8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 24, 2009

GRAYMARK HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

Oklahoma	001-34171	20-0180812
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

210 Park Avenue, Suite 1350
Oklahoma City, Oklahoma 73102	73102
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (405) 601-5300

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14a-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On August 19, 2009, we at Graymark Healthcare, Inc. caused our subsidiary, SDC Holdings, LLC (“SDC”), to execute a Stock Sale Agreement with AvastraUSA, INC. (“Seller”) and Avastra Sleep Centres Limited providing for the purchase of the outstanding stock of somniTech, Inc. and somniCare, Inc. (the “Somni Stock”) and Avastra Eastern Sleep Centers, Inc. (the “Eastern Stock”). On August 23, 2009, the First Amendment to Stock Sale Agreement was executed, which amended the earlier executed Stock Sale Agreement (collectively, the “Purchase Agreement”). SDC’s obligation to purchase the Somni Stock did not become binding until 5:00 p.m. CDT on August 23, 2009. SDC’s obligation to purchase the Eastern Stock will not become binding until 5:00 p.m. CDT on September 15, 2009. Closing of the purchase of the Eastern Interest [the Eastern Stock] is required on September 30, 2009 or an earlier date upon five business days prior written notice.

On August 24, 2009, SDC completed the purchase of the Somni Stock for $5,900,000 (the “Purchase Price”) which consisted of the payment of

• $3,325,753 of the obligation and liability of Avastra Sleep Centres Limited to Pamela R Gillis Revocable Trust under the Merger Agreement, dated May 4, 2007, pursuant to which Seller acquired the Somni Stock; and

• $2,574,247 to Avastra Sleep Centres Limited at the direction of Seller in partial payment of existing debt obligations of Seller to Avastra Sleep Centres Limited from which the obligations of Avastra Sleep Centres Limited under certain convertible notes (Tranche 1 Notes and Tranche 2 Notes issued pursuant to the Subscription Agreement and Note Terms, Security Trust Deed – Noteholder Security Trust, and Deed of Charge dated November 2008) are to be retired.

In addition, the purchase of the Somni Stock by SDC caused the acceleration of certain indebtedness owed by somniTech, Inc. and somniCare, Inc. to First National Bank of Kansas. Consequently, at closing SDC paid an additional $1,128,817 to First National Bank of Kansas in full payment of that indebtedness.

SDC agreed to purchase the Eastern Stock for the following:

• SDC’s assumption of the earnout obligations and liabilities of Avastra Sleep Centres Limited under the Asset Purchase Agreement dated October 10, 2007 as they become due;

• the payment of $1,000,000 (in accordance with the directions of Seller) to Avastra Sleep Centres Limited in four equal installments of $250,000 on closing of the purchase of the Eastern Stock and on January 31, May 31 and September 30, 2010; and

• the delivery to Avastra Sleep Centres Limited (at the direction of Seller) that number of Graymark Healthcare common stock shares having an aggregate value of $1,500,000 based on the average of the closing NASDAQ sale price for the common stock for the 20 trading days prior to the closing on the Eastern Stock.

The common stock to be issued for the Eastern Stock will be subject to a 12-month lockup agreement prohibiting the transfer of the shares for a period of 12 months and for the following 12 months permitting the transfer 25% of the shares in any three month period. Furthermore, for so long as Avastra Sleep Centres Limited owns any of those common stock shares a representative of Seller may serve as an advisory (non-voting) member of our board of directors; provided, however, that Seller’s designated representative must be acceptable to our Chairman of the Board. Seller’s representative while serving as

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an advisory (non-voting) member of our Board of Directors will be entitled to receive all notices of and written consents in lieu of meetings and may attend all meetings of directors.

SDC has the right at any time prior to 5:00 p.m. CDT on September 15, 2009 to terminate its obligations under the Purchase Agreement respecting the Eastern Stock, in its sole discretion, should SDC not be satisfied with its due diligence investigation of Avastra Eastern Sleep Centers, Inc.

Also, until February 24, 2010 Seller agreed to provide billing and accounting services and associated information technology services for the Somni Entities (somniTech, Inc. and somniCare, Inc.) in substantially the same manner that was providing those services prior to August 24, 2009. The cost of those services is $8,666.67 per month for the first three months ending November 24, 2009 and $26,000 per month (or partial month) for each month thereafter. In addition, until February 24, 2010, the Somni Entities are to provide employee payroll and benefits administration services for Seller in substantially the same manner that those services were provided prior to August 24, 2009 at the actual and reasonable costs incurred by the Somni Entities to provide those services.

The Purchase Price of the Somni Entities was based on certain assumptions (collectively, the “Assumptions”). If any of the Assumptions are proven to be inaccurate, SDC will have a claim, for the damages actually incurred by SDC solely as follows:

• against Seller until February 24, 2011 for up to the maximum aggregate liability of $3,000,000; and

• against Avastra Sleep Centres Limited (i) until August 24, 2010, but limited to the Graymark Healthcare common stock delivered to Avastra Sleep Centres Limited Parent in connection with the closing of the acquisition of the Eastern Stock and after August 24, 2010 until February 24, 2011, limited to those Graymark Healthcare common stock shares that are no longer subject to any prohibition on transfer by Avastra Sleep Centres Limited.

