CRH Medical 10K 2020 Annual report

CRH Medical (CRHM) 10-K2020 FY Annual report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 001-37542

CRH MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)

British Columbia, Canada

Not Applicable

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification Number)

Suite 619 – 999 Canada Place, World Trade Center

Vancouver, BC V6C 3E1

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (604) 633-1440

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value	CRHM	NYSE American

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☒

Non-accelerated filer	☐		Smaller reporting company	☒

Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common shares on the last business day of its most recently completed second fiscal quarter, as reported on the NYSE American was approximately $145.0 million.

The number of outstanding common shares of the registrant, no par value, as of March 12, 2021 was 71,620,447.

DOCUMENTS INCORPORATED BY REFERENCE

None.

CRH MEDICAL CORPORATION

FORM 10-K

For the Fiscal Year Ended December 31, 2020

Table of Contents

PART I		8
Item 1.	Business	8
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments	40
Item 2.	Properties	41
Item 3.	Legal Proceedings	41
Item 4.	Mine Safety Disclosures	41
PART II		42
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	42
Item 6.	Selected Financial Data	46
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	47
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	67
Item 8.	Financial Statements and Supplementary Data	68
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	104
Item 9A.	Controls and Procedures	104
Item 9B.	Other Information	105
PART III		106
Item 10.	Directors, Executive Officers and Corporate Governance	106
Item 11.	Executive Compensation	109
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	112
Item 13.	Certain Relationships and Related Transactions and Director Independence	114
Item 14.	Principal Accounting Fees and Services	115
PART IV		116
Item 15.	Exhibits, Financial Statement Schedules	116
EXHIBITS INDEX		117
Item 16.	Form 10-K Summary	118
SIGNATURES		119

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of Canadian securities laws, or collectively, forward-looking statements. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements can often be identified by the use of terminology such as “subject to”, “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “predict,” “potential,” “may,” “will,” “should,” “would,” “could,” “can,” “continue,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to:

•

Statements relating to the proposed transaction between us and WELL Health Technologies Corp. (“WELL Health” or “WELL”);

•

Our ability to predict developments in payment rates and government regulation and manage our operations accordingly;

•

Our plans to successfully identify and complete corporate transactions and our other commercialization strategies;

•

The size of our addressable markets and our profitability;

•

The perceived merit of the CRH O’Regan System and our anesthesiology operations; and

•

Our ability to maintain or increase procedure volumes at our existing Ambulatory Surgery Centers (“ASCs”).

All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. Certain assumptions made in preparing the forward-looking statements include:

•

Our ability to maintain our revenues and profit margins under our fee for service contracts and arrangements;

•

The absence of material adverse changes in our industry and the global economy;

•

Our ability to maintain strong relationships with our ASCs and other customers;

•

Our ability to identify, manage and integrate acquisitions;

•

Our ability to enforce the non-competition and other restrictive covenants in our agreements;

•

Our ability to successfully recruit and retain qualified anesthesia service providers and other independent contractors;

•

Our ability to comply with current and future regulatory standards;

•

Our ability to protect our intellectual property rights;

•

Our continued compliance with third-party intellectual property rights;

•

Our industry is already competitive and could become more competitive; and

•

Our ability to raise sufficient financing to support continued growth.

We believe there is a reasonable basis for our expectations and beliefs, but forward-looking statements are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those set forth under “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements:

•

We and WELL Health may not be able to consummate the proposed transaction in the time period expected or at all, and any delay in completing it could result in additional costs or other effects associated with uncertainty about the transaction, which could adversely impact the market price of our common shares;

•

The pendency of the proposed transaction between us and WELL Health could adversely affect our business and operations;

•

The proposed transaction between us and WELL Health could limit our ability to pursue alternatives to the proposed transaction;

•

Our operations and financial results could be further harmed by the COVID-19 pandemic;

•

Changes to payment rates or methods of third-party payors, including United States government healthcare programs, changes to the United States laws and regulations that regulate payments for medical services, the failure of payment rates to increase as our costs increase, or changes to our payor mix, could adversely affect our operating margins and revenues;

•

We are subject to decreases in our revenue and profit margin under our fee for service contracts and arrangements, where we bear the risk of changes in volume, payor mix, radiology, anesthesiology, and pathology benefits, and third-party reimbursement rates;

•

We may or may not successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen operating difficulties and expenditures, or require significant management resources and significant charges;

•

Our senior management has been key to our growth, and we may be adversely affected if we lose any member of our senior management;

•

ASCs or other customers may terminate or choose not to renew their agreements with us;

•

If we are unable to maintain or increase anesthesia procedure volumes at our existing ASCs, the operating margins and profitability of our anesthesia segment could be adversely affected;

•

We may not be able to successfully recruit and retain qualified anesthesia service providers or other independent contractors;

•

We may be unable to enforce the non-competition and other restrictive covenants in our agreements;

•

Changes in the medical industry and the economy may affect our business;

•

A significant number of our affiliated physicians could leave our affiliated ASCs;

•

Our industry is already competitive and could become more competitive;

•

Unfavorable economic conditions could have an adverse effect on our business;

•

We may not be successful in marketing our products and services;

•

Failure to manage third-party service providers may adversely affect our ability to maintain the quality of service that we provide;

•

Our dependence on suppliers could have a material adverse effect on our business, financial condition and results of operations;

•

We may write-off intangible assets;

•

If we are unable to manage growth, we may be unable to achieve our expansion strategy;

•

The continuing development of our products and provision of our services depends upon us maintaining strong relationships with physicians;

•

Our significant shareholders could influence our business operations, and sales of our shares by such significant shareholders could influence our share price;

•

We have a legal responsibility to the minority owners of the entities through which we own our anesthesia services business, which may conflict with our interests and prevent us from acting solely in our own best interests;

•

Our anesthesia employees and third-party contractors may not appropriately record or document services that they provide;

•

If we are unable to adequately protect or enforce our intellectual property, our competitive position could be impaired;

•

Failure to timely or accurately bill for services could have a negative impact on our net revenue, bad debt expense and cash flow;

•

Our employees and business partners may not appropriately secure and protect confidential information in their possession;

•

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions or data corruption could significantly disrupt our operations and adversely affect our business and operating results;

•

Income tax audits and changes in our effective income tax rate could affect our results of operations;

•

The patent protection for our products may expire before we are able to maximize their commercial value, which may subject us to increased competition and reduce or eliminate our opportunity to generate revenues;

•

We may face exposure to adverse movements in foreign currency exchange rates;

•

We operate in an industry that is subject to extensive federal, state, and local regulation, and changes in law and regulatory interpretations;

•

Our failure to comply with U.S. federal and state fraud and abuse laws, including anti-kickback laws and other U.S. federal and state anti-referral laws, could have a material, adverse impact on our business;

•

Congress or states may enact laws restricting the amount out-of-network providers of services can charge and recover for such services;

•

Adverse events related to our product or our services may subject us to risks associated with product liability, medical malpractice or other legal claims, insurance claims, product recalls and other liabilities, which may adversely affect our operations;

•

The Affordable Care Act (“ACA”) and potential changes to it may have a significant effect on our business;

•

The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) and potential changes to it may have a significant effect on our business;

•

Government authorities or other parties may assert that our business practices violate antitrust laws;

•

If regulations or regulatory interpretations change, we may be obligated to re-negotiate agreements of our anesthetists, anesthesiologists or other contractors;

•

If we or some of our suppliers fail to comply with the FDA’s Quality System Regulation and other applicable requirements, our manufacturing or processing operations could be disrupted, our sales and profitability could suffer, and we may become subject to a wide variety of FDA enforcement actions;

•

Our industry is the subject of numerous governmental investigations into marketing and other business practices which could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations;

•

Unfavorable changes or conditions could occur in the states where our operations are concentrated;

•

We may be subject to criminal or civil sanctions if we fail to comply with privacy regulations regarding the protection, use and disclosure of patient information;

•

We may be subject to a variety of regulatory investigations, claims, lawsuits, and other proceedings;

•

If there is a change in federal or state laws, rules, regulations, or in interpretations of such federal or state laws, rules or regulations, we may be required to redeem our physician partners’ ownership interests in anesthesia companies under the savings clause in our joint venture operating agreements;

•

We may need to raise additional capital to fund future operations;

•

We are subject to various restrictive covenants and events of default under the Credit Facilities;

•

Despite current indebtedness levels, we may still be able to incur substantially more debt, which could further exacerbate the risks associated with increased leverage;

•

Our common shares may be subject to significant price and volume fluctuations;

•

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline;

•

Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty;

•

Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders;

•

We are a “smaller reporting company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to such companies could make our common shares less attractive to investors; and

•

We do not intend to pay dividends on our common shares, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our common shares.

Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events, except as required by law.

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. CRH and the CRH O’Regan System are registered trademarks. The other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this Annual Report on Form 10-K are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.

We express all amounts in this Annual Report on Form 10-K in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.

Except as otherwise indicated, references in this Annual Report on Form 10-K to “CRH ,” the “Company,” “we,” “us” and “our” refer to CRH Medical Corporation and its consolidated subsidiaries.

SUMMARY OF RISK FACTORS

Below is a summary of the principal factors that make an investment in our common shares speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common shares.

Risks Related to the Proposed Transaction with WELL Health

•

We and WELL Health may be unable to satisfy the conditions required to complete the proposed transaction, and any delay in completing it could result in additional costs or other effects associated with uncertainty about the transaction. Failure to complete the proposed transaction could adversely impact the market price of our common shares as well as our business and operating results.

•	The pendency of the proposed transaction could adversely affect our business and operations.

•	The arrangement agreement with WELL Health limits our ability to pursue alternatives to the proposed transaction.

Risks Related to our Businesses and Strategy

•	Our operations and financial results have been and could be further harmed by the COVID-19 pandemic.

•

•	We are subject to decreases in our revenue and profit margin under our fee for service contracts and arrangements, where we bear the risk of changes in volume, payor mix, radiology, anesthesiology, and pathology benefits, and third-party reimbursement rates.

•	We may or may not successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances.

•	Our senior management has been key to our growth, and we may be adversely affected if we lose any member of our senior management.

•	ASCs or other customers may terminate or choose not to renew their agreements with us.

•	If we are unable to maintain or increase anesthesia procedure volumes at our existing ASCs, the operating margins and profitability of our anesthesia segment could be adversely affected.

•	We may not be able to successfully recruit and retain qualified anesthesia service providers or other independent contractors.

•	We may be unable to enforce the non-competition and other restrictive covenants in our agreements.

•	A significant number of our affiliated physicians could leave our affiliated ASCs.

•	Failure to manage third-party service providers may adversely affect our ability to maintain the quality of service that we provide.

•	Our dependence on suppliers could have a material adverse effect on our business, financial condition and results of operations.

•	If we are unable to manage growth, we may be unable to achieve our expansion strategy.

•	The continuing development of our products and provision of our services depends upon us maintaining strong relationships with physicians.

•	We have a legal responsibility to the minority owners of the entities through which we own our anesthesia services business, which may conflict with our interests and prevent us from acting solely in our own best interests.

•	Our anesthesia employees and third-party contractors may not appropriately record or document services that they provide.

•	If we are unable to adequately protect or enforce our intellectual property, our competitive position could be impaired.

•

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions or data corruption or similar failures by our partners and third-party service providers could significantly disrupt our operations and adversely affect our business and operating results.

Risks Related to Government Regulation and Litigation

•	We operate in an industry that is subject to extensive federal, state, and local regulation, and changes in law and regulatory interpretations.

•	Our failure to comply with U.S. federal and state fraud and abuse laws, including anti-kickback laws and other U.S. federal and state anti-referral laws, could have a material, adverse impact on our business.

•	Congress or states may enact laws restricting the amount out-of-network providers of services can charge and recover for such services.

•	Adverse events related to our product or our services may subject us to risks associated with product liability, medical malpractice or other legal claims, insurance claims, product recalls and other liabilities, which may adversely affect our operations.

•	The Affordable Care Act (“ACA”) and potential changes to it may have a significant effect on our business.

•	The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) and potential changes to it may have a significant effect on our business.

•	Government authorities or other parties may assert that our business practices violate antitrust laws.

•	If regulations or regulatory interpretations change, we may be obligated to re-negotiate agreements of our anesthetists, anesthesiologists or other contractors.

•	If we or some of our suppliers fail to comply with the FDA’s Quality System Regulation and other applicable requirements, our manufacturing or processing operations could be disrupted, our sales and profitability could suffer, and we may become subject to a wide variety of FDA enforcement actions.

•	Our industry is the subject of numerous governmental investigations into marketing and other business practices.

•

•	We may be subject to criminal or civil sanctions if we fail to comply with privacy regulations regarding the protection, use and disclosure of patient information.

Risks Related to our Financial Position and Indebtedness

•	We may need to raise additional capital to fund future operations.

•	We are subject to various restrictive covenants and events of default under the Credit Facilities.

•	Despite current indebtedness levels, we may still be able to incur substantially more debt, which could further exacerbate the risks associated with increased leverage.

Risks Related to Ownership of Our Common Shares

•

We have identified material weaknesses in our internal control over financial reporting, and may in the future identify additional material weaknesses or otherwise fail to maintain an effective system of internal controls. As a result, we may not be able to accurately report our financial results or prevent fraud, and shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares.

•	Our common shares may be subject to significant price and volume fluctuations.

•	If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline.

•	Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.

•	Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders.

•	We are a “smaller reporting company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to such companies could make our common shares less attractive to investors.

•	We do not intend to pay dividends on our common shares, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our common shares.

PART I

Item 1.

Business

Overview

CRH is a North American company focused on providing physicians throughout the United States with innovative products and services for the treatment of gastrointestinal (“GI”) diseases. The CRH O’Regan System is a single-use, disposable, hemorrhoid banding technology that is safe and highly effective in treating all grades of hemorrhoids. CRH distributes the CRH O’Regan System, treatment protocols, operational and marketing expertise as a complete, turnkey package directly to gastroenterology practices, creating meaningful relationships with the gastroenterologists (“GIs”) it serves. The CRH O’Regan System is currently used in all 48 lower U.S. states.

In 2014, CRH acquired Gastroenterology Anesthesia Associates, LLC (“GAA”), a full-service gastroenterology anesthesia company that provides anesthesia services for patients undergoing endoscopic procedures. Performing these procedures under anesthetic provides more comfort for patients and increases the operating efficiency of ASC’s. CRH has continued to leverage the capabilities it acquired through GAA to consolidate the highly fragmented gastroenterology anesthesia provider business. The Company’s goal is to establish itself as the premier provider of innovative products and essential services to GIs throughout the United States. Each of the Company’s two primary lines of business, the sale of medical products and the provision of anesthesia services, is discussed below. As of December 31, 2020, CRH has a majority ownership interest in 32 GI anesthesia practices in 13 U.S. states and services approximately 450,000 patient cases annually.

In 2020, the Company completed eight transactions. All transactions completed during 2020 have been included in the anesthesia segment of the Company. In June 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 75% interest in Lake Lanier Anesthesia Associates LLC, an anesthesia services provide in Georgia. At the same time the Company entered into a start-up joint venture pursuant to which a subsidiary of the Company owns a 51% interest in Oconee River Anesthesia Associates LLC. Additionally, a subsidiary of the Company entered into a start-up joint venture pursuant to which this subsidiary acquired a 15% interest in Western Carolina Sedation Associates LLC. In June 2020, this subsidiary of the Company also entered into an asset contribution and exchange agreement to acquire a 75% interest in Metro Orlando Anesthesia Associates LLC, an anesthesia services provider in Florida. In July 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in Central Virginia Anesthesia Associates LLC, an anesthesia services provider in Virginia. In August 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in Orange County Anesthesia Associates LLC, an anesthesia services provider in Florida. In September 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in Coastal Carolina Sedation Associates LLC, an anesthesia services provider in North Carolina. In addition, in December 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in FDHS Anesthesia Associates LLC, an anesthesia services provider in Florida.

On February 9, 2021, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 100% interest in Oak Tree Anesthesia Associates LLC, a gastroenterology anesthesia services provider in New Jersey.

On February 6, 2021, the Company signed a definitive arrangement agreement (the “Arrangement Agreement”) with WELL Health, pursuant to which WELL Health will acquire all of the issued and outstanding shares of CRH for US$4.00 per share (the “Acquisition” or the “Arrangement”). The Acquisition, which is to be carried out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia), will require the approval of: (i) two-thirds of the votes cast by shareholders of the Company; and (ii) two-thirds of the votes cast by shareholders, holders of stock options and holders of restricted share units, voting together as single class. The Company’s directors and officers, holding an aggregate of approximately 2.1% of the outstanding common shares of the Company, have each entered into voting support agreements to vote their shares in favor of the Acquisition. Completion of the Acquisition will also be subject to court and regulatory approvals and clearances, as well as other customary closing conditions. Subject to the satisfaction of such conditions, the Acquisition is expected to be completed during the second quarter of 2021.

The CRH O’Regan System

Invented in 1997 by laparoscopic surgeon Dr. Patrick J. O’Regan, and cleared by the FDA in 2000, the CRH O’Regan System represents a significant advancement in rubber band ligation treatment of hemorrhoids. The technology was improved in the 2016 version, which added a new level of functionality for the practitioner and a new level of comfort and safety for the patient, by incorporating several new unique features to the CRH O’Regan System.

The CRH O’Regan System is an entirely disposable, single-use device for hemorrhoid treatment, as compared to previous metal instruments that were introduced in the 1950s and 1960s, before the advent of virulent, blood borne pathogens such as HIV and Hepatitis B and C. The CRH O’Regan System eliminates reprocessing challenges and concerns about cross-patient infection.

The ligator is a plastic plunger suction device resembling a syringe, with a built-in obturator to ease insertion, which allows for a band to be applied to a given hemorrhoid. This procedure can be performed under direct visualization with a specially designed anoscope or using a “touch” technique where the device is inserted up to a mark through the anus and directed to one of the hemorrhoid cushions, which is then banded.

What are Hemorrhoids?

Hemorrhoids are normal cushions of tissue and blood vessels in the lower rectum which normally play a role in maintaining continence. In a large number of people, these hemorrhoidal cushions undergo changes which typically lead to any number of perianal symptoms, including itching, bleeding, swelling, pain, and leakage. It is at this point when patients typically seek treatment for their hemorrhoidal disease. Hemorrhoids are classified as either external or internal:

External – swollen vascular and soft tissue that is present below the “Dentate Line,” which can often be seen and felt under the skin outside the anal canal. They often appear as a small bulge and are the same color as the skin. These can become irritated, inflamed or thrombosed, are generally treated by over the counter remedies or in some cases, a surgical procedure. External hemorrhoids are often mistakenly “blamed” for patients’ symptoms that are actually caused by their internal hemorrhoids, explaining why so many patients with “external” symptoms respond to treating their internal hemorrhoids.

Internal – swollen and prolapsing vascular tissue that are inside of the anal opening, and which originates above the “Dentate Line.” When internal hemorrhoids become problematic, they may protrude out through the anus while straining or during defecation. A reference to “hemorrhoids” in a clinical setting is generally a reference to internal hemorrhoids.

Internal hemorrhoids fall into one of four “grades” depending on the degree of severity. Grade I hemorrhoids do not prolapse, and so very infrequently cause symptoms. These patients are usually treated with over the counter remedies and diet, and if any symptoms are present, they are typically self-limited. Grades I through IV are typically in need of treatment and rubber band ligation is the most frequent type of treatment utilized for Grade I and III disease, while most Grade IV patients require surgical intervention, which is quite costly and painful. Successful treatment of lesser grades of hemorrhoids may well prevent the development of Grade IV disease.

There are many presumed factors that may increase the likelihood of developing hemorrhoidal symptoms. These factors include aging, chronic constipation or diarrhea, pregnancy, hereditary issues, chronic straining during bowel movements, spending excessive time on the commode, and faulty bowel function due to overuse of laxatives or enemas. Hemorrhoid symptoms include: itching, bleeding, swelling, prolapse, leakage, and in patients with associated external hemorrhoids, lumps and pain.

According to the National Institute of Health, approximately 50% of the U.S. population will develop symptomatic hemorrhoids by age 50, and 75% will be symptomatic at some point during their lifetime.

According to the American Society of Colon and Rectal Surgeons, hemorrhoids are one of the most common ailments, with the onset typically occurring usually after age 20. The peak prevalence occurs between 45 and 65 years of age. Most patients with milder cases appear to suffer in silence, or may seek over-the-counter remedies, rather than turning to a medical professional.

Hemorrhoid Treatment Procedures

Rubber Band Ligation

A small rubber band is placed around a portion of the internal hemorrhoid (inside the rectum). The band is placed in an area with very few sensory nerves, and so the procedure should be painless. The band cuts off circulation, the banded tissue sloughs within a few days, and scar tissue forms, preventing the tissue from prolapsing or causing symptoms. Rubber band ligation may be utilized for the vast majority of hemorrhoid patients.

The banding technique is the most widely accepted form of treatment. The CRH O’Regan System requires no bowel preparation, no anesthesia, is simple to perform, can be done in a doctor’s office, and is relatively inexpensive and effective.

Coagulation by use of infrared light (“IRC”)

Coagulation by use of infrared light causes the treated hemorrhoid tissue to coagulate, creating scar tissue that is intended to stop the prolapse, lessening the hemorrhoidal symptoms. It is mostly used for grade 1 or small grade II hemorrhoids. IRC has been shown to be less effective than rubber band ligation, can be more expensive for the provider to use, and it typically requires more treatments with a higher recurrence rate.

Injection sclerotherapy with chemicals

With injection sclerotherapy, a doctor injects a chemical solution under the surface of the hemorrhoid. The solution causes inflammation and scarring of the tissue in an attempt to keep the hemorrhoidal tissue from causing symptoms. This technique is not widely used, and serious complications can occur if the solution is not injected precisely where it is needed.

Surgery

A hemorrhoidectomy is performed by a surgeon with local anesthetic plus sedation, or more typically a spinal anesthetic or a general anesthetic. It is sometimes performed on an outpatient basis, but an overnight or inpatient hospital stay can be required. It is a more expensive procedure than the other options as it is required to be performed in a hospital or ambulatory surgery center. Surgery is accompanied by greater cost, as well as post procedural pain and disability.

Stapling

A “PPH” or a “stapled hemorrhoidectomy” utilizes a specialized device which can cut and then staple together a portion of the rectal lining, causing scar tissue that typically keeps the hemorrhoid tissue in place, minimizing the patient’s symptoms. This procedure gained favor because it caused less pain and disability than the conventional surgical hemorrhoidectomy, but more recent experience has shown that this procedure is not without the potential for significant complications.

Transanal Hemorrhoidal Dearterialization

A more recent development, this surgical procedure utilizes a specialized scope to help identify the arteries which supply blood to the hemorrhoidal tissues. This localization allows for the surgeon to suture those vessels, reducing blood flow to the hemorrhoids as well as to cause scarring which helps to minimize hemorrhoidal symptoms. This technique demonstrates promise, but it is still a surgical procedure, causing significantly more pain and disability than the non-surgical approaches outlined above. This technique has demonstrated as high as a 25% short term failure rate.

Evidence of Use for the CRH O’Regan System

A large 2005 study of the CRH O’Regan System reported the lowest hemorrhoid treatment complication rate ever published at 16 out of 5,424 procedures, or 0.3%. Post-band bleed occurred in eight patients (0.4%), post-band pain in three patients (0.2%) and post-band thrombosis in five patients (0.3%). No other complications were observed. Compared to conventional rubber band ligation, these figures demonstrate a ten-fold reduction in complications. The results also showed the CRH O’Regan System to have lower recurrence (4.8%) at two years than previous banding techniques (12%) or even hemorrhoidectomy (5-8%). However, patient compliance with dietary changes and recommended bowel habits may have marked influence on recurrence rates and long-term studies to confirm whether this distinction exists at late follow-up have not been conducted.

A 2006 study was conducted to evaluate the effectiveness and complications associated with rubber band ligation using the CRH O’Regan System. The study included treatment for 60 patients and no major complications were noted. The study concluded that the CRH O’Regan System is associated with a good response and low complication rate. Minor early and late bleeding was reported in 10% and 6.7% of patients, respectively, but none was severe. Pain occurred in 6.7% of patients but was not severe. In all cases clinical and endoscopic improvement was observed and patients of all ages, including the elderly, were found to be tolerant to the procedure. The study concluded the technique is a safe and reliable treatment option.

A 2008 study involving 113 patients and a total of 257 banding events concluded that the outpatient treatment of hemorrhoids by GIs using the CRH O’Regan System is safe and effective. Initial symptoms were resolved in 94% of patients, and rectal bleeding resolved in 90% of patients after at least one banding event. These results were sustained at three months. There were no cases of pelvic sepsis. Patient satisfaction with the CRH O’Regan System was high. Overall, 81% of patients were highly satisfied with their treatment and 75% of patients said they would choose this therapy again over a surgical option and/or recommend it to a friend. Patients do not require time off from work after the procedure.

A 2010 study titled The Long Term Results of Hemorrhoid Banding Using the O’Regan Disposable Suction Ligator, involved 20,286 ligations with the CRH O’Regan System on 6,690 patients. The results indicated an 8% recurrence of all three hemorrhoids over an average of 42 months and a 5% partial recurrence (one or two hemorrhoids). Complications were 0.2% per band or 0.6% per course of treatment. In light of the low recurrence and partial recurrence rates, the study concluded that the use of the CRH O’Regan System was a significant improvement on Barron’s original rubber band ligation device and that the CRH O’Regan System has performed well since its introduction.

In order to improve ease of use and patient comfort, the Company began distributing its upgraded ligator in 2016. The improved CRH O’Regan System incorporated a built-in obturator which eases insertion as well as limits the trauma that can be inflicted by utilizing an alternative device with an “open jaw.” The “anti-pinch” feature further adds to patient comfort, and a feature which helps to prevent misfires makes the device more reliable when treating patients. These upgrades have improved the safety profile of the device and have further reduced patient pain and post-banding complaints.

Commercialization Strategies

In 2008, as a strategy to achieve rapid adoption of the CRH O’Regan System by a broader segment of the medical community, the Company began developing the capability to bring our CRH O’Regan System directly to physicians. We believe this strategy, called the “Direct-to-Physician Program,” positions the Company to increase the number of physicians who utilize its products and capture more market share while building brand awareness and value.

An estimated 15 million colonoscopies are performed annually in the United States by approximately 14,000 GIs. Studies have shown that as many as 40% of colonoscopies demonstrate significant hemorrhoidal changes. Given that hemorrhoids are a common indication for seeking medical attention, they have also placed a considerable financial burden on the health care system. A recent study in the American Journal of Gastroenterology estimated that $2.4 billion in hemorrhoid related claims were accrued by 2.5 million employer insured patients in 2014. In equipping physicians with a definitive treatment option which reduces the frequency of repeated office visits and unnecessary screening, CRH also supports them in offering value-based care by reducing the costs associated with ineffective hemorrhoid treatment.

Given that gastroenterologists perform the majority of colonoscopies in the United States, CRH’s Direct-to-Physician Program specifically targets these providers because they are regularly diagnosing hemorrhoids and are able to adequately screen patients prior to the procedure. CRH is actively expanding the Direct-to-Physician Program by targeting the distribution of the CRH O’Regan System directly to the over 14,000 GIs practicing in the United States. CRH utilizes many methods to create awareness and demand for the CRH O’Regan System. Awareness is created through a number of channels and tactics, including key opinion leader endorsement and GI word-of-mouth; articles and advertisements in professional journals and publications; “Grand Rounds”-type presentations at academic institutions and Gastroenterology Fellowship Training Programs; exhibits and product demonstrations at GI conferences; and targeted email and direct mail campaigns. The information on the CRH O’Regan System website, including procedure videos and published research, also serves as an educational tool and an important source of awareness to the GI community. To date, CRH has provided training relating to the use of the CRH O’Regan System to approximately 3,200 GI’s at over 1,200 practices.

The Company is introducing the CRH O’Regan System into the curriculum of the approximately 190 academic and hospital-based Gastroenterology Fellowship Programs throughout the United States as perianal care is not traditionally a topic covered during training. The importance of including this material in the curriculum of the gastroenterologist in training is well accepted and CRH has been invited to speak to over 100 educational institutions and conferences to help in these educational efforts.

The treatment of hemorrhoids is a natural extension of the GI practice. Hemorrhoid treatment with the CRH O’Regan System expands the continuum of care and provides a fast and painless solution to patients. Since many hemorrhoid patients also require colonoscopy and other endoscopic services, adoption of the CRH O’Regan System creates additional patient and procedural revenue for the GIs’ traditional practice. More recently, advanced practitioners, working in gastroenterology practices, are being trained in these techniques, further increasing these practices’ ability to care for the large number of symptomatic patients requiring care.

In addition, the integration of the CRH O’Regan System into a GI practice may increase practice revenues. For example, the treatment of patients using the CRH O’Regan System generates an hourly procedural reimbursement approximately equal to or greater than that of colonoscopy procedures. Offering these treatments also brings new patients into the practice, many of whom require additional diagnostic procedures. Moreover, the reimbursement is typically generated without the need for any additional staff, capital expenditures or facility requirements.

In contrast to other treatment modalities, the CRH O’Regan System procedure takes less than a minute to perform, does not require anesthesia or bowel preparation, is well tolerated by patients, and can be performed in an office setting as well as in ASCs. The CRH O’Regan System is totally disposable and does not require any capital investment.

CRH provides a comprehensive support program for GI practices, including providing clinical training, operational training and marketing programs and materials.

CRH provides physician-to-physician training for GIs at their own practice setting with patients they identify and recruit for treatment. This enables the GI to see a variety of pathologies and learn the procedure by treating patients in a “hands-on” manner, ultimately leading to a greater comfort level with the technology and the associated necessary treatment protocols. These initial patients are also then scheduled for subsequent bandings, contributing to the start-up and growth of hemorrhoid procedures within the practice.

CRH also provides operational training and support to ensure that GI office staff are comfortable describing the procedure and are able to address the questions most frequently asked by hemorrhoid sufferers seeking our treatment. The training includes hemorrhoid education, technology facts, phone scripts, frequently-asked questions, optimal patient flow processes and scheduling methodologies, and a billing and coding overview. In addition, CRH provides hemorrhoid content that may be added to the GI practice website. The goal is to ensure that the GI practice can effectively convert treatment inquiries into patient appointments and bring new patients in.

CRH provides a comprehensive marketing support program to assist GIs with integrating the CRH O’Regan System into their practice. Marketing programs and materials are available at no charge and are designed to quickly and effectively educate new and existing patients about the procedure.

CRH also provides web-based marketing resources to GI practices by adding their practice profile to the CRH website. The CRH consumer website (www.crhsystem.com) directs hemorrhoid sufferers to trained physicians near them who offer our procedure. The creation of a direct link between the practice website and the CRH website has been one of the most beneficial tools for driving new patients to our GI partner practices. Information contained on, or accessible through, our website is not a part of this Annual Report, and the inclusion of our website address in this Annual Report is an inactive textual reference.

Specialized Skill & Knowledge

The Company’s management, medical and support teams have developed specific skills and knowledge in the U.S. healthcare market from the Company’s prior operation of Centers for Colorectal Health and many years managing and developing its Direct-to-Physician Program. We believe that the extent and breadth of the Company’s experience delivering healthcare services, developed through years of operating across multiple U.S. states, have provided it with a national scope of knowledge that is not easily acquired or replicated. On a national scale, there is a significant amount of fragmentation of legal requirements, divergence in medical service reimbursement levels, and local healthcare contracting that the Company must evaluate prior to penetrating any particular market. Over the course of its operating history, we believe the Company has acquired the knowledge necessary to gather and process the critical information required to measure quantifiable decisions to enter prospective markets. The Company continues to develop this knowledge and expertise by expanding the know-how of its existing management and acquiring new personnel with the requisite skill sets.

Competition

The majority of rubber band ligation procedures are performed using metal re-usable ligators and retractors. In the same way that disposable syringes have replaced re-usable syringes in most medical applications, disposable ligators have replaced re-usable ligators. The table below compares the CRH O’Regan Ligator to the traditional ligation device and other hemorrhoid treatment devices.


	CRH O’Regan System	McGiveny Ligator	Other Diposable Ligators	EZ Band	IRC	HET	Endoscopic Banding
Assistance required	No	Often	Often	No	Often	Yes	Yes
Length of procedure	Approximately 1 minute	Approximately 5 - 15 minutes	Approximately 5 - 10 minutes	Approximately 1 minute	Approximately 5 - 10 minutes	Approximately 10 - 15 minutes	Approximately 10 - 30 minutes or more


	CRH O’Regan System	McGiveny Ligator	Other Diposable Ligators	EZ Band	IRC	HET	Endoscopic Banding
Patient comfort	No Anoscope required, greater patient comfort. Obturator and anti-pinch design aids insertion and minimizes discomfort Least painful of available techniques	Anoscope and technique increase patient discomfort Much higher percentage of patients with post-banding pain using this technique.	Anoscopic technique and multiple site banding increases patient discomfort	Open-cylinder device which can lead to excess anal tissue capture or painful insertion and may entirely preclude insertion in some patients with anal spasm/fissure No obturator	Anoscope and technique increases patient discomfort	Most patients receive anesthesia because of risk of discomfort. Bowel prep generally utilized	Requires bowel preparation and sedation Highest incidence of post-banding pain
Ease of Use by Physician	Easy to learn one handed technique	2 handed techniques required, instrumentation is more difficult to utilize	2 handed technique required	One handed technique	2 handed technique required	Requires specialized anoscope and grasping devices	Requires endoscope and multiple assistance
Cleaning	Disposable	Sterilization and maintenance required.	Disposable, significantly more waste with suction tubing canisters	Disposable	Disposable sheath with underlying device requiring maintenance	Disposable	Sterilization and maintenance required
Additional Equipment/Capital Investment required	None	Up front instrument purchase Cleaning and sterilizing expense	Wall suction	Not required	Console unit to produce infrared energy and probe	Current generator, surgical instrumentation, endoscopy or surgery suite	Endoscopic facility and associated equipment
Training	On-site physician one-on-one training	None	Non physician onsite and video	Webinar	Video	Non-physician onsite and video	Training included in some fellowships
Other Support	Marketing, operational, and “24/7/365” physician-provided consultative support	None	Very limited	Limited marketing materials	Patient education at additional cost	None	None
Cost	$70	Initial cost + cost of cleaning and maintenance	$30 – 75 (includes tubing and canisters)	$55	Initial investment plus cost per treatment of ~$60	Initial investment plus a per treatment cost >$600/procedure for disposables, plus facility and anesthesia cost	$250 + cost of endoscopy, ASC, anesthesia, etc.

Foreign Operations

While the Company’s headquarters are in Vancouver, British Columbia, substantially all of the Company’s revenues from sales of the CRH O’Regan System are generated in the United States.

Regulatory Approval

The FDA, Health Canada, and comparable agencies in other foreign countries impose requirements upon the design, development, manufacturing, marketing and distribution of medical devices. The applicable regulations require clearance or approval before the devices can be sold. After the applicable approvals and/or clearances are granted the regulatory agencies require companies to comply with quality system requirements, investigate complaints, report and investigate certain adverse events and device malfunctions, comply with marketing restrictions and maintain annual registrations.

The Company has FDA 510(k) clearance (K963166 and K020702) for the United States and Medical Device License #65043 for Health Canada. These registrations are legal prerequisites for the Company to market and sell the CRH O’Regan Ligator, Anoscope and CRH O’Regan System in the United States and Canada, and many countries worldwide that accept these registrations. The Company sub-contracts the design and manufacture of its O’Regan products to a Canadian manufacturer that holds certification for CRH products to ISO13485:2016 MDSAP. As the applicable holder, however, the Company remains responsible for compliance with the regulatory laws applicable to the manufacture and sale of the medical devices.

For a more fulsome description of the regulations applicable to the Company’s products and services, see the section below titled “Government Regulation.”

Operations and Manufacturing

The Company manages sub-contracted activities and Quality Management System activities to ensure compliance with the requirements of ISO 13485:2016 MDSAP and Current Good Manufacturing Practice and is committed to continuously improve the quality of our products and services to better satisfy the needs and expectations of our customers.

All subcontractors are monitored and evaluated on a regular basis to ensure the highest quality product. We manage the activities of our supply chain on a continuous basis. While the Company has outsourced design and manufacturing activities, we maintain direct control over customer service activities to ensure that we provide our best service to our customers. Through an established system of customer feedback we are able to monitor for signs of quality problems and customer issues.

Customer, Professional and Technical Services

The Company has established a feedback system to provide early warning of quality problems and to determine whether it has met the customer’s requirements. Customer complaints, expressions of satisfaction and other unsolicited customer feedback are collected and processed by Customer Service. As discussed above, our licensed physician medical directors provide professional and consultative support to our Customers.

Cycles and Economic Dependence

The provision of healthcare services in the United States has changed as a result of the shifts within the healthcare insurance market. Some of these shifts include a decline in overall Health Maintenance Organization market-share due to patients demand to see “out of network” physicians. Other shifts are high deductible plans and health savings plans that are shifting the burden of healthcare expenditures directly to patients. These shifts have an effect on the frequency and the types of treatment that patients will seek and thus have an effect on treatments that may be considered elective. Although the treatment of hemorrhoids with ligation is a covered procedure by most insurance plans, some patients may still consider the treatment as elective due to the above factors.

The Company is economically dependent on one critical supplier for the CRH O’Regan System. The supplier, a clean room injection molding manufacturing company based in Ontario, Canada, performs contract manufacturing and assembly for the Company. Currently, the Company has one set of manufacturing molds for each product produced, which is used for the injection molding and these molds are inventoried at the supplier’s facility. See the risk factor titled “Our dependence on suppliers could have a material adverse effect on our business, financial condition and results of operations” in Item 1A.

Revenue from the sale of the CRH O’Regan System was $8,484,070 and $10,078,843 for the years ended December 31, 2020 and 2019, respectively. Many healthcare plans in the United States have deductibles and other patient related costs for the treatment of hemorrhoids. As a result of these plans, and other factors, the Company may experience fluctuations in quarterly revenue.

Intellectual Property

A vital part of the Company’s business strategy is to protect its products and technologies through the use of patents, proprietary technologies and trademarks, to the extent available. Success will depend, in part, upon the ability to obtain and enforce strong patents, to maintain trade secret protection and to operate without infringing the proprietary rights of others. Current CRH policy is to seek patent protection for proprietary technology whenever and wherever commercially practical. CRH has acquired or received patents for marketing in the United States, Canada, Europe and in some parts of Asia. See the risk factor titled “If we are unable to adequately protect or enforce our intellectual property, our competitive position could be impaired” in Item 1A.

