10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2013

¨ 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: 001-34171

GRAYMARK HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

OKLAHOMA	20-0180812
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

204 N. Robinson Avenue, Ste. 400

Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

(405) 601-5300

(Registrant’s telephone number, including area code)

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).     x  Yes     ¨  No

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

As of August 14, 2013, 163,203,276 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

GRAYMARK HEALTHCARE, INC.

FORM 10-Q

For the Quarter Ended June 30, 2013

TABLE OF CONTENTS

Part I.	Financial Information
Item 1.	Consolidated Condensed Financial Statements (Unaudited)	1
	a) Balance Sheets	2
	b) Statements of Operations	3
	c) Statements of Cash Flows	5
	d) Notes to Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
Part II.	Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		41

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements under the captions “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 1A. Risk Factors,” and elsewhere in this report constitute “forward-looking statements” Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “expects,” “may,” “will,” or “should” or other variations thereon, or by discussions of strategies that involve risks and uncertainties. Our actual results or industry results may be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include general economic and business conditions; our ability to implement our business strategies; competition; availability of key personnel; increasing operating costs; unsuccessful promotional efforts; changes in brand awareness; acceptance of new product offerings; and adoption of, changes in, or the failure to comply with, and government regulations.

Throughout this report the first personal plural pronoun in the nominative case form “we” and its objective case form “us”, its possessive and the intensive case forms “our” and “ourselves” and its reflexive form “ourselves” refer collectively to Graymark Healthcare, Inc. and its subsidiaries and “Sleep Management Solutions,” or “SMS,” refers to our sleep centers and related service and supply business.

i

PART I. FINANCIAL INFORMATION

Item 1. Graymark Healthcare, Inc. Consolidated Condensed Financial Statements.

The consolidated condensed financial statements included in this report have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The Consolidated Condensed Balance Sheets as of June 30, 2013 and December 31, 2012, the Consolidated Condensed Statements of Operations for the three and six month periods ended June 30, 2013 and 2012, and the Consolidated Condensed Statements of Cash Flows for the three and six months ended June 30, 2013 and 2012, have been prepared without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and the related notes thereto included in our latest annual report on Form 10-K.

The consolidated condensed statements for the unaudited interim periods presented include all adjustments, consisting of normal recurring adjustments, necessary to present a fair statement of the results for such interim periods. The results for any interim period may not be comparable to the same interim period in the previous year or necessarily indicative of earnings for the full year.

1

GRAYMARK HEALTHCARE, INC.

Consolidated Condensed Balance Sheets

(Unaudited)

	June 30, 2013			December 31, 2012
ASSETS
Cash and cash equivalents	$	96,845		$	258,162
Accounts receivable, net of allowances for contractual adjustments and doubtful accounts of $2,573,868 and $3,208,476, respectively		1,539,285			2,814,141
Inventories		246,194			324,582
Current assets from discontinued operations		27,612			19,272
Other current assets		380,015			488,008
Total current assets		2,289,951			3,904,165
Property and equipment, net		2,243,248			2,819,668
Other assets		252,528			351,781
Total assets	$	4,785,727		$	7,075,614
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Liabilities:
Accounts payable	$	3,645,164		$	2,398,012
Accrued liabilities		3,322,769			2,846,300
Notes payable to shareholder		2,373,310			1,536,518
Current portion of long-term debt		16,312,347			16,976,934
Current liabilities from discontinued operations		356,322			370,669
Total current liabilities		26,009,912			24,128,433
Long-term debt, net of current portion		60,040			104,625
Other liabilities		131,460			—
Total liabilities		26,201,412			24,233,058
Equity:
Graymark Healthcare shareholders’ equity (deficit):
Preferred stock $0.0001 par value, 10,000,000 authorized; no shares issued and outstanding		—			—
Common stock $0.0001 par value, 500,000,000 shares authorized; 16,719,648 and 16,640,079 issued and outstanding, respectively		1,672			1,664
Paid-in capital		40,982,531			40,897,116
Accumulated deficit		(61,775,194	)		(57,563,089	)
Total Graymark Healthcare shareholders’ equity (deficit)		(20,790,991	)		(16,664,309	)
Noncontrolling interest		(624,694	)		(493,135	)
Total equity (deficit)		(21,415,685	)		(17,157,444	)
Total liabilities and shareholders’ equity (deficit)	$	4,785,727		$	7,075,614

See Accompanying Notes to Consolidated Condensed Financial Statements

2

GRAYMARK HEALTHCARE, INC.

Consolidated Condensed Statements of Operations

For the Three Months Ended June 30, 2013 and 2012

(Unaudited)

	2013			2012
Net Revenues:
Services	$	1,808,442		$	3,166,931
Product sales		633,111			1,144,976
		2,441,553			4,311,907
Cost of Services and Sales:
Cost of services		920,847			1,373,552
Cost of sales		257,887			402,082
		1,178,734			1,775,634
Gross Margin		1,262,819			2,536,273
Operating Expenses:
Selling, general and administrative		2,571,909			3,788,287
Bad debt expense		116,441			354,775
Impairment of goodwill		—			3,041,000
Write-down of deferred purchase consideration		300,000			—
Restructuring charges		(499,215	)		—
Depreciation and amortization		237,391			335,537
		2,726,526			7,519,599
Other Income (Expense):
Interest expense, net		(297,515	)		(283,170	)
Other income		(9,381	)		—
Net other (expense)		(306,896	)		(283,170	)
Loss from continuing operations, before taxes		(1,770,603	)		(5,266,496	)
(Provision) benefit for income taxes		—			3,498
Loss from continuing operations, net of taxes		(1,770,603	)		(5,262,998	)
Income (loss) from discontinued operations, net of taxes		134,862			(47,810	)
Net loss		(1,635,741	)		(5,310,808	)
Less: Net loss attributable to noncontrolling interests		(84,030	)		(48,788	)
Net loss attributable to Graymark Healthcare	$	(1,551,711	)	$	(5,262,020	)
Earnings per common share (basic and diluted):
Net loss from continuing operations	$	(0.10	)	$	(0.34	)
Income (loss) from discontinued operations		0.01			—
Net loss per share	$	(0.09	)	$	(0.34	)
Weighted average number of common shares outstanding		16,753,453			15,115,469
Weighted average number of diluted shares outstanding		16,753,453			15,115,469

See Accompanying Notes to Consolidated Condensed Financial Statements

3

GRAYMARK HEALTHCARE, INC.

Consolidated Condensed Statements of Operations

For the Six Months Ended June 30, 2013 and 2012

(Unaudited)

	2013			2012
Net Revenues:
Services	$	3,888,969		$	6,543,726
Product sales		1,460,793			2,131,048
		5,349,762			8,674,774
Cost of Services and Sales:
Cost of services		1,886,165			2,736,935
Cost of sales		571,712			797,194
		2,457,877			3,534,129
Gross Margin		2,891,885			5,140,645
Operating Expenses:
Selling, general and administrative		5,331,598			7,472,703
Bad debt expense		293,917			652,655
Impairment of goodwill		—			3,041,000
Write-down of deferred purchase consideration		300,000			—
Restructuring charges		399,617			—
Depreciation and amortization		505,850			607,236
		6,830,982			11,773,594
Other Income (Expense):
Interest expense, net		(596,051	)		(572,198	)
Other income		2,063			—
Net other (expense)		(593,988	)		(572,198	)
Loss from continuing operations, before taxes		(4,533,085	)		(7,205,147	)
(Provision) benefit for income taxes		—			—
Loss from continuing operations, net of taxes		(4,533,085	)		(7,205,147	)
Income (loss) from discontinued operations, net of taxes		189,421			(80,211	)
Net loss		(4,343,664	)		(7,285,358	)
Less: Net loss attributable to noncontrolling interests		(131,559	)		(93,241	)
Net loss attributable to Graymark Healthcare	$	(4,212,105	)	$	(7,192,117	)
Earnings per common share (basic and diluted):
Net loss from continuing operations	$	(0.26	)	$	(0.47	)
Income (loss) from discontinued operations		0.01			(0.01	)
Net loss per share	$	(0.25	)	$	(0.48	)
Weighted average number of common shares outstanding		16,742,328			15,093,052
Weighted average number of diluted shares outstanding		16,742,328			15,093,052

See Accompanying Notes to Consolidated Condensed Financial Statements

4

GRAYMARK HEALTHCARE, INC.

Consolidated Condensed Statements of Cash Flows

For the Six Months Ended June 30, 2013 and 2012

(Unaudited)

	2013			2012
Operating activities:
Net loss	$	(4,343,664	)	$	(7,285,358	)
Less: Income (loss) from discontinued operations		189,421			(80,211	)
Loss from continuing operations		(4,533,085	)		(7,205,147	)
Adjustments to reconcile loss from continuing operations to net cash (used in) operating activities:
Depreciation and amortization		505,850			607,236
Impairment of goodwill		—			3,041,000
Stock-based compensation and professional services, net of cashless vesting		85,423			101,782
Bad debt expense		293,917			652,655
Gain on sale of fixed assets		(10,498	)		—
Restructuring charges – fixed assets		51,532			—
Changes in assets and liabilities –
Accounts receivable		980,939			(907,385	)
Inventories		78,388			25,658
Other assets		207,246			(209,710	)
Accounts payable		1,247,152			619,508
Accrued liabilities		476,469			538,165
Other liabilities		131,460			—
Net cash (used in) operating activities from continuing operations		(485,207	)		(2,736,238	)
Net cash provided by (used in) operating activities from discontinued operations		166,734			677,642
Net cash (used in) operating activities		(318,473	)		(2,058,596	)
Investing activities:
Purchase of property and equipment		(2,539	)		(972,358	)
Disposal of property and equipment		32,075			1,369
Net cash provided by (used in) investing activities from continuing operations		29,536			(970,989	)
Net cash (used in) investing activities from discontinued operations		—			—
Net cash provided by (used in) investing activities		29,536			(970,989	)
Financing activities:
Debt proceeds		836,792			174,952
Debt payments		(709,172	)		(982,472	)
Distributions to noncontrolling interests		—			(6,194	)
Net cash provided by (used in) financing activities from continuing operations		127,620			(813,714	)
Net cash (used in) financing activities from discontinued operations		—			—
Net cash provided by (used in) financing activities		127,620			(813,714	)
Net change in cash and cash equivalents		(161,317	)		(3,843,299	)
Cash and cash equivalents at beginning of period		258,162			4,915,032
Cash and cash equivalents at end of period	$	96,845		$	1,071,733
Cash Paid for Interest and Income Taxes:
Interest expense	$	378,844		$	572,154
Income taxes, continuing operations	$	—		$	—
Income taxes, discontinued operations	$	—		$	—

See Accompanying Notes to Consolidated Condensed Financial Statements

5

GRAYMARK HEALTHCARE, INC.

Notes to Consolidated Condensed Financial Statements

For the Periods Ended June 30, 2013 and 2012

Note 1 – Nature of Business

Graymark Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and is a provider of care management solutions to the sleep disorder market based in the United States. The Company provides a comprehensive diagnosis and care management solution for patients suffering from sleep disorders.

The Company provides diagnostic sleep testing services and care management solutions for people with chronic sleep disorders. In addition, the Company sells equipment and related supplies and components used to treat sleep disorders. The Company’s products and services are used primarily by patients with obstructive sleep apnea, or OSA. The Company’s sleep centers provide monitored sleep diagnostic testing services to determine sleep disorders in the patients being tested. The majority of the sleep testing is to determine if a patient has OSA. A continuous positive airway pressure, or CPAP, device is the American Academy of Sleep Medicine’s (“AASM”) preferred method of treatment for obstructive sleep apnea. The Company’s sleep diagnostic facilities also determine the correct pressure settings for patient treatment with positive airway pressure. The Company sells CPAP devices and disposable supplies to patients who have tested positive for sleep apnea and have had their positive airway pressure determined. There are noncontrolling interests held in some of the Company’s testing facilities, typically by physicians located in the geographical area being served by the diagnostic sleep testing facility.

On July 22, 2013, the Company acquired 100% of the interests in Foundation Surgery Affiliates, LLC (“FSA”) and Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of the Company’s common stock and promissory note in the amount of $2,000,000. The effective date of the Foundation acquisition was July 1, 2013. For financial reporting purposes, the transaction will be recorded as a reverse merger and Foundation will be considered the accounting acquirer. As a result of the reverse merger, the Company’s historical operating results will only include the results of Foundation.

The Company intends to operate the Foundation businesses along with its existing sleep management solutions business. FSA and FSHA own and manage ambulatory surgery centers (“ASC” or “ASCs”) and surgical hospitals with facilities located in Louisiana, Maryland, New Jersey, Ohio, Oklahoma, Pennsylvania and Texas. Foundation typically owns a minority ownership in its facilities with ownership ranging from 10% to 28%. However, Foundation does own over 51% in two of its larger hospitals located in San Antonio and El Paso, Texas. The Foundation facilities collectively offer a portfolio of specialties ranging from relatively intensive specialties such as orthopedics and neurosurgery to low-surgery-intensive specialties such as pediatric ENT (tubes / adenoids), pain management and gastroenterology. The Foundation facilities are located in freestanding buildings or medical office buildings.

As of June 30, 2013, the Company had an accumulated deficit of $61.8 million and reported a net loss of $4.2 million for the six months ended June 30, 2013. In addition, the Company used $0.5 million in cash from operating activities from continuing operations during the six months ended June 30, 2013. Management expects the new combined entity to generate positive cash flow; however the Company’s legacy Graymark business has a significant working capital deficiency. As of June 30, 2013, the Company had a working capital deficiency of $5.1 million (excluding short-term debt and current portion of long-term debt of $18.6 million). In addition, the Company’s lenders have placed restrictions on the amount of cash the Company can transfer from Foundation to the Company’s parent entity or it’s sleep business subsidiaries. The Company has significantly delayed payments to it’s vendors and service providers as a result of the working capital deficiency. Management expects to negotiate discounts and/or payment plans with many of the Company’s vendors and service providers; however, there is no assurance that some of them will not take legal action against the Company which could have a negative impact on the Company’s liquidity.

6

Note 2 – Summary of Significant Accounting Policies

For a complete list of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the year ending December 31, 2012.

Interim Financial Information – The unaudited consolidated condensed financial statements included herein have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ended December 31, 2013. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012. The December 31, 2012 consolidated condensed balance sheet was derived from audited financial statements.

Consolidation – The accompanying consolidated condensed financial statements include the accounts of the Company and its wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Reclassifications – Certain amounts presented in prior years have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on net loss.

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition – Sleep center services and product sales are recognized in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be paid by customers and third-party payors. Insurance benefits are assigned to the Company and, accordingly, the Company bills on behalf of its customers. For its sleep diagnostic business and acquired therapy business, the Company estimates the net realizable amount based primarily on the contracted rates stated in the contracts the Company has with various payors or for payors without contracts, historic payment trends. In addition, the Company, on a monthly basis, calculates the historic payments received from all payors at each location to determine if an incremental contractual reserve is necessary and if so, the amount of that reserve. The Company does not anticipate any future changes to this process. In the Company’s historic sleep therapy business, the business has been predominantly out-of-network and as a result, the Company has not had contract rates to use for determining net revenue for a majority of its payors. For this portion of the business, the Company performs a monthly analysis of actual reimbursement from each third party payor for the most recent 12-months. In the analysis, the Company calculates the percentage actually paid by each third party payor of the amount billed to determine the applicable amount of net revenue for each payor. The key assumption in this process is that actual reimbursement history is a reasonable predictor of the future reimbursement for each payor at each facility.

For certain sleep therapy and other equipment sales, reimbursement from third-party payors is earned over a period of time, typically 10 to 13 months. The Company recognizes revenue on these sales as amounts are earned over the payment period stipulated by the third-party payor.

The Company has established an allowance to account for contractual adjustments that result from differences between the amount billed and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected realizable amount are recorded against the allowance for contractual adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to the Company’s collection procedures. Revenues in the accompanying consolidated condensed financial statements are reported net of such adjustments.

7

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and attempts to collect those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Cost of Services and Sales – Cost of services includes technician labor required to perform sleep diagnostics, fees associated with interpreting the results of the sleep study and disposable supplies used in providing sleep diagnostics. Cost of sales includes the acquisition cost of sleep therapy products sold. Costs of services are recorded in the time period the related service is provided. Cost of sales is recorded in the same time period that the related revenue is recognized. If the revenue from the sale is recognized over a specified period, the product cost associated with that sale is recognized over that same period. If the revenue from a product sale is recognized in one period, the cost of sale is recorded in the period the product was sold.

Restricted cash – As of June 30, 2013 and December 31, 2012, the Company had long-term restricted cash of approximately $236,000 included in other assets in the accompanying consolidated condensed balance sheets. This amount is pledged as collateral to the Company’s senior bank debt. On July 22, 2013, the Company’s senior lender applied the restricted cash against the principle balance owed by the Company.

Accounts receivable – The majority of the Company’s accounts receivable is due from private insurance carriers, Medicare/Medicaid and other third-party payors, as well as from patients relating to deductible and coinsurance provisions of their health insurance policies.

Third-party reimbursement is a complicated process that involves submission of claims to multiple payors, each having its own claims requirements. Adding to this complexity, a significant portion of the Company’s historic therapy business has been out-of-network with several payors, which means the Company does not have defined contracted reimbursement rates with these payors. For this reason, the Company’s systems report this revenue at a higher gross billed amount, which the Company adjusts to an expected net amount based on historic payments. As the Company continues to move more of its business to in-network contracting, the level of reserve related to contractual allowances is expected to decrease. In some cases, the ultimate collection of accounts receivable subsequent to the service dates may not be known for several months. As these accounts age, the risk of collection increases and the resulting reserves for bad debt expense reflect this longer payment cycle. The Company has established an allowance to account for contractual adjustments that result from differences between the amounts billed to customers and third-party payors and the expected realizable amounts. The percentage and amounts used to record the allowance for doubtful accounts are supported by various methods including current and historical cash collections, contractual adjustments, and aging of accounts receivable.

The Company offers payment plans of up to three months to patients for amounts due from them for the sales and services the Company provides. The minimum monthly payment amount for is calculated based on the down payment and the remaining balance divided by the number of months the patient has to pay the balance.

8

Accounts are written-off as bad debt using a specific identification method. For amounts due from patients, the Company utilizes a collections process that includes distributing monthly account statements. For patients that are not on a payment plan, collection efforts including collection letters and collection calls begin once the balance becomes the responsibility of the patient. If the patient is on a payment program, these efforts begin within 30 days of the patient failing to make a planned payment. Beginning in the fourth quarter of 2012, all patient responsibility accounts are forwarded to a contracted Extended Business Office (“EBO”). The EBO prepares and mails all patient account statements and follow up with patients via phone calls and letters to collect amounts due prior to them being turned over for collection. For diagnostic patients, the Company submits patient receivables to an outside collection agency if the patient has failed to pay 120 days following service or, if the patient is on a payment plan, they have failed to make two consecutive payments. For therapy patients, patient receivables are submitted to an outside collection agency if payment has not been received between 180 and 240 days following service depending on the service provided and circumstances of the receivable or, if the patient is on a payment plan, they have failed to make two consecutive payments. It is the Company’s policy to write-off as bad debt all patient receivables at the time they are submitted to an outside collection agency. If funds are recovered by a collection agency, the amounts previously written-off are accounted for as a recovery of bad debt. For amounts due from third party payors, it is the Company’s policy to write-off an account receivable to bad debt based on the specific circumstances related to that claim resulting in a determination that there is no further recourse for collection of a denied claim from the denying payor.

For the six months ended June 30, 2013 and 2012, the amounts the Company collected in excess of (less than) recorded contractual allowances were approximately ($27,000) and $73,000, respectively. These amounts reflect the amount of actual cash received in excess of (less than) the original contractual allowance recorded at the time of service.

Accounts receivable are reported net of allowances for contractual adjustments and doubtful accounts as follows:

	June 30, 2013		December 31, 2012
Allowance for contractual adjustments	$	955,645	$	1,658,172
Allowance for doubtful accounts		1,618,223		1,550,304
Total	$	2,573,868	$	3,208,476

The activity in the allowances for contractual adjustments and doubtful accounts for the six months ending June 30, 2013 follows:

	Contractual Adjustments			Doubtful Accounts			Total
Balance at January 1, 2013	$	1,658,172		$	1,550,304		$	3,208,476
Provisions		1,644,022			293,917			1,937,939
Write-offs, net of recoveries		(2,346,549	)		(225,998	)		(2,572,547	)
Balance at June 30, 2013	$	955,645		$	1,618,223		$	2,573,868

The aging of the Company’s accounts receivable, net of allowances for contractual adjustments and doubtful accounts as of June 30, 2013 and December 31, 2012 follows:

	June 30, 2013		December 31, 2012
1 to 60 days	$	996,811	$	1,720,741
61 to 90 days		144,075		324,221
91 to 120 days		112,645		227,929
121 to 180 days		112,304		321,117
181 to 360 days		131,521		220,133
Greater than 360 days		41,929		—
Total	$	1,539,285	$	2,814,141

9

In addition to the aging of accounts receivable shown above, management relies on other factors to determine the collectability of accounts including the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan.

Included in accounts receivable are earned but unbilled receivables of approximately $90,588 and $179,000 as of June 30, 2013 and December 31, 2012, respectively. Unbilled accounts receivable represent charges for services delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of services or equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured and that unbilled accounts receivable is recorded at net amounts expected to be paid by customers and third-party payors. Billing delays can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and new sleep centers awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.

Goodwill and Intangible Assets – Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill and other indefinitely-lived intangible assets are not amortized, but are subject to annual impairment reviews during the fourth quarter, or more frequent reviews if events or circumstances indicate there may be an impairment of goodwill.

Intangible assets other than goodwill which include customer relationships, customer files, covenants not to compete, trademarks and payor contracts are amortized over their estimated useful lives using the straight line method. The remaining lives range from three to fifteen years. The Company evaluates the recoverability of identifiable intangible assets annually during the fourth quarter, or more frequently if events or circumstances indicate there may be an impairment of intangible assets.

Loss per share – Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for the Company’s indefinite-lived intangible assets. The adoption of these changes had no impact on the Company’s consolidated financial statements.

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on the Company’s consolidated financial statements.

10

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements.

Note 3 – Discontinued Operations

On September 1, 2010, the Company executed an Asset Purchase Agreement, which was subsequently amended on October 29, 2010, (as amended, the “Agreement”) pursuant to which we sold substantially all of the assets of the Company’s subsidiary, ApothecaryRx, LLC (“ApothecaryRx”). ApothecaryRx operated 18 retail pharmacy stores selling prescription drugs and a small assortment of general merchandise, including diabetic merchandise, non-prescription drugs, beauty products and cosmetics, seasonal merchandise, greeting cards and convenience foods. As a result of the sale of ApothecaryRx, the related assets, liabilities, results of operations and cash flows of ApothecaryRx have been classified as discontinued operations in the accompanying consolidated condensed financial statements.

The operating results of ApothecaryRx and the Company’s other discontinued operations (discontinued internet sales division and discontinued film operations) for the six months ended June 30, 2013 and 2012 are summarized below:

	2013		2012
Revenues	$	—	$	—
Income (loss) before taxes:
ApothecaryRx		175,115		(45,762	)
Other		14,306		(34,449	)
Income tax (provision)		—		—
Income (loss) from discontinued operations, net of tax	$	189,421	$	(80,211	)

The balance sheet items for discontinued operations are summarized below:

	June 30, 2013		December 31, 2012
Cash and cash equivalents	$	3,907	$	7,511
Other current assets		23,705		11,761
Total assets	$	27,612	$	19,272
Payables and accrued liabilities	$	356,322	$	370,669

As noted above, the Company’s other discontinued operations generated net income (loss) of $14,306 and ($34,449) during the six months ended June 30, 2013 and 2012, respectively, which was attributable to the Company’s discontinued film operations. The Company’s discontinued internet sales division did not have any net income (loss) during the six months ended June 30, 2013 and 2012.

11

Note 4 – Other Assets

On October 1, 2012 the Company entered into a purchase agreement to acquire 100% of the membership interests of Midwest Sleep Specialists (“MSS”) located in Kansas City, Missouri, for a purchase price of $720,000. The membership interests of MSS are currently held by Dr. Steven Hull, the Company’s chief medical officer. Under the agreement, the purchase price was to be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the “Transfer Date”). Under the agreement, the membership interests would not be transferred to the Company until the final payment was made on the Transfer Date. Prior to the Transfer Date, the Company did not have any control over the operation of MSS. In addition, the Company was not obligated to continue to make the semi-monthly payments and could rescind the agreement at any time. As a result, the Company would not record the MSS purchase until the Transfer Date. As of June 30, 2013, the Company has incurred cumulative semi-monthly payments of $300,000. In July 2013, the Company exercised its right to rescind the agreement. As a result, the installment payments made to date were written-off and are reflected as a write-down of deferred purchase consideration in the accompanying consolidated condensed income statement. As of December 31, 2012, the cumulative installment payments were included in other assets in the accompanying consolidated condensed balance sheet.

Note 5 – Borrowings

The Company’s long-term debt as of June 30, 2013 and December 31, 2012 are as follows:

	Rate (1)	Maturity Date	June 30, 2013			December 31, 2012
Short-term Debt
Notes payable to shareholder	8%	Jul. 2013	$	2,373,310		$	1,536,518
Long-term Debt
Bank line of credit	6%	Dec. 2013	$	12,217,206		$	12,643,683
Senior bank debt	6%	Dec. 2013		3,932,585			4,091,872
Notes payable on equipment	6%	Dec. 2013		66,821			137,972
Sleep center notes payable	6%	Jan. 2015		43,804			56,100
Notes payable on vehicles	2.9 - 3.9%	Jun. 2013 - Dec. 2013		3,119			13,547
Equipment capital lease	8.2 - 11.5%	Jan. 2015 - Feb. 2015		108,852			138,385
Total				16,372,387			17,081,559
Less: Current portion of long-term debt				(16,312,347	)		(16,976,934	)
Long-term debt			$	60,040		$	104,625

(1) Effective rate as of June 30, 2013

At June 30, 2013, future maturities of long-term debt were as follows:

Twelve months ended June 30,
2014	$	16,312,347
2015		60,040
2016		—
2017		—
2018		—
Thereafter		—

12

On August 31, 2012, December 31, 2012, March 1, 2013 and April 2, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082 and 351,710, respectively, for a total of $2,373,310. The interest rate on the notes is 8% and the maturity date of the notes is July 31, 2013. All principal and interest outstanding are due on the maturity date. Mr. Oliver is one of the Company’s greater than 5% shareholders and affiliates. The promissory notes are subordinate to the Company’s credit facility with Arvest Bank. The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank. On July 22, 2013, the Company converted all amounts owed to Mr. Oliver into shares of the Company’s common stock. See “Note 10 – Subsequent Events” for additional information.

On July 22, 2013, the Company’s subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), the Company and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. The Company, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, the Company and Borrowers were indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, the Company, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of July 22, 2013, the outstanding principal amount of the New Note was $10,691,262.

Personal Guaranty. Under the New Loan Agreement, the Guarantor unconditionally guarantees payment of Borrower’s obligations owed to Arvest Bank and Borrower’s performance under the New Loan Agreement and related documents. Guarantor’s liability is limited to $2,919,000.

Maturity Dates. The maturity date of the New Note is December 31, 2013.

Interest Rate. The outstanding principal amount of the New Note bears interest at the greater of the prime rate as reported in the “Money Rates” section of The Wall Street Journal (the “WSJ Prime Rate”) or 6% (“Floor Rate”).

Interest and Principal Payments. Provided the Borrowers are not in default, the New Note is payable in monthly payments of accrued and unpaid interest. The entire unpaid principal balance of the New Note plus all accrued and unpaid interest thereon will be due and payable on December 31, 2013.

Use of Proceeds. All proceeds of the New Note were used solely for the refinancing of the existing indebtedness owed to Arvest Bank; and other costs the Company incurred by Arvest Bank in connection with the preparation of the loan documents, subject to approval by Arvest Bank.

Collateral. Payment and performance of our obligations under the Arvest Credit Facility are collateralized by the assets of the Borrowers and the limited personal guaranty of the Guarantor. If we sell any assets which are collateral for the New Note, then subject to certain exceptions and without the consent of Arvest Bank, such sale proceeds must be used to reduce the amounts outstanding to Arvest Bank.

Default and Remedies. In addition to the general defaults of failure to perform our obligations and those of the Guarantor, default also includes collateral casualties, misrepresentation, bankruptcy, entry of a judgment of $50,000 or more, or failure of first liens on collateral. In the event a default is not cured within 10 days or in some case five days following notice of the default by Arvest Bank (and in the case of failure to perform a payment obligation for three times with notice), Arvest Bank will have the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable.

Deposit Account Control Agreement. The Company has entered into a Deposit Control Agreement (“Deposit Agreement”) with Arvest Bank and Valliance Bank covering the deposit accounts that we have at Valliance Bank. The Deposit Agreement requires Valliance Bank to comply with instructions originated by Arvest Bank directing the disposition of the funds held by us at Valliance Bank without our further consent. Without Arvest Bank’s consent, we cannot close any of our deposit accounts at Valliance Bank or open any additional accounts at Valliance Bank. Arvest Bank may exercise its rights to give instructions to Valliance Bank under the Deposit Agreement only in the event of an uncured default under the Loan Agreement, as amended.

13

Debt Service Coverage Ratio. Based on the latest four rolling quarters, the Company has agreed to continuously maintain a “Debt Service Coverage Ratio” of not less than 1.25 to 1. Debt Service Coverage Ratio is, for any period, the ratio of:

• the net income of Graymark Healthcare (i) increased (to the extent deducted in determining net income) by the sum, without duplication, of our interest expense, amortization, depreciation, and non-recurring expenses as approved by Arvest, and (ii) decreased (to the extent included in determining net income and without duplication) by the amount of minority interest share of net income and distributions to minority interests for taxes, if any, to

• the annual debt service including interest expense and current maturities of indebtedness as determined in accordance with generally accepted accounting principles.

If we acquire another company or its business, the net income of the acquired company and the new debt service associated with acquiring the company may both be excluded from the Debt Service Coverage Ratio, at our option.

Positive EBITDA. Beginning on March 31, 2013, and on the last day of each quarter thereafter, the Company’s EBITDA (“earnings before interest, taxes, depreciation and amortization”) must be positive for such immediately ended quarter. “Positive EBITDA” for any period means the net income for that period: (a) plus the following for such period to the extent deducted in calculating such net income, without duplication: (i) interest expense, (ii) all income tax expense; (iii) depreciation and amortization expense; and (iv) non-cash charges constituting intangible impairment charges, equity compensation and fixed asset impairment charges; (b) but, and in all cases, excluding from the calculation of EBITDA: (i) any extraordinary items (as determined in accordance with GAAP); and (ii) onetime or non-recurring gains or losses associated with the sale or disposition of any business, asset, contract or lease.

Compliance with Financial Covenants. Arvest Bank has waived the financial covenants related to the Company’s Debt Service Coverage Ratio, Positive EBITDA and minimum net worth through December 31, 2013 which is the maturity date of the New Note.

Note 6 – Restructuring Charges

On January 7, 2013, the Company implemented a plan to close four of its sleep diagnostic facilities (two of the locations also had therapy facilities). The facilities were located in Oklahoma and Texas and were closed because the revenue from the facilities had not met expectations and was not adequate to offset the fixed operating costs of the locations. Two of the facilities were operated through January 11, 2013 and two of the facilities were operated through January 31, 2013. The Company recorded restructuring charges of $0.9 million in connection with the closure of these facilities which included $0.8 million for lease termination costs with respect to the remaining lease obligations for the facilities and $0.1 million for other exit costs including severance payments to affected employees and other write-downs. All cash payments related to the severance costs were paid during the first quarter of 2013. The cash payments for the remaining lease obligations will continue for the life of the respective leases which extend through January 2018.

Restructuring charges during the three and six months ended June 30, 2013 were $898,832 and $399,617 respectively. There were no restructuring charges during 2012.

14

During the six months ended June 30, 2013, the activity in the accruals for restructuring charges established for lease termination and other exit costs were as follows:

	Lease Termination Costs			Other Exit Costs			Total
Balance at January 1, 2013	$	—		$	—		$	—
Restructuring charges		812,758			86,074			898,832
Adjustments for lease settlements		(499,215	)		—			(499,215	)
Net restructuring charges		313,543			86,074			399,617
Cash payments		(88,111	)		(74,253	)		(162,364	)
Balance at June 30, 2013	$	225,432		$	11,821		$	237,253

Note 7 – Commitments and Contingencies

Legal Issues: The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company. During the six months ended June 30, 2013 and 2012, the Company did not incur any material costs or settlement expenses related to its ongoing asserted and unasserted legal claims.

Note 8 – Fair Value Measurements

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At June 30, 2013, the fair value of the Company’s long-term debt, including the current portion was determined to be $10 million. The fair value of the Company’s debt was valued using Level 3 inputs. At June 30, 2012 the Company’s long-term debt, including the current portion approximated its carrying value.

Note 9 – Related Party Transactions

On October 1, 2012 the Company entered into a purchase agreement to acquire 100% of the membership interests of Midwest Sleep Specialists (“MSS”) located in Kansas City, Missouri, for a purchase price of $720,000. The membership interests of MSS are currently held by Dr. Steven Hull, the Company’s chief medical officer. Under the agreement, the purchase price was to be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the “Transfer Date”). Under the agreement, the membership interests would not be transferred to the Company until the final payment was made on the Transfer Date. Prior to the Transfer Date, the Company did not have any control over the operation of MSS. In addition, the Company was not obligated to continue to make the semi-monthly payments and could rescind the agreement at any time. As a result, the Company would not record the MSS purchase until the Transfer Date. As of June 30, 2013, the Company has incurred cumulative semi-monthly payments of $300,000. In July 2013, the Company exercised its right to rescind the agreement. As a result, the installment payments made to date were written-off and are reflected as a write-down of deferred purchase consideration in the accompanying condensed consolidated income statement. As of December 31, 2012, the cumulative installment payments were included in other assets in the accompanying condensed consolidated balance sheet.

On October 1, 2012 the Company entered into a management services agreement with MSS to provide certain administrative staffing and other support to the back office operations of MSS. MSS is owned by Dr. Steven Hull, our Chief Medical Officer. The term of the management services agreement is five years and renews automatically for successive five year periods unless either party provides 90 day written notice of termination. Prior to the current agreement, the Company provided similar services to MSS under other arrangements. The total management fees received from MSS during the six months ended June 30, 2013 and 2012 were approximately $129,000 and $156,000, respectively.

15

On August 31, 2012, December 31, 2012, March 1, 2013 and April 2, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082 and $351,710, respectively, for a total of $2,373,310. The interest rate on the notes is 8% and the maturity dates of the notes are July 31, 2013. All principal and interest outstanding are due on the maturity date. Mr. Oliver is one of the Company’s greater than 5% shareholders and affiliates. The promissory notes are subordinate to the Company’s credit facility with Arvest Bank. The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank.

As of June 30, 2013 and December 31, 2012, the Company had $11,000 and $33,000, respectively, on deposit at Valliance Bank. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. In addition, the Company is obligated to Valliance Bank under certain sleep center capital notes totaling approximately $44,000 and $56,000 at June 30, 2013 and December 31, 2012, respectively. The interest rates on the notes are fixed at 6.0%. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

In March 2012, the Company executed a lease agreement with City Place, LLC (“City Place”) for the Company’s new corporate headquarters and offices. Under the lease agreement, the Company pays monthly rent of $17,970 from April 1, 2012 to June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place; the lease expires on March 31, 2017. As part of the lease agreement, City Place paid $450,000 to offset a portion of the costs the Company incurred to build-out the office space. Non-controlling interests in City Place are held by Roy T. Oliver, one of the Company’s greater than 5% shareholders and affiliates, and Mr. Stanton Nelson, the Company’s Chief Executive Officer. During the six months ending June 30, 2013, the Company incurred approximately $42,000 in lease expense under the terms of the lease. As of June 30, 2013 and December 31, 2012, the Company has accrued but unpaid rent to City Place of approximately $216,000 and $108,000, respectively.

The Company’s previous corporate headquarters and offices were occupied under a month to month lease with Oklahoma Tower Realty Investors, LLC, requiring monthly rental payments of approximately $7,000. Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, controls Oklahoma Tower Realty Investors, LLC (“Oklahoma Tower”). During the six months ended June 30, 2012, the Company incurred approximately $32,000 in lease expense under the terms of the lease. In addition, during six months ended June 30, 2013 and 2012, the Company paid Oklahoma Tower approximately $10,000 and $21,000, respectively, for employee parking under a month to month agreement

Note 10 – Subsequent Events

Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except the following:

Foundation Transaction – On July 22, 2013, the Company acquired 100% of the interests in Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of the Company’s common stock and promissory note in the amount of $2,000,000, of which $250,000 was paid on July 24, 2013. The effective date of the Foundation acquisition was July 1, 2013. For financial reporting purposes, the transaction will be recorded as a reverse merger and Foundation will be considered the accounting acquirer. As a result of the reverse merger, the Company’s historical operating results will only include the results of Foundation.

The initial accounting for the Foundation transaction has not been completed as it will require the completion of audits for FSA and FSHA. In addition, the Company must complete a fair value analysis of its assets and liabilities as of July 1, 2013 in order to record the reverse merger transaction. As a result of the initial accounting being incomplete, the following disclosures have been omitted:

• The acquisition date fair value amounts used to record the reverse merger transaction.

• The pro forma revenue and earnings of the combined entity as though the reverse-merger had occurred on January 1, 2013 and 2012, respectively.

16

Arvest Debt – On July 22, 2013, the Company’s subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), the Company and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. The Company, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, the Company and Borrowers are indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, the Company, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of July 22, 2013, the outstanding principal amount of the New Note was $10,691,262. See “Note 5 – Borrowings” for additional information about the Arvest Debt.

Arvest Loan Participation – On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, the Company entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the Company’s common stock. The Company purchased the participation in the last $6,000,000 of the principle amount due under the Arvest credit facility.

Roy T. Oliver Note – On July 22, 2013, the Company issued a promissory note in the original principal amount of $5,648,290 in favor of Roy T. Oliver (the “Oliver Note”). The principal amount of the Oliver Note represents the amount Mr. Oliver, a Guarantor under the Prior Agreement, paid to Arvest Bank in full satisfaction of his limited guaranty. Mr. Oliver is not a guarantor of the New Note.

The Oliver Note bears interest at an annual rate of 8.0% and is unsecured and subordinated to the New Loan Agreement. In the event the Company defaults on the Oliver Note, and the event of default is not cured in a timely manner, the lender has the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable. Events of default under the Oliver Note include the failure of the Company to pay the Oliver Note when due, the Company’s assignment for the benefit of creditors or admission of its inability to pay debts as they become due, the commencement of bankruptcy or similar proceedings by or against the Company. or an event of default occurs under the Loan Agreement. The Oliver Note matures on July 31, 2013 provided that, if the New Loan Agreement as in effect on such maturity date does not permit the Company to repay the Oliver Note, then the maturity date is continued until such time as the Arvest loan is refinanced or the provisions of the Loan Agreement permits repayment.

Oliver Debt Conversion – On August 31, 2012, December 31, 2012, March 1, 2013, April 1, 2013 and July 22, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082, $351,470 and $5,648,290, respectively, for a total of $8,021,360 (collectively referred to as the “Oliver Notes”). The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank. On July 22, 2013, the Company issued Mr. Oliver 17,970,295 shares of common stock for full satisfaction of the Oliver Notes including principal and accrued interest owed thereon of $114,263.

Preferred Interest Financing Transaction – On March 13, 2013, the Company’s wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) initiated a private placement offering for up to $15,960,000. The offering is comprised of 152 units (“FHE Unit”). Each FHE Unit is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. On July 22, 2013, FHE and the Company completed the sale of 68 FHE Units for total consideration received was $7,140,000.

17

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share.

The proceeds from the FHE Units allocated to the Class B membership units were used to fund a portion of the Tyche Transaction described below.

Tyche Transaction – On March 31, 2013, the Company and its wholly-owned subsidiary, TSH Acquisition, LLC (“TSH”) entered into an Asset Purchase Agreement (the “Tyche Agreement”) with Tyche Health Enterprises, LLC (“Tyche”) which was subsequently amended on March 31, 2013 and July 22, 2013. The Tyche Agreement provides for the purchase of the preferred membership interests that Tyche owns in certain subsidiaries of FSHA and FSA under a Membership Interest Purchase Agreement, dated July 17, 2007, between Tyche and Foundation Surgery Holdings, L.L.C. (“FSH”), Foundation Weightwise Holdings, L.L.C. (nka FSHA), Foundation Healthcare Affiliates, L.L.C. (“FHA”) as well as the right to various equity interest in the affiliates of FSH, FSA and FHA (collectively “Foundation”).

The transactions under the Tyche Agreement were closed on July 22, 2013. Under the Tyche Agreement, TSH purchased from Tyche (i) all of Tyche’s right, title and interest in the Membership Interest Purchase Agreement; (ii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSH and the right to various equity interests in the affiliates of FSH; (iii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSHA and the right to various equity interest in the affiliates of FSHA; and (iv) all of Tyche’s right, title and interest in any preferred or non-preferred ownership interest in any Foundation entities that have been acquired as a result of the Membership Interest Purchase Agreement.

Under the Tyche Agreement, TSH paid $11,102,372 in cash to Tyche and Tyche related entities and TSH issued promissory notes totaling $2,339,905 to Tyche and Tyche related entities for total consideration of $13,442,277. The promissory notes bear interest at annual rate of 11.5% and mature on August 1, 2013 with all principal and interest being due at that time. On August 1, 2013, the Company paid-off two of the promissory notes totaling $474,305. Management is in the process of extending the terms on the remaining note in the amount of $1,865,600.

As further consideration for the Tyche Agreement, the Company issued Tyche and certain Tyche related entities warrants for the purchase of the Company’s common stock. The warrants issued included:

1. Five year warrants for the purchase of a total of 1,937,500 shares of the Company’s common stock at a strike price of $1.00 per share;

2. Seven and one-half year warrants for the purchase of a total of 3,516,204 shares of the Company’s common stock at a strike price of $1.35 per share; and

3. Ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share.

Valliance Loan Agreement – On July 22, 2013, the Company’s subsidiary, FHE executed a loan agreement and a promissory note in the amount of $5,100,000 payable to Valliance Bank. The note bears interest at annual rate of 10% and FHE is required to make quarterly payments of interest beginning on October 15, 2013. FHE is required to make one principal payment of $728,571 on August 15, 2014. The note matures on July 22, 2015 at which time all outstanding principal and accrued interest is due. The proceeds of the note, net of a $100,000 loan origination fee, were used to help fund FHE’s purchase of the preferred interests of FHA and FSHA from Tyche. The loan agreement requires FHE to prepay a portion of the loan upon the completion of a sale of FSHA’s equity interest in a hospital located in Sherman, TX. The promissory note is secured by the Company’s equity interests in TSH Acquisition, LLC. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

18

Restructuring Plan – During July 2013, the Company closed four of its sleep diagnostic and therapy facilities and implemented a plan to close a fifth location. The facilities are located in Oklahoma and Georgia and are being closed because the revenue from these facilities has not met expectations and is not adequate to offset the fixed operating costs of these locations.

The Company expects to record restructuring charges in connection with the closure of these facilities with respect to the remaining lease obligations for the facilities, severance payments to affected employees and other write-downs. The remaining lease obligations and severance payments are estimated to be approximately $132,000 and $56,000, respectively, and will be recorded in the third quarter of 2013. All cash payments related to the severance costs are expected to be paid during the third quarter of 2013. The cash payments for the remaining lease obligations will continue for the life of the respective leases which extend through September 2014.

On July 17, 2013, the Company implemented a plan to sell certain sleep diagnostic and therapy facilities. The facilities identified as held for sale were selected because the revenue from these facilities have not met expectations and are not adequate to offset fixed operating costs. If a sale of these facilities cannot be achieved within an acceptable time frame, then these facilities will be closed. The time frame for achieving a sale or closing the site ranges from July 31, 2013 to August 31, 2013. The facilities identified are located in Oklahoma, Texas, Nevada, Kansas, Missouri and Iowa.

As a result of identifying these sites as held for sale, the related assets, liabilities, results of operations and cash flows of the identified sites will be classified as discontinued operations in the Company’s consolidated financial statements for periods after June 30, 2013.

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Company Overview

Graymark Healthcare, Inc. is organized under the laws of the State of Oklahoma and is a provider of care management solutions to the sleep disorder market with independent sleep care centers and hospital sleep diagnostic programs operated in the United States. We provide comprehensive diagnosis and care management solutions for patients suffering from sleep disorders.

We provide diagnostic sleep testing services and care management solutions, or SMS, for people with chronic sleep disorders. In addition, we provide therapy services (delivery and set up of CPAP equipment together with training related to the operation and maintenance of CPAP equipment) and the sale of related disposable supplies and components used to maintain the CPAP equipment. Our products and services are used primarily by patients with obstructive sleep apnea, or OSA. Our sleep centers provide monitored sleep diagnostic testing services to determine sleep disorders in the patients being tested. The majority of the sleep testing is to determine if a patient has OSA. A continuous positive airway pressure, or CPAP, device is the American Academy of Sleep Medicine’s, or AASM’s, preferred method of treatment for obstructive sleep apnea. Our sleep diagnostic facilities also determine the correct pressure settings for patient CPAP devices via titration testing. We sell CPAP devices and disposable supplies to patients who have tested positive for sleep apnea and have had their positive airway pressure determined.

Foundation Transaction

On July 22, 2013, we acquired 100% of the interests in Foundation Surgery Affiliates, LLC (“FSA”) and Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of the Company’s common stock and promissory note in the amount of $2,000,000, of which $250,000 was paid on July 24, 2013. The effective date of the Foundation acquisition was July 1, 2013. For financial reporting purposes, the transaction will be recorded as a reverse merger and Foundation will be considered the accounting acquirer. As a result of the reverse merger, our historical operating results will only include the results of Foundation.

The Company intends to operate the Foundation businesses along with its existing sleep management solutions business. FSA and FSHA own and manage ambulatory surgery centers (“ASC” or “ASCs”) and surgical hospitals with facilities located in Louisiana, Maryland, New Jersey, Ohio, Oklahoma, Pennsylvania and Texas. Foundation typically owns a minority ownership in its facilities with ownership ranging from 10% to 28%. However, Foundation does own over 51% in two of its larger hospitals located in San Antonio and El Paso, Texas. The Foundation facilities collectively offer a portfolio of specialties ranging from relatively intensive specialties such as orthopedics and neurosurgery to low-surgery-intensive specialties such as pediatric ENT (tubes / adenoids), pain management and gastroenterology. The Foundation facilities are located in freestanding buildings or medical office buildings.

Sleep Business Overview

As of June 30, 2013, we operated 88 sleep diagnostic and therapy centers in 10 states; 20 of which are located in our facilities with the remaining centers operated under management agreements. There are certain noncontrolling interest holders in some of our testing facilities, who are typically physicians in the geographical area being served by the diagnostic sleep testing facility.

Our sleep management solution is driven by our clinical approach to managing sleep disorders. Our clinical model is led by our staff of medical directors who are board-certified physicians in sleep medicine, who oversee the entire life cycle of a sleep disorder from initial referral through continuing care management. Our approach to managing the care of our patients diagnosed with OSA is a key differentiator for us. We believe our overall patient CPAP usage compliance rate, as articulated by the Medicare Standard of compliance requirements, is approximately 80%, compared to a national compliance rate of approximately 50%. Five key elements support our clinical approach:

• Referral: Our medical directors, who are board-certified physicians in sleep medicine, have forged strong relationships with referral sources, which include primary care physicians, as well as physicians from a wide variety of other specialties and dentists.

• Diagnosis: We own and operate sleep testing clinics that diagnose the full range of sleep disorders including OSA, insomnia, narcolepsy and restless legs syndrome.

20

• CPAP Device Supply: We sell CPAP devices, which are used to treat OSA.

• Re-Supply: We offer a re-supply program for our patients and other CPAP users to obtain the required disposable components for their CPAP devices that must be replaced on a regular basis.

• Care Management: We provide continuing care to our patients led by our medical directors who are board-certified physicians in sleep medicine and their staff.

Our clinical approach increases the long-term compliance of our patients, and enables us to manage a patient’s sleep disorder care throughout the life cycle of the disorder, thereby allowing us to generate a long-term, recurring revenue stream. We generate revenues via three primary sources: providing the diagnostic tests and related studies for sleep disorders through our sleep diagnostic centers, the sale of CPAP devices, and the ongoing re-supply of components of the CPAP device that need to be replaced. In addition, as a part of our ongoing care management program, we monitor the patient’s sleep disorder and as the patient’s medical condition changes, we are paid for additional diagnostic tests and studies.

In addition, we believe that our clinical approach to comprehensive patient care provides higher quality of care and achieves higher patient compliance. We believe that higher compliance rates are directly correlated to higher revenue generation per patient compared to our competitors through increased utilization of our resupply or PRSP program and a greater likelihood of full reimbursement from federal payors and those commercial carriers who have adopted federal payor standards.

Restructuring Plan

During July 2013, we closed four of our sleep diagnostic and therapy facilities and implemented a plan to close a fifth location. The facilities are located in Oklahoma and Georgia and are being closed because the revenue from these facilities has not met expectations and is not adequate to offset the fixed operating costs of these locations.

We expect to record restructuring charges in connection with the closure of these facilities with respect to the remaining lease obligations for the facilities, severance payments to affected employees and other write-downs. The remaining lease obligations and severance payments are estimated to be approximately $132,000 and $56,000, respectively, and will be recorded in the third quarter of 2013. All cash payments related to the severance costs are expected to be paid during the third quarter of 2013. The cash payments for the remaining lease obligations will continue for the life of the respective leases which extend through September 2014.

On July 17, 2013, we implemented a plan to sell certain sleep diagnostic and therapy facilities. The facilities identified as held for sale were selected because the revenue from these facilities have not met expectations and are not adequate to offset fixed operating costs. If a sale of these facilities cannot be achieved within an acceptable time frame, then these facilities will be closed. The time frame for achieving a sale or closing the site ranges from July 31, 2013 to August 31, 2013. The facilities identified are located in Oklahoma, Texas, Nevada, Kansas, Missouri and Iowa.

As a result of identifying these sites as held for sale, the related assets, liabilities, results of operations and cash flows of the identified sites will be classified as discontinued operations in our consolidated financial statements for periods beginning after June 30, 2013.

21

Liquidity Overview

As of June 30, 2013, we had an accumulated deficit of $61.8 million and reported a net loss of $4.2 million for the six months ended June 30, 2013. In addition, we used $0.5 million in cash from operating activities from continuing operations during the six months ended June 30, 2013. On July 22, 2013, we acquired 100% of the interests in Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC (collectively “Foundation”) in exchange for 114.5 million shares of our common stock and a demand note payable for $2 million, of which $250,000 was paid on July 24, 2013. We expect the new combined entity to generate positive cash flow; however our legacy Graymark business has a significant working capital deficiency. As of June 30, 2013, we had a working capital deficiency of $5.1 million (excluding short-term debt and current portion of long-term debt of $18.6 million). In addition, our lenders have placed restrictions on the amount of cash we can transfer from Foundation to our parent entity or our sleep business subsidiaries. We have significantly delayed payments to our vendors and service providers as a result of our working capital deficiency. We expect to negotiate discounts and/or payment plans with many of our vendors and service providers; however, there is no assurance that some of them will not take legal action against us which could have a negative impact on our liquidity. See “Liquidity and Capital Resources” for additional information.

Future Focus of Graymark

In conjunction with the Foundation transaction and restructuring plan, we expect to significantly curtail our existing sleep diagnostic and therapy business and focus on the Foundation business plan and acquisition opportunities that will be synergistic with the Foundation business.

22

Results of Operations

The following table sets forth selected results of our operations for the three and six months ended June 30, 2013 and 2012. The following information was derived and taken from our unaudited financial statements appearing elsewhere in this report.

