounts and related allowance for the doubtful accounts.



41







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 19. | Financial instruments (continued):
| | --- | ----------------------------------



| | (a) | Credit risk (continued):
| | --- | ------------------------



|                                      |  | 2016 |            |   | 2015 |  
|------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                      |  |      |            |   |      |  
|Total trade receivables               |  | $    | 13,934,290 |   |      | $
|Less: allowance for doubtful accounts |  |      | (4,129,370 | ) |      |  
|Total trade receivables, net          |  | $    | 9,804,920  |   |      | $
|                                      |  |      |            |   |      |  
|Of which:                             |  |      |            |   |      |  
|Current                               |  | $    | 7,781,818  |   |      | $
|31 to 60 days                         |  |      | 1,674,626  |   |      |  
|61 to 90 days                         |  |      | 1,147,918  |   |      |  
|91 days or greater                    |  |      | 3,329,928  |   |      |  
|Total trade receivables               |  | $    | 13,934,290 |   |      | $



The carrying amount of financial
assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:



|                                       |  | 2016 |            |   | 2015 |  
|-------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                       |  |      |            |   |      |  
|Cash and cash equivalents              |  | $    | 9,507,004  |   |      | $
|Trade receivables                      |  |      | 9,804,920  |   |      |  
|                                       |  | $    | 19,311,924 |   |      | $
|                                       |  |      |            |   |      |  
|Continuity of allowance for bad debts: |  |      |            |   |      |  
|Beginning balance                      |  | $    | 2,344,684  |   |      | $
|Write-offs                             |  |      | (2,180,257 | ) |      |  
|Provision                              |  |      | 3,964,943  |   |      |  
|Total allowance for bad debts          |  | $    | 4,129,370  |   |      | $



| | (b) | Liquidity risk:
| | --- | ---------------



Liquidity risk is the risk that the
Company will not be able to meet its financial obligations as they come due. The Company ensures that there is sufficient liquidity
to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of
cash. The relative maturity in respect of contractual and legal obligations are summarized as follows:



|At December 31, 2016                |  | Maturity |           
|----------------------------------- |  | -------- | ----------
|                                    |  | TOTAL    |           
|Trade and other payables            |  | $        | 3,229,685 
|Employee benefits                   |  |          | 226,874   
|Notes payable and bank indebtedness |  |          | 48,495,668
|Earn-out obligation                 |  |          | 14,120,227
|Deferred consideration              |  |          | 4,200,000 
|                                    |  | $        | 70,272,454



42







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 19. | Financial instruments (continued):
| | --- | ----------------------------------



| | (b) | Liquidity risk (continued):
| | --- | ---------------------------



|At December 31, 2015                |  | Maturity |           
|----------------------------------- |  | -------- | ----------
|                                    |  | TOTAL    |           
|Trade and other payables            |  | $        | 3,034,363 
|Employee benefits                   |  |          | 142,576   
|Notes payable and bank indebtedness |  |          | 39,145,648
|Earn-out obligation                 |  |          | 14,120,227
|Loans                               |  |          | 266,994   
|                                    |  | $        | 56,709,808



| | (c) | Market risk:
| | --- | ------------



Market risk is the risk that changes
in market prices, such as foreign currency exchange rates and interest rates, will affect the Company’s income or the value
of the financial instruments held.



| | (i) | Foreign currency risk:
| | --- | ----------------------



The majority of the Company’s
sales and purchases are made in U.S. dollars. However, certain of the Company’s revenues and expenses are denominated in
Canadian dollars. Foreign currency risk reflects the risk that the Company’s earnings will be impacted by fluctuations in
exchange rates. The objective of the Company’s foreign exchange risk management activities is to minimize transaction exposures
and the resulting volatility of the Company’s earnings. The Company manages this risk by pricing sales in U.S. dollars or
the currency of the expenses being incurred. The Company has not entered into any forward foreign exchange contracts as at December
31, 2016, except as described in note 12. Due to the immaterial nature of the Company’s Canadian dollar revenues and expenses,
foreign currency risk in this area is considered low. Similarly, foreign currency risk in respect of foreign currency denominated
working capital balances is also low due to its limited value and exposure.



At December 31, 2016, the Company
has a Canadian dollar denominated loan. The Company has entered into a cross currency swap to mitigate foreign currency risk in
respect of the loan (note 12). Foreign exchange gains and losses arising from the revaluation of the loan is included in earnings,
but is offset by gains and losses arising on the cross currency swap derivative contract. As a result, with all other variables
held constant, a 10% point increase in the value of the Canadian dollar relative to the U.S. dollar would not have a material impact
on net income.



43







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 19. | Financial instruments (continued):
| | --- | ----------------------------------



| | (c) | Market risk (continued):
| | --- | ------------------------



| | (ii) | Interest rate risk:
| | ---- | -------------------



The
Company’s policy is to invest cash and equivalents at floating rates of interest, in order to maintain liquidity, while achieving
a satisfactory return for the Company. Fluctuations in interest rates impact the value of cash equivalents. The Company’s
interest bearing liabilities are fixed rate instruments, except for its Scotia Facility (note 13). Fluctuations in market interest
rates will have no significant impact on the Company’s fixed rate debt instruments, but may impact the fair value of such
instruments at any given date. With respect to the Company’s Scotia Facility, with all other variables held constant, a 10%
point increase in the interest rate would have reduced net income by approximately $92,000 (2015 - $5,000) for the year ended December 31,
2016. There would be an equal and opposite impact on the net income with a 10% point decrease.