As of December 31, 2020, our patent portfolio consists of 9 issued U.S. and foreign patents and 4 pending U.S. and foreign patent applications. Of these, our issued patents expire between approximately 2021 and 2034. Pursuant to an agreement dated May 8, 2001 as amended, the Company acquired the patent and all other rights to the CRH O’Regan Ligator from Dr. Patrick J. O’Regan, a former director of the Company, in exchange for common shares of the Company. The patent regarding the CRH O’Regan Ligator was registered in the name of the Company in the patent office on August 27, 2002. The CRH O’Regan System consists of the CRH O’Regan Ligator and the slotted Anoscope. The CRH O’Regan Ligator is a disposable, minimally invasive hemorrhoid banding device. The CRH O’Regan Ligator was patented in the United States by Dr. Patrick O’Regan.

In addition, we also have 3 U.S. and foreign trademark registrations.

We routinely monitor the status of existing and emerging intellectual property disclosed by third parties that may impact our business, and to the extent we identify any such disclosures, evaluate them and take appropriate courses of action. We also protect our proprietary information by ensuring that our employees, consultants, contractors and other advisors execute agreements requiring non-disclosure and assignment of inventions prior to their engagement.

Gastroenterology Anesthesia Services

In 2014, CRH added a full-service gastroenterology anesthesia service with the platform purchase of Gastroenterology Anesthesia Associates, LLC (“GAA”). In all, CRH has since completed 31 anesthesia acquisitions to date. The Company provides anesthesia services for patients undergoing endoscopic procedures performed by GIs in Ambulatory Surgery Centers (“ASC’s”) in the United States. Most commonly this is propofol sedation for upper endoscopy and lower endoscopy procedures performed in ASCs. As part of each acquisition, the Company enters into a service agreement with each ASC to become the exclusive provider of anesthesia services at that location. In return, CRH undertakes to staff the facility with the appropriately trained and experienced anesthetists (“CRNAs”) and anesthesiologists. The Company receives and records revenue through fee for service arrangements with commercial and government insurance providers. The serviced GI group or ASC is not responsible for payment for the procedure.

On December 22, 2020, the Company received notice that United Digestive (“UD”) did not intend to renew its professional services agreements pursuant to which the Company provides anesthesia services to 12 of UD’s surgery centers in the Greater Atlanta, Georgia markets. The agreements are scheduled to expire on October 31, 2021. The Company acquired most of the professional services agreements upon acquisition of GAA in 2014 and at the time of acquisition estimated a useful life of 12 years. Revenue earned under these agreements represents a significant portion of the Company’s revenue; in 2020 GAA revenue represented approximately 17% of total anesthesia revenue earned.

The Company currently provides anesthesia services in 69 GI-focused ASCs in 13 states, to approximately 450,000 patients per year, using a team of more than 700 Certified Registered Nurse Anesthetists and Physician Anesthesiologists.

Evidence of Use

Based upon Medicare claims data, more than 50% of the approximately 25 million GI endoscopy procedures are performed with monitored anesthesia care. The remaining procedures use moderate sedation, typically by combining an opioid and benzodiazepine (e.g. the fentanyl-Versed regimen), which does not require the involvement of an anesthetist.

The use of anesthesia for GI endoscopic procedures has shown a significant increase in use over the last decade. A Medicare cohort study showed an anesthesia utilization rate of 11% in 2000, rising to 23.4% in 2006, while a published survey of commercial payor data showed anesthesia was used in 13.6% of cases in 2003, increasing to 35.5% in 2009, and was forecasted to increase to 53.7% during 2015. We believe anesthesia for GI endoscopy is the standard of care and that adoption will continue to increase.

The Centers for Disease Control and Prevention (“CDC”) launched the Screen for Life: National Colorectal Cancer Action Campaign in 1999 with the goal of raising awareness about the importance of colorectal cancer screening. As of 2016, the program found that only 67.3% of U.S. adults were up to date with their colorectal screening. The campaign’s goal was to have 80% of the population between the ages of 50 and 75 up to date on their screening by 2018.

The United States Census Bureau projects that the number of Americans between the ages of 50 to 75, the group targeted for screening, will grow from 91 million in 2014 to 99 million in 2020. Assuming 80% of that population gets screened, as targeted by the CDC, an additional 6.4 million colonoscopies would have to be performed in that period.

Physician and Patient Preference

GIs prefer Propofol sedation due to its pharmacologic properties that include rapid onset, rapid recovery and fewer recovery-associated symptoms compared to moderate sedation. This is associated with increased patient compliance during the procedure and less utilization of resources during recovery, which can improve costs, procedure throughput and scheduling efficiency.

Patients also strongly prefer the use of anesthesia, which allows for a more comfortable procedure and a reduced recovery time that is free from nausea, memory loss and drowsiness associated with the moderate sedation regimen.

Commercialization Strategies

The Company’s anesthesia business strategy has been to establish itself as a high quality, reliable provider of anesthesia services to ASCs performing GI endoscopies. There are approximately 1,000 single-specialty-GI Medicare certified ASCs in the United States, of which the Company currently serves 58. The Company expects to further penetrate the market through its acquisition and partnering strategies, with the goal of increasing the number of facilities in which it serves.

As with GAA and the Company’s other 31 acquisitions, the Company seeks to acquire or partner with established GI-focused anesthesia groups. GI anesthesia acquisitions consist of either a 100% acquisition, joint venture acquisition, or other partnering structure where the Company acquires or obtains a controlling interest. The joint venture model allows the physician group to participate in the management of the anesthesia service, but also to realize value in a portion of their anesthesia business while retaining an ongoing revenue stream and reducing risk from an operational, regulatory, and reimbursement standpoint. The acquired anesthesia group provides anesthesia services to the partner ASC under a professional services agreement.

We believe there are many GI groups that lack the knowledge and resources to launch and maintain their own anesthesia group. To address these opportunities, the Company has created a Monitored Anesthesia Care (“MAC”) Development Program as an option for groups wishing to provide anesthesia services to their patients. This arrangement provides greater control over the anesthesia services through a co-management arrangement with the Company while also providing additional revenue for the physicians. These business arrangements include the initial development and ongoing management of the anesthesia group for a fee, equity or a combination of both. Additionally, CRH may be provided a future opportunity to purchase a controlling interest in the anesthesia group. In each case, the Company integrates the acquired professional service agreements into its established billing and staffing processes to maximize quality assurance and efficiencies.

There are some GI groups, for one reason or another, that may not be candidates for an acquisition but would still benefit from a relationship with CRH. This could include CRH’s typical joint venture model, but without a transaction. In other cases, a management agreement that simply provides management services for a fee is the most appropriate, and yet provides the basis of a relationship for a potential future transaction.

Overall, these acquisitions and other models generally experience annual volume growth, primarily driven by patient case growth of the referring GI group.

CRH provides an anesthesia services solution that integrates quickly with the GI group practice with little or no disruption. While the GIs are actively involved with CRH in establishing the anesthesia group, CRH’s involvement allows GIs to focus more on their core business of endoscopic procedures to achieve great results for their patients. In addition to the daily assistance in the management of the anesthesia group through billing, collections, staff recruitment, credentialing, and scheduling, those partnering with CRH take advantage of our quality assurance and quality improvement program, data collection and reporting, and patient questionnaires. We believe that all of these processes are critical to measuring quality and treatment outcomes, but without CRH, all of these processes can be a challenge for many GI practices to manage on their own.

CRH has established itself as a long-standing, trusted partner in the GI community through the CRH O’Regan System due to its focus on the patient and by providing a level of service to both the GI and practice staff that we believe is unparalleled in the industry. CRH Anesthesia Services continues to achieve this same high level of quality and service, while leveraging the relationships that have been established with approximately 3,200 GIs throughout the country to date.

As a result, we believe the Company has established its reputation as a high-quality provider of, anesthesia services, thereby fostering maintenance and adoption of its services. This may lead to other non-GI anesthesia opportunities in the future.

Specialized Skill and Knowledge

The Company maintains national medical directors responsible for reviewing, implementing and supporting evidence based clinical practices. The Company’s clinical and operational thought leaders serve on the Quality Management Committee, chartered to help drive the clinical quality of the Company and to ensure that all patients receive the highest quality of care. Committee members review specific cases, research, survey readiness practices and various other data with the intent to continuously enhance their understanding of anesthesia care and to disseminate learnings and best practices Company-wide. Often these learnings are transferred through on-site provider education sessions and in-services.

To support the independent needs of providers, the Company offers both full-time as well as intermittent work schedules and compensation structures. The Company has insourced recruitment to ensure alignment and focuses efforts on experienced providers, typically maintaining three or more years of clinical experience. A defined provider on-boarding process orients each provider to their respective facilities and clinical policies and procedures of the Company. Once onboarded, the ability to retain these providers resides in the Company’s competitive compensation and benefits, strong clinical support and expansive clinical opportunities across the broad portfolio of sites nationally.

The Company focuses diligently on the overall patient experience delivered across the communities served. Patient experience is measured through a survey system, offering real-time patient and caregiver insights. Feedback from the surveys is consistently monitored at the local level as well as by the centralized Quality Management Committee in order to drive change.

Additional areas of expertise include payer and provider credentialing, payer contracting and revenue cycle management and optimization, which is provided through an exclusive relationship with an outsourced provider. These key practices ensure continual alignment with regulatory requirements as well as the efficient and optimal collection of revenue.

The Company has streamlined and standardized their ability to deliver these specialized skills to businesses through their dedicated integration resources. The integration team ensures a seamless transition and onboarding experience for GI physicians and anesthesia providers alike. As part of the integration process, clinical and regulatory compliance policies and practices promote ethical and compliant practices, while also providing internal controls to proactively address any identified potential concerns. Fundamentals include provider education and access to compliance leadership and an anonymous compliance program hotline to report and address potential concerns or non-compliant behaviors.

Competition

The majority of GI ASCs are currently utilizing anesthesia services for its endoscopic procedures through groups affiliated with their GI practice. It is these groups the Company targets for acquisition or partnership. The remainder primarily utilize 3rd party management or staffing companies. These 3rd parties are generally small, fragmented, and not well-capitalized, offering a more limited opportunity for acquisition.

Those GI ASCs not currently utilizing anesthesia for its endoscopic procedures are targets for the Company’s MAC Development Program. Local 3rd party management and staffing companies compete for these programs, however they do not offer the GI ASCs the same breadth of services, nor the potential for a future acquisition.

Additionally, large GI practices, increasingly led by private equity groups, are active in acquiring and consolidating physician practices, including related ancillary services, such as GI anesthesia. The Company is currently partnered with a number of these GI practices and believes its best-in-class offering provides a compelling service partnership opportunity to these platforms, allowing them to scale without being distracted by trying to resource and manage a non-core function.

The Company plans to continue to primarily focus on the GI market and leverage its reputation for high-quality value-added service, established through its CRH O’Regan System business, to consolidate the market and further establish itself as a trusted anesthesia provider.

Intangible Properties

The Company’s intangible properties pertaining to the anesthesia business include its exclusive professional service agreements with each of the serviced facilities. The majority of our agreements are multi-year and contain auto-renewal features.

Foreign Operations

While the Company’s headquarters are in Vancouver, British Columbia, all of the Company’s revenues for anesthesia services are generated in the United States.

Economic Dependence

Though highly recommended, GI endoscopies such as colorectal screenings, are primarily elective procedures and are therefore susceptible to the dynamics of the general economy, which can influence the proportion of the population covered by private insurance and the number of patients willing to pay relevant copays and deductibles, thereby influencing overall procedure volumes.

The Company’s anesthesia services are dependent upon the continuous recruitment and retention of qualified Anesthetists and Anesthesiologists. As the demand for Anesthetists and Anesthesiologists in hospitals and non GI ASC’s increases, there is a potential for cost increases and competition for these resources. See the risk factor titled “Our ability to successfully recruit and retain qualified anesthesiologists or other independent contractors” in Item 1A.

The Company’s anesthesia services rely upon the ample and continual supply of Propofol or potential sedation alternative. When necessary, CRH currently sources Propofol through supply agreements with narcotics manufacturers and its physicians and medical practitioners. See the risk factor titled “Our dependence on suppliers could have a material adverse effect on our business, financial condition and results of operations” in Item 1A.

We depend primarily on U.S. government, third party commercial and private and governmental third-party sources of payment for the services provided to patients. The amount we receive for our services may be adversely affected by market and cost factors, as well as other factors over which we have no control, including changes to the Medicare and Medicaid payment systems. For a description of the risks relating to changes in U.S. government health care programs, see the risk factors titled “Changes to payment rates or methods of third-party payors, including United States government healthcare programs, changes to the United States laws and regulations that regulate payments for medical services, the failure of payment rates to increase as our costs increase, or changes to our payor mix, could adversely affect our operating margins and revenues”, “We are unable to predict the impact of health reform initiatives, including reform initiatives relating to the ACA”, and “Congress or states may enact laws restricting the amount out-of-network providers of services can charge and recover for such services” in Item 1A.

Though the co-pay and deductible for anesthesia during screening colonoscopies was eliminated in 2015 as a part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “PPACA”), many private healthcare plans in the United States have deductibles and other patient-related costs. As a result of these plans, payor mix, and other factors, the Company may experience fluctuations in quarterly revenue.

Revenue from anesthesia services was $97,688,095 and $110,306,431 for the years ended December 31, 2020 and 2019, respectively. The decrease in revenue year over year was driven by COVID-19 and its impact on case volumes, offset by additional revenue from acquisition activity in 2019 and 2020.

Research and Development

The Company is not engaged in any research and development activities.

Government Regulation

Healthcare Reform

The Patient Protection and Affordable Care Act (the “ACA”) contains a number of provisions that have affected us and, absent amendment or repeal, may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the Federal Civil False Claims Act and other healthcare fraud and abuse laws. Moreover, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion.

The ACA remains subject to continuing legislative and administrative flux and uncertainty. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact substantial or target changes to the ACA in the future. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future.

At the end of 2017, Congress repealed the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty, known as the individual mandate. In light of these changes, in December 2018, a federal district court in Texas declared that key portions of the ACA were inconsistent with the United States Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal court of appeals upheld the district court’s conclusion that part of the ACA is unconstitutional but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. These legal proceedings are likely to continue for several years, and the fate of the ACA will be unresolved and uncertain during this period.

If the ACA is repealed or further substantially modified by judicial, legislative or administrative action, or if implementation of certain aspects of the ACA are diluted, delayed or replaced with a “Medicare for All” or single payor system, such repeal, modification or delay may impact our business, financial condition, results of operations, cash flows and the trading price of our securities. We are unable to predict the impact of any repeal, modification or delay in the implementation of the ACA, including the repeal of the individual mandate or implementation of a single payor system, on us at this time.

The Medicare Access and CHIP Reauthorization Act

Medicare pays for most physician services based upon a national service-specific fee schedule. The Medicare Access and CHIP Reauthorization Act (“MACRA”) provided physicians 0.5% annual increases in reimbursement through 2019 as Medicare transitioned to a payment system designed to reward physicians for the quality of care provided, rather than the quantity of procedures performed. MACRA requires physicians to choose to participate in one of two payment formulas, Merit-Based Incentive Payment System (“MIPS”) or Alternative Payment Models (“APMs”). Beginning in 2020, MIPS will allow eligible physicians to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be reduced for those who are underperforming against those same metrics and measures. As an alternative, physicians can choose to participate in advanced APMs, and physicians who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. Our affiliated physicians achieved bonus payments in 2020 through participation in the MIPS, although the amounts of such bonus payments is not currently known. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.

We cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

“Surprise” Billing Legislation

“Surprise” medical bills arise when an insured patient receives care from an out-of-network provider resulting in costs that were not expected by the patient. The bill is a “surprise” either because the patient did not expect to receive care from an out-of-network provider, or because their cost-sharing responsibility is higher than the patient expected. For the past several years, state legislatures have been enacting laws that are intended to address the problems associated with surprise billing or balance billing.

In December 2020, Congress passed the "No Surprises Act", legislation that is meant to address certain types of surprise medical bills by a) limiting consumer costs for such services to cost-sharing amounts that would apply to in-network services; b) banning providers from billing consumers above these cost-sharing amounts; and c) requiring providers and payors to negotiate payment for the out-of-network claims independently of the consumer. Any unresolved disputes can be submitted to an independent dispute resolution process, whereby an arbitrator can choose one of the amounts submitted by the two parties. Importantly, there is no benchmark payment rate mandated by the legislation; instead the arbitrator may consider factors such as: information submitted by the parties, training, education, experience, quality, patient acuity and complexity of services. Other factors may include market share, prior contracted rates, efforts to join the network, and median in-network rates. The arbitrator is prohibited from considering usual and customary charges, or rates paid by governmental insurance plans, including Medicare and Medicaid. This legislation is scheduled to go into effect in 2022, with implementing regulations expected to be issued starting in 2021. The No Surprises Act may have an unfavorable impact on out-of-network reimbursement that we receive.

Many important elements of the No Surprises Act, including the rules regarding the arbitration process, for example, are yet to be established. As such, the full effects of the legislation on payors and providers cannot be determined at this early stage.

We cannot predict the ultimate direction or scope of any impact that these changes will have on our ability to contract with private payors at favorable reimbursement rates or to remain in contract with such payors, nor can we provide any assurance that future legislation or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

Human Capital Resources

Corporate Culture: We place a strong emphasis on our employees’ contribution of talents and efforts towards our mission of ethical care. All individuals working for CRH are charged with actively participating in our mission and conducting themselves in accordance with the standards that our patients, partners and colleagues have come to expect from us.

Workforce Composition: As of December 31, 2020, we had 52 employees supporting our CRH O’Regan business, CRH Anesthesia Management LLC and corporate operations. In addition, we had 522 anesthesia providers, including 81 full-time, 40 part-time, and relationships with 401 independent contractors and other third party providers in connection with the Company’s anesthesia services business. Approximately 54% of our employed anesthesia providers and corporate employees were female and 40% of the Company’s corporate employees in managerial roles were female. None of our employees are represented by a labor organization or covered by a collective bargaining arrangement. We consider our relationship with our employees and independent contractors to be excellent.

Recruiting and Retention: We have relatively low levels of employee turnover and we have been able to continue to attract employees and independent contractors to grow our headcount in support of our three business segments.

Competitive Pay/Benefits: Our corporate compensation program is designed to align with the Company’s performance and to provide the proper incentives, including participation in our equity compensation programs, in order to attract, retain and motivate employees to achieve superior results. We value achieving performance objectives and recognize the significant role our employees play in our achievements. We consider our anesthesia providers to be essential contributors to our anesthesia services business and key to our revenue generation. We monitor our compensation programs and provide what we consider to be a competitive mix of compensation and benefits for all of our employees.

Workplace Safety: The health and safety of our employees is a priority at CRH Medical Corporation. We continued to have a low work-related injury and illness rate, which was 3% for the 2020 calendar year. We have managed our response to the COVID-19 pandemic through continuous communication within the Company regarding the impacts of COVID-19 in the workplace and the implementation of new health and safety protocols and procedures that our employees and partners continue to follow. We enabled our corporate employees to have greater flexibility with remote work options and, when on site, we implemented temperature and symptom screening at office locations; developed physical distancing procedures for employees when onsite; and provided additional personal protective equipment and cleaning supplies. Our anesthesia providers handled both essential and, in accordance with state laws, other procedures, and as a result, many providers continued operating during the COVID-19 pandemic with increased safety protocols to preserve business continuity without sacrificing our commitment to keeping our colleagues and patients safe during the COVID-19 pandemic.

Corporate Structure

CRH was incorporated under the name Medsurge Medical Products Corp. on April 12, 2001 by registration of a Memorandum and Articles pursuant to the Company Act (British Columbia). The Company transitioned under the Business Corporations Act (British Columbia) on March 15, 2005 and changed its name to CRH Medical Corporation on April 28, 2006.

The registered and records offices of the Company are located at Suite 2600, 595 Burrard Street, Three Bentall Center, Vancouver, British Columbia, V7X 1L3, and its head office and principal place of business is located at Suite 619 – 999 Canada Place, World Trade Center, Vancouver, British Columbia, V6C 3E1, telephone (604) 633-1440, facsimile (604) 633-1443.

The Company has the following wholly-owned subsidiaries:

Subsidiary	Interest	Date of Incorporation	Jurisdiction of Incorporation
CRH Medical Corporation	100%	May 20, 2005	Delaware, U.S.
CRH Anesthesia Management LLC	100%	November 12, 2014	Delaware, U.S.
Gastroenterology Anesthesia Associates LLC (“GAA”) ⁽¹⁾	-	June 12, 2012	Georgia, U.S.
NC GAA, PC (“NC GAA”) ⁽¹⁾	-	March 18, 2015	North Carolina, U.S.
CRH GAA PLLC (“CRH GAA”) ⁽¹⁾	-	April 11, 2016	Texas, U.S.
CRH Anesthesia of Gainesville LLC	100%	October 31, 2014⁽²⁾	Florida, U.S.
CRH Anesthesia of Florida LLC	100%	April 7, 2014(2)	Florida, U.S.
CRH Anesthesia of Cape Coral LLC	100%	Jul 20, 2015	Florida, U.S.
CRH Anesthesia of Knoxville LLC	100%	August 14, 2015	Tennessee, U.S.
CRH Anesthesia of Colorado, LLC	100%	March 9, 2016(3)	Delaware, U.S.
Alamo Sedation Associates LLC	100%	August 17, 2017	Texas, U.S.
Shreveport Sedation Associates, LLC	100%	March 19, 2018	Louisiana, U.S.
CRH Anesthesia of Ohio, LLC	100%	March 23, 2018	Delaware, U.S.
CRH GAA of Washington, PLLC (“CRH GAAW”) ⁽¹⁾	-	July 3, 2018	Washington, U.S.
Lake Erie Sedation Associates, LLC	100%	September 4, 2018	Ohio, U.S.
CRH Anesthesia of Georgia, LLC	100%	March 22, 2019	Georgia, U.S.
Anesthesia Care Associates, LLC	100%	August 16, 2011	Indiana, U.S.
CRH Anesthesia of Virginia, LLC	100%	January 2, 2020	Virginia, U.S.

(1)

The shares of GAA, NC GAA, CRH GAA, and CRH GAAW are owned by individual medical practitioners. The operations and corporate structure of these subsidiaries are governed by certain agreements, including loans by CRH Medical Corporation (Delaware) to the individual medical practitioners. These agreements, including the affirmative and negative covenants therein in favor of CRH, effectively provide CRH control of GAA, NC GAA, CRH GAA, and CRH GAAW.

(2)	On February 23, 2015, IPS of Gainesville, LLC changed its name to CRH Anesthesia of Gainesville LLC. On February 12, 2015, Coastal Anesthesia Providers, LLC changed its name to CRH Anesthesia of Sarasota LLC. Subsequently, its name was changed to CRH Anesthesia of Florida LLC.

(3)	On June 23, 2017, CRH Anesthesia of Arapahoe LLC changed its name to CRH Anesthesia of Colorado, LLC

The Company also holds ownership interests in the following subsidiaries:

Subsidiary	Interest ⁽¹⁾	Date of Incorporation	Jurisdiction of Incorporation
Macon Gastroenterology Anesthesia Associates LLC (“MGAA”)	65%	November 30, 2015	Georgia, U.S.
Knoxville Gastroenterology Anesthesia Associates LLC (“KGAA”)	51%	July 29, 2015	Tennessee, U.S.
Austin Gastroenterology Anesthesia Associates PLLC (“AGAA”)	51%	April 11, 2016	Texas, U.S.
Greater Boston Anesthesia Associates, PLLC (“GBAA”)⁽²⁾	65%	October 4, 2017	Massachusetts, U.S.
Arapahoe Gastroenterology Anesthesia LLC (“AGA”)	51%	March 8, 2016	Delaware, U.S.
Osceola Gastroenterology Anesthesia Associates LLC (“OGAA”)	60%	January 12, 2017	Florida, U.S.
DDAB LLC (“DDAB”)	51%	November 4, 2015	Georgia, U.S.
West Florida Anesthesia Associates LLC (“WFAA”)	55%	June 14, 2017	Florida, U.S.
Central Colorado Anesthesia Associates LLC (“CCAA”)	51%	June 16, 2017	Colorado, U.S.
Raleigh Sedation Associates LLC (“RSA”)	51%	August 29, 2017	North Carolina, U.S.
Western Ohio Sedation Associates, LLC (“WOSA”)	51%	March 19, 2018	Ohio, U.S.
Lake Washington Anesthesia Associates, PLLC (“LWA”)	51%	March 8, 2017	Washington, U.S.
Tennessee Valley Anesthesia Associates, LLC (“TVAA”)	51%	November 2, 2018	Tennessee, U.S.
Triad Sedation Associates, LLC (“TSA”)	51%	September 26, 2018	North Carolina, U.S.
South Metro Anesthesia Associates, LLC (“SMAA”)	55%	March 12, 2019	Georgia, U.S.
Crystal River Anesthesia Associates, LLC (“CRAA”)	51%	April 24, 2019	Florida, U.S.
Florida Panhandle Anesthesia Associates, LLC (“FPAA”)	51%	October 24, 2019	Florida, U.S.
Metro Orlando Anesthesia Associates, LLC (“MOAA”)	75%	January 30, 2020	Florida, U.S.
Orange County Anesthesia Associates, LLC (“OCAA”)	66%	May 6, 2020	Florida, U.S.
FDHS Anesthesia, LLC (“FDHS”)	51%	October 23, 2020	Florida, U.S.
Central Virginia Anesthesia Associates, LLC (“CVAA”)	51%	December 30, 2019	Virginia, U.S.
Lake Lanier Anesthesia Associates, LLC (“LLAA”)	75%	February 27, 2020	Georgia, U.S.
Oconee River Anesthesia Associates, LLC (“ORAA”)	51%	September 26, 2019	Georgia, U.S.
Coastal Carolina Anesthesia Associates, LLC (“CCSA”)	51%	May 27, 2020	North Carolina, U.S.
Western Carolina Sedation Associates, LLC (“WCSA”)	15%	August 30, 2019	North Carolina, U.S.
Anesthesia Dynamics Management, LLC	5.56%	April 25, 2018	Delaware, U.S.

(1)	As a result of the operating agreements for the above entities, the Company controls MGAA, KGAA, AGAA, GBAA, AGA, OGAA, DDAB, WFAA, CCAA, RSA, WOSA, LWA, TVAA, TSA, SMAA, CRAA and FPAA.

(2)

On January 1, 2018, we filed a Certificate of Amendment with the Secretary of the Commonwealth of Massachusetts to change the name of Community Anesthesia, PLLC to Greater Boston Anesthesia Associates, PLLC. It remains the same legal entity for purposes of CRH’s agreements with the endoscopy centers serviced by Community Anesthesia, PLLC.

Available Information

This Annual Report on Form 10-K and our future quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as appropriate, with the U.S. Securities and Exchange Commission (“SEC”) and the Canadian Securities Administrators (“CSA”). These reports are available free of charge on our website, www.crhmedcorp.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the CSA. Information contained on, or accessible through, our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this document is an inactive textual reference.

Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through the CSA’s System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. Our reports can also be read and copied by the public at the SEC’s Public Reference Room at 100 F Street, NE., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Item 1A.

Risk Factors

You should consider carefully the following risk factors, as well as the other information in this Annual Report on Form 10-K, including our consolidated financial statements and notes thereto. If any of the following risks actually occur, our business, financial conditions, results of operations and prospects could be materially adversely affected. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Cautionary Note Regarding Forward-Looking Statements.” The risks below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations, and / or prospects.

Risks Related to the Proposed Transaction with WELL Health

We and WELL Health may be unable to satisfy the conditions required to complete the Arrangement, and any delay in completing the Arrangement could result in additional costs or other effects associated with uncertainty about the transaction. Failure to complete the Arrangement could adversely impact the market price of our common shares as well as our business and operating results.

The consummation of the Arrangement is subject to a number of conditions. We cannot make any assurances that the Arrangement will be consummated on the terms or timeline currently contemplated or at all.

Among other conditions, consummation of the Arrangement is subject to approval of the Arrangement by two-thirds of the votes cast by our shareholders and two-thirds of the votes cast by our shareholders, holders of our stock options and holders of our share units, voting as a single class, as well as obtaining the necessary interim and final orders of the Supreme Court of British Columbia. Completion of the Arrangement is also conditioned upon obtaining all required regulatory approvals or clearances, including expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The requirement to receive these clearances before the consummation of the Arrangement could delay the Arrangement or result in an inability to complete the Arrangement. Any delay in the completion of the Arrangement could result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the Arrangement.

To the extent that the market price of our common shares reflects positive market assumptions that the Arrangement will be consummated, the price of such shares may decline if the Arrangement is not consummated for any reason or in a timely manner.

We may also be subject to additional risks if the Arrangement is not consummated, including:

•

depending on the reasons for termination of the Arrangement, the requirement that we pay WELL Health a termination fee of $10 million in cash;

•

the fact that substantial costs related to the Arrangement, such as legal, accounting, filing, financial advisory and financial printing fees, must be paid regardless of whether the Arrangement is completed;

•

possible negative reactions from our customers, suppliers, partners, employees and independent contractors which could adversely affect our ability to maintain relationships with such persons, impair our ability to retain and motivate key personnel and lead to the disruption of our ongoing business or otherwise adversely affect our business and financial results, without our realizing any of the benefits of having the Arrangement completed;

•

the fact that matters relating to the Arrangement may require substantial commitments of time and resources by our management, which could otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company; and

•

the fact that under the Arrangement Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Arrangement, which may adversely affect our ability to execute certain of our business strategies or pursue certain opportunities that would have been beneficial to us an independent company.

The pendency of the Arrangement could adversely affect our business and operations.

Whether the Arrangement is ultimately consummated or not, its pendency could have a number of negative effects on our businesses, including potentially disrupting our regular operations, diverting the attention of our management team, employees and independent contractors, or increasing workforce turnover. The completion of the Arrangement, including, for example, efforts to obtain regulatory clearances, will require significant time and attention from our management and may divert attention from the day-to-day operations of our business. Any uncertainty over our ability or the ability of WELL Health to complete the Arrangement could make it more difficult for us to retain certain key customers, employees, partners or suppliers.

Any parties with which we have business relationships, either contractual or operational, may experience uncertainty as to the future or desirability of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

The Arrangement Agreement also subjects us to restrictions on our business activities and includes, among other things, covenants requiring us to conduct our businesses in the ordinary course and to comply with certain other operating obligations prior to consummation of the Arrangement.

The Arrangement Agreement limits our ability to pursue alternatives to the Arrangement.

The Arrangement Agreement contains provisions that make it more difficult for us to enter into alternative transactions. Under the Arrangement Agreement, we are subject to certain restrictions on our ability to solicit or otherwise facilitate alternative acquisition proposals from third parties, provide information about the Company to third parties or engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. The Arrangement Agreement also provides that our board of directors will not change its recommendation that our securityholders vote in favor of the Arrangement, and will not approve any other agreement with respect to an acquisition proposal, subject to limited exceptions.

In addition, we may be required to pay a termination fee of $10 million to WELL Health if the Arrangement is not consummated under specified circumstances, including, among others, if the Arrangement Agreement is terminated by us to enter into a definitive agreement with respect to a superior proposal or if the Arrangement Agreement is terminated by WELL Health as a result of a change of recommendation by our board of directors. These provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing such acquisition, even if such party were prepared to pay consideration with a higher per-share value than the currently proposed Arrangement consideration. Furthermore, the requirement to pay a termination fee under certain circumstances may result in a third party proposing to pay a lower per-share price to acquire us than it might otherwise have proposed to pay because of the added expense of the $10 million termination fee that may become payable by us in certain circumstances.

Risks Related to our Businesses and Strategy

Our operations and financial results have been and could be further harmed by the COVID-19 pandemic.

Our business and financial results have been and may continue to be adversely affected by the COVID-19 pandemic. As a result of the COVID-19 pandemic, patients in the United States have cancelled or deferred non-emergent procedures or otherwise avoided medical treatment, resulting in reduced patient volumes and operating revenues and income from both our Products and Anesthesia Services businesses. Our business, particularly our Anesthesia Services, depends on the adequate availability of our specialized healthcare providers. To the degree that COVID-19 affects their health, or that alternate demands for their services affects their ability to return to service our customers, our business could be adversely affected. Payment for our anesthesia services depends on an orderly and timely processing of our claims, or invoices, to healthcare insurers and patients. Any COVID-19 pandemic-related delays or disruptions in the processing of our claims caused by disruptions in operations at the insurers, or by patients’ reduced ability to pay, could affect our revenues and income. Any interruption in our Product contract manufacturer’s or Product distributor’s ability to service our orders due to COVID-19 effects on their businesses could adversely affect our Product sales and revenue. In addition, in the event that the current COVID-19 outbreak, or any actions of governmental authorities taken in connection with COVID-19, disrupt the production or supply of pharmaceuticals and medical supplies, our business could be adversely affected. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the geographic spread of the disease, the duration of the outbreak, public health restrictions on travel and in-person interactions in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. We cannot presently predict the duration, scope and severity of any potential business closures or disruptions, or the overall effects of COVID-19 on our operations.

We provide anesthesia services primarily through fee for service payor arrangements. Under these arrangements, we collect fees directly through the entities at which anesthesia services are provided. We assume financial risks related to changes in third-party reimbursement rates and changes in payor mix. Our revenue decreases if our volume or reimbursement decreases, but our expenses may not decrease proportionately.

We depend primarily on U.S. government, third party commercial and private and governmental third-party sources of payment for the services provided to patients. The amount we receive for our services may be adversely affected by market and cost factors, as well as other factors over which we have no control, including changes to the Medicare and Medicaid payment systems. U.S. health reform efforts at the federal and state levels may increase the likelihood of significant changes affecting U.S. government healthcare programs and private insurance coverage. U.S. Government healthcare programs are subject to, among other things, statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or reimbursements, all of which could materially increase or decrease payments we receive from these government programs. Further, Medicare reimbursement rates are increasingly used by private payors as benchmarks to establish commercial reimbursement rates and any adjustment in Medicare reimbursement rates or formulas may impact our reimbursement rates from such private payors as well.

As the Medicare program transitions away from fee for service payment models and toward value-based payment methodologies, we may be required to make additional investments to receive maximum Medicare reimbursement or to avoid reduction in Medicare reimbursement. For example, in 2019, the Merit-Based Incentive Payment System which requires providers to implement and report certain quality measures, resulted in providers receiving payment adjustments of -5% to +1.7%, based on their performance with respect to clinical quality, resource use, clinical improvement activities, and meaningful use of electronic health records.

There are significant private and public sector pressures to reign in healthcare costs and to lower reimbursement rates for medical services, and we believe that such pressures will continue. Major payors of healthcare, including U.S. federal and state governments and private insurers, have taken steps in recent years to monitor and control costs, eligibility for, and use and delivery of healthcare services, and to revise payment methodologies. Further, the ability of commercial payors to control healthcare costs may be enhanced by the increasing consolidation of insurance and managed care companies, and the incursion of other private companies into the healthcare industry, all of which may reduce our ability to negotiate favorable contracts with such payors.

Furthermore, with an increase in cost-sharing strategies employed by insurers, including high-deductible plans, higher co-pays and co-insurance limits, patient balances make up an increasing share of the Company’s revenue. There can be no assurance that the collection of these patient-level balances will remain at a stable or predictable rate, particularly in a declining economy. We may not be able to offset any declines in patient payments with increases in volumes, improved insurance reimbursement rates, or corresponding expense reductions, and may therefore experience adverse operating margins and declines in profitability.

We expect efforts to impose greater discounts and more stringent cost controls by government and other payors to continue, thereby either reducing the payments we receive for our services, or in some cases, outright denying coverage of our services. The effect of cost containment trends will depend, in part, on our payor mix. We may not be able to offset reduced operating margins through cost reductions, increased volumes, the introduction of additional procedures or otherwise. In addition, future changes to reimbursement rates by government healthcare programs, cost containment measures by private third-party payors or other factors affecting payments for healthcare services may adversely affect our future revenues, operating margins, and profitability.

In our fee for service arrangements, which represent substantially all of our revenues, we collect the fees for services. Under these arrangements, we assume financial risks related to changes in the mix of patients covered by government-sponsored healthcare programs and third-party reimbursement rates. A substantial decrease in patient volumes, or an increase in the number of patients covered by government healthcare programs, as opposed to commercial plans that have higher reimbursement levels, or any potential shift in reimbursement mix could reduce our profitability and adversely impact future revenue growth. In some cases, our revenue decreases if our volume or reimbursement decreases, but our expenses may not decrease proportionately.

We operate a large number of anesthesia entities in many different markets. Each entity has a different mix of contracted and non-contracted relationships with commercial payors. In cases where our providers are not contracted, most payors have radiology, anesthesiology, and pathology provisions that limits the amount payable by patients when a non-contracted provider is utilized. In most cases, reimbursements we receive for anesthesia services are greater when we are non-contracted than they would be if we were contracted. As our anesthesia entities mature, we may choose or be required to enter into contracts with a majority of existing commercial payors which may result in decreased revenue, but our expenses may not decrease proportionately. Payors may also change the amount reimbursed for non-contracted providers which may also result in decreased revenue, but our expenses may not decrease proportionately.

As a part of our growth strategy, we regularly explore potential acquisitions of complementary businesses, technologies, services or products as well as potential strategic alliances. We may be unable to find suitable acquisition candidates or appropriate

partners with which to form alliances. Even if we identify appropriate acquisition or alliance candidates, we may be unable to complete the acquisitions or alliances on favorable terms, if at all, as a result of changes in tax laws, healthcare regulations, financial market, or other economic or market conditions. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates, government regulation and replacement product developments in our industry. Competition may intensify due to the ongoing consolidation in the healthcare industry, which may increase our acquisition costs. In addition, the process of integrating an acquired business, technology, service or product into our existing operations could result in unforeseen difficulties and expenditures. Integrating completed acquisitions into our existing operations involves numerous short-term and long-term risks, including diversion of our management’s attention, failure to retain key personnel, long-term value of acquired intangible assets and acquisition expenses. In addition, we may be required to comply with laws, rules and regulations that may differ from those of the states in which our operations are currently conducted. Moreover, we may not realize the anticipated financial or other benefits of an acquisition or alliance.

Future acquisitions could also involve the issuance of equity securities, the incurrence of debt, contingent liabilities or amortization of expenses related to other intangible assets, any of which could adversely impact our financial condition or results of operations. The issuance of shares for an acquisition may result in dilution to our existing shareholders and, depending on the number of shares that we issue, the resale of such shares could affect the trading price of our common shares. In addition, equity or debt financing required for such acquisitions may not be available.

