Exhibit
1.3



CRH
MEDICAL CORPORATION



MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016



The following
management discussion and analysis (“MD&A”) should be read in conjunction with CRH Medical Corporation’s
(the “Company” or “CRH”) audited annual financial statements for the years ended December 31, 2016 and
2015. The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).



Unless otherwise
specified, all financial data is presented in United States dollars. This MD&A is as of February 22, 2017.



Additional information related to the Company,
including the Company’s Annual Information Form is available on SEDAR at www.sedar.com.



CAUTION REGARDING FORWARD-LOOKING STATEMENTS



Information included or incorporated by reference
in this report may contain forward-looking statements. This information may involve known and unknown risks, uncertainties, and
other factors which may cause our actual results, performance, or achievements to be materially different from the future results,
performance, or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,”
“will,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“plan,” “intend” or “project” or the negative of these words or other variations on these words
or comparable terminology. Certain risks underlying our assumptions are highlighted below; if risks materialize, or if assumptions
prove otherwise to be untrue, our results will differ from those suggested by our forward looking statements and our results and
operations may be negatively affected. Forward looking statements in this report include statements regarding profitability, additional
acquisitions, increasing revenue and Operating EBITDA, continued growth of our business in line with historical growth rates, trends
in our industry, financing plans, our anticipated needs for working capital and leveraging our capabilities. Actual events or results
may differ materially from those discussed in forward-looking statements. There can be no assurance that the forward-looking statements
currently contained in this report will in fact occur. The Company bases its forward-looking statements on information currently
available to it. The Company disclaims any intent or obligations to update or revise publicly any forward-looking statements whether
as a result of new information, estimates or options, future events or results or otherwise, unless required to do so by law.



Forward-looking information reflects current
expectations of management regarding future events and operating performance as of the date of this document. Such information
involves significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily
be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ
materially from the results discussed in forward-looking information, including, without limitation: our need for additional financing
and our estimates regarding our capital requirements, future revenues and profitability; if our GI Anesthesia partner volume does
not grow as expected, or decreases, this could impact revenue and profitability; If we are unable to identify GI Anesthesia businesses
to acquire, or are unable to complete transactions, this could impact our future revenue growth and profitability; unfavourable
economic conditions could have an





1







adverse effect
on our business; risks related to covenants and events of default under the Company’s Credit Facilities; risks related to
increased leverage resulting from incurring additional debt; the policies of health insurance carriers may affect the amount of
revenue the Company receives; our ability to successfully market and sell our products and services; we may be subject to competition
and technological risk which may impact the price and amount of product we can sell and nature of services we can provide; regulatory
changes that are unfavorable in the states where our operations are concentrated; our ability to and the cost of compliance with
extensive existing regulation and any changes or amendments thereto; changes within the medical industry and third-party reimbursement
policies and our estimates of associated timing and costs with the same; risks related to the Affordable Care Act (the “ACA”)
in terms of patient volume and reimbursement and the corresponding effect on our business; changes in key United States federal
or state laws, rules, and regulations; our ability to establish, maintain and defend intellectual property rights; risks related
to United States antitrust regulations; risks related to record keeping and confidentiality by our affiliated physicians; our
ability to recruit and retain qualified physicians to provide our services; risks related to our affiliated physicians leaving
our affiliated ASCs; our ability to enforce non-competition and other restrictive covenants in our agreements; Contracts with
ASCs, such as those acquired with Gastroenterology Anesthesia Associates, LLC,  or other customers may be terminated, or
may not be renewed, by the counterparty; risks related to corporate practice of medicine and our ability to renew and maintain
agreements with anesthesiologists and other contractors; our ability and forecasts of expansion and the Company’s management
of anticipated growth; risks related to our dependence on complex information systems; our senior management has been key to our
growth and we may be adversely affected if we are unable to retain them, conflicts of interest develop or we lose any key member
of our senior management; risks associated with manufacture of our products and our economic dependence on suppliers; changes
in the industry and the economy may affect the Company’s business; risks related to the competitive nature of the medical
industry; evolving regulation of corporate governance and public disclosure may result in additional corporate expenses; adverse
events relating to our product or services could result in risks relating to product liability, medical malpractice, other legal
claims, insurance, product recalls and other liabilities; various risks associated with legal, regulatory or investigative proceedings;
risks associated with governmental investigations into marketing and other business practices; we are subject to health and safety
risks within our industry; our ability to successfully identify and complete future transactions and integrate our acquisitions;
anti-takeover provisions create risks related to lost opportunities; we may not continue to attract gastroenterologists (“GIs”)
and other licensed providers to purchase and use the CRH O’Regan System or to provide our services resulting in slower than
expected growth; risks associated with the trading of our common shares on a public marketplace which could result in changes
to stock prices unrelated to our performance; risks related to adverse movements in foreign currency exchange rates; risks related
to maintaining our foreign private issuer status enabling us to maintain lower costs of compliance; risks related to writing-off
intangible assets and the associated charges to net income; risks related to the reduction in the reimbursement of anesthesia
procedure codes; changes in our effective income tax rates; risks related to our ability to manage third-party service providers;
risks related to the failure of our employees and third-party contractors to appropriately record or document services that they
provide; and risks related to criminal or civil sanctions in connection with failure to comply with privacy regulations regarding
the use and disclosure of patient information. For a complete discussion of the Company's business including the assumptions and
risks set out above, see the Company's annual information form which is available on SEDAR at www.sedar.com.



2







OVERVIEW



CRH Medical Corporation is a North American
company focused on providing physicians with innovative services and products for the treatment of gastrointestinal diseases. In
2014, CRH acquired a full service gastroenterology anesthesia company, Gastroenterology Anesthesia Associates, LLC (“GAA”),
which provides anesthesia services for patients undergoing endoscopic procedures and has complemented this acquisition with nine
additional acquisitions of anesthesia companies since GAA. Anesthesia assisted endoscopies make these procedures more comfortable
for patients and allow gastroenterologists to perform more procedures. The Company’s goal is to establish CRH as the
premier provider of innovative products and essential services to gastroenterologists throughout the United States. The Company’s
product distribution strategy focuses on physician education, patient outcomes, and patient awareness. The Company’s CRH
O’Regan System, is a single use, disposable, hemorrhoid banding technology that is safe and highly effective in treating
hemorrhoid grades I – IV.  CRH distributes the CRH O’Regan System, treatment protocols, operational and marketing
expertise as a complete, turnkey package directly to physicians, allowing CRH to create meaningful relationships with the physicians
it serves.