The Assumptions are the following:

• Authorization. The execution and the consummation of the transactions contemplated by the Purchase Agreement were duly authorized by Seller and Avastra Sleep Centres Limited and do not violate any applicable law.

• Authority. Each of the Somni Entities has all necessary power and authority to own, operate or lease the assets now owned, operated or leased by it and to carry on the its business as it has been and is currently conducted.

• Subsidiaries. There are no corporations, partnerships, joint ventures, associations or other entities in which either of the Somni Entities owns, of record or beneficially, any equity interests.

• Capital Stock. Seller owns all of the issued and outstanding capital stock of each of Somni Entities free and clear of all liens and encumbrances (other than those that will be satisfied at the closing of the acquisition of the Somni Stock, exclusive of any restrictions under applicable federal or state securities laws or under the applicable entity’s certificate of incorporation or bylaws).

• Minute Books. The minute book of each of the Somni Entities contains accurate records of all meetings and accurately reflects all other actions taken by the holders of capital stock of the Somni Entity and the board of directors of such Somni Entity. Complete and accurate copies of all minute books have been delivered by Seller to SDC for review.

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• Financial Information; Books and Records. Seller (i) has delivered to SDC true and complete copies of the unaudited consolidated balance sheet of Seller for each of the two fiscal years ended June 30, 2008 and 2009, and the related unaudited statements of income of Seller, accompanied by the reports thereon of Seller’s accountants (collectively referred to herein as the “Financial Statements”), and (ii) has delivered to Buyer true and complete copies of the unaudited balance sheet of each of the Somni Entities for the fiscal years ended June 30, 2009 (the “2009 Balance Sheets”) and 2008 and the related statements of income for the period then ending (such unaudited balance sheets and statements of income, collectively the “Somni Financial Statements”). The Financial Statements and the Somni Financial Statements (i) were prepared in accordance with the books of account and other financial records of Seller and each of the Somni Entities, (ii) are complete and accurate in all material respects, (iii) present fairly the financial condition and results of operations of Seller and each of the Somni Entities as of the dates thereof or for the periods covered thereby, (iv) were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) on a basis consistent with the past practices of Seller and each of the Somni Entities (with the exception that the Somni Financial Statements lack certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP) and (v) include all adjustments (consisting only of normal recurring accruals) that are necessary to present fairly in all material respects the financial condition of Seller and each of the Somni Entities and the results of the operations of Seller and each of the Somni Entities as of the dates thereof or for the periods covered thereby.

• Absence of Undisclosed Liabilities. Neither of the Somni Entities has incurred any liabilities, other than liabilities (i) as are reflected or reserved against in the Somni Financial Statements (or the notes thereto), (ii) incurred in the ordinary course of business consistent with past practices since July 1, 2009, or (iii) that would not be required to be disclosed in financial statements if audited statements were prepared in accordance with U.S. GAAP.

• Cash Balances. The cash available in the bank accounts of the Somni Entities as of the closing of the acquisition of the Somni Stock will be substantially the same as reflected in the 2009 Balance Sheets subject to changes for deposits and payments in the ordinary course of business.

• Asset Information. All fixed assets and computer software balances on the 2009 Balance Sheets represent: (i) identifiable assets of the Somni Entities and (ii) the right to all items included in the “Deposits” line item on the 2009 Balance Sheets will be retained by the applicable Subsidiary following the closing of the acquisition of the Somni Stock.

• Accounting Policies. Since July 1, 2007, there have been no changes in accounting policy, method or estimates that impacted the recorded revenue of the Somni Entities in fiscal year 2008 or 2009.

• Accounts Receivable. Accounts receivable reflected in the Somni Financial Statements and those arising after June 30, 2009

• represent actual good and collectable claims for services provided and were billed in compliance with all applicable laws;

• were billed in material compliance with all third party requirements;

• are collectable at a rate of at least 75% of their net value thereof; and

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• at closing of the acquisition of the Somni Stock, the net value of all the accounts receivable of the Somni Entities will be substantially the same as the amounts reflected in the Somni Financial Statements, subject to changes in the ordinary course of business.

• Inventory. Inventory reflected in the Somni Financial Statements represents tangible identifiable inventory in good condition, on hand and available for sale. The net value of the Inventory of the Somni Entities will be substantially the same on the closing of the acquisition of the Somni Stock as it was on June 30, 2009 allowing for purchases and sales in the ordinary course of business.

• Compliance with Laws. Each of the Somni Entities has conducted its business in material compliance with all applicable laws.

• Taxes. Each of the Somni Entities and Seller has filed all tax returns that it was required to file under applicable laws and will file all income tax returns and pay all income taxes related to the fiscal year ending June 30, 2009 and for the period of July 1 through August 24, 2009. All tax returns were or upon filing will be, correct and complete in all material respects and have been or will be prepared in compliance with all applicable laws. None of the Somni Entities has ever nor will be prior to August 24, 2009 a party to any tax allocation or sharing agreement.

