8-K

UNITED STATES
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): December 6, 2010

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)	(IRS Employer Identification No.)

210 Park Avenue, Suite 1350 Oklahoma City, Oklahoma	73102
(Address of Principal Executive Offices)	(Zip Code)

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

(Former name or former address if changed since last report.)

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 14d-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 2.01.  Completion of Acquisition or Disposition of Assets.

On September 1, 2010, we at Graymark Healthcare, Inc. (“we,” the “Company,” or “Graymark”) and our subsidiary, ApothecaryRx, LLC (“ARX”), executed an Asset Purchase Agreement (“Agreement”) with Walgreen Co. (“Walgreens” or “Buyer”) providing for the sale of substantially all the assets of ARX to Buyer (the “Asset Sale”). On October 29, 2001 we, ARX and Buyer executed an amendment to the Agreement.

The Agreement provides that in consideration for the ARX assets being purchased and liabilities being assumed, Buyer will pay in cash $25,500,000 plus up to $7,000,0000 for inventory (the “Inventory Amount”) and any security deposits, but less any payments remaining under goodwill protection agreements and any amounts due under promissory notes at closing which are assumed by Buyer (the “Purchase Price”). The assets being purchased by Buyer (the “Purchased Assets”) include (1) substantially all the assets and properties of ARX primarily used in or relating to the ownership and operation of ten retail pharmacies (the “Operate Location Pharmacies”), including all personal property, prescription files and records, customer lists and patient profiles, prescription pharmaceutical inventory, trademarks and trade names and related goodwill, and software and books, permits, and contracts, and (2) all prescriptions, prescription files and records, customer lists and patient profiles, prescription pharmaceutical inventory, trademarks and trade names, and software and books and records related to eight retail pharmacies (the “File Transfer Pharmacies”). ARX will retain all cash, cash deposits, and accounts receivable, agreements not assumed by Buyer, certain equipment and fixtures, and any personal property not located at the Operate Location Pharmacies.

The liabilities being assumed by Buyer include all obligations of ARX under certain contracts, including leases for the Operate Location Pharmacies and goodwill protection agreements, purchased by Buyer arising after the closing of the transaction and all obligations arising from operation of the retail pharmacy businesses purchased following the closing of the transaction.

On December 6, 2010, we and ARX completed the sale of assets relating to our independent pharmacy business. We received approximately $24.5 million in net proceeds from the sale of assets of which $2.0 million was deposited into an indemnity escrow account as previously agreed. These proceeds are net of approximately $1.0 million of security deposits transferred to Buyer and the assumption by Buyer of liabilities associated with goodwill protection agreements and promissory notes. We also received an additional $3.8 million for the sale of inventory to Buyer at 17 of our pharmacies with the inventory for the remaining pharmacy being sold as part of the litigation settlement, see Item 8.01 - Other Events below. We were not required to fund the additional $1.5 million escrow which was contemplated by the Amendment No. 1 to the Agreement.

As part of our previously agreed to debt reduction, we have reduced the outstanding balance of our Arvest credit facility by approximately $22.0 million from the proceeds of the Asset Sale and intend to further reduce our outstanding balance under this facility by an additional $3.0 million within the next 30 days. We intend to continue to collect retained accounts receivable and realize additional proceeds from the sale of any remaining inventory, equipment and fixtures not sold to Buyer.

 Item 7.01.  Regulation FD Disclosure.

On December 7, 2010, Graymark Healthcare, Inc. issued a press release announcing the completion of its divestiture of its independent pharmacy business. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.2 to this Current Report on Form 8-K.

 Item 8.01.  Other Events.

On December 6, 2010, we settled the litigation with certain former employees of our retail pharmacy in Sterling, Colorado and their affiliates. As part of the settlement, we and Walgreens sold assets to certain of the defendants comprising the long-term care pharmacy business and certain other assets and we agreed to revoke the preliminary injunction and the defendants agreed to non-competition arrangements. We previously reported in our most recent quarterly report on form 10-Q, that on October 8, 2010, we commenced litigation in U.S. District Court for the District of Colorado against certain former employees of our retail pharmacy in Sterling, Colorado and their affiliates. We claimed, among other things, breaches of certain contractual arrangements and seek monetary damages. On October 13, 2010, a stipulated preliminary injunction was issued in our favor.