The Company
has financed its cash requirements primarily from revenues generated from the sale of its product directly to physicians, anesthesia
revenue, equity financings, debt financings and a revolving credit facility.  The Company’s ability to maintain the
carrying value of its assets is dependent on successfully marketing its products and services and maintaining future profitable
operations, the outcome of which cannot be predicted at this time.  The Company has also stated its intention to acquire or
develop additional anesthesia businesses. In the future, it may be necessary for the Company to raise additional funds for the
continuing development of its business plan, including additional acquisitions.



For further
information about CRH Medical Corporation, including the Company’s Annual Information Form, please visit the Company website
at www.crhmedcorp.com or www.sedar.com, or email us at info@crhmedcorp.com.



RECENT EVENTS



During 2016 and thus far in 2017, the Company
continued in its goal of consolidating the highly fragmented gastroenterology anesthesia provider business by acquiring three additional
gastroenterology anesthesia services providers. These acquisitions were financed, in part, via an extension of the Company’s
syndicated credit facility with the Bank of Scotia (the “Scotia Facility”) to $55,000,000.



DDAB, LLC (“DDAB”) – February
2017



In February 2017, a subsidiary of the Company
entered into an asset contribution and exchange agreement to acquire a 51% interest in DDAB LLC (“DDAB”), a gastroenterology
anesthesia services provider in Decatur, Georgia. The 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.



Austin Gastroenterology Anesthesia Associates,
PLLC (“AGAA”) – May 2016



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 provider servicing two gastroenterology ambulatory surgical centers in Texas.
The total purchase price under the asset contribution and exchange





3







agreement was $17,200,000 and was paid via a combination of
cash and deferred cash consideration.



Community Anesthesia, PLLC (“Community”)
– June 2016



In June 2016, a subsidiary of the Company entered
into a membership interest purchase agreement to acquire 65% of the ownership interest of Community Anesthesia, PLLC (“Community”),
a gastroenterology anesthesia provider servicing four ambulatory surgical centers in Massachusetts. The total purchase price under
the membership interest purchase agreement was $13,636,639, paid via cash.



Arapahoe Gastroenterology Anesthesia Associates,
LLC (“Arapahoe”) – June 2016



At the end of June 2016, a subsidiary of the
Company entered into an asset purchase and exchange agreement to acquire 51% of the ownership interest of Arapahoe Gastroenterology
Anesthesia Associates, LLC (“Arapahoe”), a gastroenterology anesthesia provider serving one ambulatory surgical center
in Colorado. The total purchase price under the asset purchase agreement was $3,700,000, paid via cash.



Scotia Facility Amendment – June 2016



In June 2016, the Company amended its credit
facility with the Bank of Nova Scotia. The facility was amended to include a syndicate with US Bank and was increased from $33,000,000
to $55,000,000. As at December 31, 2016, the Company had drawn $29,000,000 under the facility.



The contribution from anesthesia acquisitions
completed in the prior year and in the current year continue to have a positive impact on the Company. Total anesthesia revenue
for the year ended December 31, 2016 was $67,821,879, an increase of $31,325,844 from 2015. The contribution from anesthesia acquisitions
completed in the prior year and in the first half of 2016 has also had a positive impact, increasing net income attributable to
shareholders to $10,564,233 for the year from $3,076,191 in 2015.



Product revenue remains strong, increasing
by 10% in contrast with 2015. This is a reflection of the continuing successful execution of the Company’s direct to physician
program.



4







NON-IFRS FINANCIAL MEASURES



In addition to results reported in accordance
with IFRS, the Company uses certain non-IFRS financial measures as supplemental indicators of its financial and operating performance.
These non-IFRS financial measures include Adjusted operating EBITDA and Adjusted Operating expenses. The Company believes these
supplementary financial measures reflect the Company’s ongoing business in a manner that allows for meaningful period-to-period
comparisons and analysis of trends in its business.



The Company defines Adjusted operating EBITDA
as operating earnings before interest, taxes, depreciation and related expenses, amortization, stock based compensation, acquisition
related expenses and asset impairment charges. Adjusted operating EBITDAis presented on a basis consistent with the
Company’s internal management reports. The Company discloses Adjusted operating EBITDA to capture the profitability of its
business before the impact of items not considered in management’s evaluation of operating unit performance.



The Company defines Adjusted operating expenses
as operating expenses before expenses related to acquisitions, stock based compensation, depreciation and related expenses, amortization
and asset impairment charges. Adjusted operating expenses is presented on a basis consistent with the Company’s internal
management reports. The Company discloses Adjusted operating expenses to capture the non-operational expenses of the business
before the impact of items not considered by management to impact operating decisions. The Company also discloses Adjusted operating
expenses by segment.



Adjusted operating EBITDA and Adjusted operating
expenses do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented
by other companies. The Company cautions readers to consider these non-IFRS financial measures in addition to, and not as an alternative
for, measures calculated in accordance with IFRS.



Refer to the end of this document for the reconciliation
of reported financial results to non-IFRS measures.



5







SELECTED FINANCIAL INFORMATION



|                                                                   |  | 2016 |             |  | 2015 |   |             | 2014 | 
|------------------------------------------------------------------ |  | ---- | ----------- |  | ---- | - | ----------- | ---- | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Anesthesia services revenue                                        |  | $    | 67,821,879  |  |      | $ | 36,496,035  |      | 
|Product sales revenue                                              |  |      | 10,532,753  |  |      |   | 9,552,445   |      | 
|Total revenue                                                      |  |      | 78,354,632  |  |      |   | 46,048,480  |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Total operating expenses - unadjusted                              |  |      | 53,599,792  |  |      |   | 32,617,293  |      | 
|Adjusted operating expenses1                                       |  |      |             |  |      |   |             |      | 
|Anesthesia services                                                |  |      | 29,767,269  |  |      |   | 15,528,409  |      | 
|Product sales                                                      |  |      | 4,059,858   |  |      |   | 3,723,633   |      | 
|Corporate                                                          |  |      | 3,037,177   |  |      |   | 2,764,803   |      | 
|Total Adjusted operating expenses1                                 |  |      | 36,864,304  |  |      |   | 22,016,845  |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Operating income                                                   |  |      | 24,754,840  |  |      |   | 13,431,186  |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Adjusted operating EBITDA2 – non-controlling interest3             |  |      | 9,119,211   |  |      |   | 607,289     |      | 
|Adjusted operating EBITDA2 - shareholders of the Company           |  |      | 32,371,117  |  |      |   | 23,424,346  |      | 
|Adjusted operating EBITDA2 - total                                 |  |      | 41,490,328  |  |      |   | 24,031,635  |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Net and comprehensive income                                       |  | $    | 16,076,328  |  |      | $ | 3,259,828   |      | 
|Attributable to:                                                   |  |      |             |  |      |   |             |      | 
|Shareholders of the Company                                        |  |      | 10,564,233  |  |      |   | 3,076,191   |      | 
|Non-controlling interest3                                          |  |      | 5,512,095   |  |      |   | 183,637     |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Adjusted Operating EBITDA2 per share attributable to shareholders: |  |      |             |  |      |   |             |      | 
|Basic                                                              |  | $    | 0.451       |  |      | $ | 0.345       |      | 
|Diluted                                                            |  | $    | 0.436       |  |      | $ | 0.331       |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Earnings per share attributable to shareholders:                   |  |      |             |  |      |   |             |      | 
|Basic                                                              |  | $    | 0.147       |  |      | $ | 0.045       |      | 
|Diluted                                                            |  | $    | 0.142       |  |      | $ | 0.043       |      | 
|                                                                   |  |      |             |  |      |   |             |      | 
|Total assets                                                       |  | $    | 163,538,882 |  |      | $ | 104,495,278 |      | 
|Total non-current liabilities                                      |  | $    | 54,523,444  |  |      | $ | 39,389,376  |      | 
|Total liabilities                                                  |  | $    | 66,612,595  |  |      | $ | 47,520,913  |      | 