• Title and Sufficiency of Assets. Each of the Somni Entities has good and marketable title to, or, in the case of leased or subleased assets, valid and subsisting leasehold interests in, all its assets, free and clear of all liens and encumbrances, except Permitted Liens. Each of the Somni Entities owns or otherwise has the right to use all the properties, assets and rights used in the conduct of its business as presently conducted. “Permitted Liens” means

• liens and encumbrances for taxes or governmental assessments, charges or claims the payment of which is not yet due;

• liens and encumbrances of carriers, warehousemen, mechanics, materialmen and other similar persons and other liens and encumbrances imposed by applicable law incurred in the ordinary course of business for sums not yet delinquent;

• liens and encumbrances relating to deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security or to secure the performance of trade contracts or other similar agreements;

• liens and encumbrances in favor of First National Bank of Kansas;

• imperfections of title, if any, none of which are substantial in amount, materially detract from the value or impair the use of the property subject thereto, or impair the operations of any Somni Entity; or

• any liens or encumbrances reflected in the UCC searches obtained by or for the benefit of Buyer in connection with its due diligence (other than liens disclosed on such searches as held by Commerce Bank and identified as Original filing number (12/26/2002): 5428271; Termination filing number (6/23/2004): 92690677; and Continuation filing number (9/5/2007): 95705001).

• Litigation. There are no lawsuits, arbitrations or similar proceedings pending by or against the Somni Entities nor has Seller or the Somni Entities sent or received written correspondence threatening such lawsuits, arbitrations or similar proceedings.

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• Contracts. Seller has provided SDC with true, accurate and complete copies (either in hard copy or electronic copy form) of each material contract or agreement (including all real estate leases) to which either Somni Entity is a party. Neither of the Somni Entities is in breach of, or default under, any of those contracts or agreements.

• Acquisition Documentation. Seller has provided Buyer with true, accurate and correct copies of all correspondence and documentation related to the transactions pursuant to which either of the Somni Entities acquired its business and/or Seller obtained ownership of the Somni Stock.

• Ordinary Course. Since July 1, 2009 through August 24, 2009, the Somni Entities have operated only in the ordinary course of business consistent with past practice.

• Effect of Transaction. In connection with the sale and acquisition of the Somni Stock, neither of the Somni Entities will suffer a material adverse effect resulting from a change in control provision under any contract or agreement to which it is a party; provided, however, that no effect of a change in control provision under the following contracts and agreements shall constitute a material adverse effect or otherwise give rise to a claim by Buyer under any other provision of the Purchase Agreement:

• the lease contract with Rupp Family Enterprises, L.P. dated April 5, 2000, as amended from time to time, for the leased premises located at 817 Anderson Way, Lee’s Summit, Missouri;

• the lease contract with Boardwalk Shopping Center, L.L.L.P. dated September 15, 2001, as amended from time to time, for the leased premises located at 8548 Ambassador Drive, Kansas City, Missouri;

• all documents, instruments, agreements and other contracts as of August 23, 2009 related to the following:

• the debt owed to First National Bank of Kansas in the approximate principal amount of $1,128,817.45;

• the debt owed to GMAC in the approximate principal amount of $7,071;

• the debt owed to Citizens Automobile Finance, Inc. in the approximate principal amount of $10,320;

• the debt owed to Advantage Financial Services, L.L.C. in the approximate principal amount of $11,319; and

• the debt owed to Embla Systems, Inc. in the approximate principal amount of $278,490.85.

Item 2.01 Completion of Acquisition or Disposition of Assets.

On August 24, 2009, our subsidiary, SDC Holdings, LLC, completed the purchase of the issued and outstanding stock of somniTech, Inc. and somniCare, Inc. (see Item 1.01 Entry into a Material Definitive Agreement, above).

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Item 7.01 Regulation FD Disclosure.

On August 25, 2009, we issued a press release announcing the completion of the acquisition of somniTech, Inc. and somniCare, Inc. by SDC Holdings, LLC, one of our wholly-owned subsidiaries.

Item 9.01 Financial Statements and Exhibits.

(a)	Financial Statements of Businesses Acquired.
	In the event we are required to file financial statements related to our acquisition of somniTech, Inc. and somniCare, Inc. in accordance with Rule 8-04(b) of Regulation S-X, those financial statements will be filed pursuant to amendment of this Report on or before November 7, 2009.
(b)	Pro Forma Financial Information.
	In the event we are required to file pro forma financial statements related to our acquisition of somniTech, Inc. and somniCare, Inc. in accordance with Rule 8-05 of Regulation S-X, those pro forma financial statements will be filed pursuant to amendment of this Report on or before November 7, 2009.
(d)	Exhibits.

10.1	Stock Sale Agreement dated August 19, 2009 among SDC Holdings, LLC, AvastraUSA, Inc. and Avastra Sleep Centers Limited.
10.2	First Amendment to Stock Sale Agreement dated August 23, 2009 among SDC Holdings, LLC, AvastraUSA, Inc. and Avastra Sleep Centers Limited.
99.1	Press Release issued August 25, 2009.

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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 hereunto duly authorized.

GRAYMARK HEALTHCARE, INC. (Registrant)
By:	/S/ STANTON NELSON
	Stanton Nelson, Chief Executive Officer

Date: August 26 2009

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EX-10.1

EXHIBIT 10.1

STOCK SALE AGREEMENT

     THIS STOCK SALE AGREEMENT (this “Agreement”), dated as of August 19, 2009, is by and between AVASTRAUSA, INC., a Delaware corporation (“Seller”), AVASTRA SLEEP CENTRES LIMITED ABN 47 094 446 803 (“Parent”) and SDC HOLDINGS, LLC, an Oklahoma limited liability company (“Buyer”).