Any corporate transaction will be accompanied by certain risks including but not limited to:

•

exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research. Such liabilities may include liabilities for failure to comply with applicable laws, or liabilities relating to medical malpractice claims. Generally, we obtain indemnification agreements from the sellers of businesses acquired with respect to pre-closing acts, omissions and other similar risks. It is possible that we may seek to enforce indemnification provisions in the future against sellers who may no longer have the financial wherewithal to satisfy their obligations to us. Accordingly, we may incur material liabilities for past activities of acquired businesses;

•

certain acquired businesses may derive a greater portion of their revenue from government health programs than what we recognize on a consolidated basis, or may have business models with lower operating margins than ours, which could affect our overall payor mix or operating results in future periods;

•

higher than anticipated acquisition costs and expenses;

•

the difficulty and expense of integrating operations, systems, and personnel of acquired companies;

•

disruption of our ongoing business;

•

uncertainty that an acquired business will continue to maintain its pre-acquisition revenue and growth rates, or be profitable;

•

inability to retain key customers, vendors, and other business partners of the acquired company;

•

diversion of management’s time and attention;

•

the realization of financial and operating risks not fully anticipated; and

•

potential challenges under antitrust laws, either before or after an acquisition is consummated, which could involve substantial legal costs and result in the Company having to abandon the transaction or make a divestiture.

We may not be able to successfully overcome these risks and other problems associated with acquisitions and this may adversely affect our business, financial condition or results of operations.

Our senior management has been key to our growth, and we may be adversely affected if we lose any member of our senior management.

The Company is dependent on its senior management. Consequently, our ability to retain these individuals and attract other qualified individuals is critical to our success. In addition, because of a relative scarcity of individuals with the high degree of education and business experience required for our business, competition among companies for qualified employees is intense and, as a result, we may not be able to attract and retain such individuals on acceptable terms, or at all. The loss of key management personnel or our inability to attract, retain, and motivate sufficient numbers of qualified management personnel could have a material adverse effect on the Company.

Incentive provisions for our key executives include the granting of equity-based compensation that vest over time or are based on performance and are designed to encourage such individuals to stay with us. However, a low share price, whether as a result of

disappointing growth, revenues, income, or as a result of market conditions generally, could render such agreements of little value to our key executives. In such event, our key executives could be susceptible to being hired away by our competitors or other businesses who could offer a better compensation package. If we are unable to attract and retain key personnel, our business, financial condition, and results of operations may be adversely affected.

ASCs or other customers may terminate or choose not to renew their agreements with us.

Our professional service agreements with our partner ASCs currently range in duration from one year to 15 years and can be renewed if agreed upon by both parties and contain auto-renewal features. To date, with the exception of our contracts with GAA-affiliated ASC’s, a contract in Sarasota, Florida, which was terminated as a result of an ASC closing, a contract in Gainesville, FL, which was not renewed by the facility amidst profitability concerns by the Company, and NC GAA contracts that the Company chose not to renew, all other professional service agreements have been renewed as required. Our contract with GAA-affiliated ASCs, currently our largest customer contributing 17% of our total revenue in 2020 and 20% of our total revenue in 2019, expires October 31, 2021 and will not be renewed.

Our customers may cancel or choose not to renew their contracts with us. Changes in economic conditions, including decreased government and commercial reimbursement, hospital acquisition of ASCs for physician practices, or changes in the state or federal regulatory environment could influence future actions of our partners or other customers. To the extent that any significant agreement or agreements with our partners or other customers are canceled, or are not renewed or replaced with other arrangements having at least as favorable terms, our business, financial condition and results of operations could be materially adversely affected.

If we are unable to maintain or increase anesthesia procedure volumes at our existing ASCs, the operating margins and profitability of our anesthesia segment could be adversely affected.

Part of our growth strategy for our anesthesia services segment includes increasing our revenues and earnings through increasing the number of procedures performed at the ASCs we service. Procedure volume at the ASCs we serve may be adversely impacted by economic conditions, high unemployment rates, natural disasters, physicians who no longer utilize the ASCs we serve, and other factors that may cause patients to delay or cancel procedures. There are no assurances that we will be successful at increasing or maintaining procedure volumes, revenues and operating margins at our ASCs.

We may not be able to successfully recruit and retain qualified anesthesia service providers or other independent contractors.

The healthcare business is highly competitive. We compete with other healthcare providers, primarily hospitals and other surgery centers in recruiting and retaining a sufficient number of anesthetists and anesthesiologists to perform our services operations. We compete with many types of healthcare providers including teaching, research, and government institutions and other practice groups for the services of qualified anesthesiologists.

Some of our competitors may have greater resources than we do, including financial, marketing, staff and capital resources. We may not be able to continue to recruit new anesthesiologists or renew contracts with existing contractors on acceptable terms. If we are not able to do so, our ability to provide anesthesia services and generate revenue and net income could be adversely affected.

We may be unable to enforce the non-competition and other restrictive covenants in our agreements.

As a material term and condition of each anesthesia medical practice acquisition, the sellers and owners enter into a restrictive covenant in favor of our purchasing entity, whereby the sellers and owners agree not compete in a specific restricted territory (the “Restrictive Covenants”). The restricted territory varies based upon the jurisdiction where the anesthesia medical practice is located. The length of the restricted period also varies based upon the jurisdiction where the anesthesia medical practice is located. If the sellers and owners, individually or collectively, breach the Restrictive Covenants, the definitive purchase agreements provide us with the remedies of injunctive relief and liquidated damages based upon a negotiated, predetermined estimate of damages. Additionally, we have negotiated additional special covenants, which vary from transaction to transaction, that provide us with the remedy of liquidated damages based upon a negotiated, predetermined estimate of damages. If a court determines that such liquidated damages are unenforceable as a penalty, as a result of such determination our business, financial condition and results of operations could be adversely affected.

The law governing non-competition agreements and other forms of restrictive covenants varies from jurisdiction to jurisdiction. Although we believe that the Restrictive Covenants applicable to our anesthesiologists, contractors, and other business partners are reasonable in scope and duration and therefore enforceable under applicable law, courts and arbitrators in some jurisdictions are reluctant to strictly enforce non-competition agreements and restrictive covenants. If we are unable to enforce the Restrictive

Covenants in these agreements, our business, financial condition, results of operations and cash flows could be materially adversely affected. We cannot predict whether a court or arbitration panel would enforce these Restrictive Covenants.

Changes in the medical industry and the economy may affect the Company’s business.

The Company’s business may be affected by factors beyond its control, such as an economic recession or the aggressive pricing policies of competitors. Future technological advances in the continually-changing medical industry can be expected to result in the availability of new products and services that will compete with the products and services that the Company may develop or render the Company’s current product and anesthesia services obsolete. We expect that market demand, governmental regulation, government and third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and services and could adversely impact our business, financial condition, and results of operations.

A significant number of our affiliated physicians could leave our affiliated ASCs.

Our affiliated physicians may leave our affiliated ASCs for a variety of reasons, including retirement, death and to provide services for other types of healthcare providers, such as teaching, research and government institutions, hospitals and health systems and other practice groups. If a substantial number of our affiliated physicians leave our affiliated ASCs, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Our industry is already competitive and could become more competitive.

The healthcare industry is highly competitive and subject to continual changes in the methods by which services are provided and the manner in which healthcare providers are selected and compensated.

Because some of our operations consist primarily of anesthesia services provided within ASCs, we compete with other healthcare services companies and physician groups for contracts with ASCs to provide our services to patients. Our anesthesia services are provided under exclusive professional service agreements of varying duration which we may need to renew, renegotiate or replace. Our ability to renew, renegotiate or replace significant agreements will be critical to our success. We also face competition from hospitals to provide our services.

Companies in other healthcare industry segments, some of which have greater financial and other resources than ours, may become competitors in providing gastroenterology services or anesthesia care. Additionally we face competition from healthcare-focused and other private equity groups that are active in acquiring and consolidating physician practices, including related ancillary services, such as GI anesthesia. We may not be able to continue to compete effectively in this industry and additional competitors may enter metropolitan areas where we operate. This increased competition may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Unfavorable economic conditions could have an adverse effect on our business.

Global economic conditions continue to be unpredictable and may result in slow economic growth and impact the number of unemployed and under-employed workers. We could experience additional shifts in the nature of patient reimbursement if economic conditions change. This may result in lower patient volumes.

Unfavorable economic conditions could also lead to additional increases in the number of unemployed and under-employed workers and decline in the number of private employers that offer healthcare insurance coverage to their employees. Employers that do offer healthcare coverage may increase the required contributions from employees to pay for their coverage and increase patient responsibility amounts. As a consequence the number of patients who participate in government-sponsored programs or are uninsured could increase. Payments received from government sponsored programs are substantially less than payments received from commercial and other third-party payors. A payor mix shift from commercial and other third-party payors to government payors may result in a decrease in our net revenue per patient case.

The Company may not be successful in marketing its products and services.

In order to sustain and increase revenues, the Company’s products and services must achieve a significant degree of market acceptance. If the Company is unable to promote, market and sell its products and services or secure relationships with physicians and ambulatory surgery centers, the Company’s business, financial condition and results of operations would be materially adversely affected.

Levels of market acceptance for our products and services could be impacted by several factors, many of which are not within our control, including but not limited to:

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safety, efficacy, convenience and cost-effectiveness of our products and services;

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scope of approved uses and marketing approval;

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difficulty in, or excessive costs to, manufacturing;

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infringement or alleged infringement of the patents or intellectual property rights of others;

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maintenance of business arrangements with healthcare providers;

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availability of alternative products or services from our competitors; and

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acceptance of the price of our products and services.

If our competitors are able to develop and market products that are preferred over the CRH O’Regan System, are able to grow service businesses that are preferred over CRH’s anesthesia services or other businesses preferred over other products and services that we may develop, we may not be able to generate sufficient revenues to continue our operations.

We may not be able to contend successfully with competitors. The medical industry is highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new technologies, services and treatments. Certain of our competitors, either alone or together with their collaborators, have substantially greater resources than we do. The existence of other products, services or treatments of which we are not aware, or products, services or treatments that may be developed in the future, may reduce the marketability of the CRH O’Regan System, CRH’s anesthesia services, and any future operations, particularly to the extent such products or services:

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are more effective;

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have fewer or less severe adverse side effects;

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have better patient compliance;

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receive better reimbursement terms;

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are accepted by more physicians;

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have better distribution channels;

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are easier to administer; or

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are less expensive.

Failure to manage third-party service providers may adversely affect our ability to maintain the quality of service that we provide.

We outsource a majority of our revenue cycle management functions to a third-party service provider. If our outsourcing partner fails to perform their obligations in a timely manner or at satisfactory quality levels, or if they are unable to attract or retain sufficient personnel with the necessary skill sets to meet our needs, the quality of our services and operations could suffer. In addition, our reliance on a workforce of others exposes us to disruptions in their business. Our ability to manage any difficulties encountered could be largely outside of our control. Diminished service quality from outsourcing or our inability to utilize service providers could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

Our dependence on suppliers could have a material adverse effect on our business, financial condition and results of operations.

The Company is economically dependent on one critical supplier for the CRH O’Regan System. The supplier, a clean room injection molding manufacturing company based in Ontario, Canada, performs contract manufacturing and assembly for the Company. Currently, the Company has one set of manufacturing molds for each product produced which is used for the injection molding, and these molds are inventoried at the supplier’s facility.

Manufacturing operations are subject to numerous unanticipated technological problems and delays. Our manufacturers are, and will be, subject to regulations specified by the various regulatory bodies such as Health Canada and the FDA. There can be no

assurance that we will be able to comply with all stated manufacturing regulations. Failure or delay by our manufacturers to comply with such regulations or to satisfy regulatory inspections could have an adverse effect on the Company’s business and operations.

The Company’s anesthesia services are dependent on utilizing a continual supply of Propofol. CRH currently sources Propofol through supply agreements with narcotics manufacturers and its physicians and medical practitioners. A breach of any of these agreements, or a deterioration of the relationships with the parties thereto, could result in an interruption of the Company’s Propofol supply. Any interruption in the Company’s Propofol supply could have a material adverse effect on the Company’s anesthesia business and operations.

As the Company is dependent on a minimal number of suppliers for all manufacturing services and procurement of Propofol, any interruption caused by a business shutdown by the supplier (e.g., bankruptcy, fire or labor dispute) could be challenging for the Company. Although the Company mitigates these risks by maintaining open relationships with other suppliers that could perform similar services, maintaining an appropriate level of inventory, and performing quality and business audits of its suppliers on a regular basis, we cannot guarantee that we will be able to enter into new supply contracts, advantageous to us or at all, in the event of a shutdown. Any such shutdown may have a material adverse effect on our business, financial condition or results of operations.

We may write-off intangible assets.

The carrying value of our intangible assets is subject to periodic impairment testing. Under current accounting standards, intangible assets are tested for impairment on a recurring basis and we may be subject to impairment losses as circumstances change after an acquisition. If we record an impairment loss related to our intangible assets, which results from the anesthesia contracts that we acquire or other significant intangible assets, it could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

If we are unable to manage growth, we may be unable to achieve our expansion strategy.

The success of our business strategy depends in part on our ability to expand our operations in the future. Our growth has placed, and will continue to place, increased demands on our management, operational and financial information systems, and other resources. Further expansion of our operations may require substantial financial resources and management attention.

To accommodate our past and anticipated future growth, and to compete effectively, we will need to continue to improve our management, to implement our operational and financial information systems, and to expand, train, manage, and motivate our workforce. Our personnel, systems, procedures, or controls may not be adequate to support our operations in the future. Further, focusing our financial resources and diverting management’s attention to the expansion of our operations may negatively impact our financial results. Any failure to improve our management, to implement our operational and financial information systems, or to expand, train, manage, or motivate our workforce may reduce or prevent our growth.

The continuing development of our products and provision of our services depends upon us maintaining strong relationships with physicians.

The marketing and sales of our products and services is dependent upon our maintaining working relationships with physicians. If we are unable to maintain our strong relationships with these professionals, the development and marketing of our products and services could suffer, which could have a material adverse effect on our consolidated earnings, financial condition, and/or cash flows.

Significant shareholders of the Company could influence our business operations, and sales of our shares by such significant shareholders could influence our share price.

The exercise of voting rights associated with shares held by any significant shareholder of the Company at meetings of shareholders may have significant influences on our business, and operations. If such a shareholder holds those shares for the purpose of investment, and if it were to sell those shares in the market in the future, it could have significant influences on our share price, depending on the market environment at the time of such sale.

As the owner of majority interests in the limited partnerships and limited liability companies that own our anesthesia service businesses, we owe a fiduciary duty to the non-controlling interest holders in these entities and may encounter conflicts between our interests and those of the minority holders. In these cases, our representatives on the governing board of each partnership or joint venture are obligated to exercise reasonable, good faith judgment to resolve the conflicts and may not be free to act solely in our own

best interests. In our role as manager of the limited partnership or limited liability companies, we generally exercise our discretion in managing the business of our anesthesia practices. Disputes may arise between us and our physician partners regarding a particular business decision, or the interpretation of the provisions of the limited partnership agreement or limited liability company operating agreement. These agreements provide for arbitration as a dispute resolution process in some circumstances. There is no assurance that any possible dispute will be resolved amicably, or that any dispute resolution will be on terms satisfactory to us.

Our anesthesia employees and third-party contractors may not appropriately record or document services that they provide.

Our anesthesia employees are responsible for appropriately recording and documenting the services they provide. We use this information to seek reimbursement for their services from third-party payors. In addition, we utilize third-party contractors to perform certain revenue cycle management functions for medical providers and payors, including medical coding and data reporting. If our employees and third-party contractors do not appropriately document, or where applicable, code for their services or our customers’ services, we could be subjected to administrative, regulatory, civil, or criminal investigations or sanctions and our business, financial condition, results of operations and cash flows could be materially adversely affected.

If we are unable to adequately protect or enforce our intellectual property, our competitive position could be impaired.

Our commercial success and competitive position with the CRH O’Regan System are dependent in part upon our proprietary intellectual property, including our ability to:

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obtain patents and maintain their validity;

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protect our trade secrets; and

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effectively enforce our proprietary rights or patents against infringers.

Patent applications may not result in patents being issued. Until a patent is issued, the claims covered by the patent may be narrowed or removed entirely and therefore we may not obtain adequate patent protection. As a result, we may face unanticipated competition, or conclude that, without patent rights, the risk of bringing products to the market is too great. Any patents that we own may be challenged, invalidated or circumvented and may not provide us with protection against competitors. We may be forced to engage in costly and time-consuming litigation in order to protect our intellectual property rights. Patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products or technologies. Patent rights are limited in time and have expiration dates. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do U.S. laws, and the scope of our patent claims also may vary between countries, as individual countries have distinctive patent laws.

In addition to patents, we rely on trade secrets and proprietary know-how. We seek protection, in part, through confidentiality and non-disclosure agreements. These agreements may not provide meaningful protection of our technology and operations model or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information and, in any event, others may develop independently, or obtain access to, the same or similar information. Our failure or inability to protect our trade secrets and proprietary know-how could impair our competitive position.

We may spend significant resources to enforce our intellectual property rights and such enforcement could result in litigation. Intellectual property litigation is complex and can be expensive and time-consuming, and our efforts in this regard may not be successful. We also may not be able to detect infringement. In addition, competitors may design around our technology or develop competing technologies. Patent litigation can result in substantial cost and diversion of effort. Intellectual property protection may also be unavailable or limited in some foreign countries, enabling our competitors to capture increased market position. Patents issued to or licensed by us in the past or in the future may be challenged and held invalid. The invalidation of key intellectual property rights or an unsuccessful outcome in lawsuits filed to protect our intellectual property could have a material adverse effect on our financial condition, results of operations or prospects.

The success of our business depends in part on our ability to obtain and maintain intellectual property protection for our technology and know-how and operate without infringing the intellectual property rights of others. It is possible that as a result of future litigation our products currently marketed may be found to infringe or otherwise violate third party intellectual property rights.

Failure to timely or accurately bill for services could have a negative impact on our net revenue, bad debt expense and cash flow.

Billing for healthcare services is an important and complex aspect of our business. We bill numerous and varied payors, such as managed care payors and Medicare Medicaid, and self-pay patients. These different payors typically have different billing requirements that must be satisfied prior to receiving payment for services rendered. Reimbursement is typically conditioned on our documenting medical necessity, the appropriate level of service and correctly applying diagnosis codes. Incorrect or incomplete documentation and billing information could result in non-payment for services rendered.

Additional factors that could complicate our ability to timely or accurately bill payors include:

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disputes between payors as to which party is responsible for payment;

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failure of information systems and processes to submit and collect claims in a timely manner;

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variation in coverage for similar services among various payors;

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our reliance on third-parties, whom we do not control, to provide billing services;

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the difficulty of adherence to specific compliance requirements, diagnosis coding and other procedures mandated by various payors;

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failure to obtain proper provider credentialing and documentation in order to bill various payors; and

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failure to collect patient balances due to economic conditions or other unknown reasons.

To the extent that the complexity associated with billing for healthcare services we provide causes delays in our cash collections, we may experience increased carrying costs associated with the aging of our accounts receivable, as well as increased potential for bad debt expense.

Our employees and business partners may not appropriately secure and protect confidential information in their possession.

Each of our employees and business partners is responsible for the security of the information in our systems and to ensure that private and financial information is kept confidential. Should an employee or business partner not follow appropriate security measures, including those related to cyber threats or attacks, such non-compliance may result in the release of private or confidential financial information. The release of such information could have material adverse effect on our business, financial condition, results of operations and cash flows.

We and certain of our third-party service providers rely extensively on information technology systems and telephone networks and systems, including the Internet and various cloud platforms, to process and transmit sensitive electronic information and to manage or support a variety of business processes and activities, including sales, billing, customer service, procurement and supply chain, manufacturing, and distribution. We use enterprise information technology systems to record, process, and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information technology systems, some of which are managed by third-parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Despite the precautionary measures we, our partners, and our third-party service providers have taken to protect and prevent breakdowns in our information technology and telephone systems, if our systems or our service providers’ systems suffer severe damage, cyber-attacks, security breaches, disruptions or shutdowns that are unable to be effectively resolved in a timely manner, our business and operating results may suffer.

For example, in October 2020 we were notified of a ransomware attack that compromised the servers of the third-party service provider we rely on to support billing activities for our Anesthesia business. Upon its detection of the security incident, the service provider took remedial steps to restore its network and resume operations, and retained a forensic cybersecurity firm to conduct an investigation of the security incident. The security incident resulted in a minor delay in the processing of billing and other financial information related to our Anesthesia business. The investigation relating to the security incident has been completed and there are no known unauthorized disclosures of patient health information related to the incident. To the extent any such unauthorized disclosures are subsequently discovered, they may have an adverse impact on our business and we may be required to notify any affected individuals pursuant to HIPAA.

In addition, we accept payments for many of our sales through credit and debit card transactions, which are handled through a third-party payment processor. As a result, we are subject to a number of risks related to credit and debit card payments, including that we pay interchange and other fees, which may increase over time and could require us to either increase the prices we charge for our products or experience an increase in our costs and expenses. In addition, as part of the payment processing process, we transmit our patients' and clinicians' credit and debit card information to our third-party payment processor. We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our patients' credit or debit card information if the security of our third-party credit card payment processor is breached. We and our third-party credit

card payment processor are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we or our third-party credit card payment processor fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our patients, and there may be an adverse impact on our business.

Income tax audits and changes in our effective income tax rate could affect our results of operations.

Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses arising from stock option compensation, the valuation of deferred tax assets and liabilities and changes in federal, state or provincial tax laws and accounting principles. Increases in our effective tax rate could materially affect our net results.

In addition, we are subject to income tax audits by many tax jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Our patents have varying expiration dates and, if these patents expire, we may be subject to increased competition, which could reduce or eliminate our opportunity to generate revenues or limit our ability to market our approved products. For example, our primary patents in the United States and Canada expired on March 8, 2016. Upon expiration of our patents, we may be subject to increased competition and our opportunity to establish or maintain product revenues could be substantially reduced or eliminated. Although we will continue to protect our proprietary rights through a variety of means, including the filing of three additional patents in September 2013 – one of which was issued in 2015, with a second one issued in 2016 – we cannot guarantee that the protective steps we have taken are adequate to protect these rights. In addition, as our patents expire, we may be unsuccessful in extending their protection through patent term extensions. The expiration of, or the failure to maintain or extend our patents could have a material adverse effect on our financial condition, results of operations or prospects.

We may face exposure to adverse movements in foreign currency exchange rates.

Our business is primarily based in the United States with a significant portion of our revenues, expenses, current assets and current liabilities denominated in U.S. dollars. Our financial statements are also expressed in U.S. dollars. An increase or decrease in the value of foreign currencies relative to the U.S. dollar could result in increased expenses and losses from currency exchange rate fluctuations.

Risks Related to Government Regulation and Litigation

We operate in an industry that is subject to extensive federal, state, and local regulation, and changes in law and regulatory interpretations.

The healthcare industry in the United States is subject to extensive federal, state, and local laws, rules, and regulations relating to, among other things:

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payment for services;

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corporate practice of medicine;

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conduct of operations, including fraud and abuse, anti-kickback, physician self-referral, and false claims prohibitions;

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reporting of quality measures;

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the manufacture and marketing of medical devices;

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protection of patient information; and

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medical waste disposal and environmental protection.

There are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Our relationships with healthcare providers and other third parties are subject to scrutiny under these laws. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs.

Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect our ability to operate include, among others:

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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs

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the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

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HIPAA, as amended, among other things, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

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federal physician self-referral law (the “Stark Law”), prohibits, subject to certain exceptions, physicians from making referrals of certain federal health care beneficiaries for a “designated health service” to an entity if the physician or an immediate family member has a financial relationship with the entity. Some of the services our affiliated physicians and professional groups provide include designated health services. foreign and U.S. state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; and

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foreign and U.S. state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

To enforce compliance with the federal laws, the U.S. Department of Justice (the “DOJ”) has recently increased its scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time- and resource-consuming and can divert management’s attention from our core business. Additionally, if we settle an investigation with the DOJ or other law enforcement agencies, we may be forced to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal or state regulatory authorities might challenge our current or future activities under these laws. Any of these challenges could have a material adverse effect on our reputation, business, financial condition and operating results. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming. Additionally, we cannot predict the impact of any changes in these laws, whether or not retroactive.

Congress or states may enact laws restricting the amount out-of-network providers of services can charge and recover for such services.

In 2019, Congress debated different measures intended to protect patients from “surprise” medical bills when services are furnished by providers who are not subject to contractual arrangements and payment limitations with the patient’s insurer. In addition, several states have enacted or are considering similar changes. For example, Florida and Texas have adopted their own balance billing laws that, in certain cases, prohibit out-of-network providers from billing patients in excess of in-network rates. These measures, if enacted, could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Moreover, these measures could affect our ability to contract with certain payors and under historically similar terms and may cause, and the prospect of these changes may have caused, payors to terminate their contracts with us and our affiliated practices, further affecting our business, financial condition, results of operations, cash flows and the trading price of our securities.

There is an inherent risk in rubber band ligation of hemorrhoids and in the use of anesthesia services of the occurrence of an adverse event. One example of such an event is that in rare cases rubber band ligation of hemorrhoids can lead to sepsis, which if left untreated, can result in serious medical consequences, including death. Examples of adverse events related to anesthesia include anaphylaxis, nerve damage and embolism, which can result in serious medical consequences and in rare circumstances, can lead to death. Such adverse events could have material adverse consequences on our sales, business, operations and financial performance.

The occurrence of unanticipated serious adverse events or other safety problems could cause the governing agencies to impose significant restrictions on the indicated uses for which our product and services may be marketed, the distribution or sale of the product, or the provision of our services. In addition, post-market discovery of previously unknown safety problems or increased severity or significance of a pre-existing safety signal could result in withdrawal of the product from the market, product recalls or other material adverse effects on our operations. It is our obligation to file reports with the FDA related to certain adverse health events or device malfunctions associated with our medical devices, and failure to do so could itself result in government action, including a Warning Letter, civil monetary penalty, product recall, in rem forfeiture proceeding, judicial injunction, or criminal prosecution.

We may be held liable or incur costs to settle liability claims if our product, services or contracted anesthesiologists cause injury. Although we currently maintain product liability and medical malpractice insurance, we cannot assure you that this insurance is adequate, and, at any time, it is possible that such insurance coverage may cease to be available on commercially reasonable terms, or at all. A product liability or medical malpractice claim, or a claim based in related legal theories of negligence or vicarious liability among others, could result in liability to us greater than our total assets or insurance coverage. Moreover, product liability, medical malpractice or other claims could have an adverse impact on our business even if we have adequate insurance coverage.

Our product and services may also fail to meet patient expectations or produce harmful side effects. Such unexpected quality, safety or efficacy issues may be caused by a number of factors, including manufacturing defects, failure to adhere to good clinical practices, failure to adhere to good manufacturing practices, non-compliance with clinical protocols or the presence of other inadequacies of product-related information conveyed to physicians or patients, or other factors or circumstances unique to the patient. Whether or not scientifically justified, such unexpected safety or efficacy concerns can arise and may lead to product recalls, loss of or delays in market acceptance, market withdrawals, or declining sales, as well as liability, consumer fraud and/or other claims.

It is impossible to predict the scope of injury or liability from such defects, adverse events or unexpected reactions, the impact on the market for such products and services of any allegations of these claims, even if unsupported, the measure of damages which might be imposed as a result of any claims, or the cost of defending such claims. Substantial damages, awards and/or settlements have been handed down, notably in the United States and other common law jurisdictions, against medical companies in connection with claims for injuries allegedly caused by the use of their products and services. Although our shareholders would not have personal liability for such damages, the expenses of litigation or settlements, or both, in connection with any such injuries or alleged injuries and the amount of any award imposed on us in excess of existing insurance coverage, if any, may have a material adverse impact on us and on the price of our common shares. In addition, we may not be able to avoid significant liability exposure even if we take appropriate precautions, including maintaining liability coverage (subject to deductibles and maximum payouts). Any liability that we may have as a result could have a material adverse effect on our business, financial condition and results of operations. Liability claims in the future, regardless of their ultimate outcome, could have a material adverse effect on our reputation and on our ability to attract and retain customers.

The Affordable Care Act (“ACA”) and potential changes to it may have a significant effect on our business.

The ACA contains a number of provisions that have affected us and may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Moreover, we could be affected by potential changes to various aspects of the ACA, including subsidies, healthcare insurance marketplaces and Medicaid expansion.

The ACA remains subject to continuing legislative and administrative flux and uncertainty. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact material changes to the ACA in the future. Additionally, CMS has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future. At the end of 2017, Congress repealed the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty, known as the individual mandate. In light of these changes, in December 2018, a

federal district court in Texas declared that key portions of the ACA were inconsistent with the United States Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal Court of Appeals upheld the district court’s conclusion that part of the ACA is unconstitutional, but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. These legal proceedings are likely to continue for several years, and the fate of the ACA will be unresolved and uncertain during this period. Actions by the Court of Appeals or eventually the Supreme Court of the United States could invalidate portions or all of the ACA. Changes resulting from these proceedings could have a material impact on our business. In the meantime, it also is possible that as a result of these actions, enrollment in healthcare exchanges could decline.

In 2020, U.S. state and federal elections resulted in the Office of the President of the United States and both chambers of Congress being controlled by the same party, and as a result we believe there remains a waned but persistent undercurrent of support for sweeping changes to the U.S. healthcare system, including replacing current healthcare financing mechanisms with systems that could be entirely administered by the federal government. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

If the ACA is repealed or further substantially modified, or if implementation of certain aspects of the ACA are diluted or delayed, such repeal, modification or delay may impact our business, financial condition, results of operations, cash flows and the trading price of our securities. We are unable to predict the impact of any repeal, modification or delay in the implementation of the ACA, including the repeal of the individual mandate, on us at this time.

The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) and potential changes to it may have a significant effect on our business.

MACRA contains numerous measures that could affect us, including, requirements that providers participate in the Quality Payment Program (“QPP”) that adjusts payments to providers under Medicare based on quality and cost of care, rather than solely on the quantity of procedures performed. MACRA requires providers to choose to participate in one of two payment formulas, MIPS or Alternative Payment Models (“APMs”). MIPS allows eligible providers to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be penalized for underperforming against those same metrics and measures. As an alternative, providers can choose to participate in an Advanced APMs, and providers who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. We currently anticipate that our affiliated providers will be eligible to receive bonus payments in 2020 through participation in the MIPS, although the amounts of such bonus payments are not expected to be material. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.

We cannot ultimately predict with any assurance the ultimate effect of these laws and resulting changes to payments under GHC Programs, nor can we provide any assurance that they will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Further, any fiscal tightening impacting GHC Programs or changes to the structure of any GHC Programs could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

Government authorities or other parties may assert that our business practices violate antitrust laws.

The healthcare industry is subject to close antitrust scrutiny. In recent years, U.S. regulatory authorities have taken increasing steps to review and, in some cases, take enforcement action against business conduct and acquisitions in the healthcare industry. Violations of antitrust laws may be punishable by substantial penalties including significant monetary fines, civil penalties, criminal sanctions, and consent decrees and injunctions prohibiting certain activities or requiring divestiture or discontinuance of business operations. Any of these penalties could have material adverse effects on our business’ financial condition and results of operations.

If regulations or regulatory interpretations change, we may be obligated to re-negotiate agreements of our anesthetists, anesthesiologists or other contractors.

Due to regulations prohibiting the corporate practice of medicine, the shares of GAA, CRH GAA PLLC, W GAA and NC GAA, PC are owned by an individual medical practitioner. GAA, CRH GAA PLLC, W GAA and NC GAA, PC operations and corporate structures are governed by certain agreements, including a loan by CRH Medical Corporation to the individual medical practitioner. These agreements, including the affirmative and negative covenants therein in favor of CRH, effectively provide CRH control of GAA, CRH GAA PLLC, W GAA and NC GAA, PC. If certain regulations or regulatory interpretations change, particularly in relation to the medical practice and physician ownership, we will be obligated to adapt or re-negotiate our operating agreements to comply with such regulations. The cost of adapting or re-negotiating these agreements could be substantial. There can be no assurance, however, that our existing capital resources would be sufficient for us to meet any future obligations to adapt or re-negotiate our operating agreements, if they arise.

The re-negotiating of these agreements could have a material adverse effect on our financial condition and results of operations. While we believe physician ownership and our operating strategy is in compliance with applicable law, we can give no assurances that legislative or regulatory changes would not have an adverse impact on us. From time to time, these issues are considered by some state legislatures and federal and state regulatory agencies.

We are subject to inspection and marketing surveillance by the FDA to determine our compliance with all regulatory requirements. If the FDA finds that we have failed to comply with any regulatory requirements, it can institute a wide variety of enforcement actions.

We and some of our suppliers must comply with the FDA’s Quality System Regulation, which governs the methods used in, and the facilities and controls used for, the design, testing, manufacture, control, quality assurance, installation, servicing, labeling, packaging, storage, and shipping of medical devices. The FDA enforces its regulations through pre-announced and unannounced inspections. We have been, and anticipate in the future being, subject to such inspections by the FDA and other regulatory bodies. The timing and scope of future audits is unknown and it is possible, despite our belief that our quality systems and the operation of our manufacturing facilities will remain in compliance with U.S, and non-U.S. regulatory requirements, that a future audit may result in one or more unsatisfactory results. If we or one of our suppliers fails an inspection, or if a corrective action plan adopted by us or one of our suppliers is not sufficient, the FDA may bring an enforcement action against us, which could result in significant financial penalties, the recall of our products or the suspension or permanent enjoinment of some or all our operations.

We are also subject to the FDA’s general prohibition against promoting our products for unapproved or off-label uses and to the medical device reporting regulations that require us to report to the FDA if our products may have caused or contributed to a death or serious injury, or if our device malfunctions and a recurrence of the malfunction would likely result in a death or serious injury. We must also file reports with the FDA of some device corrections and removals, and we must adhere to the FDA’s rules on labeling and promotion. If we fail to comply with these or other FDA requirements or fail to take adequate corrective action in response to any significant compliance issue raised by the FDA, the FDA can take significant enforcement actions, which could harm our business, results of operations, and our reputation.

Our industry is the subject of numerous governmental investigations into marketing and other business practices. This has included increased regulation, enforcement, inspections, and governmental investigations of the medical device industry and disclosure of financial relationships with healthcare professionals. These investigations could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations. We anticipate that the government will continue to scrutinize our industry closely, and that additional regulation by governmental authorities, both foreign and domestic, may increase compliance costs, exposure to litigation and other adverse effects to our operations.

Unfavorable changes or conditions could occur in the states where our operations are concentrated.

A majority of our anesthesia services revenue is generated by our operations in 11 states. In particular, Georgia, North Carolina, Massachusetts, Colorado and Texas accounts for over half of our anesthesia revenue. Adverse changes or conditions affecting these particular states, such as healthcare reforms, changes in laws and regulations, reduced reimbursements and government investigations, economic conditions, extreme weather conditions, and natural disasters may have a material adverse effect on our business, financial condition, results of operations, cash flows, and the trading price of our securities.

We may be subject to criminal or civil sanctions if we fail to comply with privacy regulations regarding the protection, use and disclosure of patient information.

The HIPAA Privacy Rule (the “Privacy Rule”) restricts the use and disclosure of patient information and requires entities to safeguard that information and to provide certain rights to individuals with respect to that information. The HIPAA Security Rule (the “Security Rule”) establishes elaborate requirements for safeguarding patient health information transmitted or stored electronically.

The Privacy Rule and Security Rule require the development and implementation of detailed policies, procedures, contracts and forms to assure compliance. We have implemented such compliance measures, but we may be required to make additional costly system purchases and modifications to comply with evolving HIPAA rules, and our failure to comply may result in liability and adversely affect our business.

New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we must handle healthcare related data, and the cost of complying with standards could be significant. If we do not properly comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions.

We may be subject to a variety of regulatory investigations, claims, lawsuits, and other proceedings.

Due to the nature of the Company’s business, including without limitation the Company’s public listing, operations in the medical industry, product and anesthesia services, the Company may be subject to a variety of regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of its business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these matters will not have a material adverse effect on our business.

The operating agreements with our physician partners contain a savings clause that is triggered upon an adverse governmental action, including a change in federal or state laws, rules or regulations or an interpretation of such federal or state laws, rules or regulations (each an “Adverse Governmental Action”). Upon the occurrence of an Adverse Governmental Action the savings clause will require divestiture of the physicians’ ownership in the anesthesia company and we would be required to redeem the physicians’ ownership interest. If an Adverse Governmental Action occurs under a particular state’s law, we would be required to redeem the ownership interests of each physician partner in such state. If an Adverse Governmental Action occurs under federal law, we would be required to redeem the ownership interest of each physician partner in the United States. The redemption price of each anesthesia company is based upon a predetermined multiple of such anesthesia company’s EBITDA, which reflects the fair market value of the redeemed interests. This could impact our cash flow during the redemption period. The redemption occurs over a period of four or five years depending on each applicable operating agreement.

Risks Related to our Financial Position and Indebtedness

We may need to raise additional capital to fund future operations.

The Company became profitable in the first quarter of 2011, which was consistent with the Company’s new business development strategy introduced in the fourth quarter of 2010 to focus exclusively on selling its CRH O’Regan System directly to physicians. With the GAA acquisition in the fourth quarter of 2014, the Company altered its business strategy further to provide anesthesia services in addition to its existing medical product.

Based on our current cash resources, estimated capital requirements and anticipated revenues, we expect that we can maintain current operations. There can be no assurance that unforeseen developments or circumstances will not alter our requirements for capital. Any additional equity financing would be dilutive to our shareholders. If access to sufficient capital is not available as and when needed, our business may be impaired.

Advancing our product and current business operations, market expansion of our currently marketed product or growth of our anesthesia services, service of our debt, or acquisition and development of any new products, businesses or operations will require considerable resources and additional access to capital markets. In addition, our future cash requirements may vary materially from those now expected. For example, our future capital requirements may increase if:

•

we experience more competition from other companies or in more markets than anticipated;

•

we experience delays or unexpected increases in costs in connection with maintaining regulatory approvals for our product or services in the various markets where we sell our product and provide our services;

•

we experience unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, or other lawsuits, brought by either us or our competition;

•

we elect to raise additional capital in order to service or repay all or a portion of our outstanding debt;

•

we elect to develop, acquire or license new technologies, products or businesses; or

•

we are presented with suitable opportunities and elect to accelerate the pace of our continued growth strategy.