Item 9.01. Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial information with respect to the transaction described in Item 2.01 is filed as Exhibit 99.1.

(d) Exhibits.
 

Exhibit No.	Description
10.1+	Asset Purchase Agreement dated September 1, 2010 among Walgreen Co., ApothecaryRx, LLC, and, to certain sections only, Graymark Healthcare, Inc. (incorporated by reference to Exhibit No. 10.1 to registrant’s current report on Form 8-K filed September 2, 2010)
10.2	First Amendment to Asset Purchase Agreement dated October 29, 2010 among Walgreen Co., ApothecaryRx, LLC, and, to certain sections only, Graymark Healthcare, Inc. (incorporated by reference to Exhibit No. 10.1 to registrant’s current report on Form 8-K filed October 29, 2010)
99.1	Unaudited pro forma condensed combined financial information of Registrant.
99.2	Graymark Healthcare, Inc. press release dated December 7, 2010.

+ The schedules and exhibits to the Asset Purchase Agreement are not being filed herewith. The Asset Purchase Agreement contains a list briefly identifying the contents of the schedules and exhibits to such document. The Registrant undertakes to furnish supplementally a copy of any omitted schedule and exhibit to the Securities and Exchange Commission upon request.

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.
 

	By:	GRAYMARK HEALTHCARE, INC.
Date: December 7, 2010	By:	/S/    Stanton Nelson
		Stanton Nelson
		Chief Executive Officer

EXHIBIT INDEX  

Exhibit No.	Description
10.1	Asset Purchase Agreement dated September 1, 2010 among Walgreen Co., ApothecaryRx, LLC, and, to certain sections only, Graymark Healthcare, Inc. (incorporated by reference to Exhibit No. 10.1 to registrant’s current report on Form 8-K filed September 2, 2010)
10.2	First Amendment to Asset Purchase Agreement dated October 29, 2010 among Walgreen Co., ApothecaryRx, LLC, and, to certain sections only, Graymark Healthcare, Inc. (incorporated by reference to Exhibit No. 10.1 to registrant’s current report on Form 8-K filed October 29, 2010)
99.1	Unaudited pro forma condensed combined financial information of Registrant.
99.2	Graymark Healthcare, Inc. press release dated December 7, 2010.

EX-99.1

Exhibit 99.1

Unaudited Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined financial statements are derived from our historical combined financial statements and give effect to the sale of substantially all the assets of ApothecaryRx. The unaudited pro forma condensed combined balance sheet as of June 30, 2010 and the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2010 and the years ended December 31, 2009 and 2008 were prepared as if the sale had occurred on first day of the periods presented and removes the unaudited historical consolidated statements of operations for ApothecaryRx from the historical audited and unaudited consolidated statements of operations for the Company.

The unaudited pro forma condensed combined financial statements have been prepared for informational purposes only to show the effect of the removal of ApothecaryRx from the Company on a historical basis. These financial statements do not purport to be indicative of the financial position or operations that would have actually occurred had the sale of ApothecaryRx been completed at those dates, nor do they project expected results of operations or financial position for any future period or date.

The unaudited pro forma condensed combined financial statements do not reflect any adjustments for projected non-recurring costs associated with the sale of ApothecaryRx and does not incorporate any incremental cash or other assets or liabilities arising from the sale transaction. The final result of this transaction will be the discontinuation of this segment of the Company’s business.