Comparison of the Three and Six Month Periods Ended June 30, 2013 and 2012

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Net Revenues:
Services	$	1,808,442		$	3,166,931		$	3,888,969		$	6,543,726
Product sales		633,111			1,144,976			1,460,793			2,131,048
		2,441,553			4,311,907			5,349,762			8,674,774
Cost of services		920,847			1,373,552			1,886,165			2,736,935
Cost of sales		257,887			402,082			571,712			797,194
Selling, general and administrative		2,571,909			3,788,287			5,331,598			7,472,703
Bad debt expense		116,441			354,775			293,917			652,655
Impairment of goodwill		—			3,041,000			—			3,041,000
Write-down of deferred purchase consideration		300,000			—			300,000			—
Restructuring charges		(499,215	)		—			399,617			—
Depreciation and amortization		237,391			335,537			505,850			607,236
Net other expense		306,896			283,170			593,988			572,198
Loss from continuing operations, before taxes		(1,770,603	)		(5,266,496	)		(4,533,085	)		(7,205,147	)
Provision for income taxes		—			3,498			—			—
Loss from continuing operations, net of taxes		(1,770,603	)		(5,262,998	)		(4,533,085	)		(7,205,147	)
Discontinued operations, net of taxes		134,862			(47,810	)		189,421			(80,211	)
Net loss		(1,635,741	)		(5,310,808	)		(4,343,664	)		(7,285,358	)
Less: Noncontrolling interests		(84,030	)		(48,788	)		(131,559	)		(93,241	)
Net loss attributable to Graymark Healthcare	$	(1,551,711	)	$	(5,262,020	)	$	(4,212,105	)	$	(7,192,117	)

Discussion of Three Month Periods Ended June 30, 2013 and 2012

Services revenues declined $1.4 million or 42.9% during the three months ended June 30, 2013 compared with the second quarter of 2012. Our sleep diagnostic services are performed in two environments, our independent diagnostic testing facilities (“IDTF”) and at contracted client locations (“Hospital/Outreach”). For studies performed in our IDTF locations, we generally bill third-party payors for the sleep study. In our Hospital/ Outreach locations, we are paid a contracted fee per study performed. In our more rural outreach locations, our contracted rates are typically higher due to the additional costs associated with servicing more remote locations. Our urban hospital agreements tend to be at a lower rate due to the reimbursement environment and lower costs to serve. The decrease in revenues from sleep diagnostic services during the second quarter of 2013 compared to the second quarter of 2012 was due to a $0.9 million decrease at our IDTF locations and a $0.5 million decrease at our Hospital/Outreach locations.

The $0.9 million decline in IDTF revenues compared to the second quarter of 2012 was due to the following:

• A decrease in the number of sleep studies performed at our existing sleep labs in the second quarter of 2013 compared to the second quarter of 2012 resulted in a decrease of $0.5 million;

• The closure of four of our IDTF sleep labs during the first quarter of 2013 resulted in a decrease of $0.2 million in revenue compared to the second quarter of 2012; and

• A lower average reimbursement per sleep study performed at our existing sleep labs in the second quarter of 2013 compared to the second quarter of 2012 resulted in a decrease of $0.2 million.

23

The $0.5 million decrease in Hospital/Outreach revenues during the three months ended June 30, 2013 compared to the second quarter of 2012 was due to the following:

• The loss of hospital contracts in 2013 resulted in a decrease in revenue of $0.3 million compared to the second quarter of 2012; and

• Lower volume levels in our base (open for more than one year) hospital and outreach facilities resulted in a decrease in revenue of $0.2 million compared to the second quarter of 2012.

Product sales revenues from our sleep therapy business decreased $0.5 million or 44.7% during the three months ended June 30, 2013 compared with the second quarter of 2012. The decrease was due to a $0.3 million reduction in revenue from the initial set-up of CPAP devices and a $0.2 million decrease in revenue from supply sales.

The reduction in CPAP set-up revenues was due to a $0.3 million reduction related to lower set-up volumes compared to the second quarter of 2012, partially offset by a $0.1 million increase in revenues due to a higher overall average revenue per set-up compared to the second quarter of 2012. The reduced volumes were driven by a combination of lower sleep study volumes at our IDTF locations and product supply shortages resulting from our inability to obtain additional credit from some of our vendors in the second quarter of 2013. The increase in rate is primarily due to changes in both product and payor mix.

Cost of services decreased $0.5 million or 33.0% during the three months ended June 30, 2013 compared with the second quarter of 2012. The decrease in cost of services is due to a $0.6 million decrease due to the lower volume of sleep studies performed offset by an increase in the average cost per study of $0.1 million compared to the second quarter of 2012. Lower volumes unfavorably impacts technician labor efficiency resulting in the higher costs per study.

Cost of services as a percent of service revenue was 50.9% and 43.4% during the three months ended June 30, 2013 and 2012, respectively. The increase in the cost of service as a percent of revenue is primarily due to the decrease in volumes. The utilization efficiency of our sleep technician staff is reduced at lower volume levels as it becomes more difficult to maximize the ratio of technicians to patients. As a result, we are not able to reduce labor costs at the same rate as revenue related to lost volume, increasing our cost of service percentage.

Cost of sales from our sleep therapy business decreased $0.1 million or 35.9% during the three months ended June 30, 2013 compared with the second quarter of 2012 due primarily to lower volumes of both set-ups and supply sales. In addition, cost of sales as a percent of product sales was 40.7% and 35.1% during the three months ended June 30, 2013 and 2012, respectively. The increase in the cost of sales percentage was due to an overall average higher cost per supply item driven in part by lost discounts and pricing advantages due to our credit standing with our vendors and the mix of products sold.

Selling, general and administrative expenses decreased $1.2 million or 32.1% to $2.6 million from $3.8 million during the three months ended June 30, 2013, compared with the second quarter of 2012. The decrease in selling, general and administrative expenses was primarily due to:

• A decrease in field operating expense of $0.4 million primarily due to expense reductions associated with the closing of IDTF sleep labs and therapy locations during the first quarter of 2013;

• A decrease in central office support costs of $0.5 million due to staff and other expense reductions related to the site closures and lower volumes at existing locations; and

• A decrease in corporate overhead expense of $0.3 million related to reductions in labor expense and professional service fees.

24

Bad debt expense decreased $0.2 million during the three months ended June 30, 2013, compared with the second quarter of 2012. Bad debt as a percent of revenue was 4.8% and 8.2% for the second quarter of 2013 and 2012, respectively. The decrease in bad debt expense was due to a combination of improved collections related to contracting with an Extended Business Office (EBO) to manage our collection processes related to patient receivables allowing internal staff to focus on third party collections, new processes designed to increase the amount of patient portion of service fees collected at the time of service and a shift in our sleep study volume to more hospital/outreach business which has a shorter collection cycle and lower collection risk.

Write-down of deferred purchase consideration represents the deferred purchase price payments for the membership interests of Midwest Sleep Specialists (“MSS”). On October 1, 2012, we entered into a purchase agreement to acquire 100% of the membership interests of MSS located in Kansas City, Missouri, for a purchase price of $720,000. Under the agreement, the purchase price was to be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the “Transfer Date”). Under the agreement, the membership interests would not be transferred to us until the final payment is made on the Transfer Date. We were not obligated to continue to make the semi-monthly payments and could rescind the agreement at any time. We exercised this right in July 2013 and as a result the cumulative semi-monthly payments, totaling $300,000, which had been capitalized and included in other assets in our consolidated balance sheets, were charged to operating expense.

Impairment of goodwill – Based on our sleep study trends and forecasted cash flows at each business unit, we determined that impairment indicators existed during the second quarter of 2012. Based on assumptions similar to those that market participants would make in valuing our business units, we determined that the carrying value of goodwill related to our sleep centers exceeded their fair value. Accordingly, in June 2012, we recorded a noncash impairment charge on goodwill of $3.0 million. We did not have a goodwill impairment charge in the second quarter of 2013.

Restructuring charges resulted in income or a credit of $0.5 million during the three months ended June 30, 2013. On January 7, 2013, we implemented a plan to close four of its sleep diagnostic facilities (two of the locations also had therapy facilities). The facilities were located in Oklahoma and Texas and were closed because the revenue from the facilities had not met expectations and was not adequate to offset the fixed operating costs of the locations. Two of the facilities were operated through January 11, 2013 and two of the facilities were operated through January 31, 2013. We recorded restructuring charges of $0.9 million in connection with the closure of these facilities which included $0.8 million for lease termination costs with respect to the remaining lease obligations for the facilities and $0.1 million for other exit costs including severance payments to affected employees and other write-downs. In the second quarter of 2013, we were able to successfully negotiate a lease termination agreement with one of the facilities. As a result of this agreement, we adjusted our restructuring charge in the second quarter to reflect this reduction in future lease liability. We did not have restructuring charges in the second quarter of 2012.

Depreciation and amortization represents the depreciation expense associated with our fixed assets and the amortization attributable to our intangible assets. Depreciation and amortization decreased $0.1 million compared to the second quarter of 2012. The decrease was primarily due to the elimination of amortization as a result of the impairment recorded against our intangible assets during the fourth quarter of 2012.

Net other expense represents interest expense on borrowings reduced by interest income earned on cash and cash equivalents. Net other expense was flat during the three months ended June 30, 2013 compared with the second quarter of 2012.

Discontinued operations represent the net income (loss) from the operations of East, ApothecaryRx and our other discontinued operations. In May 2011 and December 2010, we completed the sale of substantially all of the assets of East and ApothecaryRx, respectively. As a result, the related assets, liabilities, results of operations and cash flows of East and ApothecaryRx have been classified as discontinued operations. In addition, we have discontinued operations related to our discontinued internet sales division and discontinued film operations. During the second quarter of 2013, the income from discontinued operations is primarily due to a decrease in our estimate for future potential lease liabilities at our former ApothecaryRx locations that have outstanding lease obligations.

25

Noncontrolling interests were allocated approximately $84,000 and $49,000 of net loss during the three months ended June 30, 2013 and 2012, respectively. Noncontrolling interests are the equity ownership interests in our SDC Holdings subsidiaries that are not wholly-owned.

Net income (loss) attributable to Graymark Healthcare. Our operations resulted in a net loss of approximately $1.6 million during the second quarter of 2013, compared to a net loss of approximately $5.3 million during the second quarter of 2012.

Discussion of Six Month Periods Ended June 30, 2013 and 2012

Services revenues declined $2.7 million or 40.6% during the six months ended June 30, 2013 compared with the first half of 2012. Our sleep diagnostic services are performed in two environments, our independent diagnostic testing facilities (“IDTF”) and at contracted client locations (“Hospital/Outreach”). For studies performed in our IDTF locations, we generally bill third-party payors for the sleep study. In our Hospital/ Outreach locations, we are paid a contracted fee per study performed. In our more rural outreach locations, our contracted rates are typically higher due to the additional costs associated with servicing more remote locations. Our urban hospital agreements tend to be at a lower rate due to the reimbursement environment and lower costs to serve. The decrease in revenues from sleep diagnostic services during the first six months of 2013 compared to the first six months of 2012 was due to a $1.9 million decrease at our IDTF locations, a $0.7 million decrease at our Hospital/Outreach locations and a $0.1 million decrease in clinic and other revenues.

The $1.9 million decline in IDTF revenues compared to the first six months of 2012 was due to the following:

• A decrease in the number of sleep studies performed at our existing sleep labs in the first six months of 2013 compared to the first six months of 2012 resulted in a decrease of $1.1 million;

• The closure of four of our IDTF sleep labs during the first quarter of 2013 resulted in a decrease of $0.5 million in revenue compared to the first six months of 2012; and

• A lower average reimbursement per sleep study performed at our existing sleep labs in the first six months of 2013 compared to the first six months of 2012 resulted in a decrease of $0.3 million.

The $0.7 million decrease in Hospital/Outreach revenues during the six months ended June 30, 2013 compared to the first half of 2012 was due to the following:

• The loss of hospital contracts in the first six months of 2013 resulted in a decrease in revenue of $0.4 million compared to the first six months of 2012;

• Lower volume levels in our base hospital and outreach facilities resulted in a decrease in revenue of $0.2 million compared to the first six months of 2012; and

• Periodically, we receive revenues from performing research studies at our clinics in Kansas City, Missouri. The volume of research studies is sporadic and is driven by the physicians who lead the studies. During the first six months of 2013, we performed 5 research sleep studies compared to 111 in the first six months of 2012 which resulted in a decrease in revenue of approximately $0.1 million.

The $0.1 million decrease in clinic and other revenues is due to the closing of our clinic operations in 2012 and lower fees from other service agreements.

26

Product sales revenues from our sleep therapy business decreased $0.7 million or 31.5% during the six months ended June 30, 2013 compared with the first six months of 2012. The decrease was due to a $0.4 million reduction in revenue from the initial set-up of CPAP devices and a $0.3 million decrease in revenue from supply sales.

The reduction in CPAP set-up revenues was due to a $0.5 million reduction related to lower set-up volumes compared to the second quarter of 2012, partially offset by a $0.1 million increase in revenues due to a higher overall average revenue per set-up compared to the first six months of 2012. The reduced volumes were driven by a combination of lower sleep study volumes at our IDTF locations and product supply shortages resulting from our inability to obtain additional credit from some of our vendors in the second quarter of 2013. The increase in rate is primarily due to changes both product and payor mix.

The reduction in CPAP supply revenue was due to lower supply volumes compared to the first six months of 2012 due to a combination of lower set-up volumes and product supply shortages resulting from tour credit standing with vendors in the second quarter of 2013.

Cost of services decreased $0.9 million or 31.1% during the six months ended June 30, 2013 compared with the first six months of 2012. The decrease in cost of services is due to a $1.0 million decrease due to the lower volume of sleep studies performed offset by an increase in the cost per study totaling $0.1 million compared to the second quarter of 2012. Lower volumes unfavorably impacts technician labor efficiency, resulting in the higher costs per study.

Cost of services as a percent of service revenue was 48.5% and 41.8% during the six months ended June 30, 2013 and 2012, respectively. The increase in the cost of service as a percent of revenue is primarily due to the decrease in volumes. The utilization efficiency of our sleep technician staff is reduced at lower volume levels as it becomes more difficult to maximize the ratio of technicians to patients. As a result, we are not able to reduce labor costs at the same rate as revenue related to lost volume, increasing our cost of service percentage.

Cost of sales from our sleep therapy business decreased $0.2 million or 28.3% during the six months ended June 30, 2013 compared with the first six months of 2012 due primarily to lower volumes of both set-ups and supply sales. In addition, cost of sales as a percent of product sales was 39.1% and 37.4% during the six months ended June 30, 2013 and 2012, respectively. The increase in the cost of sales percentage was due to an overall average higher cost per supply item driven in part by lost discounts and pricing advantages due to our credit standing with certain vendors in the second quarter of 2013 and the mix of products sold.

Selling, general and administrative expenses decreased $2.1 million or 28.7% to $5.3 million from $7.4 million during the six months ended June 30, 2013, compared with the first six months of 2012. The decrease in selling, general and administrative expenses was primarily due to:

• A decrease in field operating expense of $0.8 million primarily due to expense reductions associated with the closing of IDTF sleep labs and therapy locations during the first quarter of 2013; and

• A decrease in central office support costs of $0.9 million due to staff and other expense reductions related to the site closures and lower volumes at existing locations; and

• A decrease in corporate overhead expense of $0.5 million related to reductions in labor expense and professional service fees.

Bad debt expense decreased $0.4 million during the six months ended June 30, 2013, compared with the first six months of 2012. Bad debt as a percent of revenue was 5.5% and 7.5% for the first six months of 2013 and 2012, respectively. The decrease in bad debt expense was due to a combination of improved collections related to contracting with an Extended Business Office (EBO) to manage our collection processes related to patient receivables allowing internal staff to focus on third party collections, new processes designed to increase the amount of patient portion of service fees at the time of service and a shift in our sleep study volume to more hospital/outreach business which has a shorter collection cycle and lower collection risk.

27

Write-down of deferred purchase consideration represents the deferred purchase price payments for the membership interests of Midwest Sleep Specialists (“MSS”). On October 1, 2012, we entered into a purchase agreement to acquire 100% of the membership interests of MSS located in Kansas City, Missouri, for a purchase price of $720,000. Under the agreement, the purchase price was to be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the “Transfer Date”). Under the agreement, the membership interests would not be transferred to us until the final payment is made on the Transfer Date. We were not obligated to continue to make the semi-monthly payments and could rescind the agreement at any time. We exercised this right in July 2013 and as a result the cumulative semi-monthly payments, totaling $300,000, which were formerly included in other assets in our consolidated balance sheets, were charged to operating expense.

Impairment of goodwill – Based on our sleep study trends and forecasted cash flows at each business unit, we determined that impairment indicators existed during the second quarter of 2012. Based on assumptions similar to those that market participants would make in valuing our business units, we determined that the carrying value of goodwill related to our sleep centers exceeded their fair value. Accordingly, in June 2012, we recorded a noncash impairment charge on goodwill of $3.0 million. We did not have a goodwill impairment charge in the first half of 2013.

Restructuring charges were $0.4 million during the six months ended June 30, 2013. On January 7, 2013, we implemented a plan to close four of our sleep diagnostic facilities (two of the locations also had therapy facilities). The facilities were located in Oklahoma and Texas and were closed because the revenue from the facilities had not met expectations and was not adequate to offset the fixed operating costs of the locations. Two of the facilities were operated through January 11, 2013 and two of the facilities were operated through January 31, 2013. We recorded restructuring charges of $0.9 million in connection with the closure of these facilities which included $0.8 million for lease termination costs with respect to the remaining lease obligations for the facilities and $0.1 million for other exit costs including severance payments to affected employees and other write-downs. In the second quarter of 2013, we were able to successfully negotiate a lease termination agreement with one of the facilities. As a result of this agreement, we adjusted our restructuring charge $0.5 million in the second quarter to reflect this reduction in future lease liability. We did not have restructuring charges in the second quarter of 2012.

Depreciation and amortization represents the depreciation expense associated with our fixed assets and the amortization attributable to our intangible assets. Depreciation and amortization decreased $0.1 million compared to the first six months of 2012. The decrease was primarily due to the elimination of amortization as a result of the impairment recorded against our intangible assets during the fourth quarter of 2012.

Net other expense represents interest expense on borrowings reduced by interest income earned on cash and cash equivalents. Net other expense was flat during the six months ended June 30, 2013 compared with the first six months of 2012.

Discontinued operations represent the net income (loss) from the operations of East, ApothecaryRx and our other discontinued operations. In May 2011 and December 2010, we completed the sale of substantially all of the assets of East and ApothecaryRx, respectively. As a result, the related assets, liabilities, results of operations and cash flows of East and ApothecaryRx have been classified as discontinued operations. In addition, we have discontinued operations related to our discontinued internet sales division and discontinued film operations. During the first six months of 2013, the income from discontinued operations is primarily due to a decrease in our estimate for future potential lease liabilities at our former ApothecaryRx locations that have outstanding lease obligations.

Noncontrolling interests were allocated approximately $132,000 and $93,000 of net loss during the six months ended June 30, 2013 and 2012, respectively. Noncontrolling interests are the equity ownership interests in our SDC Holdings subsidiaries that are not wholly-owned.

Net income (loss) attributable to Graymark Healthcare. Our operations resulted in a net loss of approximately $4.2 million during the first six months of 2013, compared to a net loss of approximately $7.2 million during the first six months of 2012.

28

Liquidity and Capital Resources

Generally our liquidity and capital resource needs are funded from operations, loan proceeds and equity offerings. As of June 30, 2013, our liquidity and capital resources included cash and cash equivalents of $0.1 million and working capital deficit of $23.7 million. As of December 31, 2012, our liquidity and capital resources included cash and cash equivalents of $0.3 million and working capital deficit of $20.2 million.

Cash used in operating activities from continuing operations was $0.5 million during the six months ended June 30, 2013 compared to $2.7 million for the first six months of 2012. During the six months ended June 30, 2013, the primary uses of cash from operating activities from continuing operations were cash required to fund losses from continuing operations (net of non-cash adjustments) of $3.6 million. The primary sources of cash from operating activities from continuing operations during the first six months of 2013 were increases in accounts payable, accrued liabilities and other liabilities totaling $1.9 million and decreases in accounts receivable, inventories and other assets totaling $1.3 million. During the six months ended June 30, 2012, the primary uses of cash from operating activities from continuing operations were cash required to fund losses from continuing operations (net of non-cash adjustments) of $2.8 million and an increase in accounts receivable and other assets totaling $1.1 million. The primary sources of cash from operating activities from continuing operations in the first six months of 2012 was a net increase in accounts payable and accrued liabilities of $1.2 million.

Cash provided by discontinued operations for the six months ended June 30, 2013 was $0.2 million compared to the first six months of 2012 when discontinued operations provided $0.7 million which included $1.0 million received from the final proceeds of the ApothecaryRx Indemnity Escrow Fund

Net cash provided by investing activities from continuing operations during the six months ended June 30, 2013 was approximately $30,000 compared to the first six months of 2012 when investing activities from continuing operations used $1.0 million. Investing activities during the first six months of 2012 were primarily related to the purchase of leasehold improvements and sleep equipment for new sleep labs and leasehold improvements at our corporate office location.

There were no investing activities from discontinued operations during the six months ended June 30, 2013 and 2012.

Net cash provided by financing activities from continuing operations during the six months ended June 30, 2013 was $0.1 million compared to the first six months of 2012 when financing activities from continuing operations used $0.8 million. During the six months ended June 30, 2013 and 2012, we made debt payments of $0.7 million and $1.0 million, respectively. During the six months ended June 30, 2013 and 2012, we received $0.8 and $0.2 million, respectively, in debt proceeds.

As of June 30, 2013, we had an accumulated deficit of $61.8 million and reported a net loss of $4.2 million for the six months ended June 30, 2013. In addition, we used $0.5 million in cash from operating activities from continuing operations during the six months ended June 30, 2013. On July 22, 2013, we acquired 100% of the interests in Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC (collectively “Foundation”) in exchange for 114.5 million shares of our common stock and a demand note payable for $2 million, of which $250,000 was paid on July 24, 2013. We expect the new combined entity to generate positive cash flow; however our legacy Graymark business has a significant working capital deficiency. As of June 30, 2013, we had a working capital deficiency of $5.1 million (excluding short-term debt and current portion of long-term debt of $18.6 million). In addition, our lenders have placed restrictions on the amount of cash we can transfer from Foundation to our parent entity or our sleep business subsidiaries. We have significantly delayed payments to our vendors and service providers as a result of our working capital deficiency. We expect to negotiate discounts and/or payment plans with many of our vendors and service providers; however, there is no assurance that some of them will not take legal action against us which could have a negative impact on our liquidity.

29

Arvest Credit Facility

On July 22, 2013, our subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), we and Mr. Stanton Nelson (the “Guarantor” and our chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. We, the Borrowers, the Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, we and the Borrowers were indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, we, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of July 22, 2013, the outstanding principal amount of the New Note was $10,691,262.

Personal Guaranty. Under the New Loan Agreement, the Guarantor unconditionally guarantees payment of Borrower’s obligations owed to Arvest Bank and Borrower’s performance under the New Loan Agreement and related documents. Guarantor’s liability is limited to $2,919,000.

Maturity Dates. The maturity date of the New Note is December 31, 2013.

Interest Rate. The outstanding principal amount of the New Note bears interest at the greater of the prime rate as reported in the “Money Rates” section of The Wall Street Journal (the “WSJ Prime Rate”) or 6% (“Floor Rate”).

Interest and Principal Payments. Provided the Borrowers are not in default, the New Note is payable in monthly payments of accrued and unpaid interest. The entire unpaid principal balance of the New Note plus all accrued and unpaid interest thereon will be due and payable on December 31, 2013.

Use of Proceeds. All proceeds of the New Note were used solely for the refinancing of the existing indebtedness owed to Arvest Bank; and other costs we were incurred by Arvest Bank in connection with the preparation of the loan documents, subject to approval by Arvest Bank.

Collateral. Payment and performance of our obligations under the Arvest Credit Facility are secured by the assets of the Borrowers and the limited personal guaranty of the Guarantor. If we sell any assets which are collateral for the New Note, then subject to certain exceptions and without the consent of Arvest Bank, such sale proceeds must be used to reduce the amounts outstanding to Arvest Bank.

Default and Remedies. In addition to the general defaults of failure to perform our obligations and those of the Guarantor, default also includes collateral casualties, misrepresentation, bankruptcy, entry of a judgment of $50,000 or more, or failure of first liens on collateral. In the event a default is not cured within 10 days or in some case five days following notice of the default by Arvest Bank (and in the case of failure to perform a payment obligation for three times with notice), Arvest Bank will have the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable.

Deposit Account Control Agreement. We have entered into a Deposit Control Agreement (“Deposit Agreement”) with Arvest Bank and Valliance Bank covering the deposit accounts that we have at Valliance Bank. The Deposit Agreement requires Valliance Bank to comply with instructions originated by Arvest Bank directing the disposition of the funds held by us at Valliance Bank without our further consent. Without Arvest Bank’s consent, we cannot close any of our deposit accounts at Valliance Bank or open any additional accounts at Valliance Bank. Arvest Bank may exercise its rights to give instructions to Valliance Bank under the Deposit Agreement only in the event of an uncured default under the Loan Agreement, as amended.

30

Debt Service Coverage Ratio. Based on the latest four rolling quarters, the Company has agreed to continuously maintain a “Debt Service Coverage Ratio” of not less than 1.25 to 1. Debt Service Coverage Ratio is, for any period, the ratio of:

• the net income of Graymark Healthcare (i) increased (to the extent deducted in determining net income) by the sum, without duplication, of our interest expense, amortization, depreciation, and non-recurring expenses as approved by Arvest, and (ii) decreased (to the extent included in determining net income and without duplication) by the amount of minority interest share of net income and distributions to minority interests for taxes, if any, to

• the annual debt service including interest expense and current maturities of indebtedness as determined in accordance with generally accepted accounting principles.

If we acquire another company or its business, the net income of the acquired company and the new debt service associated with acquiring the company may both be excluded from the Debt Service Coverage Ratio, at our option.

Positive EBITDA. Beginning on March 31, 2013, and on the last day of each quarter thereafter, the Company’s EBITDA (“earnings before interest, taxes, depreciation and amortization”) must be positive for such immediately ended quarter. “Positive EBITDA” for any period means the net income for that period: (a) plus the following for such period to the extent deducted in calculating such net income, without duplication: (i) interest expense, (ii) all income tax expense; (iii) depreciation and amortization expense; and (iv) non-cash charges constituting intangible impairment charges, equity compensation and fixed asset impairment charges; (b) but, and in all cases, excluding from the calculation of EBITDA: (i) any extraordinary items (as determined in accordance with GAAP); and (ii) onetime or non-recurring gains or losses associated with the sale or disposition of any business, asset, contract or lease.

Compliance with Financial Covenants. Arvest Bank has waived the financial covenants related to the Company’s Debt Service Coverage Ratio, Positive EBITDA and minimum net worth through December 31, 2013 which is the maturity date of the New Note.

Arvest Loan Participation

On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, we entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the Company’s common stock. We purchased the participation in the last $6,000,000 of the principle amount due under the Arvest credit facility.

Roy T. Oliver Note

On July 22, 2013, we issued a promissory note in the original principal amount of $5,648,290 in favor of Roy T. Oliver (the “Oliver Note”). The principal amount of the Oliver Note represents the amount Mr. Oliver, a Guarantor under the Prior Agreement, paid to Arvest Bank in full satisfaction of his limited guaranty. Mr. Oliver is not a guarantor of the New Note.

The Oliver Note bears interest at an annual rate of 8.0% and is unsecured and subordinated to the New Loan Agreement. In the event the Company defaults on the Oliver Note, and the event of default is not cured in a timely manner, the lender has the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable. Events of default under the Oliver Note include the failure of the Company to pay the Oliver Note when due, the Company’s assignment for the benefit of creditors or admission of its inability to pay debts as they become due, the commencement of bankruptcy or similar proceedings by or against the Company. or an event of default occurs under the Loan Agreement. The Oliver Note matures on July 31, 2013 provided that, if the New Loan Agreement as in effect on such maturity date does not permit the Company to repay the Oliver Note, then the maturity date is continued until such time as the Arvest loan is refinanced or the provisions of the Loan Agreement permits repayment.

31

Oliver Debt Conversion

On August 31, 2012, December 31, 2012, March 1, 2013, April 1, 2013 and July 22, 2013, we executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082, $351,470 and $5,648,290, respectively, for a total of $8,021,360 (collectively referred to as the “Oliver Notes”). The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank. On July 22, 2013, the Company issued Mr. Oliver 17,970,295 shares of common stock for full satisfaction of the Oliver Notes including principal and accrued interest owed thereon of $114,263.

Preferred Interest Financing Transaction

On March 13, 2013, our wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) initiated a private placement offering for up to $15,960,000. The offering is comprised of 152 units (“FHE Unit”). Each FHE Unit is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. On July 22, 2013, FHE and the Company completed the sale of 68 FHE Units for total consideration received was $7,140,000.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share.

The proceeds from the FHE Units allocated to the Class B membership units were used to fund a portion of the Tyche Transaction described below.

Tyche Transaction

On March 31, 2013, we and our wholly-owned subsidiary, TSH Acquisition, LLC (“TSH”) entered into an Asset Purchase Agreement (the “Tyche Agreement”) with Tyche Health Enterprises, LLC (“Tyche”) which was subsequently amended on March 31, 2013 and July 22, 2013. The Tyche Agreement provides for the purchase of the preferred membership interests that Tyche owns in certain subsidiaries of FSHA and FSA under a Membership Interest Purchase Agreement, dated July 17, 2007, between Tyche and Foundation Surgery Holdings, L.L.C. (“FSH”), Foundation Weightwise Holdings, L.L.C. (nka FSHA), Foundation Healthcare Affiliates, L.L.C. (“FHA”) as well as the right to various equity interest in the affiliates of FSH, FSA and FHA (collectively “Foundation”).

The transactions under the Tyche Agreement were closed on July 22, 2013. Under the Tyche Agreement, TSH purchased from Tyche (i) all of Tyche’s right, title and interest in the Membership Interest Purchase Agreement; (ii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSH and the right to various equity interests in the affiliates of FSH; (iii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSHA and the right to various equity interest in the affiliates of FSHA; and (iv) all of Tyche’s right, title and interest in any preferred or non-preferred ownership interest in any Foundation entities that have been acquired as a result of the Membership Interest Purchase Agreement.

Under the Tyche Agreement, TSH paid $11,102,372 in cash to Tyche and Tyche related entities and TSH issued promissory notes totaling $2,339,905 to Tyche and Tyche related entities for total consideration of $13,442,277. The promissory notes bear interest at annual rate of 11.5% and mature on August 1, 2013 with all principal and interest being due at that time. On August 1, 2013, we paid-off two of the promissory notes totaling $474,305. We are in the process of extending the terms on the remaining note in the amount of $1,865,600.

As further consideration for the Tyche Agreement, the Company issued Tyche and certain Tyche related entities warrants for the purchase of the Company’s common stock. The warrants issued included:

• Five year warrants for the purchase of a total of 1,937,500 shares of the Company’s common stock at a strike price of $1.00 per share;

32

• Seven and one-half year warrants for the purchase of a total of 3,516,204 shares of the Company’s common stock at a strike price of $1.35 per share; and

• Ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share.

Valliance Loan Agreement

On July 22, 2013, our subsidiary, FHE executed a loan agreement and a promissory note in the amount of $5,100,000 payable to Valliance Bank. The note bears interest at annual rate of 10% and FHE is required to make quarterly payments of interest beginning on October 15, 2013. FHE is required to make one principal payment of $728,571 on August 15, 2014. The note matures on July 22, 2015 at which time all outstanding principal and accrued interest is due. The proceeds of the note, net of a $100,000 loan origination fee, were used to help fund FHE’s purchase of the preferred interests of FHA and FSHA from Tyche. The loan agreement requires FHE to prepay a portion of the loan upon the completion of a sale of FSHA’s equity interest in a hospital located in Sherman, TX. The promissory note is secured by the Company’s equity interests in TSH Acquisition, LLC. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

Financial Commitments

Our future commitments under contractual obligations by expected maturity date at June 30, 2013 are as follows:

	< 1 year		1-3 years		3-5 years		> 5 years		Total
Short-term debt (1)	$	2,420,776	$	—	$	—	$	—	$	2,420,776
Long-term debt (1)		17,186,650		91,370		—		—		17,278,020
Operating leases		883,051		1,113,858		559,824		1,708,000		4,264,733
Other long-term liabilities (2)		467,152		508,284		295,512		12,522		1,283,470
	$	20,957,629	$	1,713,512	$	855,336	$	1,720,522	$	25,246,999

(1) Includes principal and interest obligations.

(2) Represents contingent purchase consideration on our acquisition of Village Sleep Center in December 2011 and future minimum lease payments included in accrual of restructuring charges.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management’s prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of earnings and corresponding balance sheet accounts would be necessary. These adjustments would be made in future statements. For a complete discussion of all our significant accounting policies please see our 2012 annual report on Form 10-K. Some of the more significant estimates include revenue recognition, allowance for contractual adjustments and doubtful accounts, and goodwill and intangible asset impairment. We use the following methods to determine our estimates:

Revenue recognition – Sleep center services and product sales are recognized in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be paid by customers and third-party payors. Insurance benefits are assigned to us and, accordingly, we bill on behalf of our customers. For our sleep diagnostic business and acquired sleep therapy business, we estimate the net realizable amount based primarily on the contracted rates stated in the contracts we have with various payors or for payors without contracts, historic payment trends. In addition, we calculate on a monthly basis, the actual payments received from all payors at each location to determine if an incremental contractual reserve is necessary and if so, the amount of that reserve. We do not anticipate any future changes to this process. In our historic sleep therapy business, the business has been predominantly out-of-network and as a result, we have not used contract rates to determine net revenue for its payors. For this portion of the business, we perform a monthly analysis of actual reimbursement from each third party payor for the most recent 12-months. In the analysis, we calculate the percentage actually paid by each third party payor of the amount billed to determine the applicable amount of net revenue for each payor. The key assumption in this process is that actual reimbursement history is a reasonable predictor of the future reimbursement for each payor at each facility. For certain sleep therapy and other equipment sales, reimbursement from third-party payors occur over a period of time, typically 10 to 13 months. We recognize revenue on these sales as payments are earned over the payment period stipulated by the third-party payor.

33

We have established an allowance to account for contractual adjustments that result from differences between the amount billed and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected realizable amount are recorded against the allowance for contractual adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to our collection procedures. Revenues are reported net of such adjustments.

Due to the nature of the healthcare industry and the reimbursement environment in which we operate, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on our operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for our products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, we are not certain of the full amount of patient responsibility at the time of service. We estimate amounts due from patients prior to service and attempt to collect those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Cost of Services and Sales – Cost of services includes technician labor required to perform sleep diagnostics, fees associated with scoring and interpreting the results of the sleep study and disposable supplies used in providing sleep diagnostics. Cost of sales includes the acquisition cost of sleep therapy products sold. Costs of services are recorded in the time period the related service is provided. Cost of sales is recorded in the same time period that the related revenue is recognized. If the revenue from the sale is recognized over a specified period, the product cost associated with that sale is recognized over that same period. If the revenue from a product sale is recognized in one period, the cost of sale is recorded in the period the product was sold.

Accounts Receivable – Accounts receivable are reported net of allowances for contractual adjustments and doubtful accounts. The majority of our accounts receivable is due from private insurance carriers, Medicare and Medicaid and other third-party payors, as well as from customers under co-insurance and deductible provisions.

Third-party reimbursement is a complicated process that involves submission of claims to multiple payors, each having its own claims requirements. Adding to this complexity, a significant portion of our historical therapy business has been out-of-network with several payors, which means we do not have defined contracted reimbursement rates with these payors. For this reason, our systems report this revenue at a higher gross billed amount, which we adjusted to an expected net amount based on historic payments. As we continue to move more of our business to in-network contracting, the level of reserve related to contractual allowances is expected to decrease. In some cases, the ultimate collection of accounts receivable subsequent to the service dates may not be known for several months. As these accounts age, the risk of collection increases and the resulting reserves for bad debt expense reflect this longer payment cycle. We have established an allowance to account for contractual adjustments that result from differences between the amounts billed to customers and third-party payors and the expected realizable amounts. The percentage and amounts used to record the allowance for doubtful accounts are supported by various methods including current and historical cash collections, contractual adjustments, and aging of accounts receivable.

34

We offer payment plans of up to three months to patients for amounts due from them for the sales and services we provide. The minimum monthly payment amount is calculated based on the down payment and the remaining balance divided by three months.

Accounts are written-off as bad debt using a specific identification method. For amounts due from patients, we utilize a collections process that includes distributing monthly account statements. For patients that are not on a payment plan, collection efforts including collection letters and collection calls begin once the balance of the claim becomes the patient responsibility. If the patient is on a payment program, these efforts begin within 30 days of the patient failing to make a planned payment. Beginning in the fourth quarter of 2012, all patient responsibility accounts are forwarded to a contracted Extended Business Office (“EBO”). The EBO prepares and mails all patient account statements and follows up with patients via phone calls and letters to collect amounts due prior to them being turned over for collection. For our diagnostic patients, we submit patient receivables to an outside collection agency if the patient has failed to pay 120 days following service or, if the patient is on a payment plan, they have failed to make two consecutive payments. For our therapy patients, patient receivables are submitted to an outside collection agency if payment has not been received between 180 and 240 days following service depending on the service provided and circumstances of the receivable or, if the patient is on a payment plan, they have failed to make two consecutive payments. It is our policy to write-off as bad debt all patient receivables at the time they are submitted to an outside collection agency. If funds are recovered by our collection agency, the amounts previously written-off are accounted for as a recovery of bad debt. For amounts due from third party payors, it is our policy to write-off an account receivable to bad debt based on the specific circumstances related to that claim resulting in a determination that there is no further recourse for collection of a denied claim from the denying payor.

Included in accounts receivable are earned but unbilled receivables. Unbilled accounts receivable represent charges for services delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of services or equipment and supplies to customers, we perform certain certification and approval procedures to ensure collection is reasonably assured and that unbilled accounts receivable is recorded at net amounts expected to be paid by customers and third-party payors. Billing delays, ranging from several weeks to several months, can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and new sleep centers awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.

A summary of the Days Sales Outstanding (“DSO”) and management’s expectations follows:

	June 30, 2013				December 31, 2012
	Actual		Expected		Actual		Expected
Sleep diagnostic business		61.64		60 to 65		68.44		65 to 70
Sleep therapy business		71.53		65 to 70		62.72		65 to 70

Diagnostic DSO decreased in the first half of 2013 compared to the end of 2012 due to changes in our collections process and an increased percentage of our business coming from our outreach/hospital business compared to our IDTF and DME business. Specifically, we have contracted with an Extended Business Office (EBO) to manage the collection of our patient receivables. This resulted in an increased focus on the collection of these accounts while also allowing internal staff to focus on collecting amounts from third party payors. In addition, we modified our collection process at the time of service in an effort to increase the amounts initially collected from patients at that time. Additionally, our volumes at IDTF locations have decreased in the first half of 2013 compared to 2012 while our outreach/hospital volumes have remained more consistent. We are paid a fee per study from our contracted facilities in our outreach/hospital business typically on a bi-monthly basis contributing to a lower overall DSO for our diagnostic business. As a result our expectation for DSO in the first half of 2013 was reduced to 60 to 65 days. Therapy DSO increased due primarily to timing issues related to the decrease in revenue. Our accounts receivable balances did not decrease at the same rate as revenue in the first half of 2013 resulting in the increase. We expect this issue to continue in the third quarter as we wind down our DME operations and our A/R balances continue to age as we work though final collections.

35

Goodwill and Intangible Assets – Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill and other indefinitely-lived intangible assets are not amortized, but are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be an impairment of goodwill.

Intangible assets other than goodwill which include customer relationships, customer files, covenants not to compete, trademarks and payor contracts are amortized over their estimated useful lives using the straight line method. The remaining lives range from three to fifteen years. We evaluate the recoverability of identifiable intangible assets annually during the fourth quarter, or more frequently if events or circumstances indicate there may be an impairment of intangible assets.

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, we adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for our indefinite-lived intangible assets. The adoption of these changes had no impact on our consolidated financial statements.

On January 1, 2013, we adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on our consolidated financial statements.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for us on January 1, 2014. We have determined that the adoption of these changes will not have an impact on the consolidated financial statements, as we do not currently have any such arrangements.

Cautionary Statement Relating to Forward Looking Information

We have included some forward-looking statements in this section and other places in this report regarding our expectations. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, business plans or objectives, levels of activity, performance or achievements, or industry results, to be materially different from any future results, business plans or objectives, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of these forward-looking statements can be identified by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategies that involve risks and uncertainties. You should read statements that contain these words carefully because they

• discuss our future expectations;

• contain projections of our future operating results or of our future financial condition; or

• state other “forward-looking” information.

36

We believe it is important to discuss our expectations; however, it must be recognized that events may occur in the future over which we have no control and which we are not accurately able to predict. Readers are cautioned to consider the specific business risk factors described in this report and our Annual Report on Form 10-K and not to place undue reliance on the forward-looking statements contained in this report or our Annual Report, which speak only as of the date of this report or the date of our Annual Report. We undertake no obligation to publicly revise forward-looking statements to reflect events or circumstances that may arise after the date of this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting entity as defined in Rule 12b-2 of the Exchange Act and as such, are not required to provide the information required by Item 305 of Regulation S-K with respect to Quantitative and Qualitative Disclosures about Market Risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management (with the participation of our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2013. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the normal course of business, we may become involved in litigation or in legal proceedings. We are not aware of any such litigation or legal proceedings, that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition and results of operations.

37

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in our 2012 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Foundation Transaction. On July 22, 2013, in connection with the Acquisition, we issued 114,500,000 shares of common stock to Foundation Healthcare Affiliates, LLC, which represents on a post-transaction basis, approximately 70% of our outstanding common stock. We issued these shares in consideration of the acquisition of the membership interests of Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC. No underwriters were involved.

Loan Participation. On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, we entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the our common stock. No underwriters were involved.

Oliver Debt Conversion. On August 31, 2012, December 31, 2012, March 1, 2013, April 1, 2013 and July 22, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082, $351,470 and $5,648,290, respectively, for a total of $8,021,360 (collectively referred to as the “Oliver Notes”). The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank. On July 22, 2013, the Company issued Mr. Oliver 17,970,295 shares of common stock for full satisfaction of the Oliver Notes including principal and accrued interest owed thereon of $114,263. No underwriters were involved.

Preferred Interest Financing Transaction. On July 22, 2013, in connection with the Preferred Interest Financing Transaction, the sale by our subsidiary FHE and the issuance of 68 FHE Units, we issued 680,000 shares of common stock to the purchasers of the FHE Units. In addition, the FHE Units are convertible into shares of our common stock at the option of the holder at a conversion price of $2.00 per share or currently 3,400,000 shares of our common stock. If all 152 FHE Units are issued, we would issue, in the aggregate 1,520,000 shares of restricted stock and the 152 FHE Units would be convertible for up to 7,600,000 shares of our common stock. No underwriters were involved.

Tyche Transaction. On July 22, 2013, in connection with the purchase of membership interests we issued to Tyche Health Enterprises, LLC and related entities the following warrants exercisable for our common stock: (i) five year warrants for the purchase of a total of 1,937,500 shares of our common stock at a strike price of $1.00 per share; (ii) seven and one-half year warrants for the purchase of a total of 3,516,204 shares of our common stock at a strike price of $1.35 per share; and (iii) ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share. No underwriters were involved.

Item 3. Defaults Upon Senior Securities.

We do not have anything to report under this Item.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

We do not have anything to report under this Item.

38

Item 6. Exhibits.

(a) Exhibits:

Exhibit No.	Description
10.1	Amended and Restated Membership Interest Purchase Agreement, dated as of March 29, 2013, among Graymark Healthcare, Inc., TSH Acquisition, LLC and Foundation Healthcare Affiliates, LLC, is incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 2, 2013.
10.2+	First Amendment to Amended and Restated Membership Interest Purchase Agreement, dated as of July 22, 2013 among Graymark Healthcare, Inc., TSH Acquisition, LLC and Foundation Healthcare Affiliates, LLC.
10.3+	Promissory Note (Demand), dated July 22, 2013, in favor of Foundation Healthcare Affiliates, LLC.
10.4	Promissory Note, dated April 2, 2013, in favor of Roy T. Oliver, is incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 5, 2013.
10.5+	Promissory Note, dated July 22, 2013, in favor of Roy T. Oliver.
10.6+	Closing Agreement 2, dated May 21, 2013, among Roy T. Oliver, Graymark Healthcare, Inc., TSH Acquisition, LLC, Foundation Healthcare Affiliates, LLC, Foundation Surgical Hospital Affiliates, LLC, and Foundation Surgery Affiliates, LLC.
10.7+	Second Amended And Restated Loan Agreement, dated July 22, 2013, among SDC Holdings, LLC, ApothecaryRx, LLC, Graymark Healthcare, Inc., Stanton M. Nelson, and Arvest Bank.
10.8+	Amended and Restated Promissory Note, dated July 22, 2013, made by SDC Holding, LLC and ApothecaryRx, LLC in favor of Arvest Bank.
10.9+	Participation Agreement, dated July 22, 2013, between Graymark Healthcare, Inc. and Arvest Bank.
10.10+	Subscription Agreement, dated July 22, 2013, between Graymark Healthcare, Inc. and Arvest Bank.
10.11+	Loan Agreement, dated July 22, 2013, between Foundation Health Enterprises, LLC and Valliance Bank.
10.12+	Promissory Note, dated July 22, 2013, made by Foundation Health Enterprises, LLC in favor of Valliance Bank.
10.13+	Consent, Ratification, Acknowledgement and Amendment to Loan Documents Agreement, dated July 22, 2013, among Legacy Bank, Foundation Healthcare Affiliates, LLC, Graymark Healthcare, Inc., TSH Acquisition LLC, Foundation Surgery Affiliates, LLC, Foundation Surgical Hospital Affiliates, LLC and other indirect subsidiaries of the registrant.
10.14+	Asset Purchase Agreement, dated March 31, 2013, between Tyche Health Enterprises, LLC and TSH Acquisition, LLC.
10.14.1+	Letter Agreement, dated July 22, 2013, between Tyche Health Enterprises, LLC, TSH Acquisition, LLC and Graymark Healthcare, Inc.

39

10.15+	Form of Five Year Common Stock Purchase Warrant (1,937,500 shares of common stock at $1.00 exercise price), dated July 22, 2013, issued to Tyche Health Enterprises, LLC and THE Managers, LLC.
10.16+	Form of Seven Year Common Stock Purchase Warrant (2,296,296 shares of common stock at $1.35 exercise price), dated July 22, 2013, issued to Tyche Health Enterprises, LLC and THE Managers, LLC.
10.17+	Form of Ten Year Common Stock Purchase Warrant (1,937,500 shares of common stock at $1.60 exercise price), dated July 22, 2013, issued to Tyche Health Enterprises, LLC and THE Managers, LLC.
10.18+	Registration Rights Agreement, dated July 22, 2013, among Graymark Healthcare, Inc., Tyche Health Enterprises, LLC and THE Managers, LLC.
10.19	Indemnification Agreement with each of Thomas Michaud and Dr. Robert Moreno, is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 24, 2010.
31.1+	Certification of Stanton Nelson, Chief Executive Officer of Registrant (furnished herewith).
31.2+	Certification of Mark R. Kidd, Chief Financial Officer of Registrant (furnished herewith).
31.3+	Certification of Grant A. Christianson, Chief Accounting Officer of Registrant (furnished herewith).
32.1+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Stanton Nelson, Chief Executive Officer of Registrant (furnished herewith).
32.2+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Mark R. Kidd, Chief Financial Officer of Registrant (furnished herewith).
32.3+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Grant A. Christianson, Chief Accounting Officer of Registrant (furnished herewith).
101. INS	XBRL Instance Document.
101. SCH	XBRL Taxonomy Extension Schema Document.
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101. LAB	XBRL Taxonomy Extension Label Linkbase Document.
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

+ Filed herewith.

40

SIGNATURES

Pursuant to the requirements 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.

	GRAYMARK HEALTHCARE, INC.
	(Registrant)
	By:	/S/ STANTON NELSON
		Stanton Nelson
		Chief Executive Officer
		(Principal Executive Officer)
Date: August 14, 2013
	By:	/S/ MARK R. KIDD
		Mark R. Kidd
		Chief Financial Officer
		(Principal Financial Officer)
Date: August 14, 2013
	By:	/S/ GRANT A. CHRISTIANSON
		Grant A. Christianson
		Chief Accounting Officer
		(Principal Accounting Officer)
Date: August 14, 2013

41

EX-10.2

Exhibit 10.2

EXECUTION COPY

FIRST AMENDMENT TO AMENDED AND RESTATED MEMBERSHIP INTEREST

PURCHASE AGREEMENT

This First Amendment to Amended and Restated Membership Interest Purchase Agreement (this “Amendment”), dated as of July 22, 2013 (the “Effective Date”), is entered into among Foundation Healthcare Affiliates, LLC, an Oklahoma limited liability company (“Seller”), TSH Acquisition, LLC, a Delaware limited liability company (“Buyer”), and Graymark Healthcare, Inc., an Oklahoma corporation (“Parent” and together with the Seller and Buyer, the “Parties”).

RECITALS

WHEREAS, Seller and Buyer entered into that certain Amended and Restated Membership Interest Purchase Agreement dated as of March 29, 2013 (the “Purchase Agreement”), pursuant to which Seller agreed to sell and Buyer agreed to purchase (i) all of the issued and outstanding membership interests (the “FSA Membership Interests”) in Foundation Surgery Affiliates, LLC, a Nevada limited liability company, and (ii) all of the issued and outstanding membership interests (together with the FSA Membership Interests, the “Membership Interests”) in Foundation Surgical Hospital Affiliates, LLC, a Nevada limited liability company, all as more particularly described in the Purchase Agreement.

WHEREAS, the Parties desire to amend the Purchase Agreement to update the Purchase Price Seller shall receive from Buyer in connection with the sale of the Membership Interests.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual rights and obligations hereunder, the Parties hereby agree as follows:

1. Purchase Agreement. The Parties agree that the Purchase Agreement is in full force and effect. All capitalized terms used in, and not otherwise defined in, this Amendment shall have the meanings given them in the Purchase Agreement.

2. Amendments to Article I.

(a) The definition of the term “Parent Common Shares” in Article I is amended to read as follows:

““Parent Common Shares” means 114,500,000 shares of Parent Common Stock issued at Closing.”

(b) The definition of “Post-Closing Tax Period” in Article I is amended to read as follows:

““Post-Closing Tax Period” means any taxable period beginning after the Tax Effective Date and, with respect to any taxable period beginning before and ending after the Tax Effective Date, the portion of such taxable period beginning after the Tax Effective Date.”

(c) The definition of “Pre-Closing Tax Period” in Article I is amended to read as follows:

““Pre-Closing Tax Period” means any taxable period ending on or before the Tax Effective Date and, with respect to any taxable period beginning before and ending after the Tax Effective Date, the portion of such taxable period ending on and including the Tax Effective Date.”

(d) A definition of the term “Amendment” is added in Article I to read as follows:

““Amendment” means the First Amendment to Amended and Restated Membership Interest Purchase Agreement, entered into by and among Buyer, Seller and Parent, dated as of                         , 2013.”

(e) A definition of the term “Note” is added in Article I to read as follows:

““Note” has the meaning set forth in Section 2.2(c).”

(f) A definition of the term “Tax Effective Date” is added in Article I to read as follows:

““Tax Effective Date” means July 1, 2013.”

3. Amendment to Section 2.2. Section 2.2 of the Purchase Agreement is deleted in its entirety and replaced with the following:

“Section 2.2 Purchase Price. The aggregate purchase price (the “Purchase Price”) for the Membership Interests and the Additional Purchased Assets shall be:

(a) the Parent Common Shares;

(b) the assumption of the Assumed Liabilities; and

(c) a demand promissory note for the principal amount of two million US dollars ($2,000,000) (the “Note”) issued by Parent to Seller substantially in the form attached as Exhibit A to the Amendment.”

4. Amendment to Section 2.4(a)(i). Section 2.4(a)(i) of the Purchase Agreement is deleted in its entirety and replaced with the following:

“(i) the Purchase Price, by delivery to Seller of a stock certificate registered in the name of Seller representing the Parent Common Shares and the Note executed by a duly authorized officer of Parent.”

