##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 o
    
    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.
  OKLAHOMA
    
    20-0180812(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 210 Park Avenue, Ste. 1350  Oklahoma City, Oklahoma 73102
 (405) 601-5300
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



GRAYMARK HEALTHCARE, INC
  Part I. Financial InformationItem 1. Consolidated Condensed Financial Statements (Unaudited)
    
    
    1a) Balance Sheets
    
    
    2b) Statements of Operations
    
    
    3d) Statements of Cash Flows
    
    
    4e) Notes to Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures and Item 4T. Controls and Procedures
    
    
    26Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. (Removed and Reserved)
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30EX-18.1EX-31.1EX-31.2EX-32.1EX-32.2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Graymark Healthcare, Inc. Consolidated Condensed Financial Statements.
   1




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GRAYMARK HEALTHCARE, INC.
 
 Consolidated Condensed Balance Sheets
(Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCash and cash equivalents
    
    $
    1,350,221
    
    
    $
    1,890,606Accounts receivable, net of allowance for
contractual adjustments and doubtful accounts of
$8,374,516 and $9,959,027, respectively
    
    
    10,592,057
    
    
    
    11,479,366Inventories
    
    
    8,278,991
    
    
    
    8,234,302Other current assets
    
    
    1,453,678
    
    
    
    743,266Total current assets
    
    
    21,674,947
    
    
    
    22,347,540Property and equipment, net
    
    
    6,041,918
    
    
    
    6,311,161Intangible assets, net
    
    
    12,626,471
    
    
    
    12,877,282Goodwill
    
    
    33,606,032
    
    
    
    33,606,032Other assets
    
    
    435,563
    
    
    
    725,262Total assets
    
    $
    74,384,931
    
    
    $
    75,867,277LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    4,575,964
    
    
    $
    3,649,422Accrued liabilities
    
    
    4,441,525
    
    
    
    4,552,647Short-term debt
    
    
    46,120
    
    
    
    195,816Current portion of long-term debt
    
    
    1,839,154
    
    
    
    2,263,499Total current liabilities
    
    
    10,902,763
    
    
    
    10,661,384Long-term debt, net of current portion
    
    
    45,558,673
    
    
    
    45,910,194Total liabilities
    
    
    56,461,436
    
    
    
    56,571,578Equity:Graymark Healthcare shareholders equity: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; 28,957,514 and 28,989,145
issued and outstanding at March 31, 2010 and
December 31, 2009, respectively
    
    
    2,896
    
    
    
    2,899Paid-in capital
    
    
    29,393,797
    
    
    
    29,086,750Accumulated deficit
    
    
    (11,507,920
    )
    
    
    (9,869,471
    )Total Graymark Healthcare shareholders equity
    
    
    17,888,773
    
    
    
    19,220,178Noncontrolling interest
    
    
    34,722
    
    
    
    75,521Total equity
    
    
    17,923,495
    
    
    
    19,295,699Total liabilities and shareholders equity
    
    $
    74,384,931
    
    
    $
    75,867,277
  2




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GRAYMARK HEALTHCARE, INC.
 
 Consolidated Condensed Statements of Operations
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
 2010
    
    
    2009Net Revenues:Product sales
    
    $
    22,932,489
    
    
    $
    22,685,256Services
    
    
    4,672,985
    
    
    
    2,786,13727,605,474
    
    
    
    25,471,393Costs and Expenses:Cost of sales
    
    
    17,024,730
    
    
    
    16,553,540Cost of services
    
    
    1,452,600
    
    
    
    1,075,420Selling, general and administrative
    
    
    9,343,943
    
    
    
    6,803,354Depreciation and amortization
    
    
    607,432
    
    
    
    514,43928,428,705
    
    
    
    24,946,753Other Income (Expense):Interest expense, net
    
    
    (594,531
    )
    
    
    (520,874
    )Income (loss) from continuing operations, before taxes
    
    
    (1,417,762
    )
    
    
    3,766Benefit (provision) for income taxes
    
    
    (47,986
    )
    
    
    Income (loss) from continuing operations, net of taxes
    
    
    (1,465,748
    )
    