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2010

				Pro Forma
	Graymark			Adjustments			Pro Forma
ASSETS
Cash and cash equivalents	$	1,285,574		$	2,090,832		$	3,376,406
Accounts receivable, net		10,615,365			(7,136,634	)		3,478,731
Inventories		8,674,472			(8,090,372	)		584,100
Other current assets		1,658,607			(602,401			1,056,206
Total current assets		22,234,018			(14,353,948	)		7,880,070
Fixed assets, net		5,775,551			(897,316	)		4,878,235
Intangible assets, net		12,375,659			(6,617,965	)		5,757,694
Goodwill		33,606,032			(13,089,138	)		20,516,894
Other assets		435,563			—			435,563
Total assets	$	74,426,823		$	(34,342,994	)	$	40,083,829
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable	$	5,302,542		$	(4,532,295	)	$	770,247
Accrued liabilities		4,351,082			(2,932,213	)		1,418,869
Intercompany		—			—			—
Short-term debt		20,130			—			20,130
Current portion of long-term debt		1,658,864			(1,259,235	)		399,629
Total current liabilities		11,332,618			(8,723,743	)		2,608,875
Long-term debt net of current portion		45,269,551			(23,135,687	)		22,133,864
Total liabilities		56,602,169			(31,859,430	)		24,742,739
Shareholders’ Equity:
Common stock $0.0001 par value, 500,000,000 shares authorized		2,898			—			2,898
Paid-in capital		29,435,189			(1,000	)		29,434,189
Accumulated deficit		(11,647,227	)		(2,482,564	)		(14,129,791	)
Total Graymark Healthcare shareholders’ equity		17,790,860			(2,483,564	)		15,307,296
Non-controlling Interest		33,794			—			33,794
Total equity		17,824,654			(2,483,564	)		15,307,296
Total liabilities and shareholders’ equity	$	74,426,823		$	(34,342,994	)	$	40,083,829
Common shares issued and outstanding		28,997,997			—			28,997,997

See accompanying notes to unaudited pro forma condensed combined financial statements

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2010

				Pro Forma
	Graymark			Adjustments			Pro Forma
Revenues	$	55,859,152		$	(43,836,051	)	$	12,023,101
Costs and expenses:
Cost of sales and services		36,926,923			(33,374,773	)		3,552,150
Selling, general and administrative		18,089,286			(8,694,414	)		9,394,872
Depreciation and amortization		1,216,061			(519,537	)		696,524
		56,232,270			(42,588,724	)		13,643,546
Net other (expense)		(1,192,852	)		622,166			(570,686	)
Income from continuing operations, before taxes		(1,565,970	)		(625,161	)		(2,191,131	)
Benefit (provision) for income taxes		(37,589	)		—			(37,589	)
Income from continuing operations, net of taxes		(1,603,559	)		(625,161	)		(2,228,720	)
Discontinued operations, net of taxes		4,576			—			4,576
Net income		(1,598,983	)		(625,161	)		(2,224,144	)
Less: Net income (loss) attributable to noncontrolling interest		(34,727	)		—			(34,727	)
Net income (loss) attributable to Graymark Healthcare	$	(1,564,256	)	$	(625,161	)	$	(2,189,417	)
Net income per share of common stock:
Basic and diluted	$	(0.05	)	$	(0.03	)	$	(0.08	)
Weighted average number of common shares outstanding:
Basic and diluted		28,997,997			—			29,997,997

See accompanying notes to unaudited pro forma condensed combined financial statements

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2009

				Pro Forma
	Graymark			Adjustments			Pro Forma
Revenues	$	107,240,840		$	(89,669,301	)	$	17,571,539
Costs and expenses:
Cost of sales and services		73,867,128			(68,344,196	)		5,522,932
Selling, general and administrative		34,246,548			(17,317,885	)		16,928,663
Depreciation and amortization		2,188,479			(1,114,347	)		1,074,132
		110,302,155			(86,776,428	)		23,525,727
Net other (expense)		(2,287,283	)		1,334,559			(952,724	)
Income from continuing operations, before taxes		(5,348,598	)		(1,558,314	)		(6,906,912	)
Benefit (provision) for income taxes		—			—			—
Income from continuing operations, net of taxes		(5,348,598	)		(1,558,314	)		(6,906,912	)
Discontinued operations, net of taxes		6,896			—			6,896
Net income		(5,341,702	)		(1,558,314	)		(6,900,016	)
Less: Net income (loss) attributable to noncontrolling interest		(153,806	)		—			(153,806	)
Net income (loss) attributable to Graymark Healthcare	$	(5,187,896	)	$	(1,558,314	)	$	(6,746,210	)
Net income per share of common stock:
Basic and diluted	$	(0.18	)	$	(0.06	)	$	(0.24	)
Weighted average number of common shares outstanding:
Basic and diluted		28,414,508			—			28,414,508