5. Amendment to Section 2.5. Section 2.5 of the Purchase Agreement is amended by adding the following sentence at the end of the existing Section 2.5:

“For tax and accounting purposes the Closing shall be deemed to be effective as of the Tax Effective Date.”

6. Amendment to Section 6.1(b). Section 6.1(b) of the Purchase Agreement is deleted in its entirety and replaced with the following:

“(b) Without the prior written consent of Buyer, Seller (and, prior to the Closing, each Company, their Affiliates and their respective Representatives) shall not, to the extent it may affect, or relate to, any Company, make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction not in the ordinary course of business consistent with past practice that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer or a Company. Seller agrees that Buyer is to have no liability for any Tax resulting from any action of Seller, any Company, their respective Affiliates or any of their respective Representatives taken prior to the Tax Effective Date, and agrees to indemnify and hold harmless Buyer (and, after the Closing Date, each Company) against any such Tax or reduction of any Tax asset.”

7. Amendment to Section 6.3. Section 6.3 of the Purchase Agreement is deleted in its entirety and replaced with the following:

“Section 6.3. Tax Indemnification. Seller shall indemnify each Company, Buyer, and each Buyer Indemnitee and hold them harmless from and against: (a) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 3.25; (b) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in Article VI; (c) all Taxes of the Seller or any Company for all Pre-Closing Tax Periods; (d) all Taxes required to be paid or withheld by the Seller or any Company for all Pre-Closing Tax Periods; (e) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Tax Effective Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; and (f) any and all Taxes of any person imposed on a Company arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring before the Tax Effective Date, in each of the above cases, together with any out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith. Seller shall reimburse Buyer for any Taxes of a Company that are the responsibility of Seller pursuant to this Section 6.3 within ten Business Days after payment of such Taxes by Buyer or the Company.

Parent shall indemnify Seller and each Seller Indemnitee and hold them harmless from and against (i) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 4.11, and (ii) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in Article VI, in each case, together with any out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith.

8. Ratification. Except as specifically amended herein, the Purchase Agreement shall remain in full force and effect, and is hereby ratified by the Parties. In the event that any terms of this Amendment shall conflict with the terms of the Purchase Agreement, the terms of this Amendment shall prevail. All references herein to the “Purchase Agreement” shall mean the Purchase Agreement as amended by this Amendment. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same Amendment.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective in all respects as of the Effective Date set forth above.

[SIGNATURES ON FOLLOWING PAGE]

FOUNDATION HEALTHCARE AFFILIATES, LLC
By:	/s/ Robert M. Byers
Name: Robert M. Byers
Title: President and Chief Operating Officer

GRAYMARK HEALTHCARE, INC.
By:	/s/ Stanton Nelson
Name: Stanton Nelson
Title: Chief Executive Officer

TSH ACQUISITION, LLC
By:	Graymark Healthcare, Inc., its Manager
By:	/s/ Stanton Nelson
Name: Stanton Nelson
Title: Chief Executive Officer

SIGNATURE PAGE TO FIRST AMENDMENT TO AMENDED AND RESTATED

MEMBERSHIP INTEREST PURCHASE AGREEMENT

EXHIBIT A

Promissory Note (Demand)

EX-10.3

Exhibit 10.3

PROMISSORY NOTE (DEMAND)

$2,000,000.00 July 22, 2013

1. Principal Amount. For Value Received, Graymark Healthcare, Inc., an Oklahoma corporation, (“Maker”), promises to pay to the order of Foundation Healthcare Affiliates, LLC (“Payee”), the principal amount of two million dollars ($2,000,000.00), payable at the times specified in paragraph 3 hereof.

2. Interest. Maker also promises to pay interest on the unpaid principal amount hereof from the date hereof until such unpaid principal amount is paid in full, at the per annum rate of seven percent, (7%), payable at the times specified in paragraph 3 hereof.

3. Payments. The principal balance shall be paid by Maker to Payee, on demand. Interest on the unpaid balance at the rate set forth above shall be paid monthly, commencing 30 days from the date hereof and continuing on the same day of each month thereafter until paid in full. All payments shall be payable in U. S. dollars and directed to Payee’s offices at 14000 N. Portland Ave., Suite 203, Oklahoma City, OK 73134, unless Maker is otherwise notified in writing by Payee.

4. Application of Payments. All payments made by Maker to Payee pursuant to this Note shall be applied first to accrued and unpaid interest and the balance, if any, to unpaid principal.

5. Post-Maturity Interest; Computation of Interest. Any amount of principal and/or interest hereof which is not paid when due, whether at stated maturity or by acceleration, shall bear interest from the date when due until said principal and/or interest amount is paid in full, at an interest rate of one and one-half per cent (1.5%) per month; provided however, that in no event shall the interest contracted for, charged, received, paid, or agreed to be paid to the holder hereof, exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to the holder hereof in excess of the maximum lawful amount, the interest payable to the holder hereof shall be reduced to the maximum amount permitted under applicable law, and if from any circumstance the holder hereof shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal hereof and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal hereof, such excess shall be refunded to Maker. Interest shall be computed on the basis of a year of 360 days.

6. Default. At the option of Payee and upon demand, it shall be considered an event of default (“Event of Default”) if any of the following occurs and such Event of Default remains uncured ten (10) days following a notice of default given by Payee to Maker:

(i) Maker shall fail to pay any sum due hereunder within ten (10) days of the date such sum is due and payable (whether at maturity, by acceleration or otherwise);

(ii) Maker voluntarily liquidates;

(iii) Maker pursuant to or within the meaning of Title 11, U.S. Code or any similar federal or state law for the relief of debtors: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a custodian of it or for all or substantially all of its property; (d) makes a general assignment for the benefit of its creditors; or (e) generally is unable to pay its debts as they become due.

(iv) A court of competent jurisdiction enters an order or decree (that remains unstayed and in effect for 30 days under any bankruptcy law that: (a) is for relief against Maker in an involuntary case or proceeding; (b) appoints a custodian of Maker or for all or substantially all of its property; or (c) orders the liquidation of Maker.

7. Remedies. After the occurrence of an Event of Default, this Note shall, at the option of Payee, become due and payable forthwith, without demand upon or further notice to the undersigned, and upon occurrence of any Event of Default or nonpayment of any amounts due hereunder, Payee shall have all of the rights and remedies provided under applicable law and in equity. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time.

8. Waiver. Maker hereby: (i) waives presentment, demand, protest and notice of dishonor; and (ii) agrees that its liability hereunder shall not be affected by any neglect or omission of Payee to exercise any remedies of set-off. Any failure by Payee to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other rights at any other time.

9. Transfer of Note. Payee may transfer this Note and assign its rights to any transferee and such transferee shall become vested with all the powers and rights herein and therein given to Payee. Thereafter, Payee shall be forever relieved and fully discharged from any liability or responsibility in connection with this Note.

10. Choice of Law; Venue. THIS NOTE, ITS SCHEDULES, RIDERS, ANCILLARY DOCUMENTS AND AMENDMENTS THERETO SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF OKLAHOMA. IN ORDER TO INDUCE MAKER TO EXECUTE THIS NOTE, MAKER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY FROM THIS NOTE SHALL BE LITIGATED ONLY IN COURTS (STATE OR FEDERAL) HAVING SITUS IN THE STATE OF OKLAHOMA AND THE COUNTY OF OKLAHOMA UNLESS PAYEE, IN ITS SOLE DISCRETION, WAIVES THIS PROVISION. MAKER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY PAYEE IN ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF OKLAHOMA. MAKER WAIVES ANY CLAIM THAT ANY ACTION INSTITUTED BY PAYEE HEREUNDER IS IN AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. TO THE EXTENT PERMITTED BY LAW, MAKER HEREBY WAIVES TRIAL BY JURY AND ANY RIGHT OF SETOFF OR COUNTERCLAIM IN ANY ACTION BETWEEN PAYEE AND MAKER.

11. Expenses of Enforcement. Maker promises to pay all costs and expenses, including reasonable attorneys’ fees incurred in the collection and enforcement of this Note.

12. Counterparts; Facsimile Execution. The Note may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Note. Delivery of an executed counterpart of this Note by facsimile shall be equally as effective as delivery of a manually executed counterpart. If Maker delivers an executed counterpart of this Note by facsimile, Maker shall also deliver a manually executed counterpart of the Note, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Note.

IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the date and year first above written.

Maker: GRAYMARK HEALTHCARE, INC.
By:	/s/ Stanton Nelson
	(signature of duly authorized representative)
Print Name: Stanton Nelson
Title: Chief Executive Officer

EX-10.5

Exhibit 10.5

PROMISSORY NOTE

$5,648,290.40	July 22, 2013
	Oklahoma City Oklahoma

FOR VALUE RECEIVED, the undersigned, Graymark Healthcare, Inc., an Oklahoma Corporation (the “Borrower”), promises to pay to the order of Roy T. Oliver (the payee, its successors and assigns are hereinafter called the “Lender”), at 101 N. Robinson, Ste. 900, Oklahoma City, Oklahoma 73102, or at such other place as may be designated in writing by the Lender, on July 31, 2013 (the “Maturity Date”) the principal sum of Five Million Six Hundred Forty Eight Thousand, Two Hundred Ninety Dollars and 40/100cents ($5,648,290.40) in lawful money of the United States, together with interest accruing from the date hereof at the rates hereinafter specified, payable as follows:

Prior to Default, the unpaid principal balance of this Note will bear interest from the date hereof at the rate of eight percent (8%) per annum. Interest will be computed on a per diem charge based on a three hundred sixty (360) day year. The entire unpaid principal balance of this Note plus all accrued and unpaid interest thereon will be due and payable on the Maturity Date. All payments made under this Note shall be applied first to any accrued interest, fees and costs, and then to principal. Payments hereunder may, at the option of the Lender, be recorded on this Note or on the books and records of the Lender and will be prima facie evidence of said payments and the unpaid balance of this Note. No payment will be applied to this Note until received by the Lender in collected funds. The holder without the prior consent of Maker may assign this Note and any security therefor.

Maker may not re-borrow under this Note and this Note is not on a revolver basis. This Note has been fully advanced. The Maker shall have the right to prepay this Note in whole or in part at any time and from time to time without premium or penalty, but with interest to the date of payment on the amount prepaid.

In the event Maker defaults in the terms of this Note, fails to pay this Note (principal or interest) when due, or in the event Maker shall enter into an assignment for the benefit of creditors or admit its inability to pay debts as they become due, or in the event of the commencement of any bankruptcy or like proceeding against or by Maker, or in the event of a default by Maker under the terms of those certain loan documents as evidenced by the Second Amended and Restated Loan Agreement by and between Maker (and others) and Arvest Bank, dated effective July 22, 2013, and all amendments, waivers and consents pertaining thereto (the “Arvest Loan Documents”) that is not timely cured (in any such case a “Default”), thereupon, and in any such event and at any time thereafter during the continuance of such event, this Note shall, at the election of Lender, become due and payable in full, without presentment, demand, protest or any further notice of any kind, anything contained herein to the contrary notwithstanding. In the event of a Default, thereafter the principal balance of this Note then due and owing shall bear interest at the rate of Fifteen Percent (15%) per annum (the “Default Rate”).

In the event of Default, the Lender will have available all remedies at law or equity, including all rights and remedies under the Uniform Commercial Code. The Lender will be entitled to proceed to selectively and successively enforce the Lender’s rights without waiver or discharge. The Maker agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the holder’s rights hereunder, the Maker shall pay to the holder hereof his reasonable attorney’s fees, together with all court costs and other expenses incurred and paid by such holder.

The Maker, endorser, surety, guarantor and all other persons who may become liable for all or any part of this obligation severally waive presentment for payment, protest and notice of nonpayment. Said parties consent to any extension of time (whether one or more) of payment hereof, any renewal (whether one or more) hereof, and any release of any party liable for payment of this obligation. Any such extension, renewal or release may be made without notice to such party and without discharging said party’s liability hereunder.

The failure of the holder hereof to exercise any of the remedies or options set forth in this Note or in any instrument securing payment hereof, upon the occurrence of one or more events of default, shall not constitute a waiver of the right to exercise the same or any other remedy at any subsequent time in respect to the same or any other event of default. The acceptance of the holder hereof of any payment which is less than the total of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or any subsequent time, or nullify any prior exercise of any such remedy or option, without the express consent of the holder hereof, except as and to the extent otherwise provided by law.

MAKER AND LENDER DO HEREBY IRREVOCABLY, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THEIR RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, OR UNDER OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT DELIVERED IN CONNECTION HEREWITH. This Note is made under and is to be governed and construed by the internal laws of the State of Oklahoma. All actions with respect to this Note shall be instituted solely and exclusively in the courts of the State of Oklahoma sitting in Oklahoma County, Oklahoma, or the United States District Court for the Western District of Oklahoma, sitting in Oklahoma City, Oklahoma, as the Lender may elect, and by execution and delivery of this Note, the Maker irrevocably and unconditionally submits to the exclusive jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waives: (a) any objection the Maker might now or hereafter have to the venue in any such court; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum.

The Maker and Lender intend and believe that each provision in this Note comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or provisions, or if any portion of any provision or provisions, in this Note is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Note to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interests of Maker and Lender under the remainder of this Note shall continue in full force and effect.

It is the intention of the Maker and Lender to comply strictly with all applicable usury laws; accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note or otherwise relating hereto, in no event shall this Note or other documents require the payment or permit the collection of an aggregate amount of interest in excess of the maximum amount permitted by any laws which may apply to this transaction, including the laws of the State of Oklahoma.

2

The terms of this Note shall be binding upon Maker and its successors and assigns and shall inure to the benefit of Lender and his heirs, personal representatives and assigns.

Notwithstanding any provision of this Note, all rights and remedies of Lender hereunder shall be fully subordinate to the Arvest Loan Documents. In the event the Arvest Loan Documents prohibit the repayment of this Note on the Maturity Date, then the Maturity Date of this Note shall be extended day to day with interest at the rate set forth herein until the earlier of such date as the obligations of Maker under the Arvest Loan Documents have been refinanced or the provisions of the Arvest Loan Documents permit such repayment to Lender.

As further consideration for Lender to make the loan evidenced by this Note and which is material to Lender in agreeing to make such loan, Borrower does hereby irrevocably and unconditionally waive, release and forever discharge the Lender and its affiliates and each of their heirs, successors, assigns and personal representatives, and agrees to indemnify each of them including attorney fees and costs, of and from any and all actions, causes of action, suits, damages, claims, demands or offsets of any kind or character whatsoever that the Borrower, ever had, now has, shall or may have for, upon or by reason of any matter, cause, act, omission, or thing arising or accruing at any time from the beginning of the world through the date of this Note.

IN WITNESS WHEREOF, the undersigned Maker has executed this instrument effective as of July 22, 2013.

Graymark Healthcare, Inc., an Oklahoma Corporation
	By	/s/ Stanton M. Nelson
		Stanton M. Nelson, CEO

3

EX-10.6

Exhibit 10.6

CLOSING AGREEMENT 2

THIS CLOSING AGREEMENT 2 (this “Agreement”) is made and entered into effective May 21, 2013, by and between Roy T. Oliver, an individual (hereinafter “Oliver”), Graymark Healthcare, Inc., an Oklahoma Corporation (“GRMH”), TSH Acquisition, LLC, a Delaware limited liability company (“TSH”), Foundation Healthcare Affiliates, LLC, an Oklahoma limited liability company (“FHA”), Foundation Surgical Hospital Affiliates, LLC, a Nevada limited liability company, and Foundation Surgery Affiliates, LLC, a Nevada limited liability company. Collectively, the above are sometimes referred to as the “Parties”. Collectively, Foundation Healthcare Affiliates, LLC, Foundation Surgical Hospital Affiliates, LLC, and Foundation Surgery Affiliates, LLC, are referred to as the “Foundation Entities”.

WITNESSETH:

WHEREAS, GRMH, TSH and FHA, have entered into that certain Amended and Restated Membership Purchase Agreement dated effective March 29, 2013 (the “ARMPA”);

WHEREAS, one of the material conditions of closing under the ARMPA (as defined therein, herein the “Closing”) is the execution of this Agreement, and

WHEREAS, the Parties now desire to enter into this Agreement.

NOW THEREFORE, for and in consideration of the sum of $10 in hand paid, the above premises, the agreements of the Parties set forth herein below, and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, it is agreed as follows:

1. Oliver loans; Conversion to Stock. All indebtedness due by GRMH to Oliver, principal and accrued interest (as evidenced by such promissory notes and with principal and interest set forth on Exhibit “A” attached hereto) shall at Closing be converted based on such outstanding principal and interest to shares of common voting stock of GRMH at forty-five cents (45c) per share as set forth on Exhibit “A”. GRMH shall cause such shares to be issued to Oliver at Closing, such shares shall be unrestricted and freely transferable (except as required by SEC rules) and shall be registered after Closing and as soon as possible by GRMH at its cost by S-1 registration. In addition, after Closing and as soon as possible, all existing shares of stock of Oliver (and his related parties Valiant Investments, LLC and Oliver Company Holdings, LLC) in GRMH owned prior to Closing as further set forth on Exhibit “A” (and any warrants exercisable in connection therewith upon any exercise), shall also be registered by GRMH at its cost by S-1 registration. The above shares of GRMH owned by Oliver and his related parties shall in all events be so registered within two years after Closing. The shares of GRMH issued to FHA at Closing shall not be registered prior to the shares of GRMH owned by Oliver and his related parties being registered without the written consent of Oliver. However, in the event all GRMH shares of Oliver and his related parties and any other person or entity, to be registered cannot be so registered due to SEC legal requirements, GRMH shall apportion the securities registered among the securities holders pro rata according to the total amount of securities entitled to be included therein owned by each holder, and such procedure shall continue until all such shares to be registered are registered. After Closing and without the written consent of Oliver, GRMH shall not grant any other person or entity registration rights with respect to GRMH stock with terms superior to or on par with the registration rights granted to Oliver in this Agreement. GRMH shall take all steps necessary to fulfill the provisions of this paragraph 2. In addition, if GRMH proposes to issue any class of common stock in an offering (registered under the Securities Act), then GRMH shall allow Oliver the opportunity and Oliver shall have the right to register and/or include and sell such number of GRMH shares owned by Oliver (the “Oliver Shares”) in such offering as Oliver may request up to 15% of the total number of previously unregistered shares to be offered by GRMH, on the same terms and conditions as the shares to be offered by GRMH. GRMH shall pay the costs of such offering, including the Oliver Shares that are a part of such offering. The rights above are in addition to the registration rights of Oliver pursuant to this Closing Agreement 2. The reference to Oliver shall include his related entities Valiant Investments, LLC and Oliver Company Holdings, LLC.

2. Payment by Oliver to Arvest; Loan to GRMH. Oliver at Closing shall have made as a condition thereto, an agreed payment to Arvest Bank on the limited guaranties of Oliver (and of Oliver Company Holdings, LLC and the Roy T. Oliver Revocable Trust) for the Arvest Bank debt owed by GRMH and SDC and with Oliver to be released therefrom, such payment to be in the amount of $6,000,000.00 and treated as a loan to GRMH ($351,709.60 of this amount already funded for GRMH April loan payment to Arvest as set forth in Exhibit “A”) and subject to the provisions of paragraph 1 above.

3. Complete Agreement. This Agreement (and the ARMPA any other related closing agreements executed in connection with the Closing of the ARMPA) embodies the entire agreement between the Parties hereto with respect to the matters involved herein and supersedes any previous negotiations or agreements between the Parties. Except as provided in this Agreement or as between any party to the ARMPA or related agreements, the Parties make no agreements, promises, inducements or other representations and do not assume any obligations other than set forth herein. This Agreement was not executed in reliance upon any statement or representation by the Parties other than those set forth herein. This Agreement may not be modified except by a subsequent agreement in writing signed by all Parties. No breach of the ARMPA (or any other document related thereto) by any party thereto, shall give the Parties hereto (or any of them) any right to terminate or claim a breach of this Agreement, or to offset any amount to be paid or that is due hereunder, or to not perform this Agreement. Oliver is not a party to the ARMPA and shall have no liability or obligation thereunder. This Agreement is not for the benefit of any person or entity other than the Parties. No third party shall have any rights under this Agreement.

4. Controlling Law; Jurisdiction. This Agreement shall be governed by, construed and enforced in accordance with, and subject to the common laws of the State of Oklahoma. This Agreement is expressly performable in Oklahoma City, Oklahoma County, Oklahoma. Jurisdiction and venue for any litigation arising hereunder shall lie solely and exclusively in any state or federal court sitting in a judicial district located in Oklahoma City, Oklahoma County, State of Oklahoma and the Parties waive all defenses thereto. In the event of any litigation arising under or relating to this Agreement, the prevailing party shall be entitled to an award of its reasonable attorney fees and costs. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.

5. Construction; Severability. All Parties have had the opportunity to consult with an attorney prior to signing this Agreement. This Agreement has been drafted after negotiation between the Parties and contains their mutual understanding. It is not to be construed strictly against any party, but is instead to be construed fairly, according to the plain meaning of its terms. The headings of the paragraphs and subparagraphs (if any) are merely descriptive and should not be construed as influencing or limiting the substance of the paragraphs or subparagraphs in any way. If any provision, subparagraph, statement or phrase of this Agreement is ruled or deemed illegal or unenforceable, such ruling shall affect only the provision, subparagraph, statement or phrase so ruled and the remainder of the Agreement shall remain in full force and effect according to law. Any such ruling shall only affect the interpretation and application of the Agreement, and shall not be construed or operate to reduce consideration and benefits received and exchanged among and between the parties at the execution of this Agreement. The recitals of this Agreement are incorporated herein as if fully set forth.

2

6. Binding Effect. This Agreement shall be binding upon and inure to the benefit and protection of the Parties to this Agreement in accordance with the provisions of this Agreement, together with their respective heirs, executors, administrators, personal representatives, successors and assigns. The Parties understand that GRMH will be the surviving entity after the Closing of the ARMPA and that the name and ticker symbol of GRMH may thereafter be changed and this Agreement shall be binding upon such entity and any references in this Agreement to the stock of GRMH shall hen mean the shares of stock of such renamed entity. The terms of this Closing Agreement 2 shall apply and control over any contrary or conflicting provisions of the ARMPA. If Closing under the ARMPA does not occur (including if Oliver determines not to make the payment to Arvest Bank as set forth in paragraph 2 above) this Agreement shall be null and void unless all Parties hereto shall agree otherwise in writing.

7. Authorization. Each person signing this Agreement as a party or on behalf of a party represents that he or she is duly authorized to sign this Agreement on such party’s behalf, and is executing this Agreement voluntarily, knowingly and without any duress or coercion.

8. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be considered an original but when taken together, shall constitute one Agreement.

In Witness Whereof, the Parties have executed this Agreement the date set forth above.

{SIGNATURE PAGES FOLLOW}

3

Roy T. Oliver

GRAYMARK HEALTHCARE, INC.
By:	/s/ Stanton Nelson
Name: Stanton Nelson
Title: Chief Executive Officer

TSH ACQUISITION, LLC
By:	Graymark Healthcare, Inc., its Manager
	By:	/s/ Stanton Nelson
	Name: Stanton Nelson
	Title: Chief Executive Officer

FOUNDATION HEALTHCARE AFFILIATES, LLC
By:	/s/ Robert Byers
Name: Robert Byers
Title: President

Foundation Surgery Affiliates, LLC
	By:	/s/ Robert Byers
	Name: Robert Byers
	Title: Manager

Foundation Surgical Hospital Affiliates, LLC
	By:	/s/ Robert Byers
	Name: Robert Byers
	Title: Manager

4

Exhibit “A”

1. Loans owed by GRMH to Oliver as of April 2, 2013 to be converted to GRMH stock:

	PRINCIPAL		INTEREST		TOTAL
LOAN #1 August 31, 2012		1,184,808.03		54,764.46		1,239,572.49
LOAN #2 December 31, 2012		351,709.60		7,034.19		358,743.79
LOAN #3 March 1, 2013		485,082.49		3,233.88		488,316.37
		2,021,600.12		65,032.53		2,086,632.65

LOAN #4 PRINCIPAL (Agreed Payment to Arvest)- $6,000,000.00 ($351,709.60 already funded for April loan payment to Arvest)

Total of all Loans (principal and interest): $8,086,632.65.

Conversion of Loan balances, principal and interest, to shares of common voting stock of GRMH at 45c per share:

$8,086,632.65 divided by .45 = 17,970,294.78 shares.

2. Existing Common Voting Stock owned in GRMH:

Oliver Company Holdings, LLC- 1,707,249 shares

Roy T. Oliver- 50,000 shares

Valiant Investments, LLC- 431,035 shares with warrants in accordance with Subscription Agreement and Warrant Agreement dated April 30, 2011 and May 4, 2011.

5

EX-10.7

Exhibit 10.7

SECOND AMENDED AND RESTATED LOAN AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT (this “Agreement”) is effective July 22, 2013, among SDC HOLDINGS, LLC, an Oklahoma limited liability company (“SDC”) and APOTHECARYRx, LLC, an Oklahoma limited liability company (“ARx” and together with SDC, jointly and severally the “Borrowers” and each a “Borrower”), GRAYMARK HEALTHCARE, INC., an Oklahoma corporation (“GRMH”), STANTON M. NELSON, an individual (“Guarantor”) and ARVEST BANK, an Arkansas banking corporation (the “Bank”).

W I T N E S S E T H:

WHEREAS, the Bank, the Borrowers, GRMH, Guarantor and the other guarantors thereto previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”);

WHEREAS, the Borrowers and GRMH are indebted to the Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000.00 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (together with all extensions, renewals, modifications, consolidations and increases of such notes, the “Prior Notes”); and

WHEREAS, GRMH, the Bank, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement in connection with the Loan Restructuring Agreement among GRMH, the Bank, the Borrowers and the Guarantor dated of even date herewith (the “Restructuring Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the funds previously advanced by the Bank under the Notes, the receipt and sufficiency of all of which are hereby acknowledged, GRMH, the Borrower, the Guarantor and the Bank agree as follows:

1. Definition of Terms. All terms defined in this Agreement will have the defined meanings when used in any of the Loan Documents (as hereinafter defined) unless the context otherwise requires. Each accounting term not defined herein, and each accounting term partly defined herein to the extent not defined, will have the meaning given to it under generally accepted accounting principles. As used in this Agreement, the following terms will have the meanings indicated:

1.1. Accounts. All accounts, accounts receivable, contract rights, notes, drafts, acceptances and all other forms of obligations and receivables in favor of Borrower owed or owing by any party or entity to a Borrower including, but not limited to, deposits or other sums credited by or due from the Bank to a Borrower, now owned or hereafter acquired. In addition, the term “Accounts” will have the same meaning (to the extent not inconsistent with the foregoing definition) as defined in the Oklahoma Uniform Commercial Code (the “UCC”).

AMENDED AND RESTATED LOAN AGREEMENT

1.2. Borrower Subsidiaries. The direct and indirect subsidiaries of the Borrowers as of the Closing Date, and all subsidiaries thereafter created or acquired.

1.3. Closing Date. The date upon which the Loan Documents are signed by GRMH, the Borrowers and the Guarantor and accepted by the Bank at the Bank’s offices in Oklahoma City, Oklahoma, all in form and substance satisfactory to the Bank.

1.4. Collateral. All of the Borrowers’ right, title and interest in and to the personal property described in the Loan Documents whether now owned or hereafter acquired including without limitation: (a) the Accounts; (b) the Equipment; (c) the Inventory; (d) General Intangibles, including all membership interests in SDC and ARx; (e) all items of tangible and intangible personal property now owned and hereafter acquired by a Borrower; (f) all insurance policies and proceeds; (g) all leases, rents and royalties; (h) all business records of Borrowers; and (i) all additions and accessions to, replacements of, substitutions for and proceeds from any of the items listed in the foregoing parts (a) through (h) inclusive.

1.5. Collateral Assignment of Equity Interests. The Amended and Restated Collateral Assignment of Equity Interests and Security Agreement to be executed by the Bank, Borrowers and GRMH granting to the Bank a first perfected collateral assignment of the equity interests directly or indirectly owned by GRMH in (i) SDC and ARx, and (ii) any other business entity, if any, that owns or operates any currently existing sleep center or owns any assets relating to the business of operating a currently existing sleep center (excluding in any event as to any sleep center or assets thereof owned by any of the Foundation Entities) in substantially the form attached as Exhibit “A”.

1.6. Collateral Assignment of Leases. With respect to the lease of real property by a Borrower used in the operation of its sleep lab business that is entered into after May 21, 2008, the agreement(s) to be executed by the Bank and Borrowers granting to the Bank a first perfected collateral assignment of those leases in substantially the form attached as Exhibit “B” unless waived in whole in part by the Bank, in writing.

1.7. Debt Service Coverage Ratio. For any period, the ratio of: (A) the net income of GRMH (i) increased (to the extent deducted in determining net income) by the sum, without duplication, of (a) all interest expense of GRMH, (b) amortization, (c) depreciation, and (d) non-recurring expenses as approved by the Bank, and (ii) decreased (to the extent included in determining net income and without duplication) by the amount of minority interest share of net income and distributions to minority interests for taxes, if any, to (B) annual debt service including interest expense and current maturities of indebtedness as determined in accordance with generally accepted accounting principles. If an acquisition of a new company (or its business) occurs and GRMH incurs additional debt associated with the purchase, the net income of the new company (or its business) and GRMH’s new debt service associated with acquiring the company (or its business) may both be excluded from the Debt Service Coverage Ratio calculation for a period of six months, at GRMH’s option. Subject to the Bank’s approval, any non-recurring itemized expenses associated with an acquisition will be added back to the net income of GRMH.

AMENDED AND RESTATED LOAN AGREEMENT - 2 -

1.8. Default. The occurrence of any of the events specified in paragraph 9 of this Agreement that are not remedied by the Borrowers or waived by the Bank as provided in paragraph 9.

1.9. Equipment. All furniture, fixtures, machinery, tools, equipment, apparatus, utensils, appliances and supplies now owned or hereafter acquired by a Borrower and all documents of title, insurance policies and proceeds relating thereto. In addition, the term “Equipment” will have the same meaning (to the extent not inconsistent with the foregoing definition) as defined in the UCC.

1.10. Foundation Entities. Foundation Surgery Affiliates, LLC, Foundation Surgical Hospital Affiliates, LLC, and their respective direct or indirect subsidiaries and affiliates other than GRMH, the Borrowers and the Borrower Subsidiaries.

1.11. General Intangibles. All of each Borrower’s general intangibles of any kind whether now existing or hereafter arising including all stock, membership interests, units, partnership interests, patents, trademarks, copyrights and other intangibles, chattel papers, documents and instruments relating to the General Intangibles. In addition, the term “General Intangibles” will have the same meaning (to the extent not inconsistent with the foregoing definition) as defined in the UCC.

1.12. GRMH Stock. 13,333,333 Shares of Common Stock of GRMH.

1.13. Guaranties. The Nelson Guaranty (as defined in paragraph 1.18), the Amended and Restated Guaranty Agreement by Kevin Lewis in favor of the Bank dated December 17, 2010, the Amended and Restated Guaranty Agreement by Lewis P. Zeidner in favor of the Bank dated December 17, 2010, and the Guaranty Agreement by Roger Ely in favor of the Bank dated May 21, 2008.

1.14. Inventory. All personal property now owned or hereafter acquired by a Borrower which are to be furnished under contracts of service, or which are raw materials, work in process, or materials used or consumed in a Borrower’s business. In addition, the term “Inventory” will have the same meaning (to the extent not inconsistent with the foregoing definition) as defined in the UCC.

1.15. Loan. The loan by the Bank to the Borrowers evidenced by the Note.

1.16. Loan Documents. This Agreement, the Restructuring Agreement, the Collateral Assignment of Equity Interests, the Control Agreements, the Collateral Assignment of Leases, the Guaranties, the Note, the Security Agreements, the Subscription Agreement, the Participation Agreement and all other instruments executed and delivered by GRMH, the Borrowers, the Guarantor or any other person or entity in connection with the extension of credit contemplated by this Agreement or the Prior Agreement, all instruments issued pursuant to the foregoing documents and all extensions, renewals, modifications and amendments thereof.

AMENDED AND RESTATED LOAN AGREEMENT - 3 -

1.17. Minimum Net Worth. The Total Net Worth of Borrowers and GRMH as of the December 31, 2007 Financials was $1,862,882 on a consolidated basis. For purposes of this Agreement, the Minimum Net Worth of GRMH and the Borrowers will be calculated on a consolidated basis based on seventy-five (75%) percent of the December 31, 2007 existing equity ($1,397,162.00) plus seventy-five (75%) percent of the Net Income (as per GAAP) for each fiscal quarter ending after December 31, 2007 on a consolidated basis, less non-recurring expenses as approved by the Bank.

1.18. Nelson Guaranty. The Guaranty Agreement to be executed by the Guarantor in favor of the Bank in substantially the form attached as Exhibit “C”, under which the Guarantor unconditionally guarantees to the Bank payment of all Obligations now or hereafter owing to the Bank by the Borrower in connection with the Loan Documents and the full and complete performance by the Borrower of the Loan Documents, as further set forth therein. Guarantor’s liability under the Nelson Guaranty will be limited to $2,919,000.00.

1.19. Note. The Amended and Restated Promissory Note by the Borrowers to the Bank, in the principal amount of $10,691,261.71, to be executed in connection with this Agreement in the form attached hereto as Exhibit “D”.

1.20. Obligations. The obligation of the Borrowers to: (a) pay the principal of and interest on the Notes in accordance with the terms thereof and to satisfy all of the Borrowers’ other liabilities to the Bank, whether under this Agreement or otherwise, whether now existing or hereafter incurred, matured or unmatured, direct or contingent, joint or several, including any extensions, modifications, renewals, or increases thereof and substitutions therefor; (b) repay to the Bank all amounts advanced by the Bank under this Agreement or otherwise on behalf of the Borrowers including, without limitation, overdrafts and advances for principal or interest payments to other secured parties, mortgagees or lienors, or for taxes, levies, insurance, rent, repairs to or maintenance or storage of any of the Collateral; (c) reimburse the Bank, on demand, for all of the Bank’s expenses and costs including, without limitation, reasonable fees and expenses of the Bank’s counsel in connection with the preparation, negotiation, amendment, modification, or enforcement of this Agreement and the Loan Documents including, without limitation, any proceeding brought or threatened to enforce payment of any of the obligations referred to in this paragraph 1.20; and (d) perform all other obligations of the Borrowers under the Loan Documents.

AMENDED AND RESTATED LOAN AGREEMENT - 4 -

1.21. Participation Agreement. The Participation Agreement to be executed by GRMH and the Bank pursuant to which the Bank will sell to GRMH a fully subordinated $6,000,000 participation in the Loan in exchange for GRMH issuing the GRMH Stock to the Bank.

1.22. Pledged Interests. The equity interests directly or indirectly owned by GRMH and collaterally assigned to the Bank pursuant to the Collateral Assignment of Equity Interests.

1.23. Security Agreements. The instruments and all extensions, renewals and modifications thereof, executed and delivered to the Bank by Borrowers or Borrower Subsidiaries granting to the Bank a first perfected security interest in and to that portion of the Collateral therein described in substantially the form attached as Exhibit “E”.

1.24. Subscription Agreement. The Subscription Agreement to be executed by GRMH and the Bank pursuant to which GRMH will issue the GRMH Stock to the Bank in exchange for the Bank selling GRMH a subordinated participation in the Loan.

1.25. WSJ Prime Rate. The rate per annum determined on the basis of the Prime rate as reported in the “Money Rates” section of The Wall Street Journal or a substitute source reasonably determined by the Bank in the event such source is no longer available. The WSJ Prime Rate for the Note will initially be the WSJ Prime Rate as of the date of the Note, and will be adjusted on an annual basis to the rate then in effect as of the anniversary date, or the first business day following such date if the anniversary date occurs on a weekend or holiday that there is no such rate determined or published.

2. Lending Agreement. Subject to the terms and conditions of this Agreement, the Bank agrees to lend to Borrowers and Borrowers agree to borrow from the Bank the principal amount of the Note. All Loan amounts have been previously advanced under the Prior Notes. No additional principal advances will be made to the Borrowers under the Note.

3. Loan. The Loan will be evidenced by the Note and will be payable as follows:

3.1. Term. The term of the Note will be for the period commencing on the Closing Date and ending on December 31, 2013 (the “Maturity Date”).

3.2. Interest. Prior to Default, the unpaid principal balance of the Note will bear interest from the date of advance at the per annum rate equal to the greater of (a) the WSJ Prime Rate, as adjusted; or (b) six percent (6%) per annum. The WSJ Prime Rate will be adjusted, without notice, on an annual basis to the WSJ Prime Rate then in effect as of each anniversary date of this Note, or the first business day following such date if the anniversary date occurs on a weekend or holiday that there is no such rate determined or published. After Default, all amounts due under the Note will bear interest at the per annum rate equal to the greater of: (a) fifteen percent (15%); or (b) the WSJ Prime Rate plus five percent (5%). Interest will be computed on a per diem charge based on a three hundred sixty (360) day year.

AMENDED AND RESTATED LOAN AGREEMENT - 5 -

3.3. Payments. Provided that no event of Default has occurred or is continuing under any of the Loan Documents, the Note will be repaid in monthly payments of interest only on the first business day of each month until the balloon payment on the Note Maturity Date. The entire unpaid principal balance of the Note plus all accrued and unpaid interest thereon will be due and payable on the Maturity Date.

3.3.1 Voluntary Prepayment. Borrowers will have the right at any time to prepay the Note in whole or in part, without premium or penalty, but with interest accrued to the date of prepayment.

3.3.2 Place of Payments. All payments and prepayments of principal or interest on the Note will be made to the Bank in collected and freely transferable funds at or before 5:00 p.m. Oklahoma City, Oklahoma time on the date due at the Bank’s offices. All payments will be paid in full without set off or counterclaim and without reduction for, and free from, any and all taxes, levies, imposts, duties, fees, charges, deductions, withholdings, restrictions or conditions of any nature imposed by any government or any political subdivision or taxing authority thereof. Borrowers and GRMH hereby authorize and direct the Bank to make all payments on the Note as and when due, by direct debit to Borrowers’ demand deposit accounts with the Bank, if any. If any payment under the Note or this Agreement becomes due and payable on a day other than a business day, the maturity thereof will be extended to the next succeeding business day and such extension of time will in such case be included in the computation of payments of interest.

4. Collateral Security. Payment and performance of the Obligations will be secured by the Guaranties, the Security Agreements, the Collateral Assignment of Equity Interests, the Collateral Assignment of Leases, the other Loan Documents, all of the Collateral and such other or additional property as is agreed to by the Borrowers, Borrower Subsidiaries, Guarantor, GRMH and the Bank. The Borrowers have executed and delivered to the Bank account control agreements in substantially the form as attached at Exhibit “F” (collectively, the “Control Agreements”) for all accounts of the Borrowers and the Borrower’s Subsidiaries at Valliance Bank, First National Bank, and other financial institutions. The Bank will exercise its rights to give instructions to such banks under the Deposit Control Agreement only in the event of an uncured default under this Agreement and any other Loan Documents or the exercise or attempt by any other person to exercise any dominion or control over the account, directly or indirectly, including through any order, attachment or levy.

5. Conditions of Lending. The obligation of the Bank to perform this Agreement is subject to the continued performance by the Borrowers and the Guarantor of the following conditions precedent:

AMENDED AND RESTATED LOAN AGREEMENT - 6 -

5.1. Loan Documents. The execution, acknowledgment (where appropriate) and delivery by the appropriate parties of the Loan Documents, all in form and substance satisfactory to the Bank, and delivery of possession to the Bank of any Collateral the possession of which is necessary to perfect the Bank’s security interest.

5.2. Casualty Insurance. The Bank will have received satisfactory certificates of policies of fire and extended coverage insurance at full insurable value, business interruption insurance and public liability insurance with premiums prepaid and standard mortgagee clauses or designations as additional insureds in favor of the Bank and such additional persons as the Bank might reasonably require.

5.3. Authority. The Bank will have received: (a) certified copies of the instruments creating Borrowers and GRMH and/or governing the operation of Borrowers and GRMH complete with all amendments thereto and certificates to be filed in connection therewith; (b) satisfactory evidence that Borrowers and GRMH are qualified to do business in the State of Oklahoma; and (c) certified copies of resolutions and other documents reasonably required to authorize the execution, delivery and performance of the Loan Documents by the parties thereto.

5.4. No Default. The representations and warranties set forth in paragraph 6 of this Agreement will be true and correct on and as of the date of this Agreement and there will have occurred and be continuing no Default.

5.5. Opinion of Counsel. The Bank will have received the opinion of the Borrowers’ counsel in form and substance reasonably acceptable to the Bank and the Bank’s counsel.

5.6. Other Information. The Bank will have received current financial statements for GRMH, the Borrowers and the Guarantor and such other information, documents and instruments concerning GRMH, the Borrowers and the Guarantor as the Bank reasonably requests.

5.7. Attorney Fees. The Bank will have received reimbursement in immediately available funds as an estimate of the Bank’s legal fees and expenses incurred in connection with the negotiation and documentation of this Agreement, the Restructuring Agreement, the other Loan Documents, all prior accommodations made pursuant to the Prior Agreement and all matters in connection with any of the foregoing.

5.8. Oliver Payment. The Bank will have received $5,648,290.40 in immediately available funds from Roy T. Oliver or an entity under his ownership. The Oliver payment will be applied by the Bank first to costs and fees incurred by the Bank, then to accrued and unpaid interest and then to the principal balance of the Loan.

6. Representations. GRMH, the Borrowers and the Guarantor, each severally and not jointly and severally, and as is expressly applicable to GRMH, the Borrowers or Guarantor below, represent and warrant to the Bank that the following circumstances exist on the date of this Agreement and will continually exist throughout the term of the Loan:

AMENDED AND RESTATED LOAN AGREEMENT - 7 -

6.1. Existence. GRMH is a corporation duly organized and validly existing under the laws of the State of Oklahoma. ARx and SDC are and will each continue to be a limited liability company duly organized and validly existing under the laws of the State of Oklahoma. Each of GRMH, Borrowers and Guarantor have adequate power, authority and legal right to enter into and carry out the provisions of the Loan Documents, to borrow money and to give security for borrowings as required by this Agreement and to consummate the transactions hereby contemplated.

6.2. Financial Condition. The financial statements of Borrowers and Guarantor, copies of which have been furnished to the Bank, are correct and complete and fairly reflect the financial condition of Borrowers and Guarantor as of the date thereof (the most recent being as of May 31, 2013) and have been prepared in conformity with accounting principles applied on a basis consistent with that of preceding periods. There has occurred no material adverse change in the financial condition of the Borrowers from the date of such financial statements to the date of execution of this Agreement. However, Borrowers and GRMH continue to incur negative operating results and negative revenue trends.

6.3. Liabilities. None of Borrowers or the Guarantor has any material liabilities, direct or contingent, except those disclosed in the financial statements referred to in paragraph 6.2 of this Agreement.

6.4. Ownership. Except as set forth on Schedule “6.4”, the Borrowers have good and marketable title to the Collateral, free and clear of all liens, security interests, claims or encumbrances, except for liens and security interests in favor of the Bank.

6.5. Taxes. Except as set forth on Schedule “6.5”, the Borrowers and Guarantor have filed all foreign, federal, state and local tax returns which are required to be filed and have paid or made provisions for payment of all taxes which have or may become due pursuant to said returns or pursuant to any assessment, except such taxes as are being contested in good faith and as to which adequate reserves have been provided. The Borrowers and Guarantor do not know of any basis for the assessment of any deficiency taxes.

6.6. Litigation. Except as set forth on Schedule “6.6”, there is no action, suit, proceeding or investigation pending, or threatened against any Borrowers, the Guarantor or the Collateral which might: (a) materially adversely affect a Borrower, the Guarantor or the Collateral; (b) impair the ability of either Borrower to carry on its respective business as contemplated hereby; (c) result in any substantial liability not adequately covered by insurance; or (d) materially adversely affect a Borrower or its ability to perform its obligations under the Loan Agreement.

AMENDED AND RESTATED LOAN AGREEMENT - 8 -

6.7. Location of Business Records. The Borrowers will give the Bank written notice of each location of each Borrower and Borrower Subsidiary at which records pertaining to the Collateral, their business and other contract rights are kept. Except as such notice is given, all records of Borrowers pertaining to the Collateral and other contract rights are and will continue to be kept at the address of Borrowers as it appears in paragraph 14.7 of this Agreement, or at such other address as the Borrowers designate for such purpose in a written notice to the Bank. The principal place of business of each Borrower is in the State of Oklahoma.

6.8. No Default. The execution, delivery and performance by the Borrowers and the Guarantor of this Agreement and the Loan Documents will not violate any provision or constitute a default under any indenture, agreement or instrument to which any of the Borrowers or the Guarantor is a party or by which any Borrower, the Guarantor or the Collateral is bound or affected.

6.9. Full Disclosure. Neither this Agreement nor any statement or instrument referred to herein nor any other information, report or statement delivered to the Bank by GRMH, the Borrowers or the Guarantor contains any untrue statement or omits to state a material fact necessary to make the statements herein or therein not misleading.

6.10. Survival of Representations. All representations and warranties made by GRMH, the Borrowers and the Guarantor herein will survive the delivery of the Loan Documents and the making of the Loan evidenced thereby, and any investigation at any time made by or on behalf of the Bank will not diminish the Bank’s right to rely thereon. All statements contained in any certificate or other instrument delivered by or on behalf of GRMH, the Borrowers or the Guarantor under or pursuant to this Agreement or in connection with the transactions contemplated hereby will constitute representations and warranties made by GRMH, the Borrowers and the Guarantor hereunder, severally and as expressly applicable.

6.11. ERISA Plans. Each of the Borrowers have disclosed to the Bank all existing employee benefit plans under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). No termination event has occurred with respect to any ERISA plan of any Borrower and each of the Borrowers is in compliance with ERISA in all respects.

6.12. Intentionally Deleted.

6.13. Closing Agreement. The Closing Agreements dated May 21, 2013 are in full force and effect in the form attached hereto as Exhibit “G 1 and 2” (the “Closing Agreements”) and have not been terminated, modified or amended.

6.14. Outstanding Balance. GRMH, each of the Borrowers and the Guarantor acknowledge that the outstanding balance of the Prior Notes immediately prior to the effectiveness of this Agreement and the Restructuring Agreement is $16,500,594.85.

AMENDED AND RESTATED LOAN AGREEMENT - 9 -

7. Affirmative Covenants. Until the payment in full of the Obligations, unless the Bank otherwise consents in writing, GRMH, the Borrowers and the Guarantor, each severally and not jointly and severally, and where and as applicable as expressly indicated below, agree to perform or cause to be performed the following:

7.1. Performance of Obligations. The Borrowers will pay and perform all Obligations under the Loan Documents. The Borrowers will perform all of their respective obligations under all material contracts and agreements relating to their respective businesses, and will enforce the performance of the obligations of the other parties thereto.

7.2. Notifications. The Borrowers will give prompt written notice to the Bank of: (a) any event of Default; (b) any event of default by a Borrower Subsidiary under a material contract to such subsidiary’s portion of the Business; (c) changes of management of a Borrower; (d) the death, disability or termination of employment with GRMH or a Borrower by the Guarantor; (e) all material litigation affecting any Borrower, Borrower Subsidiary, the Guarantor or the Collateral; (f) any notices, demands or other written communications from third party payers regarding the general coding or billing practices or asserting a pattern of improper coding or billing practices of any Borrower or any of the Borrower Subsidiaries; (g) the change or relocation of the principal place of business of any Borrower outside the State of Oklahoma; and (h) any other matter which has resulted in, or might result in: (1) a material adverse change in the financial condition of any Borrower, the pharmacy or sleep lab businesses or of the Guarantor, or (2) a material adverse change in the ability of the Borrowers to perform their respective Obligations, warranties, covenants and conditions of the Loan Documents.

7.3. Records Inspections. The Borrowers and the Borrower Subsidiaries will each maintain full and accurate accounts and records of their respective operations on a basis consistent with prior periods. GRMH and the Borrowers will permit the Bank and the Bank’s designated representatives to have access to the Collateral and the records and accounts relating to the Collateral at all reasonable times to perform such inspections, audits and examinations as the Bank might reasonably request from time to time.

7.4. Financial Information. Borrowers and the Guarantor will furnish to the Bank:

AMENDED AND RESTATED LOAN AGREEMENT - 10 -

7.4.1 Financial Statements. Accurate books and records of account will be kept by GRMH (as such pertain to the Borrowers), the Borrowers and the Guarantor in accordance with accounting principles consistently applied. The Bank will have the right to examine and copy such books and records and the federal and state income tax returns of GRMH (as such pertain to the Borrowers), the Borrowers and the Guarantor, to discuss the affairs, finances and accounts of GRMH (as such pertain to the Borrowers), the Borrowers and the Guarantor, and to be informed as to the same at such times and intervals as the Bank might reasonably request. GRMH, and the Borrowers will furnish to the Bank within sixty (60) days after the end of each calendar quarter commencing with the quarter ending June 30, 2008, a quarterly reviewed financial statement of GRMH and Borrowers in form satisfactory to the Bank completed by GRMH and/or Borrowers’ outside accountant, together with a certification by the Borrowers as to the correctness of the Debt Service Coverage Ratio and GRMH as to the correctness of the Net Worth calculations in accordance with this Agreement. In addition to the quarterly statements, GRMH and Borrowers will furnish to the Bank within one hundred twenty (120) days after the close of their fiscal year, annual consolidated financial statements of GRMH and each Borrower completed and audited by GRMH’s outside accountant, including all consolidating entries and footnotes, starting with the calendar year 2008 and each year thereafter. The annual financial statements of GRMH and Borrowers will be prepared in accordance with generally accepted accounting principles consistently applied, will be certified by GRMH as to correctness and audited by GRMH’s outside accountants and will be in form and substance satisfactory to the Bank. So long as the Guaranty remains outstanding, the Guarantor will furnish to the Bank annual financial statements within one hundred twenty (120) days after the close of Guarantor’s fiscal year. The financial statements of the Guarantor will be prepared in accordance with accounting principles consistently applied and will be certified by Guarantor to the Bank, and will be in form and substance satisfactory to the Bank. In addition after an event of Default, the Guarantor will furnish financial statements to the Bank within fifteen (15) days after written request by the Bank. For each year in which any Obligations are outstanding, GRMH, the Borrowers and the Guarantor (as to the Guarantor until release of the Nelson Guaranty) will furnish to the Bank within fifteen (15) days of filing complete copies of all federal and state income tax returns of GRMH, the Borrowers and the Guarantor for the preceding year with all schedules attached. If the time for filing any such tax returns is to be extended, GRMH, the Borrowers and the Guarantor will provide to the Bank copies of such extensions with evidence that such extensions have been timely filed, within fifteen (15) days of filing.

7.4.2 Compliance Certificate. The Borrowers will deliver to the Bank, on the first day of each month, a certificate in the form attached as Exhibit “H”, executed by each Borrower’s chief executive officer and Guarantor (for so long as Guarantor is a member of GRMH’s board of directors or is employed as an officer of GRMH, a Borrower or a Borrower subsidiary), stating that the Borrowers know of no event of Default under any of the Loan Documents and that all requirements of the Loan Documents have been fully performed, or if to the knowledge of any Borrower any of the terms of any of the Loan Documents have not been fully performed, such certificate will specify the nature of the Default and the steps taken by the Borrowers to correct such Default.

AMENDED AND RESTATED LOAN AGREEMENT - 11 -

7.4.3 Other Information. At the Bank’s request from time to time, the Borrowers and the Guarantor (as to the Guarantor until release of the Nelson Guaranty) will provide the Bank with such other information as the Bank may reasonably request regarding the business affairs and financial condition of the Borrowers and the Guarantor. GRMH, the Borrowers and the Guarantor will provide access to the Bank at all reasonable times to all documents and information relating to the Collateral, the Borrower Subsidiaries and the sleep lab businesses.

7.4.4 Accounts Receivable; Inventory. Within forty-five (45) days after the end of each quarter, the Borrowers will furnish the Bank accounts receivable aging, listing and inventory reports for that quarter.

7.5. Deposit Accounts. The Borrowers will deposit all payments from operations into accounts subject to the Control Agreement. Unless a Default has occurred and is continuing, Borrowers will be permitted to utilize such funds for operations.