| | 1 | Adjusted operating expenses:
This is a non-IFRS measure defined as operating expenses before acquisition related expenses, stock based compensation, depreciation
and related expenses, amortization and asset impairment charges. Refer to the end of this document for the reconciliation of reported
financial results to non-IFRS measures.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | Adjusted operating EBITDA:
This is a non-IFRS measure defined as operating income before interest, taxes, depreciation and related expenses, amortization,
stock based compensation, acquisition related expenses and asset impairment charges. Refer to the end of this document for the
reconciliation of reported financial results to non-IFRS measures.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | Non-controlling interest
reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the Company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



6







RESULTS OF OPERATIONS – three months
and year ended December 31, 2016



Except where
otherwise indicated, all financial information discussed below is 100% of the consolidated results of the Company and includes
both the Company’s interest in subsidiaries, as well as the interest of persons holding non-controlling interests in non-wholly
owned subsidiaries of the Company.



Revenue



Revenues
for the year ended December 31, 2016 were $78,354,632 compared to $46,048,480 for the year ended December 31, 2015. Revenues for
the three months ended December 31, 2016 were $25,822,103 compared to $13,927,531 for the comparable period in 2015. The increase
in revenues is mainly attributable to revenue contributions from the anesthesia service businesses acquired by the Company in the
first, third and fourth quarters of 2015 in addition to the acquisitions completed in May and June 2016.



Revenues
from anesthesia services for the year ended December 31, 2016 were $67,821,879 compared to $36,496,035 for the prior year. Revenues
for the three months ended December 31, 2016 were $23,008,147 compared to $11,329,699 for the three months ended December 31, 2015.
As above, the increases above are a result of the Company’s anesthesia acquisitions throughout 2015 and 2016. The
Company expects revenue from anesthesia services to continue to increase through organic growth in patient cases and deployment
of available capital for future acquisitions.



For the twelve months ended December 31, 2016
there were no material changes in reimbursement rates for any of the payors related to our anesthesia business. There was, however
in the first quarter of the year, a change in the payor mix in our GAA business as a result of the renewal process that individuals
and companies go through each year in selecting their plans and providers. It is normal that there can be payor mix changes, especially
due to the nature of the renewal process, and such changes can have either a positive or negative impact or no impact at all on
our business. With respect to GAA, the average revenue per case declined by 9% compared to 2015, which was offset by an increase
in patient cases of 6%. The Company’s continued expansion of its anesthesia business has and is expected, in future, to mitigate
the effect these kinds of changes in payor mix can have on our financial results.



In the year
ended December 31, 2016, the anesthesia services segment serviced 141,020 patient cases. In the fourth quarter of the year, the
anesthesia services segment serviced 45,041 patient cases.



The tables below summarizes our approximate
payor mix as a percentage of patient cases for the years ended December 31, 2016 and 2015 and for the fourth quarters of 2016 and
2015:



|                     |  | Three months ended |       |   | Years ended        | 
|-------------------- |  | ------------------ | ----- | - | ------------------ | 
|Payor                |  | December 31,  2016 |       |   | December 31,  2015 | 
|Medicare             |  |                    | 23.7  | % |                    | 
|Medicaid             |  |                    | 2.4   | % |                    | 
|Commercial and other |  |                    | 73.9  | % |                    | 
|Total                |  |                    | 100.0 | % |                    | 



In the table above, the year ended December
31, 2015 is primarily comprised of GAA payor data due to the timing of acquisitions in 2015. As a result, 2016 is not directly
comparable to 2015.



7







Due to the inherent nature of insurance providers
and patient deductibles, the anesthesia business is impacted by the seasonality of patient cases. Seasonality by quarter for 2016
is presented below:



|Seasonality |  | Q1 |      |   | Q2 |  |      | Q3 |  |  | Q4   |  
|----------- |  | -- | ---- | - | -- |  | ---- | -- |  |  | ---- | -
|2016        |  |    | 22.5 | % |    |  | 24.0 | %  |  |  | 25.5 | %



In the future, the Company expects anesthesia
services revenue to continue to increase primarily through acquisitions and through organic growth of previously acquired businesses.
Seasonality is driven by both patient cases and seasonal payor mix. As a result, revenue per patient will fluctuate quarterly.



Revenues from product sales for the year ended
December 31, 2016 were $10,532,753 compared to $9,552,445 for 2015. Product sales for the fourth quarter of 2016 were $2,813,956
compared to $2,607,832 for the fourth quarter of 2015. The increase in product sales is the result of the continuing successful
execution of the Company’s direct to physician program that provides physicians the ability to purchase our hemorrhoid banding
technology, treatment protocols, marketing and operational experience. As of December 31, 2016 the Company has trained 2,414
physicians to use the O’Regan System, representing 930 clinical practices. This compares to 2,175 physicians trained, representing
811 clinical practices, as of December 31, 2015.



In the future,
the Company expects revenue from product sales to continue to increase, as it has historically, as we expand our physician network
and increase physician use of our technology.



Total adjusted operating expenses



For
the year ended December 31, 2016,total adjusted operating expenses were
$36,864,304 compared to $22,016,845 for the year ended December 31, 2015. Total adjusted operating expenses were $11,321,510 for
the fourth quarter of 2016 compared to $6,674,324 for the fourth quarter of 2015. The increases in adjusted operating expenses
are primarily related to adjusted operating expenses in the anesthesia services business. Factors impacting the fluctuation of
total adjusted operating expenses are consistent with those impacting operating expenses.