See accompanying notes to unaudited pro forma condensed combined financial statements

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2008

				Pro Forma
	Graymark			Adjustments			Pro Forma
Revenues	$	96,621,322		$	(81,329,158	)	$	15,292,164
Costs and expenses:
Cost of sales and services		67,803,667			(62,023,749	)		5,779,918
Selling, general and administrative		23,818,864			(16,273,854	)		7,545,010
Depreciation and amortization		1,571,292			(972,665	)		598,627
		93,193,823			(79,270,268	)		13,923,555
Net other (expense)		(2,055,063	)		1,358,882			(696,181	)
Income from continuing operations, before taxes		1,372,436			(700,008	)		672,428
Benefit (provision) for income taxes		(136,000	)		146,000			10,000
Income from continuing operations, net of taxes		1,236,436			(554,008	)		682,428
Discontinued operations, net of taxes		60,932			—			60,932
Net income		1,297,368			(554,008	)		743,360
Less: Net income (loss) attributable to noncontrolling interest		552,970			—			552,970
Net income (loss) attributable to Graymark Healthcare	$	744,398		$	(554,008	)	$	190,390
Net income per share of common stock:
Basic and diluted	$	0.03		$	(0.02	)	$	0.01
Weighted average number of common shares outstanding:
Basic and diluted		25,885,628			—			25,885,628

See accompanying notes to unaudited pro forma condensed combined financial statements

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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

Note 1: BASIS FOR PRESENTATION

The pro forma condensed combined financial statements present the pro forma effects of the sale by Graymark Healthcare, Inc. (“Graymark”) of substantially all the fixed and intangible assets and inventory of ApothecaryRx, LLC (“Apothecary”) to Walgreen Co. (“Walgreens”) and the resulting discontinuation of the Apothecary segment. The transaction with Walgreens is an asset sale and will be recorded as a disposition of the assets sold. Any remaining assets and liabilities, which include accounts receivable and certain accounts payable and accrued liabilities will be included in discontinued operations.

The accompanying unaudited pro forma condensed combined financial statements are presented assuming the sale and discontinuation of the Apothecary segment occurred on the first day of the periods presented.

The historical information presented for Graymark (i) as of June 30, 2010 and the six months then ended is derived from the unaudited consolidated financial statements contained in our Quarterly Report on Form 10-Q and, (ii) December 31, 2009 and 2008 and the years then ended are derived from the audited consolidated financial statements contained in our Annual Reports on Form 10-K.

The pro forma financial information presented in the unaudited pro form condensed combined financial statements is not necessarily indicative of the financial position and results of operations that would have been achieved had the assets and liabilities of Apothecary been sold as of the first date of the periods presented. The results of operations presented in the unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of future operations of Graymark following the consummation of the sale and subsequent discontinuation of the Apothecary segment.

(2) ADJUSTMENTS — SALE AND DISCONTINUED OPERATIONS OF APOTHECARY

The accompanying unaudited pro forma condensed combined financial statements have been adjusted to give effect to the sale and discontinued operations of the Apothecary segment as follows:

(a) All asset, liability and equity amounts attributable to the Apothecary segment were adjusted out of the consolidated results of Graymark to reflect the sale and discontinuation of Apothecary.

(b) Revenue, cost of sales, selling, general and administrative expenses and other revenue and expenses attributable to the Apothecary segment have been reduced from the consolidated results of Graymark to reflect the sale and discontinuation of the Apothecary segment as of the first day of the periods presented.