7.6. Additional Documents. GRMH, the Borrowers and the Guarantor will promptly, on demand by the Bank, perform or cause to be performed such actions and execute or cause to be executed all such additional agreements, contracts, indentures, documents and instruments as might be reasonably requested by the Bank to satisfy the requirements of this Agreement and the disbursement of funds hereunder.

7.7. Governmental Approvals. The Borrowers and Borrower Subsidiaries will each obtain all permits, licenses, and necessary approvals from governmental authorities and abutting landowners which are considered necessary for the proper operation of their respective businesses.

7.8. Taxes. Except as set forth on Schedule 7.8, all taxes, assessments, governmental charges and levies imposed on GRMH, the Borrowers and the Guarantor or GRMH’s the Borrowers’ or the Guarantor’s assets, income and profits will be paid by the entity owing same prior to the date on which penalties attach thereto, provided that GRMH, the Borrowers and the Guarantor will not be required to pay any such charge which is being contested in good faith by proper proceedings as to which adequate reserves have been established.

7.9. Access. Any representative of the Bank will have reasonable access to the Collateral and any other property owned by the Borrowers.

7.10. Operation. The Borrowers agree to operate their businesses directly, or indirectly through the Borrower Subsidiaries, in a prudent and efficient manner consistent with normal industry practices and all governing laws and regulations.

AMENDED AND RESTATED LOAN AGREEMENT - 12 -

7.11. Qualification; Licenses. The Borrowers will take such actions or cause such actions to be taken as might be required to maintain the existence of all governmental and private permits, licenses and authorities of the Borrowers and Borrower Subsidiaries, necessary or desirable to the continuation of the Borrowers and Borrower Subsidiaries’ businesses and will comply with all statutes and governmental regulations.

7.12. Insurance. Policies of insurance will be continuously maintained by the Borrowers on the Collateral with companies, in amounts equal to the replacement cost of such Collateral, with business interruption, valuable documents and account receivable loss coverage and against risks satisfactory to the Bank. The Borrowers will furnish the Bank with copies of all certificates of insurance policies in effect and evidence of payment of the premium for each insurance policy.

7.13. Attorney Fees. Within ten (10) days after receipt of invoice therefor, the Borrowers will (except where prohibited by applicable law) pay all reasonable expenses incurred by the Bank in connection with the negotiation and documentation of this Agreement, the Restructuring Agreement, the other Loan Documents, all prior accommodations made pursuant to the Prior Agreement and all matters in connection with any of the foregoing, including all attorneys’ fees, filing fees and recording costs. In addition, the Borrowers will pay all reasonable fees, costs, expenses (including legal expenses and attorneys’ fees) and disbursements of the Bank incident to: (a) the protection of the rights of the Bank in connection with the Loan Documents and the transactions contemplated thereby; and (b) the collection or enforcement of the Loan Documents whether by judicial proceedings, proceedings under Chapter 7 or 11 of the Bankruptcy Code or any successor statute thereto, or otherwise.

7.14. Foundation Acquisition. GRMH will complete its proposed acquisition of the Foundation Entities on the Closing Date, simultaneously with the closing of this Agreement. After such acquisition, all of the outstanding equity interests in the Foundation Entities will be owned by GRMH or a wholly-owned subsidiary of GRMH.

7.15. Debt Service Coverage Ratio. Commencing with the Quarter ending September 30, 2010, and thereafter during the term of the Loan, based on the latest four rolling quarters, the Borrowers will continuously maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.

7.16. Minimum Net Worth. During the term of the Loan, GRMH will continuously maintain the Minimum Net Worth determined on a quarterly basis.

7.17. Positive EBITDA. Beginning on March 31, 2013, and on the last day of each quarter thereafter, the GRMH’s EBITDA must be positive for such immediately ended quarter. “EBITDA” for any period means the net income for that period: (a) plus the following for such period to the extent deducted in calculating such net income, without duplication: (i) interest expense, (ii) all income tax expense; (iii) depreciation and amortization expense; and (iv) non-cash charges constituting intangible impairment charges, equity compensation and fixed asset impairment charges; (b) but, and in all cases, excluding from the calculation of EBITDA: (i) any extraordinary items (as determined in accordance with GAAP); and (ii) onetime or non-recurring gains or losses associated with the sale or disposition of any business, asset, contract or lease.

AMENDED AND RESTATED LOAN AGREEMENT - 13 -

7.18. Closing Agreement. GRMH, SDC and Guarantor will comply with all of the terms and conditions of the Closing Agreements as applicable to them on a several basis.

7.19. Sale of Non-Core Sleep Assets. GRMH and the Borrowers agree to use their commercially reasonable efforts to complete the sale of the non-core sleep assets identified in Section 2.4 of the Closing Agreement 1 on or before December 31, 2013. All proceeds from the sale of such assets shall be applied to the Loan.

7.20. Refinance. GRMH and the Borrowers will use their commercially reasonable efforts to refinance the Loan, with a closing date of such refinance transaction to occur on or before December 31, 2013, subject to the terms of Section 2.1 of Closing Agreement 1.

7.21. Mandatory Loan. Until December 31, 2013, GRMH will lend to SDC ten percent (10%) of the cash proceeds from any future issuance of GRMH common stock made pursuant to an S-1 or S-3 Registration Statement while any portion of the Loan is then outstanding. Such funds may be used by SDC for operations or to repay the Loan. Any such loans by GRMH will be subordinated in all respects to the Loan, pursuant to a subordination agreement to be executed by GRMH in form and substance acceptable to the Bank.

7.22. Purchase of Membership Interests. GRMH will use its commercially reasonable efforts by, through or together with TSH Acquisition, LLC (“TSH”), to raise funds in order to purchase existing outstanding preferred membership interests in the subsidiaries of TSH in accordance with Section 2.3 of Closing Agreement 1. GRMH will pay twenty percent (20%) of all syndication and discount fees associated with such purchases (calculated in accordance with Section 2.3 of the Closing Agreement) up to a maximum of $500,000.00 to the Bank for immediate application to the principal balance of the Loan.

8. Negative Covenants. GRMH, the Borrowers and the Guarantor, each severally and not jointly and severally and where and as applicable as expressly indicated below, agree that until payment in full of the Obligations, unless the Bank waives compliance in writing:

AMENDED AND RESTATED LOAN AGREEMENT - 14 -

8.1. Creation of Liens on Collateral. Neither any Borrower nor any Borrower Subsidiaries will create, assume or suffer to exist any trust deed, mortgage, pledge, security interest, encumbrance or other lien (including the lien of an attachment, judgment or execution) securing a charge or obligation affecting any or all of the Collateral or Accounts of the Borrower Subsidiaries, excluding only: (a) liens for governmental charges which are not delinquent or the validity of which is being contested in good faith by appropriate proceedings and as to which adequate reserves have been established under generally accepted accounting principles; (b) deposits made to secure statutory and other obligations incurred in the ordinary course of the Borrowers’ respective businesses; (c) equipment acquisition leases in the ordinary course of business (new or assumed); (d) Seller carry-back financing and liens of ARx or SDC set forth on Schedule “8.4”; (e) Seller carry-back financing to ARx or SDC from the acquisition of new sleep businesses, so long as subordinated to the Bank’s liens; and (f) liens to the Bank contemplated by this Agreement.

8.2. Creation of Liens on Pledged Interests. GRMH will not create, assume or suffer to exist any pledge, security interest, encumbrance or other lien (including the lien of an attachment, judgment or execution) securing a charge or obligation affecting any or all of the Pledged Interests, excluding only the collateral assignment and security interest contemplated by this Agreement and the Collateral Assignment of Equity Interests.

8.3. Liquidation or Merger. Except as contemplated in Section 7.19, neither the Borrowers nor any of Borrower Subsidiaries will liquidate, dissolve or enter into any consolidation, merger, partnership, joint venture, syndicate, pool, operating agreement or other combination, or convey, sell or assign any substantial part of their respective assets.

8.4. Creation of Debt. Except as provided in paragraph 6.4 and 7.21, neither the Borrowers nor any of Borrower Subsidiaries will incur, create or suffer to exist any indebtedness for borrowed money, or issue, discount or sell any obligation of the Borrowers or Borrower Subsidiaries, excluding only: (a) the indebtedness to the Bank contemplated by this Agreement; (b) current accounts payable arising in the ordinary course of their respective businesses; (c) financing for working capital of Borrower Subsidiaries of SDC secured only by the personal guaranties of minority interest holders in such Borrower Subsidiary; (d) the items enumerated in clauses (c), (d), (e) of paragraph 8.1; (e) an amount not to exceed $100,000.00 incurred in the ordinary course of business by SDC , including its subsidiaries, ; and (d) such other indebtedness as the Bank specifically approves in writing.

8.5. Loan and Guaranties. Neither the Borrowers nor any of Borrower Subsidiaries will make any loans, advances or extensions of credit to any person, firm or corporation nor become a guarantor or surety directly or indirectly unless the Bank otherwise consents in writing, except that: Borrowers may make short term operating advances or loans to Borrower Subsidiaries or guarantee obligations of Borrower Subsidiaries in the ordinary course of business.

AMENDED AND RESTATED LOAN AGREEMENT - 15 -

8.6. Transfers. Except as expressly permitted by this Agreement, the Borrowers will not transfer or permit to be transferred voluntarily or by operation of law any interest in the Collateral, the Borrower Subsidiaries or assets of the Borrower Subsidiaries, except that the Borrowers, with notice to the Bank, may recognize transfers of existing minority equity interests held by third parties in Borrower Subsidiaries so long as Borrowers’ equity or ownership interest therein is not decreased. GRMH holds and will maintain at all times ownership and distributable equity interest, directly or indirectly, in SDC and ARx of not less than one hundred percent (100%). The Borrowers may create or activate currently inactive Borrower Subsidiaries so long as the Borrowers maintain the ownership and distributable equity interests percentages of not less than 51% as to new Borrower Subsidiaries and provides notice to the Bank thereof and delivers such additional assignments or amendments to the Loan Documents satisfactory to the Bank covering such interests. Borrowers will not issue or sell any additional membership interests in SDC, ARx or Borrowers Subsidiaries or any other securities convertible into equity of such entities. The Guarantor will not sell, transfer or otherwise dispose of or create, assume or suffer to exist any pledge, lien, security interest, charge or encumbrance on, any interest in GRMH owned by the respective Guarantor which exceeds, in one or an aggregate of transactions, twenty percent (20%) of the respective interest currently owned, except after notice to the Bank pursuant to this Loan Agreement without any approval right implied. The Guarantor will not sell, transfer or permit to be transferred voluntarily or by operation of law assets owned by the Guarantor which will materially impair the financial worth of the Guarantor or the Bank’s ability to collect the amount of Obligations guaranteed by the Guarantor.

8.7. Other Agreements. The Borrowers and the Guarantor will not enter into any agreement that limits or restricts the ability of the Borrowers or the Guarantor to comply with the terms of the Loan Documents.

8.8. Limitation on Distributions and Redemptions. After the occurrence of an event of Default, Borrowers will not declare, pay or make any dividend or distribution directly or indirectly in respect of any stockholder or equity interest or other interest. Borrowers will not directly or indirectly make any capital contribution to or purchase, redeem, acquire or retire any stockholder or equity interest in GRMH (whether such interest is now or hereafter issued, outstanding or created) except with prior written consent and approval of the Bank.

8.9. Limitation on Investments and New Businesses. Except as otherwise permitted in the Loan Agreement, as amended from time to time, none of the Borrowers or Borrower Subsidiaries will: (a) make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business; (b) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to their respective present businesses and operations; or (c) make any acquisitions of or capital contributions to or other investments in any person or entity, in each case other than the planned and disclosed expansion of the sleep lab business at any time.

AMENDED AND RESTATED LOAN AGREEMENT - 16 -

8.10. Transactions with Affiliates. No Borrower will engage in any material transaction with any affiliate of a Borrower on terms which are less favorable to the Borrower than those which would have been obtainable at the time in an arm’s-length dealing with persons other than such affiliates.

8.11. Subsidiaries. None of the Borrowers will create or own any subsidiary without the prior written notice to the Bank including the name, state of organization, list of equity holders, principal place of business and intended purpose, geographical area and scope of business operations. Borrowers agree to cause the execution and delivery of such documents to collaterally assign the Borrower’s equity interest therein and to pledge, encumber or grant a security interest in such subsidiaries’ assets.

8.12. Acquisition of Sleep Center Assets. The Borrowers will not permit GRMH or the Foundation Entities to acquire any assets of the Borrowers, any Collateral, or any assets relating to the operation of a sleep center owned by any of the Borrowers or Borrower Subsidiaries.

8.13. No Contribution or Distribution. No money, funds or other remuneration received by any Borrower as a result of operations, sales of assets, or otherwise will be contributed, distributed or otherwise paid to GRMH, except that SDC may contribute to GRMH on a monthly basis an amount up to twenty percent (20%) of GRMH’s reasonable overhead expenses for such month.

9. Default. Unless remedied by the Borrowers as permitted under paragraph 10 or waived by the Bank in writing, the occurrence of any of the following events will constitute an event of default (“Default”):

9.1. Nonpayment of Note. A default in payment when due of any interest on or principal of the Note; or

9.2. Other Nonpayment. A default in payment when due of any other amount payable to the Bank under the terms of any of the Loan Documents; or

9.3. Breach of Agreement. A default by a Borrower or a Guarantor in the performance or observance of any agreement contained in the Loan Documents, or under the terms of any other instrument delivered to the Bank in connection with this Agreement; or

9.4. Lien Filings. Except as expressly permitted by this Agreement, the existence of any lien on the Collateral without indemnification therefor satisfactory to the Bank; or

9.5. Casualty Loss. Substantial damage to or destruction of a material portion of the Collateral or sleep lab businesses; or

AMENDED AND RESTATED LOAN AGREEMENT - 17 -

9.6. Other Agreements. The rescission, abandonment, disclaimer or breach of the Loan Agreement, a Guaranty or any of the other Loan Documents or other contracts or agreements pledged to the Bank under the Loan Documents; or

9.7. Representations. Any representation, statement, certificate, schedule or report made or furnished to the Bank by GRMH, the Borrowers or the Guarantor proves to be false or erroneous in any material respect at the time of the making thereof or any representation or warranty ceases to be complied with in any material respect; or

9.8. Bankruptcy. GRMH, a Borrower or the Guarantor becomes bankrupt or makes a general assignment for the benefit of creditors or applies for, or consents to, the appointment of a trustee, receiver or liquidator or authorizes such application or consent, or if proceedings seeking such appointment are commenced against GRMH, a Borrower or the Guarantor and remain undismissed and unstayed for ninety (90) days; or GRMH, a Borrower or the Guarantor authorizes or files a voluntary petition in bankruptcy or applies for or consents to the application of any bankruptcy, reorganization, readjustment of debt, insolvency, dissolution, liquidation or other similar law of any jurisdiction; or

9.9. Judgment. Entry by any court of judgment against GRMH, any of the Borrowers or the Guarantor in excess of Fifty Thousand Dollars ($50,000.00) which is not adequately covered by insurance or secured by a supersedes bond, or any attachment of any of the Collateral which is not discharged to the satisfaction of the Bank within thirty (30) days thereof; or

9.10. Maturity of Other Debt. The occurrence of an event of default under or the acceleration of the maturity of any other indebtedness of a Borrower or a Guarantor to any other person which in the reasonable opinion of the Bank will materially and adversely affect the ability of a Borrower or a Guarantor, as applicable, to perform the Loan Documents; or

9.11. Failure of Liens. Except as expressly permitted by this Agreement, failure of the Bank’s assignment, liens and security interests covering the Collateral to constitute a first and prior perfected lien on any material portion of the Collateral; or

10. Opportunity to Cure. The Borrower has the right to cure certain events under paragraph 9, as follows:

10.1. Nonpayment. Up to three events in the aggregate described in paragraphs 9.1 or 9.2 of this Agreement may be cured within five (5) days after written notice by the Bank to the Borrower (of which a copy need not be sent to the Borrower’s counsel as provided in paragraph 14.7 of this Agreement). No notice will be given and no opportunity to cure will be given for the fourth or subsequent event described in paragraphs 9.1 or 9.2.

AMENDED AND RESTATED LOAN AGREEMENT - 18 -

10.2. No Opportunity to Cure. No notice or opportunity to cure will be given for any event described in paragraphs 9.8 or 9.9.

10.3. Other Events of Default. Any event described in paragraph 9 (other than those set forth in paragraphs 9.1, 9.2, 9.8 or 9.9) may be cured within ten (10) days (five (5) days for events described in paragraph 9.11) after notice by the Bank to the Borrower.

If any event under paragraph 9 is (a) not cured as described in this paragraph 10 to the Bank’s reasonable satisfaction; or (b) is not permitted to be cured under this paragraph 10, then the Borrower will be in Default under this Agreement and the Bank may exercise all remedies available to it as described in this Agreement. GRMH, the Borrowers and the Guarantor hereby waive all notice requirements in connection with any Default hereunder.

11. Remedies. In the event of Default, the Bank will have the following remedies:

11.1. Acceleration of Note. The Bank may, at the Bank’s option, declare the Notes and all other Obligations to be immediately due and payable and the Bank will be entitled to proceed to selectively and successively enforce the Bank’s rights under the Loan Documents or any one or more of them.

11.2. Selective Enforcement. In the event the Bank elects to selectively and successively enforce the Bank’s rights under any one or more of the instruments securing payment of the Obligations, such action will not be deemed a waiver or discharge of any other lien or encumbrance securing payment of the Obligations until such time as the Bank has been paid in full all sums owing to the Bank.

11.3. Performance by the Bank. The Bank will have the right (but not the obligation) to: (a) take possession of the Collateral and operate or dispose of the Collateral in such manner as the Bank determines in the Bank’s sole discretion; (b) take possession of all Accounts, Equipment, Inventory, General Intangibles, materials and tools used in any Borrower’s businesses; (c) make payments of the costs directly to persons engaged by a Borrower or the Bank; (d) make such payments and perform such acts as might be determined by the Bank to be necessary or appropriate to perform or to cure any default in performance by the Borrowers under agreements affecting the Collateral; and (e) make advances under the Notes without the consent of the Borrowers to pay interest accrued thereon and all costs. If the Bank exercises such option, all costs will be paid to the Bank by the Borrowers. GRMH, the Borrowers and the Guarantor hereby authorize the Bank to increase the indebtedness owing by the Borrowers to the Bank and agree that the Loan Documents will evidence and secure payment of such costs whether or not the total funds advanced exceed the face amount of the Loan Documents.

11.4. Waiver of Default. The Bank may, by an instrument in writing signed by the Bank, waive any Default which has occurred and any of the consequences of such Default, and in such event, the Bank, the Borrowers and the Guarantor will be restored to their respective former positions, rights and obligations hereunder. Any Default so waived will, for the purposes of this Agreement, be deemed to have been cured and not to be continuing, but no such waiver will extend to any subsequent or other Default or impair any consequence of such subsequent or other Default.

AMENDED AND RESTATED LOAN AGREEMENT - 19 -

11.5. Deposits; Setoff. Regardless of the adequacy of any other collateral security held by the Bank, any deposits or other sums credited by or due from the Bank to the Borrowers or the Guarantor will at all times constitute collateral security for all indebtedness and obligations of the Borrowers and the Guarantor to the Bank and may be set off against any and all liabilities of the Borrowers and the Guarantor to the Bank. The rights granted by this paragraph are in addition to the rights of the Bank under any statutory banker’s lien now or hereafter in effect.

11.6. No Personal Liability. Notwithstanding any provision of this Agreement, except as expressly provided in the Amended and Restated Collateral Assignment of Equity Interests and Security Agreement executed by GRMH of even date herewith, in no event will GRMH have any personal liability under this Agreement, it being agreed and understood that any liability of GRMH will in all other events be limited to and be recourse only to the Pledged Interests.

12. Covenant Waiver. The Bank hereby waives compliance with the covenants contained in paragraph 7.15, paragraph 7.16, and paragraph 7.17, until December 31, 2013, at which time such covenants shall continue in full force and effect. Any covenant waivers by the Bank pursuant to the Prior Agreement are hereby revoked, unless expressly made in this Agreement.

13. RELEASE OF CLAIMS. IN CONSIDERATION OF THE TRANSACTIONS DESCRIBED IN THIS AGREEMENT AND IN THE OTHER LOAN DOCUMENTS, GRMH, THE BORROWERS AND THE GUARANTOR KNOWINGLY AND VOLUNTARILY, UNCONDITIONALLY AND IRREVOCABLY, ABSOLUTELY RELEASE AND FOREVER DISCHARGE THE BANK AND EACH OF ITS REPRESENTATIVES, AGENTS, AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ADVISORS, SHAREHOLDERS, SUBSIDIARIES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”) FROM ANY AND ALL SUITS, LAWSUITS, CLAIMS, DEMANDS, PROCEEDINGS, ACTIONS, CAUSES OF ACTION, ORDERS, LIABILITIES, DAMAGES, INJURIES, EXPENSES, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, BOTH AT LAW AND IN TORT, IN CONTRACT OR OTHERWISE, WHICH GRMH, THE BORROWERS OR THE GUARANTOR MAY HAVE OR HAVE EVER HAD AGAINST THE RELEASED PARTIES.

13.1. ACKNOWLEDGMENTS AND ADMISSIONS. EACH OF GRMH, THE BORROWERS AND THE GUARANTOR HEREBY REPRESENT, WARRANT, ACKNOWLEDGE AND ADMIT THAT (A) EACH OF THEM HAS MADE AN INDEPENDENT DECISION TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY, WITHOUT RELIANCE ON ANY REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING BY THE BANK, WHETHER WRITTEN, ORAL OR IMPLICIT, OTHER THAN AS

AMENDED AND RESTATED LOAN AGREEMENT - 20 -

EXPRESSLY SET OUT IN THIS AGREEMENT OR IN ANOTHER LOAN DOCUMENT DELIVERED ON OR AFTER THE DATE HEREOF, (B) THERE ARE NO REPRESENTATIONS, WARRANTIES, COVENANTS, UNDERTAKINGS OR AGREEMENTS BY THE BANK AS TO THE LOAN DOCUMENTS EXCEPT AS EXPRESSLY SET OUT IN THIS AGREEMENT OR IN ANOTHER LOAN DOCUMENT DELIVERED ON OR AFTER THE DATE HEREOF, (C) THE BANK HAS NO FIDUCIARY OBLIGATION TOWARD GRMH, THE BORROWERS OR THE GUARANTOR WITH RESPECT TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, (D) THE RELATIONSHIP PURSUANT TO THE LOAN DOCUMENTS BETWEEN THE BORROWERS AND THE BANK IS AND WILL BE SOLELY THAT OF DEBTOR AND CREDITOR, (E) NO PARTNERSHIP OR JOINT VENTURE EXISTS WITH RESPECT TO THE LOAN DOCUMENTS BETWEEN ANY BORROWER OR THE GUARANTOR AND THE BANK, (F) SHOULD A DEFAULT OCCUR OR EXIST, THE BANK WILL DETERMINE IN ITS SOLE DISCRETION AND FOR ITS OWN REASONS WHAT REMEDIES AND ACTIONS IT WILL OR WILL NOT EXERCISE OR TAKE AT THE TIME, (G) WITHOUT LIMITING ANY OF THE FOREGOING, NO BORROWER, GUARANTOR NOR GRMH IS RELYING UPON ANY REPRESENTATION OR COVENANT BY THE BANK, OR ANY REPRESENTATIVE THEREOF, AND NO SUCH REPRESENTATION OR COVENANT HAS BEEN MADE, THAT THE BANK WILL, AT THE TIME OF AN EVENT OF DEFAULT, OR AT ANY OTHER TIME, WAIVE, NEGOTIATE, DISCUSS OR TAKE OR REFRAIN FROM TAKING ANY ACTION PERMITTED UNDER THE LOAN DOCUMENTS WITH RESPECT TO ANY SUCH EVENT OF DEFAULT OR ANY OTHER PROVISION OF THE LOAN DOCUMENTS, AND (H) THE BANK HAS RELIED UPON THE TRUTHFULNESS OF THE ACKNOWLEDGMENTS IN THIS PARAGRAPH 13.1 IN DECIDING TO EXECUTE AND DELIVER THIS AGREEMENT AND TO BECOME OBLIGATED HEREUNDER.

13.2. JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

13.3. INDEMNITY. THE BORROWERS AGREE TO INDEMNIFY THE BANK, UPON DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS PARAGRAPH COLLECTIVELY CALLED “LIABILITIES AND COSTS”) WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST

AMENDED AND RESTATED LOAN AGREEMENT - 21 -

THE BANK BY THIRD PARTIES GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH THE COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY THE BORROWERS, THE GUARANTOR OR THE BANK OR ANY LIABILITIES OR DUTIES THE BORROWERS, THE GUARANTOR OR THE BANK WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT).

THE FOREGOING INDEMNIFICATION WILL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY THE BANK, PROVIDED ONLY THAT THE BANK WILL NOT BE ENTITLED UNDER THIS PARAGRAPH TO RECEIVE INDEMNIFICATION FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY ITS OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT. IF ANY PERSON (INCLUDING ANY BORROWER, ANY OF THEIR AFFILIATES OR ANY GUARANTOR) EVER ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY THE BANK, THE INDEMNIFICATION PROVIDED FOR IN THIS PARAGRAPH WILL NONETHELESS BE PAID UPON DEMAND, SUBJECT TO LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS A COURT OF COMPETENT JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF THE ALLEGED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. AS USED IN THIS PARAGRAPH THE TERM “BANK” WILL REFER NOT ONLY TO THE PERSON DESIGNATED AS SUCH BUT ALSO TO EACH DIRECTOR, OFFICER, AGENT, ATTORNEY, EMPLOYEE, PARTICIPANT, REPRESENTATIVE AND AFFILIATE OF THE BANK.

13.4. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF GRMH, THE BORROWERS, THE BORROWER SUBSIDIARIES, THE GUARANTOR AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY A JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY, (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY

AMENDED AND RESTATED LOAN AGREEMENT - 22 -

RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL DAMAGES,” AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH. AS USED IN THIS PARAGRAPH, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.

14. Miscellaneous. It is further agreed as follows:

14.1. Participating Lenders. GRMH, the Borrowers and the Guarantor agree that although the Loan Documents name the Bank as the holder thereof, the Bank is authorized to sell participation interests in all or any portion of the Loan to other financial institutions (a “Participating Lender”) and GRMH, the Borrowers and the Guarantor agree that, subject to the terms of the agreements of participation, each Participating Lender will be entitled to rely on the terms of the Loan Documents as if the Participating Lender had been named as an original party to the Loan Documents.

14.2. Notice Waiver. GRMH, the Borrowers and the Guarantor hereby waive all notice requirements in connection with any Default hereunder.

14.3. Guaranties. Each of the Guaranties remains in full force and effect with respect to the Loan as described in this Agreement and evidenced by the Note.

14.4. Supersession. This Agreement supersedes and replaces the Prior Agreement in its entirety. Any reference in any of the Loan Documents to the Prior Agreement will be deemed a reference to the applicable provisions of this Agreement.

14.5. Cumulative Remedies. No failure on the part of the Bank to exercise and no delay in exercising any right hereunder will operate as a waiver thereof, nor will any single or partial exercise by the Bank of any right hereunder preclude any other or further right of exercise thereof or the exercise of any other right.

14.6. Survival of Representations. All representations and warranties made herein will survive the making of the Loan hereunder and the delivery of the Loan Documents.

AMENDED AND RESTATED LOAN AGREEMENT - 23 -

14.7. Notices. Any notice, demand or communication required or permitted to be given by any provision of this Agreement will be in writing and will be deemed to have been given and received when delivered personally or by telefacsimile to the party designated to receive such notice, or on the date following the day sent by overnight courier, or on the third (3rd) business day after the same is sent by certified mail, postage and charges prepaid, directed to the following addresses or to such other or additional addresses as any party might designate by written notice to the other parties:

The Bank:	Arvest Bank
	Attention: Mr. Bradley W. Krieger
	5621 North Classen Boulevard
	Oklahoma City, Oklahoma 73118
	Fax: (405) 523-4126
with copy to:	Tom Blalock, Esquire
	Commercial Law Group, P.C.
	5520 North Francis Avenue
	Oklahoma City, Oklahoma 73118
	Fax: (405) 232-5553
GRMH and
Borrowers:	Graymark Healthcare, Inc.
	Attention: Mr. Stanton Nelson
	101 North Robinson, Suite 900
	Oklahoma City, Oklahoma 73102
	Fax: (405) 239-2258
with copy to:
	Marcelo Puiggari, Esq.
	General Counsel & VP Legal Services
	Foundation HealthCare Affiliates, LLC
	14000 N. Portland Ave., Suite 204
	Oklahoma City, OK 73134
The Guarantor:
	Mr. Stanton Nelson
	101 North Robinson, Suite 900
	Oklahoma City, Oklahoma 73102
	Fax: (405) 239-2258

14.8. Construction. The Loan Documents are intended to constitute contracts made under the laws of the State of Oklahoma and to be construed in accordance with the internal laws of said state. Nothing in this Agreement will be construed to constitute the Bank as a joint venturer with GRMH, any of the Borrowers or the Guarantor or to constitute a partnership. The descriptive headings of the paragraphs of this Agreement (except the terms defined in paragraph 1) are for convenience only and are not to be used in the construction of the content of this Agreement. This Agreement may be executed in multiple counterparts, each of which will constitute one agreement. The parties agree that any counterpart may be executed by facsimile signature and such facsimile signature will be deemed an original.

AMENDED AND RESTATED LOAN AGREEMENT - 24 -

14.9. Binding Effect. This Agreement will be binding on and will inure to the benefit of the Bank, GRMH, the Borrowers, and the Guarantor and their respective successors and assigns.

14.10. No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement or to constitute such person a third party beneficiary of this Agreement.

14.11. Assignment. Neither this Agreement, the Loan Documents nor the proceeds from the Loan will be assigned without the Bank’s prior written consent, and without such consent, there will be no right to designate a payee of the proceeds from the Loan.

14.12. Time. Time is of the essence of this Agreement and each provision of the other Loan Documents.

14.13. Severability. In case any one or more of the provisions contained in the Loan Documents should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provision or provisions will not in any way be affected or impaired thereby in any other jurisdiction; and the validity, legality and enforceability of the remaining provisions contained herein and therein will not in any way be affected or impaired thereby.

14.14. Verbal Change. The Loan Documents may not be amended, altered, modified or changed verbally, but only by an agreement in writing signed by the party against whom enforcement of any amendment, waiver, change, modification or discharge is sought.

14.15. No Waiver. No advance of the proceeds from the Loan under any of the Loan Documents will constitute a waiver of any of the representations, warranties, conditions or covenants of GRMH, the Borrowers or the Guarantor under the Loan Documents. In the event GRMH, the Borrowers or the Guarantor is unable to satisfy any warranty, condition or covenant contained in the Loan Documents, no advance of the proceeds from the Loan will preclude the Bank from thereafter declaring such inability to be an event of Default.

AMENDED AND RESTATED LOAN AGREEMENT - 25 -

14.16. Application of Loan Proceeds. The Bank may apply the proceeds from the Loan under the Note to the satisfaction of any condition, warranty or covenant of the Borrowers under any of the Loan Documents, and any proceeds so applied will be considered as a part of the proceeds from the Loan advanced under the Note and will be secured by the Loan Documents.

AMENDED AND RESTATED LOAN AGREEMENT - 26 -

Schedule “6.4”	-	Liens, Claims and Encumbrances
Schedule “6.5”	-	Taxes
Schedule “6.6”	-	Litigation
Exhibit “A”	-	Form of Collateral Assignment of Equity Interests
Exhibit “B”	-	Form of Collateral Assignment of Leases
Exhibit “C”	-	Form of Nelson Guaranty
Exhibit “D”	-	Form of Amended and Restated Promissory Note
Exhibit “E”	-	Form of Security Agreement
Exhibit “F”	-	Form of Account Control Agreement
Exhibit “G”	-	Form of Closing Agreement I and II
Exhibit “H”	-	Form of Compliance Certificate

[Signature Pages Follow]

AMENDED AND RESTATED LOAN AGREEMENT - 27 -

SIGNATURE PAGE TO

SECOND AMENDED AND RESTATED LOAN AGREEMENT

IN WITNESS WHEREOF, the parties have executed this Agreement effective the date first above written.

BANK: ARVEST BANK, an Arkansas banking corporation
By:	/s/ Bradley W. Krieger
	Bradley W. Krieger, Executive Vice President and Regional Manager

SIGNATURE PAGE TO

SECOND AMENDED AND RESTATED LOAN AGREEMENT

IN WITNESS WHEREOF, the parties have executed this Agreement effective the date first above written.

GRMH: GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
By:	/s/ Stanton M. Nelson
	Stanton M. Nelson, CEO

BORROWER: APOTHECARYRX LLC, an Oklahoma limited liability company
By:	Graymark Healthcare, Inc., an Oklahoma corporation, its Manager
	By:	/s/ Stanton M. Nelson
		Stanton M. Nelson, CEO

BORROWER: SDC HOLDINGS, LLC, an Oklahoma limited liability company
By:	Graymark Healthcare, Inc., an Oklahoma corporation, its Manager
	By:	/s/ Stanton M. Nelson
		Stanton M. Nelson, CEO

SIGNATURE PAGE TO

SECOND AMENDED AND RESTATED LOAN AGREEMENT

IN WITNESS WHEREOF, the parties have executed this Agreement effective the date first above written.

GUARANTOR:

/s/ STANTON M. NELSON

STANTON M. NELSON, individually

SCHEDULE “6.4”

Liens, Claims and Encumbrances

SCHEDULE “6.5”

Taxes

SCHEDULE “6.6”

Litigation

EX-10.8

Exhibit 10.8

AMENDED AND RESTATED

PROMISSORY NOTE

$10,691,261.71 Oklahoma City, Oklahoma July 22, 2013

FOR VALUE RECEIVED, the undersigned, SDC HOLDINGS, LLC, an Oklahoma limited liability company (“SDC”) and APOTHECARYRx, LLC, an Oklahoma limited liability company (“ARx” with SDC, the “Borrowers” and each a “Borrower”), jointly and severally promise to pay to the order of ARVEST BANK, an Arkansas banking corporation (the payee, its successors and assigns are hereinafter called the “Lender”), at 3900 North Lincoln Blvd, Oklahoma City, Oklahoma 73105 or at such other place as may be designated in writing by the Lender, the principal sum of TEN MILLION SIX HUNDRED NINETY ONE THOUSAND TWO HUNDRED SIXTY ONE AND 71/100 DOLLARS ($10,691,261.71), or so much thereof as is disbursed, together with interest thereon at the rates hereinafter stated:

Prior to Default, the unpaid principal balance of this Note will bear interest from the date of advance at the per annum rate equal to the greater of (a) the then applicable WSJ Prime Rate, as adjusted as provided herein; or (b) six percent (6%) per annum. Interest will be computed on a per diem charge based on a three hundred sixty (360) day year. The entire unpaid principal balance of this Note plus all accrued and unpaid interest thereon will be due and payable on December 31, 2013 (the “Note Maturity Date”).

The WSJ Prime Rate is defined as the rate per annum reported as the Prime rate in the “Money Rates” section of The Wall Street Journal or a substitute source reasonably determined by Lender in the event such source is no longer available. The WSJ Prime Rate will be adjusted, without notice, on an annual basis to the WSJ Prime Rate then in effect as of each anniversary date of this Note, or the first business day following such date if the anniversary date occurs on a weekend or holiday that there is no such rate determined or published.

Provided that no event of Default has occurred or is continuing under any of the Loan Documents, this Note will be repaid in monthly payments of interest only on the first business day of each month until the balloon payment on the Note Maturity Date.

Unless otherwise defined herein, all terms defined or referenced in that certain Loan Agreement of even date herewith (the “Loan Agreement”), among the Borrowers, Guarantors and the Lender, will have the same meanings herein as therein.

A&R PROMISSORY NOTE

SDC HOLDINGS, LLC

All payments will first be applied to the payment of accrued interest and the balance will be applied in reduction of the principal balance hereof provided that no payment will be applied to this Note until received by the Lender in collected funds. All advances made or to be made under this Note will be made subject to the terms and conditions stated in the Loan Agreement.

The Borrowers will have the right to prepay this Note in whole or in part at any time and from time to time without premium or penalty, but with interest accrued to the date of prepayment.

The Borrowers agree that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender’s rights hereunder or under any instrument securing payment of this Note, the Borrowers will pay the Lender’s reasonable attorneys’ fees, all court costs and all other expenses incurred by the Lender in connection therewith.

During the continuance of an event of Default, all amounts due under the Note will bear interest at the per annum rate equal to the greater of: (a) fifteen percent (15%); or (b) the WSJ Prime Rate plus five percent (5%), and such interest which has accrued will be paid at the time of and as a condition precedent to curing any Default hereunder. During the existence of any such Default, the Lender may apply any payments received on any amount due hereunder or under the terms of any instrument now or hereafter evidencing or securing this indebtedness as the Lender determines from time to time.

This Note is issued by the Borrowers and accepted by the Lender pursuant to a lending transaction negotiated, consummated and to be performed in Oklahoma City, Oklahoma County, Oklahoma. Payment of this Note is secured by and subject to the terms and conditions of the Loan Documents. This Note is to be construed according to the internal laws of the State of Oklahoma. All actions with respect to this Note, the Loan Documents or any other instrument securing payment of this Note may be instituted in the courts of the State of Oklahoma sitting in Oklahoma County, Oklahoma, or the United States District Court sitting in Oklahoma City, Oklahoma, as the Lender may elect, and by execution and delivery of this Note, the Borrowers irrevocably and unconditionally submit to the jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waive: (a) any objection a Borrower might now or hereafter have to the venue in any such court; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum.

On the occurrence of any event of Default under any of the Loan Documents or any other instrument securing payment of this Note which is not timely cured as provided in the Loan Agreement, at the option of the Lender, the entire indebtedness evidenced by this Note will become immediately due, payable and collectible then or thereafter as the Lender might elect, regardless of the date of maturity hereof. Failure by the Lender to exercise such option will not constitute a waiver of the right to exercise the same in the event of any subsequent default.

A&R PROMISSORY NOTE SDC HOLDINGS, LLC - 2 -

The makers, endorsers, sureties and all other persons who may become liable for all or any part of this obligation severally waive presentment for payment, protest and notice of nonpayment. Said parties consent to any extension of time (whether one or more) of payment hereof, release of all or any part of the security for the payment hereof or release of any party liable for the payment of this obligation. Any such extension or release may be made without notice to any such party and without discharging such party’s liability hereunder.

This Note is executed, delivered and accepted, not in satisfaction of the indebtedness thereby evidenced, but for the purpose of amending, restating, consolidating and entirely replacing (i) that certain Second Amended and Restated Promissory Note dated June 30, 2010 in the original principal amount of Thirty Million Dollars ($30,000,000.00) executed by the Borrowers and Graymark Healthcare, Inc. in favor of the Lender, and (ii) that certain Amended and Restated Promissory Note dated June 30, 2010 in the original principal amount of Fifteen Million Dollars ($15,000,000.00) executed by the Borrowers and Graymark Healthcare, Inc. in favor of the Lender.

[SIGNATURE PAGE TO FOLLOW]

A&R PROMISSORY NOTE SDC HOLDINGS, LLC - 3 -

IN WITNESS WHEREOF, the Borrowers have executed this instrument effective the date first above written.

APOTHECARYRx LLC, an Oklahoma limited liability company BY: GRAYMARK HEALTHCARE, INC., an Oklahoma Corporation, its MANAGER
	By	/s/ Stanton M. Nelson
		Stanton M. Nelson, CEO

SDC HOLDINGS, LLC, an Oklahoma limited liability company BY: GRAYMARK HEALTHCARE, INC., an Oklahoma Corporation, its MANAGER
	By	/s/ Stanton M. Nelson
		Stanton M. Nelson, CEO
(the “Borrowers”)

A&R PROMISSORY NOTE

SDC HOLDINGS, LLC

IN WITNESS WHEREOF, the Lender has executed this instrument effective the date first above written.

ARVEST BANK, an Arkansas banking corporation
By	/s/ Bradley W. Krieger
	Bradley W. Krieger, Executive Vice President and Regional Manager
(the “Lender”)

A&R PROMISSORY NOTE

SDC HOLDINGS, LLC

EX-10.9

Exhibit 10.9

PARTICIPATION AGREEMENT

This Participation Agreement (the “Participation Agreement”) is made effective as of July 22, 2013, among ARVEST BANK, an Arkansas banking corporation (the “Lead”), and GRAYMARK HEALTHCARE, INC., an Oklahoma corporation (the “Participant”) with reference to the following circumstances:

A. The Lead, the Participant (as a Borrower), and the Guarantors and other Borrowers thereto, previously entered into an Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (collectively, the “Prior Agreement”).

B. The Participant is indebted to the Lead under (i) the Amended and Restated Promissory Note, in the original principal amount of $15,000,000.00 dated June 30, 2010, and (ii) the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (collectively, together with any amendments, renewals or extensions thereto, the “Prior Notes”).

C. The Lead, the Participant and others have agreed, pursuant to a Loan Restructuring Agreement dated of even date herewith, to amend and restate the Prior Agreement and to restructure the loan evidenced by the Prior Notes and enter into certain other transactions, including (i) the issuance of a $6,000,00.00 subordinated participation by the Bank to the Participant in the restructured loan pursuant to this Participation Agreement, and (ii) the Participant’s issuance of 13,333,333 shares of its common stock to the Bank in exchange for the participation.

Now, therefore, in consideration of the restructuring of the loan evidenced by the Prior Notes, the issuance of shares of common stock by the Participant to the Lead, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Sale and Purchase of Participation. This Participation Agreement is in reference to the Amended and Restated Promissory Note made by SDC Holdings, LLC and ApothecaryRx, LLC (collectively, the “Borrowers”) in favor of the Lead in the principal amount of $10,691,261.71, dated July 22, 2013 (the “Note”), the Second Amended and Restated Loan Agreement by and among the Lead, the Participant, the Borrowers and Stanton M. Nelson (the “Loan Agreement”) and all of the other loan documents executed in connection with the Note (collectively, the “Loan Documents”). The Lead hereby sells and the Participant hereby purchases a participation interest in the Note in the amount of Six Million Dollars ($6,000,000.00) (the “Participation Interest”). The purchase and sale of the Participation Interest will be made as follows:

1.1. Simultaneously with the purchase of the Participation Interest by the Participant, the Lead will execute and deliver to the Participant a counterpart of this Participation Agreement as evidence of the Participant’s interest in the Note. The Participation Interest is granted without recourse to, or representation or warranty by, the Lead and is subject to the terms and provisions of this Agreement and the Loan Documents.

PARTICIPATION AGREEMENT – ARVEST BANK

1.2. In exchange for the Participation Interest, simultaneously with the purchase of the Participation Interest, the Participant will (i) execute and deliver to the Lead a Subscription Agreement dated of even date herewith, pursuant to which the Participant will issue, and the Lead will acquire, 13,333,333 shares of the Participant’s Common Stock, and (ii) deliver to the Lead a stock certificate representing the shares of Participant’s Common Stock issued to the Lead pursuant to the Subscription Agreement.

1.3. Notwithstanding any other provision of this Agreement, the Participation Interest will be fully subordinated to the interest of the Lead and any other participation in the Loan sold or transferred by the Lead (collectively, the “Lead Interest”). After the Lead Interest has been paid in full, including the amount of all principal, interest, and costs incurred by the holder of the Lead Interest during the collection, documentation or administration thereof, and any other costs for which the holder of the Lead Interest is entitled to reimbursement under the Loan Documents and this Agreement (a “Lead Payoff”), the holder of the Lead Interest will assign the Loan Documents to the Participant without representation, warranty or recourse of any kind and thereafter the Participant will be the sole owner of the Note. Until a Lead Payoff occurs, the Lead will retain (a) all amounts received or collected by the Lead on the Note until the principal amount of the Note has been paid in full and (b) the benefit of any collateral held by the Lead securing the Note (the “Collateral”). Payments received by the Lead resulting from foreclosure or other collection procedures (including bankruptcy and other federal or state insolvency proceedings) will be distributed in the same manner as payments of interest and principal.

2. Agency. The Participant hereby irrevocably appoints the Lead as its duly authorized agent and attorney in fact to act on behalf of the Participant in all matters relating to this Participation Agreement and the Loan Documents and to take such actions on behalf of the Participant and to exercise such powers as are delegated to the Lead by the terms of this Participation Agreement or the Loan Documents together with all actions and powers that are reasonably incidental thereto. Without limiting the foregoing, the Lead will have the following duties and rights in acting as agent for the Participant under this Participation Agreement and the Loan Documents:

2.1. Collateral. Legal title and physical possession of the Note and the Loan Documents will be held by and in the name of the Lead. To the extent applicable, legal title and physical possession of the Collateral will be held by and in the name of the Lead or an entity designated to be the Lead, until a Lead Payoff occurs.

2.2. Discretion. In the exercise of its functions under this Participation Agreement and the Loan Documents, the Lead will have, may exercise and will be entitled to such rights, powers, immunities, exculpations and privileges as are specifically granted to it by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. The Lead will use the Lead’s sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which the Lead is entitled to take or exercise under the Loan Documents or this Participation Agreement.

PARTICIPATION AGREEMENT – ARVEST BANK - 2 -

2.3. Observance of Agreements. The Lead will not be bound to ascertain or inquire as to the performance or observance by any party of any of the terms of this Participation Agreement or any of the Loan Documents. The Lead will not be responsible to the Participant for the value, legality, validity, sufficiency, priority, perfection, enforceability or effectiveness of the Loan Documents, the Collateral or any security interest or lien given to or held by the Lead thereunder or hereunder, or for the performance or observance of any other party of any of the terms of any of the Loan Documents or this Participation Agreement.

3. Duties of Participants. The Participant hereby agrees as follows:

3.1. Duty to Participate in Decision Making. The Participant will promptly respond to all requests for information or responses from the Lead.

3.2. Reimbursement. All of the Lead’s fees, expenses, costs and other liabilities which are incurred by the Lead in connection with any action taken by the Lead (including legal expenses and attorneys’ fees) and disbursements of the Lead incident to: (a) the protection of the rights of the Lead and the Participants in connection with the Loan Documents and the transactions contemplated thereby; (b) the collection or enforcement of the Loan Documents whether by judicial proceedings, proceedings under the Bankruptcy Code or any successor statute thereto; or (c) administration of the Loan Documents, and all amendments thereto, including the attorney fees incurred by the Lead in connection therewith and administration of the transactions contemplated by the Loan Documents, exclusive, however, of any expenses for which the Lead has been reimbursed by the Borrower, shall be added to the amounts due by Borrower under the Note, for purposes of determining when a Lead Payoff has occurred pursuant to this Participation Agreement. Participant shall not be obligated to pay any of such costs or expenses.

3.3. Duty to Inform Lead. The Participant will immediately inform the Lead should the Participant become aware of any default by the Borrower under the Loan Documents. Absent actual knowledge by the Lead or such notification, the Lead will be under no obligation to take any action in connection with the Loan Documents as a result of such failure or default by the Borrower.

3.4. Actions Regarding Payments. The Participant agrees that it will (i) not seek to collect any payments in connection with the Note unless and until the Lead has assigned the Note to the Participant following a Lead Payoff, (ii) immediately remit to the Lead any payments it receives in connection with the Note prior to an assignment of the Note to the Participant, and (iii) do nothing to discourage, inhibit or prevent Borrower from making its payments due under the Note.

PARTICIPATION AGREEMENT – ARVEST BANK - 3 -

4. Term. Unless sooner terminated by the written agreement of the Lead and the Participant, the term of this Participation Agreement and the Participation Interest provided for herein will be for the period from the date of this Participation Agreement through the time when either (i) the Note is paid in full, or (ii) the Note has been assigned to the Participant following a Lead Payoff, whichever first occurs.

5. Limited Liability. In making and administering the Loan and dealing with the Collateral, the Lead will exercise the same care as the Lead exercises in the case of loans in which the Lead alone is interested. The Lead will keep the Participant informed as to the occurrence of any default after execution and delivery of the Note occurring under the Loan Documents that has resulted in the maturity of the Note being accelerated. If the Borrower is in default under the Loan Documents after execution and delivery of the Note and any applicable cure period has expired without such Default being cured, the Lead will take actions from time to time under the Loan Documents or with respect to the Collateral held by the Lead, based solely on the Lead’s own discretion. No implied covenants, duties or obligations will be read into this Participation Agreement against the Lead but the duties and obligations of the Lead will be determined solely by the express provisions of this Participation Agreement. The relationship of the Lead on the one hand and the Participant on the other will be that of agent and principal only; the Lead will be obligated to perform its express duties, covenants and obligations as agent hereunder in good faith in accordance with the terms set forth herein and to duly and faithfully account for all monies, proceeds or products received by the Lead in connection with the Loan Documents through payment, realization proceedings or otherwise, and the distribution thereof, but will not be deemed to have any fiduciary duties to the Participant or others. Neither the Lead nor any of the Lead’s attorneys, agents or employees will be liable for any action taken or omitted to be taken hereunder, or in connection herewith or in connection with the Loan Documents, AND PARTICIPANT HEREBY WAIVES ANY AND ALL SUITS, LAWSUITS, CLAIMS, DEMANDS, PROCEEDINGS, ACTIONS, CAUSES OF ACTION, ORDERS, LIABILITIES, DAMAGES, INJURIES, EXPENSES, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, BOTH AT LAW AND IN TORT, IN CONTRACT OR OTHERWISE, WHICH PARTICIPANT MAY HAVE OR MANY IN THE FUTURE HAVE AGAINST THE LEAD ARISING OUT OF THE LEAD’S PERFORMANCE OF THIS PARTICIPATION AGREEMENT, EXCEPT ANY CLAIMS ARISING OUT OF THE LEAD’S GROSS NEGLIGENCE OR WILLFULL MISCONDUCT.

6. No Liability. Notwithstanding any provision of this Agreement, in no event shall Participant have any personal liability under this Agreement, it being agreed and understood that any liability of Participant shall in all events be limited to and be recourse only to the Participation.

7. No Assignment. Without the prior written consent of the Lead, not to be unreasonably withheld, the Participant will not sell, transfer or assign any or all of its Participation Interest in the Note, nor will the Participant sell, transfer or assign its rights or duties under this Participation Agreement.

8. Additional Participants. Nothing contained herein will prevent the Lead from selling to others percentages of participation in the Note.

PARTICIPATION AGREEMENT – ARVEST BANK - 4 -

9. Binding Effect. This Participation Agreement will be binding on and will inure to the benefit of the Lead and the Participant and their respective successors and assigns.

10. Representations. The Lead will not be responsible for and makes no express or implied warranties or representations with respect to: (a) the creditworthiness, including without limitation, financial condition and ability to perform, of the Borrower, any guarantor or any other person or entity who is or may be liable on any of the obligations under the Loan Documents; (b) the legality, validity, genuineness, substance, enforceability, priority or value of any of the Loan Documents in connection with the Note; or (c) the value, validity, substance or genuineness of any lien or security interest in any Collateral. The Participant hereby acknowledges that the Participant has, independent of and without reliance on the Lead and based on documents and information provided by the Borrower, made the Participant’s own credit analysis and decision to enter this Participation Agreement. Nothing contained in this Participation Agreement will confer upon the Lead or the Participant any interest in, or subject the Lead or the Participant to any liability for, the assets or liabilities of the other, except only as to the transactions contemplated by this Participation Agreement.

11. Notices. Any notice, demand or communication required or permitted to be given by any provision of this Participation Agreement will be in writing and will be deemed to have been given and received when delivered personally or by telefacsimile to the party designated to receive such notice, or on the date following the day sent by overnight courier, or on the third (3rd) business day after the same is sent by certified mail, postage and charges prepaid, directed to the following addresses or to such other or additional addresses as any party might designate by written notice to the other party:

To the Lead:	Arvest Bank
	Attention: Mr. Bradley W. Krieger
	5621 North Classen Boulevard
	Oklahoma City, Oklahoma 73118
	Fax: (405) 523-4126
With a copy to:	Tom Blalock, Esquire
	Commercial Law Group, P.C.
	5520 North Francis Avenue
	Oklahoma City, Oklahoma 73118
	Fax: (405) 232-5553
To the Participant:	Graymark Healthcare, Inc.
	Attention: Mr. Stanton Nelson
	101 North Robinson, Suite 900
	Oklahoma City, Oklahoma 73102
	Fax: (405) 239-2258

PARTICIPATION AGREEMENT – ARVEST BANK - 5 -

With a copy to:	Marcelo Puiggari, Esq.
	General Counsel & VP Legal Services
	Foundation HealthCare Affiliates, LLC
	14000 N. Portland Ave., Suite 204
	Oklahoma City, OK 73134

12. Counterparts. This Participation Agreement may be executed in multiple counterparts, each of which will be an original instrument, but all of which will constitute one agreement. The parties agree that any counterpart may be executed by facsimile signature and such facsimile signature will be deemed an original.