     A. Seller owns all of the issued and outstanding capital stock of somniTech, Inc., a Kansas corporation, and somniCare, Inc., a Kansas corporation (the “Somni Stock”).

     B. Seller owns all of the issued and outstanding capital stock of Avastra Eastern Sleep Centers, Inc., a New York corporation (the “Eastern Stock”).

     C. Seller desires to sell, and Buyer desires to purchase, the Somni Stock and the Eastern Stock on the terms set forth in this Agreement.

     In consideration of the premises, and the mutual representations, warranties, covenants and agreements hereinafter set forth, the parties agree as follows.

     1.Purchase and Sale

     On the terms and subject to the conditions set forth in this Agreement, Seller shall sell, assign, transfer, and deliver the Somni Stock and the Eastern Stock to Buyer free and clear of all liens and encumbrances.

     2. Closing

          (a) The closing of the acquisition of the Somni Stock shall take place at the offices of McAfee & Taft A Professional Corporation at 211 N. Robinson, 10^th Floor, Two Leadership Square, Oklahoma City, Oklahoma 73102 (the “Closing Location”), at 10:00 a.m. CDT on August 24, 2009 or such other time and place as mutually agreed to by the parties.

          (b) The closing of the sale of the Eastern Interests shall take place at the Closing Location at 10:00 a.m. CDT on September 30, 2009 or such other time and place as mutually agreed to by the parties.

     3. Purchase Price

          (a) Somni Stock. The total consideration for the Somni Stock is US$6,000,000, payable by the Buyer as follows:

     (i) an amount represented by Buyer assuming liability from Parent for the earnout obligations of Parent under the Merger Agreement, dated May 4, 2007, pursuant to which Seller acquired the Somni Stock and in respect of which Buyer must make payment to Pamela R Gillis Revocable Trust before 5:00 p.m. CDT on August 24, 2009;

     (ii) an amount representing the accrued liability of Parent in respect of the convertible note obligations of Parent paid to an account nominated by Parent to be held of the benefit of note holders pending redemption of the notes by Parent; and

     (iii) an amount representing the remaining consideration after deduction the amounts paid under (i) and (ii) to be paid via electronic funds transfer or telegraphic transfer to or at the direction of Parent.

     (b) Eastern Stock. The consideration for the Eastern Stock is payable by Buyer as follows:

     (i) an amount represented by Buyer assuming liability from Parent for the earnout obligations of Parent under the Asset Purchase Agreement dated October 10, 2007;

     (ii) US$1,000,000 in cash to be paid at the direction of Seller to Parent in four equal installments of US$250,000 at closing and on January 31, May 31 and September 30, 2010; and

     (iii) an amount of US$1,500,000 to be paid at the direction of Seller to Parent in the form of common stock of Graymark Healthcare, Inc. based on the average of the closing NASDAQ sale price for the common stock for the twenty (20) trading days prior to the closing on the Eastern Stock.

     The common stock issued as consideration for the Eastern Stock under (iii) above will be subject to a 12-month lockup agreement that will prohibit the transfer of the shares for a period of twelve months, and for the next twelve months, Parent may only transfer 25% of the shares in any three month period. For so long as Parent owns any of the stock issued in connection with the acquisition of the Eastern Stock, Buyer shall cause Graymark Healthcare, Inc. to allow a representative of Seller to be an advisory (non-voting) member of Graymark’s board of directors provided, however, that such representative must be acceptable to the Chairman of the Board of Directors of Graymark. Such (non-voting) member of Graymark’s board of directors shall be entitled to all notices of and written consents in lieu of meetings and may attend all meetings of directors.

     4. Conditions

          (a) Buyer’s acquisition of the Somni Stock is subject to:

     (i) termination by Buyer at any time prior to 5:00 p.m. CDT on August 23, 2009 if Buyer, in its sole discretion, is not satisfied with its due diligence investigation of somniTech, Inc. and somniCare, Inc.; and

     (ii) termination by Seller and Parent at any time before 10.00 a.m. CDT on August 24, 2009 if an Australian court makes any order binding on Parent or Seller to the effect that the sale cannot proceed.

          (b) Buyer’s acquisition of the Eastern Stock is subject to termination by Buyer at any time prior to 5:00 p.m. CDT on September 15, 2009 if Buyer, in its sole discretion, is not satisfied with its due diligence investigation of Avastra Eastern Sleep Centers, Inc.

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     5. Cooperation

          (c) Each party will use reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary or desirable under applicable law to consummate the transactions contemplated by this Agreement. The parties agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be reasonably necessary or desirable in order expeditiously to consummate the transactions contemplated by this Agreement.

          (d) For a period of up to six months following the closing of the acquisition of the Somni Stock, Seller shall provide billing services for somniTech, Inc. and somniCare, Inc. in the same manner that it is providing such services currently.

     6. Limitation on Liability.

          (e) Neither Parent nor the administrators of Parent shall have any obligations or liabilities under this Agreement.

          (f) Buyer shall look solely to Seller and/or the common stock of Graymark Healthcare, Inc delivered as consideration for the Eastern Interest and whilst it is held in lockup under clause 3 above for satisfaction of Seller’s obligations under this Agreement.