Anesthesia
services adjusted operating expenses for the year ended December 31, 2016 were $29,767,269,
compared to $15,528,409 for fiscal 2015. In the fourth quarter of 2016, anesthesia adjusted operating expenses were $9,492,140
compared to anesthesia adjusted operating expenses of $5,061,037 in the fourth quarter of 2015. Anesthesia services adjusted operating
expenses primarily include labor related costs for certified registered nurse anesthetists and MD anesthesiologists, medical drugs
and supplies, and billing and management related expenses. The Company’s first anesthesia acquisition was in the fourth quarter
of 2014, with further acquisitions completed in 2015 and in 2016. As a result, 2016 is not directly comparable to 2015, with the
majority of the increase relating to operating expenses for acquired companies.



Product
sales adjusted operating expenses for the year ended December 31, 2016 were $4,059,858
compared to $3,723,633for the year ended December 31, 2015. For the fourth quarter of 2016,
product sales adjusted operating expenses were $1,083,481 compared to $949,743 for the fourth quarter of 2015. The increase in
adjusted operating expenses compared to 2015 is a reflection of increased product cost and support, employee related costs and
professional fees resulting from increased sales. Product sales expenses primarily include employee wages, product cost
and support, marketing programs, office expenses, professional fees, and
insurance. In the future, the Company expects adjusted operating expenses to increase as the Company continues to invest in activities
designed to increase demand for training and use of the CRH O’Regan System.





8







Corporate
adjusted operating expenses for the year ended December 31, 2016 were $3,037,177 compared to $2,764,803 for 2015. In the fourth
quarter of 2016, corporate adjusted operating expenses were $745,889, compared to $663,544 for the fourth quarter of 2015. The
increase in corporate expenses from 2015 primarily reflects an increase in employee related costs and insurance, offset by a reduction
in professional fees, and, in general, is reflective of the additional activities incurred in support of the Company’s expanded
service offering.



Operating Income



Operating
income for the year ended December 31, 2016 was $24,754,840compared
to $13,431,186 for fiscal 2015. Contributing to the improved operating
income for the year is an increase in total adjusted operating EBITDA of $17,458,693, less incremental costs related to the amortization
of acquired professional service agreements relating to acquisitions completed in 2015 and 2016 of $8,031,985, additional acquisition
expenses of $65,726 and a decrease in stock based compensation expense of $1,372,775.



Operating
income for the fourth quarter of 2016 was $9,173,148compared
to $4,672,629 for the three months ended December 31, 2015, an
increase of $4,500,519. Contributing to the improved operating income is the increase in total adjusted operating EBITDA of $7,237,386,
less incremental costs related to the amortization of acquired professional service agreements relating to acquisitions completed
in 2015 and 2016 of $2,526,406, an increase in stock based compensation expense of $264,869, offset by a decrease in acquisition
expenses of $65,708. Operating income has increased by $2,578,616 from the immediately preceding quarter.



Anesthesia operating income for the year ended
December 31, 2016 was $22,591,893, an increase of $9,199,351 from fiscal 2015. Anesthesia operating income for the three months
ended December 31, 2016 was $8,622,390, an increase of $4,681,446 from the fourth quarter of 2015. This is primarily reflective
of the additional operating income generated by the acquisitions completed in 2015 and the acquisitions completed in 2016.



Product operating
income for the year ended December 31, 2016 was $6,029,643, an increase of $846,342 from the year ended December 31, 2015. Product
operating income for the three months ended December 31, 2016 was $1,590,453, an increase of $14,003 from the comparable period
of 2015. The increase is primarily a result of the increased revenue in the year and quarter ended December 31, 2016, offset by
increases in product expenses in the respective periods.



Adjusted operating EBITDA



Adjusted
operating EBITDA attributable to shareholders of the Company for the year ended December 31, 2016 was $32,371,117, an increase
of $8,946,771 from 2015. Adjusted operating EBITDA attributable to shareholders of the Company for the quarter ended December 31,
2016 was $10,281,382, an increase of $3,483,989 from the fourth quarter of 2015. The increase in adjusted operating EBITDA is primarily
a reflection of the adjusted operating EBITDA contribution from the Company’s anesthesia services providers acquired in the
third and fourth quarters of 2015 and in the second quarter of 2016.



Adjusted operating EBITDA attributable to non-controlling
interest was $9,119,211 for the year ended December 31, 2016. This comprises the non-controlling interests’ share of revenues
of $14,945,855 and adjusted operating expenses of $5,826,644. Adjusted operating EBITDA attributable to non-controlling interest
was $4,219,211 for the fourth quarter of 2016. This comprises the non-controlling interests’ share of revenues of $6,535,774
and adjusted operating expenses of $2,316,563.





9







Total adjusted
operating EBITDA was $41,490,328 for the year ended December 31, 2016, an increase of $17,458,693 from the year ended December
31, 2015. Total adjusted operating EBITDA was $14,500,593 for the quarter ended December 31, 2016, an increase of $7,237,386 from
the quarter ended December 31, 2015.Total adjusted operating EBITDA has
increased by $2,845,256 from the third quarter of 2016.



Net finance (income) / expense



As a result of the Company’s debt facilities,
the Company has recorded net finance expense of $4,423,362 for the year ended December 31, 2016, compared to net finance expense
of $13,084,329 for the year ended December 31, 2015. For the three months ended December 31, 2016, the Company recorded net finance
expense of $1,175,492, compared to net finance expense of $5,914,145 in the fourth quarter of 2015. Net finance expense is comprised
of both interest and other debt related expenses, including fair value adjustments and costs related to debt extinguishment, as
well as foreign exchange gains and losses on the Crown debt which is denominated in Canadian dollars and the related cross currency
swap the Company entered into on the Crown debt on January 21, 2016. The cross currency swap locks in the repayment of the Crown
debt principal and interest at a Canadian dollar to U.S. dollar rate of 1.448.



Cash interest paid in the year ended December
31, 2016 was $3,135,765 compared to $5,903,690 in 2015. Though the Company’s facility has increased in size and use, the
Company’s cash interest has decreased due to the lower interest rates experienced on its Scotia facility. Cash interest paid
in the three months ended December 31, 2016 was $709,239 compared to $2,313,786 for the three months ended December 31, 2015.



In the year ended December 31, 2016, the Company
recorded an exchange gain of $1,007,673 in relation to the Crown note and the cross currency swap, compared to an exchange gain
of $2,737,963 recorded in 2015. Excluding the impact of the exchange gain in the period, the finance expense for the year ended
December 31, 2016 was $5,431,035 compared to $15,822,292 recorded in 2015. Finance expense, excluding fair value adjustments, costs
related to debt extinguishment and exchange gains, was $5,226,077, compared to $8,273,489 for the year ended December 31, 2015.
The fair value adjustment recorded in the year ($204,958) resulted from changes in estimates underlying the Company’s earn-out
obligation. After excluding for fair value adjustments and foreign exchange, the primary cause of the decrease in finance expense
from 2015 to 2016 is the extinguishment of the Knight and Bloom Burton notes at the end of 2015. In general, the decrease in finance
expense is a reflection of the lower interest rate on the Scotia Facility in contrast to the interest rates charged on the Knight
and Bloom Burton notes in 2015 as well as a decrease in the fair value adjustments recorded and the absence of debt extinguishment
costs in 2016.