13. Construction. This Participation Agreement and the documents issued hereunder will be deemed to be a contract made under the laws of the State of Oklahoma and together with the rights and obligations of the parties hereto will be construed and enforced in accordance with and governed by the laws of said state. Nothing in this Participation Agreement will be construed to constitute the Lead and the Participant as joint venturers with the Borrower or to constitute a partnership. The descriptive headings of the paragraphs of this Participation Agreement are for the convenience only and will not be used in the construction of the content of this Participation Agreement.

14. No Registration. The Participant acknowledges that: (a) the Participant has received and read or reviewed and is familiar with the Loan Documents and all schedules thereto, together with the records and books pertaining to the Borrower that have been requested by the Participant, and the Participant confirms that all documents and information requested by the Participant have been made available or delivered to the Participant; (b) the Participant understands that neither the Note, the Loan Documents nor the Participation Interest hereunder have been registered under the Securities Act of 1933 or any state securities act and the Participant further understands that the Participant is receiving the Participation Interest without being furnished any offering literature; and (c) on the basis of the covenants, agreements, warranties and representations of the Borrower set forth in the Loan Documents, the Participant is satisfied with the authorization and enforceability of the Loan Documents.

15. No Joint Venture. This Participation Agreement will in no way create a partnership, joint venture or trust arrangement between the Lead and the Participant or among the Participants, but merely serves as evidence of the participation in the Note by the Participants.

[Signature Pages to Follow]

PARTICIPATION AGREEMENT – ARVEST BANK - 6 -

SIGNATURE PAGE TO

PARTICIPATION AGREEMENT

IN WITNESS WHEREOF, the Lead and the Participant have caused this instrument to be made effective the 22^nd day of July, 2013.

ARVEST BANK, an Arkansas banking corporation
By:	/s/ Bradley W. Krieger
	Bradley W. Krieger, Executive Vice President and Regional Manager
(the “Lead”)

PARTICIPATION AGREEMENT – ARVEST BANK

SIGNATURE PAGE TO

PARTICIPATION AGREEMENT

IN WITNESS WHEREOF, the Lead and the undersigned Participant have caused this instrument to be made effective the 22^nd day of July, 2013.

GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
By:	/s/ Stanton M. Nelson
	Stanton M. Nelson, CEO
(the “Participant”)

PARTICIPATION AGREEMENT – ARVEST BANK

EX-10.10

Exhibit 10.10

THE SHARES OF COMMON STOCK REFERRED TO IN THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE STATE SECURITIES ACT.

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”) is made effective as of July 22, 2013, by and between GRAYMARK HEALTHCARE, INC., an Oklahoma corporation (the “Company”), and ARVEST BANK, an Arkansas banking corporation (the “Bank”) with reference to the following circumstances:

A. The Bank, the Company (as a Borrower), and the Guarantors and other Borrowers thereto, previously entered into an Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”).

B. The Company is indebted to the Bank under (i) the Amended and Restated Promissory Note, in the original principal amount of $15,000,000.00 dated June 30, 2010, and (ii) the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (collectively, together with any amendments, renewals or extensions thereto, the “Prior Notes”).

C. The Bank, the Company and others have agreed, pursuant to a Loan Restructuring Agreement dated of even date herewith, to restructure the loan evidenced by the Prior Notes and enter into certain other transactions, including (i) the issuance of a $6,000,000.00 subordinated participation by the Bank to the Company in the restructured loan, and (ii) the Company’s issuance of 13,333,333 shares of the Company’s common stock to the Bank pursuant to this Agreement.

Now, therefore, in consideration of the restructuring of the loan evidenced by the Prior Notes, the issuance of the subordinated participation by the Bank to the Company, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Subscription. The Bank hereby subscribes to purchase 13,333,333 shares (the “Shares”) of the Company’s Common Stock, with a par value of $0.0001 per share.

2. Participation. In exchange for the Shares, the Bank agrees to issue to the Company a $6,000,000.00 subordinated participation (the “Participation”) in the loan (the “Loan”) made pursuant to that certain Second Amended and Restated Loan Agreement (the “Loan Agreement”) by and among SDC Holdings, LLC (“SDC”), ApothecaryRx, LLC (together with SDC, the “Borrowers”), the Company, Stanton M. Nelson and the Bank, dated as of July 22, 2013, and evidenced by the Amended and Restated Promissory Note in the principal amount of $10,691,261.71, dated as of July 22, 2013, made by the Borrowers in favor of the Bank.

3. Deliveries. Upon the execution and delivery by the Company and the Bank of this Agreement and a Participation Agreement in form and substance acceptable to the parties documenting the Participation, (i) the Company shall deliver to the bank a duly executed stock certificate registered in the Bank’s name representing the Shares, and (ii) the Bank shall be treated for all purposes as a record holder of such Shares and the Company shall record the issuance of such Shares in its stock register.

4. Representations and Warranties of the Company. The Company represents and warrants to the Bank that:

4.1 Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has the requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business in each jurisdiction in which the character of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the business operations or financial condition of the Company and its subsidiaries taken as a whole.

4.2 Authorization. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to issue and sell the Shares. All corporate action on the part of the Company necessary for (i) the authorization, execution, delivery and performance by the Company of this Agreement, and (ii) the authorization, issuance and delivery by the Company of the Stock being sold under this Agreement has been taken.

4.3 Binding Obligation. This Agreement has been duly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with the terms hereof, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent transfer, preferential transfer or distribution laws and other similar laws now or hereafter in effect relating to or affecting the rights of creditors generally and general principles of equity.

4.4 Non-Contravention. The execution and delivery by the Company of this Agreement, the performance by the Company of its obligations under this Agreement and the issuance and sale of the Shares will not conflict with or result in any violation of or default under (i) any provisions of the Certificate of Incorporation or Bylaws of the Company, each as amended and currently in effect (collectively, the “Governing Documents”), (ii) any provision of any agreement or other instrument to which the Company is a party or by which the Company or any of its properties are bound, or (iii) any applicable statutes, laws, regulations and executive orders of the United States (including, without limitation, any administrative, regulatory or judicial body thereof) and all states having jurisdiction over the Company’s business, properties or assets.

-2-

4.5 Capitalization. Immediately prior to the Closing, the authorized capital of the Company consists solely of 500,000,000 shares of Common Stock, of which 16,770,079 shares are issued and outstanding and 10,000,000 shares of Preferred Stock, none of which are issued or outstanding. Immediately after the Closing (including the closing of all of the transactions contemplated by the Loan Agreement), the authorized capital of the Company will consist solely of 500,000,000 shares of Common Stock, of which 163,203,276 shares will be issued and outstanding and 10,000,000 shares of Preferred Stock, none of which are issued or outstanding. The rights, preferences, powers and privileges of the Common Stock are as stated in the Certificate of Incorporation.

4.6 Validity of Stock. The Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, and free and clear of all liens and encumbrances.

4.7 No Contractual Restriction. The Shares are unrestricted and freely transferable, including by over-the-counter or private transactions, subject only to restrictions imposed by applicable state and federal securities laws. For so long as the Bank holds any of the Shares, the Company will not take any action that would in any way restrict the transferability of the Shares.

4.8 No Preemptive Rights. Except as set described on Schedule 4.8, there are not authorized or outstanding any options, warrants, phantom stock, stock appreciation rights, preferential rights to acquire, or similar rights (including, without limitation, conversion or preemptive rights) or agreements or arrangements for the issuance by the Company or the purchase or acquisition from or by the Company of any shares of its capital stock or other voting securities or any securities convertible into or exchangeable or exercisable for any shares of the Company’s capital stock or other voting securities.

5. Representations and Warranties of the Bank. The Bank represents and warrants to the Company that:

5.1 Investment Intent. The Bank is acquiring the Shares and will receive and hold the Shares for its own account and for investment purposes only and not with a view to, or in connection with, a distribution of any part or all of the Shares and will not sell, transfer, assign, encumber or otherwise dispose of the Shares in the absence of an exemption from the registration requirements under the Securities Act of 1933, as amended (the “1933 Act”), and applicable state securities laws. In connection with the transfer of any Shares the Bank will need to deliver an opinion of counsel, which opinion must be satisfactory to the Company, to the Company’s transfer agent opining to such exemption.

5.2 Accredited Investor. The Bank is an accredited investor as defined in Rule 501(a) of the Securities Act of 1933.

5.3 Securities Legend. The Bank understands that each certificate evidencing the Shares to be issued to the undersigned will bear a restrictive legend substantially in the form:

-3-

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE OKLAHOMA SECURITIES ACT OR THE SECURITIES LAWS OF ANY OTHER STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND/OR THE SECURITIES LAWS OF ANY OTHER STATE OR AN OPINION OF COUNSEL OR OTHER DOCUMENTATION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.

5.4 Reliance. The undersigned is aware that the Company will rely upon the representations and warranties set forth herein, in part, in determining whether the issuance of the Shares meets the conditions specified in Rule 506 and other provisions of Regulation D promulgated under the 1933 Act and under exemptions available from the registration or qualification requirements under applicable state securities laws.

6. Miscellaneous.

6.1 Notice. All notice or other communications given or made hereunder will be in writing and will be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the undersigned at the address set forth below the undersigned’s signature on the last page of this Agreement and to the Company at the address set forth at the outset of this Agreement.

6.2 Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of Oklahoma without regard to the principles of conflicts of law embodied therein.

6.3 Entire Agreement. This Agreement and the Governing Documents constitute the entire agreement between the parties with respect to the subject matter hereof and this Agreement may be amended only by a writing executed by all parties.

6.4 Binding Effect. This Agreement will be binding upon and inure to the benefit of the undersigned and all other persons who may hereafter acquire Shares and the heirs, executors, administrators, successors and assigns of all such subscribers and partners.

6.5 Capitalized Terms. Capitalized terms not defined herein have the meaning ascribed to such terms in the Loan Agreement.

6.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Executed counterparts of this Agreement delivered via facsimile or electronic mail shall have the same binding effect as originals.

[Signature Pages Follow]

-4-

SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT

IN WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement effective as of the date first written above.

BANK:
ARVEST BANK, an Arkansas banking corporation
By:	/s/ Bradley W. Krieger
	Bradley W. Krieger, Executive Vice President and Regional Manager

SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT

IN WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement effective as of the date first written above.

COMPANY:
GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
By:	/s/ Stanton M. Nelson
	Stanton M. Nelson, CEO

Schedule 4.8

The Company has outstanding, or in connection with the closing of the financing of and acquisition of the surgical hospital and outpatient surgery center businesses of Foundation Healthcare Affiliates intends to issue the following shares of common stock, options or warrants:

The Company has authorized its 2008 Long-Term Incentive Plan with an original authorization of 2,750,000 shares of which 1,571,208 remain available for issuance. Options covering 562,500 shares have been granted and remain outstanding.

The Company has outstanding warrants covering 8,572,418 shares. Due to the currently proposed transactions, up to an additional 1,123,972 shares may be exercisable under these warrants due to the application of the anti-dilution provisions thereof.

In connection with the currently proposed transactions, the Company expects to issue 114,500,000 shares to Foundation Healthcare Affiliates.

The Company expects to issue Roy T. Oliver, or an entity controlled by him, 17,970,295 shares in connection with the conversion of indebtedness by the Company to Mr. Oliver and the payment of approximately $5.8 million to Arvest Bank on behalf of the Company.

The Company expects to issue Arvest Bank 13,333,333 shares in connection with the purchase of a $6 million participation interest in the Company’s credit facility with Arvest.

The Company expects to issue up to 1.520,000 shares (assuming full issuance) in connection the private placement of preferred interests in a subsidiary of Graymark with the proceeds thereof to be used in connection with the consummation of the Foundation transactions for the restructuring of preferred interests in certain Foundation subsidiaries being acquired.

The Company expects to issue warrants to holders of the preferred interests subject to the restructuring described above covering 7,750,000 shares.

EX-10.11

Exhibit 10.11

LOAN AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) is made effective as of the 22nd day of July, 2013, by and among FOUNDATION HEALTH ENTERPRISES, LLC, a Delaware limited liability company (“Borrower”), and VALLIANCE BANK (“Lender”).

W I T N E S S E T H:

WHEREAS, Borrower has requested from Lender a term loan in the original principal amount of Five Million One Hundred Thousand and No/100 Dollars ($5,100,000) to be used to refinance existing indebtedness of TSH Acquisition, LLC, a Delaware limited liability company, in which Borrower is to acquire all the issued and outstanding preferred membership interests; and

WHEREAS, Lender is willing to make the loan upon the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and the Loan to be extended hereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower hereby covenant and agree as follows:

1. DEFINITIONS. As used in this Agreement, the following terms with its initial letters capitalized shall have the following meanings except where the context otherwise requires:

“Agreement” means this Loan Agreement, as the same may from time to time be amended, supplemented or modified.

“Business Day” means any day (other than a Saturday or Sunday or other legal holiday) on which commercial banks are open for business with the public in Oklahoma City, Oklahoma.

“Collateral” means the following:

(i) a first priority security interest on all personal property assets of Borrower, tangible and intangible, pursuant to the Security Agreement; and

(ii) a first priority pledge and security interest in the Pledged Interests pursuant to the Pledge Agreement.

“Control Agreement” means the control agreement entered into pursuant to Articles 8 and 9 of the Uniform Commercial Code of even date herewith among Borrower, TSH and Lender.

“Debt” means, as to any person, all indebtedness, liabilities and obligations of such person.

“Event of Default” means an Event of Default arising under this Agreement with respect to the Term Loan or a Loan Document.

“FHE Manager” means FHE Manager, LLC, a Delaware limited liability company, acting solely in its capacity as the Manager of Borrower.

“Graymark/FHA Transaction” means the acquisition by TSH, a wholly-owned subsidiary of Graymark Healthcare, Inc., an Oklahoma corporation (“Graymark”), from Foundation Healthcare Affiliates, LLC, an Oklahoma limited liability company (“FHA”), of all the outstanding membership interests in Foundation Surgery Affiliates, LLC, a Nevada limited liability company (“FSA”), and Foundation Surgical Hospital Affiliates, LLC, a Nevada limited liability company (“FSHA”), and related transactions as contemplated by an Amended and Restated Membership Interest Purchase Agreement among FHA, Graymark and TSH dated March 29, 2013 (as the same may be amended, the “Purchase Agreement”).

“Lien” means any lien, mortgage, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other interest in property designed to secure the repayment of Debt, whether arising by agreement or under any statute or law, or otherwise.

“Loan Documents” collectively means this Agreement, the Note, Security Agreement, Pledge Agreement, Control Agreement, assignments and financing statements securing the Term Loan, and all other promissory notes, guaranties, agreements, certificates, documents and instruments executed and delivered in connection with the Term Loan described herein and any renewals, amendments, supplements or modifications thereof or thereto.

“Material Adverse Effect” means any set of circumstances or events which (i) has an adverse effect upon the validity, performance or enforceability of this Agreement or any other Loan Documents and (a) has a material and adverse impact on the financial condition or business operations of Borrower and (b) has also materially impaired the ability of Borrower to perform its obligations under this Agreement or any other Loan Documents, or (ii) constitutes an Event of Default.

“Pledge Agreement” shall mean the pledge and security agreement of even date herewith executed by Borrower covering the Pledged Interests.

“Pledged Interests” shall mean all preferred membership interests of Borrower in TSH, which shall constitute 100% of the issued and outstanding preferred membership interests of TSH, together with all increases and rights to distributions, dividends, income, profits, payments or reimbursement.

2

“Regulations U and X” mean Regulations U and X, respectively, of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Security Agreement” means that certain security agreement of even date herewith executed by Borrower and delivered to Lender.

“Sherman Transaction” means the sale by FSHA of all of its membership interest in Grayson County Physicians Property, LLC, a Texas limited liability company (“Grayson County”), which owns and operates a surgical hospital known as Heritage Park Surgical Hospital located in Sherman, Texas, as contemplated by a Term Sheet dated December 7, 2012, as extended by a letter agreement dated March 22, 2013, among Texas Health Venture Group L.L.C., Grayson County and FSHA.

“Term Loan” means the extension of credit contemplated by this Agreement as set forth in Section 2.1 and evidenced by the Term Note.

“Term Note” shall mean a term promissory note from Borrower payable to the order of Lender in the maximum principal amount of $5,100,000 of even date herewith, together with all renewals, extensions, modifications and substitutions thereto and therefor.

“TSH” means TSH Acquisition, LLC, a Delaware limited liability company.

“Uniform Commercial Code” means the Uniform Commercial Code of the State of Oklahoma (12A O.S. § 1-101 et seq.), as amended from time to time.

Other Definitional Provisions.

(a) All terms defined in this Agreement shall have the above-defined meanings when used in the Term Note or any Loan Document, certificate, report or other document made or delivered pursuant to this Agreement, unless the context shall otherwise require.

(b) Defined terms used herein in the singular shall include the plural and vice versa.

(c) The words “hereof”, “herein”, “hereunder” and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

2. LOAN TERMS. Subject to the terms and conditions hereof, and the terms and conditions of the Loan Documents, Lender agrees to extend credit to Borrower and Borrower agrees to such extensions of credit from Lender, which credit will be evidenced by the Term Note, on the following conditions:

3

2.1 Term Loan. Lender will extend credit to Borrower up to the principal amount of the Term Loan, together with interest thereon as described herein, which will be evidenced by the Term Note. This credit will be in the form of a term loan payable in accordance with the terms and conditions of this Agreement and the Term Note.

2.1.1 Principal of the Term Note. The outstanding principal amount of the Term Note shall not exceed $5,100,000.00.

2.1.2 Interest on the Term Note. Prior to the maturity date described in Section 2.1.5, the unpaid principal amount from time to time outstanding under the Term Note shall bear interest from the date hereof at a fixed rate of ten percent (10.0%). Interest shall be computed on the actual number of days elapsed on the basis of a 360 day year.

2.1.3 Repayment of Principal and Interest on the Term Note. Borrower shall repay the indebtedness evidenced by the Term Note in (i) quarterly installments of interest only on October 15, 2013, and the 15^th day of each January, April, July and October thereafter until the maturity date described in Section 2.1.5, and (ii) one installment of principal equal to one-seventh (1/7^th) of the principal amount advanced under the Term Note, which shall be due on August 15, 2014.

2.1.4 Mandatory Prepayment of Principal on the Term Note. Upon the closing of the Sherman Transaction, a sufficient portion of the net sale proceeds received by FSHA shall be paid to Lender as a mandatory repayment of the outstanding balance of the Term Note.

2.1.5 Maturity. The Term Note shall mature on the earlier to occur of July 22, 2015 or acceleration of the Term Note after default after applicable notice and cure period, if any, without cure, at which time all outstanding and unpaid principal and all accrued and unpaid interest on the Term Note shall be due and payable.

2.2 Payments. The principal of and interest on the Term Note shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of Lender in Oklahoma City, Oklahoma. All such payments shall be made not later than 2:00 p.m., Oklahoma City time, on the date due, and funds received for principal payments on the Term Note after such hour on any day shall be treated for all, purposes of this Agreement as having been received on the next succeeding Business Day in Oklahoma City. If any payment made by Borrower under this Agreement or the Term Note is to be made on a day not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time will in such case be included in computing interest, if any, in connection with such payment.

4

2.3 Default Interest. While any Event of Default exists hereunder or under the Term Note or any of the Loan Documents related to the Term Loan, which has not been cured as provided in this Agreement, in lieu of the interest rate provided herein and in the Term Note, all sums owing by Borrower to Lender in connection with the Term Loan shall bear interest at the rate equal to five percent (5.0%) per annum in excess of the interest rate provided in the Term Note, accrued from the date of’ the Event of Default but after any applicable grace period to cure such Event of Default as is provided for herein, to the date on which such Event of Default is cured.

2.4 Refund of Interest. In the event the Term Note is paid in full within six (6) months of the date of this Agreement, Lender will refund an amount equal to the difference between the interest paid on the Term Note at ten percent (10.0%) per annum and the amount of interest that would have been paid had the Term Note instead borne an interest rate of eight percent (8.0%) per annum.

3. CONDITIONS OF LENDING. The obligations of Lender to perform this Agreement and to extend the Term Loan as described herein are subject to the performance of the following conditions precedent:

3.1 Loan Documents. This Agreement, the Term Note, the Security Agreement, the Pledge Agreement, the Control Agreement and the other Loan Documents, and all other documents required by Lender shall have been duly executed, acknowledged (where appropriate) and delivered to Lender, all in form and substance satisfactory to Lender. All of the Loan Documents which require filing or recordation for the perfection of Liens on the Collateral for the Term Note shall be properly filed or recorded in all appropriate recording offices.

3.2 Information. Borrower shall have furnished to Lender such financial statements and other information as Lender shall have requested.

3.3 No Default, Representations and Warranties. No Events of Default shall have occurred and be continuing under this Agreement or the Loan Documents. All representations and warranties contained herein shall be true and correct in all material respects.

3.4 Authority of Borrower, FHE Manager and TSH. Borrower, FHE Manager and TSH shall have delivered to Lender such resolutions and other documents reasonably required to authorize the execution, delivery and performance of the Loan Documents, all in form and substance satisfactory to Lender, together with certified copies of its Certificates of Organization (and amendments), Operating Agreements (and amendments), and certificates of good standing from the State of Delaware, and evidence of qualification as a foreign limited liability company and a good standing certificate in each state in which any of it is required to be qualified, together with any additional amendments to the organizational documents of TSH as may be necessary in order for Lender to have and maintain a first priority pledge and security interest in the Pledged Interests pursuant to the Pledge Agreement and Control Agreement.

5

3.5 UCC and Title Information; Subordinations. Lender shall have received and reviewed copies of UCC searches on Borrower and TSH, and all Liens of any party on the Collateral as evidenced by such information shall have been released or subordinated to the satisfaction of Lender.

3.6 Closing of the Graymark/FHA Transaction and Issuance of the Pledged Interests. Lender shall have received and reviewed copies of such documentation regarding satisfaction of all conditions precedent to the closing of the Graymark/FHA Transaction, the successful closing of the Graymark/FHA Transaction on terms satisfactory to Lender, and issuance of the Pledged Interests to Borrower on terms satisfactory to Lender in all respects.

4. REPRESENTATIONS AND WARRANTIES. To induce Lender to extend the Term Loan and enter into this Agreement, Borrower represents and warrants to Lender during the term of the Term Loan and any and all renewals and extensions thereof, as follows:

4.1 Existence. Borrower, FHE Manager and TSH are each duly organized, validly existing, and in good standing under the laws of the State of Delaware, and each of it is authorized to do business in all jurisdictions in which its ownership of property and transaction of business legally requires such authorization, except where failure to qualify to do business does not have a Material Adverse Effect, and each of it has full power, authority, and legal right to own its property and transact business as presently transacted or proposed to be transacted.

4.2 Authority. The execution, delivery and performance by each of Borrower, FHE Manager and TSH of the Loan Documents to which it is a party are within its power, have been duly authorized, are not in contravention of law or the terms of its articles of organization, operating agreement or other organizational documents, or of any indenture, agreement or undertaking to which it is a party or by which it is bound.

4.3 Governmental Authorization. The execution, delivery, and performance by each of Borrower and TSH of the Loan Documents to which it is a party require no approval of or filing with any governmental authority other than filings required to perfect Lender’s interest in the Collateral.

4.4 Binding Effect. This Agreement and the Loan Documents, when duly executed and delivered, will constitute legal, valid, and binding obligations of Borrower and TSH, fully enforceable in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditor’s rights generally.

6

4.5 Financial Condition. All financial statements and other financial information which have been or may hereafter be furnished to Lender to induce Lender to enter into this Agreement or otherwise in connection herewith, do or shall fairly represent the financial condition of Borrower, TSH, FSA and FSHA as of the dates and the results of operations for the periods for which the same are furnished, are, or shall be at the time the same are so furnished, accurate and correct in all material respects and complete insofar as completeness may be necessary to give Lender a true and accurate knowledge of the respective subject matter involved.

4.6 Litigation. There is no action, suit, investigation or proceeding pending, or to the knowledge of Borrower, threatened against Borrower, TSH, FSA, FSHA or any of the Collateral, which if successful could have a Material Adverse Effect.

4.7 Taxes. To the best of Borrower’s knowledge, FHA, FSA and FSHA have filed all tax returns which are required to be filed and has paid all taxes due pursuant to such returns or pursuant to any assessment received by FHA, FSA and FSHA, which the failure to file or pay would have a Material Adverse Effect.

4.8 Permits. Borrower, TSH, and to the best of Borrower’s knowledge, FHA, FSA, FSHA and each of their operating Affiliates have all licenses, permits, certificates, consents and franchises, and all necessary filings associated thereto have been made, in order to carry on its respective businesses as now being conducted and to own or lease and operate its properties as now owned, leased or operated, except to the extent Borrower’ failure to have any such licenses, permits, certificates, consents or franchises would not cause a Material Adverse Effect.

4.9 Title to Collateral and No Liens. All of the Collateral is free and clear of all Liens, except those in favor of Lender or those subordinated to Lender, and Borrower and Pledgors have good and defensible title to such Collateral.

4.10 Full Disclosure. Except as otherwise disclosed to Lender in writing prior to the execution of this Agreement, there is no material fact that Borrower and TSH have not disclosed to Lender which could have a Material Adverse Effect on the properties, business, prospects or condition (financial or otherwise) of Borrower. Neither the financial statements referenced in Section 4.5 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower, TSH or any Affiliates to Lender in connection with the negotiations of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein from being misleading which would have a Material Adverse Effect.

7

4.11 Use of Proceeds, Margin Stock. The proceeds of the Term Loan will be used by Borrower solely for the purposes described herein. None of such proceeds will be used for the purpose of purchasing or carrying any “margin stock” as defined in Regulation U or Regulation X, or for the purpose of reducing or retiring any Debt which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a “purpose credit” within the meaning of such Regulation U or Regulation X. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Borrower has not taken or will not take any action which might cause either Note or any of the other Loan Documents, including this Agreement, to violate Regulation U or Regulation X, or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 8 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

4.12 Principal Office, Etc. The principal office, chief executive office and principal place of business of Borrower are located at 204 N. Robinson, Floor 4, Oklahoma City, Oklahoma 73102.

4.13 Benefit Plans. Borrower does not sponsor or offer a defined benefit plan to its employees.

4.14 Compliance With Law. Borrower is not in violation of any law, rule, regulation, order or decree which is applicable to Borrower or its properties, the result of which could have a Material Adverse Effect.

4.15 Casualties. To the best of Borrower’s knowledge, neither the business nor the properties of Borrower are currently affected by any environmental hazard, except as disclosed in the any environmental site assessment referenced in the Environmental Indemnity, which could have a Material Adverse Effect. Neither the business nor the properties of Borrower are currently affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty (whether or not covered by insurance), which could have a Material Adverse Effect.

4.16 No Event of Default. No Event of Default has occurred and is continuing.

5. SECURITY. Borrower’s obligations evidenced by the Term Note and all obligations of Borrower under this Agreement and the other Loan Documents shall be secured by a first and prior lien on the Collateral.

6. AFFIRMATIVE COVENANTS. Until payment in full of the Term Loan, Borrower agrees, unless Lender shall otherwise consent in writing, to perform or cause to be performed the following agreements:

6.1 Financial Statements and Information.

8

6.1.1. Annual and Quarterly Financial Statements on Borrower. Borrower will furnish to Lender, within thirty (30) days after the close of each fiscal year and fiscal quarter, complete copies of its internally prepared financial statements, including balance sheets, income statements, accounts receivable listing with aging, and accounts payable with aging, all prepared on an income tax basis consistent with prior periods, and all in form and detail satisfactory to Lender.

6.1.2 Tax Returns. Borrower will furnish to Lender, within ten (10) days after filing, complete copies of its federal income tax returns, including all supporting schedules, and upon request by Lender, copies of any extensions filed with the Internal Revenue Service.

6.1.3 Other Financial Statements. Borrower shall also furnish to Lender such other information concerning its financial affairs as Lender might reasonably request.

6.2 Taxes. All taxes, assessments, governmental charges and levies imposed on Borrower and its assets, income and profits will be paid prior to the date on which penalties attach thereto; provided, however, that Borrower will not be required to pay any such charge which is being contested in good faith by proper proceedings where the imposition of such charge would not have a Material Adverse Effect on Borrower.

6.3 Additional Assurances. Borrower shall execute, acknowledge and deliver to Lender such instruments, documents, and any other items in a form acceptable to Lender as Lender may reasonably require, in good faith, in order to more fully carry out the transactions contemplated herein.

6.4 Performance of Obligations. Borrower shall pay the Term Note according to the reading, tenor and effect thereof, and Borrower will in all material respects do and perform every act and discharge all obligations provided herein or in any Loan Document to be performed and discharged or as contemplated hereby, at the time or times and in the manner specified.

6.5 Expenses. Borrower will pay: (i) all costs and expenses of Lender (including, without limitation, the attorneys’ fees of Lender’s legal counsel) incurred by Lender, in connection with the preparation of this Agreement, the Term Note, and/or the other Loan Documents, the closing of the transactions contemplated by this Agreement, the creation and preservation of the security interests, pledges, liens, assignments and other encumbrances securing the obligations of Borrower, and any amendments or modifications to this Agreement and the other Loan Documents, and (ii) all costs and expenses, including any fees and expenses of counsel or other third parties employed by Lender in any litigation arising out of or relating to this transaction and all other costs, fees and expenses involved in the enforcement or defense of this Agreement, the Loan Documents or any instrument executed pursuant hereto.

9

6.6 Existence, Authorizations and Approvals. Each of Borrower, FHE Manager and TSH shall take all necessary actions to preserve its existence and its right to conduct business in the applicable jurisdictions; to obtain and retain all material governmental authorities’ approvals, consents, permits, licenses and certificates; to comply with all valid and applicable statutes, rules and regulations; and to continue to conduct its business in substantially the same manner as such business is now conducted or anticipated to be conducted.

6.7 Litigation. Borrower shall notify Lender at any time of any action, suit, investigation or proceeding pending or threatened against Borrower or the Collateral which may have a Material Adverse Effect.

6.8 Books and Records, Access. Borrower shall give any representative of Lender reasonable access during normal business hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Borrower and relating to Borrower’ affairs, and to inspect any of the properties of Borrower. Borrower shall maintain complete and accurate books and records of its transactions in accordance with good accounting practices.

6.9 Compliance with Law. Borrower shall comply with all applicable laws, rules, regulations, and all orders of any court or tribunal applicable to it or any of its property, business operations or transactions, a breach of which could have a Material Adverse Effect.

6.10 Maintenance of Collateral. Borrower will do all things necessary to maintain, preserve, protect and keep all tangible Collateral in good condition, and make all necessary and proper repairs, renewals and replacements thereto so that the business anticipated by Borrower through the ownership, operation or use of the Collateral can be performed and conducted at all times.

6.11 Notification of Actual or Contingent Liabilities. Borrower will immediately notify Lender of any actual or contingent liabilities (other than those with respect to the Term Note) incurred by Borrower, which could have a Material Adverse Effect.

6.12 Operating Account. Borrower shall maintain its primary operating accounts with Lender.

6.13 Reporting on Sherman Transaction. Borrower shall provide periodic reports to Lender on not less than a monthly basis in such detail as Lender may require regarding the status of the Sherman Transaction, including the expected sales date and the anticipated amount of net sale proceeds to be received by FSHA to be used for prepayment of the Term Note pursuant to Section 2.1.4. Upon the request of Lender, FSHA will provide Lender with copies of any acquisition or purchase agreements for the Sherman Transaction.

10

6.14 Origination Fees. Borrower shall pay Lender an origination fee of $100,000.00 for the Term Loan, to be paid at closing from proceeds of the Term Loan.

7. NEGATIVE COVENANTS. Until payment in full of the Term Loan, Borrower shall not, unless Lender shall otherwise consent in writing, violate or cause to be violated the following:

7.1 Limitation on Debt. Borrower shall not incur, create, contract, waive, assume, have outstanding, guarantee or otherwise be or become, directly or indirectly, liable in respect of any Debt, except any accounts payable, taxes, insurance, operating expenses and all other general and administrative expenses of Borrower incurred in the normal course of Borrower’s business operation, and the Term Loan.

7.2 Limitation on Liens. Borrower shall not create, incur, permit or suffer to exist any Lien upon any of the Collateral, except those in favor of Lender or any Lien being contested in good faith by appropriate proceedings.

7.3 Liquidation; Merger; Consolidation; Change of Name. Borrower will not liquidate or discontinue its normal operations with an intention to liquidate and will not merge or consolidate with any other entity, or change its name.

7.4 Change of Business. Borrower shall not materially change or otherwise discontinue its primary lines of business from those existing on the date hereof.

7.5 Change of Ownership. No change in the current ownership of Borrower involving an unrelated third party shall occur during the terms of the Term Loan without the prior written approval of Lender.

7.6 Sale or Disposition of Collateral. Borrower shall not sell, assign, dispose or otherwise transfer any of the Collateral to any other person or entity, except the collection of Accounts in the ordinary course of business.

8. EVENTS OF DEFAULT. The following shall constitute Events of Default hereunder:

8.1 Non-Payment of Term Note. Default in payment when due of any principal or interest due and owing on the Term Note.

11

8.2 Other Nonpayment. Default in payment when due of any amount payable to Lender under the terms of this Agreement, the Loan Documents or any other obligation or agreement between Borrower, TSH, FSHA, Graymark and Lender, whether now existing or hereafter incurred.

8.3 Breach of Covenants. A material default by Borrower, TSH or FSHA in the performance or observance of any covenant or agreement contained in this Agreement or the Loan Documents.

8.4 Representations and Warranties. Any representation or warranty herein, or any representation, statement, certificates schedule or report made or furnished to Lender and related to the Term Loan proves to be false or erroneous in any material respect at the time of making thereof or any warranty ceases to be complied with in any material respect.

8.5 Insolvency. Any of Borrower, TSH, FSHA, FSA or Graymark shall: (i) apply for or consent to the appointment of a receiver, trustee or liquidator of its properties; (ii) admit in writing its inability to pay debts as they mature; (iii) make a general assignment for the benefit of creditors; or (iv) any material part of its assets or properties shall be placed in the hands of a receiver, trustee or other officers or representatives of a court or of creditors.

8.6 Voluntary Bankruptcy. Any of Borrower, TSH, FSHA, FSA or Graymark shall be adjudged bankrupt or a voluntary proceeding shall be instituted any such party in insolvency or bankruptcy or for readjustment, extension or composition of debts or for any other relief of debtors.

8.7 Involuntary Bankruptcy. Any involuntary proceeding shall be instituted against any of Borrower, TSH, FSHA, FSA or Graymark in insolvency or for readjustment, extension, or composition of debts, which proceeding is not dismissed within sixty (60) days after the filing of the commencement of the same.

8.8 Creditor’s Proceedings. Entry by any court of a final judgment against any of Borrower, TSH, FSHA, FSA or Graymark, or the institution of a levy, attachment, garnishment or charging order against any such party, not subject to further appeal and which has a Material Adverse Effect.

9. OPPORTUNITY TO CURE. In the event Borrower shall cure or cause to be cured the foregoing Events of Default within five (5) Business Days with respect to Events of Default in Sections 8.1 and 8.2, without notice to Borrower from Lender being required, and within fifteen (15) Business Days with respect to the other Events of Default after notice from Lender of the Event of Default to Borrower, the parties shall be restored to its respective rights and obligations under this Agreement as if no such Event or Events of Default had occurred. Borrower shall have no right to cure any Event of Default in Sections 8.5 through 8.7.

12

10. REMEDIES. Upon the occurrence of any Event of Default, which has not been timely cured pursuant to Section 9, Lender may, at its option:

10.1 Acceleration of Term Note. Declare the Term Note and all sums outstanding pursuant to the Loan Documents to be immediately due and payable, whereupon the same will be forthwith due and payable, and Lender will be entitled to proceed to selectively and successively enforce Lender’s rights under the Loan Documents or any other instrument delivered to Lender in connection therewith.

10.2 Accelerate Other Indebtedness. Lender may declare all other indebtedness and obligations of Borrower owing to Lender to be immediately due and payable.

10.3 Exercise Other Rights. Lender may (i) terminate any of Lender’s obligations under this Loan Agreement with respect to Borrower, including the obligation to make any advance, (ii) reduce any claim to judgment, (iii) exercise any right of offset including the Set-Off as provided in Section 10.4 hereof, (iv) without notice of default or demand, except as otherwise provided herein, pursue and enforce any of Lender’s rights and remedies under the Loan Documents, or otherwise provided under or pursuant to any applicable law or agreement, provided, however, that if any Event of Default specified in Section 8.7 shall occur, the Term Loan shall thereupon become due and payable concurrently therewith, without any further action by Lender and without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind, all of which Borrower hereby expressly waive, or (v) exercise any other remedy at law or in equity.

10.4 Right of Set-Off. Borrower hereby grant to Lender the right of set-off (“Set-Off”) without notice or demand to or upon such party, (any such notice and/or demand being hereby waived by such party) to secure repayment of its obligation under this Agreement, regardless of whether Lender shall have made any demand therefor and whether all or any part of the Term Loan are or may be unmatured, upon any and all moneys or securities of such parties and the proceeds therefrom, now or hereafter held or received by or in transit to Lender, or any of its agents, from or for the account of such parties, whether for safe keeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of such parties, and any and all claims of such parties against Lender at any time existing.

10.5 Waiver of Default. By an instrument in writing, Lender may waive any Event of Default which shall have occurred and any of the consequences of such Event of Default, and, in such event, Lender and Borrower will be restored to its respective former positions, rights and obligations hereunder. Any Event of Default so waived will for all purposes of this Agreement be deemed to have been cured and not to be continuing; but no such waiver will extend to any subsequent or other Event of Default or impair any consequence of such subsequent or other Event of Default.

13

11. GENERAL CONDITIONS. The following conditions shall be applicable throughout the term of this Agreement:

11.1 Strict Compliance. If any action or failure to act by Borrower violates any covenant or obligation of Borrower contained herein, then such violation shall not be excused by the fact that such action or failure to act would otherwise be required or permitted by any covenant (or exception to any covenant) other than the covenant violated.

11.2 Participations in Term Loan and Term Note. Lender may sell participations in all or any part of the Term Loan made by it to one or more lenders or other entities. Lender may provide to its participants on a timely basis, copies of all financial statements and other documents furnished to it under the provisions of Section 6.

11.3 Waiver, Modification. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder or under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder and under the Loan Documents shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Agreement, the Term Note or any Loan Documents, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

11.4 Notices. Any notices or other communications required or permitted to be given by this Agreement or any other documents and instruments referred to herein must be (i) given in writing (the references to “in writing” elsewhere in this Agreement are for emphasis and are not a way of limitation of the generality of the requirement that notices or other communications shall be in writing), and (ii) be personally delivered or mailed by prepaid mail or nationally recognized overnight courier such as FedEx, UPS or DHL, or by fax delivered or transmitted to the party to whom such notice or communication is directed, to the address of such party as follows:

To Borrower:	204 N. Robinson, Floor 4
	Oklahoma City, Oklahoma 73102
	Attention: Manager of FHE Manager, LLC
	Fax: (405)
	with a copy to:
	Vaught & Conner

14

	1900 N.W. Expressway, Suite 1300
	50 Penn Place Building
	Oklahoma City, Oklahoma 73118
	Attention: Scot A. Conner, Esq.
	Fax: (405) 840-4701
To Lender:	Valliance Bank
	1601 N.W. Expressway
	Oklahoma City, Oklahoma 73118
	Attention: Brad Swickey, President and CEO
	Fax: (405) 310-6251
	with a copy to:
	Phillips Murrah P.C.
	Corporate Tower | Thirteenth Floor
	101 North Robinson
	Oklahoma City, Oklahoma 73102
	Attention: J. Mark Lovelace, Esq.
	Fax: (405) 235-4133

Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day three days after it is mailed by prepaid certified or registered mail, one day after sent by overnight courier, or on the day it is personally delivered as aforesaid or, if transmitted by fax, on the day that such notice is transmitted as aforesaid, and otherwise when actually received. Any party may, for purposes of the Loan Documents, change its address, fax number or the person to whom a notice or other communication is marked to the attention of, by giving notice of such change to the other parties pursuant hereto.

11.5 Governing Law. This Agreement has been prepared, is being executed and delivered in the State of Oklahoma, and the substantive laws of such state and the applicable federal laws of the United States of America shall govern the validity, construction, enforcement and interpretation of this Agreement and all of the Loan Documents, except as otherwise may be provided for in the respective Loan Documents.

11.6 Choice of Forum. Any suit, action or proceeding with respect to this Agreement, the Term Note or any Loan Documents or any judgment entered by any court in respect thereof, may be brought in Oklahoma County District Court or in the United States District Court for the Western District of Oklahoma as Lender in its sole discretion may elect, and Borrower hereby submit to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding. Borrower hereby irrevocably waive any objection they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any Loan Document brought in such courts, and hereby further irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

15

11.7 Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid or unenforceable under present or future laws during the term of this Agreement, such provision shall be fully severable; such Loan Document shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of such Loan Document; and the remaining provisions of such Loan Document shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provisions or by its severance from such Loan Document. Furthermore, in lieu of each such illegal, invalid or unenforceable provision there shall be added as part of such Loan Document a provision mutually agreeable to Borrower and Lender as similar in terms to such illegal, invalid or unenforceable provisions as may be possible and still be legal, valid and enforceable. In the event Borrower and Lender are unable to agree upon a provision to be added to the Loan Document within a period of ten (10) Business Days after a provision of the Loan Document is held to be illegal, invalid or unenforceable there shall be added automatically to such Loan Document such amendment as is needed to reform the Loan Document so that it is legal, valid and enforceable and still meets the general intended purpose of such Loan Document. In either case, the effective date of the added provision shall be the date upon which the prior provision was held to be illegal, invalid or unenforceable.

11.8 Nonliability of Lender. The relationship between Borrower and Lender is, and shall at all times remain, solely that of a borrower and a lender, and Lender neither undertakes nor assumes any responsibility or duty to Borrower to review, inspect, supervise, pass judgment upon, or inform Borrower of any matter in connection with any phase of Borrower’s business, operations, or condition, financial or otherwise. Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment, or information supplied to Borrower by Lender in connection with any such matter is for the protection of Lender, and neither Borrower nor any third party are entitled to rely thereon.

11.9 Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and its respective successors, assigns and legal representatives, provided, however, that Borrower may not, without the prior written consent of Lender, assign any rights, powers, duties or obligations thereunder.

11.10 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Agreement.

11.11 No Third-Party Beneficiary. The parties do not intend the benefits of this Agreement to inure to any third party, nor shall this Agreement be construed to make or render Lender liable to any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Borrower, or for debts or claims accruing to any such persons against Borrower. Notwithstanding anything contained herein or in the Term Note or in any other Loan Document, no conduct or course of conduct by any or all of the parties hereto, before or after signing this Agreement or any other Loan Document, shall be construed as creating any right, claim or cause of action against Lender, or any of its officers, directors, agents or employees, in favor of any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Borrower, nor to any other person or entity.

16

11.12 Multiple Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart.

11.13 Contrary Provisions. The terms and conditions of this Agreement shall govern and control any and all contrary provisions of the other Loan Documents.

11.14 No Oral Agreements. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of day and year first above written.

“BORROWER”:	FOUNDATION HEALTH ENTERPRISES, LLC, a Delaware limited liability company
	By FHE Manager, LLC, a Delaware limited liability company, Manager
			By:	/s/ Robert M. Byers
				Name:	Robert M. Byers
				Title:	Manager
“LENDER”:	VALLIANCE BANK
	By:	/s/ Brad Swickey
		Brad Swickey, President and CEO

17

RATIFICATION BY CERTAIN AFFILIATES OF BORROWER

THIS ADDENDUM is executed by FHE MANAGER, LLC, a Delaware limited liability company (“FHE Manager”), TSH ACQUISITION, LLC, a Delaware limited liability company (“TSH”), and FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, a Nevada limited liability company (“FSHA” and collectively with FHE Manager and TSH, the “Ratifying Affiliates”), and attached as an integral part of the foregoing Loan Agreement (the “Loan Agreement”), of even date, executed by FOUNDATION HEALTH ENTERPRISES, LLC, a Delaware limited liability company (“Borrower”), and VALLIANCE BANK, an Oklahoma state banking corporation (“Lender”). Unless otherwise defined herein, the words bearing initial capital letters are intended to have the meanings set forth in the Loan Agreement.

A G R E E M E N T S:

In consideration of the agreements by Lender to extend credit to Borrower on the terms described in the Loan Agreement and the benefits to be derived by the Ratifying Affiliates therefrom and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Ratifying Affiliates hereby jointly and severally represent to and agree with Lender as follows:

1. Consent. The Ratifying Affiliates have examined and hereby consent to Borrower’s execution and delivery of each of the Loan Documents executed by Borrower.

2. Ratification of Loan Agreement. Each of the Ratifying Affiliates ratifies all representations, warranties, covenants, agreements and other provisions of the Loan Agreement applicable to it.

3. Counterparts. This Addendum may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

IN WITNESS WHEREOF, the Ratifying Affiliates have executed this instrument effective July         , 2013.

FHE MANAGER, LLC, a Delaware limited liability company
By:	/s/ Robert M. Byers
	Name:	Robert M. Byers
	Title:	Manager

18

TSH ACQUISITION, LLC, a Delaware limited liability company
By:	/s/ Robert M. Byers
	Name:	Robert M. Byers
	Title:	Manager
FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, a Nevada limited liability company
By:	/s/ Robert M. Byers
	Name:	Robert M. Byers
	Title:	Manager

19

EX-10.12

Exhibit 10.12

PROMISSORY NOTE

$5,100,000.00	July 22, 2013
	Oklahoma City, Oklahoma

FOR VALUE RECEIVED, FOUNDATION HEALTH ENTERPRISES, LLC, a Delaware limited liability company (“Maker”), having a notice address of 14000 N. Portland Ave., Oklahoma City, Oklahoma 73134, promises to pay to the order of VALLIANCE BANK (“Lender”) at 1601 Northwest Expressway, Oklahoma City, Oklahoma 73118, or such other place as may be designated in writing by Lender, on or before the Maturity Date (as hereinafter defined), the principal sum of FIVE MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($5,100,000.00) or so much thereof as may be advanced hereunder, together with interest at the rates stated herein on such outstanding principal amount, payable as follows:

Prior to the Maturity Date, the unpaid principal amount from time to time outstanding under this Note shall bear interest from the date hereof at a fixed rate ten percent (10.00%). Interest shall be computed on the actual number of days elapsed on the basis of a 360 day year.

Maker shall repay the indebtedness evidenced by this Note in (i) quarterly installments of interest only on October 15, 2013, and the 15^th day of each January, April, July and October thereafter until the Maturity Date, and (ii) one installment of principal equal to one-seventh (1/7^th) of the principal amount advanced under the Term Note, which shall be due on August 15, 2014.

This Note shall mature on the earlier to occur of July 22, 2015 or acceleration of this Note after default after applicable notice and cure period, if any, without cure, at which time all outstanding and unpaid principal and all accrued and unpaid interest on this Note shall be due and payable (the “Maturity Date”).

If a payment under this Note is fifteen (15) days or more late, Lender will be entitled to assess a late payment charge of five percent (5.00%) of the unpaid portion of the regularly scheduled payment, or Twenty-five Dollars ($25.00), whichever is greater, which late charge shall be due and payable immediately.

The indebtedness evidenced by this Note is governed by and secured pursuant to a Loan Agreement of even date herewith by and between Maker and Lender (the “Loan Agreement”) and certain security agreements, pledge agreements, control agreements and other collateral documents executed pursuant to the Loan Agreement (collectively, the “Security Instruments”). Reference is made to the Loan Agreement and the Security Instruments for a statement of other terms and provisions regarding the indebtedness evidenced by this Note, including without limitation terms governing when mandatory prepayments of principal shall be made on this Note, when Maker shall be entitled to a partial refund of interest from Lender, what shall constitute an “Event of Default” and the rights of the Lender to accelerate the Maturity Date of this Note and enforce its rights to collect amounts outstanding under this Note, all of which terms and conditions are incorporated into this Note by reference and shall be controlling over any provision of this Note to the contrary.

If any Event of Default occurs and is not cured within the applicable cure period described in the Loan Agreement, in lieu of the interest rate provided in this Note, all sums owing by Makers to Lender in connection herewith shall bear interest at the rate equal to five percent (5%) per annum in excess of the interest rate set forth above, accrued from the date after the applicable grace period to cure the Event of Default, to the date on which such Event of Default is cured.

Upon an Event of Default which has not been timely cured as provided in the Loan Agreement, at the option of the holder hereof, the entire indebtedness hereby evidenced shall become due, payable and collectable then or thereafter as the holder may elect, regardless of the date of maturity thereof. Notice of the exercise of such option is hereby expressly waived.

The undersigned agree that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the holder’s rights hereunder, the undersigned will pay to the holder hereof its reasonable attorney’s fees, together with all court costs and other expenses paid by such holder.

All payments on this Note shall be made in legal tender of the United States of America or other immediately available funds at Lender’s or other holder’s address as shown herein or otherwise indicated and any such payment will not be deemed to have been made until it is received by the holder of this Note in collected funds.

The makers, endorsers, sureties, guarantors and all other persons who may become liable for all or any part of this obligation severally waive presentment for payment, protest and notice of nonpayment. Said parties consent to any extension of time (whether one or more) of payment hereof, any renewal (whether one or more) hereof, and any release of any such party liable for payment of this Note without notice to any such party and without discharging the said party’s liability hereunder.

The failure of the holder hereof to exercise any of the remedies or options set forth in this Note or in any instrument securing payment hereof, upon the occurrence of one or more of the Events of Default shall not constitute a waiver of the right to exercise the same or any other remedy at any subsequent time in respect to the same or any other Event of Default. Acceptance by the holder hereof of any payment which is less than the total of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or at any subsequent time, or nullify any prior exercise of any such remedy or option, without the express consent of the holder hereof, except as and to the extent otherwise provided by law.

[signature on attached page]

2

This Note is to be construed according to the laws of the State of Oklahoma.

IN WITNESS WHEREOF, the undersigned have executed and delivered this instrument effective as of the date first written above.

“ MAKER”:	FOUNDATION HEALTH ENTERPRISES, LLC, a Delaware limited liability company
	By FHE Manager, LLC, a Delaware limited liability company, Manager
		By:	/s/ Robert M. Byers
			Name:	Robert M. Byers
			Title:	Manager

3

EX-10.13

Exhibit 10.13

CONSENT, RATIFICATION, ACKNOWLEDGEMENT

AND AMENDMENT TO LOAN DOCUMENTS AGREEMENT

THIS CONSENT, RATIFICATION, ACKNOWLEDGEMENT, AND AMENDMENT TO LOAN DOCUMENTS AGREEMENT (hereinafter “Ratification Agreement”) is executed as of the 22nd day of July, 2013, and effective as of the 1st day of July, 2013 (the “Closing Date”), by and between:

FOUNDATION HEALTHCARE AFFILIATES, LLC, an Oklahoma limited liability company (“FHA”);

FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company (“FSA”);

FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, a Nevada limited liability company (“FSHA”);

FOUNDATION SURGERY HOLDINGS, LLC, a Delaware limited liability company (“FSH”);

FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company (“FSM”);

FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC, a Nevada limited liability company (“FSHH”);

FOUNDATION SURGICAL HOSPITAL MANAGEMENT, LLC, an Oklahoma limited liability company (“FSHM”);

GRAYMARK HEALTHCARE, INC., an Oklahoma corporation (“GRMH”);

TSH ACQUISITION, LLC, a Delaware limited liability company (“TSH”);

LEGACY BANK (“Lender”)

BACKGROUND

A. WHEREAS, Lender is the current owner and holder of the various Loans identified on Schedule 1 hereto (FHA Group Loans and FHA Group Related Loans).