     7. Noncompete; Nonsolicitation

          (g) For a period of five (5) years after the closing of the acquisition of the Somni Stock, Seller shall not, and shall cause its affiliates not to, (i) engage, directly or indirectly, in any business that competes with Buyer, somniTech, Inc., somniCare, Inc. or their affiliates in the states in which somniTech, Inc. or somniCare, Inc. currently operates or (ii) solicit employees of Buyer, somniTech, Inc., somniCare, Inc. or their affiliates.

          (h) For a period of five (5) years after the closing of the acquisition of the Eastern Stock, Seller shall not, and shall cause its affiliates not to, (i) engage, directly or indirectly, in any business that competes with Buyer, Avastra Eastern Sleep Centers, Inc. or their affiliates in the states in which Avastra Eastern Sleep Centers, Inc. currently operates or (ii) solicit employees of Buyer, Avastra Eastern Sleep Centers, Inc. or their affiliates.

     8. Successors and Assigns

     This Agreement is binding upon and inures to the benefit of the parties and their respective successors, heirs, and permitted assigns. Buyer may assign any and all of its rights and delegate its duties under this Agreement to one or more of its affiliates but in no event shall Buyer be relieved of its obligations under this Agreement by reason of such assignment.

     9. Governing Law

     The laws of the State of Oklahoma applicable to contracts made and to be performed entirely within the State of Oklahoma shall govern all matters arising out of or relating to this Agreement.

     10. Arbitration

     In the event of any dispute or any action or proceeding arising under or in connection with this Agreement, the parties shall resolve such dispute only by arbitration,

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conducted in Oklahoma City, Oklahoma, by the American Arbitration Association pursuant to its Commercial Arbitration Rules.

     11. Counterparts

     This Agreement may be signed executed in any number of counterparts. A counterpart may be a facsimile. Together all counterparts make up one document.

[Signature Pages to Follow]

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above.

SELLER:	AVASTRAUSA, INC.
	By /S/ MILTON ERMAN
	Name: Milton Erman
	Title: President
PARENT	AVASTRA SLEEP CENTRES LIMITED
	By /S/ JOHN SHEAHAN
	Name: John Sheahan
	Title: Administrator
BUYER:	SDC HOLDINGS, LLC
	By /S/ STANTON NELSON
	Name: Stanton Nelson
	Title: CEO

EX-10.2

EXHIBIT 10.2

FIRST AMENDMENT TO STOCK SALE AGREEMENT

     THIS FIRST AMENDMENT TO STOCK SALE AGREEMENT (this “Amendment”), dated as of August 23, 2009, is by and among AVASTRA SLEEP CENTRES LIMITED f/k/a Avastra, Ltd., an Australian corporation (“Parent”), AVASTRAUSA, INC., a Delaware corporation (“Seller”), and SDC HOLDINGS, LLC, an Oklahoma limited liability company (“Buyer”).

     A. Parent, Seller and Buyer are parties to that certain Stock Sale Agreement, dated August 19, 2009, pursuant to which Buyer will acquire the Somni Stock and the Eastern Stock (the “Agreement”).

     B. The parties desire to amend the Agreement as set forth in this Amendment.

     C. Capitalized terms used in this Amendment unless otherwise defined in this Amendment shall have the meaning given such terms in the Agreement.

     NOW, THEREFORE, in consideration of the premises, and the mutual representations, warranties, covenants and agreements hereinafter set forth, the parties agree as follows

     1. Section 6(a) of the Agreement. The parties agree that the provisions of Section 6(a) of the Agreement are hereby replaced with the terms of Section 4 hereof to the extent, and only to the extent, such provisions apply to the Somni Entities. Prior to the closing of the acquisition of the Eastern Stock, the parties shall enter into a second amendment to the Agreement to replace the terms of Section 6(a) with respect to the Eastern Entity on substantially the same terms as this Amendment. No party shall be obligated to consummate the closing of the sale and acquisition of the Eastern Stock unless such second amendment has been executed.

     2. Section 2(b) of the Agreement. Section 2(b) of the Agreement is amended to read, in full, as follows:

“The closing of the sale of the Eastern Interests shall take place at the Closing Location at 10:00 a.m. CDT on September 30, 2009 or such other earlier date as designated by Buyer by providing Seller and Parent at least five (5) business days
prior written notice.”

     3. Section 3(a) of the Agreement. Section 3(a) of the Agreement is amended to change the dollar amount of “US$6,000,000” to “US$5,900,000.” Otherwise, Section 3(a) of the Agreement remains unchanged.

     4. Assumptions Regarding the Condition of the Somni Entities. The following is a list of assumptions made by Buyer in determining the Purchase Price for the Somni Entities

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(collectively, the “Assumptions”). If any of the Assumptions prove to be inaccurate, Buyer shall have a claim, for the damages actually incurred by Buyer as a result of the particular Assumption being inaccurate, solely as follows:

     (i) against Seller and only for a period of eighteen (18) months following closing of the sale and purchase of the Somni Stock. Furthermore, Seller’s maximum aggregate liability for all such claims shall be $3,000,000; and

     (ii) against Parent for a period of one (1) year following the closing of the sale and purchase of the Somni Stock and solely to the extent of the Graymark Healthcare, Inc. common stock delivered to Parent in connection with the closing of the acquisition of the Eastern Stock (the “Graymark Stock”) as described in Section 3(b)(iii) of the Agreement. Notwithstanding the one year limitation described immediately above, the parties agree that, after such one year period, a claim may be brought for an Assumption being proven to be inaccurate against the Parent for an additional period of six (6) months, but only to the extent of the Graymark Stock which is no longer subject to any prohibition on transfer as set forth in Section 3(b)(iii) of the Agreement. For purposes of illustration, the parties intend that on the first day of the first month following the one-year anniversary of the closing of the sale and purchase of the Somni Stock that only seventy-five percent (75%) of the Graymark Stock issued to Parent shall be subject to claims under the Agreement, as amended, and that on the first day of the fourth month following the one-year anniversary of the closing of the sale and purchase of the Somni Stock, that only fifty percent (50%) of the Graymark Stock issued to Parent shall be subject to claims under the Agreement, as amended.