We could potentially seek additional funding through public or private equity or debt financing, corporate collaborations or through other transactions. However, if revenues are slow to increase or if industry and capital market conditions in general are unfavorable, our ability to obtain significant additional funding on acceptable terms, if at all, will be negatively affected. Additional financing that we may pursue may involve the sale of our common shares or financial instruments that are exchangeable for, or convertible into, our common shares, which could result in significant dilution to our shareholders.

If sufficient capital is not available, we may be required to delay or alter our current operations or our business expansion, either of which could have a material adverse effect on our business, financial condition, prospects or results of operations.

We are subject to various restrictive covenants and events of default under the Credit Facilities.

Under the Company’s credit facilities with JP Morgan, syndicated with others (the “Credit Facilities”), the Company has made various restrictive covenants to the lenders, including payment of interest and principal when due. The Credit Facilities are available for review on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.

If there is an event of default under either of these agreements, the principal amount owing under the Credit Facilities, plus accrued and unpaid interest, may be declared immediately due and payable. If such an event occurs, it could have a material negative impact on the Company financially. Any extended default under the Credit Facilities, could result in the loss of the Company’s entire business.

In addition, the Credit Facilities include various conditions and covenants that require CRH to obtain consents prior to carrying out certain activities and entering into certain transactions, such as incurring additional debt, repurchasing common shares of the Company, creating additional charges on the Company’s assets, and providing additional guarantees or disposing of certain assets. As a result of the restrictive covenants or other terms of any existing or new loan or other financing agreements, the Company may be significantly restricted in its ability to raise additional capital through bank borrowings and to engage in some transactions that CRH expects to be of benefit to the Company. The inability to meet these conditions and covenants or obtain lenders’ consent to carry out restricted activities could materially and adversely affect the business and results of operations of CRH.

We are exposed to market risk related to changes in interest rates. Our earnings are affected by changes in short-term interest rates as a result of borrowings under the Credit Facilities. As a result, if interest rates rise, our cost of borrowing will increase, negatively impacting our earnings.

Despite current indebtedness levels, we may still be able to incur substantially more debt, which could further exacerbate the risks associated with increased leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. If we incur additional debt above the levels currently in effect, the risks associated with our leverage, including those described above, would increase.

Risks Related to Ownership of Our Common Shares

We have identified material weaknesses in our internal control over financial reporting that relate to: (a) our lack of an effective continuous risk assessment processes due to insufficient resources to adequately assess risk and the resultant material weaknesses identified in our reliance on service organizations used to process our anesthesia claims and revenue and our control deficiencies identified with respect to segregation of duties and super-user access within IT application controls and systems supporting the financial our financial reporting processes, and (b) the internal controls performed by management in their evaluation of their impairment of intangible assets. The latter deficiency resulted in a $2.6 million understatement of the impairment charge initially recorded to intangible assets, which understatement has been corrected in the Company’s audited consolidated financial statements. As a result, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of December 31, 2020 and our independent registered public accounting firm has issued an adverse report on the effectiveness of our internal control over financial reporting. See Item 9A of this Annual Report on Form 10-K.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Each of these deficiencies creates a reasonable possibility

that a material misstatement in our consolidated financial statements will not be prevented or detected on a timely basis. If we are unable to remediate these material weaknesses, or are otherwise unable to maintain effective internal control over financial reporting, we could fail to meet our reporting obligations.

In addition, any future testing by us conducted in connection with Section 404(a) of the Sarbanes-Oxley Act may reveal other deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Further, as of December 31, 2020, we no longer qualify as an emerging growth company. As a result our independent registered public accounting firm is required to issue an attestation report on the effectiveness of our internal control over financial reporting, pursuant to Section 404(b). Going forward, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses or significant deficiencies with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed. Future undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares.

Our common shares may be subject to significant price and volume fluctuations.

The Company’s common shares trade on the Toronto Stock Exchange (“TSX”) and on the NYSE American. Public markets, from time to time, experience significant price and volume fluctuations unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the common shares of the Company. In addition, the market price of the common shares is likely to be highly volatile. Moreover, it is likely that during future quarterly periods, the Company’s results and operations may fluctuate significantly or may fail to meet the expectations of stock market analysts and investors and, in such event, the market price of the common shares could be materially adversely affected. In the past, securities class action litigation or shareholder activism has often been initiated following periods of volatility in the market price of a company’s securities. Such litigation or shareholder activism, if brought against the Company, could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline.

The trading market for our common shares depends, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecasts of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including those of the CSA, the SEC, the TSX and the NYSE American are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and we may be harmed.

Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future. Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses. All of these uncertainties are leading generally toward increasing insurance costs, which

may adversely affect our business, results of operations and our ability to purchase any such insurance, at acceptable rates or at all, in the future.

Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders.

From time to time, another entity could pursue us as an acquisition target, or could otherwise seek to influence our corporate affairs. However, some of the provisions in our articles of incorporation could delay or prevent a third party from acquiring us or replacing members of our Board of Directors, even if the acquisition or the replacements would be beneficial to our shareholders. These provisions could also reduce the price that certain investors might be willing to pay for our securities and result in the market price for our securities, including the market price for our common shares, being lower than it would be without these provisions.

We are a “smaller reporting company,” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and we have taken advantage of certain exemptions from various reporting and compliance requirements that apply to other public companies that are not “smaller reporting companies.” These exemptions include, but are not limited to, the following:

•

only being required to include two, as opposed to three, years of audited financial statements in our annual reports; and

•

less extensive disclosure obligations regarding executive compensation in our registration statements, periodic reports and proxy statements.

We cannot predict if investors will find our common shares less attractive because of our reliance on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares, which could result in a reduction in the price of our common shares or cause our share price to be more volatile.

Effective December 31, 2020, we no longer qualify as an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies and the exemption from the auditor attestation report requirement under Section 404(b) of the Sarbanes-Oxley Act no longer apply. Preparing such attestation report and the cost of compliance with reporting requirements that we have not previously implemented have increased, and will continue to increase, our expenses and require significant management time. Investors may find our common shares less attractive because of the additional compliance costs. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

We do not intend to pay dividends on our common shares, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our common shares.

We have never declared or paid any cash dividend on our common shares and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common shares. Any return to shareholders will therefore be limited to any appreciation of their shares. Therefore, the success of an investment in our common shares will depend upon any future appreciation in their value. There is no guarantee that our common shares will appreciate in value or even maintain the price at which our shareholders purchased their shares.

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 2.

Properties

Our headquarters are located in Vancouver, British Columbia, where we lease and occupy 2,815 square feet of office space. The term of the lease for our headquarters expires in April 2021. We are actively in negotiations to renew our Vancouver lease. We have two U.S. offices, located in Kirkland, Washington and Atlanta, Georgia, where we lease and occupy approximately 1,700 and 3,100 square feet of office space, respectively. These leased office spaces expire in December 2021 and September 2025, respectively.

We believe that our existing facilities are adequate to meet our business requirements for the near-term and that additional space will be available on commercially reasonable terms, if required.

Item 3.

Legal Proceedings

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. As of December 31, 2020, we are not a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common shares have been traded on the TSX since May 31, 2012 under the symbol “CRH” and on the NYSE American since September 3, 2015 under the symbol “CRHM.” Prior to May 31, 2012 our common shares had been traded on the TSX Venture Exchange. The following table sets forth the high and low sales prices per common share as reported on the NYSE American and TSX for the periods indicated.

	NYSE American				TSX
	High		Low		High		Low
Quarter Ended	US$				C$
31-Dec-20		2.98		1.95		3.92		2.58
30-Sep-20		2.87		1.96		3.80		2.72
30-Jun-20		2.88		1.16		3.85		1.65
31-Mar-20		4.43		0.86		5.90		1.26
31-Dec-19		3.75		2.86		4.93		3.78
30-Sep-19		3.32		2.62		4.43		3.43
30-Jun-19		3.11		2.61		4.15		3.51
31-Mar-19		3.43		2.51		4.53		3.37

On March 12, 2021, the last reported sale price of our common shares on the NYSE American was $3.88 per share, and on the TSX was C$4.85 per share.

Holders

As of December 31, 2020, we had approximately 18 shareholders of record holding our common shares. This number does not reflect the beneficial holders of our common shares who hold shares in street name through brokerage accounts or other nominees.

Dividends

We have not declared or paid any dividends on our outstanding common shares since our inception and we do not anticipate that we will do so in the foreseeable future. The declaration of dividends on our common shares is within the discretion of the Board of Directors and will depend on the assessment of, among other factors, earnings, capital requirements and our operating and financial condition. At the present time, anticipated capital requirements are such that we intend to follow a policy of retaining earnings in order to finance the further development of the business.

Issuer Purchases of Equity Securities

On November 6, 2019, our Board of Directors authorized the repurchase of up to 6,974,495 common shares pursuant to issuer repurchase plan and automatic repurchase plan agreements, each dated November 6, 2019 (the “Repurchase Plan”).

On November 19, 2020, our Board of Directors authorized the renewal of the Repurchase Plan and the repurchase of up to 6,999,137 common shares pursuant to issuer repurchase plan and automatic repurchase plan agreements, each dated November 19, 2020 (together with the Repurchase Plan, the “Updated Repurchase Plans”). On February 8, 2021, the Company terminated the Updated Repurchase Plans.

During the fourth quarter of 2020, we repurchased a total of 87,800 common shares for $0.2 million at an average price of $2.40 per common share pursuant to the Updated Repurchase Plans. Our repurchase activity during the fourth quarter of 2020 is summarized in the following table:

Period	Total Number of Shares Purchased		Average Price Paid per Share (including commission cost)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that may yet be Purchased under the Plans or Programs
October 1 – 31		42,900	$	2.20		42,900		6,560,795
November 1 – 30		8,300	$	2.17		8,300		6,552,495
December 1 – 31		36,600	$	2.69		36,600		6,962,537
Total		87,800				87,800

Certain Canadian Income Tax Considerations for United States Holders

The following summarizes, as of the date hereof, certain Canadian federal income tax considerations generally applicable under the Income Tax Act (Canada) and the regulations thereunder (collectively, the “Canadian Tax Act”) and the Canada-United States Tax Convention (1980), as amended (the “Convention”) to the holding and disposition of our common shares.

Comment is restricted to beneficial owners of our common shares each of whom, at all relevant times and for purposes of the Canadian Tax Act and the Convention: (i) is neither resident nor deemed to be resident in Canada; (ii) is resident solely in the United States and is entitled to benefits of the Convention; (iii) does not use or hold, and is not deemed to use or hold, our common shares in, or in the course of, carrying on a business in Canada; (iv) deals at arm’s length with and is not affiliated with the Company; (v) holds our common shares as capital property; and (vi) is not an “authorized foreign bank” or an insurer that carries on business in Canada and elsewhere (each such holder, a “US Resident Holder”). Generally, a US Resident Holder’s common shares will be considered to be capital property of the holder provided that the holder is not a trader or dealer in securities, does not acquire, hold or dispose of (or is not deemed to have acquired, held or disposed of) our common shares in one or more transactions considered to be an adventure or concern in the nature of trade, and does not hold or use (or is not deemed to hold or use) our common shares in the course of carrying on a business of trading or dealing in securities.

Certain U.S.-resident entities that are fiscally transparent for United States federal income tax purposes (including limited liability companies) may not in all circumstances be entitled to benefits under the Convention. US Resident Holders are urged to consult with their own tax advisors to determine their entitlement to benefits under the Convention based on their particular circumstances.

This summary is based upon the current provisions of the Canadian Tax Act and the Convention in effect as of the date hereof, and the Company’s understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency (“CRA”) published in writing prior to the date hereof. This summary does not anticipate or take into account any changes in law or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial decision or action, except only the specific proposals to amend the Canadian Tax Act publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”). This summary assumes that the Tax Proposals will be enacted in the form proposed. This summary does not take into account any other federal or any provincial, territorial or foreign tax legislation or considerations, which may differ significantly from those set out herein. No assurances can be given that the Tax Proposals will be enacted as proposed or at all, or that legislative, judicial or administrative changes will not modify or change the statements expressed herein.

This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations, and is not intended and should not be construed as legal or tax advice to any particular US Resident Holder. No representations with respect to the income tax consequences to any prospective purchaser or holder of our common shares are made herein. Accordingly, prospective purchasers or holders of our common shares are urged to consult their own tax advisors with respect to their own particular circumstances. This summary is qualified accordingly.

Taxation of Dividends on Common Shares

Under the Canadian Tax Act, dividends paid or credited, or deemed to be paid or credited, to a holder of our common shares will be subject to Canadian withholding tax at a rate of 25% of the gross amount of such dividends, unless the rate is reduced under the Convention. Under the Convention, the rate of withholding tax on dividends applicable to US Resident Holders who beneficially own the dividends is generally reduced to 15% (or, if the US Resident Holder is a company that owns at least 10% of the voting shares of the Company, 5%) of the gross amount of such dividends.

Disposition of Common Shares

Generally, a US Resident Holder will not be subject to tax under the Canadian Tax Act in respect of any capital gain realized by such US Resident Holder on a disposition or deemed disposition of our common shares unless our common shares constitute “taxable Canadian property” of the US Resident Holder and are not “treaty-protected property” (each as defined in the Canadian Tax Act).

Our common shares generally will not be “taxable Canadian property” to a holder provided that, at the time of the disposition or deemed disposition, the common shares are listed on a “designated stock exchange” for purposes of the Canadian Tax Act (which currently includes the TSX and the NYSE American), unless at any time during the 60-month period immediately preceding the disposition of the common shares the following two conditions are met concurrently: (a) (i) the US Resident Holder, (ii) persons with whom the US Resident Holder did not deal at arm’s length, (iii) a partnership in which the US Resident Holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, or (iv) any combination of the persons and partnerships described in (i) through (iii), owned 25% or more of the issued shares of any class or series of the capital stock of the Company; and (b) more than 50% of the fair market value of the common shares was derived directly or indirectly, from one or any combination of real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (each as defined in the Canadian Tax Act), and options in respect of or interests in, or for civil law rights in, any such properties (whether or not such property exists). In certain circumstances set out in the Canadian Tax Act, the common shares may be deemed to be “taxable Canadian property” as defined in the Canadian Tax Act.

Even if the common shares are taxable Canadian property to a US Resident Holder, any capital gain realized on the disposition or deemed disposition of such common shares will not be subject to tax under the Canadian Tax Act if the common shares are “treaty-protected property” (as defined in the Canadian Tax Act).

A US Resident Holder contemplating a disposition of our common shares that may constitute taxable Canadian property should consult a tax advisor prior to such disposition.

Certain United States Income Tax Considerations For United States Holders

The following discussion summarizes certain U.S. federal income tax considerations relating to the ownership and disposition of our common shares. It applies only to U.S. Holders (as defined below) that acquire and hold our common shares as capital assets (generally, property held for investment purposes) and is of a general nature. This summary should not be construed to constitute legal or tax advice to any particular U.S. Holder.

This section does not apply to U.S. Holders subject to special rules, including, without limitation, brokers, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for securities holdings, tax-exempt organizations, insurance companies, banks, thrifts and other financial institutions, persons liable for alternative minimum tax, persons that hold an interest in an entity that holds the common shares, persons that will own, or will have owned, directly, indirectly or constructively 10% or more (by vote or value) of the Company’s equity, persons that hold the common shares as part of a hedging, integration, conversion or constructive sale transaction or a straddle, or persons whose functional currency is not the U.S. dollar.

This discussion does not purport to be a complete analysis of all of the potential U.S. federal income tax considerations that may be relevant to U.S. Holders in light of their particular circumstances. Further, it does not address any aspect of foreign, state, local or estate or gift taxation or the 3.8% surtax imposed on certain net investment income. U.S. Holders should consult their own tax advisor as to the U.S. federal, state, local, non-U.S. and any other tax consequences of the ownership and disposition of the common shares.

This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, U.S. Treasury Regulations, IRS rulings, published court decisions, and the Convention, all as in effect as of the date hereof, and any of which may be repealed, revoked or modified (possibly with retroactive effect) so as to result in U.S. federal income tax consequences different from those discussed below. This summary is applicable to U.S. Holders who are residents of the United States for purposes of the Convention and who qualify for the full benefits of the Convention.

A “U.S. Holder” is a beneficial owner of the common shares who, for U.S. federal income tax purposes, is a citizen or individual resident of the United States, a corporation (or other entity that is classified as a corporation for U.S. federal income tax purposes) that is created or organized in or under U.S. laws or any State thereof or the District of Columbia, an estate whose income is subject to U.S. federal income tax regardless of its source, or a trust (i) if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (ii) that validly elects to be treated as a U.S. person for U.S. federal income tax purposes.

If a partnership or other pass-through entity holds our common shares, the U.S. federal income tax treatment of a partner, beneficiary, or other stakeholder will generally depend on the status of that person and the tax treatment of the pass-through entity. A partner, beneficiary, or other stakeholder in a pass-through entity holding the common shares should consult its own tax advisor with regard to the U.S. federal income tax treatment of its investment in the common shares.

Distributions on the Common Shares

Subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any distribution received by a U.S. Holder with respect to the common shares (including any amounts withheld to pay Canadian withholding taxes) will be included in the gross income of the U.S. Holder as a dividend to the extent attributable to the Company’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. The Company generally does not calculate its earnings and profits under U.S. federal income tax rules. Accordingly, U.S. Holders should expect that a distribution generally will be treated as a dividend for U.S. federal income tax purposes. Unless the Company is treated as a PFIC for the taxable year in which it pays a distribution or in the prior taxable year (see “Passive Foreign Investment Company Rules” below), the Company believes that it may qualify as a “qualified foreign corporation,” in which case distributions treated as dividends and received by non-corporate U.S. Holders may be eligible for a preferential tax rate. Distributions on the common shares generally will not be eligible for the dividends received deduction available to U.S. Holders that are corporations.

The amount of any dividend paid in Canadian dollars (including any amounts withheld to pay Canadian withholding taxes) will equal the U.S. dollar value of the Canadian dollars calculated by reference to the exchange rate in effect on the date the dividend is received by the U.S. Holder, regardless of whether the Canadian dollars are in fact converted into U.S. dollars. A U.S. Holder will have a tax basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt. If the Canadian dollars received are converted into U.S. dollars on the date of receipt, the U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the distribution. If the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder may recognize foreign currency gain or loss on a subsequent conversion or other disposition of the Canadian dollars. Such gain or loss will be treated as U.S. source ordinary income or loss.

A U.S. Holder may be entitled to deduct or credit Canadian withholding tax imposed on dividends paid to a U.S. Holder, subject to applicable limitations in the Code. For purposes of calculating a U.S. Holder’s foreign tax credit, dividends received by such U.S. Holder with respect to the common shares of a foreign corporation generally constitute foreign source income. However, and subject to certain exceptions, a portion of the dividends paid by a foreign corporation will be treated as U.S. source income for U.S. foreign tax credit purposes, in proportion to its U.S. source earnings and profits, if U.S. persons collectively own, directly or indirectly, 50% or more of the voting power or value of the foreign corporation’s common shares. If a portion of any dividends paid with respect to the common shares are treated as U.S. source income under these rules, it may limit the ability of a U.S. Holder to claim a foreign tax credit for any Canadian withholding taxes imposed in respect of such dividend, although certain elections under the Code and Convention may be available to mitigate these effects. Dividends distributed by the Company will generally constitute “passive category” income for U.S. foreign tax credit purposes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances, including the impact of, and any exception available to, the special income sourcing rule described in this paragraph.

Sale, Exchange or Other Taxable Disposition of the Common Shares

Subject to the PFIC rules discussed below, a U.S. Holder will recognize a capital gain or loss on the sale, exchange or other taxable disposition of our common shares in an amount equal to the difference between the amount realized for the common shares and the U.S. Holder’s adjusted tax basis in the common shares. Capital gains of non-corporate U.S. Holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any capital gain or loss recognized by a U.S. Holder generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes.

Passive Foreign Investment Company Rules

A foreign corporation will be considered a PFIC for any taxable year in which (1) 75% or more of its gross income is “passive income” under the PFIC rules or (2) 50% or more of the average quarterly value of its assets produce (or are held for the production of) “passive income.” For this purpose, “passive income” generally includes interest, dividends, certain rents and royalties, and certain gains. The Company does not currently believe that it was a PFIC for the prior taxable year or will be in the current or a foreseeable future taxable year. The determination as to whether we will be a PFIC for any taxable year, however, is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, our actual PFIC status for any taxable year is not determinable until after the end of such taxable year, and therefore cannot be predicted with certainty. Because of the above described uncertainties, there can be no assurance that the IRS will not challenge the determination made by us concerning our PFIC status or that we will not be a PFIC for any taxable year. If we are classified as a PFIC in any year a U.S. Holder owns the commons shares, certain adverse tax consequences could apply to such U.S. Holder. Certain elections may be available (including a mark-to-market election) to U.S. Holders that may mitigate some of the adverse consequences resulting from the Company's treatment as a PFIC. U.S. Holders should consult their own tax advisors regarding the application of PFIC rules to their investments in the common shares.

Required Disclosure with Respect to Foreign Financial Assets

Certain U.S. Holders are required to report information relating to an interest in our common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain financial institutions), by attaching a completed IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold an interest in the common shares. U.S. Holders should consult their own tax advisors regarding information reporting requirements relating to their ownership of the common shares.

Unregistered Sales of Equity Securities

There were no sales of unregistered securities during the period covered by this Annual Report.

Use of Proceeds From Registered Securities

There were no proceeds from sales of registered securities during the period covered by this Annual Report.

Item 6.

Selected Financial Data

Not applicable.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion should be read in conjunction with the attached financial statements and notes thereto. The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This Annual Report on Form 10-K, including the following section, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A, “Risk Factors” of this Annual Report on Form 10-K. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this Annual Report on Form 10-K, except as required by law. Throughout this discussion, unless the context specifies or implies otherwise, the terms “CRH,” “we,” “us,” and “our” refer to CRH Medical Corporation and its subsidiaries.

Overview

CRH is a North American company focused on providing GIs with innovative services and products for the treatment of GI diseases. In 2014, CRH acquired a full service gastroenterology anesthesia company, GAA, which provides anesthesia services for patients undergoing endoscopic procedures. CRH has complemented this transaction with thirty-one additional acquisitions of GI anesthesia companies since GAA.

According to the CDC, colorectal cancer is the second leading cause of cancer-related deaths in the United States and recent research indicates that the incidence of colon cancer in young adults is on the rise. The CDC has implemented campaigns to raise awareness of GI health and drive colorectal cancer screening rates among at risk populations. Colon cancer is treatable if detected early and screening colonoscopies are the most effective way to detect colon cancer in its early stages. Anesthesia-assisted endoscopies are the standard of care for colonoscopies and upper endoscopies.

CRH’s goal is to establish itself as the premier provider of innovative products and essential services to GIs throughout the United States. The Company’s CRH O’Regan System distribution strategy focuses on physician education, patient outcomes, and patient awareness. The 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, GI anesthesia revenue, equity financings, debt financing and revolving and term credit facilities. The Company’s ability to maintain the carrying value of its assets is dependent on the evolving COVID-19 pandemic and the easing of related governmental restrictions and on the Company successfully marketing its products and services, obtaining reasonable rates for anesthesia 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 GI 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.

Recent Events

FDHS Startup Joint Venture – March 2021

On March 1, 2021, the Company entered into a startup joint venture, whereby the Company will own a 51% interest in a gastroenterology anesthesia practice located in Largo, Florida.

Oak Tree Anesthesia Associates LLC (“OTAA” or “Oak Tree”) – February 2021

On February 9, 2021, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 100% interest in Oak Tree Anesthesia Associates LLC (“OTAA” or “Oak Tree:), a gastroenterology anesthesia services provider in New Jersey. The purchase consideration, paid via cash, for the acquisition of the Company’s 100% interest was $3,250,000 plus acquisition costs of $66,182. The provisional cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $3,316,182.

Acquisition by WELL Health – February 2021

On February 6, 2021, the Company signed a definitive arrangement agreement (the “Arrangement Agreement”) with Well Health Technologies Corp (“WELL Health” or “WELL”), pursuant to which WELL Health will acquire all of the issued and outstanding shares of CRH for US$4.00 per share (the “Acquisition” or the “Arrangement”).

The Acquisition, which is to be carried out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia), will require the approval of: (i) two-thirds of the votes cast by shareholders of the Company; and (ii) two-thirds of the votes cast by shareholders, holders of stock options and holders of restricted share units, voting together as single class. The Company’s directors and officers, holding an aggregate of approximately 2.1% of the outstanding common shares of the Company, have each entered into voting support agreements to vote their shares in favor of the Acquisition. Completion of the Acquisition will also be subject to court and regulatory approvals and clearances, as well as other customary closing conditions. Subject to the satisfaction of such conditions, the Acquisition is expected to be completed during the second quarter of 2021.

The Arrangement Agreement contains certain customary provisions, including covenants in respect of non-solicitation of alternative acquisition proposals, a right to match any superior proposals for WELL Health and a termination fee of $10 million payable to WELL in certain circumstances. The Arrangement Agreement also provides for a reverse termination fee of $10 million payable to CRH in the event of certain breaches of a representation, warranty or covenant by WELL Health.

GAA Contract Non-Renewal & Subsequent Management Services Agreement – December 2020/February 2021

On December 22, 2020, the Company received notice that United Digestive (“UD”) did not intend to renew its professional services agreements pursuant to which the Company provides anesthesia services to 12 of UD’s surgery centers in the Greater Atlanta, Georgia markets. The agreements are scheduled to expire on October 31, 2021. The Company acquired most of the professional services agreements upon acquisition of Gastroenterology Anesthesia Associates LLC (“GAA”) in 2014 and at the time of acquisition estimated a useful life of 12 years. Revenue earned under these agreements represents a significant portion of the Company’s revenue; in 2020 GAA revenue represented approximately 17% of total anesthesia revenue earned.

Subsequently on February 22, 2021, the Company signed a five-year exclusive Management Services Agreement with UD whereby CRH will earn a fee for managing UD’s anesthesia services at its surgery centers. The new agreement will be effective as of November 1, 2021.

As a result of the non-renewal of the GAA professional services agreements, the Company recorded an impairment loss of $27,008,037 in the fourth quarter of 2020.

FDHS Anesthesia Associates LLC (“FDHS”) – December 2020

On December 14, 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in FDHS Anesthesia Associates LLC (“FDHS”), a gastroenterology anesthesia services provider in Florida. The purchase consideration, paid via cash, for the acquisition of the Company’s 51% interest was $2,840,000 plus acquisition costs of $81,555. The cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $5,728,541.

Western Carolina Sedation Associates LLC (“WCSA”) – October 2020

CRH’s start-up joint venture in North Carolina, called Western Carolina Anesthesia Associates LLC, began operations in October 2020. Initially, the Company owns a 15% interest with an option to acquire an additional 36% interest. WCAA began operating on October 1, 2020 and provides services to a single ambulatory surgery center.

Coastal Carolina Sedation Associates LLC (“CCSA”) – September 2020

On September 1, 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in Coastal Carolina Sedation Associates LLC (“CCSA”), a gastroenterology anesthesia services provider in North Carolina. The purchase consideration, paid via cash, for the acquisition of the Company’s 51% interest was $1,800,000 plus acquisition costs of $50,381. The cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $3,628,197.

Orange County Anesthesia Associates LLC (“OCAA”) – August 2020

On August 4, 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 66% interest in Orange County Anesthesia Associates LLC (“OCAA”), a gastroenterology anesthesia services provider in Florida. The purchase consideration, paid via cash, for the acquisition of the Company’s 66% interest was $6,200,000 plus acquisition costs of $51,015. The cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $9,471,235.

Central Virginia Anesthesia Associates LLC (“CVAA”) – July 2020

On July 7, 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 51% interest in Central Virginia Anesthesia Associates LLC (“CVAA”), a gastroenterology anesthesia services provider in Virginia. The purchase consideration, paid via cash, for the acquisition of the Company’s 51% interest was $2,800,000 plus acquisition costs of $145,915. Additionally, the Company has agreed to pay up to $2,500,000 approximately three years after the transaction date should certain EBITDA, revenue per case and employee headcount targets be met. The cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $10,299,776.

Metro Orlando Anesthesia Associates LLC (“MOAA”) – June 2020

On June 22, 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 75% interest in Metro Orlando Anesthesia Associates LLC (“MOAA”), a gastroenterology anesthesia services provider in Florida. The purchase consideration, paid via cash, for the acquisition of the Company’s 75% interest was $2,803,500 plus acquisition costs of $39,829. Additionally, the Company has agreed to pay $311,500 two years after the transaction date should certain EBITDA targets be met. The cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $4,183,391.

Lake Lanier Anesthesia Associates LLC (“LLAA”) – June 2020

On June 8, 2020, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 75% interest in Lake Lanier Anesthesia Associates LLC (“LLAA”), a gastroenterology anesthesia services provider in Georgia. The purchase consideration, paid via cash, for the acquisition of the Company’s 75% interest was $5,379,954 plus acquisition costs of $48,560. The cost allocated to the exclusive professional services agreement which was acquired as part of this acquisition is $7,238,018.

Additionally, at the same time, the Company entered into a start-up joint venture whereby a subsidiary of the Company owns a 51% interest in Oconee River Anesthesia Associates LLC (“ORAA”), located in Georgia.

New Director – April 2020

Effective April 23, 2020, the Company appointed Brian Griffin to its Board of Directors, replacing Anthony Holler who resigned as director on March 19, 2020.

Mr. Griffin has a proven track record of over 35 years of senior leadership and operational experience in healthcare. He most recently served as Chairman and Chief Executive Officer of Diplomat Pharmacy Inc., one of the nation’s largest independent Specialty Pharmacies and Pharmacy Benefit Managers (PBM), until it was recently acquired by UnitedHealth Group Inc. (NYSE: UNH). Previously, Mr. Griffin joined Anthem (NYSE: ANTM), in 2013, initially as President and Chief Executive Officer of its Empire BlueCross BlueShield – New York Company, and ultimately assuming the role of President of Anthem’s Commercial Business, including its 14 BlueCross BlueShield plans nationwide. Thereafter, Mr. Griffin was named Chief Executive Officer of IngenioRx, Anthem’s wholly owned national PBM. Mr. Griffin also held positions of increasing responsibility with Medco Health Solutions, Inc. and US Healthcare, Inc.

Paycheck Protection Program – April 2020

On April 15, 2020, the Company received loan proceeds of $2,945,620 under the Paycheck Protection Program (“PPP”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in order to enable small businesses to pay employees during the coronavirus crisis and provides loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the PPP is expected to be eligible to be forgiven provided that the borrower uses the loan proceeds during the twenty-four week period (“Covered Period”) after receiving them, and provided that the proceeds are used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the borrower does not maintain staffing or payroll levels.

Principal and interest payments on any unforgiven portion of the PPP Loan will be deferred for ten months after the end of the Covered Period and will accrue interest at a fixed annual rate of 1%. Additionally, the remaining PPP Loan balance will carry a two year maturity date. There is no prepayment penalty on the PPP Loan.

The Company anticipates forgiveness of the loan over the Covered Period indicated. As the Company has accounted for the loan as a government grant related to income, the Company has recognized within other income $2,928,748 of the loan proceeds as at December 31, 2020 with the remaining $16,872 included within accounts payable.

HHS Stimulus Fund – April 2020 and July/August 2020 and December 2020

In April 2020, the Company received $1,971,136 under the CARES Act, with subsequent funds of $177,941 receive in July and August of 2020 and further funds of $295,969 received in December 2020. The CARES Act provided funding to eligible healthcare providers to prevent, prepare for and respond to COVID-19. The funds were intended to reimburse healthcare providers for lost income attributable to COVID-19 and for healthcare related expenses. Consistent with the accounting applied to the PPP loan, the Company has accounted for the HHS Stimulus funds as government grants related to income. As there are no repayment provisions under the CARES Act and the Company has assessed that it has complied with the conditions of this program, funds received under this program have been recognized in other income in the year ended December 31, 2020.

CMS Medicare Advancement – April 2020

In April 2020, the Company also received $1,900,584 under the Medicare Accelerate and Advanced Payment Program. The Center for Medicare and Medicaid Services (“CMS”) offers accelerated and advance payments in a number of circumstances, including in national emergencies to accelerate cashflow to impacted healthcare providers and suppliers. During the quarter ended September 30, 2020 the CMS amended the recoupment process for these funds: under the Continuing Appropriations Act, 2021 and Other Extensions Act, repayment will now begin one year from the issuance date of each provider or supplier’s accelerated or advance payment. After that first year, Medicare will automatically recoup 25% of Medicare payments otherwise owed to the provider or supplier for 11 months. At the end of the 11-month period, recoupment will increase to 50% for another 6 months. As a result of the recoupment process, CRH has recognized the funds received as a liability on the balance sheet, including them within Contract liability – CMS Advancement at December 31, 2020.

COVID-19 – March 2020 and throughout fiscal 2020

In March 2020, a pandemic relating to the novel coronavirus known as COVID-19 occurred causing significant financial market disruption and social dislocation. The pandemic is dynamic with various cities, counties, states and countries around the world responding in different ways to address and contain the outbreak, including the declaration of a global pandemic by the World Health Organization, a National State of Emergency in the United States and state and local executive orders and ordinances forcing the closure of non-essential businesses and persons not employed in or using essential services to “stay at home” or “shelter in place”. At this stage, we have no certainty as to how long the pandemic will last, what regions will be most effected or to what extent containment measures will be applied. As a result of the pandemic, the Company’s operations were impacted in the last half of March 2020 and continued to be impacted throughout April and May 2020, with recovery beginning in late May and June 2020.

As a result of the COVID-19 pandemic, patients in the United States have cancelled or deferred non-emergent procedures or otherwise avoided medical treatment, resulting in reduced patient volumes and operating revenues and income from both our Products and Anesthesia Services businesses. These cancellations and deferrals continued through July 2020, but recovered in the fourth quarter of 2020 as patients resumed medical treatments. While we are currently at around 100% of our pre-COVID estimated volume, these deferrals impacted our results in the first, second and third quarters of 2020. Until the COVID-19 pandemic is controlled, the potential remains for significant declines in revenue and operating income in the future. See “Risk Factors – Our operations and financial results have been and could be further harmed by the COVID-19 pandemic.”

Results of Operations

The following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by business segment, as well as present key metrics, such as operating expenses, operating income and net and comprehensive income attributable to shareholders of the company and non-controlling interest, from our statements of operations.

The selected financial information provided below has been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”).

SELECTED US GAAP FINANCIAL INFORMATION

	2020			2019			% Change
Anesthesia services revenue	$	97,688,095		$	110,306,431			(11	)%
Product sales revenue		8,484,070			10,078,843			(16	)%
Total revenue		106,172,165			120,385,274			(12	)%
Total operating expenses, including:		112,928,124			105,703,079			7	%
Depreciation and amortization expense		40,658,314			35,009,070		��	16	%
Stock based compensation expense		2,709,617			976,962			177	%
Operating income (loss)		(6,755,959	)		14,682,195			(146	)%
Operating margin		(6.4	)%		12.2	%
Net finance expense		2,151,137			6,609,618			(67	)%
Income from equity investment		(16,416	)		(1,766,968	)		(99	)%
Impairment of intangible asset		27,008,037			—		NA
Other income		(5,442,457	)		—		NA
Tax expense (recovery)		(7,543,376	)		1,627,061			(564	)%
Net and comprehensive income (loss)	$	(22,912,884	)	$	8,212,484			(379	)%
Attributable to:
Shareholders of the Company		(24,476,138	)		3,771,163			(749	)%
Non-controlling interest¹		1,563,254			4,441,321			(65	)%
Earnings (loss) per share attributable to shareholders:
Basic	$	(0.342	)	$	0.053
Diluted	$	(0.342	)	$	0.052

¹	Non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the Company.

NON-GAAP FINANCIAL MEASURES

In addition to results reported in accordance with US GAAP, the Company uses certain non-GAAP financial measures, including adjusted operating expenses (in total and broken down by operating segment), adjusted operating EBITDA (in total and broken down as attributable to non-controlling interest and shareholders of the Company) and adjusted operating EBITDA margin as supplemental indicators of its financial and operating performance. These non-GAAP measures are not recognized measures under US GAAP and do not have a standardized meaning prescribed by US GAAP, and are therefore unlikely to be comparable to measures presented by other companies. These measures are provided as additional information to complement US GAAP measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analyses of the Company’s financial information reported under US GAAP. See “Use of Non-GAAP Financial Measures” elsewhere in this Annual Report on Form 10-K.

SELECTED FINANCIAL INFORMATION – NON-GAAP MEASURES¹

	2020			2019			% Change
Total Adjusted operating expenses	$	69,235,347		$	68,681,627			1	%
Adjusted operating EBITDA – non-controlling interest²		13,637,786			15,080,425			(10	)%
Adjusted operating EBITDA – shareholders of the Company		28,741,294			36,623,224			(22	)%
Adjusted operating EBITDA – total	$	42,379,080		$	51,703,649			(18	)%
Adjusted operating EBITDA margin		39.9	%		42.9	%

¹	See "Use of Non-GAAP Financial Measures" below for definitions of Non-GAAP-based measures and reconciliations of GAAP-based measures to Non-GAAP-based measures.

²	Non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the Company.

Summary of Quarterly Results (Unaudited)

The following table sets forth certain unaudited consolidated statements of operations data 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, 2020.