    
    3,766Discontinued operations, net of taxes
    
    
    
    
    
    
    2,197Net income (loss)
    
    
    (1,465,748
    )
    
    
    5,963Less: Net income (loss) attributable to noncontrolling interests
    
    
    (40,799
    )
    
    
    (13,750
    )Net income (loss) attributable to Graymark Healthcare
    
    $
    (1,424,949
    )
    
    $
    19,713Earnings per common share (basic and diluted):Income (loss) from continuing operations attributable to
Graymark Healthcare common shareholders
    
    $
    (0.05
    )
    
    $
    0.00Discontinued operations attributable to Graymark Healthcare
common shareholders
    
    
    0.00
    
    
    
    0.00Net income (loss) attributable to Graymark Healthcare common
shareholders
    
    $
    (0.05
    )
    
    $
    0.00Average common shares outstanding
    
    
    29,011,675
    
    
    
    28,103,446Dilutive effect of stock warrants and options
    
    
    
    
    
    
    14,277Average common shares outstanding assuming dilution
    
    
    29,011,675
    
    
    
    28,117,723
  3




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GRAYMARK HEALTHCARE, INC.
 
 Consolidated Condensed Statements of Cash Flows
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
 2010
    
    
    2009Operating activities:Net income (loss)
    
    $
    (1,424,949
    )
    
    $
    19,713Adjustments to reconcile net income (loss) to net cash used in
operating activities:Depreciation and amortization
    
    
    607,432
    
    
    
    514,439Noncontrolling interests
    
    
    (40,799
    )
    
    
    (13,750
    )Stock-based compensation
    
    
    307,044
    
    
    
    96,256Changes in assets and liabilities -Accounts receivable
    
    
    673,809
    
    
    
    988,422Inventories
    
    
    (44,689
    )
    
    
    443,200Other assets
    
    
    (420,713
    )
    
    
    (26,434
    )Accounts payable
    
    
    926,542
    
    
    
    (2,064,116
    )Accrued liabilities
    
    
    (111,122
    )
    
    
    (539,296
    )Net cash provided by (used in) operating activities
    
    
    472,555
    
    
    
    (581,566
    )Investing activities:Purchase of property and equipment
    
    
    (96,288
    )
    
    
    (475,201
    )Disposal of property and equipment
    
    
    8,910
    
    
    
    Net cash (used in) investing activities
    
    
    (87,378
    )
    
    
    (475,201
    )Financing activities:Debt proceeds
    
    
    12,614
    
    
    
    247,451Debt payments
    
    
    (938,176
    )
    
    
    (1,039,737
    )Distributions to noncontrolling interests, net of contributions
    
    
    
    
    
    
    (4,546
    )Net cash (used in) financing activities
    
    
    (925,562
    )
    
    
    (796,832
    )Net change in cash and cash equivalents
    
    
    (540,385
    )
    
    
    (1,853,599
    )Cash and cash equivalents at beginning of period
    
    
    1,890,606
    
    
    
    15,380,310Cash and cash equivalents at end of period
    
    $
    1,350,221
    
    
    $
    13,526,711Cash Paid for Interest and Income Taxes:Interest expense
    
    $
    635,609
    
    
    $
    573,919Income taxes
    
    $
    38,375
    
    
    $
    38,900
  4




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GRAYMARK HEALTHCARE, INC.
 
 Notes to Consolidated Condensed Financial Statements
 For the Periods Ended March 31, 2010 and 2009
       Interim Financial Information
 Reclassifications
 5




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Consolidation
 Use of estimates
 Revenue recognition
      Restricted cash
 6




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Accounts receivable
  Goodwill and Intangible Assets
  Discontinued Operations
 Earnings (loss) per share
 Fair value of financial instruments
 Recently Adopted and Recently Issued Accounting Guidance
 Adopted Guidance
  7




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Level 1
  Issued Guidance
      8




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Somni
    
    
    EasternCash and cash equivalents
    
    $
    225,774
    
    
    $
    33,389Accounts receivable
    
    
    1,002,334
    
    
    