     The parties further agree that no claim may be brought, for any Assumption being proven to be inaccurate, regardless of the amount of the claim, against any of Parent’s officers or directors, or the administrators of Parent, or any of the officers or directors of Seller. In addition, the accuracy of the Assumptions shall be a condition precedent to Buyer’s obligation to close on the acquisition of the Somni Stock. The remedies described in this Section 4 shall be the sole and exclusive remedy with respect to any and all claims of an Assumption being proven to be inaccurate To the extent this Section 4 is inconsistent with the provisions of Section 6(b) of the Agreement, the provisions of this Section 4 shall prevail.

          (a) Authorization. The execution and delivery of the Agreement, the performance by Seller and Parent of their obligations under the Agreement and the consummation by Seller and Parent of the transactions contemplated by the Agreement (i) have been duly authorized by all requisite corporate action on the part of Seller and Parent, and (ii) do not violate any applicable law.

          (b) Authority. Each of the Sonmi Entities has all necessary power and authority to own, operate or lease the assets now owned, operated or leased by it and to carry on the their business as it has been and is currently conducted.

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          (c) Subsidiaries. There are no corporations, partnerships, joint ventures, associations or other entities in which either of the Somni Entities owns, of record or beneficially, any equity interests.

          (d) Capital Stock. Seller owns all of the issued and outstanding capital stock of each of Somni Entities free and clear of all liens and encumbrances (other than those that will be satisfied at the closing of the acquisition of the Somni Stock, exclusive of any restrictions under applicable federal or state securities laws or under the applicable entity’s certificate of incorporation or bylaws) and is transferring all such capital stock to Buyer pursuant to the Agreement; provided, however, Buyer is aware that the failure to close and fund all amounts owed under the Merger Agreement dated May 4, 2007 (and the addendum thereto) and the Promissory Note dated October 3, 2008 to the Pamela R Gillis Revocable Trust (and related security and pledge documents) prior to 5:00 p.m. CDT on August 24, 2009 could trigger certain rights that would affect the ownership of the Somni Stock and/or the capitalization of the Somni Entities and would result in liens related to such Somni Stock not being released.

          (e) Minute Books. The minute book of each of the Somni Entities contains accurate records of all meetings and accurately reflects all other actions taken by the holders of capital stock of such Somni Entity and the board of directors of such Somni Entity. Complete and accurate copies of all such minute books have been delivered by Seller to Buyer for review.

          (f) Financial Information; Books and Records. Seller (i) has delivered to Buyer true and complete copies of the unaudited consolidated balance sheet of Seller for each of the two fiscal years ended June 30, 2008 and 2009, and the related unaudited statements of income of Seller, accompanied by the reports thereon of Seller’s accountants (collectively referred to herein as the “Financial Statements”), and (ii) has delivered to Buyer true and complete copies of the unaudited balance sheet of each of the Somni Entities for the fiscal years ended June 30, 2008 and 2009 and the related statements of income for the period then ending (such unaudited balance sheets and statements of income, collectively the “Somni Financial Statements”). The Financial Statements and the Somni Financial Statements (i) were prepared in accordance with the books of account and other financial records of Seller and each of the Somni Entities, (ii) are complete and accurate in all material respects, (iii) present fairly the financial condition and results of operations of Seller and each of the Somni Entities as of the dates thereof or for the periods covered thereby, (iv) were prepared in accordance with U.S. GAAP on a basis consistent with the past practices of Seller and each of the Somni Entities (with the exception that the Somni Financial Statements lack certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP) and (v) include all adjustments (consisting only of normal recurring accruals) that are necessary to present fairly in all material respects the financial condition of Seller and each of the Somni Entities and the results of the operations of Seller and each of the Somni Entities as of the dates thereof or for the periods covered thereby. For purposes of this Amendment, “2009 Balance Sheets” mean the Balance Sheets of each of the Somni Entities as of June 30, 2009 included within the Somni Financial Statements.

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          (g) Absence of Undisclosed Liabilities. Neither of the Somni Entities has incurred any liabilities, other than liabilities (i) as are reflected or reserved against in the Somni Financial Statements (or the notes thereto), (ii) incurred in the ordinary course of business consistent with past practices since July 1, 2009, or (iii) that would not be required to be disclosed in financial statements if audited statements were prepared in accordance with U.S.
GAAP.

          (h) Cash Balances. The cash available in the bank accounts of the Soirmi Entities as of the closing of the acquisition of the Somni Stock will be substantially the same as reflected in the 2009 Balance Sheets subject to changes for deposits and payments in the ordinary course of business.