Seasonality impacts quarterly anesthesia and product revenues. With our expenses primarily fixed, adjusted operating EBITDA margins will fluctuate quarterly. Seasonality also impacts net income as net income will fluctuate with fluctuations in adjusted operating EBITDA.¹

(in 000’s of US$, except EPS)	Q4 ‘20			Q3 ‘20			Q2 ‘20			Q1 ‘20			Q4 ‘19			Q3 ‘19			Q2 ‘19			Q1 ‘19
Anesthesia services revenue		34,126			27,984			12,427			23,150			27,621			27,967			28,026			26,693
Product sales revenue		2,657			2,366			1,158			2,304			2,749			2,448			2,456			2,426
Total revenue		36,783			30,349			13,585			25,455			30,369			30,415			30,482			29,119
Total operating expense		32,977			30,265			21,634			28,052			27,812			26,702			25,895			25,294
Adjusted operating expenses
Anesthesia services		18,369			16,022			9,416			15,094			15,588			15,036			14,609			13,779
Product sales		1,062			980			696			1,057			1,118			1,002			1,131			1,053
Corporate		1,593			1,792			1,397			1,756			1,393			1,319			1,444			1,211
Total adjusted operating expenses		21,024			18,794			11,510			17,907			18,099			17,357			17,184			16,042
Operating income (loss)		3,806			85			(8,049	)		(2,597	)		2,558			3,713			4,587			3,825
Operating margin		10	%		0	%		(59	)%		(10	)%		8	%		12	%		15	%		13	%
Adjusted operating EBITDA - non- controlling interest²		4,834			3,877			2,251			2,676			3,465			3,666			3,638			4,311
Adjusted operating EBITDA- shareholders of the Company		11,221			7,968			4,681			4,871			8,805			9,392			9,661			8,766
Adjusted operating EBITDA - total		16,055			11,845			6,932			7,547			12,270			13,058			13,298			13,077
Adjusted operating EBITDA margin		44	%		39	%		51	%		30	%		40	%		43	%		44	%		45	%
Net finance expense		765			442			447			497			913			1,125			2,179			2,392
(Income) loss from equity investment		(54	)		—			22			16			(1,350	)		(77	)		(214	)		(125	)
Impairment of intangible assets		27,008			—			—			—			—			—			—			—
Other income		(296	)		(290	)		(4,857	)		—			—			—			—			—
Income tax expense (recovery)		(5,959	)		(376	)		(234	)		(974	)		891			565			4			167
Net income (loss)		(17,658	)		309			(3,428	)		(2,135	)		2,104			2,099			2,619			1,391
Net income (loss) attributable to:
Shareholders of the Company		(19,152	)		(338	)		(2,908	)		(2,078	)		1,219			982			1,647			(77	)
Non-controlling interest²		1,494			647			(521	)		(56	)		885			1,117			972			1,468
Earnings (loss) per share attributable to shareholders
Basic		(0.268	)		(0.005	)		(0.041	)		(0.029	)		0.017			0.014			0.023			(0.001	)
Diluted		(0.268	)		(0.005	)		(0.041	)		(0.029	)		0.017			0.013			0.022			(0.001	)

¹	See "Use of Non-GAAP Financial Measures" below for definitions of Non-GAAP-based measures and reconciliations of GAAP-based measures to Non-GAAP-based measures.

²	Non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the Company.

Results of Operations for the Years Ended December 31, 2020 and 2019

Revenues for the year ended December 31, 2020 were $106,172,165 compared to $120,385,274 for the year ended December 31, 2019. The 12% decrease is driven primarily by a decrease in volumes and reduced activity levels as a result of COVID-19, primarily in the first, second and third quarters of 2020, offset by revenues from acquisitions completed in 2020 and from 2019 mid-year acquisitions. Revenue for the three months ended December 31, 2020 reflect the revenue contributions from anesthesia businesses acquired during 2020 and were $36,783,014, an increase of 21% or $6,413,791 when compared to the three months ended December 31, 2019.

Revenues from anesthesia services for the year ended December 31, 2020 were $97,688,095 compared to $110,306,431 for the year ended December 31, 2019. As above, the decrease was primarily a result of a decrease in anesthesia service volumes as a result of COVID-19, partially offset by revenue increases from acquisitions completed in 2020 and 2019; however, there were additional factors which impacted the change in revenue between fiscal 2020 and fiscal 2019. The $12.6 million decrease in revenue from the prior period is reflective of the following:

•

growth through acquisitions completed in 2019 and 2020 contributed $13.2 million to revenue when comparing the two periods;

•

after excluding case growth from acquisitions, above, cases declined by 19.9% from cases reported in 2019, equivalent to $21.1 million in revenue. The decline in cases is related to temporary closures of anesthesia service centers and decreased case volumes where we provide our services. Many locations started closures as early as mid-March due to the COVID-19 pandemic, with many subsequently resuming services in May and June 2020 and early in the third quarter of 2020;

•

changes in non-contracted payor reimbursement strategies and payor mix, primarily related to entities acquired prior to 2019, offset by favourable rate variances arising from our rate strategies, decreased 2020 revenue by approximately $0.7 million when compared to 2019;

•

included within 2020 revenue is a negative prior period revenue adjustment of approximately $1.6 million. In contrast, in 2019 we recognized a positive $2.3 million prior period revenue adjustment based on actual recoveries compared to our estimates; and

•

revenue related to services provided to non-owned anesthesia entities decreased by $0.2 million.

Anesthesia revenues for the three months ended December 31, 2020 were $34,126,481 compared to $27,620,527 for the three months ended December 31, 2019. The $6.5 million increase in revenue from the prior period is reflective of the following:

•

growth through acquisitions completed in 2019 and 2020 contributed $4.5 million to revenue when comparing the two periods;

•

after excluding case growth from acquisitions, above, cases declined by 1.6% from cases reported in the fourth quarter of 2019, equivalent to approximately $0.3 million in revenue;

•

as a result of our rate strategy, we’ve seen favorable rate variances resulting in an approximately $1.2 million increase when compared to 2019; and

•

included within the fourth quarter of 2020 revenue is a positive prior period revenue adjustment of approximately $0.1 million. In contrast, in the fourth quarter of 2019 we recognized a negative $1.2 million prior period revenue adjustment based on actual recoveries compared to our estimates.

In the year ended December 31, 2020, the anesthesia services segment serviced 323,644 patient cases compared to 345,393 patient cases during the year ended December 31, 2019. Patient cases serviced in the fourth quarter of 2020 were 108,681 compared to 94,503 patient cases in the fourth quarter of 2019.

The tables below summarize our approximate payor mix as a percentage of all patient cases for the years ended December 31, 2020 and 2019 and for the fourth quarters of 2020 and 2019.

	Three months ended									Years ended
Payor	December 31, 2020			December 31, 2019			Change			December 31, 2020			December 31, 2019			Change
Commercial		60.6	%		60.7	%		(0.2	)%		57.7	%		58.8	%		(1.9	)%
Federal		39.4	%		39.3	%		0.3	%		42.3	%		41.2	%		2.7	%
Total		100.0	%		100.0	%					100.0	%		100.0	%

The payor mix for the three months and year ended December 31, 2020 includes acquisitions completed during 2020 and 2019 and as a result is not directly comparable to the three months and year ended December 31, 2019. As we acquire anesthesia providers, these providers may have different payor mix profiles and impact our overall payor mix above.

The table below summarizes our approximate payor mix as a percentage of all patient cases for the three months and year ended December 31, 2020 and 2019, but exclude patient cases related to acquisitions completed in 2020 and 2019 as inclusion of these acquisitions would reduce comparability of the data presented.

	Three months ended									Years ended
Payor	December 31, 2020			December 31, 2019			Change			December 31, 2020			December 31, 2019			Change
Commercial		62.7	%		62.1	%		1.0	%		59.6	%		59.4	%		0.3	%
Federal		37.3	%		37.9	%		(1.6	)%		40.4	%		40.6	%		(0.5	)%
Total		100.0	%		100.0	%					100.0	%		100.0	%

The table below summarizes our approximate payor mix as a percentage of all patient cases for the year ended December 31, 2020, by quarter, and excludes patient cases related to acquisitions completed in 2020 and 2019 as inclusion of these acquisitions would reduce the comparability of the date presented.

Payor	Q4 2020			Q3 2020			Q2 2020			Q1 2020
Commercial		62.7	%		58.7	%		56.5	%		58.1	%
Federal		37.3	%		41.3	%		43.5	%		41.9	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Seasonality is driven by both patient cases and seasonal payor mix. As a result, revenue per patient will fluctuate quarterly. The seasonality of patient cases for fiscal 2020 is provided below for organic patient cases; it excludes patient cases relating to acquisitions completed in 2020. COVID-19 had the most significant impact on case volumes in the second quarter of 2020.

Seasonality		Q4 2020				Q3 2020				Q2 2020				Q1 2020
Patient cases			31.8	%			28.7	%			13.8	%			25.7	%

Revenues from product sales for the year ended December 31, 2020 were $8,484,070 compared to $10,078,843 for 2019. Product sales volume was impacted by the effect of COVID-19, with the majority of the impact felt in the first, second and third quarters of the year. Product sales revenue for the quarter ended December 31, 2020 was $2,656,533 compared to $2,748,696 for the quarter ended December 31, 2019. As of December 31, 2020, the Company has trained 3,254 physicians to use the O’Regan System, representing 1,253 clinical practices. This compares to 3,158 physicians trained, representing 1,209 clinical practices, as of December 31, 2019.

Total operating expenses

Total operating expense for the year ended December 31, 2020 was $112,928,124 compared to $105,703,079 for the year ended December 31, 2019. Total operating expense for the three months ended December 31, 2020 was $32,977,482 compared to $27,811,635 for the three months ended December 31, 2019. The increase in operating expenses is in part driven by the increase in case volumes associated with our acquisitions completed in the last quarter of 2019 and in 2020. While non-acquisition driven anesthesia cases and revenue declined due to COVID-19, payroll expenses, which are generally fixed, respond more slowly to changes in volume. As a result of COVID-19, CRH engaged in workforce reductions primarily occurring within the Company’s contracted workforce. Wherever possible, the Company worked to retain its employee workforce. As a result, total operating expenses, excluding expenses relating to acquisitions completed in 2019 and 2020, did not decline in line with revenues. Government assistance received to encourage this retention of employee workforce has been recognized in other income totaling $5,442,457 in the year.

Amortization expense for the year ended December 31, 2020 increased by 16% from 2019. This is a result of the incremental amortization expense related to asset acquisitions completed in 2019 and 2020 and the related intangible assets that were acquired. Amortization expense for the three months ended December 31, 2020 similarly increased by 21% from the comparable period in 2019.

Stock-based compensation expense for the year ended December 31, 2020 increased $1,732,655 compared to 2019. This increase is a result of forfeitures experienced in the second quarter of 2019 relating to the departure of the Company’s previous CEO. In contrast, stock-based compensation expense for the quarter ended December 31, 2020 increased by 16% or $112,043 from the comparable period of 2019, primarily as a result of additional grants issued in September 2020.

Total adjusted operating expenses – Non-GAAP¹

For the year ended December 31, 2020, total adjusted operating expenses were $69,235,347 compared to $68,681,627 for the year ended December 31, 2019. For the three months ended December 31, 2020, total adjusted operating expenses were $21,024,048 compared to $18,099,185 for the three months ended December 31, 2019. In general, increases seen in adjusted operating expenses are primarily related to adjusted operating expenses in the anesthesia services business as a result of recent acquisitions, offset by cost reduction initiatives as a result of COVID-19, as well as increases within our corporate segment.

Anesthesia services adjusted operating expenses for the year ended December 31, 2020 were $58,901,975, compared to $59,011,532 for the year ended December 31, 2019. Anesthesia services adjusted operating expenses for the three months ended December 31, 2020 were $18,369,011, compared to $15,588,323 for the three months ended December 31, 2019. Anesthesia services adjusted operating expenses primarily include labor related costs for Certified Registered Nurse Anesthetists and MD anesthesiologists, billing and management related expenses, medical drugs and supplies, and other related expenses. With the Company completing acquisitions in both 2019 and 2020, fiscal 2020 is not directly comparable to 2019. Though revenue may fluctuate, adjusted operating expenses, which are primarily employee related costs, due to their fixed nature, primarily increase or decrease as a result of the Company’s acquisition strategy or as a result of other than temporary case volume reductions.

For the year ended December 31, 2020, as noted above, beginning April 2020, the Company was able to reduce its contracted workforce for anesthesia case volume declines and therefore reduce its operating expenses; this most significantly impacted the second quarter of 2020 where case volumes saw significant declines as a result of COVID-19. Additionally, the Company’s billing related expenses declined as a result of case volume declines as billing related expenses are based on a percentage revenue. Other ancillary expenses such as travel and entertainment were also curtailed. As a result, Anesthesia services adjusted operating expenses did not increase in 2020 despite the addition of new acquisitions. With case volumes resuming normal activity levels by the end of the third quarter, Anesthesia services adjusted operating expenses resumed normal levels and thus increased when compared to the comparable period of 2019 as a result of expenses incurred by entities acquired in 2020.

Total adjusted operating expenses per case¹ for the anesthesia segment were $169 per case for the three months ended December 31, 2020 and is slightly higher than the $165 per case seen in the fourth quarter of 2019. Total adjusted operating expenses per case¹ for the anesthesia segment were $182 per case for the year ended December 31, 2020 compared to the $171 seen in year ended December 31, 2019. This case rate is higher than that experienced in 2019 due to the lower case volumes in 2020. While the Company was able to respond to lower case volumes with contracted workforce reductions, the Company also retained as many of its employees as possible. Government stimulus meant to encourage employee workforce retention has been recognized in other income and therefore has not been applied against the costs of retention efforts embedded within adjusted operating expenses.

Product sales adjusted operating expenses for the year ended December 31, 2020 were $3,794,457 compared to $4,303,630 for the year ended December 31, 2019. The decrease year over year is reflective of reduced activities, including cost of sales and product support costs such as conferences and travel. Product sales adjusted operating expenses for the three months ended December 31, 2020 were $1,061,656 compared to $1,117,862 for the three months ended December 31, 2019. In general, expenses have returned to pre-COVID levels as a result of the recovery of product sales activity.

Corporate adjusted operating expenses for the year ended December 31, 2020 were $6,538,915 compared to $5,366,464 for the year ended December 31, 2019. Corporate expenses have increased when compared to 2019 as a result of increases in corporate and other professional fees. In general, the increases seen in corporate and professional fees, including professional fees relating to Sarbanes-Oxley requirements, are reflective of the increasing complexity of our business which is also increasing our compliance costs. Corporate adjusted operating expenses for the three months ended December 31, 2020 were $1,593,382 compared to $1,393,000 for the three months ended December 31, 2019.

¹	See "Use of Non-GAAP Financial Measures" below for definitions of Non-GAAP-based measures and reconciliations of GAAP-based measures to Non-GAAP-based measures.

Operating income (loss)

Operating loss for the year ended December 31, 2020 was $6,755,959 compared to operating income of $14,682,195 for the same period in 2019. Operating income for the three months ended December 31, 2020 was $3,805,532 compared to $2,557,588 for the comparable period in 2019. The following schedule reconciles the changes in operating income between periods:

	Year ended December 31, 2020			Quarter ended December 31, 2020
Prior period operating income	$	14,682,195		$	2,557,588
Increase (decrease) in period revenues		(14,213,112	)		6,413,791
Increase in period adjusted operating expenses¹		(553,915	)		(2,925,058	)
Increase in period amortization and depreciation expense		(5,649,245	)		(1,937,062	)
Increase in period stock based compensation expense		(1,732,655	)		(112,043	)
Decrease in other non-recurring expenses		930,917			—
Inventory write-off		(64,911	)		—
Increase in period acquisition expenses		(155,233	)		(191,684	)
Current period operating income	$	(6,755,959	)	$	3,805,532

Changes in the company’s revenues and adjusted operating expenses¹ are described above within their respective sections. Fluctuations in revenue will not necessarily result in correlating fluctuations in operating expenses due to the fixed nature of these costs and as such will impact operating income.

The primary driver of the decline in operating income for the year ended December 31, 2020 is the reduction in anesthesia and product revenues in the period, with the majority of the reduction directly correlated with COVID-19 and its impact on the Company’s anesthesia case and product sales volumes. With many expenses being slow to respond to changes in volume due to their fixed nature, any change in revenue, specifically case volume, directly impacts operating income until the Company is able to respond via workforce reductions. Conversely, in the quarter ended December 31, 2020, with activity levels returning to their pre-COVID levels, operating income increased as a result. The increase in operating income is a direct correlation to acquisitions completed in the fourth quarter of 2019 and in 2020 as well as other revenue gains detailed in the revenue section, offset by related incremental amortization expense.

Anesthesia operating loss for the year ended December 31, 2020 was $2,529,277 compared to operating income of $15,800,392 for the year ended December 31, 2019. The decrease is primarily reflective of the decrease in adjusted operating EBITDA¹ in the year (calculated above as revenues less adjusted operating expenses), in conjunction with an incremental increase in amortization expense of $5,649,245 when comparing fiscal 2020 to fiscal 2019. Anesthesia operating income for the quarter ended December 31, 2020 was $4,490,090 compared to operating income of $2,919,379 for the quarter ended December 31, 2019 and reflects activity levels returning to pre-COVID levels.

Product operating income for the year ended December 31, 2020 was $4,212,737, a decrease of $1,218,387 from the same period in 2019. The decline in operating income is primarily driven by the decline in revenues in the period as a result of COVID-19 and its impact on sales in the first three quarters of the year. Product operating income for the three months ended December 31, 2020 was $1,410,459 compared to $1,542,183 for the three months ended December 31, 2019. The slight decrease is due to slightly lower sales volume in the period.

¹	See "Use of Non-GAAP Financial Measures" below for definitions of Non-GAAP-based measures and reconciliations of GAAP-based measures to Non-GAAP-based measures.

Adjusted operating EBITDA¹ – Non-GAAP

Adjusted operating EBITDA attributable to shareholders of the Company for the year ended December 31, 2020 was $28,741,294, a decrease of $7,881,930 when compared to the year ended December 31, 2019. The decrease in adjusted operating EBITDA attributable to shareholders is primarily a reflection of the overall net decline in revenue (described within the revenue section, but, in effect, attributable to COVID-19), offset by reductions in adjusted operating expenses. While revenue declined due to case volume decreases due to COVID-19, the Company took measures to reduce operating expenses, primarily payroll related, beginning early April 2020. With the majority of its anesthesia locations open and resuming operations in May and June 2020, the Company’s provider staffing expenses resumed. Note that for the purposes of calculating adjusted operating EBITDA, other income of $4,241,183 arising from the receipt of government assistance has been included for the year ended December 31, 2020. It is management’s opinion that this most accurately reflects the financial performance of the Company as the Company may have incurred further workforce reductions to offset reduced revenue volume were it not for the receipt of these incentives. Adjusted operating EBITDA attributable to shareholders of the Company for the three months ended December 31, 2020 was $11,220,896, an increase of $2,416,155 from the comparable period in 2019. The increase in adjusted operating EBITDA attributable to shareholders for the fourth quarter reflects the increase in revenue in the period.

Adjusted operating EBITDAattributable to non-controlling interest was $13,637,786 for the year ended December 31, 2020, compared to $15,080,425 for the year ended December 31, 2019. Other income of $1,201,274 arising from the receipt of government assistance has been included in the calculation of adjusted operating EBITDA attributable to non-controlling interest for the year ended December 31, 2020. Adjusted operating EBITDAattributable to non-controlling interest was $4,833,844 for the three months ended December 31, 2020, compared to $3,465,297 for the comparable period in 2019. Note that for comparative purposes, the Company acquired the non-controlling 49% in Arapahoe in April 2019 and CCAA in August 2019; the financial results of these entities are now included 100% in adjusted operating EBITDA attributable to shareholders.

Total adjusted operating EBITDA was $42,379,080 for the year ended December 31, 2020, a decrease of 18% from the same period in 2019. Total adjusted operating EBITDA was $16,054,740 for the three months ended December 31, 2020, an increase of 31% from the same period in 2019.

¹	See "Use of Non-GAAP Financial Measures" below for definitions of Non-GAAP-based measures and reconciliations of GAAP-based measures to Non-GAAP-based measures.

Net finance (income) / expense

As a result of the Company’s debt facilities and long-term finance obligations, including its earn-out obligations, the Company has recorded a net finance expense of $2,151,137 for the year ended December 31, 2020, compared to net finance expense of $6,609,618 in the year ended December 31, 2019. Net finance expense is comprised of both interest and other debt related expenses, including fair value adjustments. Fair value adjustments related to the Company’s earn-out obligation are the primary driver of significant fluctuations in finance expense between comparable periods.

	2020			2019
Finance expense:
Interest and accretion expense on borrowings	$	1,883,863		$	3,288,704
Accretion expense on earn-out obligation and deferred consideration	$	50,040		$	133,450
Amortization of deferred financing fees	$	372,835		$	276,260
Net change in fair value of financial liabilities at fair value through earnings	$	(155,601	)	$	2,861,204
Other	$	—		$	50,000
Total finance expense	$	2,151,137		$	6,609,618
Net finance expense	$	2,151,137		$	6,609,618
Net finance expense, excluding fair value adjustments	$	2,306,738		$	3,748,414

During the year ended December 31, 2020, the Company recognized a fair value adjustment (recovery) of $155,601 in respect of its earn-out obligation. The fair value adjustment resulted from changes in estimates underlying the Company’s earn-out obligation. The changes in estimates underlying the Company’s earn-out obligation were driven primarily by the changes in the cash flow estimates, which were driven by both changes in payor mix and revenue rates per unit. During the year ended December 31, 2019, the Company recognized a fair value adjustment of $2,861,204 in respect of its earn-out obligation.

Cash interest paid in the year ended December 31, 2020 was $1,949,694 compared to $3,055,374 cash interest paid in 2019. The decrease in cash interest paid is reflective of the lower LIBOR rates in 2020 as well as the credit spread on the Company’s current JP Morgan Facility being lower than its previous Scotia Facility. As at December 31, 2020, the Company owed $71,348,120 under its JP Morgan Facility as compared to $69,341,370 owed at December 31, 2019. The Company anticipates that, in future, cash interest will fluctuate as the Company draws or repays on its Facility and as LIBOR rates fluctuate.

(Gain) Loss from Equity Investment

In 2019, equity income was derived from the Company’s 15% equity interest in Triad Sedation Associates LLC (“TSA”). TSA began operating in February 2019 and was the result of an agreement between CRH and Digestive Health Specialists (“DHS”), located in North Carolina, whereby CRH assisted DHS in the development and management of a monitored anesthesia care program. Under the terms of the agreement, CRH was a 15% equity owner in the anesthesia business and received compensation for its billing and collection services. Under the terms of the limited liability company agreement, CRH had the right, at CRH’s option, to acquire an additional 36% interest in the anesthesia business at a future date, which it exercised in November 2019. Upon exercise of the option, CRH obtained control of TSA and TSA was therefore consolidated 100% within the results of CRH from the date control was acquired. As a result, TSA was not an equity investment as at December 31, 2020; however, in June 2020, the entered into an additional agreement resulting in an equity interest.

In June 2020, the Company entered into an agreement with 6 doctors located in North Carolina to assist these doctors in the development and management of a monitored anesthesia care program. Under the terms of the agreement, CRH is a 15% equity owner in the anesthesia business, Western Carolina Sedation Associates LLC (“WCSA”) and receives compensation for its billing and collections services. Under the terms of the limited liability company agreement, CRH has the right, at CRH’s option, to acquire an additional 36% interest in the anesthesia business at a future date, but no sooner than September 2021. The Company assessed and concluded that as WCSA is an LLC entity, equity method accounting is required under ASC 970-323 until such time as a change in ownership control occurs. WCSA began operations on October 1, 2020, at which time the Company provided a loan of $226,000 to the investment for working capital purposes and is expected to be repaid within twelve months of issue.

The decrease in equity income between 2020 and 2019 is due to the fact that the Company did not have any income from equity investments in the first three quarters of 2020.

Impairment of intangible assets

As a result of the notice of non-renewal of the GAA professional services agreements by United Digestive (“UD”) on December 22, 2020, CRH recorded an impairment loss relating to the GAA professional services agreements assets of $27,008,037 in the year ended December 31, 2020. The impairment loss was recorded in the fourth quarter of 2020 as a result of the notification of non-renewal. The Company provided anesthesia services to 12 surgery centers in the Greater Atlanta market via these professional services agreements, representing approximately 17% of the Company’s 2020 revenue. The professional services agreements are set to expire on October 31, 2021.

Other Income

On April 15, 2020, the Company received loan proceeds of $2,945,620 (“PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in order to enable small businesses to pay employees during the COVID-19 crisis, and provides loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the PPP is expected to be eligible to be forgiven provided that the borrower uses the loan proceeds during the twenty-four week period (“Covered Period”) after receiving them, and provided that the proceeds are used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the borrower does not maintain staffing or payroll levels.

The Company anticipates forgiveness of the loan over the Covered Period indicated. As such, the Company has accounted for the loan as a government grant related to income, and has recognized within other income $2,928,748 of the loan proceeds as at December 31, 2020.

Additionally, during the year ended December 31, 2020, the Company received funds of $2,445,046 under the CARES Act HHS Stimulus Fund. The CARES Act provided funding to eligible healthcare providers to prevent, prepare for and respond to COVID-19. The funds were intended to reimburse healthcare providers for lost income attributable to COVID-19 and for healthcare related expenses. Consistent with the accounting applied to the PPP loan, the Company has accounted for the HHS Stimulus funds as government grants related to income. As there are no repayment provisions under the CARES Act and the Company has assessed that it has complied with the conditions of this program, funds received under this program have been recognized in other income in the year ended December 31, 2020.

Income tax expense

For the year ended December 31, 2020, the Company recorded an income tax recovery of $7,543,376 compared to income tax expense of $1,627,061 for the year ended December 31, 2019. Income tax expense relates only to income attributable to the Company’s shareholders and the income tax recovery in the period is driven by the Company’s net loss before tax, which in turn is driven by the impact COVID-19 has had on the Company’s operating results as well as the impairment of the Company’s GAA professional services agreements. The impairment of the Company’s GAA professional services agreements resulted in an increase to the Company’s deferred assets. The Company has not recorded a valuation allowance against its deferred tax assets as management has assessed that it is more likely than not that those assets will be realized based on projected future taxable income.

Net and comprehensive income

For the year ended December 31, 2020, the Company recorded a net and comprehensive loss attributable to shareholders of the Company of $24,476,138 compared to net and comprehensive income attributable to shareholders of $3,771,163 for the year ended December 31, 2019. The decrease year over year is largely a reflection of the decrease in operating income in the period in addition to the GAA impairment loss recognized in the fourth quarter of 2020 and the related tax recovery. For the three months ended December 31, 2020, the Company recorded a net and comprehensive loss attributable to shareholders of the Company of $19,151,875 compared to net and comprehensive income attributable to shareholders of $1,219,079 for the same period in 2019. The loss generated in the period, given the increase in operating income in the period, is primarily related to the GAA impairment loss recognized in the fourth quarter 2020.

Net and comprehensive income attributable to non-controlling interest was $1,563,254 for the year ended December 31, 2020 compared to net and comprehensive income attributable to non-controlling interest of $4,441,321 for the year ended December 31, 2019. Consistent with the loss attributable to shareholders, the net and comprehensive income attributable to non-controlling interest in the year is a reflection of the decrease in operating income as a result of the impact COVID-19 has had on the Company’s operating results in the year. Additionally, the Company acquired the non-controlling 49% in Arapahoe in April 2019 and CCAA in August 2019; the financial results of these entities are now included 100% in adjusted operating EBITDA attributable to shareholders. Net and comprehensive income attributable to non-controlling interest was $1,493,674 for the three months ended December 31, 2020 compared to the net and comprehensive income attributable to non-controlling interest of $884,610 for the three months ended December 31, 2019. Like net and comprehensive income attributable to shareholders, the impact of operating income increases had a positive effect.

Use of Non-GAAP Financial Measures

As discussed above, in addition to results reported in accordance with US GAAP, the Company uses certain non-GAAP financial measures, including adjusted operating expenses (in total and broken down by operating segment), adjusted operating EBITDA (in total and broken down as attributable to non-controlling interest and shareholders of the Company), and adjusted operating EBITDA margin as supplemental indicators of its financial and operating performance. These non-GAAP measures are not recognized measures under US GAAP and do not have a standardized meaning prescribed by U.S. Generally Accepted Accounting Principles (“US GAAP”) and thus the Company’s definition may be different from and unlikely to be comparable to non-GAAP measures presented by other companies. These measures are provided as additional information to complement US GAAP measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analyses of the Company’s financial information reported under US GAAP. Management uses these non-GAAP measures to provide investors with a supplemental measure of the Company’s operating performance and thus highlight trends in the Company’s core business that may not otherwise be apparent when relying solely on US GAAP financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers. In addition, management uses these non-GAAP measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess its ability to meet future debt service, capital expenditure, and working capital requirements. The definitions of these measures, as well as a reconciliation of the most directly comparable financial measure calculated and presented in accordance with GAAP to each non-GAAP measure, are presented below.

Adjusted operating EBITDA: The Company defines adjusted operating EBITDA as operating earnings before interest, taxes, depreciation, amortization, stock based compensation, acquisition related expenses, asset impairment charges and other non-recurring expenses plus other income related to government assistance. Adjusted operating EBITDA is presented on a basis consistent with the Company’s internal management reports. The Company analyzes and 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.

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

Adjusted operating expenses: The Company defines adjusted operating expenses as operating expenses before acquisition related expenses, stock based compensation, depreciation, amortization, asset impairment charges and other non-recurring expenses. Adjusted operating expenses are presented on a basis consistent with the Company’s internal management reports. The Company analyzes and discloses adjusted operating expenses to capture the operating cost of the business before the impact of items not considered in management’s evaluation of operating costs.

Adjusted operating expense per case – Anesthesia segment: The Company defines adjusted operating expense per case for the anesthesia segment as adjusted operating expense for the anesthesia segment divided by anesthesia cases serviced in the period. The Company analyzes and discloses adjusted operating expenses to capture the operating cost of the business before the impact of items not considered in management’s evaluation of operating costs and evaluates these costs as a per case metric.

The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they reflect the Company’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in its business. In addition, they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used under US GAAP.

The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures, which adjusts for the impact of amortization of intangible assets, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends.

In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses and is therefore a useful indication of CRH’s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.

The following charts provide unaudited reconciliations of US GAAP-based financial measures to Non-GAAP-based financial measures for the following periods presented:

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

Adjusted operating EBITDA

	2020															2019
(USD in thousands)	FY ‘20			Q4 ‘20			Q3 ‘20			Q2 ‘20			Q1 ‘20			FY ‘19			Q4 ‘19			Q3 ‘19			Q2 ‘19			Q1 ‘19
Net and comprehensive income (loss)		(22,912	)		(17,658	)		309			(3,428	)		(2,135	)		8,213			2,104			2,099			2,619			1,391
Net finance (income) expense		2,151			765			442			447			497			6,609			913			1,125			2,179			2,392
Equity income		(16	)		(54	)		—			22			16			(1,766	)		(1,350	)		(77	)		(214	)		(125	)
Income tax expense (recovery)		(7,543	)		(5,959	)		(376	)		(234	)		(974	)		1,627			891			565			4			167
Other income - government assistance		(5,443	)		(296	)		(290	)		(4,857	)		—			—			—			—			—			—
Impairment		27,008			27,008			—			—			—			—			—			—			—			—
Operating income (loss)		(6,756	)		3,806			85			(8,049	)		(2,597	)		14,683			2,558			3,713			4,587			3,825
Amortization expense		40,492			10,889			10,735			9,489			9,380			34,898			9,006			8,528			8,723			8,641
Depreciation and related expense		166			83			26			28			29			111			29			28			27			27
Stock based compensation		2,710			809			653			595			653			977			697			706			(990	)		564
Acquisition expenses¹		260			173			57			12			18			104			(19	)		83			20			20
Inventory write-downs		65			—			—			—			65			—			—			—			—			—
Other non-recurring items²		—			—			—			—			—			931			—			—			931			—
Other income - government assistance		5,443			296			290			4,857			—			—			—			—			—			—
Total adjusted operating EBITDA		42,378			16,055			11,845			6,932			7,547			51,703			12,270			13,058			13,298			13,077
Adjusted operating EBITDA attributable to:
Shareholders of the Company		28,739			11,221			7,968			4,681			4,871			36,623			8,805			9,392			9,661			8,766
Non-controlling interest		13,638			4,834			3,877			2,251			2,676			15,080			3,465			3,666			3,638			4,311

¹	Acquisition expenses relating to incomplete acquisitions-

²	Non-recurring expenses relating to the replacement of the Company’s CEO

Adjusted Operating EBITDA Margin

	2020															2019
(USD in thousands)	FY ‘20			Q4 ‘20			Q3 ‘20			Q2 ‘20			Q1 ‘20			FY ‘19			Q4 ‘19			Q3 ‘19			Q2 ‘19			Q1 ‘19
Revenue		106,172			36,783			30,349			13,585			25,455			120,385			30,369			30,415			30,482			29,119
Operating income		(6,756	)		3,806			85			(8,049	)		(2,597	)		14,682			2,558			3,713			4,587			3,825
Operating margin		(6.4	)%		10.3	%		0.3	%		(59.3	)%		(10.2	)%		12.2	%		8.4	%		12.2	%		15.0	%		13.1	%
Amortization expense		38.1	%		29.6	%		35.3	%		69.9	%		36.8	%		29.0	%		29.7	%		28.0	%		28.6	%		29.7	%
Depreciation and related expense		0.2	%		0.2	%		0.1	%		0.2	%		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
Stock based compensation		2.6	%		2.2	%		2.2	%		4.4	%		2.6	%		0.8	%		2.3	%		2.3	%		(3.2	)%		1.9	%
Acquisition expenses¹		0.2	%		0.5	%		0.1	%		0.1	%		0.1	%		0.1	%		(0.1	)%		0.3	%		0.1	%		0.1	%
Inventory write-downs		0.1	%		0.0	%		(—	)%		(—	)%		0.3	%		(—	)%		(—	)%		(—	)%		(—	)%		(—	)%
Other non-recurring items²		(—	)%		(—	)%		(—	)%		(—	)%		(—	)%		0.8	%		(—	)%		(—	)%		3.1	%		(—	)%
Other income - government assistance		5.1	%		0.8	%		1.0	%		35.8	%		(—	)%		(—	)%		(—	)%		(—	)%		(—	)%		(—	)%
Total adjusted operating EBITDA margin		39.9	%		43.6	%		39.0	%		51.0	%		29.7	%		42.9	%		40.4	%		42.9	%		43.6	%		44.9	%

Adjusted operating expenses

	2020															2019
(USD in thousands)	FY ‘20			Q4 ‘20			Q3 ‘20			Q2 ‘20			Q1 ‘20			FY ‘19			Q4 ‘19			Q3 ‘19			Q2 ‘19			Q1 ‘19
Anesthesia services expense		100,217			29,636			26,964			18,988			24,629			94,505			24,701			23,774			23,471			22,559
Amortization expense		(40,490	)		(10,888	)		(10,734	)		(9,489	)		(9,379	)		(34,895	)		(9,005	)		(8,527	)		(8,722	)		(8,641	)
Depreciation and related expense		(14	)		(3	)		(3	)		(4	)		(4	)		(13	)		(4	)		(3	)		(3	)		(3	)
Stock based compensation		(552	)		(203	)		(148	)		(67	)		(134	)		(482	)		(123	)		(125	)		(117	)		(117	)
Acquisition expenses¹		(260	)		(173	)		(57	)		(12	)		(18	)		(104	)		19			(83	)		(20	)		(20	)
Anesthesia services – adjusted operating expense		58,901			18,369			16,022			9,416			15,094			59,012			15,588			15,036			14,609			13,779
Product sales expense		4,271			1,246			1,081			753			1,191			4,647			1,207			1,089			1,217			1,134
Amortization expense		(2	)		(1	)		(1	)		—			—			(3	)		(1	)		(1	)		(1	)		—
Depreciation and related expense		(67	)		(52	)		(5	)		(5	)		(5	)		(24	)		(5	)		(5	)		(5	)		(9	)
Stock based compensation		(342	)		(132	)		(95	)		(51	)		(64	)		(318	)		(83	)		(82	)		(81	)		(73	)
Inventory write-downs		(65	)		—			—			—			(65	)		—			—			—			—			—
Product sales - adjusted operating expense		3,794			1,062			980			696			1,057			4,304			1,118			1,002			1,131			1,053
Corporate expense		8,440			2,095			2,220			1,894			2,231			6,549			1,904			1,839			1,206			1,600
Amortization expense		—			—			—			—			—			—			—			—			—			—
Depreciation and related expense		(85	)		(28	)		(18	)		(19	)		(20	)		(75	)		(20	)		(20	)		(20	)		(15	)
Stock based compensation		(1,817	)		(474	)		(410	)		(478	)		(455	)		(178	)		(491	)		(500	)		1,188			(375	)
Other non-recurring items²		—			—			—			—			—			(931	)		—			—			(931	)		—
Corporate - adjusted operating expenses		6,538			1,593			1,792			1,397			1,756			5,367			1,393			1,319			1,444			1,211
Total operating expense		112,928			32,977			30,265			21,634			28,052			105,703			27,812			26,702			25,895			25,294
Total adjusted operating expense		69,235			21,024			18,794			11,510			17,907			68,682			18,099			17,357			17,184			16,042

Adjusted operating expense Per case – anesthesia segment

	2020										2019
(USD in thousands, except case and per case amounts)	FY ‘20		Q4 ‘20		Q3 ‘20		Q2 ‘20		Q1 ‘20		FY ‘19		Q4 ‘19		Q3 ‘19		Q2 ‘19		Q1 ‘19
Anesthesia services – adjusted operating expense		58,901		18,369		16,022		9,416		15,094		59,012		15,588		15,036		14,609		13,779
Anesthesia cases serviced		323,644		108,681		94,052		42,918		77,993		345,393		94,503		88,733		84,656		77,501
Total adjusted operating expense per case – Anesthesia segment		182		169		170		219		194		171		165		169		173		178

Liquidity and Capital Resources

At December 31, 2020, the Company had $3,919,747 in cash and cash equivalents compared to $6,568,716 at the end of 2019. The decrease in cash and equivalents is primarily a reflection of cash generated from operations and debt financing activities, less cash used to finance normal course issuer bid repurchases and acquisitions during 2020.

Working capital was $19,775,137 at December 31, 2020 compared to working capital of $18,677,498 at December 31, 2019. The Company expects to meet its short-term obligations, including short-term obligations in respect of its earn-out obligation and contract payable, through cash earned through operating activities in conjunction with monies available under its credit facility.

The average number of days receivables outstanding at December 31, 2020 was 57 days. At December 31, 2019, the average number of days receivables outstanding was 59 days. The Company continues to monitor this measure on an ongoing basis.

Cash provided by operating activities for the year ended December 31, 2020 was $35,993,673 compared to $45,005,557 in the same period in fiscal 2019. Cash provided by operating activities for the quarter ended December 31, 2020 was $11,197,959 compared to $12,335,680 for the same period in fiscal 2019.

Cash used in investing activities for the year ended December 31, 2020 was $24,625,171 as compared to $10,668,165 for the year ended December 31, 2019. Cash used in investing activities for the quarter-ended December 31, 2020 was $3,087,586 as compared to $5,876,008 for the three months ended December 31, 2019.

Cash used in financing activities was $14,018,534 for 2020 compared to $37,717,737 for the twelve months ended December 31, 2019. Cash used in financing activities was $9,290,655 as compared to $5,106,718 for the three months ended December 31, 2019.