In the three months ended December 31, 2016,
the Company recorded an exchange loss of $18,756 in relation to the Crown note and the cross currency swap in contrast to the exchange
gain of $543,123 recorded in the last quarter of 2015. Excluding the impact of the exchange gain in the period, the finance expense
for the three months ended December 31, 2016 was $1,156,737, compared to $6,457,267 for the three months ended December 31, 2015.
Finance expense, excluding fair value adjustments and exchange gains, was $1,293,504, compared to $3,519,069 for the fourth quarter
of 2015. The fair value adjustment recorded in the quarter ended December 31, 2016 ($136,767) resulted from changes in estimates
underlying the Company’s earn-out obligation.



10







Income tax expense



For the year ended December 31, 2016, the Company
recorded an income tax expense of $4,255,150 compared to an income tax recovery of $2,912,970 for the year ended December 31, 2015.
For the three months ended December 31, 2016, the Company recorded an income tax expense of $1,643,474 compared to an income tax
recovery of $1,540,755 for the quarter ended December 31, 2015. The expense experienced in 2016 is a reflection of taxable income
generated in both Canada and the US. Income tax expense relates only to income attributable to the Company’s shareholders.
In 2016, the effective tax rate in respect of this income was 28%.



Net and comprehensive income



For the year
ended December 31, 2016, the Company recorded net and comprehensive income attributable to shareholders of the Company of $10,564,233
compared to a net and comprehensive income attributable to shareholders of $3,076,191 for the year ended December 31, 2015. For
the three months ended December 31, 2016, the Company recorded net and comprehensive income attributable to shareholders of the
Company of $3,469,948 compared to a net and comprehensive income attributable to shareholders of $154,075 for the comparable period
in 2015. The increase in earnings compared to 2015 is reflective of anesthesia services’ contribution to earnings and the
decrease in finance expense incurred in the period, partially offset by tax expense in the period. Net and comprehensive income
attributable to shareholders has increased by $600,434 compared to the third quarter of 2016.



Net and comprehensive income attributable to
non-controlling interest was $5,512,095 for the year ended December 31, 2016. Net and comprehensive income attributable to non-controlling
interest was $2,884,234 for the three months ended December 31, 2016. Net and comprehensive income attributable to non-controlling
interest has increased by $728,228 when compared to the third quarter of 2016.



11







SUMMARY OF QUARTERLY RESULTS (Unaudited)



The following table sets forth certain unaudited
consolidated statements of operations data expressed in thousands of United States dollars, except for per share figures, for each
of the eight most recent quarters that, in management’s opinion, have been prepared on a basis consistent with the audited
consolidated financial statements for the year ended December 31, 2015.



|(in 000’s of US$, except EPS)                                |  | Q4
    ‘16 |        |  | Q3
    ‘16 |  |        | Q2
    ‘16 |  |  | Q1
    ‘16 |  |  | Q4
    ‘15 |        |   | Q3
    ‘15 |  |        | Q2
    ‘15 |  |  | Q1
    ‘15 |  
|------------------------------------------------------------ |  | ---------- | ------ |  | ---------- |  | ------ | ---------- |  |  | ---------- |  |  | ---------- | ------ | - | ---------- |  | ------ | ---------- |  |  | ---------- | -
|Anesthesia services revenue1                                 |  |            | 23,008 |  |            |  | 19,447 |            |  |  | 13,930     |  |  |            | 11,437 |   |            |  | 11,330 |            |  |  | 9,195      |  
|Product sales revenue                                        |  |            | 2,814  |  |            |  | 2,661  |            |  |  | 2,657      |  |  |            | 2,400  |   |            |  | 2,608  |            |  |  | 2,415      |  
|Total revenue                                                |  |            | 25,822 |  |            |  | 22,108 |            |  |  | 16,587     |  |  |            | 13,837 |   |            |  | 13,938 |            |  |  | 11,610     |  
|Total operating expense                                      |  |            | 16,649 |  |            |  | 15,514 |            |  |  | 11,546     |  |  |            | 9,891  |   |            |  | 9,265  |            |  |  | 9,325      |  
|Adjusted operating expenses2                                 |  |            |        |  |            |  |        |            |  |  |            |  |  |            |        |   |            |  |        |            |  |  |            |  
|Anesthesia services2                                         |  |            | 9,492  |  |            |  | 8,794  |            |  |  | 6,158      |  |  |            | 5,323  |   |            |  | 5,061  |            |  |  | 4,023      |  
|Product sales2                                               |  |            | 1,083  |  |            |  | 974    |            |  |  | 1,004      |  |  |            | 998    |   |            |  | 950    |            |  |  | 888        |  
|Corporate2                                                   |  |            | 746    |  |            |  | 685    |            |  |  | 853        |  |  |            | 754    |   |            |  | 664    |            |  |  | 798        |  
|Total adjusted operating expenses2                           |  |            | 11,321 |  |            |  | 10,453 |            |  |  | 8,015      |  |  |            | 7,075  |   |            |  | 6,675  |            |  |  | 5,709      |  
|Operating income                                             |  |            | 9,173  |  |            |  | 6,595  |            |  |  | 5,041      |  |  |            | 3,946  |   |            |  | 4,673  |            |  |  | 2,285      |  
|Adjusted operating EBITDA3- non-controlling interest4        |  |            | 4,219  |  |            |  | 2,533  |            |  |  | 1,518      |  |  |            | 848    |   |            |  | 465    |            |  |  | 142        |  
|Adjusted operating EBITDA3 - shareholders
    of the Company |  |            | 10,281 |  |            |  | 9,122  |            |  |  | 7,054      |  |  |            | 5,914  |   |            |  | 6,797  |            |  |  | 5,759      |  
|Adjusted operating EBITDA3- total                            |  |            | 14,500 |  |            |  | 11,655 |            |  |  | 8,572      |  |  |            | 6,762  |   |            |  | 7,264  |            |  |  | 5,901      |  
|Net finance (income) expense                                 |  |            | 1,175  |  |            |  | 1,381  |            |  |  | 2,156      |  |  |            | (289   | ) |            |  | 5,914  |            |  |  | 1,013      |  
|Income tax expense (recovery)5                               |  |            | 1,643  |  |            |  | 188    |            |  |  | 1,219      |  |  |            | 1,204  |   |            |  | (1,541 | )          |  |  | (442       | )
|Net income (loss)                                            |  |            | 6,354  |  |            |  | 5,026  |            |  |  | 1,666      |  |  |            | 3,031  |   |            |  | 299    |            |  |  | 1,714      |  
|Attributable to:                                             |  |            |        |  |            |  |        |            |  |  |            |  |  |            |        |   |            |  |        |            |  |  |            |  
|Shareholders of the Company                                  |  |            | 3,470  |  |            |  | 2,870  |            |  |  | 1,269      |  |  |            | 2,956  |   |            |  | 154    |            |  |  | 1,676      |  
|Non-controlling interest(4)                                  |  |            | 2,884  |  |            |  | 2,156  |            |  |  | 397        |  |  |            | 75     |   |            |  | 145    |            |  |  | 38         |  
|                                                             |  |            |        |  |            |  |        |            |  |  |            |  |  |            |        |   |            |  |        |            |  |  |            |  
|Operating EBITDA per share attributable to shareholders      |  |            |        |  |            |  |        |            |  |  |            |  |  |            |        |   |            |  |        |            |  |  |            |  
|Basic                                                        |  |            | 0.142  |  |            |  | 0.127  |            |  |  | 0.099      |  |  |            | 0.083  |   |            |  | 0.096  |            |  |  | 0.083      |  
|Diluted                                                      |  |            | 0.138  |  |            |  | 0.123  |            |  |  | 0.095      |  |  |            | 0.080  |   |            |  | 0.092  |            |  |  | 0.080      |  
|Earnings (loss) per share attributable to shareholders       |  |            |        |  |            |  |        |            |  |  |            |  |  |            |        |   |            |  |        |            |  |  |            |  
|Basic                                                        |  |            | 0.048  |  |            |  | 0.040  |            |  |  | 0.018      |  |  |            | 0.041  |   |            |  | 0.002  |            |  |  | 0.024      |  
|Diluted                                                      |  |            | 0.047  |  |            |  | 0.039  |            |  |  | 0.017      |  |  |            | 0.040  |   |            |  | 0.002  |            |  |  | 0.023      |  