          (i) Asset Information. All fixed assets and computer software balances on the 2009 Balance Sheets represent: (i) identifiable assets of the Somni Entities and (ii) the right to all items included in the “Deposits” line item on the 2009 Balance Sheets will be retained by the applicable Subsidiary following the closing of the acquisition of the Somni Stock.

          (j) Accounting Policies. Since July 1, 2007, there have been no changes in accounting policy, method or estimates that impacted the recorded revenue of the Somni Entities in fiscal year 2008 or 2009.

          (k) Accounts Receivable. Accounts receivable reflected in the Somni Financial Statements and those arising after June 30, 2009: (i) represent actual good and collectable claims for services provided; (ii) were billed in compliance with all applicable laws; (iii) were billed in material compliance with all third party requirements; (iv) are collectable at a rate of at least 75% of the net value thereof At closing of the acquisition of the Somni Stock, the net value of all the accounts receivable of the Somni Entities will be substantially the same as the amounts reflected in the Somni Financial Statements, subject to changes in the ordinary course of business.

          (l) Inventory. Inventory reflected in the Somni Financial Statements represents tangible identifiable inventory in good condition, on hand and available for sale. The net value of the Inventory of the Somni Entities will be substantially the same on the closing of the acquisition of the Somni Stock as it was on June 30, 2009 allowing for purchases and sales in the ordinary course of business.

          (m) Compliance with Laws. Each of the Somni Entities has conducted its business in material compliance with all applicable laws.

          (n) Taxes. Each of the Somni Entities and Seller has filed all tax returns that it was required to file under applicable laws and will file all income tax returns and pay all income taxes related to the fiscal year ending June 30, 2009 and the stub period ending as of the closing date of the acquisition of the Somni Stock. All such tax returns were or upon filing will be, correct and complete in all material respects and have been or will be prepared in compliance with all applicable laws. None of the Somni Entities has ever nor will be prior to the closing date of the acquisition of the Somni Stock a party to any tax allocation or sharing agreement.

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          (o) Title and Sufficiency of Assets. Each of the Somni Entities has good and marketable title to, or, in the case of leased or subleased assets, valid and subsisting leasehold interests in, all its assets, free and clear of all liens and encumbrances, except Permitted Liens. Each of the Somni Entities owns or otherwise has the right to use all the properties, assets and rights used in the conduct of its business as presently conducted. For purposes of this Amendment, “Permitted Liens” means (i) liens and encumbrances for taxes or governmental assessments, charges or claims the payment of which is not yet due; (ii) liens and encumbrances of carriers, warehousemen, mechanics, materialmen and other similar persons and other liens and encumbrances imposed by applicable law incurred in the ordinary course of business for sums not yet delinquent; (iii) liens and encumbrances relating to deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security or to secure the performance of trade contracts or other similar agreements; (iv) liens and encumbrances in favor of First National Bank of Kansas; (v) imperfections of title, if any, none of which are substantial in amount, materially detract from the value or impair the use of the property subject thereto, or impair the operations of any Somni Entity; or (vi) any liens or encumbrances reflected in the UCC searches obtained by or for the benefit of Buyer in connection with its due diligence (other than liens disclosed on such searches as held by Commerce Bank and identified as Original filing number (12/26/2002): 5428271; Termination filing number (6/23/2004): 92690677; and Continuation filing number (9/5/2007): 95705001).

          (p) Litigation. There are no lawsuits, arbitrations or similar proceedings pending by or against the Somni Entities nor has Seller or the Somni Entities sent or received written correspondence threatening such lawsuits, arbitrations or similar proceedings.

          (q) Contracts. Seller has provided Buyer with true, accurate and complete copies (either in hard copy or electronic copy form) of each material contract or agreement (including all real estate leases) to which either Somni Entity is a party. Neither of the Somni Entities is in breach of, or default under, any such contract or agreement.

          (r) Acquisition Documentation. Seller has provided Buyer with true, accurate and correct copies of all correspondence and documentation related to the transactions pursuant to which either of the Somni Entities acquired its business and/or Seller obtained ownership of the Somni Stock.

          (s) Ordinary Course. Since July 1, 2009 through the closing of the acquisition of the Somni Stock, the Somni Entities have operated only in the ordinary course of business consistent with past practice.

          (t) Effect of Transaction. In connection with the sale and acquisition of the Somni Stock as contemplated by the Agreement, neither of the Sonmi Entities will suffer a material adverse effect resulting from a change in control provision under any contract or agreement to which it is a party; provided, however, that no effect of a change in control provision under the

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following contracts and agreements shall constitute a material adverse effect or otherwise give rise to a claim by Buyer under this Section 4(t) or any other provision of this Agreement: (i) that certain lease contract with Rupp Family Enterprises, L.P. dated April 5, 2000, as amended from time to time, for premises located at 817 Anderson Way, Lee’s Summit, Missouri, (ii) that certain lease contract with Boardwalk Shopping Center, L.L.L.P. dated September 15, 2001, as amended from time to time, for certain premises located at 8548 Ambassador Drive, Kansas City, Missouri, (iii) all documents, instruments, agreements and other contracts related to the following: (a) debt owed to First National Bank of Kansas in the approximate principal amount of $1,128,817.45 as of the date hereof; (b) debt owed to GMAC in the approximate principal amount of $7,071.00 as of the date hereof; (c) debt owed to Citizens Automobile Finance, Inc. in the approximate principal amount of $10,320.00 as of the date hereof; (d) debt owed to Advantage Financial Services, L.L.C. in the approximate principal amount of $11,319.00 as of the date hereof; and (e) debt owed to Embla Systems, Inc. in the approximate principal amount of $278,490.85 as of the date hereof