For the year ended December 31, 2019, the statements of cash flows were adjusted to reclassify Acquisition of equity interest from non-controlling interest from investing activities to financing activities given that the transaction is among owners. As a result, net cash flows from investing activities and financing activities are presented as follows:

	For the year ended December 31, 2019
	As previously presented			Adjustment			As currently presented
Cash flows from financing activities	$	(27,793,356	)	$	(9,924,381	)	$	(37,717,737	)
Cash flows from investing activities	$	(20,592,546	)	$	9,924,381		$	(10,668,165	)

The Company has financed its operations primarily from revenues generated from product sales and anesthesia services and through equity and debt financings and a revolving credit facility. As of December 31, 2020, the Company has raised approximately $51 million from the sale and issuance of equity securities and most recently, the Company entered into a syndicated debt facility with JP Morgan Chase Bank, increasing its facility to $200 million on October 22, 2019. As at December 31, 2020, the Company owed $71.3 million under the facility. The terms of the Company’s facility as of December 31, 2020 is described below.

JP Morgan Chase Facility

On October 22, 2019, the Company entered into a three year revolving credit line which provides up to $200 million in borrowing capacity. The JP Morgan Facility includes a committed $125 million facility and access to an accordion feature that increases the amount of the credit available to the Company by $75 million. Interest on the facility is calculated with reference to LIBOR plus 1.25% to 1.75%, dependent on the Company’s Total leverage ratio. The JP Morgan Facility is secured by the assets of the Company and matures on October 22, 2022. Since the JP Morgan Facility is a syndicated facility, which includes the Bank of Nova Scotia as a lender, any remaining deferred financing fees under the Company’s previous Scotia Facility were retained and are amortized over the term of the new facility. The Company incurred deferred financing fees of $839,893 in connection with this facility in the year ended December 31, 2019 and incurred additional deferred fees of $125,000 in the year ended December 31, 2020 when the Company further amended its facility on September 18, 2020. This amendment, in conjunction with a previous amendment dated August 13, 2020, allows for the Company to engage in investments where less than 51% equity ownership is held and also amended the Company’s Total Leverage Ratio to not greater than 3.50:1.00 until the quarter ended June 30, 2021. Should the Company’s PPP loan be forgiven prior to June 30, 2021, the ratio is amended downward to 3.25:1.00. After June 30, 2021, the Total Leverage Ratio will revert back to 3.00:1.00. The remaining unamortized fees relating to the JP Morgan Facility and the deferred financing fees under the previous Scotia Facility, as of December 31, 2020 were $747,505. Under the JP Morgan Facility, there are no quarterly or annual repayment requirements. As of December 31, 2020, the Company had drawn $71,348,120 on the JP Morgan Facility (2019 - $69,341,370). As at December 31, 2020, the Company is required to maintain the following financial covenants in respect of this Facility:

Financial Covenant		Required Ratio
Total leverage ratio		Not greater than 3.50:1.00
Interest coverage ratio		Not less than 3.00:1.00

The Company’s Total Leverage ratio is calculated as the ratio of the Company’s total indebtedness at the end of the period to EBITDA for the Company’s previous four consecutive quarters.

The Company is in compliance with all covenants at December 31, 2020.

Contractual Obligations and Contingent Liabilities

The Company’s near-term cash requirements relate primarily to interest payments, remaining payments under its earn-out obligation, operations, working capital and general corporate purposes, including further acquisitions. As a result of the impact of COVID-19, the Company has updated its forecasts to account for the impact of the pandemic. Based on this assessment, 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, 2020:

	Maturity
At December 31, 2020	TOTAL		Less than one year		One to three years		Four to five years		After five years
Trade and other payables	$	7,023,060	$	7,023,060	$	—	$	—	$	—
Employee benefits		789,409		789,409		—		—		—
Lease liabilities ⁽³⁾		1,179,310		300,354		457,746		421,210
Notes payable and bank indebtedness ⁽¹⁾		71,348,120		—		71,348,120		—		—
Earn-out obligation		907,459		907,459		—		—		—
Contract payable		1,900,589		1,900,589		—		—		—
Deferred consideration ⁽²⁾		2,811,500		—		2,811,500		—		—
	$	85,959,447	$	10,920,871	$	74,617,366	$	421,210	$	—

⁽¹⁾

Excludes interest payable over the remaining term of the facility. Interest on the facility is calculated with references to LIBOR plus 1.25% to 1.75% depending on the Company’s Total Leverage Ratio

⁽²⁾

Excludes expected accretion of $74,316. Accretion is determined with reference to a discount rate based on Corporate BBB bond yields.

⁽³⁾

Excludes expected accretion of $177,183. Accretion is determined with reference to a discount rate based on Corporate BBB bond yields.

As at December 31, 2020, 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, normal course issuer bid agreements, and earn-out obligations as described above.

The Company’s earn-out obligation arose in respect of the Company’s acquisition of Gastroenterology Anesthesia Associates LLC in 2014. The Company’s earn-out obligation is recorded at fair value and reflects management’s best estimate of the contingent consideration payable. As at December 31, 2020, the fair value of the earn-out obligation is $907,459. The Company paid this obligation in the first quarter of 2021.

The Company’s deferred consideration arose in respect of the Company’s acquisitions of Metro Orlando Anesthesia Associates LLC (“MOAA”) and Central Virginia Anesthesia Associates LLC (“CVAA”) in 2020. As part of the MOAA transaction, the Company is required to pay $311,500 to the seller after the second anniversary date of the transaction dependent on MOAA meeting certain EBITDA targets during the first and second year after the transaction date. Based on the Company’s current forecasts, the Company believes it probable that the EBITDA targets will be met. If the EBITDA targets are not met, no contingent consideration is payable. As part of the CVAA transaction, the Company is required to pay either $1,500,000 or $2,500,000 to the seller after the third anniversary date of the transaction dependent on CVAA meeting certain EBITDA, full-time equivalent employee and revenue per case targets during the second and third year after the transaction date. Based on the Company’s current forecasts, the Company believes it probable that the targets will be met and the full amount of the contingent consideration, $2,500,000, will be paid.

The Company’s contract payable relates to funds received under the Medicare Accelerated and Advanced Payment Program. Repayment under the program is expected to be completed prior to December 31, 2021.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that the assumptions and estimates associated with management’s assessment for impairment, estimates supporting reported anesthesia revenues and the valuation of deferred tax assets have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 3 — Significant Accounting Policies in the accompanying notes to consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K

Impairment of intangible assets:

The Company’s intangible assets are comprised of purchased professional service agreements and patents.

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 are any events or changes in circumstances which indicate that the carrying value may not be recoverable. Example factors that could trigger impairment reviews include significant underperformance relative to historical or projected future operating results, significant changes in the use of the acquired assets or strategy for the overall business and significant negative economic trends. Depending on the specific asset and circumstances, assets are assessed for impairment as an individual asset, as part of an asset group or at the reporting unit (“RU”) level. A reporting unit is an operating segment or one level below an operating segment if certain conditions are met. 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.

If indicators of impairment exist, an asset or asset group is impaired if its carrying amount exceeds its fair value, being the projected future discounted cash flows that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset or asset group. Projected cash flows are based upon historical results adjusted to reflect management’s best estimate of future market and operating conditions which may differ from actual cash flows. The process of determining estimated fair value is complex and there is significant judgment applied in determining significant assumptions used when estimating fair value. Significant assumptions included in projected cash flows include anesthesia case growth rates and revenue rates per case.

As at December 31, 2020, the Company identified indicators of impairment in respect of three of its professional services agreements relating to financial performance and contract non-renewal. Upon performing undiscounted cash flow models for these assets, the Company identified only one asset that required further review for impairment: Gastroenterology Anesthesia Associates LLC “GAA”.

The requirement to further assess this asset was driven by non-renewal of the Company’s GAA professional services agreement assets. On December 22, 2020, the Company received notice that these professional services agreements would not be renewed. CRH provided anesthesia services to 12 surgery centers in the Greater Atlanta market via these professional services agreements, representing approximately 17% of the Company’s 2020 revenue. The professional services agreements were set to originally expire on October 31, 2021; the majority of these agreements were acquired in conjunction with the GAA acquisition in December 2014. At the time of acquisition, the Company estimated a useful life of 12 years these professional services agreements.

The Company performed discounted cash flow modelling for these assets and compared the resultant discounted cash flows expected over the life of the assets, estimated to be approximately 10 months, to the carrying amounts as at December 31, 2020. The income approach is used for the quantitative assessment to estimate the fair value of the assets, which requires estimating future cash flows and risk-adjusted discount rates in the Company's discounted cash flow model. The overall market outlook and cash flow projections for these assets involves the use of key assumptions, including revenue rates per case and expected case counts.

As a result of performing the above discounted cash flow analysis, the Company has recorded an impairment charge of $27,008,037 in relation to its GAA professional services agreements. The discounted cash flow analysis is highly sensitive to revenue rates per case and the expected case counts. A +/-1% change in the revenue rate per case utilized would result in a $120,000 adjustment to the impairment charge taken. Similarly, a +/- 1% change in the expected case counts would result in a $110,000 adjustment to the impairment charge taken. Due to uncertainties in the estimates that are inherent to the Company's industry, actual results could differ significantly from the estimates made. Many key assumptions in the cash flow projections are interdependent on each other. A change in any one or combination of these assumptions could impact the estimated fair value of the assets.

At December 31, 2019, the Company identified indicators of impairment in respect of six of its professional services agreements. Upon performing undiscounted cash flow models for these assets, the Company identified only two assets that required further review for impairment.

As a result of this test, no write-downs to the intangible assets were required for the year ended December 31, 2019.

Revenue recognition – Anesthesia services:

Our anesthesia service revenues are derived from anesthesia procedures performed under our professional services agreements. The fees for such services are billed either to a third party payor, including Medicare or Medicaid or to the patient. We recognize anesthesia service revenues, net of contractual adjustments and implicit price concessions, which we estimate based on the historical trend of our cash collections and contractual adjustments. There is significant judgment involved in determining the estimated revenues that will be collected in the future due to the judgment required in estimating the amounts that third-party payors will pay for services based on past collections.

Anesthesia services procedures for each patient qualify as a distinct service obligation, as they are provided simultaneously with other readily available resources during the service procedure. The transaction price is variable and not constrained. Variable consideration relates to contractual allowances, credit provisions and other discounts. The standard requires management to estimate the transaction price, including any implicit concessions from the credit approval process. The Company adopted a portfolio approach to estimate variable consideration transaction price by payor type (patient, government and/or insurer) and the specifics of the services being provided. These portfolios share characteristics such that the results of applying a portfolio approach are not materially different than if the standard was applied to individual patient contracts. Revenue is recognized upon completion of the services to the customer (patient) for practical reasons as the service period is performed over a short time period.

Income taxes:

The Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, it recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company recognizes the deferred income tax effects of a change in tax rates in the period of the enactment. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that management believes is more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than fifty percent likely of being realized. The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Income tax expense is comprised of current and deferred tax.

Recently Issued Accounting Pronouncements

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326)”, which requires companies to measure credit losses on financial instruments measured at amortized cost by applying an “expected credit loss” model based upon past events, current conditions and reasonable and supportable forecasts that affect collectability. Previously, companies applied an “incurred loss” methodology for recognizing credit losses. This standard is effective for fiscal years beginning January 1, 2023 for smaller reporting companies. As CRH meets the definition of smaller reporting company, CRH will adopt this standard for fiscal years beginning January 1, 2023. The Company is current assessing the impact that adopting this guidance will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact that adopting this guidance will have on its consolidated financial statements.

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. See Recent Events section for disclosure of the pending acquisition of the Company by Well Health Technologies Corp.

Tabular Disclosure of Contractual Obligations

Not applicable.

Outstanding Share Data

As at December 31, 2020, there were 71,674,647 common shares issued and outstanding for a total of $57,255,264 in share capital.

As at December 31, 2020, there were 979,687 options outstanding at a weighted-average exercise price of $1.69 per share, of which 604,687 were exercisable into common shares at a weighted-average exercise price of $1.01 per share. As at December 31, 2020, there were 3,286,562 share units (“SUs”) issued and outstanding.

As at March 12, 2021, there were 71,620,447 common shares issued and outstanding, excluding shares held as treasury, for a total of $57,215,160 in share capital.

As at March 12, 2021, there were 979,687 options outstanding at a weighted-average exercise price of $1.73 per share, of which 604,687 were exercisable into common shares at a weighted-average exercise price of $1.03 per share. As at March 12, 2021, there were 3,286,562 share units (“SUs”) issued and outstanding.

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 8.

Financial Statements and Supplementary Data

CRH Medical Corporation

Index to Consolidated Financial Statements

Year ended December 31, 2020

	Page
Report of Independent Registered Public Accounting Firm	69
Management’s Report	73
Consolidated Balance Sheets at December 31, 2020 and 2019	74
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2020 and 2019	75
Consolidated Statements of Changes in Equity for the years ended December 31, 2020 and 2019	76
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019	77
Notes to the Consolidated Financial Statements	78

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
CRH Medical Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CRH Medical Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the years in the two‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2021 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the accuracy of the fair value of impaired intangible assets with finite lives

As discussed in Note 9 to the consolidated financial statements, the Company recorded an impairment charge of $27,008,037 in relation to its Gastroenterology Anesthesia Associates, LLC (GAA) professional services agreements. The Company evaluates these assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted net cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value.

We identified the assessment of the accuracy of the fair value of the GAA professional services agreements as a critical audit matter. Auditing this fair value was complex and highly judgmental due to the significant judgment applied by management in determining the significant assumptions used to calculate the fair value. These significant assumptions included expected case counts and revenue rates per case.

The primary procedures we performed to address this critical audit matter included the following. We evaluated the expected case counts by comparing them against historical case counts obtained internally from the Company. We compared the revenue rates per case with the historical collections data obtained internally from the Company. We performed sensitivity analyses over the significant assumptions to assess the impact of reasonably possible alternative assumptions on the Company’s impairment assessment.

Evaluation of the estimate of anesthesia services revenue accrual

As described in Note 3 to the consolidated financial statements, anesthesia service revenues are recognized upon completion of anesthesia procedures for each patient and are recognized net of contractual adjustments and implicit price concessions. Due to such contractual adjustments and implicit price concessions, the transaction price for these services is considered to be variable and not constrained. The Company follows a portfolio approach in estimating this variable consideration based upon the historical trend of cash collections for each payor type. Accrued revenues from the anesthesia segment contributed to a significant portion of the Company’s consolidated net accounts receivable balance of $23,323,473 as of December 31, 2020.

We identified the evaluation of the estimate of the anesthesia services revenue accrual as a critical audit matter. There was significant judgment involved in determining the estimated revenues that will be collected in the future due to the judgment required in estimating the amounts that third-party payors will pay for services based on past collections. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence obtained related to the anesthesia services revenue accrual.

The primary procedures we performed to address this critical audit matter included the following. We evaluated the Company’s estimate of future revenue collections by reference to the Company’s historical collections data. We evaluated the Company’s ability to accurately estimate the anesthesia services revenue accrual by comparing actual cash collections to the anesthesia services revenue accrual recorded in the previous financial year. We tested anesthesia services cash collections subsequent to year end by comparing the revenue accrual to the amounts actually collected.

/s/ KPMG LLP

Chartered Professional Accountants

We have served as the Company’s auditor since 2008.

Vancouver, Canada
March 16, 2021

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
CRH Medical Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited CRH Medical Corporation’s (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 16, 2021 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to the following were identified and included in management’s assessment:

•	The Company did not have effective continuous risk assessment processes and there were insufficient resources to adequately assess risk.

•

The Company was unable to rely on internal controls within the service organization used to process anesthesia claims and revenue because that service organization did not provide a third-party attestation report with regard to internal controls over those processes and the Company’s existing review controls did not operate at a sufficient level of precision to compensate for this deficiency.

•

The Company had a combination of control deficiencies within its information technology (IT) general and application controls across the systems supporting the Company’s financial reporting processes, including access controls related to maintaining appropriate segregation of duties and super-user access. The Company concluded that process-level automated controls and manual controls that were dependent upon IT general controls, information and data derived from impacted IT systems were ineffective.

•	The Company did not involve personnel with sufficient knowledge and practical experience in performing the discounted cash flow modelling utilized in the impairment evaluation of intangible assets.

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an

understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants

Vancouver, Canada
March 16, 2021

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 United States Generally Accepted Accounting Principles, 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 the standards of the Public Company Accounting Oversight Board (United States) and express their opinion thereon.

Chief Executive Officer		Chief Financial Officer
(signed) “Tushar Ramani”		(signed) “Richard Bear”

March 16, 2021		March 16, 2021

CRH MEDICAL CORPORATION

Consolidated Balance Sheets

(Expressed in United States dollars)

As at December 31, 2020 and 2019

	Note	2020			2019
Assets
Current assets:
Cash and cash equivalents		$	3,919,747		$	6,568,716
Trade and other receivables, net	5		23,323,473			20,041,288
Income tax receivable			2,942,008			1,332,129
Prepaid expenses and deposits			870,441			729,483
Loan to equity investee	10		226,000			—
Inventories			262,466			349,324
			31,544,135			29,020,940
Non-current assets:
Property and equipment, net	8,19		127,800			251,933
Right of use assets	7		1,063,804			214,854
Intangible assets, net	4,9,19		136,404,143			163,108,193
Deferred asset acquisition costs			68,211			59,249
Investment	4		2,016,076			—
Equity investment	10		104,180			—
Deferred tax assets	14		20,456,381			10,440,100
			160,240,595			174,074,329
Total assets		$	191,784,730		$	203,095,269
Liabilities
Current liabilities:
Trade and other payables	6	$	7,023,060		$	6,196,741
Employee benefits			789,409			992,845
Current portion of lease liability	7		272,480			125,555
Current tax payable			753,501			28,589
Deferred consideration			—			1,868,052
Earn-out obligation	16		907,459			1,063,060
Contract payable - CMS Advancement	11		1,900,589			—
Member loan	4		122,500			68,600
			11,768,998			10,343,442
Non-current liabilities:
Contingent consideration	4		2,634,317			—
Lease liability	7		832,514			54,300
Notes payable and bank indebtedness	12		70,600,615			68,380,345
Deferred tax liabilities	14		—			101,822
			74,067,446			68,536,467
Equity
Common stock, no par value; 71,674,647 and 71,603,584 shares issued and outstanding at December 31, 2020 and 2019, respectively	13		57,255,264			56,056,113
Additional paid-in capital			8,402,216			7,168,156
Accumulated other comprehensive loss			(66,772	)		(66,772	)
Retained earnings (loss)			(11,870,442	)		13,154,981
Total equity attributable to shareholders of the Company			53,720,266			76,312,478
Non-controlling interest			52,228,020			47,902,882
Total equity			105,948,286			124,215,360
Total liabilities and equity		$	191,784,730		$	203,095,269

See accompanying notes to consolidated financial statements.
Commitments and contingencies (note 17)

Subsequent events (note 20)

CRH MEDICAL CORPORATION

Consolidated Statements of Operations and Comprehensive Income (Loss)

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

Years ended December 31, 2020 and 2019

	Notes	2020			2019
Revenue:
Anesthesia services	19	$	97,688,095		$	110,306,431
Product sales	19		8,484,070			10,078,843
			106,172,165			120,385,274
Expenses:
Anesthesia services expense	19		100,217,372			94,506,039
Product sales expense	19		4,271,333			4,647,719
Corporate expense	19		8,439,419			6,549,321
			112,928,124			105,703,079
Operating income (loss)			(6,755,959	)		14,682,195
Finance expense	15		2,151,137			6,609,618
Gain from equity investment	10		(16,416	)		(1,766,968	)
Impairment of intangible asset	9		27,008,037			—
Other income	11		(5,442,457	)		—
Income before tax			(30,456,260	)		9,839,545
Income tax expense (recovery)	14		(7,543,376	)		1,627,061
Net and comprehensive income (loss)		$	(22,912,884	)	$	8,212,484
Attributable to:
Shareholders of the Company		$	(24,476,138	)	$	3,771,163
Non-controlling interest			1,563,254			4,441,321
		$	(22,912,884	)	$	8,212,484
Earnings (loss) per share attributable to shareholders
Basic	13(f)	$	(0.342	)	$	0.053
Diluted	13(f)	$	(0.342	)	$	0.052
Weighted average shares outstanding:
Basic	13(f)		71,535,343			71,536,310
Diluted	13(f)		71,535,343			72,697,539

See accompanying notes to consolidated financial statements.

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, 2020 and 2019

	Number of shares			Common stock			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings (loss)			Non- controlling interest			Total equity
Balance as at January 1, 2019		72,055,688			55,372,884			9,329,335			(66,772	)		12,916,565			59,739,165			137,291,177
Total net and comprehensive income for the year		—			—			—			—			3,771,163			4,441,321			8,212,484
Stock based compensation expense		—			—			976,962			—			—			—			976,962
Common shares issued on exercise of options		840,000			733,165			(306,799	)		—			—			—			426,366
Common shares issued on vesting of share units		325,875			1,159,912			(1,159,912	)		—			—			—			—
Common shares repurchased in connection with normal course issuer bid and cancelled (note 13(e))		(1,607,579	)		(1,209,848	)		—			—			(3,532,747	)		—			(4,742,595	)
Cancellation of treasury shares (held as treasury shares as of 12/31/2018)		(10,400	)		—			—			—			—			—			—
Distributions to members		—			—			—			—			—			(15,825,600	)		(15,825,600	)
Purchase of equity interest from non-controlling interest		—			—			(1,671,430	)		—			—			(7,676,894	)		(9,348,324	)
Acquisition of non-controlling interest, including LWA price adjustment (note 4)		—			—			—			—			—			7,224,890			7,224,890
Balance as at December 31, 2019		71,603,584		$	56,056,113		$	7,168,156		$	(66,772	)	$	13,154,981		$	47,902,882		$	124,215,360
Balance as at January 1, 2020		71,603,584			56,056,113			7,168,156			(66,772	)		13,154,981			47,902,882			124,215,360
Total net and comprehensive income (loss) for the year		—			—			—			—			(24,476,138	)		1,563,254			(22,912,884	)
Stock based compensation expense		—			—			2,709,617			—			—			—			2,709,617
Common shares issued on exercise of options		25,000			19,007			(8,327	)		—			—			—			10,680
Common shares issued on vesting of share units		446,563			1,493,179			(1,493,179	)		—			—			—			—
Common shares repurchased in connection with normal course issuer bid and cancelled (note 13(e))		(400,500	)		(311,066	)		—			—			(545,253	)		—			(856,319	)
Common shares repurchased in connection with normal course issuer bid and held as treasury shares at December 31,2020 (2,500 shares)		—			(1,969	)		—			—			(4,032	)		—			(6,001	)
Distributions to members		—			—			—			—			—			(12,945,380	)		(12,945,380	)
Acquisition of non-controlling interest, (note 4)		—			—			25,949			—			—			15,707,264			15,733,213
Balance as at December 31, 2020		71,674,647			57,255,264			8,402,216			(66,772	)		(11,870,442	)		52,228,020			105,948,286

See accompanying notes to consolidated financial statements.

CRH MEDICAL CORPORATION

Consolidated Statements of Cash Flows

(Expressed in United States dollars)

For the years ended December 31, 2020 and 2019

	Notes		2020			2019 (Reclassification - see note 2(b))
Operating activities:
Net income (loss)			$	(22,912,884	)	$	8,212,484
Adjustments for:
Depreciation of property, equipment and intangibles				40,658,314			35,009,070
Stock-based compensation				2,709,617			976,962
Unrealized foreign exchange				5,756			8,925
Deferred income tax recovery	14			(10,116,104	)		(3,440,121	)
Change in fair value of contingent consideration	15			(155,601	)		2,861,204
Accretion on contingent consideration and deferred consideration	15			50,040			133,450
Amortization of deferred financing fees	15			372,835			276,260
Gain on equity investment				(16,416	)		(1,766,968	)
Impairment of intangible asset	9			27,008,037			—
Change in current tax receivable (payable)				(896,519	)		939,779
Change in trade and other receivables				(3,244,859	)		1,376,733
Change in prepaid expenses				(140,965	)		132,290
Change in inventories				86,858			53,220
Change in trade and other payables, including contract payable				2,789,000			121,615
Change in employee benefits				(203,436	)		110,654
Cash provided by operating activities			$	35,993,673		$	45,005,557
Financing activities
Proceeds from member loans			$	122,500		$	68,600
Repayment of member loans				(68,600	)		(49,000	)
Equity loan advance	10			(226,000	)		—
Repayment of short-term advances				—			(26,783	)
Repayment of notes payable and bank indebtedness				(14,000,000	)		(82,550,000	)
Proceeds on bank indebtedness				16,006,750			81,641,370
Payment of deferred financing fees				(159,314	)		(839,892	)
Payment of deferred consideration				(1,896,850	)		(1,100,000	)
Payment of earn-out obligation				—			(4,795,822	)
Acquisition of equity interest from non-controlling interest				—			(9,924,381	)
Distributions to non-controlling interest				(12,945,380	)		(15,825,600	)
Proceeds from the issuance of shares relating to stock-based compensation				10,680			426,366
Repurchase of shares for cancellation	13(e)			(862,320	)		(4,742,595	)
Cash used in financing activities			$	(14,018,534	)	$	(37,717,737	)
Investing activities
Acquisition of property and equipment			$	(42,031	)	$	(59,508	)
Deferred asset acquisition costs				(51,859	)		(59,249	)
Acquisition of professional services agreements		4		(22,465,280	)		(15,052,058	)
Acquisition of investment		4		(2,016,076	)		—
Acquisition of equity investment		10		(49,925	)		—
Distribution received from equity investment				—			136,650
Purchase adjustment relating to anesthesia service providers acquired in prior periods		4		—			4,366,000
Cash used in investing activities			$	(24,625,171	)	$	(10,668,165	)
Effects of foreign exchange on cash and cash equivalents				1,063			2,116
Decrease in cash and cash equivalents				(2,648,969	)		(3,378,229	)
Cash and cash equivalents, beginning of year				6,568,716			9,946,945
Cash and cash equivalents, end of year			$	3,919,747		$	6,568,716
Supplemental disclosure of cash interest and taxes paid:
Cash interest paid			$	(1,949,694	)	$	(3,055,374	)
Lease payments made			$	(230,228	)	$	(369,262	)
Non-cash acquisition financing			$	(36,659	)	$	(800,985	)
Taxes paid			$	(3,431,921	)	$	(4,127,443	)

See accompanying notes to consolidated financial statements.

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 sells its patented proprietary technology for the treatment of hemorrhoids directly to physicians in the United States and Canada.

CRH principally operates in the United States and is headquartered from its registered offices located at Unit 619, 999 Canada Place, Vancouver, British Columbia, Canada.

2.	Basis of preparation:

(a)

Basis of presentation:

These consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”).

(b)

Reclassification adjustment relating to 2019 comparative period:

	For the year ended December 31, 2019
	As previously presented			Adjustment			As currently presented
Cash flows from financing activities	$	(27,793,356	)	$	(9,924,381	)	$	(37,717,737	)
Cash flows from investing activities	$	(20,592,546	)	$	9,924,381		$	(10,668,165	)

(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 and its subsidiaries is the United States dollar.

(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 of intangible assets, estimates supporting reported anesthesia revenues and the determination of the likelihood of realization of deferred tax assets.

(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 is the determination of control for the purposes of consolidation.

3.	Significant accounting policies:

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

(a)

Basis of consolidation:

These consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company through voting control and for anesthesia businesses, control over the assets and business operations of the subsidiary through operating agreements. Control exists when the Company has the continuing power to govern the financial and operating polices of 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. Non-controlling interests, if any, are valued at fair value at inception. All significant intercompany transactions and balances have been eliminated on consolidation.

(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.

(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 date of the transaction.

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)

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 costs related to 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. All inventory held is finished goods inventory.

(e)

Property and equipment, net:

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

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

Asset	Basis	Rate

Computer equipment	Straight-line	4 years
Computer software	Straight-line	1 year
Furniture and equipment	Straight-line	5 years
Leasehold improvements initial lease	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.

3.	Significant accounting policies (continued):

(f)

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 to the CRH O’Regan System	Straight-line	15 years
Intellectual property new technology	Straight-line	20 years
Exclusive professional services agreements	Straight-line	4.5 to 15 years

(g)

Impairment of 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 are any events or changes in circumstances which indicate that the carrying value may not be recoverable from future undiscounted cash flows. Example factors that could trigger impairment reviews include significant underperformance relative to historical or projected future operating results, significant changes in the use of the acquired assets or strategy for the overall business and significant negative economic trends. Depending on the specific asset and circumstances, assets are assessed for impairment as an individual asset, as part of an asset group or at the reporting unit (“RU”) level. A reporting unit is an operating segment or one level below an operating segment if certain conditions are met. 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.

If the carrying amount of the asset exceeds the estimated undiscounted future cash flows expected to be generated over the asset’s remaining useful life, the carrying amount of the asset is reduced to its estimated fair value. The fair value is determined by the projected future discounted cash flows that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset or asset group. Projected cash flows are based upon historical results adjusted to reflect management’s best estimate of future market and operating conditions which may differ from actual cash flows. The process of determining estimated fair value is complex and there is significant judgment applied in determining key assumptions in estimating fair value. Significant assumptions included in projected cash flows include anesthesia case growth rates and revenue rates per case.

(h)

Income taxes:

The Company is subject to income taxes in Canada and the United States. Judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

The Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, it recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company recognizes the deferred income tax effects of a change in tax rates in the period of the enactment. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that management believes is more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. The Company records interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Income tax expense (recovery) is comprised of current and deferred tax.

3.	Significant accounting policies (continued):

(i)

Share-based compensation:

The Company records share-based compensation related to equity classified stock options and share units granted using using either the Black-Scholes model or Binomial model. The vesting components of graded vesting employee awards, with only a service vesting condition, are accounted for as separate share-based arrangements. Each vesting installment is measured separately and expensed over the related installment’s vesting period. 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. Forfeitures are estimated in recognizing share-based compensation, 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.

(j)

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.

(k)

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. Diluted EPS for year-to-date (including annual) periods is based on the weighted average of the incremental shares included in each interim period for the year-to-date period.

(l)

Segment reporting:

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

(m)

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.

Finance costs also include changes in fair value of the Company’s earn-out obligation.

(n)

Asset acquisitions:

Asset acquisitions are accounted for using the cost accumulation and allocation method. The acquisition cost includes directly related acquisition costs. The cost of the acquisition is allocated to the net assets acquired on a relative fair value basis.

Contingent consideration, where the arrangement is not a derivative, is recognized when it is probable and estimable. After the initial acquisition accounting, changes in contingent and deferred consideration are recorded as an adjustment to the related asset.

The Company’s policy is to recognize any non-controlling interest on consolidation either at fair value of the non-controlling interest or at the fair value of the proportionate share of the net assets acquired.

Where the Company acquires an asset via a step transaction, the Company remeasures any previously held interest to fair value.

3.	Significant accounting policies (continued):

(o)

Revenue recognition:

Our anesthesia service revenues are derived from anesthesia procedures performed under our professional services agreements. The fees for such services are billed either to a third party payor, including Medicare or Medicaid or to the patient. We recognize anesthesia service revenues, net of contractual adjustments and implicit price concessions, which we estimate based on the historical trend of our cash collections and contractual adjustments. There is significant judgement involved in determining the estimated revenues that will be collected in the future due to the judgment required in estimating the amounts that third party payors will pay for services based on past collections.

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.

Product sales contracts generally contain a single distinct performance obligation, but multiple performance obligations may exist when multiple product types are ordered by a physician in a contract. The transaction price for product sales is fixed and no variable consideration exists. Contract consideration is allocated to each distinct performance obligation in the contract based upon available stand-alone selling prices obtained from historical sales transactions for each product. The Company recognizes revenue from product sales at the point in time when control of the goods passes to the customer (physician) when the product is shipped, which is when title passes to the customer and an obligation to pay for the goods arises. Shipping services performed after control has passed to the customer, if any, is a separate performance obligation, but was determined to be nominal.

(p)

Equity investments

Where the Company does not hold a majority interest in an entity, the Company assesses whether equity method accounting is required under US GAAP Accounting Standards Codification (“ASC”) 323 as well as under ASC 970-323, depending on whether the entity is an LLC. Generally, the Company will account for an investment in an entity as an equity investment where the Company is able to exert significant influence over the operating or financial decisions of the investee, but where control is not established.

The Company records its equity investment initially at cost, including directly attributable third party costs, and subsequently measures its share of any earning or losses of the investee in the periods for which they are reported in the investee financial statements after elimination of any intra-entity profits and losses.

(q)

Adoption of new accounting policies:

Government Assistance

As a result of the receipt of government stimulus measures in the year ended December 31, 2020 (see note 11), the Company has adopted the following accounting policy in respect of funds received. In general, a government grant is recognized if it is probable that it will be received and that the Company will comply with the conditions associated with the grant. If the conditions are met, the Company recognizes the grant in profit or loss on a systematic basis in line with its recognition of the expenses that the grant is intended to compensate for. For grants related to income, a Company can elect to either offset the grant against the related expenditures or include it in other income. Government assistance received by the Company during the period which met the recognition criteria, has been accounted for as government grants related to income and has been included in other income. Where stimulus is received in the form of a forgivable loan, such as the Paycheck Protection Program (“PPP”), the Company has opted to apply government grant accounting and will recognize the proceeds within other income upon concluding that forgiveness of the loan is probable and that the Company has complied with the relevant provisions of the program. If forgiveness of the loan is not probable, it is presented as a loan on the balance sheet as of the end of the reporting period.

3.	Significant accounting policies (continued):

ii)

Investments

As a result of the Company’s investment in an anesthesia revenue cycle management organization, the Company has adopted a new accounting policy in the period. In accordance with ASC 323: Investments – Equity Method and Joint Ventures, where the Company exerts virtually no influence over an investment, the Company will account for the investment at cost, using the measurement alternative permitted under ASC 321: Investments – Equity Securities. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any.

(r)

New standards and interpretations not yet applied:

(i)

Credit Losses

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments- Credit Losses (Topic 326)”, which requires companies to measure credit losses on financial instruments measured at amortized cost by applying an “expected credit loss” model based upon past events, current conditions and reasonable and supportable forecasts that affect collectability. Previously, companies applied an “incurred loss” methodology for recognizing credit losses. This standard is effective for fiscal years beginning January 1, 2023 for smaller reporting companies. As CRH meets the definition of smaller reporting company, CRH will adopt this standard for fiscal years beginning January 1, 2023. The Company is currently assessing the impact that adopting this guidance will have on its consolidated financial statements.

(ii)

Income Taxes – Simplifying the Accounting for Income Taxes

4.	Asset acquisitions:

During the year ended December 31, 2020, the Company completed 6 asset acquisitions. These asset acquisitions have been included in the anesthesia segment of the Company and represents the following:

Acquired Operation	Date Acquired	Consideration
Lake Lanier Anesthesia Associates LLC ("LLAA")	June 2020	$	5,428,514
Metro Orlando Anesthesia Associates LLC ("MOAA")	June 2020	$	3,137,543
Central Virginia Anesthesia Associates LLC ("CVAA")	July 2020	$	5,252,886
Orange County Anesthesia Associates LLC ("OCAA")	August 2020	$	6,251,015
Coastal Carolina Sedation Associates LLC ("CCSA")	September 2020	$	1,850,381
FDHS Anesthesia Associates LLC ("FDHS")	December 2020	$	2,921,555

4.	Asset acquisitions (continued):

The results of operations of the acquired entities have been included in the Company’s consolidated financial statements from the date of acquisition as the Company has control over these entities.

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

	LLAA			MOAA			CVAA			OCAA			CCSA			FDHS			Total
Cash	$	5,379,954		$	2,803,500		$	2,800,000		$	6,200,000		$	1,800,000		$	2,840,000		$	21,823,454
Contingent consideration	$	—		$	294,214		$	2,306,971		$	—		$	—		$	—		$	2,601,185
Acquisition costs	$	48,560		$	39,829		$	145,915		$	51,015		$	50,381		$	81,555		$	417,255
Purchase consideration	$	5,428,514		$	3,137,543		$	5,252,886		$	6,251,015		$	1,850,381		$	2,921,555		$	24,841,894
Non-controlling interest	$	1,809,504		$	1,045,848		$	5,046,890		$	3,220,220		$	1,777,816		$	2,806,986		$	15,707,264
	$	7,238,018		$	4,183,391		$	10,299,776		$	9,471,235		$	3,628,197		$	5,728,541		$	40,549,158
Assets and liabilities acquired:
Exclusive professional services agreements	$	7,238,018		$	4,183,391		$	10,299,776		$	9,471,235		$	3,628,197		$	5,728,541		$	40,549,158
Fair value of net identifiable assets and liabilities acquired	$	7,238,018		$	4,183,391		$	10,299,776		$	9,471,235		$	3,628,197		$	5,728,541		$	40,549,158
Exclusive professional services agreements – amortization term	5 years			5 years			5 years			7 years			7 years			7 years
CRH ownership interest		75	%		75	%		51	%		66	%		51	%		51	%

The value of the acquired intangible assets, being exclusive professional services agreements, relate to the acquisition of exclusive professional services agreements to provide professional anesthesia services. The amortization term for the agreements is based upon contractual terms within the respective acquisition agreements and professional services agreements.

The non-controlling interest was determined with reference to the non-controlling interest shareholder’s share of the fair value of the net identifiable assets as estimated by the Company.

The Company has obtained control over the acquired assets via the Company’s majority ownership in the shares of the entities and its agreements with the non-controlling interest shareholders.

As part of the MOAA transaction, the Company is required to pay $311,500 to the seller after the second anniversary date of the transaction dependent on MOAA meeting certain earnings before interest, tax, depreciation and amortization (“EBITDA”) targets during the first and second year after the transaction date. Based on the Company’s current forecasts, the Company believes it probable that the EBITDA targets will be met. If the EBITDA targets are not met, 0 contingent consideration is payable.

As part of the CVAA transaction, the Company is required to pay either $1,500,000 or $2,500,000 to the seller after the third anniversary date of the transaction dependent on CVAA meeting certain EBITDA, full-time equivalent employee and revenue per case targets during the second and third year after the transaction date. Based on the Company’s current forecasts, the Company believes it probable that the targets will be met and the full amount of the contingent consideration, $2,500,000, will be paid.

Other Transactions

In addition to the above asset acquisitions, on September 17, 2020, a subsidiary of the Company entered into a membership interest purchase agreement to purchase a 5.56% interest in an anesthesia revenue cycle management organization for $2,000,000. The Company also incurred $16,076 of legal fees as part of the transaction. As the Company has virtually no influence over this investment, in accordance with ASC 323: Investments – Equity Method and Joint Ventures, the Company will account for the investment at cost, using the measurement alternative permitted under ASC 321: Investments – Equity Securities, which is to measure equity securities without a readily determinable fair value at cost, minus impairment, if any.