B. WHEREAS, FHA, GRMH and TSH have entered into that certain Amended and Restated Membership Interest Purchase Agreement dated as of March 29, 2013 (the “ARMPA Agreement”).

C. WHEREAS, FHA, FSA, FSHA GRMH, TSH, and Roy T. Oliver (“Oliver”) have entered into that certain Closing Agreement 1 dated May 21, 2013, that certain Closing Agreement 2 dated May 21, 2013, and that certain Closing Agreement 3 dated             (collectively the “Closing Agreements”).

D. WHEREAS, The parties hereto (other than Lender) have requested Lender’s consent to the ARMPA Agreement and the Closing Agreements.

TERMS

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows with respect to provisions which are applicable to it:

1. FHA Ownership:

(a) Prior to the effectiveness of the ARMPA Agreement, the FHA ownership structure was as set forth on Schedule 2 hereto with FHA owning 100% of the membership interests of FSA and FSHA;

(b) After closing the ARMPA Agreement, GRMH shall wholly own TSH, and TSH shall wholly own FSA and FSHA.

(c) After closing the ARMPA Agreement, FHA’s ownership structure shall be as follows:

(i) FHA shall own 114,500,000 shares of the common stock of GRMH;

(ii) GRMH shall own 100% of the membership interests of TSH;

(iii) TSH shall own 100% of the membership interests of FSA and FSHA;

(iv) FSA shall own 100% of FSH and FSM;

(v) FSHA shall own 100% of FSHH and FSHM;

(vi) FSH shall continue to own the respective interests in the ambulatory surgery centers as reflected on Schedule 2; and

(vii) FSHH shall continue to own the respective interests in the hospitals as reflected on Schedule 2.

(d) It is anticipated that within a reasonable period of time after closing the ARMPA Agreement, the names of FHA and GRMH shall be changed. FHA shall not change its name prior to giving Lender notice of said name change.

2. Consent by Lender. Lender hereby consents to the ARMPA Agreement and the Closing Agreements, subject to the terms and conditions contained herein. Should the ARMPA Agreement and the Closing Agreements not become effective within thirty (30) days of the date hereof, Lender’s consent shall immediately terminate.

-2-

3. FHA, FSA, FSHA and their respective wholly owned Subsidiaries (FSH, FSM, FSHH, and FSHM) (the “FHA Group”) Ratification, Re-affirmation and Acknowledgment of No Release. As a condition to Lender entering into this Ratification Agreement and giving its consent to the ARMPA Agreement and the Closing Agreements, Lender has required the parties hereto to ratify and re-affirm their respective liabilities and obligations to Lender under the respective Notes, Guaranties, and all other Loan Documents related to said Notes identified on Schedule 1 hereto.

The FHA Group and each of them, hereby ratify, re-affirm and confirm all of their respective obligations and liabilities under the Notes and Schedule 1 Loan Documents as the same are set forth therein.

4. Representations and Warranties of Lender. Lender hereby represents and warrants to the parties hereto that Lender is the current owner and holder of the Notes and Loan Documents relating thereto for each of the Loans identified on Schedule 1.

5. Representations and Warranties of the FHA Group. To induce the Lender to consent to the ARMPA Agreement and the Closing Agreements, and to enter into this Ratification Agreement, the FHA Group hereby represents and warrants to the Lender that:

(a) as of the date of effectiveness of this Ratification Agreement, each has the full power and authority to enter into this Ratification Agreement, to execute and deliver all documents and instruments required hereunder, and to incur and perform the obligations provided for herein on its part to be performed, and to perform and carry out the terms of the Notes and Loan Documents on its part to be performed, all of which have been duly authorized by all necessary entity action of the respective party thereto, if any, and no consent or approval of any third party is required as a condition to the validity or enforceability hereof or thereof;

(b) each party hereto has duly executed and delivered this Ratification Agreement;

(c) this Ratification Agreement will constitute the valid and legally binding obligation of the parties hereto, enforceable against them in accordance with its terms;

(d) the execution, delivery and performance of this Ratification Agreement will not violate (i) any provision of law or any order, rule or regulation of any court or governmental authority, or (ii) any instrument, contract, agreement, indenture, mortgage, deed of trust or other material document or obligation to which any party hereto is a party or by which any of their property is bound;

(e) there is no action, suit, proceeding or investigation pending or threatened that challenges the validity or enforceability of this Ratification Agreement, or any action required to be taken pursuant hereto or thereto;

(f) that as of the date of this Ratification Agreement no transfers of membership interests of any entity within the FHA Group are contemplated except as stated herein; and

-3-

6. Representations and Warranties of GRMH and TSH. To induce the Lender to enter into this Ratification Agreement, GRMH and TSH, hereby represent and warrant (each as to itself and to the others, to be read as if each party signed a separate document) to the Lender that:

(a) GRMH and TSH, as of the effective date of this Ratification Agreement, the ARMPA Agreement and the Closing Agreements, each are validly existing under the laws of their respective states of organization, and each has full power and authority to enter into this Ratification Agreement, and have been authorized by all necessary entity action of GRMH and TSH, and no consent or approval of any third party is required as a condition to the validity or enforceability hereof or thereof;

(b) this Ratification Agreement has been duly executed and delivered by GRMH and TSH;

(c) this Ratification Agreement will constitute the valid and legally binding obligations of GRMH and TSH, enforceable against GRMH and TSH in accordance with its terms;

(d) the execution, delivery and performance by GRMH and TSH of this Ratification Agreement will not violate (i) any provision of law or any order, rule or regulation of any court or governmental authority, or (ii) any instrument, contract, agreement, indenture, mortgage, deed of trust, instrument or other material document or obligation to which GRMH and TSH may be a party or by which any of GRMH and TSH’s property is bound; and

(e) as of the Closing Date, there is no action, suit, proceeding or investigation pending or threatened that challenges the validity or enforceability of this Ratification Agreement, or any action required to be taken pursuant hereto.

7. Releases and Indemnity. For the period from the inception of the Loans to and including the date of this Ratification Agreement and in consideration of Lender’s consent given herein, FHA Group, GRMH, and TSH hereby fully and finally acquit, quitclaim, release and discharge Lender and its officers, directors, shareholders, representatives, employees, servicers, agents and attorneys of and from any and all obligations, claims, liabilities, damages, demands, debts, liens, deficiencies or cause or causes of action (including claims and causes of action for usury), to, of or for the benefit (whether directly or indirectly) of FHA Group, GRMH, and TSH and/or any or all of them, arising on or before the date hereof, at law or in equity, known or unknown, contingent or otherwise, whether asserted or unasserted, whether now known or hereafter discovered, whether statutory, in contract or in tort, as well as any other kind or character of action now held, owned or possessed (whether directly or indirectly) by such person or any or all of them on account of, arising out of, related to or concerning, whether directly or indirectly, proximately or remotely the Notes, the Loan Documents identified on Schedule 1 hereto, this Ratification Agreement, the ARMPA Agreement and the Closing Agreements (collectively, the “Released Claims”).

-4-

8. Conditions to Closing. This Ratification Agreement shall be effective upon execution by the parties, provided that FHA pays Lender, on or before the Closing Date, all costs and expenses incurred by Lender in connection with the review and analysis of the transactions which are the subject of the ARMPA Agreement and the Closing Agreements, and the effect of same in relation to Lender’s Loans to the FHA Group, FHA’s request for Lender’s consent to enter into the ARMPA Agreement and the Closing Agreements, and close the transaction(s) described in said agreements, the analysis, preparation, negotiation, and execution of this Ratification Agreement and/or any other documents executed pursuant hereto, and any and all amendments, modifications, and supplements hereto or to the Loans, including, without limitation, the costs and fees of Lender’s legal counsel. Without limiting the foregoing, the FHA Group shall pay to Lender, on or before the date of execution of this Ratification Agreement by Lender, a Transaction Analysis Fee of $50,000.00 together with all other actual costs or expenses incurred by Lender, including specifically Lender’s attorneys’ fees in the amount of $78,000.00, owed to BLANEY AND TWEEDY, PLLC.

9. Existing Covenants. Prior to execution of this Ratification Agreement, the Loan Covenants between Lender and the FHA Group are as set forth on Schedule 3 attached hereto.

10. Post Closing Covenants and Amendments to Loan Documents. Contemporaneously with the execution of this Ratification Agreement and thereafter, the Loan Documents shall be deemed amended to include the Loan Covenants as set forth herein on Schedule 4, attached hereto. Except as specifically modified by this Ratification Agreement each and every FHA Group Loan Covenant currently in effect shall remain in full force and effect.

11. No Releases of FHA Group. Nothing contained in this Ratification Agreement shall be construed to in any way release any entity within the FHA Group from its existing obligations under their respective Notes, Guaranties, or other Loan Documents.

12. Participants’ Consent. This Ratification Agreement is subject to Lender obtaining the consent of all participants in the FHA Group Loans.

13. Amendment of Lender’s FHA Group Loans. At any time and from time to time, without notice to TSH, without liability to TSH and without release or impairing any of Lender’s rights hereunder, Lender may, with respect to the FHA Group Loans, take additional or other security therefor; release any person obligated thereon; modify, amend, renew, restate, redocument, or waive compliance with any of the documents evidencing the same; make any adjustments, indulgence, or forbearance to, or compromise with, any person liable therefor; delay, omit, fail or refuse to take or prosecute any action for collection thereof, or to foreclose any collateral for, or take or prosecute any action on any agreement securing the FHA Group Loans or any amounts due thereunder or under any of the security agreements or mortgages securing same.

-5-

14. Continuing Nature of Subordination. This Ratification Agreement and all rights and obligations of any party hereunder, including but not limited to the Schedule 4 Loan Covenants, shall be effective until the FHA Group Loans have been fully paid and satisfied and all obligations under all of the Schedule 1 Loan Documents and costs of enforcement have been satisfied in full.

15. Successors and Assigns. The obligations and liabilities of the parties hereto under this Ratification Agreement may not be delegated. This Ratification Agreement shall inure to the benefit of and shall be enforceable by Lender and by Lender’s assignees, transferees and successors against all other parties hereto and their successors and assigns.

16. Waivers and Modifications. No waiver by Lender shall be effective unless it is in writing and signed by an authorized officer of Lender. No such waiver shall operate as a waiver of any other matter or of a similar matter at a future time. This Ratification Agreement may not be changed except by writing executed by the parties to be charged and an authorized officer of Lender.

17. Severability. If any provision of this Ratification Agreement is held to be invalid or unenforceable under any applicable law, the remaining provisions of this Ratification Agreement shall remain fully valid and enforceable.

18. TSH Guaranty and Collateral Pledge. Lender’s consent to the transfer of the FSA and FSHA membership units from FHA to TSH is further conditioned upon the requirement that TSH shall execute a Collateral Pledge Agreement in the form of Exhibit A hereto, therein pledging all of its right, title, and interest in and to all FSA and FSHA membership interests transferred by FHA to TSH. Contemporaneously with execution of this Ratification Agreement TSH shall execute the Collateral Pledge Agreement and a Guaranty Agreement, in the form of Exhibit B, attached hereto, therein pledging the FSA and FSHA membership interests to Lender and guaranteeing the following Loans payable to Lender:

a. Loan #10666758

b. Loan #10748453

c. Loan #10748908

d. Loan #10749202

e. Loan #10938126

f. Loan #11041948

g. Loan #11119391

h. Loan #10228482

i. Loan #10970411

-6-

19. Confirmation of Loan Balances. The parties hereby acknowledge and agree that the principal balance of the FHA Group Loans as of July 18, 2013, are as set forth on Schedule 1 hereto.

20. Counterparts. It is understood and agreed that this Ratification Agreement may be executed in a number of identical counterparts, each of which shall be deemed an original for all purposes. It is understood and agreed that photostatic or facsimile signatures of the original signatures of this Ratification Agreement, and/or photostatic or facsimile copies of this Ratification Agreement fully executed, shall be deemed an original for all purposes. Any parties submitting a facsimile signature shall be estopped from denying that an original signature was required, and such parties hereby agree to provide original signatures upon demand by the other parties. The parties hereto waive the “best evidence” rule or any similar law or rule in any proceeding in which this Ratification Agreement shall be presented as evidence.

21. Default. A default or other breach of this Ratification Agreement by any party hereto shall be an Event of Default under all of the Loan Documents identified on Schedule 1 hereto.

22. Capitalized Terms. Capitalized terms not otherwise defined herein shall have the same meanings as is prescribed in the Loan Documents.

SIGNATURES ON THE FOLLOWING PAGES

-7-

IN WITNESS WHEREOF, the parties hereto have executed this Ratification Agreement as of the date first above written.

	FOUNDATION HEALTHCARE AFFILIATES, LLC, an Oklahoma limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: CEO
	FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: Manager
	FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, a Nevada limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: Manager
	FOUNDATION SURGERY HOLDINGS, LLC, a Delaware limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: Manager

-8-

SIGNATURE PAGE 2 TO RATIFICATION AGREEMENT

	FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: Manager
	FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC, a Nevada limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: Manager
	FOUNDATION SURGICAL HOSPITAL MANAGEMENT, LLC, an Oklahoma limited liability company
By:	/s/ THOMAS MICHAUD
	Name: Thomas Michaud
	Title: Manager

-9-

SIGNATURE PAGE 3 TO RATIFICATION AGREEMENT

	GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
By:	/s/ STANTON M. NELSON
	STANTON M. NELSON, CEO
	TSH ACQUISTION, LLC a Delaware limited liability company
By:	/s/ MICHAEL B. HORRELL
	Name: Michael B. Horrell
	Title: Manger
	LEGACY BANK
By:	/s/ RUSS NATION
	Name: Russ Nation
	Title: Senior Vice President

-10-

Schedule 1

All FHA Group Loans and FHA Group Related Loans

A. FHA Group Loans:

Loan # & Date	Borrowers	Amount	Maturity	Guarantors
10666758 02/05/2010	Foundation Surgery Affiliates, LLC Foundation Surgery Holdings, LLC Foundation Surgery Management, LLC	$3,712,725.42	05/20/2013	Tom Michaud Bob Byers
10748453 09/07/2010	Foundation Bariatric Hospital of San Antonio, L.L.C. d/b/a Foundation Surgical Hospital of San Antonio, LLC	$1,000,000.00 (current balance $896,000.00)	06/07/2014	FSHH* FSHA* FSHM* FSA* FSH* FSM* FHA* All Physician Partners limited to 130% of their pro rata shares
10749202 09/07/2010	Foundation Bariatric Hospital of San Antonio, L.L.C. d/b/a Foundation Surgical Hospital of San Antonio, LLC	$479,995.94	09/07/2015	FSHH* FSHA* FSHM* FSA* FSH* FSM* FHA* All Physician Partners limited to 130% of their pro rata shares
10748908 09/07/2010	Foundation Bariatric Hospital of San Antonio, L.L.C. d/b/a Foundation Surgical Hospital of San Antonio, LLC FSHA* FSHH* FSHM*	$1,925,413.75	09/07/2015	FHA* All Physician Partners limited to 130% of their pro rata shares

Loan # & Date	Borrowers	Amount	Maturity	Guarantors
10938126 12/30/2011	Foundation Surgery Affiliates, LLC Foundation Surgery Management, LLC Foundation Surgery Holdings, L.L.C.	$734,708.73	12/30/2016	FHA* FSHA* FSHH* FSHM*
10968623 03/21/2012	East El Paso Physician’s Medical Center, LLC	$834,272.18	03/21/2014	FHA* Healthcare REIT
10968635 03/21/2012	East El Paso Physician’s Medical Center, LLC	$833,854.20	03/21/2014	FHA* Healthcare REIT
11041948 08/30/2012	East El Paso Physician’s Medical Center, LLC	$804,000.00	09/30/2013	FHA* FSHA* FSA*
11119391 03/19/2013	East El Paso Physician’s Medical Center, LLC Foundation Surgery Affiliates, LLC	$2mm RLOC (current balance $2,010,027.00)	03/18/2014	FSM* FSH* FSA*
10970411 03/16/2012	Park Ten Surgical Center, LLC	$250,000.00 RLOC (current balance of $6,875.00)	05/15/2014	FSA* FSM* FSH* FHA* All Physician Partners
10228482 09/07/2006	FSHA*	$292,912.18	02/17/2016	FSA*

ii Schedule 1

B. FHA Group Related Loans:

Loan # & Date	Borrowers	Amount	Maturity	Guarantors
11107480 02/22/2013	West Houston Physician Partners, LLC	$2,913,698.40	03/15/2023	FSA* FSM* FSH* Select Physician Partners
11013734 06/26/2012	Foundation Bariatric Real Estate of San Antonio, LLLP	$13,955,707.26	06/26/2022	Bob Byers Randy Soule Mike Horrell FSHA* FSHH* FSHM*

* FSHH – Foundation Surgical Hospital Holdings, LLC

FSHA – Foundation Surgical Hospital Affiliates, LLC

FSHM – Foundation Surgical Hospital Management, LLC

FSA – Foundation Surgery Affiliates, LLC

FSH – Foundation Surgery Holdings, LLC

FSM – Foundation Surgery Management, LLC

FHA – Foundation Healthcare Affiliates, LLC

** FHA Group Related Loans consist of Loans upon which an FHA Group Entity is a Guarantor but no FHA Group Entity holds any ownership interest in the Borrower.

iii Schedule 1

Schedule 3

FHA Group and each FHA Group Related Existing Loan Covenants – Summary

Except as specifically modified in the Consent, Ratification, Acknowledgment, and Amendment to Loan Documents Agreement, and the schedules attached thereto, each and every FHA Group Loan Covenant shall continue in full force and effect.

	Loan # Borrowers	Guarantors	Covenants
1.	10666758
	Foundation Surgery Affiliates, LLC Foundation Surgery Holdings, LLC Foundation Surgery Management, LLC	Tom Michaud Bob Byers	Annual Audited Financial Statements consisting of balance sheet, cash flow statement & income statement, within 180 days Monthly financial statements consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity, and all accounts Quarterly aging A/R and A/P within 30 days New Surgery Centers’ quarterly statements consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity within 30 days Guarantors’ personal financial statements within 30 days Guarantors’ tax returns within 60 days of filing **Consolidated DSCR of not less than 1.25:1 at the end of each quarter **Consolidated Funded Debt to Tangible Net Worth of no more than 2.5:1 **Tangible Net worth of not less than $5,400,000 **Quarterly Compliance Certificate within 15 days as to DSCR and Funded Debt to Tangible Net Worth

	Loan # Borrowers	Guarantors	Covenants
2.	10748453
	Foundation Bariatric Hospital of San Antonio, L.L.C. d/b/a Foundation Surgical Hospital of San Antonio, LLC	FSHH* FSHA* FSHM* FSA* FSH* FSM* FHA* All Physician Partners limited to 130% of their pro rate shares	Certified monthly financial statements of Borrower and Guarantors consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity Certified or Audited annual financial statements of Borrower and Guarantors consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity – if audited financial statements are provided, no tax returns are required Tax Returns of Borrower and Guarantors within 30 days Physician Partners are to provide their personal financial statements within 30 days of Lender’s request Monthly Borrowing Base Certificate within 15 days Monthly A/R aging report within 30 days Maintain accounts with Lender Debts between Borrowers and/or Guarantors must be subordinated and no payments are to be made on the subordinated debt
3.	10748908
	Foundation Bariatric Hospital of San Antonio, L.L.C. d/b/a Foundation Surgical Hospital of San Antonio, LLC FSHA* FSHH* FSHM*	FHA* All Physician Partners limited to 130% of their pro rate shares	Certified monthly financial statements of Borrowers and Guarantors consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity Certified or Audited annual financial statements of Borrowers and Guarantors consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity – if audited financial statements are provided, no tax returns are required Tax Returns of Borrowers and Guarantors within 30 days Physician Partners are to provide their personal financial statements within 30 days of Lender’s request Monthly Borrowing Base Certificate within 15 days Monthly A/R aging report within 30 days Maintain accounts with Lender Debts between Borrowers and/or Guarantors must be subordinated and no payments are to be made on the subordinated debt

ii Schedule 3

	Loan # Borrowers	Guarantors	Covenants
4.	10749202
	Foundation Bariatric Hospital of San Antonio, L.L.C. d/b/a Foundation Surgical Hospital of San Antonio, LLC	FSHH* FSHA* FSHM* FSA* FSH* FSM* FHA* All Physician Partners limited to 130% of their pro rate shares	Certified monthly financial statements of Borrower and Guarantors consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity Certified or Audited annual financial statements of Borrower and Guarantors consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity – if audited financial statements are provided, no tax returns are required Tax Returns of Borrower and Guarantors within 30 days Physician Partners are to provide their personal financial statements within 30 days of Lender’s request Monthly Borrowing Base Certificate within 15 days Monthly A/R aging report within 30 days Maintain accounts with Lender Debts between Borrowers and/or Guarantors must be subordinated and no payments are to be made on the subordinated debt
5.	10938126
	Foundation Surgery Affiliates, LLC Foundation Surgery Management, LLC Foundation Surgery Holding, L.L.C.	FHA* FSHA* FSHH* FSHM*	Annual Audited Financial Statements consisting of balance sheet, cash flow statement & income statement, within 180 days Monthly financial statements consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity, and all accounts Quarterly aging A/R and A/P within 30 days New Surgery Centers’ quarterly statements consisting of a balance sheet and statements of earnings, and changes in stockholders’ equity within 30 days Guarantors’ personal financial statements within 30 days Guarantors’ tax returns within 60 days of filing **Consolidated DSCR of not less than 1.25:1 at the end of each quarter **Consolidated Funded Debt to Tangible Net Worth of no more than 2.5:1 **Tangible Net worth of not less than $5,400,000 **Quarterly Compliance Certificate within 15 days as to DSCR and Funded Debt to Tangible Net Worth

iii Schedule 3

	Loan # Borrowers	Guarantors	Covenants
6.	10968623
	East El Paso Physician’s Medical Center, LLC	FHA* Healthcare REIT	Quarterly Statements within 45 days compiled by CPA Tax Returns within 30 days of filing prepared by CPA Annual Guarantor Statements prepared by Guarantor Annual Guarantor Tax Returns prepared by CPA Quarterly Aging of A/P and A/R due within 45 days Annual 3rd party inspections required on equipment pledged as collateral Hospital is to obtain a lien subordination from Cardinal Health
7.	10968635
	East El Paso Physician’s Medical Center, LLC	FHA* Healthcare REIT	Quarterly Statements within 45 days compiled by CPA Tax Returns within 30 days of filing prepared by CPA Quarterly Aging of A/P and A/R due within 45 days Quarterly Statement of actual versus projected income due within 45 days Borrower agrees to provide a list of existing equipment and any other assets used as collateral within 45 days of loan closing Borrower agrees to provide a list of equipment to be purchased Annual 3rd party inspections required on equipment pledged as collateral Borrower is to obtain a lien subordination from Cardinal Health as its lien pertains to Lender’s lien or Lender may activate the default interest rate of “plus 5%” Annual Guarantor Statements prepared by Guarantor Annual Guarantor Tax Returns prepared by CPA

iv Schedule 3

	Loan # Borrowers	Guarantors	Covenants
8.	11041948
	East El Paso Physician’s Medical Center, LLC	FHA* FSHA* FSA*	Monthly, internally prepared financial statements within 30 days Tax Returns within 30 days of filing prepared by CPA No additional debt without Lender consent Guarantors annual financial statements Guarantors tax returns If the purchase agreement between Foundation Surgical Hospital Affiliates, LLC and Healthcare REIT, Inc. is not finalized by December 31, 2012, Foundation Surgical Hospital Holdings, LLC will be required to secure the entire Note with an $800,000 CD held by Legacy or pay off $400k of the note which is not secured by the existing CD. If the purchase agreement is finalized by 12/31/12, it will need to state in the agreement that the $14MM of debt owed to Healthcare REIT, by EEPPMC will be forgiven in full by the REIT.
9.	11119391
	East El Paso Physician’s Medical Center, LLC Foundation Surgery Affiliates, LLC	FSHM* FSHH* FSHA*	Monthly Financial Statements within 30 days prepared by Borrower Tax Returns within 30 days of filing Borrower shall incur no additional debt without the consent Lender FSA – no new debt in excess of $50,000 **FSA – maintain DSCR of 1.35:1, tested quarterly FSA, FSHH, Borrower, and FBH of SA maintain a combined DSCR of 1.10:1, tested quarterly Borrower – monthly Aging A/R

v Schedule 3

	Loan # Borrowers	Guarantors	Covenants
10.	10228482
	FSHA*	FSA*	Annual personal financial statements within 30 days Tax Returns within 30 days of filing
11.	10970411
	Park Ten Surgical Center, LLC	FSA* FSM* FSH* FHA* All Physician Partners	Quarterly statements prepared by borrower Annual Tax Returns prepared by CPA A/R aging due quarterly no new debt in excess of $50,000 Individual Guarantors are to provide current personal financial statements and/or Tax Returns within 45 days of closing or the default rate of 5% above the effective rate will activate and remain active until all information is received by Lender.

* FSHH – Foundation Surgical Hospital Holdings, LLC

FSHA – Foundation Surgical Hospital Affiliates, LLC

FSHM – Foundation Surgical Hospital Management, LLC

FSA – Foundation Surgery Affiliates, LLC

FSH – Foundation Surgery Holdings, LLC

FSM – Foundation Surgery Management, LLC

FHA – Foundation Healthcare Affiliates, LLC

** Covenant modified as per Schedule 4.

vi Schedule 3

Schedule 4

Additional Loan Covenants

1. Distributions – FSA and FSHA. Except for Distributions solely between FSA and FSHA, which are expressly permitted, neither FSA or FSHA shall pay or permit to be paid any dividend, make any distribution of any assets, or make any advances or loans to members, owners, stockholders, officers, employees, or affiliates (“Distributions”) without the prior written consent of Lender, EXCEPT as follows: (i) FSA and FSHA may make combined monthly Distributions of the lesser of eighty percent (80%) of GRMH’s Regular Monthly Overhead or $100,000.00, and (ii) FSA and FSHA may make quarterly distributions to TSH in the amount of TSH’s quarterly interest payment due on its preferred debt, and (iii) FSA and FSHA may make combined monthly distributions to TSH to pay FHA other debt assumed by TSH consisting of the Loans or other obligations identified on Exhibit A to this Schedule 4, not to exceed $70,000.00 per month. Such Distributions may be made so long as immediately following a Distribution the following conditions shall all exist: (a) FSA and FSHA, on a combined basis, shall maintain the following global Debt Service Coverage Ratio by the dates set forth as follows:

i. 1.0:1 by June 30, 2013

ii. 1.05:1 by September 30, 2013

iii. 1.1:1 by December 31, 2013,

iv. 1.15 by March 31, 2014, and

v. 1.2:1 by June 30, 2014, and thereafter; and

(b) the Distribution shall not exceed FSA’s and FSHA’s combined income for the previous month, and (c) there shall exist no default under this Ratification Agreement or any of the Loan Documents, and (d) all Distributions shall be included as post-net income on all quarterly financial statements. However, until such time as Loan #9952640 (Loan #9952640 is an existing loan having Foundation Healthcare Affiliates, LLC, as a Co-Borrower, and Legacy Bank as Lender) has been paid in full, FSA and FSHA may make combined monthly Distributions of the lesser of eighty percent (80%) of GRMH’s Regular Monthly Overhead or $115,000.00, so long as immediately following a Distribution, all of the above conditions exist. GRMH’s Regular Monthly Overhead includes the funds needed to make the payments due under Loan #9952640.

2. Debt Service Coverage Ratio – FSA and FSHA. FSA and FSHA shall maintain the following global Debt Service Coverage Ratios including immediately following a Distribution, by the dates set forth as follows:

i. 1.0:1 by June 30, 2013

ii. 1.05:1 by September 30, 2013

iii. 1.1:1 by December 31, 2013

iv. 1.15:1 by March 31, 2014, and

v. 1.2:1 by June 30, 2014.

DSCR is calculated on the combined net income of FSA and FSHA, plus interest expenses, plus depreciation expenses, plus amortization expenses of FSA and FSHA combined (EBIDA), less profit distributions from FBH SA and EEPPMC for the twelve (12) month period immediately preceding a determination date divided by cumulative Debt Service (excluding all debt service applicable to FBH SA and EEPPMC) on the subject indebtedness of FSA and FSHA combined for same twelve (12) month period, and all as determined in accordance with GAAP.

FBH SA is Foundation Bariatric Hospital of San Antonio, L.L.C., d/b/a Foundation Surgical Hospital of San Antonio, LLC.

EEPPMC is East El Paso Physician’s Medical Center, LLC.

3. Minimum Tangible Net Worth – FSA and FSHA. For the quarter ending June 30, 2013, FSA and FSHA reflected a combined Minimum Tangible Net Worth (“MTNW”) of $11,127,023.00. Beginning with the calendar quarter ending on September 30, 2013, and at the end of each calendar-quarter thereafter during the life of the Loan, FSA’s and FSHA’s required combined MTNW shall be adjusted by fifty percent (50%) of immediately preceding calendar quarter’s combined net income gain; however, in no event shall FSA’s and FSHA’s required combined Minimum Tangible Net Worth be adjusted by the immediately preceding calendar-quarter’s combined net income loss, if any. For clarity, the combined MTNW required for the calendar quarter ending September 30, 2013, shall be equal to the 2013 second quarter combined MTNW (e.g., $11,127,023.00) plus fifty percent (50%) of FSA’s and FSHA’s 2013 combined third quarter net income gain.

For purposes of this Ratification Agreement, MTNW shall be defined as the combined equity of FSA and FSHA less equity investment eliminations of FBH SA and EEPPMC plus preferred membership payable plus preferred membership interest payable as of measurement date.

4. Limitation of Indebtedness – FSA and FSHA. Without Lender’s prior written consent, neither FSA or FSHA or their respective subsidiaries, shall incur, create, contract, waive, assume, have outstanding, guarantee or otherwise be or become directly or indirectly liable with respect to any indebtedness, except (i) renewals or increases of existing Loans with Lender, (ii) current liabilities for taxes and assessments incurred in the ordinary course of business, (iii) indebtedness with respect to current accounts payable or accrued (other than for borrowed funds or purchase money obligations) and incurred in the ordinary course of business, provided that all such liabilities, accounts and claims shall be promptly paid and discharged when due or in conformity with customary trade terms, and (iv) existing indebtedness of FSA and FSHA and their subsidiaries as reflected in their respective financial statements as of May 31, 2013.

ii Schedule 4

5. Limitation of Indebtedness, Encumbrances, and/or Purchases and Payments. Except for the preferred debt incurred by TSHA and disclosed to Lender prior to execution of this Agreement, TSH shall not become directly or indirectly liable for any debts of its subsidiaries including specifically SDC Holdings, LLC, an Oklahoma limited liability company. TSH shall not sell, assign, transfer, pledge, or encumber its assets or the assets of any of its subsidiaries, including specifically FSA and FSHA, without Lender’s prior written consent. TSH’s purchase and/or payments, if any, pursuant to Section 2.3 of Closing Agreement 1 are specifically made subject to the terms and conditions of this Covenant.

6. Subordination of Distributions by TSH. TSH stipulates, acknowledges, and agrees that TSH’s right to receive Distributions from FSA and FSHA shall at all times be subordinated to FSA’s and FSHA’s covenants with Lender as set forth herein and as set forth in the Schedule 1 Loan Documents and the Lender’s right to require TSH and the TSH Subsidiaries (FSH and FSHA) full, complete, and punctual performance of their respective agreements with Lender. In the absence of an Event of Default, as that term is defined in the Loan Documents, including this Agreement, and so long as no Event of Default shall be created or exist by reason of TSH’s performance under the Closing Agreements, TSH may perform the terms and conditions of the Closing Agreements. Upon the occurrence of an Event of Default of any of the FHA Group Loans upon which FSA and FSHA are obligated to Lender (“Event of Default”), FSA and FSHA are prohibited from paying or distributing funds to TSH, and TSH is prohibited from paying or distributing funds to GRMH and/or SDC. In addition, GRMH and SDC are prohibited from receiving any payments of any nature whatsoever from TSH until the default has been cured as required by the terms of the Loan Documents with Lender. TSH, GRMH and Oliver agree that any payments received by TSH from FSH or FSHA or by GRMH or SDC from TSH subsequent to an Event of Default shall be received in trust for payment to Lender pursuant to this Agreement. To the extent, if any, TSH’s performance of the terms and conditions of the Closing Agreements would breach or cause a breach of TSH’s, FSA’s, or FSHA’s covenants with Lender as set forth herein and as set forth on the Loan Documents, then TSH shall be excused from performance under the Closing Agreements.

7. Affiliates. As used hererin “Affiliates” means any Person directly or indirectly controlling, controlled by, or under common control with, such Person. For the purposes of this definition “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of Voting Shares or by contract or otherwise. For purposes of this definition “Person” shall include natural persons, corporations, associations, limited liability companies, partnerships, joint ventures, trusts, governments and agencies and departments thereof and every other entity of every kind.

iii Schedule 4

8. As used herein “GRMH’s Regular Monthly Overhead” means any expense related to the following: (a) GRMH employee salaries (specifically, CEO, CFO, CAO, and assistant); (b) Securities and Exchange Commission reporting related expenses; (c) Insurance, specifically but not limited to Directors and Officers Liability and health insurance for employees; (d) Consultants related to accounting, legal, compliance with the Sarbanes-Oxley Act of 2002, and investor relations; (e) lease payments; and (f) regular payments due under Loan #9952640 (described above).

9. Monthly Compliance Certificate. By on or before the twentieth (20^th) day of each month FSA, FSHA and, to the extent applicable, TSH, shall complete, execute and deliver to Lender the Compliance Certificate in the form of Schedule 5 attached hereto.

iv Schedule 4

EXHIBIT A TO SCHEDULE 4

Other Obligations

Lender	Balance		Monthly Payment
1. Don Emilian Settlement	$	615,941.00	$	20,000.00
2. Dell Equipment Lease	$	45,024.00	$	7,551.00
3. TBF Judgment	$	50,000.00
4. Medistar Settlement	$	525,000.00
5. Huffman Settlement	$	214,756.00	$	12,500.00
6. Whitney Bank Forbearance	$	20,522.00	$	3,420.00
7. R M Byers Note	$	351,581.00	$	10,946.00
8. Legacy Loan #10963595	$	220,311.00	$	11,628.00

EX-10.14

Exhibit 10.14

ASSET PURCHASE AGREEMENT

Tyche Health Enterprises, LLC

And

TSH Acquisition, LLC

Graymark Healthcare, Inc.

Dated as of March 31, 2013

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “Agreement”) is entered into on March 31, 2013, by and between Tyche Health Enterprises, LLC, a California limited liability company (“Seller”), TSH Acquisition, LLC, a Delaware limited liability company (“Buyer”). Buyer and Seller are collectively referred to herein as the “Parties.”

WHEREAS, pursuant to that certain MEMBERSHIP INTEREST PURCHASE AGREEMENT dated July 17, 2007 (“Purchase Agreement”), a copy of which is attached hereto as Exhibit “A,” Seller owns both preferred and common membership interests in Foundation Surgery Holdings, LLC, Foundation Weightwise Holdings, LLC (NKA Foundation Surgical Hospital Affiliates, LLC) as well as the right to various equity interests in the affiliates of these Foundation companies (herein collectively referred to as “Foundation”); and

WHEREAS, Buyer desires to purchase and acquire from Seller all of its right, title and interest in the Purchase Agreement and any preferred or non-preferred ownership interest in the Foundation entities that have been acquired as a result of the Purchase Agreement; and

WHEREAS, subject to the terms and conditions contained in this Agreement, Seller shall assign, sell, convey and transfer to Buyer all of its right, title, and interest in the Purchase Agreement as well as any preferred or non-preferred ownership interest in the Foundation entities that have been acquired as a result of the Purchase Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

1. ACQUISITION OF ASSETS BY BUYER.

1.1. Purchase and Sale of Assets. Subject to the conditions specified in section 2 below, Seller agrees to sell, assign, convey and transfer to Buyer and Buyer agrees to purchase and acquire from Seller, all of Seller’s right, title and interest in the Purchase Agreement and any preferred or non-preferred ownership in the Foundation entities that have been acquired as a result of the Purchase Agreement (the “Acquired Assets”). Buyer shall assume any and all rights and obligations of Seller contained in the Purchase Agreement.

1.2 Purchase Terms. Buyer agrees to purchase the Acquired Assets in accordance with the following terms:

1.2.1. Buyer will pay a total purchase value of $12,717,662.22 according to the following payment schedule:

2

a) On or before March 29^th, 2013, Buyer will pay Seller $5,029,101.66 in cash. Such amount shall be paid by wire transfer in accordance with instructions provided by Seller.

b) Buyer will provide Seller with a note in the principal amount of $5,029,101.66 that will be backed by a binding, irrevocable unconditional letter of credit in a form approved by Seller and provided and issued by a state or national bank acceptable to Seller and providing for an expiration date (“Expiry”) of not less than             days from issuance date and in an amount not less than $5,225,581.00. The note shall become due and payable on August 1^st, 2013 for $5,029,101.66. Until the note is paid in full, it shall bear interest of 11.5% annually, payable in monthly installments of $48,195.56 due on the 1^st of each month commencing on the 1^st day of May, 2013 and thereafter on the 1^st day of each succeeding month until the 1^st day of August, 2013 when all accrued interest remaining unpaid together with the principal amount shall then be immediately due and payable. If the note is not timely paid or if any monthly interest payment required to be paid thereunder is not received by the Seller within five (5) days of its due date for each month respectively, then a late fee equal to 10% of the amount due shall be added to the amount then due and payable. In the event that a default in the payment obligation under the note occurs, then all principal and accrued interest and late fees shall be accelerated and become immediately due and payable. A default shall mean that if any payment due is not received within 5 days of its due date. TIME IS OF THE ESSENCE IN THIS TRANSACTION. In the event of a default as above described then Seller may immediately, and without notice present such letter of credit for payment and draw upon such letter of credit all amounts due and owing under and pursuant to the terms of the note. The form of the note is attached hereto as Exhibit “B”.

c) $553.903.00 in the form of a Buyer’s new promissory note issued directly to Brian McCormack. The parties acknowledge that current Seller member, Brian McCormack, has agreed to “roll” his investment into Buyer in accordance with a separate agreement entered into between Brian McCormack and the Buyer. Seller is not a party to such agreement which has been separately negotiated by Buyer and Mr. McCormack without Seller’s participation. Therefore, Mr. McCormack’s full consideration from the sale of the assets shall be the note he receives from rolling into the Buyer. Any amounts to be paid to Mr. McCormack shall be subordinated to all amounts to be paid to Seller pursuant to this Agreement.

3

d) $1,865,600.00 in the form of a Buyer’s new promissory note issued directly to S&H Equipment Leasing. The parties acknowledge that current Seller Member, S&H Equipment Leasing, has agreed to “roll” its investment into Buyer in accordance with a separate agreement entered into between S&H Equipment Leasing and the Buyer. Seller is not a party to such agreement which has been separately negotiated by Buyer and S&H Equipment Leasing without Seller’s participation. Therefore, S&H Equipment Leasing’s full consideration from the sale of the assets shall be the note he receives from rolling into the Buyer. Any amounts to be paid to S&H Equipment Leasing shall be subordinated to all amounts to be paid to Seller pursuant to this Agreement.

e) $239,955.89 in the form of newly issued preferred shares of Buyer containing the preferences described in Exhibit “C.” Such shares shall be issued directly to members of Seller in accordance with instructions provided by Seller.

1.2.2 Subject to Seller receiving certain releases as previously agreed to, Seller, through its managers, shall agree and consent to the transfer of 70 of Seller’s membership units presently held by Rock Solid Gelt Limited, a Delaware limited partnership, to Buyer pursuant to a separate agreement entered into between Rock Solid Gelt Limited and THE Managers and between THE Managers and Graymark.

1.2.3 .

1.2.4 In addition to the consideration stated above, upon the combination of the Foundation/Graymark assets whether by way of asset transfer, stock transfer, merger, or other, Graymark shall issue the following warrants for common shares of Graymark;

• 1,687,500 5 year warrants at a strike price of $1.15

• 3,062,500 7.5 year warrants at a strike price of $1.50

• 2,000,000 10 year warrants at a strike price of $1.75

The warrants exercisable at any time and shall be assigned by Seller to its members and shall include registration/piggy back rights in accordance with the agreement attached as Exhibit “D.” In addition, Buyer shall cause the warrants and the underlying stock to be listed within             years. Twenty percent of the warrants shall be allocated and assigned directly to THE Managers.

4

1.2.5 The Buyer agrees to issue a promissory note to THE Managers for accrued unpaid management fees equal to approximately $350,000. The note shall be subordinate to the payments to the note payable to Seller described in 1.4.1(d). The note shall bear the same interest rate and late charge as the Seller’s note and shall be due on August 1, 2013.

2. CONDITIONS TO SELLER’S PERFORMANCE: Seller’s performance is subject to each of the following which run in favor of Seller:

2.1 That the form of the promissory note and the letter of credit payable to Seller is acceptable to Seller. The form of the promissory note is attached hereto as Exhibit “B,” and the form of the letter of credit is attached hereto as Exhibit “E.”

2.2 That this transaction is approved by the members of Seller in accordance with Seller’s Operating Agreement.

2.3 That the cash funds of $5,029,101.66 are on deposit seller at time of closing.

2.4 That releases acceptable to Seller have been received in conjunction with (1) the transfer of the 70 membership units describe in section 1.2.2 above, and (2) the roll over by Brian McCormack and S&H Equipment Leasing as described in sections 1.2.1(c) and (d) above.

2.5 That the form of the registration rights/piggyback rights agreement which is attached hereto as Exhibit “D” has been approved by Seller.

2.6 That the $117,000 payment due by Foundation is paid to Tyche on or before March 25^th, 2013.

2.7 That the form of the promissory note described in section 1.2.5 the form of which is attached as Exhibit “F” has been approved by Seller.

3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer the following:

3.1. Organization and Qualification of the Seller. Seller is a limited liability company that is duly organized, validly existing, and in good standing under the laws of the State of California and, upon approval of its Members in accordance with its Operating Agreement, shall have the requisite power and authority to enter into this Agreement.

5

3.2. THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE 3 ARE THE ONLY REPRESENTATIONS AND WARRANTIES BEING MADE BY SELLER AND ITS AFFILIATES IN THIS AGREEMENT. EXCEPT AS SET FORTH IN THIS ARTICLE 3 OR IN ANY OTHER TRANSACTION DOCUMENT, NONE OF THE SELLER, ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES MAKE OR HAVE MADE ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF THE BUSINESS OR ANY OF THE ACQUIRED ASSETS, INCLUDING WITH RESPECT TO (I) MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, (II) WARRANTY AGAINST INFRINGEMENT, (III) THE OPERATION OF THE BUSINESS BY THE BUYER AFTER THE CLOSING OR (IV) THE PROBABLE SUCCESS OR PROFITABILITY OF THE BUSINESS AFTER THE CLOSING, ALL OF WHICH ARE HEREBY DISCLAIMED.

4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that:

4.1. Authorization of Transaction. Buyer and Foundation have all requisite corporate power and authority to execute and deliver this Agreement and all associated documents referenced herein.

5. DUE DILIGENCE. Buyer has completed its own due diligence investigation of the operation of the Seller and the Acquired Assets, the results of which shall have been deemed satisfactory in the sole discretion of Buyer, its agents, employees and representatives. Buyer is relying exclusively on its own due diligence and not on any representations or statements made by Seller or its agents. Buyer waives any and all claims against Seller or its agents for any failure to disclose any information to Buyer.

6. MISCELLANEOUS.

6.1. Press Releases and Public Announcements. Subject to this Section 7.1, no press release, publicity or other form of public written disclosure related to this Agreement shall be permitted by either party to be published or otherwise disclosed unless the other party has indicated its consent to the form of release in writing, except for any disclosure as is deemed necessary or advisable, in the reasonable judgment of the responsible party, to comply with national, federal or state laws or regulations with respect to regulatory reporting or disclosure obligations, including without limitation, under securities laws and stock exchange rules and regulations and further including without limitation, in filings on Form 8-K or 10-Q as the case may be.

6.2. Succession and Assignment; No Third-Party Beneficiary. This Agreement and the rights of the Parties hereunder may not be assigned by operation of law or otherwise. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and the successors and permitted assigns thereof. This Agreement is for the sole benefit of the Parties and their successors and permitted assignees and nothing herein expressed or implied will give or be construed to give any Person, other than the Parties and such successors and permitted assignees, any legal or equitable rights hereunder.

6

6.3 Indemnification By Buyer. Buyer hereby indemnifies and holds Seller, its officers, managers, and affiliates harmless from all claims, costs (including attorneys fees), liabilities or damages arising out of or relating to the separate agreements entered into between Buyer and Rock Solid Gelt Limited, Brian McCormick, and/or S&H Equipment Leasing as described in sections 1.2.1(c) and (d) and 1.2.2 above.

6.4. Counterparts. This Agreement may be executed in any number of counterparts, (including by facsimile transmission or by electronic mail with scan or attachment signature) each of which will be deemed an original, but all of which together will constitute but one and the same instrument.

6.5. Headings. The headings contained in this Agreement are for convenience purposes only and will not in any way affect the meaning or interpretation hereof.

6.6. Notices. Any and all notices required hereunder shall be in writing and shall be (a) sent by certified, first-class mail, postage prepaid, (b) sent by national overnight courier or (c) delivered by facsimile (with the original promptly sent by any of the foregoing manners), to the addresses or facsimile numbers of the other Party as set forth below. The effective date of any notice hereunder shall be the date of receipt by the receiving Party:

If to Seller:                             

If to Buyer:                             

6.7. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California.

6.8. Amendments and Waivers. No alternation, waiver, cancellation, or any other change or modification in any term or condition of this Agreement, or any agreement contemplated to be negotiated or reached pursuant to the terms of this Agreement, shall be valid or binding on either party unless made in writing and signed by duly authorized representatives of both Parties. Any waiver of breach or default pursuant to this Agreement shall not be a waiver of any other subsequent default. Failure or delay by either party to enforce any term or condition of this Agreement shall not constitute a waiver of such term or condition.

6.9. Severability. To the extent any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, that provision notwithstanding, the remaining provisions of this Agreement shall remain in full force and effect and such invalid or unenforceable provision shall be deleted.

6.10. Expenses. Each of party will bear its own costs and expenses (including legal and accounting fees and expenses) incurred in connection with this Agreement.

7

6.11. Construction. This Agreement is the result of negotiation between the Parties and their respective counsel. This Agreement will be interpreted fairly in accordance with its terms and conditions and without any strict construction in favor of either Party. Any ambiguity shall not be interpreted against the drafting Party.

6.12 Arbitration. Except as expressly set forth in this Agreement, all disagreements, disputes, controversies and claims arising out of this Agreement, shall be submitted to and resolved by arbitration in Orange County, California before a commercial panel of one arbitrator in accordance with and pursuant to the Commercial Arbitration Rules of the American Arbitration, as then in effect. The arbitrator shall be selected by mutual agreement of the Parties, or if no agreement can be reached, the arbitrator shall be selected by the American Arbitration Association. The arbitrator shall be licensed attorneys with at least fifteen (15) years’ experience in the negotiation and performance of commercial contacts. The discovery period shall last no more than sixty (60) days after the arbitrators shall declare the discovery period commenced, and each Party may conduct no more than five (5) depositions. The arbitrator shall issue a reasoned opinion in support of his or her award. The determination of the arbitrator shall be final and binding on the Parties. The service of any notice, process, motion or other document in connection with an arbitration proceeding or for the enforcement of any arbitration award bay be made as set forth in this Agreement (other than by telecopier). The provisions of this section shall not be deemed to preclude any Party hereto from seeking preliminary injunctive or other equitable relief to protect or enforce its rights hereunder pending arbitration, or to prohibit any court from making preliminary findings of fact in connection with granting or denying such preliminary injunctive relief pending arbitration, or to preclude any Party hereto from seeking permanent injunctive or other equitable relief after and in accordance with the decision of the arbitrators. Nothing herein shall be construed to mean that any decision of the arbitrator is subject to judicial appeal or review, on any ground whatsoever. Each Party shall bear its own costs and expenses in the event of any dispute hereunder.

6.13 Attorney’s Fees. In the event of any dispute relating to or arising out of the subject matter of this Agreement (or to enforce the terms of this Agreement), the non-prevailing party shall reimburse the prevailing party for all reasonable attorney fees and costs resulting therefrom.

6.14 Entire Agreement. This Agreement, including the transaction documents referenced herein, constitutes the entire agreement among the Parties hereto with respect to the subject matter hereof and supersedes any and all prior discussions, negotiations, proposals, undertakings, understandings and agreements, whether written or oral, with respect thereto. In the event of any conflict between the terms of this Agreement and any agreement or document entered into or delivered in accordance herewith, including any purchase order, terms and conditions of supply or any other document delivered in accordance herewith, the terms of this Agreement shall prevail.

8

“Seller”		“Buyer”
TYCHE HEALTH ENTERPRISES, LLC		TSH ACQUISITION, LLC
By:	THE MANAGERS, LLC, a	By:	/s/ STANTON NELSON
By:	Archimedes Financial, LLC,		Stanton Nelson Its Manager
By:	/s/ MICHAEL B. HORRELL
	Michael B. Horrell, Sole Member and Operating Manager
By:	Fortuna Asset Management, LLC, a California limited liability company, its Manager
By:	/s/ KAREN B. BRENNER
	Karen B. Brenner, Manager

9

EXHIBIT “A”

PURCHASE AGREEMENT

EXHIBIT “B”

PROMISSORY NOTE

EXHIBIT “C”

DESCRIPTION OF PREFERENCES

EXHIBIT “D”

REGISTRATION/PIGGYBACK RIGHTS AGREEMENT

EXHIBIT “E”

LETTER OF CREDIT

EXHIBIT “F”

NOTE TO THE MANAGERS

EXHIBIT “G”

RELEASE

10

EX-10.14.1

Exhibit 10.14.1

July 22, 2013

Ms. Karen Brenner, Manager

Tyche Health Enterprises LLC

P. O. Box 9109

Newport Beach, CA 92658

Re: Asset Purchase Agreement among Tyche Health Enterprises LLC, a Nevada limited liability company (“THE”), TSH Acquisition, LLC, a Delaware limited liability company (“TSH”), and Graymark Healthcare, Inc., an Oklahoma corporation (“Graymark”)

Dear Ms. Brenner:

This letter is in regards to the above-referenced Asset Purchase Agreement, as it has been amended by the letter agreement among THE, TSH and Graymark, dated March 31, 2013 (as so amended, the “Agreement”). All section references herein are to the Agreement, unless otherwise expressly indicated to the contrary. By execution of this letter, the parties agree to amend the Agreement as follows:

1. The parties agree the Agreement is amended to specify that the Closing Date shall be set on or before July 31, 2013.

2. The parties agree Section 1.2.1(a) is changed to on or before July 31, 2013 and the cash payment amount is changed to $10,173,854.33.

3. The parties agree Section 1.2.1(b) is deleted in its entirety.

4. The following is hereby added to Section 1.2.1(c): “All units representing limited liability company membership interests held by Mr. McCormack shall be transferred back to Seller and redeemed at closing of Buyer’s acquisition of the Acquired Assets (the “Closing”).”

5. The following is hereby added to Section 1.2.1(d): “All units representing limited liability company membership interests held by S&H Equipment Lease shall be transferred back to Seller and redeemed at Closing.”

6. The parties agree that the Note described in Section 1.2.1(e) shall be in the amount of $124,304.89.

7. The parties agree that Section 1.2.2 of the Agreement is deleted in its entirety and replaced with the following:

1.2.2 Subject to Seller receiving certain releases to be agreed upon, Seller, through its managers, shall agree and consent to the transfer of 70 of Seller’s membership units presently held by Rock Solid Gelt Limited, a Delaware limited partnership (“Rock Solid”), to Buyer, which units shall then be transferred by Buyer to Seller as additional consideration for the Acquired Assets and redeemed by Seller, in each case in accordance with a separate agreement or agreements to be entered into between (i) Rock Solid and THE Managers LLC (“THEM”), (ii) THEM and Buyer, and (ii) Buyer and Seller.

