1.	BUSINESS OPERATIONS

SunLink Health Systems, Inc., through subsidiaries (“SunLink”, “we”, “our”, “ours”, “us” or the “Company”), owns businesses which are providers of healthcare services in certain markets in the United States. SunLink’s business is composed of the ownership of two business segments:

•

The Healthcare Facilities Segments, which is composed of:

•

A subsidiary which owns and operates an 84-licensed-bed, acute care hospital, which includes an 18-bed GPU, and a 66-bed nursing home.

•

A subsidiary which owns and operates a 100-bed nursing home. This subsidiary also owns a hospital facility and leases the emergency department to outside third party.

•

Two separate subsidiaries which own medical buildings, which are leased to unaffiliated healthcare providers.

•

A subsidiary which owns a closed hospital building and a medical office building which it currently rents an office to an unaffiliated healthcare provider.

•

The Specialty Pharmacy Segment, which is composed of four operational areas:

•

Retail pharmacy products and services, all of which are conducted in rural markets;

•

Institutional pharmacy services;

•

Specialty pharmacy services; and

•

Durable medical equipment.

SunLink subsidiaries have conducted the healthcare facilities business since 2001 and the specialty pharmacy operations since 2008. Our Specialty Pharmacy Segment currently is operated through Carmichael’s Cashway Pharmacy, Inc. (“Carmichael”), a subsidiary of our SunLink ScriptsRx, LLC subsidiary, and is composed of a specialty pharmacy business acquired in April 2008 with four service lines.

On August 19, 2016, a subsidiary of the Company sold substantially all assets and certain liabilities of its Chestatee Regional Hospital in Dahlonega, GA, for approximately $15,000 subject to adjustment for the book value of certain assets and liabilities at the sale date. In addition, the Company has entered into an agreement to lease the emergency department and certain ancillary space located in its former hospital, North Georgia Medical Center, which is now closed, to a regional healthcare system. The lease transaction is subject to a number of conditions precedent including regulatory approval and negotiation of definitive leases. The Company continues to operate its 100-bed skilled nursing facility which is located adjacent to the closed hospital. The Company believes its specialty pharmacy business continues to under-perform, and the Company has engaged advisors to assist it in evaluating the sale of its specialty pharmacy business and one medical office building. The Company’s possible use of net proceeds from the Dahlonega sale and possible future transactions may include, among other things, a prepayment of long-term debt, a return of capital to shareholders via a repurchase of shares or a dividend, and other general corporate purposes. However, there can be no assurance any further sale or lease transaction will be authorized by the Board of Directors or completed or, if completed, that there will be sufficient proceeds to return capital to shareholders or for future development or other general corporate purposes.

Throughout these notes to the consolidated financial statements, SunLink Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as “SunLink”, “we”, “our”, “ours”, “us” or the “Company.” This drafting style is not meant to indicate that the publicly traded Company or any particular subsidiary of the Company owns or operates any asset, business or property. The Trace Hospital, pharmacy operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of SunLink Health System, Inc.