Additionally, on December 31, 2020, the Company completed an asset purchase agreement to acquire an additional professional services agreement in its West Florida Anesthesia Associates LLC entity. The total cash consideration was $230,000 and the Company incurred $16,978 in transaction costs related to the agreement. The transaction is being accounted for as an asset transaction, with the asset amortized over 5 years.

4.	Asset acquisitions (continued):

For those asset acquisitions where CRH ownership interest is less than 100%, in conjunction with the acquisition, both the Company and the non-controlling interest shareholder contributed loans. The terms of the loans are such that they will be repaid first, prior to any future distributions and are non-interest bearing.

	LLAA		MOAA		CVAA		OCAA		CCSA		FDHS		Total
CRH member loan	$	281,250	$	168,750	$	114,750	$	132,000	$	127,500	$	127,500	$	951,750
Non-controlling interest member loan	$	93,750	$	56,250	$	110,250	$	68,000	$	122,500	$	122,500	$	573,250
Amount outstanding at December 31, 2020	$	—	$	—	$	—	$	—	$	—	$	250,000	$	250,000

During the year ended December 31, 2019, the Company completed 5 asset acquisitions. These asset acquisitions have been included in the anesthesia segment of the Company and represents the following:

Acquired Operation	Date Acquired	Consideration
Anesthesia Care Associates LLC (“ACA”)	January 2019	$	5,355,028
South Metro Anesthesia Associates LLC (“SMAA”)	May 2019	$	1,791,431
Crystal River Anesthesia Associates LLC (“CRAA”)	July 2019	$	2,174,003
Triad Sedation Associates LLC (“TSA”)	November 2019	$	3,828,661
Florida Panhandle Anesthesia Associates LLC (“FPAA”)	December 2019	$	2,762,302

The results of operations of the acquired entities have been included in the Company’s consolidated financial statements from the date of acquisition as the Company has control over these entities.

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

	ACA		SMAA		CRAA		TSA			FPAA		Total
Cash	$	5,239,003	$	1,752,465	$	2,130,000	$	3,185,843		$	2,725,000	$	15,032,311
Acquisition costs		116,025		38,966		44,003		15,173			37,302		251,469
Deferred consideration		—		—		—		627,645			—		627,645
Pre-transaction equity interest		—		—		—		1,595,275			—		1,595,275
Purchase consideration	$	5,355,028	$	1,791,431	$	2,174,003	$	5,423,936		$	2,762,302	$	17,506,700
Non-controlling interest	$	0	$	1,465,716	$	2,088,748	$	5,211,233		$	2,653,976	$	11,419,673
	$	5,355,028	$	3,257,147	$	4,262,751	$	10,635,169		$	5,416,278	$	28,926,373
Assets and liabilities acquired:
Exclusive professional services agreements	$	5,355,028	$	3,257,147	$	4,262,751	$	8,891,711		$	5,416,278	$	27,182,915
Cash		—		—		—		115,397			—	$	115,397
Accounts receivable		—		—		—		1,950,219			—	$	1,950,219
Prepaid expenses and deposits		—		0		0		1,518			—	$	1,518
Trade payables and other accruals		—		—		—		(323,676	)		—	$	(323,676	)

The non-controlling interest was determined with reference to the non-controlling interest shareholder’s share of the fair value of the net identifiable assets as estimated by the Company.

4.	Asset acquisitions (continued):

Other Transactions

In addition to the above asset acquisitions, on April 3, 2019, a subsidiary of the Company entered into a membership interest purchase agreement to purchase the remaining 49% interest in Arapahoe Gastroenterology Anesthesia Associates LLC (“Arapahoe”); prior to the purchase the Company held a 51% interest in the Arapahoe entity. The purchase consideration, paid via cash, for the acquisition of the remaining 49% interest was $2,300,000 plus 49% of Arapahoe’s working capital as at March 31, 2019. Additionally, the Company incurred deferred acquisition costs of $26,086.

On August 31, 2019, a subsidiary of the Company entered into a membership interest purchase agreement to purchase the remaining 49% interest in Central Colorado Anesthesia Associates LLC (“CCAA”); prior to the purchase the Company held a 51% interest in the CCAA entity. The purchase consideration, paid via cash, for the acquisition of the remaining 49% interest was $7,000,000 plus 49% of CCAA’s working capital as at August 31, 2019. Additionally, the Company incurred deferred acquisition costs of $18,658.

In September 2019, the Company also received a payment of $4,366,000 in respect of the LWA acquisition which was a reduction in the purchase price. This payment served to reduce the value of the related LWA professional services contract intangible and did not modify ownership interest or the term of the LWA agreement.

On November 1, 2019, the Company acquired an additional 36% interest in Triad Sedation Associates LLC and Triad Support Services PLLC (collectively “TSA”). Prior to this transaction, the Company held a 15% interest in TSA and it was accounted for under the equity method. Upon completing the transaction CRH acquired control of TSA; the Company has consolidated the results of TSA from the date control was obtained, November 1, 2019. On conversion from an equity method investment to consolidation, CRH revalued its investment in TSA, resulting in a gain of $1,318,769. See note 10.

5.	Trade and other receivables:

	2020			2019
Trade receivables, gross	$	23,264,840		$	20,024,916
Other receivables		81,767			50,756
Less: allowance for doubtful accounts	$	(23,134	)		(34,384	)
	$	23,323,473		$	20,041,288
Anesthesia segment – trade receivables, gross	$	22,082,820		$	19,081,177
Product segment – trade receivables, gross		1,182,020			943,739
	$	23,264,840		$	20,024,916

6.	Trade and other payables:

	2020		2019
Trade payables	$	946,758	$	1,213,276
Accruals and other payables		6,059,430		4,983,465
Government assistance - Paycheck Protection Program ("PPP") (note 11)		16,872		—
	$	7,023,060	$	6,196,741

7.	Right of use assets and related obligations:

The Company has applied the exemption to treat short-term leases as executory contracts as well as applied the practical expedient to choose not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. During the year ended December 31, 2020, the Company incurred total operating lease expenses of $340,726 (2019 - $369,263); this included lease expenses associated with fixed lease payments of $306,635 (2019 - $285,890) and variable lease payments of $34,091 (2019 - $83,373).

Lease expense is allocated to operating segments based on the location of the leases, as follows:

	2020		2019
Anesthesia services expense	$	166,086	$	118,943
Product sales expense		87,320		125,160
Corporate expense		87,320		125,160
	$	340,726	$	369,263

The weighted average lease term of the Company’s three premises leases is 4.46 years. During the year ended December 31, 2020, the Company entered into a new 5.25 year lease for office space for its Atlanta office location. This lease includes a renewal option to further extend the lease for 2 additional 5-year terms. The Company has not included the 2 additional 5-year renewal terms in its calculation of the lease liability. The weighted average discount rate used by the Company in calculating the obligation relating to right of use assets is based on US Corporate BBB effective bond yields at December 31, 2020.

The following table presents a maturity analysis of the Company’s undiscounted lease obligations for each of the next five years, reconciled to the obligation as recorded on the balance sheet.

	Undiscounted lease payments
2021	$	300,354
2022		225,769
2023		231,977
2024		238,357
2025		182,853
	$	1,179,310
Accretion related to outstanding lease obligations		(74,316	)
Total	$	1,104,994
Current obligation relating to right of use assets	$	272,480
Long-term obligation relating to right of use assets	$	832,514
Total	$	1,104,994

8.	Property and equipment:

Property and equipment consist of the following:

	December 31,
	2020			2019
Computer equipment and software	$	146,045		$	124,640
Furniture and equipment		283,446			267,051
Leasehold improvements		10,015			5,784
Injection mold		408,062			408,062
Property and equipment	$	847,568		$	805,537
Less: Accumulated depreciation		(719,768	)		(553,604	)
Property and equipment, net	$	127,800		$	251,933

9.	Intangible assets:

	Professional Services Agreements			Patents		Total
Cost
Balance as at January 1, 2019	$	256,491,260		$	532,598	$	257,023,858
Additions through asset acquisitions and adjustments (note 4)		18,622,130			—		18,622,130
Balance as at December 31, 2019	$	275,113,390		$	532,598	$	275,645,988
Additions through asset acquisitions (note 4)		40,796,136			—	$	40,796,136
Impairment of intangible asset		(27,008,037	)		—	$	(27,008,037	)
Balance as at December 31, 2020	$	288,901,489		$	532,598	$	289,434,087

	Professional Services Agreements		Patents		Total
Accumulated depreciation
Balance as at January 1, 2019	$	77,139,732	$	499,863	$	77,639,595
Amortization expense and adjustments (note 4)		34,895,944		2,256		34,898,200
Balance as at December 31, 2019	$	112,035,676	$	502,119	$	112,537,795
Amortization expense		40,490,267		1,882		40,492,149
Balance as at December 31, 2020	$	152,525,943	$	504,001	$	153,029,944

	Professional Services Agreements		Patents		Total
Net book value
December 31, 2020	$	136,375,546	$	28,597	$	136,404,143
December 31, 2019	$	163,077,714	$	30,479	$	163,108,193

At December 31, 2020, the Company identified indicators of impairment in respect of 3 of its professional services agreements relating to financial performance and contract non-renewal. For each professional services agreement identified, the Company performed undiscounted cash flow modelling which estimated future cash flows based upon expected contract renewal assumptions. The impact of the COVID-19 pandemic (see note 17), has been incorporated into the Company’s key assumptions and underlying cash flow estimates; however, due to uncertainties in the estimates that are inherent to the Company's industry and uncertainties around the duration and longevity of the pandemic, actual results could differ significantly from the estimates made. Many significant assumptions in the cash flow projections are interdependent on each other. A change in any one or combination of these assumptions could impact the estimated fair value of the reporting unit.

Upon performing undiscounted cash flow models for these assets, the Company identified only 1 asset that required further review for impairment: Gastroenterology Anesthesia Associates LLC (“GAA”).

The requirement to further assess this asset was driven by non-renewal of the Company’s GAA professional services agreement assets. On December 22, 2020, the Company received notice that these professional services agreements would not be renewed. CRH provided anesthesia services to 12 surgery centers in the Greater Atlanta market via these professional services agreements, representing approximately 17% of the Company’s 2020 revenue. The majority of the professional services agreements were acquired in conjunction with the GAA acquisition in 2014. At the time of acquisition, CRH estimated a useful life of 12 years for these professional services agreements.

The Company performed discounted cash flow modelling for these assets and compared the resultant discounted cash flows expected over the life of the assets, estimated to be approximately 10 months, to the carrying amounts as at December 31, 2020. The income approach is used for the quantitative assessment to estimate the fair value of the assets, which requires estimating future cash flows and risk-adjusted discount rates in the Company's discounted cash flow model. The overall market outlook and cash flow projections for these assets involves the use of significant assumptions, including revenue rates per case and expected case counts.

9.	Intangible assets (continued):

As a result of performing the above discounted cash flow analysis, the Company has recorded an impairment charge of $27,008,037 in relation to its GAA professional services agreements. The discounted cash flow analysis is highly sensitive to revenue rates per case and expected case counts. A +/-1% change in the revenue rate per case utilized would result in a $120,000 adjustment to the impairment charge taken. Similarly, a +/- 1% change in the expected case counts would result in a $110,000 adjustment to the impairment charge taken. Due to uncertainties in the estimates that are inherent to the Company's industry, actual results could differ significantly from the estimates made. Many key assumptions in the cash flow projections are interdependent on each other. A change in any one or combination of these assumptions could impact the estimated fair value of the assets.

As a result of the impairment of these assets, the Company will record a tax recovery of approximately $6.6 million as a result of these assets continuing to be tax deductible.

Various of the Company’s professional services agreements are subject to renewal terms. The weighted average period before the Company’s professional services agreements are up for renewal is 2.76 years. The weighted average remaining amortization period for the Company’s professional services agreements is 3.32 years.

Based on the Company’s professional services agreements in place at December 31, 2020, the Company anticipates that the amortization expense to be incurred by the Company over the next five years is as follows:

	Amortization Expense
For professional services agreements as at December 31, 2020:
2021	$	39,774,863
2022		26,887,710
2023		22,741,294
2024		20,817,379
2025		11,378,480
	$	121,599,726

10.	Equity investment:

In June 2020, the Company entered into an agreement with 6 doctors located in North Carolina to assist these doctors in the development and management of a monitored anesthesia care program. Under the terms of the agreement, CRH is a 15% equity owner in the anesthesia business, Western Carolina Sedation Associates LLC (“WCSA”) and receives compensation for its billing and collections services. Under the terms of the limited liability company agreement, CRH has the right, at CRH’s option, to acquire an additional 36% interest in the anesthesia business at a future date, but no sooner than September 2021. The Company assessed and concluded that as WCSA is an LLC entity, equity method accounting is required. WCSA began operations on October 1, 2020, at which time the Company provided a loan of $226,000 to the investment for working capital purposes and is expected to be repaid within twelve months of issue.

The option agreement was determined to be an executory contract and was determined to have only nominal value upon grant and as at December 31, 2020.

The following table provides a summary of the Company’s investment in WCSA as at December 31 2020:

	12 months ended December 31, 2020
Beginning balance	$	—
Directly attributable transaction costs		49,925
Share of net income		54,255
Member distributions		—
Ending balance	$	104,180

10.	Equity investment (continued):

The following tables summarize unaudited financial information for our equity method investee:

Balance sheet	December 31, 2020
Current assets	$	650,063
Non-current assets		—
Total assets	$	650,063
Current liabilities	$	334,498
Non-current liabilities		—
Shareholder's equity		315,565
Total liabilities and shareholders' equity	$	650,063

Results of operations	Twelve months ended December 31, 2020
Anesthesia revenue	$	576,686
Anesthesia services expense		(261,121	)
Net income	$	315,565

In October 2018, the Company entered into an agreement with Digestive Health Specialists (“DHS”), located in North Carolina, to assist DHS in the development and management of a monitored anesthesia care program. Under the terms of the agreement, CRH was a 15% equity owner in the anesthesia business, Triad Sedation Associates LLC (“TSA”) and received compensation for its billing and collection services. Under the terms of the limited liability company agreement, CRH had the right, at CRH’s option, to acquire an additional 36% interest in the anesthesia business at a future date, but no sooner than November 2019. On November 1, 2019, the Company acquired control of TSA via the exercise of its option to acquire an additional 36% interest. Refer to note 4. The results of operations of the TSA equity investment, up to the date control was obtained by CRH, is presented below. On obtaining control of TSA and completing its option to purchase an additional 36% interest in the entity, CRH revalued its original 15% equity investment with reference to the price paid for the additional 36% interest. This resulted in a gain arising on its equity investment of $1,318,769 in the year. Prior to obtaining control, CRH recorded equity income of $448,199 in relation to its 15% investment in TSA.

Results of operations	Ten months ended October 31, 2019
Anesthesia revenue	$	4,169,162
Anesthesia services expense		(1,514,704	)
Net income	$	2,654,458

11.	Government assistance:

The Company anticipates forgiveness of the loan over the Covered Period indicated. As the Company has accounted for the loan as a government grant related to income, the Company has recognized within other income $2,928,748 of the loan proceeds as at December 31, 2020 with $16,872 included within accounts payable. The Company has and will recognize the grant in earnings on a systematic basis in line with the recognition of eligible expenses.

11.	Government assistance (continued):

During the year ended December 31, 2020, the Company also received additional funds of $2,445,046 under the CARES Act HHS Stimulus Fund. The CARES Act provided funding to eligible healthcare providers to prevent, prepare for and respond to COVID-19. The funds were intended to reimburse healthcare providers for lost income attributable to COVID-19 and for healthcare related expenses. Consistent with the accounting applied to the PPP loan, the Company has accounted for the HHS Stimulus funds as government grants related to income. As there are no repayment provisions under the CARES Act and the Company has assessed that it has complied with the conditions of this program, funds received under this program have been recognized in other income in the year ended December 31, 2020.

During the year ended December 31, 2020, the Company also received additional funds of $68,663 under the Canadian Employee Wage Subsidy (“CEWS”) program. As the Company has assessed that it has complied with the conditions of this program, funds received under this program have been recognized in other income in the year ended December 31, 2020.

During the year ended December 31, 2020, the Company also received $1,900,589 under the Medicare Accelerated and Advanced Payment Program. The Center for Medicare and Medicaid Services (“CMS”) offers accelerated and advance payments in a number of circumstances, including in national emergencies to accelerate cashflow to impacted healthcare providers and suppliers. During the quarter ended September 30, 2020, the CMS amended the recoupment process for these funds: under the Continuing Appropriations Act, 2021 and Other Extensions Act, repayment will now begin one year from the issuance date of each provider or supplier's accelerated or advance payment. After that first year, Medicare will automatically recoup 25% of Medicare payments otherwise owed to the provider or supplier for 11 months. At the end of the 11-month period, recoupment will increase to 50% for another 6 months. As a result of the recoupment process, CRH has recognized the funds received as a liability on the balance sheet, including them within contract payable – CMS advancement at period end.

12.	Notes payable:

	December 31,
	2020		2019
Current portion	$	—	$	—
Non-current portion		70,600,615		68,380,345
Total loans and borrowings	$	70,600,615	$	68,380,345

12.	Notes payable (continued):

J.P. Morgan Chase (“JP Morgan Facility”)

On October 22, 2019, the Company entered into a three year revolving credit line which provides up to $200 million in borrowing capacity. The JP Morgan Facility includes a committed $125 million facility and access to an accordion feature that increases the amount of the credit available to the Company by $75 million. Interest on the facility is calculated with reference to LIBOR plus 1.25% to 1.75%, dependent on the Company’s Total leverage ratio. The JP Morgan Facility is secured by the assets of the Company and matures on October 22, 2022. Since the JP Morgan Facility is a syndicated facility, which includes the Bank of Nova Scotia as a lender, any remaining deferred financing fees under the Company’s previous Scotia Facility were retained and will be amortized over the term of the new facility. The Company incurred deferred financing fees of $839,893 in connection with this facility in the year ended December 31, 2019 and incurred additional deferred fees of $125,000 in the year ended December 31, 2020 when the Company further amended its facility on September 18, 2020. This amendment, in conjunction with a previous amendment dated August 13, 2020, allows for the Company to engage in investments where less than 51% equity ownership is held and also amended the Company’s Total Leverage Ratio to not greater than 3.50:1.00 until the quarter ended June 30, 2021. Should the Company’s PPP loan be forgiven prior to June 30, 2021, the ratio is amended downward to 3.25:1.00. After June 30, 2021, the Total Leverage Ratio will revert back to 3.00:1.00. The remaining unamortized fees relating to the JP Morgan Facility and the deferred financing fees under the previous Scotia Facility, as of December 31, 2020 were $747,505. Under the JP Morgan Facility, there are 0 quarterly or annual repayment requirements. As of December 31, 2020, the Company had drawn $71,348,120 on the JP Morgan Facility (2019 - $69,341,370). As at December 31, 2020, the Company is required to maintain the following financial covenants in respect of this Facility:

Financial Covenant		Required Ratio
Total leverage ratio		Not greater than 3.50:1.00
Interest coverage ratio		Not less than 3.00:1.00

The Company is in compliance with all covenants as at December 31, 2020.

The consolidated minimum loan payments (principal) in the future for all loan agreements in place as of December 31, 2020 are as follows:

	Minimum Principal
At December 31, 2020
2021		—
2022		71,348,120
	$	71,348,120

13.	Share capital:

(a)

Authorized:

100,000,000 common shares without par value.

(b)

Issued and outstanding – common shares:

Other than in connection with shares issued in respect of the Company’s share unit and share option plans and in connection with the Company’s normal course issuer bid (note 13(e)), there were 0 share transactions in the years ended December 31, 2020 and 2019.

13.	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. As a result of the Share Unit plan approved in June 2020, the Company is authorized to grant a total of 1,826,096 options or share units under its Equity Compensation Plans. A summary of the status of the plan as of December 31, 2020 and 2019 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			USD
Outstanding, January 1, 2019		1,344,687		$	0.69		$	0.53
Issued		500,000			3.56			2.73
Exercised		(840,000	)		(0.68	)		(0.52	)
Forfeited		—			—			—
Expired		—			—			—
Outstanding, December 31, 2019		1,004,687		$	2.12		$	1.63
Issued		—			—			—
Exercised		(25,000	)		(0.60	)		(0.47	)
Forfeited		—			—			—
Expired		—			—			—
Outstanding, December 31, 2020		979,687		$	2.16		$	1.69

All but 375,000 options are vested as of December 31, 2020 (2019 – 500,000 options).

The weighted average fair value of stock options granted during the year ended December 31, 2019 was $1.43 (CAD$1.86) The estimated fair value of the stock options granted was determined using the Black-Scholes option-pricing model with the following weighted-average assumptions:

		2019
Expected life of options		5.05 years
Risk-free interest rate		1.61%
Dividend yield		0%
Volatility		63%
Pre-vest forfeiture rate		3.67%

There is 0 dividend yield because the Company does not pay, and does not plan to pay, cash dividends on its common shares. The expected stock price volatility is based on the historical volatility of the Company’s average monthly stock closing prices over a period equal to the expected life of each option grant. The risk-free interest rate is based on yields from Canadian Government Bond yields with a term equal to the expected term of the options being valued. The expected life of options represents the period of time that the options are expected to be outstanding based on historical data of option holder exercise and termination behaviour.

For those options that were exercised in 2020, the intrinsic value of the options that were exercised was $32,555 and the fair value of the options that were exercised was $8,327.

For those options that were exercised in 2019, the intrinsic value of the options that were exercised was $2,067,497 and the fair value of the options that were exercised was $306,798.

13.	Share capital continued:

(c)

Stock option plan (continued):

The following table summarizes information about the stock options outstanding as at:

December 31, 2020:

Exercise price		Options outstanding								Options exercisable
$CAD	$USD	Number of options		Weighted average remaining contractual life (years)		Weighted average exercise price ($CAD)		Weighted average exercise price ($USD)		Number of options		Weighted average exercise price ($CAD)		Weighted average exercise price ($USD)
0.60 - 0.70	0.47 - 0.55		479,687		3.06		0.69		0.54		479,687		0.69		0.54
3.56 - 3.56	2.79 - 2.79		500,000		8.27		3.56		2.79		125,000		3.56		2.79

December 31, 2019:

Exercise price		Options outstanding								Options exercisable
$CAD	$USD	Number of options		Weighted average remaining contractual life (years)		Weighted average exercise price ($CAD)		Weighted average exercise price ($USD)		Number of options		Weighted average exercise price ($CAD)		Weighted average exercise price ($USD)
0.60 - 0.70	0.46 - 0.57		504,687		4.05		0.69		0.53		504,687		0.69		0.53
3.56 - 3.56	2.73 - 2.73		500,000		9.27		3.56		2.73		—		—		—

For the year ended December 31, 2020, the Company recognized $237,284 (2019 - $239,413), 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, corporate expenses and anesthesia expenses on the same basis as the allocations of cash compensation. See note 19.

(d)

Share unit plan:

In June 2017, the shareholders of the Company approved a Share Unit Plan and the plan was subsequently amended and approved in June 2020. 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 or a combination of the two. Once the share units vest, the participant is entitled to receive the equivalent number of underlying common shares; the Company issues new shares in satisfying its obligations under the plan. As at December 31, 2020, the Company is authorized to grant a further 1,826,096 option or share unit awards under its Equity Compensation Plans.

13.	Share capital continued:

(d)

Share unit plan (continued):

A summary of the status of the share unit plan as of December 31, 2020 and 2019 is as follows:

	Time based share units			Performance based share units
Outstanding, January 1, 2019		1,045,250			1,500,000
Issued		1,553,125			—
Exercised		(325,875	)		—
Forfeited		(125,000	)		(550,000	)
Expired		—			—
Outstanding, December 31, 2019		2,147,500			950,000
Vested		—			—
Expected to vest		2,147,500			—
Outstanding, January 1, 2020		2,147,500			950,000
Issued		751,250			—
Exercised		(446,563	)		—
Forfeited		(115,625	)		—
Expired		—			—
Outstanding, December 31, 2020		2,336,562			950,000
Vested		—			—
Expected to vest		2,336,562			—

	Time based share units		Performance based share units
Outstanding, January 1, 2020		2,147,500		-
Weighted average contractual life (years)		3.03		7.02
Outstanding, December 31, 2020		2,336,562		950,000
Weighted average contractual life (years)		2.53		6.02

For those share units that vested in 2020, the intrinsic value of the share units that vested was $1,130,815 and the fair value of the share units that vested was $1,493,178.

For those share units that vested in 2019, the intrinsic value of the share units that vested was $1,038,456 and the fair value of the share units that vested was $1,159,913.

During the year ended December 31, 2020, the Company granted 751,250 time based share units. The weighted average fair value for the time based units at the date of grant was $2.15 (CAD$2.80) per unit. The fair value per unit was based on the market value of the underlying shares at the date of issuance.

During the year ended December 31, 2020, the Company issued 446,563 shares in respect of the 446,563 time-based share units which vested during the year.

During the year ended December 31, 2019, the Company granted 1,553,125 time based share units . The weighted average fair value for the time based units at the date of grant was $2.93 (CAD$3.81) per unit. The fair value per unit was based on the market value of the underlying shares at the date of issuance.

During the year ended December 31, 2019, the Company issued 325,875 shares in respect of the 325,875 time-based share units which vested during the year.

During the year ended December 31, 2020, the Company recognized $2,472,333 (2019 - $737,548), in compensation expense in relation to the granting and vesting of share units. See note 19 for allocation of expense between the Company’s segments.

13.	Share capital continued:

(e)

Normal Course Issuer Bid:

On November 6, 2017, the Board of Directors of the Company approved a normal course issuer bid to purchase outstanding shares of the Company. On November 8, 2018, the Company’s normal course issuer bid was renewed, with subsequent renewals on November 6, 2019 and November 19, 2020. Under the renewed bid, the Company may purchase up to 6,999,137 shares pursuant to the bid, representing no more than 9.8% of the Company’s shares outstanding on October 30, 2020. All purchases of shares under the bid are made pursuant to an Automated Share Purchase Plan. Subject to any block purchases made in accordance with the rules of the TSX, the bid is subject to a daily repurchase maximum of 39,673 shares. Shares are purchased at the market price of the shares at the time of purchase and are purchased on behalf of the Company by a registered investment dealer through the facilities of the TSX or alternative Canadian and US marketplaces.

During 2020, the Company repurchased 403,000 of its shares for a total cost, including transaction fees, of $865,302 (CAD$1,164,632). As at December 31, 2020, 400,500 of these shares have been cancelled, with the remaining 2,500 shares scheduled for cancellation on January 8, 2021.

During 2019, the Company repurchased 1,607,579 of its shares for a total cost, including transaction fees, of $4,754,295 (CAD$6,313,347). As at December 31, 2019, all of the repurchased shares had been cancelled.

(f)

Earnings per share:

The calculation of basic earnings per share for the years ended December 31, 2020 and 2019 is as follows:

	2020								2019
	Net earnings			Weighted average number of common shares outstanding		Per share amount			Net earnings		Weighted average number of common shares outstanding		Per share amount
Net earnings attributable to shareholders:
Earnings per common share:
Basic	$	(24,476,138	)		71,535,343		(0.342	)	$	3,771,163		71,536,310	$	0.053
Share options					—							421,249
Share units					—							739,980
Diluted	$	(24,476,138	)		71,535,343	$	(0.342	)	$	3,771,163		72,697,539	$	0.052

For the year ended December 31, 2020, 979,687 options (2019 –583,438) and 3,286,562 share units (2019 – 2,357,520) were excluded from the diluted weighted average number of common shares calculation as they are anti-dilutive.

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.

14.	Income taxes:

(a)

Income tax expense is comprised of the following:

	2020			2019
Current tax expense	$	2,572,728		$	5,067,182
Deferred tax recovery		(10,116,104	)		(3,440,121	)
Total tax expense	$	(7,543,376	)	$	1,627,061

The reconciliation of income tax computed at statutory tax rates to income tax expense, using a 27% (2019 – 27%) statutory rate, is:

	2020			2019
Net income before tax – Canada	$	6,761,468		$	6,889,481
Net income before tax – United States		(37,217,728	)		2,950,064
Net income before tax – All jurisdictions	$	(30,456,260	)	$	9,839,545
Tax expense at statutory income tax rates	$	(8,223,190	)	$	2,656,677
Permanent differences		(96,384	)		(50,235	)
Income attributable to non-controlling interest		(421,055	)		(1,192,280	)
Foreign income taxed at different rates		996,636			33,189
Impact of change in tax rates		314,056			26,902
Other		(113,439	)		152,808
Total tax expense	$	(7,543,376	)	$	1,627,061

(b)

Deferred tax assets and liabilities:

The Company had the following deferred tax assets and liabilities resulting from temporary differences recognized for financial statement and income tax purposes.

	2020			2019
Deferred tax assets:
Property and equipment	$	38,391			2,684
Intangible assets		18,461,272			9,222,824
Finance related costs		4,335			224,986
Reserves		55,464			64,755
Share transaction costs		643,733			—
Stock-based compensation		1,052,095			767,228
Earn-out obligation		221,751			265,660
Deferred tax liabilities:
Property and equipment		—			(23,757	)
Deferred consideration		—			(4,226	)
Reserves		(2,557	)		(83,206	)
Unrealized foreign exchange		(18,103	)		(20,610	)
Finance related costs		—			(78,060	)
Net deferred tax asset	$	20,456,381		$	10,338,278

14.	Income taxes (Continued):

(b)

Deferred tax assets and liabilities (Continued):

Deferred tax assets by jurisdiction	2020			2019
Canada:
Deferred tax asset	$	36,851		$	—
Deferred tax liability		—			(101,822	)
Net deferred tax asset (liability)	$	36,850		$	(101,822	)
United States:
Deferred tax asset	$	20,440,190		$	10,548,137
Deferred tax liability		(20,659	)		(108,037	)
Net deferred tax asset (liability)	$	20,419,531		$	10,440,100

The realization of deferred income tax assets is dependent on the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. If it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is provided against such deferred tax assets. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

As at December 31, 2020 and 2019, the Company had 0 valuation allowance against its deferred income tax assets. The Company currently does not have any unrecognized tax benefits or material uncertain tax positions.

The Company currently files income tax returns in Canada and the US, the jurisdiction in which the Company believes that it is subject to tax. The Company is currently under audit by the IRS for its 2017 taxation year. Management is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2016 to 2020 remain subject to Canadian income tax examinations. Tax years ranging from 2017 to 2020 remain subject to U.S. income tax examinations.

15.	Net finance expense

Recognized in earnings in the years ended December 31:

	2020			2019
Finance expense:
Interest and accretion expense on borrowings	$	1,883,863		$	3,288,704
Accretion expense on earn-out obligation and deferred consideration		50,040			133,450
Amortization of deferred financing fees		372,835			276,260
Net change in fair value of financial liabilities at fair value through earnings		(155,601	)		2,861,204
Other		—			50,000
Total finance expense	$	2,151,137		$	6,609,618
Net finance expense	$	2,151,137		$	6,609,618

16.	Financial instruments:

The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables, investments, trade and other payables, employee benefit obligations, loans, notes payable and bank indebtedness, deferred consideration and the Company’s earn-out obligation. The fair values of these financial instruments, except the Company’s investment, notes payable balances, the deferred consideration and the earn-out obligation, approximate carrying value because of their short-term nature.

The Company’s investment, which is recorded at cost, does not have a readily determinable fair value. The Company has assessed whether there any changes in the investment which would indicate impairment at December 31, 2020 and concluded that there is no impairment of this asset.

The Company’s Notes Payable balance, which is comprised of the JP Morgan Facility, is a floating rate instrument which is based on LIBOR plus 1.25% to 1.75% dependent on the Company’s total Leverage Ratio. As a result, a portion of the interest on this instrument is fixed rate. The Company has estimated the fair value of this financial instrument to be $70,884,761 as at December 31, 2020 based on Level 3 unobservable inputs. The fair value of the Company’s Notes Payable balance approximated book value as at December 31, 2019 due to the facility’s interest rates being set shortly before period end.

The Company’s deferred consideration, related to its MOAA and CVAA acquisitions, approximates fair value as the amounts payable under these deferred consideration arrangements are discounted based on Corporate BBB effective bond yields.

The Company’s earn-out obligation is recorded at 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).

Liabilities

December 31,

2020

Level 1

Level 2

Level 3

Earn-out obligation

907,459

—

907,459

Total

907,459

—

907,459

Liabilities

December 31,

2019

Level 1

Level 2

Level 3

Earn-out obligation

1,063,060

—

1,063,060

Total

1,063,060

—

1,063,060

16.	Financial instruments (Continued):

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 Company’s Gastroenterology Anesthesia Associates LLC acquisition, which was acquired in 2014. As part of the business combination, the Company is required to pay consideration contingent on the post-acquisition earnings of the acquired asset. The Company expects to pay the remaining obligation of $907,459 within the first quarter of 2021. The Company measures the fair value of the earn-out obligation based on its best estimate of the cash outflows payable in respect of the earn-out obligation. This valuation technique includes inputs relating to estimated cash outflows under the arrangement. The Company evaluates the inputs into the valuation technique at each reporting period. During the year ended December 31, 2020, the Company revised its estimate underlying the remaining amount to be paid under the earn-out obligation. The amendment of the cash outflow estimates underlying the earn-out resulted in an decrease of $155,601 for the year ended December 31, 2020 to the fair value of the earn-out obligation. The impact of this adjustment was recorded through finance expense in the period.

Reconciliation of level 3 fair values:

	Earn-out obligation
Balance as at January 1, 2019	$	2,920,583
Payment		(4,795,822	)
Recorded in finance expense:
Accretion expense		77,095
Fair value adjustment		2,861,204
Balance as at January 1, 2020	$	1,063,060
Recorded in finance expense:
Fair value adjustment		(155,601	)
Balance as at December 31, 2020	$	907,459

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

(a)

Credit risk:

Credit risk is the risk of financial loss to the Company if a 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.

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, historic collection patterns and existing economic conditions. Estimates of allowances are subject to change as they are impacted by the nature of healthcare collections, which may involve delays and the current uncertainty in the economy.

(b)

Market risk:

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

(i)

Interest rate risk:

As at December 31, 2020, the Company’s only interest bearing liability is its JP Morgan Facility. With respect to the Company’s Facility, with all other variables held constant, a 10% increase in the interest rate would have reduced net income by approximately $188,000 (2019 - $329,000) for the year ended December 31, 2020. There would be an equal and opposite impact on net income with a 10% decrease.

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17.	Commitments and contingencies:

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.

From time to time, the Company is subject to various legal proceedings and claims related to matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.

In March 2020 the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are not known at this time. These impacts could include an impact on our ability to obtain debt and equity financing, impairment in the value of our long-lived assets, or potential future decrease in revenue or the profitability of our going operations.

18.	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:

During the year ended December 31, 2020, the Company made product sales totaling $28,475 (2019 - $35,095) to one company owned or controlled by one 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. There were 0 amounts owing by or to this related party as of December 31, 2020 (2019 - $nil).

19.	Segmented information:

The Company operates in 2 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, 2020 and 2019 are as follows:

	2020		2019
Revenue:
Canada and other	$	181,372	$	225,807
United States		105,990,793		120,159,467
Total	$	106,172,165	$	120,385,274

The Company’s revenues are disaggregated below into categories which differ in terms of the economic factors which impact the amount, timing and uncertainty of revenue and cash flows.

	2020		2019
Revenue:
Commercial Insurers	$	79,609,199	$	90,332,380
Federal Insurers		17,715,466		19,404,851
Physicians		8,484,070		10,078,843
Other		363,430		569,200
Total	$	106,172,165	$	120,385,274

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19.	Segmented information (Continued):

The Company’s property and equipment, intangibles, other assets and total assets are located in the following geographic regions as at December 31, 2020 and 2019:

	2020		2019
Property and equipment:
Canada	$	78,820	$	210,386
United States	$	48,980		41,547
Total	$	127,800	$	251,933
Intangible assets:
Canada	$	28,596	$	30,478
United States	$	136,375,547		163,077,715
Total	$	136,404,143	$	163,108,193
Total assets:
Canada	$	3,379,636	$	3,231,845
United States	$	188,405,094		199,863,424
Total	$	191,784,730	$	203,095,269

The financial measures reviewed by the Company’s Chief Operating Decision Maker are presented below for the years ended December 31, 2020 and 2019. ��The Company does not allocate expenses related to corporate activities. These expenses are presented within “Other” to allow for reconciliation to reported measures.

	2020
	Anesthesia services			Product sales		Other			Total
Revenue	$	97,688,095		$	8,484,070	$	—		$	106,172,165
Operating costs		100,217,372			4,271,333		8,439,419			112,928,124
Operating income (loss)	$	(2,529,277	)	$	4,212,737	$	(8,439,419	)	$	(6,755,959	)

	2019
	Anesthesia services		Product sales		Other			Total
Revenue	$	110,306,431	$	10,078,843	$	—		$	120,385,274
Operating costs		94,506,039		4,647,719		6,549,321			105,703,079
Operating income (loss)	$	15,800,392	$	5,431,124	$	(6,549,321	)	$	14,682,195

Additionally, the company incurs the following in each of its operating segments:

	2020
	Anesthesia services			Product sales		Other		Total
Finance expense	$	(105,561	)	$	—	$	2,256,698	$	2,151,137
Stock based compensation expense	$	551,323		$	342,361	$	1,815,933	$	2,709,617
Depreciation and amortization expense	$	40,504,339		$	69,604	$	84,370	$	40,658,314

	2019
	Anesthesia services		Product sales		Other		Total
Finance expense	$	2,994,654	$	—	$	3,614,964	$	6,609,618
Stock based compensation expense	$	481,240	$	318,554	$	177,168	$	976,962
Depreciation and amortization expense	$	34,908,764	$	25,534	$	74,772	$	35,009,070

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20.	Subsequent events:

Acquisition by WELL Health Technologies Corp

The Arrangement, which is to be carried out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia), will require the approval of: (i) two-thirds of the votes cast by shareholders of the Company; and (ii) two-thirds of the votes cast by shareholders, holders of stock options and holders of restricted share units, voting together as single class. The Company’s directors and officers, holding an aggregate of approximately 2.1% of the outstanding common shares of the Company, have each entered into voting support agreements to vote their shares in favor of the Acquisition. Completion of the Acquisition will also be subject to court and regulatory approvals and clearances, as well as other customary closing conditions. Subject to the satisfaction of such conditions, the Acquisition is expected to be completed during the second quarter of 2021.