Ms. Karen Brenner, Manager

July 22, 2013

Page 2

8. The parties agree that Section 1.2.3 of the Agreement is amended in its entirety to read as follows:

1.2.3 As additional consideration for Seller’s acquisition of the units representing limited liability company membership interests in Seller held by Rock Solid, Brian McCormack (“McCormack”) and S&H Equipment Leasing (“S&H”) (which units are to be redeemed and extinguished at Closing), Seller agrees as follows:

a) Seller shall pay to each of Rock Solid, McCormack and S&H, in accordance with the provisions of Section 1.2.3(b) below (i) a portion of all cash on hand, that would otherwise be distributed to Seller’s members, accumulated by Seller through the time immediately preceding Closing (the “Cash on Hand”), after giving effect to the reserve fund described in Section 1.2.3(b) below, and (ii) a portion of the warrants issued to Seller under Section 1.2.4, in each case pro rata with the remaining members of Seller based on their membership interest in Seller immediately before Closing.

b) Some or all of the Cash on Hand will be held by Seller as a reserve fund for potential contingent liabilities for a period of time established by Seller pursuant to advice from independent professionals. To the extent some or all of the Cash on Hand is distributed to the remaining Members before, during or after the reserve period, Rock Solid or its successor in interest, TSH, McCormack and S&H will receive their respective pro rata portions based on their membership interest in Seller immediately before Closing. Rock Solid, McCormack and S&H will receive their respective pro rata portions of the Graymark warrants at the time Seller distributes them to its remaining members.

9. The parties agree that description of the warrants to be issued under Section 1.2.4 of the Agreement is hereby amended and restated in its entirety as follows:

• 1,937,500 5 year warrants at a strike price of $1.00

• 3,516,204 7.5 year warrants at a strike price of $1.35

• 2,296,296 10 year warrants at a strike price of $1.60

Ms. Karen Brenner, Manager

July 22, 2013

Page 3

The parties agree that twenty percent of the warrants shall be allocated and assigned directly to THE Managers, LLC and the remainder of the warrants are to be issued to the Seller.

10. The parties agree that the Note described in Section 1.2.1(e) and Section 1.2.5 shall be unsecured but shall be unconditionally guaranteed by Graymark. Section 1.2.5 is further amended to delete the last sentence of Section 1.2.5 and replace it with the following: “The Note shall bear the interest rate and late charge as the Note on Exhibit “G” and shall be due on August 1, 2013.”

11. The parties agree that Section 2.1 is deleted in its entirety.

12. The parties agree that Section 2.3 is changed to $10,173,854.33.

13. The parties agree that any reference to TSH Acquisition, LLC in the Asset Purchase Agreement is a reference to TSH Acquisition, LLC, a Delaware limited liability company.

14. The parties agree that any reference to Tyche Health Enterprises, LLC in the Asset Purchase Agreement is a reference to Tyche Health Enterprises, LLC, a Nevada limited liability company.

15. The parties agree that Exhibit “B” and Exhibit “E” are deleted in their entirety.

16. The parties agree that Exhibit “G” shall be added to the Agreement and the form of Exhibit “G” is attached hereto.

Ms. Karen Brenner, Manager

July 22, 2013

Page 4

The parties agree that, as amended hereby, the Agreement remains in full force and effect. This letter may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document.

Respectfully,
TSH Acquisition, LLC, a
Delaware limited liability company
By:	/s/ MICHAEL B. HORRELL
	Michael B. Horrell, Manager
Graymark Healthcare, Inc., an
Oklahoma corporation
By:	/s/ STANTON NELSON
	Stanton Nelson, Chief Executive Officer

Ms. Karen Brenner, Manager

July 22, 2013

Page 5

Agreed to this 22nd day of July, 2013.

Tyche Health Enterprises LLC, a Nevada limited liability company
By:	THE MANAGERS, LLC, a Delaware limited liability company, as Manager
	By:	Archimedes Financial LLC, a Nevada limited liability company, as Manager
		By:	/s/ MICHAEL B. HORRELL Michael B. Horrell, Manager
	By:	Fortuna Asset Management, LLC, a California limited liability company, as Manager
		By:	/s/ KAREN BRENNER Karen Brenner, Managing Member

SIGNATURE PAGE

LETTER AGREEMENT

EXHIBIT “G”

PROMISSORY NOTE

BORROWER:	TSH Acquisition, LLC	LENDER:	THE Managers, LLC
	210 Park Avenue, #1350		P. O. Box 9109
	Oklahoma City, OK 73102		Newport Beach, CA 92658

Principal Amount: $350,000.00 Date of Note: July 22, 2013

PROMISE TO PAY. TSH Acquisition, LLC, a Delaware limited liability company (“Borrower”) for and in consideration of good and valuable consideration in hand, the receipt and sufficiency of which is hereby acknowledged, promises to pay to THE Managers, LLC (“Lender”) at P.O. Box 9109, Newport Beach, CA 92658, or order, in lawful money of the United States of America, the principal amount of Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00), plus interest in the amount of eleven and one-half percent (11.5%) per annum on the unpaid principal balance on August 1, 2013. This payment due on August 1, 2013 will be for all principal and all accrued interest not yet paid. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing. Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 12.000% per annum based on a year of 360 days. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note.

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), or any other termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. However, this Event of Default shall not apply if there is good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note, if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, including without limitation all attorney’s fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Oklahoma without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Oklahoma.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to the jurisdiction of the courts of Oklahoma County, State of Oklahoma.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

SUBORDINATION. Lender and Borrower hereby agree that this Note and any payments due under this Note shall be subordinated to all amounts to be paid to Tyche Health Enterprises LLC pursuant to the Asset Purchase Agreement by and between Tyche Health Enterprises LLC and Borrower.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THIS NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

TSH ACQUISITION, LLC,

a Delaware limited liability company

By:	/s/ MICHAEL B. HORRELL
	Michael B. Horrell, Manager

EX-10.15

Exhibit 10.15

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEREFORE, THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR UNDER AN EXEMPTION FROM SUCH REGISTRATION PERMITTED BY APPLICABLE LAW.

WARRANT TO PURCHASE COMMON STOCK

OF

GRAYMARK HEALTHCARE, INC.

This Warrant is issued to Tyche Health Enterprises LLC, a Nevada limited liability company (together with its successors and assigns, the “Holder”), by Graymark Healthcare, Inc., an Oklahoma corporation (the “Company”), as of July 22, 2013 (the “Warrant Issue Date”). This Warrant is issued for a purchase price of $10.00 plus the Holder’s obligations as described in the Asset Purchase Agreement (the “Asset Purchase Agreement”) between the Holder and TSH Acquisition, LLC, an Oklahoma limited liability company (the “Buyer”).

1. Purchase of Shares. Subject to the terms and conditions set forth in this Warrant, the Holder is entitled, upon surrender of this Warrant at the Company’s principal office (or at such other place as the Company notifies the Holder in writing), to purchase from the Company, up to 1,550,000 fully paid and non-assessable shares of the Company’s Common Stock (the “Shares”).

2. Exercise Price. The purchase price per Share is $1.00, subject to adjustment pursuant to Section 6 (as adjusted, the “Exercise Price”).

3. Exercise Period. This Warrant is exercisable, in whole or in part, beginning on the date that is ninety (90) days after the Warrant Issue Date and continuing until the fifth (5^th) anniversary of the Warrant Issue Date, at which time this Warrant will expire.

4. Method of Exercise. So long as this Warrant remains outstanding and exercisable in accordance with Section 3 above, the Holder may exercise, in whole or in part, and from time to time, in as many separate transactions as Holder may determine, the purchase rights evidenced by this Warrant. Such exercise will be effected by the surrender of this Warrant to the Company at its principal offices, together with a duly executed Notice of Exercise (a copy of the form of which is attached hereto), and the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

5. Certificates for Shares. Upon the Holder’s exercise of its purchaser rights hereunder, one or more certificates for the number of Shares purchased will be issued to the Holder as soon as practicable thereafter (with appropriate restrictive legends). If the Holder has any remaining rights under this Warrant following a partial exercise of the Holder’s purchase rights hereunder, the Company will reissue this Warrant to evidence such remaining rights.

6. Adjustment of Exercise Price and Number of Shares. The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price is subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances. If at any time before the expiration of this Warrant, the Company subdivides its Common Stock, by split-up or otherwise, or combines its Common Stock, or issues additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant will be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments will also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) will remain the same. Any adjustment under this Section 6(a) will become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such stock dividend, or if no record date is fixed, upon the making of such stock dividend.

(b) Reclassification, Reorganization and Consolidation. If at any time before the expiration of this Warrant, the Company undergoes any reclassification, capital reorganization, or change in its Common Stock (other than as a result of a subdivision, combination, or stock dividend provided for in Section 6(a) above), the Company (or its successor) will execute and deliver to the Holder appropriate documents evidencing the Holder’s right, at any time before the date on which this Warrant would expire, to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and/or other securities and property receivable in connection with such reclassification, reorganization, or change, as the Holder could have purchased immediately before such reclassification, reorganization, or change. In any such case appropriate provisions will be made with respect to the Holder’s rights and interest so that the provisions of this Warrant will thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise of this Warrant, and appropriate adjustments will be made to the purchase price per share payable hereunder, provided the aggregate purchase price will remain unchanged.

(c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Warrant.

7. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment to the Holder for such fractional shares based on the Exercise Price then in effect.

8. Restricted Securities. Holder hereby confirms that it has been informed that this Warrant and the Shares issued upon exercise of this Warrant are restricted securities under the Securities Act of 1933, as amended (the “Act”), and may not be resold or transferred unless the securities to be resold are first registered under the federal securities laws or unless an exemption from such registration is available. Accordingly, Holder hereby acknowledges that it is prepared to hold this Warrant, and the Shares issued upon exercise of this Warrant, for an indefinite period.

9. Transfers of Warrant.

(a) To the extent permitted by the Act (either pursuant to a valid registration thereunder or exemption from such registration) and other applicable state and federal law, Holder may partially or wholly assign or transfer this Warrant and its rights hereunder. Upon the Holder’s surrender of this Warrant to the Company at its principal offices, together with a copy of the documentation evidencing such transfer or assignment, the Company shall issue replacement warrants in place hereof to Holder (if Holder retains any rights hereunder) and each transferee in substantially similar form to this Warrant evidencing the rights of Holder and such transferee(s), as applicable, in and to the proportionate number of Shares to which they are entitled.

(b) Except as provided in the preceding Section 9(a), this warrant is not transferable in whole or in part without the Company’s prior written consent, and as permitted by applicable law (including without limitation, the Act).

10. Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

11. Governing Law; Dispute Resolution. This Warrant shall be governed in all respects by the laws of the State of Oklahoma as such laws are applied to agreements between Oklahoma residents entered into and to be performed entirely within Oklahoma.

12. Amendment. Any term of this Warrant may be amended only with the written consent of the Company and the holder of this Warrant. No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

[SIGNATURE PAGE ATTACHED]

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by an officer thereunto duly authorized.

GRAYMARK HEALTCHARE, INC.
By:	/s/ Stanton Nelson
	Stanton Nelson
	Chief Executive Officer

NOTICE OF EXERCISE

To: Graymark Healthcare, Inc.

The undersigned hereby elects to purchase                      shares of Common Stock of Graymark Healthcare, Inc., an Oklahoma corporation, pursuant to the terms of the attached Warrant; payment of the Exercise Price per share required under such Warrant accompanies this notice. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name of the undersigned.

WARRANT HOLDER:

By:

Name:

Title

Name:

Address:

Date:

EX-10.16

Exhibit 10.16

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEREFORE, THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR UNDER AN EXEMPTION FROM SUCH REGISTRATION PERMITTED BY APPLICABLE LAW.

WARRANT TO PURCHASE COMMON STOCK

OF

GRAYMARK HEALTHCARE, INC.

This Warrant is issued to Tyche Health Enterprises LLC, a Nevada limited liability company (together with its successors and assigns, the “Holder”), by Graymark Healthcare, Inc., an Oklahoma corporation (the “Company”), as of July 22, 2013 (the “Warrant Issue Date”). This Warrant is issued for a purchase price of $10.00 plus the Holder’s obligations as described in the Asset Purchase Agreement (the “Asset Purchase Agreement”) between the Holder and TSH Acquisition, LLC, an Oklahoma limited liability company (the “Buyer”).

1. Purchase of Shares. Subject to the terms and conditions set forth in this Warrant, the Holder is entitled, upon surrender of this Warrant at the Company’s principal office (or at such other place as the Company notifies the Holder in writing), to purchase from the Company, up to 2,812,963 fully paid and non-assessable shares of the Company’s Common Stock (the “Shares”).

2. Exercise Price. The purchase price per Share is $1.35, subject to adjustment pursuant to Section 6 (as adjusted, the “Exercise Price”).

3. Exercise Period. This Warrant is exercisable, in whole or in part, beginning on the date that is ninety (90) days after the Warrant Issue Date and continuing until the date that is 90 months after the Warrant Issue Date, at which time this Warrant will expire.

4. Method of Exercise. So long as this Warrant remains outstanding and exercisable in accordance with Section 3 above, the Holder may exercise, in whole or in part, and from time to time, in as many separate transactions as Holder may determine, the purchase rights evidenced by this Warrant. Such exercise will be effected by the surrender of this Warrant to the Company at its principal offices, together with a duly executed Notice of Exercise (a copy of the form of which is attached hereto), and the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

5. Certificates for Shares. Upon the Holder’s exercise of its purchaser rights hereunder, one or more certificates for the number of Shares purchased will be issued to the Holder as soon as practicable thereafter (with appropriate restrictive legends). If the Holder has any remaining rights under this Warrant following a partial exercise of the Holder’s purchase rights hereunder, the Company will reissue this Warrant to evidence such remaining rights.

6. Adjustment of Exercise Price and Number of Shares. The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price is subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances. If at any time before the expiration of this Warrant, the Company subdivides its Common Stock, by split-up or otherwise, or combines its Common Stock, or issues additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant will be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments will also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) will remain the same. Any adjustment under this Section 6(a) will become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such stock dividend, or if no record date is fixed, upon the making of such stock dividend.

(b) Reclassification, Reorganization and Consolidation. If at any time before the expiration of this Warrant, the Company undergoes any reclassification, capital reorganization, or change in its Common Stock (other than as a result of a subdivision, combination, or stock dividend provided for in Section 6(a) above), the Company (or its successor) will execute and deliver to the Holder appropriate documents evidencing the Holder’s right, at any time before the date on which this Warrant would expire, to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and/or other securities and property receivable in connection with such reclassification, reorganization, or change, as the Holder could have purchased immediately before such reclassification, reorganization, or change. In any such case appropriate provisions will be made with respect to the Holder’s rights and interest so that the provisions of this Warrant will thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise of this Warrant, and appropriate adjustments will be made to the purchase price per share payable hereunder, provided the aggregate purchase price will remain unchanged.

(c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Warrant.

7. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment to the Holder for such fractional shares based on the Exercise Price then in effect.

8. Restricted Securities. Holder hereby confirms that it has been informed that this Warrant and the Shares issued upon exercise of this Warrant are restricted securities under the Securities Act of 1933, as amended (the “Act”), and may not be resold or transferred unless the securities to be resold are first registered under the federal securities laws or unless an exemption from such registration is available. Accordingly, Holder hereby acknowledges that it is prepared to hold this Warrant, and the Shares issued upon exercise of this Warrant, for an indefinite period.

2

9. Transfers of Warrant.

(a) To the extent permitted by the Act (either pursuant to a valid registration thereunder or exemption from such registration) and other applicable state and federal law, Holder may partially or wholly assign or transfer this Warrant and its rights hereunder. Upon the Holder’s surrender of this Warrant to the Company at its principal offices, together with a copy of the documentation evidencing such transfer or assignment, the Company shall issue replacement warrants in place hereof to Holder (if Holder retains any rights hereunder) and each transferee in substantially similar form to this Warrant evidencing the rights of Holder and such transferee(s), as applicable, in and to the proportionate number of Shares to which they are entitled.

(b) Except as provided in the preceding Section 9(a), this warrant is not transferable in whole or in part without the Company’s prior written consent, and as permitted by applicable law (including without limitation, the Act).

10. Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

11. Governing Law; Dispute Resolution. This Warrant shall be governed in all respects by the laws of the State of Oklahoma as such laws are applied to agreements between Oklahoma residents entered into and to be performed entirely within Oklahoma.

12. Amendment. Any term of this Warrant may be amended only with the written consent of the Company and the holder of this Warrant. No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

[SIGNATURE PAGE ATTACHED]

3

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by an officer thereunto duly authorized.

GRAYMARK HEALTCHARE, INC.
By:	/s/ Stanton Nelson
	Stanton Nelson
	Chief Executive Officer

SIGNATURE PAGE

WARRANT TO PURCHASE COMMON STOCK

NOTICE OF EXERCISE

To: Graymark Healthcare, Inc.

The undersigned hereby elects to purchase                      shares of Common Stock of Graymark Healthcare, Inc., an Oklahoma corporation, pursuant to the terms of the attached Warrant; payment of the Exercise Price per share required under such Warrant accompanies this notice. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name of the undersigned.

WARRANT HOLDER:

By:

Name:

Title

Name:

Address:

Date:

EX-10.17

Exhibit 10.17

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEREFORE, THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR UNDER AN EXEMPTION FROM SUCH REGISTRATION PERMITTED BY APPLICABLE LAW.

WARRANT TO PURCHASE COMMON STOCK

OF

GRAYMARK HEALTHCARE, INC.

This Warrant is issued to Tyche Health Enterprises LLC, a Nevada limited liability company (together with its successors and assigns, the “Holder”), by Graymark Healthcare, Inc., an Oklahoma corporation (the “Company”), as of July 22, 2013 (the “Warrant Issue Date”). This Warrant is issued for a purchase price of $10.00 plus the Holder’s obligations as described in the Asset Purchase Agreement (the “Asset Purchase Agreement”) between the Holder and TSH Acquisition, LLC, an Oklahoma limited liability company (the “Buyer”).

1. Purchase of Shares. Subject to the terms and conditions set forth in this Warrant, the Holder is entitled, upon surrender of this Warrant at the Company’s principal office (or at such other place as the Company notifies the Holder in writing), to purchase from the Company, up to 1,837,037 fully paid and non-assessable shares of the Company’s Common Stock (the “Shares”).

2. Exercise Price. The purchase price per Share is $1.60, subject to adjustment pursuant to Section 6 (as adjusted, the “Exercise Price”).

3. Exercise Period. This Warrant is exercisable, in whole or in part, beginning on the date that is ninety (90) days after the Warrant Issue Date and continuing until the tenth (10th) anniversary of the Warrant Issue Date, at which time this Warrant will expire.

4. Method of Exercise. So long as this Warrant remains outstanding and exercisable in accordance with Section 3 above, the Holder may exercise, in whole or in part, and from time to time, in as many separate transactions as Holder may determine, the purchase rights evidenced by this Warrant. Such exercise will be effected by the surrender of this Warrant to the Company at its principal offices, together with a duly executed Notice of Exercise (a copy of the form of which is attached hereto), and the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

5. Certificates for Shares. Upon the Holder’s exercise of its purchaser rights hereunder, one or more certificates for the number of Shares purchased will be issued to the Holder as soon as practicable thereafter (with appropriate restrictive legends). If the Holder has any remaining rights under this Warrant following a partial exercise of the Holder’s purchase rights hereunder, the Company will reissue this Warrant to evidence such remaining rights.

6. Adjustment of Exercise Price and Number of Shares. The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price is subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances. If at any time before the expiration of this Warrant, the Company subdivides its Common Stock, by split-up or otherwise, or combines its Common Stock, or issues additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant will be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments will also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) will remain the same. Any adjustment under this Section 6(a) will become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such stock dividend, or if no record date is fixed, upon the making of such stock dividend.

(b) Reclassification, Reorganization and Consolidation. If at any time before the expiration of this Warrant, the Company undergoes any reclassification, capital reorganization, or change in its Common Stock (other than as a result of a subdivision, combination, or stock dividend provided for in Section 6(a) above), the Company (or its successor) will execute and deliver to the Holder appropriate documents evidencing the Holder’s right, at any time before the date on which this Warrant would expire, to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and/or other securities and property receivable in connection with such reclassification, reorganization, or change, as the Holder could have purchased immediately before such reclassification, reorganization, or change. In any such case appropriate provisions will be made with respect to the Holder’s rights and interest so that the provisions of this Warrant will thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise of this Warrant, and appropriate adjustments will be made to the purchase price per share payable hereunder, provided the aggregate purchase price will remain unchanged.

(c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of shares of Common Stock or other securities or property thereafter purchasable upon exercise of this Warrant.

7. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall, at its option either (i) make a cash payment to the Holder for such fractional shares based on the Exercise Price then in effect, or (ii) round such fractional share up to the next whole number.

8. Restricted Securities. Holder hereby confirms that it has been informed that this Warrant and the Shares issued upon exercise of this Warrant are restricted securities under the Securities Act of 1933, as amended (the “Act”), and may not be resold or transferred unless the securities to be resold are first registered under the federal securities laws or unless an exemption from such registration is available. Accordingly, Holder hereby acknowledges that it is prepared to hold this Warrant, and the Shares issued upon exercise of this Warrant, for an indefinite period.

2

9. Transfers of Warrant.

(a) To the extent permitted by the Act (either pursuant to a valid registration thereunder or exemption from such registration) and other applicable state and federal law, Holder may partially or wholly assign or transfer this Warrant and its rights hereunder. Upon the Holder’s surrender of this Warrant to the Company at its principal offices, together with a copy of the documentation evidencing such transfer or assignment, the Company shall issue replacement warrants in place hereof to Holder (if Holder retains any rights hereunder) and each transferee in substantially similar form to this Warrant evidencing the rights of Holder and such transferee(s), as applicable, in and to the proportionate number of Shares to which they are entitled.

(b) Except as provided in the preceding Section 9(a), this warrant is not transferable in whole or in part without the Company’s prior written consent, and as permitted by applicable law (including without limitation, the Act).

10. Counterparts. This Warrant may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

11. Governing Law; Dispute Resolution. This Warrant shall be governed in all respects by the laws of the State of Oklahoma as such laws are applied to agreements between Oklahoma residents entered into and to be performed entirely within Oklahoma.

12. Amendment. Any term of this Warrant may be amended only with the written consent of the Company and the holder of this Warrant. No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

[SIGNATURE PAGE ATTACHED]

3

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by an officer thereunto duly authorized.

GRAYMARK HEALTCHARE, INC.
By:	/s/ Stanton Nelson
	Stanton Nelson
	Chief Executive Officer

SIGNATURE PAGE

WARRANT TO PURCHASE COMMON STOCK

NOTICE OF EXERCISE

To: Graymark Healthcare, Inc.

The undersigned hereby elects to purchase                          shares of Common Stock of Graymark Healthcare, Inc., an Oklahoma corporation, pursuant to the terms of the attached Warrant; payment of the Exercise Price per share required under such Warrant accompanies this notice. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name of the undersigned.

WARRANT HOLDER:

By:

Name:

Title

Name:

Address:

Date:

EX-10.18

Exhibit 10.18

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of July 22, 2013, between Graymark Healthcare, Inc., an Oklahoma corporation (the “Company”), and Tyche Health Enterprises LLC, a Nevada limited liability company (“THE”), and THE Managers, LLC, a Delaware limited liability company (“THEM” and, collectively with THE with their respective permitted successors and assigns, “Holder”).

RECITALS:

A. As provided in, and subject to the terms and conditions of each of the Warrants to Purchase Common Stock of even date herewith issued by the Company to Holder (collectively, the “Warrants”), Holder is entitled, pursuant to the Warrants, to purchase (i) up to 1,937,500 shares of the Company’s common stock at the price of $1.00 per share during the next five (5) years, (ii) up to 3,516,204 shares of the Company’s common stock at the price of $1.35 per share during the next seven and one-half (7.5) years, and (iii) up to 2,296,296 shares of the Company’s common stock at the price of $1.60 per share during the next ten (10) years (all shares of common stock that Holder may acquire described in the preceding (i) through (iii), the “Warrant Shares”).

B. The parties desire to restrict the registration of the Company’s securities as described in this Agreement.

NOW, THEREFORE, the parties agree as follows:

1. Definitions. For purposes of this Agreement:

(a) The term “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(b) The term “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(c) The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

(d) The term “SEC” means the United States Securities and Exchange Commission or any successor federal agency administering the Securities Act and the Exchange Act at the time.

(e) The term “Securities Act” means the Securities Act of 1933, as amended.

2. Securities Subject to this Agreement:

(a) The following securities of the Company is subject to the registration rights described in Section 4 of this Agreement (collectively, the “Securities”):

(i) the Warrants;

(ii) the Warrant Shares;

(iii) all shares of the Company’s common stock received by Holder as a result of any subdivision or split-up of any of the Warrant Shares, or as a result of any stock dividend payable on Warrant Shares.

(b) The Company understands and acknowledges that Holder may from time to time transfer, convey and/or assign some or all of the Securities to one or more third party transferees (each a “Transferee”), including without limitation Holder’s members, as permitted by applicable law, and that the provisions of this Agreement are intended to benefit any such Transferee. Accordingly, the Company agrees that (i) references to “Holder” in this Agreement will include Transferees, as applicable, and (ii) the rights established under this Agreement will remain associated with any Securities that are transferred to a Transferee.

3. Required Registration. Within two (2) years after the date of this Agreement, the Company shall register under the Securities Act of all of the Securities on Form S-1 or any successor form thereto (each a “Long-Form Registration”); provided that in lieu of a Long-Form Registration Statement, the Company may register the Securities under the Securities Act on Form S-3 or any similar short-form registration (a “Short-Form Registration”). A Registration Statement shall not count as a Long-Form Registration or a Short-Form Registration unless and until it has become effective and the Holder is able to register and sell the Securities thereunder.

4. Company Registration. If the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than Holder) any of its common or preferred stock, any warrant rights for the acquisition of its common or preferred stock, any debt instrument or security convertible into common or preferred stock, or any combination thereof (other than a registration relating solely to the sale of securities to participants in a Company stock plan and registrations on Forms S-4, S-8 or other registration statements that do not permit registrations of shares on a resale basis), the Company shall, at such time, include in the Registration Statement all of the Securities. In the event that the Staff of the Commission (the “Staff”) provides the Company with a written comment that it is inappropriate to register the full amount of the securities requested by any of the Company’s securityholders on a single registration statement due to limitations under Rule 415 of the Securities Act, then Company shall use commercially reasonable efforts to persuade the Staff that the offering contemplated by the registration statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415. In the event that, despite the Company’s commercially reasonable efforts and compliance with the terms of this Section, the Staff refuses to alter its position, the Company shall: (i) register the resale of that portion of the securities as the Staff may permit under its interpretations of Rule 415; and (ii) undertake to register the remaining portion of the securities as soon as registration would be permitted under Rule 415, as determined by the Company in good faith based on the guidance of the Staff or the Staff’s publicly available interpretations of Rule 415. In such event, the Company shall apportion the securities registered hereunder among the selling securities holders pro rata according to the total amount of securities entitled to be included therein owned by each selling securities holder or in such other proportions as shall mutually be agreed to by such selling securities holder.

2

5. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Securities, the Company shall:

(a) Furnish to Holder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Securities owned by Holder;

(b) Notify Holder when a prospectus to Securities covered by a Registration Statement is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and

(c) Cause all Securities (other than the Warrants) registered hereunder to be listed on each U.S. securities exchange or nationally recognized quotation system on which similar securities issued by the Company are then listed.

6. Furnish Information. It is a condition precedent to the Company’s obligations to take any action with respect to any Securities that Holder furnish to the Company such information regarding itself, such Securities and the intended method of disposition of such Securities as is required to effect the registration thereof.

7. Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Securities with respect to the registrations hereunder, including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company, but excluding Holder’s costs of compliance with Section 6, underwriting discounts and commissions relating to Securities and fees and disbursements of counsel for Holder.

8. Underwriting Requirements. The Company shall provide promptly give Holder written notice of any offering involving an underwriting of shares of the Company’s capital stock or warrant rights. Upon Holder’s written request (which must be provided within thirty (30) days after the Company’s mailing of written notice), the Company shall include all or a portion of Securities within such offering if Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters). If the total amount of securities, including Securities requested by Holder to be included in such offering, exceeds the amount of securities sold (other than by the Company) that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling securities holders according to the total amount of securities entitled to be included therein owned by each selling securities holder or in such other proportions as shall mutually be agreed to by such selling securities holder). For purposes of the preceding parenthetical concerning apportionment, for any selling securities holder that is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling securities holder,” and any pro-rata reduction with respect to such “selling securities holder” shall be based upon the aggregate amount of securities owned by all entities and individuals included in such “selling securities holder,” as defined in this sentence.

3

9. Indemnification.

(a) To the extent permitted by law, the Company shall indemnify and hold harmless Holder and Holder’s officers, managers, equity interest holders, agent and employee, and their respective successor and assigns, (collectively, the “Indemnitees” and each an “Indemnitee”) against any losses, claims, damages, or liabilities (joint or several) to which they become subject under the Securities Act, the Exchange Act or any other federal or state securities law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, or the Exchange Act or any state securities law; and the Company will pay to each Indemnitee, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company shall not be liable for, nor obligated to indemnify the Indemnitees, to the extent any such loss, claim, damage, liability, or action arises out of or is based upon a Violation that occurs in reliance upon and in conformity with information furnished expressly for use in connection with such registration by any Indemnitee.

(b) Promptly after receipt by an Indemnitee of notice of the commencement of any action (including any governmental action), such Indemnitee will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an Indemnitee (together with all other Indemnitees that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such Indemnitee by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the Indemnitee under this Section 9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Section 9.

4

(c) The Company’s obligations under this Section 9 shall survive the completion of any offering of Securities in a registration statement under this Agreement and otherwise.

10. Waivers. Holder and the Company, to the extent legally allowed, may extend the time for performance of any obligations or other acts of the other parties hereto, waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and waive performance of any of the covenants or agreements or satisfaction of any of the conditions contained herein. The waiver by any party of a breach of any provision hereof shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereof.

11. Amendment. This Agreement may not be amended except by a written instrument signed on behalf of each of the parties.

12. Governing Law; Dispute Resolution. This Agreement shall be governed in all respects by the laws of the State of Oklahoma as such laws are applied to agreements between Oklahoma residents entered into and to be performed entirely within Oklahoma.

13. Successors and Assigns. Holder may wholly or partially transfer or assign any of its right, title and interest in and to the Securities and any rights under this Agreement to any Transferee, and any Transferee may do the same. Otherwise, no party shall assign this Agreement, or any rights thereto, without the prior written consent of the other parties. The provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors, and administrators of the parties hereto.

14. Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties hereto with regard to the subjects hereof and thereof.

15. Notices, etc. All notices and other communications required or permitted hereunder must be in writing and will be given and deemed received as provided for in the Asset Purchase Agreement between Holder and the Company (the “Purchase Agreement”). Notices to Holder and the Company shall be given to their respective addresses as provided in the Purchase Agreement. Notice to any Permitted Transferee shall be given to Holder or such other address as such Permitted Transferred specifies in writing.

5

16. Severability. In case any provision of this Agreement not material to the benefits intended to be conferred hereby shall be determined to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

17. Titles and Subtitles. The titles of the Articles, Sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement, and all numbered or lettered references to Articles, Section and subsections are to numbered and letter Articles, Sections and subsection of this Agreement unless otherwise indicated.

18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one instrument, and which shall become effective when there exist copies signed and delivered by all of the parties hereto.

[SIGNATURE PAGES ATTACHED]

6

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized representatives, effective as of the date set forth on the first page hereof.

Graymark Healthcare, Inc., an Oklahoma corporation
By:	/s/ Stanton Nelson
	Stanton Nelson, Chief Executive Officer

SIGNATURE PAGE

REGISTRATION RIGHTS AGREEMENT

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized representatives, effective as of the date set forth on the first page hereof.

“HOLDER”
THE MANAGERS, LLC, a Delaware limited liability company, as Manager
	By:		Archimedes Financial LLC, a Nevada limited liability company, as Manager
		By:	/s/ Michael B. Horrell
			Michael B. Horrell, Manager
	By:	Fortuna Asset Management, LLC, a California limited liability company, as Manager
		By:	/s/ Karen Brenner
			Karen Brenner, Managing Member
Tyche Health Enterprises LLC, a Nevada limited liability company
By:	THE MANAGERS, LLC, a Delaware limited liability company, as Manager
	By:	Archimedes Financial LLC, a Nevada limited liability company, as Manager
		By:	/s/ Michael B. Horrell
			Michael B. Horrell, Manager
	By:	Fortuna Asset Management, LLC, a California limited liability company, as Manager
		By:	/s/ Karen Brenner
			Karen Brenner, Managing Member

SIGNATURE PAGE

REGISTRATION RIGHTS AGREEMENT

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Stanton Nelson, certify that:

1. I have reviewed this Form 10-Q for the period ended June 30, 2013 of Graymark Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2013

/S/ STANTON NELSON

Stanton Nelson

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Mark R. Kidd, certify that:

1. I have reviewed this Form 10-Q for the period ended June 30, 2013 of Graymark Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2013

/S/ MARK R. KIDD

Mark R. Kidd

Chief Financial Officer

(Principal Financial Officer)

EX-31.3

EXHIBIT 31.3

CERTIFICATION

I, Grant A. Christianson, certify that:

1. I have reviewed this Form 10-Q for the period ended June 30, 2013 of Graymark Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2013

/S/ GRANT A. CHRISTIANSON

Grant A. Christianson

Chief Accounting Officer

(Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Executive Officer of Graymark Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2013 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2013	/S/ STANTON NELSON
	Chief Executive Officer (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Financial Officer of Graymark Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2013 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2013	/S/ MARK R. KIDD
	Chief Financial Officer (Principal Financial Officer)

EX-32.3

EXHIBIT 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Accounting Officer of Graymark Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2013 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2013	/S/ GRANT A. CHRISTIANSON
	Chief Accounting Officer (Principal Accounting Officer)

XML

Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Accounts Receivable Net of Allowances for Contractual Adjustments and Doubtful Accounts

Accounts receivable are reported net of allowances for contractual adjustments and doubtful accounts as follows:

	June 30, 2013		December 31, 2012
Allowance for contractual adjustments	$	955,645	$	1,658,172
Allowance for doubtful accounts		1,618,223		1,550,304
Total	$	2,573,868	$	3,208,476

Allowances for Contractual Adjustments and Doubtful Accounts

The activity in the allowances for contractual adjustments and doubtful accounts for the six months ending June 30, 2013 follows:

	Contractual Adjustments			Doubtful Accounts			Total
Balance at January 1, 2013	$	1,658,172		$	1,550,304		$	3,208,476
Provisions		1,644,022			293,917			1,937,939
Write-offs, net of recoveries		(2,346,549	)		(225,998	)		(2,572,547	)
Balance at June 30, 2013	$	955,645		$	1,618,223		$	2,573,868

Aging of Accounts Receivable, Net of Allowances for Contractual Adjustments and Doubtful Accounts

The aging of the Company’s accounts receivable, net of allowances for contractual adjustments and doubtful accounts as of June 30, 2013 and December 31, 2012 follows:

	June 30, 2013		December 31, 2012
1 to 60 days	$	996,811	$	1,720,741
61 to 90 days		144,075		324,221
91 to 120 days		112,645		227,929
121 to 180 days		112,304		321,117
181 to 360 days		131,521		220,133
Greater than 360 days		41,929		—
Total	$	1,539,285	$	2,814,141

XML

Consolidated Condensed Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net Revenues:
Services	$ 1,808,442	$ 3,166,931	$ 3,888,969	$ 6,543,726
Product sales	633,111	1,144,976	1,460,793	2,131,048
Revenue, Net, Total	2,441,553	4,311,907	5,349,762	8,674,774
Cost of Services and Sales:
Cost of services	920,847	1,373,552	1,886,165	2,736,935
Cost of sales	257,887	402,082	571,712	797,194
Cost of Goods and Services Sold, Total	1,178,734	1,775,634	2,457,877	3,534,129
Gross Margin	1,262,819	2,536,273	2,891,885	5,140,645
Operating Expenses:
Selling, general and administrative	2,571,909	3,788,287	5,331,598	7,472,703
Bad debt expense	116,441	354,775	293,917	652,655
Impairment of goodwill		3,041,000		3,041,000
Write-down of deferred purchase consideration	300,000		300,000
Restructuring charges	(499,215)		399,617
Depreciation and amortization	237,391	335,537	505,850	607,236
Operating Expenses, Total	2,726,526	7,519,599	6,830,982	11,773,594
Other Income (Expense):
Interest expense, net	(297,515)	(283,170)	(596,051)	(572,198)
Other income	(9,381)		2,063
Net other (expense)	(306,896)	(283,170)	(593,988)	(572,198)
Loss from continuing operations, before taxes	(1,770,603)	(5,266,496)	(4,533,085)	(7,205,147)
(Provision) benefit for income taxes		3,498
Loss from continuing operations, net of taxes	(1,770,603)	(5,262,998)	(4,533,085)	(7,205,147)
Income (loss) from discontinued operations, net of taxes	134,862	(47,810)	189,421	(80,211)
Net loss	(1,635,741)	(5,310,808)	(4,343,664)	(7,285,358)
Less: Net loss attributable to noncontrolling interests	(84,030)	(48,788)	(131,559)	(93,241)
Net loss attributable to Graymark Healthcare	$ (1,551,711)	$ (5,262,020)	$ (4,212,105)	$ (7,192,117)
Earnings per common share (basic and diluted):
Net loss from continuing operations	$ (0.10)	$ (0.34)	$ (0.26)	$ (0.47)
Income (loss) from discontinued operations	$ 0.01		$ 0.01	$ (0.01)
Net loss per share	$ (0.09)	$ (0.34)	$ (0.25)	$ (0.48)
Weighted average number of common shares outstanding	16,753,453	15,115,469	16,742,328	15,093,052
Weighted average number of diluted shares outstanding	16,753,453	15,115,469	16,742,328	15,093,052

XML

Borrowings

6 Months Ended

Jun. 30, 2013

Borrowings

Note 5 – Borrowings

The Company’s long-term debt as of June 30, 2013 and December 31, 2012 are as follows:

	Rate (1)	Maturity Date	June 30, 2013			December 31, 2012
Short-term Debt
Notes payable to shareholder	8%	Jul. 2013	$	2,373,310		$	1,536,518
Long-term Debt
Bank line of credit	6%	Dec. 2013	$	12,217,206		$	12,643,683
Senior bank debt	6%	Dec. 2013		3,932,585			4,091,872
Notes payable on equipment	6%	Dec. 2013		66,821			137,972
Sleep center notes payable	6%	Jan. 2015		43,804			56,100
Notes payable on vehicles	2.9 - 3.9%	Jun. 2013 - Dec. 2013		3,119			13,547
Equipment capital lease	8.2 - 11.5%	Jan. 2015 - Feb. 2015		108,852			138,385
Total				16,372,387			17,081,559
Less: Current portion of long-term debt				(16,312,347	)		(16,976,934	)
Long-term debt			$	60,040		$	104,625

(1) Effective rate as of June 30, 2013

At June 30, 2013, future maturities of long-term debt were as follows:

Twelve months ended June 30,
2014	$	16,312,347
2015		60,040
2016		—
2017		—
2018		—
Thereafter		—

On August 31, 2012, December 31, 2012, March 1, 2013 and April 2, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082 and 351,710, respectively, for a total of $2,373,310. The interest rate on the notes is 8% and the maturity date of the notes is July 31, 2013. All principal and interest outstanding are due on the maturity date. Mr. Oliver is one of the Company’s greater than 5% shareholders and affiliates. The promissory notes are subordinate to the Company’s credit facility with Arvest Bank. The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank. On July 22, 2013, the Company converted all amounts owed to Mr. Oliver into shares of the Company’s common stock. See “Note 10 – Subsequent Events” for additional information.

On July 22, 2013, the Company’s subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), the Company and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. The Company, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, the Company and Borrowers were indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, the Company, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of July 22, 2013, the outstanding principal amount of the New Note was $10,691,262.

Personal Guaranty. Under the New Loan Agreement, the Guarantor unconditionally guarantees payment of Borrower’s obligations owed to Arvest Bank and Borrower’s performance under the New Loan Agreement and related documents. Guarantor’s liability is limited to $2,919,000.

Maturity Dates. The maturity date of the New Note is December 31, 2013.

Interest Rate. The outstanding principal amount of the New Note bears interest at the greater of the prime rate as reported in the “Money Rates” section of The Wall Street Journal (the “WSJ Prime Rate”) or 6% (“Floor Rate”).

Interest and Principal Payments. Provided the Borrowers are not in default, the New Note is payable in monthly payments of accrued and unpaid interest. The entire unpaid principal balance of the New Note plus all accrued and unpaid interest thereon will be due and payable on December 31, 2013.

Use of Proceeds. All proceeds of the New Note were used solely for the refinancing of the existing indebtedness owed to Arvest Bank; and other costs the Company incurred by Arvest Bank in connection with the preparation of the loan documents, subject to approval by Arvest Bank.

Collateral. Payment and performance of our obligations under the Arvest Credit Facility are collateralized by the assets of the Borrowers and the limited personal guaranty of the Guarantor. If we sell any assets which are collateral for the New Note, then subject to certain exceptions and without the consent of Arvest Bank, such sale proceeds must be used to reduce the amounts outstanding to Arvest Bank.

Default and Remedies. In addition to the general defaults of failure to perform our obligations and those of the Guarantor, default also includes collateral casualties, misrepresentation, bankruptcy, entry of a judgment of $50,000 or more, or failure of first liens on collateral. In the event a default is not cured within 10 days or in some case five days following notice of the default by Arvest Bank (and in the case of failure to perform a payment obligation for three times with notice), Arvest Bank will have the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable.

Deposit Account Control Agreement. The Company has entered into a Deposit Control Agreement (“Deposit Agreement”) with Arvest Bank and Valliance Bank covering the deposit accounts that we have at Valliance Bank. The Deposit Agreement requires Valliance Bank to comply with instructions originated by Arvest Bank directing the disposition of the funds held by us at Valliance Bank without our further consent. Without Arvest Bank’s consent, we cannot close any of our deposit accounts at Valliance Bank or open any additional accounts at Valliance Bank. Arvest Bank may exercise its rights to give instructions to Valliance Bank under the Deposit Agreement only in the event of an uncured default under the Loan Agreement, as amended.

Debt Service Coverage Ratio. Based on the latest four rolling quarters, the Company has agreed to continuously maintain a “Debt Service Coverage Ratio” of not less than 1.25 to 1. Debt Service Coverage Ratio is, for any period, the ratio of:

• the net income of Graymark Healthcare (i) increased (to the extent deducted in determining net income) by the sum, without duplication, of our interest expense, amortization, depreciation, and non-recurring expenses as approved by Arvest, and (ii) decreased (to the extent included in determining net income and without duplication) by the amount of minority interest share of net income and distributions to minority interests for taxes, if any, to

• the annual debt service including interest expense and current maturities of indebtedness as determined in accordance with generally accepted accounting principles.

If we acquire another company or its business, the net income of the acquired company and the new debt service associated with acquiring the company may both be excluded from the Debt Service Coverage Ratio, at our option.

Positive EBITDA. Beginning on March 31, 2013, and on the last day of each quarter thereafter, the Company’s EBITDA (“earnings before interest, taxes, depreciation and amortization”) must be positive for such immediately ended quarter. “Positive EBITDA” for any period means the net income for that period: (a) plus the following for such period to the extent deducted in calculating such net income, without duplication: (i) interest expense, (ii) all income tax expense; (iii) depreciation and amortization expense; and (iv) non-cash charges constituting intangible impairment charges, equity compensation and fixed asset impairment charges; (b) but, and in all cases, excluding from the calculation of EBITDA: (i) any extraordinary items (as determined in accordance with GAAP); and (ii) onetime or non-recurring gains or losses associated with the sale or disposition of any business, asset, contract or lease.

Compliance with Financial Covenants. Arvest Bank has waived the financial covenants related to the Company’s Debt Service Coverage Ratio, Positive EBITDA and minimum net worth through December 31, 2013 which is the maturity date of the New Note.

XML

Allowances for Contractual Adjustments and Doubtful Accounts (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance, Contractual Adjustments			$ 1,658,172
Provisions for Contractual Adjustments			1,644,022
Write-offs, net of recoveries for Contractual Adjustments			(2,346,549)
Ending balance, Contractual Adjustments	955,645		955,645
Beginning balance, doubtful accounts			1,550,304
Provisions for doubtful accounts	116,441	354,775	293,917	652,655
Write-offs, net of recoveries for doubtful Accounts			(225,998)
Ending balance, doubtful accounts	1,618,223		1,618,223
Beginning Balances			3,208,476
Provisions			1,937,939
Write-offs, net of recoveries			(2,572,547)
Ending Balances	$ 2,573,868		$ 2,573,868

XML

Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2013

Operating Results of Discontinued Operations

The operating results of ApothecaryRx and the Company’s other discontinued operations (discontinued internet sales division and discontinued film operations) for the six months ended June 30, 2013 and 2012 are summarized below:

	2013		2012
Revenues	$	—	$	—
Income (loss) before taxes:
ApothecaryRx		175,115		(45,762	)
Other		14,306		(34,449	)
Income tax (provision)		—		—
Income (loss) from discontinued operations, net of tax	$	189,421	$	(80,211	)

Balance Sheet Items of Discontinued Operations

The balance sheet items for discontinued operations are summarized below:

	June 30, 2013		December 31, 2012
Cash and cash equivalents	$	3,907	$	7,511
Other current assets		23,705		11,761
Total assets	$	27,612	$	19,272
Payables and accrued liabilities	$	356,322	$	370,669

XML

Subsequent Events - Additional Information (Detail) (USD $)	6 Months Ended										1 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Promissory Note	Jun. 30, 2013 Roy T. Oliver Promissory Note	Apr. 02, 2013 Roy T. Oliver Promissory Note	Mar. 01, 2013 Roy T. Oliver Promissory Note	Dec. 31, 2012 Roy T. Oliver Promissory Note	Aug. 31, 2012 Roy T. Oliver Promissory Note	Jun. 30, 2010 First Amendment to Loan Agreement	Jun. 30, 2010 Second Amended and Restated Loan Agreement	Jul. 22, 2013 Subsequent Events	Jul. 22, 2013 Subsequent Events Foundation Transaction	Jul. 24, 2013 Subsequent Events Foundation Transaction	Jul. 22, 2013 Subsequent Events Arvest Loan Participation	Jul. 22, 2013 Subsequent Events Roy T. Oliver	Jul. 22, 2013 Subsequent Events Roy T. Oliver Promissory Note	Jul. 22, 2013 Subsequent Events Amended and Restated Promissory Note
Subsequent Event [Line Items]
Percentage of voting interests acquired												100.00%
Number of shares issued in connection with acquisition												114,500,000
Effective date of the Foundation acquisition	Jul. 01, 2013											Jul. 01, 2013
Promissory note											$ 2,000,000	$ 2,000,000
Payment of promissory notes													250,000
Debt instrument amount									15,000,000	30,000,000				6,000,000
Outstanding principal amount of New Note																	10,691,262
Exchange of Company`s of common stock														13,333,333
Subordinate debt interest rate															8.00%
Promissory notes	2,373,310	1,536,518	2,373,310	8,021,360	351,470	485,082	351,710	1,184,808								5,648,290
Common stock issued	16,719,648	16,640,079														17,970,295
Accrued interest owed																$ 114,263

XML

Operating Results of Discontinued Operations (Detail) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenues
Income tax (provision)
Income (loss) from discontinued operations, net of tax	189,421	(80,211)
Operating segments | ApothecaryRx
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Income (loss) from discontinued operations, before taxes	175,115	(45,762)
Operating segments | Other
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Income (loss) from discontinued operations, before taxes	$ 14,306	$ (34,449)

XML

Discontinued Operations - Additional Information (Detail) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
ApothecaryRx, LLC
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Asset purchase agreement transaction date	Sep. 01, 2010
Asset purchase agreement amended date	Oct. 29, 2010
Number of retail pharmacy stores	18
Other | Film operations
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Income (loss) from discontinued operations, before taxes	$ 14,306	$ (34,449)
Other | Internet sales channel
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Income (loss) from discontinued operations, before taxes	$ 0	$ 0

XML

Activity in the Accruals for Restructuring Charges Established for Lease Termination and Other Exit Costs (Detail) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Restructuring Cost and Reserve [Line Items]
Beginning Balance
Restructuring charges		898,832
Adjustments for lease settlements		(499,215)
Net restructuring charges	(499,215)	399,617
Cash payments		(162,364)
Ending Balance	237,253	237,253
Lease Termination Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance
Restructuring charges		812,758
Adjustments for lease settlements		(499,215)
Net restructuring charges		313,543
Cash payments		(88,111)
Ending Balance	225,432	225,432
Other Exit Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance
Restructuring charges		86,074
Net restructuring charges		86,074
Cash payments		(74,253)
Ending Balance	$ 11,821	$ 11,821

XML

Future Maturities of Long-Term Debt (Detail) (USD $)	Jun. 30, 2013
Debt Instrument [Line Items]
2014	$ 16,312,347
2015	60,040
2016
2017
2018
Thereafter

XML

Aging of Accounts Receivable, Net of Allowances for Contractual Adjustments and Doubtful Accounts (Detail) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 1,539,285	$ 2,814,141
Total accounts receivable, net	1,539,285	2,814,141
1 to 60 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	996,811	1,720,741
61 to 90 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	144,075	324,221
91 to 120 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	112,645	227,929
121 to 180 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	112,304	321,117
181 to 360 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	131,521	220,133
Greater than 360 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable-Non current	$ 41,929

XML

Nature of Business

6 Months Ended

Jun. 30, 2013

Nature of Business

Note 1 – Nature of Business

Graymark Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and is a provider of care management solutions to the sleep disorder market based in the United States. The Company provides a comprehensive diagnosis and care management solution for patients suffering from sleep disorders.

The Company provides diagnostic sleep testing services and care management solutions for people with chronic sleep disorders. In addition, the Company sells equipment and related supplies and components used to treat sleep disorders. The Company’s products and services are used primarily by patients with obstructive sleep apnea, or OSA. The Company’s sleep centers provide monitored sleep diagnostic testing services to determine sleep disorders in the patients being tested. The majority of the sleep testing is to determine if a patient has OSA. A continuous positive airway pressure, or CPAP, device is the American Academy of Sleep Medicine’s (“AASM”) preferred method of treatment for obstructive sleep apnea. The Company’s sleep diagnostic facilities also determine the correct pressure settings for patient treatment with positive airway pressure. The Company sells CPAP devices and disposable supplies to patients who have tested positive for sleep apnea and have had their positive airway pressure determined. There are noncontrolling interests held in some of the Company’s testing facilities, typically by physicians located in the geographical area being served by the diagnostic sleep testing facility.

On July 22, 2013, the Company acquired 100% of the interests in Foundation Surgery Affiliates, LLC (“FSA”) and Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of the Company’s common stock and promissory note in the amount of $2,000,000. The effective date of the Foundation acquisition was July 1, 2013. For financial reporting purposes, the transaction will be recorded as a reverse merger and Foundation will be considered the accounting acquirer. As a result of the reverse merger, the Company’s historical operating results will only include the results of Foundation.

The Company intends to operate the Foundation businesses along with its existing sleep management solutions business. FSA and FSHA own and manage ambulatory surgery centers (“ASC” or “ASCs”) and surgical hospitals with facilities located in Louisiana, Maryland, New Jersey, Ohio, Oklahoma, Pennsylvania and Texas. Foundation typically owns a minority ownership in its facilities with ownership ranging from 10% to 28%. However, Foundation does own over 51% in two of its larger hospitals located in San Antonio and El Paso, Texas. The Foundation facilities collectively offer a portfolio of specialties ranging from relatively intensive specialties such as orthopedics and neurosurgery to low-surgery-intensive specialties such as pediatric ENT (tubes / adenoids), pain management and gastroenterology. The Foundation facilities are located in freestanding buildings or medical office buildings.