    455,120Inventories
    
    
    78,358
    
    
    
    6,307Other current assets
    
    
    36,299
    
    
    
    Total current assets
    
    
    1,342,765
    
    
    
    494,816Property and equipment
    
    
    1,060,362
    
    
    
    157,109Intangible assets
    
    
    1,455,000
    
    
    
    3,991,000Goodwill
    
    
    3,747,379
    
    
    
    163,730Total assets acquired
    
    
    7,605,506
    
    
    
    4,806,655Less: Liabilities assumed:Accounts payable and
accrued liabilities
    
    
    548,197
    
    
    
    39,497Short-term debt
    
    
    501,667
    
    
    
    Long-term debt
    
    
    655,642
    
    
    
    67,158Total liabilities assumed
    
    
    1,705,506
    
    
    
    106,655Net assets acquired
    
    $
    5,900,000
    
    
    $
    4,700,000
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Three MonthsEnding3/31/2009Supplemental Pro Forma:Revenues
    
    $
    28,311,000Earnings
    
    $
    251,000Net income per common share
(basic and diluted)
    
    $
    0.01
    SMS
    
    
    ApothecaryRx
    
    
    TotalDecember 31, 2009
    
    $
    20,516,894
    
    
    $
    13,089,138
    
    
    $
    33,606,032March 31, 2010
    
    $
    20,516,894
    
    
    $
    13,089,138
    
    
    $
    33,606,032
  10




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Useful
    
    March 31, 2010
    
    
    December 31,Life
    
    Gross
    
    
    Accumulated
    
    
    
    
    
    
    2009(Years)
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    NetSMS:Customer relationships
    
    Indefinite
    
    $
    3,870,000
    
    
    $
    
    
    
    $
    3,870,000
    
    
    $
    3,870,000Customer relationships
    
    8  15
    
    
    1,450,000
    
    
    
    (147,708
    )
    
    
    1,302,292
    
    
    
    1,338,969Covenants not to compete
    
    3  15
    
    
    295,000
    
    
    
    (19,002
    )
    
    
    251,998
    
    
    
    218,475Trademark
    
    10  15
    
    
    271,000
    
    
    
    (87,265
    )
    
    
    207,735
    
    
    
    258,356Payor contracts
    
    15
    
    
    190,000
    
    
    
    (7,389
    )
    
    
    182,611
    
    
    
    185,778ApothecaryRx:Customer files
    
    5  15
    
    
    7,587,717
    
    
    
    (1,376,826
    )
    
    
    6,210,891
    
    
    
    6,340,838Covenants not to compete
    
    3  5
    
    
    1,514,065
    
    
    
    (913,121
    )
    
    
    600,944
    
    
    
    664,866Total
    
    
    
    $
    15,177,782
    
    
    $
    (2,551,311
    )
    
    $
    12,626,471
    
    
    $
    12,877,282
  Year ended March 31,2011
    
    $
    998,0002012
    
    
    952,0002013
    
    
    810,0002014
    
    
    689,0002015
    
    
    669,000
   Maturity
    
    
    March 31,
    
    
    December 31,Rate (1)
    
    Date
    
    
    2010
    
    
    2009SMS:Senior bank debt
    
    5%
    
    May 2014
    
    $
    12,596,375
    
    
    $
    12,596,375Bank line of credit
    
    5%
    
    Aug. 2015
    
    
    9,002,341
    
    
    
    9,002,341Sleep center notes payable
    
    4.75  8.75%
    
    Dec. 2010  July 2012
    
    
    386,559
    
    
    
    467,835Notes payable on equipment
    
    6  14%
    
    Aug. 2010  Dec. 2013
    
    
    535,390
    
    
    
    570,947Notes payable on vehicles
    
    2.9  3.9%
    
    Nov. 2012  Dec. 2013
    
    
    97,417
    
    
    
    104,764Capital leases
    
    11.4%
    
    Nov. 2010
    
    
    60,768
    
    
    
    81,314Short-term insurance premium financing
    
    7.5%
    
    Sept. 2010
    
    
    46,120
    
    
    