     5. Section 5(b) of Agreement. Section 5(b) of the Agreement is hereby amended and restated in its entirety as follows:

     “For a period of up to six (6) months following the closing of the acquisition of the Somni Stock, Seller shall provide billing and accounting services and associated information technology services for the Somni Entities in substantially the same manner that it is providing such services currently. The charge to be paid by the Somni Entities to Seller for such services shall be $8,666.67 per month for the first three (3) months following closing and $26,000 per month (or partial month) for each month thereafter. For a period of up to six (6) months following the closing of the acquisition of the Somni Stock, the Sorrmi Entities shall provide employee payroll and benefits administration services for Seller in substantially the same manner that they are providing such services currently, and the charge to be paid by Seller to the Somni Entities for such services shall be the actual and reasonable costs incurred by the Somni Entities to provide such services.”

     6. Closing Deliveries. At the closing of the acquisition of the Sornni Stock, the parties shall make the deliveries contemplated by the Section B of the Closing Checklist attached as Exhibit A; provided, however, no party shall be in breach of this Amendment or the Agreement for the failure to make any delivery contemplated by Section B to the extent such party is not in control of the applicable delivery (e.g., real property lease consents). Unless waived by the party for whom the delivery is to be made, no party shall be obligated to close unless all such deliveries are made. Any documents delivered shall be in form and substance reasonably satisfactory to the party to whom the documents are to be delivered.

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     7. Ratification. Except as amended by this Amendment, all of the terms, covenants and conditions of the Agreement are hereby ratified and confirmed and shall remain in full force and effect.

     8. Counterparts. This Amendment may be signed executed in any number of counterparts. A counterpart may be a facsimile or an electronic copy. Together all counterparts make up one document.

[Signature Pages to Follow]

     IN WITNESS WHEREOF, the parties have duly executed this Amendment, all as of the date first written above.

PARENT:	AVASTRA SLEEP CENTRES LIMITED
	By: /S/ JOHN SHEAMAN
	Name: John Sheahan
	Title: Administrator
SELLER:	AVASTRAUSA, INC.
	By: /S/ MELTON ERMAN, M.D.
	Name: Melton Erman, M.D.
	Title: President
BUYER:	SDC HOLDINGS, LLC
	By: /S/ STANTON NELSON
	Name: Stanton Nelson
	Title: CEO

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EX-99.1

EXHIBIT 99.1

Graymark Healthcare Acquires somniCare and somniTech

Acquisition establishes Graymark as a national leader in quality sleep medicine

Oklahoma City—(August 25, 2009)—Graymark Healthcare Inc. (NASDAQ: GRMH) today announced the acquisition of somniCare, Inc. and somniTech, Inc. (collectively, “Somni”) from Avastra USA, a division of Avastra Sleep Centres Limited (ASX: AVS), a public company listed on the Australian Stock Exchange.

Based in Overland Park, Kansas, the Somni companies provide personalized sleep disorder testing and treatment as well as the most comprehensive care in sleep apnea treatment. The companies operate in six states—Kansas, Nebraska, Iowa, Missouri, South Dakota and Minnesota—and somniTech owns 36 total beds with an additional 114 beds under contract. Steven Hull, M.D., will continue in his role as president of Somni, and the companies will continue to operate under the somniCare and somniTech names.

Commenting on the acquisition, Stanton Nelson, CEO of Graymark Healthcare, said, “We are pleased to welcome somniCare and somniTech into the Graymark family. The companies possess the same commitment to quality sleep medicine that is at the core of our philosophy. Dr. Hull and the Somni team share our vision for national excellence, and Somni’s regional presence complements our Sleep Disorder Centers’ existing geographic markets, expanding our growing national footprint of best-in-class sleep centers.”

Dr. Steven Hull added, “Somni’s strength lies in our people. Our management team has a wealth of experience in the sleep industry, and we are excited about the potential market opportunities available through this formidable business combination. We have been extremely impressed with the Graymark management team throughout this process, and we look forward to working together to solidify our national presence in the sleep industry.”

Graymark Healthcare, Inc. is a diversified medical holding company that owns and operates diagnostic sleep centers that treat a wide range of sleep disorders; independent pharmacies that serve the needs of local markets; and a medical equipment company that provides both disposable and durable medical equipment. Graymark plans to continue its growth both internally and through strategic acquisitions within the medical industry.

This press release may contain forward-looking statements which are based on the Company’s current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties which could cause actual outcomes and results to differ materially from the Company’s expectations, forecasts and assumptions. These risks and uncertainties include risks and uncertainties not in the control of the Company, including, without limitation, the current economic climate and other risks and uncertainties, including those enumerated and described in the Company’s filings with the Securities and Exchange Commission, which filings are available on the SEC’s website at www.sec.gov. Unless otherwise required by law, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For additional information, contact:

Graymark Healthcare, Inc.

Stanton Nelson

405-601-5300

or

Halliburton Investor Relations

Jeff Elliott or Geralyn DeBusk

972-458-8000

Aug 25, 2009