| | 20. | Commitments and contingencies:
| | --- | ------------------------------



| | (a) | The following are the minimum payments required for the
lease of premises:
| | --- | --------------------------------------------------------------------------



|Less than one year |  | $ | 113,894 | 
|------------------ |  | - | ------- | 
|One to three years |  |   | 265,753 | 
|Four to five years |  |   | -       | 
|Thereafter         |  |   | -       | 
|Total              |  | $ | 379,647 | 



Rent expense for the year ended December 31,
2016 was $132,596 (2015 - $108,783).



| | (b) | The Company is a party to a variety of agreements in the ordinary course of business under which
it may be obligated to indemnify third parties with respect to certain matters. These obligations include, but are not limited
to contracts entered into with physicians where the Company agrees, under certain circumstances, to indemnify a third party, against
losses arising from matters including but not limited to medical malpractice and product liability. The impact of any such future
claims, if made, on future financial results is not subject to reasonable estimation because considerable uncertainty exists as
to final outcome of these potential claims.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



44







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 21. | Related party transactions:
| | --- | ---------------------------



Balances and transactions between
the Company and its wholly owned and controlled subsidiaries have been eliminated on consolidation and are not disclosed in this
note. Details of the transactions between the Company and other related parties are disclosed below:



| | (a) | Related party transactions:
| | --- | ---------------------------



The Company paid or accrued fees
of $210,100 (2015 - $210,916) to Directors of the Company. Additionally, the Company made product sales totaling $37,277 (2015
- $36,800) to four companies owned or controlled by two of the Company’s Directors. The transaction terms with related parties
may not be on the same price as those that would result from transactions among non-related parties.



In 2015 and up until June 16, 2016,
one of the directors of the Company was an indirect shareholder of KGAA.



| | (b) | Compensation of key management personnel:
| | --- | -----------------------------------------



Key management personnel compensation,
including directors, is as follows:



|                                             |  | 2016 |           |  | 2015 |  
|-------------------------------------------- |  | ---- | --------- |  | ---- | -
|                                             |  |      |           |  |      |  
|Salaries, directors’ fees and other benefits |  | $    | 1,369,329 |  |      | $
|Share-based payments                         |  |      | 801,311   |  |      |  
|                                             |  | $    | 2,170,640 |  |      | $



| | (i) | Share-based payments represent the amount expensed during
the year for options granted.
| | --- | ---------------------------------------------------------------------------------------



| | (ii) | There
were no post-employment, termination or other long-term benefits paid during the years ended December 31, 2016 and 2015.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------



| | 22. | Segmented information:
| | --- | ----------------------



The Company operates in two industry
segments: the sale of medical products and the provision of anesthesia services. The revenues relating to geographic segments based
on customer location, in United States dollars, for the years ended December 31, 2016 and 2015 are as follows:



|                 |  | 2016 |            |  | 2015 |  
|---------------- |  | ---- | ---------- |  | ---- | -
|Revenue:         |  |      |            |  |      |  
|Canada and other |  | $    | 238,049    |  |      | $
|United States    |  |      | 78,116,583 |  |      |  
|Total            |  | $    | 78,354,632 |  |      | $



45







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 22. | Segmented information (continued):
| | --- | ----------------------------------



The Company’s property and
equipment, intangibles and other assets are located in the following geographic regions as at December 31, 2016 and 2015:



|                        |  | 2016 |             |  | 2015 |  
|----------------------- |  | ---- | ----------- |  | ---- | -
|Property and equipment: |  |      |             |  |      |  
|Canada                  |  | $    | 316,145     |  |      | $
|United States           |  |      | 8,053       |  |      |  
|Total                   |  | $    | 324,198     |  |      | $
|Intangible assets:      |  |      |             |  |      |  
|Canada                  |  | $    | 31,934      |  |      | $
|United States           |  |      | 133,635,377 |  |      |  
|Total                   |  | $    | 133,667,311 |  |      | $
|Other assets:           |  |      |             |  |      |  
|Canada                  |  | $    | 1,261,298   |  |      | $
|United States           |  |      | -           |  |      |  
|Total                   |  | $    | 1,261,298   |  |      | $



The financial measures reviewed
by the Company’s Chief Operating Decision Maker are presented below for the years ended December 31, 2016 and 2015. The Company
does not allocate expenses related to corporate activities. These expenses are presented within “Other” to allow for
reconciliation to reported measures.



|                        |  | 2016                 |           
|----------------------- |  | -------------------- | ----------
|                        |  | Anesthesia  services |           
|Revenue                 |  | $                    | 67,821,879
|Operating costs         |  |                      | 45,229,986
|Operating income (loss) |  | $                    | 22,591,893



|                        |  | 2015                 |           
|----------------------- |  | -------------------- | ----------
|                        |  | Anesthesia  services |           
|Revenue                 |  | $                    | 36,496,035
|Operating costs         |  |                      | 23,103,493
|Operating income (loss) |  | $                    | 13,392,542



46







CRH
MEDICAL CORPORATION

Notes to Consolidated Financial Statements

(Expressed in United States dollars)



Years ended December 31, 2016 and 2015








| | 23. | Subsequent event:
| | --- | -----------------



On February 1, 2017, a subsidiary
of the Company entered into a membership interest purchase agreement to acquire a 51% interest in DDAB LLC (“DDAB”),
an anesthesia services provider in Decatur, Georgia. The estimated purchase consideration, paid via cash, for the acquisition of
the Company’s 51% interest was $4,089,791. The preliminary estimate of the exclusive professional service agreement acquired
as part of this acquisition is $8,019,198. The Company will consolidate this entity in its consolidated financial statements as
a result of the interest acquired in combination with the Company’s operating agreement with DDAB.





47