    68,31622,724,970
    
    
    
    22,891,892
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Maturity
    
    
    March 31,
    
    
    December 31,Rate (1)
    
    Date
    
    
    2010
    
    
    2009ApothecaryRx:Senior bank debt
    
    5%
    
    May 2014
    
    
    17,403,625
    
    
    
    17,403,625Bank line of credit
    
    5%
    
    July 2014  Dec. 2014
    
    
    5,394,594
    
    
    
    5,394,594Seller financing
    
    4.13  7.25%
    
    July 2010  June 2011
    
    
    1,309,695
    
    
    
    2,015,495Non-compete agreements
    
    0.0  7.65%
    
    July 2012  Nov. 2013
    
    
    611,063
    
    
    
    663,90324,718,977
    
    
    
    25,477,617Total borrowings
    
    
    
    
    
    
    
    
    47,443,947
    
    
    
    48,369,509Less:Short-term debt
    
    
    
    
    
    
    
    
    (46,120
    )
    
    
    (195,816
    )Current portion of long-term debt
    
    
    
    
    
    
    
    
    (1,839,154
    )
    
    
    (2,263,499
    )Long-term debt
    
    
    
    
    
    
    
    $
    45,558,673
    
    
    $
    45,910,194
 
 (1)
    
    Effective rate as of March 31, 2010  Year ended March 31,2011
    
    $
    1,839,1542012
    
    
    3,963,6902013
    
    
    5,657,0132014
    
    
    6,045,6842015
    
    
    26,562,917Thereafter
    
    
    3,329,369
   
    
    the net income of the Company (i) increased by interest expense, amortization,
depreciation, and non-recurring expenses as approved by Arvest Bank, and (ii) decreased
by the amount of noncontrolling (minority) interest share of net income and
distributions to noncontrolling (minority) interests for taxes, to
 12




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
    
    annual debt service including interest expense and current maturities of
indebtedness as determined in accordance with generally accepted accounting principles.
           13




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Three Months EndingMarch 31,2010
    
    
    2009Sales to external customers:SMS
    
    $
    5,912,035
    
    
    $
    3,356,498ApothecaryRx
    
    
    21,693,439
    
    
    
    22,114,895Total
    
    $
    27,605,474
    
    
    $
    25,471,393Segment operating profit (loss):SMS
    
    $
    (156,423
    )
    
    $
    216,613ApothecaryRx
    
    
    595,457
    
    
    
    831,171Discontinued operations
    
    
    
    
    
    
    2,197Other
    
    
    (1,262,265
    )
    
    
    (525,341
    )Total
    
    $
    (823,231
    )
    
    $
    524,640
 March 31,
    
    
    December 31,2010
    
    
    2009Segment assets:SMS
    
    $
    36,360,989
    
    
    $
    36,863,976ApothecaryRx
    
    
    36,879,852
    
    
    
    37,399,351Discontinued operations
    
    
    120,004
    
    
    
    120,150Other
    
    
    1,024,086
    
    
    
    1,483,800Total
    
    $
    74,384,931
    
    
    $
    75,867,277
      14




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Overview
    SMS Operating Segment
   
    
    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.
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
    
    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 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.
   ApothecaryRx Operating Segment
  16




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Results of Operations
  Comparison of the Three Month Periods Ended March 31, 2010 and 2009
 Consolidated Totals
 For the Three Months EndedMarch 31,2010
    
    
    2009Net revenues
    
    $
    27,605,474
    
    
    $
    25,471,393Cost of sales and services
    
    
    18,477,330
    
    
    
    17,628,960Operating expenses
    
    
    9,951,375
    
    
    
    7,317,793Net other income (expense)
    
    
    (594,531
    )
    
    
    (520,874
    )Income (loss) from continuing
operations, before taxes
    
    
    (1,417,762
    )
    
    
    3,766Benefit (provision) for income taxes
    
    
    (47,986
    )
    
    
    Income (loss) from continuing
operations, net of taxes
    
    
    (1,465,748
    )
    
    
    3,766Discontinued operations, net of taxes
    
    
    