| | 2 | Adjusted operating expenses: This is a non-IFRS measure
defined as operating expenses before acquisition related expenses, stock based compensation, depreciation and related expenses,
amortization and asset impairment charges. Refer to the end of this document for the reconciliation of reported financial results
to non-IFRS measures.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | Adjusted operating EBITDA: This is a non-IFRS measure
defined as operating earnings before interest, taxes, depreciation and related expenses, amortization, stock based compensation,
acquisition related corporate expenses and asset impairment charges. Refer to the end of this document for the reconciliation
of reporting financial results to non-IFRS measures.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4 | Non-controlling interest reflects the ownership interest
of persons holding non-controlling interests in non-wholly owned subsidiaries of the Company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5 | Income tax expense for the three months ended September
30, 2016 includes an immaterial adjustment related to the prior quarters in 2016 associated with the non-controlling interests’
share of income tax expense.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12







SUMMARY OF QUARTERLY RESULTS (Unaudited)



During the year, we continue to analyze payor
rate data with regards to our cash collection experience. This data impacts our calculation and reporting of revenues, especially
for recently acquired businesses. In the fourth quarter of the year, we made certain adjustments to reflect our collection experience.
If these adjustments were made in the quarter the revenue was earned, operating EBITDA adjusted attributable to shareholders and
non-controlling interest would, as a percentage of revenue, follow the same pattern in the fourth quarter of 2016 as experienced
in the third quarter of 2016.



With the Company’s continued expansion
of its anesthesia business the effects of these adjustments will be mitigated.



LIQUIDITY AND CAPITAL RESOURCES



As at December
31, 2016, the Company had $9,507,004 in cash and cash equivalents compared to $3,572,344 at the end of 2015. The increase in cash
and equivalents is primarily a reflection of cash generated from operations less cash used to finance acquisitions.



Working capital
was $9,657,303 compared to working capital of $3,272,075 at December 31, 2015.    The Company expects to meet its
short-term obligations, including short-term obligations in respect of its notes payable and deferred consideration through cash
earned through operating activities.



The Company
has financed its operations primarily from revenues generated from product and anesthesia services and through equity and debt
financings and a revolving credit facility. As of December 31, 2016, the Company has raised approximately $51 million from the
sale and issuance of equity securities. The Company also obtained debt financing of $52 million via senior and subordinated credit
facilities with Crown, Bloom Burton and Knight in 2014 and entered into a revolving credit facility with the Bank of Nova Scotia
for $33,000,000 in 2015 which was subsequently increased to $55,000,000 in 2016.



The Company’s
outstanding credit facilities are described as follows:



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. The Company has the option to prepay the Crown Note beginning December 1, 2017. 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.



In June 2016, the Company amended the Crown
Note to accommodate an increase to the Scotia Facility, noted below, 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.





13







The Company has entered into a cross currency
swap which locks in the repayment of the Crown debt principal and interest at a Canadian dollar to U.S. dollar rate of 1.448.



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 being made since 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.



Cash
provided by operating activities for the year ended December 31, 2016 was $32,922,582 compared to $17,957,340 for fiscal 2015.
Cash provided by operating activities for the three months ended December
31, 2016 was $10,669,732 compared to $6,272,382 for the last quarter of 2015.



The Company’s
near-term cash requirements relate primarily to interest payments, quarterly principal payments in respect of the Scotia facility,
annual payments in respect of the deferred consideration in relation to the Austin acquisition and the GAA earn-out obligation,
operations, working capital and general corporate purposes, including further acquisitions. Based on the current business plan,
the Company believes cash and cash equivalents and the availability of its revolving credit facility will be sufficient to fund
the Company’s operating, debt repayment and capital requirements for at least the next 12 months. The Company updates its
forecasts on a regular basis and will consider additional financing sources as appropriate.



The following table summarizes the relative
maturities of the financial liabilities of the Company:



|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





14







As at December
31, 2016, the Company has no material contractual obligations, other than those obligations relating to its leases of premises
and those obligations under its debt agreements, deferred consideration agreements, and earn-out obligations as described above.
The minimum lease payments in respect of the Company’s leases will be $113,894 in fiscal 2017.



15







OUTSTANDING SHARE CAPITAL



As at December 31, 2016, there were 72,745,939
common shares issued and outstanding for a total of $52,706,484 in share capital.



As at December 31, 2016, there were 1,603,124
options outstanding at a weighted-average exercise price of $0.47 per share, of which 1,177,499 were exercisable into common shares
at a weighted-average exercise price of $0.45 per share. As at December 31, 2016, 2016, there were 3,418,000 share units issued
and outstanding.