(c) Certain expenses recorded as corporate expenses were reduced from the consolidated results of Graymark to reflect an estimate of the amounts related to the Apothecary segment. The total expense adjustment for these items is $259,019, $433,691 and $131,683 for the six months ended June 30, 2010 and the years ended December 31, 2009 and 2008 respectively.

(d) Intercompany amounts due to Graymark from Apothecary in the amount of $2,049,392 as of June 30, 2010 was offset against cash and cash equivalents to reflect cash provided to Apothecary that would have been retained by Graymark had the sale and discontinuation of Apothecary occurred on the first day of the periods presented.

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(3) ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND CERTAIN OTHER LIABILITIES

The accompanying unaudited pro forma condensed combined balance sheets have been adjusted to remove accounts receivable, accounts payable and certain other liabilities for historic presentation purposes. However Graymark is not selling and will retain the accounts receivable, accounts payable and certain other liabilities.

(4) TRANSACTION AND OTHER NON-RECURRING EXPENSES ASSOCIATED WITH THE SALE TRANSACTION

Graymark will incur certain material non-recurring costs and expense associated with the sale and discontinuation of Apothecary including broker and other advisory fees, separation costs, business wind down and inventory disposition costs, income and other tax expense and other costs and expenses of approximately $5.0 million. These costs and expenses are not included in the accompanying unaudited pro forma condensed combined financial statements.

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EX-99.2

Exhibit 99.2

For Immediate Release

Company contact:	Investor Relations:
Jeff Raymond Graymark Healthcare, Inc. Tel 405-824-2382 jraymond@grmh.com	Liolios Group, Inc. Scott Liolios or Cody Slach Tel 949-574-3860 info@liolios.com

Graymark Healthcare to Focus on Treatment of Sleep Disorders with Completed Sale of
Independent Pharmacy Business Assets to Walgreens

OKLAHOMA CITY — December 7, 2010: Graymark Healthcare, Inc. (NASDAQ:GRMH) has closed the previously announced sale of substantially all the assets of its ApothecaryRx’s retail pharmacy business to Walgreens Co. (NYSE:WAG, NASDAQ:WAG). ApothecaryRx operated 18 pharmacies across five states.

The transaction allows Graymark to focus on its core business of providing comprehensive care for sleep disorders, primarily obstructive sleep apnea, including diagnosis, therapy, and ongoing clinical and product support.

“Millions of Americans suffer from obstructive sleep apnea, and many aren’t aware they have a problem or that treatment is available in their communities,” said Stanton Nelson, chairman and CEO of Graymark Healthcare. “As a pure-play sleep disorders company focused primarily on obstructive sleep apnea, we believe Graymark is better able to help people sleep better.”

Graymark launched the nation’s first comprehensive care model for patients with obstructive sleep apnea in 2009 and has grown into one of the nation’s largest aggregators of sleep therapy providers.

“Given our substantially improved balance sheet as a result of this sale, we are ideally positioned to execute on our plans to grow through the acquisition of treatment centers, as well as through developing alliances with hospitals and other health care providers,” added Nelson. “The rapidly growing sleep apnea marketplace offers us an opportunity for significant growth and margin expansion.”

The sale to Walgreens was comprised of substantially all of the assets of ApothecaryRx for $25.5 million, plus approximately $3.8 million for inventory. Graymark expects to realize net proceeds of approximately $33 million from the completed divestiture, including collection of retained accounts receivable, and proceeds from the liquidation of remaining ApothecaryRx assets.

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The Healthcare Investment Banking Group of Morgan Joseph LLC served as the financial advisor to Graymark in this transaction, with Greenberg Traurig LLP and Commercial Law Group, P.C. serving as Graymark’s legal advisors.

About Graymark Healthcare
Graymark Healthcare, Inc. is the nation’s second largest provider of sleep medicine diagnosis and treatment. Graymark owns and operates diagnostic sleep centers that treat a wide range of sleep disorders, and operates a medical equipment supply company that provides disposable and durable medical equipment. For more information, please visit www.graymarkhealthcare.com.

This press release may contain forward-looking statements that are based on the company’s current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties that 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 are available on the SEC’s Web site (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.

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