The Arrangement contains certain customary provisions, including covenants in respect of non-solicitation of alternative acquisition proposals, a right to match any superior proposals for WELL Health and a termination fee of $10 million payable to WELL in certain circumstances. The Acquisition Agreement also provides for a reverse termination fee of $10 million payable to CRH in the event of certain breaches of a representation, warranty or covenant by WELL Health.

Oak Tree Anesthesia Associates LLC Acquisition

On February 9, 2021, a subsidiary of the Company entered into an asset contribution and exchange agreement to acquire a 100% interest in Oak Tree Anesthesia Associates LLC (“Oak Tree”), a gastroenterology anesthesia services provider in New Jersey. The purchase consideration, paid via cash, for the acquisition of the Company’s interest was $3,250,000 plus deferred acquisition costs of $66,182. The provisional cost allocation of the exclusive professional services agreement which was acquired as part of this acquisition is $3,316,182.

UD Management Services Agreement

On February 22, 2021 a subsidiary of the Company entered into a five-year exclusive Management Services Agreement with United Digestive (“UD”). Under this agreement, the Company will earn a fee for managing UD’s anesthesia service. The agreement is effective November 1, 2021.

FDHS Startup Joint Venture

On March 1, 2021, the Company entered into a startup joint venture, whereby the Company will own a 51% interest in a gastroenterology anesthesia practice located in Largo, Florida.

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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.

As of December 31, 2020, the Company's Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), together with management, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting, described below.

Management’s Annual Report on Internal Control Over Financial Reporting

Management, under the supervision of the board of directors, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on management’s assessment using this framework, management has concluded that our internal control over financial reporting was not effective as at December 31, 2020, due to material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We did not have effective continuous risk assessment processes and there were insufficient resources to adequately assess risk. As a result:

•

We were unable to rely on internal controls within the service organization used to process our anesthesia claims and revenue because that service organization did not provide a third-party attestation report with regard to internal controls over those processes and our existing review controls did not operate at a sufficient level of precision to compensate for this deficiency. This deficiency did not result in adjustments to the consolidated financial statements; and

•

The Company had a combination of control deficiencies within its information technology (“IT”) general and application controls across the systems supporting the Company’s financial reporting processes, including access controls related to maintaining appropriate segregation of duties and super-user access. We have concluded that process-level automated controls and manual controls that were dependent upon IT general controls, information and data derived from impacted IT systems were ineffective because they could have been adversely impacted. This deficiency was pervasive in nature. This deficiency did not result in adjustment to the consolidated financial statements.

Additionally, the Company did not involve personnel with sufficient knowledge and practical experience in performing the discounted cash flow model utilized in the impairment evaluation of intangible assets. Discounted cash flow modelling, and the judgments surrounding cash flow inputs used, requires significant judgment and expertise in the field of fair value modelling. Specifically, the discounted cash flow modelling utilized in the impairment evaluation included certain cash flows that should have been excluded. This resulted in a $2.6 million understatement of the impairment charge initially recorded to intangible assets. The understatement has been corrected in the Company’s audited consolidated financial statements.

104

Each of these deficiencies creates a reasonable possibility that a material misstatement in the consolidated financial statements will not be prevented or detected on a timely basis.

KPMG LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements and has issued an adverse report on the effectiveness of internal control over financial reporting, as stated in their report included elsewhere in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

Except for the material weaknesses that were identified in the fourth quarter but that arose earlier in 2020, there were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan and Status

Management, with oversight from the Audit Committee of our Board of Directors, will implement remediation measures related to analyzing key risks in the business and designing and implementing the key controls that mitigate those risks, including monitoring controls related to service organizations and general IT general and application controls as noted below.

In response to the identified material weaknesses, our management, with the oversight of the Audit Committee of our Board of Directors, has reached an agreement with the service organization to provide a System and Organization Controls (SOC) 1 Type 2 compliance report in 2021 to allow for Management’s monitoring of controls related to the design and operating effectiveness of anesthesia claims and revenue processing. Management will review the SOC 1 Type 2 compliance report to assess design and operating effectiveness of internal controls over the service organization’s processing of our anesthesia claims and revenue.

Additionally, to remediate material weaknesses identified within our IT general and application controls, the Company will be working internally to reduce super-user access to key financial reporting systems to a limited number of non-finance users and thus create more robust segregation of duties.

With respect to the material weakness identified in the Company’s impairment analysis process, management believes this material weakness in internal controls is an isolated event and not pervasive in nature. Management is committed to remediating the material weakness in a timely manner. The remediation plan includes engaging additional resources or specialists with valuations knowledge to aid in situations where fair value modelling is required.

Item 9B.

Other Information

None.

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PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Directors

Our Board currently consists of five directors: Brian Griffin, Dr. David Johnson, Todd Patrick, Ian Webb and Dr. Tushar Ramani. Each director will hold office until the next annual general meeting or until that person otherwise sooner ceases to be a director. The following table provides information with respect to each of our directors as of the date of this filing.


Brian Griffin, Director, Vero Beach, Florida USA
Brian Griffin is 62 years old and was appointed as director on April 22, 2020. Mr. Griffin currently serves as the Chief Executive Officer of Advanced Dermatology and Cosmetic Surgery. Before joining Advance Dermatology and Cosmetic Surgery Mr. Griffin served as Chairman and Chief Executive Officer of Diplomat Pharmacy, Inc., one of the nation’s largest independent Specialty Pharmacies and Pharmacy Benefit Managers (PBM), until it was recently acquired by United Health Group. Previously, Mr. Griffin joined Anthem, Inc., in 2013, initially as President and Chief Executive Officer of Empire Blue Cross Blue Shield, New York’s largest health insurer. In 2014, he assumed the additional responsibility of managing Anthem’s enterprise-wide national pharmacy business. Ultimately, Mr. Griffin assumed the role of President of Anthem’s $40B+ in revenue Commercial & Specialty businesses including its 14 Blue Cross and Blue Shield Plans nationally. Thereafter, Mr. Griffin launched and became Chief Executive Officer of IngenioRx, Anthem’s newly created national PBM. Mr. Griffin currently serves on the Board of Trustees of Visiting Nurse Association Health Group in Holmdel, N.J., where he most recently served as Chairman for over six years. He earned his Bachelor’s degree from Seton Hall University. Other Public Board Affiliations: None	Member of the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee Independent Director
Dr. David Johnson, Director, Norfolk, Virginia, USA
Dr. Johnson is 66 years old and was appointed to the Board on June 1, 2010. Since 1989, Dr. Johnson has been a partner of Gastrointestinal and Liver Specialists of Tidewater PLLC, in Norfolk, VA. In addition, Dr. Johnson currently serves as Professor of Medicine, Chief of Gastroenterology, in Eastern Virginia Medical School. Dr. Johnson is Board-certified in Internal Medicine and Gastroenterology and is a past President of the American College of Gastroenterology, as well as a Master of the American College of Physicians. He has authored more than 600 papers in the field of gastroenterology. Other Public Board Affiliations: None.	Independent Director
Todd Patrick, Director, Bellevue, Washington, USA

106


Mr. Patrick is 58 years old and was appointed to the Board on May 25, 2006. In addition, Mr. Patrick currently serves as President/ Chief Executive Officer and member of the Board of Directors of Armata Pharmaceuticals, Inc. Before joining Armata Pharmaceuticals, Inc., Mr. Patrick was the President and Board member of ID Biomedical Corporation from 1994 until 2006, when the company was acquired by GlaxoSmithKline. Prior to ID Biomedical, Mr. Patrick was the Director of the Office of Intellectual Property Administration at the University of California, Los Angeles (UCLA), where he was responsible for the patenting and licensing of intellectual property arising out of UCLA. Mr. Patrick has been involved in several start-ups and has helped raise over $600 million in equity or debt capital. He has participated in several mergers and acquisitions, including the sale of ID Biomedical for $1.7 billion. Other Public Board Affiliations: Armata Pharmaceuticals, Inc	Member of the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee Independent Director
Ian Webb, Lead Director, Vancouver, BC, Canada
Mr. Webb is 70 years old and was appointed to the Board on May 25, 2006. Mr. Webb is a retired partner of the law firm of Borden Ladner Gervais LLP, (“BLG”), where he practiced in the areas of corporate and securities law, with an emphasis on the legal requirements of public companies. He retired from BLG in 2010. Prior to joining CRH, Mr. Webb was also a member of the Board of Directors of ID Biomedical Corp. Mr. Webb was admitted to the British Columbia bar in 1982, after graduating from Osgoode Hall Law School at York University with a Bachelor of Laws in 1981. Prior to that, he received a Master of Science in Theoretical Physics from the University of Saskatchewan in 1976. Other Public Board Affiliations: Sunniva Inc.	Member of the Audit Committee, Compensation Committee and the Corporate Governance and Nominating Committee Independent Director
Dr. Tushar Ramani, CEO and Chair of the Board of Directors, Palm Beach Gardens, Florida, USA
Dr. Ramani is 56 years old and became the CEO and was appointed to the Board on April 9, 2019. Prior to CRH, Dr. Ramani worked for Summit Partners’ Executive-in-Residence program, working with Summit’s Healthcare & Life Sciences team to identify new investment opportunities within growth-stage healthcare companies, as well as to evaluate prospects of current investments. In connection with that appointment, he was named Chief Executive Officer of portfolio company, MedOptions, Inc., the nation’s largest behavioral health services provider to post-acute care facilities, in 2018 and served in that capacity until April 2019. Prior to Summit Partners Dr Ramani was co-founder and president of Anesthetix Management, LLC, a national provider of comprehensive anesthesiology and pain management solutions to hospitals and surgery centers, which was acquired by TeamHealth Holdings, Inc., a physician services organization listed on the NYSE at that time. Dr. Ramani remained as President of TeamHealth’s Anesthesia Division, growing it to over $300 million in revenue. Dr Ramani attended Jefferson Medical College in Philadelphia, interned at Morristown Memorial Hospital, and completed residency in Anesthesiology and Interventional Pain Management at Mount Sinai Medical School, New York. Other Public Board Affiliations: None.	Non-Independent Director⁽¹⁾

(1)	See “Statement of Corporate Governance Practices – The Board” below.

Executive Officers

The following table provides information with respect to our executive officers as of the date of this filing.


Name	Residence	Age	Position(s)
Dr. Tushar Ramani	Palm Beach Gardens, Florida, USA	56	Chief Executive Officer and Director

Richard Bear	Washington, USA	58	Chief Financial Officer
James Kreger	Georgia, USA	52	President, CRH Anesthesia

Biographical Information

The following is biographical information as of the date of this filing for our executive officers, other than Dr. Tushar Ramani, whose biographical information is included above.

107

Richard Bear

Mr. Bear has been an officer of the Company since March of 2006. Prior to joining CRH, Mr. Bear worked at ID Biomedical Corporation as Chief Financial Officer until 2005, when that company was acquired by GlaxoSmithKline. Since joining CRH, Mr. Bear has planned and executed all of our financial transactions including capital private placement, debt issuance and restructuring, establishment and extension of our existing credit facility with US and Canadian financial institutions, and listing of our shares on the NYSE Market. Since December of 2014, Mr. Bear has also been involved in the negotiation of CRH Anesthesia’s acquisitions. He is responsible for acquisition financing, as well as the accounting and financial integration of CRH Anesthesia Management’s acquisitions into our organization. Mr. Bear has a degree in Business Administration from the University of Washington and has received a Certified Public Accountant (CPA inactive) designation.

James Kreger

Mr. Kreger joined CRH as President of CRH Anesthesia in July of 2016. Mr. Kreger has over 25 years of diversified experience, focusing on Business Development and Operations. Prior to joining CRH, he held the role of Vice President of Development for the Ambulatory Surgery Division at Hospital Corporation of America (HCA). Mr. Kreger received a BA in Finance at Michigan State University and a MBA at Wayne State University.

Corporate Governance

Code of Business Conduct and Ethics

The Board has adopted a written Code of Business Conduct and Ethics (the “Code”) governing directors, officers and employees. The Board monitors compliance with the Code by charging management with bringing to the Board’s attention any issues that arise with respect to the Code. During the previous fiscal year, no allegations of misconduct in relation to the Code were brought to the Board’s attention.

Under the Code, our directors, officers and employees are prohibited from trading securities of the Company while in possession of material, non-public information about the Company. A copy of the Code is available on the Company’s website at https://investors.crhsystem.com and under the Company’s profile on SEDAR at www.sedar.com. We intend to post on our website any amendments or waivers to the Code requiring disclosure under applicable SEC or stock exchange rules.

Except as otherwise disclosed herein, the Company has no contracts or other arrangements in place, which any of its directors or officers has a material interest in, and does not anticipate entering into any such arrangement. If any such arrangement were to arise, it would first be considered by the Audit Committee and then be subject to the approval of the Board (in each case, without the participation of the director who would have the material interest in question).

Audit Committee

The Audit Committee is currently comprised of the following individuals:


Name	Independent/non- independent⁽¹⁾	Financially literate or not financially literate⁽²⁾	Relevant education and experience
Todd Patrick,Chair	Independent	Financially literate and audit committee financial expert⁽³⁾	Currently Chief Executive Officer and director at Armata Pharmaceuticals, Inc., Master's of Business Administration with a Finance Concentration
Brian Griffin	Independent	Financially literate	Currently Chief Executive Officer of Advanced Dermatology and Cosmetic Surgery.
Ian Webb	Independent	Financially literate	Previously solicitor practicing corporate law and director of ID Biomedical Corporation

(1)	A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company, which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.

108

(2)

An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.

(3)	The Company has determined that Todd Patrick is an “audit committee financial expert” as described in Section 407 of the Sarbanes-Oxley Act of 2002.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership of such securities with the SEC and the NYSE American.

Based solely upon a review of the Form 3, 4 and 5 filings by reporting persons, the Company is not aware of any failure to file on a timely basis any Form 3, 4 or 5 during the most recent fiscal year by the Company’s reporting persons, other than the following: Brian Griffin filed on May 26, 2020 a Form 3 which was due on May 4, 2020; James Kreger filed on August 17, 2020 a Form 4 reporting an acquisition of common shares and a disposition of commons shares which was due on August 14, 2020; Dr. Tushar Ramani filed on October 8, 2020 a Form 4 reporting an acquisition of restricted share units which was due on September, 14, 2020; Richard Bear filed on October 8, 2020 a Form 4 reporting an acquisition of restricted share units which was due on September, 14, 2020; James Kreger filed on October 8, 2020 a Form 4 reporting an acquisition of restricted share units which was due on September, 14, 2020; Richard Bear filed on December 14, 2020 a Form 4 reporting an acquisition of common shares which was due on December 10, 2020; James Kreger filed on December 14, 2020 a Form 4 reporting an acquisition of common shares and a disposition of commons shares which was due on December 9, 2020; and James Kreger filed on March 11, 2021 a Form 4 reporting an acquisition of restricted share units which was due on June 17, 2019.

Item 11.

Executive Compensation

Summary Compensation Table

In accordance with the scaled disclosure requirements available to smaller reporting companies under U.S. securities laws, we are providing certain compensation information for the three individuals who are our “named executive officers” for 2020, our Chief Executive Officer and our two other most highly compensated executive officers who were serving at year-end. All dollar amounts are reported in United States dollars unless otherwise indicated.

Name and

Principal

position

Year

Salary ($)

Stock awards

($)⁽⁵⁾

Option awards ($)⁽⁴⁾

Nonequity incentive

plan compensation

($)⁽⁵⁾

All other

compensation

($)⁽⁶⁾

Total

($)

Tushar Ramani, Chief Executive Officer⁽¹⁾

2020

2019

$520,000

$364,384

$287,154

$2,691,070

$714,700

$260,000

$365,384

$250,000

$1,067,154

$4,376,538

Richard Bear, Chief Financial Officer⁽²⁾

2020

2019

$400,000

$385,000

$190,376

$352,872

$160,000

$138,600

$750,376

$876,472

James Kreger, President Anesthesia⁽³⁾

2020

2019

$320,500

$315,000

$119,673

$248,419

$96,150

$51,386

$536,323

$614,805

(1)

Dr. Ramani became Chief Executive officer on April 8, 2019. On April 8, 2019, Dr. Ramani received 1,000,000 time-based share units that vest on April 8, 2023. Dr. Ramani also received 500,000 options that vest over four years and terminate April 8, 2029. On September 10, 2020 Dr. Ramani received 40,000 time-based share units that vest on March 15, 2021 and on December 20, 2020 Dr. Ramani received 90,000 time-based share units outstanding that vest annually over four years.

(2)

On December 23, 2019, Mr. Bear received 100,000 time-based share units outstanding that vest annually over four years. On September 10, 2020 Mr. Bear received 30,000 time-based share units that vest on March 15, 2021 and on December 20, 2020 Mr. Bear received 56,000 time-based share units outstanding that vest annually over four years.

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(3)

On June 13, 2019, Mr. Kreger received 50,000 time-based share units that vest over four years. On December 23, 2019, Mr. Kreger received 30,000 time-based share units that vest over four years. On September 10, 2020 Mr. Kreger received 20,000 time-based share units that vest on March 15, 2021 and on December 20, 2020 Mr Kreger received 34,000 time-based share units outstanding that vest annually over four years.

(4)	Assumptions used in the calculation of these amounts are included in Note 13 to the notes to consolidated financial statements for the year ended December 31, 2020, included in our Annual Report.

(5)	Non equity incentive plan compensation are based on qualitative and quantitative goals established by the Compensation Committee of the Board of Directors.

(6)	"All Other Compensation" includes a severance payment to Mr. Wright comprised of 18 months’ salary, medical benefits and life insurance premiums. "All Other Compensation" also includes a signing bonus for Dr. Ramani of $250,000 in connection with his becoming Chief Executive Officer.

For a discussion of the employment contracts governing nonequity incentive plan compensation, see “Executive Employment Arrangements and Termination and Change in Control Benefits,” below.

Outstanding Equity Awards at 2020 Fiscal Year End

The following table lists all outstanding equity awards outstanding held by our named executive officers as of December 31, 2020.


	Option Awards						Stock Awards
Name	Grant Date	Number of Securities Underlying Unexercised options (#) exercisable	Number of Securities Underlying Unexercised options (#) unexercisable	Option Exercise Price (CDN$)	Option Exercise price ($)(1)	Option Expiration date	Number of shares or units of stock that have not vested (#)(2)	Market value of shares or units of stock that have not vested ($)(3)
Tushar Ramani	04/08/2019	500,000	375,000	$3.56	$2.79	04/08/2029	1,130,000	2,643,746
Richard Bear	01/23/2014	350,000	-	$0.70	$0.55	01/24/2024	741,000	1,733,642
James Kreger	-	-	-	-	-	-	396,500	927,651

(1)	Canadian dollar amounts have been converted to U.S. dollars based on the average daily rate of exchange on December 31, 2020 of US$1.00 = CDN$1.2732, as quoted by the Bank of Canada.

(2)

Mr Ramani has 1,000,000 time-based share units outstanding that vest on April 8, 2023, 40,000 time-based share units that vest on March 15, 2021, and 90,000 time-based share units that vest annually over the next four years. Dr. Ramani has 500,000 stock options. Mr. Bear has 550,000 performance-based share units, 275,000 of which vest when the share price reaches CAD$15.00 and 275,000 of which vest when the share price reaches CAD$20.00, in each case for any thirty trading days. Mr. Bear also has 191,000 time-based share units outstanding; 60,000 vest in 2021; 75,000 vest annually over the next three years and 56,000 vest annually over the next four years. Mr. Kreger has 250,000 performance-based share units, 100,000 of which vest when EBITDA attributable to shareholders in any fiscal year is $100,000,000 and 150,000 of which vest when EBITDA attributable to shareholders in any fiscal year is $150,000,000. Additionally, Mr. Kreger also has 146,500 time-based share units outstanding; 32,500 vest in 2021; 80,000 vest annually over the next three years; and 34,000 vest annually over the next four years.

(3)	Value of the market or payout value of share-based awards that have not vested is calculated based upon the closing price of the common shares on the NYSE American of $2.33 on December 31, 2019.

The Board has adopted an executive compensation clawback policy pursuant to which the Company may claw back performance-based compensation in certain situations.

Executive Employment Arrangements and Termination and Change in Control Benefits

Termination of Employment, Change in Responsibilities, and Employment Contracts

On April 8, 2019 Edwards Wright’s employment with the Company was terminated. In accordance with Mr. Wright’s employment agreed dated August 18, 2006 (and as most recently amended on January 8, 2019), Mr. Wright was provided a payment equal to 18 months of salary payment plus any other amounts accrued and owing, group benefit coverage for 18 months, and reimbursement of life insurance premiums for a period of 18 months. Mr. Wright’s contract provides for continuing confidentially and non-disclosure obligations in accordance with industry standards.

The Company has an employment contract with Tushar Ramani (our Chief Executive Officer, or “CEO”) dated April 8, 2019, which provides for an annual salary plus an annual bonus, which is based upon certain metrics and is at the Company’s sole discretion and shall equal up to 100% of the annual salary. The employment contract provides for termination payments to be made to

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the CEO as follows: (i) in the event of death or disability of the CEO, the Company will pay to the CEO an amount equal to six months’ salary; and (ii) in the event of termination of the CEO by the Company without cause, the Company will provide an amount equal to a minimum of 12 months to a maximum of 18 months’ salary plus a bonus, medical premiums for a minimum of 12 months to a maximum of 18 months; and (iii) in there is a liquidity event, as a result of a change of control of the Company, the Company will pay to the CEO an bonus ranging from $5,000,000 to 10,000,000 depending on the share price of the liquidity event. If the CEO’s employment was terminated on the last business day of the most recently completed financial year, he would have been entitled to receive $260,000 if the triggering event in (i) above occurred, and $845,000 if the triggering event in (ii) above occurred.

The Company has an employment contract with Richard Bear (most recently amended on February 12, 2019), the Chief Financial Officer (“CFO”), which provides for an annual salary plus an annual bonus, which is based upon certain metrics and is at the Company’s sole discretion and shall equal 40% of the annual salary. The employment contract provides for termination payments to be made to the CFO as follows: (i) in the event of death or disability of the CFO, the Company will pay to the CFO an amount equal to six months’ salary; and (ii) in the event of termination of the CFO by the Company without cause, or if the CFO terminates his employment for good reason or terminates his employment without good reason after July 1, 2020, the Company will provide an amount equal to 18 months’ salary plus a bonus and medical premiums; and (iii) in the event of termination of the CFO as a result of a change of control of the Company, the Company will pay to the CFO an amount equal to 24 months’ salary plus a bonus. If the CFO’s employment was terminated on the last business day of the most recently completed financial year, he would have been entitled to receive $200,000 if the triggering event in (i) above occurred, $840,000 if the triggering event in (ii) above occurred, and $1,120,000 if the triggering event in (iii) above occurred.

On June 23, 2016 (effective date July 11, 2016), the Company signed an employment contract with James Kreger, the President of Anesthesia, which provides for an annual salary plus an annual bonus, which at 100% achievement of the established performance milestones and business growth targets shall equal 30% of the annual salary, but which shall not be capped at 30% of the annual salary. The employment contract provides for termination payments to be made in the event the Company terminates employment without cause, if Mr. Kreger terminates for good reason, or if employment is terminated because of a change of control. The termination payment is continuation of base salary for 12 calendar months and any unpaid prorated bonus, should any exist, for the fiscal year ending immediately prior to the effective date of termination. In the event of a termination Mr. Kreger’s contract provides for continuing confidentially and non-disclosure obligations in accordance with industry standards. If Mr. Kreger’s employment was terminated on the last business day of the most recently completed financial year for the reasons specified above, he would have been entitled to receive $416,650.

For each of Mr. Bear and Mr. Kreger, upon a change of control, any unvested share units granted prior to June 8, 2017 and any outstanding Options will be deemed to be vested. Any share units granted to each of the three executives on or after June 8, 2017 generally will vest upon a termination by the Company without “cause” or by the executive for “good reason” within one year following a change in control, provided that in the event that any share units are subject to performance-based vesting conditions, then the vesting of such share units shall accelerate only to the extent that any performance-based vesting conditions have been satisfied and further provided that if a performance-based vesting condition is, in the Board’s discretion, capable of being partially performed, then vesting shall be accelerated on a pro rata basis to reflect the degree to which the vesting condition has been satisfied, as determined by the Board.

Director Compensation

Narrative Discussion

The compensation paid to the Board is designed to (i) attract and retain the most qualified people to serve on the Board and its committees, (ii) align the interests of the Board with those of its shareholders, and (iii) provide appropriate compensation for the risks and responsibilities related to being an effective director. This compensation is recommended to the Board by the Compensation Committee. Directors’ compensation is comprised of an annual retainer, meeting fees and a long-term component consisting of share units. Directors’ compensation is included in the mandate of the Compensation Committee. Directors’ compensation is subject to the approval of the Board. Directors who are members of management do not receive compensation for serving as directors. The Board has also adopted an insider trading policy, pursuant to which the directors, officers and employees of the Company are prohibited from, among other things, engaging in hedging transactions that may allow such persons to continue to own securities of the Company without the full risks and rewards of ownership.

Each non-management Director receives an annual retainer of $25,000 and meeting fees of $1,500 for each meeting attended in person and $750 for each meeting attended by telephone. In addition to the annual retainer, an Independent Board Chair qualifies for an additional annual retainer of $25,000, the Audit Committee Chair receives an additional annual retainer of $15,000, and the Corporate Governance and Nominating Committee Chair and Compensation Committee Chair each receives an additional annual retainer of $7,500. The Lead Director also receives an additional annual retainer of $15,000. All director fees are paid in U.S.

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currency. Reasonable expenses incurred in connection with attending to Board matters are reimbursed. Directors may be eligible for additional fees for extraordinary Board work. Directors are also eligible to receive stock options and share units under the Company’s Amended and Restated 2009 Stock Option Plan (the “Stock Option Plan”) and the 2017 Share Unit Plan (the “Share Unit Plan”) amended and approved in June 2020. The following table presents the compensation awarded to, earned by or paid to our directors (other than Tushar Ramani and Edward Wright, whose compensation is provided in the Summary Compensation Table above) for the year ended December 31, 2020. We do not currently have director compensation in the form of share-based awards (other than share units), non-equity incentive plan compensation or non-qualified deferred compensation.

Director Compensation Table


Name	Fees earned or paid in cash ($)	Stock awards ($)⁽¹⁾	All other compensation ($)	Total ($)
Anthony Holler⁽²⁾	$12,214	-	-	$12,214
Todd Patrick⁽³⁾	$48,250	$45,196	$150,000	$243,446
Ian Webb⁽⁴⁾	$55,161	$45,196	-	$100,357
David Johnson⁽⁵⁾	$27,250	$45,196	-	$72,446
Brian Griffin⁽⁶⁾	$28,411	$144,644		$173,055

(1)	Assumptions used in the calculation of these amounts are included in Note 13 to the notes to consolidated financial statements for the year ended December 31, 2020, included in our Annual Report.

(2)	Dr. Holler resigned from the Board on March 19, 2020.

(3)	As of December 31, 2020, Mr. Patrick held 20,000 unvested share units.

(4)	As of December 31, 2020, Mr. Webb held 20,000 unvested share units.

(5)	As of December 31, 2020, Mr. Johnson held 20,000 unvested share units.

(6)	As of December 31, 2020, Mr. Griffin held 70,000 unvested share units

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding the beneficial ownership of CRH shares as of March 12, 2021 (except as otherwise noted) and shows the number of CRH shares and percentage of outstanding CRH shares owned by:

•

each person or entity who is known by us to own beneficially 5% or more of the CRH shares;

•

each of our directors;

•

each of our named executive officers; and

•

all of our directors and executive officers as a group.

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Beneficial ownership is determined in accordance with SEC rules, which generally attribute beneficial ownership of securities to each person or entity who possesses, either solely or shared with others, the power to vote or dispose of those securities. These rules also treat as outstanding all shares that a person would receive upon exercise of stock options or warrants, or upon conversion of convertible securities held by that person that are exercisable or convertible within 60 days of the determination date, which in the case of the following table is March 12, 2021. CRH shares issuable pursuant to exercisable or convertible securities are deemed to be outstanding for computing the percentage ownership of the person holding such securities but are not deemed outstanding for computing the percentage ownership of any other person. The percentage of beneficial ownership for the following table is based on 71,620,447 CRH shares outstanding as of March 12, 2021. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all CRH shares shown as beneficially owned by them, and none of the CRH shares beneficially owned by our directors and executive officers was pledged.


Name and Address of Beneficial Owner	Beneficial Ownership
Name and Address of Beneficial Owner	Number of CRH Shares	Percentage of Class
Five Percent and Greater CRH shareholders:
Nantahala Capital Management, LLC⁽¹⁾	6,892,005	9.6%
Beutel, Goodman & Company Ltd.⁽²⁾	5,348,770	7.5%
Magnetar Financial LLC⁽³⁾	4,920,270	6.9%
Directors and Named Executive Officers:
Richard Bear⁽⁴⁾	748,000	1.0%
Dr. David Johnson⁽⁵⁾	423,900	*
James Kreger⁽⁶⁾	96,088	*
Todd Patrick⁽⁷⁾	500,000	*
Ian Webb⁽⁸⁾	185,800	*
Dr. Tushar Ramani⁽⁹⁾	290,000	*
Brian Griffin	-	-
All executive officers and directors as a group (7 persons)	2,243,788	3.1%

*Represents holdings of less than one percent of the outstanding CRH shares.

(1)

Based on information set forth in the Schedule 13G/A filed by Nantahala Capital Management, LLC with the SEC on February 16, 2021. Nantahala Capital Management, LLC reported that, as of December 31, 2020, it was deemed to have shared voting power and shared dispositive power for 6,892,005 CRH shares, all of which were held by funds and separately managed accounts under its control. Nantahala Capital Management, LLC further reported that, as the managing members of Nantahala Capital Management, LLC, each of Mr. Wilmot B. Harkey and Mr. Daniel Mack may also be deemed to be a beneficial owner of those shares. The address for Nantahala Capital Management, LLC is 130 Main St., 2nd Floor, New Canaan, CT 06840.

(2)

Based on information set forth in the Schedule 13G filed by Beutel, Goodman & Company Ltd. with the SEC on February 11, 2021. Beutel, Goodman & Company Ltd. reported that, as of December 31, 2020, shares it was deemed to have sole voting power for 4,994,250 CRH shares and sole dispositive power for 5,348,770 CRH shares, all of which are owned by its investment advisory clients. The address for Beutel, Goodman & Company Ltd. is 20 Eglinton Avenue West, Suite 2000, Toronto, Ontario, M4R 1K8, Canada.

(3)

Based on information set forth in the Schedule 13D filed by Magnetar Financial LLC with the SEC on March 6, 2021. Magnetar Financial LLC reported that, as of February 24, 2021, it was deemed to have shared voting power and shared dispositive power for 4,920,270 CRH, all of which were held by funds and separately managed accounts under its control. The address for Magnetar Financial LLC is 1603 Orrington Avenue, 13^th Floor, Evanston, Illinois 60201.

(4)	Consists of 368,000 common shares, 350,000 vested stock options, and 30,000 share units vesting on March 17, 2021.

(5)	Consists of 423,900 common shares.

(6)	Consists of 76,088 common shares and 20,000 share units vesting on March 17, 2021.

(7)	Consists of 495,313 common shares and 4,687 vested stock options.

(8)	Consists of 160,800 common shares and 25,000 vested stock options.

(9)	Consists of 125,000 vested stock options, 125,000 stock options vesting on April 8, 2021, and 40,000 RSU’s vesting on March 17, 2021.

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Equity Compensation Plan Information

The Stock Option Plan and the Share Unit Plan are the only equity compensation plans of the Company. The following table sets forth summary information relating to our equity compensation plans as of December 31, 2020:


Plan category	Number of Common Shares to be issued upon exercise of outstanding options and share units	Weighted-average exercise price of outstanding options ($)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by securityholders	4,266,249	$1.82	1,826,096
Equity compensation plans not approved by securityholders	-	-	-
Total	4,266,249	$1.82	1,826,096

Potential Change in Control

See the description of the Arrangement Agreement contained under Item 7 of this Annual Report on Form 10-K under the heading “Acquisition by WELL Health – February 2021,” which description is incorporated by reference into this Item 12.

Item 13.

Certain Relationships and Related Transactions and Director Independence

Related Party Transactions

Other than the compensation arrangements disclosed above under “Executive Compensation,” since January 1, 2019, there have not been, nor are there any proposed transactions with related parties to which we are party and which we are required to disclose pursuant to the rules of the SEC and the Canadian Securities Administrators.

Policy Regarding Related Party Transactions

All transactions between us and our officers, directors, principal shareholders and their affiliates must be approved by the Audit Committee, or a similar committee consisting of entirely independent directors, according to the terms of our Code of Business Conduct and Ethics, as discussed above.

Board of Directors Independence Determination

The Board has determined that four of the current directors, Messrs. Griffin, Johnson, Patrick and Webb, meet the independence requirements under the NYSE American listing rules and Canadian National Instrument 58-101. The Board has concluded that one director, Dr. Ramani, is not independent, as he is the CEO.

The Company has taken steps to ensure that adequate structures and processes are in place to permit the Board to function independently of management. The directors can request at any time a meeting restricted to independent directors for the purpose of discussing matters independently of management. The independent directors generally meet without management at each quarterly meeting of the directors.

In addition, the Board has appointed Mr. Webb as Lead Director to facilitate the functioning of the Board independently of management of the Company and provide independent leadership to the Board.

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Item 14.

Principal Accounting Fees and Services

External Auditor Service Fees

KPMG has served as our independent registered public accounting firm since 2008.

All fees billed by KPMG LLP, the Company’s external auditor, during the two most recently completed financial years are as follows:


	Year ended December 31, 2020 (CDN)	Year ended December 31, 2019 (CDN)
Audit Fees	$1,466,000	$551,000
Audit-Related Fees	-	-
Tax Fees	$345,000	$239,000
All Other Fees	-	-
Total	$1,811,000	$790,000

Audit Fees: All services performed by KPMG LLP in connection with the audit of annual consolidated financial statements, reviews of quarterly consolidated statements, of the Company, including services performed to comply with generally accepted auditing standards.

Audit-Related Fees: All assurance and related services reasonably related to the performance of the audit or review of financial statements or other services traditionally performed by the auditor but are not reported under the heading Audit Fees above. There were no fees paid to KPMG LLP that would be considered “Audit-Related Fees” in 2020 and 2019.

Tax Fees: All services performed by KPMG LLP in connection with tax planning, compliance and advice.

Pre-Approval Policies and Procedures

The Audit Committee is authorized by the Board to review the performance of the Company’s external auditors and approve in advance provision of services other than auditing and to consider the independence of the external auditors, including reviewing the range of services provided in the context of all consulting services bought by the Company. The Audit Committee is authorized to approve any non-audit services or additional work which the Chair of the Audit Committee deems as necessary who will notify the other member of the Audit Committee of such non-audit or additional work.

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PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)(1)Financial Statements — The financial statements included in Item 8 are filed as part of this Annual Report on Form 10-K.

(a)(2)Financial Statement Schedules — All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this Annual Report on Form 10-K.

(a)(3)Exhibits — The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.

(b) Exhibits — The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.

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EXHIBITS INDEX

Exhibit No.		Description

2.1		Arrangement Agreement, dated as of February 6, 2021, by and among CRH Medical Corporation, Well Health Technologies Corp., Well Health Acquisition Corp. and 1286392 B.C. Ltd. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K (File No. 001-37542, originally filed with the SEC on February 6, 2021)*

3.1		Notice of Articles of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

3.2		Articles of the Registrant (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (File No. 333-206945), originally filed with the SEC on September 14, 2015).

4.1		Specimen Common Share certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-206945), originally filed with the SEC on September 14, 2015).

4.2		Description of the Company’s Common Shares

10.1#		Employment Agreement, dated April 10, 2017, by and between the Registrant and Richard Bear (incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

10.2#		Employment Agreement, dated June 23, 2016, by and between the Registrant and James Kreger (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

10.3#		Employment Agreement, dated April 8, 2019, by and between the Registrant and Tushar Ramani (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37542, originally filed with the SEC on May 1, 2019).l

10.4#		Amended and Restated Employment Agreement, dated February 12, 2018, by and between the Registrant and Richard Bear (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

10.5#		Form of Indemnity Agreement between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

10.6#		Amended and Restated 2009 Stock Option Plan (incorporated by reference to Schedule B to Exhibit 99.18 to the Registrant’s Registration Statement on Form 40-F (File No. 001-37542), originally filed with the SEC on August 17, 2015).

10.7#		2017 Share Unit Plan (incorporated by reference to Schedule A to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K (File No. 001-37542), originally furnished to the SEC on May 10, 2017).

10.8		Membership Interest Purchase Agreement, dated December 1, 2014, between Gastroenterology Anesthesia Associates, LLC and certain parties named therein (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

10.9		Agreement for Purchase and Sale of Assets, dated December 1, 2014, between Gastroenterology Anesthesia Associates, LLC and certain parties named therein (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

10.10*		Credit agreement, dated as of October 22, 2019, among the Registrant, as borrower, the other loan parties and lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37542, originally filed with the SEC on November 7, 2019).

10.11#		Amendment to 2017 Share Unit Plan (incorporated by reference to Annex A to the Registrant’s Schedule 14A Proxy Statement Pursuant to Section 14(a) (File No. 001-37542), originally filed with the SEC on May 6, 2020).

14.1		Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 14.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-37542, originally filed with the SEC on March 13, 2019).

21.1		Subsidiaries of the Registrant.

23.1		Consent of KPMG LLP, an Independent Registered Public Accounting Firm.

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24.1		Power of Attorney (included as part of signature page).

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

#	Indicates management contract or compensatory plan.

*	Certain portions of this exhibit (indicated by “[…***…]”) have been omitted as the Company has determined (i) the omitted information is not material and (ii) the omitted information would likely cause harm to the Company if publicly disclosed.

Item 16.

Form 10-K Summary

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

We, the undersigned directors and officers of CRH Medical Corporation, hereby severally constitute and appoint Tushar Ramani and Richard Bear, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Signature	Title	Date

/s/ Tushar Ramani Tushar Ramani	Chief Executive Officer and Director (Principal Executive Officer)	March 16, 2021

/s/ Richard Bear Richard Bear	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 16, 2021

/s/ Brian Griffin Brian Griffin	Director	March 16, 2021

/s/ David Johnson David Johnson	Director	March 16, 2021

/s/ Todd Patrick Todd Patrick	Director	March 16, 2021

/s/ Ian Webb Ian Webb	Director	March 16, 2021

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Dated: March 16, 2021

CRH MEDICAL CORPORATION

/s/ Tushar Ramani

Tushar Ramani

Chief Executive Officer and Director (Principal Executive Officer)