As at February
22, 2017 there were 72,745,939 common shares issued and outstanding for a total of $52,706,484 in share capital. There are 1,596,874
options outstanding at a weighted-average exercise price of $0.48 per share, of which 1,249,374 are exercisable into common shares
at a weighted average price of $0.47 per share. As at February 22, 2017, there are 3,398,000 share units issued and outstanding.



OFF BALANCE SHEET ARRANGEMENTS



The Company
has no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have, a current or future effect
on our results of operations or financial condition.



PROPOSED TRANSACTIONS



As at December 31, 2016, the Board of Directors
had not committed to proceed with any proposed asset or business acquisitions or dispositions that are not disclosed herein.



TRANSACTIONS WITH RELATED PARTIES



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 |  |      | $



16









DISCLOSURE CONTROLS AND PROCEDURES (DCP)
AND INTERNAL CONTROLS OVER FINANCIAL REPORTING (ICFR)



The Company’s
disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed
in the prescribed filings and reports filed with the Canadian securities regulatory authorities is recorded, processed, summarized
and reported on a timely basis. The Company’s controls are also designed to provide reasonable assurance that information
required to be disclosed is assimilated and communicated to senior management in a timely manner so that appropriate decisions
can be made regarding public disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company’s disclosure controls and procedures and concluded that they provide reasonable assurance
that material information relating to the Company was made known to them and reported as required.



Management
has also designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Company’s
financial reporting and the preparation of financial statements in accordance with International Financial Reporting Standards.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing
and maintaining adequate ICFR, which has been developed based on the framework established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO (2013)). The Company’s Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting based on the COSO (2013) framework and concluded that the Company’s internal control over financial
reporting was effective as of December 31, 2016.



Regardless
of how well an internal control system is designed and operated, it can provide only reasonable, not absolute, assurance that all
misstatements due to error or fraud will be detected or prevented from occurring in the financial statements due to the inherent
limitations of any internal control system.



During 2016,
there were no significant changes in the Company’s internal controls over financial reporting that have materially affected
or are reasonably likely to affect the Company’s internal controls over financial reporting.



As permitted by National Instrument 52-109,
the evaluation of the design of disclosure controls and procedures and internal controls over financial reporting does not include
controls, policies and procedures covering the Company’s acquisitions completed in the second quarter of 2016. Prior to its
acquisition by the Company, Austin, Community and Arapahoe were privately held companies. Revenues totaling $18,567,366 and net
income before tax of $6,266,973 from these acquisitions were included in our consolidated financial statements for the year ended
December 31, 2016.



17







CRITICAL ACCOUNTING ESTIMATES



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.



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.



We consider the estimates and assumptions described
in this section to be an important part in understanding the financial statements. These estimates and assumptions are subject
to change, as they rely heaving on management’s judgment and are based on factors that are inherently uncertain.



| | (a) | Impairment and useful lives of long-lived assets:
| | --- | -------------------------------------------------



The Company’s intangible assets
are comprised of purchased technology, purchased professional service agreements, and patents. The cost of the Company’s
intangible assets is amortized on a straight-line basis over the estimated useful life ranging from 2.8 to 20 years. Factors considered
in estimating the useful life of intangible assets include the expected use of the asset by the Company, legal, regulatory and
contractual provisions that may limit the useful life, and the effects of competition. Costs incurred to establish and maintain
patents for intellectual property developed internally are expensed in the period incurred.



The carrying amounts of the Company’s
intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment as required
by IAS 36. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever
the carrying amount of the intangible assets or their cash-generating unit exceeds their recoverable amount. Impairment losses
are recognized in the statements of operations.



The recoverable amount of an asset
or 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 discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.



In accordance with IFRS if, subsequent
to impairment, an asset’s discounted future net cash flows exceeds its book value, the impairment previously recognized can
be reversed. However, the asset’s book value cannot exceed what its amortized book value would have been had the impairment
not been recognized.





18







During the year ended December 31,
2015, the Company recorded an impairment charge of $389,693 in relation to the AHP acquisition as a result of the closure of one
of the endoscopy centers to which the Company provided anesthesia services under a professional services agreement.



| | (b) | Revenue recognition – Anesthesia services:
| | --- | ------------------------------------------



Anesthesia services revenue consists
primarily of patient revenues and is recognized as services are rendered. Patient service revenue is reported net of provisions
for contractual allowances and other discounts from third party payors and patients. The Company has agreements with third-party
payors that provide for payments to the Company at amounts different from its established billing rates. The differences between
the estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are
deducted from gross revenues to arrive at net operating revenues. Retroactive adjustments, if any, are accrued on an estimated
basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Accounts
receivable resulting from such payment arrangements are recorded net of contractual allowances. The provision for contractual allowances
and discounts are recognized on an accrual basis. These amounts are deducted from gross service revenue to determine net service
revenue.



| | (c) | Accounts receivable and allowance for doubtful accounts:
| | --- | --------------------------------------------------------



The Company’s accounts receivable
are related to providing healthcare services to patients and the sale of product directly to physicians. Collection of these accounts
receivable is the Company’s primary source of cash and is critical to its operating performance. The Company’s primary
collection risks relate to patient deductibles, co-payments and self-insured amounts owed by the patient. The Company’s estimate
for the allowance for doubtful accounts is calculated based on historical experiences and collection experience. The Company believes
that it collects substantially all of its receivables related to providing healthcare to patients, net of contractual allowances
and from the sale of product directly to physicians. To date, the Company believes there has not been a material difference between
bad debt allowances and the ultimate historical collection rates on accounts receivables. The Company reviews its overall bad debts
reserve for adequacy by monitoring historical cash collections as a percentage of net revenue. Uncollected accounts are written
off when management determines that the balance is uncollectible.



| | (d) | Stock-based compensation:
| | --- | -------------------------



The Company uses the fair-value
based method of accounting for share-based compensation for all awards of shares units and stock options granted. Under the fair
value based method, share-based awards to employees are measured at the fair value of the equity instrument issued as of the grant
date using either the Black-Scholes or Binomial model and estimated forfeitures. The application of this pricing model requires
management to estimate several variables, including the period for which the instrument is expected to be outstanding, price volatility
of the Company’s stock over the relevant timeframe, the determination of a relevant risk free interest rate, assumption regarding
the Company’s future dividend rate policy and estimate of the number of awards that will vest. Changes in one or more assumptions
could materially impact the value derived for these equity instruments.





19









| | (e) | 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 current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or their 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.



FUTURE CHANGES IN ACCOUNTING POLICIES



New standards and interpretations
not yet applied:



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.



IFRS 9 (2014) also includes a new
general hedge accounting standard which aligns hedge accounting more closely with risk management. This new standard 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.