As of June 30, 2013, the Company had an accumulated deficit of $61.8 million and reported a net loss of $4.2 million for the six months ended June 30, 2013. In addition, the Company used $0.5 million in cash from operating activities from continuing operations during the six months ended June 30, 2013. Management expects the new combined entity to generate positive cash flow; however the Company’s legacy Graymark business has a significant working capital deficiency. As of June 30, 2013, the Company had a working capital deficiency of $5.1 million (excluding short-term debt and current portion of long-term debt of $18.6 million). In addition, the Company’s lenders have placed restrictions on the amount of cash the Company can transfer from Foundation to the Company’s parent entity or it’s sleep business subsidiaries. The Company has significantly delayed payments to it’s vendors and service providers as a result of the working capital deficiency. Management expects to negotiate discounts and/or payment plans with many of the Company’s vendors and service providers; however, there is no assurance that some of them will not take legal action against the Company which could have a negative impact on the Company’s liquidity.

XML

Discontinued Operations

6 Months Ended

Jun. 30, 2013

Discontinued Operations

Note 3 – Discontinued Operations

On September 1, 2010, the Company executed an Asset Purchase Agreement, which was subsequently amended on October 29, 2010, (as amended, the “Agreement”) pursuant to which we sold substantially all of the assets of the Company’s subsidiary, ApothecaryRx, LLC (“ApothecaryRx”). ApothecaryRx operated 18 retail pharmacy stores selling prescription drugs and a small assortment of general merchandise, including diabetic merchandise, non-prescription drugs, beauty products and cosmetics, seasonal merchandise, greeting cards and convenience foods. As a result of the sale of ApothecaryRx, the related assets, liabilities, results of operations and cash flows of ApothecaryRx have been classified as discontinued operations in the accompanying consolidated condensed financial statements.

The operating results of ApothecaryRx and the Company’s other discontinued operations (discontinued internet sales division and discontinued film operations) for the six months ended June 30, 2013 and 2012 are summarized below:

	2013		2012
Revenues	$	—	$	—
Income (loss) before taxes:
ApothecaryRx		175,115		(45,762	)
Other		14,306		(34,449	)
Income tax (provision)		—		—
Income (loss) from discontinued operations, net of tax	$	189,421	$	(80,211	)

The balance sheet items for discontinued operations are summarized below:

	June 30, 2013		December 31, 2012
Cash and cash equivalents	$	3,907	$	7,511
Other current assets		23,705		11,761
Total assets	$	27,612	$	19,272
Payables and accrued liabilities	$	356,322	$	370,669

As noted above, the Company’s other discontinued operations generated net income (loss) of $14,306 and ($34,449) during the six months ended June 30, 2013 and 2012, respectively, which was attributable to the Company’s discontinued film operations. The Company’s discontinued internet sales division did not have any net income (loss) during the six months ended June 30, 2013 and 2012.

XML

Restructuring Charges

6 Months Ended

Jun. 30, 2013

Restructuring Charges

Note 6 – Restructuring Charges

On January 7, 2013, the Company implemented a plan to close four of its sleep diagnostic facilities (two of the locations also had therapy facilities). The facilities were located in Oklahoma and Texas and were closed because the revenue from the facilities had not met expectations and was not adequate to offset the fixed operating costs of the locations. Two of the facilities were operated through January 11, 2013 and two of the facilities were operated through January 31, 2013. The Company recorded restructuring charges of $0.9 million in connection with the closure of these facilities which included $0.8 million for lease termination costs with respect to the remaining lease obligations for the facilities and $0.1 million for other exit costs including severance payments to affected employees and other write-downs. All cash payments related to the severance costs were paid during the first quarter of 2013. The cash payments for the remaining lease obligations will continue for the life of the respective leases which extend through January 2018.

Restructuring charges during the three and six months ended June 30, 2013 were $898,832 and $399,617 respectively. There were no restructuring charges during 2012.

During the six months ended June 30, 2013, the activity in the accruals for restructuring charges established for lease termination and other exit costs were as follows:

	Lease Termination Costs			Other Exit Costs			Total
Balance at January 1, 2013	$	—		$	—		$	—
Restructuring charges		812,758			86,074			898,832
Adjustments for lease settlements		(499,215	)		—			(499,215	)
Net restructuring charges		313,543			86,074			399,617
Cash payments		(88,111	)		(74,253	)		(162,364	)
Balance at June 30, 2013	$	225,432		$	11,821		$	237,253

XML

Other Assets

6 Months Ended

Jun. 30, 2013

Other Assets

Note 4 – Other Assets

On October 1, 2012 the Company entered into a purchase agreement to acquire 100% of the membership interests of Midwest Sleep Specialists (“MSS”) located in Kansas City, Missouri, for a purchase price of $720,000. The membership interests of MSS are currently held by Dr. Steven Hull, the Company’s chief medical officer. Under the agreement, the purchase price was to be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the “Transfer Date”). Under the agreement, the membership interests would not be transferred to the Company until the final payment was made on the Transfer Date. Prior to the Transfer Date, the Company did not have any control over the operation of MSS. In addition, the Company was not obligated to continue to make the semi-monthly payments and could rescind the agreement at any time. As a result, the Company would not record the MSS purchase until the Transfer Date. As of June 30, 2013, the Company has incurred cumulative semi-monthly payments of $300,000. In July 2013, the Company exercised its right to rescind the agreement. As a result, the installment payments made to date were written-off and are reflected as a write-down of deferred purchase consideration in the accompanying consolidated condensed income statement. As of December 31, 2012, the cumulative installment payments were included in other assets in the accompanying consolidated condensed balance sheet.

XML

Balance Sheet Items of Discontinued Operations (Detail) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Cash and cash equivalents	$ 3,907	$ 7,511
Other current assets	23,705	11,761
Total assets	27,612	19,272
Payables and accrued liabilities	$ 356,322	$ 370,669

XML

Borrowings - Additional Information (Detail) (USD $)	6 Months Ended		6 Months Ended				6 Months Ended	1 Months Ended			6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Roy T. Oliver	Jun. 30, 2010 First Amendment to Loan Agreement	Jun. 30, 2010 Second Amended and Restated Loan Agreement	Jun. 30, 2010 Second Amended and Restated Loan Agreement Minimum	Jun. 30, 2013 Amended and Restated Promissory Note	Jul. 22, 2013 Subsequent Events	Jul. 22, 2013 Subsequent Events Amended and Restated Promissory Note	Jun. 30, 2013 Promissory Note	Jun. 30, 2013 Promissory Note Roy T. Oliver	Apr. 02, 2013 Promissory Note Roy T. Oliver	Mar. 01, 2013 Promissory Note Roy T. Oliver	Dec. 31, 2012 Promissory Note Roy T. Oliver	Aug. 31, 2012 Promissory Note Roy T. Oliver
Debt Instrument [Line Items]
Debt instrument	$ 2,373,310	$ 1,536,518								$ 2,373,310		$ 351,710	$ 485,082	$ 351,710	$ 1,184,808
Debt instrument interest rate											8.00%
Debt instrument maturity date							Dec. 31, 2013	Jul. 22, 2015			Jul. 31, 2013
Percentage of ownership in shareholders and affiliates			5.00%								5.00%
Loan agreement with Arvest Bank				15,000,000	30,000,000
Outstanding principal amount									10,691,262
Guarantor's liability					2,919,000
Interest Floor Rate							6.00%
Default in borrowings						$ 50,000
Debt service coverage ratio	1.25 to 1

XML

Related Party Transactions - Additional Information (Detail) (USD $)	1 Months Ended	6 Months Ended				6 Months Ended									6 Months Ended	12 Months Ended		6 Months Ended
	Oct. 01, 2012 D	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Promissory Note	Jun. 30, 2013 Shareholders And Affiliates	Jun. 30, 2013 Roy T. Oliver	Jun. 30, 2013 Roy T. Oliver Promissory Note	Apr. 02, 2013 Roy T. Oliver Promissory Note	Mar. 01, 2013 Roy T. Oliver Promissory Note	Dec. 31, 2012 Roy T. Oliver Promissory Note	Aug. 31, 2012 Roy T. Oliver Promissory Note	Jun. 30, 2013 Capital Notes	Dec. 31, 2012 Capital Notes	Jun. 30, 2013 City Place	Mar. 31, 2012 City Place	Dec. 31, 2012 City Place	Jun. 30, 2013 Oklahoma Tower Realty Investors	Jun. 30, 2012 Oklahoma Tower Realty Investors	Jun. 30, 2013 Midwest Sleep Specialists	Oct. 01, 2012 Midwest Sleep Specialists
Related Party Transaction [Line Items]
Purchase agreement, Acquired membership interests																					100.00%
Purchase price of purchase agreement																					$ 720,000
Semi-monthly installments of purchase agreement																					15,000
Installment payments start date																				Oct. 18, 2012
Installment payments end date																				Sep. 30, 2014
Cash paid towards purchase agreement																				300,000
Term agreement with MSS	5 years
Notice required for termination agreement with MSS	90
Management fees received from MSS Agreement		129,000	156,000
Debt instrument		2,373,310		1,536,518	2,373,310				351,710	485,082	351,710	1,184,808
Debt instrument interest rate								8.00%
Debt instrument maturity date								Jul. 31, 2013
Percentage of ownership in shareholders and affiliates							5.00%	5.00%
Related party deposit		11,000		33,000
Capital notes													44,000	56,000
Interest rate of the note						6.00%
Cost of improvements to the facility																450,000
Lease expiration date																Mar. 31, 2017
Lease agreement monthly rent description																The Company pays monthly rent of $17,970 from April 1, 2012 to June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place
Lease Expenses															42,000				32,000
Accrued but unpaid rent															216,000		108,000
Monthly rental payments																		7,000
Employee parking expense																		$ 10,000	$ 21,000

XML

Consolidated Condensed Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Accounts receivable, allowances for contractual adjustments and doubtful accounts	$ 2,573,868	$ 3,208,476
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, issued	16,719,648	16,640,079
Common stock, outstanding	16,719,648	16,640,079

XML

Related Party Transactions

6 Months Ended

Jun. 30, 2013

Related Party Transactions

Note 9 – Related Party Transactions

On October 1, 2012 the Company entered into a purchase agreement to acquire 100% of the membership interests of Midwest Sleep Specialists (“MSS”) located in Kansas City, Missouri, for a purchase price of $720,000. The membership interests of MSS are currently held by Dr. Steven Hull, the Company’s chief medical officer. Under the agreement, the purchase price was to be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the “Transfer Date”). Under the agreement, the membership interests would not be transferred to the Company until the final payment was made on the Transfer Date. Prior to the Transfer Date, the Company did not have any control over the operation of MSS. In addition, the Company was not obligated to continue to make the semi-monthly payments and could rescind the agreement at any time. As a result, the Company would not record the MSS purchase until the Transfer Date. As of June 30, 2013, the Company has incurred cumulative semi-monthly payments of $300,000. In July 2013, the Company exercised its right to rescind the agreement. As a result, the installment payments made to date were written-off and are reflected as a write-down of deferred purchase consideration in the accompanying condensed consolidated income statement. As of December 31, 2012, the cumulative installment payments were included in other assets in the accompanying condensed consolidated balance sheet.

On October 1, 2012 the Company entered into a management services agreement with MSS to provide certain administrative staffing and other support to the back office operations of MSS. MSS is owned by Dr. Steven Hull, our Chief Medical Officer. The term of the management services agreement is five years and renews automatically for successive five year periods unless either party provides 90 day written notice of termination. Prior to the current agreement, the Company provided similar services to MSS under other arrangements. The total management fees received from MSS during the six months ended June 30, 2013 and 2012 were approximately $129,000 and $156,000, respectively.

On August 31, 2012, December 31, 2012, March 1, 2013 and April 2, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082 and $351,710, respectively, for a total of $2,373,310. The interest rate on the notes is 8% and the maturity dates of the notes are July 31, 2013. All principal and interest outstanding are due on the maturity date. Mr. Oliver is one of the Company’s greater than 5% shareholders and affiliates. The promissory notes are subordinate to the Company’s credit facility with Arvest Bank. The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank.

As of June 30, 2013 and December 31, 2012, the Company had $11,000 and $33,000, respectively, on deposit at Valliance Bank. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. In addition, the Company is obligated to Valliance Bank under certain sleep center capital notes totaling approximately $44,000 and $56,000 at June 30, 2013 and December 31, 2012, respectively. The interest rates on the notes are fixed at 6.0%. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

In March 2012, the Company executed a lease agreement with City Place, LLC (“City Place”) for the Company’s new corporate headquarters and offices. Under the lease agreement, the Company pays monthly rent of $17,970 from April 1, 2012 to June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place; the lease expires on March 31, 2017. As part of the lease agreement, City Place paid $450,000 to offset a portion of the costs the Company incurred to build-out the office space. Non-controlling interests in City Place are held by Roy T. Oliver, one of the Company’s greater than 5% shareholders and affiliates, and Mr. Stanton Nelson, the Company’s Chief Executive Officer. During the six months ending June 30, 2013, the Company incurred approximately $42,000 in lease expense under the terms of the lease. As of June 30, 2013 and December 31, 2012, the Company has accrued but unpaid rent to City Place of approximately $216,000 and $108,000, respectively.

The Company’s previous corporate headquarters and offices were occupied under a month to month lease with Oklahoma Tower Realty Investors, LLC, requiring monthly rental payments of approximately $7,000. Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, controls Oklahoma Tower Realty Investors, LLC (“Oklahoma Tower”). During the six months ended June 30, 2012, the Company incurred approximately $32,000 in lease expense under the terms of the lease. In addition, during six months ended June 30, 2013 and 2012, the Company paid Oklahoma Tower approximately $10,000 and $21,000, respectively, for employee parking under a month to month agreement

XML

Consolidated Condensed Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Operating activities:
Net loss	$ (4,343,664)	$ (7,285,358)
Less: Income (loss) from discontinued operations	189,421	(80,211)
Loss from continuing operations	(4,533,085)	(7,205,147)
Adjustments to reconcile loss from continuing operations to net cash (used in) operating activities:
Depreciation and amortization	505,850	607,236
Impairment of goodwill		3,041,000
Stock-based compensation and professional services, net of cashless vesting	85,423	101,782
Bad debt expense	293,917	652,655
Gain on sale of fixed assets	(10,498)
Restructuring charges - fixed assets	51,532
Changes in assets and liabilities -
Accounts receivable	980,939	(907,385)
Inventories	78,388	25,658
Other assets	207,246	(209,710)
Accounts payable	1,247,152	619,508
Accrued liabilities	476,469	538,165
Other liabilities	131,460
Net cash (used in) operating activities from continuing operations	(485,207)	(2,736,238)
Net cash provided by (used in) operating activities from discontinued operations	166,734	677,642
Net cash (used in) operating activities	(318,473)	(2,058,596)
Investing activities:
Purchase of property and equipment	(2,539)	(972,358)
Disposal of property and equipment	32,075	1,369
Net cash provided by (used in) investing activities from continuing operations	29,536	(970,989)
Net cash (used in) investing activities from discontinued operations
Net cash provided by (used in) investing activities	29,536	(970,989)
Financing activities:
Debt proceeds	836,792	174,952
Debt payments	(709,172)	(982,472)
Distributions to noncontrolling interests		(6,194)
Net cash provided by (used in) financing activities from continuing operations	127,620	(813,714)
Net cash (used in) financing activities from discontinued operations
Net cash provided by (used in) financing activities	127,620	(813,714)
Net change in cash and cash equivalents	(161,317)	(3,843,299)
Cash and cash equivalents at beginning of period	258,162	4,915,032
Cash and cash equivalents at end of period	96,845	1,071,733
Cash Paid for Interest and Income Taxes:
Interest expense	378,844	572,154
Income taxes, continuing operations
Income taxes, discontinued operations

XML

Consolidated Condensed Balance Sheets (USD $)	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash and cash equivalents	$ 96,845	$ 258,162
Accounts receivable, net of allowances for contractual adjustments and doubtful accounts of $2,573,868 and $3,208,476, respectively	1,539,285	2,814,141
Inventories	246,194	324,582
Current assets from discontinued operations	27,612	19,272
Other current assets	380,015	488,008
Total current assets	2,289,951	3,904,165
Property and equipment, net	2,243,248	2,819,668
Other assets	252,528	351,781
Total assets	4,785,727	7,075,614
Liabilities:
Accounts payable	3,645,164	2,398,012
Accrued liabilities	3,322,769	2,846,300
Notes payable to shareholder	2,373,310	1,536,518
Current portion of long-term debt	16,312,347	16,976,934
Current liabilities from discontinued operations	356,322	370,669
Total current liabilities	26,009,912	24,128,433
Long-term debt, net of current portion	60,040	104,625
Other liabilities	131,460
Total liabilities	26,201,412	24,233,058
Graymark Healthcare shareholders' equity (deficit):
Preferred stock $0.0001 par value, 10,000,000 authorized; no shares issued and outstanding
Common stock $0.0001 par value, 500,000,000 shares authorized; 16,719,648 and 16,640,079 issued and outstanding, respectively	1,672	1,664
Paid-in capital	40,982,531	40,897,116
Accumulated deficit	(61,775,194)	(57,563,089)
Total Graymark Healthcare shareholders' equity (deficit)	(20,790,991)	(16,664,309)
Noncontrolling interest	(624,694)	(493,135)
Total equity (deficit)	(21,415,685)	(17,157,444)
Total liabilities and shareholders' equity (deficit)	$ 4,785,727	$ 7,075,614

XML

Other Assets - Additional Information (Detail) (Midwest Sleep Specialists, USD $)	1 Months Ended
	Oct. 01, 2012	Jun. 30, 2013
Midwest Sleep Specialists
Business Acquisition [Line Items]
Purchase agreement, Acquired membership interests	100.00%
Purchase price of purchase agreement	$ 720,000
Semi-monthly installments of purchase agreement	15,000
Purchase agreement, Term	Under the agreement, the purchase price will be paid in semi-monthly installments of $15,000 commencing on October 18, 2012 and ending on September 30, 2014 (the "Transfer Date").
Cash paid towards purchase agreement		$ 300,000

XML

Accounts Receivable Net of Allowances for Contractual Adjustments and Doubtful Accounts (Detail) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for contractual adjustments	$ 955,645	$ 1,658,172
Allowance for doubtful accounts	1,618,223	1,550,304
Total	$ 2,573,868	$ 3,208,476

XML

Subsequent Events - Additional Information1 (Detail) (USD $)	6 Months Ended			1 Months Ended	6 Months Ended	1 Months Ended				1 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jul. 22, 2013 Subsequent Events	Jun. 30, 2013 Scenario forecast	Mar. 31, 2013 Foundation Health Enterprises LLC	Jul. 22, 2013 Foundation Health Enterprises LLC Subsequent Events	Mar. 31, 2013 Foundation Health Enterprises LLC Class B member interests	Mar. 31, 2013 Foundation Health Enterprises LLC Private placement	Jul. 22, 2013 Tyche Subsequent Events	Aug. 01, 2013 Tyche Subsequent Events	Jul. 22, 2013 Tyche Subsequent Events Five year warrants	Jul. 22, 2013 Tyche Subsequent Events Seven and one-half year warrants	Jul. 22, 2013 Tyche Subsequent Events Ten year warrants
Subsequent Event [Line Items]
Offering cost						$ 105,000		$ 100,000	$ 15,960,000
Number offering units								152
Common stock issued						10,000
Common stock value	1,672		1,664			5,000
Sale of units							68
Total consideration							7,140,000
Cumulative preferred annual return						9.00%
Amount of unreturned capital contribution and undistributed preferred distributions		10,000
Conversion price per share		$ 2.00
Cash paid as a part of consideration										11,102,372
Promissory notes issued as a part of consideration										2,339,905
Business acquisition total consideration paid										13,442,277
Promissory note interest rate										11.50%
Notes payable, maturity date				Jul. 22, 2015						Aug. 01, 2013
Payment of promissory notes											474,305
Promissory notes remaining											1,865,600
Warrants issued for purchase of common stock, units												1,937,500	3,516,204	2,296,296
Warrants issued for purchase of common stock, exercise price												$ 1.00	$ 1.35	$ 1.60
Notes payable to bank				5,100,000
Interest rate per annum				10.00%
Notes payable, principal amount				728,571
Loan origination fee				100,000
Percentage of shareholders stock in affiliates	5.00%
Shareholders and affiliates description	Mr. Roy T. Oliver, one of our greater than 5%
Lease obligations	898,832				132,000
Severance payments					$ 56,000

XML

Commitments and Contingencies - Additional Information (Detail) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Commitments and Contingencies Disclosure [Line Items]
Legal claims settlement expenses	$ 0	$ 0

XML

Fair Value Measurements - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Fair value of debt valued using level three inputs	$ 10

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

Note 8 – Fair Value Measurements

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At June 30, 2013, the fair value of the Company’s long-term debt, including the current portion was determined to be $10 million. The fair value of the Company’s debt was valued using Level 3 inputs. At June 30, 2012 the Company’s long-term debt, including the current portion approximated its carrying value.

XML

Long-Term Debt (Detail) (USD $)	6 Months Ended
	Jun. 30, 2013		Dec. 31, 2012
Debt Instrument [Line Items]
Total borrowings	$ 16,372,387		$ 17,081,559
Less: Current portion of long-term debt	(16,312,347)		(16,976,934)
Long-term debt	60,040		104,625
Bank line of credit
Debt Instrument [Line Items]
Debt instrument interest rate	6.00%	[1]
Debt instrument maturity date	2013-12
Total borrowings	12,217,206		12,643,683
Senior bank debt
Debt Instrument [Line Items]
Debt instrument interest rate	6.00%	[1]
Debt instrument maturity date	2013-12
Total borrowings	3,932,585		4,091,872
Notes payable on equipment
Debt Instrument [Line Items]
Debt instrument interest rate	6.00%	[1]
Debt instrument maturity date	2013-12
Total borrowings	66,821		137,972
Sleep center notes payable
Debt Instrument [Line Items]
Debt instrument interest rate	6.00%	[1]
Debt instrument maturity date	2015-01
Total borrowings	43,804		56,100
Notes payable on vehicles
Debt Instrument [Line Items]
Total borrowings	3,119		13,547
Notes payable on vehicles | Beginning
Debt Instrument [Line Items]
Debt instrument maturity date	2013-06
Notes payable on vehicles | Ending
Debt Instrument [Line Items]
Debt instrument maturity date	2013-12
Notes payable on vehicles | Minimum
Debt Instrument [Line Items]
Debt instrument interest rate	2.90%	[1]
Notes payable on vehicles | Maximum
Debt Instrument [Line Items]
Debt instrument interest rate	3.90%	[1]
Equipment capital lease
Debt Instrument [Line Items]
Total borrowings	108,852		138,385
Equipment capital lease | Beginning
Debt Instrument [Line Items]
Debt instrument maturity date	2015-01
Equipment capital lease | Ending
Debt Instrument [Line Items]
Debt instrument maturity date	2015-02
Equipment capital lease | Minimum
Debt Instrument [Line Items]
Debt instrument interest rate	8.20%	[1]
Equipment capital lease | Maximum
Debt Instrument [Line Items]
Debt instrument interest rate	11.50%	[1]
Notes payable to shareholder
Debt Instrument [Line Items]
Debt instrument interest rate	8.00%	[1]
Debt instrument maturity date	2013-07
Total borrowings	$ 2,373,310		$ 1,536,518

[1] Effective rate as of June 30, 2013

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Interim Financial Information

Interim Financial Information – The unaudited consolidated condensed financial statements included herein have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ended December 31, 2013. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012. The December 31, 2012 consolidated condensed balance sheet was derived from audited financial statements.

Consolidation

Consolidation – The accompanying consolidated condensed financial statements include the accounts of the Company and its wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Reclassifications

Reclassifications – Certain amounts presented in prior years have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on net loss.

Use of estimates

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition

Revenue recognition – Sleep center services and product sales are recognized in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be paid by customers and third-party payors. Insurance benefits are assigned to the Company and, accordingly, the Company bills on behalf of its customers. For its sleep diagnostic business and acquired therapy business, the Company estimates the net realizable amount based primarily on the contracted rates stated in the contracts the Company has with various payors or for payors without contracts, historic payment trends. In addition, the Company, on a monthly basis, calculates the historic payments received from all payors at each location to determine if an incremental contractual reserve is necessary and if so, the amount of that reserve. The Company does not anticipate any future changes to this process. In the Company’s historic sleep therapy business, the business has been predominantly out-of-network and as a result, the Company has not had contract rates to use for determining net revenue for a majority of its payors. For this portion of the business, the Company performs a monthly analysis of actual reimbursement from each third party payor for the most recent 12-months. In the analysis, the Company calculates the percentage actually paid by each third party payor of the amount billed to determine the applicable amount of net revenue for each payor. The key assumption in this process is that actual reimbursement history is a reasonable predictor of the future reimbursement for each payor at each facility.

For certain sleep therapy and other equipment sales, reimbursement from third-party payors is earned over a period of time, typically 10 to 13 months. The Company recognizes revenue on these sales as amounts are earned over the payment period stipulated by the third-party payor.

The Company has established an allowance to account for contractual adjustments that result from differences between the amount billed and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected realizable amount are recorded against the allowance for contractual adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to the Company’s collection procedures. Revenues in the accompanying consolidated condensed financial statements are reported net of such adjustments.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and attempts to collect those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Cost of Services and Sales

Cost of Services and Sales – Cost of services includes technician labor required to perform sleep diagnostics, fees associated with interpreting the results of the sleep study and disposable supplies used in providing sleep diagnostics. Cost of sales includes the acquisition cost of sleep therapy products sold. Costs of services are recorded in the time period the related service is provided. Cost of sales is recorded in the same time period that the related revenue is recognized. If the revenue from the sale is recognized over a specified period, the product cost associated with that sale is recognized over that same period. If the revenue from a product sale is recognized in one period, the cost of sale is recorded in the period the product was sold.

Restricted cash

Restricted cash – As of June 30, 2013 and December 31, 2012, the Company had long-term restricted cash of approximately $236,000 included in other assets in the accompanying consolidated condensed balance sheets. This amount is pledged as collateral to the Company’s senior bank debt. On July 22, 2013, the Company’s senior lender applied the restricted cash against the principle balance owed by the Company.

Accounts receivable

Accounts receivable – The majority of the Company’s accounts receivable is due from private insurance carriers, Medicare/Medicaid and other third-party payors, as well as from patients relating to deductible and coinsurance provisions of their health insurance policies.

Third-party reimbursement is a complicated process that involves submission of claims to multiple payors, each having its own claims requirements. Adding to this complexity, a significant portion of the Company’s historic therapy business has been out-of-network with several payors, which means the Company does not have defined contracted reimbursement rates with these payors. For this reason, the Company’s systems report this revenue at a higher gross billed amount, which the Company adjusts to an expected net amount based on historic payments. As the Company continues to move more of its business to in-network contracting, the level of reserve related to contractual allowances is expected to decrease. In some cases, the ultimate collection of accounts receivable subsequent to the service dates may not be known for several months. As these accounts age, the risk of collection increases and the resulting reserves for bad debt expense reflect this longer payment cycle. The Company has established an allowance to account for contractual adjustments that result from differences between the amounts billed to customers and third-party payors and the expected realizable amounts. The percentage and amounts used to record the allowance for doubtful accounts are supported by various methods including current and historical cash collections, contractual adjustments, and aging of accounts receivable.

The Company offers payment plans of up to three months to patients for amounts due from them for the sales and services the Company provides. The minimum monthly payment amount for is calculated based on the down payment and the remaining balance divided by the number of months the patient has to pay the balance.

Accounts are written-off as bad debt using a specific identification method. For amounts due from patients, the Company utilizes a collections process that includes distributing monthly account statements. For patients that are not on a payment plan, collection efforts including collection letters and collection calls begin once the balance becomes the responsibility of the patient. If the patient is on a payment program, these efforts begin within 30 days of the patient failing to make a planned payment. Beginning in the fourth quarter of 2012, all patient responsibility accounts are forwarded to a contracted Extended Business Office (“EBO”). The EBO prepares and mails all patient account statements and follow up with patients via phone calls and letters to collect amounts due prior to them being turned over for collection. For diagnostic patients, the Company submits patient receivables to an outside collection agency if the patient has failed to pay 120 days following service or, if the patient is on a payment plan, they have failed to make two consecutive payments. For therapy patients, patient receivables are submitted to an outside collection agency if payment has not been received between 180 and 240 days following service depending on the service provided and circumstances of the receivable or, if the patient is on a payment plan, they have failed to make two consecutive payments. It is the Company’s policy to write-off as bad debt all patient receivables at the time they are submitted to an outside collection agency. If funds are recovered by a collection agency, the amounts previously written-off are accounted for as a recovery of bad debt. For amounts due from third party payors, it is the Company’s policy to write-off an account receivable to bad debt based on the specific circumstances related to that claim resulting in a determination that there is no further recourse for collection of a denied claim from the denying payor.

For the six months ended June 30, 2013 and 2012, the amounts the Company collected in excess of (less than) recorded contractual allowances were approximately ($27,000) and $73,000, respectively. These amounts reflect the amount of actual cash received in excess of (less than) the original contractual allowance recorded at the time of service.

Accounts receivable are reported net of allowances for contractual adjustments and doubtful accounts as follows:

	June 30, 2013		December 31, 2012
Allowance for contractual adjustments	$	955,645	$	1,658,172
Allowance for doubtful accounts		1,618,223		1,550,304
Total	$	2,573,868	$	3,208,476

The activity in the allowances for contractual adjustments and doubtful accounts for the six months ending June 30, 2013 follows:

	Contractual Adjustments			Doubtful Accounts			Total
Balance at January 1, 2013	$	1,658,172		$	1,550,304		$	3,208,476
Provisions		1,644,022			293,917			1,937,939
Write-offs, net of recoveries		(2,346,549	)		(225,998	)		(2,572,547	)
Balance at June 30, 2013	$	955,645		$	1,618,223		$	2,573,868

The aging of the Company’s accounts receivable, net of allowances for contractual adjustments and doubtful accounts as of June 30, 2013 and December 31, 2012 follows:

	June 30, 2013		December 31, 2012
1 to 60 days	$	996,811	$	1,720,741
61 to 90 days		144,075		324,221
91 to 120 days		112,645		227,929
121 to 180 days		112,304		321,117
181 to 360 days		131,521		220,133
Greater than 360 days		41,929		—
Total	$	1,539,285	$	2,814,141

In addition to the aging of accounts receivable shown above, management relies on other factors to determine the collectability of accounts including the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan.

Included in accounts receivable are earned but unbilled receivables of approximately $90,588 and $179,000 as of June 30, 2013 and December 31, 2012, respectively. Unbilled accounts receivable represent charges for services delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of services or equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured and that unbilled accounts receivable is recorded at net amounts expected to be paid by customers and third-party payors. Billing delays can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and new sleep centers awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.

Goodwill and Intangible Assets

Goodwill and Intangible Assets – Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill and other indefinitely-lived intangible assets are not amortized, but are subject to annual impairment reviews during the fourth quarter, or more frequent reviews if events or circumstances indicate there may be an impairment of goodwill.

Intangible assets other than goodwill which include customer relationships, customer files, covenants not to compete, trademarks and payor contracts are amortized over their estimated useful lives using the straight line method. The remaining lives range from three to fifteen years. The Company evaluates the recoverability of identifiable intangible assets annually during the fourth quarter, or more frequently if events or circumstances indicate there may be an impairment of intangible assets.

Loss per share

Loss per share – Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for the Company’s indefinite-lived intangible assets. The adoption of these changes had no impact on the Company’s consolidated financial statements.

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on the Company’s consolidated financial statements.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements.

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies

Note 7 – Commitments and Contingencies

Legal Issues: The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company. During the six months ended June 30, 2013 and 2012, the Company did not incur any material costs or settlement expenses related to its ongoing asserted and unasserted legal claims.

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

Note 2 – Summary of Significant Accounting Policies

For a complete list of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the year ending December 31, 2012.

Interim Financial Information – The unaudited consolidated condensed financial statements included herein have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ended December 31, 2013. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012. The December 31, 2012 consolidated condensed balance sheet was derived from audited financial statements.

Consolidation – The accompanying consolidated condensed financial statements include the accounts of the Company and its wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Reclassifications – Certain amounts presented in prior years have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on net loss.

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition – Sleep center services and product sales are recognized in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be paid by customers and third-party payors. Insurance benefits are assigned to the Company and, accordingly, the Company bills on behalf of its customers. For its sleep diagnostic business and acquired therapy business, the Company estimates the net realizable amount based primarily on the contracted rates stated in the contracts the Company has with various payors or for payors without contracts, historic payment trends. In addition, the Company, on a monthly basis, calculates the historic payments received from all payors at each location to determine if an incremental contractual reserve is necessary and if so, the amount of that reserve. The Company does not anticipate any future changes to this process. In the Company’s historic sleep therapy business, the business has been predominantly out-of-network and as a result, the Company has not had contract rates to use for determining net revenue for a majority of its payors. For this portion of the business, the Company performs a monthly analysis of actual reimbursement from each third party payor for the most recent 12-months. In the analysis, the Company calculates the percentage actually paid by each third party payor of the amount billed to determine the applicable amount of net revenue for each payor. The key assumption in this process is that actual reimbursement history is a reasonable predictor of the future reimbursement for each payor at each facility.

For certain sleep therapy and other equipment sales, reimbursement from third-party payors is earned over a period of time, typically 10 to 13 months. The Company recognizes revenue on these sales as amounts are earned over the payment period stipulated by the third-party payor.

The Company has established an allowance to account for contractual adjustments that result from differences between the amount billed and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected realizable amount are recorded against the allowance for contractual adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to the Company’s collection procedures. Revenues in the accompanying consolidated condensed financial statements are reported net of such adjustments.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and attempts to collect those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Cost of Services and Sales – Cost of services includes technician labor required to perform sleep diagnostics, fees associated with interpreting the results of the sleep study and disposable supplies used in providing sleep diagnostics. Cost of sales includes the acquisition cost of sleep therapy products sold. Costs of services are recorded in the time period the related service is provided. Cost of sales is recorded in the same time period that the related revenue is recognized. If the revenue from the sale is recognized over a specified period, the product cost associated with that sale is recognized over that same period. If the revenue from a product sale is recognized in one period, the cost of sale is recorded in the period the product was sold.

Restricted cash – As of June 30, 2013 and December 31, 2012, the Company had long-term restricted cash of approximately $236,000 included in other assets in the accompanying consolidated condensed balance sheets. This amount is pledged as collateral to the Company’s senior bank debt. On July 22, 2013, the Company’s senior lender applied the restricted cash against the principle balance owed by the Company.

Accounts receivable – The majority of the Company’s accounts receivable is due from private insurance carriers, Medicare/Medicaid and other third-party payors, as well as from patients relating to deductible and coinsurance provisions of their health insurance policies.

Third-party reimbursement is a complicated process that involves submission of claims to multiple payors, each having its own claims requirements. Adding to this complexity, a significant portion of the Company’s historic therapy business has been out-of-network with several payors, which means the Company does not have defined contracted reimbursement rates with these payors. For this reason, the Company’s systems report this revenue at a higher gross billed amount, which the Company adjusts to an expected net amount based on historic payments. As the Company continues to move more of its business to in-network contracting, the level of reserve related to contractual allowances is expected to decrease. In some cases, the ultimate collection of accounts receivable subsequent to the service dates may not be known for several months. As these accounts age, the risk of collection increases and the resulting reserves for bad debt expense reflect this longer payment cycle. The Company has established an allowance to account for contractual adjustments that result from differences between the amounts billed to customers and third-party payors and the expected realizable amounts. The percentage and amounts used to record the allowance for doubtful accounts are supported by various methods including current and historical cash collections, contractual adjustments, and aging of accounts receivable.

The Company offers payment plans of up to three months to patients for amounts due from them for the sales and services the Company provides. The minimum monthly payment amount for is calculated based on the down payment and the remaining balance divided by the number of months the patient has to pay the balance.

Accounts are written-off as bad debt using a specific identification method. For amounts due from patients, the Company utilizes a collections process that includes distributing monthly account statements. For patients that are not on a payment plan, collection efforts including collection letters and collection calls begin once the balance becomes the responsibility of the patient. If the patient is on a payment program, these efforts begin within 30 days of the patient failing to make a planned payment. Beginning in the fourth quarter of 2012, all patient responsibility accounts are forwarded to a contracted Extended Business Office (“EBO”). The EBO prepares and mails all patient account statements and follow up with patients via phone calls and letters to collect amounts due prior to them being turned over for collection. For diagnostic patients, the Company submits patient receivables to an outside collection agency if the patient has failed to pay 120 days following service or, if the patient is on a payment plan, they have failed to make two consecutive payments. For therapy patients, patient receivables are submitted to an outside collection agency if payment has not been received between 180 and 240 days following service depending on the service provided and circumstances of the receivable or, if the patient is on a payment plan, they have failed to make two consecutive payments. It is the Company’s policy to write-off as bad debt all patient receivables at the time they are submitted to an outside collection agency. If funds are recovered by a collection agency, the amounts previously written-off are accounted for as a recovery of bad debt. For amounts due from third party payors, it is the Company’s policy to write-off an account receivable to bad debt based on the specific circumstances related to that claim resulting in a determination that there is no further recourse for collection of a denied claim from the denying payor.

For the six months ended June 30, 2013 and 2012, the amounts the Company collected in excess of (less than) recorded contractual allowances were approximately ($27,000) and $73,000, respectively. These amounts reflect the amount of actual cash received in excess of (less than) the original contractual allowance recorded at the time of service.

Accounts receivable are reported net of allowances for contractual adjustments and doubtful accounts as follows:

	June 30, 2013		December 31, 2012
Allowance for contractual adjustments	$	955,645	$	1,658,172
Allowance for doubtful accounts		1,618,223		1,550,304
Total	$	2,573,868	$	3,208,476

The activity in the allowances for contractual adjustments and doubtful accounts for the six months ending June 30, 2013 follows:

	Contractual Adjustments			Doubtful Accounts			Total
Balance at January 1, 2013	$	1,658,172		$	1,550,304		$	3,208,476
Provisions		1,644,022			293,917			1,937,939
Write-offs, net of recoveries		(2,346,549	)		(225,998	)		(2,572,547	)
Balance at June 30, 2013	$	955,645		$	1,618,223		$	2,573,868

The aging of the Company’s accounts receivable, net of allowances for contractual adjustments and doubtful accounts as of June 30, 2013 and December 31, 2012 follows:

	June 30, 2013		December 31, 2012
1 to 60 days	$	996,811	$	1,720,741
61 to 90 days		144,075		324,221
91 to 120 days		112,645		227,929
121 to 180 days		112,304		321,117
181 to 360 days		131,521		220,133
Greater than 360 days		41,929		—
Total	$	1,539,285	$	2,814,141

In addition to the aging of accounts receivable shown above, management relies on other factors to determine the collectability of accounts including the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan.

Included in accounts receivable are earned but unbilled receivables of approximately $90,588 and $179,000 as of June 30, 2013 and December 31, 2012, respectively. Unbilled accounts receivable represent charges for services delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of services or equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured and that unbilled accounts receivable is recorded at net amounts expected to be paid by customers and third-party payors. Billing delays can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and new sleep centers awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.

Goodwill and Intangible Assets – Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill and other indefinitely-lived intangible assets are not amortized, but are subject to annual impairment reviews during the fourth quarter, or more frequent reviews if events or circumstances indicate there may be an impairment of goodwill.

Intangible assets other than goodwill which include customer relationships, customer files, covenants not to compete, trademarks and payor contracts are amortized over their estimated useful lives using the straight line method. The remaining lives range from three to fifteen years. The Company evaluates the recoverability of identifiable intangible assets annually during the fourth quarter, or more frequently if events or circumstances indicate there may be an impairment of intangible assets.

Loss per share – Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for the Company’s indefinite-lived intangible assets. The adoption of these changes had no impact on the Company’s consolidated financial statements.

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on the Company’s consolidated financial statements.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements.

XML

Restructuring Charges - Additional Information (Detail) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013	Jan. 07, 2013 Facility
Restructuring Cost and Reserve [Line Items]
Number of closed diagnostic facilities			4
Restructuring charges		$ 898,832
Restructuring charges	898,832	399,617
Lease Termination Costs
Restructuring Cost and Reserve [Line Items]
Restructuring charges		812,758
Other Exit Costs
Restructuring Cost and Reserve [Line Items]
Restructuring charges		$ 86,074

XML

Borrowings (Tables)

6 Months Ended

Jun. 30, 2013

Long-Term Debt

The Company’s long-term debt as of June 30, 2013 and December 31, 2012 are as follows:

	Rate (1)	Maturity Date	June 30, 2013			December 31, 2012
Short-term Debt
Notes payable to shareholder	8%	Jul. 2013	$	2,373,310		$	1,536,518
Long-term Debt
Bank line of credit	6%	Dec. 2013	$	12,217,206		$	12,643,683
Senior bank debt	6%	Dec. 2013		3,932,585			4,091,872
Notes payable on equipment	6%	Dec. 2013		66,821			137,972
Sleep center notes payable	6%	Jan. 2015		43,804			56,100
Notes payable on vehicles	2.9 - 3.9%	Jun. 2013 - Dec. 2013		3,119			13,547
Equipment capital lease	8.2 - 11.5%	Jan. 2015 - Feb. 2015		108,852			138,385
Total				16,372,387			17,081,559
Less: Current portion of long-term debt				(16,312,347	)		(16,976,934	)
Long-term debt			$	60,040		$	104,625

(1) Effective rate as of June 30, 2013

Future Maturities of Long-Term Debt

At June 30, 2013, future maturities of long-term debt were as follows:

Twelve months ended June 30,
2014	$	16,312,347
2015		60,040
2016		—
2017		—
2018		—
Thereafter		—

XML

Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events

Note 10 – Subsequent Events

Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except the following:

Foundation Transaction – On July 22, 2013, the Company acquired 100% of the interests in Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of the Company’s common stock and promissory note in the amount of $2,000,000, of which $250,000 was paid on July 24, 2013. The effective date of the Foundation acquisition was July 1, 2013. For financial reporting purposes, the transaction will be recorded as a reverse merger and Foundation will be considered the accounting acquirer. As a result of the reverse merger, the Company’s historical operating results will only include the results of Foundation.

The initial accounting for the Foundation transaction has not been completed as it will require the completion of audits for FSA and FSHA. In addition, the Company must complete a fair value analysis of its assets and liabilities as of July 1, 2013 in order to record the reverse merger transaction. As a result of the initial accounting being incomplete, the following disclosures have been omitted:

• The acquisition date fair value amounts used to record the reverse merger transaction.

• The pro forma revenue and earnings of the combined entity as though the reverse-merger had occurred on January 1, 2013 and 2012, respectively.

Arvest Debt – On July 22, 2013, the Company’s subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), the Company and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. The Company, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, the Company and Borrowers are indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000.00, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, the Company, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of July 22, 2013, the outstanding principal amount of the New Note was $10,691,262. See “Note 5 – Borrowings” for additional information about the Arvest Debt.

Arvest Loan Participation – On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, the Company entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the Company’s common stock. The Company purchased the participation in the last $6,000,000 of the principle amount due under the Arvest credit facility.

Roy T. Oliver Note – On July 22, 2013, the Company issued a promissory note in the original principal amount of $5,648,290 in favor of Roy T. Oliver (the “Oliver Note”). The principal amount of the Oliver Note represents the amount Mr. Oliver, a Guarantor under the Prior Agreement, paid to Arvest Bank in full satisfaction of his limited guaranty. Mr. Oliver is not a guarantor of the New Note.

The Oliver Note bears interest at an annual rate of 8.0% and is unsecured and subordinated to the New Loan Agreement. In the event the Company defaults on the Oliver Note, and the event of default is not cured in a timely manner, the lender has the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable. Events of default under the Oliver Note include the failure of the Company to pay the Oliver Note when due, the Company’s assignment for the benefit of creditors or admission of its inability to pay debts as they become due, the commencement of bankruptcy or similar proceedings by or against the Company. or an event of default occurs under the Loan Agreement. The Oliver Note matures on July 31, 2013 provided that, if the New Loan Agreement as in effect on such maturity date does not permit the Company to repay the Oliver Note, then the maturity date is continued until such time as the Arvest loan is refinanced or the provisions of the Loan Agreement permits repayment.

Oliver Debt Conversion – On August 31, 2012, December 31, 2012, March 1, 2013, April 1, 2013 and July 22, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082, $351,470 and $5,648,290, respectively, for a total of $8,021,360 (collectively referred to as the “Oliver Notes”). The Company used the proceeds from the notes to fund its payment obligations to Arvest Bank. On July 22, 2013, the Company issued Mr. Oliver 17,970,295 shares of common stock for full satisfaction of the Oliver Notes including principal and accrued interest owed thereon of $114,263.

Preferred Interest Financing Transaction – On March 13, 2013, the Company’s wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) initiated a private placement offering for up to $15,960,000. The offering is comprised of 152 units (“FHE Unit”). Each FHE Unit is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. On July 22, 2013, FHE and the Company completed the sale of 68 FHE Units for total consideration received was $7,140,000.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share.

The proceeds from the FHE Units allocated to the Class B membership units were used to fund a portion of the Tyche Transaction described below.

Tyche Transaction – On March 31, 2013, the Company and its wholly-owned subsidiary, TSH Acquisition, LLC (“TSH”) entered into an Asset Purchase Agreement (the “Tyche Agreement”) with Tyche Health Enterprises, LLC (“Tyche”) which was subsequently amended on March 31, 2013 and July 22, 2013. The Tyche Agreement provides for the purchase of the preferred membership interests that Tyche owns in certain subsidiaries of FSHA and FSA under a Membership Interest Purchase Agreement, dated July 17, 2007, between Tyche and Foundation Surgery Holdings, L.L.C. (“FSH”), Foundation Weightwise Holdings, L.L.C. (nka FSHA), Foundation Healthcare Affiliates, L.L.C. (“FHA”) as well as the right to various equity interest in the affiliates of FSH, FSA and FHA (collectively “Foundation”).

The transactions under the Tyche Agreement were closed on July 22, 2013. Under the Tyche Agreement, TSH purchased from Tyche (i) all of Tyche’s right, title and interest in the Membership Interest Purchase Agreement; (ii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSH and the right to various equity interests in the affiliates of FSH; (iii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSHA and the right to various equity interest in the affiliates of FSHA; and (iv) all of Tyche’s right, title and interest in any preferred or non-preferred ownership interest in any Foundation entities that have been acquired as a result of the Membership Interest Purchase Agreement.

Under the Tyche Agreement, TSH paid $11,102,372 in cash to Tyche and Tyche related entities and TSH issued promissory notes totaling $2,339,905 to Tyche and Tyche related entities for total consideration of $13,442,277. The promissory notes bear interest at annual rate of 11.5% and mature on August 1, 2013 with all principal and interest being due at that time. On August 1, 2013, the Company paid-off two of the promissory notes totaling $474,305. Management is in the process of extending the terms on the remaining note in the amount of $1,865,600.

As further consideration for the Tyche Agreement, the Company issued Tyche and certain Tyche related entities warrants for the purchase of the Company’s common stock. The warrants issued included:

1. Five year warrants for the purchase of a total of 1,937,500 shares of the Company’s common stock at a strike price of $1.00 per share;

2. Seven and one-half year warrants for the purchase of a total of 3,516,204 shares of the Company’s common stock at a strike price of $1.35 per share; and

3. Ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share.

Valliance Loan Agreement – On July 22, 2013, the Company’s subsidiary, FHE executed a loan agreement and a promissory note in the amount of $5,100,000 payable to Valliance Bank. The note bears interest at annual rate of 10% and FHE is required to make quarterly payments of interest beginning on October 15, 2013. FHE is required to make one principal payment of $728,571 on August 15, 2014. The note matures on July 22, 2015 at which time all outstanding principal and accrued interest is due. The proceeds of the note, net of a $100,000 loan origination fee, were used to help fund FHE’s purchase of the preferred interests of FHA and FSHA from Tyche. The loan agreement requires FHE to prepay a portion of the loan upon the completion of a sale of FSHA’s equity interest in a hospital located in Sherman, TX. The promissory note is secured by the Company’s equity interests in TSH Acquisition, LLC. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

Restructuring Plan – During July 2013, the Company closed four of its sleep diagnostic and therapy facilities and implemented a plan to close a fifth location. The facilities are located in Oklahoma and Georgia and are being closed because the revenue from these facilities has not met expectations and is not adequate to offset the fixed operating costs of these locations.

The Company expects to record restructuring charges in connection with the closure of these facilities with respect to the remaining lease obligations for the facilities, severance payments to affected employees and other write-downs. The remaining lease obligations and severance payments are estimated to be approximately $132,000 and $56,000, respectively, and will be recorded in the third quarter of 2013. All cash payments related to the severance costs are expected to be paid during the third quarter of 2013. The cash payments for the remaining lease obligations will continue for the life of the respective leases which extend through September 2014.

On July 17, 2013, the Company implemented a plan to sell certain sleep diagnostic and therapy facilities. The facilities identified as held for sale were selected because the revenue from these facilities have not met expectations and are not adequate to offset fixed operating costs. If a sale of these facilities cannot be achieved within an acceptable time frame, then these facilities will be closed. The time frame for achieving a sale or closing the site ranges from July 31, 2013 to August 31, 2013. The facilities identified are located in Oklahoma, Texas, Nevada, Kansas, Missouri and Iowa.

As a result of identifying these sites as held for sale, the related assets, liabilities, results of operations and cash flows of the identified sites will be classified as discontinued operations in the Company’s consolidated financial statements for periods after June 30, 2013.

XML

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Accounting Policies [Line Items]
Most recent period for quarterly analysis of actual reimbursement from each third party payor	12 months
Long-term restricted cash included in other assets	$ 236,000		$ 236,000
Patient collection activities initiated if payment plan	30 days
Amounts collected in excess of (less than) recorded contractual allowances	(27,000)	73,000
Accounts receivable earned but unbilled	$ 90,588		$ 179,000
Likelihood percentage for impairment minimum	50.00%
Diagnostic Patients
Accounting Policies [Line Items]
Patient account sent to collections	120 days
Minimum
Accounting Policies [Line Items]
Reimbursement period from third-party	10 months
Intangible assets amortization period	3 years
Minimum | Therapy Patients
Accounting Policies [Line Items]
Patient account sent to collections	180 days
Maximum
Accounting Policies [Line Items]
Reimbursement period from third-party	13 months
Period given for patients to pay amount due	3 months
Intangible assets amortization period	15 years
Maximum | Therapy Patients
Accounting Policies [Line Items]
Patient account sent to collections	240 days

XML

Restructuring Charges (Tables)

6 Months Ended

Jun. 30, 2013

Activity in the Accruals for Restructuring Charges Established for Lease Termination and Other Exit Costs

During the six months ended June 30, 2013, the activity in the accruals for restructuring charges established for lease termination and other exit costs were as follows:

	Lease Termination Costs			Other Exit Costs			Total
Balance at January 1, 2013	$	—		$	—		$	—
Restructuring charges		812,758			86,074			898,832
Adjustments for lease settlements		(499,215	)		—			(499,215	)
Net restructuring charges		313,543			86,074			399,617
Cash payments		(88,111	)		(74,253	)		(162,364	)
Balance at June 30, 2013	$	225,432		$	11,821		$	237,253

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 14, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	GRMH
Entity Registrant Name	GRAYMARK HEALTHCARE, INC.
Entity Central Index Key	0001272597
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		163,203,276

XML

Nature of Business - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended						1 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Foundation Transaction	Jun. 30, 2013 Foundation Transaction Minimum	Jun. 30, 2013 Foundation Transaction Maximum	Jul. 22, 2013 Subsequent Events	Jul. 22, 2013 Subsequent Events Foundation Transaction
Percentage of voting interests acquired										100.00%
Number of shares issued in connection with acquisition									114,500,000
Promissory note									$ 2,000,000
Effective date of the Foundation acquisition			Jul. 01, 2013
Ownership, in percentage						51.00%	10.00%	28.00%
Accumulated deficit	61,775,194		61,775,194		57,563,089
Net loss attributable to Graymark Healthcare	1,551,711	5,262,020	4,212,105	7,192,117
Cash used in operating activities from continuing operations			485,207	2,736,238
Working capital deficiency	5,100,000		5,100,000
Short-term debt and current portion of long-term debt	$ 18,600,000		$ 18,600,000