    
    
    
    2,197Net income (loss)
    
    
    (1,465,748
    )
    
    
    5,963Noncontrolling interests
    
    
    40,799
    
    
    
    13,750Net income (loss) attributable to
Graymark Healthcare
    
    $
    (1,424,949
    )
    
    $
    19,713
 Discussion of Three Month Periods Ended March 31, 2010 and 2009
 Net revenues
 
    
    a decrease in the revenues in our existing sleep center locations of
approximately $0.3 million,
 
    
    the acquisitions of our SMS operating segment in August and September 2009 that
resulted in an increase in revenue of $2.8 million, and
 
    
    same store pharmacy revenues decreased approximately $0.4 million. See the
Segment Analysis below, for additional information.
 Cost of sales and services
 
    
    a decrease in the cost of sales at existing sleep center locations of
approximately $0.1 million,
 
    
    the acquisitions of our SMS operating segment in August and September 2009
which resulted in an increase in cost of sales of $0.9 million, and
 
    
    same store pharmacy cost of sales was relatively flat. See the Segment
Analysis below, for additional information.
 Operating expenses
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Net other expense
 Income from discontinued operations
 Noncontrolling interests
 Net income (loss) attributable to Graymark Healthcare.
 SMS Operating Segment
 For the Three Months EndedMarch 31,2010
    
    
    2009Net revenues
    
    $
    5,912,035
    
    
    $
    3,356,498Cost of sales and services
    
    
    1,852,935
    
    
    
    1,009,780Operating expenses
    
    
    4,215,523
    
    
    
    2,130,105Net other income (expense)
    
    
    (285,599
    )
    
    
    (227,076
    )Income (loss) from continuing operations,
before taxes and noncontrolling interests
    
    
    (442,022
    )
    
    
    (10,463
    )Noncontrolling interests
    
    
    40,799
    
    
    
    13,750Income (loss) from continuing operations,
before taxes
    
    $
    (401,223
    )
    
    $
    3,287
 Discussion of Three Month Periods Ended March 31, 2010 and 2009
 Net revenues
 
    
    a decrease in the revenues from existing sleep center locations of
approximately $0.3 million during the first quarter of 2010, compared with the same
period in 2009. A decline in revenues from sleep diagnostic services at existing
locations of $0.4 million was offset by a $0.1 million increase in revenues from sleep
therapy business at existing locations; and
 
    
    the acquisition of somniTech, Inc. and somniCare, Inc. (collectively Somni)
in August 2009 and Avastra Eastern Sleep Centers, Inc. (Eastern) in September 2009
which resulted in an increase in net revenues of $2.8 million.
 Cost of sales and services
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Operating expenses
 Net other expense
 Noncontrolling interests
 Income (loss) from continuing operations, before taxes
 ApothecaryRx Operating Segment
 For the Three Months EndedMarch 31,2010
    
    
    2009Net revenues
    
    $
    21,693,439
    
    
    $
    22,114,895Cost of sales
    
    
    16,624,395
    
    
    
    16,619,180Operating expenses
    
    
    4,473,587
    
    
    
    4,664,544Net other income (expense)
    
    
    (310,300
    )
    
    
    (350,856
    )Income from continuing operations,
before taxes
    
    $
    285,157
    
    
    $
    480,315
 Discussion of Three Month Periods Ended March 31, 2010 and 2009
 Net revenues
 Cost of sales
 Operating expenses
 Net other expense
 19




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Income from continuing operations, before taxes.
 Liquidity and Capital Resources
      Arvest Credit Facility
  Personal Guaranties.
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
    
    1.50-to-1 for four consecutive calendar quarters the guaranteed amount will be
reduced to $10 million;
 
    
    1.75-to-1 for four consecutive calendar quarters the guaranteed amount will be
reduced to $5 million;
 
    
    2.00-to-1 for four consecutive calendar quarters the guaranties will be
released.
  
    
    that our net income (i) increased (to the extent deducted in determining net
income) by the sum, without duplication, of all interest expense, amortization,
depreciation, and non-recurring expenses as approved by Arvest 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
 
    
    annual debt service including interest expense and current maturities of
indebtedness.
   Maturity Dates.
 Tranche
    