20







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 IFRSs.



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.



IFRS 16 – Leases:



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.



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, notes payable, deferred consideration and the Company’s earn-out obligation. The fair values of these
financial instruments, except the derivative asset, notes payable balances, deferred consideration and the earn-out obligation,
approximate carrying value because of their short-term nature. The earn-out obligation and derivative asset are classified as financial
instruments recorded at fair value through earnings. For all other debt 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. The carrying value of the deferred
consideration approximates fair value as the discount rate used is reflective of the underlying credit risk of the Company.



Cash and cash equivalents and trade and other
receivables are classified as loans and receivables, which are measured at amortized cost. Trade and other payables, employee benefit
obligations and short term advances are classified as other financial liabilities, which are measured at amortized cost.





21







Notes
payable balances and deferred consideration are also measured at amortized cost. The Company’s derivative asset and earn-out
obligation are measured at fair value.



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



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 operating
expenses. 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. Credit risk associated with the collection of receivables is considered low. 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 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 |  |      | $



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
as well as unused credit facilities.



22







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 herein. 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. 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 asset. 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.



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. 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 for the year ended December 31, 2016 (2015 - $5,000). There would be an equal
and opposite impact on the net income with a 10% point decrease.



23







LEGAL PROCEEDINGS



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.



24







NON-IFRS MEASUREMENTS



The following are non-IFRS measures and investors
are cautioned not to place undue reliance on them and are urged to read all IFRS accounting disclosures present in the consolidated
financial statements and accompanying notes for the consolidated financial statements for the year ended December, 2016.



The Company uses certain non-IFRS financial
measures as supplemental indicators of its financial and operating performance. These non-IFRS financial measures include adjusted
operating EBITDA and adjusted operating expenses. The Company believes these supplementary financial measures reflect the Company’s
ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in its business. These
non-IFRS measures do not have any standardized meaning prescribed under IFRS and are therefore unlikely to be comparable to similar
measures presented by other companies.



The Company defines adjusted operating EBITDA
as operating earnings before interest, taxes, depreciation and related expenses, amortization, stock based compensation, acquisition
related expenses and asset impairment charges. Adjusted operating EBITDA is presented on a basis consistent with the Company’s
internal management reports. The Company discloses adjusted operating EBITDA to capture the profitability of its business before
the impact of items not considered in management’s evaluation of operating unit performance.



The Company defines adjusted operating expenses
as operating expenses before acquisition related expenses, stock based compensation, depreciation and related expenses, amortization
and asset impairment charges. Adjusted operating expenses are presented on a basis consistent with the Company’s internal
management reports.



The non-IFRS measures are reconciled to reported
IFRS figures in the tables below:



25







Adjusted operating EBITDA








|For the three months ended                     |  | 2016 |        |   | 2015 |  |        | 2014 | 
|---------------------------------------------- |  | ---- | ------ | - | ---- |  | ------ | ---- | 
|(USD in thousands)                             |  | Dec  |        |   | Sep  |  |        | Jun  | 
|Adjusted operating EBITDA
    attributable to: |  |      |        |   |      |  |        |      | 
|Shareholders of the Company                    |  |      | 10,281 |   |      |  | 9,122  |      | 
|Non-controlling interest                       |  |      | 4,219  |   |      |  | 2,533  |      | 
|Total adjusted operating
    EBITDA            |  |      | 14,500 |   |      |  | 11,655 |      | 
|Amortization expense                           |  |      | (4,715 | ) |      |  | (4,711 | )    | 
|Depreciation and related expense               |  |      | (30    | ) |      |  | (31    | )    | 
|Stock based compensation                       |  |      | (525   | ) |      |  | (297   | )    | 
|Acquisition expenses                           |  |      | (58    | ) |      |  | (21    | )    | 
|Impairment of inventory                        |  |      | -      |   |      |  | -      |      | 
|Impairment of intangible assets                |  |      | -      |   |      |  | -      |      | 
|Operating income                               |  |      | 9,172  |   |      |  | 6,595  |      | 
|Net finance income (expense)                   |  |      | (1,175 | ) |      |  | (1,381 | )    | 
|Income tax (expense) recovery                  |  |      | (1,643 | ) |      |  | (188   | )    | 
|Net and comprehensive
    income (loss)        |  |      | 6,354  |   |      |  | 5,026  |      | 



Adjusted operating expenses








|For the three
    months ended                       |  | 2016 |        |  | 2015 |  |        | 2014 | 
|---------------------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | ---- | 
|(USD in thousands)                                   |  | Dec  |        |  | Sep  |  |        | Jun  | 
|                                                     |  |      |        |  |      |  |        |      | 
|Anesthesia services - adjusted operating
    expense |  |      | 9,492  |  |      |  | 8,794  |      | 
|Amortization expense                                 |  |      | 4,715  |  |      |  | 4,711  |      | 
|Depreciation and related expense                     |  |      | 1      |  |      |  | 3      |      | 
|Stock based compensation                             |  |      | 120    |  |      |  | 38     |      | 
|Acquisition expenses                                 |  |      | 58     |  |      |  | 21     |      | 
|Impairment of intangible
    assets                  |  |      | -      |  |      |  | -      |      | 
|Anesthesia services expense                          |  |      | 14,386 |  |      |  | 13,567 |      | 
|                                                     |  |      |        |  |      |  |        |      | 
|Product sales - adjusted operating expense           |  |      | 1,083  |  |      |  | 974    |      | 
|Amortization expense                                 |  |      | -      |  |      |  | -      |      | 
|Depreciation and related expense                     |  |      | 15     |  |      |  | 15     |      | 
|Stock based compensation                             |  |      | 125    |  |      |  | 90     |      | 
|Impairment of inventory                              |  |      | -      |  |      |  | -      |      | 
|Product sales expense                                |  |      | 1,223  |  |      |  | 1,079  |      | 
|                                                     |  |      |        |  |      |  |        |      | 
|Corporate - adjusted operating expenses              |  |      | 746    |  |      |  | 684    |      | 
|Amortization expense                                 |  |      | -      |  |      |  | -      |      | 
|Depreciation and related expense                     |  |      | 14     |  |      |  | 14     |      | 
|Stock based compensation                             |  |      | 280    |  |      |  | 169    |      | 
|Acquisition expenses                                 |  |      | -      |  |      |  | -      |      | 
|Corporate expense                                    |  |      | 1,040  |  |      |  | 867    |      | 
|                                                     |  |      |        |  |      |  |        |      | 
|Total adjusted operating expense                     |  |      | 11,321 |  |      |  | 10,453 |      | 
|Total operating expense                              |  |      | 16,649 |  |      |  | 15,514 |      | 



26