    Amount
    
    Maturity Date#1
    
    $
    1,054,831
    
    
    
    6/1/2014#2
    
    
    5,217,241
    
    
    
    7/1/2014#3
    
    
    1,536,600
    
    
    
    7/1/2014#4
    
    
    1,490,739
    
    
    
    7/1/2014#5
    
    
    177,353
    
    
    
    12/1/2014#6
    
    
    4,920,171
    
    
    
    8/1/2015Total
    
    $
    14,396,935
 Interest Rate. The Wall
Street Journal
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##### Table of Contents



Interest and Principal Payments.
  Use of Proceeds.
  Collateral.
 Debt Service Coverage Ratio.
 
    
    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.
  Default and Remedies.
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##### Table of Contents



Compliance with Debt Service Coverage Ratio.
 Financial Commitments
   < 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    > 5 years
    
    
    TotalShort-term debt
    
    $
    46,120
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    46,120Long-term debt
    
    
    4,240,078
    
    
    
    13,968,167
    
    
    
    34,871,773
    
    
    
    3,398,678
    
    
    
    56,478,696Operating leases
    
    
    2,342,203
    
    
    
    3,106,241
    
    
    
    1,701,834
    
    
    
    3,272,028
    
    
    
    10,422,306$
    6,628,401
    
    
    $
    17,074,408
    
    
    $
    36,573,607
    
    
    $
    6,670,706
    
    
    $
    66,947,122
 CRITICAL ACCOUNTING POLICIES
  Revenue recognition
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Accounts Receivable
  Goodwill and Intangible Assets
  Change in Accounting Method
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Recently Adopted and Recently Issued Accounting Guidance
 Adopted Guidance
    Issued Guidance
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Cautionary Statement Relating to Forward Looking Information
  
    
    discuss our future expectations;
    
    contain projections of our future operating results or of our future financial condition; or
    
    state other forward-looking information.
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4.
    
    Controls and Procedures and Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
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Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
  
 Item 1A.
    
    Risk Factors.
  We have a bank credit facility of approximately $45 million and are unlikely to achieve compliance
with the Debt Service Coverage Ratio requirements which begin June 30, 2010.
    We may need to obtain additional financing to fund our ongoing working capital needs.
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We require a significant amount of cash flow from operations and third-party financing to pay our
indebtedness, to execute our business plan and to fund our other liquidity needs.
    
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
 Unregistered Sales of Equity Securities
  Repurchases of Equity Securities
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Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    (Removed and Reserved).
 
 Item 5.
    
    Other Information.
  
 Item 6.
    
    Exhibits.
  Exhibit No.
    
    Description10.1
    
    Agreement between the Registrant and Joseph Harroz, Jr., dated March 25, 2010.
(incorporated by reference to Exhibit 10.30 of the Registrants Annual Report on Form
10-K filed March 31, 2010)10.2
    
    Restricted Stock Award Agreement between the Registrant and Stanton Nelson,
dated March 25, 2010. (incorporated by reference to Exhibit 10.31 of the Registrants
Annual Report on Form 10-K filed March 31, 2010)18.1
    
    Preferability Letter Regarding Change in Accounting Principle. (filed
herewith)31.1
    
    Certification of Stanton Nelson, Chief Executive Officer of Registrant.
(furnished herewith)31.2
    
    Certification of Grant A. Christianson, Chief Financial Officer and 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 Grant A. Christianson, Chief Financial
Officer and Chief Accounting Officer of Registrant. (furnished herewith)
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SIGNATURES
  GRAYMARK HEALTHCARE, INC.
(Registrant)By:
    /S/      STANTON NELSONStanton NelsonDate:  May 14, 2010
    
    Chief Executive Officer

(Principal Executive Officer)By:
    /S/      GRANT A. CHRISTIANSONGrant A. ChristiansonDate:  May 14, 2010
    
    Chief Financial Officer and

Chief Accounting Officer

(Principal Financial and Accounting Officer) 30